Income Tax Policies: Motion 12th April, 2000 Mr. Dardis: I move: Noting the buoyancy in the National Revenue, Seanad Éireann urges the Minister for Finance and the Government to pursue policies, over the next two budgets, that will ensure that everyone earning the national minimum wage will not be liable for income tax. I welcome the Minister to the House. The motion principally deals with taxation, specifically the tax treatment of those on the national minimum wage. Before putting the case for the motion, however, we should welcome the fact that the national minimum wage was introduced on schedule at the start of this month. Progress on the implementation of the national minimum wage has been impressive by any standards. The original commitment was set out in the joint programme for Government in June 1997. The Commission on the National Minimum Wage was established a few weeks later and it reported in less than a year. Less than three years since the Government took office, the Tánaiste has steered the necessary legislation through the Oireachtas and the national minimum wage is a reality for hundreds of thousands of people. It is remarkable that the Labour Party, which was in Government from 1992 until 1997, never got round to the minimum wage. Deputies Quinn and Rabbitte were both Ministers in the Department of Enterprise and Employment, but no progress was made in their time on this very important social initiative. The introduction of the national minimum wage represents a huge step forward in the affairs of this State. It will directly benefit 160,000 of the lowest paid workers in society, those most in need of a boost from Government, those to whom one would think the previous Administration would have paid attention. We hear many people talking about sharing the wealth of the State but this Government is doing something about it. By introducing the minimum wage, it is ensuring that those on the lowest rung of the employment ladder can secure a greater share of the prosperity we as a nation are now enjoying. Setting the minimum wage at the right level is not a simple matter. If the rate is too low the initiative will have no effect and if it is too high it will put people out of work. The objective is to set a reasonable floor below which earnings should not fall and the Government has got it right. The initial rate of £4.40 per hour will rise to £5 an hour, just under £200 per week, by the time the Government has completed its term of office. There have been some complaints that the rate is set at too high a level. The main gripe from employers at present, however, concerns the difficulties they are experiencing in recruiting workers. No firm will go broke paying £4.40 an hour in the current era of economic success. Indeed, if there are jobs which are only sustainable below that level, we should question if they are the kinds of jobs we want as we move toward a high wage, high skills economy. Concerns have also been voiced about the policing of the national minimum wage. The issue should be dealt with in a spirit of fairness and maturity and people should accept the introduction of the national minimum wage as a measure designed to help the least well off. The introduction of the national minimum wage is the first step in a two part process. The next step will be the exemption of the minimum wage from income tax. The progress made in tax reform over the last three budgets is spectacular by any standards, as are the results. The Minister for Finance and the Government are to be congratulated on that. The rate of corporation tax has been slashed and revenue has gone up; the rates of personal income tax have been slashed and revenue has gone up; the rate of capital gains tax has been slashed and revenue has gone up. A commentator in yesterday's edition of The Irish Times, writing about capital gains tax, stated, "In spite of all the evidence that the rich have managed to avoid or evade their fair share and every other kind of tax, McCreevy has made sure that one kind of tax they do pay has been massively reduced." It seems to have escaped the notice of this commentator that under the present Government the yield from capital gains tax has increased massively. There are people, however, who would be happy to see the rate of capital taxes doubled, even if the revenue accruing was halved and everyone would be worse off. It is no coincidence that virtually every major change in the tax system in the last 15 years has taken place while the Progressive Democrats Party has been in Government. During our two terms in Government nine points have been taken off the basic rate of income tax and 12 points taken off the top rate. We have seen the introduction of tax credits and massive increases in the value of tax allowances and bands, over 100,000 people on middle incomes removed from the top tax rate, and over 100,000 on modest incomes taken out of the tax net entirely. We are now well on target to deliver on the taxation commitments set out in the joint programme for Government. Two more budgets should see to that. The resources are now available, however, to do much more. The extent to which these resources would accrue to the Exchequer was not even envisaged when the Government was formed. Many commentators are critical of the Government's fiscal policy in allocating these resources. We hear it said regularly that no Government has had so much money and so many resources available to it. Such comment fails to recognise that such budget surpluses are a direct result of tax cutting policies pursued by this Administration. I am aware of the significant cost of this measure. It will cost approximately £1 billion in nominal terms to exempt the national minimum wage from income tax. I said "nominal terms" because the tax cuts contained in the past three budgets effectively have cost the Exchequer nothing. Income tax revenue is higher than it was when the Government took office. In terms of the revenue available to the Government, it is also possible to do what I propose, even with regard to last year's budget in terms of what the Minister allocated by way of tax reduction and tax credits. I concede the cost of this measure is significant. It is the type of figure by which we used to measure our indebtedness in the 1980s. Times have changed since then. We are now running substantial budget surpluses on the current account due to the prudential policies followed by the Government. Those surpluses are of a magnitude that allows us to contemplate tax reform and tax reduction on a scale that was not imaginable previously. Because of the buoyancy we have experienced, we need a leap of imagination well beyond that to which we have been accustomed regarding the allocation of those resources. From what was contained in the past few budgets, I am aware the Minister has that type of imagination and can contemplate those types of leaps. If we are prepared to think big, we can deliver big. The resources exist to exempt those earning the minimum wage from income tax. The objective can be attained within the lifetime of the Government. Provided the political will exists to do it, there is no reason the minimum wage cannot be exempted from tax over the course of the next two budgets. If this Administration can deliver that, it will have delivered one of the most significant political initiatives in the history of this State. Exempting the minimum wage from income tax would have numerous advantages. It would have an impact on the labour market. At a time when employers are finding it increasingly difficult to recruit workers, a tax free minimum wage would serve as a major attraction for people to enter the workforce. That attraction would not be confined to those on or near the minimum wage, as all taxpayers would benefit from the substantial increases in basic allowances required to facilitate exemption. Such a measure would also have an impact on social partnership and social cohesion. We are now in our fifth partnership arrangement. A major tax initiative on the minimum wage coming to fruition in about two years' time would smooth the way for a sixth agreement and help us to maintain our impressive and enviable record of attaining rapid economic growth while still keeping inflation under control. There is also a social justice element attached to the introduction of this measure. The rationale for introducing the national minimum wage is to enable those on very modest incomes to enjoy a greater share of the national cake. Making the minimum wage tax free would represent further substantial progress in the same direction. When this coalition took office in 1997 it would have seemed fanciful in the extreme if the new Administration started talking about a tax free minimum wage. That relates to what I said about the undreamt of resources that are now available. At that time there was not a minimum wage nor had preparatory work been done on the issue by the outgoing Administration. The Minister for Public Enterprise, Deputy Harney, had to start from scratch when she took office. Even if there had been a minimum wage or some semblance of the preparation for one, the structure of the tax system would have made it virtually impossible to take the type of initiative that is contemplated in this motion. The working people of this country were heavily taxed on modest incomes in the dark days of 1997. A single person entered the tax net after earning £70 a week. It is difficult to believe that two left wing parties were prepared to preside over that type of situation, but they were because they had no real commitment to tax reduction or tax reform. Their performance is in stark contrast to the major progress that has been made over the past three budgets. The introduction of tax credits in the 1999 budget gave effect to one of the most important political commitments in the Progressive Democrats' election manifesto. The introduction of the tax credits represented one of the most significant changes ever made to the structure of our tax system. That change provided us with a mechanism for targeting the benefit of tax reduction measures at lower paid workers. Given it is such a good idea, I wonder why the previous Administration never got around to doing it. Talking about tax reform is one thing, but delivering it is a different thing. Building on tax credits, we have created a situation where a single person does not enter the tax net until his or her income reaches £110 a week and then he or she pays tax at 22%, not 26%. With tax credits it is realistic to aspire to raising the tax threshold to around £170 a week, the level at which the minimum wage has been introduced. The social and economic achievements of the Government are remarkable by any standard. We have increased the number of people in employment by almost 270,000. We have reduced the level of unemployment by 70,000, long-term unemployment by 50,000 and are well on course to eliminate unemployment within the lifetime of the present Administration. These are major achievements by any standard. The reduction in the level of long-term unemployment is particularly welcome. Long-term unemployment is one of the fundamental causes of deep-seated poverty in our society. It is a problem which for a long time we though we would never solve and it is great that we have now put that type of thinking behind us. It would be in keeping with this record of outstanding achievement in the social and economic area if, now that we have succeeded in introducing the minimum wage, we were able to exempt it from income tax. Some Members of the Opposition have been tentatively formulating the bones of a tax policy for the next general election. I have heard a few Members put forward a proposal of a tax free minimum wage as the centrepiece of their policies. My advice to them is to go back to the drawing board and think again because I can assure them that will be a reality by the time the next general election is held in 2002.

Mr. Gibbons: I second the motion. My colleague, Senator Dardis, seems to have read my mind in that he has made all the points I want to make. I welcome the Minister to the House and recommend this motion to the House. As Senator Dardis said, this motion deals with tax reform. When the Progressive Democrats formulated various policy documents in the months after it was established as a political party in 1985, one of it main planks was reform of the tax system, which was penal at the time. The party suffered much sneering and even more than that from various quarters. Such sneering by other political parties continued for some time and there were few exceptions. However, the Minister for Finance felt strongly that reform of the tax system was the way to proceed. The proof of the benefits of this approach are visible today in the enormous improvement in Exchequer returns on an ongoing basis with the introduction of each measure of tax reduction. As Senator Dardis outlined, whether the reductions were in capital gains tax, income tax or other measures, the major tax reductions introduced in those years have led to an increase in Exchequer returns. As a result of such tax reductions, there has been a major improvement in the level of employment. Since April 1997 the numbers of people at work have increased by approximately 270,000 or 280,000. Had that been suggested in a political manifesto before the last election it would have been laughed at, but that is what happens when tax rates are reduced. Senator Dardis correctly pointed out that reducing the level of tax and introducing a minimum wage must go hand in hand. The contributions of various Members of this House and the other House on the National Minimum Wage Bill make interesting reading, particularly those contributions by members of the Labour Party who felt it did not go far enough. They had five years in which to introduce a national minimum wage but they did not think it worthy. Now that it is being introduced, they do not think it is good enough. For far too long those on low wages have been discouraged from working because of the high levels of tax. We are now making significant moves to change this policy and reward people for the work they do. We are tackling the problem of the black economy which existed in the past. This move, coupled with the minimum wage, could make a significant contribution to breaking down the black economy and reducing it to low levels, although there will always be a black economy to some degree. A number of factors must be taken into consideration. There has been a great improvement for many people due to our Celtic tiger economy and the sharing the wealth is extremely important. It is interesting that at a time when there is a suggestion that the national minimum wage should be tax free we read in the newspapers about the enormous incomes directors in one of our major banks awarded themselves last year, at a time when the shares in that bank dropped very significantly. Another significant factor is that directors must declare their income because, if the economy is to move forward, we must have confidence throughout the workforce and everyone must work together as a team. People working as a team is one of the main thrusts of the partnership agreements in the past few years. A football or hurling team may have good individuals but unless players work as a team they will not succeed. Many of the people who will benefit from the national minimum wage being tax free are those at the bottom level of the scale in income terms, such as the many young people coming out of school. Many people who are doing transition year in school are getting some experience in the workplace, which is a good thing. However, it concerns me greatly that some of them are being encouraged into the workforce and will miss out on their education. A situation cannot be allowed to develop whereby people are encouraged out of education. We should hold out the carrot to them so that they can get as much education as possible. I commend the motion to the House and look forward to the Minister's reply.   Mr. J. Doyle: I welcome the Minister to the House. I am happy to support the motion which endorses the Fine Gael tax policy. Last September, the Fine Gael spokesman on finance, Deputy Noonan, put forward a set of proposals to radically reform the income tax code at a cost of £2 million. The proposals Fine Gael put forward focused on the needs of taxpayers and the needs of the economy and were founded on a number of principles. These included the introduction of fair and equitable income tax where the burden of income tax is significantly reduced on low paid and middle income earners and giving back a fair share of the resources available to those people who worked hard and who contributed most to Ireland's current prosperity. One of the main aims of these tax proposals was to increase the number of people available for work by removing the low paid from the tax net and ensuring they had a living wage which would encourage movement from welfare to work. The main proposals of the Fine Gael tax policy are to introduce a new earned income tax credit by increasing the £1,000 PAYE allowance to £3,600 and allowing all taxpayers, including pensioners and the self-employed, a tax credit of £864. This proposal would have the effect of giving an extra £624 to all taxpayers. In households where both spouses are working, each spouse would benefit. Fine Gael also proposed to increase the personal allowance by £1,000 for a single person and £2,000 for a married couple. This proposal, together with the previous proposals of unearned income tax credit, would have the effect of removing all income up to £170 per week from the tax net. These two proposals would have the effect of removing all workers earning up to the minimum wage from the tax net. They would also benefit all taxpayers equally through the use of the tax credit system by giving extra benefits to householders where two spouses are working and encourage the participation of women in the workforce. The introduction of tax credits would provide an opportunity to begin the integration of the tax and social welfare systems. Fine Gael believes the family income supplement should be used as a pilot project to commence this integration. The move to tax credits opens up the possibility of integrating income tax and social welfare and providing the foundation on which a family income scheme could be built. The first task is to complete the move to tax credits, which the Minister has done. Following this, a programme such as the family income supplement could be delivered more effectively through the tax system rather than through the welfare system. Many people who are eligible for the FIS do not claim it because, in processing their claims, many of their colleagues become aware of their circumstances and their family privacy is undermined. If payment was made by way of a cheque in the post from the Revenue, which would deliver a cash balance to persons whose income was too low to use up all their full tax credits, this difficulty would be overcome and all eligible low paid families would benefit. Fine Gael's tax policy did not seek only to exempt from the tax net those on the minimum wage, but also to improve the lot of the less well off in society, something the last budget failed to do. The motion before the House notes the buoyancy in national revenue. There is wonderful revenue buoyancy, particularly in the past three months. We are very fortunate in the surpluses being generated each month by increases in Government revenue. We are at a time when resources are plentiful but there are still many social problems. As well as ensuring everyone is earning the national minimum wage and are not liable for tax, we must also face the other social issues. There are 1,500 homeless people in Dublin, 300 of whom were evicted from the private rented sector. Many elderly people are on low incomes and live in the private rented sector with the threat of eviction and an inability to find alternative accommodation hanging over their heads. Anyone who watched "Prime Time" last night got a glimpse of the terrible conditions in which people in urban and rural Ireland live. If the owners of these properties were to sell them, they would benefit from the reduction in capital gains tax, which is a shame, because they do not treat their tenants properly. A major contribution to the buoyancy in the national revenue comes from tax on the sales of new cars. However, there is no road space in our cities for all the new cars people are buying. The motorways are simply delivering cars into urban traffic jams at a greater speed without shortening the overall journey times and the Government has no transport plan. Another sad reflection on recent trends in the Irish economy is the growth in social inequality which the Progressive Democrats Party never addressed. I accept inequality exists in every free society and always will, but there is a limit to what is acceptable. A recent UN report on the quality of life found that Ireland has the widest social inequality in the developed world after the United States. The ESRI recently showed that Ireland has the second highest level and fastest rising rate of wage inequality in the OECD. Social inequality in Ireland is most visible in hospital waiting lists. The better off in society have medical insurance and can get medical assistance straight away while the less well off must wait for many years for operations, often disappearing from the waiting list only when they die. Yesterday I heard of a 38 year old man, a transport employee, who had to mortgage his house to finance a heart by-pass operation. Is that the kind of society we want? At a time of buoyancy in the economy the Irish people deserve better. I support the motion but I also want to see the inequalities, which I have mentioned, addressed as a matter of urgency.   Minister for Finance (Mr. McCreevy): I welcome this opportunity to speak in the Seanad on the motion before the House. I wish to outline the provisions which have recently been put in place in relation to the national minimum wage and to state clearly the commitments which have been given in the Programme for Prosperity and Fairness on the question of removing those on the national minimum wage from the tax net. I will then go on to discuss the Government's record and ongoing programme of tax reform, particularly in relation to the benefits to the lower paid and to set this in the context of the present buoyant economic climate. I will refer to the revenue aspects of removing those on the national minimum wage from the tax net. The national minimum wage was introduced with effect from 1 April 2000 and delivers on the Government's commitment to introduce a national hourly minimum wage. The new statutory minimum hourly rate is £4.40, based on a 39 hour week. The Act ensures that thousands of low paid workers will secure an increase in their pay. From that date, every experienced adult worker will be entitled to the national minimum wage of £4.40 per hour, a rate which is equivalent to a minimum weekly wage of £172. The rate of £4.40 per hour is in line with the recommendations made in the report of the interdepartmental group published in June 1999. This rate was decided on by the Government with a view to striking the right balance between the need to ensure that vulnerable sectors of the workforce are not exploited and the need to ensure that employment and competitiveness are maintained. Employers will be permitted to pay employees under 18 years of age, first-time job entrants or those undergoing training, specified rates below £4.40 per hour for a defined period. There is also provision for a temporary exemption from the minimum wage in the case of an employer in financial difficulty. This provision is especially important when attempting to encourage business start-ups and may provide new companies with breathing space at a critical stage in their development. The social partners, as part of the recently ratified Programme for Prosperity and Fairness, confirmed their support for the Government's commitment to the introduction of the minimum wage and of reducing the tax burden on the low paid. Section 1.1.3 of the new programme states:   It is an agreed policy objective of the Government and the social partners that, over time, all those earning the minimum wage will be removed from the tax net.   The pay agreement supports increases in the hourly minimum wage to £4.70 from 1 July 2001 and to £5 from 1 October 2002. I welcome the agreement, contained in the legislation, that no repercussive claims will be made by trade unions or employees as a result of the introduction of the minimum wage. This will help to ensure that certain potential negative effects of wage inflation do not arise. By any standards, Irish economic performance in recent years has been remarkable. Real GNP rose by an average of 7.6% per annum from 1994 to 1999. In 1999 it is estimated that real GNP increased by almost 9.9%. Along with this strong growth we have seen unemployment fall below 5% for the first time in a generation. Growth in Ireland is not expected to continue at the rapid pace of recent years. Ireland's potential growth rate over the medium term is judged to be about 5% per annum. This assessment reflects a projected expansion of the labour force of about 2% annually, driven by rising participation rates and a modest degree of net immigration. For a small open economy like Ireland, maintaining our competitiveness is essential if such growth is to continue. Moderate pay developments in the context of pro-work and pro-enterprise taxation reform have been central to our success in the 1990s. The most recent of our social partnership agreements, the Programme for Prosperity and Fairness, is designed to maintain the competitiveness of our economy over the next three years. It will further enhance the incentives to work and to enterprise and will enable Ireland to achieve even further prosperity - on a sustainable basis. The new partnership agreement is based on achieving an annual average GNP growth rate of about 5.6% over the period 2000 to 2002. This is in the expectation that there will be ongoing improvements in productivity, that emerging supply-side constraints will be overcome and that significant budgetary surpluses will be maintained throughout the period. If economic growth exceeds assumptions, it may be possible to apply additional resources to accelerate progress towards the priority objectives of the programme, including social inclusion. Equally, if growth falls below this level it may be necessary to make more gradual progress. One of the most important elements of the Programme for Prosperity and Fairness is the agreed wage moderation which is vital in maintaining Ireland's competitiveness on the international front. The National Minimum Wage Act responds to the many challenges facing a changing Ireland. This Act, along with a number of other measures, is designed to ensure that all workers partake in the economic boom. In its three budgets to date the Government has removed 176,000 people, including the elderly, on low pay from the tax net thereby reducing the burden of tax on employment and increasing the incentive to take up employment. The Programme for Prosperity and Fairness will continue to aim for tax provisions in accordance with the objectives of this programme which benefit those on low but taxable incomes. Following the introduction of the Social Welfare Act, 2000, all those earning less than £226 per week are exempt from PRSI. As a result, almost 500,000 low paid employees will gain up to £5.67 per week from this month. The earnings limit for exempting employees from the 2% health levy contribution was further increased in the Act to £14,560, the result of which will be to exempt all employees earning up to £280 per week and all self-employed persons earning up to £14,560 per annum from the levy. These improvements are part of the Government's ongoing commitment to reducing the burden of taxation on the lower paid in society. As outlined in An Action Programme for the Millennium, tax reductions are an integral part of the Government's strategy to maintain and improve competitiveness and to encourage the take up of employment. We intend to achieve these ambitious aims through a balanced strategy of removing more of the low-paid from the tax net altogether, by reducing tax rates, by ensuring that a large majority of taxpayers are subject to no more than the standard rate of income tax and by completing the transition to a more progressive system of tax credits. Over the course of the last three budgets, significant progress has been made in regard to these taxation policies. In an effort to encourage the take up of employment, the standard and top rates of tax have been cut by four percentage points since 1998 to 22% and 44% respectively, thereby actively encouraging people to enter the labour market. I have publicly stated the Government's commitment to reducing the standard rate of income tax to 20% over the next two budgets and the higher rate to 42% and 40% if economic conditions allow. The standard rating of the main personal and PAYE allowances in budget 1999 was the first step in the process of moving toward a more equitable system of tax credits. Standard rating equalises the value of personal allowances for all taxpayers, thereby increasing the incentive to return to work. It is my intention to complete the move to a tax credit system by 2001. A tax credit system enables more resources to be devoted to those on lower incomes for a given Exchequer cost by equalising the value of personal tax allowances for all taxpayers at the standard rate, therefore providing an incentive for low-paid persons to return to work. Section 1.1.3 of the Programme for Prosperity and Fairness states:   The Government and the social partners regard increases in tax credits and the development of the tax credit system as the priority areas for resources over the course of this Programme.   Increases in the personal allowances over the period 1998-2000 have eased the burden of tax on low-paid. Personal allowances have been increased by £1,800 single and £3,600 married in the period 1998-2000. In the tax year 2000-2001 a single person pays no tax on the first £110 of income per week, whereas when this Government came to office a single person entered the tax net at £77. This record far exceeds the achievements of the previous Government in terms of cutting tax on the low-paid, a fact often conveniently overlooked by some commentators. The introduction of individualisation in budget 2000 will provide an incentive to enter employment and particularly for married women to re-enter the workforce as they will now face a reduced marginal tax rate upon taking up employment. The first phase of individualisation in budget 2000 has significantly reduced the percentage of taxpayers paying at the higher rate, from 46% to 38%. This radical change in the structure of the standard rate band means that all taxpayers up to and at the average industrial wage will now pay tax at no more than the standard rate. This change, which will remove 125,000 taxpayers from the top rate of tax, will benefit in particular single workers and couples with two incomes and will increase the incentive for second spouses to join the labour force. Upon completion of individualisation the percentage of all income earners on the higher rate will have been reduced to 12%. We are often compared to the United Kingdom in terms of the higher tax burden we face on our earnings. However, as is often the case with such comparisons, the facts are somewhat different. A single person here on £8,000 per annum on PAYE and full rate PRSI has an average tax rate, including PRSI, of 6.3% compared to 12.7% on an income of £8,000 sterling in the UK, even after the recent UK budget. A single person on £12,000 faces an average tax rate of 14% compared with 19% in the UK, on the same income level in sterling terms. I appreciate that an income of £8,000 sterling at the current rate of exchange is something close to £10,000 in punts, but even on this basis the comparative average tax rate here is 9.5% versus 12.7% in the UK. In the case of married persons on one income with two children the relevant comparisons are even starker. On £12,000 sterling the UK tax burden is 19%, here it is 2.5% on a £12,000 salary; on £24,000 it is 26% compared with 15% here, and on £30,000 it is 26% compared with 19% here. Again, when allowance is made for the exchange rate difference, the gap narrows but the pattern is the same. The difference in the pattern of tax for single and married between here and the UK is due to the structure of the tax system. For single persons on income over £20,000 per annum, the UK taxpayer faces lower average tax rates than here. I received limited appreciation last December for my efforts to rectify the tax structure in this regard. However, a recent poll would indicate that the public has a better understanding than some pundits of the advantages that the reform will bring. In addition, the social partners have endorsed the policy as part of the recent Programme for Prosperity and Fairness. People should look at the comparisons between Ireland and the United Kingdom. There is an absence of commentary in this regard. One analyst recently produced figures such as those I have quoted. For the last number of years I have been deafened by some commentators and by some politicians and their allies in the media - I referred to some of them in glowing terms last week - claiming that the last few budgets have not dealt fairly with the low paid but have done everything for the higher paid. The reality is that low paid employees are treated far better here than in the United Kingdom. The percentage take-out from the pay of people earning amounts up to £20,000 and more, is far lower here than in the United Kingdom. Even after the recent budget of my friend, Gordon Brown, the percentages are still in our favour. In recent years we have achieved lower tax take-outs from the pay of low paid earners here than in the United Kingdom. However, a single person earning £30,000 and more in Ireland is absolutely savaged by the taxation system compared with a high earner in the United Kingdom. Middle incomes earners in this country have been penalised for many years by our taxation system and this is particularly true of single people. Until my recent budget a single person was paying tax at the top rate on income above £14,000 per annum. As outlined in these figures, a married taxpayer does far better here than in the United Kingdom where there is full individualisation. I am merely moving towards widening the standard rate band. In the UK, not alone are there no double bands for married taxpayers but there is only one allowance for all taxpayers, whether married or single. In Ireland a married taxpayer has double the single person's personal allowance. In the dark and unenlightened days of the 40s, 50s, 60s and 70s our taxation system was the same as that in the United Kingdom. Until the tax year 1980-1 there were many rates of tax but there was no double band for married taxpayers. When Fine Gael and the Labour Party were in power we had taxation rates of up to 77%. At one period there was surtax and for a few years there was a special 10% on top of the tax rate so that the 35% rate became 38.5%, the 45% rate became 49.5% and the 70% rate became 77%. Since income tax was introduced in Ireland and under successive Governments there was no double band for married people. I listened to commentators saying that last year's budget was socially regressive and talking about the rights of women in the home. In the 50s, 60s and 70s, when there was no double band for married people, that was never said. A political decision was taken in 1980-1 budget to double the tax band for married people. This came as a result of the Murphy judgment but the judgment did not compel the Government to double the bands. The Minister for Finance at the time pointed out repeatedly that the Murphy judgment would cost about £30 million and the additional measure would cost £130 million more. The Opposition successfully got the message across, inside and outside the House, that both measures were the result of the Murphy judgment. Since then it has been assumed that the Minister for Finance is obliged to double the tax band for married taxpayers, but this was never a correct interpretation of the legal implications of the Murphy judgment. Two points must be made. First, up to the tax year 1980-1, we had individualisation of the standard rate band, and those are supposed to be the dark days of unenlightenment. That system was changed in my political lifetime. I have been a Deputy since 1977. Senator Doyle came somewhat later. The second point is that tax on low paid workers is less severe here than in the United Kingdom. I am glad to have the opportunity of making those two points again. A minimum wage provides an incentive to return to work. This is often overlooked. Unemployed people moving back into work can retain certain secondary benefits, for example, medical cards, for a period of up to three years subject to an upper salary limit, and can claim back to work tax allowance which would significantly increase their take home pay. The Revenue job assist scheme which I introduced in April 1998 complements a wide range of schemes already available to assist the long-term unemployed back into employment. The scheme is a focused two part initiative that gives employers an incentive to employ a long-term unemployed person as opposed to someone already in the labour market. Under the terms of the scheme the long-term unemployed person also qualifies for a special tax allowance over a three year period. The new national minimum wage of £4.40 per hour gives a take-home pay of £4.05 based on the current tax and PRSI system. Before my first budget in 1998 net take-home pay on an hourly wage of £4.40 would have been £3.62. The ESRI impact study of March 1999 commissioned by the interdepartmental group on the impact of the national minimum wage includes an estimate of £77 million as the yield of income tax arising from the introduction of the national minimum wage. This figure would not include the impact of the personal taxation measures in budget 2000 nor the higher income levels and the increased numbers at work for the tax year 2000-1, although the combined effect of these are thought unlikely to affect the estimated yield to a significant extent. In addition to income tax, there will be secondary effects arising from increased indirect tax receipts as a result of increased disposable income, as well as decreases in yields of corporation tax and self-employed income tax as a result of increased wage costs. It is not possible however to quantify these secondary effects with any degree of accuracy. Exempting persons earning the minimum wage of £4.40 per hour or £172 per week from income tax may be achieved through either increasing the basic personal allowances; increasing the PAYE allowance, or raising the income exemption limits. The costs involved would be substantial for whichever method was chosen, particularly when increasing the basic personal allowances because increases in the allowances for single persons would have to be doubled for all married couples and therefore would benefit all taxpayers. The costs would outweigh the additional yield from the introduction of the national minimum wage mentioned above. An increase in the personal tax free allowances of approximately £3,200 for single persons and £6,400 for married couples would be required to ensure all persons earning the national minimum wage would be exempt from income tax. This would cost approximately £1,015 million in a full year. Increasing the PAYE allowance to exempt the minimum wage would be less costly as self-employed persons and their spouses are not entitled to avail of this allowance. In addition, the allowance is not doubled simply because one is married. If this method were used, an increase of approximately £3,200 in the PAYE allowance would be required which would cost around £700 million in a full year. Increasing the PAYE allowance would raise the issue of whether the allowance should be extended to all income earners. On this basis the cost would be £810 million in a full year. Another approach would be to increase the exemption limits from £4,100 to over £8,900 for single persons and from £8,200 to over £17,800 for married couples. An increase in the age exemption limits for those aged 65 and over of more than £1,400 for single persons and £2,800 for married couples would also be required. This approach would cost far less but would create its own problems. It would put an enormous number of people back into the marginal relief system where the marginal tax rate is 40% and exacerbate the problems of poverty and employment traps for those wishing to return to work or earn more income. The marginal relief system was condemned by the working group on the integration of the tax and social welfare systems in 1994 on these grounds and we do not want to go down that route again. Exempting the national minimum wage from income tax through increases in tax allowances would be the preferred approach. This course of action was endorsed by the expert working group on the integration of the tax and social welfare systems and by successive Governments as it would help to eliminate poverty traps over time. The Government has not just spoken about removing the low paid from the tax net and reducing the burden of tax on lower incomes. It has acted on these promises and the House can look forward to further action in this respect in delivering on our commitments in the Programme for Prosperity and Fairness.   Mr. O'Toole: It is noble that the Minister would aim to reduce income tax. There is a view that those on the left wing of Irish politics might have a difficulty with this. They are being seriously misunderstood. For many years PAYE taxpayers have been conducting a huge campaign to ensure they get a fair deal. There is much confusion however on how the situation in respect of income tax can be improved. There has always been tension on whether it is better to widen the tax bands or reduce the tax rates. It is far sexier for Governments to reduce the tax rates as it fits in neatly in a headline in the tabloids but for any group of workers widening the tax bands is far more attractive. I commend this approach to the Minister. That is not to say however that there is an objection to reducing the tax rates. The Fine Gael Party argued in its policy document published last year that there may be a good case for introducing a third tax band. This may develop if we were to proceed along the lines of the motion tabled by the Progressive Democrats, which is both reasonable and fair and restates one of the objectives of the Programme for Prosperity and Fairness in the section dealing with income tax, that the Government should seek to remove from the tax net all those earning less than the national minimum wage. This is a view which has been articulated by the Tánaiste on a number of occasions and by other members of the Government, including the Minister for Finance. It is hugely important to the 500,000 workers who in the last two months have accepted the Programme for Prosperity and Fairness that action is taken on this basis. I am assuming that the Minister lent his support to the motion and is therefore restating what is contained in the programme. There was more than one doubting Thomas when it was presented to workers. Many said that it would not be implemented. It is crucially important to those who put it together, including the social partners, that it is seen to take effect. This is a hugely important motion. Many workers earning far more than the minimum wage were of the view that the commitment in the programme to those on low earnings was not strong enough. On a rough calculation those earning more than £112 per week find themselves in the tax net. By raising the threshold to approximately £170 per week there would be approximately a further £60 tax free income. This would represent an improvement of approximately £25 or £26 per week in the take-home pay of those on very low wages. This would be hugely significant. For those earning £180 per week gross this would compare to a 15% pay increase on top of the commitments contained in the Programme for Prosperity and Fairness. I urge Senators on the Government side of the House not to let go of this issue which should be raised at parliamentary party meetings and on which they would have the support of this side of the House. I have not costed this proposal ----   Mr. Dardis: It would cost £1 billion.   Mr. O'Toole: That would bring the Government two-thirds of the way in meeting the commitment contained in the Programme for Prosperity and Fairness -----   Mr. Finneran: There would be nothing left for the teachers.

Mr. O'Toole: In the Programme for Prosperity and Fairness, the Government gave a commitment for tax reform which will, in effect, give back approximately £1.5 billion to the taxpayer. This would bring the Government two-thirds of the way towards meeting its commitment. There have been continuing meetings to deal with the programme throughout the country and people said the Government would not pay back the money. In the middle of voting, people said this was just a cover-up and that the Government was including the terms of budget 2000. It took the trade union movement, the employers' movement and the Government, acting together over a weekend, to say it did not. This still causes difficulty for some people. The reason I am stressing the point is that one may think motions such as this are not important. This is crucially important to those of us who have to explain these programmes to workers on the ground. This is a local issue and I ask Members to make it clear to people in their local areas that this is a commitment. If this commitment is delivered on, is put in place and is seen to be effective, it will also be seen to be progress. We will be required to have a clear marker in the next budget and raise the tax threshold from approximately £112 to £180, or slightly more than that. It is important that this will be marked and that, at the end of the year, the Minister, in his budget programme, should give recognition of our commitment to the objective of the programme and should tell people just how far we will get towards it this year. Not one worker or fair minded person would object to a commitment that this will be given priority. I say this even though teachers will not benefit. Any teacher would say that this is the way forward and it is our first priority. As a Legislature and as public representatives our statement should be that this is where our priorities lie. We should stress that not all of society is selfish; we have still time to look after the people at the bottom of the pile. As far as workers go, the implementation of the Programme for Prosperity and Fairness is of major importance to those who negotiated the tax aspect.   Mr. Finneran: I welcome the Minister of State, Deputy Ó Cuív, to the House and the enlightening statement from the Minister for Finance, Deputy McCreevy. I compliment my colleagues, Senators Dardis, Gibbons, Keogh and Quill in tabling this motion. It gives us an opportunity to debate and evaluate the major contribution by the Government to improve conditions for workers. For many years the Minister for Finance has been an exponent - as has been the Tánaiste - of a low tax regime. That has proved to be a success and I compliment the Minister for Finance and the Government on their achievements to date. I compliment the Minister for Finance on what he said tonight. It indicates that the Government intends to continue down the road of providing further relief, in particular for those in the low paid sectors and that everyone will be treated fairly and will get an fair crack of the whip. In having a new national agreement with the social partners it is worth contrasting the state of the nation prior to 1987 when Fianna Fáil first put the model in place. This was after Dr. Garret FitzGerald's Administration of 1982-7 in which Deputies John Bruton and Quinn were Ministers with senior economic portfolios. At that time inflation was as high as 21% and current borrowing was 8% of GNP with £1 being borrowed for every £1 earned. Emigration was at its highest level since the 1950s with unemployment at 16%. The only response of the Fine Gael and Labour Parties was to raise personal tax rates from 40% to 65%. In early 1987, we had a higher foreign debt per capita than Poland and Brazil while the The Times famously wrote that the international money lenders were going to "pull down the shutters on Ireland." A crucial ingredient of today's new found economic success has been the social consensus which began in 1987 under the then Fianna Fáil Government with the first of the new comprehensive national agreements. The social partnership approach produced a much needed recovery from the disastrous early and mid-1980s and underpinned a sustained period of growth since. That has been continued by this Government over the past three budgets. The first consensus deal was ultimately successful and, appropriately, named the Programme for National Recovery. It was agreed between the Fianna Fáil Government and the social partners in 1987. The national agreement was based on the strategy for development of the National Economic and Social Council, the tripartite think tank of the social partners where policy is analysed and consensus is formed. The deal achieved trade union support for a radical correction of the public finances. The national debt had peaked that year. The then Minister for Finance, Ray MacSharry, thus decided to tackle the growing fiscal crisis and to clean up the mess left by the Fine Gael-Labour Administration. This was done with some success. I compliment the then leader of the Fine Gael Party, Mr. Alan Dukes, for what was known as the Tallaght strategy. His statement will always be looked on favourably.   Mr. Burke: The Senator is one of the few Fianna Fáil members to recognise that.   Mr. Finneran: While the Fianna Fáil Party and those in Government have always acknowledged his contribution, his own party has not done so. The OECD which compiles regular reports on each of its 29 member countries noticed the improvement in the Irish economy at an early stage in its 1988-9 report. In its 1991 report it gave the reasons for the improvement saying "this good performance owes much to the broadly based consensus which has allowed maco-economic policies to focus on the medium term." It said that the policy commitments of the 1987 Programme for National Recovery had been carried out - something which had not taken place prior to that. This had marked beneficial effects on interest rates and business confidence. It listed improvements in investment, productivity, profits, low inflation and growth at almost 5% for the previous two years. The attitude to social partnership in its embryonic phase contrasted starkly between Fianna Fáil and Fine Gael. The new agreements ensured the trade unions had a say on tax matters and on many other aspects of the economy and society, including fiscal policy, and their views on the exchange rate policy were, at least, noted. The current Taoiseach, Deputy Bertie Ahern, then Minister for Labour, played a vital role at this time and it was his job to keep the trade unions in the loop and stabilise industrial relations - a job he did successfully. The same can be said for the present agreement. I am pleased with the comments of Senator O'Toole. He is re-echoing what he said on the day of the budget and subsequently on another occasion when he spoke on the Programme for Prosperity and Fairness, on which I compliment him. While he is an active trade unionist on behalf of the members of the INTO he has looked on the national agreement as being of national importance. He has reiterated and re-emphasised that again tonight. If we were to look at the differences then, Kieran Mulvey, one of the negotiators on the union side recalled that the Taoiseach "was the cement in the deal because of his extensive union contacts and the amount of ground work that he had done. He seemed to grow with the negotiations. He was a natural negotiator. He was prepared to put in the hours and, most importantly, it was and still is very hard to have a row with Bertie Ahern." In contrast to this was Deputy John Bruton's attitude. He was not an enthusiastic supporter of the new social partnership approach. He was horrified that employer and union leaders could go to Government Buildings and put their case on taxation and welfare. He remarked critically at one juncture that there was another parliament outside Dáil Éireann making real decisions about the economy.   Mr. Burke: Senator Finneran has not been listening to our spokesperson on finance.   Mr. Finneran: I say that in the context of the motion before us tonight.   Mr. Burke: What will the Government do with the £1 billion surplus?   Mr. Finneran: The Fianna Fáil-Progressive Democrats Government is to be complimented on its achievements in the last three budgets. I have no doubt that the Minister for Finance will respond in a positive manner to the requests made by Senator Dardis and his colleagues. We cannot give a commitment tonight that the Minister will go the full distance in providing a further £1,000 million in tax cuts for low paid workers. However, he has given a commitment to continue down that road in order that their position will be improved. It is a sign of the times that we have a £1 billion surplus in the first three months of the financial year. If I had time I would compare some of the current social inclusion measures to those we had in the past under different Governments.   Dr. Henry: Senators would be disappointed if I did not welcome the motion on behalf of women. Women's pay remains at between 70% and 75% of the average male industrial wage despite the fact that equal pay legislation has been in place for over 30 years. Single women, although being paid less, are taxed at the same rate as single men. The implementation of such legislation would be of enormous benefit to them. Married women frequently pay taxes at the higher rate because of the incomes earned by their husbands. I welcomed the introduction of individualisation in the budget. We should assist the Progressive Democrats to promote this motion, as they must do, which is extremely important because those who have least would benefit most. I am quite sure that is what everyone wants. The price may seem high but we have all been told to party and we do not wish to see some groups left as Cinderellas. The Minister made comparisons between tax rates here and abroad. We must be careful because local tax rates can sometimes make the UK situation look even worse. Services need to be taken into account and there is a great deal more to be done here with regard to services before we compare stark tax rates between countries. I welcome the motion which I hope the Progressive Democrats will promote in Government.   Mr. Bonner: The introduction of the national minimum wage was a social policy commitment placed in the framework of an assault on exclusion, marginalisation and poverty. It protects those workers who are prone to exploitation, particularly women and young people. The legislation, which came into force on 1 April, affects 163,000 workers. The legislation was introduced to protect employees from exploitation by employers and we must now ensure that the State does not exploit them. I have every confidence that the Minister for Finance will ensure that the less well off will retain the money they are now earning. The Minister said last week that he is giving them back their own money. This Government was the first to tackle real tax reform, to improve the position of all taxpayers and increase the take home pay of those covered by the Programme for Prosperity and Fairness, especially those on below average earnings. Tax benefits have been delivered by the current Government through increased personal tax credits, widening the standard tax bands and a reduction in the rates at which tax is levied. The standard rate of tax was pitched at 26% when this Government took office. That rate has now dropped to 22% for the current tax year. The Minister has given a commitment to reduce that rate to 20% before its term of office expires. The higher rate has decreased from 48% when the Rainbow Coalition was in office to its current rate of 44%. The Minister also hopes to reduce that rate to 42% and possibly 40% in the lifetime of this Government, leaving our tax rates similar to those in Great Britain. I never envisaged, as a practising accountant dealing with cross-Border workers only three years ago, that we could reach such a position. Personal tax credits will increase from £2,900 for a single person in 1997-98 to £4,700 in 2000-01. Self-employment deduction allowances have increased from £800 to £1,000, resulting in a single person having to earn £110 per week before they enter the tax net. Tax bands have been widened to £9,900 for a single person in 1997-98 increasing to £17,000 in the 2000-01 tax year. Exemptions limits have also been increased, although I do not believe this is a good way to effect tax reform because the system can be complex and many taxpayers do not understand it. The Government and the social partners regard increases in tax credits and the development of the tax credit system as priority areas for resources over the period of the PPF. They are committed to removing, over time, all those earning below the minimum wage from the tax net. For many years there has been a belief that it was economically more favourable to remain on social welfare than to enter the workforce. The Government set about changing this attitude by introducing additional tax free allowances and child tax allowances for the long-term unemployed. A tapering personal tax credit allowance, over a three year period, was introduced. I am not sure if this has been effective because it is a complex system and many employers do not understand it. In taking minimum wage earners out of the tax system, I would recommend the introduction of a personal tax credit system rather than an exemption one. The tax credit system is simpler and easier to understand. If we were to operate an exemption system, whereby the taxpayer receives his personal tax credit, many employers would operate the tax free allowance system which would deduct tax at source. A person might be entitled to a tax refund at the end of the year and because of ignorance of the system and the fact that Revenue do not normally review low earners' individual PAYE returns annually many would lose the tax to the State. I recommend to the Minister to increase the personal tax credits rather than introducing exemption levels. Personal credits would have to be increased to £170 per week or approximately £8,000 and the self-employment deduction would have to be increased to £1,000 to ensure all those earning the minimum wage would remain outside the tax net. The low paid have suffered for years. They never affected industrial peace because they did not have the leadership of a union, as have many other sectors. I read in the newspapers in the last week that the ASTI is seeking a 30% wage increase. It disappeared from ICTU shortly before the conclusion of the partnership agreement. It is insisting that if it does not get its way it will disrupt State examinations. That would be a disgraceful and I hope it pulls back from those threats. Articles have appeared in the newspaper recently to the effect that the general treasurer of another teachers' union is seeking 30% under benchmarking. Ironically, the general secretary, who is a Member of this House, has not said much about it because he was very effective in negotiating the PPF. We hear about inflation fears and that huge wage increases will caution inflation, especially increases to the middle and higher income earners. People getting the minimum wage will not cause any damage because their wages are normally spent at home on necessities, not on foreign holidays or in other ways that would increase inflation. Over the past three years we have made changes to corporate taxation. The rate of tax on service in industrial companies will be reduced to 12.5% by 2003. It is not a lot to ask the Minister to ensure that people on the minimum wage are taken out of the tax net. There are many people I wish to speak about, such as those who are socially marginalised, widows, carers and pensioners. I hope the Minister will fulfil some of the commitments he gave during the social partnership negotiations. The motion refers to buoyancy in the economy. There has been a £1 billion surplus in the first quarter of this year. It has been stated that the surplus for the full year is likely to exceed the forecasted amount by £500 million. The wealth that has now been created in our economy is reflected in the £270 million that has been collected through VRT in the first quarter of this year. The Department of Finance has indicated that it expects the surplus for the year to reach £2 billion. I would not be surprised if it reached £2.5 billion even after it spends £3 billion on improving the country's infrastructure. I hope the Government will allocate more money to improve secondary roads as Senator Burke wishes. We all agree with him about secondary roads. Mr. Burke: The Senator is seconding my proposal.   Mr. Bonner: The Senator must understand that the Government has increased the allocations. Mr. Burke: The Minister of State at the Department of the Arts, Heritage, Gaeltacht and the Islands might clean us out.

Mr. Bonner: The Minister for Finance will also be able to cut the £31 billion national debt and put a further £500 million into the special fund he has created for public service pensions. Therefore, it is not too much to ask that those in receipt of the minimum wage be taken out of the tax net. I have every confidence in the Minister for Finance because of what he has done in the three years since he took office and I have no doubt he will effect the change that has been requested in the motion.   Mr. Burke: I would like to share my time with Senator Denis Cregan.   Acting Chairman (Dr. Henry): Is that agreed? Agreed.   Mr. Burke: I welcome the motion tabled by Senator Dardis from the Progressive Democrats Party. It shows a change in attitude. Low paid workers should be exempt from paying tax but I disagree with the first part of the motion when it states: "Noting the buoyancy in the National Revenue". The Government generates an annual profit of £1 billion but this is bad accounting. Either the Government is robbing the taxpayer or it is not providing the services.   Minister of State at the Department of Arts, Heritage, Gaeltacht and the Islands (Éamon Ó Cuív): We must pay the debt. I would not like to put the Senator in charge of a house because he would not pay the mortgage.   Mr. Burke: No provision has been made to write off the debt. There are accountants present this evening and -----   Mr. Dardis: We have been trying to reduce the debt. We have reduced it.   Mr. Gibbons: Who ran up the debt?   Mr. Burke: ----- they would agree with me about the economics of what is happening, that the Government is either robbing its taxpayers or robbing them of the services.   Éamon Ó Cuív: No. We must clear the debt.   Mr. Burke: This economy is generating huge national reserves yet we have a deplorable health service.   Mr. Dardis: Revenue, not reserves.   Mr. Burke: People must wait up to five years for a hip replacement operation.   Mr. D. Cregan: We do not have roads.   Mr. Burke: People must wait two years for a bypass operation. Recently, a person died while waiting for a bypass operation. It is unbelievable that a person on a waiting list for a bypass operation could die while a Government generates £1 billion annually. I appreciate and welcome the additional money that will be given to local authorities for roads. I compliment and thank the Minister of State for the commitments he has given to my county. As I said earlier, quite a number of national secondary routes require funding while we generate a huge surplus.   Éamon Ó Cuív: The Senator's party left them to us.   Mr. Burke: I agree that people on low pay should be taken out of the tax net. My party's spokesperson on Finance, Deputy Michael Noonan, put forward two principles that the Government could work on. He recommended the introduction of fair and equitable tax where the burden of income tax is significantly reduced for low paid and middle income taxpayers. He also recommended that we give back a fair share of the resources available to those people whose hard work has contributed to most of Ireland's current prosperity. This Government is not doing that. Instead it is stockpiling the money.   Mr. Dardis: The last Government took 1% off. Big deal.   Mr. Burke: It does not give people the benefit of the tax or the services. Perhaps the Minister of State might clarify -----   Mr. Bonner: Tell him to put on 25%.   Mr. Burke: ----- the position of home helps. Before the introduction of the minimum wage some health boards paid £4 per hour while others paid £2.80 per hour. I hope the minimum wage will be enforced rigidly by all those authorities and that they will all pay the minimum wage. I support the motion when it calls for all low paid workers and anyone earning the minimum wage to be taken out of the tax net.   Mr. D. Cregan: I am surprised by this motion. I do not agree with the motion in general but, like Senator Burke, I agree that everyone earning the national minimum wage should not be liable for income tax. By stating that in this motion and by the way everyone has spoken here, does that mean everyone earning less than £146 per week will not have to pay tax?   Mr. Dardis: It is £4.40 per hour multiplied by 39 hours. The Senator can calculate it himself.   Mr. D. Cregan: That means it is £168 per week.   Acting Chairman: I am sure Senator Cregan can do the calculation himself. I thank Senator Dardis for his help.   Mr. D. Cregan: The legislation, whether we like it or not, does not say that the person who earns £4.40 per hour does not have to pay tax. I agree with that, but it also says that the person on £45,000 per year does not have to pay it either.   Mr. Dardis: No, it does not.   Mr. D. Cregan: If a person does not have to pay tax on the first £168 they earn then the person on £40,000 per year does not have to pay tax on it either.   Mr. Dardis: If the Senator had been present for the Minister for Finance's speech he would understand all the tax regulations.   Acting Chairman: Senator Dardis will have time to reply when he is summing up.   Mr. D. Cregan: I am in no hurry.   Mr. Dardis: I am just trying to clarify the situation.   Mr. D. Cregan: It took a long time for the Senator to be helpful on this matter. It is very easy to be helpful now when there is so much money in the coffers. In his motion he urges the Government "to pursue policies over the next two budgets...." I agree with that part of the motion but let us not give the impression that it is only the low paid who will gain. People earning between £40,000 and £60,000 per year will also gain. Is that correct? Mr. Dardis: Yes.   Mr. D. Cregan: The Senator may agree with that but I do not. The Minister for Finance said the same in his speech and I disagree with him too. The Fine Gael Party believes that the less well off and people earning the minimum and average wage should get more tax benefits. That is what we should do. We should not give people earning £15,000 per year the same tax reduction as home helps. For far too long semi-State and State bodies paid between £2.60 and £4 per hour while criticising everyone else for not paying more. It is important that we get the facts right. A Senator on the Government side, who is leaving the House now, summed it up by saying that taxation would be different using the credit system. Mr. Dardis: The first £140 is the same for everyone.   Mr. D. Cregan: The Senator should not give the impression that the PDs want to make sure the less well off in our society get the benefits and opportunities because they will not. The motion implies that everyone will benefit. The person earning between £40,000 and £60,000 will benefit. They will probably vote for the PDs anyway. That is not the way we should be thinking. I am not saying people should not have to pay 20% tax. I am not saying that PRSI should not be paid on the first £200. It is only right and proper that should be the case. However, that does not help the person on £40,000 or £50,000. I want to look after the person who does not make £20,000 a year. The motion states that everyone will get the benefit of £4.40 an hour.   Mr. Dardis: Everyone on the minimum wage.   Mr. D. Cregan: The motion states that "everyone earning the national minimum wage will not be liable for income tax". I could not agree more with that. A person will not pay tax on the first £168. However, that includes people who earn £50,000.   Mr. Dardis: The Senator should tell me another way to do it.   Mr. D. Cregan: The Government is giving them more money and taking it from the person who can ill afford to lose it. A person on the minimum wage should not pay tax. However, a person earning more than £20,000 should pay 40% to 45% tax.   Mr. Dardis: They will.   Mr. D. Cregan: That is not what the Minister is saying.   Mr. Costello: Senator Dardis is belligerent and bellicose today.   Mr. D. Cregan: That is a big change.   Mr. Dardis: Senator Costello will not provoke me.   Mr. Costello: That is the last thing I would do. Senator Dardis will have an opportunity to respond to the debate.   Mr. D. Cregan: I wonder how he will do that.   Mr. Costello: I welcome the motion, although I am not happy with the way it is worded. It urges the Minister for Finance and the Government to "ensure that everyone earning the national minimum wage will not be liable for income tax". It should state that "nobody earning the national minimum wage will be liable for income tax". Does the motion mean everyone will not be liable for income tax?   Mr. Dardis: It means all the people. There is no other way to say it.   Mr. Costello: There is another way to say it. Some proper grammar would not go amiss.   Mr. D. Cregan: It will make the rich richer.   Éamon Ó Cuív: I understand what Senator Dardis is trying to say even with my limited intelligence. I am sure everyone else is the same.   Mr. Costello: I also understand what he is trying to say, but it is not what he should have said.   Mr. Dardis: We will issue a free translation for the next motion.   Mr. Costello: Why was this motion tabled this evening since it is only a couple of weeks since we debated the Social Welfare Bill with the Minister for Social, Community and Family Affairs? In response to my query, he categorically stated that by the end of 2002 he would remove all people on the national minimum wage from the tax net. I do not know whether the Progressive Democrats are trying to steal the Minister's thunder.   Éamon Ó Cuív: He was trying to find out if the Senator is in favour of it or not.   Mr. Costello: The national wage agreement states that it is an agreed policy objective of the Government and the social partners that over time all those earning the national minimum wage will be removed from the tax net. However, the Minister for Social, Community and Family Affairs said he will do it if he is Minister in 2002. Perhaps the lines of communication will be kept open with the Progressive Democrats so that people know what is going on in the coalition Government. It has taken a long time to get to this stage. The National Minimum Wage Commission was set up in July 1997 and it recommended that the minimum wage should be two thirds of the average industrial wage. However, that is not the case.   Mr. Dardis: The Deputy's party has not been in Government in the meantime so I am confused.   Mr. D. Cregan: It is easy to confuse the Senator.   Mr. Costello: The commission made a recommendation which was reneged on by the Government. It decided on a minimum wage of £4.40 an hour from 1 April 2000.   Éamon Ó Cuív: On a point of information, one cannot renege on a recommendation. It is up to the Government to accept it or not.   Mr. Costello: My understanding was that the Minister for Enterprise, Trade and Employment set up the commission and that she would accept its recommendations. Many people, including the Government, constantly renege on commitments.   Éamon Ó Cuív: One cannot renege on a recommendation.   Mr. Costello: The Minister of State should read the Fianna Fáil manifesto to see what it was going to do for the family.   An Cathaoirleach: Senator Costello should not invite interruptions. The Chair will be happy if Senator Costello addresses the motion.   Mr. Costello: There is an anomaly between the commission's recommendations and the present position. The national minimum wage is £4.40 an hour with effect from 1 April 2000. The rate of £4.70 an hour will not come into effect on 1 April 2001 but on 1 July 2001. Where did that date come from? Could it not have been from 1 April? The rate of £5 an hour will not come into effect until 1 October 2002.   Mr. D. Cregan: The people might not get it at all.   Mr. Costello: The money from the surplus funds is being doled out.   Mr. Bonner: It will be tax free then.   Mr. Burke: It will be worth a fortune to the Exchequer.   Mr. Gibbons: What did the Labour Party do?   Mr. Costello: It is being salted away rather than being used for infrastructure, housing or the health services or to help the low paid. Where is it going? I am sure the Minister for Finance is not taking it to Cheltenham or Aintree.   Mr. Dardis: It is going into the people's pockets and they can decide what they want to do with it.   Mr. D. Cregan: They will not decide much with £4.40 an hour.   Mr. Costello: Considering the amount of money in Exchequer funds, it is scandalous that we cannot give more money to the less well off. The national minimum wage is not a basic wage because shift premiums, service charges, gratuities, tips and bonuses are taken into account. Persons between the ages of 18 and 20 will not get the minimum wage. The large number of restrictions in relation to the payment of the minimum wage is unsatisfactory. The minimum wage does not apply to a family business, whether it is a farm or other business, so family members can be exploited. The Minister for Enterprise, Trade and Employment did not have time to discuss amendments to this effect in the Seanad, although she indicated she would be interested in addressing that point. It is unsatisfactory that a person will pay tax on a weekly wage of £107. Almost £70 of a person's earnings will be taxed. I am glad the Progressive Democrats tabled this motion. It is important that the minimum wage is exempt from tax. The Minister said that 163,000 people will benefit from the national minimum wage, which is approximately 10% of the workforce. If £5 an hour was given from 1 April 2000, I am sure more than 200,000 people would benefit, which would be approximately one sixth or one seventh of the workforce. I hope the Government continues to help those on low incomes rather than accepting the views of the Minister for Finance that tax relief should be given disproportionately to the better off. The tax rate paid by people on the minimum wage is similar to that paid by the corporate sector. By 2002, corporation tax will be down to 12.5% but people on the minimum wage will be paying 22% tax. I welcome the motion-----   Mr. D. Cregan: The principle of it.   Mr. Costello: -----and I hope the Government sticks to that commitment and does not renege on it.   Mr. Burke: It will not be there to renege on it.   Mr. Dardis: In that case, we will depend on the Government of the day to renege on it because we do not intend to do so. I thank Senators who contributed to this debate and I am glad the House universally agrees to its adoption. I will resist the temptation to get into the syntax of the motion because I am afraid I am unable to help Senators in that respect. On the substantive issues raised, the Minister, Deputy McCreevy, was at one stage a voice in the wilderness-----   Mr. D. Cregan: He still is.   Mr. Dardis: -----crying about the situation in regard to tax. I would have been in even greater outer darkness with a much smaller voice saying some of the same things. I recall, as I am sure the Minister does, very vividly that at the time we were threatened with the most appalling vistas, including the reduction in services, reductions in social welfare payments and that the country would go to rack and ruin if tax rates were reduced. That was the orthodoxy of the time propounded by people on those benches, by eminent economists and almost universally. To be fair to the Minister, he was one of the very few people at the time who said that if we reduce taxes, revenue will increase, we will have the capacity to do more for people who require more to be done for them and we will reduce the numbers on social welfare because there will be more people in the workforce. What he said has turned out to be true. He is the one who had the courage to go ahead and do it.   Mr. Costello: Fair play to the Progressive Democrats for persuading him and Fianna Fáil.   Mr. Dardis: There has been confusion about these figures. They were enunciated very clearly in the Minister's speech and I do not intend to repeat them. I agree with the option he chose as being the most desirable in regard to achieving this objective. He said that exempting the minimum wage from income tax through increases in tax allowances is the preferred approach. As I said in my opening remarks, which were confirmed by the Minister, the potential cost of doing this is over £1 billion. That causes people to be frightened until they recall that the tax package in the last budget was over £1 billion. It is quite possible, in the context of the revenue available to the Government, to do this over the period of two budgets. That is what we suggest and what will be achieved. I had an unusual experience this week when I met a taxpayer who said he had got £25 per week more this week as a result of the last budget. He said he was not so sure he needed it.   Mr. D. Cregan: Say that to somebody on the national minimum wage.   Mr. Dardis: I do not know of anybody who would have made that statement when the fading rainbow was in power.   Mr. D. Cregan: The fading rainbow left money.   Mr. Dardis: The Opposition was quick to pounce on the Minister for Finance last week when he expressed his distaste for their economic policies in colourful language, and I think he used that phrase himself. We were told the Minister's remarks were straight out of the owner's enclosure in Cheltenham. Even the Cathaoirleach, and certainly the Minister and I, as good Kildaremen, would love to be in the owner's enclosure in Cheltenham. That would be one of our lifetime ambitions achieved. They may be correct in their assertion about the Minister but the economic policies of Fine Gael and Labour are straight out of the life story of Ebenezer Scrooge. That is from where they come.   Mr. Burke: How did the Senator come up with that one?   Mr. Dardis: When it comes to PAYE, the two parties opposite regard it as "plunder all your earnings".   Mr. D. Cregan: That is why we left money after us.   Mr. Costello: We would not tax the poor old credit unions.   An Cathaoirleach: Senator Dardis, without interruption.   Mr. Dardis: Not for them the heavy tax cuts which have brought records amounts into the Exchequer over the past few years or the notion that people deserve to have more of their hard earned money. As a simple Kildare farmer, I have some difficulty understanding some of the things which have been said in regard to these additional payments. As a simple Kildare farmer, what I regard as important is the amount of money I have in my pocket at the end of the week, and I share that with a lot of people.   Mr. D. Cregan: Why does the Senator not say that to the fellow on £4.40 per hour?   An Cathaoirleach: All Senators have had the opportunity to make their contributions. Senator Dardis must be allowed to reply without interruption as his time is very limited.   Mr. Dardis: Is this regarded as injury time? Senator Costello made a statement about farmers and what they might pay family members which I regard as unacceptable. Anybody in farming will know that one would be very lucky to get somebody to work for less than £10 per hour. That is a considerable distance away from £4.40 per hour.   Mr. Costello: I did not say anything of the sort. In the case of the family business, including the family farm, it is different from employing a labourer or a worker.   Mr. Dardis: The inference was there----   Mr. Costello: There is no protection in the Bill good, bad or indifferent for a family member working in the business.   An Cathaoirleach: Senator Dardis only has half a minute remaining.   Mr. Dardis: The Opposition parties told us about the policy documents they have-----   Mr. Costello: We were telling the Senator about the legislation which he probably has not read.   Mr. Dardis: -----which advocate new rates of tax, including bringing down the top rate and all sorts of goodies for the taxpayer. If their record in future Administrations, if they ever get into one-----   Mr. Burke: It will not be long.   Mr. Dardis: -----is similar to their previous performance when in Government, the taxpayer has a lot to fear rather than to welcome.   Question put and agreed to.   An Cathaoirleach: When is it proposed to sit again? Mr. Finneran: At 10.30 a.m. tomorrow.   The Seanad adjourned at 7.45 p.m. until 10.30 a.m. on Thursday, 13 April 2000. Speech Menu Top