Thursday, 12 May 1994
Dáil Éireann Debate
“5.—The employee allowance provided in section 138B of the Income Tax Act, 1967 (inserted by section 3 of the Finance Act, 1980) shall, for the year of assessment 1994-95 or any subsequent year of assessment, be increased from £800 to £1,000.”.
This amendment related to the earlier debate and the PRSI allowance which, if I remember correctly, was introduced at the time of the great tax marches and protests against the disproportionate share of tax being borne by the PAYE sector. I think the allowance was originally £312 and was subsequently reduced to £286. I will not repeat all the arguments I made this morning, which were buttressed by the Minister, except to say that this allowance is now virtually negligible in terms of its value. The very modest increase from £286 to £500 proposed in my amendment is reasonable in all the circumstances, and I hope the Minister accedes to my proposal.
Minister for Finance (Mr. B. Ahern): This amendment proposes to increase from £286 to £500 the special allowance  granted for 1993-94 for those individuals who contribute at the higher rates of pay-related social insurance. The estimated cost of retaining the allowance at last year's level of £286 is £37 million this year and £57 million in a full year. The increase to £500 as proposed by Deputy Rabbitte would cost an additional £25.6 million this year and an additional £40.7 million in a full year. While this would be of benefit to a great number of people it would be very difficult to agree to this increase. The full cost of paying the PRSI allowance at the increased level of £500 would be in the order of £98 million a year, a very substantial sum. The arguments I made about the retention of the allowance at its present level under the last amendment apply equally in this case.
Mr. Rabbitte: Having regard to his attitude to similar amendments, the Minister's response is probably predictable. However, it is nonetheless regrettable. While an allowance of £286 was worth something to workers during the early 1980s it is not worth very much now. If the Minister is going to leave a relief like this in the system it ought not be of a negligible value. I very much regret that the Minister has not seen his way to increase the allowance in the modest way proposed in the amendment. I will not press my amendment.
“6.—Notwithstanding anything in the Income Tax Acts, as amended, with effect from the year of assessment 1994-95 the percentage of mortgage interest paid which qualifies for relief (subject to interest ceilings) shall be 100 per cent of such mortgage paid.”.
One of my main concerns about the Bill is the way in which it will leave homeowners worse off than they were prior to this  year's budget. We will not have an opportunity to debate the amendments to sections 105-115 as the question has to be put at 4.45 p.m. I will, therefore, make a passing reference to the way in which homeowners will be butchered under this Bill.
This amendment deals with the 80 per cent ceiling on mortgage interest relief; in other words, a person who has £1,000 of mortgage expenses will only receive relief on £800. This has the effect of hitting those on lower mortgages with more modest homes. This is just one of a number of measures introduced by the Minister, for example, the reduction in mortgage interest relief to the standard rate of 27 per cent, which will reduce the amount of mortgage interest relief by £55 million in the next few years; the widening of the residential property tax net and the implementation of the Labour Party agenda to get more taxes from family homes. People with a combined income of £25,000 who own homes of £75,000 will now have to pay residential property tax. There is also the bombshell announcement by the Taoiseach about a poll tax.
Homeowners are now begining to mobilise. ACRA has reported that residents' associations which had been dormant for years are being re-established and new associations are being formed to rail against the anti-construction and anti-homeownership policies of the Government. It is a matter of some concern that people who make lifetime commitments in the form of a mortgage — their biggest investment — should be penalised in this way.
We had a general election foisted upon us in November 1992 when the then Fianna Fáil-Progressive Democrats Government fell apart. At that time we were in the middle of a currency crisis and interest rates were increasing overnight. On “Morning Ireland” the Minister, Deputy Ahern, assured homeowners that if he was re-elected he would protect them and introduce special measures to relieve the high costs of mortgages. With the time lapse, the public forgot the preelection promises and they got a triple  whamming, and were hit on the residential property tax.
Mr. Yates: The ink on the Programme for Government was barely dry before the parties got down to the real agenda. Indeed, we will see revealing episodes of this in the future. We do not know what will come next year; we are told we will have the star chamber sitting, somewhere in the deep vaults of the Department of Finance.
I was reading what the Taoiseach said in Killarney. He let slip that under his new rates plan in Dublin alone full service charges combined with residential property tax would yield £50 million, and what a pittance the residential property tax yield was at £13 million. I await the proceedings of this star chamber. I assure the Minister I will be standing four square with this country's homeowners who thought the policies of successive Governments over decades to give a little assistance to those with a high mortgage would be retained.
Amendment No. 24 is but the tip of the iceberg. I am still receiving letters from people who are startled when they study their revised tax-free allowances. The Minister may explain it all away, saying that there has been a cut in interest rates; that people did not want to be underpaying their taxes then receiving demands for more tax and so on.
Mr. Yates: What people understand is the difference between their gross and net pay. They were assured by this Government they would be £3.47 per week better off. When one takes the 1 per cent levy out one discovers that those with a substantial mortgage claiming the  full relief are worse off. Next year and the following year, when the relief on VHI premia and the mortgage relief have been chipped away, as outlined in the table in section 6, they will lose £70 million in relief.
We will be keeping a vigilant eye on the Minister's plans. The Minister should not have cast aside the solemn promises he gave on “Morning Ireland”. The evening papers were quick to quote him on their front pages, saying he would protect homeowners from the ravages of high interest rates. The Minister has now thrown them to the wolves. The Minister and, indeed, the Minister of State at the Department of the Environment, Deputy Stagg, are saying that the policy of this Government is that those who want a house should go to their local authority and apply for it. That is totally against the spirit of self-reliance or trying to help people who are helping themselves.
Mr. Callely: The Deputy should tell us about 1982 before he concludes; he should tell us about their 35 per cent VAT, 65 per cent income tax rate and their little or no discretionary spending powers for the punter at the end of the day.
Mr. Yates: I have no difficulty because one of the Deputies who is running with the hare and hunting with the hounds in Dublin North is Deputy Callely, who is telling everybody he is doing his best to get Bertie Ahern to scrap the residential property tax; he is leading the campaign, getting committees of backbenchers——
Mr. Yates: I have to confess that I did hear of his mobile home used for clinics. I did not know that his campaign against the residential property tax was so extensive he is now resorting to sandwich boards at railway stations. The floating voters of Dublin North and suburban Dublin are fed up to the teeth of the crocodile tears of Fianna Fáil and Labour backbenchers——
Mr. Yates: ——voting here, as they will in 30 minutes, to give effect to the imposition of the residential property tax, then going six miles out the road weeping crocodile tears for householders who are reeling under the effects of this Government's anti-home ownership policies.
Mr. Yates: In conclusion, much as Deputy Callely and other Government backbenchers would like to wriggle and dissociate themselves from this Minister, he is in the grips of the Labour Party, he has signed up to the hidden agenda, which is more tax from home owners and eventually rates on houses.
Acting Chairman: I should like to advise the House of a typographical error in the list of amendments dated 12 May  1994, on page 23, amendment No. 141, paragraph (b) the reference to “296” should read “496”.
Mr. Rabbitte: It is the temporary loan of some of the Deputy's voters in which I am interested. It was timely of you, Sir, to remind us of that typographical error. It is quite clear that, despite the element of Dáil reform engaged in and the committee system, we will not reach that, or indeed a good many other amendments that are more important.
Deputy Yates's amendment on mortgage interest relief is important. It is a most important decision we are about to enact in terms of all homeowners. For some reason — perhaps the blame rests as much with us as with the media — we have been unable to communicate to people clearly what is involved here. The major part of the Minister's change relates to his commitment to lowering mortgage interest relief to the standard rate. That means that between now and 1997-98 the rate of relief will be cut annually by approximately 5.25 per cent and people do not readily appreciate its extent. However, if one looks at the Principal Features of the Budget of 1994 one will see that the savings to the Minister will be of the order of £81 million, admittedly, that includes relief in respect of VHI premia and health expenses.
As Deputy Yates said, almost £60 million will be saved from homeowners. An additional £3 million is being levied by the residential property tax. One can see the douche of cold water this is for homeowners, already hard pressed to meet their mortgage repayments. They were assured by the Minister that he  would not only maintain the level of interest relief as it was but increase it.
As Deputy Yates said, one must put it in context. For the first time the Minister for the Environment has imposed water charges on Dublin county, then there is the imposition of residential property tax, the cut in mortgage interest relief, the cut in VHI premia relief and a raising of the threshold for medical expenses. There is no point in our trying to discuss these in isolation because all of them combine to have a very serious, adverse effect on homeowners. Mortgage interest relief is by far the most serious and people do not readily appreciate that.
The Taoiseach has developed amnesia since his Killarney speech. He is now only one step short of denying that he ever made it. I predict that the Taoiseach will recover his memory very quickly after 9 June and will clarify the position. The star chamber to which Deputy Yates referred — I suppose if it is chaired by the Minister for the Environment, appropriately enough, it should meet in the vaults because he will bring that gravitas of monsigneur-like austerity to bear on it — will bring forward something after 9 June but, in the interim, we are enacting a Bill every backbencher who is listening to this debate should be aware that if householders do not now appreciate that their interest relief will be cut by 5.25 per cent for each succeeding year from now until 1997-98, when it will be reduced to the standard rate, they will then appreciate that that constitutes a severe additional burden on them. On top of all that the sword of Damocles is hanging over home owners. The Taoiseach made it clear that he intends to replace the residential property tax with a house or home tax for the entire country.
I do not agree with my colleagues in Opposition who said that the Taoiseach was walked into this and did not fully appreciate the extent of what he was doing. I think the Taoiseach did it in full knowledge of what he was doing, to try to defuse the row which Deputy Callely and other Fianna Fáil Members, as well as colleagues on the other benches, had created in Dublin about the residential  property tax. He wanted Mr. Niall Andrews — I promised to give him a plug — to be in a position to say to people in Dublin “the Taoiseach said in Killarney he would replace this tax. There is no need to worry about it. We have introduced amendments and so on to get over the problem with the Labour Party but the Taoiseach said we will replace it, so relax, it is not serious”. I have adopted a different approach from Deputy Yates in my amendments where I seek merely to restore the status quo. I agree that is the minimum the Minister should do in present circumstances. There is no point in presenting a budget that suggests large scale reform if all you do is transfer it from the taxpayer qua taxpayer and take the money back on the other hand from the taxpayer qua householder. It is jigging around the pieces in the jigsaw so that there is some modest improvement in your direct income tax for which you will pay in VHI, in the threshold of medical expenses, mortgage interest relief, water charges and so on. That is the position in Dublin county where they have just got their bills for £70 water charges. Their mortgage interest relief has been reduced and some are liable for residential property tax.
Mr. Rabbitte: The Deputy is incorrect and I am delighted to avail of this opportunity to tell the people of County Dublin that I did not vote for it because it is double taxation. We had a long discussion on Committee Stage about funding local government but the new Dublin County Councils were given no choice. They were faced with the prospect of abolition or introducing water charges. This is an important amendment.
Mr. Cox: I welcome Deputy Callely's intervention. In the earlier part of the day I was reminded of a phrase by my colleague, Deputy Michael McDowell, one afternoon when he said we should all join hands to see whether we could get in touch with the living. It is useful to know there is some spark of life in the proceedings as the day draws to a close.
This amendment is useful in the way it has been employed by Deputy Yates to bring us into the domain of property tax in general. It is impossible to avoid the opinion that the Government is not being honest about what it wants to do with the system. Trying to keep up with this debate in Opposition is almost useless because the goalposts keep moving. Following an ECOFIN meeting in Brussels some months ago, the Minister became almost apoplectic in defending the residential property after the budget because his Fianna Fáil backbenchers did not want it and some of the Labour Deputies felt that this ideological claptrap would not get them re-elected. The Minister produced a 50:50 scheme, which is more of the stop-go thinking that has characterised tax policy the past two years. The Taoiseach said we should not get too hung up on the residential property tax. I suppose, although he did not use the phrase, what he had in mind was “a temporary little arrangement” and that he would replace it with substantial rates by the back door or a poll tax, as suggested by Deputy Rabbitte, but the Minister for the Environment, Deputy Smith, advised the Taoiseach to desist. This does not necessarily reflect disarray in the Government but a sophisticated approach. If the Minister for Finance advocates two steps forward and one step backwards, that is policy. If the Taoiseach advises us to forget about it because it is inconvenient and that a new package will be well worked out next year that must be policy. If the Department of the Environment is charged with producing a significant part  of the input and the Minister says that is not policy, that too is policy and the public is left guessing. As neither we nor the Government know what the policy is a strong case can be made for tax reform. The Minister set out some principles about that case in his budget speech earlier this year but because of the confusion surrounding this extremely sensitive issue, the Government is in danger of sinking tax reform and the wider target which so many share could be lost.
I do not wish to comment on the amendment. I agree that the residential property tax is a sham. It should be removed and I am sorry we cannot remove it today. I say to Deputy Callely who is now sitting very quietly on the backbenches and all those other Deputies who will come in meekly in five or ten minutes' time to vote that the overwhelming majority will vote into law, walking through these lobbies, this iniquitous extension of the residential property tax. There is no point in putting out sandwich boards, statements or other emissions from the north or south side of County Dublin.
Mr. Cox: The Minister knows it is a disgraceful and useless tax and he felt obliged to cover his back. He did it moderately well but he is still left with fundamentally flawed residential property tax legislation. It will be hammered into the Statute Book by the votes of Deputies Callely and his colleagues and it is they who will bear responsibility for it.
Mr. B. Ahern: If that change had been made in 1983 perhaps we would never have had residential property tax. Unfortunately, this terrible tax that Deputy Yates speaks about was thought out by Fine Gael in Opposition and introduced in 1983 and they continued to support it in Government and in Opposition. Not only did they introduce residential property tax but service charges which applied in Dublin city and county.
Deputy Yates may not have had the opportunity to check the changes I made in March. He continued to refer to a particular case at the public meetings he organises — attendances were good during the first few weeks but not too many are now attending.
Deputy Yates instanced a couple with two children on an income of £30,000. If they live in an £80,000 house the maximum they will pay will be £10 per annum; if the house is worth £85,000,  they will pay £30 per annum; if it is worth £90,000, they will pay £50 per annum and if it is worth £100,000, they will pay £90 per annum; but in a £200,000 house to which the Deputy refers——
I am very pleased that this year for the first time we were able to give mortgage interest relief at the rate of 100 per cent for the first five years to first time buyers, even if they had bought a house in the past five years. This will prove very beneficial and will give a great opportunity to people starting off. I am aware that Deputy Yates is telling people who write to him about the impact of lower interest rates. A person with a £40,000 mortgage last year was allowed interest relief on £4,800 but with the lower interest rate at 8 per cent the interest has been reduced to £3,200, a saving of £1,600. This is proving to be extremely beneficial.
When account is taken of the changes in the budget less the decrease in mortgage relief, a family with an income of £20,000 will have a net gain of £175 and a family on £30,000 will have a net increase of £225.
It is clearly stated in the Programme for Competitiveness and Work that it is the Government's intention that the progressive increase in the yield from the standardisation of discretionary reliefs should be used as a priority to expand the standard rate band.
An Leas-Cheann Comhairle: As it is now 4.45 p.m. I am required to put the following question in accordance with an order of the Dáil of this day: “That the amendments set down by the Minister for  Finance and not disposed of, are hereby made to the Bill; that Fourth Stage is hereby completed and that the Bill is hereby passed”.
Browne, John (Wexford).
de Valera, Síle.
Higgins, Michael D.
Kitt, Michael P.
De Rossa, Proinsias.
Durkan, Bernard J.
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