I am delighted to have an opportunity to contribute to the debate on the Bill. The 1994 budget, and the Finance Bill, give a clearer indication of the Government's thinking on financial matters than did their first budget which, it told us, it did not have time to prepare. The Government said last year that as it was in Government for only a matter of weeks it did not have time to do any strategic planning. However, it has had a further year to do so and we are entitled to judge this Bill, and the second budget of the partnership Government, on the basis of some criteria.
The first criterion must be the capacity to deal with the fundamental problem confronting our economy, that of high unemployment. Why have we such a high unemployment rate? We have a high dependency rate — for example, for every ten people who work in the economy, they have to keep 22 others. By comparison, for every ten people who work in the Danish economy, they have to keep nine others. Of every ten people who work in the Irish economy, two work in the public sector. Eight out of every 24 people must create wealth and generate income to keep the remaining number — a ratio of 1:3. Perhaps that explains to some extent why taxation is so high in Ireland, but there are other reasons.
The only way to deal with the fundamental problem facing the economy, the only way we will change the high dependency rate is by encouraging more people to become self-reliant, to have an opportunity to participate in the economic development of the country, to have a job. We can generate jobs through radical pro-jobs tax reform — I will deal with that matter later. That is one way of encouraging enterprise, rewarding those who take risks and making it worthwhile for them to put their money into productive investment rather than leave it lying in a financial institution.
Even with radical pro-jobs tax reform a substantial number of people will not be able to find a job in the traditional way. Recently I dealt with this matter when I published on behalf of my party a programme called A Community Right to Employment. This programme has been criticised and is considered right wing, but I see it as a very sensible programme. It compels people, particularly the young unemployed, to have work in return for unemployment benefit and, in addition to the benefit they receive, they would get an extra £20 which would be an incentive to engage in part-time work. Many people have asked why the programme should be compulsory. It would be compulsory for the individual, but, more important, it would be compulsory for the State, through the voluntary sector, the State sector or the local government sector, to provide these young people with employment. That is the compulsion we need to talk about because too many in our society are excluded from worthwhile participation in the economy.
Normal everyday conversation usually begins with a person being asked where they work, but many unemployed people are ashamed to admit they do not have a job. No society should put people in that position. There are 300,000 people unemployed and a further 50,000 who are not in full-time employment, including part-time workers, those signing for credits on the live register and those engaged in training programmes. There are 350,000 people who do not have full-time work in this economy. Unless we implement as a matter of urgency a programme such as I am suggesting — I published the detailed document — many more people will join that 350,000. Alternatively they will go elsewhere to eke out a living. That is bad for society at many levels. It is bad for the dignity of our citizens, equality in society and for fairness and justice. It makes many people feel they should not bother to obey a State that has treated them so badly. I wanted to deal with that matter before going on to deal with some of the more fundamental issues in relation to tax reform.
If we are to have effective tax reform, we need to codify, as Deputy Cox said yesterday, our taxation system. It never ceases to amaze me each year the Finance Bill is so long. I have taken the opportunity to examine the legislative proposals from other jurisdictions. Why can they produce the Bill implementing their annual budget in a shorter and much more coherent form? The reason is simple; they have a much more simplified taxation system. We should examine, for example, the American financial Bill implementing their annual budget.
I recently came across two publications, one called Successful Tax Reform: Lessons from an Analysis of Tax Reform in Six Countries by Cedric Sandford and the other titled Key Issues in Tax Reform, also by Cedric Sandford. Both these books make fascinating reading. In relation to the Irish tax system, a chapter was written entitled “Self Assessment and Administrative Tax Reform in Ireland” by Frank Cassells and Don Thornhill. They were two of the civil servants at the centre of the transformation of the Revenue Commissioners in the past decade. In their chapter they outline clearly the huge administrative strides in the way our tax system has been updated and I commend the Revenue Commissioners for that.
In his book, Sandford said that if we had 10 per cent of the effort in relation to restructuring the tax system as we paid to changing its administration we would be much better off. He said: "Despite a comprehensive blueprint provided by a Commission on taxation, the Republic of Ireland saw less reform of the structure of its tax system than many other English speaking countries". That is from a man who examined the tax system in five other English speaking jurisdictions including the United Kingdom, New Zealand, Australia, the United States and Canada. He also said: "the essential requirement for successful tax reform is a strong political will; and such a political will has to come from a champion". He said:
The only effort at tax reform in the Irish Republic was in 1989 when the Progressive Democrats joined in a coalition with Fianna Fáil and promised a complete overhaul of the tax code. The Fianna Fáil-Progressive Democrats coalition was responsible for the biggest reductions in personal income tax; the phasing out of tax relief on life insurance premiums and the attack on fringe benefits; the reduction in corporation tax from 43 to 40 per cent and the phasing out of accelerated depreciation; and for most of the reforms on VAT and excise duties.
I could quote many more fine words about our tax system but it is unfortunate that although the Government has the largest majority ever it has no targets in its Programme for Government, nor were any targets mentioned in the Minister's speech yesterday, on tax reform. What does the Government hope the standard rate of tax will be by the end of its term in Government? At what is it aiming? If politicians do not have targets, nothing will be achieved. Even if we did not achieve ambitious targets, if we were merely on the path to achieving them, we would be doing much better. What does the Government hope the higher rate of tax will be at the end of its term in office?
I listened with great interest to Deputy Penrose's contribution when he referred to public spending. Since the partnership Government came into office, public spending has increased by 17 per cent, which means taxation has also increased by 17 per cent. That spending is over four times the combined rate of inflation. Last year it was 1.5 per cent, this year it is anticipated to be 2.5 per cent.
We must examine the reason that level of spending continues to rise. One of the major contributory factors is the way we deal with pay bargaining in this jurisdiction. There was much to be said for the Programme for National Recovery which helped to resolve industrial relations problems. The economy cannot sustain or afford the Programme for Economic and Social Progress or the PCW.
I draw the Minister's attention to a fine paper delivered by economist Ciarán Kennedy, head of the ESRI. The Government is fond of quoting the ESRI when it suits it. In a paper delivered to the National Economic and Social Forum on pay Mr. Kennedy suggested pay cuts and said the economy could not sustain another central pay bargaining round such as the Programme for Economic and Social Progress. During the Programme for Economic and Social Progress years, for example, unemployment in the economy rose by 40 per cent. This year the public sector pay bill will be £252 million more. It will increase by 6.1 per cent although inflation will rise by over 2.5 per cent. I am not suggesting lower pay for public servants; I want higher pay and much higher productivity. The numbers in our public service cause the problems. No effort is being made to change this and I very much regret that the Department of the Public Service was abolished. With the exception of the former Minister, John Boland, no real effort has ever been made to reform our public service to introduce productivity or value for money throughout the Civil Service as well as the public service generally.
Instead of that £252 million, what could we have done for tax reform that would have benefited lower paid public servants in particular who are often the reason we are told we need public sector pay rises? We could have reduced the standard rate of tax by 3 per cent, from 27 per cent to 24 per cent. We could have perhaps reduced the top rate of tax by 6 per cent, from 48 to 42 per cent. We could have reduced the standard VAT rate by perhaps 2 percentage points.
Last year the public sector pay bill increased by £347 million. What could we have done with that money? We could have either reduced the standard rate of tax by 5 per cent, the top rate of tax by 10 per cent or the standard rate of VAT by 4 per cent. Any of those choices would have been much better to generate enterprise, encourage those at work and make people realise that we have radical, pro-jobs tax reform in place.
Many people listen to the Budget Statement each year. I carried out an exercise recently, and I will not bore the Minister of State by recalling all the figures, which involved examining the Budget Statements for the past eight to ten years. Every year the Minister said that "X" number of taxpayers will be taken out of the net. This year, with the reliefs and so on, he said 38,000 people would benefit. Figures of 11,000, 15,000 and 18,000 have also been mentioned and if one adds them all up, nobody should be paying tax, obviously some of them are the same people coming in and out of the net.
We have the highest level of tax on work of all the OECD countries and, despite what the Minister for Finance said recently that our tax system compared well with the tax regime of other countries, that is not the case. In terms of the GNP take in tax revenue, it is higher in this economy than in Europe generally and in Europe it is approximately 10 per cent higher than in Japan or the USA. Is it any wonder they have unemployment levels of approximately 2.5 per cent in Japan and 6 per cent in the United States?
We must control public spending. I am pleased that the forecast for growth over the coming years is high. The ESRI recently produced a paper on the medium-term outlook. I want to see that money used to bring in additional revenue. I hope it will go towards radical tax reform — which does not mean bringing in a new proposal to raise £5 million and giving it to a particular organisation. That kind of measure gives tax reform a bad name. The property tax or rates or the service charges, and the manner in which the Government has handled this whole issue, has been appalling.
The Taoiseach's comments at the weekend and the contradictions from the Minister for the Environment, who seems to be holding the Fianna Fáil line in relation to these matters, have led to a great deal of confusion. The Taoiseach is very adept at clarifying matters; he often clarifies matters he has not been asked to clarify. However, clarity begins at home and the Government must explain its intentions in relation to service charges, property tax, rates and so on.
My party favours broadening the tax base and having an equitable tax system for different categories of taxpayers. Consider the existing property tax proposed in this year's budget to be implemented through the Finance Bill. I will give an example of two taxpayers, one with a salary of £100,000 living in a house worth approximately £150,000 and paying no mortgage. That taxpayer pays the exact same property tax, under the Minister's proposals, as a person in a house of the same value with a mortgage of approximately £70,000 and an income of £25,000. That is not good enough.
Today I received a letter from a group called The Homeowners' Rights Association. They claim to be a non-political organisation formed to oppose the residential property tax. They outlined some of the problems as they saw them. If we are to fundamentally alter the tax system the Government should abandon the proposal which it estimates will raise £5 million and start again.
My party suggested the establishment of an all party committee. Many would say we are foolish and ask what would Labour and Fianna Fáil do if they were in Opposition. Would they consider an all party committee? I am committed to radical tax reform although I hate to call it "radical" because it is so simple. If one is on a low income one is almost better off being unemployed. We need to integrate, as a matter of urgency, the tax and social welfare systems. A married person with four children and a dependent spouse living in local authority accommodation would have to earn £300 a week to be as well off working in net disposable income terms as he is on social welfare. That does not encourage self-reliance and enterprise.
At Question Time the Taoiseach spoke about the national plan and how we would make up the shortfall of £800 million. He said it would not be through increased taxation or borrowing but yet it would come from the Exchequer. He did not say it would come from the private sector. I suspect it will come from what is described as tax buoyancy.
I read an article by Martin Fitzpatrick in The Sunday Independent of 10 April following his briefing by a Department of Finance official on the first quarter Exchequer returns. He asked where the money for the increase in public sector pay would come from since it had not been provided for in the Estimates. The official said that about 50 per cent of the increase in public sector pay immediately flows back to the Government. The interviewer inquired about the balance. “That is coming from tax buoyancy” repeated the official. This tax buoyancy — the increase in growth which will obviously generate increased revenue — must go towards tax reform and reducing the tax burden.
As regards tax compliance, there is a company which owes the Revenue Commissioners £11 million and owes £6 million to the revenue authorities abroad. The company has a C2 certificate and was able to engage in work and put other companies out of business by not allowing them compete. It will get away with paying 20 per cent of what it owes. That is a disgrace. A constituent of mine who owes £4,000 to the Revenue owns a small minibus, is involved in school transport and earned £11,000 last year. If the person availed of the tax amnesty the tax liability would have been cleared. The school transport service was withdrawn because the person did not have a C2 certificate. To treat a person with an income of £11,000 and a mortgage of £60,000 in that way and allow a company that owes £11 million and has a C2 certificate to get away with paying 20 per cent of what it owes is nothing short of a disgrace. Where is the equity and equality the Government, particularly the Labour Party, talk about?
Cedric Sandford said regarding compliance:
... large-scale tax compliance cannot be achieved solely by threats and penalties. The tax system itself, if badly structured, can contribute to poor compliance simply by its own inefficiencies. This can lead to a perception of inefficiency, lack of openness and a person feeling there is no point as they will not be rewarded for being honest with the Revenue Commissioners.
My constituent, by being honest, agreeing the figure he owed and not availing of the amnesty is being put out of business. That is not good enough.