Dáil Éireann - Volume 427 - 04 March, 1993
Adjournment Debate. - Galway Plant Workers.
Mr. Molloy Mr. Molloy
Mr. Molloy: I am grateful to the Chair for allowing me to raise this important issue.
Galway city is still reeling from the shock announcement made here last week by Minister Ruairí Quinn that manufacturing was to cease at the Digital plant in Galway with a loss of 780 jobs in the factory and a possible further loss of 1,500 jobs in other enterprises supplying Digital with goods and services.
The Galway economy has been dependent on Digital to an exceptional degree and the effect of the withdrawal of 780 jobs at the factory within the next 12 months will have calamitous consequences unless immediate measures are put in place to minimise the impact.
I welcome the IDA task force that has been set up under the chairmanship of Mr. Séamus Keating, a man with wide administrative and industrial knowledge and experience in the County Galway  region. Galway will fight back, but it will be a hard struggle.
My immediate concern today is to ensure that the State does not contribute to the financial hardship facing the 780 workers who are about to lose their jobs by taking away in tax up to 50 per cent of the lump sum payments that the Digital Corporation are offering their workers in compensation for loss of their jobs.
Minister Quinn promised in the Dáil debate last week that the Government would give sympathetic consideration to any proposals that might alleviate the financial hardship confronting the Digital workers.
I request that regulations be made, under the existing tax code or else legislation introduced immediately, whichever is considered necessary, to grant exemption from income tax for all compensation lump sums paid on involuntary loss of employment. In the case of Digital, Galway, the company has agreed to pay six weeks' salary for every year employed and the average length of employment among the workforce is 11 years.
Under the terms of Section 10 of 1980 Finance Act only £10,000 can be deemed exempt from tax in these circumstances. In the United Kingdom the current exemption is £30,000. If the 1980 figures were indexed to inflation here since 1980, our exemption figure would also stand at £30,000.
In the Dáil debate on the 1980 Finance Act, the then Minister said
the effect of the 1980 Act was that there would be no tax charge on the lump sum compensation and any tax free superannuation benefits which did not exceed £10,000.
Unfortunately, it seems there has been no change in that figure over the past 13 years. I am asking that it be changed now.
I would suggest that the Minister could also deal with this matter by altering the formula for calculating standard capital superannuation benefit by dividing years of service by ten instead of 20 as at present. I understand the present formula  to be: years of service over 20 multiplied by annual salary.
Another way the Minister could come to the aid of redundant workers in the Digital case would be to pay an agreed portion of lump sum direct to financial institutions to clear or reduce mortgage liability of workers. In this way it would not be assessed as part of workers' income.
Whatever action the Minister decides to take must have the effect of allowing the redundant workers retain the full amount of the compensatory lump sum.
It would be perverse to suggest, as I believe some officials have, that the granting of tax exemption would only result in the employer reducing the amount of the compensatory sum. The amount paid in compensation is something worked out in negotiations between workers and their employers. The cost to the employer is the same whether tax is charged or not.
It is the State that is denying the worker the full benefit of the amount being paid at full cost by the employer. I do not believe the State can morally justify what they are doing. In my personal view there is no moral justification for the State taking away in tax a substantial portion — in this case 50 per cent — of a lump sum paid by the employer for the loss of an income through involuntary loss of employment.
The tragedy for Digital workers will be twofold if as well as losing their jobs they also end up losing their homes because the State insists on stealing half their compensation. If something is not done about this whole question at the earliest opportunity it will indeed seem like the end of the world for most of the 780 employees at Digital, Galway — an end of their worlds, that they are not willingly going to accept.
Can the Minister please tell this House today that he will take action? Whether along the lines I have proposed or not is not important so long as the problem is adequately addressed. This situation is critical and the time for a decision is now.
Minister of State at the Department of the Taoiseach (Mr. Dempsey) Minister of State at the Department of the Taoiseach (Mr. Dempsey)
 Minister of State at the Department of the Taoiseach (Mr. Dempsey): I thank Deputy Molloy for his contribution on this matter and I would like to assure him that some of the ideas he has put forward will be carefully considered by the Minister in addition to the proposals already put forward by a number of other local Deputies, including the Minister for Arts, Culture and the Gaeltacht, Deputy M. Higgins. I should also like to inform the House that the Minister for Enterprise and Employment, Deputy Quinn, this morning met the task force to which the Deputy has referred, where similar matters were under discussion.
I would like to express my sympathy for the workers at Digital who are being made redundant. I am aware of the importance of redundancy payments in helping individuals and their families when jobs have been lost.
The decision by Digital to transfer its computer hardware manufacture from Galway to Scotland is indeed a very serious blow to industrial development not only in Galway but in the west of Ireland. The retention of the software operation is at least a positive aspect of the company's actions to deal with the worldwide difficulties currently being experienced by the computer industry.
The question before us today is, of course, the current tax treatment of redundancy lump sum payments. This treatment, while fairly complex, is very generous by comparison with the treatment of other income. Briefly, statutory redundancy payments under the Redundancy Payments Acts are exempt from tax. Retirement lump sums under approved or statutory pension schemes are also tax free. The first £6,000 of any other payment made by the employer to the employee is tax free. This £6,000 may be increased by up to £4,000, that is to £10,000, if (i) no claim for relief other than for the basic £6,000 exemption has been made in respect of a previous compensation payment; and (ii) no tax free pension scheme lump sum has been received in the past, or is being received at present, and there is none which may  be received in the future, or which there is an option to receive. The £4,000 will be reduced pound for pound with the amount of such tax free lump sum or option, or of any previous compensation payment.
As an alternative to the £6,000, or the £6,000 as increased, the taxpayer may claim an amount known as the SCSB — Standard capital superannuation benefit. This is calculated as 5 per cent of the average yearly salary — that is, averaged over the last three years of service — per year of service, less any tax free lump sum which is received or receivable under any approved or statutory pension scheme or which the individual has an option to receive in the future under such a pension scheme.
If the employee is liable to tax on any of his other compensation payments — and whether he or she just gets £6,000 or the £6,000 plus some or all of the £4,000, or the SCSB amount — he or she is entitled to “top-slicing relief”. What this means is that any amount liable to tax is charged, not at the taxpayer's marginal rate for the year in which he or she retires or is made redundant, but at an average tax rate calculated by reference to the previous five years.
As far as the use which redundant workers make of their lump sum is concerned, the tax code does not generally distinguish between taxpayers on the basis of how they spend their income. There is no provision in the existing tax code which distinguishes whether redundancy payments are spent repaying mortgages or on other bills of the workers concerned. One area where the existing tax code allows extra tax relief for particular types of expenditure is the business expansion scheme. If redundancy money is invested in a BES project then the investor would be entitled to a tax refund on the amount invested up to a maximum of £25,000 per annum.
The maximum tax relief would therefore be £12,000. Of course, there are obviously risks in BES type projects, but I hope that some of the Digital employees will be aware of worthwhile projects which they might be willing to invest in.
 In his Budget Statement the Minister also mentioned that he was examining the area of small business start-ups for the Finance Bill. He said that he was particularly concerned about the position of owners own capital investment and incentives for employee investment. While I would not like to anticipate the outcome of the Minister's study in this area, I am sure that those Digital workers with ideas for their own businesses will be following developments in this area carefully.
The success of the Galway area in attracting industry should enable it to survive the trauma experienced by the Digital cutbacks. With its many disadvantages, including a skilled and committed workforce, experience of high-tech manufacturing processes and a strong community support, the Galway area has many advantages in the campaign now under way to attract alternative industries to the area.
The special task force, to which I referred earlier, chaired by the city and county manager, and comprising representatives of the State agencies, local authorities, trade unions, the local private sector and Digital, has been set up to commence intensive marketing of Galway as a centre for high-tech investment. The task force will also act as a conduit for ideas, initiatives and proposals for dealing with the situation. The task force has commenced business in a very expeditious manner and in fact held its first meeting today when it was addressed by the Minister for Enterprise and Employment. I wish the task force every success in its efforts and I can assure the House that all the facilities at the disposal of the various State agencies will be made available to attract and develop alternative industries in Galway. A programme is being put in place to work with Digital staff to enable them to capitalise on their valuable experience gained over the years and form new businesses.
Mr. Molloy Mr. Molloy
Mr. Molloy: A most disappointing response.
Mr. Connaughton Mr. Connaughton
 Mr. Connaughton: Indeed, it was most disappointing.
Dáil Éireann 427 Adjournment Debate. Galway Plant Workers.