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Dáil Éireann debate -
Wednesday, 18 May 1966

Vol. 222 No. 12

Finance Bill, 1966: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

The purpose of this Finance Bill is to confirm the very heavy extra taxes imposed in the Budget and to give statutory effect to them. In considering the additional taxes it is necessary to examine what has happened in regard to the financial and economic policy that has been operated and, in particular, to review the circumstances in which the extra taxes have been placed on what are commonly regarded as the traditional sources of revenue.

The House will recollect that when the turnover tax was introduced, the reason claimed for its introduction was that the traditional sources would not yield adequate additional revenue. Since then we have had three separate Budgets, one in 1964, one in 1965, and the present Budget, and the additional taxation imposed on the traditional sources of revenue such as petrol, oil, tobacco, beer and spirits is quite remarkable and extremely heavy.

In 1964 extra taxation on petrol amounted to £1,250,000; £250,000 on diesel oil, £2 million on tobacco, £1,100,000 on beer and £400,000 on spirits, totalling just £5 million. Last year the total extra taxation on these items amounted to £5.5 million. This year the extra tax on the items concerned amounts to over £6 million, out of a total extra taxation of £12 million in the current Budget. This very heavy additional taxation has been required and made necessary merely in order to pay the current outgoings.

It is disappointing to find that there is in the Budget no provision for relief in respect of taxpayers and, in particular, in respect of the dependent relative allowances. This is an aspect of taxation which has been the subject of discussion and comment here for many years. In a number of recent Budgets and in the course of the current Budget debate criticism was expressed by many Deputies of the fact that the tax allowances which operate at present have remained the same for a considerable time. There is one very minor change this year in respect of children's allowance, for children over 11 years of age, but the married and dependent relative allowances have remained the same, despite the very steep rise in the cost of living and the substantial and conance tinuous rise in taxation over a number of years.

In addition to the fact that there has been no variation in the rate of allowances for a considerable time, in this Budget there is no move to grant what has been the subject of a great deal of discussion and argument here over a number of years. That is, to provide an allowance, for income tax purposes, for medical expenses properly incurred and vouched. For many years people have rightly argued —either in business or trade—that allowances, for income tax purposes, are granted in respect of depreciation and so on and it is regarded as proper and normal that these allowances should be permitted. It has been the regular practice, and such allowances have operated for as long as anyone can remember. A great number of people have argued, cogently, that people who incur medical expenses— and I take it that applies to all categories of taxpayers—should be granted a set off or allowance by way of relief once these expenses are vouched for and proved to have been properly incurred, just as wear and tear allowance is granted in respect of machinery and is regarded as normal and proper. I feel, therefore, that the approach to this problem has not been either proper or correct and that the attitude adopted is merely postponing dealing with the problem, although many Ministers—the present Minister and his predecessor have expressed their sympathy with the view that such expenses should be properly allowed.

This Budget is notable not only for the fact that there has been a very heavy additional taxation imposed in it but also for probably the first time —certainly the first time when a Budget was introduced—the Minister made it clear, and it has since been referred to in speeches by the Minister for Agriculture, that extra additional taxation will be necessary at some stage this year to pay for whatever increases are granted in respect of farm prices. The recent controversy over milk prices has highlighted that statement. It is certainly bad budgetary policy and generally bad financial policy not to decide, when the Budget is being introduced, what the total anticipated outgoings will be and then state that it is proposed to provide for that expenditure by raising money in whatever way the particular proposed taxes are expected to operate. It is true, of course, that the practice and procedure of introducing Supplementary Estimates has a long tradition behind it but, in most of these cases, the additional sum envisaged in Supplementary Estimates is forecasted in a general way or, alternatively, some unexpected and unanticipated expenditure arises which justifies the introduction, subsequently, of a Supplementary Estimate.

In this case, that is not so. It has for a very long time been obvious that farm prices and, particularly, the price of milk are matters which would have to be dealt with. Long before the Budget was introduced discussions and representations had taken place in respect of this. It was generally recognised and, in fact, was specially mentioned at the time of the Budget that there was nothing in the Budget—with the possible minor exception of £100,000 in respect of western development—to provide for additional relief for farmers or for agricultural prices. It is, therefore, right to ask when will the extra taxation be imposed, how much is it anticipated will be added to the very heavy additional sum of £12 million this year and when is it proposed to take such a decision. I believe that the delay in taking decisions which must be taken sooner or later has generally created the widespread impression that the Government have lost the effective power of decision, that much of the criticism and confusion which exists at the present time and a great deal of the bewilderment which prevails throughout many sections of the community are due to the fact that decisions are postponed if they are going to be difficult, for as long as possible in the hope that something will turn up.

In the case of the annual Budget, it has been traditional practice in financial matters to indicate so far as possible what the anticipated expenditure will be over the following financial year. It has always been the practice, so far as possible, with the exceptions I have mentioned of supplementary estimates, to indicate at Budget time what the position is likely to be.

One of the major problems that has been the subject of considerable discussion here, not merely in recent weeks but in recent months, and which was also the subject of Parliamentary questions yesterday and again today, is the very serious situation that has resulted so far as housing finances are concerned. No one wants either to magnify or exaggerate the situation. No more is it good policy for the Government to try to minimise it. At worst, it results in a situation in which the local authorities do not know what the position is going to be.

The continuous correspondence, discussion and delay which ensue between the various local authorities and the Department of Local Government may be all right from the point of view of delaying the payment of grants, and postponing having to take decisions to allocate extra funds, or postponing the commencement of schemes that would otherwise fall for payment. That is all right as a delaying tactic, but it has far more serious consequences.

Naturally the building industry involves a great number of factors. A great deal of capital is invested in it. It is also an industry which is peculiarly vulnerable to changes of one sort or another. Because of that, the bulk of the building programme whether it is undertaken by the local authorities or by the private sector involves long-term planning. Plans and proposals are made a considerable time in advance and it is not easy to change direction or to change a proposed course of action, without causing very considerable repercussions on those involved in the industry and particularly on those employed in it.

For many years—one might say since the post-war era—there has been considerable expansion and development in the building industry, but the interruptions that have occurred have caused not merely hardship but delays in building projects of far greater length than might occur in any other form of industry or economic activity.

Many Deputies have adverted to the position so far as the local authorities with which they are familiar are concerned. I propose to deal with the position at the moment in County Dublin. It is important to appreciate that one-third of the total building being carried on in the State is carried on in the Dublin area. That figure emphasises the extent to which employment in the Dublin area is dependent on the building industry, and consequently indicates the serious situation in respect of building under the aegis of Dublin County Council and Dún Laoghaire Corporation.

The position in Dublin County Council in respect of small dwellings loans financing is that the money available is sufficient only to defray applications which were in before 31st December, 1965. Since that time 347 additional applications have been made for small dwellings loans. The total sum needed is £843,000. That affects both the Dublin County Council and the Dún Laoghaire Borough area. The position is so serious that the Dublin County Council cannot indicate to applicants what the prospects are. They have clearly stated that at present it is not possible to deal with applications made after 31st December last.

Everyone realises that there is a serious financial position, and that money is short, but I want to urge this point of view on the Minister. The time has come when the local authorities should be clearly and definitely informed that for a period ahead, whatever it is, they will get so much money for small dwellings loans, or that so much money will be allocated in respect of their own housing programmes, and that that is all they can count on until the situation has been reviewed and the position has improved.

Dún Laoghaire Corporation is either the third or the fourth largest borough in the country. There is at present a scheme of 26 houses being completed. That is the only scheme for the whole Borough of Dún Laoghaire in which there are anything from 300 to 500 applications for houses from the local authority. They have submitted plans and proposals and further schemes. It requires no emphasis on my part to indicate the gravity of the position in a borough of that size when that is the total number of houses being built by the local authority, or likely to be built. Even if another scheme were commenced at any stage between now and the end of the year, it would be 12 to 18 months before any other houses would be completed.

The situation is very serious so far as the Dublin County Council area is concerned and it is equally grave so far as the Rathdown area is concerned. In that area there are two schemes. One is virtually completed. Here again, although sites have been acquired and proposals made for some additional hundreds of houses, there is no prospect of the work commencing.

In regard to applications for small dwellings loans the Minister is aware that for a considerable time the building societies have not been in a position to provide anything like the accommodation necessary. In the Dublin County area the position is extremely serious. I, therefore, want to urge on the Minister that the time has come when the Government, through the Minister for Local Government, should indicate clearly to the different local authorities what the anticipated allocations will be. There may be disagreement in some cases but in most cases the details furnished by county councils, local authorities and the Department, are compiled on the basis of carefully ascertained needs as well as the number of applicants who have sought accommodation from the county council or, in relation to the Small Dwellings Act applications, in respect of the number of applications submitted to the local authority concerned.

This emphasises the gravity of the situation. The Federated Builders have recently issued a report expressing very considerable concern and pointing to the fact that in a great many builders' yards machinery is rusting and there has been a decline in the building position. I have urged on previous occasions, if not on most of them, that it is time for the Building Advisory Council either to have the basis on which it was appointed reviewed but certainly the whole approach of that council to the building problem needs to be altered and reconsidered.

So far as the sections and the provisions involved in the Finance Bill are concerned most of them are matters to be discussed on Committee Stage rather than on Second Stage because of their detailed character but I want to repeat what was the subject of very considerable criticism last year and which still is, so far as I can discover from examining the present Bill. No changes have been made from the point of view of easing the situation or altering it in any way. I refer to the decision which was taken last year to aggregate insurance policies with other estate for death duty purposes. I believe that the volume of criticism which was expressed in this House last year on that matter did not have the impact it might have had on the Government and on the attitude which was adopted primarily because the Finance Bill last year was discussed during the newspaper strike and, because of that, although the debates were reported on the radio and on television, there was nothing like the same public interest focussed on the effects of the proposals. Although particular organisations and individuals made representations and the matter was debated fully here during the discussion on the Finance Bill, nevertheless, the effect of it was not as widely or as fully appreciated. The reaction of the public was not aroused in the same way as it would have been if newspapers were published at that time.

I believe that decision was a bad one. I believe it has been appreciated since that it has had, and will have, a bad effect. Many people in the past made it a practice—there were a great many people who availed of this arrangement—to take out insurance policies in order to be covered against death duties. I believe that had an advantage because it enabled a business or a farm to be carried on afterwards. If there is one thing more than another which is obvious with the rise in prices generally and the effect of inflation it is that businesses and undertakings of any sort require more capital to maintain themselves at existing levels. Let me revert for a moment to what I was saying about housing when the case was made that the same amount of money is being provided for housing as was provided in another year. That does not take into account that costs in all industries, but particularly in the building industry, have been rising steadily. The amount of money provided some years ago obviously will not build the same number of houses today. When you provide the same amount of money now it means that it is not possible to do the same amount of work.

The effect of this aggregation of insurance policies with the other estate means that many people who legitimately and properly, in order to safeguard the interests of their business or their farm, took out insurance policies, now find that those are liable and are aggregated for death duty purposes. I believe that has had a deterring effect and it must have a deterring effect, when you are considering, as we were considering on the Budget, and we must consider now on this measure, the incentive for savings and the general attitude adopted by the State, the general policy and approach to savings. Those taxation provisions operate as a deterrent as did the provision in relation to the disclosure of deposits for interest rate purposes which was, I think, introduced in the 1963 Finance Act. All those have a deterring effect. They indicate, and possibly have indicated, to people who were prepared to invest here an attitude that has had some effect particularly so far as small savings are concerned.

One of the noticeable declines last year was the decline in small savings. There was a fall in small savings in 1965 of £5 million. That was followed by a number of other commitments or undertakings which involved the Department of Finance and the Government and which had undoubtedly a very serious effect on the whole budgetary position. Departmental funds dropped by £4 million and the amount to be repaid for exchequer bonds was £5½ million. There was £3 million for State overdraft and £8 million Budget deficit as well as the decline in small savings. Aspects of legislation such as I have mentioned discourage rather than encourage savings. Those dealing with companies and businesses involved in investment projects, and particularly outside investors, have commented on this situation.

One legislative change was made last year which has been the subject of a great deal of confusion. The Minister indicated he was prepared to review it if the evidence warranted such action. As far as I know, there is general disappointment that the matter was not reviewed either in the Bill before the House or during the course of the Budget. The question I refer to is the taxation imposed last year in respect of tax liability for property sales even when the property in question had been acquired many years ago. As the law stands, as I understand it, no matter when property was acquired, under the change made last year the Revenue Commissioners can make the person concerned liable to tax on the basis of the difference between the sale price now and the purchase price when it was paid. Here again there has been no allowance or any consideration given to the material change in the value of money that has occurred in the meantime. Inflationary effects—rising prices, a drop in the value of money, the normal difference in the price now secured for a piece of property compared with the purchase price originally—can show a big paper difference.

I understand this proposal was introduced last year to catch speculators who in relatively recent times acquired building sites, particularly in the Dublin area and adjacent to other cities, and made very quick and substantial profits. There is a case for dealing with that situation and, in fact, the operation of speculators of that kind has contributed to building costs. The net has now been thrown open, however, to catch these people but it involves others. A person who bought property many years ago now finds that because of the change in the value of money he is made liable to this tax. Exemptions should be given in these cases while, at the same time, ensuring that the speculators do not escape.

The present credit position is, of course, merely evidence of what has been occurring in regard to housing. Here, the effect last year of Government policy and the shortage of funds available to the Government, meant that of the extra bank credit created last year the State and the local authorities took the staggering sum of £28 million. That, of course, contributed to the difficulties which building societies and other such bodies have had in the matter of getting finance for projects in hand. It first manifested itself in the case of building societies but now it has spread to local authorities.

In this connection it is worth emphasising that big institutions, certain insurance corporations and State and semi-State bodies find it comparatively easier to get accommodation to meet the problems caused by the credit shortage because of their size, their influence and the fact that it is naturally easier for a corporation or body of certain financial standing to get financial accommodation than it is for the individual trader or the person seeking to build a house. The individual, whether in trade or seeking money to meet a Small Dwellings loan, irrespective of the credit or security he is prepared to put up, finds that without warning pressure is brought to bear because of the application of a policy in respect of credit and of the facilities which people have sought and which had been granted to them. If people had anticipated such a policy they might not originally have undertaken commitments.

Unlike the State or even some of the large bodies I have mentioned, some arrangement might be made whereby it would be possible for local authorities to get accommodation over an extended period. One of the difficulties of the present method of financing the housing programme has been the year to year allocation from the Department of Local Government. Because of it many local authorities are submitting figures, particularly in the areas with which I am most familiar, which are completely different from those of a great many other local authorities. There are two aspects of the building and construction programme that by and large are peculiar to Dublin. In this respect I speak of the city and county areas. There may be certain other towns and a few of the cities facing a similar problem.

As far as Dublin is concerned, there is continuous pressure not merely to rehouse people who have been living in bad conditions but to meet the continuous increase in the population of the area. This involves the local authorities in continuous pressure. It involves schools as well. All the time the pressure is growing whereas in other parts of the country some of the schools, for instance, find their numbers dropping. The method of financing the building programme for the Dublin area in respect of housing and schools seems to me to warrant a different approach from that which obtained last year. As far as the actual method of financing is concerned, it applies uniformly to a single cottage built in a rural area and to housing programmes in Dublin and Dún Laoghaire.

The present economic situation, which has been reflected in the very serious industrial unrest, has resulted from the failure of the Government to give a clear lead. Some months ago the Irish Congress of Trade Unions and the Federated Union of Employers, or the various groups represented in the NIEC, came together and agreed on a national incomes policy. Subsequent to that agreement, the Government indicated assent to the proposals. Since then, so far as one can gather, there has been no practical attempt made by the Government to implement that proposal.

I have never believed that a proposal of this sort could solve all the difficulties or that the implementation of a policy on prices and incomes would necessarily mean that there would be no strikes or disputes between one section and another. But the present situation has primarily resulted from two factors. Number one is the fact that the Government did not sufficiently, clearly and definitely indicate what the problem was and there is a widespread impression that the full facts are not being told. I believe there is merit in telling the truth to the people and in the Government's taking the country into their confidence.

It was said here today that the Minister for Finance tells the truth and says what he believes the position to be. There would be general acceptance of that view, but that does not hold for the Government as a whole and does not represent the attitude and approach of the Government as a whole. The fact is that the real truth is being concealed. Only those facts which force themselves on the attention of the public are being fully explained and because of that, there is a lack of confidence, which is attributable to this general dithering in face of a difficult problem.

The problems that affect industry involve not alone those directly concerned. I often feel that the attitude adopted in particular industries is that they sometimes avoid facing the facts and those concerned appear to be solely concerned with their own problems and oblivious to the reaction on the economy in general. I believe there is in this country plenty of goodwill and plenty of responsibility at management and trade union level and in the different organisations representing employers and trade unionists. But there are times because of the narrow approach adopted by particular sections and particular representatives in a sector of industry when disputes occur which could be avoided, if that sense of responsibility which is undoubtedly there when taken as a collective unit were extended to the individual units or individual undertaking.

It has long been appreciated and understood here that people cannot vote themselves prosperity. That impression was created here before and during the last election, and since then the experience has been entirely different. On the other hand, these problems and the industrial disputes which have been the subjects of a number of comments by Ministers, and particularly by the Minister for Industry and Commerce, should not be accepted as a normal unavoidable attribute of the economy generally. It is true that in a human society where a wide variety of factors operate, disputes must inevitably at some time or another occur, but to adopt the attitude, as appears to be indicated by some comments, that you have to live with strikes and take them as a matter of course, indicates a complacent approach to a problem.

The effect of industrial disputes, with economic repercussions and losses, extend far beyond the particular industry or undertaking involved. For that reason, there is an obligation on the Minister and an obligation on the Government to take some steps to try to bring the parties together in the bank strike. I know it is an easy matter to suggest, when a dispute occurs that it could be solved by one approach or another but there is, I believe, an obligation on the Government in a case of this sort where so much depends on the maintenance of the banking system and its smooth and efficient running. Therefore, an effort should be made to bring the parties together. Discussions rarely do harm and very often do some good.

So far as the general industrial situation is concerned, it is fully appreciated by a great many people that the present economic position of the country is such that disputes and disruptions in industry must retard our whole economic progress, that the competitive position which faces this country is very acute and is not getting any easier. For that reason, I believe the strength of the economy and the competitive capacity of the country must be harmed by disputes, no matter what industry or undertaking is concerned. Of course, the more important the undertaking, the more widespread its ramifications and the more serious the consequences of any disruption or cessation of the industry or undertaking concerned.

There is one other matter I should like to refer to, that is, the recent decision in Britain to provide assistance through the British Budget to industry. I note from the Minister's remarks that he proposes to examine this matter and see whether it conflicts with the terms of the recent Trade Agreement. It does appear, on the face of it, that a certain form of assistance is being granted to British industry and if that assistance is not in conflict with the Agreement, I should like to hear from the Minister whether we in this country are free to provide, if necessary, comparable assistance to industry here.

Mr. O'Leary

It is not my intention to rehash the Budget debate, though one might be tempted to do so in the course of one's references to this Bill. The Budget was an unpopular one, all the more unpopular since it did not give any hope of recovery from the present apparent decline in our terms of trade and so on. This has been a year of sackcloth decisions by the Government and there is now the promise, or threat, of more mini-Budgets before the end of the year.

One matter I should like to raise in relation to this Bill is concerned strictly with the formation of companies here and our attitude towards them under our existing company law. Our present company law appears to be unnecessarily complex. The provisions are archaic and we would certainly need to take a new look at the formation of companies and the way in which our tax provisions relate to them. I would call the attention of the Government here to what the British Government have done: they have taken the taxation of company profits out of the general provisions of the income tax code and will treat them separately in future. We have drawn the attention of the Government to the fact that, if they are serious for their part in relation to an incomes policy, they will certainly have to tell us how such a policy will apply to companies, their formation, their taxability, and so on.

The whole question of surtax should be examined. Is there such a thing as a legally binding surtax direction? What about the generally held opinion that sections 21 and 22 are now largely inoperative? We would need clarification as to how exactly such a directive could be drawn up. There is a great deal of confusion about it. More light should be thrown on what exactly may be regarded as a fair retention of profits and what should be distributed by way of dividends. An unusual accompaniment to the present economic situation is the high rate of dividends paid by certain companies, despite economic decline and decline in other spheres of activity. Have the Government given any thought to this previously sacred area, an area in which Governments have not intervened up to this?

If there is to be an incomes policy, it will be absolutely essential to provide exactly what rate of profit should be retained and what distributed by way of dividends. If companies invest money in Government loans, do they get tax concessions in return for their support of Government loans? Excessive dividends, especially in our present situation, have a bad effect. Working people are only too well aware of what can only be described as an inflationary and rising spiral in dividends and profits. This whole matter is an important one and the problem is being tackled now in Britain. How do we get the figure for total company taxation fixed, instead of having a series of problematical figures which no one apparently, not even the Revenue Commissioners, appear to be able to fix?

The whole of section 3 is utterly unintelligible and this entire part of the Act should be revised. I doubt if anyone can say there is a legal surtax directive on any company or even how exactly it can be drawn up.

With regard to sections 4 and 5, I do not see any Government hint that they will answer the question as to what will be the effective rate of total company tax in this financial year. Are there any mechanics in existence to give us this exact figure? Is there any simple, easily understood, method of doing it?

I am glad glasshouses are now scheduled as industrial buildings and I hope there will be tax remission on exports from these glasshouses.

With regard to section 17, there was an omission last year which I am glad to see rectified this year. Is it the case that all Civil Service gratuities are free of tax, irrespective of the amount involved?

They are not gratuities; they are benefits arising out of death.

Mr. O'Leary

Are they free?

Up to this they were but, under this section, they will in future be liable to death duties.

Mr. O'Leary

Under section 24, will the secretary of an incorporated company be liable for tax evasion practised by the directors? Do we distinguish between the directors and the secretary? I am a little vague about that.

With regard to section 27, if my memory serves me aright, representations were made to the Revenue Commissioners some years ago and, whatever the Revenue Commissioners' case was, it has been revised in years past and I am glad to see it incorporated in this now. I think it is a pretty good section if it offers inducements to companies to process more materials in this country, that is, companies which are in fact owned abroad.

What the effect of SET will be I should like to know. Has the Minister any comments to make on this particular British measure and how it will affect us? Is there any likelihood Irish processing firms might be affected by this Selective Employment Tax?

On the First Schedule, I should like to know if full reciprocal arrangements operate. Where a British company pays Irish corporation profits tax, are the arrangements reciprocal? If they are not, there may be need for a new double taxation agreement between the two Governments. I should like to know if there are any doubts in this area or plans to consider this aspect of the matter. I do not want to go over the talks we have had on this Budget.

All of us, from our Party standpoints, have expressed our disappointment with the Budget. It does not blaze any new trail or give any hope of salvation of our economic recovery in the near future. I should have been most happy to see, even in the shadow of such a Budget, evidence that the Government are really tackling the question of the taxation of companies. If we are to make intelligent to the vast majority of the working people of this country what we intend to do in the matter of an incomes policy, and if we want to save ourselves from the commonly heard accusation up and down the country that the only form of income the Government wish to control is the wage income, then the Government must tackle this whole question of company law. There is nothing divinely ordained which says that company law must be a confused muddle of archaic law which is unintelligible to the layman and extremely difficult for most Deputies to understand. If that question were tackled, it would make trade union negotiations with employers clearer and more understandable. Certainly, the economic position of any company at any time would more clearly be understood by people negotiating with the firm and in that way it would at least be a contribution to improved industrial relations.

Debate adjourned.