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Dáil Éireann debate -
Tuesday, 21 Jun 1966

Vol. 223 No. 6

Finance Bill, 1966: Committee Stage (Resumed).

Question again proposed: "That section 2 stand part of the Bill."

This is the section giving effect to the increase to £150 of the existing £120 allowance in respect of a child 11 years and upwards.

The only complaint I have is that it does not go far enough.

Question put and agreed to.
Question proposed: "That section 3 stand part of the Bill."

This is some improvement on the existing law, but only some improvement. I think the Minister has gone about it in the wrong way. What it says is that, when accounts are furnished, you can get a clearance by asking for it. Obviously, if you pinpoint it by asking specifically in one case, you are going to run into trouble because it will be presumed there is something queer in that case. The way practitioners will deal with this therefore—and I have discussed it fairly widely with accountants in the city— is that in every single case they will send in a request under this section. Every set of accounts sent in to the inspector of taxes will be accompanied by a request under this section. The result will be that this will be accepted as a generality and in consequence of that there will not be a spotlight on any one particular case.

The Minister would be much better advised, instead of making it as here on request, to make the provision that where appropriate accounts are sent in, the rest of the section would apply and that it would be up to the Revenue, where they have passed the accounts, to requisition something additional. What I am thinking of are cases in which accounts are sent in and in pursuance of those accounts, an assessment is made for income tax. At the time of the raising of that assessment, it means that the Revenue Commissioners are satisfied that they have all they want or they are raising a larger assessment than the accounts provide because they are not so satisfied or because they want additional information.

When the accounts are dealt with is the time at which the matters referred to in section 21 of the Finance Act of 1922 should also be dealt with concurrently. The provisions of this section, by virtue of which there is to be another examination, are only going to make for more administrative work, only going to mean there will be more difficulty and differences between what I may call the professional adjusters, be they accountants, auditors or individual tax consultants of the firm on the one hand, and Revenue, on the other. It would be far better to base this improvement—and I hand it to the Minister at once that it is an improvement—which is a limitation of the powers contained in section 21 of the 1922 Act on the assessment being raised out of ordinary accounts furnished for income tax purposes.

The Minister is aware from his professional work before he became Minister, just as I am aware for the same reason, accounts are sent in, but the measure of profit shown in the accounts for the company's purpose does not always coincide with the correct measure of profit for income tax or corporation profits tax purposes. That is inevitable because, for instance, the amount of depreciation might differ from the amount of the company's write-off. Where the accounts go in, are examined by the inspector and in pursuance of that an assessment is raised for corporation profits tax or income tax—either an agreed assessment or the assessment goes to the Special Commissioner and is agreed at that time—when that assessment is made and is agreed, then without any request time should automatically run from that date, unless the Revenue make a move within an appropriate period after that date. To provide that an additional request is necessary is only going to add to the administrative cost.

Would this be the appropriate section on which to ask the Minister whether he had considered industrial co-operative societies for the purpose of payment of income tax? This was raised two years ago with the then Minister for Finance, Senator Dr. Ryan. He said he would consider a remission or some abatement of income tax in respect of genuine industrial co-operative societies.

It does not arise on this section. However, I want to confess I have not anything on it.

Maybe during the course of this Bill the Minister might be able to find out if in fact anything did happen?

Yes; I will do that certainly when it appears to be appropriate.

In reply to Deputy Sweetman, it was largely to meet the case made by him last year both on Committee and Report Stages that the amendment was introduced. The Revenue Commissioners would be quite happy to meet the situation envisaged by Deputy Sweetman if accounts were supplied under section 3 in every case. Whether that possibly would be taking it too far from this point of view or not, I do not know. Section 21 only applies to a limited range of cases where the number of directors——

I agree, and if you ask for this, you are spotlighting that this is a case to which you think the section might apply and therefore you are not going to spotlight it but bury it in half a dozen cases so that the spotlight will not operate.

It is difficult for me to envisage what an accountant will do in relation to an individual client. While he may spotlight an individual client by making a case in this regard, on the other hand, if he is seeking to benefit a client, he might be spotlighting it but he would be gaining some advantage in relation to surtax. It is some improvement, but we will see how it works out.

I feel that the effect of the section will be that for every one case for which the section operates, there will be nine cases thrown into the mill quite unnecessarily and there will be unnecessary administrative work as a result.

I am given the assurance that there will be no problem.

I accept that it is an improvement. Perhaps whoever is sitting over there next year will be able to see if he can improve it further from the experience gained between now and then.

Is that a promise or a threat?

A promise.

And a threat.

Question put and agreed to.
Question proposed: "That section 4 stand part of the Bill."

Does this arise solely out of the new arrangements for tax in Britain and double taxation accordingly?

Does it mean that the situation is going to be exactly as it was before the adjustment to the new tax arrangements?

Yes, as near as can be.

That is what I thought but I wanted to get the Minister's confirmation.

Question put and agreed to.

I move amendment No. 1:

In subsection (2), page 5, line 42, to insert "under section 20 (2) of this Act" before "to".

This again provides that corporation profits tax arising on profits under or after 1st April is to be allowable as a deduction in computing profits for the purpose of income tax for 1966-67, or in any year later, but the actual section under which the computation will be made is section 20, subsection (2). For that reason I am asking to have the words in the amendment inserted in section 5.

Amendment agreed to.
Section 5, as amended, agreed to.
Question proposed: "That section 6 stand part of the Bill."

I would like the Minister to explain this section.

The purpose is to secure, so far as it is possible, that the total tax, both Irish and foreign, on foreign income arising to a company incorporated and resident in this country will not be greater than if that income had arisen in Ireland. I think this is the same point as that which the Deputy was making earlier.

Does "foreign income" include any income that is not Irish income? Sometimes "foreign income" means any income in Ireland and sometimes it means any income which is not Irish or Birtish, because under our double taxation agreement with Britain, in certain circumstances British income is deemed to be Irish income.

It is non-British profits. The British profits are dealt with separately.

"Foreign income" may mean income in Ireland or Britain.

Is this a reciprocal agreement, and, if it is, with what countries will it operate?

With the United States, Canada, Germany, France, Sweden, Denmark and Austria.

It is reciprocal?

I have a question down about Holland.

Question put and agreed to.
Question proposed: "That section 7 stand part of the Bill".

This is the section which brings commercial glasshouses within the scheme of initial allowances as applied to factories. It relates to the repairs allowance. Even though it is granted for the purpose of corporation profits tax, it is governed purely by the income tax provisions. That is why it is in the Bill.

Could the Minister give an expanded definition of "commercial" because many people would engage in the business as a sideline if they were able to get the allowance?

If their profits are charged under Schedule D, that is in the case of running a business, as against a farmer charged under Schedule B.

Question put and agreed to.

I move amendment No. 2:

Before section 8, but in Part I, to insert a new section as follows:

"The provisions of Part VII of the Finance Act, 1965, shall not apply to an increase in value of the property in question arising before the 5th April, 1965".

I referred to this matter on the Second Stage of the Bill and I put down this amendment which, while not a very great experiment in drafting, makes it quite clear to the Minister what I mean. One of the cases that has come to my knowledge is that of a company which was incorporated on 10th August, 1937, was registered in Ireland, managed in Ireland and controlled in Ireland. From the date of the incorporation of the company up to the present, the policy of the company has been to build houses for the purpose of renting. They built a great number of houses for renting up to 31st December last year and built them on the basis that they were to be an investment from which income would be received.

In consequence of other actions by other Ministers, and for reasons that were deemed necessary for the general good, in April 1941, the rents in relation to buildings of that sort were frozen. The effect of the freezing meant there were certain increases in basic rents but, when a house became vacant, it was obviously better from an investment point of view to sell the house, and the money realised by that sale was utilised for the purpose of providing more houses. The effect of merely changing the investment of the company from an old house to a new house did not mean, before the Finance Act of 1965, that any assessment would be made for tax purposes.

In the years 1963 and 1964, the contention by the company in that respect was accepted but, following the enactment of the Finance Act, 1965, a different situation arose and, for the life of me, in relation to that, as well as in relation to individual cases to which I shall refer in a moment, I can see no justification whatever for it. In consequence of the provisions of Part VII of the Finance Act, 1965, if the company about which I am speaking erected a house in the year 1938, and that house at that time cost £1,000 and, because of the depreciation in the value of money over the past 30 years, that house is now sold for £2,000, the effect is that the company concerned is assessed on that additional £1,000 which has arisen not by means of any capital profits in the ordinary sense but purely because successive Ministers for Finance all the way down the years since 1938 have failed to provide that the value of money shall not decrease and I fear there does not seem much prospect of any stoppage in that decrease at the present time either. It seems to me quite outrageous to provide that a person or a company, consisting of a number of small people, as this company does, shall be assessed solely for the reason that the value of money has decreased. I am quite prepared to accept, if the value of money has increased since the commencement of last year, that it would be desirable —not so much desirable as in accordance with the terms of the legislation —that that increase should be taxed.

Let me take another case, the case of the individual. An individual bought a house or succeeded to a house and some land in 1910, 1920, 1930—it does not really matter when—and decides to sell that house and land. He has done some work on the house by way of reconstruction. It must be remembered that the Minister's colleague, the Minister for Local Government, has been endeavouring to get people to improve their houses by way of reconstruction grants. This man does some reconstruction work and, following on that, decides to sell. As a result of the interpretation of Part VII of the Finance Act, 1965, he comes within the ambit of that Act and, because he does, he will be assessed not on the increase in the value from the time that notice accrued to him under this Act but on the decrease in the value of money since 1930, if that was the date at which he bought or succeeded to his property, up to the present time. I can understand neither the equity nor the morality of that.

Suppose, then, a person had a house and some land worth £1,000 in 1930. He did some building and the house and land is now worth £3,500. I think the Minister will agree that the value of £3,500 today is about the equivalent of £1,000 in 1930. Yet, because that man has brought himself within the ambit of the Act by doing the reconstruction work, he will be assessed for income tax and surtax on that increase of £2,500. I cannot see any justification at all for that. I could understand the Minister saying—I might not agree with him—that he will take the value as at the date of the commencement of the 1965 Finance Act and any increase in value after that date—say, 5th April, 1965—will be brought into the general taxpayer's income. After all, when they were introducing the capital gains tax in Britain, they did it in that way: they took the value as at the date at which they introduced the tax and taxed capital gains only after that date. Under Part VII of the Finance Act of 1965, however, the Minister has not merely taxed capital gains since 1965 but has also taxed in addition the decrease in the value of money going right back over the years.

I accept that something had to be introduced to obviate certain avoidances on the part of those whose job it is to develop land by building but, in the efforts to ensure that these people would not escape, the Minister threw the net so wide last year that he has caught many innocent people whom neither he nor this House intended to be caught. The only way to deal with the situation now is by a complete re-thinking of the method of assessment in relation to profits made on the development of land for building.

The Minister will find that he will get all the co-operation he requires in his efforts to prevent evasion but it is quite outrageous that, in trying to prevent evasion, the innocent should be hit just as badly as the guilty. Two categories are involved: the company building as an investment and merely exchanging one investment for another and the individual who has done reconstruction work within six years. I admit the terminology is not very elegant but I think the Minister will agree that, coupled with what I said on Second Reading, it does make the position sufficiently clear to enable him adequately to brief himself on what I have in mind.

I accept that Deputy Sweetman does not claim anything special from his drafting and, for that reason, I shall not comment adversely on it. He realises that in the form of drafting he has employed there are certain types of cases that could get reliefs much beyond what would have been envisaged. Take the builder who, having developed land and built a house on it in the ordinary course of his business prior to 5th April, 1965, let it appreciate over a period and sold it immediately after 5th April, 1965. The difference in value would have been very little between 5th and 6th April and there would have been charged very little by way of tax on the profit he would have made over the period.

I have not got the Minister on that. If I have understood him correctly, it means he is advocating retrospective taxation, which I do not think he intends to do.

No. Deputy Sweetman was talking to one of his colleagues.

I was trying to get the Minister's point.

I understood the Deputy's difficulty and I had acknowledged that Deputy Sweetman did not claim anything special for his form of drafting.

I know that.

The drafting in that form would have given a let-out to a builder who, having built the house in some period prior to 5th April, 1965, sold it immediately after 5th April, 1965. There would have been very little difference in the value as between 5th and 6th April.

That is what I thought the Minister said. But the Minister is now saying that the 1965 Act should be, and is, retrospective taxation. It is, but it should not be.

Assuming he is a trader in this broad sense, goods, for example, that he would have taken in stock and sold after 5th April would be caught under this legislation as well. However, I agree that Deputy Sweetman has a point and I did not claim for Part VII, when it was passed through the House, that it was going to be a perfect piece of legislation by any means. I should like to repeat a statement which was published some time after the operation of Part VII:

There have been criticisms of Part VII of the Finance Act, 1965, which is concerned with the taxation of profits from dealing in or developing land. The previous legislation in this field, dating from 1935, had proved ineffective and had permitted large profits, which on any reasonable view should properly have been taxed as income, to escape liability.

The main defects were that, to establish liability to tax on profits from the acquisition and disposal of property, it was required to show that the person involved had acquired the property with the intention of reselling or developing it; and that the transactions of acquisition and disposal had been carried out in the course of a trade. In practice it was found virtually impossible to controvert any statement a taxpayer made as to what his intentions in relation to a particular property were at the time he acquired it; and, even if the intention of reselling or developing was proved or admitted, the profits arising were not chargeable unless the transactions in question, having regard to the way in which they were organised, amounted to trading in the income tax sense.

In justice to the general body of taxpayers the state of affairs which existed prior to 1965 could not be allowed to continue—I believe this is generally conceded; and accordingly the legislation now contained in Part VII of last year's Act was brought in to secure proper taxation of all profits from dealing in or developing land.

Much play has been made with the intricacy of the drafting. It is well recognised, however, that sections introduced to prevent avoidance of tax must almost always, from the very nature of things, be highly difficult. The main provisions of the new legislation are necessarily drawn in very wide terms. But they are qualified by a number of exemptions, of which some appeared in the Bill in its original form and some were inserted during its passage through the Oireachtas.

Deputies will appreciate that, in relation to profits of this kind, the framing of legislation which is both effective and equitable is far from easy. I would not be surprised to find that, particularly in regard to persons who cannot fairly be said to be carrying on a trade of dealing in or developing land, further exemptions may be desirable. On the other hand, it may well be that, in some respects, the 1965 legislation may require to be strengthened to prevent tax avoidance.

It was announced some time ago that the Revenue Commissioners have set up a special branch with which professional bodies and consultants generally can raise matters arising out of the practical application of the new provisions. In this way it is to be expected that information based on experience will be assembled over the next 12 months by reference to which decisions can be arrived at as to where, and to what extent, the legislation may have to be altered. I would thus be in a position to introduce amendments in next year's Finance Bill, with full retrospective force if necessary.

I feel that, in this complex matter, it is better to wait until the problems that may arise from the application of last year's measures can be seen in their entirety—and then to deal with them as comprehensively as possible, rather than to embark on piecemeal changes.

Is that a new statement?

It is a reiteration of a statement that was published but which I do not think got sufficiently wide publicity.

Could the Minister tell me when it was published?

The original statement, of which this is an elaboration, was published a few months ago.

About the end of February or the beginning of March?

It may have been about then.

Is it not also a fact that the Minister has no amendment to this Bill?

No. The office to which I referred was only set up at that time, and experience of the defects that may arise on Part VII has not been sufficient to enable suitable amendments to be introduced. However, the purpose of Deputy Sweetman's amendment is one of the things I propose to keep under review and to alter, if it appears to be necessary to alter it, in the Finance Bill next year. In reference to that, I did not get an opportunity of replying to the general debate the other evening—I could have got the opportunity today if I wanted to take it—but Deputy Sweetman referred to some statements I had made in the House about there being no complaints put to me about the operation of Part VII. These were in reply to a Parliamentary question on the subject by Deputy Cosgrave. In further reply to a supplementary question by him, I said: "I certainly got no representation on that specific point", the specific point being a case where a firm who acquired premises 80 years ago, and who have now been obliged because of development to buy new premises are being charged on the difference between the price 80 years ago and the value of the property at present. That was the specific point to which I referred. I did say that Deputy Sweetman had mentioned to me in the course of conversation that there was difficulty about this. He will remember the conversation at the time of the opening of the building in Ballsbridge.

I was not referring to that at all. I never refer to private conversations. I am referring to representations that were made on a wide scale and in relation to which discussions came up on this section between the professional people and the relevant Revenue officers.

I accepted Deputy Cosgrave's question as inquiring whether or not specific representations were made to me, and I answered truthfully that there were none.

The Minister is responsible for Revenue officers.

However, I shall accept that the wider complaints had been made.

Would the Minister give the reference to that question, because I was looking for it the other night and I could not trace it?

It is at column 544, volume 221 of 1st March, 1966. Having repeated the statement, I hope it will get some further publicity. I would suggest to Deputy Sweetman that, in so far as his amendment might go further than would be absolutely desirable and, on the undertaking that this is one of the matters that will come under review for amendment next year, which, as I had indicated, would have retrospective effect, perhaps the Deputy might consider not pressing his amendment.

I should like to say two things about the amendment, as such, and about the opening part of the Minister's statement to which I was listening as carefully as I could. But, at the same time, I appreciate what one hears about a statement does not always convey quite the same interpretation as when one looks at it in black and white. It does seem to me, however, that the Minister's statement represents an attitude of mind which is not the appropriate attitude of mind; an attitude of mind which is, in my view, very typically "Revenue". I say that as one who yields to no man in my appreciation of the work done by Revenue in this country.

Section 6 of the Finance Act, 1935, provided, as the Minister has stated, that the Revenue could not raise an assessment unless they were able to prove that a person had bought land with the intention of developing it. I am putting the matter rather broadly in order to make it simpler, but I know what is being done by certain dishonest people. In fact, I know to my own cost because one man wanted my connivance in it. I refused point blank to accept a professional retainer from him and he went to another solicitor. It remained at that; I would not do it. The regular way it was done was—Mr. A went out and bought a piece of land, which had a house and ten acres suitable for building development. Having bought it today, he took his wife out to it tomorrow and she said: "I would not dream of living there under any circumstances." Then he was able to go along to Revenue and say: "I bought that for my own residence but when I took my wife out to see it, she would not live there and, therefore, I had to develop it." The Revenue were bound, in consequence of the wording of the Act of 1935, to accept that untrue statement by the person concerned.

With the Minister's desire to close that gap for that type of deceitful flaw he will have my wholehearted approval and the wholehearted approval of anybody in this Party. The Minister for Finance is not allowed to see individual taxpayers' files; he will not know to whom I am referring. The Revenue officials, whose duty it is to read the debates, will know to whom I am referring and will know that this case has arisen peculiarly often in one respect.

There was another case in which a person went out and bought land. He did it as a single transaction through a single company. The company was liquidated and that land was then sold at an excessive price, as in the first case I mentioned, which will show there could not be any profit in the building operation and the profit was siphoned off. That was a legitimate avoidance but an avoidance that should equally be stopped. In so far as Part VII stopped that avoidance and stopped the first evasion— because it was evasion based on deceit—the Minister was right in stopping them but the Part went much beyond that and I think that the attitude of mind disclosed in the opening phrases of the statement the Minister has just read amounts to this: "It does not matter whether what you were doing before was lawful or not, I am going to be sure you will be caught under Part VII of the Act of 1965." If it was unlawful, of course, the individual must be caught. But if it was lawful to bring in a section of an Act and utilise that Act for the purpose of declaring, subject to taxation, something that was not previously subject to taxation, that is not merely wrong but, I think, it is probably unconstitutional. I do not purport to be in any way a constitutional expert but it is certainly contrary to the spirit of what is involved.

There is also in this a hint running through the statement by the Minister that, so long as you ensure that nobody escapes the net, then you are doing a good job in the national interest. One must take a much broader view than that. One must ensure that the national interest in general is pursued and that, in the efforts and desire to provide that somebody will not escape the net, the net must not be cast in such a way that the innocent will be caught as well. If the Minister means, by what he has just said, that the anxiety now is to examine Part VII of the 1965 Act to see whether, as the result of that Part of the Act, any innocent person is not caught by the provisions of the Act and that any innocent person who was abiding within the law is not penalised by it, then I am perfectly happy. Equally, I take it that the Minister means that in the event of any individual—who is not engaged in this business, either directly or as a director or substantial shareholder of a company which is so engaged, or through a chain of shareholders—dealing with his property he will not be caught in this way. The case of a man who does some trifling reconstruction work within the six years and, in consequence of that, is brought into the assessment is not one which can be defended.

Part of the mistake in the drafting of the Act of last year in that respect was that we provided that it was not to cover a case under £1,500. We provided in relation to that £1,500 that it was to be under £1,500 difference and not that it was to be worth less than £1,500. The effect of the particular section which provided that difficulty is mainly in section 42 and particularly subsection (3) (b) (i) which says:

in a case in which the building was constructed or reconstructed, the period from the time when the construction or reconstruction was completed to the time when the interest was disposed of was not less than six years...

As people read that section at present, it means that a person who adds a bathroom to his house is within the purview of section 42 and that if, in consequence, he sells after he has added that bathroom, he is caught under section 42. That certainly was not what was intended and I do not think it was what the Minister intended last year. The Minister might have thought that he was exempting that case by the proviso contained in section 44 but the proviso contained in section 44 of last year's Act exempted only so much of the profits.

As I say, where something worth £1,000 in 1930 was now worth £3,000 solely because of the diminution in the value of money, that case would still be caught by an assessment in the sum of £500. There would be the original £1,000; there would be the exemption under section 44 of £1,500 but it would leave the balance of £500 liable to assessment, an assessment on top of the taxpayer's income. I must confess that the Minister puts a Deputy at a very considerable disadvantage in relation to this. Providing a form of drafting that would catch the evasion case, that would catch the case in which the builder or developer was utilising a legal form such as I indicated to get out of the liability on his building and developing, is one that would, I think, be far beyond the drafting ability of any Deputy.

What should be substituted for Part VII may provide a difficult drafting matter. To that extent I am bound to say I must agree that the very simple method of drafting I adopted to hang the peg on would not have suited, but it did hang the argument on sufficiently well. I shall withdraw the amendment, with the permission of the House, and say that I hope when the Minister and the people concerned in Revenue have examined this we shall not have to wait until next year for a suitable amendment. The uncertainty and the difficulties created are such that we cannot wait another 12 months. I had occasion recently—and one does not like to talk about one's personal experience—to ask a taxation counsel to give an opinion in relation to section 42. His reply was that he could not, that he was not able to say what exactly, in relation to the set of circumstances, section 42 meant. He also added that he had discussed the position with many other counsel in the Library who advised on taxation matters and they had all told him the same thing, that it was not possible in relation to section 42 of last year's Act to provide a certainly that is necessary and desirable in taxation, and that he had reluctantly come to the conclusion that the only thing he could say in relation to section 42 was that everything was in and the taxpayers must provide accordingly, whether innocent or trying to evade or to avoid. If they are trying to evade in any way, the Minister will have the full wholehearted co-operation of the House in trying to stop the evasion, and if they have been trying to avoid, he will have power to take action legally. If it is desirable to block the loophole, then let the loophole be blocked. But it is not appropriate that there should be something within the law that has to be changed retrospectively. Does the Minister think I am unfair in the case I have put on that basis?

I do not. I accept that the Deputy has put a fair point of view and I agree with him to a large extent. The Deputy, while he highlighted section 7 of the 1935 Act——

I called it section 6 —I beg your pardon.

While the Deputy highlighted these cases, there were a lot of other contrivances in order to distinguish between avoidance and evasion whereby people sought to get out of their tax liability, and it was not easy to provide for all of them. I tried in the course of the drafting of the initial Part VII and in the course of the debate on Committee and Report Stages to bring in what I thought were reasonable amendments to exclude certain transactions. I realise that I may not have gone all the way and I realise difficulties have arisen since that ought not have arisen, in other words, cases that we did not envisage should be caught by Part VII. It is in recognition of that fact that the announcement to which I have referred, and which I have repeated in great detail now, has been made and that the special section has been set up. I could not give an undertaking at this stage that I could introduce the amendments in advance of next year's Bill but if I see it is feasible to do so, I certainly would be inclined to consider it.

Would the Minister consider one specific amendment which I think would have the effect of taking many individuals, and I use the word "individuals" rather than the legalistic word "persons", from within the provisions of Part VII, that is, where an individual did reconstruction work of a value less than £1,500, the figure mentioned in section 44, and where that individual is not—either himself or his wife—a director or a shareholder in any company that builds, that is engaged in building or developing, he will not come within the provisions of Part VII? If that were done, it would have the effect of knocking out all the innocent individuals who are covered by this section. I do not expect the Minister to give me an answer straight away. It would not be fair to ask him to do it. I would, however, ask him to think about that as a simple method to remove the innocent individual between now and Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 3 has been ruled out of order.

I move amendment No. 4:

Before section 8, but in Part I, to insert a new section as follows:

"Section 17 of the Finance Act, 1963, is hereby repealed."

I think everybody will agree, including even the Minister, that the main malaise from which the country is suffering at the present time which is having and will have the effect of preventing further increases in employment and further increases in our standard of living is the shortage of capital. Nothing has done so much harm to the capital situation as the provisions of section 17 of the Finance Act, 1963. This was the provision which for the first time breached the confidential relationship between a bank and a customer. The Minister introduced that section with the laudable idea, if you like, of being able to ensure that in relation to interest on bank deposits there would not be tax evasion. As I said on the last amendment, all of us accept that there should not be evasion but section 17 has not done that at all. All that has happened since that section was introduced is that people who wanted to evade transferred their deposits out of the country and put them either in Northern Ireland or in Britain.

There has been a variety of estimates of the amount that the country has lost as a result of this attitude in the Finance Act, 1963. I saw one estimate by a most reputable person in the city, the head of a substantial insurance company, that it was between £70 million and £100 million. I do not think it has meant quite as much as that, but I am absolutely certain that it has meant a great deal of money. I am absolutely certain that we have lost since 1963 a very substantial part of the whole credit base of the country. I am certain that we are continuing so to lose every month as a result of that section.

Wherever one goes throughout the country and asks bank managers whether they lost deposits as a result of section 17 of the 1963 Finance Act, one is told at once: "Yes". Some bank managers will tell one of the amounts that went out in the flight after that Act was passed. They cannot all be wrong. One's estimate of the amount as a result of discussions with bank managers cannot be accurate, but I have never heard any acknowledgment by the Minister of the amount that his Revenue officials have estimated as having gone or the amount that has been estimated by the Statistics Office. However, there is no doubt whatever that it is a very substantial loss.

Worse than that is the fact that the knowledge that bank deposits would not be confidential has prevented other capital that we need very badly indeed from coming into the country. The Swiss built up their prosperity largely on the inviolability of the confidence that exists between the customer and the banks in Switzerland. There have been suggestions in recent times by people in industry that it would be to our national advantage to have what they call the numbered bank accounts system of the Swiss. I do not think that matters very much. What matters is that the relationship should be engendered in such a way that people coming in here would be entitled to feel, and think, and know, that this confidential relationship existed.

As I say, this section was introduced by the Minister for the purpose, as he said, of stopping evasion of responsibility by certain taxpayers. Everyone would be with the Minister in providing that those taxpayers must bear their proper share of tax. Everyone would be with the Minister in providing that means should be found to ensure that they could not evade, but there is no use in finding means by which they could not evade, if finding that means damages the whole structure of our economy. There is no doubt whatever that the structure of our economy has been damaged by the shortage of capital which has arisen in the past couple of years.

Equally, I think everyone who knows anything about the commercial life of the country will accept that that shortage of capital has arisen largely because of the reputation engendered by section 17 of the Finance Act, 1963. For example, I can think of another way in which the Minister could have provided that deposits could not evade responsibility. He could have done so by providing a penalty system. The people concerned would know that when their evasion came to light a full and rigorous penalty would be imposed upon them.

I have often asked professional people with whom I am associated what happens in relation to those who attempt to evade income tax on the type of scale this section was designed to catch. The answer I got—and this has been my own experience—is that they are caught sooner or later. It is proper that they should be caught sooner or later. When a person who had a deposit dies, it is caught in the schedule of assets, and Revenue are entitled to go back to decide the proper liability of that person. The amount that filters away and is not caught is trifling. The only thing the section might do in regard to a person whom the Minister desires to catch is that he might be caught a little sooner rather than later, but to catch a person sooner rather than later, it is not worth smashing the whole base of our economy.

The Minister will admit that his main difficulty at the moment in the economic field flows from shortage of capital: shortage of capital in relation to base for credit, and also in relation to savings. I want the Minister to take the positive step of being big enough to admit that the action taken by his predecessor in 1963, while correct in the narrow field of preventing evasion, was all wrong in the wider field of providing a base for our capital expansion and to repeal that provision of the 1963 Act; to enact, if he wishes— and he will get my support in this— much more stringent penalties for those who attempt to evade their due responsibilities; to provide a climate of confidence that will not merely mean that Irish capital will be kept at home but also that the foreign capital which we need so much to develop, to provide additional employment, to make our existing industries and employment more viable, will be attracted in here and not driven out. That has been the only effect of the 1963 Act.

I should like to support this amendment. I fully agree with what Deputy Sweetman has said. This is the type of legislation which has been responsible for driving out capital. When I was speaking here recently I suggested that it had driven out of the country something like £100 million. I was immediately challenged by the Minister and asked to prove it. I cannot prove it. I can only tell the Minister what the people I have spoken to in responsible financial circles—whether officially connected with finance or private individuals with financial commitments—are at one in the opinion that this was in their experience the most stupid piece of legislation that was ever passed in this country. It has gained nothing.

It has been challenged on several occasions in this House and there has been no attempt by successive Ministers for Finance to justify it. I cannot see what possible benefit it is to the Revenue people or tax gatherers. Assuming that people have sums of money on deposit in the bank, I assume from the income point of view that they are taxed purely on the amount that accrues from the particular deposit. The interest from those deposits is about as low as it could possibly be. I think the rate of interest on a deposit account at the moment, up to £5,000, is somewhere in the neighbourhood of 1 per cent or 1½ per cent. If it goes over that sum or over £10,000 you may get two per cent. The assumption is that this tax was imposed for the purpose of getting at death duties, in other words, getting a bigger estate for tax returns.

I do not propose to say anything at this stage on estate duty because I will have quite a lot to say on this subject later on but I should like to say this. I have discussed the matter before the House at the moment with various people. I have never yet met anybody who has not said that this is an absolutely asinine piece of legislation, that it has done incalculable harm to this country. In fact, it has had the very reverse effect it was intended to have. It seems to me that the Minister, in spite of all his financial difficulties—I believe the Government are in financial difficulties and that they are more or less living from hand to mouth—should accept this amendment, amend this legislation and enable capital to come into this country again.

I should personally like to support this amendment and to emphasise that this is a purely personal point of view because I have not discussed this with my colleagues in the Party.

The Deputy will be sacked.

Perhaps, but we have freedom of thought in the Labour Party. Personally, I consider that this piece of legislation has done a great lot of harm. A great amount of money is being taken out of this country and deposited elsewhere. Anybody who has a bank manager can ask him about the colossal amount of money —it may be £100 million; I do not pretend to know what it is—that has been taken out of our banks and deposited elsewhere. Money which is kept at home is of no advantage to the banking system in this country. There was a tendency, particularly among the farming community, to keep money at home under the bed or some such suitable place.

In the stocking.

I do not pretend to know where they keep it. Whether the amount of money involved was a few hundred or a few thousand pounds, it was kept in most farm houses in the country. This was done because of the unhappy experience of the 1930s, the credit war and the credit restrictions of the time. It was only gradually that the younger farmers, who were taking over, resorted to using banks or gained confidence in the banking system and put money on deposit, thereby getting a small amount of interest on it. As Deputy Esmonde said, it is the absolute minimum of interest which is collected from this money. If it was on deposit a long while under the normal erosion of values and depreciation of money, from this point of view anybody who had money on deposit will know that it is a very bad system. However, for various reasons, a large amount of money was on deposit in those banks. The Government did the country a tremendous amount of harm by making the banks disclose those sums for tax purposes.

I do not know, quite frankly, how much back income tax was collected, but certainly a great amount of damage was caused to the economy since this was introduced in the 1963 Act. Quite obviously, banks cannot lend money that is not on deposit with them. This is one of the factors which contributes to our present economic difficulties. Although it was the previous Minister for Finance who was responsible for this, I am sure that the present Minister will try to protect him and will be reluctant to admit that any case that can be made for this has very little merit in it. I am sure, even though the Minister is in the unenviable position of trying to defend somebody else's tragic mistake, that he will admit it was a mistake and that this section should be repealed and confidence restored in the banking system. Eventually, if there has been evasion of income tax, and it has not been collected, it can be collected in death duty later on. Certainly, from a national point of view this was a very bad thing. This is something which the Government will not be able to do twice. Now that they have had experience of it the Minister should be courageous enough to admit that this is not a good thing and he should consider deleting this particular section of the 1963 Finance Act.

(Cavan): Up to the passing of the Finance Act, 1963, people in the rural parts of Ireland, at any rate, had the utmost confidence in the banking system of this country. They dealt with the banks in the belief that their dealings were confidential and secret and if they had a bit of money in the bank it was their own business and it could not be disclosed to anybody or to the State without the person's consent. Rural people, and country people as a whole, are suspicious about having their business made known to State Departments and to other people. For example, it was sometimes very difficult to persuade people, up to the passing of this Act, that they should take their money out of the bank and put it into a national loan on the basis that they would get a better return from the national loan than they would get from the bank. They believed that as long as they had the money in the bank it was their own business and their own secret. They felt that if they put their money in the national loan the Government knew about it, various Departments of State knew about it, and it was no longer a secret. I can tell the Minister that from my professional experience.

I think, therefore, that the effect of the section we are seeking to repeal has been to encourage Irish people to withdraw money from the banks and, indeed, to discourage farmers and others from putting even comparatively small sums into the banks, amounts which would not necessarily be caught by the section—I think it had to be £1,500 before it became obligatory on the bank to make a return. The farmers of Ireland and others putting money into the banks felt that once a bank could disclose anybody's business it could disclose theirs.

It was a mistake, therefore, ever to enact this section and much good can be achieved by repealing it. It has been said here that money has been withdrawn from the banks and deposited outside the State, in Northern Ireland and Britain. Money has been recalled to Northern Ireland and Britain and money has been exported to Northern Ireland and Britain. This is deplorable at a time when the country is in such great need of capital and has to go abroad, to Canada and Germany, in search of modest loans. I am sure the Minister has been asked —if he has not, I should like to ask him now—how much money by way of revenue this section has brought into the Exchequer since it was enacted. I should also like to repeat Deputy Sweetman's question: how much money has disappeared out of the country, out of the banks, since this section was enacted? Both by this method and, as Deputy Esmonde has said, by death duties, we are endeavouring to discourage people from bringing money into the country. One would think we had too much money or that we did not have a shortage of capital. Our income tax laws and death duty laws are really doing more harm than good to the country and I suggest they should be looked at and reviewed.

I should like to support the amendment. These deposit accounts in banks brought foreign capital in here at very low interest rates. I think it would average about two per cent and the owners of such deposits were the only people who got away with the tax. When Irish people put money into the banks, on death their beneficiaries were asked how it had come to be accumulated, how long it was in the bank and the interest they had received. All this would be taken into account on their being taxed and it would also involve them in a higher bracket of death duties. Irish people could not escape under either heading and the Irish people using such deposits were professional people who got very small profit out of it. The pool of money so accumulated in the banks was not drawn on by business people because the Government have been drawing out of it practically 80 per cent or 90 per cent and there was very little or nothing left for business people. That has been leading to unemployment. We have had to go out of the country looking for money at between ten per cent and 12 per cent.

I should like to get one thing clear. As one who knows very little about high finance, I have been listening to this side of the House debating the section for some time. Am I to assume that the money we have been speaking about was hot money or the money of people within the country who did not want to disclose it in order to avoid taxation? Are we saying that we cannot survive unless people who could get money by honest means do not wish to disclose what money they have in England or elsewhere and that they might be able to come in here and hide it in Irish banks? Is it so that since the Irish Government decided they wanted that money taxed these people have been withdrawing it?

Deputy Tully is slightly on the wrong track.

I am glad to hear it.

We are all glad to hear it.

Foreign depositors can request the banks not to include the returns of their deposits in the returns they must make under section 17 of the Finance Act of 1963. The banks must return deposits of Irish depositors if the interest they pay on these deposits is £50 or more in one year.

Then the argument made was correct.

I do not agree with that. The argument is reasonably correct. There has been the suggestion that people who make profits in one way or another and do not want to disclose these profits often put their profits into Irish banks and leave them there quietly. I shall go back to the beginning. I agree with Deputy Sweetman that one of our present difficulties is the shortage of credit. There have been statements, as he mentioned, by leaders in commerce to the effect that £70 million to £100 million has left the country as a result of section 17 of the 1963 Finance Act. I do not accept that.

I have made some attempts to find out but have not been able to find out how much, if any—I am not suggesting none—of these deposits left the country. The banks' deposits are increasing all the time and the shortage of credit is not so much attributable to a shortage of deposits as to the fact that more and more credit is being sought for a greater scope of industrial and other development and expansion programmes. That, however, brings the debate into wide perspective. I wish to say, first of all, that the person who pays his tax honestly has nothing to fear from section 17 of the 1963 Finance Act as amended by last year's Finance Act. The purposes of the section in the 1963 Act was not so much to gather in for tax purposes the small interest rates paid on deposit as to ensuring that disclosures of profits made in trading and in professional and other activities would be made known to the Revenue Commissioners. The Revenue Commissioners themselves did not contrive this section. The section was introduced as a result of the unanimous recommendation of the Commission on Income Taxation.

Did the Revenue Commissioners collect much income tax, either back dated or currently?

The sum was about £2.5 million.

Was that back dated?

Yes. There was at the time an amnesty given against penalties for people who would make disclosures.

That is a different story.

What is the current amount of tax in any one year?

I could not tell the Deputy offhand.

How many years are involved in the £2½ million?

Since the inception of the State.

Running back to 1922 and in some cases under the amnesty before 1922.

How many years were covered by the £2½ million?

I want to talk to Deputy Norton for a while. Members of his Party talk about evasion or avoidance of tax by people who can afford to pay it better than ordinary workingmen who cannot escape at all or by the person who has small investments in National Loans, and others. All these people, if they are liable to tax, have to pay tax on the accretion of all their income which would include dividends on these investments. These people have no way out of it. The person who can lodge thousands of pounds out of profits from his profession, trade or business of any description may seek to avoid income tax in that manner——

But he does still. He merely sends it to Liverpool or Belfast.

That is the point I was going to make.

This section does not prevent the fraudulent evader. If it did, my amendment would not be there. All he does at present is to send it to Liverpool. The Minister is losing both ways. He is losing it as a credit base and he is losing the tax he should be getting because the person is sending it to Liverpool or Belfast.

The same criticism was made when the British Commission on Income Tax reported and, in 1951, there was a corresponding provision introduced in Britain which was strongly opposed, mainly on these grounds, that it would weaken confidence in the banking system and that money would flow out of the country, but they found in the long run that that was not the case.

Britain is one of the financial centres of the world and the amount of money involved runs into hundreds of millions. The people over here with money are small people who may have £1,000 or £2,000 on which they should pay tax. I am not defending that.

I cannot understand Deputy Norton at all. He is talking about the fair spread of tax. He subscribes to the incomes policy recommendations of the NIEC. This, to an extent, goes some way in that direction.

No, it does not go at all. It would go some way towards the recommendation if you also had a closed economy in which you could not export capital to Liverpool or Belfast. Then there could be some sense in the section from an incomes policy point of view.

As against that situation, that capital went out, one gets the impression that as soon as this provision was introduced, people took away their deposits and put them elsewhere.

But deposits, in 1962-63, for the year before the commencement of the Act, had to be disclosed.

Is it not true that you can put money in one of the merchant banks and get it paid in England and get eight per cent and no tax?

I know that these commercial banks are offering interest rates up to eight per cent, and possibly even beyond it, but I do not know what device is being used in order to avoid payment of income tax.

I did not know; I have learned something.

You can put it into one of these banks, nominating one of the branches, and get eight per cent in England. The only time it is found out is when it is reinvested. You can be asked where did you get the money. If this money were on deposit in the Irish banks at 1½ or two per cent, at the death of the person, the Revenue Commissioners can get their money. The odd few who would hand it over would be very small. It can be put on deposit. When it comes to light in the will, the Revenue Commissioners can get the money then. You get tax plus death duties on it. You will always get it.

Deputy Esmonde wants to abolish death duties as well.

We are not arguing that at the moment.

We will argue about that when we come to it.

I feel the Minister should be allowed to make his statement.

This is Committee Stage.

I thought you were allowed to interrupt.

Not to interrupt——


Seek clarification by questions.

But not in the middle of a sentence.

I want to clarify something. The Minister said he could not understand my point of view in supporting the general spread of tax. The Minister is approaching this matter in a very naïve way. He thinks that because this particular section of the 1963 Finance Act is in force, he is collecting money from these people. First, I think the bulk of people concerned operate in a small way and the £50 interest allowed tax free will exclude the bulk of people operating on this. The type of person the Minister would like to catch, the man operating on a big scale, depositing thousands and thousands of pounds, is, generally speaking, a very slippy operator and will not be caught by any naïve little clauses like this. He will simply take his money and put it elsewhere, or he may keep it at home. If he is not going to pay tax and makes up his mind to that, this will not be a method of collecting.

We are now losing both ways. We do not collect the tax at source and the money is being lent to Britain instead of being in the economy here. If it were on deposit here with the banks and the taxpayer collected 1½ or two per cent interest, the Minister, presumably, would be borrowing it from the banks in due course and, instead of paying 7¼ per cent in Germany, would be getting it at the rate of two per cent from the banks. The money would be in the economy here, helping the country. Instead, we have to go abroad to borrow because we are exporting capital, partly due to this. The other point the Minister made—it has slipped my mind——

Was it where the Deputy conflicts with the Labour Party's point of view on incomes policy?

No. I am making it clear that this is a personal point of view. I was not here in 1962 when the Party supported this section and I do not feel that I am actually bound to support that as such. I am giving a personal point of view. I think it was a mistake. The Minister is approaching this in a very naïve manner. We are not catching evaders. If this section were repealed, it would do far more good than harm to the economy. The amount collected is very small. The Minister does not know how much but I gather it is very small. Last year, he was disdainful of the sum of £180,000 a year on a 25 per cent stamp duty on foreigners. I doubt if this is a lot more. He could be equally disdainful of this trivial amount.

That is not a fair comparison.

He was very disdainful of the £180,000. I do not believe the amount collected here is a lot more. The Minister has not got the figure and is not in a position to dispute——

Perhaps I will take a leaf out of the Deputy's book and interrupt him in the middle of a sentence and say that the £180,000 that the Deputy has referred to as coming under the 25 per cent stamp duty on land purchased by foreigners would not arise anyway, in view of the provision in the recent Land Act which requires the sale of land to a foreigner now to get the consent of the Land Commission.

No. You could have provided that there would be no sale of land to foreigners without the consent of the Land Commission but where they did consent the foreigner would have to pay 25 per cent.

Last year, he said it was not worth considering, that this was—to use a word used by Deputy Childers—a nugatory amount with which we could not be bothered.

The position obtaining up to then was that where the Land Commission gave their certificate the 25 per cent was not payable. The fact was that the Land Commission had to be consulted; if they said that they were not interested in that particular piece of land, they gave their permission and the 25 per cent would not be payable.

It would have arisen if this section were included in the Act abolishing it.

The Minister said that the amount of money on deposit had been increasing from year to year. That does not prove anything. A lot of money may have been taken out of the country and placed on deposit elsewhere or taken off deposit in this country. The fact that the amount on deposit here increased does not prove that a lot was not taken out. It merely proves that the amount on deposit here would have been greater if this amount had not been taken out. I think the Minister if he has made inquiries— and I suspect he has—will find what I found. I have taken the trouble of consulting eight or ten bank managers in different banks as a matter of interest and every one of them said that a large amount of money had been taken out of the country and that those who had been caught would not be caught twice. The Minister did not make the mistake but he should abolish this system and see how we get on in future. We are collecting little or nothing by it and I am sure the Minister himself agrees with this point of view.

Lest there be any doubt about it, the Labour Party will still support the Minister if he puts this to a vote.

The Minister is being most naïve about this. When the section was introduced, it was done on the basis that it was necessary to stop evasion. The fact is that the last three years have proved that it has not stopped evasion. The fraudulent person—and I am entirely at one with the Minister that the fraudulent person should be caught—puts his money on deposit not down here but in Belfast or Liverpool. This section does not operate now, whatever it did about bringing anything to light earlier. It is now of no assistance in preventing evasion.

I disagree, but the Minister may if he likes make the case that, when first enacted, it did assist in preventing evasion but that is not in issue now. If that were the only advantage, that advantage is spent and finished but it does not now operate to prevent evasion because the position is that people have moved their capital. The Minister says he has got the record of it because it was in the preceding year and that is that. Like Deputy Norton, I have made it a habit for the past couple of years to talk to bank managers about the amount of capital they think was transferred as a result of this section. I have also discussed with bank managers the amounts they feel are still being transferred. They do not see it directly but they can watch a trend in individual accounts and they hear of amounts that would otherwise come into the country.

The Minister for Agriculture is credited with saying that we are not interested in that type of capital. I think the Minister for Finance would not agree with him but would take the view that we were most interested in obtaining any capital that would enable us to develop our economy, provided we did not accept stolen money, if I may use that as a means of expressing it. Every bank manager will tell the Minister that some money has gone out of his bank and out of the economy as a result of this section. I am quite prepared to take the appropriate page of Thom's Directory and with the Minister stick six pins in it and taking the six branches that come out, I will go with the Minister to the managers of those bank branches. I guarantee that every one of the six will tell the Minister that some money has gone. In some cases it will be a small amount, in others, a big amount that has been transferred. That depends on the volume of business and on the proximity of the branches concerned to the Border.

This section has failed and will fail to stop evasion. Other methods should be adopted to stop evasion. By the repeal of the section, we would do something to build up the credit base of the country which is needed for the protection of those now employed and towards providing for their employment in the future.

Would the Minister not agree even to this small extent with those who have argued the case on this side of the House—he does, of course, agree and accepts that there is a credit squeeze—that some of the credit squeeze is due to this legislation by virtue of the fact that the banks have not any money available to lend to their clients and also that the money they originally got and held on deposit was subsequently lent to clients?

To the extent that this section has caused money to leave the banks, it must have contributed. I do not know to what extent. What I have said is, first, that the credit squeeze is world wide at the present and every country is experiencing it and that, as far as we are concerned, our experience is that it is due to the greater degree of economic activity —more development in agricultural and industrial spheres and, generally speaking, more people seeking credit in the past two years and to a greater extent.

Does the Minister agree we want the capital back?

Is that not the very reason we should not do what we are doing now? The Minister says it is only a little capital and I say it is a lot. Owing to the shortage of money at present, is it not foolish to have any legislation that takes any capital out of a country like this?

Would the Minister not agree that it is the Irish citizen who has to pay? Does he not agree that this money will be got eventually in 99 cases out of 100 when the person dies and when tax will have to be paid on death duties if he is liable? Surely the money will be caught anyway? It may not be this year or next year but the year after, and in the meantime why not maintain this confidence that exists between a bank and its clients? I should also like to ask the Minister to look at the merchant banks because it is a fact at the moment that you can invest in them and they can pay, to a deposit account probably, your dividends and you are not taxed here or there.

The first part of the argument is that we shall catch them in the end.

Yes, but in the meantime you have lost the capital.

I do not know to what extent I can do anything but I shall look into it.

Since the point hinges on how much money is involved, would the Minister not consider making inquiries from some of the banks as to what amount of money they estimate has been exported?

He would not want to do that. He would not like the answer he would get.

Would he not consider doing so even at this stage? Then we would all be in a better position.

They could not tell him now. They are on strike.

Is it right to ask me to legalise tax evasion?

It has been recognised for a long time that this practice existed. This was not a brilliant idea that occurred to the Government in 1963 but it was known since the beginnings of the State. It was deliberately ignored, if you like, because it was recognised that the amount of interest on deposits was not very great and that inflation was eating away the capital in any event and for this purpose and in order to help the economy, it was disregarded. Suddenly, because they were hardpressed for money in 1963, the Government, who were introducing the turnover tax, were scraping the bottom of the barrel and they damaged it in the process. I suggest they should now think about it again and find out from the banks how much money is involved and then go back to the old system. It may allow a small number of people to escape paying taxation——

For the moment.

For the moment. I assure the Minister that the big fish will not be caught by this type of naïve legislation. He should consider the good of the economy as a whole. It would be better to go back to the old system. At the moment, the Minister is excluded from the mistake: it was not his originally. However, if he persists, he will be branded——

This was a recommendation of the Commission on Income Taxation.

The Minister did not accept all the recommendations: he picked out the bad ones. He took the turnover tax and——

I do not think the Commission appreciated the damage it would do. Frankly, when it was going through this House, I do not think any of us appreciated the damage that would follow, not even the Minister's predecessor. It has done damage. Let us be big enough to admit it.

Question put.
The Committee divided: Tá, 40; Níl, 70.

  • Belton, Luke.
  • Belton, Paddy.
  • Burke, Joan T.
  • Byrne, Patrick.
  • Clinton, Mark A.
  • Costello, John A.
  • Creed, Donal.
  • Crotty, Patrick J.
  • Dockrell, Henry P.
  • Dockrell, Maurice E.
  • Donegan, Patrick S.
  • Donnellan, John.
  • Dunne, Thomas.
  • Esmonde, Sir Anthony C.
  • Farrelly, Denis.
  • Fitzpatrick, Thomas J. (Cavan).
  • Flanagan, Oliver J.
  • Gilhawley, Eugene.
  • Governey, Desmond.
  • Harte, Patrick D.
  • Collins, Seán.
  • Connor, Patrick.
  • Coogan, Fintan.
  • Cosgrave, Liam.
  • Costello, Decian.
  • Hogan, Patrick (South Tipperary).
  • Hogan O'Higgins, Brigid.
  • Jones, Denis F.
  • Kenny, Henry.
  • L'Estrange, Gerald.
  • Lyons, Michael D.
  • McLaughlin, Joseph.
  • Murphy, William.
  • O'Donnell, Patrick.
  • O'Donnell, Tom.
  • O'Hara, Thomas.
  • O'Higgins, Michael J.
  • Reynolds, Patrick J.
  • Ryan, Richie.
  • Sweetman, Gerard.


  • Aiken, Frank.
  • Andrews, David.
  • Blaney, Neil T.
  • Boland, Kevin.
  • Boylan, Terence.
  • Brady, Philip.
  • Brennan, Joseph.
  • Brennan, Paudge.
  • Breslin, Cormac.
  • Briscoe, Ben.
  • Burke, Patrick J.
  • Calleary, Phelim A.
  • Carty, Michael.
  • Childers, Erskine.
  • Clohessy, Patrick.
  • Colley, George.
  • Corish, Brendan.
  • Corry, Martin J.
  • Cotter, Edward.
  • Crinion, Brendan.
  • Cronin, Jerry.
  • Crowley, Flor.
  • Crowley, Honor M.
  • Cunningham, Liam.
  • Davern, Don.
  • de Valera, Vivion.
  • Dowling, Joe.
  • Dunne, Seán.
  • Egan, Nicholas.
  • Fahey, John.
  • Fanning, John.
  • Faulkner, Pádraig.
  • Fitzpatrick, Thomas J. (Dublin South-Central).
  • Foley, Desmond.
  • Gallagher, James.
  • Geoghegan, John.
  • Gibbons, James M.
  • Gilbride, Eugene.
  • Gogan, Richard P.
  • Haughey, Charles.
  • Healy, Augustine A.
  • Hillery, Patrick J.
  • Hilliard, Michael.
  • Kenneally, William.
  • Kennedy, James J.
  • Kitt, Michael F.
  • Kyne, Thomas A.
  • Lalor, Patrick J.
  • Lemass, Noel T.
  • Lemass, Seán.
  • Lenihan, Brian.
  • Lenihan, Patrick.
  • Lynch, Celia.
  • Lynch, Jack.
  • McEllistrim, Thomas.
  • Meaney, Tom.
  • Millar, Anthony G.
  • Molloy, Robert.
  • Mooney, Patrick.
  • Moore, Seán.
  • Moran, Michael.
  • Nolan, Thomas.
  • Ó Briain, Donnchadh.
  • Ó Ceallaigh, Seán.
  • O'Connor, Timothy.
  • O'Leary, Michael.
  • O'Malley, Donogh.
  • Smith, Patrick.
  • Treacy, Seán.
  • Tully, James.
Tellers: Tá, Deputies L'Estrange and T. Dunne; Níl, Deputies Carty and Geoghegan.
Amendment declared lost.

I move amendment No. 5 in the name of Deputy Cosgrave:

Before section 8, but in Part I, to insert a new section as follows:—

"Where an individual has been involved in expense in respect of illness the amount of such expense shall be deducted from or set-off against any income for the year of assessment of such person."

This amendment is drafted as a means more of extracting from the Minister some expression of view on the position that has been raised regularly here rather than as a final judgment on what should be in the Bill. We have had discussions here on Finance Bills many times in the past to provide that the expenses of illness to a taxpayer in excess of a certain amount should afford that taxpayer relief. The view has already been expressed— and I think correctly—that there must be a minimum amount of expenditure below which no relief will arise because, without that, the task of administration would virtually be impossible. It is a fact with which we all agree that illness may well have calamitous effects economically in a family above the class of people covered by the Health Act and particularly in those cases where it is not possible to get cover under the Voluntary Health Insurance arrangements.

The case was made in earlier years by Ministers for Finance that because of the existence of the Voluntary Health Insurance Scheme, there was no necessity for a provision such as is suggested. The Voluntary Health Insurance Scheme does of course provide for a large number of cases, and it is important that we should do nothing that would in any way impair the efficacy of that scheme and its success. There are, however, a substantial number of cases of people who are not entitled to have the cost of illness borne by the local authority under the Health Act and who find themselves unable to get Voluntary Health Insurance cover and yet are involved in very substantial costs of illness. It is precisely that type of case we are anxious to cover.

I can see the Minister saying that it would be wrong to alleviate in this respect only those people who have substantial tax obligations while at the same time making no provision for those who have no tax obligations. In the ordinary course of events, that would be a true answer to the proposition we make, but when you analyse the number of people who would have severe costs in relation to illness and who are not insurable under the Voluntary Health Insurance Scheme, who are not covered by the Health Acts but who have to pay the costs themselves of that illness, you find that virtually all of them are in the taxpaying bracket.

As I say, this was deliberately drawn in this loose fashion for the purpose of hanging an argument rather than providing an absolute amendment to the Act. One must agree that the types of cases we have in mind are cases that would have the sympathy of everybody in the House, including the Minister, and cases which the Minister can concede without making it a consequence that there would be any great indentation of the general tax law, or any loophole through which there could be evasion of any sort.

As Deputy Sweetman said, the principle of this amendment was recommended by the Income Tax Commission in its Seventh Report and the Government's attitude to the recommendation was set out in the second White Paper on Direct Taxation. The Minister of the time appeared to hedge on the question: he stated that the recommendation would be looked into and it would be ascertained if it was administratively feasible to implement it. As Deputy Sweetman also said, this amendment in one form of wording or another has been a hardy annual in this House for several years past. I recall putting it down on one occasion and I recall about three or four years ago a number of Fianna Fáil backbenchers criticising the amendment for not going far enough in dealing with this calamity of illness which can financially break a family. Since that time it is very significant that the costs of hospitalisation, and the costs of medical treatment and medicines, have jumped astronomically.

The stock reply of the Minister's predecessor to our argument, and to the arguments of his own backbenchers, was that we had sitting in this House the notorious Health Services Committee which collapsed last year and that that Committee was investigating the health services and could be expected to produce a worthwhile health scheme which would in another form cater for the contingency for which we in our amendment to the Finance Bill were trying to cater. Everybody knows what happened to the Health Services Committee. It collapsed completely; the efforts were fruitless and everybody knows that the implementation of a worthwhile health service, of a comprehensive health service without a means test, is pie in the sky as far as the immediate situation is concerned. This amendment is an effort to give effect to what is more than a simple Christian proposal. Illness can have a calamitous effect on a breadwinner.

I recall that about three years ago a colleague of the Minister, the Minister for Agriculture and Fisheries, was standing in for the Minister on Committee Stage and he agreed that the amendment was a good one and went through the form of committing himself to it, stating that, if we reopened the debate on Report Stage, he would hope that the official draftsmen would have suceeeded in giving effect to the principle which we wished to have put into effect. Unfortunately, that fell through. I do not wish to make a detailed case for the amendment because that has been done many times before and it is seeking no more than simple justice. The very fact, if nothing else, that the Income Tax Commission unanimously recommended the principle of the amendment— admittedly, in words somewhat different and a little more hedged in than Deputy Cosgrave's amendment —should be good enough for the Minister.

When dealing with section 17 of the 1963 Act, the strongest argument the Minister could produce was that it was the unanimous recommendation of the Income Tax Commission. So is this the unanimous recommendation of the Income Tax Commission. The Commission made that recommendation in the teeth of an official submission from the Revenue Commissioners which was opposed to the principle. They were aware of all the snags and no snag can have been uncovered by the Minister which was not anticipated by the Commission. Therefore I appeal to the Minister either to accept the amendment as drafted or to come back on Report Stage with his own draft on the lines of the wording recommended by the Income Tax Commission.

Is it not a rather pitiful state of affairs that we have one year after another to plead this case? We find in this House of Parliament successive Ministers for Finance indicating their sympathy with the proposal. We have on both sides of the House and in the public Press considerable support and encouragement for our attitude here on the Fine Gael Benches on this matter of asking that medical expenses be not subject to income tax. Despite many expressions of sympathy by Ministers for Finance, there has been no concrete result. We would hope that this year the Minister might go a little further than a mere expression of sympathy and inability to find some way of doing what is so clearly the right thing.

As Deputy Sweetman and Deputy Byrne have pointed out, the principle which justifies income tax is that it is a tax applied over that portion of an income over which a person has discretion from the point of view of spending. The curing of suffering and disease is not something discretionary. It is a most humane activity and anything we can do in our laws to ease the lot of our fellowmen who are suffering from disease should be done. We have the rather ironic and, indeed, tragic situation here that not only are we applying income tax over that portion of a person's income over which he has no control but we are also mulcting him through the medium of turnover tax in the money he expends on medicines and drugs. There is in fact double taxation.

Diabetics are refused assistance by the health authority on the ground that they have sufficient income to pay for drugs out of their own resources. These people may have to spend anything from £1 to £2 10s per week on drugs. Over a year that expenditure can amount to £100 and more. In order to pay that £100 and pay for the prescribed drugs and medicines, they have to earn anything from £130 to £150 to meet income tax liability. Thank God, there are few relatively suffering from chronic ailments, but, from that point of view alone, the Exchequer would suffer very little if we did the humane thing and granted the assistance for which Deputy Cosgrave asks in his amendment.

As Deputy Sweetman said, the amendment has been drafted in very general terms. Up to now, when we tried to amend these restrictions imposed by Ministers for Finance, we simply appeared to justify inaction. We did not wish this year to provide any outlet for the Minister since we hoped then that the Minister would have to accept the amendment or else justify his attitude all along the line. There are too many who think a thing cannot be done here unless it has been done elsewhere and can be shown to have been successfully done elsewhere. That is a very inadequate approach. It is interesting to note that what we are seeking here does apply in many countries.

Income tax allowance is made in the case of medical expenditure of a certain kind up to a certain amount. For those lovers of precedent, there is ample precedent available and the sooner we apply it to our particular circumstances the better. From the utterances of Government spokesmen, we know that the much boasted reforms in our health services will not come about for many years. The financial situation is such as to offer no hope of reform this year, next year, or for many years to come. For years we were put off by the existence of a Committee which sat on a certain portion of its anatomy which was referred to here recently. That Committee was not productive of anything except acrimony.

That was due to the then Tánaiste.

And Minister for Health.

The senile delinquent of some 15 or 20 years ago.

I should love to follow that line. It might be a profitable exercise, but the Chair might not hold the same view. We have no hope under the present Administration of any improvement in our health services for many years to come. That being so, we plead with the Minister, in the name of humanity, to make this small concession. It will not cost a great deal and it would be very valuable to many individuals and families who suffer on occasion from heavy medical expenses against which they cannot insure themselves. That is the experience certainly of many unfortunate people suffering from chronic diseases and ailments.

There is one point I should like the Minister to consider. The Voluntary Health Insurance Scheme is available to certain sections of the community but the Minister knows that, if a person has a serious illness, there is a limit on the amount that may be subsequently claimed in a subsequent illness from the Voluntary Health Insurance Board. That is something which should be borne in mind: the amount of coverage in subsequent illness can be inadequate. The income tax allowances for both married and single are very small. I think the Minister would be doing simple justice towards those who pay income tax by accepting this amendment.

Yesterday evening I came across a case of grave hardship. Where drugs are involved, the cost can beggar a family. The Minister should in Christian charity consider such cases. These people are not covered by insurance. They may be people who will not be accepted. The Minister should do the right thing now when he has the opportunity.

As some of the Deputies opposite observed, this has been a hardy annual in debates on the Finance Bill for quite some years. I met it myself for the first time last year as I did not normally take part in debates on the Finance Bill until last year. I expressed a certain amount of sympathy with the motives behind the amendment as drafted last year. The wording of the amendment does not matter because, as Deputies opposite say, what is involved here is the principle. While one might have sympathy with the principle, as I said last year, I was not fully familiar then with the administrative and other difficulties that might be involved, and I did say to the House, having turned down the amendment last year, that I would look at it more closely in the event of a similar amendment being moved this year.

I have done that, and I have examined the situation from many points of view. First of all, we must regard income tax as something a person pays on the balance of his income after certain allowances have been given. These allowances are given largely on the same basis to everybody, child allowance, expenses incurred in the course of one's business or profession. I am not going to distinguish between those necessarily incurred and otherwise, but these are given as well. Apart from these specific allowances, no allowance is made for other expenditure, for example, domestic expenditure and any other form of unavoidable personal expenditure, under which heading, I take it, medical expenses would fall. To give an allowance in respect of medical expenses would naturally open up the way for claims for allowances for expenses of a different nature, for example, educational expenses, for rates paid by a householder. The principle has been established that, once the allowances to the individual referred to at the beginning have been granted, then a person is responsible for the payment of the unavoidable expenses incurred in his living.

If this amendment were to be accepted in one form or another, the first question that would arise is whether it could operate fairly. If the State has to come to the assistance of all individuals in the matter of medical expenses, as it does to a considerable extent at the present time, then it ought to come to their assistance in an equitable way; in other words, it ought not to be more generous to some than to others. The person who would be liable to pay a very small amount of income tax possibly would not benefit to the same extent as a person who would be in the surtax bracket. Therefore, to that extent, the State would not come to the assistance of all its citizens equally.

One might argue against that, that if a person is paying no income tax or such a small amount of income tax as to amount to practically none, then the question of a tax allowance is not relevant, but, nevertheless, taking two people having the same income, one with a big family and not paying income tax, and one with no family who would be paying a large sum——

The person with a big family would be covered by the Health Acts and would not be subject to the expenses of illness.

Not necessarily. You could have a person with £1,200 to £1,500 a year.

The limit is now £1,200.

You can even go above that. People with many children would not be liable to income tax or to a very small amount of income tax by reason of the dependent child allowance. There is the difficulty, for example, that in giving an allowance for medical expenses as a deduction for income tax, you could subsidise a person in the surtax bracket up to over 75 per cent of his medical expenses. The difficulty arises then as to what are medical expenses. In what way do they arise? People now undertake medical treatment for all kinds of maladies, even hypochondriacs' maladies, even things for which treatment is not necessary at all. People go in for slimming.

I am not suggesting that because I am trying to slim, I should get an allowance.

Some people undertake slimming exercises for the sake of personal appearance, while others would be advised by doctors to take slimming exercises for the sake of their health.

If the Minister restricts it to hospital treatment, I shall accept it.

People can go to hospital for slimming purposes and for other things which have nothing strictly to do with the preservation of their life or the maintenance of their health.

Come off it.

Would a doctor's certificate not be accepted in the case of serious illness?

Nobody slims for pleasure.

Some people do.

I should like to meet them.

The Deputy has no need to slim. He would not get the allowance.

You have no choice but to slim nowadays.

That is possibly an extreme example, but people take drugs and medicines not necessarily in connection with serious illness, and even if they are, one has to define what is medicine, because there are things taken for various purposes which could not properly be described as medicine. There is also a difficulty in connection with the Voluntary Health Insurance Board fund. Representatives of the Voluntary Health Insurance Board have stated that it would have an effect on the income to the fund, in that people, if they thought they would get an allowance in respect of income tax for medical expenses, would possibly withdraw from the fund. That is their opinion.

Not if it were restricted to those people whose applications have been rejected by the Board.

Yes; I know there was an amendment to such an effect a couple of years ago.

It was put in because the then Minister made the case the Minister is making now.

I am making that as only one of a number of cases.

We shall have that also on Report Stage, if the Minister would like it.

The administration would also be very difficult. It would mean a close examination of people's circumstances, the illness from which they suffered, the kind of medical treatment they got. It would require very close vouching on the part of the person claiming. There are many difficulties involved and, apart altogether from that, there is the question of the cost to the Exchequer. I do not know what it would be. It might be some few million pounds, which is not inconsiderable.

Not at all.

On all these scores, I regret I have to reject the amendment again this year.

When the Minister was speaking at the beginning and saying that income tax was chargeable on such a sum as remained after allowances, etc., he had read his brief very fully. In fact from recollection, I could write that brief, because it was exactly the same brief as was given to me when I brought in in 1956 one of the best pieces of legislation ever introduced in the country, the export tax relief introduced in 1956. The advice tendered to me then was that it would be all wrong to do it, that it would breach the whole income tax code; income tax was there for the purpose of providing that assessments would be made on profits, etc., etc. It was exactly the same advice as was tendered to me—honest advice, but it was wrong—and which was overridden by me. That was good legislation, as the Minister—from his experience in Industry and Commerce—will agree. He should override the advice in the same way now on this issue, not I agree in the exact terms of this amendment but in terms of the more limited one. With that, when he may have an opportunity of considering it on a more limited basis, may I withdraw the amendment with the permission of the House? I shall put down a more limited one for the Report Stage?

Amendment, by leave, withdrawn.
Progress reported; Committee to sit again.