Committee on Finance. - Finance Bill, 1970: Second Stage. – Dáil Éireann (19th Dáil) – Wednesday, 17 Jun 1970

Committee on Finance. - Finance Bill, 1970: Second Stage.

Minister for Finance (Mr. Colley)

Tairgim:

Go léifear an Bille an Dara hUair.

The Bill contains the provisions required to give effect to Budget proposals as well as provisions on a number of other matters to which I shall draw attention in the course of the review I propose to give of the contents of the Bill.

Part 1 of the Bill is concerned with income tax and corporation profits tax. Section 1 reimposes income tax and sur-tax for the year 1970-71 at the same rates as for the previous year. However, as announced in the Budget, the first £100 of taxable income will be charged to tax at a reduced rate of two-thirds of the standard rate and a new minimum earned income relief is being introduced. The purpose of these innovations, which are provided for in sections 2 and 6 of the Bill, is to reduce the tax burden for persons at the lower income level by removing some 50,000 taxpayers from the tax net and making entry into the net somewhat less painful. Under sections 7 and 8 the "age relief" and "small incomes relief" are improved in line with the new minimum earned income relief.

Section 5 enables the Revenue Commissioners to obtain the necessary information from employers to administer the minimum earned income relief and to deal with cases where employees' earnings during a year were not expected to, but did in fact, exceed £2,000, the point at which the maximum earned income relief begins to operate.

In recent years, industrial and other concerns have been finding it increasingly difficult to attract female labour. As a contribution to easing the problem, it was announced in the Budget that the earned income allowance for married women was being increased from £45 to £74. Effect is given to this increase in section 9.

Last year, as a step towards introducing a measure of selectivity in the scheme of children's allowances, some of the increase then given in the allowances was recovered by reducing the income tax deductions for children. A similar provision in relation to this year's increase in the allowances is contained in section 10.

The income limit for the purpose of the dependent relative allowance is raised by section 11 to £222 which is the annual equivalent of the non-contributory old age pension as increased in the Budget.

I now come to the provisions in Part I of the Bill dealing with matters which were not announced in the Budget. Sections 3 and 4 involve minor technical changes arising from the introduction of decimal currency and the adoption of the term "designated area" for "undeveloped area". The purpose of section 12 is to relieve friendly societies, such as credit unions, of the trouble and expense of making returns of the smaller amounts of interest paid by them to members without deduction of tax. Under section 13 the limit for tax relief for certain retirement annuity premiums is being raised to take account of the change in money values since the limit was introduced in 1958.

The main purpose of section 14 is to amend the provisions governing the making of wear and tear allowances in respect of machinery or plant so as to enable the amount of the wear and tear allowance for a given year to be arrived at on the basis of the true written-down value of the machinery or plant at the commencement of the year.

Sections 15 and 16 introduce a degree of flexibility in the date of operation of the relief in respect of dividends and interest paid on stocks, shares and securities of Irish companies. Another provision relating to industrial firms is contained in section 19 which enables a person who purchases a "ready-made" building to claim the industrial building allowance. There is a growing tendency for industrialists to purchase such premises rather than build their own and the provision is being introduced to take account of this development.

Section 17 is an anti-avoidance measure designed to deal with another recent development, namely, the system of sub-contracting in the construction industry, or "lumping" as it is commonly known. These sub-contractors have, for the most part, been escaping tax because of the difficulty of identifying them. The measure now being introduced will require tax to be deducted at the standard rate from payments made to these sub-contractors unless the Revenue Commissioners authorise otherwise. The Revenue Commissioners may make regulations for the operation of this provision.

Section 18 provides for the tax exemptions in respect of the new instalment savings scheme which I shall be dealing with later on when I come to section 51.

A separate chapter in Part I of the Bill contains a group of sections which bring into charge on tax certain receipts, not previously taxable, which come in after a trade or profession is discontinued or after there has been a change in the basis on which accounts have been drawn up. These are complicated provisions and I should like to give some background information on them.

In computing the profits of a trade or profession two alternative methods are generally used, namely, the "earnings basis" or the "cash basis". Under the earnings basis, the income of the trade or profession is computed by reference to the value of services rendered during the accounting period and, accordingly, accounts outstanding at the end of the period are included as part of the income. Where the cash basis is applied, the income is taken as the cash actually received during the accounting period and debts outstanding at the end of that period are ignored. In some cases, a variation on these methods known as the "fees furnished basis" is applied. In these cases, income is computed by reference to the bills actually furnished to clients, whether paid or not during the period in question.

It makes little or no difference over a period of years, from the tax point of view, which basis is adopted so long as the business continues to be carried on. It is only when the business is discontinued and payments continue to be received in respect of services rendered before the discontinuance that a practical distinction arises as between the different methods of assessment. In the case of persons who were on the earnings basis, these post-cessation receipts will already have been brought into charge. Persons on the cash basis, however, are not liable to tax on their post-cessation receipts and persons on the fees furnished are not liable in respect of the post-cessation receipts arising from billings made after the discontinuance.

The main purpose of the provisions contained in chapter II of Part I of the Bill is to rectify these anomalous situations by ensuring that all receipts are brought into charge. It will be noted that, in the case of cessations, the charge will apply only to sums received after the date of passing of the Bill and the charge arising by reason of a change of basis of accounting will apply only to changes taking place after that date.

I feel that I should inform the House that I have a personal interest in this matter.

This chapter also contains provisions dealing with the valuation of work in progress at the discontinuance of a business and the case where a trading debt already allowed as a deduction in computing profits is subsequently released by the creditor.

Part II of the Bill deals with customs and excise matters. This year, there has been no increase in the main duties. The sections in this Part of the Bill are, therefore, confined to giving concessions of advantage to trade interests and to tidying up details in the law which have become rather restrictive in some respects for modern conditions. These provisions were not announced in the Budget.

Existing legislation specifies the sizes of bottles and the quantities in which wines and spirits may be bottled and packed in warehouse and cleared for the home market. To ensure greater flexibility in this sphere, I am providing in section 27 of the Bill for exercise of discretion by the Revenue Commissioners in deciding on variations in bottling and packing.

It has been put to me that distillers should be allowed to defer payment of duty for a period on clearance from warehouse. I am satisfied that this is necessary and I propose that an arrangement similar to that allowed for the tobacco manufacturers should be made. Section 28 of the Bill gives effect to this intention. To recoup the Exchequer for part of the cost of making this concession, I am increasing the rate of excise duty on spirits by 8d per proof gallon of spirits benefiting from the concession. Of course, no increase in the price of spirits will result from this arrangement. At present, white spirit is technically within the charge to duty on mineral hydrocarbon light oil but, as it is used for industrial processes rather than in road vehicles, it is relieved from duty by the issue of licences. For reasons of administrative simplification I am excluding white spirit from the scope of the definition of mineral hydrocarbon light oil by way of section 29 of the Bill.

Section 30 enables the Revenue Commissioners to extend the period in which claims for repayment of part of the duty on fuel used in buses may be submitted.

Section 31 of the Bill is being included, in response to representations made to me, in order to help the small tobacco manufacturers whose annual leaf intake does not exceed 50,000 lbs of tobacco. The firms in question handle less than 1 per cent of the tobacco used in the State and the increased rebate will help them to continue in production.

Section 32 confirms two orders made under the Imposition of Duties Act, 1957. One order related to the reduction from 5 years to 3 years in the limit for liability to the duty on immature spirits and the other order effected a change in the motor tax on self-propelled processing machines, such as concrete mixers.

Part III of the Bill deals with death duties. The provisions were not announced in the Budget. Section 34 is designed to prevent avoidance of duty by the device of forming a private company to take over such property as lands, houses, stock exchange securities or a business. Section 20 of the Finance Act, 1965, introduced certain provisions to deal with the matter but it has been found that the provisions could be avoided where the company was not, at the time of the disposition of the property to it, a company controlled by the deceased and only afterwards became such a company. Section 34 also contains provisions designed to prevent avoidance of duty through the under-valuation of certain private company shares.

A further anti-avoidance measure is contained in section 38. Government securities, securities of semi-State bodies and of some municipal corporations are usually issued with the condition that they should be exempt from death duties while in the beneficial ownership of persons resident and domiciled outside the State. It has come to notice that this condition can be brought about artificially by the use of a foreign based private company or other means and section 38 is designed to counter this.

Section 33 contains provisions in regard to estate duty consequent on the amendments being made in the income tax legislation by sections 15 and 16 of the Bill to which I have already referred. Sections 35 and 36 widen the definition of a dependent child for estate duty purposes so as to bring it into line with the definition in force for income tax purposes.

Existing legislation provides certain reliefs from estate duty in respect of gifts to the State. Where, however, the donor interposes a life interest before the State's right to possession, the relief operates only in respect of the death of the life tenant and not on the death of the donor. It has been represented to me that this is inequitable where the life interest is held by the spouse of the donor. I propose to remedy this situation by providing, in section 37, that in the case of a gift vested indefeasibly in the State no estate duty will be payable on the death of either the donor or the spouse.

The provisions in Part IV of the Bill, which relate to stamp duties and which were not announced in the Budget, are concerned mainly with introducing a measure of rationalisation of the stamp duty code and, at the same time, making the necessary changes in preparation for the changeover to decimal currency. Section 39 provides for a new first schedule to the Stamp Act, 1891. A number of obsolete and unproductive heads in the existing schedule are being abolished. Where the heads of charge are being retained, the rating structure is in a number of cases being simplified and, where necessary, the rates are being expressed in amounts which will have exact equivalents in the new decimal currency.

In making these changes in rates, care has been taken to ensure that as far as possible there will be no additional burden of duty. There is, however, one exception to which I wish to draw attention. At present, on the sale of a business premises, the transfer of assets, such as goodwill, attaching to the premises attracts duty at a lower rate than the transfer of the premises. This has given rise to avoidance of duty by the placing of an inordinate value on the goodwill, etc., thereby reducing the consideration for the transfer of the premises. In the new first schedule this means of avoidance is blocked by bringing the rate of duty for such assets into line with that which attaches to the premises.

Section 40 provides that with effect from decimal day the rate of duty on bills of exchange, including cheques, and promissory notes drawn in the State will be one new penny instead of the existing rate of 3d. It was represented to me that, following the British example, this duty should be abolished from decimal day. In view, however, of the not insignificant yield from this duty—over £½ million—I was unable to accept this proposal. There will, of course, be a loss of some £100,000 in the adoption of the rate of one new penny in place of the existing rate of 3d.

Sections 41, 42, 45 and 46 contain other provisions arising out of the introduction of the new first schedule or from the changeover to decimal currency.

The purpose of section 43, which abolishes stamp duty on the transfer of securities guaranteed by the Minister for Finance, is to facilitate the development of a market in the securities of semi-State bodies.

Last year, a new stamp duty charge of 10 per cent was imposed on contracts for the building of office blocks. This charge was intended to discourage or slow down the building of offices on a speculative basis so that available resources might be diverted to more essential purposes. I have received representations that this charge imposes an unfair burden on firms who find it necessary to build office accommodation for the use of their own staffs. I have decided to accede to these representations and in section 44 I am abolishing the duty on such office blocks, subject to the condition that there is no change of occupancy for five years.

Part V deals with the turnover tax.

Section 47 provides for the Budget increase from 2½ per cent to 5 per cent in the rate of the tax.

Representations were made to me to raise the limit of £750 per month at which certain classes of traders are required to register for the turnover tax. I am convinced of the merits of the case for an upward adjustment and have provided in section 48 for raising the limit in question to £1,000 per month. Registered traders affected who wish to avail of this concession should aply to the Revenue Commissioners.

Section 49 enables an accountable person to pass on the increase in turnover tax in cases where taxable receipts accuring after 1st May arise under contracts entered into before that date.

Finally, I come to Part VI of the Bill. Section 50, which is an annual provision, fixes the annuity for the redemption of the debt incurred on voted capital services in 1969-70 and 1970-71.

Section 51 contains the necessary provisions for putting into operation the new instalment savings scheme announced in the Budget. The purpose of this scheme is to encourage people to save by regular monthly instalments for a specified period. If they retain their savings on deposit for a further period they will be repaid the amount deposited together with a bonus or interest which, in accordance with the provisions of section 18, will be tax free. The new scheme will be launched in the autumn and I have every hope that it will prove a valuable medium for increasing the level of savings.

Section 52 removes a technical restriction in the existing borrowing powers of the Minister for Finance. Section 53 provides against a situation where, because of a continuation of the bank closure, it would not be possible to redeem certain Government stocks on the due date of 15th July, 1970. The section gives the Minister for Finance power, in such circumstances, to postpone the redemption date and to pay interest in respect of the period of postponement.

Credit is given by section 54 against Irish tax in respect of tax spared under tax incentive schemes operated by countries with which we have double taxation arrangements providing for similar treatment for our own tax incentive reliefs. Section 55 extends to the investment abroad of profits earned in Shannon Airport the measure of unilateral double taxation relief provided in the Finance Act, 1968 in relation to profits which enjoy exports tax relief. Section 56 enables any securities guaranteed by the State to be accorded the same tax treatment and privileges as are at present applicable to securities issued by certain semi-State bodies.

I commend the Bill to the House for a Second Reading. I appreciate that a number of its provisions are of a complicated and technical nature and I shall be glad to deal with any points on which Deputies may require further clarification.

Mr. O'Higgins

As the Minister said, this Bill is intended to give legislative effect to the Budget proposals of April. This year the Finance Bill has the unusual distinction that the Deputy who might have been expected to introduce it is no longer a member of the Government and this Bill is introduced by a new Minister for Finance and was introduced at a time of great and grave national uneasiness. Indeed, listening to the Minister detailing the different provisions of the Bill one wondered at the absence of a sense of reality. The country is in a ferment at the moment. The credibility of the Government is dubious in every part of the country. It is an uneasiness which is affecting all branches of national life.

I suppose you cannot legislate against that feeling but we should legislate with some air of reality about our problems. The national uneasiness which exists—we will not go into the causes of it—is symtomatic of something very strange, something very malevolent which has been happening in our affairs. This malaise was best described by the attitude of one Fianna Fáil Deputy who recently regarded national affairs and national problems as being so exclusively the concern of the Fianna Fáil Party that he demanded a special Ard Fheis to deal with them. As long as that kind of mentality affects the Government party then this feeling of uneasiness is going to continue.

Apparently some people in the Government still seem to think that unless you are a member of Fianna Fáil, and an active member at that, you are not entitled to be concerned about what is happening to Ireland and not entitled to express opinion on national affairs. It is the concern of my colleagues on these benches to demonstrate that that is not so and that this country and its affairs are not the special problem of the Government party but very much the concern of every Deputy in this House. The uneasiness which exists today is well founded. The Finance Bill, of 1970 is introduced at a time of general industrial unrest, an unrest which, in relation to one serious strike, a cement strike, has caused widespread unemployment. The people look to Oireachtas Éireann, to this Government, to see where in Government policy is any positive action being taken to bring sanity to our industrial affairs. They look and they look and they look in vain.

We have a bank strike. Again, apparently the concern and interests of the ordinary people and the commercial public are being ignored while two sides dig themselves into holes and do not provide for any flexibility or mobility. The Minister for Finance and other Ministers apparently carry on as if these problems were no concern of theirs. Grave public uneasiness exists because of industrial strife and industrial difficulty and there is also the fact that everyone in the country at the moment is upset and concerned by the problem of soaring prices. During the past 12 months or so in particular, the pinch of rising prices has become sorely felt by every wage earner and everybody endeavouring to meet ordinary household bills.

The Bill with which we are concerned here provides for the doubling of turnover tax with which I shall deal in a few moments. Since that provision went into operation at the beginning of last month, it has caused a very serious acceleration in the upward trend in prices. I say with due deliberation that I have never before experienced such widespread concern as exists at the moment in relation to rising prices. One can see the effect from day to day but there does not appear to be any Government concern in this matter. Apparently the situation is to be allowed to drift but to drift towards what? One day it is food; the next day it is services; another day it is transport and CIE charges but each day brings another addition to the cost of living and another upward surge in prices.

Maybe this is just one side of a problem because the fact is that we are existing in a very serious inflationary situation, a situation which has been apparent to everyone for a considerable time back. It was apparent last year. It was apparent in the spring of last year when the then Minister for Finance alerted the nation in his famous television speech. He referred to the situation as being critical and announced a crisis and directed everyone's attention to inflation. It was apparent this time last year when the Government, instead of dealing with the problem and for spurious electoral purposes, brought in an unsatisfactory Budget before they went to the country. It was apparent in the autumn of 1969 and it was particularly apparent last April when the Budget of which this is the legislative side was introduced. I want to know from the Minister at the conclusion of this debate on what grounds or for what reasons or motives his predecessor and the Government failed to take steps last April to deal with inflation.

The Budget of this year was introduced and proposed as if no such problem existed. It was obviously intended to be a soporific in some direction for some people. It was intended to win praise and credit for some people but for what purpose? It did not deal with the problem of the ordinary wage earner and the wage earner's wife who had to continue endeavouring to provide for a family with wages that were melting like a lump of ice against the impact of rising prices.

There was something very wrong about the Budget of a few months ago. Granted, it was not the Budget of the present Minister but collective responsibility applies. He was a member of the Government that approved of the Budget but he now knows the score and from the information he has available to him he must know the truth. I should like to know from the Minister in the interests of everyone concerned with being able to work and earn a living in this country and to whom he has a responsibility to tell us what steps are to be taken to save this country from economic ruin. If nothing is to be done about the problem there can be nothing but ruin facing us.

The Bill itself is one that can be discussed and will be discussed in greater detail on Committee Stage but there are certain parts of it to which I should like to refer now. Part V deals with turnover tax and as I read section 47, there is a new and, in so far as I know, unannounced imposition.

Initially, when turnover tax was introduced the charge in respect of the first £100 was 5s in the case of a person who was registered. Now, with the doubling of turnover tax, the first £100 in the case of a registered person is now subject to an imposition of £2 15s. That appears to be a very heavy imposition and I query the justification for it.

Secondly, in relation to the impact of the turnover tax I ask the Minister to watch very carefully what is happening. Many people believe and with what justification I am not certain and do not know that the new 2½ per cent in taxation has, in effect, worked out so that there is imposed 2½ per cent on the original price plus 2½ per cent and that the second 2½ per cent has been added to previous composite prices which already included 2½ per cent. I suggest, therefore, that the Minister and the appropriate Department watch very carefully what has been happening.

Part III of the Bill provides new provisions in respect of death duties. It is fair to describe those provisions as sections designed to strengthen the application of death duties and to safeguard the revenue in respect of possible loopholes in relation to the application of those duties. May I direct the attention of Deputies and the Minister to the fact that in this Bill we are providing for the continuance of a system of taxation which has won many critics over the years, a system of taxation which has been described as socially unjust.

In relation to death duties an imposition falls on the deceased's assets. Whether he was a single man without dependants and without having to provide for anyone, or a married man with dependants, the impact is the same. It is one of the means of raising revenue which we have accepted and taken over from the British, the same as their rating system which each year we continue to use, each year we strengthen and each year by so doing we continue something which can be socially unjust.

I do not expect the Minister suddenly to do something to abolish death duties but I should like to remind him and the House that in this Bill we are strengthening the code, we are continuing the system and we are doing something in relation to death duties that other countries are moving away from. It may not be appreciated that at the moment our rates of death duty in many respects are significantly higher than in the North of Ireland and Great Britain. At the moment, in respect of all estates from £10,000 to £50,000, rates are higher in this part of Ireland than in the North and than in the other parts of the United Kingdom.

In relation to agricultural assets and business assets you would have to leave £¾ million assets before you would pay a lower rate of duty here than you would in the United Kingdom. In other words, on all scales up to £¾ million our rates here are higher than in the United Kingdom. This has been pointed out from time to time in Finance Bill debates. Calls have been made for some adjustment, if not for a change in the system certainly for reduction downwards of the impact of duty. Despite that, all we find in this Bill is a provision to strengthen the armoury of the Revenue Commissioners.

I should like to give one example of what is involved. The application of the rigid code of death duties which applies with varying percentage increases can work with very considerable injustice. In 1930 on an estate of £10,000 the rate of duty was 5 per cent and £500 was paid in duties. In 1930 £10,000 represented something of comparable value. If one were to get the value of that in terms of our money today, on the basis of a cost of living index averaging in 1930 100 as against 369 to-day, an estate of £10,000 today would have a nominal value of £36,850 and the rate of duty would be 21 per cent. Therefore, today a person who merely had £10,000 in 1930 terms instead of paying £500 duty would pay £7,738. Obviously, any system of taxation which works in that way works cruelly to the disadvantage of the dependants and the relatives and very obviously to the advantage of the Revenue Commissioners.

I should like to mention one other thing in relation to death duties: that is the old problem of the evaluation of stocks and shares left by a deceased person. I have been informed of a case where a person died apparently worth £200,000 with investments which were entirely British. The duty attracted at the higher British rate of 60 per cent reduced the net estate after payment of tax to £80,000. The situation was that the securities, which were widely spread over the market, dropped in value by 40 per cent and in this case of a man who apparently left £200,000, in fact by reason of the evaluation made at the time of his death—a valuation which proved to be false— nothing at all was in fact left. It seems to me the Minister might consider— the example I have given can be multiplied at a time when the stock markets all over the world are varying up and down—providing an option in those cases to the personal representatives to choose as an alternative to the value at date of death valuing their securities over some period of two or three years prior to death so that a fair average value might be obtained.

The Minister mentioned the provision of relief for a wife going to work. This is contained in section 9. Section 9 proposes the substitution of £74 for £45. The £45 is the figure in the Income Tax Act of 1967 which I think would be merely a carry-over and was a constant figure for many years. That figure is to be increased to £74. There is an unanswerable case for having the wife's earned income relief increased. Section 9, as it now stands, appears to make the position such that a wife who continues to work or goes back to work does not lose the benefit she would have had had she not married. In England the position is that a working wife gets the individual allowance and her husband gets the full marriage allowance. The Minister has rightly said that there is a considerable demand for industrial female help at the moment and particularly attractive to many firms and small industries would be the responsible married woman. I suggest that, having recognised the need to give some relief, section 9 does not go far enough. It does not accord, so far as I know, with the approach they have in England to this precise problem. I suggest to the Minister that he might reconsider the matter. I will suggest that in more detail on Committee Stage.

The Minister referred to sections 15 and 16. These sections are designed to strengthen a relief. It is not usual to spurn a concession but I feel like doing so in relation to sections 15 and 16, because, in my opinion, these sections extend a relief which secures no benefit to the economy here. I suggest to the Minister that the decision to go public, which these reliefs were intended to encourage, never is decided on by reason of this kind of relief. I propose by parliamentary question to ask the Minister what has been the amount involved. If it is significant I will suggest that this money should be used for other relief purposes under our taxation code. I do not believe that the abolition of this relief would have the slightest effect on industrial promotion.

In section 17 the Minister deals with what he terms "lumping". None of us can prevent the Revenue Commissioners going after what they regard as an evasion of tax liability. I can understand and I agree that it has been the experience that pseudo-sub-contractors instead of wages have compounded for lump-sum payments. Be that as it may, this section as it stands is unfair. In relation to those who are "lumping", as I read it, it provides for a tax liability but does not enable them to have the benefits of PAYE. I suggest that, in the interests of these people who necessarily must be, and will be, people of limited means, at least they should have the same rights as they would have had were they receiving a wage genuinely and paying in accordance with PAYE.

It appears to me that the section is sufficiently wide to be very damaging to genuine sub-contractors. Sub-contractors may be short of capital. It seems to me they are caught in this section because of the width of its terms. It would be grossly unfair that a genuine sub-contractor, who necessarily must be a small man of limited means, should be treated differently from a contractor who is in a bigger way of business. If a genuine sub-contractor is forced to pay money to the Revenue Commissioners to meet this tax liability while the bigger contractor can use such money as capital for financing his operations, that appears to me to be an unfair distinction. I hope to be able to assist the Minister by amendment proposals but I would suggest that this problem, which I understand and for which I can see the sense, may unwittingly cause an injustice in relation to genuine sub-contractors who have always been there and who are operating on limited money. If they are to be treated as "lumpers" it would be unjust. I cannot at the moment suggest how the distinction line should be drawn but I am certain it can be drawn.

Section 18, which is associated with another section, deals with the instalment savings scheme. I would like the Minister, if possible, when concluding on this Stage to give us some idea of what he has in mind, what the regulations are likely to be and what sort of scheme he envisages as coming in under these sections.

Section 23 is a copy of an English section. Will we ever stop doing as the English do? This provision was introduced into an English Finance Act to deal with the case of a particular actor whose copyright was found to be free from tax so the English legislated about it and now obviously somebody here has said: "We will put that in the Finance Bill, 1970." Why? Is there any such abuse here? Is there any reason for it? It has been introduced, I suggest, for no reason at all but as it stands it can cause considerable damage and harm to people. It provides for the valuation of work in progress. The provision in it relating to the valuation of work in progress could give rise to a situation in which on the death of a self-employed person working in a partnership, for example, with others, the estate would suffer both surtax and estate duty at the same time. That is obviously not intended. At least if it were intended a case would have to be made for it here in the Dáil. That is what can happen merely because we borrow a section from an English Act and put it into our legislation. I would strongly suggest to the Minister that this should be taken out and I hope that between now and Committee Stage he will think about it. If there is a justification for section 23, then a case should be made and made strongly here and it having been made, care should be taken that it does not have the kind of result I indicated.

Section 34 amends section 20 of the Finance Act, 1965. Again, this is a matter that can be dealt with on Committee Stage but it seems that some provision should be introduced providing for double taxation. The existing provision in the Finance Act, 1894, does not aid certain situations which can arise under sections 20 and 21 of the Finance Act, 1965. On Committee Stage I shall make certain suggestions which will have reference to section 34.

There are certain other provisions in the Bill to which I should like to refer but I do not want to turn the Second Reading discussion into a detailed committee debate. However, I should like to indicate that we shall avail of the Committee Stage to suggest various amendments to this very highly technical piece of legislation.

I am very far from being an expert on these matters but I should like to make one suggestion in relation to the income tax code which, of course, is dealt with annually in this Bill and the provisions of which are annually changed or reinforced and so on. There are, I understand from those who are experts in this field and who practise professionally under the tax code, many occasions on which the apparent injustice of our existing tax code is tempered and changed by a sort of discretion which is exercised by the Revenue Commissioners. I am glad to say that nobody questions how they get this discretion but they exercise it and exercise it very benevolently at times in the interests of the taxpayer. These concessions are known as "extra statutory concessions". They are known to the inspector of taxes. They are known to the commissioners and they are known to the few who specialise in this field of taxation. That, in effect, means that they are known to the two, three or four large firms here in the city of Dublin. They know these extra statutory concessions and they are able to avail of them on behalf of their clients. In that sense they are able achieve a measure of justice and satisfaction for the people for whom they appear. I merely direct the attention of the Minister and the House to the practice. I am not against it, far from it, but I do suggest that these extra statutory concessions should be published and that everybody should know of them. That is done in the United Kingdom. All the extra statutory concessions in relation to tax matters are published in a booklet there so that the most humble person in the most remote part of England, whether he is a taxpayer himself or a professional person appearing on behalf of a taxpayer, is armed with the same knowledge and the same information as those who specialise and consistently practise and who are nearer the source. There seems to be no reason why that practice should not be adopted here and why a booklet or a list of these concessions should not be advertised or published.

I shall conclude by saying that this Bill, the legislative part of the Budget, comes in at a very difficult stage, I am certain, for the Government, certainly for this House and for the country itself. We do not know what the next day will bring nor do the Government nor anybody else. Strange things have happened and strange things are happening. I would only wish that we could get into office a Government that is clearly representative of the people. It would be a good day for the country and it would bring back reality to our discussions here in the Dáil.

Mr. M. O'Leary

Our spokesman is out of the country and I am standing in for him. I have to attend another function in North Central, my constituency, which I share with the Minister, in a very short time.

Mr. Colley

The constituency, not the function.

Mr. M. O'Leary

We have a duty up there to reduce the Minister's voting surplus on the next time out when his party choose to go out. I feel that is a supreme duty for all of us at this time so I shall not waste too much time with the few remarks I have to make on this Bill. This Bill can be described as an attempt to tidy up affairs.

The Labour Party have repeatedly emphasised that the whole taxation system should be the subject of more comprehensive legislation. The present system gives little evidence of treating all citizens equally. We have suggested that a capital gains tax be introduced but it has been said that the amount of tax which would be collected from such a source is hardly worth bothering about. It is a sensitive register of the social conscience of the Government who refuse to bring in any form of taxation to deal with labour free gains and profits. Many of the capital gains profits are made on the basis of knowing what is coming up, what land will be free for development, what property is due for demolition and what office blocks are to be built. We are living in a period of crisis of belief in institutional government. I do not think I exaggerate that crisis by describing it as such. I can see no reason why the profits and gains of those people who neither sow nor reap but gain profits because of a prior knowledge of events should not be subject to the same taxation laws as the humble citizens of the land. Their gains are secret and their profits are free from tax.

It is not too fanciful to suggest that a great number of the private fortunes which have been made here in recent years have been made on the speculative property market. It is not a matter of political propaganda to suggest that many of those who have made whirlwind large fortunes, which are outside the taxation net, are close supporters of the Government. Added to this crisis of belief in the Government is the knowledge that a body known up to quite recently as Taca supports the Government financially, many of whose chief members gained their private fortunes in property deals which were not subject to tax.

I am not suggesting for one moment that the staff of the Revenue Commissioners are doing anything improper— they are all hardworking people—but the political decision which exempts capital gains from the taxation net is the wrong one. This decision must contribute to the public's general scepticism about the honour of our public institutions. A situation where, because of one's political allegiance it is possible for doors to be opened into areas of secret knowledge which can result in large sums of money being made, must bring politics into disrepute. It does not make any difference to say that the amount which would be collected by spreading the tax net into this area would not be such as to settle any national problem. That may be so, but the fact is that there are people outside the general tax net who should be included in it. I have heard no good reason why such people are not so included. One is free to speculate as to whether it is their political connection with the present Government which prevents the Minister for Finance from extending the tax net to include those people or what exactly is the secret influence of these people who, in recent years especially, have made such large fortunes on the basis of prior knowledge.

There is a strange reluctance on the part of the Government to introduce capital gains into their general taxation system. In the absence of any good reason why it is not so introduced one is free to speculate why it is not included. This strange reluctance on the part of the Government is in total contrast to the way in which social welfare benefits are doled out where we query each portion of the income going to widows and old age pensioners. We have inspectors to investigate this payment or that payment to insure that no State money is being given out which is not strictly in accordance with our legislation. It is a peculiar anomaly that at the millionaire end of the spectrum we are so careless about people's incomes in the matter of taxation. We may speculate as to who their friends are and what powerful protectors they have in court which prevent them from being subject to taxation.

It was extraordinary to hear the new Minister for Finance — who was appointed to that Ministry in strange circumstances — in his concluding speech wholeheartedly agree with the Budget measures introduced by his predecessor which he could not, in fairness, be considered to have sponsored even though he would come under the general term of collective Cabinet responsibility. We cannot accuse him of devising all the Budget measures himself. He said he embraced the last Budget and was confident about the economic future of the country over the next year. We all know that statement will prove to be less and less accurate as the months go by. Already, as the previous speaker has said, price increases are raging as a result of the Budget measures which were introduced earlier in the year. The May figures which would give us an impartial assessment of what has taken place are not ready but if one is to believe the complaints one hears the prices of foodstuffs have shot up. One can only try to imagine the plight of our old age pensioners who, while having to pay increased prices, have to wait until later in the year for an increase in their pension.

The NIEC predicted our balance of payments deficit will rise to £90 million in the current year and they visualised prices increasing by another 7 per cent. It is fair to conclude that the Government in their taxation policies have been responsible for at least 3 per cent of this amount. Therefore, our economic position in the next year will be highly precarious.

In Britain tomorrow there will be a general election and they will probably return Harold Wilson to office. This means that the new Labour Government will take a look at any inflationary tendencies that exist in the British economy. Exactly where that is going to leave our economy is anybody's guess. However, without ascribing any blame, it is fair to suggest that inflationary forces are gripping our economy at the present time and that in all sections of the community the policy seems to be the greater one's strength the more one should seek. Having regard to the budgetary policy of the Government, in particular the massive increase in turnover tax, it is obvious that the Government participate in and encourage the national philosophy of "take whatever you can get".

This being the situation, with a Government in Britain who will certainly take resolute control over the direction of their economy and a Government on this side of the Irish Sea who have no desire to take control of anything, even their own members, the future of our economy is highly problematical. How the cost of our goods will compare with British products is an interesting question. Many theories have been discussed and many commentators suggest that we may lose important markets in Britain later this year as a result of rising costs here.

The increase in turnover tax must be seen as an instalment of the admission price of our entry into the EEC, which community the Ministers opposite are so anxious to join. As the debate on EEC membership will take place next week I shall not discuss it now. Certainly the turnover tax increase and the further tax increases that may be necessary later this year or next year, if the present Government remain in office, must be seen as further increases in the admission price to that exclusive club. The cost of entry into the EEC is very high. The British Government have spoken out honestly regarding the price that must be paid for membership. Looking at the tax levels of the Common Market countries it must mean there will be further progressive increases in our general taxation in the next year or two.

I agree with the previous speaker that to discuss "tidying up" legislation at a time when we are faced with such a serious situation is slightly unreal. There is total scepticism invading every section of society when people talk about politics, Parliament and public representatives. I do not know about Yeats's 60-year-old public man smiling coming into a school room; I think it would be somebody else in the school room who would be smiling. It is obvious that a serious question mark hangs over democracy in this country. The unreal nature of the Bill, discussing these small "tidying up" measures at a time when the banks in the country are closed and show little sign of reopening, when our Minister for Labour continues uninterruptedly his slumbers —which seems to be the activity he most favours and considers most appropriate for a Minister for Labour —adds to the unreality of the discussion on this Bill.

The fundamental criticism of the way we tax people at present is that it has no redistributive function whatever. We may pay lip service to the idea but we do not take seriously the need to help the weaker sections by taking from the privileged and those who can look after themselves. One does not have to have a particular political philosophy to do this. All capitalist economies today do this as a matter of course and it is one of the accepted norms of 20th century politics that one does something on those lines. However, our taxation policy does not show this kind of motivation. It bears most heavily in its reliance on indirect taxation and falls most severely on working people.

By "working people" I refer to the majority of the population—those who spend the greater proportion of their income on food, household expenses, and who have little left over to indulge in the kinds of speculation in which the gentry participate. That is the section which must spend practically every penny earned each week in order to maintain decent standards. These people spend most of their incomes on the goods taxed by this Government under the turnover tax. The greater part of their incomes is taken from them by the Government in taxation. It is the less well-off who pay the biggest proportion of their incomes towards the upkeep of the State.

Up to last year's Budget the Government were most understanding, most considerate and most indulgent in the allowances made each year in respect of surtax payers. Somebody propagated the myth that we could not get proper people in management unless we had these people in the surtax bracket. I do not know a great deal about that theory. The Minister regarded it as having some reality. I do not know. The more I think of it the more I think of the strange proceedings at the last meeting of the Irish Management Institure in Killarney. A man was brought over from the United States and he told them that the most important characteristics were aggression, sex, profit—I forget what the fourth one was—but we paid for this gentleman to come over here and announce this new religion in Killarney. The myth was that this particular type of animal was needed to increase GNP. Apparently, in order to get this increase in GNP, we must in Budget after Budget show our goodwill towards the unfortunate people, ulcerated as they are, who pay surtax. We have done that. Year after year we have given them extra allowances. At the other end of the scale there is surveillance over every shilling paid to widows and to old age pensioners. There is no question of anybody at that end of the scale escaping his or her due to the State. Caesar is very vigilant when it comes to looking for cash from these people but Caesar—or, perhaps, I should say Homer—nods when it comes to those in the surtax bracket. So worried are we about them and their attitude towards the State that they are cosseted in every way possible.

I do not blame the Minister for falling for this. Numbers of intelligent people have fallen for it. He, as Minister for Industry and Commerce, and his predecessor in Finance, both fell for it. Indirect taxation means the bulk of the ordinary people pay for the services of the State and they cannot evade paying even one halfpenny, whereas at the other end of the scale those who make the mysterious fortunes escape scotfree.

The cost of living is going up and the increase will not be restricted to the 2½ per cent. We must allow for entrepreneurial zeal which will send the 2½ per cent on its merry way with another percentage addition. The halfpenny has, of course, been withdrawn from circulation. The increase will be a fine round figure. With decimalisation next January the Government in their taxation policy will find mulcting the ordinary people a very smooth operation indeed.

Looking at the economic position how can anyone seriously ask for restraint on the part of the majority of the population? How can any Minister in the present administration address trade unionists from the podium of a chamber of commerce dinner and tell them to moderate their demands? These are the people who refused to bring in a capital gains tax, the people who irresponsibly increased the cost of living. When we complain about increases in the cost of living the Minister for Industry and Commerce says he has no evidence of such increases. His inspectors have not found any evidence of increases. Put down another question next week! Put another nickel in! How can such an administration in conscience call for moderation on the part of any section of the population when its own taxation follows no moderate pattern but goes on looking for more revenue without worring about the effect of that revenue on the economy. Apparently the Government have a vested interest in inflation. They confuse raging inflation with buoyancy of revenue.

This administration cannot call for a just incomes policy. They must banish the word. Yet all of us accept that any administration looking for a planned approach must have respect for its policies. There is no longer any respect for this administration and the Government must remain silent, however long it continues in office. There are certain matters about which this administration can no longer speak. There are areas affecting the security of the economic wellbeing of the country on which this Government can no longer speak.

An Leas-Cheann Comhairle

The Deputy must not enlarge on what the Bill envisages.

Mr. M. O'Leary

True, but I have been arguing that in several respects the taxation measures do not operate satisfactorily. Shortly, we will be in the added difficulty of having across the water a Labour Government which will energetically go about the problems of the British people. Britain is our main customer. On this side of the Irish Sea we have this discredited administration. This must spell trouble. Incomes are intimately tied in with taxation. I make the point that this Government at this point of time will not be listened to and cannot act. This is a very serious situation because some decision on incomes for all sections of the community is overdue. This administration cannot tackle this serious question, is incapable of doing so. By its own actions it has robbed itself of any possibility of saying anything on this serious matter. This is a problem to which I can see no solution while this administration continues in office.

The standing of the Government is such that, when a large industrial dispute breaks out, it can be assumed that the Government —who, in their Budget measures, have apparently given the red light to inflation—will regard a serious and large strike such as the present cement strike as a deflationary device and therefore, as a strike, will not wish to terminate it.

Under the Anglo-Irish Free Trade Area Agreement, there will be further cuts in tariffs later this summer which will add further to the problems of Irish industry by making more difficult the retention of the home market for our products. This results in certain firms closing down. There is a terrible optimism about some of the Government's Ministers. I recall a recent statement by the Minister for Finance on his return from a chat with, I think, the President of the commission that some factories would close down but that others would open up and that there is no need for undue pessimism. I find such talk quite alarming. There may be trouble in this respect. As yet, we have very little information from the Government about industries due to close and others due to open. Some poor devil down the country in a grant-aided factory will consider his future extremely insecure in the light of remarks made in the distinguished visitors' lounge in Dublin Airport and elsewhere.

The allowances given to married women are not sufficient. If they were made worthwhile, the married woman who is free to do so would go back to work to earn some needed cash. Several of our reports suggest that industry is looking for more female help. Our taxation laws do not yet sufficiently attract the married woman back to work. The number of them returning to work is too low and is an indication that the tax alleviation is not sufficient. Many of them are well-trained and skilled and are a great loss to our labour force. The days of one partner earning in Irish family life are over. From now on, in order to keep their heads above the cost of living, both partners in Irish family life must work —either one part-time and the other full-time. The days when the man is the sole breadwinner are over in this country.

I am interested in the children's allowances and in how exactly that section will work out. I suppose we may reserve these comments for Committee Stage. The office conditions for the hard-working employees in the PAYE office in Dublin are deplorable. The Minister should do everything possible to remedy this serious position. The unions involved have been fighting for decent working conditions for them for years. The Minister for Finance may not be in office long enough to remedy the situation though I trust he will make every effort immediately to do so. If he succeeds, it will, indeed, be a monument to his memory as Minister for Finance.

Mr. Briscoe

I did not think I would live to see the day when I would hear Deputy Michael O'Leary attacking the Government about lack of proper office accommodation for Government workers in this city. The Deputy and members of the Labour Party have for years been finding fault with the erection of offices in this city. At last, they realise that the conditions under which some of our citizens have to work in such offices are undesirable.

Mr. M. O'Leary

God bless Deputy Briscoe's naïveté. It is good to see young men like him growing-up.

Mr. Briscoe

No matter what the subject under discussion, Deputy Michael O'Leary always speaks with great authority. I do not think I have ever heard so much nonsense uttered with such authority as I consistently hear from him. His arguments here this evening are deplorable.

Dr. O'Donovan

Deputy Briscoe should listen to the Minister for Finance, Deputy Colley, occasionally. I know nobody who says nothing with so much authority as he does.

Mr. Briscoe

I would not mind having Deputy Michael O'Leary's flow of language but he says simply nothing. He is a trade union official. He takes no responsibility for the breaking-down of negotiations with companies. The Government offer guidelines beyond which increases should not be sought.

Mr. M. O'Leary

I am only a member of a trade union.

Mr. Briscoe

I shall deal with some of the points raised by the Deputy although the Minister would, I am sure, deal with them more adequately. I have sat and listened to him——

Dr. O'Donovan

We like the workers to be well paid.

Mr. Briscoe

——not just the workers in a particular industry, but for the good of the country as well. This is terribly important.

I was pleased that the Minister raised the limit from £750 to £1,000 in the case of a trader registering for turnover tax. This will be of great help to the small shopkeeper. I was also glad to see that the less well off sections of the community have been given considerable income tax reliefs. I hope that will continue to be the pattern. I welcome the general tendency towards indirect taxation because I feel it is the fairest form of taxation. As I have said before in other debates, the people who have the most money to spend should pay the most tax. I should like to wish the new Minister for Finance the best of good luck——

Deputy Collins on the Finance Bill.

Mr. E. Collins

The problem is that this Finance Bill has not provoked the interest it should. Members of the Government cannot discuss the economic problems in depth. Indeed, the Minister's speech is an example of what I am saying. He introduced the Second Reading of this Bill today and his speech was more or less a short analysis of the Bill section by section. This short analysis is available to all Deputies in the form of the Explanatory Memorandum. A Second Reading speech calls for an analysis in depth of the Bill and this has not been forthcoming.

I am pointing to the reasons for this. The country faces a grave economic crisis in regard to our balance of payments and rapidly increasing consumer prices directly as a result of Government policy to which I shall advert later on. The Government have completely mismanaged the economy and may now be facing drastic action which possibly could have been avoided if the economy had been properly managed in the past five years. The poor people will suffer most. Business people will suffer. There will be unemployment; the small firms may have to close. Nobody wants these things to happen. But they are the result of a Government far more interested in retaining power than in managing the country's affairs. Too often they have subordinated economic and social problems to political expediency. I came to this House to fight honestly for economic and social reforms which would help the poorer sections to help to create an atmosphere in which industry would thrive and exports could be increased, prices could be controlled and poor people could get houses and better social welfare services. I find my constituents not so much interested now in the social welfare reforms, in the new policies to reform our industries to face the Common Market. They do not even discuss these matters at political meetings. They are interested in the current political crisis and nothing else. That is a shame.

I have many things to say about this Finance Bill but these would be more appropriate to Committee Stage. It is a very technical Bill. It amends a number of Acts and especially the Income Tax Act of 1967 which is itself a very comprehensive measure. There are, however, a few points I should like to discuss briefly this evening. As a general principle, any Minister for Finance should be aiming at a simplification of the income tax code. That is not so in the Budget or Finance Bill. In fact, I find the opposite is the case. The benefits announced are welcome, the increase in earned income relief, the reduced rate of taxation on the first £100, the age relief for persons over 65, the small incomes relief and the increase in the wife's earned income allowance. My party welcomes all these but it is a pity that in giving reliefs one must complicate, rather than simplify, the income tax code. This could lead to administrative problems. I believe it will make it more difficult for the employer to administer the PAYE system. This will only become evident when the Act is in operation.

In this Bill the employer is again being forced to act as tax-gatherer to burdensome extent. I shall elaborate on this on Committee Stage. The employer is not paid for this; perhaps he should be. Perhaps employers should have some allowance for acting as tax-gatherers. I hasten to say that such an allowance would merely recompense them for the increased clerical work involved in the operation of PAYE. This is something the Minister might consider.

I think section 17 is a very harsh section and a concept new to the Irish tax code. It relates to the deductions by a contractor of income tax at the rate of 7/- in the pound on his payments to sub-contractors and in this context the definition of sub-contractor is very wide and would certainly, I think, catch practically every sub-contractor. Why should 7/- in the £ be deducted in all payments to a sub-contractor? Nobody can say a sub-contractor will be liable to pay 7/- in the £ on every £ he gets from the contractor. No attempt has been made in this Bill to allow for the expenses a sub-contractor will obviously have to bear in carrying out his contract. The section is quite wrong in the way it is phrased, especially subsection (2) (b). I shall go into this in greater detail on Committee Stage. It is wrong because the sub-contractor may not be liable to this extent and it is wrong because the time elapsing between the date he is paid by the contractor and the date the income tax inspector will allow the refund may be quite long, a year or, perhaps, two. This is something that will have to be considered in the course of the Bill's progress through the Oireachtas.

Section 10 which deals with allowances for children again complicates the position in regard to a person's taxable liability. Liability is, in fact, reduced where the person is claiming allowances for children but, again, this is more a matter for Committee Stage.

I am very interested in the details of the proposed instalment saving scheme. Personally, I think it is a very good idea and I welcome it. I wonder what type of scheme the Minister has in mind. Will it be one in which a worker gives his employer a certain amount weekly which the employer puts into a bank or savings bank or will it be left to the worker to stipulate whatever amount he wishes to save? Will it be a compulsory scheme? I certainly hope not. If it is compulsory it is odious. The Minister owes it to the House to explain what he has in mind.

There is certainly scope for such a scheme, although perhaps a better scheme would be one in which an employee could have a voluntary scheme of life insurance or endowment insurance which would become payable at a certain age. The savings scheme as envisaged by the Minister is only a scheme to increase revenue for the Government, whereas what should be evolved is a scheme in which a worker or his spouse would benefit.

Section 52 is of interest to me in so far as it allows the Minister "to create and issue securities bearing interest at such rates as he thinks fit". A new departure is envisaged here and perhaps it is bound up with the issuing of short and medium-term securities to promote the establishment of a money market in Ireland. This might be more appropriate to the Central Bank Bill which will be coming up in the near future. I should like the Minister to explain what he has in mind here. Is it a more flexible issuing of securities? What types of securities, what type of redemption?

An Leas-Cheann Comhairle

Those details would be more appropriate to the Committee Stage.

Mr. E. Collins

I accept that. I merely mention these points in passing in order to give the Minister time to consider them. Perhaps he would be good enough to reply to them during the Committee Stage or at whatever Stage he wishes.

Section 54 deals with double taxation. I do not wish to go into this except to recommend to the Minister that, if possible, he should enter into double taxation arrangements with other countries in order to encourage Irish people to come back to Ireland in their later life with the knowledge that they will not be crucified by taxation, particularly double taxation on their investments abroad. Their investments, which came from their savings while they were abroad, are to be welcomed and certainly they have not an adverse effect on the Irish economy. Older people would be encouraged to return home if they knew that in coming home they would not be subject to severe taxation.

In the Minister's speech on the Budget he mentioned a new type of relief for exporters in the matter of finance. Again I was expecting to see this new scheme in the Bill but it has not appeared. I should like to know from the Minister when it is intended to produce this scheme, which is a good one. We must encourage exporters, I do not know how we shall be fixed under EEC regulations if we enter the EEC, but the sooner the scheme is produced the better.

Profits on exports should not be taxed heavily. They should certainly be taxed at a reduced rate vis-à-vis the profits of companies selling on the home market. This would be a good way to encourage old firms especially who are at present subject to taxation on exports. I would therefore ask the Minister to announce as soon as possible this new finance scheme for exporters and to consider reducing taxation on the profits of companies, and indeed not only companies but partnerships and private individuals, who are in the export trade. With the slump in the tourist trade this year something will have to be done to encourage exports.

The time is now ripe for raising the lower level for liability to death duties. Instead of death duties being payable at the present figure, the level should be increased to £7,000 to £8,000.

The question relating to revenue after business or trade has discontinued is a delicate one. The provision is apparently required to ensure that all the revenue which should accrue to the Revenue Commissioners is actually paid. I believe the Minister is complicating things too much in this connection.

The turnover tax caused far higher increases in prices than its implementation warranted. This year the country is faced with a severe bout of inflation and the increased turnover tax will certainly contribute to it. It has also justified to a certain extent the big wage increases demanded by the trade unions. The Government must find it very difficult to justify their plea to the trade unionists to ask for only moderate increases, in the region of 7 per cent, when it is common knowledge that the consumer price index will rise this year by, I should imagine, 10 per cent, and I base my figure of 10 per cent on official figures plus the 2½ per cent increase in the turnover tax. Prices in the past two months have increased far in excess of 2½ per cent. The price of the pint, the price of the bottle of Guinness, the price of drink in general and the price of food in particular have increased at a staggering rate. In my contribution to the Budget debate I criticised the Prices Section of the Department of Industry and Commerce for their absolute lack of organisation and surveillance, and I do so again here tonight. Perhaps the Minister for Finance, who was previously Minister for Industry and Commerce, would implement a better and more efficient scheme for supervising price increases. The increase in the turnover tax has led to a wide range of increases to the consumer's detriment. That is all I have to say now but I will have much more to say on Committee Stage.

Dr. O'Connell

The increase in turnover tax is the greatest burden falling on the lower income group. We have this fraudulent tax and the Government do not care how it is collected or how it is applied as long as they get their money's worth. They put the onus on the small shopkeepers and the small traders to collect it. They say "it is not a sales tax, not a normal tax, we want an extra 2½ per cent turnover tax". What is wrong is that the Government have not endeavoured to make clear to the public that this is not a 5 per cent tax: they are interested in getting 5 per cent of the turnover, which is a completely different thing from 5 per cent tax on the sale of goods. In fact if it were applied very rigidly it would work out at 6 per cent, or 7 per cent or 8 per cent tax. I wrote to the Minister two weeks ago on this point on behalf of many people who are concerned with this and I asked if some means could be devised whereby it could be announced there would be 5 per cent tax and it could be broken down for 10s, 5s and 2s 6d but the Minister's reply was that it does not apply like that at all. They are only interested in a 5 per cent tax on the turnover of a shopkeeper or merchant. The shopkeeper, and especially the small trader, has no alternative but to apply the extra tax so that he will be able to supply the tax requested by the Government.

In America they had a sales tax and people knew exactly what they were paying but here they do not know simply because the Government are only concerned with getting 5 per cent of the turnover. The tax is applied to foodstuffs, the very basic essentials which all poor people require, and this is shoving up the cost of food. It is also applied to drugs. There was nothing more ridiculous than to apply turnover tax to drugs. No attempt is being made to remove it. Animal medicines are exempt. By no stretch of the imagination could I see logic in exempting animal medicines and applying the tax to drugs and medicines required by humans. They could not put forward a reason for this.

Again, poor people who are involved in hire purchase transactions have found that the turnover tax is applied to their transactions. They were informed that their instalments would be increased because of this. The Minister for Finance was not concerned about this. He was concerned that any transaction, anything due after the imposition of this new tax, must have the tax applied. These are poor people who cannot afford to pay the turnover tax. They are forced to pay the extra tax on hire purchase commitments which had been entered into a year or two prior to this increase. The Minister would make no provision for these people.

We have the wholesale tax which originally was to be applied to luxury goods but ordinary household soap is subject to wholesale tax. We have soap with 16 per cent tax on it. I cannot understand why soap which is used for cleansing purposes, for ordinary hygiene, should be subjected to a tax of 16 per cent. The very people who can ill afford to pay this increased taxation find they are burdened and crippled by it. The small shopkeepers are being blamed but the Government have a horde of unpaid tax collectors working for them and they do not care who takes the blame as long as they collect.

There was nothing imaginative in the Budget. They knew that here was a ready source of revenue and by doubling it—we do not know what it will be next year—they could bring in £20 million. The Minister for Finance or the Taoiseach stated that income tax in Ireland was the highest in Europe. The ordinary working person here is paying more tax, comparatively, than anyone in any country in Europe at present. The introduction of PAYE brought all these poor people into the tax net, people who could ill afford to pay tax. Still we have those who are making vast profits and not paying 1d in a capital gains tax. We had a Minister making £200,000 profit from a transaction and he was not obliged to pay 1d tax. I worked it out for some people and I told them that if they were to save £20 a week it would take 200 years to make that amount of money. It is very hard to explain this to people who find that if they do one hour's overtime the Government step in and take some of their money. It is very difficult to say to these people "You must work overtime, you must do this, that or the other for your country" when they see leaders of the country making such vast profits and not paying 1d tax. It is no great inspiration or inducement to any person to work hard for his country when he sees people in high office involved in transactions such as that.

Time and again we have heard Ministers say that no purpose would be served by the introduction of a capital gains tax, that it would not be worth collecting. We have seen land developers making vast sums of money and there is no net to catch these people. If we had a capital gains tax —Britain realised that a capital gains tax was necessary—it would ensure that people who make vast profits would pay tax. I do not mind people making profits but there should be such a tax paid by them. I would ask the Minister for Finance seriously to consider this as a source of revenue.

There is a great apathy in the country at present and it is a very depressing and gloomy picture to see so many strikes and our economy literally tottering. We have a bank strike and no effort is being made to try to resolve the problem. The Minister for Labour looks idly by and is not concerned about the strike which is affecting our economy and upsetting every single business. It has been suggested to the Minister by Deputy Dr. O'Donovan that the bank closure was illegal.

They were intended to help those in the lower income groups who had large families but it is grossly unfair that people earning £4,000 or £5,000 a year should be entitled to draw children's allowances. I suggest seriously to the Minister that he should introduce a means test in this regard although I am opposed to means tests.

A valuable source of revenue could be provided by way of bearer bonds. As I have mentioned before, there are many people who would gladly invest in such bonds. People in this country who have money but who are loath to invest in post office or banks would be prepared to invest in bearer bonds. I know of many cases in which money is leaving the country and bearer bonds might be the answer to this. Perhaps it could be arranged that the rate of interest would be a little more than the normal rate for post office savings. There is need to encourage saving by every means if we are to improve our economy and provide the money for essential purposes such as housing and bearer bonds might be the answer.

I should have thought that the Minister would have brought in more details about the added value tax. We are now at the stage where we must investigate the taxes that apply in the Common Market countries. The Minister should have investigated these and should have come up with something better than what was introduced. Surely there were other sources of revenue. I should hope that this time next year the turnover tax is not increased to 7½ or 10 per cent but at the rate things are going it seems obvious that there is no imagination on the part of the Minister for Finance and that he is content merely to double the turnover tax to ensure revenue.

Mr. Gallagher

I shall not detain the House very long on this Bill but there are one or two remarks which I should like to make. Generally, I favour indirect taxation as being an equitable form of taxation and also because it has not the same restrictive effect as has direct taxation.

There is now being introduced in section 17 of this Bill a completely new provision. This is the section which deals in a very broad and comprehensive way with tax deductions from payments to sub-contractors in the construction industry. This is a broadening of the net to bring in, presumably, these people who are not paying income tax and who are getting away with it. Generally, it can be said that bona fide sub-contractors are paying their income tax.

The people who would escape would be the ordinary small jobbers who would take on work for private individuals. I believe this has been exaggerated and the adoption of this section will certainly lead to a tremendous amount of disruption. As I read the section it simply means the Revenue Commissioners will have it both ways. If a small builder decides to work for another person in erecting a house it is in the Bill that it is incumbent on the employer to find out whether the person he employs has cleared his income tax or not or whether he is on the list of the Revenue Commissioners or not for the payment of income tax. If he is he apparently can carry on as a contractor without any deductions but should for any reason his position change the main contractor is immediately expected to deduct tax at 7s in the £.

This expands to a very wide category of people including as far as I know cleaners, whether office or window cleaners or other people who carry out ordinary jobs for an hour in the morning or a couple of hours each week. Those people are being netted into some kind of tax snare. I can see in this, although the words "construction industry" are used what "construction" means. "Construction" is very wide here. I do not want to deal with it now as it will be gone into throughly on the Committee Stage but it is an undesirable approach and one which to my mind is not workable. I can visualise also in the definition here of "the principal" the case of a farmer employing a small gobán to do masonry work on his house, or a handyman to put on a roof, the position this small farmer will be in if the revenue people come to him wanting to know whether this man is paying tax or not. When one gets down to it one can see tremendous difficulties in its application. I should like to hear from the Minister how many are escaping under this term "sub-contractor" which is often misapplied.

There are many very large firms of contractors who spend their whole career rightly and properly working for another contractor, so they are sub-contractors in the ordinary way, but they employ many hundreds of people and spend their lives on this work. Heating contractors work for main contractors. Electrical contractors. supply labour and materials but are sub-contractors to main contractors. Glazing, plumbing and heating contractors are others in this category. All these people are in the category of sub-contractors yet in some peculiar way it is hoped to make the principal or main contractor responsible for the manner in which those people run their affairs, keep their accounts, and for investigating as to whether in fact all of their employees and sub-employees pay their income tax.

This clause will cause tremendous difficulty in the trade. This certainly is a complicated clause to bring into a Bill in order to catch the few who might be escaping. Nobody likes paying tax but we all realise that income tax must be paid providing the level of taxation does not exceed certain limits; the limit I would prescribe for the ordinary person is that which does not represent an intolerable burden on the taxpayer, a limit at which taxation will not become a disincentive. It is very difficult to measure this but we know from daily contact with salary earners and workers in every category that in some cases overtime earnings and bonus and incentive schemes are not attractive to employees for the simple reason that it is on this extra earnings that they pay the most income tax.

Something should be done to ensure that the ordinary taxpayer is given the opportunity to spend his own money in his own way and at his own time. If he wants to be foolish with it, good luck to him, let him spend it foolishly. If he wants to be thrifty, his thrift should be encouraged. There is a case for examination of the whole tax code. A greater emphasis on indirect taxation will have in the long term the best effect. Direct taxation always has been and will be penal. It is a penal tax at any level and is just as penal on the small wage earner as on the larger wage earner. It is a disincentive in that the more a man earns the more he pays and why he will ask should he try to increase his earnings when he will be taxed more heavily for so doing.

Indirect taxation is a better form of taxation. Under this system, it can be argued, the person can spend his money in his own way, be it on luxuries, dress, a motor car or anything you like to think of or he can save his money. He can pile it up and one day of course death duties will collect anything he has stored over the years.

The turnover tax, being a form of indirect taxation is an equitable system. So long as provisions are made in each Budget for the strengthening of social services there ought to be an extension of indirect taxation along those lines. In this way you will have a happier and more contented people. I would not recommend that this should be the only system of taxation because people in the higher income bracket and the larger companies and larger shareholders must face their responsibilities and must always bear a heavier share of the taxation burden not to penalise them but simply and solely because they can afford it. I do not have a tremendous amount of sympathy for them in that respect. If I express sympathy at all for them it is because of the fear that heavy taxation would be a disincentive.

There is no great point in saying that to bring about equality would create incentives. We would not. Without pace setters we would have a kind of apathetic society without any great growth. We must always maintain the idea that people will be able to acquire the comforts and luxuries of life in so far as they wish to do so. This will always be the Mecca that men will seek. In my life over the past 40 years I have seen rabid socialist, having bought new homes, change their outlook completely. Men who in a sense were communists changed rapidly when they acquired some property and began seeking to provide themselves and their families with comforts and luxuries comparable to those of their neighbours around them. If they complained at all, they complained that the standard was ever rising. This acted like a whip to them. They had to keep going. This chasing of higher living standards of itself provides the targets that improve our society and our way of life. With these incentives men create greater wealth. Those who create wealth must be prepared to contribute to the less fortunate people in our society.

I will be watching this Bill as it goes through the Committee Stage, particularly the new clause, to find out from the Minister just what is involved. At this stage I see a danger. I understand that this provision was not introduced by the British Chancellor. Apparently, he did not think it worthwhile to bring in such a provision at this time. It is strange to see it brought in here without any reference to it in the Budget speech of the Minister. No reference is made to it nor is any attempt made to explain it. Before this Bill becomes law I hope we will hear more about how much the sub-contractors and other people in that category, who appeared not to be paying their fair share, were getting away with. Was it hundreds of pounds or millions of pounds? From my own experience, I do not believe it runs into millions of pounds. I am aware that the main contractors have been supplying to the Revenue Commissioners lists of sub-contractors employed to do certain operations. The opinion is held in our society that there has been evasion of tax. The so-called earnings reported for piece work and so on have been out of all proportion. Over 12 months I believe it would be found that the total earnings of these people would not be much greater than the total earnings of the steady, regular, weekly-paid operator.

I will watch this Bill very carefully.

Mr. Hogan

There is not much to say about this type of Bill at this stage. One could regard it as a Bill under which there are three legs. There is the old traditional type of taxation on alcohol, petrol and tobacco, the three steady war-horses of every Finance Minister. Another leg to the Bill is the Deputy Charles Haughey 5 per cent turnover tax. Then for good measure we have a third leg thrown in, not by any Minister but by the Revenue Commissioners in which there is great dotting of I's and crossing of T's, in archaic revenue law phraseology, with sections and subsections all lumped together, with little bits added on and little concessions given. That is the basis of the Bill. It must be a delight to the parliamentary draftsman and to the Revenue Commissioners who look at life through a small focus lens. They are concerned there is a loophole somewhere and that another drafting must be made to get at those people. They spend hours and hours trying to draw up a new section and we have to spend our time dissecting what they mean.

Dr. O'Donovan

Not hours and hours—weeks and weeks.

Mr. Hogan

They spend much time on some little thing that never cured or killed anybody. That is basically what this Bill consists of. The 5 per cent turnover tax is the main item. All these other pieces consist of little things added in here and there. It seems to me that there is a great waste of time about it.

I want to mention a couple of things in the Bill. I am not happy—and in this I am in agreement with the previous speaker—about the question of the sub-contractor. They may be very well-off people but often they are not. Often they are quite small people, whether they are heating, electrical or plumbing contractors.

An innovation seems to be in the pipeline. I do not know why the Revenue people cannot deal directly with the sub-contractors as they have done heretofore. It seems that some onus is being placed on the contractor to act as watchdog over the sub-contractor. Apart from this peculiarity of the situation—and it seems peculiar to me —there is no evidence that there has been wholesale evasion by the sub-contractors. I do not see how they could evade. Some notion has got into the minds of the Revenue people and they have introduced this clause which will cause administrative difficulties. Most business people have trouble enough trying to keep their books right for ordinary PAYE without getting into more complications and asking contractors to play a watchdog role in relation to sub-contractors. There will be many difficulties and the final result will be an increase in the cost of building. These sub-contractors are in the position, as most traders are, of being able to pass back their expenses to the consumer.

There are before this House at present two Bills which I shall just mention in passing—one is the Housing Bill on Fifth Stage and the other one, which we will be dealing with tomorrow, is the Local Government (Temporary Reduction of Valuation) Bill, 1970. Both of these will have the effect of increasing the cost of building to the private builder because many people will not qualify for a grant. They will, therefore, lose their stamp duty and also the reduction in valuation which was two-thirds for a period of seven years. These three things together, according to the Minister for Finance, will mean a loss to a person of £1,000, on average.

Now we have this other exercise by which the subcontractors will be brought under increasing revenue pressure. The effect of this, to my mind, will be that if they are able to extract X pounds out of them that X pounds will be passed to the man who is buying the house. That will inevitably be the situation. I doubt if this is a worthwhile measure, certainly without some statement from the Minister that there has been wholesale evasion in this area. He has merely implied that. He has not stated definitely that there is. He has not stated what degree of evasion there is. He has not told us what extra money he hopes to get by introducing this measure. We all know it will cause annoyance and administrative difficulties but he does not mention what it will amount to in cash. I feel it is a very doubtful exercise particularly at this time and taken in conjunction with the other measures which are going through this House and which will, in effect, raise the cost of a house to the non-grant aided person by about £1,000.

One naturally has less sympathy with the builders of office blocks because they are usually in very wealthy circumstances. Here we have the peculiar position that last year there was a ten per cent duty on office blocks imposed for the first time and this year it is taken off. There does not seem to me to be much rational thinking behind all this. What extraordinary changes have taken place since last year? It may be that it is not a global removal but it is not clear from what the Minister read out there whether this is being applied to all office blocks or merely to those which are occupied by a private staff.

Mr. O'Kennedy

By their own staff.

Mr. Hogan

It is not clear that this 10 per cent will continue on other offices not occupied by their own staff. The Minister has not made that clear to me in his statement.

Mr. O'Kennedy

I think the Minister stated this specifically in his opening speech. At page 8 he said:

I have received representations that this charge imposes an unfair burden on firms who find it necessary to build office accommodation for the use of their own staffs. I have decided to accede to these representations and in section 44 I am abolishing the duty on such office blocks, subject to the condition that there is no change of occupancy for five years.

That seems fairly precise.

Mr. Hogan

He will probably find next year that there will be other loopholes in it and he will have his revenue boys burning the midnight oil to bring in new sections to plug the loopholes the public will have discovered or he will imagine they have discovered.

Dr. O'Donovan

The word "necessary" may lead to much legal discussion.

Mr. O'Kennedy

They must live, too.

Mr. Hogan

The Parliamentary Secretary says this concession will be given to people who build offices for their own staff. If they sublet a part of the office what will happen? Will the concession be fragmented? How will it be worked out? I find it hard to reconcile this with other Government measures that have been introduced up to the present time. The man who built his office last year paid his 10 per cent but he was allowed a two-thirds rates abatement for seven years. This year the rates abatement is taken off him. There does not seem to be any logical thinking behind all this. It seems to be just little ideas that have emanated from the revenue people. They discovered that something was going on here and with their detective mentality they rushed to the Minister and said: "These boys are getting away with something. We must get after them."

Children's allowances amount to a lot of money. Speaking from memory, I think they amounted last year to something like £10 million. This is one of the few social welfare handouts administered without a means test. I have often wondered why that is so. I fail to see the logic of handing out children's allowances to a person in the surtax bracket and then taking it back from him in taxation. It has always seemed to me that it would be more logical to have children's allowances based on some form of means test. There never has been a means test despite what Dr. O'Donovan said.

Dr. O'Donovan

There was a means test at one time.

Mr. Hogan

I do not think so.

Dr. O'Donovan

Yes, there was. I know.

Mr. Hogan

I know that at one stage children's allowances were worked in such a fashion that people in a certain income bracket, paying income tax, got children's allowances, then a deduction was made on their income tax and the result was that they were worse off than if they never got the children's allowance. They could not opt out of it. They got no concession even if they did. They were compelled to take it. That, again, seems to have been an illogical position.

The explanatory memorandum states that section 10 "provides in effect that, in respect of children qualifying for social welfare children's allowances, the income tax deductions will be reduced, where there are two such children, by £15 for the second child and, where there are more than two such children, by £15 for the second child and, by £19 (£23 for years subsequent to 1970-71) for the third or subsequent child." This is an attempt at a more equitable distribution of wealth. It does not seem to me to be a very satisfactory way to do it but that is a matter for argument and discussion.

Section 5 empowers the Revenue Commissioners to make regulations under PAYE requiring an employer to furnish particulars of certain employees whose emoluments in a year are not likely to exceed a specified amount and to notify the Revenue Commissioners when the emoluments of certain employees have exceeded a specified amount. I have received complaints, and I am sure other Deputies have, from people ordinarily exempted from tax because they are married and have a number of children but who after doing some extra work in the evening have found that the remuneration they received for that work is added to their ordinary pay and this brings them above the level of exemption and they are taxed on the bulk sum. I also received complaints from people who are taxed on their holiday pay because it brings them above the level of exemption.

These are probably only administrative irritants but they are becoming increasingly common. Because of the fall in the value of money more people are coming within the PAYE bracket. I am sure this is a simple matter to rectify—it is only a matter of commonsense—but people get agitated if they do not understand the position because they think they are being unfairly treated.

Deputy Collins said he would like to see the income tax code simplified. There is little hope in that. The Revenue Commissioners rejoice in making it more complicated. Not only is there exhaustive legislation, some of which is incomprehensible despite the fact that it was consolidated in the 1967 Act, but there is an enormous amount of extra statutory decisions on income tax which are not readily available to the public or the accounting profession. I understand extra statutory concessions and rulings are published in Britain but they are not published here. I suggest the Minister consider adopting that practice here. If such information were available it would be of considerable assistance to those dealing with income tax.

The general thinking behind this Finance Bill is unsound. There is nothing in it to improve our economic situation. When the turnover tax was introduced a few years ago we were informed that the expected income would amount to £12 million but we now obtain £20 million from this source. In the interim period a wholesale tax was introduced and this brings in another £20 million. In the space of a few years a new system of tax has been introduced here which nets £40 million. We also net £40 million from the rates. That figure has also increased rapidly over the past few years.

We are negotiating entry to the Common Market. One of the terms of entry is that, apart from the free movement of men, money and material, we will have a common fiscal structure and a common taxation structure. The added value tax is used in the Common Market. I do not know how readily adaptable turnover tax is to added value tax. When turnover tax was introduced we were told that one of the attractions of it was that it could be adjusted to the added value tax system without too much difficulty. We all expected reference to be made to this in the Budget speech, in the Bill or in the Minister's speech, but all that has been said is that a book on the added value tax as it operates in Europe has been issued. No mention has been made about the necessary adaptation which this country would need to undergo to operate that tax. Indeed, the whole question of our economic position has been completely by-passed. It has not been mentioned either in the Financial Statement or in the nine page document which the Minister presented here tonight. It is a purely technical Bill with many minor sections, on which there will be lengthy discussion, much of it pointless and fruitless.

Mr. M.E. Dockrell

I should like to make some general observations regarding the financial situation of this country. We have a very heavy burden of taxation which is most inequitably distributed. We have a large farming community and an agricultural industry and, so far as I understand it, the system of taxation is not applied to the profits of that industry. No Government in this country dares to tax the farmers on their profits out of farming and we follow a system which was introduced by Britain, one of the greatest manufacturing countries in the world. The system suited Britain in the past and still suits her because she is a great manufacturing country but that is not the business of this House or this nation. In the 50 years of self-government we have not altered the system of taxation to any great extent with the result that the present system lays a great burden on the city dweller and on industry.

It was one of the achievements of the inter-Party Government that they introduced alleviation of taxation in order to encourage exports. That had an outstanding effect on our export trade and was one of the chief reasons for our increased exports. It showed what could be done in the way of using taxation as an instrument for helping industry in this country. Unfortunately, the same wise policy was not followed in relation to internal industry which is important from the point of view of employment.

Consequently, we have a system which is not entirely suited to our economy. We have never faced squarely up to the situation that if we could do something to alleviate the burden of taxation which is laid on industry we could achieve the same outstanding results we achieved in relation to exports. I am not advocating that farmers should pay more but I am suggesting the matter should be investigated. There are certain farmers who are paying very high rates but, as against that, the broad principle which is followed in manufacturing and other industry is not followed in agriculture.

I know that other speakers will criticise that statement but it has always seemed to me rather strange that a country such as ours which prides itself on its freedom, is interested in its language and in retaining its way of life as far as possible, should slavishly follow taxation and finance policies that were introduced by another country.

This system places an undue burden on the city dweller and on what was formerly called the "white collar" worker and it acts as a disincentive, not only to the businessman but to the workers. I have personal experience of men saying to me: "I do not want to work overtime; they take too much from me in tax". That leads to many kinds of abuse. It means that men sometimes are not inclined to work overtime and there are occasions, which the trade unions recognise, when it is in the national interest that overtime should be worked. This disinclination means that the way is open for a man to work after hours privately and in this work money will be earned which is, in fact, as often as not untaxed. That hits those whose income tax has to be paid as regularly as is money across the post office counter for a stamp. Every penny that is earned by many of us is taxed right up to the hilt. Others get away with various forms of evasion and semi-evasion. That is unfair to those of us who are taxed up to the hilt.

It is a specific provision in regard to stock.

Dr. O'Donovan

It means the Government are unable to repay their debts.

Mr. Lemass

Deputy Dockrell remembers the good advice given by Deputy O'Donovan in the last Coalition.

Dr. O'Donovan

That is old hat.

Mr. Corish

The Parliamentary Secretary cannot have had many advisers in his own coalition in the last few months.

An Leas-Cheann Comhairle

The Chair is concerned to ensure that we do not get into a discussion on strikes, as such.

Mr. M.E. Dockrell

No, but financial difficulties arise therefrom. In deference to the Chair I will not pursue the matter but, wherever stocks are mentioned, I would say that the present difficulties in which we find ourselves can have nothing but an adverse effect on any stocks mentioned in this Bill or elsewhere. I can only see it having an adverse effect.

It is high time we realised as a country exactly where we can place the burden of taxation. As a businessman, I do not like to see any increase in the turnover tax but I do not think it is— I speak for myself here—an inequitable form of taxation in the circumstances in which we find ourselves because the income tax payer, whether he is a businessman or anything else, carries almost the whole burden. The ordinary worker who up to a few years ago did not pay any income tax has now to pay income tax. He does not always understand the extent to which he is paying income tax but he is paying it, and he is paying it directly, whilst other people who may be earning a great deal more in other sections are not paying. Therefore, the whole question of taxation will increasingly come in front of every Irish Government. The very fact that there are sections of the community who have now moved in, as income tax payers, and will increasingly come in—due to inflation, wage increases, and so on— means that they will inevitably demand a more just sharing of the burden of taxation than has been the case in this country in the past.

I think the present Government have not now, and never have, gone into that question properly nor faced up to the realities of the situation. They have not given industry and those who work in it—and that is the vital part of it—a fair share of taxation; they have given them a very unfair share. The whole question of taxation should be gone into and, increasingly, we should consider whether or not we can afford to do this or that or the other thing.

I am grateful to the Deputy. As the saying goes, "Great minds think alike——

Mr. Donegan

Do not finish it.

Mr. M.E. Dockrell

——and fools seldom differ": I would not include the Deputy in that category. It is high time more emphasis was laid on the ability of the country to pay—no matter how worthy sometimes a proposal may appear on cursory examination. The Government must cut down on all expenditure that is not necessary because our taxation is appalling for this small country. We are following imperial standards without having the wherewithal to do so and that is placing a great burden on all of us.

Dr. O'Donovan

Hear, hear.

Mr. Donegan

One of the things that has not been realised, one of the things that is perhaps overshadowed by other events, is the serious financial situation of this country. This Bill embodies the details of the Budget, the details of how we will implement what is in the Budget speech and, indeed, many things left out of the Budget speech perhaps because they were not generally appreciated Budget expressions but which nonetheless, are just as important or perhaps more important than some of the things which hit the headlines on 22nd April.

It is impossible to gauge unemployment today because of the effects of strikes. It is also impossible to gauge today the money situation in the country. It is impossible to estimate our real balance of payments deficit over the past few months. It is in that context that we are now dealing with the Finance Bill which, in its main aspect —the imposition of double turnover tax—acts like a bludgeon on all when, in fact, the necessity probably was for the individual and very careful action of a surgeon's knife, not that I am advocating a Budget or a Finance Bill full of strictures. I assert that the global attack on everybody's income—irrespective of who they are, what they were, what they bought or what they found it necessary to buy in the form of double turnover tax, was the wrong sort of Budget and the wrong sort of Finance Bill for this country.

If we compare this Finance Bill with the added value tax which we shall be dealing with when we enter EEC, we shall see the selective approach towards taxation on one hand and on the other the global bludeoning effect of the crude and general approach to something that should have been the object of sympathy in one direction and perhaps discouragement in another direction because of taxation at a higher level. These are things we can criticise in this Bill. It has been possible since Budget day to see some of the effects of this global and crude approach to indirect taxation in the section dealing with turnover tax. I would remind the House that it has not been possible to see all the effects because the bad results of people being very short of money—and a lot of us are self-employed people in this country—the bad results of overdrafts mounting, the bad results of a balance of payments situation which cannot be assessed at the moment—I propose to say why—are not entirely visible to us.

We do not know how bad they would be if the economic situation here were normal. It is bad. The result of the turnover tax as a method of taxation has been that, because of its non-selectivity, the unfortunate man with nine or ten children who, perforce, must spend all his wages each week and has not the opportunity to save at all is left in the position that he is paying more tax, whereas the rich man who eats the same lunch every day—he may be eating something which the poor man cannot afford but he has still got only one mouth and one stomach and eats one lunch every day and perhaps he has not got the same number of dependants as the poor man—does not need to spend so much because he has not got those dependants. This man is paying far less in indirect taxation.

Surely there should be a graded indirect taxation system? The man who goes to buy bread or boots for his children should pay less in indirect taxation than the man who goes to buy a luxury article or something which is quite obviously not a family necessity. In this way the Government have failed the country. The bad results of this turnover tax Budget, now typified in the section of the Finance Bill with which I am dealing, will be to further increase the wage demands that are besetting the industrial structure and placing all our hopes for an increase in employment in peril. This is a major error and it must be adverted to in this House. The disincentives which have resulted and the interference in the lives of unfortunate people who must spend all their money each week on necessities have been minimised to a great degree by the present strike situation within the country to which I refer in passing only.

Deputy Dockrell referred to the attraction of wealthy persons to this country by adopting the approach to death duties which some other countries have adopted. The revenue from death duties here is quite small because we are not a nation of rich people. As I have often said, one has only to go to the south of England in July or August to see the wealth which has been gathered together over two, three or four generations, or perhaps two or three centuries, and to see the necessity for death duties for the redistribution of these vast sums.

Very few of us have departed from the ordinary life and ordinary incomes that our mothers and fathers enjoyed. There may be individual people who have "struck it rich". There may be individual people who had wealthy families behind them who succeeded in passing on their wealth without having it taken from them in one way or another. As a general rule, Irish people are not the very rich and the very poor. Some of them are self-employed. Very few in relation to England or the Continent are employed in manufacturing industry as yet. I think the figure is 18 per cent of the work force as compared with 38 per cent in Britain. Very few of them are extremely wealthy.

In this situation we could attract wealthy people here by not being so tough about death duties. It might have some sort of a social connotation in that many people would object to this because they could not see why the unfortunate man about whom I have just been speaking should have to suffer the dreadful effects of the turnover tax without any selectivity and why the very rich man should be attracted here by not having to pay death duties just because there might be something in it for the community as a whole. In this regard we must be pragmatists. The few million pounds we collect in death duties seem very small in relation to the many millions we collect in beer and excise duties, turnover tax and various other forms of indirect taxation.

Over the past year we saw the ex-Minister for Finance going abroad and borrowing money in Germany and other places. The terrible thing we must remember is that, if we borrow at home, the income tax is paid on the dividends here to the Irish nation and the Irish Minister for Finance and this reduces the real figure paid out in dividends on national loans to perhaps two-thirds of the figure quoted, but when we borrow abroad in Germany or these places the income is then subject to taxation by the German Government or the Governments of those other places, so that you must pay the lot and if your figure is 9 per cent at 98, or whatever the last one was, that is precisely what the customer gets.

If we were to attract people to live here they would pay their taxes to our Government. Wealthy men who come to places like this want to develop their interests, naturally enough, since they are living here. They are attracted by the nature of the country, and anybody who would not be attracted by the nature of Ireland would be a very great dullard indeed. In many cases these men have employed our people. They have paid very high taxes here on incomes and they have enhanced our country. Nobody wants to sell out our country to foreigners, but there are men who have graced this country with their presence, paid very high taxes and left something to be remembered behind them. I would mention the name of Sir Alfred Chester Beatty who was well known to us all and whose work in this country will be lauded by every Irishman. We would welcome the arrival of another such as he. I mention just one man. There are many others who could come here and perhaps set up industries.

It is quite clear from the Budget last year and the Budget this year, on which this Finance Bill and the previous Finance Bill were based, that we cannot sustain of our own volition from profits—and that is all we have because we have not got great wealth from those who went before us—the degree of capital expenditure that we desire and the degree of capital expenditure demanded by our people whether it be to build houses, to give incentives for factories, to give incentives to agriculture, or to build schools. Whatever they are, these are capital sums that are required and they have to be paid for over the next 35 years or 20 years or whatever the borrowing figure is.

Capital sums are required and must be acquired. We must get them from somewhere. In relation to death duties, a very real contribution could be specific proposals or legislative measures within this Finance Bill which would encourage people to come here on the basis that investment would be to their advantage just as proper investment would be to the advantage of all of us. I welcome the Minister to his new office. I have not spoken across the House to him since he took up his new office. I am sure he would agree with me that we cannot have the degree of capital expenditure that is required from our own resources. Our own savings and our own profits are not sufficient.

Before I move from this question of death duties I want to say that anybody who ever examined a profit and loss account, a trading account, or a balance sheet, and looked at the profits in relation to the buildings involved and in relation to the capital expenditure found the reason why so many companies public and private have had to raise new capital even though they were doing extremely well. The reason is that profits of themselves are not sufficient unless they are excessive, which no one would tolerate I am sure. Unless they are excessive no profits could supply in modern industry or modern development sufficient moneys to produce the capital expenditures that have become so necessary.

The day has gone when men worked without machines. This is the reason why we have to borrow so much abroad. The death duty section of this Bill is a mistake and so is the turnover tax section of the Bill. It is a lazy man's Finance Bill as it was a lazy man's Budget. Invitations could have been extended and encouragement given to bring not only money but men here. I should prefer to see a foreign industrialist coming here with a large amount of money and residing among us and becoming, perhaps, more Irish than the Irish themselves, than to see the Minister for Finance going to the German money market and purchasing there again. The salient point here is that when you borrow on the German money market it is the German Government that will get the tax on the dividends.

I welcome the section in which the Minister indicates a personal interest in a certain matter of legislation. This is a most welcome departure in this House. In my period of 16 years here and in the other House, I know of no other occasion when a Minister came here and declared an interest. It is no harm, in friendship across the House, in discussing this Bill to give the views of the late Deputy Sweetman on the question of involvement of Ministers. When that matter was being discussed by our front bench, the late Deputy Sweetman—he was dead before it could be considered as policy—said that the right approach to this matter after his experience as Minister and so on, and I say this in no derogatory sense, was that every Minister should declare to the Taoiseach his every interest in any property, profits or business. That being so, the secretary of the Taoiseach's Department, having the file, would indicate to the Taoiseach when any legislation came up which might involve a Minister who had a personal interest. At that stage the Taoiseach could decide whether the Minister should go to the House and declare his interest or whether the Taoiseach would prefer instead to indicate to the House that because of a personal interest he was asking another Minister to take the legislation.

In regard to the first part of the Finance Bill great "mileage" was produced in the Budget debate on the various concessions being given. Giving concessions in the nature of tax-free allowances is highly expensive. The figure of £6 5s tax-free for a man or woman going out to earn a living is just a joke. One might as well tax every £ and have a different tax rate. In the first instance the idea of this tax-free allowance or the dependent relative allowance or any other allowances mentioned in the early part of the Minister's speech was to have a reasonable living standard before tax would be deducted. Over the past decade or more that has gone. I have quoted £6 5s; it may have been changed slightly. That sum, for years past, would not sustain anybody. What happened was that the Fianna Fáil Government allowed this figure to become out of date. Various elections had come up and various things were changed and the whole idea was: keep the rate of tax down; do not tell the people the truth. The figure should have been corrected each year so that the allowance figure would be what it was originally meant to be, a normal subsistence figure for a man at the level of the ordinary working man. The allowance for a wife or a dependant was meant to have the same significance. The great complaint of the worker and the worker's wife is that the tax rate is applied at a figure that is far too low.

The slight change of charging the first £100 of taxable income at two-thirds of the standard rate does not alter the situation. It will not bring the allowance up to a figure at which a single man can sustain himself. So long as that is the case, it is wrong. Excluding 50,000 taxpayers from the tax net is rather like what was done by the British Chancellor of the Exchequer in introducing his Finance Bill. He excluded the same 400,000 or 500,000 people but, when questions were asked afterwards in the House of Commons, it was made clear that these were marginal people and that the amount of tax being paid by them was so small that this concession was merely an election advertisement. Whether the 50,000 taxpayers mentioned in this Bill constitute an election advertisement remains to be seen.

I find the Minister's reference to the difficulty of attracting female labour rather ludicrous. He says:

As a contribution to easing the problem it was announced in the Budget that the earned income allowance for married women was being increased from £45 to £74.

What is this worth? Will this attract any married women to go to work? Without going into mathematical calculations if you work out the tax on the extra allowance you will find that if the married woman had to pay a bus fare—that is a relevant reference tonight—she would be back where she started or a little worse. Boastful paragraphs about that allowance for married women being increased are not valid. In fact, they merely substantiate the main theme of my argument on the first part of this Bill that the allowances were allowed by Fianna Fáil to become completely out of date. They are not now what they were intended to be, the amount required to sustain a person at a reasonable standard of living.

The income limit for the dependent relative allowance is now brought into line with that for the non-contributory old age pension, £222. I always think of a lady called Kitty the Hare in Our Boys, and one of her great sayings was: “May you nor yours never know the coldness of charity.” When I think of us paying ourselves and that some of us could spend the whole lot of it before we go home——

Dr. O'Donovan

Some of us do at times.

Mr. Donegan

Yes, I am afraid so. However, I do not want to be facetious about such a serious matter. A man who keeps a dependent relative, who out of his charity, which I hope would not be cold on his part, gives that relative from his lot the necessities of life and what comforts he can afford, is allowed, if his tax rate is 7s, a difference of about £70 or £80. These marvellous figures here do not relate to actual money but to the pounds on which the tax is charged.

There could have been a much more detailed Budget if the Minister for Finance had not been busy with particular matters over the months. There could have been a move towards an added value tax, which must happen as we enter the Common Market. Instead of that there is the approach of the lazy man with a bludgeon. The net result is dissatisfaction. This country needs in relation to its tax structure for the ordinary people—and those are the people I am thinking of in Part 1 of this Bill, because it is they who will be affected most—a period of five to ten years for the laying down of policy towards a fair rate of taxation. The vicissitudes of Fianna Fáil legislation over the last ten years will not allow any other administration or themselves, if they do, by some miraculous deed, stay in office, to change what is so wrong to what is right in one year. Undoubtedly we must pay taxation and anyone who says anything else is telling an untruth, but instead of the approach to which I have referred we have this Finance Bill which does nothing for anyone.

What is very important, whether it is 100 per cent successful or not—and I have said this in different debates here and I shall say it again next week in the Common Market debate—is a detailed approach to a prices and incomes policy. In one of the volumes with which we were circulated in relation to the Budget there was a small reference of a page and a half to a prices policy but no reference to an incomes policy. What could be more a prices policy without an incomes policy than turnover tax doubled and nothing else, because that was the Budget? Where was the resilience of mind? Where was the attention to the unfortunate people who have to work and pay their PAYE? There is no question of avoidance or of expense accounts for them, no question of company cars. These people get no relief except the automatic adjustment of these pitifully small initial allowances which have left their context to such an extent over the last decade.

The matters which were not announced in the Budget and which relate to the designated and undeveloped areas for industrial purposes do not require much comment from me. The Minister has moved from the portfolio which dealt with them to the Finance portfolio, and I think he and I know all that is happening there.

I do not quite understand the wear and tear allowances in section 14. I should be obliged if the Minister would let us know exactly how it will operate. I do not make any excuse for not understanding this, because in Finance Bills passing through here over the years there has been a great deal of matter which many people do not understand.

Mr. Colley

This is a particularly complicated section.

Mr. Donegan

I shall enjoy the Minister's explanation. As I understand the wear and tear allowance for industrial machinery, it is that the Revenue Commissioners allow a certain percentage for wear and tear based on the probable life of a machine. In one case in which I am involved the figure is 10 per cent. If you buy a machine for £1,000 you are allowed to charge £100 in the first year against your profit and loss account; then the second year the figure is one-tenth of £900, being £90. This wear and tear allowance represented a self-depreciating figure over about ten years.

I do not understand why there is need for this in section 14, if after, say, five years of this machine's life—it having cost £1,000 and been depreciated by 10 per cent per year—the machine is not now worth £500-odd but £700 or, in favour of the person involved, £400. I should be obliged if the Minister would explain this because I freely admit I do not understand it, even though I was helped by the explanatory memorandum.

Section 19 enables a person who purchases a readymade building to claim the initial allowance. That seems to me to be fair and proper. In fact, I would have thought this was already in legislation. I do not know whether or not the Potez situation or the purchase of certain factories which did not live up to their first promise has prompted the insertion of this provision in the Finance Bill. It appears to be a situation in which coverage was unnecessary until such time as there were these spectacular failures. It would be unfair if a purchaser of a factory building which was never used and on which the initial allowance was never claimed, because there were no taxes, could not claim the initial allowance if he went into industrial production. Is he not in the same position as if he built the factory? Therefore, I welcome section 19, and I am surprised that this provision was not already in legislation. However, if the reason is the accession of people into ownership of certain spectacular failures then I do not criticise the legislation.

I understand the initial allowance on a building is 20 per cent for the first year and the 2 per cent for the following 40 years. It is a long time. I do not quibble with the initial allowance of 20 per cent in respect of industrial buildings for the first year but I do quibble with the figure of 2 per cent for the following years. I can give an instance of a beautiful red brick building, one of the finest buildings in a particular town, a malthouse which was built in 1906. It is in showroom condition, in as good a condition as it was when it was built. That building is completely obsolete. The advent of new machine malting has resulted in the entire production of malt being restricted to five buildings not one of which, apart from some outside machinery, is as big as the building to which I refer. Therefore businessmen will be in the position that they have to look on their risk situation and their risk situation cannot in modern times be related to 40 years.

There was the day when this could be done, or when it was thought that this could be done, but unfortunately this is not true today. A businessman who goes into manufacturing processes very often, in prudence, has to decide that he must get his principal out in perhaps 15 years and if he is not going to get it out in 15 years then there is not the incentive to go on. If he has to face up to this and the fact that new processes may put him out of business, or new processes may necessitate the expenditure of capital moneys greater perhaps than in his first venture, then surely it would appear as if the Revenue Commissioners' allowance on buildings for industrial purposes should be more generous than 20 per cent, with which I do not quibble, for the first year, and 2 per cent for the following 40 years. The 20 per cent should hold and the allowance for the next period of years should be far greater than 2 per cent. In modern business a figure of 4 per cent which would give a 20 year depreciation, or something approximating to that, perhaps a little more than 20, as we depreciate this slice by slice, would not in fact be too generous. Things change rapidly nowadays and the amount of the continuing allowance should be corrected.

The question of sub-contracting in the construction industry is something which has been activating people's minds over the last decade to some degrees—"living on the grip" as they call it—and it has brought pretty good profits to sub-contractors. If there is a situation whereby these sub-contractors are not paying tax it is right that legislation should be changed to see that they do. It is better that the load should be spread over a greater number of people and then a lesser percentage of tax would have to be paid by all of us.

I welcome the provision whereby distillers will be allowed to defer payment of duty on clearance from warehouses. Some might say that this was extending a preference to a certain group or industry but we in the distilling industry are making efforts to export and to extend our business and if you take the amount of excise duty coming forward on spirit in relation to the cost of the spirit you find that the major portion of the cost at wholesale level is the excise duty. As this is so money can be scarce and it does seem rather unfair that the tobacco manufacturers can have a delayed production of this money if they remove tobacco from bond while the distillers of either whiskey, gin or vodka should have to pay on the nail, even though there is a period when they have to circulate the spirit to their wholesalers, agencies and retail outlets. I welcome this provision and I hope it will make things fairer and encourage our distillers to expand their business.

I observe that the new stamp duty of 10 per cent on contracts for the building of office blocks is being removed in regard to existing companies building their own new office blocks. This works two ways. I cannot quite make up my mind on the right approach to it. If the company have been paying their taxes, paying employees well and giving them good conditions of employment and then find that they need a new office block because the existing offices do not come up to the proper standards—laid down, may I say, by the Factories Act and insisted upon by departmental inspectors—that they should then, when they have to build a new office block, have to pay a 10 per cent charge on the contracts, it seems harsh. Having examined the problem and having been very much in favour of the provision last year whereby the disincentive was introduced in regard to the building of large blocks of offices within this city and other cities while there was a need for money for housing, I think that this is probably a wise provision.

I should now like to pass to some other sections of the Bill, notably section 12 which relieves industrial and provident societies of the obligation to return to inspectors of taxes particulars of interest paid without deduction of tax where the amount of interest is less than £70. The existing limit is £5. As I understand it, right through the other provision relating to companies that borrow money and State agencies that borrow money, for example the Agricultural Credit Corporation, there was no need to transmit to the Revenue Commissioners details of an account until the account had a deposit of £1,000. This figure of £70 interest seems to indicate that we are bringing the industrial and provident societies into line on this.

I welcome this because small savings should not be submitted to investigation or all this bookwork because the profits to the State from the application of this tax are minimal indeed. A lady who works for me and who has very small savings is frightened out of her life to invest the money in anything. She has no more than £1,000 but she thinks that if she does anything with the money she will have to pay twice as much PAYE. It is impossible to convince this kindly sort of person what we are paid to understand, that this will not happen. I welcome this provision because when a person has savings of £1,000 or less you could not call them savings at all. They are only something put by for a rainy day. If such a person were to have a serious illness and did not come under the provisions of the middle-income group, he would need a sum far in excess of £1,000 to cover illness and convalescence and to maintain the standard of living to which he was accustomed.

Progress reported; Committee to sit again.

Dáil Éireann debate - Wednesday, 17 Jun 1970

Committee on Finance. - Finance Bill, 1970: Second Stage.

Dáil Éireann debate -
Wednesday, 17 Jun 1970