The recent consumer price index shows very clearly the inflationary effect of the Budget and the proposals included in the relevant sections of this Finance Bill will give statutory effect to those inflationary price changes which have been aggravated and increased by the increase in the turnover tax. When the increased in turnover tax was first announced in the Budget statement it was passed off by some commentators as not having any effect. They came to this conclusion after listening to the statement and being familiar with budgetary practice here over the years that when a specific item such as petrol, tobacco and beer, was taxed its price went up the following day. Those of us who appreciated the significance of the changes in the Budget expressed our concern at the time. The recent consumer price index indicates that there has been a very substantial rise in prices. Some of those increases, of course, were not caused solely by the Budget but a whole range of goods included in the consumer price index has been affected by it, particularly ordinary household items and those covered by the turnover tax which increased the rate from 2½ per cent to 5 per cent.
The method employed in increasing taxation had only one simple advantage to commend it to the Minister for Finance and the Government. It raked in at one swoop a substantially increased revenue yield but it ignored the precise warnings given by a variety of bodies, particularly by the NIEC on which is represented Government Departments, trade unions, employers' representatives and so on. Specific warnings were given against any action which would aggravate or increase consumer prices or in any way add to the inflationary situation.
Last week the Minister for Finance in the course of some observations on the debate on the White Paper on the EEC referred to the NIEC reports. One of the most notable features of those reports is the fact that they are virtually ignored by the Government. No effort has been made to put their recommendations in respect of the economy into operation. Those reports have been appearing over a number of years and have dealt with different aspects of the economy in general and occasionally with specific and special problems. Report No. 28 issued just before the Budget this year, adverted to certain special problems, particularly the need for a voluntary prices and incomes policy, the adoption of guidelines, the establishment of a new employer-employee body, a developed labour court, a fair trade commission and a prices and incomes committee to co-ordinate the work.
The report mentioned that it would take some time to operate those bodies. One obvious criticism is that if all those recommendations were put into operation there would likely be a multiplicity of bodies. Why do the public not take those recommendations seriously? They cannot be taken seriously because the Government ignore them. In April two specific statements were issued by the then Minister for Industry and Commerce. They were published in theIrish Press on the 14th April in one case and a few days earlier in the other. One referred to bread prices and said that a bread increase plea was being deferred. The other carried the headline “Standstill on beer prices. Colley to investigate”. Deputies recall—although many things have happened since and some Deputies' memories may be short—that this heading: “Standstill on beer prices” was published on the 14th April, which was polling day, as far as I remember, in the two by-elections which were then pending, but the immediate effect of this Budget was to increase the tax on bread, beer and petrol.
No one knows what happened to the investigation that was being undertaken. No announcement has been published of the results of that investigation or the action the Minister for Industry and Commerce took in regard to it. What is certain, however, is that the price of bread has increased, the price of beer has increased, the price of petrol has increased, the price of every item bought by any average householder has increased, not because, in these cases, of a change in that period of time in the import price levels, but because of the deliberate Government action that was taken through the Budget to raise the turnover tax by an additional 2½ per cent. That is the situation that has developed.
The public will look askance at governments urging that the NIEC reports be adopted when their own actions refute and deny the very recommendations made in these reports. This NIEC report that reviewed the economy in 1969 and the prospects for 1970 stated—and this is not Opposition propaganda; this is not some statement made by an Opposition spokesman—at paragraph 15:
The magnitude of the increases in consumer prices which could occur this year is alarming. If it materialised, it could seriously damage competitiveness and therefore put many existing jobs in jeopardy and erode one of the basic conditions for the future growth in output and employment.
It went on to say, and this is the really significant thing and this is the aspect of the matter that has given concern to Deputies and to social workers:
It could create new social tensions because many social categories could not be adequately insulated from its effects.
In other words, if the price of bread, beer, tobacco, medicines, if the price of every essential commodity that people have to buy, increases at the rate at which this publication said it could, the magnitude of the increases in consumer prices which could occur this year is alarming.
What is the first public information that would indicate the changes that have occurred in recent months? The group index numbers at mid-May, 1970 show that food at a base of 100 in mid-November, 1968, now stands at 116.3; alcoholic drinks, 117.7; tobacco, 108.6; clothing, 110.7; fuel and light, 111.4; housing, 112.2; durable household goods, 114.1; other goods, 115 and transport, 112.2; services and related expenditure, 112.5; The change between February of this year and May of this year reflects an increase of 4.5 points. These are the items that affect the ordinary household. Nobody suggests that they should entirely be left aside but, for the moment, exclude tobacco and exclude, to a considerable extent, some aspects of drink. In respect of food, clothing, fuel, light and household durables, we have a situation about which this commentary in the NIEC report expresses concern. It went on to express concern at the dangers that were likely to arise if wages and salaries and unit costs in this country increased to such an extent that our relative competitiveness with Britain—our main competitor— worsened. Comparing the consumer price rises it went on to say:
After two years unit wage costs had dropped here compared to Britain. In 1969 the indices published recently confirmed that the trend has been continued. In 1969 unit wage costs in Irish industry rose appreciably faster than in Britain.
It then compared, from the OECD economic indicators of March of this year, the percentage increase in unit wage costs in Irish mining and other manufacturing sectors and in roughly comparable sectors in certain European countries. These indicators showed, between the third quarter of 1968 to 1969, the following figures: in Ireland they rose by 11.53 per cent; United Kingdom, 3.45; France, 1.28; Germany, 1.91 and Italy, 7.45. So that, of the countries taken for the OECD economic indicators, our competitiveness relative to those countries had worsened. That is so in relation particularly to the country with which we do our largest volume of trade but involved also are the other countries mentioned.
The Minister for Industry and Commerce, in the course of his announcement earlier this year, said that prices were being investigated. We now see the results of that investigation and how hollow was the claim about the price surveillance policy and the action taken by the Department in respect of these items. But, in addition to that, a variety of other factors have increased substantially in price: bus fares; transport charges. One of the things that have been responsible but not entirely responsible for a worsening of the position is prices charged in hotels and restaurants. All of these have been aggravated by reason of the turnover tax. The community cannot believe the warnings and admonitions given by Ministers because Ministers themselves do not honour their own undertakings and have reneged on the statements made. Only two months ago it was publicly announced that price increases had been deferred; that a bread price increase had been deferred; that a standstill had been put on beer prices. So much has happened in two months that Deputies and the public may have forgotten that these two announcements were made on the eve of the then pending by-election.
Again, in respect of the recent rise in bus fares and train fares only portion of the cost is being borne at present. The remainder has been deferred, either to be met by an increased subsidy to CIE or to be passed on to the travelling public at a later date.
In that regard, it is time the House realised the completely unfair and inequitable system that applies in respect of the subsidy for school transport. At present children attending secondary schools outside the three mile limit get free transport. In other areas—this applies particularly to Dublin and to the areas adjacent to it, like Dún, Laoghaire—a number of children, who because of the overcrowding in schools are obliged to travel longer distances than might be necessary if they could get admission to the school nearest to them, have now found that because of the withdrawal of the subsidy the concession that was given of one-third of the adult fare has been abolished. Not merely are they paying more but the increase in respect of children is more than the increase in respect of adults. I have heard of cases in my constituency and elsewhere in the city where the adult fare was ninepence and was increased to tenpence and the concession for children was threepence and now the children's fare has gone up to five-pence. Some of the children who are not getting the concession have to attend the primary portion of a particular secondary school if they are ultimately to get places in that particular school. I believe this is an aspect of the effect of the change in the Budget that should be dealt with.
One of the problems that have arisen in respect of the tourist trade is the rise in prices here at a time when the British have restored the larger travel allowance. It should be made abundantly clear from this House and in whatever publicity statements can be made in the House that tourists will be welcome in this country, that they will be safe irrespective of what the irresponsible behaviour of either the Fianna Fáil Government or the Fianna Fáil Party may be, that there is no danger to tourists coming to this country, that the attractions here are as good as they have ever been and that every possible step that can be taken by hoteliers and guesthouse owners will be taken to encourage tourists to come here and to make their stay happy and contended. It is important for the whole economy to attract as many tourists as possible and to ensure that they are convinced that in coming here they will be welcome and safe. Undoubtedly the effect of the Budget changes, the increase in the cost of petrol, the effect of the turnover tax has raised prices in hotels and raised prices in respect of tourists as well as in respect of our own people.
I agree with the view that has been expressed that some conscious effort should be made to deal with the particular problem of those living on fixed incomes who got very little relief in the Budget. Some form of rates remission should be introduced because the present scheme of granting relief in respect of pensioners and others, as adopted by the local authorities, has not been a great success. Some specific scheme, comparable to the relief on agricultural land, in respect of small traders and others living on fixed incomes should be introduced. Small traders have to meet the enormous problems created for them not merely by competition from larger units such as supermarkets but also the particular personal problems created for them by the effect of the turnover tax.
One of the aspects that were dealt with in the NIEC report was the fact that, if policies that provided some form of regulating arrangements for a stable growth in money incomes, prices and costs were not adopted and if the growth rates which had prevailed and had manifested themselves in the indices they referred to, and which I have mentioned, continued here, then a number of problems would arise for this country and its balance of payments. They stated that the strain on the economy would be such that Irish exports could lose their buoyancy and if domestic inflation continued to such an extent that economic expansion was accompanied by rising external deficits and a cost and price level out of line with that which the economy could sustain, then stop-go policies would continue. They went on to say that this was, however, not inevitable, that it could be avoided by the operation of fiscal and monetary policies to create an economic climate in which the creation of an effective incomes and prices policy would become a manageable task.
These recommendations were ignored in the context of the taxation policy adopted in the Budget in which a blanket increase of what, in practice, has meant more than 2½ per cent over and above the existing tax was applied. When the turnover tax was initially introduced it was fixed at 2½ per cent. The universal experience at that time was that in virtually no instance was it as low as 2½ per cent and that the actual effect was substantially higher— a minimum of 3 per cent. At this time when the NIEC reports to which I have referred, when the Central Bank, when the Associated Chambers of Commerce, when trade union organisations, when every responsible organised group in the community had recommended specific action in regard to aspects of the economy, the policy adopted in the Budget was directly in conflict with and directly negative in its effects on the recommendations made by these organisations.
The effect of this is already shown in the very substantial rise in prices, the rise in the cost of things that I have mentioned and the cumulative effect of all these on the whole structure of the economy. The position is aggravated still further by specific instances of special increases in items such as insurance—not merely car insurance but insurance policies generally—in respect of items such as the substantial rise in the price of cement announced yesterday which must affect substantially building costs. As a result of action taken in the Budget a considerable price increase was placed on items the purchase of which cannot be postponed and this has substantially raised prices generally.
The specific items dealt with in the sections of the Finance Bill cover not merely the taxes introduced in the Budget but a number of other matters as well. I want at this stage to refer to some of them, although others will be dealt with in greater detail on Committee Stage.
One of the matters which was referred to in the course of this debate, and which was substantially altered to the detriment of people generally in the 1965 Finance Act, was the law relating to death duties. Under the change which was made in 1965, insurance policies taken out to deal with the problem of death duties were aggregated with the rest of the estate for the first time. A person liable for death duties was not then assessed on what it had been the practice in the past to assess him on but on an aggregation of the assets and the insurance policy.
So far as I can understand the position here—and this is a particularly complicated aspects of death duties and taxation generally—particularly rich people can avoid this in many ways. For one reason, if for no other, they can pay for legal and accountancy advice to enable them to make dispositions and so lighten to a certain extent its effectiveness. Death duties have to be considered from two angles. It is important that family concerns, whether they are farms or businesses, should be enabled to continue to operate. They are there not merely for the benefit of the individual family but also for the benefit of the nation.
We have slavishly adopted the system that operates in Britain in this regard with a slight modification in respect of children. A person who dies and leaves a widow only is in the same position here as in Britain. In every other country about which I have been able to get information allowance is made for the children or the family or the descendants of the person. In this country, as a result of the change that was made in 1965, death duties and an insurance policy to meet them are aggregated and duty is paid on the total of the whole value of the estate.
On the other aspect I think it would be an advantage if we had a system of death duties under which some arrangement could be made that would attract wealthy persons to this country. There is a general realisation now that any idea of soaking the rich or extracting from people who come here the maximum rate of death duties is not wise either nationally or otherwise. If we could attract to this country people who were prepared to come and reside here for one reason or another, bring their money and establish an industry or give employment in it or in projects like stud farms, there would be an advantage to the community. A system should be adopted under which some alleviation could be granted in respect of finance or capital brought in for development and a set-off allowed over a period of years in respect of death duties.
Alternatively, some arrangement should be adopted under which people who transferred their assets to this country would get some concession and, of course, the same provision should be allowed to apply to our own people. The advantages to the community and to the economy generally would be considerable. As I understand the position at the moment, there is a more favourable situation in respect of people of considerable wealth than in respect of the average farmer or businessman who wishes to make an arrangement to ensure that the business or farm will continue to operate without his family having to mortgage it or dispose of some of the assets to meet the demand which will fall due in respect of death duties.
The proposed change in section 19 dealing with what are known as "lumpers" in respect of contractors has already been referred to in this debate. I think it is generally agreed that if tax is being avoided in this way the matter should be dealt with. At the same time, the arrangement under which this system operates should be taken into account. It provides advantages not only for the people concerned but from the community point of view because it makes it possible to be more efficient and to have a pool of skills.
I understand that the British Finance Act allowed a respite of a period of a year for people in this business to make arrangements under which it would be possible for them not only to come to terms with the provisions of the Act but also to settle up their affairs. There might well be an advantage here. The announcement by the Minister for Labour that skilled workers in Britain were being sought and asked to return here for specially skilled traders and operations was referred to recently. I understand that one of the risks inherent in the present situation is that, if this section goes through as it stands, no respite is given and some of the skilled workers may find themselves disemployed and may actually emigrate.
The bulk of the building in this country is carried out by small builders and I think there is general recognition that the recent cement strike and the prevailing bank dispute created considerable difficulties for many of them. In many cases their financial positions were by no means adequate to meet the demands they had to meet, and many of them found it extremely difficult to carry on. I believe the small builders should be assisted as much as possible. They build houses as advantageously as is possible for them to do so for a great many people in the community. Particularly in a year in which we have had a protracted cement strike, a prolonged closing of the banks, consideration should be given to at least allowing a period or respite before the whole operation of the terms of section 19 is put into effect.
Section 19 deals with the relatively modern phenomenon of industrial estates. Factories have been constructed by developers at the Kill o' the Grange industrial estate, Dún Laoghaire. I know of one firm which holds a factory on a 200 year lease subject to a nominal rent plus a certain figure per year for estate maintenance. The building company from whom the occupiers hold the tenancy of the factory hold the freehold outright. Because the firm which occupies the factory acquired it on a long lease subject to a nominal ground rent they are deprived of the benefit of the retroactive amendment of the law which has now been effected. The industrial buildings allowance amounts to 20 per cent of expenditure on the construction of a factory, allowed in the year in which the expenditure is incurred. When this particular relief was originally introduced industrial estates to a great extent were unheard of and the fact that the allowances were restricted to amounts spent on construction caused no hardship because in almost all cases the firm constructing the building owned it. As the law stands at present the purchasers of what are known as readymade factories in industrial estates have been denied the allowance and the Revenue Commissioners have been obliged to insist that such purchases did not constitute expenditure on actual construction. While this may legally be the correct view it certainly is not in accordance with the spirit of the legislation which is aimed at the encouragement of industry generally. I propose to deal with this specific aspect of the legislation again on the Committee Stage.
There is a provision made under section 18—this section has to be taken with section 5—of the Finance Bill for schemes known as instalment saving schemes. I would like the Minister when he is replying to give us some idea of the type of schemes involved because as I understand it some of the schemes will be State schemes. Concern has been expressed that the schemes might be limited to State schemes and I would therefore like to hear from the Minister what type of schemes he has in mind. I should also like the Minister to indicate to whom representations in respect of the schemes should be made.
One of the arrangments which the revenue authorities operate is that where special cases of hardship arise the legal code is not strictly enforced to the extent that inspectors of taxes are allowed to administer it in a reasonable way. Special cases are often referred to the commissioner and experience has shown that in many cases a satisfactory solution can be found. This arrangement has resulted in the growth of a number of recognised, although unpublished, extra-statutory concessions. Because they are unpublished, some professional tax advisers are aware of them but others are not. It has been suggested to me that the practice adopted in Britain of publishing these extra-statutory concessions might also be adopted here.
The provision in respect of foreigners, to which I have referred, is particularly restricted. In Britain a system operates whereby in the case of a person who works full-time in a trade, profession, vocation, office or employment, provided that no part of that work is carried on within the United Kingdom, the question of whether or not the person is resident is decided without regard to the existence of a place of abode in Britain for his use. It has been suggested to me that the same procedure might be adopted here. Similar legislation would not result in any loss of revenue; it would in fact attract people in the same way as the recommendation in respect of death duties would.
Under the present law if a man effects a family income benefit policy and dies in the early years of that policy his widow will be faced with considerable estate duty liability and may be forced to commute part of the proceeds to pay the duty. It is desirable to amend legislation so that the proceeds of insurance or other policies would be exempt from estate duty but instead would be liable to income tax or surtax. This is a defect in the 1965 Act which has had a bad effect on the economy generally and should be amended as soon as possible.
Another aspect of this Bill that I want to mention is one I have dealt with here before but which has been highlighted by the recent announcement about the increased price of newspapers. About a year and a half ago the question was raised with the then Minister for Finance of the effect of the turnover tax and wholesale tax on newspapers and the adverse position these taxes put newspapers invis-à-vis other news media like television and radio. At that time the Dublin Newspaper Managers' Committee and the Provincial Newspapers Association made representation and had a meeting with the Minister for Finance. The recent announcement that the price of newspapers is to be increased brings this matter again to the forefront. The present taxation on newspapers and newsprint is most unfair. As I understand from the representations made by the associations this particular type of tax on newspapers is not applicable anywhere in Europe or in the United States. No matter how much people may be influenced by other news media the advantage of newspapers from the national point of view and also from the point of view of those directly and indirectly employed in the newspaper industry is very considerable.
I believe this tax is most unfair and that there is not, by any means, a large volume of revenue from it. The Minister for Finance should consult with the associations concerned, the proprietors of the newspapers, either the Dublin Managers' Committee or the Provincial Newspapers Association, concerning the effect of the turnover and wholesale tax and see if it is possible to devise a scheme that will more equitably take cognisance of the particular problems of newspapers and the very substantial increases in prices that are now being made and the general importance to the community of ensuring that newspapers are enabled to continue without the added burdens involved in this. Not merely is it a national advantage to have both daily and provincial papers, from the point of view of news and advertising and so on, but the employment provided in the industry is considerable. This problem was considered 18 months ago and nothing happened about it. Now with the increase in the turnover tax the position of the newspapers has further worsened.
In connection with the Finance Bill it may be appropriate to refer to the proposed retirement of the chairman of the Revenue Commissioners, Mr. Seán Réamonn. I think it is right publicly to express appreciation of this distinguished and courteous public servant and to wish him a happy retirement. He has performed his duties in a manner which not merely reflected credit on himself but, despite the criticisms which are often levelled at tax collectors, the sympathetic and understanding manner in which Mr. Réamonn and the other officers in his Department met particular problems merits the appreciation of the community.
Other matters arising in regard to this Bill are of a more detailed character and I think can be deferred until the Committee Stage when it will be possible to deal with individual sections. I have mentioned specific matters at this stage so that it will be possible to have them considered before the Committee Stage with a view to having amendments made.