We live in a mixed economy in which the livelihood of our people depends on the success of the competitive private enterprise sector as well as the public sector. Those of us who have a very high regard for the public sector and as in Fine Gael in our public enterprise policy, who have put forward concrete and constructive proposals as to how this sector can make a bigger contribution and how it could be relieved of some of the inhibitions which at present prevent it from making a big contribution, are concerned also, and properly, that on the private sector, the bigger sector of the economy, depends the livelihood of our people.
This is true of the Labour Party, who are accused at times of being doctrinaire. They are not doctrinaire on this issue because they know, as we know, that the livelihood of the vast majority of our people depends on the continued success of the private firms in which they are employed. If the Government threaten the prosperity of those firms by tax measures which are dangerous and damaging, we are entitled to criticise them and I am quite prepared to be told it is a right wing criticism. But it is not. It is a criticism which anybody concerned with the success of a mixed economy and with the livelihood of people, which is what we are concerned with in this House, is entitled to make.
These tax proposals are wrong-headed in every respect. The basic concept of placing the main burden of this extra taxation on company taxation is wrong, and the method employed, which involves this element of retrospectiveness, which involves placing an exceptionally heavy burden on the profits of companies in a year when those profits are already squeezed, and in a year in which investments are already declining, is the height of wrong-headedness.
Let me start, however, with the concept itself. It is important in a country like our own, which is in a stage of development behind that of other nearby countries, that the level of company taxation should not be unduly disincentive in effect. Our level of company taxation should be lower than, if possible, and certainly no higher than that of other nearby countries. I do not, perhaps, place as much emphasis as some people on the importance of attracting in masses of foreign capital but it is important at this stage of our development. I will not go overboard about it. I do not think we should build millionaire residences to attract millionaires to come here, but we should make reasonable attempts to ensure that the conditions here are attractive to foreign investment of the kind which can provide good employment for our people.
This means keeping our company tax rate at a reasonable level. I am aware, of course, that many of the foreign investors coming here are doing so to start export industries and they get tax relief, but that is not true of all. There is also foreign investment in domestic industry, in industry orientated towards the domestic scene. Some of this is good and constructive. We also have the problem that if we tax Irish companies in such a way that they are more badly hit than companies in other countries, then Irish investors will invest in foreign companies and not in Irish companies. Therefore, we must be concerned to keep the level of taxation at a reasonable level.
I should like the Minister to tell us how this new 58 per cent rate — I will come to the special effect of it in this particular year — compares with other countries, who are at our stage of development. I have no idea. I am not asking a question that I have stacked up in advance, knowing the answer. I am quite prepared to hear from the Minister that perhaps this rate is more reasonable than I think. I am genuinely asking for information. Let us hear how it compares with the rate in Italy, Spain and other south European countries such as Portugal or with other countries in other parts of the world, like Japan, for example, who are at a stage of economic development where living standards are not dissimilar to here.
I should also be interested to hear how it compares with the highly developed countries near us? Is it now as high as or higher than those countries so as to act as a disincentive to foreigners investing here and to Irish people investing here? I think it is too high but I reserve my judgment on that until I hear from the Minister the figures for the different countries.
My impression is that once you get beyond 50 per cent you get a company tax rate too high for this country. The Minister was wrong-headed to introduce this. I have a feeling the Minister may, in fact, have a queer kind of ideological bias, that on this matter he may be not left of the Labour Party by any means but may be more antipathetic to profits than many members of the Labour Party who may take a more realistic view, as do certain members of this party. His action here in attacking company profits in this way suggests, because it is a measure so out of line with the needs of the country, a degree of bias which I consider is inappropriate in a Minister in his position. I hesitate in any respect to compare him unfavourably with his predecessor. I am not sure that in this respect, perhaps, that his predecessor might not have been wiser although in other respects I should prefer the Minister to his predecessor.
I want now to come to the retrospective effects of this peculiar tax because owing to the methods by which it is applied firms who have already drawn up their accounts will have to find additional sums to pay this tax in respect of accounts already closed and where, in fact, dividends may already have been paid. The effect of this in some cases is that the burden of taxation this year may be as high as 74 per cent. Figures have already been mentioned and I do not want to dwell on this figure because other people have spoken on it.
I should like to give the Minister a couple of practical examples which I have secured. The figures I am giving relate to actual companies but in order to prevent identification of the companies, in each case the figures have been grossed up or down proportionately. All the proportions are correct but the actual sums are X per cent higher or lower than the true cases, and they are true cases. The first one is a firm in the building material sector employing almost 400 people and this is their position. In 1967-68 pre-tax profits were £138,000 and tax £35,000. In 1968-69 the pre-tax profits were £271,000 and tax £80,000. In 1969-70 the pre-tax profits were £317,000 and tax £96,000. As I understand it, if their profits this year turn out to be about £340,000, which is what is likely in relation to the figures I have given, the tax burden they will now have to pay will jump from £96,000 to £146,500. That would mean that the net profit after tax will fall from £221,000 to £193,500, that is, a drop of almost £30,000, or about 14 per cent.
Remember that prices have risen this year by 8 or 9 per cent so that in real terms, in terms of what those net profits will purchase, whether they are distributed in dividends or whether they are used — as I hope they would be — mostly in investment in new equipment and expansion of the firm, their value in real terms will have fallen by something like 25 per cent. That is a pretty serious situation because this is a time when industry needs more than ever to invest. We are now reaching the critical stage of the Free Trade Area Agreement transitional period. From now on we will face the difficulties. It has been easy going to date because the only industry which has been hit by the agreement really has been the clothing industry and taking that industry as a whole, firms have been successful in expanding their exports.
The inroads made into the home market as a result of the Free Trade Area Agreement so far have not had too bad an effect on employment or on the firms concerned, but from now on we are facing the pinch. If firms do not have the money to invest, if they are not in a position to invest, they may face grave difficulties in the years ahead. This is the moment when the Government should be seeing how they can increase the amount available for investment.
I am not suggesting this should necessarily be done by reducing taxation in a way which would allow the amount available for distribution of dividends to increase, but the Government could make special provision for reducing taxation on undistributive profits so as to increase the amount available for investment at this crucial moment. The Government, instead, have squeezed those profits by this extraordinary measure which in the case of the firm I cited will cut the amount available for investment by 25 per cent and perhaps by more than that, because if the dividend is maintained, which firms frequently feel it is necessary to do, when faced with a short-term fall in profits after tax, the cut in the real value of the amount retained may be higher than 25 per cent and perhaps even 30 per cent. This firms will be in the position where it will not be able to compete and carry on with its investment programme and where the future prospects of employment for its existing workers and for the new workers it might employ if it did expand are placed in jeopardy by the Minister's action.
Let us take another example. Let us take the case of a firm in the food, drink and tobacco sector, employing 900 people. Again, the figures here are not the original figures but are grossed up or down by a fixed proportion so as to hide the identity of the firm, but the relationships are all correct. This firm's pre-tax profits in the last few years have been £48,000 in 1967-68, £49,000 in 1968-69, and £56,000 in 1969-70, and it may make about £60,000 in the year ahead. It has paid tax on these profits to the tune of £24,000 and £27,000, respectively. This firm, unlike the other one, is not benefiting from tax reliefs, and therefore the amount of tax it is paying is approximately half of its profits. The previous firm I mentioned, because of enjoying certain tax reliefs, was paying a rate of taxation well below the 50 per cent. If we fail to persuade the Minister to modify this proposal, this firm will have to find in taxation this year not £27,000—I suppose the appropriate figure will be £29,000 or thereabouts of the £60,000—but £43,000, because, in addition to finding £34,800 to pay tax on the £60,000 profits expected this year, it will have to find £3,900 to pay tax on the 1968-69 profits and £4,500 to pay tax on the 1969-70 profits, that is £43,200 altogether. As a result, the amount it will be able to retain as net profit after tax will fall from £30,000 last year to £16,800 this year. That is a remarkable fall for a firm which has increased its profits, not by much but by about the same amount as the price index has risen. In real terms this firm has retained its profits, but they will be virtually halved by the Minister's tax measures, and again because the £16,000 has not the same purchasing power as the same sum of money had last year in terms of the previous year's money values, it is worth only about £15,000.
These are very drastic measures. This firm will have to halt its investment programme at this point. It has only half the resources it had available last year for this purpose. Its plans for investment are disrupted and the prospects of maintaining employment in this firm, which could be threatened in free trade conditions, never mind increasing employment, are seriously jeopardised.
These are facts, not propaganda. Both these examples have been given to me by a reputable industrial organisation and the information has been obtained from the individual firms concerned. They are not imaginary but real examples. The only difference from the reality is that the figures have been moved up or down proportionately to hide the identity of the firms in case the Minister would track them down too easily if he had the exact figures.
The Minister must be asked to look at this again. I do not know if he has given sufficient thought to it. I do not know who thought up this scheme; it was a damn silly scheme to start with. To increase company taxation at this point in time and to do so in the way it is being done is potentially disastrous. There has never been a moment in the history of this country when industrial investment has been more necessary. Industrial investment is in any event threatened because of the economic situation, because of the slowing down of growth, of output, because of the inflation in wages and because of the measures the Minister has taken of not permitting more than 7 per cent wage increases to be taken account of in price increases.
That measure is one which, I think, could be justified in advance as a means of preventing firms increasing wages. It did not, in fact, have that effect, because the pressure on them for higher wages was so great that they took their chance on this; also because the credibility of this Government with industry was such that they simply did not believe the Government would go ahead with it. It just had not the confidence in the Government's willingness to stick to what they said they would do; and in the light of more recent events in connection with this prices and incomes policy, I can see why they did not believe in the Government. Therefore they went ahead and under pressure increased wages, and now these are being disallowed.
I am not commenting on that. Perhaps it is better for the Minister to stand firm and try to restore some credibility in the Government, not just in this Government but in any Government. However, the effect of what the Minister has done there, right or wrong, has been to squeeze company profits artificially by allowing for price increase purposes only part of the actual wage increase at a moment when profits, as anybody who knows anything about Irish company affairs at the present time knows, are being squeezed anyway because of the economic situation, the pressure to increase wages and the other pressures to which companies are subjected.
If one were setting out to ruin Irish industry in the face of free trade, I suppose these are the measures you would adopt. You would, first of all, create an economic crisis, slow down economic growth, create adverse economic conditions, fail to tackle an incomes inflation of a drastic kind, let it drift on and get worse year after year. What would you do next if you wanted to wreck Irish industry? I suppose you would artificially squeeze their profits through the price control mechanism, and finally you would tax them out of existence. If I were an extreme Marxist seeking to wipe out the capitalist system in Ireland and to create such unemployment as would be likely to bring about the kind of revolutionary situation an extreme Marxist might want, I suppose these policies could then be justified. But for them to come from a Government which claims to be a businessman's Government, a Government which, until a few years ago did have the confidence of many businessmen, is plain lunacy.
I think the criticisms we are making are valid, fair and factual ones. The Minister is entitled to cast aside criticisms from time to time. However, the Minister is not entitled to disregard constructive criticisms based on facts, and he knows from his consultations with, for example, the Confederation of Irish Industry, that these are facts. He knows the case they put forward. The facts are in this document here, the News Letter of the Confederation of Irish Industry. I think the Confederation have seen the Minister and that he knows their views. I was at one stage consultant to the Confederation and that inhibited me from speaking in this House, directly on the subject of the interests the Confederation of Irish Industry represented. I am not a consultant to it any longer and I feel free therefore to defend its cause in this instance, because its cause is the cause of employment in this country.
This is a mixed economy and employment depends upon the private sector. Whatever criticisms the Minister, the Labour Party or I may have of the private sector, it needs to be strengthened and needs to invest in order to survive the difficulties that lie ahead. The policy which is having the effect of drastically cutting investment at this crucial moment is a wrong-headed policy. Wherever the money should have come from, if money has to be raised to meet the effects of the Government's extravagance, it should not have come from here. I have suggested other sources. There will be others still. I do not suggest my list is exhaustive. However, the £5 million this is supposed to produce could have been got at much less cost to the jobs of people in this country than through the measures the Minister has adopted.
I ask the Minister, therefore, to reconsider this legislation over the next week or two and to come in with the necessary amendments. Certainly he should consider very seriously whether this kind of taxation should be maintained. Even if when he has thought it over, he insists on imposing this, I suppose you would call it a capital levy on Irish industry—it is a levy on future capital investment in Irish industry—if he thinks it is right to pursue this course regardless of the effects on investment and employment, he should consider this as something to be done once and once only. The measure should be modified in order to limit its impact in the current year. I would prefer him to rearrange his tax proposals so that they would not reduce profits after tax this year. The Minister knows this is right. He has heard the views of the Confederation of Irish Industry and he knows he has gone wrong. Because of his clear anti-profits bias the Minister has taken a wrong turn.
Neither the Minister nor the Government have ever grasped the distinction between the taxation of company profits affecting investment and the taxation of incomes derived from company profits. The only answer the Minister gave to the proposal made from this side of the House for a dividend equalisation tax was to sneer at it and say that is all we had in the way of proposals. That is not an adequate reply. I have answered that earlier within the limits imposed by this debate.
Our proposals recognise two facts: (1) that the future expansions of Irish industry, business and employment depends upon money being available for investment rather than taxing business out of existence; and, (2) that social justice requires the redistribution of income so that the better off people should not be able to increase their incomes when workers have to restrain theirs. I was sure every Deputy would agree with those two premises.
The taxation of industry should be carried out in such a way that the burden placed on companies should not be excessive. We should ensure that those who receive dividends from companies neither secure in purchasing power from that source more than is proper in a socially just society nor are able to secure increases in their income if workers are not to increase theirs because of a voluntary wage restraint or a compulsory wage freeze. That is our policy. It makes economic sense to preserve and expand industry and employment. It shows social justice and provides the foundation for an incomes policy which might command general agreement. All the Government have done is to attack Irish industry at the very time it is most vulnerable and attack its resources for investment at the very moment these resources are most needed, while doing nothing to deal with capital gains or the problem of the growth of incomes of people other than workers. It would be difficult to adopt a policy more likely to cause chaos, distress and social dissension.
The Government, even at this late stage, should listen to what is being said and mend their hand. I suppose it is too late and the Bill will go through. This will be Fianna Fáil's last gasp. It is ironic that the party which came in with a great flourish of trumpets in 1932, with a well-founded policy for the protection of Irish industry, a policy which deserves a great deal of credit for the growth of industry at that time, should go out of office with the unanimous disapproval of Irish industry because of the attitude they have adopted at this crucial moment in the history of Irish industry and the way they have attacked the future survival of Irish industry and the jobs in Irish industry.