Finance Bill, 1971: Second Stage

Minister for Finance (Mr. Colley)

I move: "That the Bill be now read a Second Time."

Deputies will recall that in my Budget Statement I proposed a number of changes in the field of taxation. The Bill contains the provisions required to give effect to those proposals as well as provisions on a number of matters, notice of which was not given in either the Budget Statement or in the Financial Resolutions. I shall draw attention to these in the course of the review I propose to give of the contents of the Bill.

Part 1 of the Bill deals with income tax, including sur-tax. Section 1 imposes income tax and sur-tax at percentage rates corresponding to those for last year, but the reduced rate on the first £100 of taxable income is abolished under section 2. While this means an increased liability of under £12 a year for some taxpayers, the raising of the minimum earned income relief by £25 under section 6 will ensure, as I said in the Budget, that about 20,000 taxpayers are removed from the tax net and that many others will pay less tax than they did last year. Under sections 7 and 8 the "age allowance" and "small income relief" are increased commensurately with the minimum earned income relief.

Additional tax relief is provided for certain hardship cases and for persons eligible for social welfare benefits. Section 9 enables an unmarried mother who is working full-time and undertakes the care of her child to claim the ordinary "housekeeper allowance" and section 11 introduces a new allowance of £100 for a blind person and of £200 where husband and wife are both blind. The income limit for the purposes of the dependent relative allowance is raised by section 10 to £243 which is the annual equivalent of the non-contributory old age pension as increased in the Budget; while section 12 allows a deduction for income tax of that part of the contributions under the Social Welfare Acts which is referable to the new death grants and retirement pensions. Neither of these last two provisions was mentioned in the budget.

The only other provisions in Part I of the Bill dealing with matters not previously announced are in section 19. Some local authorities have been advised that they do not come within the scope of section 17 of the Finance Act, 1970, relating to the scheme of collecting income tax from sub-contractors.

Subsection (1) of section 19 removes doubt in this field by effectively requiring local authorities, housing associations, housing trusts or housing societies who have in fact deducted tax from payments made under construction contracts to sub-contractors since the scheme came into operation on 6th April, 1971, to remit the tax deducted to the Revenue. Where tax was not deducted from payments made since the commencement of the scheme, the body in question may be required by the Revenue Commissioners to furnish particulars of such payments and must make such deductions in respect of payments made after the passing of the Act.

Subsection (2) of section 19 imposes a 1 per cent rate of interest for each month during which tax deducted from sub-contractors after the passing of the Act is not remitted to the Revenue. The same rate applies to unremitted PAYE, turnover tax and wholesale tax.

I now come to the provisions designed to combat certain avoidance tactics. Section 3 ensures that, if on the cessation of a trade or profession in 1972-73 or a later year, the actual profits in the two years preceding the last year of assessment are greater than the profits charged in those two years, the actual profits will be brought into charge instead. Section 4 charges to tax foreign income of an Irish resident which is not remitted here but is applied abroad instead to repay a loan made on or after budget day and enjoyed by him in this country. Section 14 enables income settled by a parent on his child to be brought into charge where the child is under 21 and unmarried at the time of payment.

As announced in my Budget Statement, I propose to tighten-up the arrangements for the collection of income tax in arrear. In this regard, section 15 has three main features: first, the rate of interest on unpaid tax is increased to 9 per cent per annum; second, the interest-free period allowed for payment is reduced to two months; and third, a taxpayer will no longer be allowed an interest-free period up to the time an appeal he has made is finally determined, unless he has made an agreed payment, or a payment which, while not agreed, proves to be not less than 80 per cent of the tax involved, within two months from the due date and pays any balance owing within two months of the determination of the appeal. Where an agreed payment was made, section 16 enables repayments of overpaid tax to be effected with interest at the rate applicable to overdue tax.

Section 17, which is a follow-up to section 15, requires tax due in accordance with a determination of the appeal commissioners to be paid before the appeal is re-heard by the circuit court. If, as a result of the re-hearing, tax is found to have been over-paid, repayment under conditions similar to those in section 16 will be made.

Sections 15 and 17 will come into effect on the passing of the Act.

Where it is discovered that tax was undercharged because of fraud or neglect, section 18 enables interest to be collected at the rate of 9 per cent from the date the tax ought to have been paid. The section will not, however, affect tax chargeable for any year of assessment prior to 1971-72.

I announced a number of tax incentive reliefs in the Budget and these are also provided for in Part I of the Bill.

Section 5 treats as a business expense the cost incurred in obtaining, for the purposes of a trade, the registration, or the renewal of registration, of a trade mark. Under section 13, the enhanced industrial buildings allowance of 20 per cent is extended for a further two years up to 31st March, 1973.

Because of the need to expand the industrial sector of the economy and to increase the opportunities for employment of our people, it is essential to provide a strong stimulus to immediate further investment by all our industries. I am accordingly making provision, in section 24, to extend free depreciation to the whole country, so that the full cost incurred on acquiring new plant and equipment brought into use within the next two years may be written-off whenever the taxpayer chooses.

As free depreciation is already available to the designated areas, I am making special provision in sections 20 to 23 for a 20 per cent investment allowance in respect of the cost of new plant and machinery for use in those areas. An industrialist in the West will, in effect, be able to write-off up to 120 per cent of such cost in the first year if he so wishes. The investment allowance will also be operative for two years up to 31st March, 1973. To prevent abuse, however, it is necessary to provide for its withdrawal if the assets in question are sold either without every being used in the trade or within two years of being brought into use.

Part II of the Bill relates to customs and excise. Sections 25 and 26 provide for the increases already announced in the customs and excise duties on beer and spirits. The provisions in section 27 and 28 have not previously been announced.

Section 27 removes the requirement that certain vodka of United Kingdom origin must be warehoused for at least three years before being delivered for home consumption. This requirement does not apply to comparable Irish-made vodka and the disparity of treatment is held to be discriminatory against vodka of UK origin under the terms of the Anglo-Irish Free Trade Area Agreement. The United Kingdom have already removed the disparity and it is proposed, under section 27, to take similar action here with effect from 1st July, 1971.

The introduction of modern techniques in customs control of large numbers of passengers and their baggage, particularly at airports, requires alterations in the existing legal framework which is based on the premise that each passenger coming into the country is questioned by a customs officer. Under section 28, individual questioning may, in effect, be dispensed with and a "self-selection" or "dual channel" system used instead. The basis of this system is that the passenger may choose to go through a "nothing to declare" channel, where he will be subject only to a spot check, or to go through the "goods to declare" channel. With the ever-increasing growth in passenger traffic, I am satisfied that the adoption of the dual channel system will facilitate the clearance of passengers without increasing the number of customs staff or opening the door to serious smuggling.

I now come to Part III of the Bill which deals with death duties. Section 29 is purely a technical provision designed to remove doubt in relation to the definition of the expression "death duties" and it does not impose an extra charge on any property or person.

Section 30 increases the rates of estate duty on estates over £55,000 as announced in the Budget. It is sometimes alleged that the liability to estate duty may influence wealthy individuals in deciding whether to take up residence here. Our highest rate was reduced in 1961 from 53 per cent to 40 per cent, as against a maximum of 80 per cent in Britain, but in the past 10 years there has been no evidence of an influx of wealthy persons. Even with the proposed maximum rate of 55 per cent, the rates on estates over £55,000 in Ireland will be significantly below the effective rates on corresponding estates in Britain. With the increased abatements of £1,500 for a widow and £750 for each dependent child now proposed in section 38, the rates of duty on estates in any range passing to a widow, whether or not with dependent children, will be much lower than the effective rates prevailing in Britain.

Section 31 provides, subject to certain exceptions, for an increase to 9 per cent, in the rate of interest on death duties in arrear in line with the rate proposed under section 15 in respect of unpaid income tax. The new rate of interest will not, however, come into operation for a period of four months after the date of the passing of the Act. The purpose of section 32 is to prevent loss of revenue by ensuring that, in addition to the executor, trustees, beneficiaries, surviving joint tenants and present owners will be accountable for estate duty in respect of property vested in them of which the disceased was competent to dispose.

Section 41 provides new penalty provisions, in lieu of those referred to in the Third Schedule to the Bill, for failure to comply with the provisions of the Acts relating to estate duty. The remaining sections in Part III contain anti-avoidance measures.

Section 33 is designed to prevent avoidance of duty through the exemption for objects of national, scientific, historic or artistic interest, while section 34 tackles the device known as "grant and lease back". Last year, we found it necessary to prevent avoidance of duty through the medium of private companies and, this year section 35 contains further provisions aimed at closing this avenue of avoidance. Section 36 prevents avoidance of duty by devices involving the purchase of land outside the State. Section 37 abolishes the reduction in the value for duty of gifts made at any time within five years before death and section 39 seeks to prevent avoidance by applying the market value, instead of artificial valuation, to agricultural land which is sold within six years of the death or date of the gift.

Section 40 restricts the existing exemption from estate duty of gifts made in consideration of marriage. This proposal has aroused a certain amount of criticism both inside and outside the House. I should like, therefore, to explain it in the general context of the anti-avoidance measures contained in Part III of the Bill. As Deputies are aware, the question of introducing a tax on wealth, or on capital gains, has been widely discussed in recent years and I have given it a good deal of consideration. Estate duty is, in effect, the only form of tax imposed on wealth in this country. Because of the methods of avoiding it which have been devised over the years by experts specialising in this field of taxation, estate duty has been stigmatised as a voluntary tax— one which you can easily escape if you want to. I have come to the conclusion that the first step to take in the taxation of wealth is to bring our present rates of estate duty up to a more realistic level and to ensure as far as possible that the tax is fully enforceable. Part III of this Bill is designed to raise the rates and to close off the avenues of escape which we know are widely used at present. While these measures are estimated to produce about £¼ million extra revenue this year and about £1 million in a full year which will, of course, be very welcome, the main purpose of Part III of the Bill is to counter tax avoidance.

The restriction proposed in section 40 forms part of this general design. The main criticism directed against the proposal is that it is anti-social as it will discourage elderly parents, and farmers in particular, from transferring their property to their children when they marry. I think this criticism is not well founded. In the first place, I believe that parents who wish to give their property to their children will do so irrespective of the estate duty position. In the second place, I consider that the unrestricted exemption which at present exists in favour of marriage gifts is not, in fact, as strong an incentive to parents to effect early transfers of property to their children as some people would have us believe.

Estimates of the numbers of gifts disclosed to the Estate Duty office during the years 1966 to 1968 indicate that an average of 1,000 gifts a year were made and of these 81 only were in consideration of marriage. The fact that such a transfer, if made within five years before the parent's death, will come within the scope of estate duty should, I believe, encourage parents to make the transfer at an earlier stage than they would in our present situation. In other words, it should have an effect directly opposite to that suggested by the critics of the section, by encouraging earlier transfers of property from parents to their children.

In removing the total exemption of marriage gifts and making them chargeable to estate duty if made within the five years before death, I am putting such gifts on the same footing as other gifts of property. This is, in fact, the situation which obtains in other countries such as Australia, Canada, New Zealand, the United Kingdom and the United States which have estate duty systems similar to ours.

I am, however, proposing a special concession in relation to gifts on marriage which in recent years have, as I have said, averaged 81 a year. The first £5,000 of such a gift made by a parent or remoter ancestor to a child or remoter descendant, will be totally exempt from estate duty irrespective of the time at which the gift is made. This exemption will also apply to a gift from one party to a marriage to the other party. The first £1,000 of a gift made by any other person in consideration of marriage will likewise be exempt from estate duty. As the bulk of gifts made in consideration of marriage do not exceed £5,000, I consider that these exemptions, together with the total exemption for all gifts made earlier than five years before the date of death, amply take care of any possible cases of hardship.

There is one further point I should like to make in refutation of the exaggerated statements about the dire effects this proposal will have in relation to agricultural land. It is this — that the artificial basis of valuation referred to in section 39 will continue to apply in relation to agricultural land unless the land is sold within six years from the date of death or date of the gift. This system of valuation is, together with the special abatements for widows and dependent children, of such enormous value to persons with agricultural land that out of an average of 2,560 estates paying duty in each of the years 1966 to 1968 less than 4 per cent are estimated to have been farmers. The number of farmers who will be affected by the present proposal will, therefore, be very small.

Some concern was expressed in the House on Budget day in relation to a farmer who makes over his land to his child on marriage and thus qualifies himself for an old age pension. Such transfers will not, of course, be brought within the charge to duty unless the farmer dies within five years of the transfer. If he did so die, the first £5,000 of the gift would be exempt; moreover, the artificial basis of valuation would be applied in respect of the land. If, despite these reliefs, there were still a charge to duty, I would remind the House that there would have to be substantial other assets in addition to the land. This would mean that the farmer, during his lifetime, would have had a worthwhile tax-free income from the farm, followed by an old age pension from the State when he transferred the farm. I do not think anyone will claim that such a man was unfairly or harshly treated.

Part IV deals with stamp duties. The purpose of section 42 is to extend the general exemption of ships to aircraft and, in particular, to ensure that no question may arise of charging stamp duty on certain instruments relating to the sale of aircraft by Aerlínte last October. Section 43 provides an exemption from stamp duty, similar to that in force in relation to remittances of PAYE, wholesale tax and turnover tax, in respect of cheques drawn on forms supplied by the Revenue Commissioners where tax deductible from sub-contractors is being remitted. None of these changes was announced in the Budget.

With the exception of section 44, Part V of the Bill which deals with corporation profits tax, is consequential on income tax amendments in Part I. The exemption from corporation profits tax of certain public utility companies, building societies and the Agricultural Credit Corporation is extended under section 44 for another year, pending the outcome of the current investigation into the operations of building societies by an interdepartmental working group.

Section 45 enables free depreciation and the investment allowance to apply for corporation profits tax purposes on the same terms as are provided for income tax in sections 20 to 24 of the Bill. Sections 46 to 49 apply, for the purposes of corporation profits tax, the interest provisions applicable to income tax in sections 15 to 18 of the Bill.

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 1970-71 and 1971-72. Section 51 increases the excise duty payable by firearms dealers from £1 to £25, except that the duty payable by dealers in ammunition for "sporting" guns will be £3. This is a new provision which was not announced in the Budget. Its specific purpose is to induce as many dealers as possible to confine themselves to dealing in "sporting" ammunition and it effectively forms part of the measures that have been passed by the House under the Firearms Bill, 1971, to secure a tightening-up of the existing statutory controls on firearms. Sections 52, 53 and 54 are self-explanatory.

I commend the Bill to the House for a Second Reading. The detailed provisions are summarised in the explanatory memorandum circulated earlier but I shall be glad to deal with any points on which Deputies may require further information or clarification.

Mr. O'Higgins

In effect this Bill gives legal status to the Budget and it is, therefore, of considerable importance each year to the taxpayers, the farmers, industrialists, and to the business community generally. This year the Finance Bill must assume a particular importance. It is being introduced at a time when the environment and circumstances are quite different from what they were last year, the year before and in previous years. This time last year when the Finance Bill was introduced, as was the case in the previous year, we had applied for membership of the European Economic Community. The fact of our application was there and it was known. It was referred to from time to time in our debates here. It was all so remote, so far away, that it did not appear to be germane or relevant to legislation such as the Finance Bill or to other items of legislation or acts of policy which the Government introduced. Today that situation no longer obtains. If we are to accept it as being an accurate assessment of the situation, both the Taoiseach and the Minister for Foreign Affairs have declared that it is a certainty that this country will become a member of the European Community in January of 1973. It is no longer a possibility. In the view of the Taoiseach and of the Minister for Foreign Affairs it is an absolute certainty.

It is in considering that assertion, which must be taken as being the considered view of the Government, that we must now this year pay particular regard to the provisions of this Finance Bill. As I say, circumstances have changed. The environment is entirely different. There are now, if this assessment is correct, new problems to be considered, new issues to be dealt with, new challenges to be faced and, above all, new opportunities to be availed of. I will not go over what I have said often recently in this House. I will not go over what I regard as the mistakes, grave and serious mistakes, which this Government have made in relation to the management of the economy. Suffice it to say that we have suffered and the economy has suffered significantly because an inflationary situation was permitted and tolerated when, perhaps, prudent and wise action might have averted trouble.

But, put that behind us. In this changed environment which the Minister for Foreign Affairs and the Taoiseach have referred to, in a situation in which our accession to the Treaty of Rome and our membership of Europe is no longer a matter for speculation but is a matter to be regarded in Government planning and Government policy as a certainty, in that change of circumstances I believe an opportunity is given to us, to the Government, to Oireachtas Éireann, to everybody who has responsibility in the State, for imaginative, aggressive and courageous action which I think can undo much of the harm which the mistakes of recent years have brought about, that is, if we are prepared to be serious, to be realistic and to put into our action and our policy our belief in relation to the future of this country.

There is a time now — the next 18 months — in which there will be a real need in this country for bold, courageous and imaginative leadership. I believe the coming 18 months between now and January, 1973, will be decisive for the future of this country, for the welfare of its citizens and for its continuance and maintenance as a viable economy. If we sit down and do nothing, if we carry on as we have carried on in the past, if we allow outside forces and trends to fashion our action, then I believe we will forfeit and lose an opportunity which may never recur.

Let us look at the score. The Taoiseach, the Minister for Foreign Affairs and the Government say that we are going into Europe in January 1973. That is no longer a matter of speculation; it is a matter of cold objective certainty. Let us look at ourselves. Our gross national product per head is much the lowest of the ten countries that will form Europe in 1973. Our GNP per head compared with the present EEC average is 40 to 50 per cent lower. So that there is a 40 to 50 per cent gap between the present average and the gross national product per head of our population. Can we afford to ignore that gap? Anyone who thinks will appreciate that we cannot. Our very survival as a viable economy in an economic and monetary union which is looming up will depend on our ability to bridge that gap. If we do not bridge it, if we do not take action now, if we do not display the kind of prudence and wisdom which a people is entitled to get from its government, if we do not, with imagination and courage, put the correct policies into operation, the danger is that we will enter Europe in 1973, we will become part of what will evolve to be an economic and monetary union and we will be sucked dry. So, we must bridge this gap. If we do not bridge it our people will disappear, our people will leave, at an accelerating rate, all the peripheral regions of our country and will be sucked to the centres of population.

So, with this prospect ahead we have and the Government have, in my view, a particular responsibility to plan to utilise now to the fullest possible extent the initial opportunity which will exist for us in Europe in January 1973 and that is an opportunity at that stage to increase our exports to Europe.

Our economy is an open one. It will continue to be an open one. Consequently, a substainable increase in production will depend and must depend on a rapid and sustained increase in the sale of commodities abroad. This is all the more so in respect of our future because as the figures show we as a people have a propensity which is amongst the highest in the world to sustain an increasing rate of imports. That is a propensity which is there and I assume that will continue and will accelerate once we go into Europe, so that from our point of view the entry date into Europe will be a risk and a danger but an opportunity also, an opportunity at that stage, at that time, to sell and sell and sell but we can only be geared for that if we realise what requires to be done now and plan accordingly.

How are we going to increase our exports? Where will we get an increase in saleable commodities? It is obvious that the real export opportunity in the immediate future lies in the agricultural sector. In relation to industry we must be prepared for an initial adverse impact, particularly as there is no sign as yet that our cost inflation crisis has been contained, never mind reversed. No matter what wonderful change may have come in regard to our costing and prices, I do not think that in 18 months time we will be able to look to industry to provide us with the tremendous boost in exports which we will require to bridge the gap between the European average GNP and what we are experiencing at present.

In the sphere of agriculture there exists an immediate opportunity for development and growth which can be availed of by quick, decisive and bold action. Under the European arrangement we are offered the most attractive prices any farmer could contemplate. We are offered ideal market arrangements and an unlimited market for every item we produce in the agricultural sector. If the Minister and the Government are right, we know that this will be available to us in January, 1973. Should we not shape and gear our economy and put into operation in our policy the measures that will ensure that in 18 months time our agriculture will have produced such an abundance for sale in the European market that we can derive a substantial benefit?

Is there any evidence that the Government are alive to this situation? Is there any evidence that they have taken steps to alert our farmers to an appreciation that for the next two or three years an opportunity will exist which may not recur? I do not want to be pessimistic but it is my belief that three or four years after that period of accession in January, 1973, from our point of view conditions will cease to be as attractive. However, we have the initial opportunity to sell at attractive prices every commodity we produce.

Is there any evidence of Government thinking in this Bill or in any official announcement as to their plans for the future? I have here the White Paper issued in regard to the Common Market. Assuming Ireland succeeds in entering the EEC at the beginning of 1973, the Government state that "the volume of gross agricultural output might be expected to show an increase by the latter years of the decade of the order of 30 to 40 per cent". Is it the thinking of the Government that by 1980 we would hope to increase agricultural output by 30 to 40 per cent? That is displaying the imagination of a mouse, it is applying no thought or imagination to the requirements of this nation. With no market limitations on output, with exceptionally attractive prices and with a potential gross output in agriculture assessed at three times the present level, who can say what we could achieve by hard work and sound leadership in the next 18 months?

Having regard to the White Paper on the Common Market, I fear there is an assumption by the Government that the present structural and social restraints in agriculture will continue. In the past farmers have been under-capitalised, they have not obtained the necessary credit. The time has come for new thinking and a new policy. This should aim at removing past historic restraints on increased production from the land.

I would suggest certain things which should be done as a matter of urgency. First, the Government should decide — and I am certain they will have the support of all Deputies — that credit for agriculture must be readily available. This can be done in a number of ways. In the first place, a special fund should be established — perhaps an interest rebate guarantee fund on the lines of the present EEC proposals at Community level — to ensure that financial considerations will not be an obstacle to increased agricultural production. From that fund any proposal to increase agricultural production in any commodity should be financed and supported by the Government.

Secondly, I believe immediate steps should be worked out as a matter of urgency to find in what way we propose to take full advantage of the financial assistance which will be available under the Mansholt Plan in January, 1973. We should be working that out now. We should be in a position to say to every farmer, big and small, in the West, in the Midlands, in the South, in the North and in the East, how the funds available under the Mansholt Plan can be of advantage in increasing production.

Thirdly, I believe the Government should take their courage in their hands and abolish immediately the multi-price system for milk. It is no longer relevant. We need all the milk and butter we can produce. Restraint on the production of milk and butter is no longer relevant. In January, 1973, we will be able to sell every pound of butter that comes from the green grass of Ireland. Why should we prevent production? Why should we curb it if this roseate future is as clear as the Taoiseach and the Ministers have said it is?

Fourthly, we should plan now to utilise in a constructive way the refund from the Community in respect of export subsidies. By doing something along these lines we can gear agricultural production immediately for a vast increase in output, not that 30 to 40 per cent by 1980. We should aim at doubling our present agricultural output by January, 1973. I believe we can do that. If imagination is exercised, if there is a proper lead from the Government, the people will respond and, if they do respond, we can achieve a situation in which we will go into Europe with things to sell; we will go in with products to sell at the prices obtaining in an expanding market. If we do not do that, if we go on assuming a slow increase in agricultural output over the next seven or eight years, then an opportunity which may never be repeated will be lost.

Now is the time, if ever time was, to initiate a drive to speed up the transfer of farms from the old to the young. As a matter of policy the Government should encourage young enterprising farmers to get land and husband it. Far too often in the past we have had a social—I call it social — restraint on agricultural production in that young men of imagination did not have the opportunity of engaging in agricultural production. Now is the time to initiate a national drive which will put these young men on the land.

The Minister endeavoured to defend section 40 of this Bill. Section 40 renders liable to estate and death duty all transfers of land made to a son on the occasion of that son's marriage. Surely that is not the sort of thing we should be doing now. Surely we should be encouraging such transfers. Surely we should be encouraging those who are not themselves able to utilise the land to its fullest extent to transfer that land to another proprietor, particularly where such transfer is associated with that person's marriage. Here it is proposed to tax that kind of transfer. The result will be either to discourage parents, or other relatives, from transferring their lands or it will impose an entirely new burden of taxation on newly married couples, young people who ought to be in the front line of agricultural production. Here is the opportunity for which we have been waiting for centuries.

Mr. O'Hara

Hear, hear.

Mr. O'Higgins

Here is the opportunity whereby we can cease to be the cabbage patch for Britain. Through all those miserable centuries we were dependent on the fancy and the whim of successive British governments. Our agricultural output was clamped down because of the cheap food policy pursued by the British. We have the opportunity now to get away from that. We need no longer continue to keep down the production of milk. We need not apply incentives to discourage production. Abundance in the past meant the taxpayer subsidising the British to consume the product. This situation will no longer obtain. We should increase our agricultural production because our agricultural assets represent a vast potential for the future.

On these benches one has the responsibility of criticising if one feels that criticism is justified. One has the responsibility also to put forward constructive proposals, genuinely intended, and I make these suggestions in regard to agriculture because it is of concern to the entire nation, however divided we may be politically, whatever difficulties or troubles we may have, that we do not drift into Europe; we must go into Europe, if we are going into Europe, armed with goods to sell.

Mr. O'Hara

Hear, hear.

Mr. O'Higgins

We must go into Europe knowing precisely the direction in which we are going, realising that we are facing a hard, uphill battle, but with the capacity and the will to survive. We certainly should not let what appears to be a tremendous opportunity pass by.

We have problems, too, in regard to industry. The future will be difficult but, again, I ask are we doing enough? Are the Government doing enough? At the moment serious structural weaknesses are becoming apparent in our industrial arm. Industries have grown up over the last two or three decades in the atmosphere of protection. Now, in the last two or three years, as a result of the Anglo-Irish Free Trade Agreement that protection is disappearing and these industries or some of them are finding they cannot meet the full brunt of free competition, so that the structural weaknesses are beginning to appear and particular industries appear to be unable to survive. Again, are we doing anything about it? Is there a plan, I ask, or is the situation to be that we are going to let things drift and eventually when all the weaknesses have become manifest, everything will settle down in a particular pattern?

Is that good enough? Of our industrial production 72 per cent is aimed at the home market and a strong home market is the only sure guarantee for increasing exports. Our industries produce 72 per cent for home consumption. It is in relation to that that one must consider that the Government made a profound mistake last October when they increased corporation profits tax to 58 per cent. The Central Bank, in their Quarterly Bulletin for the spring of 1971, referred to that action of the Government as follows:

The increase in corporation taxation in the autumn of 1970 is unfavourable to private investment not just because of the disincentive effects of a reduction in after-tax profits but more importantly because it reduces the cash flow out of which companies finance investment.

That is a stricture on, or indictment, if you like, coming from the Central Bank, of this action by the Government. This Bill continues that by not removing it. Why do the Government not admit this was a mistake and put it right? The position now is that struggling Irish companies, facing the bite of competition for the first time, have had in this year to meet a retrospective increase in corporation profits tax: in some cases 52 per cent of their profits went in taxation. They have to produce 58 per cent from this on and they are fighting for existence against British companies that carry a load of taxation in relation to the retained profits of 40 per cent.

On our own home market, small struggling Irish companies have a tax differential of 18 per cent to meet. I do not understand the reason for this. It costs £6 million, less than 1 per cent of our total revenue. Why is it being continued, particularly at this time? Now is the time when, if ever, the industrial arm of our economy require finance. It requires the ability to invest, to strengthen, to concentrate, to specialise, to plan for the next 18 months to meet the challenge of Europe. It is utterly without any basis of common sense that by our own domestic taxation we should be hitting at the machinery of Irish industry, weakening it and making our industrial arm all the less effective in the immediate future.

In endeavouring to defend this the Minister said we should look at the export tax relief. That applies to 28 per cent of our industrial production, mostly to companies which are foreign-owned. I am talking about Irish companies that grew up in the years of protection, small and limited, but they may have a future if they can expand and revitalise themselves now. These companies are being hit by this oppressive taxation. It is no use saying to a struggling entrepreneur in those circumstances: “Look at all the tax reliefs somebody else is getting.” He is concerned with his own industry and future. Of course the result is there to be seen — mounting unemployment. We now have the highest rate of unemployment in Europe, comparatively speaking. I do not say that is directly due to this kind of taxation but this has certainly contributed to it.

I do not know if there is any possibility of the Minister or the Government reconsidering the situation. I do not want to say anything which would cause uneasiness in Irish industry but I believe the effect of this taxation of last October continues to be bad and I do not believe that situation will change until we restore a rate of taxation which allows an Irish company to compete on the same terms with the English competitor who is now trying to take away the Irish home market.

In any event, there is a great deal of work and a great deal of thinking to be done. There is a great deal of planning required. Never before could it be said as truly as now that our future requires a united effort now by every man, woman and child. Every section, every part of our community must realise that our future survival is our common responsibility. I believe it will require the united and determined effort of all sections. We cannot afford in the months — if it be months—that lie ahead a continuance of faction fighting such as we have had in the past. We cannot afford the cynical promotion of sectional interests irrespective of the damage done to the community. We cannot afford, above all, the neglect of national interests for purely party political purposes. This is an occasion on which those who have the responsibility to lead must be in a position to speak the truth fearlessly without regard to political complications.

We have not that at the moment and I think we need it. We need men in office leading the country who will be prepared in the formative period ahead of us to do their duty irrespective of what the consequences may be. Maybe that is asking too much from the party system. I do not know, but I am certain that the need at the moment is that kind of outlook in the Government for the period immediately ahead.

I have said all I want to say in relation to the general aspects of the Bill and the policy it contains. I want to refer to one or two details. The Minister defended the section of the Bill dealing with death duties and I wonder was he being absolutely fair with us when he referred inferentially to a favourable comparison between British and Irish rates. I will go into this in more detail in Committee but I should like to remind the House now that agricultural assets, as defined by the appropriate British statute, are reduced by 45 per cent before they are taken into account. This also applies to industrial hereditaments and plant and machinery. That means that under English death duty law the small trader is dealt with in a very preferential way. Here, the rate is 45 per cent more. In addition, it must not be forgotten that in Britain some years ago they abolished legacy and succession duty. In this country we still retain it and in addition to estate duty we still have a 10 per cent levy for legacy and succession duty.

Therefore, it is quite wrong for the Minister to suggest that in relation to death duties we operate on a more favourable basis than in England. It is not so. Our rate of taxation in relation to anyone, unless he has children under 21 years of age, is much higher than in England.

The Minister also proposes in this Bill to make people pay 9 per cent in respect of arrears of death duties. He is by profession a solicitor, and a very good and competent solicitor he was and I am sure will be again, I hope. He will appreciate how difficult it is for a solicitor acting for a client in respect of death duties to get together the necessary estate duty accounts and so on. I know the Minister is giving a four month interest free period in respect of arrears but I suggest that is not long enough. However, it is a Committee matter.

Mr. Colley

The Deputy appreciates that this is a concession that does not exist at the moment.

Mr. O'Higgins

The interest was 4 per cent and I am sure the Minister is aware that it is easier to take 4 per cent from the Revenue Commissioners than to borrow from the banks at 9 per cent. Now the rate is 9 per cent.

Mr. Colley

The Deputy is getting to the kernel of the matter.

Mr. Tully

Very neatly.

Notice taken that 20 Members were not present; House counted and 20 Members being present,

Dr. O'Donovan

Deputy Dowling had better stay there. I will call for another count if necessary.

Mr. O'Higgins

One other matter I want to raise on the Bill is the failure to deal with the position of the widows of civil servants who have been seeking parity in relation to the scheme that came into operation as from 23rd July, 1968. The Minister has had their submission and I am sure he understands their point of view. As from 23rd July, 1968, a scheme has been in operation under which women who became widows since that date could benefit.

Dr. O'Donovan

I do not like to see Deputies come trooping into the House for a few minutes and then vamoose off again. We have not a House. With respect, I have been putting down questions which have been ruled out of order during the past few weeks and if that is what they are up to in Government Buildings——

An Leas-Cheann Comhairle

The Deputy is aware we had a House.

Dr. O'Donovan

We have not now.

An Leas-Cheann Comhairle

Is the Deputy alleging that questions were ruled out of order from Government Buildings?

Mr. Colley

I do not think the Deputy should be allowed——

An Leas-Cheann Comhairle

The Deputy is aware that this is tantamount to a charge against the Chair.

Dr. O'Donovan

It is not a charge against the Chair. It is a charge against the influence brought to bear in this House.

An Leas-Cheann Comhairle

The Deputy is aware of the implications of what he has said.

Dr. O'Donovan

Of course I am aware of what the implications are.

Mr. Dowling

An angry old man.

An Leas-Cheann Comhairle

To imply that a Department of State influences the Chair's decision is disorderly.

Dr. O'Donovan

We still have not a House.

Notice taken that 20 Members were not present; House counted and 20 Members being present,

Mr. O'Higgins

I was referring to the position of the widows of civil servants who are outside the scheme in the sense that they are pre-23rd July, 1968, widows. It is said that wives who became widows prior to that date should not qualify for the scheme because their husbands had not contributed towards the fund. I understand that is not correct. It appears from the Quinn Tribunal Report that there has been a 5 per cent retainer from civil servants' salaries for superannuation purposes. If this is so it seems to mean that in the case of the pre-1968 widows that retention has been availed of by the Exchequer without in any way giving benefits to the widows. If we are to have parity, which is suggested as being desirable in principle I would urge the Minister and the Government to provide for these pre-1968 widows and go further than, in fact, has been done. They have been allowed limited benefit on the basis of coming in for half the pension; they want to buy their right to the other half and I feel they should be entitled to do so. Any of them who got the half pension who also had non-contributory social welfare pensions lost these, or the purposes associated with them. Consequently many of them have been put in a much worse position as a result of what was granted as an ex gratia step by the State than they were in before. In any event, I would urge the Minister to consider their position.

These are my observations on the Finance Bill and on the general situation of the country. Let me sum up by saying it seems to me that we in this Dáil, who happen to be the Members of the Legislature, have a particular responsibility in representing the people at a time when decisions of far-reaching significance are going to be made. Every Deputy has a responsibility to be constructive and point out the ways in which our economy and the national interest can be improved. I do not know whether anything I have said will carry any weight with the Minister or the Government but I would urge them with all the emphasis I can use to think very carefully about the next 12 months. If we are going into Europe for goodness sake let us go in armed and knowing what we are doing and if it is a certainty that we will be a member of Europe by January, 1973, let us plan now, let us gear agriculture.

Mr. Murphy

We have been going into Europe since 1957.

Mr. O'Higgins

Let us strengthen industry, let use decide how we are going to plan for the future because if we do not do that I believe we shall suffer drastically.

Mr. Tully

The one thing which really annoys me at the present time is the way members of the Government and, indeed, members of the Fine Gael Party address EEC representatives. They seem to take the line that we are going into Europe and everybody is behind the idea. The same attitude is being adopted by the Tory Government in Britain who do not even have the support of their backbenchers. I should like to ask whether the Government have got the support even of all their frontbenchers.

As Deputy Murphy said a few minutes ago, we have been going into Europe since 1957. Europe seems to be the magic cure for practically all our ills. Every time things have gone badly and since Fianna Fáil took office things have been going bad very often, the solution was that when we got into Europe everything would be all right. It appears to be the general line of thinking in Government quarters and in Fine Gael quarters that if Britain goes into Europe we are stuck and Britain are bound to go in. This is the belief despite the fact that it has become more and more evident that the ordinary people in Britain are opposed to membership and the numbers are growing. It was pitiable to listen to the British Foreign Minister on television the other night trying to explain what Mr. Heath said before the election about not going in unless he had the people with him and what he is saying now. The trick cannot be pulled here because we must have a referendum. We have a written Constitution and constitutional changes must be agreed by the people. In view of the situation we should face up to the fact and realise that not everybody is in favour of going into Europe. In fact the referendum may show that the majority of people are opposed to it.

If the Government believe what they are saying will the Minister for Finance tell me what has been done to prepare us for membership of the EEC? The Anglo-Irish Free Trade Agreement was supposed to be a preparation and we all know how disastrous that has turned out to be. Since that time as far as I can see the Government do not seem to be really sure. They feel if they shout loud enough everybody will believe they are doing something. With the incidence of unemployment as high as it is surely it would not have been too much to expect that the Government would do something more than cutting people off the dole to try to reduce the numbers at the labour exchanges? First of all, the numbers at the employment exchanges were reduced by what I consider to be an excellent idea: putting people on a retirement pension if they wanted to retire at 65. This was followed by the dole shambles. All this has left 15,000 people fewer, no matter how we look at it, on the unemployment register. This appears to be the only tangible thing done so far so that the Minister for Foreign Affairs can say to his counterparts in Europe: "We have reduced substantially the number of unemployed in the country". Of course, the only way the number has been reduced is by taking them off the register.

I believe that the Finance Bill should have contained something which would give hope to the people of this country. Whether we go into Europe or not, they have nothing except what they are able to earn by the sweat of their brow. They are depending on a week's wages or salary to buy the necessities of life. Despite all the talk we have had about the guarantee by the Government that if wages were stabilised and we did not have any breach of the wage agreement prices would be stabilised, prices have been soaring and continue to soar, and there does not seem to be a thing the Government can or want to do about it.

The Finance Bill is a great disappointment to those who felt that, if there was fresh thinking in the Government as to what should be done about running the country, some evidence of it should be in the Finance Bill. The evidence is not there. We have had, for instance, no effort at all to reduce the burden of income tax on the ordinary wage earner. The Minister has made a puny effort in regard to the people who are earning under £600 a year. Does he realise that £600 a year is about £12 a week? Who are working for £12 a week now except children? What is the idea of attempting to say there is an improvement in the income tax situation for low paid workers when the only people included are those who do not exist? If the Minister was really serious about it, surely he would have agreed that a low paid worker at present is a worker who is getting less than £20 a week. If he had set his sights on that, we might say some serious effort was being made by the Government to deal with this crushing burden of tax.

I recounted here the other evening —and I am sure you will agree, a Leas-Cheann Comhairle, that I am entitled to do it again—that at present there are certain jobs where because of the shortage of plant or shortage of space or for a dozen different reasons it is necessary to work overtime. There is a marked reluctance on the part of some workers to work overtime because as they ask me—and I am sure they have asked the Minister—why should they kill themselves working when for every £1 they earn the State takes 7s. or 35 new pence out of it before they get it, and if they happen to be living in a local authority house on a differential rent, the local authority takes 3s. more or 15 new pence?

Notice taken that 20 Members were not present; House counted and 20 Members being present,

Mr. Tully

I was explaining the reluctance on the part of many people to work overtime in this country. It is not because they do not want the money but because they resent having to pay the State 7s or 35 new pence in income tax from their overtime and also 3s or 15 new pence to the local authority in rent. The result is that the £1 for overtime which they worked so hard to earn becomes 10s, 50 new pence, or less. No effort whatever was made by the Minister to alleviate the position with regard to these people. If he was really serious about helping the lower paid worker this is one way in which they could be helped. It is interesting to note that in answer to a question I tabled on 8th June—Volume 254, No. 7 of the Official Report, columns 1165 and 1166 —the Minister for Finance gave me a reply which included the information that income tax, including surtax, collected in the year 1970-71 amounted to £116,641,000 and that the estimate for this year is around £140 million. Is it not true that most of that comes out of the pockets of people who work very hard? If an organisaion such as the Agricultural Wages Board fix a minimum rate of wages at around £16 a week, if the board agrees they require that minimum amount to live, how does the Minister explain that those workers, if they are married, have to pay tax on £4 per week of that and if they are single have to pay tax on £9 per week of it; in other words, that they have to pay £1 tax in one case and nearly £3 in the other? Is the Minister not aware that 15 years ago the tax-free allowance for ordinary workers was almost as high as it is today? Last year his predecessor gave a concession which was heralded with a blare of trumpets, the first £100 to be taxed at 4s 8d. This year the Minister takes it away. He says in his speech here that he is giving some of it back.

The facts are that last year the concession cost the State £6 million. This year that £6 million is being taken and all that is being given back is £1 million, measure it anyway you like. In addition to that, the only concession given to both married and single people is £25 extra at 5s 3d in the £1, that is, about £6 a year. Does the Minister consider that people who were entitled to earn £6 or £7 per week tax free as single people and £10 to £12 as married people 15 years ago, should still pay tax on the same amount? Anything earned over that amount has to be taxed. The whole thing is ridiculous, and no Minister for Finance has ever faced up to the fact that it is unfair to take from workers what they need to live. That is being done and it cannot be denied.

This year a new arrangement is introduced, and the Minister skates around it in his White Paper and indeed, in the Finance Bill. It is a provision for taxing subcontractors or "lumpers" in respect of which there was a very long debate in this House. For those who do not know, "lumpers" are the people who go on a building site, take a job on task, one man being leader of the gang and the others working as part of the gang. Whether this has been frowned on by the trade unions, as it has by some trade unions, it has undoubtedly, in my opinion, reduced housing costs, because they put a set price on a job and perhaps work long hours in order to earn the money. They were not paying tax and, in many cases, no cards were being stamped. for them. This was the argument made by the Minister when he was introducing the idea that these people should be taxed. He taxed them to the extent of 35p out of every £1, the onus being put on the person who was paying them to deduct that from their wages.

When that provision was going through the House there was no reference to anybody except those working on a building site. What has happened? When 5th April came everybody who could be counted a contractor by any stretch of the imagination was included: people who have been working with local authorities, some of them with tractors, some of them with lorries, perhaps two or three of them raising stones or material of some kind for a local authority, some of them collecting refuse or cutting grass. All of these people came under the "lumpers" section of the Finance Bill, according to the Department of Finance.

Then the idea of getting exemption arose. It was said that all they need do was apply. The income tax authorities have refused to exempt more than half the people who have applied for contractors' certificates on the ground that they have not got a set headquarters. I do not know whether they would need headed notepaper. If a man has been working or intends to work with a group on this sort of work he is either entitled to a tax-free allowance as a sub-contractor or he is not. If the Minister and the House say that all he need do is apply, then genuine applicants should get exemption, but they have been refused.

I do not know whether this is muddled thinking on the part of the Department and the Minister or on the part of the income tax authorities, but somebody has slipped up. I do not know whether the Minister is aware of this or not, but throughout the length and breadth of this country building sites have been idle and some of them are still idle, because these men are not prepared to work with a contractor on the chance of having a drawback at the end of the month of more than one-third of their wages which, according to the Department of Finance, must be stopped under the present legislation.

The Minister is a sensible man and he should give instructions to his Department, first, that those engaged in refuse collection do not come under the lumpers regulation; secondly, that people who are engaged, under contract, in cleansing around towns and villages, do not come under it; and, thirdly, that only those employed on a building site were originally intended to be included under the Act passed by this House; that those who apply for a certificate as sub-contractors should get it, and that there should not be this fiddling around by officials maybe making somebody happy that they are going into great detail to ensure that nobody escapes the net. If this is done I am quite sure the Minister will find it will relieve a great deal of tension. It is bad enough for these workers to have to pay the money but it is worse when it is made impossible for them to work.

Whether we agree with the system they work or not, it exists, and now that they have agreed to mend their ways and pay the taxes due by them, things should not be made more difficult for them. I cannot understand why the people to whom I refer are told they cannot get a tax-free certificate as sub-contractors because they have not got a set address, a set headquarters. Originally it was agreed that the provision would apply to people doing jobs in contract groups. Those are the people who are applying. The sooner the matter gets the attention it requires, the better it will be for every body concerned.

I mentioned the EEC a moment ago. Is the Minister aware that certain organisations dealing with the issuing of assistance to small industries in this country have been told that it is Government policy not to encourage the continuance of small industries? Is it Government policy to do this? Was this instruction given by the State? Were officials told to tell applicants for grants that while their cases were being considered it was not Government policy, because of impending EEC admission, to continue to support or assist them in any way to continue in business? A few weeks ago I mentioned an industry employing 20 or 30 men in a small town. This is as important to them as it is to an industry employing five times that number in Dublin city or elsewhere.

An Leas-Cheann Comhairle

The Deputy will appreciate that on the Finance Bill we are confined to taxation in the Bill and its effects.

Mr. Tully

That is what I am talking about. Does the Chair want me to read out the section of the Bill which refers to what I have just said?

An Leas-Cheann Comhairle

What the Chair is asking is that Deputies would keep to the provisions in the Bill and not to engage in as wide a discussion as there would be in a Budget debate or a debate on the economy.

Mr. Tully

I have always made it a point in this House to keep within the rules of order when matters like this are being discussed. With all due respect to you, if I widened the debate half as much as the previous speaker did, I would expect to be pulled up. What I have just been talking about is within the rules of order and if the Chair wishes I will quote him the reference.

The Minister referred to the changes with regard to gifts. He seems to think that because he is exempting the first £5,000 for a relative, and £1,000 for a person who is not a relative, everything is all right and that this will not cause very much trouble. Does he not understand that at present—and mind you some people who have a little bit of money have been in the habit of trying to provide a house for their children when they are getting married—even a small house is worth more than £5,000? I wonder where this fits into his reference to the fact that it should not affect anybody since the first £5,000 is not included. He has gone a little bit off beam because he should know better than anybody else, because of his profession, that costs in this regard have been running very high. It is most unfair to try to tax a present of a house which a father or mother may make to a son or daughter getting married which is, in effect, what the Minister is doing here.

There is also the question of the rate of interest which must be paid if somebody is appealing against a tax demand. The interest is payable pending the appeal being held. Surely this is a ridiculous situation because if a person appeals he feels that he is in the right. I suppose the intention is to punish those who are deliberately trying to avoid paying tax which they should pay. If the appeal fails and the person decides to go to court the Minister says he must pay the tax first. He does not seem to realise that in many cases this would mean that people who are asked to pay tax which they feel is unfair, may have to sell their property, even their business. Last year there was a case of somebody who had started a business nine years previously and who had paid a small amount of tax conscientiously each year. He got into the hands of a person who agreed to fill up a tax form for him with the result that he was taxed to the tune of several hundred pounds. Only after a very long investigation was it discovered that the form was filled in in such a way that the impression was given that the turnover of the small business was the same since it was started nine years ago as it was last year, something over £5,000. If that person had to comply with what is laid down here, when the first appeal was turned down he would have had to sell his little shop because he could not raise the money in any other way. Yet the Minister feels no hardship is caused by having this included. I suggest he should have another look at this.

The Minister said that general taxation was being raised this year by about 12 per cent only. I think he is wrong. I think it is proposed to raise general taxation by almost 20 per cent. I should like the Minister to see if the figures he has got are correct. I should also like to point out that last year, because of increased wages, a tremendous amount of extra taxation came in while this year the suggestion is that it will go up from £116 million to £140 million. The national wage agreement which will operate for most people during the year, and for some people next year, on top of the public service agreement, will probably result in almost as much extra taxation being paid this year as was paid last year. I think the Minister's estimate is wrong. If he looks at it he will find that at the end of the year he will be able to do what he did last year. Instead of the deficit of £15 million or £16 million which the Taoiseach talked about in Cork early in January, there was a small surplus when the final figures were reached.

I should like to know why the Minister in his speech, and in his Bill, and in the White Paper, did not refer to 1st January, 1972. He has already warned us that he proposes to introduce a value-added tax. What is the situation in relation to the value-added tax? Will it be introduced or will it not? The Minister told us it would be introduced on 1st January, 1972, but no provision whatever has been made for a change in taxation in this Finance Bill nor was any reference made to it in the White Paper.

Dáil Éireann debate - Tuesday, 15 Jun 1971

Finance Bill, 1971: Second Stage

Dáil Éireann debate -
Tuesday, 15 Jun 1971