Dáil Éireann debate -
Thursday, 26 Jul 1973

Vol. 267 No. 12

Committee on Finance. - Finance Bill, 1973: Committee Stage.

SECTION 1.

Mr. Colley

I move amendment No. 1:

In subsection (2), page 7, line 23, to delete "or was" and "whether".

At this point, I wish to explain that somewhere in the course of transmission from my original draft to the version which was communicated to the office a word was omitted but I wish to make it clear that this was not due to any fault on the part of the office. However, as drafted originally by me, the amendment proposed to delete the word "before" in addition to "or was" and "whether", in other words, that the relevant portion of subsection (2) would read:

... on tax for the transmission of which an employer is liable on or after such date.

The intention behind this amendment is fairly clear. It is to ensure that there would not be applied retrospectively what, in effect, is a form of penal provision. I think it is now being recognised on all sides of the House as a sound principle that penal provisions of this kind should not be applied retrospectively. Because the amendment does not include the proposal to delete the word "before" it does not achieve what it was intended to achieve but if the Minister accepts the principle, I do not think we will have any problem in adjusting the wording.

Mr. R. Ryan

There is no disagreement in principle. This would apply from August, 1973, onwards and will not be retrospective. Of course, there could be interest already outstanding on payments due and payable. Obviously, the debts could be in existence before August but there is no question of the provision applying in respect of any previous outstanding amounts of interest.

Mr. T.J. Fitzpatrick

(Dublin Central): Evidently, this provides for the minimum interest charged on PAYE only but it does not apply to VAT. Is that correct?

Mr. R. Ryan

The position is that there is a similar penalty under last year's Act applicable to VAT. This is a penalty of £5. What is being done here is for the purpose of bringing the penalty clauses into line.

Mr. T.J. Fitzpatrick

(Dublin Central): Obviously, this minimum penalty clause of £5 will apply only to small businesses. A large manufacturer or any business in which there were a considerable number of employees would not be affected by it. The amount of money concerned must be small when the penalty is so minimal. I do not consider it fair that this charge should be introduced because it will be directed at a section of the community who find it difficult to make returns, for instance, small business people who have only three or four employees. A situation could arise at any time whereby such an employer would fall ill and would not be able to prepare accounts in relation to PAYE and to submit them on a given date. Although the amount is small, the principle is wrong because it will hit small business people directly. These people have to deal with VAT and this additional penalty could be quite substantial so far as some of them are concerned. We know it would be of no significance to a big concern.

Mr. Colley

I am not sure whether I understood the Minister to say earlier that he had no objection in principle to the amendment. Did he say that he is prepared to accept the amendment as suggestedly amended across the floor of the House?

Mr. R. Ryan

No. What I was saying was that Deputy Colley had made the point that there should not be a new penalty now applicable to old debts and we are in agreement there. I am saying that this minimum interest will not apply except in relation to money which is now owing. Whether that money was due in the month of August or the month of July or June, and so on, makes no difference if it is now owing. It is only a minimum interest provision. If there is money owing on the relevant date in August this minimum interest will become payable and it would not matter whether the tax due was a small or a large amount. If there was a large amount of arrears then the interest would be more than £5. If it is less than that, all that happens is that this £5 would be the minimum. The money would still be outstanding in August but the minimum interest provisions will only operate from August on.

Mr. Carter

Would the Minister give the House a very brief example of the circumstances in which this charge would operate? The Revenue Commissioners love this sort of legislation, of course. They want preference every time over the private individual and in this regard private rights are often lost sight of. Therefore, I should like the Minister to give a clear example or examples, as the case may be, of the circumstances in which this charge would be incurred.

Mr. R. Ryan

First of all, we should get everything into correct context. PAYE money is money deducted by an employer from an employee's pay packet to which the employer has no entitlement whatsoever. It is not the employer's money; it is the employee's money in the first instance and the employer, having deducted it, has simply to pass it over to the State. That is a clear obligation and employers should not be encouraged to or assisted in holding on to that money which is not theirs, which is the employee's contribution by way of tax.

The position is that the 1967 Act imposed an interest charge of 1 per cent per month on employers who failed to remit PAYE deductions within the time limit specified in the regulations. The time limit is nine days from the end of every income tax month. An income tax month is from the 6th of the month to the 5th of the following month, so that employers are required to pay it in any month by the 14th of that month. In the case of many employers who make small deductions from employees and delay payment, the present PAYE provisions give rise to numerous small interest charges. A minimum interest charge of £5 is, therefore, necessary to secure effective and prompt payment of small PAYE liabilities.

As I mentioned earlier, this is doing no more than applying to PAYE the obligation and the same interest provisions as already apply in respect of persons who are under an obligation to collect value-added tax.

Mr. Colley

As a former Minister for Finance, basically, I go along with the thinking the Minister is expressing although he and I, probably, are the only two Deputies who do agree with this because we realise the importance of what is involved. Nevertheless, I have some reservations on the basis of what appears to be the application of retrospective penalty. I know there is always room for argument on what is retrospection and what is not but it seems to me from what the Minister said that if money is owing on, say, 1st August, if that is the appropriate date, no matter how far back it is due, whether it is due from just a month or from a year, under this section this, in effect, penal provision will apply. That seems to me to be applying retrospectively the penalty which is involved here.

I had thought that what the Minister was conveying was that this penalty would apply only to money accruing due after the appropriate date in August but from what he said subsequently it is clear that that is not so. Would the Minister not agree, then, that in effect what the section is doing is applying the penalty retrospectively in the sense that it is applying it to money which may be due as of now and remains outstanding at whatever is the appropriate date in August and does he not think that the correct approach would be to provide that this penalty would apply to moneys which accrue due after the appointed day in August, the date of the commencement of the operation of the Act?

Mr. R. Ryan

As it stands, sub-section (2) says that, on the passing of the Act, the minimum charge will apply to any interest chargeable in respect of any month or part of a month commencing after the passing of the Act, regardless of the period in respect of which the tax on which the interest is chargeable was due. If I may give an example, the Finance Bill has to be law by 4th August. The £5 minimum interest charge will apply in respect of interest chargeable for any income tax month or part of a month commencing on or after the 6th August, 1973. In other words, the first interest to come within the scope of the new provision is interest for August, 1973, but interest in August, 1973, can arise in respect of PAYE tax due to be remitted (a) on 14th August, 1973, and (b) tax due to be remitted for earlier months but in respect of which interest for the month of August now arises and a £5 minimum charge would arise in both these cases. That, I think, is the fair and proper position.

Mr. T.J. Fitzpatrick

(Dublin Central): In effect what is happening is that PAYE deducted during July is subject to this tax.

Mr. R. Ryan

Not if it is paid promptly.

Mr. T.J. Fitzpatrick

(Dublin Central): PAYE deducted during July cannot be paid now.

Mr. R. Ryan

No, but if it is paid by the due date it will not carry penalties; it will not carry interest. It is only if it is not paid by the appropriate date that it would carry interest and that has always been so. We are not changing that position at all.

Mr. T.J. Fitzpatrick

(Dublin Central): But it is retrospective, as Deputy Colley has said.

Mr. R. Ryan

No. The interest would only arise in August if the money were not paid within the appropriate time.

Ruairí Brugha

Could the Minister clarify a point for me? Section 1 (2) of the copy of the Bill I have here says :

.... interest chargeable for any month commencing on or after the date of the passing of this Act...

The Minister spoke of 4th August. If this Bill is passed during the next couple of days could it not apply to the month of July?

Mr. R. Ryan

No.

Ruairí Brugha

The section says "on or after the passing of the Act."

Mr. R. Ryan

No. Interest would not arise until after 14th August. If payment is made before 14th August then interest does not arise.

Mr. Esmonde

The operative word is "chargeable".

Ruairí Brugha

The section says "any month commencing on or after the date of the passing of the Act".

Mr. Esmonde

But it must be chargeable in the first instance.

Ruairí Brugha

It could be chargeable in respect of July tax.

Mr. R. Ryan

Interest in respect of July tax only begins to run if the tax is not paid within the appropriate period. By that time we have reached 14th August.

Ruairí Brugha

Yes, I accept that.

Mr. Lemass

As I understood him, Deputy Fitzpatrick expressed concern for the small trader. I imagine he has in mind the elderly person with the confectionery shop and one assistant. It could be the case that as a result of some problems or difficulties such a small trader would find himself or herself liable to an interest penalty of, say, £1. It is between £1 and £5 for the small trader that I have in mind, especially in the old Dublin area, whose trade has been built up over the years. The difference between that, what would normally be charged against him, and what is provided here can be very serious to the small trader. That is the point Deputy Fitzpatrick was making. I do not think the Minister has answered it; perhaps he would say something more on it.

Mr. R. Ryan

I cannot say any more. The arguments that have been advanced can be made with as much validity against the £5 minimum interest applicable to VAT. It already exists in relation to VAT. We must come back to the essence of all this: it is not the trader's money or the employer's money; it is the State's money and this money is already taken from the employee; it does not come out of the employer's pocket. It is deducted when the employee gets the pay packet. All the employer has to do is transmit it to the Revenue Commissioners. Even if there are difficulties about making calculations, these are supposed to be made when the money is deducted. It is only a question of sending on the money. The Revenue Commissioners never penalise anybody if there is some discrepancy and if there is some discrepancy and if there is any overpayment they make a refund. This is a provision which Deputy Colley accepts as necessary.

Mr. Colley

Reluctantly.

Mr. R. Ryan

I know, and I as Minister and a human being reluctantly propose it. The whole system of PAYE and of VAT would break down if there was careless remission of money due to the State because both traders charging VAT and employers deducting from pay packets are holding money for the State and are not entitled to retain it. There can be no question of undue hardship or taking money out of the trader's pocket. Particularly in relation to PAYE it is the employees' money and the employer is obliged to remit it. The penalty does not arise if it is paid within the appropriate time which is up to the 14th of the following month. This obligation has always been there.

Mr. Lemass

The Minister is saying that the mechanics for the operation of this section will be tightened up and it will be made simpler for the civil servants to administer. I am concerned about the people earning an income so small that it will not be liable for income tax and who get in an assistant occasionally because of age or for some other reason and who, at some stage as a result of sickness or ill-health, become liable to a fine of 50p which now becomes 500p. I am thinking of the human aspect as distinct from the mechanics of making it simpler to collect.

Mr. C. Murphy

If I understand the position correctly money not paid in by 14th August, assuming the Bill becomes law, will be liable to this penalty. At this stage, 26th July, money which should have been paid in respect of June is now overdue. Would it also be subject to this penalty?

Mr. R. Ryan

No, the minimum penalty will not arise unless and until there is money overdue in August.

Mr. C. Murphy

Money overdue for June now will be more overdue after 14th August.

Mr. R. Ryan

We would hope that payment is made in the meantime. That is the object—to collect the money.

Mr. C. Murphy

But it is back dated?

Mr. R. Ryan

No. It is not back dated. It will only apply if the money is outstanding after the Bill is passed in August. All this is for the relief of the general taxpayer because if the Revenue Commissioners have to spend, as they often had, enormous sums collecting multitudinous amounts, the cost is charged against all taxpayers. This is simply an incentive to ensure payments are made punctually and, if they are, no difficulty arises. While I appreciate the arguments from the opposite side I did not hear anybody opposite when on this side of the House advance one of these arguments last year when similar provisions were made in regard to VAT.

Mr. C. Murphy

Some of us were not here.

Mr. R. Ryan

I accept that.

Mr. C. Murphy

Payments for June now outstanding if still outstanding after 4th August would be liable?

Mr. R. Ryan

Up to 14th August; only in respect of interest.

Mr. C. Murphy

If this Bill becomes law on 4th August?

Mr. R. Ryan

The liability would not arise until 14th August. They still have quite some time to pay and I hope the Deputy will bring this clause to their attention.

Mr. C. Murphy

The liability will only arise on 14th August—is that correct — for the month of July, say? When the Bill becomes law I think 14th August is the final date by which PAYE payments could be made for July?

Mr. R. Ryan

That is right.

Mr. C. Murphy

What about PAYE payments now overdue for June? They will be overdue when this Bill becomes law, possibly on 4th August, and so these would be liable on 4th August.

Mr. R. Ryan

These overdue amounts are chargeable with interest at the moment and the longer they are unpaid the more interest accumulates. The interest could in many cases exceed £5 by the time it is paid. All this provision says is that if the interest is below £5 when the money is paid and it is paid after the coming into operation of this Bill, the minimum clause will apply.

Mr. C. Murphy

Then very small PAYE remittances due for June will be subject to this penalty when the Bill is passed?

Mr. R. Ryan

Yes. It follows the VAT formula.

Ruairí Brugha

I do not accept that. It says: "... interest chargeable for any month commencing on or after the date of the passing of this Act ..." Interest chargeable for the month of June is a month before the Act is passed. I do not see how you could charge the penalty.

Mr. R. Ryan

I do not know what I can do to further clarify the matter for Deputies. The position is that the minimum clause will not apply until interest arises in the course of August. Interest on any money in June or July will not be affected until August. Once the Bill is passed and money remains outstanding interest is then arising. It is in respect of August onwards that the minimum interest of £5 becomes chargeable.

Mr. Colley

I think the Minister agrees with me that this penalty provision is necessary but we are both reluctant to apply it. We accept that it is necessary. The thing that is of main concern to most people is the possibility that this penal charge could become available in circumstances where for the average person it would be a grave hardship. Is there any provision in the general law relating to the powers of the Revenue Commissioners which would enable them to exercise some discretion in cases in which they believe there is a genuine hardship occurring? On the face of it, the wording of this does not allow such discretion but I suspect that they may have one. The Members of this House would be reassured on this matter if they felt that the Revenue Commissioners did have some discretion in this regard.

Mr. R. Ryan

Within the ordinary powers of the Revenue Commissioners they may not apply clauses of this kind where there are cases of genuine hardship. However, as the House appreciates, the Revenue Commissioners must apply the law. If they, in any case, consider circumstances are such as to create undue hardship and exercise a discretion in favour of the person so affected, they have to report the relief given by them to the Comptroller and Auditor General who has the right to say whether the Revenue Commissioners did right or wrong. The power is there and the Revenue Commissioners are not unmindful of the genuine difficulties and genuine hardship cases which can arise. It is better to provide the law in this way so that there will be no loophole and to allow this discretion to be exercised when genuine cases of hardship arise which can be justified.

Amendment, by leave, withdrawn.

Section agreed to.

SECTION 2.

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

Mr. R. Ryan

This is the section which gives effect to the budget proposal to give some tax relief to married women.

Question put and agreed to.

SECTION 3.

Question proposed: "That section 3 stand part of the Bill."

Mr. Colley

As indicated on our list of amendments, we are opposed to this section. However, before I go into more detail in this regard there are two points I should like to raise. On Second Stage I referred to the wording at the end of this section, on page 9, lines 3, 4 and 5. Perhaps the Minister could clarify the points I raised in that regard before I proceed further so that we will know what we are talking about.

The other point I should like to raise is that on the radio this morning there was an interview with an inspector of taxes, he may have been a chief inspector of taxes, concerning the administration arrangements made by the Revenue Commissioners in pursuance of this section, that is, of the operation of this section, the clawback arrangements regarding increases in children's allowances. I do not object to a competent official explaining, and this official did explain clearly, the circumstances in which certain operations of Government Departments are carried out. This sometimes can be very useful to the public.

However, I do object, and object very strenuously, to this happening before this House has even considered the section. To have an official explain, however clearly or admirably, on the radio the administration arrangements in relation to a section of a Bill which has not even been considered in this House, is, I submit, at the very least undesirable and might well be a contempt of this House. I think it is appropriate that we should record our objection to this. I hope the Minister agrees with the view I am expressing and will ensure that this kind of happening will not occur again.

Mr. R. Ryan

Firstly, this provision is already law by reason of the Financial Resolution passed on the day of the budget. I consider it most appropriate that there should be available to the public somebody to explain the operation of the decision taken by this House. If there is any amendment made in the course of this Bill, or subsequently, I consider it necessary that the people should be advised of any change. When a Financial Resolution of the House gives the authority to do something, I think it is most desirable that the procedure should be explained to the public.

I am sorry to hear Deputy Colley suggest that it is wrong that this explanation should be given to the public. If the gentlemen in the media consider that a matter is of such interest as to require an explanation to the public and the House has already taken a decision on the matter, I think it is very proper that the people should get the necessary clarification of any difficulties or doubts which may exist in their mind.

Mr. Colley

The Minister will agree that the Financial Resolution passed by this House will terminate very shortly and that the question of whether these arrangements are to apply or not depends on whether section 3 of the Bill, as it stands, becomes law having been passed by this House and the Seanad. I do not know whether the Minister heard the interview or not but if he did hear it he would know that the references that were made were not to any decision of this House but to section 3 of the Bill which we are about to discuss.

I think that the Minister, if he reflects on this a little, will agree that it is inappropriate that this should happen and that there should be an automatic assumption that this House, and the Seanad, will, without any amendments, adopt section 3 and that that assumption should be the basis for a public interview by a civil servant. On the basis of this it appears to me very unsatisfactory. I am surprised that the Minister does not take the same view as I do. It is not enough to say that we have passed a resolution. That, as the Minister knows, is a conditional situation merely holding the position until the House discusses this Bill which it is now doing. The question of whether section 3, which was referred to in the interview, will be the law under which the income tax authorities will have to operate depends on the outcome of the debate here and in the Seanad. The principle is clear and the Minister should maintain the authority of both Houses of the Oireachtas in this regard.

Mr. R. Ryan

I should like to draw Deputy Colley's attention to Financial Resolution No. 1 passed on the day of the budget, paragraph 2 of which provides:

It is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

Mr. O'Malley

For four months.

Mr. R. Ryan

The effect of that is to make this operable from 6th April last, even prior to the date of the budget, and, in those circumstances, it is not only desirable, but, indeed, necessary that the machinery be put into motion to give it effect. If the Dáil on this or any other financial matter should have a change of mind, all that would be required would be the issue of new certificates giving credit in respect of any excessive deduction made, but nothing has happened here which is exceptional or which anticipated the decisions of the Dáil, as it were, because the Dáil had already made its decision on 16th May when it passed the Financial Resolution and had confirmed the authority for doing this. In a case of this kind, or even in any other matter, it is, I think, highly desirable that people should get the explanation at the earliest possible date and, if the Deputy reflects, he will probably recall occasions on which guidance has been given to people in the past before all Stages of the Finance Bill were discharged through both Houses.

Mr. Colley

I can recall many occasions when preparations were made by the Revenue Commissioners, such as the preparation of certificates for tax free deductions, and so on, and I think it is correct that this should be done, but I do not think it is correct that they should operate them and issue notices such as this, which has been handed to me, or that they should appear on radio and spell out what will be done under section 3, which this House had not considered. The Minister, as I have already said, is correct in referring to the Financial Resolution, but I am also correct in saying that that is provisional; it is designed to lapse and the law, if it is to be applied, is to be applied under section 3, if we decide to enact section 3. It may seem to the Minister that this is unnecessary carping, but I think it is important that both sides should be careful in this matter because, if we are not, we will end up without any authority in effect. If we do not accept the possibility that the Bills before the House can be amended, then we are striking at the root of the authority we are supposed to have and even at the very basis of democracy. I have made my protest. I do not want to spend the whole day on this.

An Ceann Comhairle

I was about to suggest we might get on to discussing the subject matter of section 3.

Mr. R. Ryan

In reply to Deputy Colley first, subsection (4) is the sub-section which ensures that a surtax payer will not be refunding the income tax allowances twice. He will already have refunded through the income tax, the children's allowances received, if he is liable for that refund; but, unless this subsection was put in, it would mean that a person would be paying back more than he received and we are making it perfectly clear that nobody will pay back more than he receives. That is the only purpose of the clause. It does not work to the advantage of a sur-tax payer. It simply means he will not repay twice.

Mr. Colley

Does the Minister recall that I said I was unable to find section 532 (1) (a) of the 1967 Act?

Mr. R. Ryan

I do. I think the Deputy's copy must not be up to date.

Mr. Lemass

I am very glad Deputy Colley opposes this section and I hope he will oppose it all the way through. What the section provides—it was presented differently on the radio this morning—is that, where a husband decides that his wife can collect the children's allowances, she will get the increase in those allowances but the husband will pay for that increase. The Minister in his budget statement said that the result of this adjustment is that it will yield £1 million in the current financial year and £2 million in a full year. The situation seems to be that the Minister is claiming credit for increasing children's allowances and, at the same time, making a profit on the deal.

Mr. R. Ryan

The Minister is not making a profit.

Mr. Lemass

According to the radio programme this morning, some 40,000 people will immediately find themselves worse off.

Mr. R. Ryan

They will not.

Mr. Lemass

And 15,000 people will just about transfer the husband's income to the wife.

Mr. R. Ryan

Nobody will be worse off.

Mr. Lemass

The Minister in his budget statement said:

The allowances under the income tax for each such child will be reduced in the case of taxpayers with incomes exceeding £2,500. This will yield £1 million in the current financial year and £2 million in a full year.

That suggests to me that the Minister expects to make a profit of £2 million as a result of giving increased children's allowances to people earning in excess of £2,500 a year.

Mr. R. Ryan

It means the money will be refunded through the income tax system. It will be no addition to revenue.

Mr. Lemass

Where the wife collects the children's allowances the Minister is making a law under which portion of the husband's income will be transferred to the wife. Is that, in fact, what is happening?

Mr. R. Ryan

I do not presume to rearrange family finances. It all depends on who receives the children's allowances. Under the law it is the father who is entitled to receive them, but he may allocate them to the wife.

Mr. Lemass

I am aware of that but if a husband is in the category in which he earns £2,500 a year, or more, he will collect the children's allowances and pay them back in income tax under this. There is no benefit whatever for anyone with an income in excess of £2,500 a year.

Mr. R. Ryan

There is a benefit. He will be better off by about 30p per child.

Mr. Lemass

Then how does the Minister get the yield?

Mr. R. Ryan

We will get back the balance of the increase.

Mr. Lemass

It does not make sense to me.

Mr. Tunney

This is one section in which I have a continuing interest and I again urge on the Minister that what he is doing is not right. The Minister speaking here on 17th July, as reported, at column 1074 of the Official Report, referred to people with an income in excess of £2,500 as being in the upper income bracket. He charged me with hypocrisy because I pleaded that people in that income bracket are poor, however strange that may seem, or however strange it may sound. Having met all their commitments, people in that income bracket are not as free to visit places of entertainment, or to take the same type of holiday, as some people in lower income brackets, who get supports of one kind or another, and whose standard of living is not nearly as expensive as that of the group to which I refer.

The Minister indicated his unpreparedness to show any sympathy for people with a net income of £2,600. Last night, speaking about the Attorney General who would get a sum of £7,312 in accordance with the Devlin Report, the Minister made a case for giving an additional £600 per annum to that gentleman. I do not want to say anything which would bring into this debate the character which attended yesterday's debate, but I suggest that the case I am making is a reasonable one. I am quoting the Minister's respective statements.

The one great thing about money is that it is a constant factor. Money is as necessary to one type as to the other. Money does not change. People in one category or one profession are no different from others. Politicians, whether they are Ministers, or Parliamentary Secretaries, or Deputies, legal people, whether they are Attorneys General or judges are no different from other people. The Minister should show consideration for people in this city. I understand there are 40,000 families in the country who are endeavouring to pay their way, who are practising industry and thrift, who are not in receipt of any social welfare assistance, who are not a liability on society in any way and are being encouraged by the Minister to put themselves into debt. If they do that, they can get consideration for the interest they pay to the bank which will reduce their gross income below £3,500 and thereby qualify them for the additional £70. If the Minister makes the case that the Attorney General cannot live on £7,312 and should get an additional £600 per annum, I cannot see how he can also make the point that somebody who has a net income of £2,600 should be denied children's allowance.

Mr. T.J. Fitzpatrick

(Dublin Central): I agree with Deputy Tunney. We must be realistic about money values today. Nobody can tell me that a man with an income of £2,500 is a wealthy man. The Minister was wrong in deciding on the figure of £2,500. We are dealing here with the type of people who are purchasing their own houses. The repayments of a man in this income bracket who is purchasing his own house can run from £8 to £12 per week. We have created a very unfair distinction. A man with four children earning £2,400 per year, living in a municipal house or a local authority house, will qualify for the additional children's allowance, while a man with £2,600 who is trying to purchase his own house, and who is paying substantial rent every week, is not entitled to children's allowances, even if he has ten children.

As I said in other debates, if the figure was in the region of £3,500 I would not criticise it but I do criticise the figure mentioned in the Bill. I know a substantial number of people in Dublin who are in the income bracket of £2,500 per year and they are barely making ends meet. There are people in this House who were living on £2,500 per year for the past number of years and it was quite obvious that they were in dire financial straits. The Minister is depriving this section of the community of this additional benefit which he is giving in the budget. He is also putting additional tax on every other section for footwear, light, heat and electricity. This section of the community are worse off after the budget then they were before it was introduced.

A man with a wage of £2,550 with eight children is not entitled to children's allowances. If I were that employee, I would go to my employer and ask him to reduce my salary by about £80. Why should I, for the sake of £50 a year, or so, sacrifice the benefit I would get if my salary were reduced by £50 or £60 a year? In my opinion an employee would be mad if he did not ask his employer to reduce his salary. That is a bad situation. Whether they like it or not, the Revenue Commissioners will come up against this difficulty when a man feels he is losing a considerable amount of money. This is an anomaly and I see difficulties in regard to returns of salaries and wages where the situation is as close as that.

You would not need an awful lot of commonsense to know what benefits you would get by reducing your salary so that you would qualify for the additional money you would get per week if you had seven or eight children.

Deputy Colley is right in opposing this section. The figure mentioned is entirely inadequate in today's situation. We are approaching a national wage agreement. There are a considerable number of people who earn more than £2,500 at present and when the agreement has been negotiated it will put thousands more outside the limit for children's allowances.

The Minister should reconsider the figure. It is certainly too low in the light of today's costs. It is impossible for a man with seven or eight children earning £2,600, to meet his commitments. We know how the cost of living has spiralled over the past couple of months. We can see from the Central Bank report issued yesterday that inflation is rampant. The figure of £2,500 will be completely unrealistic at the end of this year when the national pay agreement has been negotiated.

Mr. Colley

When I was considering this section, I gave serious consideration to the drafting of an amendment and ultimately decided that it was not possible to do so and that the only way for us to deal with this matter was to oppose this section. It was not possible to do so because the whole concept behind this section is such that no amendment of it would be effective in my view in getting a satisfactory result. What one has to do is simply to scrap the section and start again to get a satisfactory result.

Deputies on this side of the House have indicated a number of objections to the section. I have other objections but my basic objection to this section is that here we have a section which is dealing with the necessary income tax arrangements arising out of the children's allowances system and the increases in children's allowances introduced in the budget, and yet the section is so designed as to ensure that above the given limit of a statutory income of

£2,500, and it does not matter for this purpose what the level is, but above a given level, no account is taken of the number of children in a family. In other words, at the level taken here if the statutory income of a man is £2,400 and he has one child, then he will benefit but if his statutory income is £2,600 and he has ten children, then under this section the clawback arrangement comes into operation. It is clear to everybody that a man with ten children and £2,600 a year is far worse off than a man with one child and £2,400. The whole basis of the children's allowances scheme is the recognition of this fact and the effort by the State in some way to take steps to go towards redressing this imbalance. That is the whole basis of the children's allowances scheme and yet that fundamental principle is swept aside in the thinking behind this section. That is my most fundamental objection to this section and to the thinking behind it.

In addition, I feel that the administrative difficulties being created are enormous. It is unjust and will, in the course of time, lead to great trouble and difficulty to have a situation in which people will automatically have increased income tax charged whether they have applied for the additional children's allowances or not. There are cases known to many Deputies of people who, for one reason or another, have not applied for children's allowances. As I understand the position, whether they apply for the increased children's allowances or not, they will be subjected to the increased deduction of tax. That seems to me to be wrong in principle, and in practice it will be a very difficult situation.

There is another practical difficulty arising out of this. I cannot say I blame the Minister for this but we should not close our eyes to the problems that will arise from it. In the vast majority of families it is the wife who receives the children's allowances, whereas it is the husband who pays the income tax by deduction from his wages or salary. The effect here is that the husband is having substantially increased tax applied to his earnings while the wife is having her income increased. I am not blaming the Minister for this but let us not blind ourselves to the consequences. There will be a great deal of trouble in a great many homes because of the practical operation of this. Too many people will not be aware of the fact that the additional income tax is being charged to them because of this.

I am not sure what the correct answer to this one is but it does seem to me that a completely different approach to the whole matter would be far more satisfactory, an approach which would apply, whatever limit was decided on, on the basis of, say, a family with one child and then that that statutory limit ought to increase by a fixed amount in respect of each qualified child thereafter so that one is making some effort to recognise the fundamental fact which is inherent in any scheme of children's allowances, that a man with a large family is considerably worse off than a man with a small family, if both have the same income.

This is my fundamental objection to the section. I believe the whole concept is wrong and flies in the face of what is required when one is dealing with a children's allowances scheme. It is a misconception and it will produce a number of very grave problems. The whole approach involved in this arises out of certain preelection promises which were not properly thought out and which, in the course of the current financial year, will produce many problems which I suspect the Minister never anticipated and would not have wanted to occur. They will occur. I tried to consider the drafting of an amendment to this section that might cure the defects and I did not find it possible to do so. I do not think there is any possible way of doing it except by scrapping the section and starting again with a completely different concept, one which relates the statutory income, which operates as the bar, to a sliding scale depending on the number of children in the family.

Mr. O'Brien

There has been much criticism from the other side of the House regarding the £2,500 limit. This limit can be regarded as being very realistic when one considers the election promises that were made by Fianna Fáil when they indicated that they favoured a figure of £32 a week as the limit.

Mr. C. Murphy

On a point of information, which section are we on?

An Leas-Cheann Comhairle

Section 3.

Mr. O'Brien

According to their plan, 140,000 families would not receive anything.

Mr. C. Murphy

To which sub-section is the Deputy referring?

An Leas-Cheann Comhairle

The Deputy knows that he should not interrupt Deputy O'Brien at this stage. We are dealing with section 3 as a section.

Mr. Tunney

Deputy O'Brien is saying only what the Minister told him to say.

Mr. O'Brien

I made these points when I spoke on the budget debate and I make them now again after being subjected to the drivel of the last ten minutes from the other side of the House. Deputy Tunney's heart was bleeding for the 40,000 families who will get no benefit but he showed no concern for the 140,000 families who, under the Fianna Fáil scheme, would not qualify for any benefit.

Mr. Tunney

What scheme?

Mr. O'Brien

The scheme that was outlined prior to the general election.

Mr. Tunney

Has the Deputy a copy of it?

Mr. O'Brien

Obviously, you were not aware of the scheme issued by your party.

Mr. Colley

The Minister made reference to this scheme earlier in the debate and it was clear that he did not know what he was talking about either.

Mr. R. Ryan

I wonder whether Deputy Colley is familiar with it.

Mr. Colley

Yes, very familiar with it.

Mr. O'Brien

The point is that under your scheme the level of income was to be much lower than ours—£32 per week as against our £2,500 per annum. Deputy Fitzpatrick spoke of people who might be living in a municipal house and earning £2,400 per year, while somebody across the road from him who might be earning £2,600 and paying, perhaps, from £8 to £12 per week mortgage repayments, would be disqualified from benefit. This is wrong.

Mr. T.J. Fitzpatrick

(Dublin Central): Is it?

Mr. O'Brien

Yes, because the interest on his mortgage would be taken into consideration. This would be more than £100 and, consequently, would put him in the less than £2,500 bracket.

Mr. T.J. Fitzpatrick

(Dublin Central): I know about that. I am talking of net earnings.

Mr. O'Brien

If so, you made a very bad point. You referred to a person living in a municipal house and earning £2,400 a year.

An Leas-Cheann Comhairle

If Deputies would address their remarks to the Chair perhaps we might avoid introducing personalities into the debate.

Mr. O'Brien

Deputy Fitzpatrick was wrong in that and tried to cloud the whole issue. There was no word from Fianna Fáil with regard to the raising of the upper age limit to 18 years. This change has brought a considerable number of people, students and apprentices, within the ambit of the benefits for the first time. This is a step in the right direction.

Mr. Crowley

Fine Gael can be very touchy.

Mr. O'Brien

I do not understand why Fianna Fáil should complain about the £2,500 limit because when mortgages or overdrafts are taken into account the person earning up to £3,000 a year might qualify for the allowance. If that is their idea of poverty, they are living in cloud cuckooland.

Mr. G. Fitzgerald

Where is that?

Mr. O'Brien

Deputy Colley said he wished to draft an amendment but could not do so. Of course he could not do so because he realises this is a good section.

Mr. Colley

That was not the reason I gave.

Mr. O'Brien

Fianna Fáil are opposing this measure merely for the sake of opposition and bad opposition it is. I support the measure which I consider to be a major step in the right direction. This will be realised, too, by those people to whom the benefits will accrue.

Mr. Tunney

As I mentioned earlier, I had been hoping that this debate would be devoid of any of the apparent bitterness which was present in the House yesterday. However, I cannot understand how the last speaker can attribute the term "drivel" to what I have been saying. He refers to a policy which he claims was announced by Fianna Fáil some time this year in relation to children's allowances.

Mr. O'Brien

It was a deathbed repentance effort prior to the election.

An Leas-Cheann Comhairle

Deputy Tunney.

Mr. Tunney

I suggest that even if the Deputy is to regard what I have being saying as drivel, it is preferable to a falsehood. Deputy O'Brien cannot produce any document as having emanated from this side of the House——

Mr. O'Brien

How right the Deputy is.

Mr. Tunney

——which would substantiate what he said. Unlike Deputy O'Brien, when I rise to speak here I do not endeavour to interpret what is in the mind of any of my colleagues on this side of the House, nor do I rise at any time to act as a mouthpiece for anybody else here.

Mr. O'Brien

I spoke on this issue in the budget debate and I am speaking on it again today. I am not a mouthpiece for anybody. That is a falsehood.

An Leas-Cheann Comhairle

The Deputy must withdraw that statement.

Mr. O'Brien

I withdraw it.

Mr. Tunney

I did not say that Deputy O'Brien was acting as a mouthpiece for anybody else. However, if my saying so might have some effect on the conscience of the Deputy, he is welcome to wear the cap.

Mr. O'Brien

I have a conscience.

Mr. Tunney

I was asking the Deputy whether he can produce here statements made by or on behalf of this party which would indicate the authenticity of the statements he made in regard to children's allowances. I am a member of this party but I have not seen or heard any indications of any such statements, but if any such statement had been produced I would have opposed it.

Mr. O'Brien

There was so much pre-election confusion in Fianna Fáil that one half of the party did not know what the other half was doing.

Mr. Tunney

That is hardly a reasonable answer to the assertion made by the Deputy.

Mr. O'Brien

Ask Deputy Collins about what happened in Limerick.

An Leas-Cheann Comhairle

We are getting away from section 3.

Mr. Nolan

There is some confusion down the country in regard to death duties. Mr. T. J. Maher can tell the Minister all about that confusion.

Mr. R. Ryan

I shall be looking forward to that.

Mr. Tunney

My purpose in speaking on this section of the Bill is to establish that in the time in which we live a family man whose net income is £2,505 per annum is not in the upper wage earning group.

Mr. O'Brien

Neither is he in the lower wage earning group.

(Interruptions.)

An Leas-Cheann Comhairle

Each Deputy should be allowed to make his contribution without interruption. Interruptions are disorderly.

Mr. Tunney

I endeavoured to indicate that, as has been borne out by the contribution by Deputy O'Brien, the policy of the Government apparently is to encourage people to go into debt. A salary earner whose net income is £2,510 is not entitled to the children's allowance but if he will have a consultation with his bank manager and mortgage his house and commit himself to interest repayments of £100 a year he will then qualify. This is the new philosophy being preached to the people.

I said before and I repeat that we are all dependent upon that section of the people who are thrifty enough to generate the excess which can be distributed to those who are less well off but if we are to continue to encourage all sections to put themselves in debt then, obviously, the day of disaster cannot be far away.

Mr. O'Brien

That is the way we live today.

Mr. Tunney

That is the way the Deputy lives. It is not the way I live and I do not think it is the way anybody should live if at all possible. There is another aspect of this matter which I would regard as being socially very undesirable. I refer to that section who are finding it difficult to make ends meet, the section to whom Deputy Fitzpatrick referred, who put on a veneer of affluence, keep the best side out and try to pay their way and who have to pay the increased cost of living and are denied this assistance, the spirit of which, as Deputy Colley said, was to aid persons having the responsibility and bearing the cost of rearing children. The fact that such families will be denied the allowance will have the effect of forcing the lady of the house to go out and take employment. I do not think that is desirable. On the contrary, every encouragement and financial help should be afforded to mothers who are prepared to stay at home and look after their children. By doing so they save the State expenditure on reformatory schools, places of detention and other expenditure arising from deliquency which often occurs because of the fact that children are not afforded the protection, the love and the care of a mother because the mother is forced to go out and earn money in order to keep the house going.

Deputy O'Brien, in an effort to defend the situation, did not refer to the point I made in respect of the case made yesterday by the Minister for the Attorney General who, under the terms of the Devlin recommendation was to get £7,312 per annum— £7,312 per annum for the Attorney General and for the Fine Gael Party and for their just society. It was not enough. The Minister spent a considerable amount of time here yesterday justifying an additional £600 per annum for that one gentleman. Spokesmen for Fine Gael would tell me that the rest of the community, more ordinary mortals, who are obliged to rear families of six or seven children on £2,500 a year are overpaid and are in the upper income bracket.

Where is the consistency on the part of the Government? For one family £7,312 per annum is not adequate; a case must be made to give an additional £600 per annum or £12 a week and, on the other hand, in respect of families where the total income per year is £2,500 the case is being made for denying them, in the case of a family of five children, £85 per year in respect of children's allowances. I would ask the Minister to fill in the gap between the different approaches. If he does so I shall be happy to accept the section. Otherwise it will be my intention to vote against it.

Mr. Crowley

There are very important issues involved in the section. First of all, there were the promises made before the election by the National Coalition Parties, promises that were never costed, promises that were not given deep thought, promises made to an unsuspecting public. At last, they have come home to roost. Because of these thoughtless promises made in order to try to buy the electorate we find ourselves now in the position where the most hard-pressed section of the community, the middleclass people, are getting the allowance on the one hand and it is being taken away from them in greater amount by way of taxation.

We realise that the Minister, in his budget, has a vested interest in encouraging people to live beyond their means. He has a vested interest in eninflation. If inflation does not occur to a tremendous degree then the Minister will not get the type of money that he is looking for. Because of the confusion created before the election by the promises that were made, the middle-class person is now being asked to pay the piper. I would strongly suggest to the Minister that instead of taxing those people whose burdens of taxation are already too great, he should go much more strenuously after those who are avoiding and evading the tax net. It is all very well for the Minister to say that he going to do it but it is some time since the budget was introduced and I should like to know from the Minister what positive steps he has taken since the budget to go after tax evaders.

Mr. R. Ryan

We are on section 3 but I do not mind pursuing it.

Mr. Crowley

It relates to the fact that these unfortunate people are being given children's allowances and are having them clawed back by the Revenue Commissioners. In order that these people should benefit from the Coalition promises it is relevant to ensure that the people who should pay the piper are brought into the tax net. If this job was done properly the Minister would not have to face two ways at the one time on this issue.

Mr. O'Brien

You were there for 16 years and you did not do it.

Mr. Crowley

The Deputy is very original.

(Interruptions.)

Mr. Crowley

That is why the Fine Gael Party were 16 years in Opposition and will very soon be another 16 years in Opposition—because of their slavish mentality. It is as a result of dishonest promises by the National Coalition that people being granted children's allowances on the one hand have them taken away on the other in greater taxation.

Mr. R. Ryan

I have previously endeavoured to show Fianna Fáil's lack of decency in dealing with this matter. I could use other words which would be more precise but then I should be accused of arrogance. Let the facts speak for themselves. First, the first time the income tax system was used in order not to extend the benefit of children's allowances was in 1969 when the Fianna Fáil administration provided that every income tax payer in the community, including people on paltry £14 and £15 a week incomes, were not to get the benefit of increases in children's allowances. That was only four years ago. There are many people who should not be paying income tax but the question of relieving them has been so long postponed that the burden of giving relief now is a colossal one. Yet it is one I shall take upon my shoulders and endeavour to relieve.

Mr. Crowley

Another vague promise by the Minister.

Mr. R. Ryan

Four years ago the income tax system was used to deny all income tax payers benefit. Apparently, that was tolerable in Fianna Fáil's gospel then; it is now intolerable that people with incomes up to and over £3,000 might, as a result of our system, not get the benefit of the increases even though they will continue to get the existing allowances.

Next I want to deal with the alternatives, because they are important. The effect of our children's allowances scheme and the use of the income tax system in this very limited way is that out of a total of 352,676 families, 40,000 will not get the total benefit of these children's allowances this year but 312,676 will get the full benefit of these most generous allowances which now exceed children's allowances payable in Britain and Northern Ireland. That is a gigantic achievement for this little State, one about which we should shout from the rooftops and be proud of. These allowances are massively greater than those paid in Britain and Northern Ireland and in many cases will still be greater when the British allowances are improved next November. The contrast between what we have given and what Fianna Fáil proposed to give is this: 312,676 families are getting these increased children's allowances without deduction; the Fianna Fáil scheme was to give children's allowance increases to only 170,000 families.

Mr. Colley

How does the Minister arrive at that? He will recollect that he said recently in relation to the Fianna Fáil scheme that there was an income limit of, I think, £1,500.

Mr. R. Ryan

The Irish Press of Friday, February 23rd, 1973——

Mr. O'Brien

Your organ.

Mr. R. Ryan

——reporting the then Taoiseach answering what he called Coalition criticism and promising a new deal in social welfare, carried this great news to the people:

The earliest date at which the additional children's allowances, which Mr. Lynch said would benefit 170,000 families, would be payable would be October 1st.

We have given these massive increases, greater than a wealthy country like Britain is at present giving, from 1st July, to 312,676 families. Those who have dared to criticise on the opposite side are entitled to do so and to express their disappointment that we did not find it possible to give the increases to 352,000 families but we did give them to 312,676 families. One can understand why I find it difficult to accept that there is much sincerity in the criticism offered by people whose alternative was that spelled out by their own Leader and when at meetings they held, they declared their policy in September last.

Mr. Colley

So long as the figures came from us I have no quarrel. We do not wish to delay this Bill unduly. We have stated the objections we see to the Bill and the Minister and Deputy O'Brien have endeavoured to answer them. The record will speak for itself. It is notable that the Minister, in replying, referred to the numbers of families to which benefit under one scheme or another would accrue but he did not attempt to deal with the basic criticism which we, and I in particular, made of this scheme represented by this section 3. That is, that a children's allowances scheme should be related to the number of children. The Minister did not even attempt to answer that criticism. Particularly at present, in my view, a children's allowances scheme should be directed as far as possible to assist those in greatest need, who have suffered most from inflation.

One of the categories of persons who are in greatest need and suffering most from inflation are the father and mother of the large family. This is why children's allowances are so important as a method of redistribution of income and so important at the present time. Essentially it is the most important. In fact, it is the only weapon open to the Minister for Finance to effect any real redistribution of income in an effective way.

The answer does not lie in the number of families who benefit. The answer lies in the situation of the families who benefit. Are they the families who are in greatest need? This is the basic criticism I have been making of this section and the Minister did not attempt to answer it. To determine need in relation to a family one must have regard to the number of children in that family. This scheme does not. Once one reaches the statutory limit it does not matter how many children there are in that family. We do not propose to continue to repeat these arguments in this regard. We have made our arguments and they are on the record.

There is one further technical matter to which I should like to return. The Minister will recall that I stated earlier that I could not find section 523 (1) (a) of the Income Tax Act, 1967. The Minister said that there must be something wrong with the edition of the Act I had. I took the opportunity of sending across my copy of the Act to the Minister's official who very kindly indicated to me that section 523 (1) (a) of the Income Tax Act, 1967, was inserted by section 10 of the Finance Act, 1967, and subsequently amended.

Therefore, when I see that subsection (4) says that; "Section 523 (1) (a) of the Income Tax Act, 1967 shall have effect as if", et cetera, and then when I go to the Income Tax Act of 1967 and find that section 523 has no (1) (a) one will understand my perplexity. I now understand why but surely the Minister will agree that this is a totally unsatisfactory situation to which I did draw his attention on the Second Stage. I would urge him, in the interest of anybody who has to interpret this section, to redraft sub-section (4) to make it clear how you find the particular reference when you go to look for it.

We feel very strongly on this section. Deputies on this side have put forward our point of view. We could, and perhaps some people might feel that we should, spend a great deal more time in arguing our point of view on this very important section but, having regard to the business still before the House, we do not propose to pursue it further.

Question put.

The Committee divided: Tá, 56; Níl, 49.

Tá

• Barry, Peter.
• Begley, Michael.
• Belton, Luke.
• Belton, Paddy.
• Bermingham, Joseph.
• Cluskey, Frank.
• Collins, Edward.
• Conlan, John F.
• Coogan, Fintan.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Coughlan, Stephen.
• Creed, Donal.
• Crotty, Kieran.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Henry P.
• Dockrell, Maurice.
• Dunne, Thomas.
• Enright, Thomas.
• Esmonde, John G.
• Finn, Martin.
• FitzGerald, Garret.
• Flanagan, Oliver J.
• Gilhawley, Eugene.
• Bruton, John.
• Burke, Dick.
• Burke, Joan T.
• Burke, Liam.
• Clinton, Mark A.
• Governey, Desmond.
• Jones, Denis F.
• Kavanagh, Liam.
• Keating, Justin.
• Kelly, John.
• Kenny, Henry.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McDonald, Charles B.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Michael P.
• O'Brien, Fergus.
• O'Leary, Michael.
• O'Sullivan, John L.
• Reynolds, Patrick J.
• Ryan, John J.
• Ryan, Richie.
• Spring, Dan.
• Taylor, Frank.
• Timmins, Godfrey.

Níl

• Ahern, Liam.
• Brady, Philip A.
• Brennan, Joseph.
• Briscoe, Ben.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Carter, Frank.
• Colley, George.
• Collins, Gerard.
• Connolly, Gerard.
• Crinion, Brendan.
• Crowley, Flor.
• Cunningham, Liam.
• de Valera, Vivion.
• Dowling, Joe.
• Farrell, Joseph.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• French, Seán.
• Gallagher, Denis.
• Geoghegan, John.
• Gibbons, Hugh.
• Healy, Augustine A.
• Herbert, Michael.
• Kitt, Michael F.
• Lalor, Patrick J.
• Lemass, Noel T.
• Leonard, James.
• Loughnane, William.
• Lynch, Celia.
• MacSharry, Ray.
• Meaney, Tom.
• Molloy, Robert.
• Moore, Seán.
• Murphy, Ciarán.
• Nolan, Thomas.
• Noonan, Michael.
• O'Connor, Timothy.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Smith, Patrick.
• Timmons, Eugene.
• Tunney, Jim.
• Wilson, John P.
• Wyse, Pearse.

Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Browne and Healy.

Question declared carried.

Section 4 agreed to.

SECTION 5.

Question proposed: "That section 5 stand part of the Bill."

Mr. Colley

The Minister will recall that on the Second Stage I asked him to spell out in more detail what is involved here and make it clear whether the effect is to give a greater or a lesser repayment of tax.

Mr. R. Ryan

Section 154 of the Income Tax Act, 1967, deals with the case of a person for whose benefit any income is accumulated under the terms of any will or settlement, contingent on his attaining a specified age or marrying. The section provides that after the happening of the contingency the person may, within six years from the end of the tax year in which the contingency happens, make a claim to a repayment in respect of the income tax which was paid by the trustees in respect of the income which arose during the period of accumulation. The amount repayable is the amount which would have been repaid to the person concerned if the income had been his as of vested right during the years of accumulation by reference to his personal allowances and reliefs for those years. The amendment of section 154 is to the effect that for the purpose of the repayment under the Section no account is to be taken of any tax paid in respect of income for 1973-74 or any subsequent year. In other words, in relation to any settlement, when the contingency is fulfilled and the child becomes entitled to the income tax repayment in respect of personal allowances, it will only be in respect of years up to and including 1972-73. No repayment will be due for 1973-74 or any subsequent year.

Claims arising under section 154 are running at about 15 a year, the average amount of the repayment in each case being about £400. With the increase in levels of affluence, however, there is a greater tendency to make these settlements. In many cases, practitioners are approaching the Revenue with draft or newly-executed settlements and asking for Revenue agreement that the interests under the settlements are contingent. The purpose of seeking such agreement is apparently to ensure that the settlor parent will still be entitled to child allowances for tax purposes and that the child will, on fulfilling the contingency, be entitled to tax repayment. The dividing line between a contingent interest and an interest which is vested, but liable to be divested, is not well-defined, with judicial decisions falling on one or other side of the line in a manner which is difficult to reconcile.

The modest saving by reference to repayment claims is not the main purpose of the amendment, but to remove an obvious anomaly which his capable of being abused, and there is reason to believe is being abused, by well-to-do parents, who because of surplus income and wealth can create these situations and thereby avoid paying tax and creating the situation in which the children of such wealthy parents can apply for and obtain a refund of tax when the contingency is fulfilled.

Mr. Colley

I am grateful to the Minister for that explanation. As of now I have no particular view for or against the section. Am I correct in understanding that what the Minister said was that under settlements of the kind envisaged in this section, the parent concerned can claim the child allowance and, on the happening of the contingency, the child who is the person benefiting under the settlement can claim the personal allowances which the child would have been entitled to if he were receiving the income over the period in question? If that is the position, is the Minister saying that he regards that as a reprehensible situation in which people are getting benefit twice and that is why he is introducing this section? Is that the reasoning behind the section?

Mr. R. Ryan

Yes. It is a situation in which benefit is being obtained twice. It is obviously a benefit which can only be obtained by people of substantial wealth who are able to create the situation. I do not think it can be socially justified.

Mr. Colley

I accept that and, for that reason, I am inclined to support the proposition. Nevertheless, it seems from something the Minister said earlier, that this situation which the Minister has described has existed for a considerable time and has not heretofore been regarded as an abuse, but that an indication of an increase in the number of these cases is what is concerning the Minister and is, if you like, what has triggered off the thinking behind this section. On the face of it, I agree with the Minister that it seems to be something that should be done, but it is our duty to consider whether it is, in fact, an abuse and, if it is, was it not considered so in the past. Is the reason for introducing this section the fact that more people appear to be about to avail themselves of this benefit, and that it was tolerable when only a small number did it, but that it becomes intolerable when a larger number attempt to do it? There seems to be something wrong with the logic involved in this. Perhaps the Minister could elaborate a little further on it.

Mr. R. Ryan

It was never intended to be used in this way. It arose out of the general entitlement of a person on attaining his majority at 21 years of age to apply for a refund of the tax which had been deducted from his property during his infancy. It is now a device which is being used by people who see it as a way in which they can devote income which is surplus to their own requirements to investments for their children, to get tax allowances in respect of those children. Tax is payable on the income, but as soon as the child attains his majority, or whatever other condition is required, he can then apply for a refund. Incidentally, I think it is worthy of note that in 1969 in Britain they took remedial measures to close this gap and the Chancellor at the time said something which I am sure we can all endorse. He said: "This is an anomaly which even the most single-minded devotee of tax loopholes would find it difficult to defend."

Mr. Colley

On the Minister's assurance that it is being used as a device for tax avoidance, we certainly would not oppose the section.

Question put and agreed to.

SECTION 6.

Question proposed: "That Section 6 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to remove a legal doubt as to the validity of assessments to income tax, including surtax, made on the executor or administrator of a deceased member of a partnership in respect of his share of the partnership profits arising or accruing prior to the date of death. I suspect that a number of Members will be surprised to find that this matter should ever be in doubt but, apparently, some doubts have arisen and the purpose of the amendment is to remove them.

Mr. Carter

Would the Minister extend the explanation of section 6 by giving an example of the type of partnership which will be affected by the section?

Mr. R. Ryan

Any partnership. Section 211 of the Income Tax Act, 1967, authorises the making of assessments on the executor or administrator of any deceased person in respect of profits or gains which had arisen or accrued to that person before his death. Subsection (4), however, said that this provision was not to apply in the case of a partnership.

The reason for the exclusion was due to the fact that, prior to 1965, there were special rules for the making of assessments of partnership profits. Under these rules the profits of a trade or profession carried on by a partnership were to be assessed by way of a joint assessment in the partnership name. In consequence, the death of a member of a partnership made no difference to the form of the assessment on pre-death profits.

Part VIII of the Finance Act, 1965, introduced new rules for the making of assessments on the profits of trades and professions carried on in partnership. As and from 6th April, 1965, the share of the profits or gains arising to a partner were to be assessed as if they arose in a trade, carried on solely by that partner. No longer, therefore, is there an assessment on the partnership as such, nor responsibility for tax on the pre-death profits of a deceased partner and the Revenue must, therefore, look to the deceased partner's executor or administrator for tax on the pre-death profits of the partner. It could be argued that the power to assess the executor or administrator conferred by section 211 does not, by virtue of subsection (4) apply in the case of a partnership, and the Revenue Commissioners have, therefore, been advised that there is an element of doubt in the matter which the draft section is designed to remove.

It is important to emphasise that this is not imposing any new obligation on a partner or the next-of-kin of the deceased partner to pay tax. All it is doing is ensuring that no opportunity will be used arising out of any weakness in the law or any doubt in the law to avoid paying the tax. I am sure that will commend itself to all conscientious Members of the House.

Mr. Carter

Was this contested in the course of working or was it found to be faulty by the Revenue Commissioners?

Mr. R. Ryan

No, it has not yet been contested. This is a case of wise anticipation.

Mr. T.J. Fitzpatrick

(Dublin Central): I take it that the partner who survived is not liable for income tax on the profits of his partner?

Mr. R. Ryan

At one time partnership profits were aggregated for tax purposes. Since 1965 they have been severed and the individual liability lies on each partner. The purpose of this is to attach the liability of a deceased partner to his executor or administrator.

Mr. T.J. Fitzpatrick

(Dublin Central): Is it the surviving partner or the executor who will be liable?

Mr. R. Ryan

The executor or administrator of the deceased partner. At one time it would have been the mutual responsibility of the partnership but now it lies on the individual partner which, I think, is fair in life and also fair in death, to the survivor.

Mr. Colley

We would support any necessary enactment to ensure that the correct liability for income tax was applied to the correct person and give the necessary machinery to the Revenue Commissioners to do so. However, there is one aspect of the Minister's explanation which requires to be elaborated on a little further. He did describe the change in the method of dealing with income tax of a partnership which took place in 1965. The Minister will note that the subsection which is proposed to be deleted is in the 1967 Income Tax Act. The question in my mind is why was subsection (4) enacted in 1967 after the change which the Minister has described had taken place in 1965. Why was that enacted after the change and why is it now proposed to delete subsection (4) which was enacted in the knowledge that the system had changed?

Mr. R. Ryan

The Income Tax Act, 1967, is a consolidation measure and like any consolidation Act does no more than restate the law as it exists but it becomes the master law thereon. The Deputy will recall his good advice yesterday about consolidating other legislation. It is the 1967 Act which is the umbrella and what goes before we no longer look at.

Mr. Colley

The Minister will recall that I also used the word "codify" yesterday because I was not quite sure which was the correct technical term. Am I to understand that the 1967 Act was purely a re-enactment of the existing law and not a bringing up to date of the law as well as a re-enactment?

Mr. R. Ryan

Purely a consolidation measure.

Mr. Colley

That explains the difficulty.

Question put and agreed to.

SECTION 7.

Question proposed: "That section 7 stand part of the Bill."

Ruairí Brugha

Does the word "remuneration" here mean annual income?

Mr. R. Ryan

It does. It means the the remuneration in the last year of service. Under section 229 of the 1967 Act a retirement benefit scheme must be approved by the Revenue Commissioners for the purpose of income tax if it complies with certain conditions. One of these conditions is that the total amount of benefit accruing on the death in service of a member which may be paid in lump sum form is not to exceed, inter alia, one-and-a-half times the member's final remuneration. The purpose of the proposed section is to increase, with effect as and from April 6th, 1972, the limit of one-and-a-half times the final remuneration to four times.

Mr. Colley

The Minister will recall that on Second Stage I referred to this section and said that on the face of it it appeared that this section would be worth a great deal of money to a surtax payer, a great deal more than it would be worth to an ordinary taxpayer. The fact that it is proposed to have effect as from April 6th, 1972, made me wonder if, in fact, the Minister had in mind some special cases where there was a particular tragedy involved and where, perhaps, the House would be agreeable that in those circumstances those cases should be covered. I did, however, suggest that if this is what the Minister had in mind he ought to try to narrow down the concession in some way to confine it to such cases. On the face of it, it would appear that it is a blanket proposal here, the effect of which would be to give very substantial benefit to surtax payers. Perhaps the Minister would care to elaborate a little more on the thinking behind this?

Mr. R. Ryan

I do not think it is desirable for Deputy Colley to suggest that this is for the benefit of sur-tax payers as such. It is not. What we are doing here is correcting a little omission in Deputy Colley's Finance Bill of 1972. The reason for making the increase is that Chapter II of Part I of the Finance Act, 1972, introduced a new code of tax legislation for pension schemes and under this code the limit on lump sum death in service benefits is four times the final remuneration. This was Deputy Colley's provision. Pension schemes approved under the old code which will lapse after April 5th, 1980, have the option of remaining under the old code until April 5th, 1980. In the meantime, however, some of them wish to enjoy the new limit of four times the final remuneration. Representations for the increase have been made by a number of persons, by insurance companies and other companies that transact pension business. Under section 229 (2) the Revenue Commissioners have discretionary powers to approve schemes even though the rules may allow lump sum benefits at a higher rate than one-and-a-half times the final remuneration. If any such lum sums are paid, the excess over the statutory limit must be charged to income tax at the full rate. There are a very small number of open cases, not more than a half dozen, in which a charge to tax for 1972-73 would fall to be made by reference to a limit of one-and-a-half times the final remuneration. By making the four times limit retrospective to April 6th, 1972, the question of a tax charge in these cases will be obviated. The amount of tax involved is insignificant.

Mr. Colley

It was well worth while to have that explanation put on the record.

Mr. Carter

Could the Minister briefly define the elements making up the remuneration referred to?

Mr. R. Ryan

It is plain, straightforward salary. It would be the salary paid in the last year of work.

Mr. Carter

Is there any other element outside of salary?

Mr. R. Ryan

Any element outside of salary would not be related to the superannuation benefits, so it is in relation to the salary.

Question put and agreed to.

NEW SECTION.

Mr. R. Ryan

I move amendment No. 2:

In page 9, before section 8, to insert the following section:

(1) Section 246 of the Income Tax Act, 1967, shall not apply to any expenditure incurred on or after the 24th day of July, 1973, and before the 1st day of April, 1975, on the purchase of a new ship.

(2) This section shall not apply to any expenditure incurred under a contract entered into before the 24th day of July, 1973.

—An tAire Airgeadais.

This amendment is intended to suspend operation of the 40 per cent investment allowance in favour of ships during the period when free depreciation and the 100 per cent initial allowance is available. Under sections 8 and 16 this period has been extended to 31st March, 1975. The date as and from which expenditure will be affected will be 24th July, 1973—this should now be 26th July—that is, the date on which the amendment is being moved. The special benefit of an investment allowance, by contrast with the initial allowance, is that the investment allowance is not taken into account for the purpose of wear and tear deductions so that 140 per cent of the capital expenditure is written off against profits. This special provision was made available in respect of the purchase of new ships because of the particular needs of shipping companies which operate in a highly competitive field.

Since shipping companies generally are not in a profit-making position there are no or insufficient profits against which the generous capital allowances available can be set off. This situation has led to the development of arrangements under which one of the banks buys a ship and then leases it to the shipping company. The bank will then claim the benefit of the capital allowances on the grounds that it has incurred capital expenditure on the provision of the ship. It has been argued that the shipping company set a benefit from the allowances by way of lower leasing charges but it cannot be denied that a substantial part of the benefit of these allowances goes to the bank. The statutory provisions governing initial allowance and wear and tear deductions provide specifically for the granting of those allowances to a lessor of plant and machinery, which would include a ship, but there is no corresponding provision relating to shipping investment allowance.

It has been argued, however, that notwithstanding the absence of a special provision to this effect, the allowances can be claimed. It has been decided now that the shipping investment allowances should not be granted during the period when free depreciation and the 100 per cent initial allowance is available since the full cost of the ship can be set off against profits in the first year if there are sufficient profits for this purpose.

The period of operation of these reliefs has been extended to the 31st March, 1975 by sections 8 and 16 of the Bill and the amendment provides that shipping investment allowance will not be available in respect of capital expenditure incurred up to that date in the provision of a ship. There is a saver in subsection (2) for expenditure incurred already under a contract entered into before the 26th July, 1973. This protects the position of a large shipping company, for instance, the B & I, who have entered into a contract already with one of the banks for the financing of two ships, the expenditure in relation to them extending over the period July, 1972, to March, 1974, on £1 million investment, and in the period October, 1972, to June, 1974, on £2 million investment.

Under section 246 (2) expenditure is regarded as having been incurred on the day when it becomes payable. But for the saver now provided the amounts payable between 24th July, 1973, and the 31st March, 1975, would lose the benefit of the investment allowance. As the financial arrangements agreed between the two parties were based on the understanding that the investment allowance would be available, their position is being protected. Of course, the saver will apply in any other case where a contract has been made already.

Briefly, the purpose of this is to ensure that what was intended as a tax benefit to shipping companies will not be availed of by others to give a tax benefit to them. If shipping companies require State assistance our view is that State assistance ought to be given openly for the purpose of shipping rather than that we should continue to have a tax provision which can be used by people outside the shipping industry to give a tax benefit to themselves, a benefit that was never intended in the legislation, which was introduced to assist the shipping industry but not financial institutions.

Mr. Colley

I think I have grasped the substance of what the Minister is doing here. I am not sure whether I agree with him. As I understand it, what the Minister is saying is that certain arrangements have been entered into. I am familiar with one such case where a State company, the B & I, entered into an arrangement with a bank whereby the bank purchased a ship from its own resources and entered into a leasing arrangement with the B & I and was able to do so on terms that were very attractive to the shipping company. This was because the bank was able to claim the allowance that the Minister is referring to.

I understand that the Minister is saying that we are making provision whereby any such agreements made already can continue on that basis but that we are ensuring that there will not be such agreements in future, that the benefits will not accrue to a bank which enters into such arrangement in future. Am I right so far?

Mr. R. Ryan

Yes.

Mr. Colley

Therefore, what is raised here is the question of whether the Minister is right in principle in the approach he is adopting. I have no doubt that on first view, he would appear to be right but it is better on the face of it that arrangements of this kind, if they involve some form of subsidy, should be open and should be seen to be open. On the other hand, there are many precedents in the income tax code for allowances of this kind and there is something to be said for a situation which results in a shipping company and, in particular, a State company, being enabled to acquire ships on favourable terms without having to use their own resources or to call on the Minister for Finance for sums which in all cases are very substantial, which would be in millions.

Because of the provisions in the income tax code—provisions that have existed for a considerable time—the shipping companies do not find it necessary to call on the Minister in those circumstances that we are discussing here. These provisions apply also to many other kinds of businesses and companies. If what the Minister is saying is that the banks, in the kind of situation we are visualising, are gaining some extra advantage which they should not gain, I could sympathise more with what the Minister is doing, but as I understand the position, the effect of the banks getting this allowance was that the B & I company were, in effect, getting that benefit and consequently, were enabled to acquire ships which they might not have been able to acquire at the time and certainly not as soon as they acquired them.

I am not sure that the practical effect of what the Minister is proposing is one that he would desire to bring about. The Minister may say to us that in cases of this kind the banks are gaining an advantage over and above what they are passing on to the company by way of special terms. If that is so, I would be more sympathetic to what the Minister is doing but perhaps the Minister would let us know if that is his view.

Mr. R. Ryan

There is reason to believe that the banks are getting some cream-off. I would not wish to be precise because one knows the difficulties involved in interpreting accounts. However, there is good reason for believing that the tax benefit does not accrue in toto to the issuing company. The reality is that it was never intended that there should be a 140 per cent allowance in one year. The original investment allowance for ships which was 40 per cent has existed since 1957. but it was only in 1971 that the initial allowance was increased from 60 per cent to 100 per cent. Of course, this applies to more than ships. This created an anomaly which was not thought of in time, as a result of which we ended up in the position of giving 140 per cent allowance. I do not think it was ever really intended, even in 1971 or, indeed, since, but it is there.

I accept all that Deputy Colley has said. It is repetition of what I am saying. It may be very necessary to give assistance to the shipping companies and we would be most anxious to ensure that they would get all the assistance necessary so as to be highly competitive and attract all possible trade and keep their fleet in the best modern condition but it is better that that should be done as a direct subsidy by the State rather than that the tax system should be used to provide a concealed benefit for people who are not directly engaged in the shipping industry. This is a situation that we will continue to keep a careful eye on and if we get any representations from the shipping industry we will be more than sympathetic to ensure that their position is in no way worsened. We also want to ensure that anything we do for the shipping companies is not something that will be taken advantage of by financial institutions.

Mr. Colley

I appreciate the approach the Minister has outlined. I must admit I still have certain reservations. I imagine that the Minister for Finance is now long enough in office to have learned for himself that if he had twice as much available in the way of capital resources as he has he would still have competing demands for those resources which he would not be able to meet no matter how deserving they were. That being so, there will come a time when a State shipping company will find that it cannot acquire a ship or will have to postpone, perhaps for a year or more, the acquisition of a ship simply because there is a limit to the amount of capital resources available to the Minister and to the State. When that happens what will be the consequences? The Minister will know that in the shipping business very often time is of the essence; the acquisition of a ship at a particular date may be vital to the profitability, the obtaining of certain contracts and so on. If such possible profitability has to be foregone because simply of the non-availability of resources for every good purpose, then in such circumstances it may well be that there would be some regret that we had passed this amendment.

I am assuming that the Minister has gone into this thoroughly and, on balance, has decided that this is the right way to do it. I have reservations as to whether it is the right way to do it but on the basis that the Minister has assured us that this matter will be kept under review and that the Minister will ensure that the passing of this amendment will not operate to the detriment of shipping companies, I would be prepared not to oppose the amendment.

Mr. R. Ryan

I should like to emphasise that the 100 per cent initial allowance remains and all we are doing is saying that we are withholding the 40 per cent allowance while the 100 per cent initial allowance remains until 1975. Then we will have to have a look at the whole position. I accept the validity of what the Deputy has said but there is no reason why ships would not continue to be built. If that means that the hire charges are increased because of this 40 per cent removal of investment allowance, the State will obviously have to take up any loss that may accrue.

Mr. Colley

We may take it that the Minister will keep under review the situation of the shipping companies and will take such steps as are necessary, including if it seems to be necessary, even the repeal of this, to ensure that shipping companies position is not disimproved?

Mr. R. Ryan

Most certainly, because I think they are doing an excellent job.

Mr. Colley

I agree.

Mr. R. Ryan

We do not want to do anything to make life more difficult for them.

Mr. Colley

The Minister mentioned in the beginning that the date was 24th July. Then he said the 26th. I take it the necessary amendments are being made to change the 24th to the 26th in the subsection.

Mr. R. Ryan

The 24th July is the date on which the amendment was circulated.

Mr. Colley

The only point I am raising is that we should dot the "i's" and cross the "t's".

Mr. R. Ryan

Yes. The date should remain the 24th. I mentioned in my opening statement that I changed it to the 26th, that being today's date. It should be the 24th.

Amendment agreed to.

SECTION 8.

Question proposed: "That section 8 stand part of the Bill."

Mr. R. Ryan

This section extends for a further period of two years to March 31st, 1975 the operation of the increased initial allowances of 100 per cent which applied to capital expenditure on machinery and plant in the period 1st April, 1971 to March, 1973. The section also ensures that a trader will not obtain, between initial allowance and wear and tear allowance, allowances in excess of 100 per cent of the cost of machinery and plant.

Question put and agreed to.

SECTION 9.

Question proposed: "That section 9 stand part of the Bill."

Mr. R. Ryan

This is also for the purpose of extending for a further period of two years the period of operation of the initial allowance of 20 per cent which applies to industrial buildings other than hotels, holiday camps, market garden buildings and registered holiday cottages.

Question put and agreed to.

SECTION 10.

Question proposed: "That section 10 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to ensure that any excess capital allowances granted in respect of machinery or plant will be taken into account when the machinery or plant comes to be scrapped or sold and to rectify a flaw in clause 272 which has come to light. Clause 272 is the provision governing balancing allowances and balancing charges.

Mr. G. Fitzgerald

I put down a question, a Cheann Comhairle, and you sent it back because it was relevant to the Finance Act. I am not sure if I may raise it on this section. With your permission, I should like to do so.

An Ceann Comhairle

The Chair will give the Deputy every latitude.

Mr. G. Fitzgerald

The matter is one which I mentioned in the budget debate. It is the question of the purchase of mobile homes. I am not interested in the purchase of a mobile home as a second residence or seaside home. I am concerned about the very many people who purchase mobile homes for themselves and their families. A man may buy a mobile home and site it near his father's cottage, planning permission having been obtained. His method of purchase is probably hire purchase. I understand he is not allowed to include the interest element of the hire purchase repayments for the purposes of income tax allowance. This would appear to be an injustice to a married man with children buying his home.

An Ceann Comhairle

I thought the Deputy was about to refer to plant and machinery. He seems to be dealing with the purchase of homes.

Mr. G. Fitzgerald

The Chair may remember that he refused a question from me and I do not know what other section of the Bill I can raise it on.

An Ceann Comhairle

I am trying to assist the Deputy as best I can.

Mr. Colley

I cannot say, at this stage, which is the appropriate section. Strictly speaking, it is possible there is no appropriate section. I would urge that some latitude be given to the Deputy to make what I think is a valid point which the Minister might be willing to consider. There is a problem about identifying the appropriate section.

An Ceann Comhairle

If the information is forthcoming from the Minister now, I should be pleased to allow it.

Mr. R. Ryan

I have some sympathy for the idea Deputy Fitzgerald has put forward. There are great difficulties. The difficulty he raises is whether or not an income tax allowance should be given in respect of hire purchase debt because that comes back to the nature of the debt which arises where one is purchasing a mobile home. If the purchaser borrowed the money from the bank, allowance would be given under the income tax code in respect of interest paid on the overdraft. Where the mobile home is acquired under a hire purchase agreement, it takes the same status as the hire purchase of a motor car or television set which does not get that tax concession. There is something to be said for the person buying shelter which is more fundamental than a luxury item but there would be considerable difficulties in administering what the Deputy proposes. I am not unsympathetic and I shall consider it.

Mr. G. Fitzgerald

I accept there may be difficulties in administering it but surely there is injustice in not giving this allowance to such an individual as against the man buying a motor car or television set. There are difficulties in administering any piece of legislation, including the different sections in this Bill, but despite those difficulties we must endeavour to eliminate any injustices that might be created. During the budget debate I was interrupted by one of the Minister's backbenchers saying that this was arising because adequate houses had not been provided, which was utterly stupid. This is not the case. I am sure the Minister is well aware that there are many of those homes, not, perhaps, in the Minister's constituency but in the Dublin suburbs. It is not easy for these people — and may be impossible — to get a bank loan. They may be able to get hire purchase with guarantors but, if so, they must make heavy repayments over a short period and are not allowed in their income tax for the interest paid. I earnestly ask the Minister to consider the situation.

Mr. Colley

I support the plea of Deputy Fitzgerald. There is an anomaly in the whole income tax code as regards an allowance being made in respect of interest paid on an overdraft and no allowances in respect of interest on a hire purchase agreement. Without opening up the whole area, I think in the case of the item Deputy Fitzgerald mentions, a mobile home in which a man resides not merely as a summer residence, there is an extremely strong case for relief. I think the Minister accepts that but I want to point out that there were difficulties in another connection relating to mobile homes and distinguishing between those used for summer residence and those which were genuine, full-time homes, if I may so describe them. My recollection is that those difficulties were overcome. The Minister might find that the machinery, or the substance of it, required in order to do what Deputy Fitzgerald urges may well exist already.

Mr. R. Ryan

I shall consider it.

Question put and agreed to.

SECTION 11.

Question proposed: "That section 11 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to amend section 336 of the Income Tax Act, 1967 by increasing from £350 to £450 the amount of the annuity which a registered trade union may assure to any person without losing its entitlement to tax exemption in respect of its dividends and interest which are applicable and are applied solely for the purpose of provident benefits.

Mr. Colley

I take it the Minister has received some representations in this regard?

Mr. R. Ryan

That is right.

Mr. G. Fitzgerald

Will that be granted to a new trade union?

Mr. R. Ryan

Yes, so far as I know. I do not see why it should not. So long as a trade union is a trade union it will get the benefit.

Question put and agreed to.

SECTION 12.

Question proposed: "That section 12 stand part of the Bill."

Mr. Colley

The Minister will recall that on Second Stage I raised some questions regarding this section. I asked if the Minister could tell us how many companies would have been involved before now and whether the effect of this section is to give relief for British investors in such things as office blocks. I should be glad if the Minister would let us know if that is not so. On the face of it, the section does not very clearly indicate what I think it is doing.

Mr. R. Ryan

We do not know how many companies are involved but we have had representations, as I am sure the Deputy had in his day, from accountants and others saying that the 75 per cent provision was causing difficulty and so this relief is being provided. This amendment is a consequence of the change made in Article VII (2) of the agreement made on 18th May, 1949 by the protocol signed in May this year. Under section 357 (3) an Irish company which receives a dividend from a company in Northern Ireland or Great Britain in which the Irish company beneficially owns, directly or indirectly, not less than three-quarters of the ordinary share capital, is entitled to credit against its Irish income tax in respect of so much of the United Kingdom corporation tax on the profits out of which the dividend is paid as cannot be allowed against corporation profits tax.

The requirement that there should be a holding of three-quarters of the ordinary share capital corresponds with that embodied in Article VII of the agreement made on 18th May, 1949. A protocol signed on 2nd May, 1973, replaces the requirement in Article VII by the condition that the recipient company should control 10 per cent of the voting power in the paying company. The necessary change in section 357 (3) is achieved by substituting the words "controls, directly or indirectly, not less than 10 per cent of the voting power in" instead of the existing words "beneficially owns directly or indirectly" not less than three-quarters of the ordinary share capital of..." The change made by the protocol of 2nd May, 1973, is effective in respect of dividends paid on or after 6th April, 1973. This section likewise applies only to dividends paid by a United Kingdom company on or after that date.

Mr. Colley

This is a reciprocal arrangement?

Mr. R. Ryan

Yes.

Mr. Colley

Have the necessary statutory changes been made in Britain and Northern Ireland?

Mr. R. Ryan

They are being made simultaneously.

Question put and agreed to.

SECTION 13.

Question proposed: "That section 13 stand part of the Bill."

Mr. R. Ryan

Section 386 of the Income Tax Act of 1967 grants exemption from income tax and corporation profits tax in respect of the profits of a company from certain mining operations in the mining of non-bedded minerals. Normally, a company is entitled under section 456 of the Income Tax Act, 1967, to deduct income tax at source from dividends paid by it but there is a special provision (in section 387, subsection (2)), which provides that a mining company is not entitled to deduct income tax from any dividend (or part of a dividend) which it pays out of profit exempted under section 386. This is to secure that the exemption enjoyed by the company is passed on to shareholders.

Where, however, such a dividend is paid without deduction of tax to a shareholder which is a company, the latter company, when paying its dividends, may under existing law deduct income tax on the whole of such dividends, even in the case where the dividend is paid out of tax-free dividends from a mining company.

To remove this anomaly, the proposed section provides that such a holding company will be subject to the same restrictions as a mining company in deducting tax from dividends paid out of exempted income. In other words, the benefit of the mining tax exemption will be passed on to the ultimate individual shareholder.

Mr. Colley

The Minister will recall that when I spoke on this section during the Second Stage I asked him to spell out in more detail, as he has done, what was involved and I asked whether it meant more special relief for surtax payers, for instance, people who had shares in a holding company which controls a mining company. The reason I asked that question was that paragraph (c) of the new subsection (4) specifically refers to surtax. On a quick reading of it it does not appear that that is simply balancing out a similar provision in regard to income tax; it seems to be a special provision in regard to surtax. Could the Minister enlighten us a little further as to why that reference is necessary in paragraph (c).

Mr. R. Ryan

The position in law at the moment is that a dividend of a mining company is exempted from tax whether it is income tax or sur-tax. There is no special treatment of surtax payers. The dividend is free of tax. It is worth mentioning that this provision is similar to the provision which already applies to export tax relief. Where export tax reliefs are given the dividends are not subject to income tax or surtax but a device has developed whereby the ultimate shareholders could be denied the benefit of this tax relief by the formation of an intermediate company which would receive the dividend from the mining company without deduction of tax and then could pay out the dividend to its own individual holders deducting tax from it because, theoretically, it was not a mining company.

That, obviously, is contrary to the intention of the legislature to encourage people to invest in mining, and the purpose of it then is to bring the law in relation to mining into line with that which applies in relation to export tax reliefs, and to provide that the dividend would be given without a tax deduction of any kind.

Mr. Colley

I appreciate the point that the Minister is making in regard to overcoming this device which has apparently been used in some cases. That is not what I am questioning. What I am questioning may largely be a question of drafting. The Minister will notice that paragraph (c) relates to the amount to be included in respect of the dividend in any return for the purpose of surtax, et cetera.

On the face of it, paragraph (a) does not appear to be the corresponding provision in relation to income tax. It may be so, but I am not clear why this special provision is made in regard to surtax.

Mr. R. Ryan

This section does no more than carry through the same benefit for all taxpayers. There are some cases where the dividend is paid free of all tax and sometimes the dividend is paid free of a certain amount of tax. All this is providing that the appropriate proportion would apply in the long run to the income tax or sur-tax payer. There is no exceptional treatment here for the surtax payer.

Mr. Colley

That is what I would expect. I would, therefore, expect that the construction would be one portion which would deal with what happens in the case of an income tax payer and another portion which would deal with what happens in the case of a surtax payer. I can see what is designed to happen in the case of the surtax payer, but I cannot see what is designed to happen in the case of an income tax payer.

Mr. R. Ryan

In the case of an income tax payer I am advised that the income tax is automatically deducted. In the case of the surtax payer, there is a separate charge and that is why it has to be separately identified. I hope that when we simplify the tax system, as we are hoping to do before the end of this year, when we hope to amalgamate these two taxes, we may be able to get around these difficulties. I can assure the Deputy that there is no special advantage whatsoever to the surtax payer.

Mr. Colley

The Minister is very optimistic in relation to his simplified tax system. I accept that we can hope for better times in the future, when we will have a simpler income tax system.

Mr. R. Ryan

The trouble is that the more incentives we give, the more complicated we make the law.

Question put and agreed to.

SECTION 14.

Question proposed: "That section 14 stand part of the Bill."

Mr. R. Ryan

This section is linked with section 19 which extends "charity exemption" to bodies of persons whose objects are the promotion of the Universal Declaration of Human Rights and the Implementation of the European Convention on Human Rights. The present section secures that annual contributions made under covenant by any person to such bodies for periods exceeding three years will be recognised for income tax purposes. Under existing law, income tax may be deducted from such annual payments, and because of the tax exemption now being accorded to these bodies, they will be able to claim a refund of the tax so deducted.

Mr. Colley

A point was raised by Deputy Haughey in this regard. Deputy Haughey said that it seemed to be proposed to give bodies coming within the terms of this section both the benefit of the covenanting arrangement and the benefit of being treated as a charity, and that this was going beyond what is done for what might be regarded as similar bodies. Would the Minister care to comment on that point?

Mr. R. Ryan

It is wrong to think that there is any particular preference being given to these organisations named in the section. This benefit in relation to covenants to subscribed funds can only be given to organisations which are regarded as charitable organisations. We have been very careful to ensure that it was only bodies that were regarded as reputable that would receive this benefit.

The truth is, it may be a sad truth, that the amount of subscriptions and donations given for the promotion of human rights and the protection of fundamental freedoms are not very great. I think that the tendency of people to give assistance towards relief of physical and mental hardship is much greater. The tax involved in this section I would consider to be negligible but we are party to the Universal Declaration of Human Rights and to the European Convention for the Protection of Human Rights and Fundamental Freedoms.

This is just a small but, nonetheless, important contribution by us which we hope might encourage some people to make generous contributions towards the achievements of the aims of these organisations and of these very reputable covenants and principles. It is a very sad thing that since these were first written by mankind in the last quarter of a century the number of people known now to be denied their rights appears to be greater than ever before. I am not for one moment suggesting that covenanted payments are going to rectify this very sad state of affairs, but we thought it worthwhile to give this slight encouragement to people and to the organisations acting in this somewhat thankless, but nevertheless very important, field.

Mr. Colley

I should like to raise another matter in this connection. I will preface my remarks by saying that I realise the difficulties the Minister may have in answering this point. I am trying to get some idea of the kinds of bodies which might be involved in the benefits we propose to confer here. The Minister's difficulty is, I know, the fact that the determination of a particular body would be a matter for the Revenue Commissioners and the Minister does not wish to be in a position in which he appears to be prejudging whether a particular body should be in or out. I appreciate that fully, but I wonder could the Minister mention even one, preferably more than one, which might consider applying to the Revenue Commissioners in order to benefit under this section and under section 19. I am putting it that way because I think that does not commit the Minister to anything. Could he give us one body which might reasonably consider applying for the benefit?

Mr. R. Ryan

For myself, personally, reading the constitution of individual societies and forming an opinion on it, I should not like to express an opinion here, but the safeguard that is written into the Bill is contained in section 19, which requires that any organisation must have consultative status with the UN organisations or the Council of Europe in order to benefit. Both these organisations have very complicated procedures and lay down very stringent conditions, all of which must be fulfilled before any organisation is given consultative status with them. First of all, the Revenue Commissioners will have to satisfy themselves that any applicant for this relief is an organisation which has consultative status with either of these bodies and then a look will have to be taken at their objectives to ensure that these are in keeping with the Universal Declaration of Human Rights or the European Convention. It can probably be taken that the organisations in question would not affiliate to or be granted consultative status with these organisations unless they were satisfied they were organisations legitimately pursuing the objectives of both the Universal Declaration of Human Rights and the European Convention.

Mr. Colley

Could the Minister give us the names of some Irish organisations which have consultative status with the United Nations or the Council of Europe?

Mr. R. Ryan

There are a number operating here. I have no official list because it has been decided the proper thing to do is to let these be dealt with by the Revenue Commissioners. We have laid down the principles. When the system gets under way I shall be only too happy to give the House an indication of the organisations regarded as coming within the ambit of the section. We have the safeguard that spurious organisations will not get benefit because such organisations do not get consultative status with these international organisations.

Mr. Colley

I accept that a spurious organisation would be very unlikely to benefit, but it would be helpful if we could visualise the kind of body to which we propose to give benefits. There seems to be some kind of mystery about the kind of body. I cannot think of an Irish organisation which would benefit under this. I understand the Minister's difficulty and I framed my question in a particular way: I asked the Minister if he could tell us the names of any bodies with consultative status with the United Nations or the Council of Europe because that is a matter of fact. It has nothing to do with benefiting under this.

Mr. R. Ryan

If I mention names, that must not be taken as in any way binding on the Revenue Commissioners.

Mr. Colley

I appreciate that.

Mr. R. Ryan

Two bodies with consultative status, which come to mind, would be UNICEF and Amnesty International. There may be others. I do not want to give a list which might be regarded as exclusive.

Mr. Colley

The Minister giving us names now enables us to visualise the kind of things that might be involved here.

Question put and agreed to.

SECTION 15.

Question proposed: "That section 15 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to extend for a further two years to March 31st, 1975, the period of operation of the investment allowance of one-fifth in respect of capital expenditure on new machinery or plant, other than road vehicles, provided on or after April 1, 1971, for use in any designated area within the meaning of the Industrial Development Act, 1969.

Question put and agreed to.

SECTION 16.

Question proposed: "That section 16 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to extend by a further two years up to March 31, 1975, the period of operation of free depreciation in respect of new machinery or plant, other than road vehicles, which was brought into use on or after April 1, 1971, in areas other than designated areas, formerly known as undeveloped areas.

Question put and agreed to.

SECTION 17.

Question proposed: "That section 17 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to authorise the administrator of a statutory superannuation scheme who is liable for the 10 per cent tax charged under section 21 of the Finance Act, 1972, in respect of refunded contributions to deduct the tax from the amount of the refund.

Mr. Colley

May I take it there have been cases in which the administrator of a scheme became liable to the 10 per cent charge and was unable to pass it on?

Mr. R. Ryan

No. I understand that nobody was, in fact, ever penalised or known to fail to hand over the money or make the deduction, but apparently a number of these organisations did not have authority within their own rules to make this deduction and they have asked that the statutory obligation be imposed upon them so that they would have the authority and nobody could quibble because the deduction had been made.

Question put and agreed to.

SECTION 18.

Question proposed: "That section 18 stand part of the Bill."

Mr. Colley

A point was raised on Second Stage by Deputy Haughey as to whether the relief given here would be only in respect of the lump sum payment and not any sums which might be paid by way of annual income. Perhaps the Minister could elaborate on that.

Mr. R. Ryan

The purpose of this section is to exempt from income tax all payments in the nature of income, made to or in respect of Irish children deformed tragically as a result of the drug thalidomide by the foundation which was set up under statute by the Government of the Federal Republic of Germany. It also secures that income payments from the foundation will not be reckoned for the purpose of computing a child's income for the purposes of a claim made by the parent for the tax allowance for a child.

This section provides that payments from the German foundation are to be disregarded for all the purposes of the Income Tax Acts. This will secure that such income will be exempt from income tax and surtax and will not be reckoned as part of the income of a child for the purposes of a claim to child allowance by the father. The payments will be made from the German foundation which was established under Act of the Parliament of the Federal Republic of Germany on 17th December, 1971. The monthly payments are to be, we understand, not less than 100 DM, or about £13, and not more than 450 DM, or about £60. Under existing law a person with no other income would not pay tax on an income of £449, or nearly £38 a month. The total number of Irish thalidomide claimants was originally about 84 but there were subsequent tentative claims bringing the total number to about 150.

This provision is being made because, if it were not, Irish families with thalidomide children would find that the benefit accruing to their unfortunate children would be subject to tax. It should be noted that such payments are not subject to tax in Germany. It would be invidious if our unfortunate children were put at a disadvantage compared with children in Germany or any other countries where similar payments might be made. There is nothing in this section affecting any other income to which the children might be entitled.

Mr. Colley

May I take it that the effect of the section would be that payments received by thalidomide children, or their parents on their behalf, whether by way of income or lump sum, would be free of income tax?

Mr. R. Ryan

Yes. The nature of the payment does not matter. Any payment arising from this fund, capital or income, is free of tax.

Mr. Colley

I should like to raise another matter. One of my colleagues, Deputy Nolan, wanted to raise it and I suggested that this might be the most appropriate section on which to do it. The question which is causing some concern is: in a case where a workman is injured and receives a sum in compensation, the sum, or a portion of it, would be assessed in such a way that he could invest it and get an income therefrom to compensate for the loss of earnings which he would not be able to make as a result of the accident. The problem appears to be that, in such a case, the payment which he receives, is, of course, subject to tax, but he is not entitled to claim an earned income relief in respect of this because it is coming from an investment. In fact, the investment represents compensation for his loss of earnings.

If he had been earning he would have been able to claim the earned income relief. He is unable to earn because he was injured and the compensation fund designed to give him an income in place of what he was earning is taxed fully without any earned income relief. Deputy Nolan wanted the Minister to consider making provision to ensure that in such cases earned income relief would be granted. I realise that there are considerable difficulties involved. Assuming the Minister accepts the principle, primarily, the difficulties would be to distinguish between investment arising in the circumstances I have described and other investments. This is a valid point which deserves full consideration and I would ask the Minister to give it that consideration.

Mr. R. Ryan

I am not unsympathetic to the moral of the argument. As a lawyer Deputy Colley knows that when settlements are arrived at or when compensation is being awarded, an assessment is made of an injured party's likely loss of income as a consequence of the injury. In assessing the payment, account is taken of that person's income tax liability in whatever sum might be awarded. The Deputy will recall that any actuarial report invariably contains a statement of anticipated earnings, if the worker did not suffer injury, less income tax, and a sum is then calculated as being the appropriate amount. If this is to carry on its income an income tax liability, this is also deducted. These figures are taken into account before the figures are struck. Maybe there are some occasions when people overlook that but the legal and actuarial advisers take account of it.

As I am sure Deputy Colley appreciates, having had the onerous responsibility of being Minister for Finance, once you entertain compassionate grounds as a reason for not applying a more severe discipline of income tax, once you give a concession on compassionate grounds you open the floodgates. You would end up in a situation in which it would be very hard to distinguish between a person who was unable to work because of an industrial accident, a person who is chronically ill, or a person who was even feigning illness. That is the difficulty. It is much better to deal with the situation which Deputy Nolan and Deputy Colley adverted to by ensuring that when compensation is being assessed for an injury full account is taken of potential tax liability and compenstion is increased accordingly.

Mr. Colley

I appreciate the difficulties mentioned by the Minister. Deputy Nolan did not say to me what I am about to say. Possibly the problem has arisen because of certain recent legal decisions in regard to the manner in which compensation for loss of earnings is given and the relationship of income tax liability to it. I must admit that what I am saying is rather vague. I believe there were certain decisions recently in the Irish courts in this regard but if I get further evidence of this perhaps I could submit it to the Minister.

Mr. R. Ryan

Between us and the legal profession I am sure we will do the right thing.

Progress reported; Committee to sit again.