Capital Gains Tax Bill, 1974: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Ruairí Brugha

As our spokesman on Finance has said, we agree in principle with the idea of a capital gains tax. In any free society it is not healthy that some people can make money very easily at the expense of others while the working person is taxed highly, over-taxed in recent times, on the income he earns. Such a situation enables some rich to become richer at the expense of others who are not as clever or as slick as themselves. Socially, it is bad and causes grievance and envy among those who, for one reason or another are not able to gain similar advantages.

The explanatory memorandum tells us that the object of the Bill is to give effect to the White Paper proposals. I believe that the White Paper caused considerable damage to potential energy, initiative and confidence among the enterprising and energetic. It is not possible to assess how many people may have been deterred from enterprise because of what they believed to be on the cards and neither can we assess the degree to which the publication of that document may have helped to slow down the economy. We support the principle of just taxation. Our spokesman has put forward some suggestions on the lines that we consider to be more equitable and more beneficial than those being adopted by the Minister. We are questioning the proposal of a flat level of taxation. In adopting this proposal the Minister may be overlooking the earlier history of this country. It is not much longer than 100 years ago since people were driven out of Ireland because of privation, discrimination and hunger. Even up to the late 'fifties many of our people were giving their energy and their enterprise to other countries. However, I doubt that it is the intention of the Minister to discourage enterprise but it is our conclusion that the proposals before us would have that effect. I should hope that the Government would not wish to deter individual energy and enterprise in an economy such as ours.

We consider the Government to be erring in relation to the level of tax proposed in that there is no provision for dealing with the exploitation of people and property by slick merchants whose only aim in life is to be in the market place making easy money. When approaching a subject of this kind it is of the utmost importance to bear in mind the fact that the individual who makes money easily on the stock exchange, who engages in a sort of business of buying and selling property—perhaps land, the value of which increases rapidly because it is needed for development—should be made contribute to society and to the economy. It is important, also, that we should tap the energy and the enterprise of people who wish to make a success of life, who are willing to work hard in order to make a success for themselves and, as developers, to make a success indirectly for those for whom they provide employment.

The Minister should take a second look at that aspect of the proposals. I would remind him of the many efforts made by all Governments since the establishment of the State to bring about the development and the expansion of industry. This policy was begun in the 'twenties and it was accelerated considerably by the late Seán Lemass. Tremendous efforts were made by him particularly but also by those on all sides in general to bring life into what one might describe as a relatively derelict economy, to generate confidence among the people and to get them off their knees economically.

Those years of hard work, risk and effort brought about many changes, changes which we can see around us today. They even resulted in many thousands returning from abroad to find work here who had earlier been forced to emigrate. As the Minister said, it is right to collect tax in as equitable a manner as possible. Our spokesman put a good case for a different level of tax to be imposed on the get rich quick merchant as distinct from the hard working individual. Is this not reasonable. If a couple of men or women set up an industry, develop it, provide employment and put five or ten years into that enterprise, the level of tax for these people should not be the same as that imposed on those individuals who, as we have seen in the last few years, were able to buy quick in a market, sell within a year or two and make very large sums of money.

There is a danger that in putting our case we may be exposing ourselves to interpretation that we are on the side of the rich. It is futile to argue with people who think like that. In putting reasonable alternatives forward in the area of capital gains tax our main concern is fundamentally in the interests and expansion of the economy. I believe it is equally in the interests of the Minister and the Government to ensure that enterprise is not deterred.

It may be possible to arrive at different proposals to those put forward by our spokesman. He suggested a time limit of perhaps 15 years and a fall in tax over that period. I am sure the Minister would say that no method of taxation is perfect but I am very concerned that we continue to encourage investment, particularly by individuals, in business, industry and farming.

The Minister said that a person with means surplus to current needs can easily arrange to invest in low yielding investment with a view to converting them in due course into substantial tax free capital gains. I should like him to give a couple of examples when replying, because it strikes me that that is what the Post Office is doing at the present time.

People who have surpluses and no means of providing for retirement do this. In most cases their intention is to try to find some kind of investment which will at least keep pace with inflation. In the case of this type of long-term investment to which he refers, will inflation over ten or 15 years be taken into account? I am not sure from what he said whether it would be or not. For example, a person may invest in this way and have to sell if the investment terminates. I gather from the Schedule that certain stocks are excluded. There could be other types of stock which might have the same level of capital gain as one would find in Exchequer stocks which terminate in so many years. If it is that type of stock to which the Minister is referring, it seems to me to be entirely unjust. I should like an assurance from the Minister that the low yielding investments he has in mind will at least be covered by inflation.

I assure the Minister again that our aim is in the best interests of the economy to encourage the creation of jobs. I have another query to put to the Minister relating to the valuation of shares dated 1st April, 1974. As most people know most securities over the past two or three years have fallen by as much as 60 to 65 per cent. If an individual purchased shares five or ten years ago, is the purchase price to be taken into consideration in the event of disposal at any time? Or the value as at 1st April, 1974? This is important to a number of people. It would be unjust if the idea were to take the valuations not as of date of purchase but of 1st April last.

I appreciate that one of the dilemmas arising from our recent economic recession has been, in some cases, not the creation of wealth by a few people but the ease with which some people have been able to manipulate the market and make easy money either through the purchase of development land or the buying and selling of different farms.

I am sure the Minister will agree that the creation of wealth through expansion and development of resources, that is the creation of real wealth, is essential to any community because until wealth has been created through some kind of enterprise there can be no benefit for the community. To discourage a system of wealth creation through enterprise in that way in our society, simply because wealth for its own sake is seen as bad, is short-sighted. I believe that would be the effect of the overall flat level of tax being proposed. The implementation of the level suggested here could result in a slow down in economic growth. This could have the effect we talked of earlier referring to a previous occasion when employment was not available here and people had to leave. It could have the effect of exporting the most valuable resources any nation can have—energy and enterprise. People with these qualities want to achieve success and if they cannot do so here will try to do so elsewhere. If it were to have that effect it could only result in a more impoverished community.

Having said that, I would repeat that I, and I believe everybody on this side of the House, agrees with the Minister when he says that huge tax free capital gains are simply not defensible. I would agree that the maker of such a gain should be reasonably expected to pay a proportion of it in tax without hardship. I should like to assure the Minister that I am not concerned really with the question of hardship to an individual who has succeeded in making a substantial amount of money through some enterprise, particularly a development enterprise. I am concerned with the effect this type of taxation may have in deterring or discouraging that kind of enterprise. I hope the Minister will look carefully at that aspect before the Committee Stage.

The Minister said:

Because of the difficulty of establishing conclusively the detailed effects of any proposed tax changes on social justice, business motivation and economic efficiency the Government published, as the House is aware, in February last a White Paper on Capital Taxation.

The important thing here is business motivation and economic efficiency. If you tax somebody who has worked very hard for a considerable number of years in the same way as you would the person who makes money very quickly you will not contribute to the economy at all. You may slow down the economy, you may discourage people, you may create a feeling of lack of confidence in the prospects of getting involved in worthwhile enterprise.

I hope that when we come to the Committee Stage the Minister will have considered seriously what is being said from this side of the House in regard to that aspect of capital gains tax.

Mr. T.J. Fitzpatrick

(Dublin Central): I should like to reiterate what has been said by Deputy Colley in regard to the principle of capital gains. I have always held that profits on speculation should be subject to a tax of some kind. We know it is the intention of the Government to abolish death duties as from 6th April, 1975. I agree this will cost the Exchequer a certain amount of revenue and I believe this revenue should be collected in a particular type of taxation. The abolition of death duties inspired the White Paper on Capital Taxation. I, for one, welcome the abolition of death duties. I have always considered death duties an unfair type of taxation imposed at a time when the family is at its weakest. When speaking on Finance Bills I have always said there was a terrible injustice in death duties. However, we were issued a White Paper which included the present capital gains tax. It also included a gift tax, which will commence on 28th February, 1975; an inheritance tax, which will commence on 1st April, 1975; and a wealth tax, which will commence on 1st April, 1975. Therefore, in effect, we will have four taxes which the Minister said would just about cover the amount of death duties. The amount of death duties today is £13 million to £15 million. I believe those four taxes will bring in amounts far in excess of that. The Minister told us in his budget speech that the wealth tax proposals will come before the House shortly. Today we must confine ourselves to capital gains tax.

As Deputy Colley said we welcome this Bill with certain reservations. We believe that short-term speculation should be taxed. In fairness to everyone people who make substantial profits and contribute nothing to the economy should not be allowed to escape the tax net. There is need to revise the tax system in order to alleviate poverty and to distribute wealth in an equitable way.

Poverty can be created in many ways. There is poverty caused because of sickness and old age and this can be helped by way of social welfare benefits. The social welfare service was designed to help in such cases and this is how it should be used. There is also the poverty caused by unemployment and this is rampant in our society today where there are more than 100,000 people unemployed.

When we speak about poverty and unemployment, automatically our minds turn to the availability of capital. Without capital it is not possible to create the jobs that are necessary. In his budget speech the Minister spoke about an investment of £400,000,000 in the coming year. We welcome this because this is how we can alleviate a certain kind of poverty. However, we must be careful when we introduce taxation that we do not create more poverty. Although we welcome in principle the Bill before the House we are opposed to certain details in it. We must ensure that the legislation is used in a proper way and that we encourage investment rather than discourage it. The Bill is being directed towards a certain group who can deploy their wealth in other parts of the world.

If I were asked to say who will be affected by this Bill, I should be inclined to put them into three categories. There is a certain group, people who might be called the merchants of the world, who have no allegiance to any country. They will move their wealth to whatever country gives the best return and that section of the business world may be found everywhere. Generally, we have encouraged some of these people to come here. They have the best expertise available and they have no inhibitions with regard to pulling out their wealth if they find a haven that will give a better return. One does not have to delve too closely into the workings of their minds to realise what they are capable of doing. However, I think they are an asset to the country and the wealth and expertise they bring can create jobs and contribute to the economy.

The IDA gave grants and tax free allowances to these people to come here. I do not think that many came for the love of the country but were encouraged to do so by the incentives offered by the IDA. Exporting companies will be subject to capital gains tax as a result of this legislation and Deputy Colley mentioned earlier that he was not sure if there was a breach of contract on this aspect. Perhaps the Minister will deal with this point later.

There is another section who will make provision for this tax. These are the people who intend to remain in this country. In many instances they are families who have had a stake here for hundreds of years. They are the people who made provision for death duties in the past. They will take out insurance policies and in their future endeavours they will take account of the fact that 26 per cent of their returns will be subject to tax. I hope it will not inhibit such people with regard to the expansion of their businesses because they have a real interest in the development of the economy and they intend to remain here. The suggestions put forward by Deputy Colley were intended to deal with this type of person, not the merchants I spoke about earlier who move their finances from one end of the world to the other. The people I am concerned about have been involved in the business world in this country for many years.

There is another section who will not make any provision to meet this taxation. They will drift along as if this Bill never went through the House. Eventually they will be faced with the prospect of having to sell their businesses and they will realise they have not the assets they thought they had. There is a danger that when they realise they are faced with this kind of taxation they will hold on. Anyone having experience of the stock exchange knows that when shares drop there is no selling on the exchange. It is the normal instinct to hold on in the hope that things will improve. The same will happen with certain businesses where the owners will hold on hoping there will be an improvement but, ultimately, because they hold on too long things will get worse. It would be much better for the State if the individual or the company concerned sold on the first occasion to an enterprising person who could develop it, generate more wealth within the State and create more employment. These are the three sections of people that this capital gains tax will apply to. The last man you will find will hold on to that particular business, whether it is a factory or a company and not alone will he lose money but the same benefits will not accrue.

Before we start going into the details of this Bill we should see the broad implications of it. We must make sure that in no way do we inhibit the expansion of an industry or a business because what we might gain in the short term we could very well lose in the long term. It is important to give this initiative to people in business and see that they receive a proper return for the work they put into their business. I have already stated that our party are in favour of capital gains with certain reservations. We must ensure that too much capital which is accumulating within the country for a capital nature is not brought into the Exchequer and used in the current budget. If a scheme could be devised where capital gains could accrue to the capital budget I would see some merit in it but I believe that taxation from capital gains to be spent by the Minister for Finance in his current budget is not helping the State. I am quite convinced that it helps in the distribution of wealth.

Wealth is not distributed by taking it out of the economy and spending it in the current budget. If you sell a company at £100,000 that means that there is a capital gains tax of £26,000 on it. If a system could be devised to give that money back to the employees of that company, that is distribution of wealth. It is not distribution of wealth if you take £26,000 capital gains tax and spend it in the current budget. If we could devise some type of sharing the wealth of the country among the workers of companies and giving them shares in those companies that is what I would call redistribution of wealth. Until such a time as we devise a system whereby workers share in the profits of companies and have shares in those companies we will not have redistribution of wealth.

In section 3 (2) the Minister deals with the rate of taxation which will apply. He has stated that 26 per cent should apply right across the board, irrespective of how the capital gains is made or over how long you hold the property. This is one of the major errors in the Bill. There are some good points in it but I believe that section and one or two other aspects which I will refer to later are a big mistake. The Minister should have a serious look at this section. Let us take the case of a man who comes into this country, whether a foreigner or somebody in the know. He acquires property in a particular place in Dublin where he knows in advance about development that is to take place. There is nothing unusual for such a person to make a profit of £100,000 in 12 months.

Let us also take the case of a small business man who acquires a property on the 6th April, 1974, who gets married, settles down, rears a family and spends 20 or 30 years working in that business. There is nothing unusual for such a man to work 16 hours a day expanding that business or company. That person very seldom looks for benefits from the State. During the time he has expanded the business he has paid his income tax on profits from the business. Surely it is totally immoral to base the taxation at 26 per cent on the man who can make £100,000 in 12 months and the other man who has spent 40 years' hard work in expanding his business or company. We put forward a very practical proposal in regard to this issue. We believe that capital gains on short-term speculation should carry a rate of 50 per cent. Any man who comes into the country and makes a quick gain has not contributed anything to the country. He has created very little employment. The Minister stated today:

As things stand at present, a person with means surplus to current needs can easily arrange to invest in low yielding investments with a view to converting them in due course into substantial tax-free capital gains. Clearly such gains are postponed income.

I believe the Minister had in mind short-term gains. I thoroughly agree with him on that but I believe the rate is too low for that type of person. I do not believe the Minister had in mind the man who works over 40 years for the State. He should not be classified in the same category of taxation with the man who comes in and makes a quick profit.

We have put forward a practical proposal that short-term speculation should come in at 50 per cent, that it should be on a sliding scale over 15 years, and that after 15 years it should not be subject to capital taxation. If the Minister went along these lines the amount of revenue he would collect in the long-term would be just as large as what he is trying to collect on the basis of 26 per cent across the board. He would be getting 50 per cent from the person who makes a quick deal. One of the Minister's own colleagues, Deputy Edward Collins, agreed with this proposal, and said some distinction should be made between the businessman who spends his life in the country and the short-term speculator. We also propose that if a person is employed full-time within a company, half these rates should apply. These suggestions will give an incentive to the man who intends to live in this country and to expand his business. Not alone will this be of benefit to himself but also to the country. He will be bringing up his family here; he will be contributing taxes, and giving employment. That is the type of taxation which must be devised if the economy is to progress. It was short-sighted to take a round figure of 26 per cent and apply it to all categories of people.

The Minister had made no provision in his Bill to cover inflation. In passing, he said that by taking the lowest rate of income tax, not raising it to the higher rates, he is taking account of inflation. This is not true. Last year inflation ran at 18 to 20 per cent. It does not take long to calculate that, if a property is valued at £100,000 on 7th April, 1974, and inflation runs at 20 per cent, in five years that property will, due to inflation, be worth £200,000. If the cost of living rises by the same rate as last year, and the other expenses such as insurance and so on continue to increase, the man who sells his property in five years' time at £200,000 is not one penny better off than if he sold it in April, 1974, at £100,000. In effect, the Minister is taking £26,000 on £100,000, which he considers to be a capital gain. That is not a capital gain. The purchasing power of £200,000 will be equivalent to £100,000 in five years' time if the present rate of inflation continues. If the Minister makes no provision for inflation, and if inflation continues at its present rate for 20 years, he will have the whole property within the State. The Minister may say he will do this or have a look at that, but that is not sufficient. So that there can be no dispute there should be a provision in the Bill that adjustments will be made from year to year according to the cost of living index. It would create too much doubt to depend on any Minister for Finance, whether he be a Fianna Fáil or a National Coalition Minister. I hope that on Committee Stage the Minister will insert some clause to take account of inflation. Eight or nine years ago inflation might not have played as big a role as it does today, but there is no guarantee under world conditions what the inflation rate will be next year. It could be 25 per cent for all we know. If you taxed capital gains on that rate of inflation, with the cost of living running proportionately high, the result would be false, and the £13 million or £14 million the Minister is seeking in lieu of death duties would be made up tenfold. Not alone that, but it would undermine confidence and have a detrimental effect on the economy whose expansion we are trying to encourage.

I am wondering how the Revenue Commissioners operate the valuation provisions. The Minister has provided in the Bill that 6th April, 1974, will be the operative date for the value of property. I can see injustices arising. A man may have a business valued at only £40,000 in 1973, and he may have spent £30,000 building it up during 1973. At the start of 1974 its value will be £70,000. The Revenue Commissioners, in order to calculate the assets and assess the value, will require balance sheets and business accounts, but that business will not have developed its full potential until 1974-75. Some concession should be given here, because if that man had invested that £40,000 in a business in 1971, its full potential would be seen in 1973.

The person who invested £30,000 would be subject to capital gains tax on the results of that investment, which could be as much as £70,000. Some type of concession should be given to a man who invests that kind of capital prior to the introduction of this Bill. Otherwise he will be unfairly hit because, had he deferred this investment until 1974, he could claim against the valuation.

I hope the Minister will have another look at this in relation to those cases in which it can be proven conclusively that the money was invested in expanding the business. A great deal of capital is ploughed back into business. People might sell shares and invest the proceeds in business. They might have other means. What proof will the Minister want that the £20,000, or whatever it is, did not come from the business? What proof will he want that a man invested £30,000 after 1974 in expanding his business? Will receipts from builders and people like that suffice? Will it have to be shown in his tax accounts? People who have money left to them very often plough that money into a business. I hope the Minister will make some provision for those who expand their businesses when it comes to revaluation some years later.

There are provisions governing the disposal of property. This is akin to the provisions which encourage farmers to dispose of their farms when they can no longer run the farms themselves. It is a good idea but here again there will be borderline cases. There may be people who through ill-health will be forced at 45 years of age or 50 years to sell their properties. A father with four or five children might find himself unable through ill-health to carry on and might be forced to dispose of his business; he will be subject to capital gains tax. There should be special provision made for people like him. Again, a widow might not be able to carry on her late husband's business and be forced to dispose of the business. She might have six or eight children. If she disposes of the business and she is caught in this particular net, as she will be as the Bill stands at the moment, she will be subject to capital gains tax. I know it is difficult to cover every case, but there are certain categories which should not be penalised.

With regard to the provision governing transfer of a business to a family after the stipulated ten years' possession, I should like to know what the situation will be in the case of a man who wants to transfer half or three-quarters of his property to a son after five years' possession? Will he be subject to capital gains tax? This is the sort of situation that could arise.

I am glad the Minister has clarified the position in regard to the transfer of property to a niece or a nephew. Very often a childless couple rear a niece or a nephew. Had this provision not been brought in we intended to table an amendment along these lines.

Compulsory acquisition was touched on here this evening. This is something that will inevitably arise in the course of time. The Bill makes no provision in relation to the man who is forced to sell his property to the local authority. He may have spent 20 or 30 years on the property and it is now being acquired for road widening or development. By and large, the majority of this property is acquired from people who have no choice in the matter of selling to the local authority. This will be subject to capital gains tax.

This is very much a Committee Stage Bill, a technical Bill. It contains certain anomalies which I hope the Minister will take into consideration on Committee Stage. He will certainly have to consider the question of the inflation clauses and give an undertaking to the people generally that capital gains will not absorb the entire assets after 20 or 30 years which it will if it is left in its present form.

The rate of 26 per cent should be looked at. I am not speaking from a political point of view but from a businessman's point of view. If a man spends 20 or 30 years of his life building up a business, expanding it and paying his taxes to the State, he should not be classified in the same category as a speculator who makes £200,000 or £20,000 of easy money. The suggestions we put forward would meet that type of situation. The Bill would be far more welcome if it were framed in that fashion. We are not particularly concerned about the number of years, or how the Minister decreases the percentage charge, once he applies the principle that if a man has worked in a business for 15 or 20 years he should be exempt from capital gains tax. Otherwise we will be putting a penal tax on him.

We always seem to model ourselves on the British system. By and large, there is very little difference between this Bill and the British legislation on capital gains. When the Minister was framing this Bill he should have looked at the tax systems throughout the EEC countries. I read somewhere recently that in France and Denmark they built in provision for capital gains and that provision is reviewed every so often. We are trying to encourage capital into the country. We are not a rich capital country like the industrial countries of Western Europe, countries with a history of development of their industrial arm. Germany has the wealth of the Ruhr. We cannot classify ourselves as a rich country like that. Our aim must always be, combined with a fair type of taxation, to encourage capital into the country, to encourage businessmen to come here and bring their expertise. To generate more employment we must design our taxation along these lines and forget about taxation systems as they exist in other countries. We must form our own opinion as to what is best for this country. We should be politically mature enough to be able to do that.

We welcome a Bill on capital taxation. I have always held the view that a person who makes easy money without contributing anything to the State should be taxed at a very high level. We mentioned 50 per cent. The man who spent his lifetime contributing to the State should get the benefit of the doubt. By all means get the money from the speculator. Capital taxation should be channelled into a capital budget to expand the economy. I know that when the Minister puts his hands on this type of taxation it will automatically find a home in his current budget. This White Paper will not distribute any of the wealth of the country. That is not distributing money. That is not the way to divide the wealth of the country.

If you want to distribute wealth take £20,000 from a company and give it to the workers. That is what I call the distribution of wealth. If such a scheme could be applied it would generate a good healthy economy. We know the amount of money wasted in current budgets and that is non-productive. Today we are going into another deficit of £125 million. That is non-productive. Let us hope that if this capital taxation is to work it will work in a practical manner for the benefit of all our people. Let it work to create new jobs, alleviate unemployment. By doing that more wealth will automatically be made available for social welfare benefits to give to the old age pensioners and the disabled. These are the people for whom we should really design our social welfare benefits. Unemployment benefit is only a short term benefit for which the social welfare scheme should never be designed.

Our attitude should be to generate wealth and employment and give people a good standard of living, and that is what I hope will be achieved. I do not see that capital taxation will do a great deal in that respect, but we must keep these objectives in mind. Generally, we must keep in mind that any type of taxation introduced will not inhibit our economic expansion and will in fact encourage economic expansion and it must be designed on those lines. Otherwise, the country will get into a worse situation.

I hope that the Minister, on the Committee Stage, will be generous in dealing with the suggestions we made. I think if he canvassed his own backbenchers' opinions they would agree that the built-in clause for inflation is a practical one, one that would be expected in the raging inflation we are experiencing. The other point is that we think 26 per cent across the board is wrong. Let us adjust the short-term speculation rate upward to 50 per cent; let us bring down the genuine man who, as has already been mentioned, has contributed something to the State to 1, 4, 5 or 3 per cent. I do not care what percentage the Minister has in mind provided we change the principle and that the short-term speculator is not taxed at the same level as the man trying to expand his business.

Mr. Staunton

Coming from a somewhat similar business background to that of the previous Deputy I feel I should make some remarks on the Second Stage of this Bill. Like the vast majority of people, I detest taxation and I do not particularly like capital gains taxation or wealth taxes, but I welcome this Bill for a simple reason that has been overlooked in much of the debate about tax since the present Government came into office. The Government had a commitment to reform the tax structure and there was a particular commitment by the National Coalition Government in the abolition of death duties. In the welter of publicity— there was some valid criticism but there was more that was much less valid and much more malicious—there has been a complete lack of objectivity in the debate in the taxation arena which is an area where it is desirable and possible to be precise and to quantify to a much greater degree than in many other areas.

If we are talking about reform of the tax structure and getting rid of death duties, let us revert to the welter of debate three, four or five years ago especially among the interests we are talking about, the business community and the farming community in an era of rapid appreciation of assets in our farm land, about the supposed appalling injustice of death duty taxation. It seems obvious to me that the Minister in addressing himself to the problem, if he is serious about getting rid of death duties—which he is and which he guaranteed many months ago would happen on the 5th of April this year and is in fact going to happen—it is his obligation as custodian of the purse to seek the areas in which the State would get the funds to allow for the abolition of death duties. To that effect, the Government introduced the White Paper on Capital Taxation about which there was a great deal of debate. That was a very healthy exercise because it forced people to crystallise their views on taxation and think fairly fundamentally about these issues we are discussing, such as capital gains taxation. The response I had from interested parties when that paper was produced was a broad acceptance of a capital gains tax proposal provided it was a reasonable one and infinitely more criticism from many of the same people of the wealth tax proposal.

It seems to me that capital gains taxation is inevitable. Statistics shown to us of other European countries indicate it is happening in the vast majority of those countries and it is interesting that wealth tax, introduced somewhat more controversially, applies in about half those countries. I believe the arguments in favour of introducing this type of taxation to be indisputable. Let us reflect on what death duties meant. They were a most penal and inequitable form of taxation, completely loaded towards odd circumstances and chance as to whether an individual lived or died in a certain number of years or had the good fortune and circumstances to be able to pass on his assets. The result was that many families, people holding very substantial assets in the country, had no liability whatever in the area of death duty taxation. The inequality came into it. It was like playing Russian roulette. There was a small proportion of families in this category who happened to pull the wrong trigger and as a result were salted to a degree that in many cases it meant the breaking up of families, disposal of assets such as business property or farm land, division of estates. It was completely unjust and penal. We must remember this and stop talking about the present Government being anti-this, or anti-commerce or against progress or socialist to the degree that we are going to fleece the business community. This is not true; we are merely improving the equity of the tax system by this measure.

I welcome the reduction contained in the more recent proposals for the rate of taxation in the capital gains area from 35 per cent to 26 per cent. I welcome the exemption of private residences from taxation and I also welcome the clause welcomed by Deputy Fitzpatrick regarding nephews and nieces. This was a sensitive area in regard to which there was a good deal of criticism in respect of the original proposals. Nephews and nieces are obviously part of the broader family and of the family link. I think the Minister in his speech referred to nephews and nieces in deserving cases. I believe this needs to be expanded. There is need for a liberal and broad approach, looking on nephews and nieces as part of the family structure, which is strong and close and tight-knit in this country. The Minister should consider allowing such provision.

I welcome also sections 26 and 27, which relate to the disposal of farms and businesses by persons aged 55 years and over. It will encourage an early transfer of business to young people, something that is desirable. I am aware that at a later stage we will be debating this Bill section by section and I hope that then the Minister will expand his remarks about inflation because he spoke of adjustments to the thresholds to cater for inflation. In my view this is an inherent weakness at present in any proposals in the taxation area. We are living in this age of rampant inflation which must be taken account of. If somebody has an asset which in 1970 was valued at £10,000 and which in 1975 has a value of £15,000 it does not by any stretch of the imagination mean that the profit of the difference between the value and the sale of the asset has been made. Traditional attitudes to this question of allowing for inflation and the validity of low profits as profits are being questioned and there is likely to be a change in traditional practice there. The Minister, on Committee Stage, should have regard to this issue and be lenient. Since my election to this House I have always found the Minister for Finance to be a good listener.

Mr. G. Fitzgerald

It may have been a question of being pressurised or being threatened by some of his own colleagues.

Mr. O'Malley

And 100,000 are unemployed.

Mr. Staunton

That is a reflection on the criticism being offered by Deputy Fitzgerald. Statistics show that we are having the highest level of industrial development and investment. We have had the highest rate ever of industrial exports, largely produced by companies controlled by foreign interests. If what the Deputy is saying is true it means that many non-nationals have a lot more confidence in this country than some of our national critics in the commercial area. That is a sad reflection on those critics in the area of commerce where they can be precise. When they come to tackle this Government they make these broad snide criticisms without applying the same standards they would in the commercial world.

Mr. G. Fitzgerald

Would the Deputy deal with the employment situation?

Mr. Staunton

I will explain it to the Deputy to a degree. A great deal of the unemployment in the State is happening as a result of the movement towards free trade. It is happening specifically in sectors of industry in which it was forecast eight and ten years ago that there would be serious problems of redundancy and unemployment. Even if there was a boom today in the world economy and in the Irish economy, many of the unemployment statistics would be there and the Deputy knows that.

Mr. G. Fitzgerald

Was the full extent of the free trade the Deputy referred to really necessary?

Mr. Staunton

In general what is happening is that there is a small erosion in what had been a totally conservative and laissez faire approach. I believe the movement that is happening is in the national interest. I compliment the Minister on his initiative and on the infinite patience he has shown over the past 18 months in teasing out the problems in this area. I hope the Minister continues to be the good listener I have found him to be and pays some attention to the matters I have raised.

Mr. O'Malley

This Bill relates to capital taxation and is proposed, we believe, as one of three measures which would create a new form of capital taxation. We are in the very unsatisfactory position today of discussing one of those measures, and one only, without any knowledge whatever, other than the very broad knowledge we gleaned from the White Paper that was amended subsequently, of what will be the proposals or provisions in relation to the remainder of capital taxation.

If the new system of capital taxation is to be under three headings, in my view, it is unrealistic to try to discuss one-third of it without knowing what will be the other two-thirds. Those three Bills should have been introduced and circulated more or less simultaneously, so that no one of them would have to be taken while we were in the dark about the provisions of the other two. There is no doubt that inevitably there must be some element of overlapping in these matters. We have it in this Bill in the introduction of the gift concept as a disposal for the purposes of chargeability to capital gains tax. We were told that the gift tax, or the capital acquisitions tax, was a separate matter altogether and would be dealt with separately in a Bill of its own. Here we have it brought into the Capital Gains Tax Bill. It is very difficult to take a global view of the Government's proposals for capital taxation on a Bill which deals approximately with one-third of the topic while we are unaware of the provisions in relation to the other two-thirds.

We have been told a number of times that death duties are to be abolished on 1st April next. I think we have been told that for the past year or thereabouts.

Mr. P. Belton

You have been told it for one year.

Mr. O'Malley

In spite of the fact that we have been told it for one year, we are now getting very close to the 1st April, 1975, and we have only one of three Bills that apparently are necessary to provide a substitute form of capital taxation. If death duties are to be abolished on 1st April—and I think the "if" should be printed in capitals—we would have to have these other Bills immediately, because if they are to be anything like this one they will not get through this House by 1st April unless what happened in this House, unfortunately, last summer happened again; in other words that they would be guillotined through without any discussion.

This Bill is very complicated. We have been talking about it today in general terms only. Its real discussion will take place on Committee Stage. The Bill runs into 78 fairly large, closely printed pages. The Schedules alone run into something over 30 pages. Has the Minister read the Schedules? Does he understand the technicalities of them? I find the Bill, to say the least, very difficult to follow. To debate that Bill properly on Committee Stage would require approximately ten full sitting days. I cannot see it being done properly in less than that. But, after we have been about two days at it I can foresee a situation where the Government Whip will be coming in here kicking up rows about it. We shall have progressed only to about section 10 or section 12 when the guillotine will be introduced, as it was on a most complicated Finance Bill last year, the bulk of which went through without any discussion at all. It is not good enough that these Bills are produced very late in the day, very close to a deadline that has been set. This Bill, unless it gets at least ten full sitting days on Committee Stage, will not be discussed properly and will not be understood by even a fraction of the Members of this House. I should like to put the Government on notice straightaway that we will require at least ten full sitting days on the Committee Stage of this Bill and another day or so on the Report and Final Stages.

I imagine that the Capital Acquisitions Tax Bill and the Wealth Tax Bill, if they are to be gone ahead with, will be as complicated. If they are, they will require the same sort of time. I do not know how many sitting days are left between now and 1st April but there cannot be that many and there is a great deal of other business that has to be dealt with in this House also. We are going to have a situation in which our whole capital taxation structure will be radically changed, not by discussion in this Parliament but by the repeated use of the device so beloved of the Government, the guillotine, and which they used to put through the last two Finance Bills.

It will be recalled that there was a delay of over three months in producing the Finance Bill last year, with the result that there was virtually no time in which to discuss it. We ran into the end of July and the Government guillotined it through. These Bills are very important. They are about the most important Bills that go through in any parliamentary year. They receive a fraction only of the attention to which they are entitled. Instead, the House has to spend long, tiresome, useless days discussing Estimates that are of limited value only, when these Bills and similar business will not be ordered.

Our position with regard to taxation of capital gain is that, in principle, we see nothing wrong with it, provided it is clearly recognised there are numerous different types of capital gain, some of them much more worthy of taxation than others. But unfortunately, this Bill does not recognise that fact at all. It imposes one single, blanket tax on all forms of capital gain. It was demonstrated this evening by Deputy Fitzpatrick and earlier by Deputy Colley and others who spoke from this side of the House, that it was most unsatisfactory, unjust and inequitable that all forms of capital gain should be taxed in precisely the same way. Deputy Colley, when he spoke this afternoon, set out an alternative, sliding scale of tax which we feel is a fair method and which I think some of the Government backbenchers who have spoken agreed was a fairer method of taxing capital gains than what is proposed in this Bill.

It is very difficult to define speculation in the sort of way that would be appropriate to a Finance Bill or a Bill such as this. But, from a point of view of unworthiness of profit, if I may put it that way, the shorter the period for which an asset is held and whose disposal results in a gain, then the greater the degree of unworthiness there is attached to that gain and the greater the justification for a substantial higher rate of tax on such a gain. Deputy Colley set out this afternoon a perfectly simple, sliding scale: that the top rate of capital gains tax should be 50 per cent; that it should apply to gains made within a year of acquisition of the asset and that the scale should decrease by 4½ per cent per annum until it disappeared altogether at 15 years.

Deputy Fitzpatrick gave examples here this evening which were perfectly valid. I do not need to give others. Deputy Fitzpatrick gave the example of a man who had built up a business, perhaps through the greater part of his lifetime, and who disposed of it. He may be assessed for a huge capital gain because, technically, there may be a huge capital gain there. But he is assessed at exactly the same rate of tax as a man who bought mining shares in some Canandian or Australian mine, or perhaps hopefully in an Irish mine if the present situation was clarified, and who made perhaps £1 million in a matter of weeks.

We had an example recently in Ireland of precisely that situation. A million pounds made in that way should attract a much higher rate of tax than the capital gain of a businessman who has spent his entire life building up the assets of his company and who, as has happened very often, has not drawn from that company the kind of salary and benefits that he would be entitled to draw throughout his working life but who saw the company as something he was building up to the stage where he could sell it when he wished to retire when the benefits he did not draw during his working life would accrue to him and would ensure that he and his wife could live in reasonable comfort in their retirement. The ground has been taken from under the feet of such a person by these provisions. It is not that it is wrong to impose some form of capital taxation on him but it is very wrong to charge him exactly the same rate of tax and the same amount of tax as would be the case in respect of a similar gain made by a complete speculator who never contributed any capital or effort to anything but who made a similar amount of money on the stock exchange in, perhaps, one to three months. That situation is wrong in principle. It is wrong in social justice and the Government should not seek to support it now that it has been pointed out clearly by several speakers, including a backbencher from the Government side.

Another aspect of this Bill which disturbs me and to which I referred earlier is the fact that a gift has now been brought into the provisions. This was not envisaged in the White Paper of 1974 and properly not envisaged because if and when the Bill to provide for a gifts acquisition tax is brought before the House and passed people will have to pay on the double. Presumably, they would have to pay the gift acquisition tax and the donee of the gift must pay capital gains tax on the acquisition of the gift. This brings me to the problem to which I drew attention at the outset, that is, that it is impossible to discuss the merits of this aspect of the Bill without knowing what are to be the provisions of the capital acquisitions tax Bill. It may be that some provision will be made for the avoidance of double taxation as between the two forms of tax but we do not know that. Presumably, and especially if the gift were to a near relative, the rate of capital acquisition tax would be considerably less than the 26 per cent rate which the gain element would attract by reason of the provision here.

However, apart from drawing attention to that point I cannot develop it since I do not know what are the provisions in the other Bill. Therefore, we should not be asked to debate one-third of this package in a vacuum. So far as gifts are concerned it seems strange that acquisition by way of gift is regarded as a disposal for the purpose of capital gains tax but that acquisition by way of death is not so regarded.

There has been a tradition in our more recent fiscal legislation that older people be encouraged to give up their property at an earlier age to their children or closest relatives, as the case may be. There are many provisions in our Finance Acts down through the years attempting to encourage that very desirable social necessity because, unfortunately, we have a tradition, particularly in rural areas, of people tending to retain their property almost to the grim death. This is because some people believe that to get rid of their assets would put them in a weak position and that they might have to go into a county home or some such place. The result is that very often a productive asset such as a farm or cash that could be used for investment is retained by people in an unproductive way for a long period when it could have been given to a much younger person and used productively not only for that person's benefit but for the overall national benefit.

There is in this Bill the very antithesis of what has been the tradition in our recent fiscal legislation. There is here an encouragement to people to hold on to property in order to avoid capital gains tax because the passing of the property, as a result of death, will not give rise to a claim for tax whereas the passing of the property by way of gift will be liable for tax. The social consequences of this thinking are bad and run counter to what various Governments down through the years have been aiming at.

One popular form of gift, although it has always been regarded in law not as a gift as such but as a valuable consideration, was the marriage settlement. This had the double advantage, first, that when property was handed over by way of a gift in consideration of a marriage, it did not bear any stamp duty and, secondly, the property became and remained free of liability for death duties. In recent years the amount which could be handed over tax-free was limited but the provision was a useful encouragement to people to hand over their property. I cannot find in the Bill any provision to take account of this long established right, almost, that people have enjoyed in regard to marriage settlements and gifts made in consideration of marriage. However, that is not to say the provision is not here as the Bill is a long and complicated one.

The Bill deals only with the gain element in gifts and the tax is not on the gift. However, with inflation at the rate it has been since this Government took office, the likelihood is that in a few years' time the gain element in any gift, as against 6th April, 1974, will be the very large proportion of the value of the gift. That brings me to the question that has been referred to by Deputies Colley, Fitzpatrick and others, that is, that this Bill fails totally to take any account of the rampant inflation being experienced by us. If, say, in 1970 my house was valued at £10,000 but in 1980 it was valued at £20,000, the probability is that the house would be worth less in 1980 than it was worth in 1970 because £10,000 in 1970 would have had greater real value than £20,000 would have in 1980. Under this Bill I would be regarded as having had a capital gain as from the 1974 value to the 1980 value which might, perhaps, be £6,000. In the example I have given—I should not have used the word "house" but an "office", farm or some other asset—I would have been expected to pay 26 per cent on that £6,000 even though I would not have been better off in real terms but probably worse off. That, to my mind, is another aspect of the unjust and inadequate approach of this Bill. Again I emphasise that I do not see anything wrong in the principle of taxing a capital gain. These factors about which I have been speaking must be taken into account. This Bill fails to do that.

The Bill proposes to exempt from capital gains tax all Government, local authority and State board securities. This will, of course, be a considerable encouragement to investors. Large sums of money may be invested, which might not otherwise have been invested. This is good. At this time industry is very heavily under-capitalised. If all Government and public securities are to be exempt from this tax, the Minister should exempt if not all Irish equities or ordinary shares, at least any new money raised from now on on the public market in Ireland for Irish companies to be expended here on productive matters and in a productive way.

The amount of money raised on the Irish stock exchange for industrial or commercial purposes is nil. In today's paper there is a prospectus by a firm inviting the public to buy shares. This is the first prospectus to appear from an industrial or commercial company on the stock exchange for the past 15 months. The only other prospectuses which have appeared during that time have been Government securities. Nobody has attempted to raise money on the stock exchange because he knows he would not get it. People also know that they could not get anyone to underwrite their efforts to raise money. Today's prospectus is not a very good example because it is not really a commercial transaction but an appeal aimed mainly at horse breeders to take a stake in this company for sentimental rather than financial reasons. Financially it is not very attractive.

If the Minister were to accept my suggestion that attempts to raise new money by Irish industrial or commercial firms for productive investment here were to be exempt also from this tax, he would not lose very much because these securities will not make rapid capital gains. Hopefully over a longish period when the investment begins to come to fruition, it may be ten or 15 years, they will show some capital appreciation. In the short term the Minister will not be at any loss. He might do a great deal to encourage money which is lying about at the moment in unproductive places to be put to valuable use. The creation of employment must surely be the principal objective of any Irish Government. At present there are more than 100,000 people unemployed.

Very strangely neither here, in the budget nor elsewhere have we any estimate from the Minister of how much this tax will bring in. Members will recall that in any budget speech the various suggested taxation changes have always noted the amount they will cost the taxpayer or the Exchequer, the amount they will save or raise, as the case may be. Here we have a system of taxation in which the Minister has refused, over the past year, to give any estimate of what it is likely to raise. He said near the end of his speech——

I can say that the net yield in the current year is not likely to be significant.

I agree with him. It is likely to be very insignificant. Apart from the last week on the stock exchange, I doubt if there were 50 people who had a capital gain since 6th April last when everything was going down. It may be that certain people got in and out in the past week on certain Irish shares which happily did very well. Some of them could have made up to 80 per cent of their money in a week. If they did that, it is regrettable that they will be charged only 26 per cent while the man who slaved all his life will be charged exactly the same rate on his capital gain.

It is very difficult to talk about this tax or the general capital taxation proposals of the Government broadly, unless one knows what they will bring in. Then one can compare them with death duties which last year yielded over £16 million, a very small amount of money out of the total budget. That money was raised with very little difficulty on the part of the Revenue Commissioners because it is the easiest tax to collect. It causes hardship in a very limited number of cases. It is usually only by the sudden deaths of young men that hardship is caused. Most older people if they have a significant amount of property have already passed on their property. This is socially a very desirable thing to do. We are led to believe, although I find it hard to do so, that death duties will be abolished on 1st April.

I would like the Minister to confirm that these three Bills will go through the Oireachtas with proper discussion and not with the guillotine as we had last year. It is very important to tell us exactly when they will be published. We are now coming to the end of January. Easter Sunday comes before the end of March so we have less than two months before the end of this session. I wonder will all this complicated and novel legislation be passed by this House and, if it is, will it be passed by guillotine? It is not good enough that these new forms of taxation should be brought in at the last minute and pushed through. The Minister would be better advised to suspend the operation of these new forms of tax for another six or 12 months, and have those Bills properly examined because obviously they are very complicated. Many anomalies, difficulties and injustices will arise out of them and we need a lot of time to go through their provisions very precisely. This Bill runs to 78 pages and that is only one-third of what we are told to expect. I do not know whether the other Bills will be more or less complicated or lengthy but I suppose they will be approximately the same. It is not something that Deputy Colley in particular, as our spokesman on Finance, looks forward to, I am sure, over the next few months. He will have to endeavour to deal with all those Bills in great detail.

Some very useful suggestions have been made from this side of the House today. They will, if accepted by the Minister, and Deputy Staunton told us what a good listener he is, improve this Bill and make the system of a capital gains tax a much fairer one than what is proposed under this Bill. The Bill will meet with far greater public acceptance than if it went through unamended. The degree of social justice which will be achieved by the Bill will be very significantly higher if the suggestions made by Deputy Colley and others on this side are accepted.

Mr. Briscoe

I cannot believe the Minister is serious in introducing this Bill or, if he is serious, I fear he is again unware of what he has in his hand. It occurs to me that the Minister does not understand the Bill he has presented to the House. This has been evident in much of the business which has been presented to this House by him on previous occasions. The net result of this is a lack of confidence in this country on the part of outside investors. I hope the Minister will take a hard look at this Bill and try to appreciate that the contributions made by Fianna Fáil speakers today were not made for the purpose of looking for political advantage but were made in the interests of the future development of this country in the commercial sphere. Fianna Fáil have been accused constantly of being against capital tax. This is not so and any impartial observer who reads the contributions made today will realise that the contributions from this side of the House have been very fair. For a long time there has been an outcry against the speculator, the man who comes in and makes a quick "kill", either on the stock exchange, through land speculation or in some other way. I believe this criticism is justified. I believe that a person who, without any investment of his own capital and without any work but because of a tip-off or some other information makes himself £100,000, £200,000, £500,000 or £1 million, should not be allowed to get away with that kind of gain and it is not an injustice to ask such a person to hand over at least half of that gain to the Exchequer. I cannot see any reason for the Minister to disagree with that and I hope he will assure the House that this is an approach which he is ready to consider. There are members of his own party who are engaged in commerce in this city and it would appear to me that their advice has not been sought in relation to the preparation of this Bill. It was normal practice when Fianna Fáil were in Government for any Bill to be fully discussed at party meetings before it was presented in the Dáil. I wonder was this Bill discussed with the members of the Minister's party. There must be many members of his party who are very dissatisfied with it as it stands. The point made by Deputy O'Malley in relation to a business that was, say, purchased for £10,000 and after a period of 10 years, because of inflation, is now valued at £20,000 and sold for that amount was a good one. He said that such a person would have to pay as much as £6,000 in tax even though the purchasing power of the £20,000 would not be as great as that of the £10,000. This is a cogent argument This Bill is full of anomalies. This debate will open up a discussion among the public. The Minister is frequently quoted as saying that he welcomes suggestions from all sections of society and that the public should make submissions. Time must be given for people, on the basis of the debate that has taken place today, to submit their views because their attention will have been drawn to anomalies in the Bill. I wonder to what extent the Minister has already consulted outside bodies about this. I find it difficult to believe he has done so. Where a property is compulsorily acquired by the State or by a local council the owner will have to pay capital gains tax on what he gets from the sale. He is forced to sell against his will and then has to pay a portion of what he gets to the Exchequer. This is something that will have to be looked at closely on Committee Stage.

One of the cries in the country recently has been that it is a crime to succeed. We must continue to encourage people to invest, we must encourage them to succeed in business. The people we want to catch in a Bill like this are those who succeed in business without trying—if I might use that phrase. Those who are interested in building up their business, thereby creating employment, must be encouraged.

Our country must be seen as a land of opportunity. Formerly if a person was a success here he was hated but a failure was loved. In America the reverse obtained: if a person was a success he was loved but the failure was hated. The reason for the attitude in Ireland where there was jealousy with regard to a person's success was that for a long time opportunity was limited to a few people. However, since the early 'sixties opportunities have opened up for more people and we are getting to the stage that we laud success.

We must encourage people to come here and establish businesses. Many companies have come since the industrialisation programme and they did so in order to make a profit. If they are unable to make a profit they leave; they are not here because of a sentimental attachment to the Irish people. They came because they were interested in setting up businesses to make a profit. I am thinking of such industries as the cosmetic industry that supplies the Irish market. I am not referring to the companies that export only and who do not pay tax on their exports.

I would ask the Minister to have another look at the Bill and to accept the suggestions made by this party in the constructive spirit in which they were meant. We should not take the criticism of this Bill in a personal way but consider it in the interest of our future development. It is important to stress that the suggestions for the alterations made by our party were not made because of political opportunism. They were made in the interests of the country.

I would stress again the justice of ensuring that the person who makes a capital gain in a short period, for instance, in one year, pays much more in capital gains tax than the man who has worked hard during the years to build up a business. I credit the Minister with sufficient feeling and instinct to recognise that there is a certain justice in this argument and I hope he will confirm this in his reply.

Mr. P. Belton

Fianna Fáil must be in favour of the Bill because so little has been said against it. A capital gains tax should have been introduced long ago and Fianna Fáil should bow their heads in shame that they did not do so 20 years ago. It was badly needed, particularly with regard to land speculation. They cannot complain too much at this stage.

I am not referring to the man who makes £1 million quick profit on the purchase or sale of land but when taxation is collected from other sources we must ask how much will be used for social benefits? How much will be eaten up by State bodies? CIE have lost £14 million. How much will be used by civil servants or nameless people who spend half of the money in order to collect the total amount?

A tremendous amount can be said for the taxing of shares. Hitherto there was an unequal position here because the worker who could not afford to buy shares had little chance to make any money free of tax. On the other hand, the man buying and selling shares did not pay any tax. With regard to capital gains generally the Minister is correct in the figures he mentioned. Fianna Fáil referred to a starting figure of 50 per cent, reducing by 4½ per cent per year so that in 11 years there would be nothing. In order to attract money here we must have a lower rate of capital gains tax than in England or elsewhere. The Minister was correct to take advice from the various business people, the FUE and the chambers of commerce whom he met. He was correct to reduce the tax figure to 26 per cent.

I do not agree with Deputy Colley that the rate should be reduced by 4½ per cent every year so that it would be nil in 11 years' time. Neither do I agree with Fianna Fáil who stated that compulsory acquisition should not be taxed. If that were done people would not sell land but they would wait until a CPO was put on their land. The corporation would not be able to build houses because land would not be available.

I agree with Deputy Fitzpatrick that when a person buys a premises and keeps the business going for 20, 30 or 40 years he should not be liable for capital gains tax. I realise that the Minister had said he will give an allowance each year to cover inflation. Let us consider the 11 years suggested by Fianna Fáil and take as an example a premises such as one of Mooney's publichouses that might be worth £200,000. Inflation is going up at the rate of 20 per cent but it is a general opinion in western Europe that it may be reduced to 10 per cent or 8 per cent. Twenty per cent of £200,000 is £40,000 and at 11 years it is £440,000 by which the premises will have increased in value. That means the Government can take 26 per cent when the premises are sold. I could see the point if the premises were sold as a development property. If that property were sold for development as an office block, flats or something else, I could understand the 26 per cent being added but that is a superfluous profit. It is not the normal inflation on that business. The way this place should be valued rather than having the £200,000 and the Minister adding so much per annum to it, is on how much it would cost to build it tomorrow morning. The value put on it should be what you could replace that building for. A brick is worth a certain figure today but in 20 or 60 years' time it will be worth something different.

A person with a property over a certain figure is liable to acquisition tax but is not liable if the property is given to the man's son. Perhaps in 100 years' time or 200 years' time you would be taking 26 per cent off £2 million or £3 million. There should be something more definite than just saying 26 per cent and the capital gains over the value today plus what the Minister adds on. There should be a better way of doing it. It should be on the actual cost of replacing it.

A good businessman has to take risks which people in secure jobs do not have to take although they will not get the same benefits as the businessman who succeeds. Those business people deserve something more than their basic profits which are normally taxed. The person whose business runs into trouble and eventually he has to sell, perhaps at a bad time, will pay off his creditors and will end up with very little. He may make some capital profit on the price he paid for his business and he has to pay something out of it. It is a different thing if he gets nothing out of it and the property has to go to the liquidator. This man is forced to sell but by doing so he has got nothing with which to restart. It is very wrong to squeeze this man at both ends. We want those people more than those who take secure jobs and who sit down and let somebody else do the worrying.

After a certain number of years there should be no capital gains tax. I do not mind what the number of years is. The Minister mentions that there is £150,000 allowance. Is that to each child or to one person in the family? Is this the same as the gift tax? I prefer gift tax or acquisition tax to death duties. A person with over £150,000 who has one child may leave up to £300,000. Up to 55 per cent acquisition tax will have to be paid on that. On top of that 26 per cent capital gains tax will have to be paid on the difference between the present value and the value of the property when he dies.

That seems to me to be getting back to the position the Minister wanted to get away from, the hardship caused by death duties. There should be a limit here. I am very much against death duties. When a man dies, his widow has to pay death duties on top of her grief and she has to rear her children. Very often she has to sell the property. The widow left with a debt hanging over her usually had to get the confidence of the bank manager to enable her to pay it off. This was a very bad method of taxation. Deputy O'Malley said death duties never amounted to a lot when one considered the total budget.

The Government will get more from the other tax. In the case of a farmer, where a big debt was involved, it meant dividing up the farm. I know that some tax has to be collected and I am generally in agreement with this Bill which will enable the Minister to collect this tax. Very often one found that when a man made a big profit on a property deal he did not pay death duties because he had his money invested in some company and got away with it. As the Minister said, most business people are in the main agreeable to capital gains tax. You have to pay it even after 50 years and I am not sure if that is right.

Over the last number of years many people made large profits. Builders, property dealers and speculators made a lot of money. In the share business particularly we had people backing an individual whose shares would come down and the return would be 1 per cent. If the profit of the company went up the dividend on the shares also went up. Some of those people made a capital profit which was free of tax. They did not pay anything on their income because there was practically no profit. People who had knowledge about a takeover bought up the property and made a lot of money. We should get after this. We also had professional people who got information, to which the ordinary person did not have access, in a golf club or some place else, and bought shares in a particular company and made a capital profit. If an ordinary person knew about this deal he bought the wrong shares, usually those which gave a big return but in the long run were worth nothing.

Deputy Fitzpatrick gave a good example. I want to speak of a business which I know quite well, a publichouse. If a person sells his premises as the same business as he bought it, it may appreciate because of the cost of rebuilding. Maybe the site has gone up in value because of costs generally. That house may have been worth £20,000 20 years ago but it is worth £200,000 because all values and wages have gone up. Therefore, there should be no tax on that. However, if that premises were bought for the purpose of building an office block, that is bringing another value into it. It is the difference between the value of a public house premises and that of a property for other development. That to me is a capital gain. I do not think the other is.

Deputy Fitzpatrick mentioned the case of a son taking over a business. If it is over £150,000 he will have to pay £50,000 tax. If a man is educated and becomes a doctor or a solicitor, he can earn fees, but there is no capital gain there, except where he invests money. It is not like years ago when the dud got the farm and the others went off to business. It is not right to hammer the person who continues in the same business or if he sells out and has to buy another one. It is a disgrace that, say, a civil servant can earn £7,000 or £8,000 a year and just have to pay income tax, whereas the man may own premises which may be worth something but from which he is getting very little.

We have seen the situation in England due to price controls. Very often there is a very low rate of return for a business, 4 or 5 per cent. Businesses have good periods but they also have bad periods. Because of price control in England liquidity has been taken away even from small retail businesses. If liquidity is taken away employment is lost. As I say, where a business is sold out and there is some other development that should be subject to capital gains tax, but where it is a business passed on from father to son the capital gains tax should not operate.

Take a person who owns a publichouse. That person improves the place and builds it up. It is worth quite a bit of money, but he has done without this amount of money in his lifetime, whereas he could have been enjoying it. This, again, is a man who is investing in his own ability. Eventually this man dies and leaves the business to his son. If the father gives the property away in his lifetime acquisition tax has to be paid and also capital gains tax.

Mr. Colley

There is also the question of goodwill, say, on the pub which is almost a direct result of the man's efforts over the years, as distinct from a capital gain.

Mr. P. Belton

Yes, but sometimes the man buying it might make a better job of it than the previous owner.

Mr. Colley

That means it is his effort.

Mr. P. Belton

I agree with the Minister in the provision with regard to woodlands run on a commercial basis. There could be abuses. Timber is, of course, a thing of beauty. This is a long-term investment and there should be some allowance against gift tax and acquistion tax, if at all possible, in addition to exclusion.

I know the difficulty in the case of charities. However, this is a good Bill and many of the provisions in it should have been incorporated into legislation long before this. However the provision dealing with capital gains tax on the quick sale of a property is too harsh. This should be treated by way of replacement value because the Minister may lag behind in the actual appreciation, or lack of appreciation, particularly in regard to the site. However, there are cases in which it is right to have a capital gains tax and I certainly do not agree with all that Opposition speakers so far have suggested.

Debate adjourned.

The Dáil adjourned at 10.30 p.m. until 3 p.m. on Wednesday, 29th January, 1975.

Dáil Éireann debate - Tuesday, 28 Jan 1975

Capital Gains Tax Bill, 1974: Second Stage (Resumed).

Dáil Éireann debate -
Tuesday, 28 Jan 1975