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Dáil Éireann debate -
Wednesday, 5 Feb 1975

Vol. 277 No. 11

Capital Gains Tax Bill, 1974: Committee Stage.

Section 1 agreed to.
SECTION 2.

I move amendment No. 1:

In page 4, after line 23, to insert " `local authority' has the meaning assigned to it by section 23 (4);".

This arises out of the amendment which I am proposing in section 19. The term "local authority" will be imported into that section, and this interpretation amendment is necessary in section 2 in order to provide the required definition in section 19.

Did the Minister say it arises out of an amendment he is moving to section 19?

That is correct.

I thought it arose out of the section itself. The Minister is providing in this amendment that the term "local authority" will have the meaning assigned to it by section 23 (4). I know it is a little difficult to be referring to another amendment, but since the Minister referred to it, could he clarify what he meant by reference to the amendment on section 19?

We are bringing in an umbrella coverage for the securities that are in the Fourth Schedule at the moment. This overall description is required in order to make securities from local authorities relate to section 19.

In section 23 (4) there is a definition of "local authority" which the Minister wants to import under this amendment. Could he indicate what other kind of body commonly known as local authority would be included if he did not define it as he did in section 23 (4)?

I would not like to hazard any guess as to what people might regard as a local authority, nor do I think it would be relevant in this debate. But it is better, as the Deputy will appreciate, to be precise in our definitions, and it is for the purpose of having precision that we are defining it in this way. The Bill could, I suppose, have been drafted by defining "local authority" in section 2 rather than putting it into section 23, and relating to it 23 rather than 23 to 2. However, it has the same effect and it says precisely what "local authority" means.

Section 23 (4) defines a local authority as a corporation of a county or borough, a county council or an urban district council. I presume the effect of this is to exclude the form of local authority known as town commissioners. Is the Minister aware of any other local authority which would be excluded as a result of this definition?

I am not even certain that the term "local authority" has been sufficiently defined and is sufficiently precise. It is a loose term with no specific legal meaning unless it is given a specific legal meaning. There are various authorities which could well be regarded as local authorities, authorities below the level of national authorities.

There is a precise definition in section 23 and I do not follow the Minister when he says the term is not precisely defined. If there is a compulsory acquisition by town commissioners do the provisions of the Bill not apply? They would apply to acquisitions by other authorities.

The purpose of the amendment is to incorporate into the Bill a definition which so far has been contained only in section 23 for the purposes of section 23. It is to give that precision to the whole Bill that we are moving this particular amendment. When I say the term "local authority" lacks precision I am talking about the general application of the term. It could be understood by people to mean different things and stretch from regional organisations of one kind or another down to local councils or local residents' associations. To avoid all these areas of argument we are now being precise in this.

Amendment agreed to.

I move amendment No. 2:

In page 4, line 27, after "expenditure" to insert "and includes an allowance under section 241 of the Income Tax Act, 1967".

The purpose of this amendment is to make it clear that references to capital allowances include references to allowances granted in respect of wear and tear under the Income Tax Acts in case it might be argued that a wear and tear allowance could be given in respect of the diminished value which would be used in plant and machinery based on its original cost but not an allowance in respect of capital expenditure.

This amendment refers to an allowance under section 241 of the Income Tax Act, 1967. The section is quite an extensive one and I wonder if the Minister could give us a little more precise information as to which portion of the section is referred to. Perhaps I could be a little more specific and say that most of the subsections of this particular section of the 1967 Act have been amended from time to time and I am wondering now whether this reference is sufficient.

The reference is to Subsection (1) of section 241. It is that portion which relates to wear and tear of machinery, plant, and so forth.

That would appear to have been amended.

The rates of allowance and so on have been amended.

Is the Minister satisfied the reference in the amendment will import section 241 (1) as amended?

(Dublin Central): I cannot see the purpose of the amendment at all. Would you not normally write off expenses for the previous year against the following year's profits? How would capital gains tax affect this in any way? The practice will still continue of writing off the previous year's investments and things like that against the following year's profits. What is the necessity for the amendment?

Such allowances are allowances in respect of capital expenditure and we want to make that perfectly clear. That is the purpose of the amendment, in case it might be argued they were not capital expenditure.

Is the ultimate purpose to provide that a capital allowance such as is provided for in this amendment will have been allowed under the income tax code and therefore will not be allowable under capital gains?

That is right. It prevents allowances being used on the double.

Does it mean that unless a capital allowance is already allowed under the Income Tax Acts it cannot be allowed for this?

No. There could be allowances under capital gains tax which would not be allowed under the income tax code.

The full definition to which this amendment is an addition says that capital allowances means any allowance under the provisions of the Income Tax Acts which relate to allowances in respect of capital expenditure and includes any allowance under section 241. That would seem to indicate that unless it was already a capital allowance for income tax it would not be allowable for capital gains, which would hardly seem fair because the capital gains concept is much wider than the income tax one.

That particular definition will have to be applied to different sections of the Act used in different ways and it is impossible to say in what specific way it will operate in relation to any particular section. The terminology in relation to wear and tear allowances is quite frequently wear and tear allowances, not wear and tear capital allowances or the wear and tear element in relation to the value of capital and so forth. It is to remove any area for argument that we are being specific.

Am I to take it in relation to capital allowances that, if a business is being transferred, the business will be valued and the machinery will be valued at a figure less the capital value being taken off it? In other words, if the capital value had depreciated by one-third, two-thirds would then be included as part of the assets?

No. The Deputy is visualising a case where someone is purchasing a piece of machinery and would in the ordinary income tax accounts be entitled to write off one year after another various wear and tear allowances. There could not be a claim again for depreciation of the value of the capital asset on the basis of wear and tear, the allowance already having been credited against income tax liability.

If you take the write-off of a three-year period that means the value of the machinery is less and the total amount is the three years you write off.

That is nonsense.

(Dublin Central): Can one carry forward any claim for the capital gains tax expenditure in the previous year? For example, for 1973 will any allowance be made or does the Minister expect the lot to be claimed back into the profits of that year? I am speaking about 1974 and the previous year's expenditure.

The Deputy is not suggesting capital gains tax should be set off against income tax liability.

(Dublin Central): I am talking about expenditure in the previous year.

The expenditure is normally set off against income tax liability.

(Dublin Central): Expenditure of a capital nature.

Yes. It is an allowance in respect of such capital expenditure.

It is not in the case of building. It is in the case of machinery. If one were to improve a building there would be no depreciation. The value may improve for a while but the building has to be replaced at some stage and there is no depreciation allowed.

If the expenditure is on a building and if the result of that expenditure is reflected in the value of the building at the time of sale that expenditure would be regarded as part of the cost of acquisition of the asset. Therefore, it would diminish the gain which otherwise might be calculated if such expenditure had not been taken into account.

Will it be necessary to have a bill of quantities? Will the Revenue Commissioners accept the person's accounts?

The Deputy will appreciate I am not in a position at present to say what might be the attitude of the inspector of taxes in relation to a particular case. Normally such expenditure is a matter that has to be dealt with through audited accounts, certified in the ordinary way. Assuming it is legitimate expenditure, it would be dealt with in the way I have mentioned.

(Dublin Central): The Revenue Commissioners give a considerable allowance for plant and machinery but the same allowance is not given for buildings.

It is given for industrial buildings. If there is an investment in a non-industrial building that is used in the course of business and if it is reflected in the value of the asset, as would normally be the case, it would be available for calculation as part of the cost of acquisition.

(Dublin Central): I was speaking about an investment in 1973 that will be a capital gain in 1974. I can see it arising in only one case in 1973 where a considerable amount of money may be spent on a property. Some of that should be taken into consideration in assessing capital gains in 1974.

It remains part of the acquisition cost and may be identified as such.

Amendment agreed to.

I move amendment No. 3.

To add to the section the following subsections:

"(9) In this Act, a reference to a gain shall be construed as meaning the relevant gain appropriately reduced in accordance with the calculation of the Central Statistics Office relating to the reduction, if any, in the value of one Irish Pound during a period commencing on the date of acquisition of the asset in respect of which the gain accrued and ending on the date of disposal of the asset.

(10) In this Act, a reference to a loss shall be construed as meaning the relevant loss appropriately reduced in accordance with the calculations of the Central Statistics Office relating to the reduction, if any, in the value of one Irish Pound during a period commencing on the date of acquisition of the asset in respect of which the loss accrued and ending on the date of disposal of the asset."

This amendment is designed to build into the Bill a provision that will allow for inflation. When we discussed this on Second Stage, it seemed to me that some of the arguments advanced by the Minister were not relevant to the question of allowing for inflation. He will recall that I suggested to him at the end of that debate that he might consider this matter further. I had hoped he would do so and we would have an amendment from him designed to achieve that objective. However, I have not been able to discover this in the Minister's amendments unless it is very heavily disguised.

The Minister argued that he could not produce an indicator that would deal with inflation because one asset may increase in value at a certain rate and another asset may increase in value at quite a different rate, or may even go down in value. I suggested to the Minister, and I repeat my suggestion now, that this is totally irrelevant. The rate at which the value of an asset increases is totally irrelevant to what we are trying to do here. Particularly with regard to a capital gains tax, the application of a tax to a gain in capital, the objective should be to tax the real gain. If one can do that, if one can build in an indicator —as I have attempted to do in this amendment—it does not matter at what rate, or differing rates, assets may increase or decrease in value because the real gain or loss will be reflected. That will be the item on which tax will be levied. In other words, there will be a built-in adjustment for differing rates of increase in value of different assets.

The Minister indicated on Second Stage that there was no perfect indicator available in regard to the fall in the value of money. From a purely academic point of view that is correct. There is no known system that one could stand over and say it was 100 per cent accurate but there is a system available that is considered sufficiently accurate to enable successive members of successive Governments to reply to parliamentary questions in this House and to give figures, as they do from time to time, regarding the value of the £ on a certain day with a base of two years ago, ten years or some other period.

All of us have heard such replies in this House. There is a method of calculating this used by the Central Statistics Office, considered sufficiently accurate to be used in reply to a parliamentary question and frequently used in that way. Therefore, I suggest that what this amendment is proposing to do is feasible. I am not suggesting in relation to this, or in relation to any other amendment in my name, that it is perfectly drafted and covers every possible angle of repercussion in other parts of the Bill. It is not my job to do the work of the parliamentary draftsman. Indeed, I can point out some snags in this amendment. The aim of the amendment is to bring before the House the principle involved, to suggest a method by which the objective could be achieved and, hopefully, to get the Minister to accept that principle and the method of achieving the objective.

In my amendment I have suggested that where a gain is referred to in the Bill it will be taken to mean the nominal gain, suitably adjusted in accordance with the calculations of the Central Statistics Office as to the value of the Irish £. There are two dates involved in any calculation of this kind. To calculate even a nominal gain it is necessary to know the value on the date of acquisition and on the date of disposal. If it is possible to get from the Central Statistics Office a figure that will show the value of the £ on the date of acquisition and the value on the date of disposal then one has a method of calculating the fall in the value of money in that period which I venture to suggest all but the most academically-minded person would cheerfully accept as accurate.

In order to illustrate the necessity for a provision of this nature, I should like to point out a simple example to the Minister of what may happen if this is not done. I am taking this example in order to clarify the issue and, in doing so, I am ignoring exemptions and particular years and dates that are referred to in the Bill. If one ignores them one can see more clearly what is involved. Assuming an asset has been secured for £1,000 and that it is disposed of one year later for £1,100 then, on the principle enshrined in the Bill, there is a gain of £100. I am suggesting that this is a nominal gain. Let us assume that during that year inflation had been running at 20 per cent, as it was in 1974, then in real terms the sale price of £1,100 is £880. Therefore the individual suffered a loss of £120.

Unless this amendment, or something similar, is accepted in the Bill the individual involved will be paying tax on £100 which is his nominal gain, while in real terms he has suffered a loss of £120. That example illustrates precisely what will happen unless we have built into this Bill a provision against inflation. A few of the remarks made by the Minister on the previous stage suggested that in his opinion a capital gains tax was analogous with income tax and was a kind of a substitute for income tax in the case of people who were making capital gains. I suggest that that is a mistake, that there are many aspects of capital gains tax that are not comparable with income tax.

One thing I should like to say in relation to this amendment and that argument is this: if people are not taxed on their loss of income they should not be taxed on capital losses. Unless we can build in some provision of this nature, that is precisely what will happen. People could be taxed on their capital losses as though they were gains. I cannot see how the Minister can purport to justify that kind of procedure or to claim that it is equitable. I urge the Minister to accept the principle involved in this amendment because it goes right to the root of any capital gains tax. Failure to build in a provision of this nature will ab initio make the Capital Gains Tax Bill an unjust instrument of taxation.

Deputy Colley makes the same mistake in his amendment as he made on the Second Stage of the Bill. There is no such a thing as a calculation of the value of the Irish £ by the Central Statistics Office, and no question in this House has ever been answered on the basis of the calculation of the value of an Irish £ by the Central Statistics Office. Questions have been answered about movements in consumer price index which is the only reference the Central Statistics Office has. Therefore the basic weakness remains about the consumer price index as the proper index of the movement in the value of a capital asset. I had hoped that Deputy Colley would have accepted that capital assets can vary in value for many reasons which do not relate to consumer price index. Indeed the value of the £ as a monetary unit can vary for many reasons which are not related to the consumer price index either. It can happen domestically and it can happen internationally.

I am sure Deputy Colley, with his experience as Minister for Finance, knows that internationally there is no settled way of determining the value of different currencies. We could have a situation in which domestically there was no movement in consumer price index and yet the value of the Irish £ could vary considerably up or down in relation to a multitude of other currencies. The value of any capital assets in Ireland could be a reflection not simply of Irish conditions but of demands made by foreigners on Irish assets or the acquisition of Irish assets. The more one contemplates this thing the more one sees the multiple difficulties involved.

Nobody should be in any doubt about my anxiety to ensure that people are not required to pay capital gains tax on real gains which are not a reflection of actual gains but merely reflect changes in the value of money. We had the same trouble as many other countries have had in trying to find a suitable regulator. With the exception of Denmark and Belgium, in the EEC no countries make any attempt to provide a proper regulator. In the case of Denmark and Belgium the rates of tax are much higher. If there was to be a sophisticated regulator built into our legislation then the argument for a low rate of tax comparable to the lowest rate of income tax would quickly evaporate. Notwithstanding Deputy Colley's objection of the relationship between capital gains and income tax it is well established that there is a distinct connection between the two. It is a connection which is very real indeed for people who have means surplus to their normal requirements, who are able to postpone gain on that surplus for several years in order to make, under the old code, a striking tax free gain.

As we are introducing the capital gains tax the opportunity to make such a substantial gain as in the past will no longer exist. Considering that we are proposing a low rate of capital gains tax of only 26 per cent it is still quite obvious that people with substantial means will be able to make considerable gains by investments which are designed to produce at the end of a certain period a substantial gain which will not be caught by progressive rates of income tax. Bearing all these things in mind what we have done is to produce a low rate of tax which will take some account of the perplexities of the situation and the probability of inflation. We have provided exemptions and thresholds which will ensure that in any given year people of average means will not be involved in the payment of tax. Deputy Colley's illustration does not take account of the exemptions in the Bill.

Under the Bill any gain which was less than £500 per annum would not be subject to tax, gain on any chattel of a lesser value than £2,000 would not be involved in tax liability. Under sections 26 and 27 sales of farms and businesses can be exempt up to £50,000 or £150,000 if the sales are on retirement to members of the close family. I accept that Deputy Colley has said that he is not offering a waterproof amendment which would not be capable of being abused. The Deputy is not suggesting that his amendment is a perfect instrument. I want to assure the Deputy that I looked very carefully at this because I was anxious to achieve the objective which he had in mind. What we have done in the Bill meets fairly well most of the problems which will be likely to be generated by any inflationary moves within a year. It is my intention to have a frequent look at the thresholds and exemptions to see in what way they should be adjusted to compensate for inflationary developments.

How will the Minister arrive at that if he is to adjust the thresholds?

(Dublin Central): Take it out of the sky?

No, one has to look at several different indicators and not, as Deputy Colley has suggested, just one. Certainly I should not merely look at the consumer price index, which in itself might not at all be related to movements in the value of capital assets. We must try to achieve in this legislation some degree of certainty and finality. This is necessary in the interests of fair play to the taxpayer who is entitled to know, as far as it is possible to know, what his tax liability will be. It is also necessary, at the time when liability to tax can arise, that we have such machinery as will enable liability to be assessed fairly quickly.

Deputy Colley's suggestion here would involve quite an amount of complex steps which would have to be taken by people at the time of calculation of assessment. I am not aware that the Central Statistics Office have a day to day calculation of even what the consumer price index is.

That is one of the things I had in mind when I said there were holes in it. I did not attempt to spell out how it could be done. The Minister knows it can be done.

The holes are very big.

If I have to spell it out for the Minister I will.

A person would require two certificates, one saying what the consumer price index was on the date of acquisition of an asset, and another saying what the consumer price index was on the date of disposal. What would happen if the items in the consumer price index had varied in the interval I just do not know. Furthermore, the consumer price index does not determine what is the value of the £.

The Germans, who are a very wise and prudent people, have a saying which is apt in these circumstances. It is that a bad end is better than no end at all. Nothing would be worse for the taxpayer than to live in a situation in which his tax liability, for a multitude of reasons, was uncertain and very difficult to assess. Applying what I said on Second Stage, this is a ready and not too rough rule of assessment and a modest rate of tax is the way to overcome these difficulties, certainly in the short-term. That, together with regular revision of the thresholds and exemptions, will deal with the problem adequately.

The Minister is splitting hairs in his effort to seek to reject not just Deputy Colley's amendment as it stands but the very principle of the amendment. As Deputy Colley has said, there may be drafting defects in his amendment but the principle in it is very clear. If the Minister is to act equitably in connection with this proposed new tax, he should accept the amendment in some form or other. The Minister is arguing against its acceptance in any form. The only real argument he puts up is that it is too difficult to find some indicator of inflation which is universally valid. I do not think that is so at all.

As he said, one indicator of inflation, such as the consumer price index, may be misleading, but a combination of indicators would not be misleading. The Minister took issue with Deputy Colley when he referred in his amendment to the value of the Irish £ and said that questions had not been answered in this House with regard to the value of the Irish £. Very technically that is right, but questions have been answered umpteen times over the past 30 to 40 years—and I answered them myself as Parliamentary Secretary to the Taoiseach—on the purchasing power of the Irish £. There would be no difficulty in this amendment in changing the word "value" to "purchasing power". This is purely a matter of semantics. The Minister knows perfectly well what the amendment means and what Deputy Colley means.

We have often heard questions to this effect: "What amount of money would be needed now to purchase the same amount of goods and services as £1 purchased on 1st January, 1960?", or something to that effect. That type of question is asked in this House every few months by every Opposition. The principle involved is clear. The Central Statistics Office must have a long succession of these calculations made out over a lengthy period of years. Subject to correction I think that such a table appears in the appendix to the annual report of the Central Bank. I am not 100 per cent certain about that but it appears in one of these annual documents. It is an easily ascertainable figure at any given time: what is the purchasing power of the £ now as compared with ten or 20 or whatever number of years before?

Like Deputy Colley, I believe that, for the purpose of trying to counteract the effects of inflation in this Bill, this is probably the most accurate single index or indicator you can take. If the Minister wants the consumer price index, or some other one, I do not see any reason in principle why he would not agree, provided he will specify that he is prepared to put that into the Bill. Since the Second Stage or, indeed, even in the drafting of the Bill he has not made any effort at all, in our view, to allow for the ravages of inflation.

Again I would take issue with him when he says there is a direct analogy between income tax and capital gains tax. That could be a valid statement if you lived in a situation in which there was little or no inflation, because every capital gain would be as justifiably taxed on the full gain as income is. Of course, last year inflation ran at 20 per cent and we are given to believe that it will run even higher this year. The example Deputy Colley gave is perfectly valid. I know that, in a very technical way, because the amount of money he mentioned was too small, it is exempt in the Bill but the Minister should not make petty little points like that.

Call it £1,800 if you like.

It did not matter what figure Deputy Colley took. It was just to show the calculation. That calculation is valid if you take £10,000, or £50,000, or £100,000, instead of the £1,000 which Deputy Colley took.

Perhaps I could give another similar example which has the same effect. If I have a farm in 1970 worth £10,000 and if in 1980 that farm is worth £20,000 and I sell it, not on retirement—I am aged under 55 years to stay outside the provisions of the Bill—I will have made a capital gain on paper of £10,000, of which £6,000 would be referable to the post-April, 1974, period. Therefore, £6,000 would be subject to tax at 26 per cent. I would pay £1,560 tax. In fact, in real terms that farm was worth more to me in 1970 at £10,000 than it was in 1980 at £20,000.

I have obtained no real gain at all. In fact, in that sentence one could justifiably leave out the word "real". I have obtained no gain because my asset value in real terms is no greater in 1980 than it was in 1970. Even though I have obtained no gain in real terms due to inflation, I am asked to pay £1,560 in capital gains tax. I believe that is wrong. It is unfair. It is not a question of believing that a capital gains tax is unfair. That is not so. I believe that to levy a tax on a nominal paper gain, but nonetheless an acknowledged unreal gain, is inequitable. It is not just.

This is an effort by Deputy Colley, on behalf of this party to write into this Bill some provision which will prevent that injustice which will otherwise take place. We are not saying that the amendment in Deputy Colley's name should be accepted word for word. We are saying that the principle should be accepted. The Minister has argued against the amendment, not on the basis that the principle is wrong or unfair, but simply on minor points about differences as to what wording should be used in the amendment, and on the example given by Deputy Colley being already exempt, and so on. These are only minor things which do not matter.

The principle is there that this Bill is seeking to tax nominal but not real capital gains. As I understand the position in other countries, there are provisions built into their corresponding legislation to overcome the injustice of what is proposed in this Bill. This Bill lacks any such provision. Deputy Colley has sought to put it in. While the amendment may not be 100 per cent perfect from the drafting point of view, that does not matter. The draftsman, if so instructed by the Minister, can redraft it and we can recommit the section or we can deal with it on Report Stage. The Minister, if he wants to approach the imposition of this new taxation fairly, should acknowledge this principle and accept it and say that he will have drafted an alternative to Deputy Colley's amendment.

The Deputy has a right to say it and I am not arguing against the desirability of having a system which would protect the taxpayer against paying tax on inflationary values but I am saying that there are several different ways of trying to do this and that our Bill achieves a compromise by having a rate equal to the lowest rate of income tax made applicable to gains. If Deputy Colley's suggestion were feasible it could only be entertained if simultaneously all gains were to be subjected to normal rates of income tax. Let us deal with the multiples that Deputy Colley used. I shall use them in larger figures so as to bring them outside the exemption.

There is no need; it is the principle we are talking about. I said I was ignoring——

Yes, but you cannot introduce one principle and ignore the results of its application. If a person were to acquire an asset for £10,000 and sell it for £11,000 a year later that person would have made a profit of £1,000 in that year. There is no justification if that were to be corrected for inflation, for not subjecting that profit of £800—let us say— to the full rigours of income tax which at present operates from 26 per cent up to 80 per cent. It is because we have not available to us a suitable, sophisticated corrector which can be applied with some degree of efficiency and speed that we have said we would not go for different rates of capital gains tax. We have gone instead for the lowest rate. That in itself provides a compensation, some relief for people who, otherwise, if they had their capital gains treated as income, would be subjected to the total rigours and, as the people who would be most liable are people who would be in the upper regions of tax rates, they would find themselves being taxed at rates up to 80 per cent under the existing code, or 70 per cent as we propose when we introduce wealth tax.

(Dublin Central): In what countries do they apply that type of taxation, where they take the gains as profits?

In a number of countries. In the short-term they treat all short-term gains as income and subject them to the full rigours of income tax. In the countries I mentioned earlier, Denmark and Belgium, they have a not very sophisticated way of trying to compensate for inflation—they have higher rates of capital gains tax and treat them differently. One could go for different ways for treating long- and short-term gains. One could provide, as Deputy Colley will be suggesting later, exemption for assets held over a long period or one could try to do as he suggests here, provide some form of correction by a co-efficient related to the value of money. Or you could go for a low rate of tax and a simple system. That is what we have done and I think it is the right thing.

I remind the House of what I said on the Second Stage, that Britain in 1965 introduced a very complicated system of capital gains tax. It was an attempt to achieve the kind of correction that Deputy Colley had in mind. They had to abandon it five or six years later because it crumbled in their hands and, although in some cases the tax was more severe after they made the changes, the taxpayers were generally grateful for the changes because they had been driven out of their minds trying to work the complicated system which had existed before that.

(Dublin Central): They wanted to catch the speculator on the short-term.

And they had to abandon it. Deputy Colley tabled an amendment which he mentioned on the Second Stage which would involve 16 different rates of capital gains tax —15 plus the zero rate. He is persisting with further amendments on this Stage to deal with something similar. If this amendment here were to be accepted and others were accepted we would end up in a ludicrous situation in which, once the rate of correction was different and went above the rate of tax, the State would find itself obliged to recognise notional or fictional losses. Within a short time we would have the ridiculous position in which the capital gains tax would be a system under which the State would be obliged to subsidise the well-to-do because, taking one year with another, they would be able to show by the introduction of items of this kind that they had suffered a loss and they would seek compensation for that.

I am not against the principle of not taxing increases in value which are directly related to inflation but we have adopted a system which will give very generous exemption and which will apply only the lowest rate and I believe that is the fairest way of doing it. If, in the light of our experience of working the capital gains tax system and in the light of further examinations which are going on here and in other countries we can find a suitable regulator and indicator, we can certainly amend the law but it is preferable when we are introducing a capital gains tax for the first time that we should go for a system which is easily understood and is not too severe and which can be readily and expeditiously applied with the least undesirable economic and social consequencies.

I suppose we are making some progress when the Minister says that he accepts the principle involved in this. First, I should like to disabuse him of an idea he appears to have. He said that if one were to accept the principle of this, then the 26 per cent rate should not apply and that, in fact, ordinary income tax rates should apply. That is a matter we can certainly discuss but may I suggest that it is totally irrelevant to this debate. It does not matter to a man whether he is taxed at 10 per cent or 80 per cent—it matters of course—but what really is of concern to him in this discussion is if he is being taxed on a loss. It is worse if the tax is 80 per cent and somewhat less bad if he is taxed at 10 per cent. But that is not what is at issue in this amendment; the rate of tax is not at issue. But what is at issue is the principle of whether a taxpayer should be taxed at any rate on what is in fact a loss, with the State alleging that it is a gain when it is demonstrably a loss.

The Minister has accepted the proposition that what appears to be a gain can, in real terms, be a loss and therefore he has accepted that you can end up under this Bill applying whatever rate of tax you like, whether the one proposed by the Minister or that proposed by us in a later amendment, to what is, in fact, a loss.

I suggest again to the Minister that this is an indefensible position. Might I pursue a little further one of the arguments the Minister made in trying to justify this position, where he referred to the differing rates at which assets can increase in value? I should like to disabuse the Minister of an idea he appears to have about this. Might I ask the Minister to consider the position where an asset increases in nominal value by 50 per cent and inflation is 20 per cent? If one makes the adjustment for inflation, what is the position? Are you not then taxing the taxpayer on the real gain? If, on the other hand, another taxpayer has an asset which increases 300 per cent but you adjust for the fall in value of money 20 per cent, then of course you are going to tax that man much more, but you are taxing him on the real gain he has made. That is what the object of the exercise in this Bill is supposed to be and should be, the taxing of the gain. If one man has a particular asset, which for some peculiar reason of the market—scarcity or something else—shoots up in value as compared with most other assets, then if you adjust for the fall in the value of money you automatically take in and catch that unusual and exceptional gain because you are taxing that man on his real gain.

I want to ask the Minister to disabuse himself of the idea that different rates of increase in the value of assets have any relevance whatever to this. What is relevant is the real value of the gain made by the taxpayer, and that is what should be taxed. If this principle is accepted, then the question of the rate at which it should be taxed is another matter which can be discussed; but, strictly speaking, it is not relevant to this at all. I would suggest it is only really a sufficient answer for the Minister to say that the Bill proposes the lowest rate of income tax, 26 per cent. I suggest to the Minister that that is irrelevant. If one applies 26 per cent to what is really a loss, one cannot say that by and large one is being equitable. One is not being equitable to the person who suffers the loss. And thresholds, at whatever they are set—26 per cent rate of tax as against an existing top rate of 80 per cent income tax— do not alter what is involved here if one applies a tax to a loss.

I would ask the Minister to forget those things; they are not relevant to the principle involved here. The Minister pointed out that as far as he knows the Central Statistics Office do not produce day by day the kind of figures I had in mind. I think he is right, that they do not. Indeed it was a matter with which I was going to deal in the amendment, but I decided it was not worth my while. There are plenty of officials at the Minister's disposal who are paid to do that kind of work. That is not my job. My job is to draw attention to what is really involved here, which is what I am trying to do. But if the Minister sees some difficulty in that, it seems to me to be quite easy to relate the figures to whatever period for which the Central Statistics Office do produce them. Then whichever of those dates is nearest to the date of acquisition and nearest to the date of disposal can be the one to be used.

There is no practical difficulty involved in this. The Minister did talk about the fact that the Central Statistics Office do not produce figures to show the fall in the value of the Irish £. As Deputy O'Malley said, perhaps technically this is correct. But, as Deputy O'Malley also said—re-echoing what I had said earlier—over the years parliamentary questions have been answered in this House indicating the fall in the purchasing power of an Irish £. Whatever technical arguments one may make that this does not represent precisely the fall in the value of an Irish £, I would suggest there are very few people who would not accept that measure as a reasonable attempt by the Minister and by this House to deal with the problem of inflation I have been outlining.

The Minister should not advance that argument; it is not a perfect answer in the academic sense. He should not advance that argument in answer to the case made here for a very important principle, one going to the root of the Bill and one which the Minister has accepted. I would suggest that if the Minister accepts the principle, as he says he does, then what he ought do is devote his attention, ingenuity and that of his officials to devising a workable method of dealing with this problem. It may be one that some academic can point out that that does not deal precisely with the fall in the value of the £. But the Minister can rest assured it will be one that the vast majority of people would accept as a genuine, worthwhile, reasonable effort to meet the problem. I repeat that the effort to say this really cannot be approached because differing rates of increase in the value of different assets is, as I tried to demonstrate, totally irrelevant to the issue involved in this amendment.

I would again urge the Minister, since he accepts the principle, not to let some practical difficulties, which are by no means enormous, stand in his way. We have outlined sufficiently the practical way of doing this for the Minister to be able to agree he will approach it on some such basis if he really has the will so to do. If he does not have the will so to do I would regard it as a very serious matter because, as I tried to point out, I believe this is fundamental to a capital gains tax and to reject it either on the grounds that it is not workable or on the grounds that the Minister has tried to do something about it is simply not sustainable. As I have said, what the Minister has tried to do on the questions of exemptions and the particular rate of tax is irrelevant if one is taxing a man on a loss which, without the acceptance of this principle, is what this Bill will do.

If the Minister accepts this principle and admits that it is fundamental, as he must, surely he must find the mechanism by which he can make the necessary adjustment in relation to what I think is a simple matter. Everybody knows that a house built six years ago for £5,000 will cost £10,000 to build today. Later on in the Bill the Minister has made provision for an allowance in respect of replacement—it is not chargeable where there is going to be a replacement of the assets for the time being until the owner ceases to use them. Of course, this is tantamount to death duties, and we shall come to that later in the Bill. But in the example I have given, of the increase in the cost of housing, it is obvious to every child in the street at present that if a man sells a house today built six years ago he will show a capital gain of £5,000 or £6,000 which would not be sufficient to replace that house at present-day costs.

The Deputy realises that a house occupied by a man is not involved in capital gains tax?

I am giving an example of an asset increasing in value which in fact is not increasing in value; it is merely costing more as a result of the drop in the purchasing value of the £. A house is as good an example as any other, despite the fact that it is one of the things that comes under the exemptions provided for in the Bill. The same applies to any other asset. This Bill is inequitable enough without leaving this provision unadjusted. The Minister is doing well out of inflation already in so far as he reaps extra VAT on increased prices. It looks as if he is to have a vested interest in inflation. It would be necessary to adjust so as to take account of inflated prices.

If the Minister is not prepared to accept the principle inherent in this amendment and to have available the necessary mechanism for making adjustments, he is being very naive. The loss in the purchasing power of the £ is calculable, if not from month to month, certainly from year to year. Frequently this figure is given in the cost-of-living index. Are there not sufficient inequities in the Bill without having at the beginning this inequity in relation to the devaluation of money? The point being made in this amendment relates to the whole issue of capital gains. If the Minister is not prepared to accept the principle in the amendment, he should withdraw the Bill.

I wish to give three examples to show precisely what we are arguing about and I shall base these on examples used earlier. Let us take an asset acquired for £10,000 and sold for £11,000, thereby giving a profit of £1,000. It has been argued that that profit should be reduced by 20 per cent to take account of inflation. This would reduce the profit to £800. However, by having in the Bill an exemption of £500 in any one year, the element on that transaction that would be taxed would be £300. Therefore, according to the Opposition's case, the tax that would be paid on that gain of £1,000 would be £78 although the £10,000 had been invested for the purpose of producing a gain of £1,000. Nobody gets away with the low rate of taxation that the Opposition are advocating in this instance but it would be nice to think that such a rate of tax would be sufficient to provide the revenue required by the Government.

Has the rate nothing to do with this principle?

Rate and exemptions have everything to do with it. Suppose, on the other hand, we take a profit of £1,000 less the £200, and say that the exemptions did not exist—and that would seem a valid consequence of doing what the Opposition recommend—the tax would be £208. If instead of doing that we were to do as other countries do in relation to gains of that nature and subject the gains in the case of a taxpayer who is liable for the top rate of income tax, the tax would be £640.

There could not be a tax if the Minister applied that principle because there would be a loss, not a gain.

If the profit were £1,000 and if 20 per cent were to be allowed to compensate for inflation, the net profit would be £800.

The Minister is working on his own example.

I am producing examples to show the relevance both of the exemption and the low rate of tax to this element of correction which people are seeking in respect of inflation. If we could produce a sophisticated corrector there would be no justification for any exemption and neither would there be justification for having a low rate of tax. The type of debate being carried on here is not new. It is something that has been going on in the world for decades past.

The question is much more acute now with inflation at 20 per cent.

The argument is proceeding throughout the sophisticated modern western world as to what should be the appropriate form of capital gains tax but no country has yet found an ideal solution although the vast majority have opted for the type of solution we are presenting here, that is one of a low rate of tax and reasonable exemptions, as providing the most benign relief that can be given. If these were to be adjusted, as I believe they should be, from time to time to take account of inflation, that would be the best way of dealing with it.

(Dublin Central:) Other countries have built-in correctors to take account of inflation.

That applies to two of our EEC partners and in these countries the rates are higher. I say that our low rate and our exemptions are the compensation for not having a corrector.

But not in a loss situation.

If we were to have c 6 a corrector, our rates would have to be higher.

(Dublin Central): I support the amendment. In bringing in a Bill of this kind it is of vital importance that we should be clear what exactly is involved. There is something indefinite about the proposals before us. The Minister agrees with the principle of a corrector and, as there is no urgency in relation to this Bill, I suggest that he withdraw it and come back with other measures later. A few days ago we were told that before Easter we are to have a Wealth Tax Bill, a Capital Acquisition Tax Bill and a Finance Bill. This type of hurried legislation is bad.

In the case of the Bill before us it would not be possible for people to know where they stand. At least in the case of death duties, for instance, it is possible to assess the amount that would be involved and, consequently, people can have their properties valued and take out insurance policies on the basis of the valuations. But in regard to what we are talking of here one could not assess what he would have to pay in tax if he were selling his property. This is very bad for the economy generally. In particular it would be detrimental in so far as foreign investors are concerned because people from America, Japan or elsewhere who might be prepared to invest here on a large scale with a view to disposing of their property after, say, 20 years, would not be encouraged by not knowing how much capital gains tax they would have to pay at the end of that time.

The Minister mentioned that very little revenue would accrue to the Exchequer as a result of this tax. He said that all the capital taxation envisaged would bring in only about £15 million or £16 million per year. If the Minister does not adjust the threshold at some stage the amount that will accrue to the Exchequer by way of capital gains tax in 20 years' time will be about £100 million when one considers the rate of inflation. On that basis, too, a property bought today for, say, £100,000 will have doubled its value in five years. There is every indication that the rate of inflation will continue to increase and that next year it will be as high as 25 per cent. The Minister said he would have a look at it but he gave no indication how he would adjust it.

Deputy Colley's proposals should be seriously considered. The Minister does not seem to take them into consideration. He appears to have no consideration for the taxpayers. In his Second Reading speech he said he was concerned to ensure that there would be no difficulty in administering the Bill. I know the Revenue Commissioners fairly well. In my opinion they are the most competent section of the Civil Service and will be quite capable of working the Bill if Deputy Colley's amendment is accepted. We are all here to protect the taxpayer. No individual has the same protection when he is up against sophisticated——

The Deputy should keep to the specific amendment.

(Dublin Central): What I am saying is relevant. We should build in an escalator clause to take inflation into account. That is why I am speaking along these lines. The average taxpayer would like to know exactly where he stands, how much he will be liable for and how much he will be allowed for capital gains in four or five years' time if inflation continues at its present rate. The Minister should think seriously about building such a clause into the Bill and he should spell out how he will do it. If he does that the Bill will be more acceptable. At present it is very vague. It says “at some time” and “at the Minister's discretion”. It does not say when he will do it, every 12 months, every two years or every three years. He does not say when he will adjust the thresholds. If the Minister said he would not adjust the threshold for 20 years there is nothing in this Bill to stop him. The Revenue Commissioners will operate the Bill as it is passed here.

If the Minister said in the Bill that he would adjust the thresholds every 12 months that would be some consolation but there is still no indication how he will do it. For that reason he should accept Deputy Colley's amendment. He should give us some indication before we leave this House how he will adjust the thresholds from year to year.

I have sympathy for Deputy Colley's amendment but I do not completely agree with it. Anyone who sells within the first two or three years must take the good with the bad because he is gambling. I do not see how the Minister can give the Revenue Commissioners so much trouble. The value of shares can be up today and down tomorrow. Therefore, control will be impossible. I agree with Deputy Colley when he says that the person who has a premises for five years did not set out to make a capital gains tax but it happened because of inflation. There has been inflation throughout the world every year since 1940. This was usually at the rate of 6 or 7 per cent but that has increased considerably in the last year or two. There should be an abatement for the person who has a property for five or ten years. He did not set out to make capital gains tax; he was in it for business.

A company in England had to sell a section of their business to keep another section going. If that section had made a capital profit they would have been taxed. If a man has a premises for ten years or even longer he should have to pay 10 per cent and not 26 per cent for that period. In my view, 26 per cent should be maximum for this country. There should be an abatement after a ten-year period. I do not agree with Deputy Colley that the Minister should adjust the thresholds every year because we would need more Revenue Commissioners and civil servants. That would be like the tax on dance halls which cost more to collect than it was worth.

Let us look at shares. They can be bought this week and sold next week. What will be the rate of inflation for that week? Who will work it out? We should allow abatement for a reasonable period. This will help the Revenue Commissioners catch those who are gambling on the stock exchange.

I support this amendment. Ministers are inclined to look at their budget every year to see what money they want. The Minister said he accepts the principle and would like to review inflation from time to time. In this year's budget he granted old age pensioners a shade above the rate of inflation. That rate was 20 per cent and he granted them a rise of 22 per cent. When he was granting the tax-free allowances——

The Deputy is getting away from the amendment.

I am trying to point out what Ministers are liable to do if they——

That is not relevant to the amendment.

The Minister gave 15 per cent on tax-free allowances. It could happen that in one year he was short of money, so he would not have a review until the next year. When the next year came he might say that he would allow 10 per cent. Another year he might allow 12½ per cent. The rate would always be decided at the Minister's discretion. There would be no rule of thumb. It could be written into the Bill that on 1st January each year the Central Statistics Office would tell the Minister the rate of inflation for the past 12 months. If it was 20 per cent that rate would stay in all capital gains for the next 12 months.

I know of a farm which for death duty purposes was valued at £6,000 32 years ago. Today it is worth between £150,000 and £180,000. It is the same farm and inflation is responsible for the difference in price. Can anyone imagine a Minister in that 32 years not taking inflation into account in the valuation of that farm? If we do not include something in this Bill to give people an idea of what they can expect as regards their rates of tax, we will be doing a bad day's work. Whether one is a wage earner or self-employed one expects to make a gain. Otherwise one could not live. People who invest money in property in most cases give employment. They would like to know, before they invest their money, what would be their position if, after five or ten years, they wanted to get out. I would say a bank manager, when deciding how much money he will lend, would like to know what tax the borrower will be liable for.

To get back to the farm, that is just a life expectancy of a generation. If that farm has to be sold because the breadwinner dies or if the owner for health reasons cannot keep it on —the same would apply to the owner of a business or factory—there should be some stipulation that at least inflation is taken into account, particularly when the Minister has accepted the principle of it. He should tie his hands and provide that on 1st January each year the inflation for the previous 12 months will be calculated on all sales for the following 12 months. The Minister may have the idea of granting this but I know, from my 14 years here, that a Minister is always tied by the amount of money he needs and cheese-paring will go on.

This would not be relevant.

The Minister will never give the full rate of inflation in whatever allowances he is making. This would be a very simple method of doing it and the Central Statistics Office could provide the figures.

Deputy Belton thinks the suggestion in this amendment is cumbersome and would not be easily administered. I would like to point out to him that leaving aside the amendment altogether the Bill envisages, in relation to each transaction which comes under the scrutiny of the Revenue Commissioners, the calculation of the cost of purchase of the asset at the date it was purchased and the value of it at the date of disposition whether by sale or, if it has to be valued, say, shares in a private company. Those two calculations are involved anyway. The only additional thing that is imported by this amendment is to take that figure that they have to arrive at and adjust it by a certain percentage, whatever that percentage is depending on the inflation over the particular period. That figure, whatever the percentage involved is, will be readily available from the Central Statistics Office. I would suggest that the administration of this would not present any undue difficulty.

We have heard the Minister describe, in certain instances that he put forward, the amount of tax that would be payable but what I would like to hear the Minister tell us is, what is his approach in the kind of case I outlined and, indeed, he outlined a similar one but in larger figures, in which there is a nominal gain but a loss in real terms. How does the Minister apply his arguments of the rate of tax, the threshold or anything else, to a case in which although there is a nominal gain there is a real loss?

Losses will be carried forward against future gains.

That is not the point. Where there is a nominal gain but a real loss.

Under the benign system we are providing of a low rate and generous exemptions the situation visualised by Deputy Colley would not arise; there would be no calculation of loss in such a situation. The Deputies are overlooking the tremendous exemptions that are given in the Bill. For instance, the private residence which is the only kind of property the overwhelming majority of people have and all cash possessions are not involved because cash possessions by their nature do not involve capital gain. We are really dealing with a very limited number of assets held by a limited number of people and even they will enjoy exemptions which will bring the vast majority outside liability for capital gains tax in relation to the ordinary management of family fortunes and family affairs.

What you are left with then are a number of people—one does not say this with envy or wanting to generate envy—who are comparatively better off than the vast majority of citizens who are being asked to pay a small tax, much smaller than what people with comparatively tiny incomes have to pay in income tax. They are being asked to pay a tax at a time of disposing of an asset when they have cash available to them which enables them to pay the tax without hardship. That is the reality of the situation. Then they pay tax at a comparatively low rate. If they are selling off an asset which is a business asset and they decide to re-invest the proceeds of the sale in business, which is something that economically and socially we should want to promote, then no liability to tax arises.

Deputy Brennan proceeded to illustrate the hardship that could arise where house property had increased in value. Until I reminded him I think he was prepared to wax indignant about people who bought a home for a modest sum and then found because of inflation that the house had achieved a much greater capital value. When I reminded him that such an asset, being occupied by a person as the family home, was not involved, he said he was just illustrating what would happen to any asset.

If you take land, house property, offices and so on the increase in the sale value is very often many times in excess of movements in the cost of living. Suppose 20 per cent was the increase in the inflation rate between the time of acquisition and the time of disposal it would not be proper to say that 20 per cent of the gain was attributable to that depreciation in the value of money when, in fact, 99 per cent of the gain could be attributable to some other cause, such as the location of a shopping centre, a school or university.

Does the Minister not accept you would catch that gain if you applied this amendment? The only adjustment you would make would be for the fall in the value of money. If it was near a shopping centre and there was a particularly large gain you would catch that.

No, because, in fact, 99 per cent of the gain might be attributable to location. It could be attributable to scarcity of supply or it could be due to the sudden increase in the fashionability of an area.

You would catch that increase.

If you were to take 20 per cent off the gain when 99 per cent of it was attributable to some other cause then you would be giving relief that was not justified.

If money fell 20 per cent in value, then the adjustment you would make for that would simply put it in real terms. You would then measure what gain was due to being near a shopping centre in real terms and you would catch that. One man might have a 5 per cent increase and another might have a 55 per cent increase and you would catch that.

You would be giving a concession which would be far greater than justified by the consumer price index. That basically, as I think Deputy Colley now accepts, is the nature of his proposal.

We have not made ourselves clear to the Minister.

I should like to emphasise that every time questions have been asked in this House in relation to the value of the £ the reply given by successive Ministers, Taoisigh and the Parliamentary Secretaries always opened with the words: "An estimate based on the consumer price index" resulted in a certain figure. It has always been the consumer price index and not the value of the £ which has been involved. I do not want to get into too much detailed argument about the particular instrument which Deputy Colley has accepted. In his opening statement he accepted it was not the perfect instrument and that he saw the imperfections and the difficulties of administering it.

I am not faulting him on that account. I am saying the rates of tax and the exemptions we have given are sufficient in the short-term certainly to cover any notional loss or any real loss which might arise by reason of movement in the rate of inflation. As this Bill is not the last one dealing with this or any other tax, these matters can be adjusted in the light of experience which I think is the right thing to do rather than that we should make the mistake here that was made across the water. They started with a complicated measure and tried to deal with all the kinds of situations which have been pictured here and then they had to go back to some instrument, such as we are now proposing.

In Denmark, where they have made an effort to have a regulator in respect of inflation, any profits made in the first two years of holding an asset are treated as income. They are, therefore, subject to the full rate of income tax and as the Deputies know that could mean going up to 80 per cent. I am not quite certain what the top rate is in Denmark.

(Dublin Central): We had that in our amendment.

The Deputies had not. That amendment was to start at 50 per cent and keep on going down. In Denmark they provided that all gains after the first two years would be subject to a rate of 50 per cent. This supports what I have been arguing earlier that economists, financial commentators and tax experts have been forced ultimately to the conclusion, which we have enshrined in this Bill, that the proper way of dealing with these anomalies and difficulties is to go for a comparatively low rate and to have exemptions.

(Dublin Central): Irrespective of how they hurt the taxpayer.

This is the least harmful way. The complicated measure proposed by the Opposition would drive the poor taxpayers out of their minds. It would certainly not encourage the confidence Deputy Fitzpatrick spoke about. He said that these people would know their position five, ten or 15 years ahead. Nobody can look into the economic crystal ball today and say what the economic position of the world will be in 20 years' time or, indeed, on the path to 20 years' time. That cannot be forecast with any certainty. Whatever value there is in the argument for certainty it is contained in the Bill as proposed and not in the amendment. This amendment, together with other amendments put down, would involve a multiplicity of very difficult taxation.

Is the Minister aware that Australia are dropping capital gains tax?

They have not had capital gains tax in Australia but it is on the way.

They have said they will not go further with it.

I have seen reports over the last two days but I do not accept their face value.

I want to refer to a point mentioned by Deputy Colley. He spoke about £1,000 and a person making £100 gain. I think he said that a person could do this two or three times. I know he was talking about companies but this could be done with individuals. A profit of £300 could be made on £3,000 and this could be called capital gains. This is really a direct tax and income tax could be taken off it. A person who makes capital gains has got to buy a property and sell it for profit. If he makes a profit, it is treated as a kind of income and he makes capital gains. Surely the Minister admits that a man with a family who buys a property and after about 20 years sells it should not have to pay capital gains tax? It would be fair enough if there was half the capital gains on it.

Can a person with four or five businesses sell one and put the money into another? If you have three different types of business, say a factory, a shop and workshop, and you put the money into the drapery business, how will the Revenue Commissioners prove that?

(Dublin Central): You are not allowed do that.

What do you do if you are in that business? Suppose you are in the pub business and tomorrow morning you sell out and buy a hotel, do they count the bedrooms as an addition to the pub or is it a new business? If you sell one business and you put the money back into your other business and give employment it is nonsense to have capital gains on that. If a small company keep a business for up to 15 years they should not have to pay a large sum in capital gains tax. A person who is very lucky might buy a property, the situation might change or a CPO might be put on it and the value on it rocket so that that man makes a profit without doing any work so he should have to pay on it. A family or a small business should not have to pay capital gains after a certain number of years. A property kept for a considerable period should not have to pay any capital gains tax but if it does it should be at a lower rate.

I am somewhat alarmed at two things the Minister said when he spoke before Deputy Belton. The Minister, when he spoke about an asset increasing in value because, for instance, it was located in or near a shopping centre, said that 99 per cent of the increase in value could be due to this exceptional thing, and we are proposing to allow, say, 20 per cent of that to be deducted because of the fall in the value of money. That thinking suggests that the Minister is mentally discounting the whole question of the fall in the value of money. The 20 per cent, or whatever increase in the value was due to the fall in the value of money was only a nominal increase.

Therefore to talk about 99 per cent of it being due to its location or some other outside factor and that you are making the person a present of 20 per cent suggests to me that the Minister has not yet mentally faced up to what is really involved in this amendment. That is why I am so much alarmed about it.

The other thing that concerned me was that I did ask the Minister if he would explain his thinking in regard to applying capital gains tax to a situation which we have described in which there is a nominal gain but a real loss. The Minister replied at some length, and talked about thresholds, and about rates of tax, he talked about various exemptions in the Bill and about what happens in other countries, but he did not answer my question. The nearest he got to answering the question—and this also alarmed me—was to suggest that certain kinds of people who are well-to-do should be taxed and should not object to paying a low rate of tax in cases such as this. I am not saying the Minister said specifically that such people should not object to paying tax, but that was the implication of what he said. I do not want to prolong this discussion unnecessarily, but it is so important that I should like again to ask the Minister if he would tell us how he views the situation, leaving out all the questions of thresholds, rates and so on, because they are not relevant to the man who is being taxed on a real loss. If a man has a nominal gain but a real loss, how does the Minister propose to justify doing that? That is my question to him, and it is not enough to say that, on average, it works out because other people are getting away with a lower rate of tax or they get exemptions and so on. That does not answer the question in relation to a specific case where a nominal gain is a real loss.

Many issues have been posed here today about which I would love to have seen my predecessors do something when they were in office, particularly in relation to death duties which were the only form of capital tax we had, where many people were called on in the past and will be called upon as long as death duties are retained, up to April next, to pay death duties upon real loss situations in some cases. We are being asked to produce perfection in a Capital Gains Tax Bill.

Absolute perfection, to deal with a multitude of difficulties and anomalies. We are being asked to produce for the world a system of taxation which no country has yet succeeded in producing. We are being asked to give concessions together with low tax rates and exemptions which would make nonsense of having a capital gains tax at all.

We have suggested higher tax rates.

There are nine countries in the EEC. Eight of them have a capital gains tax; Ireland is the only one that has not. Out of other comparable countries which, you may recall, were referred to in the White Paper, 12 countries were listed other than EEC countries, and of those, ten of them had a capital gains tax. What we have produced is a form of taxation which, by and large, is reasonable and is not going to hurt anybody, which gives very generous exemptions and in so far as it imposes tax it imposes it at the lowest possible rate at a time when a person has a substantial amount of money.

Even though it is a real loss situation.

That is what matters, that a person is in a position to pay. There have been many people under the old and only form of capital taxation in this country who suffered real loss and who were not in a position to pay the tax without severe hardship at a time of family bereavement. We are getting rid of that and we are imposing instead a tax which will be paid only if the asset is disposed of. Death duties are payable even if families require to keep the asset. The tax will become payable only where there is a deliberate decision by the taxpayer, knowing his liability to tax and the rate of tax, to dispose of the asset. We are giving maximum freedom of choice. There is the knowledge of what the exercise of choice will cost, and there is a comparatively low rate with generous exemptions. I would remind the House that what we are doing is taxing capital gains since 6th April, 1974. We are not going back five, ten or 20 years. I am not so conceited as to believe that this is the last Capital Gains Tax Bill for the next 20 years. In the light of experience of many things, fiscal, economic and social, Dáil Éireann will have further opportunity to attend to the various problems which are being identified, and I can assure the House that I will be the first, if the ideal solution presents itself while I am in the office of Minister for Finance, to come back to Dáil Éireann to deal with some of the real situations that have been identified here. But if new methods are used they will have to look not merely at the indicator in relation to inflation but at everything else in the capital gains tax package, including the rate or rates, the exemptions and the thresholds.

Is that the Minister's answer to the question I have put to him twice about the payment of tax in a real loss situation?

I would not like to be nasty, but I am telling Deputy Colley he had every opportunity of giving better answers when he and his Administration were in office, if they were that much concerned about people paying tax in real loss situations.

I could pursue that red herring and I know the Minister would like me to, but I am asking him once more, for the record, what is his attitude to the situation where he proposes to impose tax on a loss. He need not tell us about the other situation. Let him tell us about the situation we are dealing with.

If the taxpayers continue to have faith in this Government we shall produce for them a fair tax code which will be seen to be fair and which will operate efficiently.

I hope the Minister is convincing Deputy Belton and Deputy Dockrell, because he is not convincing us.

I am quite happy on that point.

On the loss situation?

If a man has a loss because of inflation he should be taxed on that?

He should not buy.

(Dublin Central): It could happen over a period.

We know now that Deputy Belton supports that principle anyway.

Fianna Fáil did, too, because they did nothing about death duties. They crushed more people down under the system of death duties, forcing them to pay tax upon real loss situations.

The Minister never produced one case of it. It was only when the Coalition took over and inflation went wild that people really began to feel the difficulties. That is part of our trouble, but we are now dealing with an amendment trying to cover inflation.

Fianna Fáil are trying to give massive tax concessions to the well-to-do at the expense of the ordinary taxpayer who has no system of avoidance.

Is it a concession to adjust for inflation? Is that what the Minister said?

The Bill gives these concessions in both the exemptions.

(Dublin Central): The 26 per cent will become 40 per cent very shortly if the Minister does not adjust for inflation.

We are saying we will adjust.

(Dublin Central): That is not good enough. Write it into the Bill.

Debate adjourned.
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