Is the Minister going to speak?
Private Members' Business. - Capital Gains Tax Bill, 1974: Committee Stage (Resumed).
Debate resumed on 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 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 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."
—(Deputy Colley).
No. I have said everything I had to offer. I think I have given a very good answer.
I am sorry to hear the Minister feels he has nothing more to offer on this amendment, because I would have thought that in the discussion earlier it had been demonstrated quite clearly—indeed, it had been agreed by the Minister—that the principle involved in the amendment was one he would support and that it was one that was capable of execution. Unfortunately, the Minister has not, despite a number of efforts from this side of the House, answered the question we put to him as to how he proposes to justify the application of capital gains tax to what is really a loss. He did say shortly before we adjourned that he regarded what we were suggesting as an effort, I cannot remember his exact words but the sense of them was, to benefit the wealthy taxpayer.
I do not know how the Minister arrives at this conclusion, considering that the amendment is trying to adjust both gains and losses in accordance with the fall in the value of money as far as one can achieve that. That is demonstrably fair and equitable, and I am at a loss to understand what tortuous form of thought process brings the Minister round to interpreting that as trying to aid wealthy taxpayers to evade or avoid liability for tax.
I had hoped the Minister, having accepted the principle involved and listened to the arguments put forward on both sides, would have found it possible to say he would have his officials produce a scheme, as effective as they could make it, to achieve the objective of this amendment. I can assure the Minister that, if he did so, his officials would produce a scheme which would be very acceptable to both sides of the House and to the public in general. I am still not without hope that the Minister will do that.
What he has said so far has indicated the contrary but I am hopeful that on this, the first major issue of principle involved in our discussion here, the Minister will try to set the tone for a reasoned and reasonable debate by accepting the validity of the points put forward. He has accepted the validity of the principle involved. I do not think he can seriously suggest that it is beyond the ability or ingenuity of the officials available to him to implement that principle, a principle he says he would like to see implemented. I would ask him again to consider approaching the matter in that way and, in particular, to bear in mind the impossible and untenable position into which he is putting himself in relation to applying capital gains tax to what are real losses as distinct from real gains. There is no possible justification for that and the Minister has not attempted to justify it. I do not believe it would be possible for him to justify it. He has not attempted to do so, possibly because it is not possible, but that does not sweep the problem under the carpet. Neither is it sufficient to talk about what happens to other people or to the average taxpayer. The fact is that the Bill, as it stands, proposes to apply taxation to losses. While they are nominal gains they are still losses and the Minister has admitted they are losses. This clearly is unjustifiable and the Minister has an obligation to ensure that this does not happen. Whatever other objections he may have to the other possible consequences of accepting this amendment, I believe he must devise a method whereby tax will not be applied to real losses. I would again urge him to assure the House that he will get the resources available to him working on devising a method of ensuring that capital gains tax will not be applied to what amounts to real losses.
(Dublin Central): On Second Stage we accepted the principle of capital gains. We accepted it on the grounds of real capital gains, not capital gains consequential on the devaluation of the £. I was quite convinced at that stage that the Minister would take inflation into account. This is something he has failed to do. I understood at that time that he would take the fall in the value of the £ into consideration. The Minister argues that he is going in at a low level of 26 per cent. What will the consequences of that be in five or six years time? In five or six years time we will see how realistic this 26 per cent is on real capital gains. It will be running at about 40 per cent. If the Minister fails to take the depreciation in the £ into consideration that will have a detrimental effect on the economy. He should have devised a method of adjusting values. If he does not have such a method he will find himself in a very difficult situation and economic expansion will be detrimentally affected. I hope he will give some indicaton that he will make an adjustment.
The Minister says he is starting at a low figure and he cited Denmark where they take the first two years of capital gains as actual income tax. The Minister knows that in the second last election in Denmark the people were sick and tired of the Government and he should not have cited Denmark as a classic example. With inflation, a property valued at £100,000 becomes in four years a property valued at £200,000, but there is no real gain. It is not fair to tax people when there is no real gain. On £100,000 the Minister will take £26,000 despite the fact that there was no real gain in that four years. We want to see capital gains tax on real profits. It is not fair to tax on a net loss. If that property were sold some years later for £150,000 the Minister would collect a hefty sum by way of capital gains tax despite the fact that there was no gain but, rather, a net loss. Some provision should be made to cover inflation. It is difficult to prophesy with regard to the future, but we will certainly have inflation. A specific date should be taken and the value of the £ on that date should be the rate of inflation built in for the following 12 months. That would ensure taxation on real gains. The longer the Bill is in operation in its present form the more the Minister for Finance will collect unless some specific provision is written into the Bill. No allowance will compensate for inflation. In his budget recently the Minister gave an increase of only 15 per cent but inflation is running at 20 per cent.
People who are prepared to develop their businesses and to invest money should know what the taxation will be. They should not have to wait for each budget to know what allowances will be taken into consideration. The Minister has accepted this in principle but he should tell the House that between now and Report Stage he will consider bringing in an amendment to insert in the Bill a clause dealing with inflation.
Is the amendment withdrawn?
No. Has the Minister anything to say on the matter?
I have said everything already. I would have to reconstruct the entire Bill, put in a higher rate of tax, rearrange the allowances and so on in order to meet the Fianna Fáil position. I am not prepared to do that because it would be unfair to taxpayers.
(Dublin Central): At what stage will the Minister make an adjustment? Will it be in three, four or five years?
Certainly I will not wait as long as Fianna Fáil.
(Dublin Central): That is not the point. This is a tax Bill.
Does the Minister understand that when Fianna Fáil were in office inflation was never like it is at the moment? That is the root of the problem. Unfortunately the Minister is giving the impression that he does not understand what is involved. If he does understand, his position is quite indefensible. If he does not understand I am afraid there is nothing more we can do because we have tried our best to explain the position. All I can say to the Minister is that this amendment goes to the root of the Capital Gains Tax Bill. The Minister has persisted either in misunderstanding or ignoring the reality of inflation and its effect on capital gains. He is now trying to justify the imposition of tax on a loss. If that is his approach to capital gains it is not ours. We do not accept any responsibility either for the moral thinking behind the Bill or for the economic consequences mentioned by Deputy Fitzpatrick. In those circumstances there is no question of our withdrawing the amendment.
Fianna Fáil proposed a 50 per cent tax on gains made since 6th April, 1974, and now they are suggesting there should be a 20 per cent concession. That would still leave the tax under Fianna Fáil's proposal higher than the 26 per cent proposed in this Bill.
(Dublin Central): It is only for one year.
That is another major principle in capital gains that the Minister obviously does not understand.
Amendment put.
The Committee divided: Tá, 55; Níl, 62.
Tá
- Andrews, David.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac
- Briscoe, Ben.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Gibbons, Hugh.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Lalor, Patrick J.
- Lemass, Noel T.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Malley, Desmond.
- Power, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson John P.
- Wyse, Pearse.
Níl
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- FitzGerald, Garret.
- Flanagan, Oliver J.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Keating, Justin.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerald.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Kelly and B. Desmond.
Amendment declared lost.
Question proposed: "That section 2, as amended, stand part of the Bill."
On section 2 there are a few questions I should like to put to the Minister. In relation to the definition in paragraph (b) of the word "lease" could the Minister give us an example of the kind of thing he has in mind in that paragraph. That paragraph reads:
... in relation to any description of property other than land, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise, in respect of, property.
The meaning of lease is extended to cover interests in land outside the State corresponding to a lease and also interests in other forms of property—for instance, a lease of plant. An extended definition of legatee is also given for the purpose of dealing with assets passing on a death and it includes a donatio mortis causa.
Definitions of unit trusts and units in relation to unit trusts follow section 1 of the Units Trust Act, 1972, and the definition of "year of assessment" ensures that it has the same meaning for capital gains tax purposes as it has for income tax purposes.
The Minister referred to the definition of "legatee". If he will refer to line 13 on page 5 he will see that in the definition of legatee it says: "...under a testamentary disposition or on an intestacy or partial intestacy or by survivor-ship..." May I take it that that refers to a joint tenant?
Yes.
Further on in that definition there is a reference to "...property taken under a testamentary disposition or on an intestacy or partial intestacy includes any asset appropriated by the personal representatives in or towards the satisfaction of a pecuniary legacy..." Would the Minister say whether the effect of this definition, together with a provision in another part of the Bill excluding money as such, or cash, from the operation of the Bill, is that in the case of an estate in which there is sufficient cash to pay a legacy without realising any of the other property the legacy being in cash is exempt from liability for capital gains tax, but if there is not sufficient cash and some of the property has to be realised in order to pay the legacy, the legacy becomes in effect liable to capital gains tax because some property had to be realised in order to produce the money to pay the legacy. Is that the position?
No, because it would be cash and this is a disposal on death. We are specifying certain definitions. We do not say in this section how transactions of this kind will be dealt with. That is dealt with in another section. We have to specify here precisely what is meant by these different transactions.
When looking at the definitions we have to have regard to the provisions which arise later on in the Bill. I think I am correct in saying that while the position is stated by the Minister that a passing of property on death is not deemed to be a disposal for the purpose of this Bill, nevertheless is it not also the case that, if somebody receives a property by way of legacy, while that transaction is not deemed to be a disposal, if the legatee in due course should dispose of the property he becomes liable to capital gains tax calculated on the basis of the gain arising, taking the cost price as being that to the person who left him the legacy up to the date of disposal and the figure he gets for that?
That is right.
If that is so, the position would appear to me to be that, if a person were entitled as a legatee to, we will say, £1,000 cash, and there were sufficient cash in the estate to pay it, that would be the end of the matter so far as the legatee was concerned, but if there were not sufficient cash and the executors or the administrators were obliged to sell some of the other property in the estate in order to pay the £1,000, that would not be the end of the matter and the legatee in due course could become liable or, alternatively, he estate could become liable.
If the legatee receives only cash there is no question of the legatee having to pay. The legatee would get £1,000 cash and there would be no question of any addition to that value after receipt.
May I take it that the purpose of this portion of the definition of the word "legatee" which, with your indulgence, Sir, I will read again, "...property taken under a testamentary disposition or on an intestacy or partial intestacy includes any asset appropriated by the personal representatives in or towards the satisfaction of a pecuniary legacy..." is to ensure that in such cases no liability for capital gains tax will arise in respect of the property taken for the purpose of satisfying the legatee? Is that the purpose of that portion of the definition?
No, there would be a disposal in a case of that kind by the personal representative. At the time of the disposal he would calculate whatever the appropriate capital gains tax would be on the capital disposed of. There would be no continuing risk attaching to the recipient of the cash.
Could there be any risk of the personal representatives becoming liable? There should not be because there is not a disposal on death.
A recipient would be receiving cash.
Could the Minister tell me what is the purpose of this provision?
It is a definition of what a legatee is and of property passing at the time of death.
I think the Minister will agree that normally property of the kind dealt with in the way described here would not be regarded as a legacy.
I will look at the point raised by the Deputy but this section is to ensure that the special treatment applicable at the time of death applies to the particular asset.
In other words, is it a relieving provision?
Yes.
Could I refer the Minister to the definition of "mining" a little further on? Would he explain whether in this section or some other section of the Bill there is a provision to bring in off-shore operations?
"Within the State" includes areas within the designated area.
Does the Minister mean on the Continental Shelf?
Yes.
What is the basis for that statement?
I am not sure that I could give the Deputy the authority offhand. This is a matter which disturbed my mind, too. I made inquiries and I was assured that this would include anything with in the Continental Shelf.
If there is any such provision I presume it must be in the Continental Shelf Act. I am wondering if there is a definition in some other statute which provides that in this context "the State" means our portion of the Continental Shelf. It is stretching the meaning of the word "State", as I am sure the Minister will accept, and it would be for specific purposes only. If there is such a definition I presume it can only be in what I think is referred to as the Continental Shelf Act, which I think I introduced. I must confess I do not recall any such provision in it but that does not mean it is not there. I would ask the Minister between now and the next Stage to put himself in a position in which he will be able to assure us that it covers that, and give us the authority for that statement.
Apart from what I understand to be the general position —and I recall the 1973 Finance Act which brought within the ambit of tax liability any profits made on the Continental Shelf—section 4 (6) specifically charges any gains accruing on the disposal of exploration or exploitation rights in a designated area. That was taken for the purpose of this Bill as being the gains accruing on the disposal of assets which are situated in the State. So, we have very specifically charged it here in this Bill itself.
That is the information I was looking for.
Incidentally, we go on to define in subsection (8) of that section what a designated area is, which has the meaning assigned to it by the Continental Shelf Act, 1968.
Lines 34 and 35 read:
"resident" and "ordinarily resident" have the same meanings as in the Income Tax Acts.
Could the Minister indicate whether that is intended to convey that such words are defined in the Income Tax Acts and if so, where?
It is not simply a matter of what is spelled out in ex-tenso in the Income Tax Acts but also the interpretations of the courts as to what is the meaning of “resident” and “ordinarily resident”. These have very clear meanings under the Income Tax Acts and under their interpretation by the courts and that definition covers all these.
I adverted to this matter on Second Stage and I think the Minister referred to it in his reply but I am advised by a number of competent people that the word "resident" is defined clearly in the income tax code based on the various decisions over the years but that the term "ordinarily resident" is not and that there is a good deal of looseness in regard to the definition of "ordinarily resident" at the moment. If there is any basis for that, the Minister should try to define it in this Bill because it has considerable significance in regard to the persons who will be liable for capital gains tax. I do not think it is satisfactory if the definition of "ordinarily resident" is left vague and somewhat up in the air.
The Deputy is aware that these questions have arisen for years not only in respect of income tax but also death duties, as to what is the meaning of "resident", "ordinarily resident" and "domicile" and so on. There were references in the Income Tax Act to "ordinarily resident". For instance, section 199 of the Income Tax Act, 1967, refers to persons having "ordinary residence".
The difficulty in trying to define these things finally in legislation is that to define them in that way may lead to a presumption that any other condition is outside the definition and, therefore, not liable to tax. It stimulates the ingenuity of people to find a way out by tax avoidance. "Ordinarily resident" is something related to human behaviour and intention, something that has to be looked at on the merits of every particular case and is not something which is capable of precise statutory definition. The same issues have arisen over the years in relation to "domicile". Here the question of intention is as important as the question of actual physical presence.
While it is true that the question of ordinary residence may have arisen in regard to death duties, nevertheless, as a result of the definition here, that is substantially excluded because the provision is:
"resident" and "ordinarily resident" have the same meanings as in the Income Tax Acts.
Furthermore, section 199 of the Income Tax Act, 1967 refers to ordinary residence, but that is all it does. So does this section refer to ordinary residence but it does not help us in finding out what it means.
It is generally accepted that the word "resident" is certainly sufficiently clearly defined not to require any further action in this Bill but it also seems to be held that "ordinarily resident", on the contrary, is very ill-defined and that it is likely to lead to a great deal of confusion and difficulty and, perhaps, litigation if it is not more clearly defined for the purposes of this Bill. It might help if the Minister could put on the record of the House an indication of what is considered to be the definition of "ordinarily resident" or if he could refer to decisions on this phrase. This would not bind the Revenue Commissioners but it would be of some guidance, I think, to people who have to deal with this Bill in due course in relation to this phrase.
I think the Deputy is well aware that it has been the practice of the House for Ministers not to offer themselves as legal advisers or to offer legal opinions which, in any event, are not quotable in any court of law but there is ample case law. There are several judicial decisions which establish the meaning of "ordinarily resident" but, as I said earlier, they are matters that have to be determined in the light of the facts of individual cases and it is very difficult to arrive at what would be a universally applicable statutory definition and, to try to do so would, I believe, create more difficulties and generate anomalies. In the end, I believe it would generate even further argumentation in the courts as to the meaning of the section and its applicability to a particular situation which might be generated. I cannot make it any more precise than to say that these are matters that have to be determined in the light of individual cases.
Would it be possible for the Minister to mention some of the decided cases to which he refers?
Again, I think this would be offering myself as a legal adviser and I do not think it would be appropriate to use the House for the purpose of doing that. I would certainly communicate with the Deputy on the matter.
My difficulty is this: people who are, with due respect to the Minister, more competent than he or I in these matters tell me that the phrase "ordinarily resident" is not in any way clearly defined while the word "resident" is. This is why I feel that we, in this House, should not accept the phrase with its importance in the application of the Bill without a clearer indication that it has been defined. The Minister tells us that it has been reasonably well defined on decided cases. I would ask him in the circumstances to mention, if not the circumstances in each case, at least the titles of the cases involved. Otherwise, we may find ourselves having to deal with this matter again on an amendment on another Stage with an attempt to define it which, as the Minister says, might turn out to be quite unsatisfactory.
As the Deputy will appreciate, if any taxpayer is dissatisfied with the interpretation put on the situation, then the taxpayer has a right of appeal. I think that is the most satisfactory way of dealing with it.
I do not think a taxpayer should be forced to do that if it is avoidable. Furthermore, the House is entitled to a little more information on a matter such as this, in the circumstances I have outlined. I want to make it clear that what the Minister says in relation to the word "resident" is fully acceptable but, in relation to the words "ordinarily resident" it is not.
As I said, I will be prepared to give the information to the Deputy privately, such legal advice as is available to me, but it is the practice not to be offering legal arguments in the Dáil regarding interpretation of court cases and case law.
It is a practice which has certain limitations on it. I would think it applies in this case. I will certainly accept the Minister's undertaking to give me the information privately, but in doing so I must reserve the right to bring in an amendment at a later stage, if necessary.
Naturally I would have no objection to that.
I would refer the Minister to subsection (5), which reads:
References to profits or gains in the Income Tax Acts shall not include references to chargeable gains.
I know what is intended by this but I should like to hear the Minister's comments on the fact that, in a Bill dealing with capital gains tax, there is this phrase: "references to profits or gains in the Income Tax Acts shall not include references to chargeable gains." Why should references in the Income Tax Acts to profits or gains include references to chargeable gains since this is not an Income Tax Act?
As the Deputy will appreciate, under the Income Tax Acts, some particular profit can be called a gain and become chargeable under the Income Tax Acts. We want to ensure we do not have duplication here so that something which is involved under the Income Tax Acts would not then be regarded here as something which would become liable to capital gains tax.
I assumed that was the position. But what mystified me is that provision is made here to make it clear that the words "profits or gains" in the Income Tax Acts will not include chargeable gains. On the other hand the word "resident" or the words "ordinarily resident" which occur in the Income Tax Acts have the same meaning as the Income Tax Acts. In other words, where it suits it is said such a thing referred to in the Income Tax Acts does not have the same meaning as in this Bill, and that is specifically spelt out. On the other hand, words which appear in the Income Tax Acts and which we want to include as having the same meaning are specifically provided to have the same meaning. On the face of it, one of those provisions appears to be unnecessary. If similar words in the Income Tax Acts would have the same meaning in this Bill, unless otherwise specified, that is one position, and you would then have the provision about the word "resident" and the words "ordinarily resident". But if they would not have such a meaning, unless so specified, then you do not need that provision about "resident" and "ordinarily resident" and you do need the one about profits or gains. But it seems to me one should not need both. Otherwise, there is a risk that any word that is the same used in the Income Tax Acts and in this Bill which is not dealt with in the definitions section will produce a meaning which was not intended by this House when this legislation is enacted. I wonder have I made my point clear to the Minister.
What the Deputy is saying is that there is always fear of confusion unless we deal with everything here.
We seem to be trying to deal with everything within a limited sphere.
If one goes back to subsection (1) of section 2 one will find that "chargeable gain" has the meaning assigned to it by section 11 (2) for the purpose of this capital gains tax.
Yes.
Subsection (2) of section 11 defines it as:
Every gain accruing on or after the 6th day of April, 1974, shall, except so far as otherwise expressly provided by this Act, be a chargeable ...
Then we are providing, at subsection (5) of section 2 that:
References to profits or gains in the Income Tax Acts shall not include references to chargeable gains.
We must do that. Otherwise there is the danger that they would all be brought in because they would be gains made after April, 1974.
But why has it to be specified that "resident" and "ordinarily resident" have the same meaning as the Income Tax Acts? Why would they not have the same meaning without that provision?
The word "gain" can have a meaning for income tax purposes; it could mean "income" for income tax purposes; a gain can be an income. But "gain" in the context of this Bill means only a capital gain and not an income gain.
We want to avoid duplication here, that anything that has already been involved and dealt with in the Income Tax Acts as a gain is not caught also as a gain under this Bill. Residence, on the other hand, has one meaning only. It would be a common meaning to the two Acts because residence is something related to the condition, the position and the intention of the individual taxpayer. In that respect it is common to both.
I would agree with the Minister but I would have thought that, because it is common to both, it would not have been necessary to say it has the same meaning. However, I shall not pursue the matter any further.
The more one tries to clarify a thing the more it becomes confused.
Question put and agreed to.
SECTION 3.
I move amendment No. 4:
In subsection (2), page 6, line 44, after "Act" to add "save and except that the tax shall not be assessed and charged for any year prior to such year (which shall not be earlier than the year 1974-75) as the Minister may, by order, appoint in respect of chargeable gains accruing to a person on the disposal of business assets".
The object of this amendment is to give to the Minister power, by order, to fix the commencement of the operation of the capital gains tax legislation in relation to business assets which I have not attempted to define in this but which would be easy enough by reference to definitions later on in the Bill. It is the principle with which I am concerned.
The fact of the matter is that there probably could not be a worse time from the economic point of view for the introduction of this legislation. No matter how much the legislation might be amended, it seems very likely that its implementation at this time will have an inhibiting effect on investment generally at a time when investment was never more sorely needed. Not alone are we suffering from a record level of inflation but we are suffering also from, if not a record, almost a record, level of unemployment, with economic activity winding down. More than ever investment needs to be spurred and given an incentive. For that reason I am proposing that the Minister be given power to postpone the operation of the capital gains tax in relation to business assets so that a more appropriate economic climate could be awaited before its operation.
The Minister may well say: "But the Bill provides, in relation to business assets, that provided any gains are invested in the business, then capital gains tax will not arise, and therefore it will not inhibit investment." While that may be plausible I do not think that, for a number of reasons, it is true.
First, there is the question that was raised on the previous day by Deputy Fitzpatrick, and which will have to be pursued later, as to how limited is that provision, to what extent does the business in which the gain is invested have to be similar to the business from which the gain was made in order to ensure this roll-over relief. The second difficulty is that, in so far as portion of the gain is not invested in that way, it would become liable to capital gains tax at this time; and the third difficulty is that the climate created by capital gains tax legislation, particularly when the manner in which it is to operate is uncertain, is the wrong climate for the situation with which we are faced now. This is a time when all the efforts of the Government should be directed towards creating the right climate for investment. For these reasons, I say that to give the Minister the power to postpone the operation of the Bill in relation to business assets in the hope that he would exercise that power with discretion, and having regard to the economic climate and the requirements of the country, would be an improvement in the effectiveness of the Bill and also in the steps needed to be taken to get our economy moving again.
We have heard the argument of the orthodox Tory from Deputy Colley, that is, never do anything because now is not the right time; never do even what is right because now is not the opportune moment; continue postponing until times might be better. This is the Mr. Micawber philosophy—something will turn up—hoping that, for once, it might transpire to be right.
We are committed in Government to the removal of death duties. This is a type of tax that is harmful to investment and which imposes a hardship on families and individuals at times of bereavement. It is a disincentive to investment and to the retaining of investment. As part of the price of abolishing death duties we must introduce a form of capital taxation which will allow people to pay their capital taxes when it is best for them to do so rather than under the existing system of death duties. An essential part of such capital taxation reform is a capital gains tax. We propose to abolish death duties as and from April this year, and we could not justify this move at this time without introducing simultaneously alternative capital taxes. But these alternative capital taxes, at least in the earlier years, will not bring in as much to the State as will be lost as a result of the abolition of death duties. One reason why this is so is that the only capital gains being taxed are those that have been made from April, 1974, and there are very few assets in respect of which gains have been made since then. Apart from the domestic scene, this has been due to world conditions. Therefore, very much as in relation to farm taxation, there is never a better time from the taxpayer's point of view to introduce such taxes as when the market is at a valley point.
(Dublin Central): The Minister should talk to the farmers about that.
I cannot accept that the benign capital gains tax we are introducing will act as a disincentive.
This is the first time I have heard taxation described as benign.
Each of our partners in the EEC has a capital gains tax system. In some cases such a system has been in operation for as long as 20 or 30 years. If there is anything that might disturb investors it would be a continuation of the present system because they would expect that, regardless of which Government were in power, sooner or later a capital gains tax would come into operation. Anybody who has had any dealings with potential investors has discovered their amazement at the absence in Ireland of a capital gains tax. These taxes operate in the US, which is a heavy investor in Ireland. They operate, too, in Norway, and Sweden and we are very likely to be getting considerable investment from Norway, and possibly, from Sweden, too, in years to come. These future investors from outside——
(Dublin Central): ——should be encouraged.
——are not being discouraged in any way by our having one of the easiest forms of capital gains tax in Europe. In addition—and Deputy Colley has anticipated another argument I used elsewhere—the very system of a capital gains tax will, if anything, act as a discouragement to people to get out of their business investments, because by getting out they become liable for this tax whereas if they continue their investment they will not be involved in any liability for this type of tax. Surely that is an incentive for people to continue their investments.
(Dublin Central): I do not think it is Deputy Colley's intention that the Bill be postponed in its entirety. The Deputy had in mind certain types of assets or businesses. The previous amendment in the name of Deputy Colley, and which was not accepted, would have been one means of inhibiting the transfer of property. We know that many businesses and companies are run down today and that there are many old companies in respect of which it would be desirable that they be sold and modernised. At this time of economic depression we should not discourage the transfer or the sale of the types of companies I have in mind.
Listening to the Minister one gets the impression that he is trying to tell us that this is a good time to introduce a capital gains tax, If the Minister believes that, he would believe anything. He must know that the effect on investment of the introduction of a taxation of this type is inhibiting at least until such time as it has been seen in operation. That is not necessarily to say that it should be inhibiting. I am saying it is inhibiting.
I am asking the Minister to acknowledge the reality of the situation. The fact that he and his colleagues in the Coalition made a certain commitment in regard to death duties— I do not wish to pursue that red herring unnecessarily—is no reason for the Minister saying that, regardless of what is the situation in the economy, this Bill must be introduced. In essence that is what he is saying. In regard to this Bill or to any other measure for which the Minister is responsible, his primary obligation at this time must be to get our economy moving again.
I am not only speaking of investment from abroad which seemed to be what the Minister thought. I am concerned with that, of course, and will deal with it in more detail on another section. I am also very concerned about investment from within the country. The Minister must know that more than anything else we need investment at this stage if we are to have any hope of conquering unemployment. Unless he can say, and with good reason, that the introduction of capital gains tax on business assets will not inhibit investment in any way or diminish either the state of our economy or the chances of recovery, then in my view he is not justified in taking a step of that kind.
He has not, in fact, said, although he may have implied it, that he believes this will not in any way affect investment in business either from within or from without the country. I would be very surprised if he were prepared to make a categorical statement to that effect. If he did make it, I would not accept it unless he could advance cogent reasons for that belief. There are many reasons which could be advanced to show that that view would not be true and, indeed, common sense would indicate this to anybody who thinks about it, particularly at this time.
I do not think the Minister has quite grasped the significance of the timing. At a time when the economy is booming, people are prepared to invest almost despite any hardship which stands in their way because they are confident that what will emerge will enable them to overcome whatever difficulties they see. At a time like the present, it only needs the slightest difficulty visualised to inhibit investment for many people. This is my fear in relation to this Bill. That is why I put forward this amendment. I ask the Minister to accept the reasoning behind it. After all, it is not taking out of the hand of the Minister the date of implementation of capital gains in regard to business assets, it is merely giving him the power to exercise one of the functions which he is obliged to exercise as Minister for Finance in relation to the management of our economy.
The Minister knows that his functions extend far beyond the introduction of measures such as this or decisions on taxes, revenue and so on. The management of the economy is, perhaps, a more important function now than ever before requiring a good deal of delicate handling and timing. This amendment is giving the Minister power to exercise the function of management of the economy.
I am not sure if it is in the national or business interests that I should proceed with a time scale for the abolition of death duties.
The Coalition backbenchers would not agree with the Minister.
I have always agreed.
I notice the Deputy has his tongue in his cheek.
I have not.
Order, please.
Amendment put and declared lost.
Amendment No. 5 has been deemed to be out of order.
I move amendment No. 6:
In subsection (3), page 6, line 46, to delete "26 per cent" and substitute:
"in accordance with the following Table:
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On a gain realised within 6 years of acquisition of the asset |
26% |
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,,,,,,,,,,7,,,,,,,,,,,, |
23% |
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,,,,,,,,,,8,,,,,,,,,,,, |
18½% |
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,,,,,,,,,,9,,,,,,,,,,,, |
14% |
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,,,,,,,,,,10,,,,,,,,,,,, |
9½% |
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,,,,,,,,,,11,,,,,,,,,,,, |
5% |
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,,,,,,,,,,12,,,,,,,,,,,, |
4% |
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,,,,,,,,,,13,,,,,,,,,,,, |
3% |
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,,,,,,,,,,14,,,,,,,,,,,, |
2% |
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,,,,,,,,,,15,,,,,,,,,,,, |
1% |
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On a gain realised more than 15 years after the acquisition of the asset |
Nil.” |
As indicated, amendment No. 5 is out of order on the grounds that the rates of tax proposed in the earlier years would involve an increase in taxation. For that reason I put down an alternative amendment the effect of which would be to provide for a rate of tax of 26 per cent on a gain realised at any time within six years of acquisition of the asset and thereafter declining as indicated in the amendment until, after 15 years, it would be 1 per cent and thereafter nil.
This is not, of course, our first choice which was indicated in the amendment ruled out of order and indicated on Second Stage. This in my view is the second major principle in capital gains tax on which this Bill, as drafted, is wrong. The first, which we discussed earlier, provided for inflation. This goes even more to the root of a capital gains tax. We want to see a much higher rate of taxation than that proposed by the Minister on gains made in the earlier years, particularly those made within one year. On the other hand, we wanted to provide that where the asset has been held for a long time the tax should be less. There is no accurate way—and I stated this on Second Stage—by which one can distinguish between speculators and people who put their time, skills and energy into building up a business. There is not any way this can be done perfectly. But we can go some of the road on this. One aspect of that is contained in this amendment. The other is contained in the following amendment with which we shall deal later.
What is involved in this amendment is a recognition of the fact that if a person has held an asset for a number of years—and the asset can be that person's business, including the goodwill which was built up over the years —and there is a gain, one should distinguish between that person and the speculator. The speculator may make a profit in maybe a matter of months, certainly within a year, with little or no economic input into the asset. We are trying to distinguish between these. We do not say that this distinguishes perfectly but it goes some of the way. The approach which the Minister has embodied in the Bill of a flat rate of 26 per cent across the board, irrespective of when or how the profit was made, is to our minds totally wrong. For that reason we are urging in this amendment—we are not entitled to urge a higher rate of tax for the earlier years—for a lower rate of tax for the later years tapering off after 15 years to nil. We discussed this on Second Stage.
I had hoped that the Minister would see the force of the argument, particularly as it was reinforced from his own benches. but on the basis of amendments put forward by him he has not apparently seen the force of the argument. I hope he will now because what is involved in this is extremely important. This House should not try to treat in exactly the same way, for the purpose of capital gains tax, on the one hand the man who makes the quick buck and puts nothing into it and, on the other, the man who spent years building up a business. That is what this Bill is doing and that is what this amendment is designed to change.
I have heard and I understand all the arguments but like most arguments there are two sides so let me put the other side. The scheme as proposed by Fianna Fáil on the amendment is less than they wanted to do. They wanted to bring in a capital gains tax of 50 per cent sliding down to 26 per cent in the sixth year. This, after they have been shouting from one end of this country to the other for the last year and, as they have repeated in the last five minutes, that it was not the time to bring in a capital gains tax, they wanted to start off with the lovely jump of 50 per cent——
We did not say it was not the time.
——which would be the highest capital taxation in Europe. It would not be bad for a start. I invited them, when I was replying to Second Stage, to get some consistency into their arguments because it would help the country to know what their attitude was.
That is one side of the argument. This beautiful solution put forward by Deputy Colley which is to treat the long-term owner of an asset more generously than the short-term owner overlooks a necessary corollary that the short-term owner of an asset with a loss would enjoy the value of a write-off as Fianna Fáil originally envisaged. It could be a 50 per cent write off of a notional loss to be carried forward against future gains. You would then have the outrageous position——
Loss is not related to the rate.
——of fictional artificial losses being generated——
The Minister does not understand it.
Order, please.
——to hold them against gains that are made but are charged at 1 per cent. If Fianna Fáil had their way a person could generate a fictional loss in the first year——
If you can do that under one scheme, you can do it under any other.
No. If you have a simple code you can take steps to police loss situations.
The Minister must spell that out now.
When you come down to a situation where we are now offered 11, we had 16 rates on offer last week, the opportunities for distortions and manipulations are multiplied unto the nth degree. This particular system would also lead to a situation——
Surely loss has nothing to do with the rate?
——in which people would lock themselves into assets and wait 15 years to make a huge kill which would be tax free. What Fianna Fáil want takes no account of the situation where a person was obliged for domestic reasons to sell off an asset.
(Dublin Central): You are encouraging speculators.
No, if a person was obliged to sell off an asset due to family circumstances he would find himself paying a higher rate of taxation than the person who had surplus money and was able to remain locked into an asset for up to 15 years in order to make, at the end of it, a very substantial gain which would be tax free. Last week we emphasised, and some Members of the House accepted, that it is the well-to-do who would make most out of the particular sliding scale Fianna Fáil have in mind. There are plenty of people with money surplus to their current needs who can lock that money away in an asset which over a long period can accumulate quite a substantial gain.
At 20 per cent inflation they do not.
There are many people doing this. They do it every other day.
Over 15 years?
Can we have the Minister without interruption?
They do it for five, ten, 15, 20, aye 25 years to make gains. If you exempt such gains totally the longer they keep the asset the more they will be inclined to keep the asset, the more they will plunge into these situations, so you will have these frozen assets, frozen in some particular form of property which might not be at all productive but which could, at the end of a period, have a very substantial gain which would not be subjected to any tax liability at all. That is the other side of the argument advanced by the Opposition.
It seems to me that the fairest thing is what we have offered in this Bill, what we propose to carry through. That is one rate of tax and adjusting the thresholds. If you were not going to adjust the thresholds, if you were going to leave them stagnant, if you were going to leave them as Fianna Fáil left death duties, with little or no moderation in the threshold, then there might be something to be said for a system such as this.
You did not change them the last time. We did.
Excuse me, we did change them the last time.
In the recent budget?
We are abolishing death duties altogether which I regard as a far more satisfactory way than adjustment in the rates. We are getting rid of the very bad system that has nothing to justify it which is a disincentive to investment. Getting rid of death duties is one of the most positive steps to encourage investment which any country could introduce. It is worthwhile pointing out that all the countries that have capital gains tax have retained death duties, quite severe death duties.
As you propose to do with capital taxation.
There is a very moderate duty payable on death by a very small number of people. About 95 per cent of the people at present liable to estate duty will avoid duty in future.
Because they will have paid it otherwise.
That is a substantial step. Such people will also not become liable to capital gains or wealth taxes because of the generous thresholds which are being offered.
I would ask the Deputies opposite to have a look at the likelihood under what they offer of manipulations and distortions. You would have the locking up of assets by people who have means surplus to their current requirements in order at the end of the period, to make a tax free gain. That is not an equitable system of taxation. The system Fianna Fáil propose would in the long run be contrary to the national interest.
May I clarify one point? The Minister said early on that under our original proposal if a person had a loss he could then carry over a 50 per cent loss——
The whole loss. I was talking about 50 per cent taxation.
I want to get this clear. Does the Minister agree that the rate of tax involved is irrelevant as regards carrying over losses? In other words, if you have a loss you can carry it, no matter whether it is 26, 50 or 1 per cent.
Do not let the Minister just nod. Let him say "no" for the record instead of just nodding his head. Let him put it on the record.
May we assume the Minister does not know?
I have said that losses can be set off against future gains.
Irrespective of the rate of tax?
Yes.
Right. Let us get that clear anyway.
A person who comes in here and buys a property should not have to pay more than 26 per cent capital gains tax on it. Before this Bill was introduced a person could have an off-shore company and if he sold it he ended up with the full amount without paying any tax on it. I can see the sense in having a lower tax for the person who has run a business for, say, ten years. I can also see the sense in having a high rate of tax for the person who buys a business and sells it again in a short space of time. There should be some differential between the 26 per cent imposed on the person who comes in and makes a very large profit in a very short space of time and the person who buys a business and runs it for up to 25 years before he sells it.
I cannot agree with the Opposition about having different rates of tax, having a very high rate and then having it reduced each year. I believe there should be some reduction from the 26 per cent to 15 per cent, 13 per cent or even 10 per cent for the person who buys a business, runs it himself for a number of years and then sells it.
The one thing we would like to get on the record here is the principle we have in mind behind George Colley's amendment, that is not to have the speculator put in the same category as the man who, through his talent and energy, builds up something into a valuable asset and in the process gives employment. We feel that the man who comes in here and buys 30 acres or 40 acres of land on a particular day, and because planning permission is given and services provided within a month or even a year makes enormous capital gains without any input on his part, should have to pay tax on his profit.
I know when one is drafting an amendment, such as the one George Colley has drafted, it is very hard to define in precise form the type of person you want to get after and the type of person you want to relieve of tax. The man who through his energy and ability, builds up a valuable asset and creates employment should not be put in the same category as the pure speculator.
The Minister tries to allege some ulterior motive on the part of the people on this side of the House because we want that type of system. The reason we want it is that we realise that the economy needs every incentive it can get from everybody in authority but most of all from the Government and the Minister. We want to ensure that people have faith in the economy and that no type of ideological politician can come along and, because it is a nice slogan, tax the wealthy, tax the property owner and the business people. The Minister is doing a very bad service to the country. He accuses us on the one hand of opposing capital gains and on the other of advocating higher taxation on capital gains. We accept the inevitability of the Minister's intransigence in the matter. In order to have a fairer system of operation in relation to capital gains George Colley put forward his amendment. Then we had the red herring of those write-offs and tax losses at the rate of 50 per cent. The Minister used the words "the imprisonment of assets". It was a ludicrous argument to put forward because that would require the connivance of auditors and accountants.
It would not.
Of course it would.
It could be perfectly legitimate.
If the rate of 50 per cent is imposed on capital gains is the Minister saying to us he is saving by locking up this asset? That is the analogy he drew, but it is completely false and totally irrelevant to the point of view we are putting forward. I urge the Minister to try to draw some distinction between people like Paddy Belton and Maurice Dockrell, who have through their own ingenuity and energy built up assets, and in some cases from very little, and the pure speculator.
(Dublin Central): I believe this is the most important amendment to this Bill.
There is a later one which is more important.
(Dublin Central): Wait until you are paying it, Paddy, and you will see.
I hesitate to interrupt the Deputy but I must advise Members that we are obliged by Standing Orders to refer to Members of the House by their appropriate titles, Deputy, Minister, as the case may be, Deputy Colley, Deputy Belton. All Deputies must be referred to in this way. Standing Orders ordain this.
(Dublin Central): I should like to support Deputy Colley and Deputy Crowley on this amendment. We are not particularly tying the Minister to this table. We are going on the same principle as Deputy Paddy Belton has already mentioned, that there must be a certain differential between the speculator and the long-term investor. Several businessmen I have spoken to during the past four weeks have told me that they object to this section. Those people have spent their lifetime in business. They consider it an injustice that they, as long-term businessmen of all descriptions, who have spent their lives working in this country and giving employment, should now be classified in the same category as the speculator who makes a quick short-term gain. There are businesses which have been built up through the skill, dedication and hard work of families, families which never drew proper remuneration from those businesses for periods of ten, 15 or 20 years. These will come into the category of capital gains. This is an injustice. That kind of family should not be classified in the same category as the speculator who comes into the country and makes a quick £100,000 or £200,000 in 12 months, with no input, without contributing anything to the economy and without employing anyone. To classify these in the same category is totally unfair and most unwise.
The Minister is not correct in saying this could be written off in the first two or three years. That would be negative. It would be very limited. There are other anomalies in income tax about which one can do nothing. Destroying all for the sake of the few the Minister mentions is just not good enough. These business people have contributed to the economy down through the years and they will continue to do so. They are of vital importance to the community. They seldom look for anything from the State. Indeed, they make substantial contributions to the State. They do not look for social welfare or anything like that. These should not be penalised. The Minister can make it any period he likes for the purposes of exemption. We are not opposing this for political reasons. If the Minister inquires of the business community, he will find that this is the particular section which really needs amendment. I hope the Minister will do something positive on the lines suggested in our amendment.
I would ask the Minister to take cognisance of what has been said by three of his own Deputies —Deputy Belton, Deputy Dockrell and Deputy Collins. They all asked him to bring in some kind of clause so that a different rate will apply for a period of 15 or 20 years. Family businesses are built up on family labour, very often built up through a great deal of self-sacrifice, so that at the end of one's days one can retire with an income to sustain one for the remainder of one's days. The same rate of tax should not apply in this case as that which applies to the fly-by-night who buys an acre or two of land in the centre of the city because he has some information about potential development and sells that bit of land for treble the price he paid for it after two years. The same rate of tax should not apply to the ordinary businessman as applies to such a specultor.
I was talking to a man recently who worked with his father for the past 20 years in building up a good business. All this man took out of the business was pocket money for the odd weekend or Sunday night out. He could have taken wages out of the business and possibly paid income tax on those wages. He would be better off if he had done that than to be faced now with this burden of capital gains tax. If the local authority decide they want the site of this business for development purposes, the site will be compulsorily taken from him. The price will be set by arbitration and there will be no recognition of what was put into that business or of what he could have taken out of that business by way of wages. Such a business should be free of capital gains tax. It should be free in the case of the widow who has to sell because she cannot carry on the business and she needs an income on which to support herself and rear her family. Surely it should be possible to work out a system of differential rates. We would be prepared to accept it but we want the Minister to accept the principle that there should be a differential rate of taxation and that it should be reduced to nil after a certain period.
The Minister spoke about assets being unproductive. With inflation at the current rate and with costs so high, if an asset is not productive it will not be possible for the owner to keep it. If a portion of a farm is unproductive because it is flooded the farmer knows that this will affect the viability of the farm. All the land must be in production if the farm is to pay its way.
This would apply even more to a business. If the owner does not devote himself full-time to it, it will not survive. This completely disproves the Minister's theory that assets can be locked up and be unproductive in an effort to evade capital gains tax. He seems to think that after a period of 15 years the state of the business will be satisfactory but that is not so. Nowadays people want to put all their assets to work.
When people get a piece of land from the Land Commission sometimes they are tempted to clear the annuity so that it will be rent free. I always tell people who ask my advice that they should put the money into Government bonds or in some other security and let the interest pay the rent. In that way they will have command of their money and they can use it when they need it. The land they obtain from the Land Commission will not be worth more because it is rent free but if they need the money in a few years time they will not be able to get it back.
People are not interested in locking up their money for 15 years or 20 years. They want to see their assets working and bringing in a good return. The Minister has said that a person would get a considerable capital gains after 15 or 20 years, but that might not happen.
The true value would be much less.
Until the present Government came into power our country was building itself up on family-owned businesses. In this connection I mean farms and family firms. We have very few of the large corporations the Deputies on the Government side speak about so frequently. We should protect any business that is in a family for practically a generation. If it has to be disposed of for health reasons or because of retirement the family should not be penalised, they should not have to give 26 per cent to the Government.
The Minister should take note of the Deputies behind him. Some of them who are interested in this matter are present in the House. Deputy Collins spoke earlier and he advocated different rates with a sliding out after a certain period. I am sure that other Deputies on the Government side have spoken to the Minister on this matter but he is whipping them through the division lobbies to support him. He is becoming a real dictator and he is forcing his views on his party. We do not see any Members of the Labour Party here. It appears he has gone in with them, at least so far as capital taxation is concerned. I can assure the Minister that he is not held in high esteem throughout the country because people think he has joined the Labour Party.
The chamber of commerce was for capital gains.
We want to tax the right people.
The Deputy wanted a clause inserted in the Bill——
The Deputy agrees with us.
That is not so——
The Deputy made a speech that was in complete agreement with us.
When the Deputy spoke on Second Stage he agreed with us and so did Deputy Dockrell.
I was not in favour of a sliding scale.
(Dublin Central): We are not in favour of that. We want a differential rate.
We consider the speculator should be treated differently from the family business. The Minister may laugh at what I say but that is the position.
The speculator is always somebody else but the Deputies opposite have not the courage to tell us who he is.
We have courage We want the speculators hammered.
The Minister represents a Dublin constituency and he knows there is plenty of speculation. He knows there are instances where property is sold for the development of office blocks and hotels. Those speculators have done a lot of harm in the country because they bought farms at exorbitant prices, outpricing farmers who needed the land. The speculators hold the land for a few years and then sell it, or if they think it will appreciate in value to a considerable extent they retain the land for a few years. It is at those people we should be getting and not the family businesses like the Beltons or the Dockrells, firms which have been built up over generations.
There has been much talk about the fact that death duties will no longer apply after 1st April but I should like to point out that they only brought in between £10 million and £13 million to the Exchequer. Now, instead of death duties, we have capital gains tax, capital acquisition tax and wealth tax. In a few years these taxes will be bringing in as much as income tax is at present, more than £100 million.
Especially as it is proposed to apply gift tax as well as capital gains tax to the same transaction despite what was said in the White Paper.
In a few years those taxes will be the biggest money spinners ever for the Revenue Commissioners. They will be far in front of VAT or income tax. This country has been built up by family units and we should protect them and not tax such concerns at the end of a generation. The Minister has told us that he is bringing in a low rate of tax but he has also informed us that the Bill is tied into the 1927 Act and that by a money resolution of this House this rate can be increased. I accept that at present we are having a budget a month——
At the rate inflation is going the Minister will not have to increase this rate at all.
We feel there should be a set rate. We are not saying that our idea is perfect but the Minister, in consultation with his advisers and Deputy Colley, could bring in an amendment that would suit our purpose. The family business should be treated differently from the speculator who simply goes to make a kill, does not give any employment and then disappears. It is accepted in most countries that such people should be hammered at a higher rate than the person who invests a small amount of money and gives employment. The fact that a family business goes public does not mean that they are an easy target for capital gains tax. Such concerns give employment and that should mean that they are taxed at a lower rate than speculators or the person who deals in house property. Such speculators merely put their money into property development and there is no energy or employment involved.
Such a person is probably paying income tax and corporation profits tax at a rate of 50p in the £.
The Department of Agriculture and Fisheries building adjacent to this House, according to the books, was originally sold for £1,250,000. As a result of the development there somebody has made a colossal profit. That type of profit should be heavily taxed. If the Minister is not prepared to accept our amendment he should at least do something on the lines of that amendment at a later stage.
I did not intend to speak on the Capital Gains Bill but I have very good reason to support this amendment. I have known people in the west who bought land and sold it again and made thousands of pounds. They are competing against the small farmer and the Land Commission who want to buy land and divide it amongst the small farmers. Those are the type of people I want to see paying tax.
I want to make a comparison between that type of person and a businessman I know who started in a very small way. He never exceeded the speed limits because he was always in his own yard to meet his customers. He built up a very big business through hard work. He pays a very good staff. He pays his taxes and he pays income tax. Surely it would not be fair to put him in the same category as the other person who pays no tax and who is a land jobber, a speculator, a property jobber. We should go all out to collect money from him.
This type of person has his cheque book and he buys land as a hobby. I would not mind taking 50 per cent in capital gains tax from him. The businessman I referred to worked for a county council at one stage. He drew beet. He built up a big business. Is he to be put in the same class as the speculator? Surely there is a difference between the man who worked and slaved all his life to build up a business and the land jobber or property jobber. If the wording of the amendment is not perfect certainly the principle is correct. I see the result of land jobbery and property jobbery and I appeal to the Minister to accept the principle of the amendment.
Deputy Callanan may have overlooked the fact that sections 26 and 27 take care of the kind of situations to which he refers.
In what way?
In this way. A person who is leaving a family business to a son or daughter will have £150,000 exempted and, if the consideration exceeds £150,000——
He has to sell it.
It is only in the event of a sale that capital gains tax becomes payable. That is why I think this tax is much preferable to the existing system under which death duties will be paid in the case Deputy Callanan has in mind of an Irishman who works hard and builds up his business. Even if he never sells it, or his family do not sell it, or it is not sold for several generations, a 55 per cent slice will be taken off that family fortune on the death of the head of each generation.
We should not pursue this red herring. There is nothing about death duties in this section.
Deputy Crinion talked about all types of taxes.
I did not interrupt the Opposition.
We could argue about this for ever and we would not be talking about capital gains tax. Let us be reasonably relevant.
We nearly had to send for our raincoats and our waders with all the tears being shed on the opposite side about families which would be destroyed and 26 per cent of their assets taken up because daddy had built up the business, when at the moment 55 per cent tax is taken in those cases, at least, and if it is not going to an immediate child there could be 10 per cent or 20 per cent in respect of legacy and succession duties.
The Minister knows that is not true if you count the exemptions in death duties.
We will count the exceptions too. The Deputy knows that in death duties it is on the total value of the estate that the estate duty has to be paid. We are providing real exemptions.
What is the Minister talking about? That is not true. Is the Minister saying there are no exemptions from death duties?
There are miserable exemptions from death duties and the Deputy can have a present of them all.
What are they? You do not pay on the whole thing. That is a false statement.
At this stage I have to appeal to the Chair. I did not interrupt the Opposition.
Could we have the Minister on the amendment?
If the Minister is allowed to discuss death duties will we all be allowed to discuss death duties?
The Minister will make his own speech. Deputy Colley did not endeavour to interrupt any of his own colleagues when they were talking about the position of families now and what it will be under the capital gains tax or when they were talking about death duties. I am entitled to make a contrast between the two. When it has been suggested here that we are confiscating family fortunes, and we are not, it is only proper that we should say we are bringing in a system of taxation to tax a gain when the gain is made and in certain circumstances not to tax a family arrangement. It has been alleged from the opposite side that we were imposing new penalties on family fortunes in Ireland when, in fact, what we are doing is giving considerable relief.
The fact is that when the Minister is cornered he is running away by talking about death duties.
Acting Chairman
Could we have the Minister without interruption?
Deputy Colley should try to contain himself.
Is the Minister in order because if he is we will talk about death duties and I would suggest that if we do we will be even slower in dealing with the capital gains tax. Every time the Minister is cornered he talks about death duties. We are discussing the capital gains tax and he is running away from the points put to him.
Acting Chairman
The Minister is entitled to refer to death duties in so far as they have been mentioned. They were mentioned in the course of the discussion on amendment No. 6 and he is entitled to mention them in that context.
By whom? By the Minister.
By Deputy Crinion.
Deputy Colley's weakness is that he thinks he is the only person who can dictate what people should discuss in the Dáil, on radio, on television, or anywhere else.
Standing Orders dictate what happens in the Dáil.
We have had a discussion here, and I have listened to it for several hours, about the position of family fortunes and family businesses, the way they were dealt with under existing law and how I propose to change them. I have told the House exactly what the position is. Deputy Colley does not wish people to be reminded of the confiscatory system of capital taxation which we have at present.
All right. If the Minister wants to discuss that we will discuss it and we will deal with all the mis-statements the Minister has made, which I avoided commenting on up to now in order to confine the debate to the capital gains tax. If the Minister persists in making mis-statements here about the estate duty system I will have to deal with them.
That is the fourth time Deputy Colley has said that. We are quite well aware of how stubborn Deputy Colley can be. He does not have to say that again. Now we will deal with the debate as it was proceeding in an orderly way, and it was listened to patiently on this side of the House. I suggest that Deputy Colley should try to exercise the same restraint.
I am exercising a great deal more restraint than the Minister, and the Minister knows it.
We are providing a system of taxation where there will be no levy whatsoever unless there is a realisation of a family asset, unless the family decide to get out of business and then sections 26 and 27 provide very generous reliefs. There will be very few estates in the constituencies which have been mentioned which will not be totally exempt by reason of the exemption of £150,000.
The Minister did not mention Meath.
Where they do exceed that figure there are reliefs in sections 26 and 27. So much for the cause of the family business. We have never pretended that the capital gains tax is not intended to apply to people who have more than average wealth, and who are in a position to pay a proportion of that wealth when they realise an asset. The Bill is intended to apply to them. We make no apology for that. We regard that as necessary and desirable socially and in no way economically harmful.
I support the amendment put down by our spokesman. The Minister is bringing in a different tax from death duties and he cannot get away from that fact. We are in favour of a tax that is fair but the Minister's proposals are not fair. How will they affect the family man, the businessman? He buys a property now and he may have to sell it in ten years. If he has to sell to divide among his family he will be taxed. I think that is not right. It may be said that there are exemption clauses but that depends on circumstances. I see no reason why, if the owner within, say, 15 years has to dispose of the property and makes a gain, the tax should be more than one per cent. If he sells after 20 years and makes a profit he has earned it by looking after the property and building it up. If the Minister does not agree to amend the Bill as we have suggested people will say to themselves: "Is it worth while expanding? If we do we will be heavily taxed."
You can set off the cost of expansion.
I know that you can do that but it is not easy to do it, especially now. We believe the speculator in land who makes a good profit over a short term should be nailed down but we see no reason why anybody who worked land or property or business should be taxed at the rate of 26 per cent. The Minister is being harsh and the Minister's colleagues know that even they may have to row in with them; perhaps they have no option. If the Bill goes through in its present form it will be a bad move: it will stop expansion. The businessman will consider the overall cost and ask himself if it will pay him to expand when if unforeseen circumstances arise he may have to dispose of some or all of the property and knows he will be caught for tax on it. That will be harmful to the nation as a whole. It will tend to divert the capital we badly need to expand various concerns, especially agricultural developments. This will have an adverse effect on agriculture.
The Minister talks about death duties but there were not too many paying those. Artificial values were operated and in the country, especially in my constituency, only about 2 per cent were caught by death duties but now it seems that 90 per cent of transactions will be subject to tax. In other words, you are robbing Peter to pay Paul, because you are taking away the duty on one hand and putting on tax on the other and you may also be putting it on people in family farms and homes and you will put it on wealth and so on. I do not want to go into the wealth tax because there will be another day for that. The Minister has threatened that so often and changed his mind so often that I do not think he knows whether he is coming or going.
We are coming all right.
I know that, but some of the Minister's colleagues objected and he had to back down. The Labour Party did not like it, but that was it. Our amendment, providing for 26 per cent in the case of a sale within six years, 23 per cent within seven years, 18½ per cent within eight years, 14 per cent within nine years, coming down to 1 per cent within 15 years and nil after anything more than 15 years is fair and reasonable. If the owner of a farm, an industry or a factory has built up his assets through his own good work he should not be hit but I agree that a speculator who cleans up overnight and gets out with a quick profit at the expense of the ordinary people should be nailed down. We agree with that. We are in favour of the implementation of a tax provided it is fair and we believe the amendment we have put down would ensure this. I ask the Minister once more to give the amendment favourable consideration.
It is noticeable that in the discussion so far on the Bill and on this amendment that whenever the Minister finds himself in a position that is untenable—as he has found on a few occasions—he begins to talk about other issues, particularly death duties. I do not wish to extend the scope of this debate more than is necessary and I have deliberately refrained from following the Minister up this alley but I could not let it go when I heard him repeat in the House a deliberate mis-statement of the position which he had already made on television some months ago with a little blackboard to illustrate his mistake. Tonight he again said that people paid through the death duty system 55 per cent on the whole estate. The Minister knows that statement is not true but he made it in this House and he made it on television. That is why he heard from me in regard to this matter, in case he is under any illusion about it. If the Minister must refer to death duties and estate duties I hope he will at least attempt to refer to them accurately and not misrepresent the position.
However I do not want to extend the scope of this debate unnecessarily. I believe that the reason why the Minister referred to all this again was because he had just listened to a short speech by Deputy Callanan who had in the course of it highlighted the whole point of this amendment. That point was that we should not in this House for the purposes of capital gains tax endeavour to treat in the same way, speculators and people who build up their businesses over the years through hard work, effort, energy and skill. That is the real point of this.
When I referred to this matter on Second Stage and spelled out what we had in mind I specifically said that we were not tied either to the suggested rates of tax or to the number of years involved, that obviously people could take a different view on these matters, but that we were concerned in this Bill to produce a system which would distinguish in the way I have indicated. The fact that that view is one that commands a good deal of support is borne out by the debate on Second Stage.
It is true that no member of the Labour Party, who have been so vociferous about capital taxation and capital gains tax in particular, has appeared in this House on either Stage of the debate so far and certainly none has contributed. Nevertheless we do have on record the views of two members of the Fine Gael Party who spoke on the Second Stage. Deputy Eddie Collins, speaking on the Second Stage of this Bill on 28th January, 1975, and reported in the Official Report for that date, at columns 1131 and 1132, said:
It is my opinion that the blanket rate of 26 per cent should be changed. I suggest that the rate be higher on short term capital gains, in respect of which, say, a 50 per cent tax should be applied. Deputy Colley referred to such gains as speculation. On medium term gains —gains on assets held for a period of, perhaps, 15 years—I would suggest a 25 per cent or 26 per cent tax, but for gains on investments for longer periods I would suggest a 10 per cent tax.
Deputy Paddy Belton speaking on the same day and reported at column 1204, said:
After a certain number of years there should be no capital gains tax.
Therefore it is clear that there is widespread support for the idea involved in this amendment, an idea very clearly spelled out by Deputy Callanan: that we should have a different approach in the application of the capital gains tax to, on the one hand, the person who is making a quick profit and very possibly not making any economic contribution and, on the other hand, the person who over many years has built up his business or firm through hard work and skill, through difficult and good times and particularly if it is, say, a shop or a business, has built up goodwill which is almost exclusively the result of the hard work and the service he has given. It is self-evident that those two classes of people should not be treated in the same way. It is clear, as I have said, and from the quotations I have given, that this view is not confined to this side of the House.
I repeat that we are not in any way tied to the rates of tax we have suggested or to the number of years but we are tied to the principle involved, one which clearly commands a great deal of support. In the light of this support from both sides of the House, for the principle involved at least, if not for the detail of the amendment, we are asking the Minister to accept that principle and to apply it. If he does not like the detailed proposals in this amendment, we ask him to produce his own version of it, accepting the principle involved. If he does that, I believe he will be acknowledging not only a widespread feeling in regard to capital gains tax but he will be ensuring that a capital gains tax is a fairer tax than is proposed in the Bill. He will be ensuring also that it does what the great majority of people want a capital gains tax to do, that is, to apply at least relatively heavy taxation to those who make a quick profit, particularly those who make a quick profit with little or no economic effort on their part.
The Minister must know that in general people do not want to see capital gains tax at exactly the same rate as is applied to that kind of speculator applied to the other type of person I have been describing. I believe he must know that what I am saying is true in relation to the general attitude of people, of supporters of all political parties, an attitude which was reflected in the contributions to the debate in this House from both sides. In these circumstances I suggest it is reasonable of us to urge the Minister to accept the principle involved and come back in due course with an amendment—if he does not like this one—worked out with the best advice available to him as to the most efficient way of applying that principle to the operation of capital gains tax.
Sorry, Sir.
Is the Minister saying "no"?
Yes.
(Dublin Central): At this late stage I should like to appeal further to the Minister. We have put forward pragmatic proposals. The amendment put forward by Deputy Colley is to achieve a different rate of taxation between a speculator and a long-term business man. I could continue until morning spelling out cases of family businesses established 20 years ago, people who have spent their lifetime in the business, whose sons and daughters have worked in it throughout the years with very little financial return. They gave their time and valuable experience to building up an asset, contributing to the economy of the country and giving employment—a man who has held a property for 20 or 30 years and is forced to sell it, perhaps in circumstances beyond his control. We are this evening putting that type of person into the same category as a speculator.
This aspect should be seriously considered again next week. The Minister would be doing the country a service by re-considering our amendment. Nobody has any time for the speculator who comes in and perhaps makes £100,000 or £200,000 in, say, six to 12 months. We on this side of the House thoroughly agree that he should be taxed. We put forward an amendment stating that we would tax the short-term speculator at 50 per cent. On the other hand, our amendment states that the long-term business man who has developed his business throughout the years certainly should not be put in the same category. We are urging the Minister to re-consider our proposals. Indeed the Minister said earlier that assets would be locked up waiting until such time as the 15 years had elapsed.
Debate adjourned.