Finance Bill, 1975. - Capital Gains Tax Bill, 1974: Committee Stage (Resumed). – Dáil Éireann (20th Dáil) – Tuesday, 11 Feb 1975

Finance Bill, 1975. - Capital Gains Tax Bill, 1974: Committee Stage (Resumed).

Debate resumed on amendment No. 6:

In subsection (3), page 6, line 46, to delete "26 per cent" and substitute:

"in accordance with the following Table:

gain

realised

within

years

acquisition

the

asset

26%

”

23%

”

18½%

”

14%

”

9½%

”

On a gain realised more than 15 years after the acquisition of the asset

Nil.”

—(Deputy Colley).

An Ceann Comhairle

Deputy T. J. Fitzpatrick (Dublin Central) was in possession.

Deputy Fitzpatrick is not resuming at the moment. I should like to recapitulate the position in regard to the amendment we are discussing. The amendment is designed to distinguish between the rate of capital gains tax charged, on the one hand, on quick gains and, on the other hand, charged on gains arising over a long period of years as a consequence of hard work, effort and skill on the part of people with shops, or businesses of any kind, or indeed, in certain trades or professions.

While the Minister has not actually said it, he has implied in some of his comments that administratively this would create many difficulties. I would suggest that this is not so because, in regard to any gain, it is necessary for the Revenue Commissioners to determine the date of acquisition of the asset and the date of disposal, in order to calculate the gain. Therefore, the application of a sliding scale depending on the length of time for which the asset was held should present no real difficulty at all to the Revenue Commissioners. I would suggest that administratively there is not a problem.

As regards the principle involved, I would suggest to the Minister that if he went outside his house and asked people he met casually on the street what their views were on the principle involved, he would find that the great majority would favour the principle involved in this amendment. That fact is reflected in the discussions in this House. As the Minister knows, two members of his own party have spoken in favour of the principle involved. We have not heard from the Labour Party in this debate at all. We do not know what their views are, despite the vociferous nature of their comments in the past.

It is clear that the principle of what we are suggesting commands wide acceptance. I have made it clear on a number of occasions that we on this side of the House are not tied to the precise terms of this amendment, to the number of years involved, or the rates of tax involved. I feel very strongly that, if this capital gains taxation is to have any semblance of equity, we must build into it a rate of taxation calculated on the lines we have suggested. There is widespread support for this and no great administrative difficulty in doing it. Therefore, if the Minister resists the principle he must produce a convincing case, which he has failed to do so far. I would again ask the Minister to accept at least the principle of the amendment.

Minister for Finance (Mr. R. Ryan)

I have said on a number of occasions and I repeat that the proposal from the Opposition of a multi-rate system for the level of different rates of tax would produce a system of taxation which would be cumbersome, complex and confusing. It would be full of anomalies and inequities. The benefit of the anomalies and inequities of the system would accrue mainly to the well-to-do and would lean heaviest on people who were forced by family circumstances to realise assets in the short rather than the long period.

I should like to emphasise that, since we announced that the rate of capital gains tax would be 26 per cent, we have received virtually no complaints at all from the financial community or from anybody who would be liable to the tax. Once the tax rate is lower than that in comparable countries, and particularly in Britain, the taxpayers appear to be content. At no time has there been any agitation for a multi-rate complex system such as is now proposed from the Opposition benches. The system they propose would certainly irritate taxpayers in general. It would impose upon taxpayers quite considerable administrative costs, costs of engaging professional advisers, and so forth. To accept the amendment would be to accept as desirable in taxation, complexities, irritants and costly administration which we believe should be avoided.

Mr. T.J. Fitzpatrick

(Dublin Central): We are asking the Minister to accept the principle. He can simplify our amendment.

Mr. R. Ryan

Every step which would be necessary in order to avoid the difficulties generated by this system would tend only to make it more complex.

Mr. Colley

What difficulties are there? Could the Minister spell them out?

Mr. R. Ryan

Other countries have had the experience which I am describing. I will give a few examples just to indicate who I have in mind. First of all, the system would almost certainly provoke people into planning artificial transactions to achieve for themselves more favourable results. The differences in rates which could apply to transactions, maybe within a matter of days, could vary by 4½ per cent, 3 per cent or 1 per cent. For instance, a gain made on an asset held for seven years would be taxed at 23 per cent, while one which was held for just one day more than seven years would be taxed at 18½ per cent. You could have a situation in which two transactions within a week of one another could be charged at different rates.

Take, for instance, a gain of £100,000. The tax liability on that £100,000 could vary by as much as £4,500 in a matter of 24 hours. Any system of taxation which would allow such a gain to be made by people who remained locked into a situation to take advantage of a more advantageous rate of taxation, to my mind would be clearly undesirable. In the kind of situation we are dealing with in most cases it would not be just a matter of one simple gain but a multiplicity of gains by people who had become expert in locking themselves into a situation which gave them tax advantages. Even if the scale of rates were to be arranged more uniformly than in the proposed amendment, varying by 2.6 per year, the tax variation on a gain of £100,000 could be as much as £2,600 in a matter of 24 hours.

There is also the question of the treatment of losses. Under Deputy Colley's amendment, people would be encouraged to fabricate losses in order to set them off against future gains. Supposing a person had losses of £1,000 available to set off against gains and, in the year in which it was proposed to set them off, that taxpayer had gains of £1,000 chargeable at 26 per cent, gains of another £1,000 chargeable at 9½ per cent, gains of another £1,000 chargeable at 3 per cent, and gains of another £1,000 chargeable at 1 per cent, against what gain would the £1,000 loss be set off?

It is quite clear that the well-to-do who could afford to postpone making gains would be the people who would be able to juggle the loss situation to set off the loss to their own advantage in a way which would mean that they would be able to get relief from the tax not open to people of lesser means. These few examples—and they are but a few of many illustrations which could be produced to show the complexities and inequities of the system—should suffice to indicate that there is a great deal to be said for having one rate, a uniform rate which is known to everyone and which avoids situations of locking into assets and holding assets in order to avail of more attractive tax concessions.

Mr. O'Malley

I have listened to the reasons which the Minister has given for refusing to accept this amendment in Deputy Colley's name. Quite honestly, I do not accept any of the reasons he has given. I do not believe he accepts them himself because the rather tentative and vague way in which he put them forward indicated to me that his heart is not in the objection, that he sees the equity of the amendment and the equity of the principle involved and he really has no argument against it. Unfortunately, we have run into this problem with the Minister many times.

Excellent suggestions that are put up from this side of the House are turned down for the sole reason that they are proposed by this side of the House. As Deputy Colley said, a number of the Minister's own backbenchers have spoken in favour of this principle and they see that it is just and equitable, far more so than what the Minister wants to push through. The Minister is digging his heels in. The reasons he purports to give are not really serious reasons at all. He speaks of a difference of 3½ per cent or 4 per cent between certain of these rates and says that, if somebody realises his gain in just under seven years and somebody else realises it in just over seven years, there is a difference in the rate of tax payable. Of course there is; that is the whole point of this. But what the Minister does not advert to is that the man who realises his gain after one week, an-in-and-out merchant, has to pay only the same rate of tax as a man who has held the asset for 20 years. That is far more inequitable than the fact that someone, just before the seven years expires, pays a slightly higher rate than someone who sells just after the seven years.

Of course there must be differences each year, but the real inequity is that someone who holds an asset for only a month or even a week pays 26 per cent, which is the same rate as somebody who holds for 20 years. We have in mind particularly the type of person who has built up a business over a 20-year period and who, perhaps, in doing so has never drawn out of it the income to which he is entitled for his labour, drawing only sufficient to keep himself and his family going. He could justifiably have drawn considerably more but did not do so because he knew he was building up an asset which would be available to him in his later years. Now, that has been swept from under him—he pays 26 per cent tax on it on top of income tax and so on. That is grossly unjust. It may well have happened in relation to many people in this country in the past month, that without putting money outside the country, there has been a sudden rise in equities on the Irish Stock Exchange from a very low base between early January and early February and somebody who invested £10,000 a month ago in certain Irish equities could well have made a capital gain of £6,000 or £7,000 on his investment within a month. Even though he has made his money in a month without lifting a finger he is asked to pay only the same rate of tax as a man who has spent 20 years building up a business and never engaged in speculation of the type that is popularly understood by the quick-in-an-out operation.

This is totally unjust and the Minister knows it, but he has in no way answered the arguments put up by Deputy Colley. It is entirely unjust that an in-an-out operator who made a lot of money in a month pays only the same rate as a man who has laboured all his life in a business and who is penalised in his latter days because he realises the gain which his own labour —not luck or speculation—built up over the years.

A further argument in favour of a decreasing rate over a period of years, as suggested here, is the one that arises because of the inflationary situation in which the country is plunged at present. On an earlier amendment of Deputy Colley's, even though he had no answer to it in principle or otherwise, the Minister caused his backbenchers to walk through the Lobby to vote down something they knew was right. Presumably, he will ask them to do it here also. But if he accepts this amendment, even in principle, the Minister can undo some of the harm which forcing backbenchers to walk through Lobby did last week as regards inflation, because the longer one holds an asset the more the capital gain is inflated and the more nominal is the gain. Even on the principle of inflation, apart from the anti-speculation principles involved in our amendment, a sliding scale of this kind is just and equitable. If you hold an asset for 15 years and make a paper gain of £10,000, everybody knows it is not a real gain and that the asset is worth no more in real terms when you realise it than it was 15 years earlier when it was worth £10,000 less.

Therefore this amendment has the double benefit of being anti-speculative and of penalising more heavily those who make a quick kill with no effort on their part, and penalising less heavily those who have spent a lifetime working to build up a business. It has the twin advantage of being at least to some extent a safeguard against inflation in that the inflationary element in the gain is less heavily penalised by this sliding scale which Deputy Colley proposes and which the Minister has to agree—because there is no argument against it—is right in principle. I cannot accept the Minister's argument about administrative difficulties. There are none. The Revenue Commissioners have to decide when the asset was acquired and when it was sold and it is only a question of subtracting one from the other and finding how many years that is and applying the appropriate rate of tax. That is not beyond the capabilities of the Revenue Commissioners. There is no greater administrative problem involved than if you had a flat rate.

A capital gains tax is not a bad thing in itself. It is regrettable that the country is now going to be plunged into a form of capital gains tax which is clearly inferior and less equitable than it could be. This arises because the Minister is impervious to all arguments and all reason. Anyone to whom I have spoken, no matter what his persuasion, is in no doubt that, above all else, the two things that need to be put into this Bill as it stands are: an anti-inflation clause and a sliding scale of rates. The beauty of the sliding scale is that in itself, to some extent, it is also a built-in anti-inflationary measure. If the Minister is interested in equity as between different taxpayers he can accept this. We are not asking him to accept it precisely as it is; it can be changed.

I understand we are now discussing amendment No. 6 because amendment No. 5 is technically out of order because the rates incorporated in it are higher than those the Minister proposes. We are not allowed to propose a higher rate of tax. But, had amendment No. 5 been in order, we would have preferred it to amendment No. 6 because we consider it to be more equitable. It may not be open to us to amend it on the lines we wish. But it is open to the Minister to bring in an amendment on that basis either now or on Report Stage. If he does not do that, he is saying in effect that the man who made a quick killing on the stock exchange in the past week or month should pay only the same rate of tax as a man who has sweated for the last 20 years to build up a business and who did not derive any income from it other than for his immediate needs.

Even at this late stage I can only hope that the Minister will see reason, because everyone else sees the reason in these amendments and how much more beneficial they are. It is a pity the Minister for Finance digs his heels in, even though he has no case whatever to make. It is done out of sheer obstinacy. Obstinacy like this on the part of a Minister is not a way of achieving good legislation in this House or anywhere else. He should be prepared, as is everyone else—and as he must be privately—to accept the principle involved of a sliding scale over a period of years to hit the quick speculator hardest and to hit least of all the man who has put in economic effort and brought about economic benefit to the country as well as to himself. Also if the Minister would accept the principle of the built-in anti-inflation element inherent in this sliding scale, we could save an awful lot of argument. We would have a much better Bill and a more equitable capital gains tax that would be much less resented by people who have worked hard all their lives but which would be less welcomed by quick speculators who are capable of making £5,000 or £10,000 in a week on the stock exchange.

Mr. T.J. Fitzpatrick

(Dublin Central): When we reported progress here last Wednesday I thought the Minister would have another look at the Bill and come back with some suggestion today. I believe that the Minister, in his heart, agrees with the principle of our amendments. I am convinced that any fair-minded Minister would see the merits of what we put forward.

We have said time and time again during the discussion of this Bill that we are in agreement with the principle of capital gains tax. In the matter of short-term gains, we have said we would be prepared to go for a higher level of taxation. The Minister said here last week that capital would be tied up until after the period of 15 years had elapsed in order to avoid capital gains tax. I do not believe that will occur at all. I am quite convinced that the opposite will be the case now. The average person engaged in speculation will have no intention of waiting for 15 years to elapse in order to avoid capital gains tax. I feel the people who will hold out now are companies that have run down—I am speaking about 20 or 30 years from now—businesses that are not doing so well and who find themselves faced with this taxation when they sell. There is every likelihood that such people will hang on too long, something that will not be beneficial to themselves or the country. It would be much better if they were encouraged to sell their property to somebody who could operate it properly than to hold out with this taxation hanging over them.

I think I mentioned already the fact that when shares go down on the stock exchange very few people sell. The same thing will happen here. People with this capital gains tax hanging over them will hold out, firstly, because they may not be in a position to sell. The arguments put forward by Deputy Colley and Deputy O'Malley are very realistic. We are talking about people who have had property for 25 to 30 years. We know that other people when they retire, be they in the public service or in semi-State bodies, do so on two-thirds, or whatever may be the case, of their salaries as pension. We are dealing with a group of people who have built up assets over, perhaps, a term of 20 to 30 years. This constitutes their life's work, much of their own and their families' effort.

When such a person reaches the age of 50 or 55 or even 45, he wants to retire. Remember, his retirement pension is built into the assets he has created over the past 20 or 30 years. That is the type of person about whom I am concerned. During the development of that business he will have drawn very little salary from it. In the initial stages he will not have had it. Perhaps he was subject to a large overdraft, and by the time that overdraft had been paid off and the business built up there were very few assets available from that business he had built up for his wife and family. Such assets constitute also a means of a pension, although I know such a person can now take out an insurance policy for that purpose. I should like to know if that man can claim a loss in 20 years' time by virtue of the fact that he has not taken out an insurance policy. Undoubtedly any asset he may have would constitute part of such an insurance policy or pension scheme which should be deducted from those assets.

We are asking that such long-term investment be exempt. We are not asking the Minister to adopt the exact format of our amendment. We are asking him merely to accept the principle of it—that after 15 years such long-term investment will be exempt from income tax.

The Minister mentioned several complications which could arise. I feel such complications would be overcome were our amendment simplified somewhat. Indeed if one considers the Irish and English Stock Exchanges at present, if there is an upswing in the economy there is every likelihood that shares will rise by 20 per cent to 30 per cent. That could happen over the next 12 months or two years. People getting in on the ground floor now with capital available for investment will make a quick kill. That type of person will be subject to the 26 per cent rate of taxation just as will be the person who has developed his business or company over the years. That, is most unfair. The Minister, or any rational person, examining the situation must take that into consideration. When this Bill goes through the House in a few months' time there will be people making massive profits on the stock exchange, selling shares within two years and getting away with a tax of 26 per cent. On the other hand, the person who has dedicated his time and energy to building up a business will be subject to the same rate of tax. The Minister is certainly making a mistake in that regard.

I know it is probably the Minister's idea to simplify the Bill. I suppose it is the best type of taxation if it can be operated, but we must not simplify the Bill to the extent that we burden the taxpayer. It is the duty of the Minister for Finance to introduce an equitable Bill, especially with regard to the taxpayer. The Revenue Commissioners are a competent section of the community who have dealt with the tax code down through the years. I am quite sure they would be well able to handle the complexity of Deputy Colley's amendment.

Therefore I would hope the Minister would take another look at this and consider the type of person for whom we are seeking a concession. We do not see it so much as a concession as their entitlement. There should be some distinction drawn between the short-term gain of 12 months to two years and the long-term of 15 to 20 years. We have not spelled out for the Minister how he should do so, but I am sure it is within his competence and that of the Revenue Commissioners to draw up some formula whereby he can say: "If you come into this country and make £100,000 or £200,000 in 12 months, you are certainly going to pay more than a man who has spent his lifetime, working and employing people here": We want the Minister to accept that principle. I hope the Minister will consider an amendment for Report Stage, because if he does he will be improving this Bill.

Mr. Crinion

I am very much surprised the Minister has not softened on the arguments that were put forward here last Thursday. I thought that if he got a chance at the weekend to think over our arguments and the arguments which Deputy Dockrell.

Deputy Collins and Deputy Belton had put forward on Second Stage, he would have seen the light and realised how these provisions would hit family businesses. I also thought that those three gentlemen, feeling frustrated that the Minister had refused to take their advice in the House, would have gone to consult him during the week in his room. I presume they did and that he is still adamant in not accepting the amendments.

On the Stock Exchange in the past month the index has ranged from 146 to 280 at the moment, nearly double the amount of money. It is grossly unfair that a person could spend £20,000 on shares and make practically the same amount of money by selling them and he pays only 26 per cent, while the farmer or businessman who is at a grave disadvantage has to pay the same tax. I know a farm which was valued back in the mid-forties at £6,000; today it is worth about £200,000. The land is still the same. There is no improvement. I would say it was as good in the 'forties as it is today. There is no real gain there, although the Minister would see a profit of nearly £200,000 and would be collecting £50,000 tax on that.

Where there is a family business, there should be an allowance over the years. We have proposed 15 years, which we think is generous, but if the Minister thinks it should be 20 years, we shall accept that. There is no comparison between the gain there and the gain that takes place on the Stock Exchange, where the man does not do one iota and has no say whatever in the business in which he has invested. That is why we thought it was fair to have a much higher rate for the Stock Exchange speculator, while the family business should have no tax imposed, particularly if it is in existence for 15 or 20 years. There is nothing in the Bill to accommodate the farmer, the businessman, the factory owner, who has retired on medical grounds. The doctor tells him he is not able to continue——

An Leas-Cheann Comhairle

Is the Deputy dealing with the amendment?

Mr. Crinion

I am on the amendment. I am trying to point out that this man, because he is physically unable to carry on his business, has to sell it with a view to investing the proceeds in an insurance company or on the Stock Exchange to give himself and his family a livelihood. It is not fair that a man or a widow who is unable to carry on a business should be charged that same rate of tax as a speculator. In every financial provision here the widow always got preferential treatment. There is no such recognition in this Bill.

The Minister mentioned here that there could be anomalies, that in 24 hours a man could save £3,500 or £6,000 tax, just because it came to the end of the year. This principle was already accepted. In the case of a person getting married, he gets an allowance for the whole year right back to the previous 6th April. Where a child is born a minute before midnight on 5th April, he gets that allowance for the whole previous 12 months. The Revenue Commissioners have already been dealing with that over the years, and I have never heard any of them criticising that as being difficult to work. It would be exactly the same here if the Minister accepted our principle of having a different rate each year with a sliding scale which would be going up. We have set out the guidelines, but if the Minister thinks a different sliding scale would be easier to work, we should be prepared to accept that. However, we want the Minister to accept the principle of a sliding scale with freedom from income tax after 15 or 20 years, which is the normal lifetime of a business.

I am sure the Minister has met many shopkeepers in his Dublin constituency, self-employed people, who have had to give up their business through failing health and who have nothing to fall back on when they become ill and when they are short of pensionable age. They may have no income whatsoever, and it is pitiable to have to say to them: "The only prospect open to you is home assistance or the disabled person's allowance". If it is a rented shop there would be no asset, but a business, if sold by the owner, would provide an income for him over the years of bad health until he would go to his reward. However, the Minister proposes to charge him 26 per cent tax on an amount which in many cases would barely be able to keep him going over the years, particularly with inflation as high as it is at present. We all know of people who have retired and invested money either in the bank or on deposit or in shares, who are on fixed incomes. What looked to be a very good income for those people four or five years ago is reduced considerably in value. They are feeling the pinch now, and the Minister is doing nothing to help them.

The Minister will get his 26 per cent from these people just as he will get it from the person who sells his business merely because he regards himself as having reached the peak in that business and would like to go into something else where he could speculate further. The quick-gain merchant should be taxed heavily but there should be exemptions in respect of old established family businesses. I trust that the Minister will reconsider the matter in the light of the arguments we have put forward and that he will introduce an amendment, if not on this Stage, on Report Stage, so as to ensure justice for the people for whom I have expressed concern.

Mr. Colley

Question put: "That the figures and words proposed to be deleted stand."

The Committee divided: Tá, 56; Níl, 42.

Tá

Barry, Peter.
Barry, Richard.
Begley, Michael.
Belton, Luke.
Belton, Paddy.
Bermingham, Joseph.
Bruton, John.
Burke, Dick.
Burke, Joan T.
Burke, Liam.
Cluskey, Frank.
Collins, Edward.
Conlan, John F.
Coogan, Fintan.
Cooney, Patrick M.
Cosgrave, Liam.
Costello, Declan.
Crotty, Kieran.
Cruise-O'Brien, Conor.
Desmond, Barry.
Desmond, Eileen.
Dockrell, Henry P.
Dockrell, Maurice.
Donegan, Patrick S.
Donnellan, John.
Dunne, Thomas.
Enright, Thomas.
Esmonde, John G.
Fitzpatrick, Tom (Cavan).
Flanagan, Oliver J.
Gilhawley, Eugene.
Governey, Desmond.
Griffin, Brendan.
Harte, Patrick D.
Hogan O'Higgins, Brigid.
Jones, Denis F.
Kelly, John.
Kenny, Henry.
L'Estrange, Gerald.
Lynch, Gerard.
McDonald, Charles B.
McLaughlin, Joseph.
McMahon, Larry.
Malone, Patrick.
Murphy, Michael P.
O'Donnell, Tom.
O'Leary, Michael.
Pattison, Seamus.
Ryan, John J.
Ryan, Richie.
Staunton, Myles.
Taylor, Frank.
Timmins, Godfrey.
Toal, Brendan.
Tully, James.
White, James.

Níl

Andrews, David.
Barrett, Sylvester.
Blaney, Neil T.
Brady, Philip A.
Brennan, Joseph.
Breslin, Cormac.
Briscoe, Ben.
Browne, Seán.
Burke, Raphael P.
Colley, George.
Connolly, Gerard.
Crinion, Brendan.
Crowley, Flor.
Cunningham, Liam.
Daly, Brendan.
Davern, Noel.
de Valera, Vivion.
Dowling, Joe.
Fahey, Jackie.
Farrell, Joseph.
Faulkner, Padraig.
Fitzpatrick, Tom (Dublin Central).
Fitzgerald, Gene.
French, Seán.
Gallagher, Denis.
Gibbons, James.
Healy, Augustine A.
Hussey, Thomas.
Kenneally, William.
Lalor, Patrick J.
Lemass, Noel T.
Leonard, James.
Lynch, Celia.
Lynch, Jack.
Moore, Seán.
Murphy, Ciarán.
O'Kennedy, Michael.
O'Leary, John.
Power, Patrick.
Smith, Patrick.
Wilson, John P.
Wyse, Pearse.

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

Question declared carried.

Amendment declared lost.

Mr. Colley

I move amendment No. 7:

To add to subsection (3) the following:

"Provided always that the foregoing rates of tax shall be halved where an individual disposes of an asset which is, or is an interest in, an asset used for the purposes of a trade, farming, profession, office or employment carried on by the individual, or as the case may be by the individual's family company, other than a private residence to which section 25 applies, and the individual, or the individual's family company as the case may be, has owned the asset throughout the period over which the gain was made and the individual was throughout that period engaged full-time in the trade, farming, profession, office or employment or was a full-time working director of the family company as the case may be.".

This amendment was, as can be seen from the use of the plural word "rates" in the first line, designed to apply to the rates proposed in the previous amendment. However, it can still be applied by using the singular "to the rate of 26 per cent" provided by the Minister in the Bill. The basic proposition involved in this amendment is that in the case of a capital gain made by somebody who had been engaged full time in a trade, in farming, in a profession, in an office or in employment or as a full-time director in a family company, that where the capital gain arises on the disposal of an asset consisting of the businesss, farm and so on as I have described, the rate of tax would be halved.

It is simply because people lay out more than they win.

Mr. Colley

The person who wins the Sweep is not normally the kind of person who can produce evidence of large scale losses on betting, as the Minister well knows. The fact is that in the case of someone who wins £50,000 in the Sweep he proposes that person will not be liable to capital gains tax but the big concession he is talking about is in the case of a man who has worked for years building up his business and who has reached the age of 55 and wants to sell: if he does sell and realises £50,000 he will not pay capital gains tax. When one contrasts these two cases one sees very clearly how much necessity there is for a real distinction between the kind of gains we are talking about in this amendment and other kinds of gains. One can see the necessity there is for a much greater distinction than is provided by the Minister, who treats that kind of case in exactly the same way as the case of the person who wins £50,000 in the Sweep. The Minister has accepted in principle the distinction between this kind of gain and the others, but we are saying he has not done nearly enough in practice to recognise that distinction, although he has accepted it in principle, by the amount of tax and the rate of tax which will apply. We are suggesting that in a case of that kind the rate of tax should be halved.

There are many such cases I have come across. This is despite the fact that the Minister did not increase the thresholds in his last budget. However, if I were to choose such an example it would not prove any more than the example selected by the Minister. It does not help to choose selective and extreme examples. The kind of case we are talking about in this amendment is the situation of a person who has been working for years at a business or a farm, who builds it up and who reaches the age where he has to retire. What he gets for his business or his farm is the only source of money on which he can live in retirement. That is the kind of case we are talking about, not the case where there is no capital gains tax paid. That does not deal with the practical problems we are trying to cover here.

As I pointed out previously, the amendment is drafted to be quite restrictive in its application but where it does apply—in the kind of case I have mentioned—we suggest the rate should be halved. It is not sufficient for the Minister to say that in such cases we are giving relief up to £50,000 and that no capital gains tax is payable. It is not sufficient for the reasons mentioned by other speakers and also for the reason I mentioned before, namely, that it is only putting it on the same basis as somebody who wins the Sweep. That is not good enough in the kind of case I have mentioned. I am not talking about people who are making quick profits on the stock exchange or from other kinds of business activity.

I am talking about the person who is engaged full time in whatever the business is and who when he comes to sell it is dependent on the outcome for his livelihood thereafter. That person in the circumstances we are talking about we suggest should be liable for only half the tax. There is a strong case for saying that it should be less than that but we are only saying that it should be half the tax as compared with the person who makes his capital gain as an incidental to his business, his trade, his farming or who happens to win the Sweep.

In my view it should be clear that the two cases are totally different and should be treated as totally different. I have not seen the Minister make any real effort to justify the treating of these different kinds of cases in the same way. This is what the Minister is doing in the Bill as it stands and which he will continue to do if he does not accept this amendment.

Mr. R. Ryan

I have nothing to add to what I have already said.

Mr. Colley

I am sorry that the Minister does not wish to say any more on that. The House would appreciate, and the Minister owes it to himself, an explanation for his justification for treating in the same way on the one hand a capital gain made by somebody either on a quick speculation or, leaving that emotive part out of it, on something that is quite incidental to his ordinary trade or business and on the other hand a man who is making the capital gain on the sale of the business or the farm in which he has been working full time.

In my view there is a great distinction here. I do not think they can be treated in the same way but the Minister thinks they can be treated in the same way because he proposes to do so in the Bill. He should justify why he is treating these things in the same way. The Minister should let us hear the justification for it.

Mr. R. Ryan

I have already pointed out that they are not being treated in the same way and sections 26 and 27 provide for special exemptions for businesses.

Mr. T.J. Fitzpatrick

(Dublin Central): The amendment we have down on the inflation clause and this amendment are the most important amendments to the Bill. I am surprised that the Minister has adopted this attitude. I was not speaking politically when I spoke on the amendment on the inflation clause and I am not speaking politically now on this amendment. There is a definite distinction between the short-term speculator and the long-term developer. If this Bill is put through in its present form it will result in bad law. In my view this Bill will encourage short-term speculation because there is no great benefit to be gained from long-term development. There is no benefit to be gained by a person who devotes his time, his talents and his money to developing his business over a long period because the incentive of deriving some benefit from such a business in 20 or 30 years' time has been taken away.

During the next three or four years it will not be unusual to see short-term speculators making capital gains of £200,000. Such people will be subjected to the capital gains tax but the man who runs a family business will be subject to a tax at the same rate even if he devotes a lot of his time and energy to expanding the business. A lot of these businesses have been expanded with a view to the proprietors retiring in 20 or 30 years. If they do so now the Minister will take the same percentage of tax as he will take from the short-term speculator. Many of those people built up their business with a view to retiring with sufficient assets to tide them over for the remainder of their life.

Such capital gains will be made on the stock exchange because shares are at a low price. A lot of gain will be made in the next few years because it is very difficult to sell today. Those who are in this for short-term gain will pay their 26 per cent tax but they will only remain in business for a few years. The man running the family business will not be inclined to put as much effort into the development of that business because he will always be conscious of the tax he will have to pay if he decides to sell the business and retire. I am surprised that the Minister is not bringing in an amendment for Report Stage to differentiate between the short term speculator and the long term developer.

Mr. Crinion

I am disappointed that the Minister has not met us part of the way and has not seen the logic of our arguments. A speculator who buys shares and makes £10,000 or £20,000 profit makes almost 100 per cent profit within at least a month. Such a person carries on his own business without employing anybody. In the family business a certain amount of employment is given. In small family industries a great amount of employment has been given over the years but this has not been recognised by the Minister.

The person who makes a quick gain should be taxed whether the gain is on the stock exchange or is involved in the purchase of land or house property. There has been criticism of such speculation in the past few years because people have secured property by paying a deposit and, through legal wrangling, have held up the completion of the deal for up to 12 months. When such people realised that they had a buyer who would give them a quick and big profit—in some cases it was double the price—they completed the deal immediately. Such people paid only 25 per cent of the cost price as a deposit and did no other work. Through legal wrangling they kept that individual out of his money until such time as they were able to sell it and make a huge profit. Under this Bill, they are treated in exactly the same way as the person who has built up his business, his industry or his farm. When he has to sell and retire on pension he has to pay the same 26 per cent tax as the other people I mentioned.

The Minister should accept this amendment and, in the case of a family business, industry or farm, the rate should be 13 per cent as against the 26 per cent the Minister proposes to charge to all under this Bill.

Progress reported; Committee to sit again.

Dáil Éireann debate - Tuesday, 11 Feb 1975

Finance Bill, 1975. - Capital Gains Tax Bill, 1974: Committee Stage (Resumed).

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Dáil Éireann debate -
Tuesday, 11 Feb 1975