Private Members' Business. - Capital Gains Tax Bill, 1974: Committee Stage (Resumed).

Debate resumed on 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."
—(Deputy Colley.)

We were discussing an amendment designed to halve the capital gains tax in the case of persons who obtain a capital gain by reason of the sale of their business or farm in which they have been engaged full time. In the course of the discussion of this amendment reference was made to the exemptions provided in sections 26 and 27 and in that context reference was made to the fact that a person who wins a prize in the Irish Hospitals' Sweepstake is exempt from tax.

May I ask the Minister why a person who wins, for instance, £200,000 in the sweepstake should be totally exempt from capital gains tax whereas under the Minister's proposals a person who has been building up his business during the years must have attained the age of 55 years, and if it is a family company must have been engaged full-time as a director for ten years, before he can get exemption of up to £50,000? It seems there is a contradiction here and I do not think the interjection the Minister made earlier to explain the situation in regard to the sweepstake prize sufficiently explains this apparent contradiction. Would the Minister care to enlighten the House on the thinking behind these apparently contradictory provisions?

As I mentioned earlier with the greatest respect there is no connection between the Deputy's amendment, where he is seeking to get a half rate of capital gains tax on farming and business assets, and gains and losses in gaming. However, if he persists in being irrelevant and if the Chair permits me I shall reply briefly.

The Minister introduced other matters in sections 26 and 27.

No. I introduced the treatment of business assets under the existing law and under the law as it will be after we have carried through our amendments. Inseparable to any system of tax on capital gains is the right of a taxpayer to offset losses against gains. I take it the Deputy is with me on that.

If he accepts that as a principle that should be respected, then he knows why gains made from gaming and lotteries——

Gaming, yes; lotteries are different.

No. They still require a person to wager, to make an investment in the hope of making a gain. If a person's profits from such a wager were to be subjected to capital gains tax, one would necessarily have to entitle the taxpayer to set off investments and losses against tax liability. As I mentioned earlier, invariably the amount wagered is in excess of the amount won and the result would be that the Exchequer would be in the ridiculous position of having to give more concessions in respect of losses involved in gaming than it would collect in tax. That is the reason that in this country, and in most countries which I have had the opportunity to study, gains from gaming are exempt because one cannnot involve the gain unless one is prepared to set off the loss.

As I have indicated, of course I agree with the principle that if one is to tax the gains one must be prepared to allow the losses and this applies in the case of the sale of a business. However, in the case of gaming—betting as it is commonly called—a problem clearly arises. I suggest that if a person who wins £200,000 in the sweep will be able to claim losses in respect of gaming, or certainly in respect of the lottery, that would mean that the Exchequer would end up with no revenue. I do not want any misunderstanding on this. I am not opposed to the exemption of the lottery or gaming for the reason the Minister gave in the case of gaming.

I am concerned about why there should be exemption where a person wins £200,000 in the sweepstake. The best the Minister can offer by way of contradiction or argument against this amendment is to say he is providing exemption of up to £50,000, subject to fairly rigid conditions in the case of a person selling the business that he has built up during many years. On the face of it there is a blatent contradiction here and, with due respect to the Minister, I do not think what he has just said is any answer or explanation of that contradiction. What he has said applies to gaming but not to lotteries.

The same anomaly occurs under existing law where the result of a lifetime's labour could be caught for estate duty with rates up to 55 per cent, whereas the gain from gaming would not be liable.

Of course there are anomalies under the existing law and there are aspects that are far more favourable than some aspects of the new proposals but we are not discussing that. What we are discussing is a proposal to bring in capital gains as part of an overall packet of taxation and, in that context, the Minister is obliged to explain and justify the provisions he is bringing before the House. I do not think it is an answer to say there are anomalies in the existing law. That is not what the House is being asked to deal with now.

I am sorry to see that the Minister refuses to accept this amendment also, as he has refused to accept other amendments put down by Deputy Colley. This amendment is eminently fair and equitable. I made the case earlier today in relation to the rates of tax and the question of a sliding scale of tax over a period of years that an asset that someone has held for a long period, which he has built up with his labour and enterprise, should not be subject to the same rate of taxation as a profit which somebody makes virtually overnight on the stock exchange or in something similar.

I am glad Deputy Colley has highlighted the total anomaly and injustice that will be perpetrated under this Bill if it is passed without any amendments on the lines suggested. Someone who makes overnight without lifting his finger £200,000 on the sweepstakes or wins some large amount on gambling or some similar enterprise without any effort is exempt but a man who has spent, perhaps, 20 or 30 years building up a firm and putting a lot of effort, time and enterprise into it is heavily penalised.

I cannot see any merit or equity in that and I do not believe that the Minister, or his backbenchers, can either. However, the Minister still digs his heels in and forces this House, by virtue of the majority which the Government have, to pass into law things which everyone knows are inequitable. The Minister has pledged himself to try to get rid of any of the anomalies in our tax laws —I do not deny that there are many anomalies and problems related to our taxation system generally—but he is creating by this Bill far greater anomalies, inequities and injustices than exist at the moment.

A man who spends 20 or 30 years building up an asset is, under this Bill, to be taxed to the hilt if our amendment is not accepted while a person who makes the same amount of money after, perhaps, only a month on the stock exchange and without any effort pays the same amount of tax. The worst insult of all is that a person who makes £200,000 on the sweepstakes purely as a piece of good luck but without the faintest effort on his or her part is to be totally exempt. If someone makes a large sum of money as a result of gambling, he pays no capital gains tax but the man who has put something into the community and into the economy over a long period of years, who has helped many people besides himself, is taxed on that at the full rate. Such a person should not be taxed in these circumstances but if he is to be taxed the very least that should be done in equity is to charge him at half the rate applicable to people who gain vast sums within a short period and without any effort on their part.

Amendment put.
The Committee divided: Tá, 50; Níl, 57.

  • Andrews, David.
  • Barrett, Sylvester.
  • Brady, Philip A.
  • Brennan, Joseph.
  • Breslin, Cormac.
  • Briscoe, Ben.
  • Brosnan, Seán.
  • 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, Pádraig.
  • Fitzgerald, Gene.
  • Fitzpatrick, Tom (Dublin Central).
  • French, Seán.
  • Gallagher, Denis.
  • Gibbons, James.
  • Gogan, Richard P.
  • Haughey, Charles.
  • Healy, Augustine A.
  • Hussey, Thomas.
  • Kenneally, William.
  • Lalor, Patrick J.
  • Lemass, Noel T.
  • Leonard, James.
  • Lynch, Celia.
  • Lynch, Jack.
  • McEllistrim, Thomas.
  • Moore, Seán.
  • Murphy, Ciarán.
  • Nolan, Thomas.
  • O'Connor, Timothy.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Power, Patrick.
  • Smith, Patrick.
  • Timmons, Eugene.
  • Tunney, Jim.
  • Wilson, John P.
  • Wyse, Pearse.

Níl

  • Barry, Peter.
  • Barry, Richard.
  • Begley, Michael.
  • 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.
  • Hegarty, Patrick.
  • Hogan O'Higgins, Brigid.
  • Jones, Denis F.
  • Kelly, John.
  • Kenny, Henry.
  • Kyne, Thomas A.
  • L'Estrange, Gerald.
  • Lynch, Gerard.
  • McDonald, Charles B.
  • McLaughlin, Joseph.
  • McMahon, Larry.
  • Malone, Patrick.
  • Murphy, Michael P.
  • O'Brien, Fergus.
  • O'Donnell, Tom.
  • O'Leary, Michael.
  • Pattison, Seamus.
  • Ryan, John J.
  • Ryan, Richie.
  • Staunton, Myles.
  • Taylor, Frank.
  • Timmins, Godfrey.
  • Toal, Brendan.
  • White, James.
Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Kelly and B. Desmond.
Amendment declared lost.
Question proposed: "That section 3 stand part of the Bill."

On the section, and specifically on subsection (1), I mentioned a point on Second Reading which I should like to raise again to hear what the Minister has to say. The second line of subsection (1) contains the words "that is, in respect of"; otherwise the subsection corresponds exactly with that in the British legislation. Instead of those words the words "that is to say" appear. Is there any significance in the change from the British legislation, since the remainder of it is the same and, if so, what is the significance?

It is simply a matter of elegance of expression.

Nothing else? No ulterior motives?

No. I heard a British draftsman say that whenever he wanted a sample of good draftsmanship he looked to Irish precedents.

That is consoling, but most of this Bill is a direct copy of the British legislation.

Most of it. There are deviations which we shall discuss as we come to them. On this section, which is the section charging capital gains, we have put forward a number of amendments which have been defeated. These amendments in our view go to the root of making the capital gains tax an equitable tax so far as we can do it by way of amendment. Without repeating the various arguments put forward, I shall just recall that our amendments were designed to ensure that there would be a sliding scale of capital gains tax so that one could distinguish between short term gains which, in the main, are what people understand by speculative gains on the one hand and on the other, long term gains which, in the main, are the results of hard work and skill applied to a person's business.

In addition, we have tried to ensure that half the rate of tax would be applied to a fairly tightly-drawn category of persons selling their own businesses in which they have been engaged full time. The Minister has not seen fit to accept either of these amendments or—and we stressed this more than once—the principle involved. We were not in any way tied to the actual wording of the amendment but, in our view, in the absence of amendments involving the principles enshrined in the two amendments I have mentioned, this section will make the Capital Gains Tax Bill unacceptable and inequitable and will almost certainly induce people to try to evade, if not to avoid liability for, capital gains tax.

The Minister is naive if he believes that there will not be loopholes discovered and availed of and failure to make the charging section reasonable to the average person—I think the Minister has failed to do so; I think we have demonstrated that there was broad support on both sides of the House for the principle we put forward—and to accept that thinking which reflects the thinking outside this House will have an unfortunate effect, to say the least, and certainly, as far as we are concerned, it makes this section specifically and in general unacceptable.

I regret that this is so. I think the Minister had an excellent opportunity of getting broad support for what is being done in the Bill and of making it generally acceptable. He did not see fit to avail of that opportunity presented to him and as far as we are concerned the section is unacceptable.

I waited to see if the Minister would reply to Deputy Colley but I note he did not. It is significant that there was no reply to Deputy Colley. In fact, no reply is possible to the points he made and the fact that the Minister is not able to make a reply only bears out what we all know. This is the key section, the charging section, and without the limitation on the charge to tax which we have suggested in amendments which have all been defeated by the votes in many cases of people who believe in them this tax is inequitable and unfair.

The arguments have been made in full and it is only necessary to summarise them. Basically, the way this tax is being charged will penalise honest endeavour by people who have made, and would be prepared to make a genuine contribution to the economy, people prepared to build up the wealth of the country, to give employment and further employment.

The attitude of many people when they realise the effect of section 3, when it is eventually brought home to them will be to say: "Why should I bother? Why should I spend ten or 20 years of my life trying to build up a business with all the worries and problems associated with it and then, on top of income tax, corporation profits tax, VAT and all the other things that I had been paying during my industrial or commercial career, I find at the end of it when I wish to dispose of my business that I am charged 26 per cent capital gains tax on an asset on which there is probably no gain in real terms while at the same time a speculator going in and out of shares at short notice can make that amount of money in one week and pay only the same tax?" Worse still, a gambler can make that amount of money in five minutes and pay no tax at all. Somebody can win £200,000 in the Sweep—which is the most obvious and least meritorious capital gain possible because it is a pure lottery—and pay no tax of any kind. But the man who spends 20 or 30 years of his life—possibly all his working life—slogging away is taxed to the hilt.

We find that unacceptable and it would be found unacceptable in any country where there is no differentiation in the capital gains legislation between those who work for their money and those who do not. That is the fundamental defect of this Bill, as introduced, with this bald section that every capital gain excepting those specially exempt will be charged at the rate of 26 per cent irrespective of how it was made. We regard that as inequitable and unfair. We think it should not be passed in that form. I would say that view is held by the great majority of Members of this House and certainly by the great majority of the people.

The Minister for Finance, in his obstinate fashion, is forcing through this provision against the wishes of the House and of the country. He cannot complain if in this and future years he finds people giving up business, getting out of the country, and getting their assets out, if that is the way they are going to be treated. We need to build up the wealth of the country. We are under capitalised. We have many economic problems. This legislation will do absolutely nothing to help that situation of under capitalisation, of underinvestment. This is killing enterprise. It is killing the man who is prepared to go out and word hard. It is killing the man who is prepared to go out and take a risk. Those are the people who will build up this country. We do not want any doctrinaire solution imposed and shoved through this House. If the Minister wants to do that, I cannot stop him. But at least let him do it now with his eyes open and let those who support him have their eyes open also in regard to what they are doing.

This is the last opportunity we shall have in this House of debating this section. It is the kernel of the Bill. This section is dealing with the matter in a totally wrong fashion and will cause far more loss to the economic life and the prosperity of the people than any other section. If the Minister wants to do that, let him; but he will not have our support in so doing. I hope that at least some of those who sit behind him will be prepared to put the country first and the future prosperity of our people first rather than have the political charade of walking through the lobbies behind an obstinate Minister.

I shall give the Minister an opportunity, if he wishes, of replying to the two very logical cases made, both based on equity. The Minister should realise that a fisherman uses different sizes of mesh to catch different species of fish. In the business world there are two species. First, you have the individual businessman, or the family business, or company who over the years have devoted energy, brains and investment to their business. Circumstances may arise in which they have to dispose of it. Anyhow, there is a capital gain involved. The other type of person who engages in business, as Deputy O'Malley said, is the speculator who makes a kill profitwise.

I would go even further than the amendment tabled here. The amendment tabled is selective in relation to time: if a person makes a purchase and sells quickly, he must pay a higher percentage of capital gains tax, and that applies downwards on a sliding scale over a period. I would add another set of scales which would further tax the person who engages frequently in speculative activity. In other words, on a first transaction there would be imposed a certain rate of capital gains tax. A second transaction carried out shortly afterwards would be taxed at a higher rate, and so on. In other words, the real speculator would find it difficult to make large profits on speculative transactions. At the same time people genuinely engaged in commerce, industry or any of the other profit-making activities which aid the economy on a long-term basis—seeing that they are taxed already in various other ways— should receive some concession because they are not speculators but genuine business people.

If the Minister steamrolls this section through the House, he will see the folly of his ways in years to come. He will see that people with money to invest, who are running businesses they want to improve, will ask themselves the question: "Is it worth my while in time, energy and grey hairs to put myself or my successors in danger of having to pay this penal tax?" This is not a tax on speculators. It is a tax on Irish industry and commerce and on decent people who engage in those activities. The Minister will regret the day he introduced this legislation. I hope a Government will come along, in the not-too-distant future, who will put right the effects of this. The effects will be disastrous for anyone in business, for anyone contemplating going into business and indeed for those we are trying to encourage to set up industries here and engage in other manufacturing activities. They will not touch us with a forty-foot pole.

I am very worried about this section because, as previous speakers have said, it affects not the speculator but the small family businessman, the person who has built up a family business over 20 or 30 years, the person who had to keep ploughing profits back into the business to maintain an adequate flow. Such a person may have to retire from that business for some reason, be it old age or the fact that he cannot cope with modern tendencies. Having paid all of his taxes throughout his business lifetime, that is the only investment he has for the rest of his life. The Government now propose to take 26 per cent of that from such people. This is unfair to the main sector about which we are always talking, be it a farm or a business: the small family run affair. This is a disincentive to such people to improve the standard of their businesses, to have any interest in continuing their businesses or indeed to having the initiative to set up new businesses. I would make a particular plea in respect of the person who has to give up business through ill-health. Take the example of a family grocer. There is just himself and his wife. He has a small shop which he sells and on which he has to pay 26 per cent as a capital gain, which it is not. This man has a bad heart. He has to pay his own medical expenses. Out of this money he hopes to earn an income on which he can live. The Minister proposes to reduce that income, by imposing this obnoxious tax on him. He is not getting at what Fianna Fáil wanted to get at, the speculators. He is getting at the ordinary honest hardworking person. He is about to destroy them, and in destroying them he is also destroying rural Ireland in general.

The main argument on the Fianna Fáil side is that no allowance has been made for inflation. At the moment everybody is free from capital gains tax, even those who make a quick sale, and those who win the Sweep or other lottery. Now they will be caught under the 26 per cent provision. I think most people would prefer to pay some other tax rather than death duties. Fianna Fáil say no allowance is made for inflation under the proposed system, but I shall give one example on which I have factual information, because it happened my own parents. Under death duties inflation is not taken into account. If a person dies and leaves property to his wife, let us say, to the value of £200,000, about £100,000 will have to be paid in death duties. Within a certain number of years the wife dies, and that is the end of the £100,000. An estate in England, through successive deaths, went from £8 million to something like £500,000.

Under the capital gains tax, if a property is bought for £100,000 and its value increases to £200,000, £300,000 or £400,000, there will be an allowance of £150,000 if the property is left to a child. If the owner dies and capital gains tax is paid, that property is valued, and if there is a second death, it is valued at the time of the second death not the first, whereas under death duties it works differently; you are hammered twice. I would like to see a lower rate, but this is a more equitable system than we had heretofore.

I shed tears when Deputy O'Malley says the Deputies over here will walk in behind the Minister. I could shout that from the roof tops in regard to Fianna Fáil. When they were in power they were marching in behind the Minister and they did not even know what was under discussion. They can forget that as an argument. Under this system you are given allowances for your house which were not given under death duties. Although there are other provisions in the Bill I would be against, and with which I shall deal later on, I agree with this provision.

(Dublin Central): No one in this House is in favour of death duties. I have always criticised death duties and I am delighted they are being abolished. I agree with Deputy Belton that no account is taken of inflation under death duties, but I do not think that is an excuse to make a bad Bill out of this by ignoring inflation. The most objectionable thing about this section is that we are bracketing speculators and businessmen together. Our argument last week and again today is that these two categories should be separated. Anybody with ready money over the last few months has been, and will be able over the next few months, to buy shares at a reasonably low rate and with the upturn in the economy and the increase in share prices, they will make a substantial profit. They will only hold these shares for 12 months or two years. I should like to see these people coming in at the rate we proposed originally, 50 per cent, because they contribute nothing to the economy, only make their substantial profit and move on.

We have been trying to draw a distinction between the short term speculator and the businessman. The businessman who spends his whole life building up and expanding his business, very often takes a small salary from it and ploughs any profits back into the business to bring it up to modern standards. He is building up an asset for himself so that, perhaps, after 20 or 30 years he can sell and have sufficient left to invest for pension purposes and so on. This section of society very seldom make provision for pension. People in other walks of life are automatically provided with a pension. The businessman should not be bracketed with the speculator who makes a quick profit on the stock exchange or the developer here in Dublin who can make substantial profits in a very short time. That type of trade will always be the same.

The Minister says that if this clause were put in to exempt him after 15 years, this money would be locked up, and he would not sell. Certainly where a short term developer is concerned, a man who builds and sells again, he will not wait for 15 years to realise his assets. He will move every three or four years. There will be no way of holding him up or of locking up his assets but there is the long-term businessman or developer whose business is his way of life. This man is not interested in changing business every four or five years. It is probable that he will have made only one move or, at the most two, during his life. This is the person in respect of whom this tax will be a deterrent because it would be to his detriment to move to a different type of business. The Minister is unwise to continue with this section in its present form. Although the views of the House have been made known to him he has not made any move to change his proposals and to bring in some type of scale. He has said that from an administrative point of view this would be very difficult. All taxation is difficult and complicated but it should be within the bounds of possibility to arrive at some type of scale whereby the short-term speculator could be distinguished from the genuine investor in the State.

I appeal to the Minister to introduce an amendment on Report Stage which would embody the spirit of our amendment. In that way he will be endeavouring to be fair to every section of the community and the Bill will be a much better one than is proposed.

Once again there have been five or six speeches from this side of the House to none of which the Minister has replied. The only reply from the other side, if one could call it that, was from Deputy Belton who spoke almost exclusively about the alleged iniquities of death duties and who said that while what is proposed here is bad, death duties were worse. The Deputy fails to recall that the charge to a capital tax contained in this section is only one of three capital taxes that are to be introduced. If one were to assess anything as an alternative to death duties, one can only do that properly, as said on Second Stage, when one sees the three taxes that are proposed in lieu of death duties. It is wrong that we should be asked to legislate in respect of one-third of a capital taxation package without knowing what are the other two-thirds. Deputy Belton's morbid horror of death duties might be mellowed a little if he were to see the entire package that is to be put in place of death duties. As what we have here is only one-third we may take it that the final package will be horrific. Various arguments were put forward by the speakers from this side of the House as to why this section should not go through in the rather bald form in which it now is. There has been no answer from the Minister to those arguments. Each of us waited to see if he would choose to answer but I suggest that the reason for his not answering is because he cannot answer and because the points that have been made are correct. Yet, this Bill is to go through and this is called democracy.

There are serious consequences in putting through an anti-enterprise measure of taxation such as this. During the past year or 18 months there has been a serious loss of confidence among businessmen. They are frightened and nervous and are not prepared to take risks. The man, more than anyone else, who has caused that situation is the Minister for Finance and this measure is another instalment in a long sorry tale that is building up to a situation in which a man who would seek to take risks with his capital or who would show enterprise in business will very soon reach the stage of asking why should he do so. This is a country that should be trying to create wealth but it is nowhere more obvious than in this section that all the Government are doing are trying to come down like a ton of bricks on everyone who has the imagination, the enthusiasm or the courage to try to build up a business or other enterprise. This section more than any other in the Bill is designed to have that effect.

The section is drawn unfairly to hit hardest those who work hardest and who take the greatest risks but to hit least those who do nothing but speculate for a short period and who put nothing into the economy. The ultimate insult is to exempt entirely those who win at gambling, on the sweepstake or on some other lottery where their efforts are nil. There are many people beginning to take the view: "Why should we bother because each time we do the present Minister comes down on us?" When they realise the implications of this section they will be confirmed in their views and there will be an increase both in the numbers of people and in the volume of money leaving this country in recent months.

It is the mentality behind this kind of legislation that has the country on the downward trend it is on today. Let those who take part in the charade of a vote that will result in this section being passed at least know what they are doing and let them ponder on the consequences for this country in future years of what they are doing. Let them be assured that when Fianna Fáil are returned to power, as we will be at the next election, despite the gerrymandering efforts that have been engaged in to keep us out, some amendments based on the principles we have outlined here will be made to the capital gains tax so that we will have a situation where people will not be crucified every time they take a risk with their capital or show enterprise or work hard.

For the reasons indicated from this side of the House and which were not replied to by the Minister, we are opposing this section.

I replied to every argument during the debates on the amendments and I do not propose to fertilise Fianna Fáil's obstruction of the passage of this much-needed piece of reform in relation to taxation.

Question put.
The Committee divided: Tá, 57; Níl, 49.

  • Barry, Peter.
  • Barry, Richard.
  • Begley, Michael.
  • Belton, Paddy.
  • Bermingham, Joseph.
  • 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.
  • Hegarty, Patrick.
  • Bruton, John.
  • Burke, Dick.
  • Burke, Joan T.
  • Burke, Liam.
  • Cluskey, Frank.
  • Hogan O'Higgins, Brigid.
  • Jones, Denis F.
  • Kelly, John.
  • Kenny, Henry.
  • Kyne, Thomas A.
  • L'Estrange, Gerald.
  • Lynch, Gerard.
  • McDonald, Charles B.
  • McLaughlin, Joseph.
  • McMahon, Larry.
  • Malone, Patrick.
  • Murphy, Michael P.
  • O'Brien, Fergus.
  • O'Donnell, Tom.
  • O'Leary, Michael.
  • Pattison, Seamus.
  • Ryan, John J.
  • Ryan, Richie.
  • Staunton, Myles.
  • Taylor, Frank.
  • Timmins, Godfrey.
  • Toal, Brendan.
  • White, James.

Níl

  • Andrews, David.
  • Barrett, Sylvester.
  • Brady, Philip A.
  • Breslin, Cormac.
  • Briscoe, Ben.
  • Brosnan Seán.
  • 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, Pádraig.
  • Fitzgerald, Gene.
  • Fitzpatrick, Tom (Dublin Central).
  • French, Seán.
  • Gallagher, Denis.
  • Gibbons, James.
  • Gogan, Richard P.
  • Haughey, Charles.
  • Healy, Augustine A.
  • Hussey, Thomas.
  • Kenneally, William.
  • Lalor, Patrick J.
  • Lemass, Noel T.
  • Leonard, James.
  • Lynch, Celia.
  • Lynch, Jack.
  • McEllistrim, Thomas.
  • Moore, Seán.
  • Murphy, Ciarán.
  • Nolan, Thomas.
  • O'Connor, Timothy.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Power, Patrick.
  • Smith, Patrick.
  • Timmons, Eugene.
  • Tunney, Jim.
  • Wilson, John P.
  • Wyse, Pearse.
Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
SECTION 4.

I move amendment No. 8:

In page 7, subsection (2), lines 15 and 16, to delete "Part XXII of the Income Tax Act, 1967 (double taxation agreements)" and to substitute "the agreements contained in Schedule 6 to the Income Tax Act, 1967".

This amendment is in the spirit of the agreements for reciprocal relief from double taxation which have existed between Ireland and Britain for many years. In Britain they have a similar provision in their capital gains legislation which provides specific relief for Irish residents from a similar charge in respect of business assets in the United Kingdom and rights on the United Kingdom continental shelf. There is a doubt that the proviso as expressed in the Bill could include a person resident in a State other than the United Kingdom with which we have double taxation treaties who has only one source of income in Ireland such as an interest and who would be exempt from Irish income tax on that interest but would not be exempt on income from other sources in this country. The matter is now put beyond doubt by inserting in the proviso a reference to schedule 6 of the Income Tax Act, 1967 which contains only our taxation agreements with the United Kingdom.

I had discovered for myself by looking at the 1967 Income Tax Act that the substitution relates only to the agreement with Britain, whereas what is in the Bill at the moment refers to other countries as well. I am afraid I have not quite got the reason for the change that the Minister has given. Could he give it to us in somewhat simpler terms than he did?

This section is intended to deal only with the double taxation arrangements between Ireland and Britain. It will be an ongoing exercise to negotiate such other double taxation agreements as may be necessary between Ireland and other countries where they have capital gains tax legislation but we are dealing here only with the Irish and British situation.

The Irish-British agreement covers capital gains?

It will as a result of this.

But if the Minister did not introduce this amendment and if the Bill stood as drafted, I take it the double taxation agreement with countries such as the United States and Canada would also be included. Why does the Minister want to exclude them now?

We are not specifically excluding them or the possibility of them but each one would want to be looked at separately. What we are doing here is dealing with the specific Irish and British situation which has these reciprocal arrangements and we will ensure that in capital gains tax legislation the same discipline, the same rules, as apply to income tax will also apply.

Will further negotiations be necessary to achieve that?

As the Deputy knows, there is hardly any tax situation that has not got some grey area. There will, of course, be such negotiations and if further explicit agreements are necessary they will be completed so as to give full effect to the true spirit of ensuring that nobody is taxed twice.

I would certainly subscribe to that objective but it is not clear to me why the Minister does not propose to leave the Bill at least as it was so as to cover the double taxation agreements with, for instance, the United States and Canada —there may be other countries involved—and proceed then as he proposes to proceed in the case of the double taxation agreement with Britain to have such negotiations as may be necessary to incorporate the capital gains tax legislation. I am afraid it is not clear to me why the Minister proposes to exclude them which is how I read the amendment.

May I refer the Deputy to section 38 which contains the provision about double taxation relief in general? The situation with Britain gives Ireland unilaterally relief and we give relief in exchange but in other cases there are specific agreements entered into between Ireland and the other countries. The arrangement has always been to do it between Britain and Ireland on a reciprocal basis but the initiative is taken by the host country in each case.

I cannot say and I imagine the Minister may not be able to say off-hand whether the existing double taxation agreements with the United States and Canada would cover capital gains. If they would not it would appear to me to be a relatively simple matter to negotiate to ensure they are incorporating the existing agreement. Indeed it would seem to me to be a matter of some considerable urgency to do so. Therefore I am not quite clear why the Minister proposes to exclude them. If I understand him correctly what he is saying is that as between ourselves and Britain automatically there will be applied a double taxation relief without any further negotiations or agreements, whereas in the case of the other countries mentioned it would be necessary to conduct further negotiations and to have an addendum to existing agreements, because otherwise we would be giving the relief unilaterally. Is that what the Minister is saying?

Yes, but of course there is not any objection in principle to giving retrospective relief. That would be the intention in negotiating such agreements. Nobody would be caught in any double taxation liability. The difficulty in relation to the Bill is that we cannot specifically say what the Bill will do until such time as it passes both Houses. It is only after that you can get down to the nitty-gritty of specific agreements between prospective countries. The Irish and British situation is somewhat unique. It allows us to apply to the capital gains legislation the spirit of the income tax exemptions which are already there and are contained in Schedule 6 to the 1967 Act.

On the question of non-residents, those who are neither resident nor ordinarily resident appear to be exempt, particularly with this amendment. If there is a double taxation agreement they are exempted from everything, and if there is not a double taxation agreement they are exempt unless they make the gain on land, minerals or business assets. Why are they exempt in these circumstances?

The non-resident will be exempt except on land and minerals. What section is the Deputy referring to?

Section 4 (2).

This states that a person who is neither resident nor ordinarily resident in the State shall be chargeable to capital gains tax for a year of assessment in respect of chargeable gains accruing to him in that year on the disposal of land, minerals, mineral rights and assets situated in the State. I am not too clear what the Deputy's query is.

If a non-resident purchases a large holding of shares here, makes a large capital gain, it is remitted back to him and there is no tax. If he purchases shares which do not come into any of the three categories, if they are non-business assets, just ordinary shares in a public company, there is no tax.

A non-resident is outside the jurisdiction, so he is not liable. In the same way an Irish person purchasing such assets in England would not be liable in that country in respect of gains made there.

He is if it is remitted back to him, according to the section.

Assume that the gain made here by a non-resident is remitted back, what is the position?

It is a matter between himself and the British Government with regard to his liability in Britain. An Irish person making a gain elsewhere, who is resident here, will be liable here for the tax. It is a reciprocal arrangement but there is no element of double taxation. We are ensuring that a person is not liable twice.

Some people are not liable at all. If the person is a resident of a country without capital gains tax he is not liable.

So be it. That situation applies at the moment in respect of Irish people.

If an Irish person forms a company in a country with no capital gains tax and has his capital gains remitted to that country, is he not free of tax?

I refer the Deputy to section 36 which deals with a non-resident company. An Irish person cannot avoid liability by using a non-resident company to handle the assets.

Assume he is not Irish, that he is a genuine resident of a country without capital gains tax and all his Irish capital gains are remitted to him there, he is free of tax.

If, on the other hand, he is not British, if he is an American, under the Minister's amendment he will pay twice. We will come to that on the section.

Amendment agreed to.

I move amendment No. 9:

In page 7, subsection (7), line 52, to delete "subsection (2) (b) and"

This amendment is consequential on the amendment to the proviso of subsection (2), the one we have just made. The words which it is now proposed to delete are no longer necessary.

That is not very obvious to me. Could the Minister explain it a little further? On the face of it, it would appear that the effect of the amendment is to take out the reference to minerals in the State or any rights, interests or other assets in relation to mining or minerals or the searching for minerals. Why is that consequential on applying the Irish/ British double taxation relief provision, which is the effect of the previous amendment?

It is not now necessary to have these words by reason of the amendment we have just made.

If it is not necessary to have those words, why is it necessary to have paragraphs (a) and (c)?

Quite frankly, I am not at all certain why it was put in. I am assured that, now that we have made the amendment we have made, this is no longer necessary. The draftsman assures me it is no longer necessary.

I have a feeling the information with which the Minister has been furnished may be an explanation without some point because it does not seem to me to explain this at all.

Is the amendment agreed?

No. I think the Minister might pursue this a little further.

I am sorry. I cannot take it any further. My advice is that the reference was not necessary in the first instance and it is even less necessary now that we have made the amendment. Why it should have been separately set out I am not too clear, but I will investigate it further, if the Deputy wishes, and write to him.

I am not very happy about enacting an amendment the purpose of which neither we nor the Minister are aware of and I would suggest that, in the circumstances, the Minister might withdraw the amendment and, if necessary, reintroduce it on Report Stage.

If the Deputy is agreeable, I will certainly do that.

We are not opposed to it, but we would like to know what it is about.

Amendment, by leave, withdrawn.
Question proposed: "That section 4, as amended, stand part of the Bill."

In relation to section 4, the section specifies the persons who are chargeable to capital gains tax and the extent to which they are chargeable. A person normally resident in the State will be chargeable on gains made on the disposal of assets whether the assets are situated inside or outside the State. A person who is neither resident nor normally resident will be charged only if he disposes of the assets of a business carried on by him in the State or of his interest in lands or minerals situated in the State or of exploration or exploration rights situated on the Continental Shelf. He will also be chargeable in respect of gains on the disposal of unquoted shares which derive their value from such assets in the State. A non-resident person who is exempt from income tax under double taxation agreements is also exempt from capital gains tax. A person, including a company, resident in the United Kingdom but not resident in the State will qualify for this exemption which corresponds, as I said, to the similar relief from British capital gains tax accorded to a person resident only in Ireland who has a business in the United Kingdom.

There are a number of points I want to raise. The first point is in relation to subsection (3) which refers to subsection (1). Subsection (3) provides that subsection (1) shall not apply in respect of gains accruing from the disposal of assets situated outside the State and the United Kingdom. One would have thought, on the face of it and on the basis of what the Minister said earlier about the reciprocal arrangements between here and Britain, that the phrase "and the United Kingdom" would not have been necessary.

I am aware that this subsection follows very closely subsection (7) of section 20 of the 1965 United Kingdom Act, but in the British Act the reference is to gains from property outside the United Kingdom, whereas here we are saying gains accruing from the disposal of property or assets situated outside the State and the United Kingdom. Take the case of an American who has an American domicile, who is resident in Ireland and also resident in the United Kingdom, if he realises a gain on property he has in Britain it would appear that that gain would be liable both in Britain and here without remittance at least until and unless a reciprocal agreement is made with the United States. Would the Minister agree with that assessment of the position?

It is, of course, a question of the amount of the gains received in this State. There might be some assets in the United Kingdom, assets outside the State, where the gain would be received in the United Kingdom. Here we are dealing only with gains received within the State.

But the introduction of the phrase "situated outside the State and the United Kingdom" seems to me to complicate the matter. Could the Minister explain why it is our legislation refers to assets "situated outside the State and the United Kingdom", whereas the corresponding provision in Britain is "outside the United Kingdom" and does not refer to this State at all?

We have used the same formula as that used in respect of the treatment of income tax. The Deputy will appreciate we are not answerable for British legislation and I cannot explain why the British legislation is in the form the Deputy says it is. I cannot explain why they did not incorporate the "Republic of Ireland" in their particular Act.

The reason I raise the point is that the Minister told us earlier that effectively there would be a reciprocal arrangement between ourselves and Britain whereby there would not be double capital gains taxation. On what does that rest? One can see that one leg rests on the phrasing of this subsection where we specifically provide for the case of assets situated outside the State and the United Kingdom but, since the British legislation does not have a reciprocal provision, on what do we rely to ensure that what the Minister says will happen will, in fact, happen —that is, that there will be relief of that kind?

If it is not so provided within the existing law, and I believe it is by virtue of Schedule 6 of the 1967 Act, then it is a matter which would come up for negotiation under a specific agreement to cover these areas.

It would appear that we are providing for it in our law but they have not provided for it in Britain.

I believe the existing agreement between Ireland and Britain ensures the same treatment even if it is not specifically written into their particular act.

If it is reciprocal one would think they should have written it specifically into their legislation or, alternatively, we do not have to write it into our legislation.

Perhaps this is again another example of Irish legislation being superior in clarity to British legislation in not leaving the matter in doubt.

I must confess I have certain doubts as to the clarity of the provision. If the Minister assures us that there will be relief from double capital gains taxation between ourselves and Britain despite the provision in this subsection without a corresponding provision in the British legislation, that is the primary point with which we are concerned. However, with regard to other countries the negotiation and completion of double taxation agreements on capital gains is a matter of considerable urgency, even more urgency than would normally arise in the case of changes in our taxation for reasons I shall explain in more detail on another point relating to investment here in industry from abroad.

The provisions of subsection (5) would appear to have the effect that gains on the disposal of partnership assets are to be charged on the partners separately. I referred to this matter on Second Stage. There appears to be no rules provided for allocating the gains to the individual partners and this could lead to considerable difficulty. I cannot recall what, if anything, the Minister said on this point and I should like him to let us know what he has to say about the absence of rules for the allocation of gain between individual partners having regard to the fact that the Schedules provide detailed rules for almost every other contingency dealt with in the Bill.

If I recall correctly, in reply to the Second Stage discussion I said that so far as partnership assets were concerned they would be dealt with in the same way as partnership profits are dealt with under the Income Tax Acts and that on the break-up of a partnership one would look to the actual position of the partnership in the partnership accounts in order to see the respective shareholdings of the partners.

As the Deputy appreciates, a partnership is not a legal person as distinct from the individual members. In a partnership, for income tax purposes the assessments are made on the individual partners and not on the partnership as such. The Income Tax Act, 1967, does not lay down any rules for the apportionment of profits as between partners. This matter is dealt with in section 71 of the Act and it provides that each individual partner is to be treated as if any profits or gains arising to him from the trade are the profits of a trade carried on solely by him. In effect, therefore, the partnership profits are apportioned in accordance with the terms of the agreement between the partners. As the Deputy knows, the agreement can be either written or oral but in each case it is to the specific agreement one looks.

Is it the agreement as to the division of capital between partners or the division of income that would apply to capital gains or liability for tax?

It would be the capital assets of what determines a person's ownership. I agree there could be a situation where partners might have different shareholdings of the partnership assets but would agree to share the profits. In such a case the profits are no more than salary or a reward for current labour. On the break-up it would be the actual ownership in the shareholding in the partnership that would decide in what way the gain was to be apportioned.

Therefore, any division for the purpose of capital gains would be on the basis of the division between the partners in relation to the capital in the partnership as distinct from income.

There is a further matter arising on this. As the Minister knows, in the event of changes in the profit-sharing ratio, in the event of admissions to the partnership or of people retiring, there could appear to be a gain but, in fact, it would not be a gain. Nevertheless, under the terms of the section there is the danger that it could be held that it was a gain. I should like to know what the Minister thinks would happen in such a case, whether such a nominal gain would be regarded as a gain for the purpose of this section and, if so, what rules would be applied in dealing with this.

Is the Deputy referring to a situation where on the introduction of a new partner he is given an interest in the partnership by way of a proportion of the assets?

On the entry of a partner or the retirement of a partner the net effect when all the arrangements are made is that one partner at least, and perhaps more than one, may appear to end up with a capital gain in the sense that the value of his share in the partnership increases.

There would be no charge in such a case where there is a genuine allocation of partnership assets so long as there is no consideration passing. If there was a consideration there could be an actual gain.

Is it the case that a purely nominal rearrangement that on the face of it would show an increase in the share of one partner with no consideration passing would not count for the purpose of capital gains?

That is so.

There is another matter of considerable importance that I wish to raise on this section. This section specifies the persons chargeable with capital gains and as such it brings into account industries attracted to this country by the IDA. In dealing with this matter previously, the Minister referred to this as companies that come in here, get grants and then pull out of the country. Of course, that is not the real situation with which we must concern ourselves. The fact is a surprisingly high percentage of companies from abroad which had invested here at the instance of the IDA have reinvested their profits in this country. It is easy to visualise a situation where such a company would dispose of portion of their assets without pulling out of the country; they might even be expanding their operations in another area of the State. Such a company would be disposing of portion of those assets which had been created by the reinvestment of the profits which had been earned free of income tax. That is a kind of situation I am concerned with.

I have here a booklet issued by the IDA in November, 1974,Industrial Incentives. This booklet gives a summary of the incentives available. Under the heading, “Financial Incentives”, it says:

Total freedom from tax on profits generated by exports to 1990.

Later it states:

Complete freedom from Government control over investment of profits.

If the Minister does not know—I hope he does—I can tell him, as somebody who has had personal experience as Minister for Industry and Commerce, of the vital importance in attracting industry here not only of the incentive of tax-free profits on exports but also, and very important, of the complete freedom from Government control over investment of profits.

I have had personal experience of dealing with potential investors. One of the questions they were always concerned with was what would happen after they had set up, obtained the benefit of the grants and then generated profits. They were always anxious to know if we would restrict them on taking the profits out of the country. It was always a matter of vital importance that we were always able to assure them that they were free to do what they liked with those profits. As a result, and the Minister can check this if he wishes, a high percentage of these people reinvested their profits here because they felt complete confidence that if at any time they wanted to dispose of all or portion of their assets they could take their money out. Because they were guaranteed this and because there was no pressure on them they were prepared to reinvest their profits here.

This booklet I have referred to later gives in more detail what the incentives are and under the heading, "Tax Relief For Export Profits" says:

Tax legislation as at present in operation provides a major financial attraction.

The Minister may be tempted to argue that the phrase "as at present in operation", gives him a let out but I suggest it does not because further on, having detailed what is available, it says:

As no relief is available after April, 1990 it follows that only companies which commenced an export trade before April, 1971 are entitled to the full 20 years relief.

The clear implication of that statement is that those who come in under the existing tax legislation will get the reliefs specified here without any interference by the Government. That would be a reasonable inference even if the rules were to be changed for new entrants coming in. I would regard that latter proposition as being an extremely serious one at a time when more than 100,000 people are unemployed.

All the efforts of the Government should be directed in any possible area of activity that will generate employment. We know, and it is generally acknowledged—in fact the Government frequently referred to this—that the most potent area open to us is the IDA and their activities. Therefore I would regard it as extremely serious if the effect of this section was to either inhibit the activities of the IDA or, worse still, to go back on the promises made by the IDA to foreign industrialists. The document from which I quoted was issued in November last under the present Government, and therefore it is not a question of previous Administrations; it is a question of a clear commitment given by successive Governments to foreign industrialists.

It would appear that the effect of this section is that, if a foreign industrialist is induced by these kinds of promises to set up an industry here and makes profits from exports, he will be free of income tax. Heretofore the position was that those people could if they wished remit immediately those profits to their home base or they could leave them here. A substantial number of them have reinvested them here, but they could take them away and this was one of the promises made to them. The effect of this section is that, if they reinvest in this country and at some stage decide to repatriate a portion of the investment arising from their profits, and sell off some portion of their assets and repatriate the money they gained from that sale, under this section they will become liable to capital gains tax at 26 per cent. I believe that is the effect of this proposed legislation.

I should like to draw the Minister's attention to another serious effect of this. Heretofore a substantial number of these industrialists reinvested their profits here but if this Bill is passed there will be a built-in inducement for them to take their profits as soon as they are earned and send them out of the country. If they do this they will not pay tax, but if they reinvest their profits and then subsequently dispose of the assets at some form of gain— as the Bill is drafted with no provision for inflation they are likely to show a nominal gain—they will immediately be subject to capital gains tax. The clear result of this will be that in future any such firms instead of reinvesting here will take their profits out fast.

That, on top of what appears to be a breach of the undertakings given by successive Governments, by the IDA with the authority of successive Governments, verbally and in writing, constitutes a most serious defect in this Bill. At any time it would be extremely serious but it is difficult to visualise a time when it would be more serious than at present when we have at last count more than 100,000 unemployed and the figure almost certainly rising. I think it would be fair to say that most people would find it incredible if the Government were to enact legislation to do this. I hope the Minister can reassure us that that is not what this legislation is doing. On the face of it, that is exactly what it is doing.

Fianna Fáil remind me of St. Augustine who asked to be made pure, but not just yet. They said they were in favour of a capital gains tax but, ever since they made that declaration on the Second Stage of the Bill, quite contrary to what their Ard-Fheis resolved the last time they met——

So the Minister is doing it.

Would the Minister answer the question he was asked?

We know the answer from the start.

The Minister need not start that caper now. We know what he is doing.

(Dublin Central): We are concerned about jobs.

I will answer in my own way. They have been back-pedalling ever since they made a pious declaration in favour of a capital gains tax and they have been trying to avoid every possible form of capital gains tax.

Like putting 50 per cent on speculators which the Minister will not do.

They have been trying to make a laugh of any alternative system. The undertaking given to investors from countries abroad was to exempt profits earned on exports from income taxation. That is the only undertaking which was given. As I said last week, no sane person in the world assumes that any tax regime in any country will remain static and will never vary. Businessmen do not make business decisions on the basis that tax regimes will never vary, unless some special contractual arrangement is entered into. No undertaking has been given in respect of any taxation other than exemption from income taxation on profits from exports.

I pointed out on the Second Stage that the only occasion when liability to capital gains tax arises will be when people are disposing of assets. If foreigners come into this country succumbing to the bait of getting exemptions from taxation on their export profits, and avail of very generous capital grants which have to be paid for by the Irish people, I do not think it is wrong and the Government do not think it is wrong, that if such people decide to pull out of the country——

Not pull out.

——they should pay a capital gains tax of 26 per cent. If they do not pull out of the country but reinvest the proceeds of any disposal which they may have here of capital assets in the business, they will get roll-over relief. I cannot accept Deputy Colley's suggestion that there is an element in our proposals to encourage people to bail out. Quite the contrary. If anything it encourages such people to stay in business here and if they are disposing of a business asset here to roll over the proceeds of that into further investment here. As long as they do that they can continue to make handsome profits.

If they try to withdraw from Ireland I cannot see that it is wrong for our people to recover part of the investment made, and part of the gain made by such people, and part of the capital investment by the Irish people by means of a capital gains tax. I cannot say what the position in Japan is but the other significant foreign investors in this country all have capital gains tax and they are amazed——

(Dublin Central): New Zealand?

——to discover that Ireland has not got a capital gains taxation system. I am not aware that New Zealand is a significant investor in Ireland nor am I aware that Australia is. Countries which are and which are well known to be, the United States of America, Britain, Germany, The Netherlands, France, Belgium, all the EEC countries, have a capital gains tax. Canada has a capital gains tax and other countries which already have invested here, and may have even greater investments in the near future, Scandinavian countries like Norway and Sweden, have a capital gains tax. It is extraordinary that Fianna Fáil seem to believe that the rest of the world is living in the seventeenth and eighteenth centuries.

The rest of the world has not got the IDA incentives we have and which we are dependent on. The Minister is ruining the economy of the country by sheer ignorance.

They are making pronunciations of Tory,laissez faire, doctrinaire——

Does the Minister know anything about the IDA and its operations and its importance to our economy?

Talk about doctrinaire attitudes. I have heard no doctrinaire attitude expressed in this House in relation to our capital gains tax proposals other than those from the conservative Fianna Fáil Party whose argument is that any form of taxation is a disincentive and therefore there should be no tax system. That is a beautiful theoretical view but, unfortunately, democratic government would come to an end and the protection of the liberty of the people would be at the mercy of the extremely wealthy——

God help this country.

——if this was not a modern State with reasonable forms of taxation. No matter how indignant Fianna Fáil may become because I have properly labelled them, that is the reality. It would be appropriate for them at this stage to deal with the realities of the world in which they live.

The realities in this country with its 100,000 unemployed.

I have said before and I say again to Deputy Colley that he does not enhance his cause by interrupting or by endeavouring to shout people down. He should let his arguments stand or fall upon their inherent merits. The IDA undertaking given to investors coming in here was to exempt from taxation profits on exports. If the Deputy would read again what he read to the House, he would observe that the IDA pamphlet is very clear in stating what exemptions from taxation liability will be given. It is also clear in pointing out that at the time the document was published there were no restrictions or disadvantages in relation to other matters. The very fact that it said that put everybody on notice that that situation would not necessarily last forever. No reasonable person assumes that tax codes will remain forever unchanged. It would be a most inequitable world in which thestatus quo was maintained forever and a day.

We now have the situation reasonably clear in spite of the fact that much of the Minister's reply consisted of sheer political abuse rather than answering the very pertinent and very important questions which Deputy Colley asked him. The position now is that what the IDA have been telling potential foreign investors no longer holds true except in this instance; provided a foreign industrialist here repatriates his profits in their entirety the minute he makes them, then what the IDA told him will hold true. If, as many of these people have done, thank goodness, he reinvests in this country, he is then caught and what the IDA told him becomes untrue.

Such a person might be caught for death duties at the moment.

That relief is available to companies only, as the Minister should know.

Companies do not pay death duties. Would the Minister be good enough to stop interrupting?

I want to keep the Deputy right.

If the Minister would learn what it is all about that would be a help.

If this brilliant Minister of ours is so anxious to keep the Deputy right would he tell me on what basis companies pay death duties? That might keep me right.

I will reply in due course.

This is not the first time this happened in the short and tragic reign of this Government. This is the second time. The first time was when they made an announcement in relation to mining. They made that announcement on a Friday. There was an outcry and a very legitimate outcry from everyone who was inveigled into this country by the skill of the IDA over a long period of years. So loud was the outcry even late on a Friday evening and all day Saturday that the IDA got on to the Government and said: "For God's sake, tell them you have only broken your word in relation to mining and that you will not do it in relation to everyone else." That Sunday afternoon, less than 48 hours after this announcement in regard to mining, the Minister for the Gaeltacht was scheduled to open a factory—which had already been open for a year—at Shannon Airport and availed himself of the opportunity to assure—and I heard him—all industrialists at Shannon and elsewhere in Ireland who had come in under promises given by the IDA and SFADCo that despite what the Government were doing in regard to mining, they would not break their word in regard to anything else and that industrialists at Shannon and elsewhere were safe and need not sell out and go home. We had hoped, and the IDA who had done so much for the country had hoped that was the end of it and that this Government of idiots had learned their lesson——

The Deputy may not use that epithet in reference to the Government and he should know that.

Very well. This Government had learned their lesson——

Government of incompetents, I would suggest.

——and that it would not happen again. Now it has happened again. I pity the IDA with the problems they are facing, trying to sell this country. And this happens twice in less than two years.

Deputy Colley was perfectly right when he posed this question in detail and at length. The Minister stood up and prefaced all his remarks with abuse of Fianna Fáil and their alleged Toryism. Deputy Colley said: "We know what the answer is now." How right he was. But all the abuse from this Minister, who has been inflicted on and is afflicting this country for the past 23 months will not change the facts. We have now a situation in which, for the second time, the solemn promises which the IDA were authorised to give by successive Governments to potential industrialists coming here have been broken. It is not the fault of the IDA but of the Government.

There is only one way out for the IDA: they will now have to tell all industrialists—not just potential ones but all existing ones: "Provided you immediately repatriate all your profit and leave nothing in this country you will be free of tax but if you leave it lying around it will become liable to capital gains tax." In those circumstances any normal industrialist will take his money out and it is a tragedy for this country which, as I have constantly said, is totally under-capitalised, if that happens. There is capital available out of the profits of existing industries. Most industrialists who have come in and have made profits have reinvested them. It is still open to them to do this but they become subject to tax and the undertakings given to them by the IDA are broken. They are entitled to go to the IDA in an aggrieved fashion and ask why this solemn promise was given and is now broken. The only answer I can see from what the Minister has told Deputy Colley is, that provided they repatriate their profits immediately without investing them, take them out of the country as soon as they are made, they will not be subject to tax and the IDA will technically have kept its word in that regard.

One of the things pointed out by the IDA as being equally important with total freedom from tax on profits is "complete freedom from Government control over investment of profits", in other words, freedom in invest here as they saw fit or elsewhere.

And to take it out when they liked.

Now they have not that freedom. The only time they can now safely take it out is the minute they make it.

They can take out the profits, not the capital gains.

Is the Deputy with us?

I am with you.

I, personally, as Minister for Industry and Commerce gave these undertakings to people who came in here.

On capital gains?

No, but they were entitled to take their profits out whenever they wished.

They can take them out now.

They can take them out——

Deputy O'Malley is in possession. Other Deputies may contribute at a later stage if they wish to do so.

If they reinvest in this country and then take the profits out they will be taxed by the Minister.

No, only the gains made.

Deputy O'Malley is in possession.

The position is that unless they take their profits out at once they are liable to this tax. Therefore, I presume the vast majority of them will take their profits out at once——

——and if they do that they will be acting differently from the way the vast majority of them have acted up to now and the losers are the people and the economy of this country. In order to squeeze the last penny out of everyone with this tax the Minister, even at a time when the most glorious achievement of this Coalition Government is 101,000 unemployed, still goes after anyone that might make any gain or profit anywhere even though it may be people who came in here on positive assurances from the IDA given on the specific authority of successive Governments.

The mining episode and this measure have created a climate of uncertainty and doubt, a feeling that Ireland is no longer a safe place to go into because the present Government cannot be relied on, will change its mind from day-to-day or week-to-week; promises made and always honoured in the past are no longer kept; anything you are told by the IDA in good faith may be retracted a week, or a month or a year later. Ireland is no longer a place where the rules of the game are always kept; it is governed by a slightly "chancy" outfit who will change their minds at every whim and therefore Ireland, in the eyes of many industrialists who would otherwise have come here in the past two years, is a place to steer clear of; if you are in doubt at all, you do not go in.

Unfortunately, we had a very recent example of that very close to the Leas-Cheann Comhairle and myself. That is Alcan which was to come to Aughinish Island or Foynes in County Limerick and which, according to the great speeches made some months ago when it was announced, was supposed to be in production in December, 1976. We are told in today's papers that the earliest it could be in production, if it ever starts, is sometime in or after 1980. The reasons are given.

The feelings of industrialists in various parts of the world in relation to this country are now well-known. In Canada particularly people are very cautious. They have good reason to be cautious and it is not just coincidence that in Canada they are most cautious because they all know at first hand some of the things that have happened.

This factor on its own would always be important but while it may not be of major importance it should not be glossed over by the Government in the flippant, arrogant way in which the Minister for Finance attempts to do these things. This, combined with the mining episode, with the general growing doubt, the lack of confidence, the uncertainty of foreign investors and industrialists in relation to Ireland at present adds up to a situation in which our industrial development in future years will be seriously impaired and damaged.

I have given you one example of it, Sir, which unfortunately, for both you and me is very close to home and is a serious loss to an area where the people thought it would be of major benefit. There are many more of them but we never hear about a lot of them because, in a country like Canada, meetings will take place between people who have a business interest in Ireland and those who have been thinking of making an investment here in industry, mining or anything else. We do not hear about these meetings, officially at any rate. There are no IDA men present and there are no Irish Embassy officials present. They are private meetings between individuals and it is as a result of those meetings that we hear, some time afterwards frequently, that the investments which could have been made are not being made. These are the kinds of reasons why they are not being made. These are the kinds of reasons why we have now 101,000 unemployed people, and that that figure is rising every week. These are the kinds of reasons why we have a trade deficit of £504 million which shows no sign of abating. These are the kinds of reasons also why private housebuilding has come almost to a stop, with everything consequent on that. These are the kinds of reasons why this country is depressed, in every sense, why the people are depressed, annoyed and frustrated at what is happening here and to the prosperity and progress they knew previously. All those things add up and this is one of them. This is not unimportant.

If Deputy O'Malley would not allow himself to be consumed with hatred of people who criticise his Administration then he might not lose his reason. The reality, as distinct from the emotive, irresponsible, chatter of Deputy O'Malley, is that in 1975 industrial investment from abroad will be at the highest figure ever achieved. As a consequence of that the State has to match the confidence of investors from abroad with an increase of 43 per cent in the amount of money advanced by the State for industrial development in 1975. Those are the facts as distinct from the emotional abuse from Deputy O'Malley. Not that I think house construction has anything to do with the remarks made by the IDA but, as he brought it in, the State is contributing another 30 per cent above last year's record investment in housing construction. Therefore, it cannot be said that there is any lack of money for those purposes.

On the mining front this country has produced, in mining taxation, a scheme of taxes which is quite reasonable by any international standard, particularly compared with what now obtains in Canada, the country to which Deputy O'Malley made so much reference. I hope that if Deputy O'Malley has any further contribution to make on this or any other section of the Bill he will restrain himself from engaging in political abuse and will rely rather on the facts. I want to deal with an allegation he made about profits earned on exports being liable to tax unless immediately repatriated. Of course, that is not so. Any profits which are reinvested here would not become liable to tax, even when they are realised. What would become liable to tax would be such gain as was made on those profits after they had been invested. Thus, if, for instance, £100,000 worth of profits, instead of being taken immediately, were reinvested here and £10,000 were realised on that investment later on, it would be the £10,000 only that would be subject to tax at 26 per cent, not the £100,000. The allegation that the profits themselves are taxed is without foundation. As I have said already, there is no progressive country in the world—and unless a country is seen to be progressive and modern people will hesitate to invest in it—deserving of that name that has not long since a capital gains tax——

What about Australia and the Labour Government there?

——which would seem to be an essential of an equitable system of taxation.

What about the Labour Government in Australia?

What about Iceland?

There are places further afield where perhaps Deputy O'Malley should go.

Apparently we are not progressive in relation to Australia.

Perhaps Deputy O'Malley made that suggestion because the Australian Government attempted to do, as Fianna Fáil intended to do, and that was to introduce capital gains tax starting at 50 per cent. But they saw the folly of that. Apparently, while Fianna Fáil are ready to throw out some remarks about Australia, they have not taken the trouble to find out just what was faulty in what was proposed originally in Australia. Leaving aside Australia and New Zealand which have not got a capital gains tax and, to that extent, are unique—any other comparable country has had such capital gains tax long since—I am glad that the day has now come when Ireland is moving, as every other sensible country has long since moved, towards bringing in a system of capital gains taxes. Where people with comparatively small incomes are taxed at 26 per cent, 35 per cent and more, it is inexcusable that we should postpone the introduction of a capital gains tax to tax the gains made on investments. The allegations made here about the IDA are without any foundation, as the facts prove, as distinct from any irresponsible comment that may be made on them.

Deputy O'Malley mentioned Australia as a country with no capital gains tax. There is a side tax there which is worse than any wealth tax anywhere in the world. He mentioned also the IDA and tax-free exports. It was not so long ago that Fianna Fáil were objecting to their introduction by an Inter-Party Government, it was madness to do so. Then they backed them up. Now they are arguing against it.

We made them work.

Who introduced them? Fianna Fáil were there a long time before they thought about them. Fianna Fáil could be there still and they would not have thought about them. Deputy O'Malley also mentioned mining. He did not mention Marathon but Fianna Fáil gave it away for nothing; they did not charge a penny for it.

Did the Deputy say Marathon?

Does the Deputy want us to give away mining for nothing as well? Marathon was given away for nothing. Marathon got all that land off the coast of Cork for nothing.

The Deputy should get his facts right.

£500 or whatever it was.

The Minister for Foreign Affairs got that wrong again, as usual.

As regards mining, if we do not have a smelter here, which was not built in Fianna Fáil's time, what will people get out of the mines?

As regards Alcan, Deputy O'Malley must think there is no such thing as depression in other parts of the world. My information is that they went round the world looking for another £40 million. They went as far as Japan and could not get it. They are seeking an investment of £40 million which has accounted for a great part of the delay. The main point of this argument is that people who export reap a profit and if they invest that gain they will be taxed on it. If they invest that money and the goods from that company are exported, that is tax free. However, if they sell off the property, should they be let off with all the profits? They can take their profits, but I see no reason why they should not pay the capital gains tax. Suppose they were to invest money in hotels— not the most profitable business, I agree, in the last eight years—or other businesses not connected with the export market, why should they be free of capital gains tax if they sell the business?

I agree that if increased exports were taxed we would be breaking our word, but not if the property is sold. Very often the enticement has been factories at very low prices along with grants from the State. Some companies have got £1 million grants and the State has not got a penny back. How far do we have to go? It might be better to give the people the money and not have them manufacturing at all if that type of industry were to be encouraged. As I say, if such companies are selling off for capital gain they must be treated as the Irish citizen is treated.

It was, I suppose, a moment of light relief to hear the Minister for Finance advising Deputy O'Malley not to engage in political abuse and instead to stick to facts as given by the Minister for Finance. The facts to which he referred included the provision of a 30 per cent increase in the availability of money for housing this year. He knows, as we do, what that represents in terms of additional houses—nothing. He also referred to the increased provision for IDA grants. The Minister knows that, allowing for inflation and allowing for the fact that industries in general now attracted by the IDA are far more capital-intensive than they have been and this is a tendency which will increase, what he is talking about in terms of money—and it is a projection for 1975, not a performance—is approximately the same level as in 1974 in terms of jobs, and I repeat it is a projection.

The sad fact about all this discussion is that the Minister for Finance clearly does not understand what Deputy O'Malley was describing when he was talking about the climate for investment. The Minister for Industry and Commerce, who was directly responsible for the IDA, should understand this. I do not know whether he does or not—he may have ideological difficulties—but it is vitally important that the Minister for Finance should understand it, too, because it is the Minister for Finance who brought before this House the mining legislation referred to by Deputy O'Malley. We are not talking about future mining; in fact, I have expressed the view that the rate of taxation imposed in that legislation is too small. We are talking about going back on an undertaking given to existing mines and to existing industries. The Minister does not understand that even the suggestion of doing this affects the whole climate of investment, the whole operation of the IDA.

I have personal experience of this, and I must confess I am absolutely appalled at the performance of this Government when it is repeated. Goodness knows they should have learned from what happened in mining, where the Minister and the Taoiseach and other Ministers had to get up one after the other and promise that they would give an undertaking in writing, although we had it in legislation, that the incentive for industrialists would not be taken away. I do not think the Minister has grasped the significance of the second point quoted by me and by Deputy O'Malley from the IDA brochure, and I shall quote it to him again:

Complete freedom from Government control over investment of profits.

The Minister may argue semantics on that, but I want to tell him— because he obviously does not know— what that means in practice to a potential industrialist from abroad who is going to invest here and create employment. I have had these discussions with a number of these people myself and I know the questions they put to me. What they say is: "We know of other countries which have various inducements better than those available in Ireland, but they are no good to us because we have seen what they have done to people who went in. They went in on the basis of the inducements and then the rules were changed. They tied up our money so that we could not take it out, and they imposed this, that and the other restrictions afterwards." The thing they were vitally concerned with from their point of view was, what was the use of investing quite successfully in this country if the ultimate result was that they were not going to be able to repatriate the profits that were available? Therefore they wanted a complete assurance on this. That is why the IDA have said here: "Complete freedom from Government control over investment of profits."

If you are to have complete freedom as to what you will do with your profits when you generate them, one of the freedoms you must have is to repatriate them immediately. Another is that, if you wish, you can reinvest them in this country. Then if you do that, you may reach a stage where you will want to repatriate some either to your home base or to an investment in another country. I am not describing a situation of selling out the whole operation, to which the Minister and Deputy Belton referred. I am describing where there is a portion of the operation being disposed of and the proceeds taken out of the country for whatever purpose.

The Minister says in that case the capital gains tax applies only to the gain, but I pointed out to him that on the basis of inflation and his refusal to accept a built-in arrangement in this Bill for inflation, unless the money is invested in something like stocks and shares—which people of this kind do not invest in in this country; they invest in business and in real assets—any investment will show a nominal gain, so they will become liable to capital gains under this.

If the Minister thinks he can argue semantics with these people and tell them what he is proposing to do is not a breach of what was promised to them, he is wasting his time. This is what he apparently does not understand: it is the climate that is created that is important, and the climate which he and his colleagues are creating is, as Deputy O'Malley described it, one of distrust of this Government, distrust of the ability of the people dealing with us from abroad to rely on what is promised to them by and on the authority of the Government.

Whatever problems we may have had under successive Governments in the past, we never had this one. It is only under this Government that this problem has arisen. Apart from whatever may be the opinion of people in this country, numerous people outside the country now find themselves in the position of not being able to depend fully on undertakings and assurances given by this Government. That sort of situation is appalling in so far as our reputation and honour are concerned but it is worse from the point of view of the possibility of economic development and growth and of industrial development.

The tragedy is that members of the Government and, in particular, the Minister for Finance do not seem to understand the importance of this. In the past, in relation to undertakings given in respect of existing mines and, here again, the Minister demonstrates that he does not understand it is in the economic interest of this country that, even if the Government consider a particular deal to be a bad one, they should carry it through in order to maintain our reputation as people with whom a deal can be done and honoured. If we lose that reputation we may never recover it. Once it has happened, and it has happened under this Government on too many occasions, replacement of the Government will not solve the problem because so far as investors abroad are concerned it is something that can happen again. Is is of no interest to those people whether Fianna Fáil, Fine Gael or Labour are in Office. They are dealing with the Irish Government and to them one is the same as the other.

Up to the advent of this Coalition whatever Government were in Office, we had one reputation of which we could be proud, that was that anybody who made a deal with an Irish Government could be sure that deal would be honoured and that there would be no attempt by way of clever semantics or otherwise to go back on the spirit of the agreement.

With all the sincerity at my command I impress on the Minister that what he is proposing in this section is very clearly in breach of the spirit and, to some extent, the letter, of the undertakings given to the various industrialists who have invested here. I am referring to undertaking given by the previous Governments, by previous Ministers and by the IDA.

There is another aspect of this which was referred to both by the Minister and by Deputy Belton and which revealed a great deal. Each of them asked why, if these people are taking their assets out, they should not pay capital gains tax. That is a plausible argument but I would remind the Minister of the undertaking that was given to such people. This was that they could have complete freedom in regard to the investment of their profits, whether here or abroad. To suggest that one can advance theoretical arguments or alleged arguments of equity, as the Minister endeavoured to do, to justify this is to miss the wood for the trees. These undertakings were given to these people most of whom, surprisingly, reinvested their profits in this country.

Whatever the Minister may say about undertakings, about the wording of them or about the wording here, he cannot deny, as indicated by Deputy O'Malley, that a foreign investor faced with the choice of reinvesting his profits productively in this country and paying capital gains tax ultimately or, alternatively repatriating his profits immediately free of tax, will opt for the latter course. It is obvious that he would do so. Can the Minister suggest seriously that it is in the best economic interest of this country that this should be so? There is no point in talking of equity in taxation if what the Minister is doing in trying to achieve equity is reducing the national cake. That is creating inequity. I did not believe that we would ever see such a situation here. On another occasion when the Minister was arguing in favour of the principle that comparable incomes should pay comparable tax, I said to him that if he could carry that to its logical conclusion he would find himself abolishing the export tax relief. The Minister became very annoyed and said I was being mischievious. However, here he is trying to advance a somewhat similar argument to justify what is happening but the effect of what he is doing can be disastrous.

One could break this into two parts. First, there is the situation of those firms who have invested already in this country on the basis of the IDA, Government-authorised inducement and the second category could be those who may do so in the future. To take the first category, I suggest there is no answer but that such people will regard, and rightly so, the consequences of this section as a breach of the undertakings given to them. In my view that is a totally indefensible, untenable position. In respect of the second category, those who may invest in the future, the Minister would be on strong ground in saying that this taxation would be applied. He would be wrong in saying that but at least there would not be any question of a breach of an undertaking and of the horrible consequences that could result for all our people from any such breach.

I would suggest that if the Minister were to consult with the IDA who are in the field in this area—I have no knowledge of what is their view on what the Minister is proposing— their view would be that, in relation to people whom they are trying to induce to come here and help to reduce the appalling problem of unemployment, they will have their hands tied if this section goes through as it stands. They will have to tell people that they could reinvest in the country but that should they make profits they will have to pay tax, whereas if they took their profits out quickly they would not pay any tax. Surely the Minister cannot suggest that is something that is in the economic interest of the people and, in particular, of the unemployed.

I urge the Minister to think again about this section. The consequences of what was done in the past were serious but the consequences of doing the same kind of thing again are incalculable. The damage would be very serious. We have built up our economy, given it a much broader base and made it strong but there is a limit to what it can stand. I am afraid that under this Government which seems to be lacking so much regarding knowledge of what is needed in order to induce investment and get our economy moving, that even the strength that was built into our economy in recent years will not be sufficient to stand the strain being imposed on it by this unthinking approach which appears to be totally ignorant of the importance of a suitable climate for investment and of the major role of the Government—or any Government—in creating that climate. That being so, I have not a great deal of hope that the Minister will see the light. I hope he will, but if he does not, I want to make it quite clear that we on this side of the House saw the light and warned him. We did our best, but despite all these warnings, the Minister went on, backed by his colleagues, each of whom will be responsible directly for the consequences of what is involved in this section and what it will do to investment here and to our unemployed.

Progress reported; Committee to sit again.