Wealth Tax Bill, 1975: Second Stage (Resumed).

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

As I mentioned earlier, we heard many references to doctrinaire socialism in this debate and I pointed out it had little or no relevance to the topic under discussion. However, as it was offered as an argument I should like to put these thoughts before the House for consideration.

Doctrinaire socialism is the product of envy. I heard no envious remarks in this House from the Government side. There is not a scintilla of envy in the Government's White Paper and it is totally foreign to any approach we have adopted. I think there has been plenty of doctrinaire conservatism. That is the product of fear of change and it was expressed in the House. It was a wrong approach at a time when change is needed in many areas.

We also had the ingredient of doctrinaire capitalism. This is distinct from a proper understanding of the purpose and use of capitalism. A doctrinaire capitalist probably accepts as legitimate that income, which is the value of labour, should be taxed but opposes taxation of property which is the accumulation of wealth that is in excess of current needs. I consider all these doctrinal concepts wrong and think they are irrelevant and inappropriate to this debate. Because they were introduced we had an extraordinary statement from Deputy Brennan, deputy leader of Fianna Fáil, that the Wealth Tax Bill would promote a revolution. I do not know if he was giving fair warning that some people are considering a coup d'état. The remarks of Deputy Brennan would appear to foment discontent in a few people to whom I referred earlier.

A number of Deputies referred to the comments of the Confederation of Irish Industry published in their bulletin of 27th February last. It would be appropriate that I should deal with that comment which was based on a number of inaccuracies, which produced figures that were wrongly calculated and which was, at best, very selective in the type of illustrations offered.

I want to emphasise once again that a company as such is not liable to wealth tax. It is the shares in the hands of the shareholders which may become liable and only if shareholders happen to be fortunate enough to have wealth in excess of £100,000 in addition to a private residence and its contents. The valuation of company shares will be by reference to market value and market value will have regard to a number of things, including the control element.

The Confederation of Irish Industry values the firm on a net assets basis irrespective of the percentage rate of return on those assets. They have not taken into account the fact that valuations would consider amongst other things the net rate of return. In the case of the lower rates, for instance, up to 10 per cent, the value of the shares would undoubtedly be much less than on an asset basis.

An additional element which would operate to reduce the valuation of the shares would, of course be the very high level of loan capital employed. That is another factor that is not being considered by the Confederation of Irish Industry. But, supposing we assume, for the sake of argument, that the valuation of the shareholding as given at £¼ million is correct, is it realistic to think that a married man with a shareholding of £250,000 has no other assets whatsoever, does not even have a principle private home with ample contents? One can only conclude from the example shown by the Confederation of Irish Industry that if such assets are not held by such persons, they are included as part of the assets of the company.

Surely it is not unthinkable to ask that a person with assets in excess of £¼ million should pay about £950 or £1,000 wealth tax per annum? That is what this Bill proposes and I do not think it is unreasonable. Incidentally, the Confederation of Irish Industry paper overlooks the fact that there is an additional allowance of £2,500 per child and they suggest that the tax liability would be £1,000 whereas in fact the amount would be £950.

But the submission is also faulty by what it omits, and that is, a contrast between the system that we are getting rid of and the system that will replace it. It suggests that the proper picture is a no estate duty, no wealth tax, situation on the one side compared with a wealth tax situation, but that is not what is on offer. We are getting rid of estate duty and we are replacing it with a wealth tax. We have never said and we would not say, because we do not believe, that estate duty should be abolished without some alternative capital tax replacing it. But the contrast which should be printed in black and white on the CII document is with the present situation in which wealth holdings of the size illustrated in their paper, of £¼ million would carry a tax of 55 per cent under estate duties and that would involve a tax payment of £137,500. It will be a long time, indeed, before wealth tax, even as calculated by the CII, would reach to anything like that extortionate figure.

The confederation also suggests that a business would not be subject to wealth tax if in the ownership of a foreign company and they have suggested that that is wrong. Very strong representations were made to the Government that they should ensure that foreign interests which were invited to come to Ireland to set up here should not be frightened off by being subjected to taxation under a capital taxation code. At present such foreigners if they come here might well be subject to death duties. They would not be subject to income tax on profits earned from goods which were manufactured here and exported but they would be liable to death duties. It does seem a bit thick that people should urge that no steps be taken to disadvantage foreign investment and then, as soon as these representations are listened to, come in and say that you were wrong to do that because you have provided a disadvantage affecting Irish people vis-à-vis foreigners. Again, let us look at the facts of the situation as distinct from the theory. The foreign shareholders of the foreign company owning assets in Ireland may be liable in their own countries to capital taxes on such assets, so the differential suggested by the CII may not necessarily exist and in most cases would not exist. In any event the number of cases in which a direct comparison between Irish and foreign ownership of a business of this size can be made would be very few, indeed. It is only in the unusual type of family company that the impact of the wealth tax—which again I want to emphasise is leviable only on the individual—can be regarded as an indirect impact on the company and on the company's funds. In the more general case of foreign investment in Ireland ownership, shareholding, would be very widely distributed and it is clear that in such cases the comparisons drawn by the CII are not relevant.

Is the Minister sure of that?

In the more general case?

I have checked this through the Revenue Commissioners and this is the information at our disposal. It is suggested that foreign interests are going to rush into Ireland to buy up firms which are supplying the home market. This, again, is an unreal expectation. I have no doubt that we could carry on the debate for months and years here producing one unreal and unlikely situation after another to produce some highly imaginary and anomalous situations. It is time that we would be serious about what is the usual experience in business. If you take what is normal as distinct from what is fanciful, you will find that the Government's proposals are exceedingly reasonable.

It is also suggested in any event that if assets here were to be purchased by foreign interests instead of Irish, Irish employment would somehow or other be affected. We as a Government want the highest degree possible of Irish ownership of Irish assets. This will continue to be our policy and we will promote it by every positive way we can. The fact that ownership of a productive asset that is used in the course of employment is non-Irish does not affect Irish employment. Many of the largest industries which are providing employment in this country are owned by foreigners but that has not affected their employment potential and that is another indication that the CII argument is one of special pleading.

The strange thing is that although CII argue that the Government package will encourage foreign investment rather than Irish investment they conclude their comment with the allegation that the whole package will discourage private foreign investment in Ireland. So that you have the strange situation in which, like Deputy Colley's grasshopper, they hop from one argument to another and if in the process they contradict themselves, that apparently does not upset them tremendously.

On a few specific items: I was asked about section 5 (3), discretionary trusts, and why the objects of such discretionary trusts should be treated as entitled equally. It was said, fairly enough, that this might not accord with the facts of a particular trust. First of all, this particular operation is more likely to benefit the parties, the beneficiaries of the trust, because if the trust assets are distributed evenly between the objects of the trust, it is likely to reduce but not to eliminate the liability to tax of the individuals concerned.

The only way in which they could be treated differently would be to look behind each trust, to get the detailed terms of each trust to obtain records of payments out of the trust over a period of years which would add consideraby to administration problems both for public and the private interests. On balance, I think the treatment we propose will be of benefit to the taxpayer.

I was asked why we required 75 per cent of the tax payable would be asked for before an appeal would be allowed. The tax we are dealing with is at 1 per cent above certain levels, so that the effective rate of the tax, taking total assets, will be much less than 1 per cent. Unless there was some kind of brake on appeals, the likelihood is that a multitude of speculative appeals would be generated for the purpose of obtaining postponement of tax payments. As Deputy de Valera said, it is right we should take steps to prevent clogging up the administrative machine. This is a reasonable requirement which will not weigh heavily on any taxpayer.

I listened to what Deputies had to say about the requirement that tax be paid within three months of the assessment date. I think three months would be appropriate in any year. To allow payment to go beyond that would be to permit people to postpone payment and the State would be obliged to borrow money to make good the deficit.

(Dublin Central): You are paying it for the other nine months.

No. The assessment date will be 6th April, each year. One will pay tax in relation to one's assets as of that date.

The valuation date, not the assessment date. The significance is that you could conceivably have to pay more before you are assessed.

I am prepared to take a look at this. If we can consider some reasonable extension appropriate for this year I may bring in an amendment on Committee Stage.

(Dublin Central): Do I take it that the first payment will be due in June this year?

That is correct.

(Dublin Central): Without any assessment?

I want to point out that it was more than a year since the people were told the Government would be bringing in the tax as from April this year. It is not, therefore, taking anybody by surprise.

(Dublin Central): The majority were under the impression it would be payable next year.

I have not met anybody from that naïve "majority". The White Paper was explicit as to when the liability would arise and I do not think anybody thought there would be a 15-month moratorium granted in respect of a tax coming in this year to replace estate duties which are being removed.

(Dublin Central): How is income tax paid?

Weekly, by many people——

In business?

——sometimes even before they get their pay packets. If we want to compare like with like, let us bring in all the likes. Let us see how people of small means and no property are paying their taxes.

Compare it with the Civil Service income tax system.

The Civil Service are agitating to have it put on a weekly basis rather than on a postponed basis at the end of the quarter or at the end of the year which is inconvenient.

I gather there is a possibility that somebody, so to speak, is liable to assess himself— that he must assess himself and pay from that date.

Yes. This is to a large extent a self-assessment tax. If a person does not assess himself properly, he may find himself required to pay his liability in respect of his omission and to pay interest on it. If he wilfully assesses himself below value he may be penalised.

Surely you cannot ask a person, with the present complex state of the law, to sit down to decide he owes so much tax and then simply to write out a cheque for the commissioners?

We are saying that in order to avoid having to pay interest on overdue tax a person should pay on account. The system is one of self-assessment until such time as the Revenue Commissioners get around to making their assessment. Estate duty is of that form and provisional assessments are made regularly by the Estate Duty Office, based on figures offered by the personal representatives of deceased persons' estates. These provisional assessments are corrected later. Since August, 1973, in order to speed up probate and administration, special arrangements were made in the Estate Duty Office to issue provisional assessments as a matter of course. They are subject to correction later on.

At the beginning, the provisional assessment was an official assessment.

We will have a chance of discussing this on the appropriate section and I would ask the Minister to keep an open mind.

My mind is completely open on all sections. I have as much pride as anybody else and I should like to be associated with a Bill that will be seen to be fair and capable of being operated. I will be most anxious to get the help of all Deputies so as to ensure that the new tax will operate fairly without any unnecessary disincentives. Wealth tax is an annual one, payable on 5th April each year. If the tax is paid within three months no interest will be charged. If it is paid after that interest will be charged on it.

(Dublin Central): You are paying tax in advance.

No. It is payable on property held on a particular date, not on property which will be held next year. God knows what property one might have next year.

(Dublin Central): You are paying it for the following nine months.

It is a tax payable in respect of the holding of weath on a date that has already passed. It is tax in arrears. We cannot divide it into 365 parts and pay by so much per day.

(Dublin Central): Why not pay it by instalments?

I am glad to hear the Deputy favours the Wealth Tax Bill which is an instalment tax to replace estate duty payable on the termination of a human life. That tax was paid in an extortionate form by the next-of-kin of somebody who had not taken timely avoidance steps.

I have been asked to say how shares of trading companies will be valued. The valuation rules are not being changed. They are those that have been operating for years past in respect of estate duty. All factors are taken into account. They include the assets of a company, the return on capital, the dividend record, the nature of the business, the prospects for the company. If a company is doing badly, in the kind of way Deputies opposite have described, this will be reflected in the value of the shares. Therefore, the kind of unreal situation of a company doing badly and having to pay a cruel amount of tax is unlikely to arise. The real criterion for the valuation of shares is what a purchaser, at arm's length would pay for such shares. If such shares are in a productive company, one takes the fair value of those shares, less 20 per cent, because they would be treated as productive assets.

Deputy Belton mentioned the CII circular. He mentioned that small businesses or firms could be badly hit by liquidity problems. He said it would be a case of the Government taking money from successful firms and the Government putting the money to bad use. With respect, I feel he misreads the situation.

I should like to congratulate Deputy Myles Staunton. He was the one Deputy throughout the whole debate who properly grasped who would be liable. He asserted, quite rightly, that companies would not be liable. It is only the shareholders who have assets, together with their shares above a level of £100,000—the home and contents not being taken into account——

That is not so.

——who will have a liability.

There are three classes.

In respect of section 6 Deputy Colley posed the possibility of double taxation arising where the private non-trading company would be treated as liable. He feared that that company and its shareholders would be liable. But that is not so. There is specific provision that if a private non-trading company is liable for payment of tax, then the shares in such company are not liable to tax.

Which section is that? Is it the one to which I referred when I was speaking? Off-hand, I think it was section 21.

Section 7 (j) exempts the shares.

We will talk about that again on Committee Stage.

No doubt we will. The private, non-trading company is liable, as an entity in itself and it has to be. If we do not make a private non-trading company liable as an entity in itself, it could be a convenient avenue for avoidance to any person with wealth above the thresholds of exemption, who would simply create a number of private non-trading companies to distribute the assets around those companies and, in that way, escape liability.

I am sure it is possible to measure that readily and still make the tax more easily administered.

Deputies have pressed me again and again for simplicity. The more I give simplicity, the more I receive complaints that I have taken the short and simple way of doing it instead of setting up some very complicated anti-avoidance measure.

If a reasonably simple method of getting over it was offered to the Minister, would he give it consideration?

Yes, most certainly. I am a very considerate man. I recall also that Deputy Staunton realised that the majority of foreign industry coming to this country is set up by foreign corporations and not by individuals. He appreciates that shares in the foreign corporations would not be liable as they would be owned by foreigners. Therefore, no disincentive to foreign investors arises. Deputy Staunton expressed anxiety about one matter. In fact, I think it was the only matter about which Deputy Staunton had any worry. I should like to commend to the House the speech of Deputy Staunton because he is a successful businessman who understands how business ticks. I would say he would be more typical of and know more about the small and medium businessmen of this country than some of the commentators from the Opposition benches.

I think the 80 per cent ceiling of income in respect of income and wealth tax combined meets the situation Deputy Staunton had in mind where a business had a very poor return on capital. As I said earlier, the valuation of such business anyway would take account of the poor return on the capital invested.

Surely there is not an 80 per cent ceiling?

There is an 80 per cent ceiling subject to not reducing the wealth tax by more than 50 per cent of what it would be otherwise.

It could make it 110 per cent in some cases.

If anybody is sitting on assets which would not give them relief under the formula we propose, then in their own interests they would be better to get off such assets and let somebody else handle them. That is being realistic. One of the beneficial consequences of capital tax legislation will make people think, will make them reassess the return they are getting from their capital investment.

Deputy Colley posed me the specific question: could I say, as a result of these new packages, whether or not, there would be an incentive to capital investment in Ireland? I believe there will be a far greater incentive to use capital wisely and productively, to get a better return from it which will benefit not merely the owner of the capital but the community as a whole. On that account, I believe that the whole new, rethink we have forced upon many unwilling and unthinking people over the last year has been beneficial and will operate to the benefit of the economy as a whole.

Deputy Lalor asked me whether the provision enabling the Revenue Commissioners to authorise persons to inspect property for the purposes of valuation is new. It is not new and I am sure Deputy Colley can tell him that. It has existed since the Finance Act of 1894 and is provided for in many other Acts since then. Obviously, the Revenue Commissioners must have a right to assess the properties returned to them.

I was asked what would be the definition of normal contents of a house and how they would be assessed. Normal contents mean the normal contents appropriate to the house in question. It is something which is not capable of precise definition. Obviously, if somebody in a small house has a whole stock of diamonds it would be reasonable to assume that such a diamond hoard would not be the normal contents of that house. I give that merely as an illustration of what might be regarded as abnormal contents of a house. No doubt, there will be the grey areas and those of dispute but any taxpayer aggrieved by an assessment will have a right of appeal.

Section 7 exempts annuities and lump sum benefits which any self-employed person might contract with an insurance company to have for himself on retirement. The question was specifically put to me as to whether annuities and lump-sum benefits would be exempt. I want to emphasise that they will be. This puts the self-employed person in the same position as an employee who would receive such benefit under a superannuation scheme.

Some Deputies asked me to postpone doing anything until something was done in Britain. I think that would be wrong. We are an independent, sovereign, State with a right and, I believe, a duty to make our own arrangements. While we must sensibly take note of what is happening in the outside world—particularly when you are a country endeavouring to attract capital—it would be wrong for us to postpone taking action until other countries took action in theirs. But it is fair to look at what is proposed in Britain, remembering that Britain is not proposing anything as beneficial to the taxpayer as our abolition of estate duties and remembering that Britain already has a capital gains tax which operates at a rate higher than ours. It is worthy of note that in the British Green Paper on wealth tax, now being considered in Committee in the British Parliament, the rates of tax proposed are from 1 per cent to 5 per cent. Our ceiling is 1 per cent. They do not propose to exempt owner-occupied houses. In fact, very specifically the British Government have said this in paragraph 28 of their Green Paper:

Owner-occupied houses should fall within the scope of the charge. They are clearly realisable assets and their exemption would be unfair to those wealthy people who live in rented accommodation.

They also say in paragraph 35 of the Green Paper which reflects the British Government's view:

In the Government's view it would be wrong to exempt business assets or farms from the tax or to calculate liabilities on such assets on specially favourable terms.

We are giving specially favourable terms for business assets and for farms. We are exempting the private home and its contents and we are not charging the tax at a rate above 1 per cent. It may well be the British Government may not proceed with all that they set out in their Green Paper any more than we did all that we had in our original consultative paper, but if they were to adopt our scheme they would have to climb down a great deal more than we did or at any time were obliged to contemplate.

That was the Minister's phrase, not ours.

I know it was. I am a modest man, and I do not mind saying here what everybody knows that the original thresholds and rates were not adhered to. I know enough about business to realise that if you want to strike a bargain you oftentimes open the bidding at a figure you do not expect to get. We did that and I think we have a very good deal for everybody at the end of the day. That concludes my remarks.

Could I ask the Minister one question? Does he recall the point I raised in regard to a trading company which has some investment and in a year in which it actually incurs a loss on its trading it would appear to become, on the definition in the Bill, a non-trading company, and therefore liable to the tax as a company with no thresholds.

Yes, I recall the Deputy's reference. He will appreciate that it is not something that is capable of easy solution or a ready answer. It is being examined at present.

I hope the Minister will accept that it is a rather important matter?

Yes, I would accept that, and I shall be able to deal with it more fully on Committee Stage. As we are getting rid of death duties in a few weeks' time I very sincerely wish each and every Member of this House survival until after 1st April.

And liability to Capital Acquisitions Tax.

I also wish everybody in this House the good luck to be liable sooner or later to wealth tax at a level which will not operate until he has a home of his own with full contents and £100,000 on top of that as well. That is also my wish to all the people, that they will survive to 1st April and be lucky enough to be paying wealth tax on such massive accumulations and good fortunes as those liable to the tax under this Bill.

Question put, and a division being demanded, it was postponed in accordance with the Order of the Dáil of 6th March, 1975, until 10.15 p.m.

Shall we leave the fixing of the next Stage until tonight?

If the Minister likes to fix it now——

I am confident that wisdom will prevail tonight.

I understand you cannot fix it now. We shall wait until 10.15 p.m.