This section increases the dependent relative's allowance from £80 to £95. It also raises the income limit for the purposes of the allowance from £409 to £497, which takes account of the increase in the non-contributory old age pension announced in the budget which came into effect on 1st April last. Where the dependent relative has other income, the allowance of £95 is reduced by £1 for each £1 of the excess of the income over £497 so that no allowance is payable when the dependent relative's income is £592 or more. The upper limit of £489 at which the deduction formerly disappeared is being correspondingly increased to £592.
Finance Bill, 1975: Committee Stage.
Question proposed: "That section 1 stand part of the Bill."
Question put and agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
Perhaps I should explain this. Under the new and simplified income tax structure instituted last year relief in respect of life insurance premiums became available to taxpayers at whatever was their marginal rate of tax. In the case of taxpayers liable at rates exceeding 35 per cent this resulted in a widening of the cash differential of rebate as between Irish and non-Irish insurance companies. There were representations on this point and I announced in the House during the passage of the Finance Bill, 1974, that I would be bringing in amending legislation this year. This section complies with that undertaking. It restores to the pre-1974 level the amount of the cash differential. This is done by increasing the relief in the case concerned where the policies are with non-Irish companies to a figure which is less than the relief in respect of policies with Irish companies by the amount of the pre-1974 differential. These arrangements will apply from 1974-75 onwards. They are retrospective to that extent.
I should like to ask the Minister two questions on this. First, is the form of the section such that it has the approval—and I am using that word in a wide sense—of the various insurance companies, Irish and non-Irish? I say "approval" in the sense that it is not for them to approve but the Minister is aware that they were concerned about what was being done last year and made representations to him. I should like to know if the Minister is satisfied that the Irish and non-Irish insurance companies are satisfied with the position as indicated in this section.
The second question is whether the position which obtained under last year's Finance Act in relation to any person paying a premium is now being made worse as regards income tax relief, or is every payer of an insurance premium who is subject to tax under this section either better off than or at least as well off as he would have been under last year's section?
Any person with a non-Irish policy will be better off as a consequence of this amendment. The insurance institutes, both Irish and non-Irish, have expressed their approval of this amendment and their complete acceptance of it.
The Minister said the people paying premiums to non-Irish companies will be better off. Are there any people who will be worse off than they were under last year's provision?
No. The Irish ones will not be affected at all. This simply gives to those who have a non-Irish policy the same margin of advantage as they enjoyed prior to the 1974 legislation.
Question put and agreed to.
SECTION 3.
I am proposing that this section be deleted for drafting purposes and I propose the substitution of a new section in place of the existing section 33. This involves the deletion of section 3 as the new section will amalgamate the provisions of section 3 and section 33.
Will the new section 33 which it is proposed to delete? I ask that particularly in relation to the relief which would be given under sec-incorporate the full effect of section 3 tion 3 in assessing qualifying insurance premiums. It is not quite clear to me that the relief which would have been given under section 3 is, in fact, being given under the proposed section 33. I cannot lay my hands on it just at the moment.
It is amendment No. 16.
Perhaps the Minister could throw some light on that.
The answer is in the affirmative; it will.
It will do exactly the same in relation to insurance premiums.
Yes. The Deputy will also want to look at amendment No. 38 in the First Schedule. Amendment No. 16 and amendment No. 38 are linked. This is simply a different way of achieving the same objective.
It will be necessary possibly to examine the subsequent section coming up more closely but, if it is doing the same thing, we have no objection to this amendment.
Section deleted.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
This extends to 31st March, 1977 the period of operation of the initial allowance of 100 per cent in respect of capital expenditure on new machinery or plant. I would remind the House that I emphasised it would be wrong to assume allowances of this kind would continue indefinitely but we were concerned to continue these allowances at the moment as an encouragement to people to invest capital in new machinery or plant because the world is going to take off in an economic upswing later this year or early in 1976 and success invariably comes to those who anticipate changes in economic behaviour. This change will take place at world level in the not too distant future and now is the time when wise people will invest in new machinery or plant to ensure they have at the right time the capacity for growth which is on its way.
This section proposes to extend for another two years the 100 per cent initial allowance in respect of capital expenditure on new machinery or plant. I think this was introduced by the Fianna Fáil Government in 1972. There is a great deal more that should be done, but that is hardly relevant to this section. In so far as what is being done is a step in the right direction we will certainly support it. I say it is a step in the right direction because it is a step, admittedly a small one, on the road to ensuring the encouragement of greater investment particularly in industry. Looking at our economic situation today, clearly the only hope we have of a solution not only to our employment problem but also to inflation and to combating inflation is to increase our growth rate which is now virtually nil. This section will not noticeably do that but it will contribute. The extension of these allowances, which were, as I say, granted by the Fianna Fáil Government in the past, at this time is something that will help. It will not produce any magic wand, but it is a step in the right direction. For that reason we support this section.
Question put and agreed to.
SECTION 5.
This section is another Government inspired incentive to industry to invest now and expand in preparation for the growth the world economy will develop later this year and throughout 1976. I have no wish to take from any credit Fianna Fáil wish to confer upon themselves, but it is worthy of historical observation that this was introduced for the first time in 1956. What we are dealing with here is the initial allowance in respect of capital expenditure on industrial buildings and structures in use for the purpose of trade carried on in a mill, factory, or other similar premises, or for the purpose of a dock undertaking. Increasing that allowance, as we are increasing it this year, from 10 per cent to 50 per cent is providing a very specific incentive for the construction industry at a time when it has been going through some difficulties. It is also an incentive to our industrial sector to increase its capacity to meet the opportunities and challenges of 1975 and 1976.
In section 6 we will also be increasing the annual allowance in respect of expenditure on such buildings. That will be increased from 2 per cent to 4 per cent. The section also increases from 10 per cent to 20 per cent the initial allowance in respect of capital expenditure incurred on or after 6th April, 1974, on market garden buildings. This brings the initial allowance for such expenditure into line with that being provided for expenditure on farm buildings under section 18 of the Bill. Since there is also an annual allowance of 10 per cent, the total amount of such expenditure can be written off over eight years—that is to say, 30 per cent in the first year and 10 per cent in each succeeding year; the balance of 70 per cent then would be written off over a seven-year period following the first period.
The purpose of these new allowances is to provide an immediate incentive for investment in industry, including the construction industry. The allowances are available in respect of capital expenditure incurred on or after 16th January last, that is, after the date of the budget. We did that because of the desirability of providing immediate and useful incentives. The benefits are already being reflected.
Section 5, like section 4, is a step in the right direction. It will not have a major effect but because it is a step in the right direction we support it.
Question put and agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
This increases from 2 to 4 per cent the annual allowance in respect of expenditure on or after 16th January. This, again, has been extended only up to 1st April, 1977. It would be counter-productive for people to assume that these special incentives will last indefinitely. In a time of boom there is less justification for such incentives which are substantially better than existing ones.
The same remarks as I have made in relation to the two previous sections apply here. We support them for the reason that they are a step in the right direction.
Question put and agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."
This is a further step in the way of maintaining investment allowances. This will extend to 31st March, 1977, the period of operation of the investment allowance of one-fifth in respect of capital investment in machinery or plant for use in designated areas.
The extension of this allowance for another two years is fully justified in view of current economic circumstances, and we support it.
Question put and agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
This is another step along the same right road that Deputy Colley has endorsed. It extends to 31st March, 1977, free depreciation to areas other than designated areas.
For the same reason we support this.
This is becoming a litany.
Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
This section continues the suspension of the shipping investment allowances on expenditure incurred up to 31st March, 1977. The House will recall that section 8 of the 1973 Finance Act suspended operation of the 40 per cent investment allowance in respect of expenditure incurred after 24th July, 1973, where it is payable on the purchase of a new ship. The suspension was to continue until 31st March, 1975, but the date up to which free depreciation and the 100 per cent initial allowance was available and operative has been extended until 31st March, 1977.
Section 8 of the Finance Act, 1973 states that the shipping investment allowance is not to apply to expenditure incurred before 1st April, 1975. This date is now being changed to 1st April, 1977. The special benefit of an investment allowance is that the investment allowance is not taken into account for the purpose of wear and tear deductions so that up to 140 per cent of the capital expenditure is written off against profits. This special provision was made available in respect of the purchase of new ships because of the particular needs of shipping companies which operate in highly competitive fields. Because shipping companies generally are not in a profit making position, there are no or insufficient profits against which the generous capital allowance available can be set off.
However, this situation led to the development of arrangements through which a bank bought a ship and leased it to a shipping company. The bank then claimed the benefit of the capital allowance on the ground that it had incurred capital expenditure on the provision of the ship. It will be clearly seen that the effect of such an operation was that the benefit of the allowance went not to shipping companies but to banks and there is clearly no obligation on parliament to provide a mechanism whereby banks and other financial institutions can make a profit by applying to them an allowance which was intended for a totally different purpose—to provide relief for shipping companies.
I expressed some reservations on the wisdom of this in the debate on the 1973 Bill. I still have those reservations but I should like to mention them again, although I do not wish to make an issue of them. I had hoped the Minister would have looked into the matter since. I am not sure he has. My reservation is that the Minister has described the operation whereby a bank rather than a shipping company got the benefit of this allowance. I am sure that is not the whole story. The complete story is that the bank got the benefit of the allowance, as a result of which the shipping company got the ship at a lower price, I think over a certain number of years, because the bank was able to get this allowance.
The consequence of that was that the drain on admittedly very scarce capital resources of the Exchequer was eased because ultimately the finding of the capital resources necessary was coming back to the Exchequer. To that extent I am not sure the Minister is wise in trying to prevent that allowance being obtained by the bank, provided the benefit of the allowance is reflected fully in the price paid by the shipping company. The net effect is to save demands on Exchequer capital resources.
I think that is the position. I am speaking from recollection, but if it is I have some reservations as to the wisdom of the prevention of this allowance being earned by a bank. I have expressed this view in the House before and having done so and nothing having been done one way or another, the Minister not having adverted to it, there is not much hope that anything will be done about it.
I do not think the Deputy will dissent from this approach. I believe that if Parliament wants to give assistance to an industry, in this case the shipping industry, it should know what it is doing and be able to price exactly the assistance it is giving. The operation here was one in which if such assistance were given by way of a lesser lease charge to the company, the lion's share then was being taken by the banks, so that banks found as a result of a legislative measure an opportunity to make inordinate profits far above the normal commercial level at which money could be lent.
I do not think it would be correct for Parliament to maintain a scheme which allowed a concealed benefit to be earned by a banking institution or, indeed, by anybody else. If aid is needed for any particular industry, and Parliament in its wisdom decides that aid should be given, Parliament should know precisely what that aid is. If as a consequence of somebody getting a tax advantage less money is received by the Exchequer, it is the general body of taxpayers who lose out. The consequence of the arrangements used by the banks was that the Exchequer did not get its fair return of the money that was made available and the result was a loss to the Exchequer. It would have been better to have a known amount of money given specifically than to have an operation of the kind we had, which was an opaque and concealed benefit to certain banking institutions.
I agree with the proposition the Minister put forward. I would remind him that when I spoke earlier I said I thought there was a case for giving this allowance to a bank provided the benefit was passed on in the lease price the shipping company paid. In regard to the particular transaction the Minister and I have in mind, I do not know at this time whether the bank got the lion's share of the benefit involved. My recollection of the situation as it was presented to me was to the contrary, that the benefit was being passed to the shipping company, which was a State company. If the allowance is fully passed on, or virtually fully passed on, it is necessary to do the sums. It is necessary, in order to see if there is a loss to the Exchequer, to find out how much the Exchequer is foregoing and also how much it is costing the Exchequer to borrow the necessary capital and pay interest. I do not wish to prolong this matter. I merely wish to place on record the reservations I have and the reasons for them. I think the situation is slightly more complex than was originally presented by the Minister.
Would the Minister indicate how a financial institution would benefit in a way a shipping company would not benefit?
I hesitate always to give an illustration of a tax avoidance practice in Parliament in case it might encourage people to engage——
I understand it was done by a State company in full knowledge. There was no secret about it.
In the after knowledge, as happened in the days when Deputy Colley was Minister. I do not think he was aware of it until the accounts came to light.
In fairness I must say it was presented quite openly by the shipping company as being a very good deal from the point of view of the Exchequer.
We have done our arithmetic on this matter and we are satisfied the Exchequer was a net loser under such a system, and a benefit was being obtained by the banking organisation involved. This was never intended. The full benefit of the allowance was not passed to the shipping company. Of course it is difficult to assess precisely the appropriate rate for the leasing of a ship because leasing terms can vary considerably depending on market demand. For instance, it is a lot cheaper to lease a tanker nowadays than it was two years ago. On the basis of advice we have received from people who are familiar with the maritime scene, we are satisfied that only a proportion of the investment allowance here ultimately reached the shipping company by virtue of some modification that might be made in the leasing terms. The cream of the allowance was enjoyed by the banks. If we were to accept what Deputy Colley said and endeavoured to take steps to ensure the total benefit of the allowance was passed on by the banks to the shipping company, the banks would not be interested in using the facility. There would be no point in their getting involved in such an arrangement unless they could make a profit greater than that obtained by investing the money elsewhere. It follows from the existence of the arrangement that the banks engage in such transactions because they enjoy a profit they could not obtain by investing elsewhere.
I hope the Minister appreciates that if a particular shipping company need a ship he will have to find the money.
Yes, but I would prefer to come before the people, tell them a certain amount was required and that it was proposed to make it available and have the full benefit of any concession to the shipping company rather than bring in a complicated scheme where somebody else would benefit without the knowledge of Parliament.
Instead of coming before the people to tell them a certain amount of money was being made available to acquire a ship or ships, the Minister surely appreciates it is much more likely he will have to say the money is not available because of a shortage of capital and therefore that it will have to be postponed.
We can approach financial institutions to see what terms are available. In public financing it is important that the full consequences of financial decisions are known. Under the operation of this section they have not been known and that is why the amendment was necessary. Incidentally, the company are in a position to manage their own affairs without having concealed benefits of this kind.
(Dublin Central): Will the financial institutions have any further interest in view of the fact that this concession is being withdrawn?
Financial institutions can lend money to the State and they do this.
That may be so but they are not very keen to go beyond a certain figure.
Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
This section exempts from income tax the monthly payments to be made by the Minister for Health pursuant to the Government's decision to make payments to Irish victims of the thalidomide drug. The compensation payments from the West German Foundation in respect of these children were exempt from income tax by section 19 of the Finance Act, 1973, and that exemption is being extended to cover the supplementary payments from the Irish Exchequer.
The section provides that monthly payments made by the Minister for Health after 1st January, 1975, in respect of thalidomide victims are to be disregarded for the purposes of the Income Tax Acts. This means that not only will the payments be exempt from income tax but they will not be taken into account for the purpose of any reliefs claimed by the victims' parents or guardians. For example, the monthly payments will not be regarded as income for the purpose of the child tax allowance, so that the payments will not have any effect on the parents' title to child allowance in respect of the child. In the ordinary way, where the child's income exceeds £80, the income tax allowance in respect of the child—now it is £230— will be abated by £ for each £ of income in excess of £80. The total provision for payments for thalidomide children from the Irish Exchequer in 1975 is £414,000.
Presumably not all of that would be income? Some of it might be capital?
Yes. The lump sum in Ireland is four times that of the German allowance.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
This section adjusts the higher rates of income tax to take account of the proposed wealth tax that came into effect on 5th April, 1975. The adjustments are intended to mitigate the possible hardship on the imposition of both income tax and wealth tax in 1975-76.
Will the Minister tell the House the date of operation of the wealth tax? Am I correct in thinking it is 5th April?
Yes.
This section operates from 6th April which is presumably the same date as the one on which wealth tax is supposed to operate? Is it?
Sorry?
Section 11.
This alteration in income tax will apply for this tax year, 1975-76.
Will the date in April be precisely the same? The reason I raised this is that if the Minister refers to section 45 which deals with the purported abolition of death duties, that operates from 1st April.
That is correct, yes.
Is that on the basis that it is annual tax?
We considered it as administratively appropriate to have the wealth tax, first of all, assessed on a date which is related to the conclusion of the financial year. The wealth tax will be paid during the tax year 1975. We now have two different creatures operating on different dates. The tax year is April, 1975 to April, 1976. That is why we link the two together.
The Minister said the purpose of the section is to reduce the higher rates of income tax. He also said that it is designed to reduce those rates to coincide with the operation of the wealth tax. But since this section is designed to operate from 6th April of this year, is it reasonable to assume the operation of the wealth tax on the same date? Is it reasonable or realistic? The fact is that under the wealth tax, a taxpayer liable under the Bill as it stands becomes liable for wealth tax without assessment on 5th or 6th April and three months later if he has not paid the tax he becomes liable for interest on it at 18 per cent.
Looking at the legislative programme of this House and of the other House, it seems it is not an unreasonable postulation that the wealth tax may not be law even on the expiration of the three months when the interest liability arises and that you could have the situation—which we have at present where people are liable for wealth tax without knowing what the law is—where people are paying a penal rate of interest on their liability for wealth tax without knowing what the law is. If that situation arises—it is not unreasonable to postulate it—I believe it is such an indefensible position that the Minister, if not of his own volition, may well, under pressure from many people who would find this situation incredible— the situation in which you are liable for tax and interest on that tax without the law being enacted under which you are supposed to make the assessment yourself—have to postpone the operation of the wealth tax to a date related to the enactment into law of the Wealth Tax Bill.
If that should happen, presumably the Minister would wish to apply the higher rates of tax put up to that date, rates of tax which under this section he proposes to abolish from 6th April this year. It is true, and the Minister may be tempted to say it in reply, that I am engaging in speculation and that he can only deal with the situation as he finds it. But I suggest it would be quite unrealistic of anybody to pretend that the sort of situation I have outlined is not a distinct possibility. If it is, I think we should hear from the Minister on this section as to the kind of timetable he envisages so that we can see if it seems to be a reasonable timetable and if it is, on what date would he estimate that the wealth tax would have been enacted so that we can judge the efficacy or otherwise of the proposal in this section.
There may be one or two other points that I want to raise on this but it might be more clear-cut if we could hear the Minister's views on the point I have put forward before going further.
I can be fairly explicit. The wealth tax will be operational as from 5th April, 1975. That is the date on which liability to pay the tax arises in respect of possessions or wealth on that date. I have already indicated my intention to table an amendment which would extend the period for payment of the appropriate tax without attaching to the tax in this year a charge for interest. I accept that people are entitled to know the law and should not be penalised until the law is definitely recorded, passed by both Houses and signed by the President. We shall have an amendment to ensure that people will not, because of any delay in processing the legislation through the Oireachtas, be put at any disadvantage. But the liability to pay the wealth tax for those who had wealth on 5th April last arises, and the tax will be payable in 1975-76. That is why we are providing this relief for the top ranges of income tax liability —so as to avoid any possibility of hardship arising out of the payment of both taxes which will be payable and collected in the year 1975-76.
(Dublin Central): In what month in 1975 will the wealth tax be due and must be paid? Is it within three months of the date?
The legislation as originally drafted was presented to the House before the commencement of the financial year, before 5th April with three months and I am proposing that six months be made available.
That is six months from 5th April?
Yes.
(Dublin Central): The entire amount or an instalment will have to be paid for that year?
Wealth tax is paid in arrear of the date on which liability to pay arose. It will be payable normally within three months of the appropriate date but this year within six months.
I do not want to embark on a discussion of the wealth tax but the Minister has just said something which I have heard for the first time and it is very interesting. Did he say the wealth tax is payable in arrear?
Yes.
So that the tax which, under the Bill as it stands would have been payable on the 5th of April, would be in respect of 1974?
No. If one is not required to pay the tax until after a specific date one pays the tax in arrear. The liability arises on 5th April, 1975 and if you pay the tax after that you pay it after the date and, therefore, you pay it in arrear. This is a tax payable in respect of holdings of wealth on one date, not spread over the 12 months.
Does the Minister then intend that wealth tax payments would become due six months after 5th April, 1975, and that three months after that, liability for interest would arise if the tax had not been paid? Is that the timetable he envisages?
No, if it is not paid within the six months, then liability to interest will start.
Is it only the liability for interest the Minister proposes to postpone?
I propose to postpone the absolute obligation to pay. The period of exemption to liability for interest will run for six months instead of three months as in a normal year. The tax is due on the date in question but I do not think many people will rush to pay it until such time as the interest begins to run.
This is the point I am trying to get clear in my mind. Does the Minister propose to retain the due date, the 5th April, 1975, and postpone only the liability for interest in 1975?
Yes.
On that basis I assume the Minister is saying that the provisions of this section, reducing the higher rates of income tax, would apply for this year. Therefore, whatever about the date of payment of interest, the liability for wealth tax arises for this year also and that is the way he ties in this section with liability for wealth tax. Is that the position?
(Dublin Central): The Bill becomes law on the 6th April for the tax for 1975. My contention is that the entire tax is not due until 6th April, 1976. Therefore, we are paying in advance. This is a yearly tax. That is my interpretation of the Bill.
It is a wrong conception to regard this as a tax paid on wealth held for 12 months. It is not. It is a tax paid on wealth held on a certain date.
(Dublin Central): That is only one definition.
I presume the same will occur next year. That would mean it is an annual tax.
They might dispose of their wealth in the meantime.
Or accumulate more. This is an annual tax even though it applies to tax assessed on a specific day. For that reason, a person could not be regarded as being in arrears if he pays his tax within the financial year on which the wealth was assessed.
(Dublin Central): That is my definition also.
No, it is a tax which is payable on holdings of wealth on a particular day. He will pay the tax after that date, not before it. Of course, he could not pay it beforehand because he will not know how his tax will be assessed. With respect, Sir, we are now getting on to a debate on the Wealth Tax Bill.
(Dublin Central): It has a bearing on surtax.
I do not want to say that the comment is irrelevant because I introduced it. Nevertheless, we are now getting into a detailed philosophical argument on wealth tax.
When a tax is assessed on a specific date in 1975 it becomes payable in that financial year. A tax is again assessed on a specified date in 1976. In my view it is wrong to impose an interest charge on a tax which can be paid any time within that year. I am sure we all look on rate payments as being due any time during the year. I understand that the Minister made a concession for delaying in the first year the accumulation of interest for six months. Surely it is unfair to ask for interest? Fair enough if it accumulates after the date of the succeeding year when it is again assessed. I repeat this is an annual tax and should be looked on as such.
Income tax is paid in arrears. Income is earned and then one is taxed. One is not given 12 months to pay. If one pays PAYE the tax is remitted forthwith. It must be paid in some cases within weeks from the time it is collected. I have dealt with this already in the debate on the Wealth Tax Bill. There is a wrong conception here and elsewhere on what the wealth tax is. It is a tax on the holding of wealth on a particular date. If one is not required to pay tax by law until after that date, one is obviously paying in arrear. One may argue about semantics and that is what we are doing here.
(Dublin Central): Why is the Minister moving away from the normal assessment of business income tax, where one pays in two instalments? A taxpayer is told the dates the first and second instalments are due. Why is the same principle not used for the wealth tax?
We are entering into a discussion on the wealth tax.
That applied to all income until PAYE was introduced. The only reason it applies to business income is that we must have the annual accounts in order to ascertain the profit and loss accounts.
(Dublin Central): Not the annual accounts. When the accounts are finalised, two dates are fixed.
There is another point I would like to raise, which on the face of it may appear to be going even further into the wealth tax, but I cannot avoid it because this section is, as the Minister explained, tied in with the introduction of the wealth tax. The section proposes to reduce the high rates of income tax in recognition of the fact that many taxpayers at present subject to the higher rates of tax will become liable to wealth tax. If that is correct, then the correlation between income tax and wealth tax is something with which we must concern ourselves.
I am in some difficulty because a point arose on the Wealth Tax Bill and arises under this section. Since the section proposes to reduce the higher rates of tax in recognition of the payment of wealth tax by the same taxpayer, it raises the question of the amount of a person's income which should be taken between income tax and wealth tax. The problem is that, as the Wealth Tax Bill stands at present, people could find themselves paying 110 per cent of their annual income in income tax and wealth tax together. I say "110 per cent" but it could be even 150 per cent. I said 110 per cent to illustrate the point that one could be paying more than one's total annual income in the combination of income tax and wealth tax.
If this section is designed to recognise the problems which can arise when somebody must pay wealth tax plus income tax and recognises that by reducing the higher rates of income tax, then it is in order for us to consider this combination and suggest— we suggested this on the Wealth Tax Bill but the Minister would not accept it—that provision should be made in this section whereby the combination of wealth tax and income tax will not exceed 100 per cent of a taxpayer's income. I do not imagine I have to spell out why this restriction should be placed on the combination of the two taxes, but if it is not done on wealth tax it should be done on income tax.
It is clear to everybody, whether they are liable for wealth tax or the higher rates of income tax, that the demand for an annual tax in excess of one's income is an unreasonable, unconscionable and indefensible demand. Therefore, I suggest that in this section provision should be made to ensure that the combination of income tax and wealth tax will not exceed 100 per cent of a taxpayer's income.
If what Deputy Colley is now canvassing comes up for consideration, it really does so under the Wealth Tax Bill and not under the Income Tax Bill and I would be only too happy to debate it with him on that Bill.
I put this point forward on the Wealth Tax Bill and I think the Minister refused to accept the proposition. If he will say now he is prepared to entertain that proposition on the Wealth Tax Bill, then I agree it would certainly be easier to discuss it on that Bill than on this section. If he will not accept the proposition, then the only way I can discuss it is on this section. It does, I submit, arise directly on the section.
We will have a Committee Stage on the Wealth Tax Bill and no doubt we can discuss it then.
Can the Minister indicate now if he would be prepared on the Wealth Tax Bill discussion to entertain the proposition that the combination of income tax and wealth tax would not exceed 100 per cent of a person's income.
I am open to be convinced. If the Deputy has confidence in his own powers of persuasion, then we could leave it safely until then.
To be convinced of what?
Of the necessity to do what he is arguing. I will be prepared to look at it then.
Does the Minister not accept that it is self-evident that an annual tax in excess of 100 per cent of a person's income is unreasonable? Does he not accept that proposition as self-evident?
It would be exceptional and it might arise in a situation in which a person had massive wealth which was yielding a negligible income. I would not consider it was for the benefit of the individual or of society that that kind of situation should be encouraged. The formula we have devised here operates in a number of countries and works admirably. One of the benefits of such an operation is that it encourages people to invest their money in assets which will yield them sufficient income rather than leaving it lie fallow in assets which confer little benefit on the economy or on society and which may, in fact, be maintained merely for the purpose of making substantial capitals gains some time in the future. Capital gain is something which is charged only at the lowest rate of income tax at 26 per cent.
That is because the Minister would not accept our argument.
This is the difficulty. Once we start discussing wealth tax we find ourselves ending up with a whole mixture of different legislative proposals which are before the House and where I think it would be more relevant to discuss the particular issues which arose here. This section seeks to alter the rates of income tax on income and for no other reason. Apart from the wealth tax aspect, which I offered as one justification, there are other justifications for making these alterations, including the fact that Irish companies have to pay substantially higher incomes to top executives than they would have to pay in Britain in order that their employees would have the same take home pay. This in itself generates envy and annoyance right down the line.
As long as the moral of the labourer in the vineyard is with us and it is part of human nature for people to apply the same discipline and attitude to themselves you will always have people linking their expectations with what they see other people nominally being paid. Nominal incomes in Ireland are, in fact, in real terms worth much less than in any other European country I know of because of the very high levels of tax associated with brackets of income, the thresholds of which are below those applicable in other countries. In order to try to cool the situation for top executives' salary demands, which will have a beneficial effect I believe right down the line, we consider it is appropriate in the income front alone, if wealth tax were never to be contemplated, to make these adjustments in the thresholds and the rates.
The Minister has made one of the most important and interesting statements that are likely to be made in this debate, although he is perfectly right that we should return to our muttons here on this Bill. He found himself in the difficulty of not being able to disassociate himself from the various phases of his legislation.
The Minister said three things in the very important statement he made. I want to put it on record that I am not trying to catch the Minister on words but he spontaneously defined a philosophy approaching the whole question of the holding of wealth. He has intimated a philosophy in regard to the ownership of property. That can be agreed with in parts and disputed in other parts and perhaps from another point of view we can totally disagree with him. The only thing to do, to save our rights and the Minister's rights, is to expand on that statement at a later date.
I am not saying what I want to say in any spirit of threat or stirring up anything. The first statement of the Minister with regard to the approach to wealth needs to be co-ordinated with the specific provisions of our Constitution in this regard. It would be of some consequence if a constitutional conflict arose. I know this is going a bit wide of the debate but it has a bearing on this section. As Deputy Colley pointed out, there can be a compensatory factor. If you tax property to the limit indicated by Deputy Colley, that is a confiscation.
I make this point to suggest an idea, a danger or a problem that may arise. I do not make it in the sense of an accusation against the Minister or an imputation of intent. This needs to be read in conjunction with the Constitution. You have wealth and you tax it beyond its capacity, so what is the remedy? It is a confiscation. I merely mention this as a point of danger to keep in mind. I am going beyond the bounds of order and I thank you, Sir, for allowing me to pursue it to this extent.
The Revenue Commissioners are, I am sure, very much concerned with their problems of collection. There are certain areas where the revenue collecting authority must concentrate under particular difficulties. The Minister himself has underlined and is perfectly correct to underline, the fact that, if companies or other employers collect PAYE, that is not their money, and that the Revenue Commissioners are absolutely right to make a priority of collecting that money.
How do the Revenue Commissioners proceed in practice? Legal actions are slow, costly, and give very little return. Wherever there is a return it is through the use of the sheriff and the county registrar. The Minister will have the statistics as to how often this arises, and I am inclined to think that if the figures were disclosed to the House they would reveal that it was surprisingly often that recourse was had to this mechanism. One of the problems is the nulla bona return and the Minister, in his former civilian capacity, will know the risk of that procedure.
I say this, I hope, in the most co-operative terms, but I want to warn that there is possibly a trap here. Both the Minister and Deputy Colley, who is leading from this side of the House on this matter, cannot avoid taking such matters into account in discussing this section. It is not at all that one does not approve of much of the Minister's approach to this section. I think Deputy Colley would be the first to say that the reliefs are compensatory. I do not propose to talk for Deputy Colley, and he can disown me.
That is the first point. The second point is one I have made on practically every Bill here: one of our fundamental difficulties in constructively dealing with the whole tax code is that the Minister has brought it in piecemeal. We are really dealing with an administrative revolution.
We are moving far away from the matter under discussion.
I do not intend to expand too far on this. However, let me say that here we are implementing a budget but there are three other Acts, to say the least of it, and I could add two more, and you may remember, Sir, that we had something on the Social Welfare Bill. You cannot assess the value of a section like this without taking these considerations into account. When you come to the very question the Minister raised on this, this part of it will be factum, and the elasticity or the compensation we could have if this thing were treated as a unified code is gone, with the disadvantage for the Minister as well as for us of having been committed rigidly, and at a later stage we may have a much smaller area of operation.
This is extremely relevant, and if a statement of philosophy is to be accepted, I should like to have my gloss on it recorded. Even if the rules of order are technically and properly invoked to confine us in view of the way the thing has been done, let that not spoil the job the Minister is doing. I have criticised the Minister very severely on all this both in regard to the basic philosophy of his approach and because of the approach of his Government, and I shall do so again before the matter is finished. However, we have at least a comprehensive effort on the Minister's part to deal with an overall financial structure. Surely that is something this House ought to be able to debate without restriction, and the restriction that is being brought in stems, and stems only, from the manner in which it is presented to us.
The last point the Minister made was in relation to comparison with other countries. The Minister is perfectly right, but I think there was a slip of the tongue on the Minister's part when he mentioned public service. Let us get this in perspective.
I did not think I used the word. Maybe I did.
He did, and I am adverting to it because it was a slip of the tongue that probably indicated something, and there is no reason why that something should not be said. There was a time here when the top public servants here were inadequately paid. There was the ridiculous situation up to recently where the levels of pay in industrial and other firms competing with those in Britain were inadequate. There is no need to gloss over or apologise for the higher levels granted to civil servants. After all they are the senior executives of the biggest administration in the State.
These are all reasons why these reliefs should be given. Deputy Colley will probably press this point a little bit further. I understand an amendment will be proposed to the table. Where economy is to be achieved in the public service is in efficiency and minimising the operation of Parkinson's law not in trying to depress either the status or the remuneration of the officers concerned.
The Minister is obviously not prepared to commit himself on this, but will he realise that when this is passed it is factum and that when we come to something else at a later stage the elasticity is gone? Before we have finality here, is it too much to take the attitude Deputy Colley has taken and ask that the thing be looked at in its entirety and in that way find a better solution than in the mere myopic focusing on point by point as we go along? It is like scrutinising the letters that make up a word instead of holding the paper back a bit and reading the word and the sentence.
I would love to engage in a philosophical discussion, but we have a great deal of legislation to get through, and I shall have to leave the philosophical argument to another occasion. However, I should like to bring the comment down to earth. The only kind of case in which the total tax—income tax and wealth tax—would exceed 100 per cent of a person's income would be where the wealth consisted of £2 million and the income was only £10,000. One would have very bad laws if one were to endeavour to enact legislation to deal with that kind of situation.
Does the Minister think that is the only situation that might be involved? There are others.
That is the kind of extraordinary situation that could arise, having regard to our proviso that combined income tax and wealth tax shall not exceed 80 per cent provided always that the reduction should not exceed 50 per cent of the wealth tax which would otherwise be payable. In a situation of a person having assets worth £2 million but an income of only £10,000, it would be in his own interest for somebody to draw his attention to the foolish use of such wealth producing such inadequate income. While we have no right to clobber people into acting in a common-sense way, it is not any disadvantage to such people to have their own folly pointed out to them.
The amendments in regard to income tax are such as to ensure that people who are in these income brackets and who, in the past, have been taxed much more heavily here than their counterparts in comparable countries, will receive, under the income tax code, reliefs which are necessary both socially and economically. Generally speaking, most such people being in the salary classes would not have substantial accumulations of wealth and unearned income. However, supposing they had significant wealth in addition to their salaries, it would be interesting to note the amount of wealth they would need to have before, as a result of the wealth tax and income tax combined, they would be paying more tax than they were paying in the past.
For a person with an income of £7,000, in addition to his home, its contents and the land around it, the figure would be £109,250. A person with an income of £9,000 would need to have wealth in addition to the exemptions I have mentioned of £128,500 while the figure for a person on an income of £10,000 would be £142,750. These are the realities of the situation. I am not disagreeing with some of the philosophical approach of Deputy de Valera but when we come to deal with the hard facts we see that the provisions we are bringing in here will ensure that people in the income brackets we have been talking about will not be disadvantaged as a result of income tax and wealth tax combined and that the mass of people will receive significant relief. As a consequence we will be in a position to remunerate public executives here on a level comparable with other countries. Failure to make these amendments in the income tax code would compel us to pay our executives inflated figures in order to give them the same take home pay as their counterparts in other countries.
I gather from what Deputy de Valera said that he would regard it as desirable to adjust these rates, which have led to a situation in which we, as a poor country with a small income per capita, have had to pay our top executives a much higher salary than is paid in other countries. In so doing we drive others mad in seeking rewards at levels related to these high figures. I accept entirely what the Deputy said about our senior civil servants. It is unfortunate that whenever adjustments are made in the salaries of people in top public positions they invariably generate envious comment without any rider being added that the income increases are subjected to a top tax of 80 per cent or, as it will be in the future, 70 per cent so that what seems to be an increase of £5 per week is in some cases only £1 per week. It is unfortunate that tax position is not revealed at the same time as the gross increases are given because in this way a great deal of the envy and unfavourable comment might never be made.
From that point of view the Minister, as a most responsible and senior executive of this State, is grossly underpaid. However, let us get back to the type of case mentioned by the Minister. But here, again, we are on a borderline case. Let us suppose that a man owns a substantial acreage of land which, taking inflation and so on into account, would be within the area the Minister is talking about. If this man plants the land he may not get as much as £10,000 out of it for a few years. But let us take the case of an energetic businessman. Regardless of what may be said about them, there are entrepreneurs who, because of their energy and their readiness to take risks, have brought benefit to society and who, in a sense, have a big interest on which there is no immediate return.
Within a very big business interest of importance to the community there might be a small consortium in respect of which the return would be deferred. For example, let us take oil exploration. In our case this will be a State enterprise but supposing there were a group developing oil resources, who could but deny that that group would be of benefit to the community? However, people in that category might very easily find themselves in the sort of situation which both the Minister and Deputy Colley have outlined. I am saying this merely to illustrate that the argument is not as simple as the Minister would indicate. In so far as most ordinary mortals are concerned the Minister is right but the law must look further than that. We must make good laws and should not take chances in enacting legislation.
I was interested in the Minister's comments on reasons other than wealth tax implications for reducing the top rate of income tax. I should not quarrel with the reasons he gave. The overall economic effect in so far as this might reduce the level of executives' salaries or at least reduce the amount sought, could, as the Minister said, have its effect down the line and help to make our industry and business generally more competitive. But I was interested because so far as I know this is the first time on which the Minister has referred to this aspect of it. Certainly, it is the first time he has referred to it in relation to the reduction of the top rate of income tax.
To the best of my knowledge, any previous reference by him to the reduction of the top rates of income tax was tied in with the wealth tax proposals. As I indicated, I would not quarrel with the reasons he gave not associated with the wealth tax. The Minister has given the reasons associated with the wealth tax and, for the reasons I indicated earlier, there is a tie up between this section and the liability for annual wealth tax.
I thought it would be self-evident that an annual rate of tax which exceeds a person's income was a bad thing, but it is clear from the Minister's reply that to him it is not necessarily a bad thing. The Minister spoke rather blandly about this kind of arrangement operating in other countries and ensuring that people who had their money or assets badly invested would invest them more efficiently in order to get a bigger return to enable them to pay more tax. There are a number of loopholes in that part of it, but I will not pursue them. If people are to be induced, in the national interest, to invest more efficiently we should provide incentives. But the proposition that they should be penalised by, as Deputy de Valera said, confiscating their property is one I cannot go along with. If the Minister reflects on this I do not think he will go along with it either. Yet the combination of the rates of tax proposed in this Bill with wealth tax in certain circumstances can result precisely in that situation.
It is not good enough to take a particular example, as the Minister did. There are lots of other circumstances other than those he described where the situation could arise of more than 100 per cent of one's annual income being taken in tax. If the only example was the one he mentioned, a fairly grotesque example, we still should not do what the Minister proposes. We should not do it because it is wrong in principle and because, if that is accepted, what will happen when the thresholds are lowered or are not adjusted in line with inflation? We will then not have a handful, as envisaged by the Minister, but many people in the situation where they will be liable for more than their whole income each year. It is so obvious to me that that is a bad proposition that I find it difficult to understand the Minister when he says he does not agree that it is a bad proposition. I suggest that to deal with this situation this section ought to contain a provision the effect of which would be that, no matter what is contained otherwise in this Bill or in the Income Tax Acts, no taxpayer would be liable to tax at the rates prescribed by this section in combination with wealth tax in excess of 100 per cent of his income. Anything over and above that is confiscation.
To deal with this point provision should be made either in this section or in the Wealth Tax Bill. I do not care in which Bill it is provided. I am much more concerned with the principle involved, a principle that can lead to confiscation. There is no use in the Minister trying to justify it on the grounds that people have invested their money inefficiently. People can be induced to invest efficiently: but the proposition that because they are not investing their money efficiently their property is confiscated by charging more than 100 per cent of their income is one I do not go along with. I believe that reflection on the implications of this should make it clear to every Member that this is something we should avoid no matter how few the number of cases in which it can happen, no matter how wealthy such people may be either by way of income or capital. It is a wrong proposition and it should not be accepted. If it is accepted it is only a matter of time until it is extended to many more people than it would apply to now.
I appeal to the Minister to indicate —I do not care whether he is willing to do it on this section or on the relevant section of the Wealth Tax Bill— that he will accept the proposition that, whatever inducements he will provide for the more efficient investment of people's wealth, the combination of income tax under this section and wealth tax will not exceed 100 per cent of the taxpayer's income.
I cannot accept the proposition being advanced that this income tax provision should be amended to provide that people of substantial wealth should pay a correspondingly small amount of income tax. I regard that as unacceptable heresy. I regard it as an entirely inequitable proposition.
That is not the proposition we are putting forward.
We are dealing with a section which states what the levels of income tax should be. The only relevant amendment here would be to say that people of substantial wealth who may be called upon to pay wealth tax should pay less income tax. I cannot accept that that is a correct thing to do; neither do I accept that sane people do not adjust their wealth holdings and income arrangements in response to tax. They do and they always have. That is one of the reasons why people took avoidance action in respect of estate duty; they simply responded to the tax code. It is most probable, because it has happened in other countries where wealth taxes were introduced, that people will adjust their wealth holdings so as to invest their wealth in assets which will give them an income sufficient to pay income tax and wealth tax. That process operated to the benefit of the community as well as to the individuals concerned.
These are the facts of economic history and they are the usual experiences in the fiscal field. I cannot see that it is wrong to anticipate that the same wise moves might be indulged in by holders of wealth here. We have debated this and it has been an interesting debate. I would be prepared to entertain this debate further on the Committee Stage of the Wealth Tax Bill, but we are dealing with incomes here and we cannot change this section in any way except in relation to income tax. We could not anticipate, as Deputy Colley pointed out earlier, the passing into law of the Wealth Tax Bill. We may assume it may happen, and on the balance of probabilities it will, but for the purpose of passing this Finance Bill into law before the appointed date we cannot assume that wealth tax will exist.
I am at a loss to understand why the Minister thinks it is heresy to consider the proposition that a taxpayer who is paying both income tax and wealth tax would pay less income tax in order to ensure that he does not pay more than 100 per cent of his income in tax. On the other hand the Minister provides in the Wealth Tax Bill that a person who is in that position will pay less wealth tax than another person. Why one is heresy and the other is not I do not know.
The reality of the situation is that we are dealing in this discussion with the combination of the two, where the person would be liable to both. I do not know why the Minister should find it so difficult to accept the proposition that a taxpayer should not be liable for annual tax in excess of his annual income. It seems to me to be the kind of proposition which, when one thinks about it, one must accept unless one is prepared to go in for confiscation of property because one believes it is for the taxpayer's own good, so that he will invest his assets in a way that one, as Minister for Finance, considers is good as distinct from the stupid taxpayer who is doing it the wrong way. This is a proposition that is going much too far. It is unacceptable.
I would ask the Minister, in the interval which is about to occur, to think a little further about this and agree with the proposition that in no circumstances would the combination of the two taxes exceed 100 per cent of income whatever incentives he wants to provide for people to invest wisely.
Debate adjourned.