Dáil Éireann debate -
Wednesday, 18 Jun 1975

Vol. 282 No. 5

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

Debate resumed on amendment No. 2c:

In page 4, subsection (2), line 29, after "date" to add "excluding property consisting of shares or stock in a company to which the Industrial Development Authority has, prior to the 5th day of April, 1975, paid, or agreed in writing to pay, all or part of a new industry grant".

—(Deputy Colley.)

Mr. Esmonde

Last night we were dealing with this amendment to section 3 (2) of the Wealth Tax Bill. I was interrupted at various stages of my contribution last night. I remind the House that we are dealing with this specific subsection. It might be as well to read it out so that we can bring it back to where we started from. Section 3 (2) states:

Subject to the provisions of this Act, the taxable wealth of an individual other than an individual who is domiciled and ordinarily resident in the State on the valuation date shall comprise only the property situate in the State to which he is beneficially entitled in possession on that date.

I said that the purpose of the amendment in the name of Deputy Colley was to give an undue preference and to discriminate in favour of foreigners as against Irish nationals. One must remember that section 3 does not deal with companies. It deals with the possible taxable wealth of individuals, namely, shareholders. I cannot see the sense of Deputy Colley's amendment 2 (c) which is related to those cases where the IDA have given a grant or undertaken to give a grant or subvention prior to the 5th April, 1975. If the amendment was taken on its face it would mean that even if £1 was given to a company in which there was a foreign shareholder, and it was given by the IDA, the foreign shareholder would be exempt from tax. As I see it, that would be the effect of the amendment. That exemption would last for all time. There is no time limit and no qualification whatever on it. I do not think the Opposition spokesmen realise the fact that there was no stopping line in the running of this amendment. It will be given carte blanche forever to certain people.

What would happen if those shares were transferred to another firm? It would mean that those specific shares in such a company would always be exempt from wealth tax if they were held by a foreigner. It would mean that it could lead, if foreigners took shares in every IDA promoted company, such as a company promoted prior to the 5th April, 1975, to where the entire wealth of those people would be exempt from wealth tax. They would be in a special group and they need not necessarily be people who had originally put up finance in the original investment.

This is my reading of the effect of this amendment. I do not think that Deputy Colley intended that but I think this is the plain reading of the amendment as it stands at the moment. I do not think this House would be blessed by the public if that exemption were given and if these people were put in that particular category but Irish nationals had to pay tax. There does not seem to be any reason for giving that type of exemption.

Further on in this section we will be dealing with the question of being resident. Favourable treatment is being given to foreigners relating to their investments in this country. Indeed, it stabilises an uncertain situation that existed heretofore in this country. When we go into the section later on I think it will be found that the treatment meted out to foreign investors in this country for the purpose of wealth tax is a great deal more favourable than has been given heretofore on the matter of income tax. It clarifies the position. Up to the present there has been no real statement of what the situation is. Reliance was always upon a nebulous situation varying in each case but at least there are rules attempted to be laid down later on in section 3 which will make things far more secure and better delineated from the point of view of foreigners investing money in this country. Indeed, one can tell them after this section is passed what their position is.

Last night Deputy Ruairí Brugha argued in reference to the floating of companies or business enterprises in this country, particularly if one was talking to foreigners and trying to tell them what their position would be under the tax laws. I think the Deputy was making the case that this was going to raise a further problem from the point of view of a person assessing his financial position for the purpose of making an investment in an Irish business. It is very much clearer and more certain to any investor to know that there is a 1 per cent charge beyond a very large threshold, that is, only 1 per cent on the net above that threshold. Prior to that we had a situation in which the knife would fall at any time. A person who had invested in property in this country as a foreigner found himself facing a very big death duty. I think the Minister has given the rate for death duties as something in the region of 41 per cent.

Mr. T.J. Fitzpatrick

(Dublin Central): Who paid?

Mr. Esmonde

I am glad the Deputy mentioned that point because I would have forgotten it otherwise. If you look at the returns of the Revenue Commissioners in relation to death duties and you assess where the largest amount was taken, and define the various groups on the sizes of the estates, you will find a very large proportion was taken from the higher level, an unduly high proportion.

Mr. T.J. Fitzpatrick

(Dublin Central): Not from foreign investors.

(Interruptions.)

Mr. Esmonde

A case was made by Deputy Colley last night. He waved a piece of paper at me, an extract from a local paper in Wexford. I would imagine it is one of the few occasions when the local press thought I was worth reporting. I do not know when it was. The Deputy could probably tell me. Deputy Colley was saying that in the higher bracket people with bigger estates would not have to pay death duties because they had discretionary trusts and non-trading companies. I referred to the fact that these peaceful pigeons were sitting very nicely in their dovecotes until Deputy Colley put in a section in the Finance Act a few years ago which caused utter chaos among these dovecotes. Many of these people had to start all over again in their machinations to protect themselves from death duties.

I do not think a situation could arise whereby it would be impossible to unscramble these schemes but it might be difficult for some people to understand them when sumpt names were being used for the purpose of avoiding taxation liability. I think that is obvious enough to anybody with any intelligence. We see in this Act a real and proper effort being made to get behind the smokescreen of false structures. I would imagine that when this Bill was first put in print certain people dashed to their so-called tax wizards to create schemes of structures to avoid being brought within the net. The genuineness of the transaction will be the virtual test.

Mr. Colley

If that were so, it would be very important under this section but the Deputy must know that the Minister says that is not the attitude being adopted in this section in relation to foreign shareholders. You have no regard to who is the genuine owner: if it is a trading company, you forget who is the genuine owner.

Mr. Esmonde

The Deputy knows that in relation to shareholding in a company, that is dealt with—who is the registered shareholder. That has always been the case. What I am talking about is where there is a facade dealing—and there are such reported cases—it means that the people behind the facade, notwithstanding the structure they have set up, have been made liable.

There is a reported case in English law which runs parallel to our interpretation of taxation actually reported in the public reports. I also think there is a section in one of our Finance Acts which gives the Revenue Commissioners power to look behind the facade and to look at the real transaction. It is possibly in relation to stamp duty. It is important because principles are established by evolution: they just do not happen overnight. The principle I am referring to in relation to this Stamping Act was I think in the 1950s. The decision in the English courts was in the 1940s. One is going back 20 or 30 years for that principle.

Mr. Colley

It is well established in the death duty legislation and, indeed, in the capital gains tax legislation it is also incorporated.

Mr. Esmonde

Yes, but what I am saying is that the principle was already there in law without it being in an Act. This is important and this is what many of the slick boys in the taxation advisory world do not realise and have not realised.

It became very apparent, as this debate was progressing, that the real pressure for amendment of the Bill, after looking at the Minister's amendments, is coming from a certain select section of society who have indulged in various taxation avoidance measures for the purposes of death duties. I would not leave it as simply as that. In my opinion, many of these schemes were motivated by the desire to avoid paying income tax at the higher rate. Before this wealth tax was introduced the Minister reduced the higher rate of income tax from 80 per cent to 70 per cent. This is relief for a person in that bracket. This is lost sight of by many of the people who are wailing about this very small charge of the wealth tax on this small group.

I cannot see the justification for it. I should like to hear Deputy Colley explain the time limit behind his amendment. It only appeared last night and I referred to the fact that it was for all time. I should like to know what his views would be on the dealings in the shares in a company, even though the subsequent purchaser of shares in such a company had never taken the risks at the foundation of the company—the transferee who comes in and buys shares. Is that person to get the benefit of the exemption Deputy Colley seeks? It does not make sense. There seems no justification for it.

Mr. Colley

It is of some significance that Deputy Esmonde who spoke on this amendment last night and again this morning did not once advert to what the amendment is designed to do. I made it clear that the actual wording of the amendment was not something I was wedded to but that the principle of it was a matter that I thought was of grave concern. I did not hear Deputy Esmonde once talk about the fact that it is designed to exempt from wealth tax the shares in companies in respect of which the IDA have given grants or have given written promises of grants prior to 5th April of this year. Deputy Esmonde did not once refer to the significance of that—that it is designed to ensure that we cannot be accused of breaching in any way undertakings given by the IDA on behalf of the Government.

For Deputy Esmonde to suggest that the amendments put down here—other than the Minister's—including this amendment, were put down on behalf of a select few who have been indulging in tax avoidance is really too naïve and too inaccurate for Deputy Esmonde: it does not do justice to him.

Perhaps of more importance is the Minister's statement on this matter last night. It seems to me that the Minister is suffering from three major misapprehensions. The first is that he has clearly demonstrated to the satisfaction of everyone concerned that non-Irish, resident shareholders in companies which have assets in this country will not be liable to wealth tax. A discussion on that will take place on the section rather than on this amendment but the Minister will have to do a great deal more explaining before he can convince me that is the position. I will have some questions to put to him about it.

Even if it is so, it brings us to the second misapprehension under which the Minister is labouring and one to which he has referred on a number of occasions. That is where he points out that the wealth tax applies between the shareholders and not to the trading company, as though this meant that it would not affect the trading company, that it would not affect its operations, that it would not affect its overheads and would not affect the employment it can give. It is time the Minister gave a little thought to this problem. Clearly when he is arguing that it is not going to affect companies and, therefore, not going to affect employment, he is implicitly admitting that if it were to do that, it would be a matter of some concern. Surely if he thinks about it he will realise that companies do not exist in a vacuum. Factories do not exist in a vacuum. They exist because individuals have decided to invest their money, in some cases to risk their money. In the case of factories, they exist because, not alone have people decided to invest their money, but other people have decided to invest their work and their skills. It is individuals we are talking about and unless the Minister can clearly demonstrate that this wealth tax, in its operations in so far as it is levied on shareholders and companies, will not affect the operation of companies and the provision of employment by those companies, it is simply a red herring and it is misleading to talk as though the wealth tax were not going to affect trading companies.

The fact of the matter is that, of course, where shareholders are affected as a result of the wealth tax it is virtually inevitable that it will affect the company. As I demonstrated on a previous occasion, it is not merely the amount of wealth tax that is involved but frequently what is involved is the wealth tax plus income tax on that amount. That sum is, in fact, going to be withdrawn from the company's profits if it has profits but that leads to another point which we will deal with later. If they have not got profits, the wealth tax will still have to be paid.

I would ask the Minister not to introduce that red herring again unless he is prepared to demonstrate clearly and beyond any shadow of a doubt that the imposition of wealth tax on shareholders in companies cannot and will not in any way affect the operations of the companies and consequently the employment of people in those companies.

The third major misapprehension under which the Minister appears to be labouring is, perhaps, even more serious, that is, that when on this side of the House we complained of discrimination against Irish people in connection with the same thing but on the basis of an explanation the Minister gave, and complained that an inhibition was being provided under this Bill on foreign investment in Irish industry, the Minister said we were being inconsistent. I want the Minister to think very seriously about this because it goes to the root of our objection to this Bill and it is very relevant to this amendment. Take first of all the proposition that we should not in this legislation discriminate against Irish people. Is there anybody in this House who would object to that proposition? Deputy Esmonde was, in fact, putting forward that proposition.

Mr. Esmonde

That is the effect of your amendment.

Mr. Colley

Therefore, that proposition on its own, I would suggest, nobody in this House would dispute. Let us take the other proposition and see if anybody would dispute that. The other proposition is that we should not by the effect of this Bill inhibit the investment in Irish industry by people abroad. Is there anybody who would object to that proposition? I do not think there is. If there is, they should be consistent and let us get rid of the IDA and stop all these grants and tax concessions we are giving, to be consistent. Nobody in this House has ever said that, to my knowledge. So the propositions we are putting forward are not inconsistent. If they are not, what does that mean? It means that the Minister finds himself, in order to try to defend this Bill, in the position of saying you must choose between either discriminating against Irish people or inhibiting investment from abroad. This will be more clearly demonstrated, in fact, on the section. That is, in effect, what the Minister is saying to us, that we are inconsistent because we claim on the one hand that there should not be discrimination against Irish people and on the other that there should not be inhibition of investment from abroad. The logic of all this is that we are not being inconsistent in saying that because, as I have tried to demonstrate, everybody would agree with the two propositions. The fault lies in the Bill and in the concept that you should apply a wealth tax to productive assets. That is where the real inconsistency arises and all the other problems stem from that concept.

The Minister said that the kind of thresholds that were provided here were not provided in other countries under their wealth tax systems for the benefit of foreign investors. That may well be so but to me it betrays again a mentality which I find very disturbing, a non-recognition of the position of this country—not any other country, but this country—of the need in this country to encourage investment from abroad as well as at home in Irish industry, of the whole necessity for the operation of the IDA. If ever it was clear that this was needed it should be clearer than ever today with unemployment at 103,000 and, seasonally corrected, it is rising fast. Was there ever a clearer demonstration of the need in any way we can to provide jobs and not to put any inhibition in the way of providing jobs? Yet the Minister tells us other countries do not have these high thresholds.

Surely the Minister knows potential foreign investors are not interested in whether this Government or any other Government in this country propose to be nice or generous to them. They will do the sum, and that is all. We are competing with other countries and it is useless of the Minister to tell us that other countries who are not vitally concerned to get foreign investment as we are do not give such concessions. That is not the point. The point is, are we by imposing wealth tax in this way going to inhibit in any way the possibility of investment from abroad in Irish industry? That is the real question that we should be answering.

I would suggest that the alleged inconsistency on this side of the House demonstrates very clearly that what is basically inconsistent is the concept involved in this Bill of applying wealth tax to productive assets. It is that concept that has got the Minister into the situation where he is asking us to choose and he himself has to choose, as will be even more clearly demonstrated on the section, between either discriminating against Irish people or inhibiting foreign investors. In fact, he appears to have chosen to go on the basis of, as he thinks anyway, not inhibiting foreign investment but discriminating against Irish people.

Because of the concept of this Bill he really has not any choice. He has to choose one or the other. We did not bring in this Bill and we are not going to choose. We are in favour of both propositions, that you should not discriminate, that you should not inhibit foreign investment. That is our position but it is not the Minister's and it is not the position of those who are supporting this Bill. They have got themselves into a position where they have got to choose between those two propositions.

This amendment, apart from the other aspects that it raises, is primarily designed to ensure that we demonstrate in this House that we are not prepared to allow even a semblance of a suggestion to arise that we are going back on any arrangements made by the IDA with investors.

I do not think that there should be anybody in this House who should object to that proposition. As to the wording of the amendment, I am not unduly concerned about that but I am concerned——

Mr. Esmonde

But I am.

(Interruptions.)

Mr. Colley

I will come back to this if you like, but that is not what we are talking about. I have said on a number of occasions including just now and the Deputy heard me, I am not tied to the wording of this amendment but I am concerned and I have asked Deputy Esmonde, and anybody on that side of the House, to say whether or not he is prepared to enact legislation in this House which will, putting it at its mildest, at least give a semblance of breaking agreements made by the IDA with foreign investors.

Mr. Esmonde

No question of that.

Mr. Colley

If there is no question of that why does the Minister tell us that certain foreign investors will get the benefit of the thresholds in this? He tells us that because he is admitting that there are foreign investors here who are going to be affected by the wealth tax. That is the first point. Whether that number is small or large it is the first point. The Minister has admitted that there are foreign investors who are going to be affected by the wealth tax.

Mr. T.J. Fitzpatrick

(Cavan): If there are such investors they will get——

Mr. Colley

There are such investors. I remember such cases, dealing with such cases, when I was Minister for Industry and Commerce.

Mr. Staunton

They are a tiny proportion.

Mr. Colley

Let us assume they are a tiny proportion. The next question is if there are only a small number of them, if they are going to be affected by the wealth tax is that or is that not in breach of undertakings given?

A Deputy

No.

Mr. Colley

Do Deputies opposite believe that existing and potential foreign investors believe that it is not in breach of arrangements made with the IDA?

Mr. Staunton

No. It simply——

(Interruptions.)

Mr. Colley

We will come to that argument which is rather specious, if I may say with respect to the Deputy. Is the Deputy aware that presumably it is proposed to impose inheritance tax and gift tax under capital acquisitions tax? It is misleading to talk about the wealth tax as a substitute for death duties because it is not. We are talking about the level of money that is involved here, about the exemptions. We are talking about cases that are going to be caught by the inheritance tax and the gift tax, so it is useless to say that death duty has been taken away. But that is not what this is all about. When these investors invested here death duty was in operation, wealth tax was not and inheritance tax was not. To come along now and impose a new form of capital taxation and one must look at the whole package, because that is what they are looking at, to do that in such a way as to make investments of people from abroad liable, as it is proposed to do here in this section, to wealth tax is I suggest a breach of the undertaking, but more important it is believed to be a breach of the undertaking. That is the real point that I am trying very hard, perhaps unsuccessfully to get across to the Minister particularly. This is not a question of debate in this House: it is not a question of whether on parsing or analysing a particular section it can be shown that foreign investors are going to be allowed or not going to be allowed. That is not what it is about. What it is about is the demonstration clearly and beyond all doubt to any potential investor here that there is no intention whatever in this House of going back on any agreements made.

Deputies may get up and argue that there is not any going back and I argue the opposite way but I can tell the House that we are wasting our time. This is not what the attraction of industry from abroad is about. It is based on confidence, not on the small print in this Bill. It is based on the feeling which they have been able to have up to now that when they have gone through all the details with the IDA, when they made inquiries from other industrialists who had set up they could then do a deal and be sure that that was going to be stuck to.

Any Deputy in this House who is in contact with people who have invested here from abroad, or perhaps others who might be thinking of it, must be aware that there is a very widespread feeling among such people that the arrangements made in the past are being gone back on. I repeat it does not matter from the long-term point of view. It is irrelevant whether that feeling is right or wrong. It is there. We have got to dispel it in this House. I suggest that the best way to dispel it, at least to show that whatever new arrangements may be made with new people that is a new deal, but the best way to dispel it in regard to the past, and this is the important thing, is that we should be demonstrating clearly that there is no going back on arrangements, is something on the lines of this amendment.

I have said on a number of occasions that I am not tied to the wording of this amendment. Deputy Esmonde feels worried about the wording of it. Of course the spirit of this is with the deal made primarily with the individuals. That is what I am concerned about, because they are the people who make the decisions, it is not trading corporations who make decisions, it is individuals. I am primarily concerned with the reaction of individuals. If the Deputy wishes to ensure that this proposed relief from wealth tax in this case would apply only so long as the shares were held by the individuals who held them at the time the deal was made, I would not object to that at all. I am only concerned with the principle.

I hope the Deputy can understand what is involved here. In my view it is vital to the future prospects of industrial development here. I must say I am very concerned at the apparently cavalier attitude adopted by a number of Deputies and Ministers on the other side of the House to this vitally important matter. You cannot fix this in small print. You cannot measure this in money. This is the intangible. This is confidence. But it is the most important thing for the development of our economy and it is the most important thing as between the IDA and potential investors. We have built this up over many years.

We must not throw it away because we will never recover it if we throw it away. Who is going to suffer for that? What are we going to get out of it? The total estimated yield of the wealth tax is £1½ million. The amount involved in this must be infinitesimal. But what are we going to lose? If we lose and throw away this feeling of confidence there are thousands of people who would get jobs at some time in the future and who will not get them unless we are extremely careful to retain that confidence and not to undermine it.

I want to impress on the Minister that it is not a question of whether his interpretation or my interpretation is right. That is not the issue at all. The question is what do potential foreign investors believe and how are they best assured, if it is the Government's intention that persons who mainly deal with the IDA should not be subjected to wealth tax? If that is the Government's intention what is the best way of making that clear? If it is not the Government's intention, if it is their intention to subject such people to wealth tax, then that should be clearly stated. We should not be told about thresholds and that trading corporations are not affected, that people who hold shares in trading companies abroad, which in turn control corporations here, will not be affected. None of that is relevant to this issue if, in fact, the Government's intention is to apply that tax to the assets of investors from abroad who have invested here. If that is the intention we should be clearly told so that we know where we stand. But to try to suggest that those people will not be subjected to wealth tax and, at the same time, to refuse to make that clear beyond any doubt is merely getting the worst of both situations.

The Minister has not made it quite clear to us and, more importantly, to potential investors what the Government's intention is in this matter. Is it intended that persons who invested in this country in the past on the strength of undertakings with which the Minister will be familiar, given by the IDA will be subjected to wealth tax? Is the Minister saying: "Yes, they will and that is no breach of the arrangements made." If that is what he is saying, let us argue that case and not confuse it with the question of non-liability. If that is not the case the Minister is making then let him accept this amendment, or something very similar to it, so that there is no doubt in anybody's mind where we all stand in this matter.

I believe there is a great deal to be gained by doing this but there is even more to be lost by failing to do it. When the Minister was replying last on this matter he spoke about individuals but he did not advert to either investment companies, private non-trading companies or discretionary trusts—the former more likely, but the latter also a possibility.

Mr. T.J. Fitzpatrick

(Cavan): This section deals with individuals. We will deal with discretionary trusts when we come to them.

Mr. Colley

Yes, but since the Minister was trying to tell us that persons who were non-resident would not be liable to wealth tax, presumably he considered the situation in which their shares, representing their Irish assets, were held in private non-trading companies or discretionary trusts because there are such in existence. I am not concerned with the precise wording of this amendment, but I am concerned with the principle involved and what it is trying to achieve. No amount of debating in this House will alter the effect of what we are doing on the minds of potential investors and on the effect that may have, if we do the wrong thing, on the creation of jobs.

Mr. Staunton

There are a few remarks I should like to make in regard to this section to which Deputy Colley has addressed himself at length. My remarks are by way of preface. Where wealth tax is concerned, of course, it is in a capital taxation area and it can give rise to a great deal of valid criticism. There are many areas in which we might have agreed reservations but, on this section, which we have been debating since last night and again this morning, the Opposition have gone overboard with unrelated sweeping criticisms of an entirely generalised nature. This attitude is not particularly helpful. In talking about this section, as it relates to foreign investment and industry, if there is a question of a feeling abroad, in a literal sense, that the Government are using penal capital taxation which will reduce the level of investment, then the speeches and attitude of the Opposition to this section are merely adding fuel to one or two possible flames. Indeed, certain speeches from the Opposition benches are tending to create a problem which does not exist at the moment.

Last night we heard speeches about foreign investment and one Deputy insisted on talking about this Government imposing capital taxation on foreign companies. The Deputy completely ignored the fact that, for a start, wealth tax is assessed on the individual company and not on the public company, the limited company or the multi-national company.

I have not had time to check out the statistics with the IDA but, where foreign investment in manufacturing industry is concerned, the proportion of development in the hands of private individuals from outside the country must be quite small. Deputy Colley yielded on the point that the amount from this particular section in terms of taxation will be infinitesmal. This is the inescapable reality and it is a complete exaggeration of the position to say foreign investment will be frightened out of the country as a result of this legislation because, in critical areas, such as those of substantial capital investment, these investors and financial controllers tend to read the small print in the same way as we are doing. The decision is not a split decision; it is not an off-the-cuff decision as, perhaps, the decision to take a holiday in the country would be. We know the difficulties Bord Fáilte have had in recent years because of the trouble in the North in trying to attract tourists here. But this would be a surface judgment. It is an entirely different matter where manufacturing investment is concerned. The Minister for Industry and Commerce and the IDA are on record as saying that, despite all the problems in the North, despite the supposed penal nature of mining legislation which, we were told two years ago would scare off manufacturing industry, the mining legislation at that time has had a zero effect in this area of capital investment in manufacturing industry.

Mr. Colley

How does the Deputy know this? The evidence is that the thing is winding down. The IDA operation is winding down and there are many reasons for this but how does the Deputy know that the mining legislation is not one of them?

Mr. Staunton

It is a question of judgment. The Deputy is entitled to his judgment and I am entitled to mine. That is my judgment of the position.

Mr. Colley

So long as it is clear that it is the Deputy's judgment.

Mr. Staunton

If we are talking about downturn at the present time, the remarkable fact is there has not been a downturn before this. We are aware of the state of the economy in the developed world and it is remarkable that up to this point there has been such a substantial level of investment. We know what is happening in Britain and in the United States——

Mr. Colley

There were commitments from away back. The important thing is the level of valid inquiries. That has been away down for quite some time.

Mr. Staunton

It is facetious to suggest that that is because of the wealth tax; it is unacceptable.

Mr. Colley

Not only wealth tax.

Mr. Staunton

An effort should be made to set out the picture. There had already been a wealth tax in existence in the form of estate duty, which is, in effect, a wealth tax. The retort of the Opposition when we make this statement and refer to estate duty taxation is a facile rejection by telling us you can make provision against estate duty. It is equally possible to make provision against wealth tax because even in a tiny proportion of cases where foreign investment in this country is in the hands of individuals, possibly in a family situation, there is nothing to stop these people in arranging investments in limited companies in this country, in arranging a spread of the holding of shares among members of the family, among boards of directors of the companies. By so doing they are going to reduce terrifically any question of liability where wealth tax is concerned.

We are talking about taxation matters and the legitimate thing people will do under existing legislation to escape the net. This is the point we are making.

Mr. Colley

The point is should you or should you not apply wealth tax to productive assets in cases where the IDA have given a grant? That is the main issue really.

Mr. Staunton

I think the Deputy is exaggerating its significance—

Mr. T.J. Fitzpatrick

(Dublin Central): That is the amendment.

Mr. Staunton

There was already wealth tax——

An Ceann Comhairle

The Deputy must be allowed to make his own case.

Mr. Staunton

——as I have stated on such holdings where estate duty was concerned. We are talking about substantial undertakings, that is grants, capital investments and complete relief from taxation on export sales for 15 to 20 years and the reducing levels of relief, and all these have been adhered to by the Government.

Indeed, the Minister for Industry and Commerce was on record at the time of the mining speeches as stating that it was not the Government's intention to cut back on these major incentives. Again, if we are talking about foreign companies and their investment possibilities around the world, reference was made to comments made by one or two people in the United States. We should put into perspective the fact that this country in terms of incentives offered has been offering the greatest range of incentives in the developed world. We are prepared to pay the price for such investment because we are a relatively underdeveloped country. We need employment and foreign capital. Let us not get away from the fact that the price we are paying is enormous.

Recently in one or two debates on capital taxation it was pointed out that the tax base in this country is weak because in a normal developed country there is an immense tax base for manufactured industry which does not exist in this country to a fraction of the same extent because of these concessions.

Mr. Colley

And because we are not a developed country.

Mr. Staunton

Agreed. Contrast this vast range of incentives which exist in this country in the form of capital grants—export total tax relief on sales, CTT assistance, IIRS assistance and the whole range down to the point of baling out through Fóir Teoranta if there are critical problems, not to mention the Industrial Credit Corporation and long-term loans which are practically automatic if one gets through the IDA—with an American company in Japan, for example. Japan, in taking investment from other countries for manufacturing industry, will not allow majority participation.

Mr. Colley

Japan is trying to discourage it, we are trying to encourage it.

Mr. Staunton

My point is that countries abroad who are talking about investment possibilities, are looking at a number of countries. For example in Japan there must be a majority shareholding by Japanese interests, there must be a majority on the board of directors and in many cases there must be Japanese management. There are a great many restrictions. If Americans look at western Europe they will see that there is no comparison between the opportunities for investment in EEC countries and this country.

Mr. Colley

We are not competing with Japan.

Mr. Staunton

The Government have retained this range of incentives to which I have referred, and have turned around and introduced a wealth tax which, to a degree, is a replacement for a penal situation which had existed in the State due to taxation. We have not got the statistics, but we know the proportion of foreign investment in manufacturing industry in this country in private hands is infinitesimal and it is Cinderella-stuff to attempt to tell us that this section is going to undermine confidence in Ireland. It is a lot of nonsense in my view and it is exaggerating it out of proportion.

If, as we debate this wealth tax section by section, we give some sections a significance it does not merit, we will have a less desirable debate because obviously we will spend more time than we should on relatively unimportant matters. In doing this we will create the type of environment that might possibly scare off people rather than the sections of the Bill. There is a great deal of publicity at the present time about this wealth tax because it is absorbing so much time in the House and the types of speeches being made lead to banner headlines.

Obviously when we pass the point of debating this issue in the House and it is on the statute books, we will get back to a saner position when everything will be in prospective. There is no question, and it is unfair of the Opposition to suggest, that we are reneging on commitments made, for the various reasons I have given. There is not much more that I want to say. I merely wanted to address those few remarks on this section dealing with foreign investment. I would like to come back to my original remarks. Of course, we can have reservations. We may be disturbed about the possibility of this tax being a precedent and the thresholds being reduced. These are all very valid points, but criticisms of a more sweeping nature in specific sections without relating them to reality are not very helpful.

Mr. T.J. Fitzpatrick

(Cavan): Deputy Colley speaking some time ago suggested that there were certain options open to the Minister for Finance in relation to shares held by non-residents here, by people who are not domiciled or ordinarily resident here. I would like to put on record that under the policy pursued by the Opposition, it was not necessary for them to opt at all. Their policy in regard to taxation in general was to let an out-dated system of taxation jog merrily along. It is true that that sort of policy did not call for any opting or thinking.

Mr. Colley

That was the time we did not have 103,000 unemployed.

Mr. T.J. Fitzpatrick

(Cavan): The Opposition were satisfied not to have any capital gains tax. They were satisfied to put up with a crippling system of death duties. We thought it necessary to change that, to introduce a more realistic system.

There is no danger that this Government will do anything to discourage foreign investments from coming here. Indeed, it was an inter-Party Government which established this system of attraction under the Export Tax Relief Act, 1956. It was a Coalition Government which established the IDA. It is very good to hear the Opposition thinking so highly of the Industrial Development Authority and of the tax reliefs provided by the inter-Party Government in 1956, because their policy, at that time, was to oppose it and in Government they said they would not work it.

Mr. Colley

We reconstituted it and made it work properly. If the Minister wants to indulge in this kind of political nonsense, he should not complain if this Bill is delayed.

Mr. T.J. Fitzpatrick

(Cavan): I do not want any threats. What I want to say is that it was the policy of Fianna Fáil in Opposition at the time to oppose it. In Government we will revoke it. This section deals with individuals and subsection (2) of this section provides that only the wealth of a non-national which is in this country shall be taxed. It deals specifically with individuals. Deputy Colley's amendment proposes to exclude the shares in grant-aided companies up to 5th April last possessed by people who are not domiciled and ordinarily resident here. Deputy Colley concedes that if that were to be an ongoing operation, if that were to continue ad infinitum in regard to those shares, that it would be an absurdity. He concedes that because he says that——

Mr. Colley

I do not think it would be absurd. The point of this amendment is clear. I do not intend to spend all my time doing the job of the parliamentary draftsman. If the Minister can accept the point of it, I do not mind how it is drafted. We want to hear the Minister discuss the point of it.

Mr. T.J. Fitzpatrick

(Cavan): I will come to that in a few minutes. I think Deputy Colley concedes that to continue the relief he seeks in respect of these shares, no matter who holds them, would not be warranted and would be unreal. That is the position. That would be the position under the amendment. I can tell the Deputy that his amendment will not relieve anybody. Its value is insignificant. Any such amendment, no matter how it is couched, under this section will not attain what he seeks to attain. I am informed that the shares held by foreign individuals are absolutely insignificant. This might have some relevance for debate only under section 6 of this Bill but it is not relevant here. I believe that Deputy Colley realises that it is not important or helpful here.

The allegation that we are going back on undertakings given or on representations made is simply not true. No undertaking was ever given in regard to capital taxation. Foreigners who were interested in investing money here were aware that there was capital taxation here. They knew that our system of taxation provided for a rather severe system of capital taxation in the form of death duties. They were not under any misapprehension about it. The only assurances they received was that income from exports would be exempt from tax and that continues to be the way.

Mr. Colley

That was not the only undertaking given.

Mr. T.J. Fitzpatrick

(Cavan): Potential foreign investors may not be concerned with what I say and they may not be concerned with what Deputy Colley says, and I sincerely hope that they will not be concerned or influenced or impressed by this debate or by some of the speeches made in regard to the proposals here because that would be disastrous. Foreign investors coming here will find out the facts and do their sums and if they do their sums in regard to this matter they will find they are better off under the proposals which we have introduced than they were under Deputy Colley's arrangement, the arrangement that existed when we came into office.

Deputy Colley put some questions to me and I repeat that I am advised and I accept, having studied the matter carefully, that shares held in trading companies here by foreign trading companies are not subject to wealth tax under this measure.

Mr. T.J. Fitzpatrick

(Dublin Central): Shareholders.

Mr. T.J. Fitzpatrick

(Cavan): I said shares held in Irish trading companies by foreign trading companies. If the shareholders in the foreign trading companies are, as I presume they would be, non-residents they are exempt. That is my understanding of it and the case I make.

I concede that shares held in trading companies here by Irish people or foreign individuals are subject to the thresholds liable to wealth tax but the number of such shares held by foreign individuals is insignificant——

Mr. Colley

Is that relevant?

Mr. T.J. Fitzpatrick

(Cavan): I think it is.

Mr. Colley

Suppose there were only one?

Mr. T.J. Fitzpatrick

(Cavan): There are ways and means of dealing with it. It is so insignificant that Deputy Colley's amendment is really taking a sledge-hammer to kill the proverbial fly. In regard to Irish shareholders, the thresholds are generous. When I spoke about thresholds applying to foreigners, when I said that in other countries which operate wealth tax the thresholds do not apply to foreigners, I did not clap ourselves on the back for making the thresholds apply here.

Mr. T.J. Fitzpatrick

(Dublin Central): Do they exempt foreign shareholders in other countries?

Mr. T.J. Fitzpatrick

(Cavan): Not as far as I am aware. I said it did not exclude foreign investors from thresholds. I was pointing out that we operate it here as an attraction to foreigners. We concede that it is desirable to attract foreigners. When the calculations are made by the foreign investor he will realise that he is better off here than he would be under the previous arrangement.

We have not heard one word about double taxation relief. There are arrangements in regard to double taxation relief in regard to income taxation and, as Deputy Colley knows, it is under consideration in regard to the form of taxation we are dealing with now. When that situation arises there will not alone be no problem but there will be no basis for discussion of it.

Mr. Colley

Surely there cannot be double taxation relief in respect of wealth tax between this country and the United States, for instance?

Mr. T.J. Fitzpatrick

(Cavan): I can assure the Deputy that if he checks on the position with regard to the United States most likely he will find that there are no individual investors from the United States. Furthermore, if we did here what Deputy Colley wants to do in his amendment, we would provide machinery for avoidance. We would leave the code unworkable. If that was what Deputy Colley wanted, I could understand it, but the means of avoidance through foreign nominees, or one device or another of that sort, would be so available to people who wanted to avail of them that the tax in so far as individuals are concerned might as well not be there.

Mr. Colley

Could the Minister explain that? I do not quite understand what he means.

Mr. T.J. Fitzpatrick

(Cavan): The Deputy knows perfectly well what I mean. If these shares were to be exempt in the hands of foreigners, then it would not be very hard to have them exempt in the hands of nationals. The Deputy realises this.

Mr. Colley

We are talking about shares in companies. It is a limited class of companies which got new industry grants from the IDA prior to April of this year.

Mr. T.J. Fitzpatrick

(Cavan): I am well aware of that.

Mr. Colley

That will not make the whole code unworkable whatever else may be wrong with it.

Mr. T.J. Fitzpatrick

(Cavan): It would make it unworkable so far as these shares are concerned. The Deputy realises that he is only seeking this relief in respect of shares which are in the hands of non-nationals. I repeat that this is a storm in a tea cup under this section.

Mr. Colley

The Minister would appear to be under the impression that it is my job in putting down this amendment to draft it in exactly the way the parliamentary draftsman would draft it. Otherwise it is to be rejected. I do not accept that proposition at all.

Mr. T.J. Fitzpatrick

(Cavan): I would not put that forward as a proposition because I often made the argument in Opposition that the Deputy is making. I am saying that no matter what amendment the Deputy puts down to this particular section it will not avail him anything.

Mr. T.J. Fitzpatrick

(Dublin Central): To restore confidence is important.

Mr. Colley

The Minister pointed out that this amendment relates only to individuals. That is quite true, but I would expect that, if the Minister accepted the point of the amendment, he would then instruct the parliamentary draftsman to produce appropriate amendments in relation, not only to individuals, but to the other taxable persons under the Bill.

Mr. T.J. Fitzpatrick

(Cavan): I pointed out that those individuals the Deputy is talking about are not taxable.

Mr. Colley

I am afraid we must be at cross purposes here. The fact is that this amendment relates to shares in a company which has received a new industry grant from the IDA prior to 5th April of this year. Any one of the taxable persons envisaged under this Bill could be in possession of those shares. It could be an individual, it could be a private non-trading company, or it could be a discretionary trust.

Mr. Esmonde

Surely not under this subsection.

Mr. Colley

That is the point I am making. This amendment deals only with the individual. What I am saying is that of course there could be the other kinds of persons involved in this, but I do not propose to put down an amendment to each one of these in order to bring this out.

The point I am making is that, if the Minister accepted the purpose of the amendment, I would expect him then to get the parliamentary draftsman to produce a suitable amendment covering all of the possible persons, in the legal sense, who could be involved in this. The real thing is that the Minister does not accept the purpose of the amendment. We can obscure this issue very easily by going around in circles. The real issue is that the Minister does not accept that we should not apply wealth tax to shares in companies which got new industry grants from the IDA prior to 5th April, 1975. The Minister does not accept that proposition, and that really is what the debate boils down to.

I think the Minister is wrong in refusing that. He says the number of individuals involved is infinitesimal. I have tried to point out that if he accepted the principle, I would expect that he would apply it all round.

Let us take the individuals. If there was only one individual involved, and of course there are more, the question is: is this good or bad that it should be done? Will it help our industrial development if we apply wealth tax to an individual who has invested here on the basis of certain arrangements and understandings with the IDA? In this amendment I am not trying in any way to tie the hands of the Government in regard to the future. I am simply trying to ensure that it will be clearly demonstrable that anybody engaged in negotiations with the IDA resulting in a new industry grant prior to the 5th April of this year, will be in a position where it will be seen that we in this House took precautions to ensure that nobody could say there was any going back on any arrangements or deals made. That is the purpose of this amendment, and I do not care if it is reworded, if it is applied on a broader basis.

I am not concerned with that. What I am concerned with is establishing in this House that we demonstrate that we are conscious of arrangements made by the IDA and that we are conscious of the dangers of even appearing to breach those arrangements. I have made it as clear as I can what the dangers are of not making that clear. Those dangers bear no relation to the amount of tax, or anything else that is involved here, but relate to the future development of this country. In my view it is not good enough for the Minister to say or, indeed, for one of the Deputies in his party to say, that speeches of this kind are dangerous and may induce people not to invest here. In my view this legislation and, indeed, the legislation going with it should on its face have made it absolutely clear that there was no question of going back on arrangements.

I do not want to broaden the scope of this discussion, but the necessity for this legislation to make it clear that there was no going back on arrangements was highlighted by the fact that the Government did go back on arrangements in regard to mining.

Mr. T.J. Fitzpatrick

(Cavan): We disagree with that too.

Mr. Colley

There was a statutory exemption under which people invested and were operating and it was taken away.

Mr. T.J. Fitzpatrick

(Cavan): It was a unique situation. Is the Deputy for or against the Government's decision on that?

Mr. Colley

I am totally against it. I have spoken in this House at great length on the ground that in so far as it related to existing mines we are operating on an undertaking given in this House and in the other House and signed by the President. To go back on that was the most damaging thing we could have done. There was practically nothing involved with the Exchequer. I am glad the Minister said what he did because clearly he has not got the point of what this amendment is about. That is what it is about—not going back on agreements made and demonstrating that we are not going back. That is what it is about.

Mr. T.J. Fitzpatrick

(Cavan): Not worsening the position of the investor. This section does not worsen it one iota. It improves it. The Deputy knows that.

Mr. Colley

I know no such thing. If one applies it as one must do, and if the Minister is talking about death duties not being abolished, and if they are not going to be levied he must admit that the very least he has got to do is to look at what is substituted for them. It is not just wealth tax. It is inheritance tax, gift tax and capital gains tax plus wealth tax. He knows that. If you apply that test you will find perhaps quite a different situation when you are talking about the levels of investment in industry that were involved here. Again, I do not want to depart from what we are discussing here. It makes it all the more important in relation to this amendment that in the capital gains tax there is a very clear breach of the undertaking given that proceeds of investments—profits and so on—could be taken away freely and without inhibition. However, we discussed that before and I am not going to pursue it. What I am saying is that the whole package introduced by the Government has to be looked at. I believe that it is going to operate in breach of agreements already made. It is only those cases I am concerned with where agreements have already been made. If I am wrong in that, and if it is not in breach of it it is not important whether I am right or wrong or whether the Minister is right or wrong. What is important in the national implications is what is believed by the investors, actual and potential. That is the kernel of this whole thing. If the Minister feels that such people are not going to suffer in any way, let us assume he is right. Is there any objection to making it quite clear in the Bill by spelling it out and doubly underlining it that such people are not going to lose? There is nothing to be lost to the Exchequer if the Minister is right by saying such people are not going to lose, but there is a great deal to be gained in the development of this country and the provision of jobs for our people in making it clear beyond any shadow of doubt that we do not intend in this House on either side in any way to breach the undertakings given.

I have tried to demonstrate the need for this clear underlining. If the Minister does not accept it there is nothing I can do about it. We have done our best to demonstrate it. I rather get the impression that Ministers and some Deputies on the other side of the House have not yet grasped the vital importance of confidence when you are dealing particularly with foreign investors.

Mr. Esmonde

Can I ask one question? Why did you leave debentures out of your amendment? Was there any specific reason for that?

Mr. Colley

No.

Mr. Esmonde

If you are talking about new industry one would expect that that would have been included. Had you any particular reason for leaving it out?

Mr. Colley

None whatsoever.

Mr. Esmonde

I know you are talking about financing. You specified shares and stocks. Why did you leave debentures out?

Mr. Colley

The Deputy will appreciate that as far as I am personally concerned I have been very heavily engaged in this capital taxation legislation. The way the business has been ordered by the Government is such that there are long hours, very long sittings, and the capital gains tax legislation was followed on the same day by wealth tax. Therefore, my opportunity of drafting amendments has been extremely limited. What I have tried to do simply is as far as possible to get across the idea in the amendment of what I am trying to achieve but leaving it on the basis that if it is acceptable the Minister will have it drafted by the parliamentary draftsman. That is the basic approach I have had. The omission of debentures is of no significance. I just did not even think of debentures. I wanted to get across the idea in the drafting of this. I said shares or stocks. There may have been a reference to that in some other section or something like that. But there is no significance in it.

Mr. Esmonde

I wondered. Your amendment was originally timeless. Now you see the point that there could be a time element in this fact.

Mr. Colley

There could. I would be prepared to pay that price one hundred times over rather than damage the reputation of this country in the field of industrial development and the attraction of industry from abroad. Maybe I have an obsession with this. I was Minister for Industry and Commerce for a number of years. I really put my heart into this business. I was successful, though I say it myself, in what I did and in what the IDA did at that time. I am very conscious of what was done at that time and what has been done since and what can be done in the future.

It is tragic for this country if preoccupation with tiny little things like whether there is going to be a certain amount of wealth tax payable by an individual who has shares here in the kind of company we are talking about here is going to damage our whole campaign for attracting industry. The object of this exercise is to try to ensure that we do not do that.

Mr. T.J. Fitzpatrick

(Dublin Central): I want to say a few brief words on this. What tempted me at all to say a few words was the remark of Deputy Staunton that Opposition members were making speeches which may be damaging to future investors. We are only reflecting the views of the public. Before this debate started and since this White Paper was first published in February, 1974, views have been expressed by business concerns throughout this country. The views of the FUE are well-known. They have no political leanings. They may have political leanings privately but as a body I would not say they have. They have expressed views and great concern about the whole capital taxation package. Every one of them who has protested over the past two years has singled out the wealth tax as the tax that would be detrimental to the economic expansion of our country.

We must next take the views of the NFA. They have expressed the same view. The Creamery Milk Suppliers' Association have expressed their views. Let us take the view of many of our leading economists. Take the views of the Chambers of Commerce throughout the country which have held their annual general meetings. Before this Bill was debated in this House these people and these organisations which are concerned with the economic expansion of the country but not with scoring political points have expressed their views in no uncertain fashion indicating that the wealth tax would be detrimental to the economic expansion of the country. We must get that perfectly clear. It is the duty of the Opposition, in my opinion, to reflect the views of these people. The Government have failed to heed the warnings of these responsible members of the community. They are not just single politicians like the people in this House but are combined organisations representing a huge volume of investment in their own right.

Take the members of the FUE. See the number of employees they represent. It is they who have been expressing doubt and dissatisfaction up to this very day. They have never let up on this Bill. They have said quite explicitly that this would be damaging for foreign investors. They have specifically mentioned that in an effort to get investment into this country. That is why we are here opposing this Bill, not to protect the wealth of the individual. These organisations have expressed the view that it would be damaging to the employment content of individual firms. I do not believe the amount of money we will get will be very substantial—£3 or £4 million. It is of no significance. It could be given to one factory as a grant to get it started—and far more. We are talking of small figures, but we could be doing something very damaging and that is undermining confidence. For the amount of money concerned in this Wealth Tax Bill, it is a waste of time in my opinion where industry is concerned.

But it has a psychological affect and that is what we must think about. Deputy Colley's amendment is a minor amendment but the thinking behind it is to ensure that contracts made before April, 1975, would be all right. Deputy Colley has pointed out that the amounts of money involved if this particular amendment was conceded would be inconsiderable but the Government would be showing that they are honouring commitments and contracts made. That is the most important thing about it.

I am not going into the legal and technical aspects—these are for legal men—but I can see from a business point of view that if you dishonour a contract it is very hard to build up confidence afterwards. If the various responsible bodies in this country on whom we are depending to expand our industries are concerned we must take heed of their warnings. They do not say this for nothing. Various types of taxation have gone through the House: they have to determine something for a short term. We will see the Budget if it comes out: it will be criticised by various organisations. But the responsible bodies of this country that I have already mentioned, FUE and the farmers' organisations, the chambers of commerce and various other people who are concerned about economic expansion, are concerned and, if they are concerned, I believe we should be concerned in this House regarding this matter. Contracts which were made before 1975 with foreign investors gave tax-free exports, and capital grants as regards construction and they knew exactly where they stood.

Deputy Colley has already said that if you study the capital gains tax, to a certain extent we probably have breached our contract too. These things can have a fundamental and psychological affect where foreign investors are concerned and we must ensure that this country retains the attractions which it has over European countries. The volume of activity, naturally and the volume of population are within the European countries, like Germany, France and countries such as this.

It is very effective for a manufacturer to go into the centre of activities where transportation costs are much lower than to come to a country here on the western shores of Europe where transportation costs of raw material coming in and the finished goods going out are high. We must give some attraction to cover these costings. If not he would be very inclined to move his investment to Central or Western Europe where he would not be subject to the cost of transportation as regards raw material and finished goods.

Any attraction which we give here —and they are given by the IDA—is of vital importance but otherwise in my opinion industrialists would not come. We had the attraction in the past of our lower manufacturing unit cost. That has been completely eroded over the past two or three years by inflation. The unit cost of today is on a par with that of any Western European country. That is the position we shall find ourselves in when foreign investors are researching the potentials of this country as regards labour costs, financial arrangements and transportation costs. On these they will decide whether to site their factories in this country. We may not have the attraction.

Mr. Esmonde

Availability of site is one of the very big attractions. Sites are not available in Europe.

Mr. T.J. Fitzpatrick

(Dublin Central): I agree the availability of sites is one factor but it is not all.

Mr. Esmonde

Do not downgrade it completely then.

Mr. T.J. Fitzpatrick

(Dublin Central): These are all factors that we have to take into consideration and we must give these advantages to industrialists if they are to come. In his amendment Deputy Colley is not very demanding. In effect, what it is saying is, if you make a contract, honour it. If a country makes a contract with a foreign investor coming into this country, then this should be honoured. That is what Deputy Colley is looking for in this amendment.

We want to ensure that no foreigner will come to this country and say: "We know what your conditions are now, A, B, and D. We know these exist but what guarantee will we have that they are not changed?" The Government will say: "We do not do a thing like that; once we sign a contract or an undertaking you have our solemn word it will not be changed." Then they will say: "What about your mining? What about your wealth tax? Have you not a breach of contract there?" How does one get over that? That is the question that will be asked by people who know the score. When they invest in this country, it is not for today or tomorrow, it is a long-term investment.

I would ask the Minister to consider seriously Deputy Colley's amendment. It will not involve much money and I believe, in the long run it will restore confidence, which is badly needed in this country at the moment.

Mr. Esmonde

The whole tenor of the Deputy's speech is that this proposal in regard to wealth tax is a breach of contracts entered into with foreign investors. For my part no complaint has been made to me.

Mr. Colley

It was made to the Minister for Finance.

Mr. Esmonde

In the specific case we are talking about?

Mr. Colley

Yes.

Mr. Esmonde

I have not heard of them. I cannot speak of what happens in the Department. All I can say as a Deputy mixing with some developers, having met them in the way of business, in other words, I have not heard that complaint. I do not think Deputy Fitzpatrick was dealing with any particular cases. He was dealing with what he regarded as a principle.

Mr. T.J. Fitzpatrick

(Dublin Central): I dealt with FUE and opinion in the chambers of commerce throughout the country for the past two years.

Mr. Esmonde

I do not want to misinterpret you. When people come to this country to start a business they enquire through their banks, possibly, in the first instance, what the general financial structure is in the State. They go to the IDA, the ICC and other State organisations and bodies in the private sector to be advised. We would do the same if we were going abroad to invest. We would go to a bank, with probably a letter of introduction from our own banker and we would start there—possibly some other commercial contact that we would know in this country that exists in the foreign country.

What would a foreign investor have found when he comes to this country? He would have found the export relief, the grants, the availability of sites, the general goodwill on the part of planning authorities to help him if at all possible, generally, a feeling of goodwill by Irish nationals where they are setting up an industrial project. We all have the view, we all have expressed, publicly and privately, that those people coming in here as Deputy Colley said, take out the pen, take a sheet of paper and you work out the pounds, shillings, and pence, the pluses, the minuses and when you have made a plus, what is the tax situation.

The one thing that we could not put in a brochure in this country to any foreigner was our high and penal rate of death duties. That had to be kept out of our brochures, it was too dangerous, too damaging. Now we are talking about the individuals who go to make up an investment project, and the individuals that we are dealing with under this Bill. It is the individuals who pay estate duty at a heavy rate, at an early stage. Let us be fair. The average person who came into this country to invest in an industrial project would have been a person approximately over the age of 40 or 50 years, because they had acquired capital. They are of the age-group that had the money. After making money in their own country, they enlarged and came to Ireland. The very group that were faced with penal death duties on their property within this State—and this is the important fact to remember—now get the benefit of the threshold. Long before that was reached they were paying and could have paid death duties at over 40 per cent. This is a very serious aspect, and it would have been a tax on capital.

All Deputies in this House who have taken the trouble of examining specific cases, rather than the run of the norm, in our constituencies, have seen businesses closed because of death duties. I know in my own constituency the damage this has done. I have to say the pleas over the years by people did fall on deaf ears. I am not accusing Deputy Fitzpatrick of having a deaf ear, because he probably had no say in it, but others did and did not realise the damage it was doing to the structure of Irish business. It was getting to the stage that where a man went to a bank or a finance house to borrow money for business and put up assets, the real concern of the lending body was to find out what was the state of health of the man who was borrowing because there was a swinging possibility and probability of heavy taxation from death duties.

How could a person investing in this State, in Irish property as an individual be complacent about that position? God calls us; we do not know when we are going to go, and that was the situation so far as death duty legislation was concerned. There was no guarantee that the axe might not fall the day after the factory opened. The major shareholder died and it went in paying duties. Remember this, that charge for death duties was not up in the clouds, it was a specific charge on the assets, and it was a charge that it would take something like 50 years to equal under the present wealth tax proposals. But that charge could have been cleared——

Mr. Colley

If the Deputy is going to compare he must in all fairness compare it with the whole package which is being substituted.

Mr. Esmonde

Yes.

Mr. Colley

Not just with the wealth tax.

Mr. Esmonde

In capital gains you are dealing with a specific transaction. The other one, the gift tax, which we have not come to yet, is dealing with one situation.

Mr. Colley

And inheritance tax?

Mr. Esmonde

Quite outside anything dreamt of in estate duty or death duty legislation. It bears no comparison. For the foreigner coming into this country to invest now as compared with a year ago, this is a far better country to come to taxationwise, both in regard to income tax and allowances given in respect of capital investment which are far better than anything that was there years ago. But the main thing is that the axe of death duties is not coming in to wreck businesses. Deputy Fitzpatrick knows the number of Irish businesses around the city of Dublin that have ceased to exist because of death duties.

Mr. Colley

The Revenue Commissioners say that did not happen.

Mr. Esmonde

We know it happened.

Mr. Colley

Solely because of death duties?

Mr. Esmonde

The Deputy was at one time Minister for Finance.

Mr. Colley

Solely because of death duties?

Mr. Esmonde

I know that the Deputy was not in favour of the abolition of death duties. That is the difference between him and me.

Mr. Colley

The Deputy may claim to know more than he actually knows. He has made a statement to the effect that businesses closed down because of death duties.

Mr. Esmonde

Yes. I give you one town and you can check it—New Ross.

Mr. Colley

I am simply telling the Deputy that, according to the Revenue Commissioners, that is not true.

Mr. Esmonde

I am afraid it is. I wish the Deputy was sitting sometimes in my seat when I am dealing with death duty cases which we are trying to get over at the moment. There was a thing that many people do not realise, and it is this, that people were so terrified about death duties that they did not even bother going to their solicitor to probate the will or to administer the estate. They were too terrified to face up to the load that was facing them. There were a lot of false situations existing because of that in Irish business and on the agricultural scene. I do not hear anybody saying "Thank God for the abolition of death duties" from the other side of the House but I gave a commitment at the last general election, as did my fellow Deputies, in respect of death duties. We followed that. We stand over it.

Mr. T.J. Fitzpatrick

(Dublin Central): You did not tell them there was going to be a wealth tax.

Mr. T.J. Fitzpatrick

(Cavan): Yes, I did tell them.

Mr. Esmonde

On the media. Maybe Deputy Fitzpatrick was too busy otherwise and did not hear it. There has been an undue amount of talk about the psychological effect. The word "wealth" is emotive. One can play around with it and Deputies have played around with it and they have made political capital, and will continue to make political capital out of it. Whenever the fire looks like dying down, they throw another armful of fuel on it.

Mr. T.J. Fitzpatrick

(Dublin Central): Does the same apply to the FUE?

Mr. Esmonde

I would like to tell the Deputy that I am getting representations in respect of the Wealth Tax Bill and it is quite obvious that a lot of bodies have not read the Minister's amendments and read the Bill. I am very much shocked at the ignorance of some of these bodies. I do not know whether this has been deliberate on the part of certain advisers. I am almost driven to that point of view at the moment. I have been more than surprised at some of the letters that have been written to me about various aspects of wealth tax and I would imagine the writers would have an adviser. Statements have been made in this House by Deputies who have been supplied with the Minister's amendments to the Bill, who are not aware of the amendments and have made speeches as if the amendments did not exist and have made speeches here in this House without realising what is in the Bill. It is quite obvious that a lot of people have not read the Bill.

Mr. Colley

There is what is in the Bill, but the Minister's amendments when passed will make it different. May we talk of the Bill as it is before the House.

Mr. Esmonde

I would be delighted if people had read the Bill. I am afraid only too few people have read the Bill and tried to understand it.

Mr. Colley

The Deputy was complaining that I had not read the Minister's amendments.

Mr. Esmonde

And the Bill too.

Mr. Colley

The Bill is what is before the House.

Mr. Esmonde

And the Minister's amendments are before the House also.

Mr. Colley

Yes, but until they are passed they are not part of the Bill. I do not think the Deputy is entitled to blame Deputies for speaking on the Bill as published and voted for by the Deputy on the Second Stage.

Mr. Esmonde

The Deputy was Minister for Finance and when he gave an undertaking about amendments and the amendments were put before the House he took it that that was accepted as being his Government's view on the matter.

Mr. Colley

True.

Mr. Esmonde

All right.

Mr. Colley

I never introduced a Bill and voted for it on Second Stage and produced the kind of reaction which this Bill is producing and then have to rely on amendments in order to get over the difficulties.

Mr. Esmonde

The Deputy will recollect——

Mr. T.J. Fitzpatrick

(Cavan): What about the Succession Act, 1965?

Mr. Colley

I did not introduce it.

Mr. T.J. Fitzpatrick

(Cavan): The Deputy's party were in Government at the time.

Mr. Colley

I was not actually in Government at the time of its introduction.

Mr. T.J. Fitzpatrick

(Cavan): I think it was Deputy Haughey who introduced it and the then Deputy Lenihan afterwards scrapped it after the Galway by-election.

Mr. Esmonde

Thank goodness all that occurred before my time. Deputy Colley will know that the amendments were dated 28th May, 1975. Generally speaking, the amendments put down by Deputy Colley do not disagree with those amendments. That is a very important point. It is important that the public should know that. However, statements are appearing in the public Press that people are not aware of the amendments which it is proposed to deal with.

Mr. Colley

I think the Deputy has section 14 very largely in mind when he says that.

Mr. Esmonde

Yes, and Deputy Colley is aware of my views on that. I will deal with section 14 when we come to do it because there is a lot to be said on that section. There was a matter mentioned and I hope I am not taking it out of context. I referred to it and I said that I had said "anon" in relation to the question of the farmer being the shareholder. There is a very grave danger here of a nominee shareholder being in the company. I can see Deputy Colley's imaginative mind ticking over when I refer to that little aspect and it could be open to terrible abuse——

Mr. T.J. Fitzpatrick

(Cavan): They used to be nominee directors which I do not think Deputy Colley approved of either.

Mr. Esmonde

No. I would say he would not.

Mr. Colley

It is easy to deal with that situation. It has been dealt with.

Mr. Esmonde

It is not, Deputy. The Deputy was here in the nice secluded confines of this House and I was outside the House, and as a practicising lawyer I know what was done with nominees and front men to avoid certain of the tax measures that were already contained in Finance Acts. This is a very serious objection to the amendment of the section as proposed by Deputy Colley. I think it is just the opening of the floodgates.

Mr. Colley

Of course it relates to cases in the past as the Deputy will appreciate.

Mr. Esmonde

I know but it is the share that you are following, that is the difficulty. I do not think Deputy Colley will suggest that the IDA were doing nothing prior to 5th April of this year. There are a tremendous number of companies which have been aided by the IDA. The IDA have done sterling work. I suppose their hand is on practically every manufacturing industry, in one way or the other.

Mr. Colley

Not by way of new industry grants——

(Interruptions.)

Mr. Colley

The bulk relates to modernisation and so on. New industry grants to Irish industry are relatively rare.

Mr. Esmonde

So the Deputy is saying that this is only dealing with very few cases——

Mr. Colley

Of Irish industry, but it would of course cover all the foreign ones.

Mr. Esmonde

That is foreign to this country? I class them all as Irish industries. If we are going to get into distinctions like the fact that they are foreign owned it will take a long time to sort it out. We would regard a great number of our industries as Irish industries even though there is quite a bit of foreign interest somewhere along the line.

There are difficulties. It might be found that a foreigner who had an interest in the ground on which a factory is built might get away with Deputy Colley's suggestion. I feel this is another danger. I understand what Deputy Colley is trying to achieve but I think it is a very dangerous line to take, as far as Irish industry is concerned. It would be open to so much abuse and I do not see how you could delimit it. As he said if it is on a pure foreigners basis, there are very few and I do not think there would not be any injustice created by having them within the confines of the Bill as they are now.

Mr. T.J. Fitzpatrick

(Cavan): I do not want to go into this at any length. The net position for the foreign investor has improved, as Deputy Esmonde has said. The abolition of estate duties has been a major attraction. I shall deal with that point very briefly before I conclude.

I am sure if Deputy Colley gives some considerable thought to his amendment he will see it simply will not work, even in regard to the individuals because if the foreign individual keeps the shares in his own name he will be taxed on the income in his own country, in Germany, Holland or wherever he is. In that way he will lose the export relief and will be gaining nothing. Therefore, as Deputy Colley knows, these shares are rarely kept in the hands of individual foreigners. They are either taken by foreign trading companies in the first instance or, in a rare case, where they are taken by individuals, they are put into holding companies so that they will get tax reliefs from their own countries. If they were to be subject to tax on income in their own countries and gained relief from wealth tax here they would be no better off. In fact, they would probably be much worse off.

There has been much talk about the IDA and the fact that the Government's proposals would hinder the IDA in their activities to attract foreign investment. The Government's proposals would not have this effect. The Government's proposals will help the IDA to get on with their business. I believe the IDA always appreciated that death duties were a hindrance to them in attracting foreign investment here.

I have before me the industrial incentives compiled by the IDA dated November, 1974. This was a publication that was sent abroad in order to let people who were going to invest here see what the taxation position here is and, having dealt with reliefs from income taxation, it goes on to deal with taxes based on capital. It states in paragraph 11:

Estate duty: This is a tax on property which is paid on the owner's death and is levied on the following scale: up to £10,000 free; between £10,000 and £11,000 4 per cent; up to £12,500 6 per cent; £15,000 8 per cent; £17,000 10 per cent; £20,000 12 per cent; £25,000 14 per cent; £30,000 16 per cent; £35,000 18 per cent; £40,000 21 per cent; £45,000 24 per cent; £50,000 27 per cent; £55,000 30 per cent; £60,000 33 per cent; £75,000 37 per cent; £100,000 41 per cent; £150,000 45 per cent; £200,000 50 per cent; over £200,000 55 per cent.

The note says:

In the case of estates not exceeding £100,000 net value there is an abatement of estate duty payable on the benefits taken by the widow or dependant children of the deceased. The abatement is limited to £4,000 as respects benefits taken by the widow and £2,000 as respects benefits taken by each dependant child.

And again there is a note which says:

Proposals for a new scheme of capital taxation: the Government is considering a new scheme of capital taxation which could replace estate duty.

That was circulated throughout the world as an attraction and an incentive to foreign investors. The IDA, in pointing out the position in regard to estate duty and pointing out that it would be abolished, thought that would be an attraction.

Mr. Colley

It is purely factual. The IDA is right to give the factual position—in other words to give notice of the fact that the situation may change.

Mr. T.J. Fitzpatrick

(Cavan): But they go on and say this is a low system of taxation. They do not say this is, comparatively speaking, a low rate of capital taxation. They say, hopefully, estate duty will be abolished.

Mr. Colley

The Minister is reading something into it that is not there.

Mr. T.J. Fitzpatrick

(Cavan): I am saying that what it means is that, hopefully, we will get rid of the above system of taxation and introduce another. That is what we are doing. The net result is that the position has improved. Nobody ever promised to any potential foreign investor that we will abolish death duties and put nothing in its place. That undertaking was never given.

Mr. Colley

Agreed.

Mr. T.J. Fitzpatrick

(Cavan): They came here in the knowledge that death duties were a form of capital taxation in operation and no undertaking, or promise, or assurance, or hope was ever given that these would be abolished. Therefore it is perfectly rational to abolish this harsh, unjust, unbearable in some respects, form of taxation both for resident nationals and for foreigners and to replace it by a reasonable system of taxation. That is what we are doing here.

I believe the opposition to this Bill is much ado about nothing. The White Paper was introduced first followed by the Bill. There were consultations right across the board with all sections of the community interested. We had discussions with the IFA. Perhaps I went too far last week in saying they had no objection to it. I followed Deputy Flor Crowley and perhaps he was not a good precedent to follow; he seemed to be attacking the IFA for not protesting. The fact is we had broad discussions with the IFA and, while anybody would prefer there would be no taxation at all— that would be an ideal situation—the White Paper was altered substantially to meet the representations made by the IFA. As I pointed out yesterday, there are no fears in this Bill for the farming community. We also met industry and, by and large, all reasonable representations have been met.

Deputy Colley's amendment would not achieve what he seeks to do. The position in regard to capital taxation where foreign investors are concerned is improved by this Bill. If Deputy Colley and Deputy Tom Fitzpatrick were here as practical people, men of common sense, men with a knowledge of industry rather than as politicians, they would be shouting: "Hurrah, death duties are gone. The capital taxation position has improved." That is the message they would be getting across instead of the message of doom and disaster that they are preaching here. They are here as politicians in Opposition. There are some matters we can afford to play politics with, but this is not one of them.

Mr. T.J. Fitzpatrick

(Dublin Central): We are reflecting the views of the business community.

Mr. Colley

I was very interested to hear the Minister and Deputy Esmonde say that during the last election campaign they told people there would be a wealth tax. The Minister added that he said this on television.

Mr. T.J. Fitzpatrick

(Cavan): I should have dealt with that point. I said that death duties would be abolished to the point where they would not affect widows or children and that they would be replaced by an annual tax on wealth. The figure in mind at that time was much lower than it is now.

Mr. Colley

What intrigued me about what the Minister was saying was that I do not recall having the pleasure of having seen or heard the Minister on television.

Mr. T.J. Fitzpatrick

(Cavan): We never look at each other.

Mr. Colley

I assume he was accompanied on that occasion by the leader of his party.

Mr. T.J. Fitzpatrick

(Cavan): I was not. I was accompanied by the present Minister for Finance.

Mr. T.J. Fitzpatrick

(Dublin Central): Did the Minister mention the words “wealth tax” or “capital tax”?

Mr. Colley

The very interesting point is that, as the Minister is well aware, four days before the last election the leader of his party, the present Taoiseach, wrote a letter in which he said that there would not be a wealth tax. I do not know who the public were supposed to believe, the present Minister or the present Taoiseach. That is just a passing comment in case the Minister was suggesting he has a mandate or something for the wealth tax.

Mr. T.J. Fitzpatrick

(Cavan): I said I appeared on television with the Minister for Finance, Deputy R. Ryan who dealt with another aspect of our policy, and I dealt with death duties and wealth tax.

Mr. Colley

I am not going to pursue that matter. I want to place on record that the leader of his party was saying the direct opposite at the time.

However, the bulk of what the Minister has been saying now, and what Deputy Esmonde was saying before him, was dealing with death duties and their alleged iniquity and so on. I explained to the Minister at some length before that when I put in this amendment I was not tied firstly to its exact wording and, secondly, that I intended by this to indicate a certain line of approach, and, if the Minister accepted that line of approach, I would expect him to ensure that amendments would be produced by the parliamentary draftsman in line with what he would have accepted, which would, of course, apply to more than individuals, to investment companies and so on.

The Minister said, I think correctly, that in the great bulk of cases shares of companies assisted by the IDA, by new industry grants, are held by their other trading companies or investment companies. Of course, if the Minister wants to follow up the death duty situation through that chain he will find that death duties were not a reality in the situation he has been describing, which is the bulk of the cases of these investments.

However, I would suggest that this is really irrelevant. What is relevant is that we in this House should underline, and doubly underline if we can, that there is no intention of departing in any way from agreements made or undertakings given with or by the Industrial Development Authority. That is what this is all about. The Minister seems to be saying "there is not a breach of any undertaking given, but if there is the people are better off than they were under the previous position". He seems to be ignoring the major point I was putting forward which was that whether there is a breach or not, if there is any widespread belief that there is such, then we ought to counteract it in this Bill. I believe that point is vitally important from the point of view of future development.

Deputy Fitzpatrick has very lucidly put forward aspects of this that arise, but it does not seem to make any difference. The Minister either does not believe us or he believes us but is not prepared to do anything about it. That being so I do not think we can put the matter any further.

Question put: "That the amendment be made."

The Dáil divided: Tá, 50; Níl, 54.

Tá

• Andrews, David.
• Barrett, Sylvester.
• Brady, Philip A.
• Brennan, Joseph.
• Briscoe, Ben.
• Brosnan, Seán.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Carter, Frank.
• Colley, George.
• Collins, Gerard.
• Connolly, Gerard.
• Cronin, Jerry.
• Crowley, Flor.
• Cunningham, Liam.
• Davern, Noel.
• Dowling, Joe.
• Fahey, Jackie.
• Farrell, Joseph.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• Flanagan, Seán.
• French, Seán.
• Gallagher, Denis.
• Geoghegan-Quinn, Máire.
• Gogan, Richard P.
• Haughey, Charles.
• Hussey, Thomas.
• Kenneally, William.
• Leonard, James.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Meaney, Tom.
• Molloy, Robert.
• Moore, Seán.
• Murphy, Ciarán.
• O'Connor, Timothy.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Smith, Patrick.
• Timmons, Eugene.
• Tunney, Jim.
• Wilson, John P.

Níl

• Barry, Richard.
• Begley, Michael.
• Belton, Luke.
• Belton, Paddy.
• Bermingham, Joseph.
• Bruton, John.
• Burke, Joan T.
• Burke, Liam.
• Byrne, Hugh.
• Collins, Edward.
• Conlan, John F.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Coughlan, Stephen.
• Crotty, Kieran.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Dockrell, Henry P.
• Dockrell, Maurice.
• Donegan, Patrick S.
• Donnellan, John.
• Enright, Thomas.
• Esmonde, John G.
• Finn, Martin.
• Fitzpatrick, Tom (Cavan).
• Gilhawley, Eugene.
• Governey, Desmond.
• Harte, Patrick D.
• Hegarty, Patrick.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Keating, Justin.
• Kelly, John.
• Kenny, Henry.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Michael P.
• O'Brien, Fergus.
• O'Connell, John.
• O'Donnell, Tom.
• O'Sullivan, John L.
• Pattison, Seamus.
• Reynolds, Patrick J.
• Spring, Dan.
• Staunton, Myles.
• Timmins, Godfrey.
• Toal, Brendan.
• Tully, James.
• White, James.

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

Question declared lost.

Amendment negatived.

Mr. Colley

I move amendment No. 2 d:

In page 4, subsection (3), lines 32 to 36 inclusive, to delete "the whole or the appropriate part of the property in which the limited interest subsists or on which it is charged or secured or on which the individual is entitled to have it so charged or secured shall be property to which the individual is beneficially entitled in possession" and substitute "the taxable wealth of the individual in relation to such property shall be such sum as that limited interest would fetch if sold on the open market on the valuation date, having due regard to the age and state of health of the individual".

The section provides that where a person is entitled to the possession of a limited interest which interest is charged on profits, then the person entited to the limited interest is deemed to be entitled in possesion and the limited interest is valued on the basis of the value of the property on which the limited interest is charged. This can produce not only a number of anomalies but plain injustices. The amendment is designed to provide that in such a case the limited interest is to be valued on the basis of its open market value having regard to the age and state of health of the individual. The age is particularly important. The state of health may present some further difficulties but the age is important.

I will give an example of one kind of case that can operate under the section as it is drafted if this amendment is not accepted. If we take an individual who is 80 years of age with a life expectancy of, say, five years, who has a life annuity of £500 charged on a fund valued at £10,000 at the valuation date and which is yielding say, £1,000, per annum. In that case the limited interest of that annuitant would be valued at £500 over £1,000 multiplied by £10,000 which works out at £5,000, while the real value on an actuarial basis is £2,500. So in that case the consequence of the section as drafted is that the person who has a life annuity of £500 is assessed on the basis of taxable wealth of £5,000 while the real value on an actuarial basis is £2,500. In other words, the valuation under this section is double what it is on an actuarial basis.

There are cases where an annuity or other limited interest is secured by what is valuable property yielding little or no income. The owner of the limited interest has, of course, no power of disposal over this property for his own benefit. The property might be a residence and pleasure grounds yielding little or no income, but the person who has the annuity charged on it is treated as if his taxable wealth included the capital value of that residence and pleasure garden. It would seem, under these provisions that, say, a retired employee on a large estate who has been given an annuity of, say, £250 per year under the will of the former owner charged on the estate, may be assessable to wealth tax on the basis of the value of the estate. I am sure this is not what was intended but it seems to be what the provisions in the section bring about. That is why I propose this amendment designed, in such cases, to value the limited interest at its market value and not at the actuarial value of the whole property on which the interest is charged.

Mr. T.J. Fitzpatrick

(Cavan): Under section 3 (3) as drafted, a person who has a limited interest in property is treated as being entitled to the underlying property in which the limited interest subsists or on which it is charged or secured. I regret to say that I cannot accept the proposed amendment because it seeks to substitute for underlying property the market value of the limited interest itself, in effect, the actuarial value of the interest, based on a life tenant's age and the state of his health. I cannot accept the amendment for the following reasons: wealth tax is a tax on capital and it must, therefore, be charged on capital. Capital should, as far as possible, be taxed on the same basis whether it is held absolutely or in trust.

I should say at this stage that this section only decides what property shall be charged. Who pays the tax is another day's work which will be dealt with in another section later on, section 14. If that were not done, property held in strict settlement would have an advantage over property held absolutely.

The sum total of the separate interest, present and future, would not add up to the value of the property in trust. Even if it did, taxing all interest is not possible in the context of the scheme of the Bill which taxes only interest in possession. If the amendment were accepted, it would be necessary to recast the Bill and to tax future interests such as reversionary interests. Otherwise there would be avoidance of tax. Deputy Colley's example of the old lady of 80 years really highlights how tax avoidance could be brought about by creating a life interest and settling property.

For example, a person with assets of £150,000 would settle that property on himself for life, the remainder to his wife for life, and the remainder to his children. If, during the life of the husband, and on his death during the life of the wife, the actuarial value alone was liable, neither the husband nor the wife would be liable to wealth tax, although the family are clearly as well off as if they were absolutely entitled. In such circumstances, the Bill would have to be amended to make liable during the husband's lifetime the wife's contingent life interest, the children's remainder interest and the later during the wife's lifetime. Apart from the enormous administrative and valuation problems this would give rise to even in such a simple trust as the foregoing, it would open the way for tax avoidance on a substantial scale. This approach would encourage settlement. It is doubtful whether it is in the overall interest of the country as a whole that encouragement should be given to tying up property indefinitely, thus inhibiting its full development.

Deputy Colley and I would probably agree with the proposition that it is a bad thing to tie up property from father to son and grandchildren, with nobody having a real interest in making it work. We heard a lot of talk during this debate on working capital. I must say, before I ever became interested in politics, I had that view of efforts by fathers to tie up property indefinitely. I do not think it was good for the property and it eventually ended up in a run-down business or a run-down farm. This section is concerned, as I have said, with what is liable to tax. The question as to who should ultimately pay the tax comes later. Section 14 is not germane to the debate on this section.

It may be relevant to take a brief look at the position on the Continent and in Great Britain. On the Continent, the power to tie up property is severely curtailed, with the result that trusts are uncommon and where they occur they are relatively straightforward. Nevertheless, in the case of a person who has what might be considered here as a limited interest, the underlying property is made liable to wealth tax in Norway, Sweden, Denmark and the Netherlands. In Germany, where the actuarial value is used, the balance of the capital after deducting the value is also liable. In the United Kingdom, where the problems arising from trusts and settlements are similar to ours, it is proposed to tax the capital of the trust fund at the highest rate of the wealth tax, the rates being progressive, and allowing certain deductions on the basis of the rates applicable to the relevant life tenant.

It will be seen, therefore, that all other countries about which we have information tax the capital of the trust funds or, in the case of the United Kingdom, propose to do so. In no case is the acturial value alone used as the basis for valuation. I should like to point out that decision of the Government to tax strict settlements in this manner and to tax the underlying assets, was made independently of the position in European countries and, indeed, before we knew exactly what the position there was. The philosophy of the tax led inevitably to this conclusion and, although the fact is that on the Continent these settlements are restricted in scope and play a very minor role, it is a source of satisfaction to find unanimous support for that decision in that everywhere the underlying property is liable. I think that we fully realise here that this section is not concerned with payment of tax but is concerned with what is to be taxed, and that we bear in mind that this is first a tax on capital.

Provisions are being made whereby the tenant for life can raise the money for payment of the tax from the capital.

Mr. Colley

We ought to approach this on the basis not of what has been done in other countries but of what we think is the right thing to do in this country.

Mr. T.J. Fitzpatrick

(Cavan): That is what we did.

Mr. Colley

If one approached it on that basis it seems to me to be producing, as I said earlier, very grave anomalies if not injustices. One cannot quite—although I know it is under another section—ignore totally the question of who pays.

It seems to me that what is coming to light here is something that was referred to in an earlier discussion on an amendment on section 1. It emerged that in some circumstances two people can be liable, each liable for the tax on a particular property, and the Revenue Commissioners can opt as to which one they go for. Presumably this is what the Minister has in mind and he would say in the kind of case I mentioned where a retired employee is left a small annuity charged on a large estate, whereas under the section he is liable for wealth tax on the value of the estate, the Minister would say: "Well, the Revenue Commissioners would not go for him". But that is not a very satisfactory position if, in fact, he is legally liable. I wonder if the problem is not arising because of the basis of the charge here. The Minister said the charge is on capital but I wondered earlier when I was studying the Bill—and what the Minister has said has made me wonder even more—why is it that it is proposed to charge tax on property in possession. If a future interest has any cash value why should not tax be charged on that? In other words why should not everybody be assessed on the market value of what he is entitled to of his assets? If there is a life tenant or someone in receipt of an annuity charged on property he clearly is not entitled to the property on which the annuity is charged. He is deemed under this Bill to be entitled to it, and is deemed to be entitled to be in possession and is therefore liable for wealth tax assessed on the value of the property over which he has no control whatever or no right of disposal. All he has is that his annuity, or his life interest or whatever it is, is charged on this property. That is all he has.

I must say I find it difficult to understand why exactly one should not take each individual and take the market value, as near as one can get to it, of his assets whatever they may be, even if they are a contingent interest, and assess him on that. That seems to me to be fair. I do not think it is good enough if the reason for not doing this is administrative difficulty. I do not think administrative difficulty can justify producing the kind of situation in which as I have indicated, the woman of 80 years with an annuity of £500 charged on a farm valued at £10,000 is assessed at double the value of that for the purposes of wealth tax or where, as I said, a retired employee with a small annuity is, in fact, assessed on the value of the whole estate on which the annuity is charged.

This seems to me to be carrying much too far artificial concepts of people being deemed entitled to be in possession of property over which they have no control at all. I would like to know what is the basic reason why each individual should not be treated on the basis of what is the market value of the property to which he is entitled, and assess the wealth tax on that. If that could be done we would automatically get rid of the kind of anomalies and injustices to which I have been referring.

Mr. Esmonde

Are you saying this is unjust to the person receiving the annuity?

Mr. Colley

Yes.

Mr. Esmonde

The Minister has referred to it. You will find that amendment No. 24 which deals with the actual payment of that now——

Mr. Colley

Is this about raising the money and so on?

Mr. Esmonde

Yes.

Mr. Colley

I do not think that that is the answer, really. Ought a person in receipt, say, of an annuity of £250 a year be put into this position that he is assessed for wealth tax on maybe £½ million, and then he has to go to the trouble of raising the money and recovering it from the estate——

Mr. Esmonde

In actual fact that is the procedure which has to date existed in relation to death duties.

Mr. Colley

I do not think that is so.

Mr. Esmonde

Yes.

Mr. Colley

I know what the Deputy means.

Mr. Esmonde

As the Minister said here there is a yearly tax on capital. This a much simpler way of doing it. You mentioned a lady of a certain age. Is that not pointing to a stratagem that could be used?

Mr. Colley

We are not, in fact, under the Bill taxing the actual capital in the sense of the value of what a person was——

Mr. Esmonde

Basically, you are taxing the underlying capital——

Mr. Colley

It is not being done. In one extreme in the case of the person who has a limited interest he is being assessed on the total value of the property and on the other extreme the person who has a contingent interest is not being assessed at all.

Mr. Esmonde

Whoever has the right to the capital is the person who pays.

Mr. Colley

Not necessarily——

Mr. Esmonde

Yes, because this is what is provided for under the machine. The tax on the actual capital itself——

Mr. Colley

Maybe, but——

Mr. Esmonde

This is not a new principle. This has existed before. This is the way it is done. I do not think there is anything strange about it. This particular system has not created difficulties.

Mr. T.J. Fitzpatrick

(Cavan): I agree with Deputy Colley when he says that we should not necessarily follow what has been done in other countries. That should not be our guideline. I agree entirely with him. We did not do that in this case. I am assured that before the Government decided to adopt this matter we did not know exactly what was done in other countries. I think Deputy Colley will agree with me that when we adopted the system we did adopt and when we find that other countries that have been operating wealth tax for years and years have been using the same method of taxation, it reinforces us in our belief that what we have done was the right thing and that it was the necessary thing to do.

Mr. Colley

I think the Minister did say that in Germany they do something similar to what——

Mr. T.J. Fitzpatrick

(Cavan): They have the worst two worlds there. They have the actuarial value and then they come at what is left, and they make sure they have got you there. They charge you on the actuarial value of the life interest. Then they deduct this from the capital of the trust fund to arrive at the remainder of the property, and they tax this remainder of the property.

Mr. Colley

That seems to be a very logical way to do it.

Mr. T.J. Fitzpatrick

(Cavan): It is not, because it would lead to too many avoidance methods: there is no use now in introducing wealth tax and then having to come along, after the very first year, and introduce an amendment Act to make it workable. We do not propose to do that. The basis of what we are doing here is to tax the properties in possession on the 5th April——

Mr. Colley

Or deemed to be. That is where the problem was.

Or deemed to be on the 5th April.

Mr. T.J. Fitzpatrick

(Cavan): And, as Deputy Colley knows, the old lady that he is speaking about would not have to pay wealth tax on the value of the entire property on which it was charged. She will pay tax on the proportion of the property that bears the charge. It is worked out in proportion. There is no doubt about that.

Mr. Colley

I have doubts about that.

Mr. T.J. Fitzpatrick

(Cavan): Furthermore, the amendment to section 14 that is being referred to by Deputy Esmonde, amendment 24, confers on the person who may have to pay under this section, the right to recover the money from the trust property, and of course, it will also be appreciated that before tax is payable the thresholds must be reached, £70,000 for a single person and £100,000 for a married person. The point is that if the system suggested by Deputy Colley were adopted it would tend to make the section unworkable; it would leave the tax unworkable and furthermore, instead of one valuation, there would have to be several valuations in respect of the same property of the same time, and that is not desirable, surely. The suggestion is that the Bill is too complicated and should be simplified. That is what we are trying to do.

Mr. Colley

You can simplify it so far that you will produce all sorts of anomalies.

Mr. T.J. Fitzpatrick

(Cavan): Bearing in mind the thresholds that are laid down, the tax would only come into operation in comparatively few cases, and then there would be a genuine liability to pay tax which would be collected.

Mr. Colley

I must confess I am not entirely satisfied. There is some force, certainly, in what the Minister is saying, but I am not entirely satisfied. If the position is that—admittedly it is an extreme case—a retired employee from a large estate is left, as I said, £250 a year——

Mr. T.J. Fitzpatrick

(Cavan): Such an annuity is hardly ever charged on property.

Mr. Colley

Well, it is not unknown at all, but the point is that it is the value of the estate that matters: the thresholds are quite irrelevant. Obviously, such a person would not go anywhere near the thresholds in the normal way but because of the artificial concept here, the value of his drawable £250 annuity is deemed to be the value of the whole estate——

Mr. T.J. Fitzpatrick

(Cavan): No, what is technically known as a slide system comes in.

Mr. Colley

In the case I am talking about where it is charged on the estate, not on a part of the estate, it is not the position that the value of the whole of the estate is deemed to be the value of the £250 annuity?

Mr. T.J. Fitzpatrick

(Cavan): The value is such value as the annuity bears to the total increase. The value of the slice of the property for the purposes of this case is such value as bears the same proportion as the annuity bears to the entire income. You get the entire income of the property and you get the income of the annuity then for the purposes of tax the value is such as bears the same proportion to the entire value of the property as the annuity bears to entire income of the estate.

Mr. Colley

But I was pointing out earlier that there are a number of properties, perhaps highly valued, from the property point of view, which yield little or no income, and in that case you can have a life tenant or anybody with a limited interest and when you start applying this apportionment that the Minister is talking about, the income from the whole property is little or nothing and you can get a totally artificial value placed on the limited interest. As a result, this person who clearly is not intended to be liable for wealth tax becomes liable, has to pay, and the fact that this can happen is clearly envisaged in the amendment referred to by Deputy Esmonde and the Minister because provision is made in the amendment to enable such a person to raise the money they have to pay for the wealth tax by charging it on the property but, as both the Minister and Deputy Esmonde are well aware, charging it on the property does not mean you have actually got the money. You have to pay the Revenue Commissioners. But you could be a long time trying to recover the money, actually recovering the money and getting it into your pocket and reimbursing yourself. Now I can see that there are reasons why this totally artificial situation should exist but I am still not satisfied that it is justifiable to create this artificial situation instead of simply approaching the matter on the basis that it would appear to be approached in Germany, from what the Minister said, what seems to me to be the very logical basis of seeing the value of what each person has and assessing him on that. If, in a case like this, you value the annuity, you take the capital value of that from the capital value of the whole estate and you deal with each party accordingly.

Now that seems to me to be the straightforward and logical way to do it. I am not so sure that this is as open to abuse as the Minister suggested it might be. Provided you are actually valuing all the interests that are involved and charging people accordingly, I think you should be able to——

Mr. T.J. Fitzpatrick

(Cavan): That would lead to a multiplicity of assessments on the same property. Would the Deputy refer to 5 (c) the definition of “appropriate part”?

Mr. Esmonde

Which was the rope they used in subsection (3). The definition at the end of this. It is on page 5, just before you come to section 4, the "appropriate part".

Mr. T.J. Fitzpatrick

(Cavan): There is clearly no question of tax on the whole property, or no possibility of tax.

Mr. Colley

But this depends on the nature of the property. If it is one with a very low income.

Mr. T.J. Fitzpatrick

(Cavan): If it is of low income there will be no market value and there will be no liability.

Mr. Colley

The income has no bearing on its liability for wealth tax.

Mr. T.J. Fitzpatrick

(Cavan): It has liability by reference to its market value, I think.

Mr. P. Belton

You could have a minus return, could you not? You could buy an office block and there would be no tax on the interest.

Mr. Colley

You could.

Mr. T.J. Fitzpatrick

(Cavan): No.

Mr. Colley

Is the Minister saying no?

Mr. T.J. Fitzpatrick

(Cavan): I said that you need the genuine market value. If there is a low income there must be a low market value and there will be no liability to wealth tax.

Mr. Colley

I am afraid that is incorrect and I do not think Deputy Belton would agree with that either.

Mr. T.J. Fitzpatrick

(Dublin Central): Will the value be subject to previous years' profits? We will go to that later on probably. It is too complicated. We do not want to bring it in now. It will have a bearing eventually.

Mr. Colley

It may have a bearing but surely you can have property which has a very substantial capital value taking it well above the thresholds in the Bill and have little or no income, or as Deputy Belton said even a minus income, a loss and you still have your capital value and you are still liable for your wealth tax.

The Minister referred me to the definition of the "appropriate part". What I am saying is, in relation to the kind of property I am describing where the capital value is large and the income is low, you can get a totally distorted valuation on the limited interest in such a case, which is simply adding to the whole artificiality of the concept and of what is happening to this old lady of 80 years to whom I referred, or the old retainer with the £250 annuity. It hardly seems justifiable to subject these people to the whole rigmarole that is involved in this, even though theoretically they can ultimately recover the money.

I move to report progress.

Progress reported; Committee to sit again.