When we adjourned I was about to make a general point. I had said, without wishing to be over-committed, that I understood the force of the Minister's argument. I nearly went so far as to say that I was with him, as far as he went. We had arrived at what I can see to be the fundamental difficulty in this Bill. The fact that it has recurred on other sections does not enable me to avoid raising it on this section. I will try to deal with it as briefly as I can, and within the context of the section.
Nevertheless, I must make a background statement. It stems from what Deputy Colley said. In essence, his argument was this: in the facts as outlined, there is a basic unfairness to Irish citizens where, say, a manufacturing or productive company is concerned, as against a company which is the property of an external interest which is not captured by subsection (5). In making that argument he took the case of an Irish company whose shareholders would have to pay wealth tax on the shares they held. In that case all the shareholders were Irish. He considered the particular case of one shareholder who was, in effect, the biggest or the most important shareholder of the private company. If an American company were to set up an Irish company, the capital would not be taxable.
Deputy Colley said that that was unfair. He also said that it was not in accordance with the principle the Revenue Commissioners had been operating of looking through to the origin. In reply the Minister made an effective reply, as far as it went. I do not need to repeat my own attitude to the Minister's reply but I want him to accept our bona fides and particularly I want him to accept that I am not brushing that cogent reply aside. But I do say that Deputy Colley's point, if it was inconsistent about looking through, may not have been specifically answered, and it still does not get over the fundamental difficulties that arise in such a case. It is to that that I was addressing myself when the debate adjourned.
It will be necessary for me to make a few general statements here, conscious of the fact that it is only too easy to digress too far on a section on fundamentals that are more appropriately dealt with in any detail or at any length on Committee Stage, and I do not want to be guilty of breach of the rules of the House in spirit any more than in letter. If the Minister will bear with me, I will try to make the background point as shortly and cogently as I can.
The difficulty we are up against in this section—and I will illustrate with reference to the illustration Deputy Colley made when I made my grounding point—is this. This Bill as a whole is misconceived in its failure to distinguish sufficiently between productive wealth and non-productive wealth. There is in the Bill, further on, some effort to recognise this point. Let me be objective, but basically there is a confusion of thinking behind the Bill that is reflecting itself in this section as in others. Productive wealth, that is, the wealth that is generated during commerce or economic activity generally, is a different thing from wealth represented by large possessions which are held for self-enjoyment and are luxuriously enjoyed and accumulated as a form of extravagance. This is a basic difference the latter type of wealth does not possess.
If I acquire a very large landed estate, and have it there for my pleasure, even though it may give a certain amount of employment, and this is the old argument about the big estates, it is still not particularly productive for the community and gives me standards that are out of line with the rest of the community, and it is only equitable that an adjustment should be made in a case like that.
It is thinking of that kind of case, backed up by the illusion that there is a lot of that type of wealth there and, somebody has said, the philosophy of envy, that has inspired much of the approach—the political approach—to this Bill. That kind of wealth nowadays is of minimal importance, certainly of practical importance, to the Revenue because over the past 150 years, fiscal processes and everything else have tended to capture a large part of that for the community as a whole and tended to dissipate it to prevent its accumulation.
It is a totally different thing when you have productive wealth. We hear a lot in these times of economic depression about "working capital", "liquidity", and "cash flow". These are all related to the generation of wealth by commercial process. They are less inflationary where the wealth that is produced is real. What is really of importance is that the State does not inhibit wealth of productive industries, that is, manufacturing industries and industries of that nature, in contradistinction to mere financial trading, but even there, in the financial system which is so necessary, the flow of wealth and the growth of wealth in, so to speak, the transit lines is of economic importance.
If a factory makes some commodity and it prospers and makes money, that money is a measure of the wealth it has produced. If that money goes back into it, it produces more money and wealth is generated. That is an economic activity that is of benefit to the community and it seems to be a false economy, to say the least, and in fact, seems totally contradictory to seek to tax that. Capital generates capital and the community benefits.
There is the background against which I want to set the example that Deputy Colley gave us. Here is the difficulty the Minister has and I appreciate it, and recognise the argument. The difficulty stems from the fact that this Bill not only taxes unproductive wealth but, as the Minister said, its underlying social policy is to prevent the accumulation of wealth in particular hands and to ensure the more even distribution of wealth over the community. It is all very fine and quite right when it comes to personal possessions and the possession of wealth in that sense enjoyed by the individual. Here we are dealing with wealth in a different sense and for that reason I want to approach Deputy Colley's example in another way.
I am grateful to the House for allowing me to digress to this extent and I appreciate that the Minister did not interrupt me or seek to stop me going on, but it is sometimes hard to drive home your point unless you put in the background. Let us take the two cases. Here, as Deputy Colley postulates, you have an American company with American shareholders. I use the word "foreign" because it is not American anyway—you have a foreign company with foreign shareholders who are not captured by subsection (5) who have invested and built an industry here where the industry and the physical assets are in this country. That is one set up. The shares in this Irish company are owned as capital by the American company which is not taxable and the shareholders of the American company, the ultimate beneficiaries, are not taxable. That is on this side.
On the other side, you have a completely Irish company where the shareholders are Irish and where the company is completely contained within the State. Look at the difference in what happens from a social point of view, from an industrial point of view, particularly important, in a time when you want to stimulate economic activity, and that makes me say in passing that the point has been emphasised by the Opposition throughout the discussion on this Bill: it is not the right time to put through such legislation. Whatever merits it would have in a time of boom, it certainly does not have any now in a time of depression. It must be looked at in this way.
In either case, capital generates capital. Assuming that both these companies are trading prosperously and paying dividends, let us see what the consequences will be on both sides. We must take into account that in the generation of capital, because of the existence of income tax and taxes attaching to corporations specifically such as corporations tax, in the flow to make new capital, there is already a skimming off of some of the profits.
Let us take the example of these two companies and trace what happens in each case with the profit. Then we can ask ourselves what is the result. I shall take the Irish company first. In the case of the Irish company, profits will be made. When profits are made two things happen; some profits are ploughed back to develop the industry, and a proportion are paid back in dividends to the shareholders. What is made in any case is taxed; what is ploughed back is taxed in the company's hands, one way or another——
