I understand the Minister for Finance has been substituted. In a way I am sorry that he is leaving——
Financial Resolutions, 1975. - Wealth Tax Bill, 1975: Committee Stage (Resumed).
Debate resumed on amendment No. 17a:
In page 11, subsection (1), after line 37, to add the following paragraph:
"(k) property in the State which is agricultural property or is used directly in the provision of employment in the State and stocks and shares of a trading company trading in the State".
—(Deputy Colley.)
You should welcome the Minister for Lands.
The Minister for Lands may not have heard the Minister for Finance's strictures that we had no suggestions to make. Before progress was reported I was making a very positive suggestion to the Minister for Finance through the Minister for Lands who is piloting this Bill through on his behalf. The point was that we were advocating the complete exemption of productive assets because of the reasons I gave. We are all in agreement that the purpose of the Bill is to tax and, as a taxation measure, to treat equitably unproductive wealth which was accumulating in the hands of individuals or corporate persons in a way in which it would be just to tax them, and, secondly, that there was a good social reason for that policy, namely, the equitable distribution of wealth over the community, points that were made very strongly by the Minister for Finance himself.
It would appear from the course of the argument with the Minister for Lands on this subsection that there is a considerable divergence of opinion when making that distinction.
We sought to exempt agricultural property in the State or property used directly in the provision of employment in the State. I pointed to the present economic position and the present employment position in support of my argument. I am coming back to that now without undue repetition, I hope. If that is not accepted as a very positive element of something the Opposition would do within the meaning of the Minister for Finance's strictures when closing his budget contribution, I might reply and say it is probably a much more practical one than some of the measures advocated in the said budget for the purpose of stimulating the economy and increasing the level of employment.
However, I do not wish to delay the House by a repetition of what I said before progress was reported, but I want the Minister to grasp clearly what I am saying. On what grounds in the present situation can the Minister or the Government object to exempting agricultural property which is our basic industry and on which we all in the last analysis live, or what objection can he have to encouraging employment by relieving as far as possible the taxation on property that is used directly in the provision of employment within the State? That passes my comprehension. Furthermore, if the Minister says we are not serious in that purpose, to say the least of it he himself cannot be serious.
I will go on now to the question of stocks and shares of a trading company trading in the State. This amendment really contains three related elements which I hope to integrate, namely, the exemption of property which is agricultural property; property which is used directly in the provision of employment in the State, and stocks and shares of a trading company trading within the State. Take the trading company trading within the State. In fact, everything within this amendment refers to something within the State.
A trading company that is trading successfully does two things for the economy. It is part of the economic activity of the community and as such it is a stimulant and a benefit to economic activity and it is almost certainly a stimulant to the provision of opportunities for employment, and in itself, probably supplies employment as well. Remember that every unit, whether it is a trading company, a firm of individuals or a partnership or anything else that employs people, when the burden of costs comes upon them in a situation such as we have— and taxation is a burden of cost— the inevitable result is restriction in employment, that in seeking to control costs the opportunities for employment tend to be restricted.
It starts possibly with restrictions of remuneration to workers through overtime and gradually works its way down to redundancies. The point that is in this amendment is that in the three categories I have mentioned, although there are reliefs later in the Bill—I want to mention this so that the Minister will not accuse me of turning a blind eye to the effort to meet this problem—there is a difference between what he is going to do and the total exemption that we are seeking here in this section. The very fact that the Minister later has provisions in regard to productive assets and matters of that nature, does give evidence of the recognition by the Minister of the principles I am talking about. Therefore, if we are ad idem in the principle to even that extent— first of all, I cannot see how the Minister can accuse us of lack of seriousness and secondly, it comes to a question of how much and how far we should go, and we believe we should go the whole hog on this, and that is the kernel of it.
The case for the first two items seems to be so clear that I need not press it further. The question of stocks and shares of a trading company is a different matter. A trading company is any productive company and particularly includes manufacturing companies and companies with large employment content, and the use of the word "trading" should not suggest, as it may do to some, that it is merely retail buying and selling or something of that nature. It embraces the whole activity of trade. It embraces companies of high employment content and companies of the greatest importance for the community's economic activity. I take it then that, in those cases, although the company's assets are not directly taxed, the wealth tax would be on the shareholders, unless it is a private non-trading company, aggregated with the rest of their wealth. I take it that the market value of the shares would be the measure.
The Minister may very easily appeal to that aspect of the case to support his opposition to this amendment. I would urge on him that it is not as simple as that. First of all, on the question of flotation, supposing that a company is being floated and it is the first issue and allocation of shares, the very fact that there is a tax attachable to these shares will act as an inhibition on the foundation of that company. In the same way and as a result of it it will be a brake upon the formation of that company. There are areas in this State where it is desirable that industries which are failing for various reasons should either be revived or reoriented and that the employees in these industries who will otherwise find themselves on the unemployed list should find suitable employment. One element that helps to cope with that problem which is happening, as we all recognise, and leaving out completely what the causes are, is that if somebody forms a company to commence the new activity, that involves the issue of shares. There might even be cases where the actual workers in a threatened industry have got together and have tried to form a company.
In the inflation case, the fact that these shares are going to be in the hands of the shareholders aggregated for wealth tax purposes is a positive disincentive. Exactly in the same way as in the old days of the issuing of loans by the State a very usual incentive up to very recently was that the loan would be redeemed for the purposes of death duty at par. That is a good example of a fiscal provision which was designed to attract money to the loan. In the same way I am suggesting that in so far as flotation is concerned, the attachment of the wealth tax to such shares is a disincentive. But put it the other way round. Since this amendment is by way of exception and included in the exception, it is better regarded as an incentive to investment of this nature and it is in that positive sense that I would recommend it to the Minister.
The Minister may say "you are talking about flotation companies now. The bulk of the shares that are involved are already issued and perhaps have changed hands on the Stock Exchange and so forth and are simply financial transactions." There is substance in that argument but, on the other hand, it must be realised that the bulk of these shares that will be in question and the market value of these shares will be determined by the quotation on the Stock Exchange and that the value of the shares on the Stock Exchange has rather an important commercial advantage, particularly from the point of view of credit. The value of the shares on the Stock Exchange closely reflects the trading situation of the company and the balance sheet. It happens, frequently enough, that when a company is getting into difficulty the index of it is the value of its shares. So far so good.
The Minister may still say the only people affected are the shareholders. If he says that he is missing the vital point that in those situations the value of the shares is in effect, a measure of the liquidity of the company and as a measurement thereof is a measurement of the borrowing power of the company. If, through taxation, there is a tendency to depress the value of the shares one is not promoting industrial activity.
I concede to the Minister that this factor in the third element of the amendment is relatively remote but it is nevertheless real. It appears to me, whether it is from the point of view of flotation or from the point of view of quotation that there is a case for the exemption of stocks and shares in an Irish trading company as well as in the case of agricultural activity and activities that are employed directly in the provision of employment. To cavil at the second part, now I am going to evoke the argument of pratticality that I censured the Minister for on another amendment, but it arises. The probability is that in all cases of importance the case will be captured not by the last cause alone but by a combination of the second and third factors. In other words, not only is the amendment desirable in the cases which are likely to occur on the ground that the stocks and shares are in a trading company but also on the ground that in the case of the trading company the property is being used directly for the provision of employment. In fact, in practice, practically all cases would be covered.
We are very serious. We are certainly ad idem on the principle up to a point. I think the Minister can claim that we are ad idem on everything. We are ad idem to the extent that we are agreed about non-productive property, we seem to be agreed, in principle anyway, that productive property requires exemption, but the Minister is only giving a modicum of exemption. We believe that the whole policy should be, in regard to productive assets, total exemption for the reasons we have given. That completes my argument.
I conclude with reference to what has been said by Deputy Fitzpatrick and Deputy Colley, namely that it is very hard to understand, in the case of productive assets, why there should be a distinction, what amounts to a disablement, I might even say a penalty, but why there should be a distinction between the Irish citizen and somebody outside? That seems to arise on this, too, and why that distinction should be to the prejudice of our own people. I leave that as a separate argument, made separately and cogently by my colleagues. On the general principle I have indicated to the Minister the reason why I think he is unfair to us in suggesting that we are not serious, I hope I have given some reasons why not only are we serious but why, in principle, the course we have advocated from the beginning on this Bill should be adopted.
(Dublin Central): Before we adjourned at tea time the Minister for Lands was speaking about the fact that we were not sincere about this amendment. He mentioned that we only put this amendment forward for a political reason. He also mentioned that only for the fact that the guillotine has now been introduced we would probably be bringing our troops into the lobbies on this amendment for a political reason. I can assure the Minister that where I am concerned, whether I am a Deputy or a private citizen, I object to two types of taxes in this country—one in favour of a foreign company and one that discriminates against myself personally. I object, secondly as a Deputy, in this House because I disagree with the principle.
The Minister was confusing the issues before tea when he said that this particular type of concession was always there as regards death duties. He mentioned that investments in this country in post offices and banks were exempt from income tax. There is no comparison between these two types of taxes—a wealth tax on profit. Any Deputy in this House, who is aware at all of this emotive type of Bill must be aware of what the reaction will be when certain people in this country realise, due to the way this Bill is drafted that shareholders in foreign companies holding a trading company in this country are exempt from wealth tax and that an Irish shareholder holding a trading company in this country is subject to wealth tax. That is the net position, whether we like it or not. The Minister should not think for one moment that he can confuse the issue as regards death duties and foreign investments in banks and post offices in this country. Deputy de Valera has made an excellent case as regards exempting agriculture. I thoroughly agree with him that it should be exempted. Agriculture and everything in that line should be exempted, but agriculture is exempted for certain types of people. It is exempt for any foreign company that purchases land. They are not subject to wealth tax. Could the Minister explain to me how they are not exempt?
(Cavan): I will explain to the Deputy when we come to the section. The Deputy is only dealing with the Bill section by section.
The Minister may allege that they will not be allowed to buy it.
(Dublin Central): I hope he does not use that argument. It is not one that would stand up.
(Cavan): I am surprised that Deputy Colley has not read the amendment.
(Dublin Central): If the Minister suggests that an Irish or foreign company in this country buy land and be subject to wealth tax I will accept that from the Minister, but perhaps he will tell me the section under which this is so.
I am talking about the average Irish individual, who has built up this country let him be in any type of business, manufacturing, the hotel industry, supermarket and so on— who has invested his money and given his knowledge and expertise to a particular type of business and is fortunate enough to expand it. As the Bill is drafted, he will be subject to wealth tax, but, if he happened to have been born on the Continent or in America and is a shareholder in a company which has invested in a trading company in this country and purchased a hotel, a supermarket, a licensed premises, a grocery or a drapery shop he would be exempt. I disagree with the principle that one section of business people should be subject to wealth tax by virtue of the fact that they are domiciled in this country, but I want to make it perfectly clear that I welcome investment by those other people and I do not want to be accused of discouraging foreign investment.
In a small country like ours it is a bad principle. We are so closely knit that this will have a psychological effect—foreign shareholders of a trading company here being exempt from wealth tax. Many business people are not aware of that yet. Let us look at the competitive standing of two companies in a manufacturing business. We know only too well that manufacturers are operating on very small profits today, but take a foreign company which has a trading company in this country and which establishes a factory—let it be in Cork or Dublin or elsewhere—manufacturing a product. Maybe they have an investment of £2 million in that company—it is not unusual for a factory today to have such an investment—and take the opposite situation, an Irish company formed with the same capital of £2 million manufacturing the same kind of product. Being Irish shareholders, they are subject to wealth tax. Surely in all equity there is an injustice here to the Irish shareholder or Irish national.
The Minister will tell me that the company is not taxed but I would refute that immediately in case he comes forward with that argument. We know the company is not taxed, but the two or three, eight or ten shareholders, who might have £200 each or £200,000 in this company will be subject to wealth tax. The other company by virtue of the fact that it is a foreign company is exempt. I believe that is basically wrong and no one will convince me otherwise. It will discourage the Irish-formed company.
We may find ourselves at a stage where people have to think seriously as regards being domiciled in this country. It is obvious that a managing director who owns 75 per cent of a foreign company can easily reside here for one or two days short of six months and by virtue of the fact that he is not domiciled, he will not be subject to wealth tax. If there was a considerable amount of money involved, it would be natural for the Irish national, on this level of business, to purchase a house abroad, leave this country, and give up being domiciled here. He could purchase another house in some other country and keep both houses going for the amount of wealth tax he would pay. The Minister said this could not happen and is only nonsense, but it can happen.
Basically what I am against is the principle that one company or individual running a business is subject to wealth tax and another business half a mile down the road is not. I can see it developing in this city as soon as this Bill comes into operation. I know companies that own business in the city who will be exempt from wealth tax. We do not have to stretch our imagination too far to know who they are. I know of other companies engaged in the same business and one will be subject to wealth tax and the other will not. Surely that is an undesirable climate to create in a country such as ours. This can happen where hotels are concerned. There are groups of hotels which are Irishowned, developed by Irish people and expanded down through the years, giving considerable employment. We do not have to spell out the conditions of the tourist trade or of hoteliers financially today. In my opinion. Irish hoteliers have done a good job and more luck to them, but because they are domiciled here and are Irish shareholders they will be subject to wealth tax. I know hotels in this city and hotels in other parts of the country which will be exempt. That is undesirable. It is frustrating for the Irish company who have contributed so much in the past. They now find themselves discriminated against; there is no other way in which I can describe it. They are being discriminated against because they are Irish. The same thing will happen in regard to supermarkets. There are chains of supermarkets that are Irish owned and the Minister knows the narrow profit margins on which they are operating at present. There are also supermarkets that are foreign owned and they will be exempt because of this provision. In that type of situation, where a company is operating on a very tight margin against competition from a foreign owned company which is not subject to wealth tax, the logical conclusion is that there will be a takeover by a foreign company. I could go on and on about situations that will develop in every line of business I know because we have exempted foreign-owned companies. We fought against this proposal.
Nothing can be done about this Bill. It is a hopeless Bill. It never should have come into the House, and talking here until Christmas would not make it right. The Minister is now creating a situation which will affect the average businessman in a way in which he was never affected before. The Minister puts forward arguments about death duties, and investment fears where income tax was stopped. But people did not know about it. That is the important thing. I can have a business in any part of Dublin and I can meet my friends on social occasions and we can have a discussion on this Wealth Tax Bill. I will say I am subject to wealth tax because I was born in this country. My friend will say: "That is unfortunate for you. I am not subject to wealth tax because I have a foreign company which has a trading company in this city and I do not have to pay wealth tax". Does the Minister think I will accept that? That is the basic principle to which I object. There are many other parts of the Bill I consider undesirable but, if there is any one section in the Bill that is offensive to an Irish national, it is the particular section that discriminates against him.
I ask the Minister most sincerely to accept Deputy Colley's amendment. Deputy Colley confines the amendment to productive assets and Deputy de Valera has put the case very well that it is non-productive assets we want considered. I go along with the Minister in regard to non-productive assets. The thinking behind the drafting of this Wealth Tax Bill was to distribute non-productive assets and to encourage people either to dispose of them or, as the Bill will do now, take a certain amount from them. Non-productive assets are bad for a country and we should encourage people to change them into productive assets, even if they have to dispose of them. Non-productive assets in other fields should certainly be taxed also because they contribute very little to the economic expansion of a country. Deputy de Valera put that case very, very clearly and I accept it. Wealth of this kind is of no great benefit to the country and is of no great benefit to employment.
We should concern ourselves with productive assets. They are a different thing altogether. We want to get productive assets moving. We know how difficult it is to promote industry. We know that the unemployment figure is still rising. The Minister for Finance, the Minister for Industry and Commerce and the Minister for Labour have been making efforts to improve the situation but they have not been very successful. If anyone tells me that the Wealth Tax Bill is an incentive for people to invest in productive assets he will not succeed in convincing me for one moment.
At this particular time in our economy, when we are struggling to get people back to work, we should be encouraging people to invest. We should be encouraging foreigners to come here and establish industries here. If people have funds abroad they should bring them back and invest them here. That is the line we should be pursuing. This would be a positive approach. This is the worst economic crisis we ever had. The Minister for Finance brought in a budget designed to tackle inflation and help the economy generally. This had to be done, but I do not agree that the budget will be successful. I hope it will, but I doubt it very much.
We must decide on how we can get the economy moving again. We must reduce our rate of inflation. We must reduce our unit costs and improve our exports. We must be more efficient in our methods and, above all, we must create a climate favourable to industrial development. Industrial development is the one thing that will save our country. We know a considerable number of people will leave the land. The Minister is getting the opportunity to make some gesture towards relieving the present economic situation. The Minister for Finance decided to meet the trade unions and the employers about the economic crisis. This was no easy job. We know only too well the problems facing our economy. There are problems of rising prices, of raw materials and their effect in the costs of production. It is very difficult for companies to keep afloat at all.
I cannot understand why this Bill should have been brought before this House at this time. Does the Minister think it will encourage any businessman to come here when he reads in the paper that we are forcing a Wealth Tax Bill through this House as a matter of urgency, that it must be through by the 30th July?
Ask any business man what that will contribute to his factory or to solving his problems. Will this Wealth Tax Bill, or this section in which we are trying to exempt him reduce his labour costs? Will it reduce his unit costs and make him more competitive? Will it contribute to efficiency within his factory? Of course the answer is "no". It will have entirely the opposite effect. It will add to his unit cost. Whether we like it or not, people will have to pay this wealth tax out of their net profits or they will have to sell off part of their assets. I cannot see how anyone can pay a wealth tax exempt by those two devices.
Take a man making £X,000 in his trading profits. We only know too well what our trading profits are today when all expenses have been met. Taking the thresholds and everything else into consideration—I know perfectly well what the thresholds are— the remaining wealth tax has to be paid out of net profit. If a man is making £8,000, £10,000 or £5,000, this wealth tax must be paid out of his net profit. If it is not paid out of the net profit, the Minister might tell me later on where the money is to come from. You have to sell off part of the asset. You do not have to stretch your imagination to see that is just not possible. If the Minister's idea of distributing wealth is to cut down the asset bit by bit to pay the wealth tax, I do not think that will be very advantageous to the economic situation of this country.
It is quite obvious that this wealth tax will be paid out of net profits and, in some way or other, it will be passed on to the customer, whether the Minister likes it or not. It will be passed on to the unit costs in the manufacturing business and it will go right down to the consumer. That is the situation when you levy a wealth tax on productive assets operating on a close margin. I have pointed out already that manufacturing companies are operating on a very tight margin at the moment. Many companies are barely keeping their heads above water. One of the Minister's intentions was to try to overcome this problem as regards unit costs and to reduce unit costs.
The Minister should accept Deputy Colley's amendment, and exempt agricultural property and productive assets from this wealth tax. Apart from the principle involved, which I object to more than anything else, the fact that it is being applied to a manufacturing company operating on a tight margin is bound to have a detrimental effect. It will push up the costings of that company. No one on any side of the House will persuade me that it will not push up the costings of a company. People will say: "That company is not taxed; it is only the shareholders". The shareholders require a return on their investment. The manager of that company will tell them the following year when the final accounts are produced: "We have to reduce the dividend because a certain amount of wealth tax has to be paid". The shareholders will tell that manager or managing director to do something about it very quickly. He will increase the unit costs to bring back the same dividend. The Minister had to go out of his way to exempt foreign capital. If we fail to get an inflow of foreign capital we will never rectify our unemployment problem. If there is any hope of rectifying it, it is through the inflow of foreign capital. We are completely uncapitalised. The Minister had to do that. He had no choice. We welcome the fact that foreign capital is exempt but we want productive assets in the hands of Irish shareholders exempt. They are entitled to that.
This is the most crucial amendment which has been or could be put down to this Bill. If accepted it would, I believe, make the wealth tax generally acceptable to most people. If rejected it will not only confirm those who object to the whole idea of the wealth tax in their objection, but it will in course of time cause a great deal of unrest as more and more people personally feel the consequences of what is being done in this Bill in the absence of this amendment, not in the sense of how much they will have to pay in wealth tax but in the sense of what it will do to their jobs and their standards of living.
We have had a great deal of nonsense from Government supporters from time to time about a wealth tax. All sorts of efforts were made to obscure what is really being done in the Wealth Tax Bill. We had talk about equity, about redistribution of wealth and other similar catch phrases. Of course, even the name of the proposed tax, wealth tax, is designed to create a certain climate of envy and make people think that the only people who will be affected by this Bill will be people who are very wealthy. Of course, anybody who has studied the Bill knows this is not true, knows that it will affect every man, woman and child.
However, apart from those who object in principle to the whole idea of a wealth tax, there are a number of people who take the view that, if one pays tax when one is acquiring property whether by way of income, or inheritance, or gift—if one pays in that way, whatever way one acquires property—one should not then be taxed again on top of that as a penalty for saving. Such people would never accept a wealth tax even if this amendment were accepted. The bulk of people would accept it, if they were satisfied that the wealth tax was being applied to what, in effect, are described in the Bill as non-productive assets. I say "in effect" because section 10 purports to give reliefs in respect of productive assets. In fact the side note says "net market value of productive property".
This amendment is based on section 10 which purports to deal with productive property. The first part of section 10 deals with agricultural land, with fishing boats and hotels. I included agricultural land in this amendment because there could in some circumstances be an argument as to whether it is being used directly in the provision of employment in the State. I do not think such an argument can be made in regard to fishing boats or hotels, but if it could I would be prepared to accept an amendment of this amendment so as to include them.
A later part of section 10 also deals precisely with what is mentioned here, property used directly in the provision of employment. The same portion of section 10 deals with stocks and shares of a trading company. I have provided in the amendment in each case that we are relating it to property in the State, whether it is agricultural land, property used directly in the provision of employment, or to stocks and shares of a trading company. All of them under the terms of the amendment are confined to operations within the State. The object of the amendment is to exempt from wealth tax productive assets, assets being used productively. By assets being used productively, of course, we mean assets which, as a result of their use, are creating employment and are a contribution to growth in the economy.
One would have thought that the need for this amendment would be self-evident, given our economic circumstances. I think it is evident to most people except the Government. We have heard from time to time from members of the Government and their supporters of the position regarding forms of wealth tax in other countries, in the EEC for instance. There are, of course, much larger and much richer countries than we are in the EEC which have no such tax. In the case of those who have, the various taxes differ both in the scope of their application, in their rates and so on, but the real question to ask if one is to make such a comparison is how does our economy compare with theirs? Will the imposition of a wealth tax on productive assets in our economy help or hinder the growth of our economy, the creation of employment, the maintenance of employment?
I would suggest that nobody can, with any degree of sincerity or credibility, argue that the application of wealth tax to productive assets can in any way assist our economy, can in any way provide employment except maybe for people in the Revenue Commission or can in any way maintain employment.
If we find that we have now reached the stage where the Government are going to pay £12 a week to an employer for every job that he creates for somebody who is on the dole— that is what the Government are proposing—how can one reconcile that with applying a wealth tax to the same employers, the people who are investing their money? Let us be clear on that.
This amendment is designed as far as possible to cover the range of productive assets I have indicated. I do not care whether they are held in a company, an individual or anything else. What we are talking about is people investing money in agriculture, manufacturing, distribution or any other form of economic activity which creates employment and contributes to the growth of our economy. When you get down to it, it is individuals you are talking about. It is individuals who make the decisions. It is individuals who own the money. It is individuals who decide whether they will take the risk to invest it or not. If those individuals decide they are not going to invest, they are not going to take the risk, our economy plummets down and down. That is a reality.
Another reality is that the Government now propose in this Bill to apply to those persons, be they shareholders in companies or not, a wealth tax on the money which they have invested, which they are risking in this way. I must confess I have been unable to understand the thinking behind this. Of course I understand the cheap political effort involved, the politics of envy involved, the effort to try and convince people who do not have very much of this world's goods that "there is a crowd of them there who are fat cats, with a whole lot of money, and we are going to take it from them and we are going to give it to you".
Of course I understand that lowclass brand of politics, but I would have thought that the Government would have a little more intelligence than that in the sense that they would not underestimate the intelligence of the Irish people. Our people know the kind of economy we have, a mixed one, which cannot survive and their jobs cannot survive unless there are people who are prepared to invest their money in productive assets and take risks. No amount of propaganda will mislead people for very long as to what the reality is. The Government of course have been making this propaganda effort. We have heard them talk about redistribution of wealth. What redistribution of wealth is involved in this, may I ask? The best estimate available from the Minister for Finance as to the yield is £1½ million a year. When pressed he admitted that the redistribution that would take place would be from one member of a family to another. It will certainly not take place between the rich and the poor. Of that we can be certain.
Let us suppose for a moment that there was a real redistribution of wealth involved in it. Would it not be necessary for any Government with any shared of responsibility before embarking on a task of any kind which would bring about a genuine redistribution of wealth, unlike this one, to measure the other consequences flowing from that proposed tax? How much measurement did the Government do on the economic consequences of bringing in a wealth tax on the productive assets of this country? Did they do any? We know already the damage that has been caused by this proposal and this Bill before it is in operation at all, we cannot measure the degree of damage that has been done, but there must be few who do not have personal knowledge of the damage that has been done as a direct consequence of this proposal. Let us assume the Bill is in operation and let us assume the wealth tax is to be applied to productive assets, it follows as the night the day that the application of the wealth tax will increase the cost and overheads of business in general, be it manufacturing, distributing or anything else. There is no escaping this. Whether the yield is small or large, of course, has some relevance in this regard. If the yield were enormous then the increase in the cost of business would be enormous. If the yield is relatively small it could be said that the increase in cost would be relatively small. The question is, can business bear any further increase in cost at the moment? Secondly, should it be asked to bear increased costs in the present economic climate or should we not take the other approach, which the Government are adopting with the other hand in the budget, saying: "Here is £12 per week for every man you employ additionally"? Will this help our economy?
What will be the consequences if tax of this kind is imposed? Even if the yield is relatively small the climate which the tax creates when it is applied, as is proposed, to productive assets is one which is totally negative in so far as trying to get our economy moving; it is a climate which inhibits investment because the reality is that people who have enough money to invest will ask themselves if it is worth while if they will be taxed at this rate, particularly when they see no provision for inflation. They anticipate that inflation will continue and the thresholds will automatically be brought down, that even a Government sometime in the future might actively move to bring down the thresholds and increase the rates. All of this is being applied to productive assets.
I do not have figures available—it is unlikely that the Minister has either —which would distinguish between the yield to be got from productive assets, on the one hand, and nonproductive on the other, but I am certain of this, that the great bulk of money which it is expected to obtain from the wealth tax will come from productive assets, from assets which are employed in giving jobs and creating growth in our economy. The two things we need more than anything else are growth and employment. They go together.
I have been urging on the Government for a very long time the necessity of taking steps to encourage growth in our economy. These measures would include tackling inflation and so on. We know how the Government failed to listen and so the situation got out of hand. But even the Government have now acknowledged by their employment premium proposals the dire necessity of tackling this problem of unemployment. What kind of coherent policy is this? What kind of consistency is there if, on the one hand, the Minister for Finance is applying a wealth tax to productive assets on which employment and growth depend and on the other, and at the same time, he is proposing to give an employment premium in respect of each new job created for the man on the dole? What kind of nonsense is this? How much of the employment premium does the Minister hope to get back in wealth tax? How much of the good which he hopes to do with the employment premium will he do away with by the wealth tax? Could we have some kind of sensible, coherent approach to the enormous economic problems which the country is facing, the worst economic situation it has faced for a very long time?
At a time when the Government ought to direct all their efforts to getting our economy moving, to creating employment, we have this kind of nonsense which is designed to make industry less competitive by increasing its costs and at the same time the Government propose to hand out an employment premium to people who will be charged wealth tax, in order to encourage them to give employment. There is no logic, no consistency, no coherence in this approach. I do not believe the Minister for Lands, who has the unenviable task of trying to justify this approach, with his undoubted skill and ingenuity, will be able to give any reasonable answer to the accusation of total incoherence of the Government's approach in this matter.
There is another aspect with which Deputy Fitzpatrick dealt at some length. I want to refer to it briefly because it is very relevant here. The Minister has claimed consistently that there is no disincentive in the Bill to foreign investment because, he says, in the great bulk of cases they will not be liable to the wealth tax. How do the Minister for Lands and the Government suggest that they should justify the kind of discrimination involved here and highlighted by Deputy Fitzpatrick in a number of instances. One being the two hotels standing side by side, one of them subject to a wealth tax because it is owned by Irish citizens, one of them exempt because it is effectively owned by foreigners? That is just one example. There are many others chosen by Deputy Fitzpatrick. How is it proposed to justify that argument? There is no justification, above all, in our economic circumstances. Even at the time when Fianna Fáil were leaving office, when our economy was really developing, when unemployment was falling and we were putting an end to emigration, even at that time the relative weakness of our economy compared with our EEC partners would indicate to anyone with one iota of commonsense that the last thing we needed was a wealth tax on productive assets.
But now, when the situation is so appalling, when in the middle of the year when employment should be at the peak, we have 101,000 unemployed, when our inflation is virtually out of control and when the prospects in the private sector and, as indicated by the Minister for Finance today in concluding the budget speech, the prospects for our economy are as gloomy as they could be—they are getting worse—in those circumstances, who would think of putting on a wealth tax on productive assets? There is nothing crazier that can be done. There can only be one reason for it, duo-politics in the worse sense of that word; playing politics, playing to people's sense of greed. Thank God, it is a mistaken ploy, it is one which is not working and it will rebound on the Government in a way they thoroughly deserve because our people are sufficiently intelligent to know that their jobs and their standard of living depend on productive assets being invested, made to work and to create growth. If the Government now propose, as they do in this Bill, in the absence of this amendment we are discussing, to apply wealth tax to those very productive assets, which are creating the jobs and creating the growth, our people know that that is as stupid, as silly and as irresponsible a thing as any Government could do. Knowing that, if the Government persist in applying wealth tax to productive assets, they will reap the whirlwind and no matter how serious that whirlwind is, a Government which do such a thing deserve everything they get.
(Cavan): As far back as the 12th March last, this House accepted the principle of imposing a wealth tax by a majority and it sent this Bill from the Second Stage Reading to Committee Stage. The principle involved in the Bill, the general advisability of imposing the wealth tax, was discussed at length and the House, by a majority, approved of the principle involved. The Committee Stage was duly taken up and when we came to section 2, which lends itself to a general discussion, we had another Second Stage debate, which lasted most of 20 hours, on the principle of imposing a wealth tax. The discussion on that section, which involved nothing more or less than the principle of imposing a wealth tax, was discussed over a period of between 18 and 20 hours. In order to bring that discussion to a conclusion it was necessary to move that the question be put. The House again endorsed the principle of imposing a wealth tax.
The Government have found it necessary, in order to get the work of the Dáil done, to operate a time limit. By a majority, a time table has been imposed and a reasonable time, up to Thursday of next week, has been allocated for Committee Stage work on this Bill. So far as I am concerned, I am satisfied that the Bill, as it stands, with the amendments which I will introduce and which will be put from the Chair at the appropriate time, are adequate to perfect the Bill before it leaves this House. However, one would expect that the Opposition would like to go through the Bill. There is ample time. There is this evening, Tuesday, Wednesday and Thursday next to get through the remaining 20 sections of this Bill, in a Committee Stage manner. It looks to me as if we will have another Second Stage debate on this amendment——
Maybe the Minister would like to guillotine it.
(Cavan):——with a complete disregard for what the interests of the Opposition should be in going through the Bill section by section, as we have been doing, seeing if improvements can be made. That is for the Opposition to make up their minds about. If they want to talk it out in a Second Stage debate and leave themselves with no time to deal with the various sections, they can blame themselves.
The Minister has been talking for ten minutes without dealing with the amendment.
We have a specific amendment and we have talked about it.
(Cavan): There is no use trying to blame me or blame the Government. We have now been speaking since 6 o'clock approximately until 6.30 and from 7.30 until ten minutes to nine tonight on an amendment——
The most important.
Three points.
(Cavan):——which the Opposition know perfectly well is not acceptable, which they know perfectly well is tantamount to an invitation to the House to reject the Bill in principle, which the House has already accepted on two or three different occasions. It is very hard to answer the arguments that are being put up by the Opposition because they are totally conflicting. We had, in the early stages of the Committee Stage, an onslaught from the Opposition on the grounds that the proposed tax would discourage foreign investment.
The Chair does not wish to interrupt the Minister but what the Chair would wish is that both sides of the House would stay with the amendments and try to avoid a Second Reading debate on any of the amendments.
(Cavan): I hope that will be so but I feel that I must reply.
Obey the Whips.
(Cavan): If the Opposition want to vote now let them do so. I will sit down if they want the question to be put.
I am rather sad that the Minister cannot go on the record but we will have to vote. No doubt the Minister will take the opportunity of replying in due course to the case made.
Amendment put.
The Committee divided: Tá, 68; Níl, 72.
Tá
- Allen, Lorcan.
- Andrews, David.
- Barrett, Sylvester.
- Blaney, Neil T.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- Flanagan, Seán.
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, Hugh.
- Gibbons, James.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Nolan, Thomas.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Níl
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Joan T.
- Burke, Liam.
- Bvrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McDonald, Charles B.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- FitzGerald, Garret.
- Fitzpatrick, Tom (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Keating, Justin.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Séamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Kelly and B. Desmond.
Amendment declared lost.
Question proposed: "That section 7, as amended, stand part of the Bill."
On the section, there are one or two matters on which I would appreciate clarification. The Minister knows the section contains an exemption for a "dwelling house or part of a dwelling house, to which an individual is beneficially entitled in possession and which is occupied by him as his only or principal residence" and there is also an exemption in respect of the household effects, the normal contents of the dwelling house. The point I should like to put to the Minister is this: with a house which is owned by a company, but is wholly owned, in the commonly accepted sense of that phrase, by an individual who is living in the dwelling house, does the Minister think that such exemption should be given both in respect of the dwelling house and the contents of it in those circumstances?
(Cavan): No, there is no provision in the section.
I appreciate that there is no provision and I am wondering whether or not there should be provision for that. There could be circumstances in which the Minister would find this objectionable but there could also be circumstances in which it would be unreasonable not to allow it. It seems to me that in a genuine case such would happen. I would assume, for instance, that if the company concerned were a private non-trading company, the Minister would not be very happy about the position but if, in fact, it were a trading company which owned the dwelling house and the individual who was the owner of the great bulk of the shares in the trading company was living in the dwelling house as its principal or only resident, would the Minister not think that in such circumstances the exemption should be given?
(Cavan): The position is that the company, of course, as I keep saying, is not liable to tax. The shares are liable to tax if their value exceeds the threshold. The only three persons who are taxable under the Bill are the discretionary trust, the private non-trading company and the individual. If the individual in the case quoted by the Deputy owns all the shares in the company, for all practical purposes, and the company owns the house, and the individual is living in the house, it would be a comparatively simple operation to transfer the house to the individual and then, of course, he would get the threshold and the exemption.
Should it be necessary to transfer it?
(Cavan): It would be desirable, rather than to start recognising the fact that the owner of the shares and the company are one and same person. That is what we would be doing if we were to accept the Deputy's suggestion.
The further qualification would be that the individual concerned would, of course, have to have this as his principal or only residence. It would not be saying: "we are putting the individual in the place of the company, or vice versa”. It would be qualified.
(Cavan): Yes, but you would be saying that, for all practical purposes, the individual was the owner of the House and not the company because he must own the house and he must occupy it as his principal or only residence.
A number of such cases exist. Some relief should be given to them, but I do not want to press the Minister too hard. I want to draw his attention to the existence of this problem.
(Cavan): I know what the Deputy means.
In regard to subsection (1), paragraph (b) which we touched on in connection with an amendment which I had down—the one relating to the normal contents of a dwelling house—first of all, as the Minister knows, the exemption provided is being withdrawn both in respect of the dwelling house, or part of the dwelling house, and in respect of the contents of the dwelling house or part of the dwelling house if it is let. I am correct in saying that, I think.
(Cavan): It would not be occupied by the owner.
If part were let. If portion of the dwelling house is let but is not let on the valuation date, is the whole of the house and contents entitled to be exempt? In other words, must the letting be in operation on the valuation date in order to lose the exemption?
(Cavan): That would appear to be the position.
I think it would be so but I just wanted to get confirmation.
(Cavan): If the greater portion of the house was let all the year round for a number of years, but was unlet on 5th of April probably the Revenue Commissioners might have to think about it.
That thought had occured to me too. I am mentioning it so that the Minister will not be unaware at this stage of the possibilities. In regard to the question of normal contents, I do not intend to embark —which one could easily do—on a series of, I will not say ridiculous examples, but fairly extreme examples of what would or would not be in this. I take it that such a thing as moveable chattels, such as a motor car for instance, which are normally stored in a house would not be part of the normal contents. In the case of people who have a particular interest in shotguns and special kinds of guns and have a collection, would the Minister say that in certain circumstances those people could have them accepted as part of the normal contents? It might be a bit ominous for the Revenue Commissioners if they refused to accept that contention.
In regard to paragraph (c) which is an exemption for livestock to which a person who is a farmer within the meaning of section 10 is beneficially entitled to be in possession, that is the provision. The next paragraph relates to bloodstock. Why is there no qualification somewhat similar to that in regard to livestock applying to bloodstock?
(Cavan): He does not have to be a farmer, I think, is the explanation for that. Look at the other end of the bench.
Look at the bench you are sitting in.
You do not have to be a farmer to own livestock either.
(Cavan): You do here.
You do according to the Bill. If I who am not a farmer can own livestock, I will not get any exemption.
(Cavan): Section 10 refers to “livestock to which a person who is a farmer within the meaning of section 10 is beneficially entitled in possession”. That is in ease of the individual who is a farmer. I would say that, generally speaking, the exemptions in favour of bloodstock would be in the national interest. It does not matter then whether the bloodstock is owned by a farmer or a person who is not a farmer.
It is a productive asset of course. That is one reason why it should not be subject to wealth tax.
One would hope it is. It is not always.
It generates brass anyway.
It is true that the Minister and Deputy Esmonde just a few moments ago voted against the exemption of productive assets from wealth tax.
(Cavan): That is not so.
You could have fooled me. The amendment actually called for exemption of property in the State which is agricultural property or is used directly in the provision of employment in the State and stocks and shares of a company trading in the State. That is as good a description as I can get of productive assets in this State. We wanted to exempt them and the Minister and Deputy Esmonde voted against that. They are apparently in favour of the exemption of bloodstock without qualification. I am giving the benefit of the doubt to livestock on the assumption that it is a productive asset.
(Cavan): Would Deputy Colley like us to qualify bloodstock in some way?
What I would like to do is to exempt all productive assets. If bloodstock is a productive asset— Deputy Esmonde has expressed some doubt about that; he may know more about it than I do; I do not know very much about it—I want to see it exempted. Assuming that bloodstock is a productive asset, I do not see any reason why it should be exempt if other productive assets creating employment and generating growth in our economy are not exempt. That is my problem in regard to paragraph (d) which simply says "bloodstock".
(Cavan): Would the Deputy regard a dwelling house as a productive asset. We are exempting that, too.
I would not, but may I remind the Minister—I think I am correct in saying this; I certainly am in regard to capital gains tax and I think it is true in regard to wealth tax—the Government did not originally propose to exempt a dwelling house. It was only when there was considerable pressure, which started from this side of the House the moment the White Paper was issued, that the whole concept of applying wealth tax to a man's home was borne in on the Government as being an enormity in the context of our society.
(Cavan): This Government always listen to all reasonable suggestions.
It is a pity that they did not listen to a few more and at the right time. We might be better off.
(Cavan): We do not listen to daft ones.
Exemption of productive assets, no; exemption of bloodstock, yes. That is the attitude of the Government, apparently.
(Cavan): Ah, you are being very hard on Deputy Haughey.
I think Deputy Haughey could survive the best onslaughts of this Coalition.
(Cavan): The onslaughts were not confined to the Coalition.
If the Minister wishes us to depart from section 7 I would be very happy to do so, but if he does not, now is the time for him to say it. In regard to paragraph (e) which states:
the right to receive any benefit or any annuity or periodic payment——
under various headings, superannuation schemes and so on——
(Cavan): We amended that by adding on another one.
I want to raise what I regard as a very serious aspect of this Bill on this portion of the section. First of all, I will put it in general terms to see if the Minister agrees with the proposition I am putting forward. It is this: we should ensure in so far as it is humanly possible to do it that under this Bill there will be no discrimination either in favour of or against the public sector on the one hand or the private sector on the other. I mean individuals working in the public sector on the one hand, or an individual or individuals engaged or working in the private sector on the other. Would he agree with that proposition?
(Cavan): Generally speaking, that is an acceptable proposition, taking everything into consideration; taking all relevant considerations into account.
That is what I want to do. Would the Minister also agree that in so far as the private sector is concerned, paragraph (e) sets out to exempt from liability to wealth tax superannuation rights which a person may have established? I am speaking now of the private sector. Take a self-employed man who contributes to an insurance scheme to give himself a pension on retirement. In general, this paragraph is exempting his right to relieve such pension from liability for wealth tax, but I think I am right in saying that the maximum to which a man in that position—a self-employed person—can go and get relief from income tax for it is to contribute a sum not exceeding £1,500 per annum as a premium. If he wishes, in the scheme to which he is contributing, to make provision for inflation, he cannot under the Revenue Commissioners' regulations get approval for any scheme which makes provision for more than 5 per cent inflation.
To give an idea of how this works out—the Minister may be quite familiar with it, but I am not sure whether he is or not—the Incorporated Law Society would offer to its members a scheme of superannuation. Under that scheme, a solicitor aged 55 years who makes a maximum contribution of £1,500 per annum to provide a lump sum and pension on his own retirement at 65 years of age, will receive at 65 a tax free capital sum of £6,408 and an annuity for life of £2,907. A solicitor who would be making the same contribution for 20 years—that is, he starts at the age of 45—and contributes £1,500 per annum until he is 65, will receive on retirement a tax free lump sum of £7,678 and an annuity for life of £3,481.
On the other hand, if we look at the position of people in the public service the position is quite different. Let me make it clear, as I did before in this House when I referred to this matter, that while the figures I am about to quote relate only to the grades I am talking about, and they are considerably higher than they would be say, in the case of former Ministers, nevertheless the principle involved is the same. On this basis if we take the present salaries of the Secretary of a Department who is aged 55 and is due to retire in ten years at the age of 65, we find that on retirement he is entitled to a lump sum of one and a half times his highly geared salary, his present salary being approximately £11,000 per annum. In addition to the lump sum of one and a half times his final year's salary he is entitled to a pension of 50 per cent of his final year's salary. Between now and retirement, if his salary follows the pattern it has been following in recent years, it will more or less keep pace with inflation. When he retires his pension will also be adjusted in line with inflation. When I say in line with inflation I mean in line with the general level of pay in the public service which now more or less follows that in relation to national wage agreements.
If we assume an average rate of inflation of 15 per cent per annum over the next ten years—it may be a generous assumption—but if we assume that, on retirement his salary would be £44,500 per annum and he would be entitled to a pension of £22,250 at the age of 65. The capital value on retirement of that person, assuming it is going to keep pace with inflation at an average rate of 15 per cent per annum would be £321,000. I should emphasise that that capital sum is based on the assumption that the capital sum can be invested to produce a yield equal to a rate of inflation of 15 per cent per annum. If, in fact, such a yield could not be produced, then the shortfall would, of course, increase the capital sum required. If for instance, the yield was only 13 per cent per annum as against an average rate of inflation of 15 per cent per annum the capital sum required would be £370,000 and, correspondingly, if the shortfall is greater the capital sum required is greater. These sums I am quoting are actuarial figures based on the life expectancy of a person in normal health and having regard to his age of retirement, 65. It is important to understand that no insurer or financial institution would take on such risks. As I have said, the Revenue Commissioners in the schemes which they approve limit the rate at which provision may be made for inflation to 5 per cent per annum.
There is no way in which a private individual either, say, a self-employed professional man or the owner of a business, could make provision for himself which would provide the guarantees which are built into the employment of a person in the public service. The capital sums I have referred to assume that the investments would earn a gross rate of interest calculated on that rate whereas, of course, the person in the private sector simply cannot do that because he is taxed on the interest which he gets from the investment. He cannot get the kind of gross yield I have been talking about.
I want to make it clear that I have no objection whatever to the provision made for retirement and pension in the public service. In fact, I contributed personally to some extent in the provision of parity for public service pensioners. It is right that that should be done. I would like to see and have given a good deal of thought to how it might be achieved, the same kind of parity for outside the public service. It is an extremely difficult problem. I want to make it clear that I think it is right and proper that there should be the kind of provision for retirement in the public service that there is. No objection at all to that. It is not the point with which I am concerned.
What I am concerned with is that there is not anything like equality of treatment in this section in regard to provision for retirement between those in the public service and those in the private sector. If one considers the degree of security in the job of the person employed in the public service, this is another factor which must be weighed against the position of the person in the private sector who lacks the same degree of security in his job, who cannot under any circumstances go anywhere near the kind of provision for retirement that is available in the public service and who is limited under the schemes which are mentioned in this section in a way that ensures that the provision for his retirement is far inferior to that of a person in the public service at a comparable level of earnings.
The implications of this are quite serious because what we are doing in this Bill is imposing a wealth tax which will affect directly in many cases people who are self-employed and depending on the amount they can amass or can invest to provide for their retirement. I am suggesting that it is unfair and unjust that there should be this grave inequality in treatment between the person in the public service and the person in the private sector. I am not suggesting that this is deliberate. What I am suggesting is that the Minister should not allow this Bill to go through the House containing that inequality. Adequate provision ought to be made taking an overall view of the Bill to go as far as one humanly can—as I said before one cannot achieve absolute equality—to try to ensure that the overall impact of the wealth tax will be such that will get reasonable equality between the public and private sector.
It will, I hope, be obvious to everybody that that capital sum which I quoted in the case of the Secretary of a Department would, of course, be liable to substantial wealth tax given all the thresholds in the Bill. There has been emotive talk in connection with this Bill about the thresholds being so high that you are only getting at people who have enormous sums of money. The reality is that people in the public service who are not regarded as wealthy, God knows, in fact because they have these provisions for retirement are the owners of what is the equivalent of very large capital sums which we are proposing, rightly in my view, in this section to exempt from wealth tax. It is quite right that that should be done. Equally, there ought to be equivalent exemption for those persons in the private sector to enable them to make a reasonably comparable provision for their retirement.
(Cavan): The first thing I would like to say is that I am rather surprised that Deputy Colley did not put down an amendment to the section——
It would be very difficult to draft it.
(Cavan):——along the lines he has indicated. It need not have been a perfectly drafted amendment but one that would have indicated his thinking and would have provided a basis for a researched discussion on the matter.
May I interrupt the Minister to say I did advert to this point previously in the House?
(Cavan): The next thing I want to say is that I am sure the Deputy did not intend to be mischievous when he drew a distinction between the public sector and the private sector because that is not, in fact, what he was doing. He was drawing a distinction between the employed and the self-employed.
No. It applies to both.
(Cavan): The Deputy was drawing a distinction between employed and the self-employed. I do not want to start mentioning names of companies but there could be many companies in the State with equally generous pension schemes and they would be exempt under the section.
Again, Deputy Colley took the example of a secretary of a Department who has been contributing to a superannuation fund for many years, who has been in the same employment from 18 or 20 years of age until his retirement at 65. He compared that situation with the position of a self-employed person who first enters a superannuation scheme at 55 years of age in the first case he mentioned and 45 years of age in the second case. That is not a reasonable comparison.
My reading of the Bill is that it exempts the capital value of all superannuation payments. If Deputy Colley has a grievance it is not one with this particular Bill but a grievance with the income tax code, which limits the amount that can be claimed by way of allowance by a person who is contributing to a superannuation fund or for an annuity. If Deputy Colley will pardon me for saying so, if he felt that strongly about it, he had an opportunity, when he was Minister for Finance, of amending it.
We have here a storm in a teacup. The argument that Deputy Colley is making would have some validity if the State were providing the superannuation in each case but that is not so. The State is only contributing to a superannuation fund in one case, that is in respect of its employees. The Bill goes on to say that any superannuation, regardless of amount, is not subject to wealth tax. If Deputy Colley has any grievance—I do not think he has—it is that the State is too generous to its employees and he specifically stated that he was not making that case.
That is right.
(Cavan): I accept that. Then he has no grievance. The State does not put any barrier on the amount of superannuation that anybody else may have, in the private sector or in the self-employed sector. If the Deputy has any grievance it is in respect of the relief which may be claimed under the income tax code. That is a matter for another Bill and another day. He had an opportunity of dealing with that when he was Minister but he did not do it.
We could have had a better discussion on this matter if Deputy Colley had put down an amendment, not necessarily pluperfect in draftmanship, but one which would indicate the shortcomings, if any, which he saw and his rough suggestions for improvement but he did not do that.
I can understand the Minister's point here. Let us get a number of points straight. First of all, there is no storm about this matter either in a teacup or anywhere else. The second point is, as Deputy Colley said, that the levels are, as regards the public service, on the quoted figure he gave for the salary of a Secretary of a Department, too low for the job. That is not the point here.
There are two points as regards the public service to which Deputy Colley has referred. It is very difficult to see what form of amendment will do it. The Minister may have a point when he says that it is in another code it has to be done. First of all, what the Minister is really doing here is exempting the annuity and I presume the lump sum under the word "benefit", which is given on retirement on any bona fide pension scheme, whether public or private. This is what is being done.
The Minister is rightly exempting both the lump sum and the annuity. He is exempting it because if he did not do that they would be aggregated or capitalised. They would have been capitalised under the Bill. The first part of Deputy Colley's argument, which is prompted by particular representations, as he said, is that the capital value represented by these annuities and retirement benefits, in the one case, are substantially greater than the other and therefore, there is a greater relief being given, from the point of view of capital sum, in respect of one rather than the other.
That is the point I am making.
May I develop how it comes under the Bill?
(Cavan): It does not matter in other cases in the Bill.
The Minister made a suggestion about mischief and I want to refer to two parts of the Bill. The Minister knows what I am referring to. If the benefits are capitalised on one side, then it will be found that what is really being done—let me get back to the essence of the Bill— in this exemption is exempting the capital value because this is a capital Bill. The Bill exempts taxation of the capital represented by the annuity. This would have to be done because if it was an annuity simpliciter under other provisions in the Bill it would be taxable. The capital value is exempted and this relief is given. The point, therefore, is that a greater capital sum is being exempted in the one case rather than in the other. That is the first point. I am not arguing merits, I am only trying to make quite clear what the points are.
The Minister referred to certain schemes but there is a great parity in another way between the private and the public sectors. There are many private schemes—and this brings me to the second point that is at issue here —approved of by the Revenue Commissioners which are similar in that they are contributory schemes, and the contributory schemes have certain privileges with regard to income tax. These schemes may mature over the whole time and when it comes to retirement practically the same thing happens. One of the usual things is that either you can have a maximum two-third pension and no lump sum or you can have a lump and a half pension, which is the case Deputy Colley mentioned here. There is often an option. The capital value gets tied up at this point. Up to that point those two schemes seem to be the same in essence. If there was a bit in favour of the public service, like Deputy Colley, I would say all right, but actually it is important that it should be realised that there is this parallelism up to this point. Is the Minister saying that there are not private schemes operating that way, as I have said?
(Cavan): I have been saying that there is no discrimination between the public sector and the private sector.
What have I said? I have said that the private and the public schemes are the same, so he cannot accuse me of saying there is discrimination. Where there is discrimination, it is accidental discrimination applying in this way.
(Cavan): That is Deputy Colley's complaint; you are on my side.
I am trying to find the objective facts and I think one will see Deputy Colley's point at the end of it. There are two schemes, a private scheme and a public scheme. Up to that point they are the same. Where the double problem arises—and frankly I do not know how Deputy Colley could have dealt with it in an amendment because it is a difficult problem of practice; theoretically in another Act one could have, but from the practical point of view I wonder would it be effective— is that the Revenue Commissioners under schemes under the 1972 Act restrict the inflation provision to 5 per cent, whereas automatically throughout the whole public sector —it is not that there is a preferential or discriminatory provision given— but as an automatic result of the gearing of the system, inflation is catered for in one case. Inflation is catered for in the public sector and is restricted to the 5 per cent in the private sector.
(Cavan): No.
I am afraid it is.
(Cavan): The income tax relief is——
You cannot purchase.
It works on both heads.
Yes, it works on both heads. Where is this argument leading? Not to a criticism of what is happening in the public sector. I agree with the Minister that that could be characterised as mischievous. Would the Minister give us credit for a sense of responsibility? What I am saying is that there is only one way that I can see to compensate practically in this situation. It is very difficult to work out the mechanics. In cases where the private individual can supplement by saving which otherwise would be capitalised here, which would be wealth because his savings would be capital, perhaps some provision could be found to enable him to achieve parity. The only way I can see parity achieved—and it would be a voluntary effort, like voluntary health—a person could do it or could not do it, but if he could do it why stop him?—would be if somebody in the private sector could save and accumulate capital. In so far as a revenue from that capital could be equated to a retirement annuity it would even bring in the age limit and I can see great headaches in forming it. The very fact that we have not put down an amendment gives the Minister a present of the argument that the practicality may be extremely difficult but it does not take away from the merits of the case.
Taking the measure of the capital here, if in the private sector it is found to be impossible, in the same way as the public sector, to provide for the inflationary increase—taking the capital as a value, that capital representing a supplementary annuity, so to speak, to an equivalent value would be exempt, then the result we are talking about could be achieved. I do not know if I am making sense to the Minister. I would like to be corrected if I am wrong in my facts.
Even if the Revenue Commissioners were to say in their discretion "There is nothing easier than to raise the limit for inflation, say to 15 or 20 per cent" that does not solve it in practice because you will not get the practical cover for it. It solves it in theory but not in practice. This is why the only relevancy of the capital calculation that Deputy Colley has given is as a measure of the discrepancy in parity. That can only be made voluntarily but it means a voluntary accumulation of capital. There, I fear, the Minister would have to take into account not only this Bill but also the Capital Acquisitions Tax Bill because obviously you would not want to exempt or accumulate something that was going to pass over.
Just as in the Capital Gains Tax Bill, could the Minister consider the 65 to 70 person, the capital in the hands of a retired person and some measure to bring parity between the public sector and the private sector, exempting that only in the lifetime of the pensioner and then let that capital revert? That is the only suggestion I can make to the Minister in regard to it.
On that particular point, I would like to make it quite clear that, on the figures given to me here and from what I know of business outside, it would be a very wrong and improper impression to take it that the principal executives or administrators in the public sector are overpaid. By comparison they are not. They are, in fact, underpaid and there is no question therefore of raising that point. But, on the other hand, I think it is very important for the public sector to be protected in another way.
There is always the danger of what has recently happened if we do not keep a certain parity. Look at the impact of the recent budget on the public sector. Because there was a discrepancy between the outside and the inside, look at what has happened about PAYE. I am sorry it had to happen, but it happened because of the inflationary situation and it has had embarrasing effects on large numbers in the public service. Whenever you have disparities this is likely to happen. I admit that the problem is a very difficult one to cope with. Not many will be affected by this wealth tax. Not many, if any, will have the kind of capital that will attract wealth tax. Where they are caught there will be certain exemptions.
I am really talking about higher levels in this. There is both principle and practice involved. In the net, I can only suggest that where a pensioner over 65 would have sufficient capital to supply an annuity to keep his pension at the same level as it would have been if he were in the public service, to that extent an exemption of the capital sum concerned might be considered. That is the only positive suggestion I can make to the Minister.
I think the Minister is mistaken and I want to make it as clear as I can because he talked about this being a matter for another code. If I were a self-employed person and wanted to make the same provision for my retirement as the member of the public service to whom I referred I would need to have accumulated at the age of 65 £320,000.
(Cavan): This is an example of a man of 55 starting to provide for an annuity for the first time.
No, that is not relevant to what I am saying. I asked the Minister if the capital value at his retirement of the pension of the member of the public service to whom I referred is £320,000. A self-employed person if put on an equal footing would require at age 55 to have accumulated £321,000.
(Cavan): That is crazy. The Deputy has assumed all sorts of things.
Maybe the Minister would explain to us. I would be delighted if he would. But that is how it looks to a self-employed person, and how is he going to accumulate it if you tax him on it and, even when he has accumulated it, you apply wealth tax to him but not to the other? That is at starters' terms.
(Cavan): I really think that there is no depth or weight in the point made by Deputy Colley and Deputy de Valera. The exemption here is in regard to superannuation and it does not specify the amount and it does not interfere with the threshold that is available afterwards. It simply says that the amount of superannuation a person is entitled to shall not be affected and it does not interfere with the threshold. It does not say it is not a bonus being given to one person as against another. If it were, then we would be able to agree. I am somewhat surprised that the Opposition hung on to this point and did not say a word about the exemption of a house because we could be exempting a house and contents in one case, that would be a £100,000 in value, and a house in another case might be worth only £5,000 in value.
You are not getting your bread and butter out of your house.
(Cavan): No. You would expect the Opposition, if they were to be logical, to say that because one person may have an exemption up to £100,000 in respect of a house and contents and another man only uses £15,000 in respect of his house and contents in some way or another he should be brought up to parity with the other man. You have the very same argument in respect of livestock. Livestock is exempt. We do not query the numbers or value of the livestock we are exempting. We are simply exempting livestock.
I think the Minister is introducing red herrings.
(Cavan): I am not. I am introducing logic. One of the privileges the Opposition have is that they do not have to be logical.
The Minister is introducing plenty of logic in an illogical direction—that is, when he talks logic.
(Cavan): I did not interrupt the Deputy. Furthermore, in the exemption clause here we exempt bloodstock and there is no query as to whether everybody need not have bloodstock. One man may have a £100,000 worth of bloodstock and we exempt him, but we do not say his poor neighbour who has no bloodstock is being discriminated against.
(Dublin Central): The only reason he was exempted was that it was an easily moveable asset. The Minister knows perfectly well.
(Cavan): We exempted bloodstock because it was obviously the right thing to do. We exempted livestock and, as I say, we did not put any ceiling on the amount of livestock.
Provided it was a farmer. There is a definition of farmer coming in later on.
(Cavan): We exempted livestock. We did not say that there was a limit on the livestock and Deputy Colley did not say that, because one man had an exemption on, say, 100 head and that the other man had only 25 head, the man with the 25 head was being discriminated against.
The Minister does not know the illogicality of what he is saying.
(Cavan): I think Deputy Colley is chasing every hare.
If the Minister does not know how people feel he should find out. I am telling the Minister something very serious about this Bill.
(Cavan): I am telling the Deputy that he is chasing hares that are not worth chasing. There is no discrimination here, none whatever. Again I emphasise very, very strongly there is no discrimination in this as between the public sector and the private sector. If there is a grievance it is between the employed and the self-employed. The self-employed usually have more capital than the employed. The more I heard of it, the less weight I thought was in it.
Perhaps we failed to communicate.
(Cavan): It was quite clear. If I were using up some of the man's threshold, or if the Bill were using up some of the threshold——
You would in some cases.
That is precisely what the Minister is doing in the case of a self-employed person. If he accumulates that wealth to give himself that kind of retirement benefit, he is over the threshold. Of course, you are applying wealth tax to him. Does the Minister know what the Bill is doing?
(Cavan): I am simply excluding all benefits from superannuation.
Will the Minister take the self-employed person first, then the employed person outside the public sector and he will see what it is all about?
(Cavan): I am excluding all superannuation from whatever source and there is no discrimination, good, bad or indifferent. As I said earlier on, I cannot understand Deputies opposite making this point so forcefully and finding no fault at all in regard to the dwelling house, in regard to the livestock, and the bloodstock.
We did find fault.
(Cavan): Nor can I understand if they felt so strongly about it why some amendment was not put down.
That is no answer.
I want to put a serious question to the Minister about the self-employed person, the person who is running some sort of a unit, a farm, or a small factory, or business, who may not have been in a position to provide superannuation on a continuous basis but has reached the stage where he has to retire, and disposes of the farm or concern for a reasonable sum and invests that in a fund of some kind. Will that be included in the assessment of his material goods for wealth tax?
Yes.
This is the question I asked the Minister on the Report Stage of the other Bill. I asked could a person make provision for retirement. He said he believed he could. This is really the question Deputy Colley is bringing forward. It has not got a lot to do with the public service, except that the public service is a good measuring rod to look at. What Deputy Colley is saying is absolutely true where the private individual is concerned, other than the individual who is employed by a firm with superannuation arrangements. We are talking about the individual, the entrepreneur, who has been working reasonably hard all his life. It may be on a farm. It may be in a small industry. It could be any of these categories.
He may be a doctor or a solicitor.
He reaches a point where he may have to retire or he may want to retire. The question that has to be dealt with under this Bill is: can the provision he makes for his retirement be excluded from his estate for wealth tax?
(Cavan): He could have entered into an arrangement with an insurance company years ago.
The Minister is missing the point. I could list numerous individuals who, because of the very nature of the type of unit they are looking after, cannot make this sort of provision without damaging the actual business they are trying to run. I do not want to go into categories, but there are dozens of them, small businesses of all kinds in all the service areas, people who just cannot take out huge premiums like that and shove them into superannuation. It just cannot be done. You would put them out of business.
(Cavan): The Deputy seems to be arguing a different case.
There are two categories, the entirely self-employed and people who are employed outside the public service. They are different categories but the principle involved is the same. As I said earlier, the stark case was the self-employed person.
Deputy Colley brought forward a point actuarily which is very useful to all of us. It is the impossibility for anyone, other than those of us who happen to be Members of the Dáil, to make provision for retirement on an ordinary basis, allowing for the rather conservative 15 per cent he instanced. When you take this Bill into consideration the difficulties mount up. This has nothing to do with the principle of a wealth tax. In the inflationary situation today, for anybody other than the employed person in either the private sector or the public sector to make provision for any sort of moderate retirement is a difficult problem anyway, but this compounds the difficulty. I asked the Minister about this before and I understood that that sort of provision would be dealt with by the Commissioners. Now I understand that it will not be. It is a valid question that should be dealt with.
Might I add something? Some of us can talk with some experience outside of some of these things. The Minister, of course, is aware that this problem of providing pensions is becoming very acute —the Minister mentioned insurance companies—and that one of the great problems outside the State's concern is to actually provide for pensions. The Minister mentioned an insurance company. This situation is changing so rapidly that I fear we are getting very near a position where, except at exorbitant premiums, this will not be available.
Not available even at exorbitant premiums?
Not even at exorbitant premiums. I am talking about the realities of the situation.
(Cavan): The Deputy may have a problem but it is not a problem which is relevant to this section or to this Bill.
I do not want to be or to appear to be mischievous but it is of great importance to have this parity in the interests of both sides of the ditch, if I may call it that, and recent events have shown this. There is only one way I can see of doing it. Where a person reaches a commonly agreed age of retirement, one has only to provide in this Bill that annuities—and an annuity can simply be the annual interest on a capital sum— of the nature of a pension of a certain level, a parity level, may be preserved. In practice what that would mean would be the exemption from wealth tax of sums up to a certain amount in certain circumstances. I cannot put the proposition as a mathematical problem any more clearly than that.
I may be able to make some suggestions later to the Minister.
The first thing that we have to do is to convince the Minister that there is a problem which relates precisely to this Bill. This section purports to exempt the capital value of superannuation schemes. I should not say "purports". It does that—it approves superannuation schemes. But what it does not do is to exempt from wealth tax the capital value of such provision as a person has to make for his retirement. The Minister, I am sure, appreciates the difference. It is concerned first of all to approve superannuation schemes. I said there are two distinct categories although the principle is the same. The most obvious one is the one mentioned by Deputy Brugha, the self-employed person who cannot, because of the nature of his business make provision for it. The premiums required would be such as to cripple his business. He is one clear-cut category. Incidentally, in certain kinds of business or professions some people are not able to make adequate provision for their retirement but they sell their business or their profession or whatever it is on retirement. What is happening? The goodwill is being subjected to the Wealth Tax Bill, which is very often the provision for retirement that such a person has.
That is the self-employed person. Let us take the person who is employed outside the public service. Some of those people, not so many now, are in the same position as the self-employed. Many of them have pension schemes. To the best of my knowledge, in the vast majority of cases the best terms in the pension schemes are related and are restricted by two factors: (1) the 5 per cent limit that the Revenue Commissioners will approve for income tax relief and (2) the non-availability, even if the Revenue Commissioners had no limit, of anything very much more than 5 per cent provision for inflation.
The basic reason for this is that these pension schemes are dependent on investment funds and therefore are related to the yield from these funds, and the yield from these funds is simply not keeping pace with inflation. The only reason that the public service can get the kind of provision it is getting is that it is refunded out of current expenditure not out of a fund. That makes the basic difference. That is the point—it is all out of current expenditure.
It is simply a half truth to say that this section is treating everybody the same way because it is exempting the capitalised sums of approved superannuation schemes. The real question for anybody involved in it is: "Can I make provision for my retirement comparable with somebody in the public service? In order to do so I have to accumulate £X00,000 to make a comparable provision, and if I do I will have the wealth tax applied to it."
But the person in the comparable position in the public service has available to him, as I demonstrated on actuarial figures, provision for his retirement which is measurable in terms of equal £X00,000. But he does not pay wealth tax on that. I think a lot of people who have the benefits of superannuation schemes, and I am not referring only to the public service when I say this, do not realise the capital value and what it amounts to in the case of their superannuation scheme. They think in terms of a self-employed man who has accumulated a good deal of tax as being a wealthy man as compared with them, where they may well be better off in real terms and indeed in cash terms when you work out the value of what they have. This section, I submit, is not taking account at all of the realities of the situation as I have outlined them. The reality of the position for a person on retirement and it is simply no good for the Minister to talk about one house being worth a whole lot more than another and they are all being exempted——
(Cavan): One man might not get any house and the other man might get——
That is it, but if the Minister is trying to live at 65 and onwards until his death on whatever income he can get then, and if his income is to come from——
(Cavan): It would have to be a £100,00 before he is worried.
Does the Minister know how much he will get for £100,000 at age 65? accumulate £100,000 at age 65?
(Cavan): Then he would have no problem if he has not got a £100,000. He has no problem as far as wealth tax is concerned if he has not got it. Maybe he has many other problems, but not of wealth tax.
The fact is that provision is being made under this section for people in the public service who will have at retirement a sum equivalent to £320,000. If anybody outside the public service has accumulated such a sum to give equal benefits on retirement he will be subjected to wealth tax. This is the reality of the situation and there is no way the Minister can suggest that it is not so or it is not the effect of what is being done. I know the Minister said that he did not have an opportunity to study the Bill in advance. I hope that before we resume on this section the Minister will have an opportunity to look at it and will recognise the reality of the problem.
Progress reported; Committee to sit again.
The Dáil adjourned at 10.30 p.m. until 10.30 a.m. on Friday, 11th July, 1975.