Before we start could I inquire whether the Minister for Finance is in the Seanad?
Wealth Tax Bill, 1975: Committee Stage (Resumed).
Cavan): I cannot say. I am standing in for him today.
I appreciate that the Minister for Lands has stood in for the Minister for Finance on this Bill on a number of occasions. Without any attempt to be patronising may I say he has done it very well. Nevertheless, the Minister will appreciate that if the Minister for Finance is or should be available we would expect him to deal with this Bill for which he is directly responsible. That is why I asked the question. If the Minister is not in the Seanad the House is entitled to an explanation of his absence on this Bill.
(Cavan): I am not in a position to say that he is in the Seanad, but he is not available. Deputy Colley will appreciate that when we adjourned last week we had not concluded section 7. As a matter of fact, we were in the middle of a discussion on a point raised by Deputy Colley on section 7 and it was thought appropriate that I should resume.
I merely wish to make the general observation that, if the Minister for Finance could be here, he should be here. To resume on section 7, as amended, on the last occasion when we were discussing this matter I drew attention to a certain aspect of it and the Minister for Lands appeared to be somewhat taken by surprise at the point. I trust he has had an opportunity of considering the matter.
To recapitulate, the situation is that this section, as amended, provides for the exemption from wealth tax of the capital value of superannuation funds or approved superannuation schemes. I made it clear that, in regard to the public service and their pensions, I have no objection whatever to the manner in which their pensions are calculated. I pointed out that I personally had something to do with the establishment of parity in public service pensions. I do not want any misunderstanding in regard to that. Nor have I any complaints about the level of salary and therefore of pension of public servants.
The point I am raising is, that under this section, in my view there is considerable unequal treatment as between those who are employed in the public service and in particular in the civil service on the one hand, and those who are self-employed or employed outside the public service with or without an approved pension scheme. Very succinctly the position is that a self-employed or non-pensionable married man is entitled to have up to £100,000 before he reaches the wealth tax threshold whereas a person who is in receipt of a pension or superannuation rights under an approved scheme is entitled to a threshold of £100,000 plus the capitalised value of his pension. This is a particularly acute problem for the self-employed who are in their fifties or sixties. It can lead to considerable hardship. It appears under this Bill that there is no provision for relief in respect of a married man who is self-employed and who has put his savings, which have already been taxed, into stocks and shares or property in order to have a pension when he retires.
Under this Bill goodwill is liable to wealth tax. In many cases, particularly in the case of self-employed professional men, the goodwill of their business or practice may well represent for them the capital sum on which they will be depending to provide them with a pension on retirement. Therefore we are urging the Minister to ensure that there is equal exemption in so far as it can be given. I am not suggesting that it is a simple problem but there are approaches open which would make the position as equitable for those in the private sector as for those in the public sector. It is not sufficient for the Minister to say that the section approves or exempts superannuation funds under an approved superannuation scheme. What is really involved is whether an equal threshold or as reasonable a threshold is given to somebody in the private sector who is self-employed as is given to somebody in the public sector with the kind of pension scheme there is in the public sector.
I gave an instance of a situation in regard to a Secretary of a Department and a present salary of approxiimately £11,000 a year, if he had 10 years of service to go and if we assume an average rate of inflation over the next 10 years of 15 per cent with the increase in his salary and consequent increase in pension on retirement, in line with inflation, with no improvement in the standard of living over today, we arrive at a position in which the capitalised value of his pension at retirement in 10 years' time is £321,000. He is therefore entitled to a threshold of x £100,000 plus £321,000. There is no comparable or remotely comparable exemption for a self-employed man in the private sector or for people who are employed but are beneficiaries under a superannuation scheme in terms approved by the Revenue Commissioners.
Even if the Revenue Commissioners were to relax their conditions of approval for the purpose of income tax relief commercially, there is no way one can purchase this kind of pension right. Consequently we are faced with the situation in which, taking the example I have taken in the public sector, the effect of a threshold in one case is £421,000 and in the other £100,000. This is the basis of the complaint made. There is not an equitable approach in the Bill to this problem. There is not any solution, but an effort could be made to allow somebody to receive an exemption, if he has no pension rights, which would roughly equate him with somebody in the public service, and he has pension rights which are restricted, an exemption which when added to his existing pension rights would put him approximately in the same position as a corresponding person in the public service.
I recognise immediately that it is very difficult to equate a self-employed man with a particular grade in the public service, and say that is the level of exemption which should operate. This problem is not totally insoluble. Even if it presents difficulties and does not result in absolute equity, it is far better that some rough and ready effort be made to tackle the problem than to pass this Bill with the built-in inequity I have described. For that reason I hope the Minister will have found it possible in the interval since we discussed this matter before to be able to indicate to the House the steps he would propose to take to try to remedy the inequities I have highlighted, the very different treatment meted out, on the one hand, to somebody employed in the public service or indeed somebody in receipt of a Ministerial pension, or, on the other, the self-employed without a pension or a person employed outside the public sector in receipt of a much more limited pension.
I should like to support the point made by Deputy Colley. It is a serious problem and I do not see an easy way out of it. If there is not to be some form of exemption from this tax for superannuation purposes, then there will be a basic inequality directed against the private individual in the circumstances that can arise.
I think the Deputy is talking about the self-employed. These superannuation schemes apply to a lot of private businesses.
Yes. The problem that arises here can arise for a surprising number of people, such as those who have not been able, either through their employment or through the circumstances of the particular nature of the business they have been engaged in, to make provision for the standard superannuation retirement scheme. I maintain that those who have not this advantage and yet who when it comes to retire either have succeeded, through investment or otherwise, in setting aside a sum of money or by disposing of a farm or a business, have the necessary amount of capital which would provide for retirement, should have the benefit given to others under this legislation.
It is impossible to visualise as Deputy Colley has set out what the necessary amount of capital would be, with inflation running at 15 to 20 per cent. Nevertheless if an individual has a farm, a business or a small factory which he has been running or something of that kind and in order to retire sells it, his position will be as one sees it at the moment, that the capital sum that he would then have would form part of his taxable liability for wealth tax purposes. The sort of provision that is needed here is that he should be able to provide some sort of investment return, whether it is in certain kinds of Government securities, which would not be included, just as the individual who either in private employment or in the State's employment or the local authority would have his pension and his pension is not capitalised and included as part of his wealth possessions.
This is a question that could become quite a contentious one if the Minister cannot find any way around it, because there would be a basic injustice against the individual who wants to provide for his retirement. I mentioned that there is not very much the State can do about the escalating, inflation rate, but there is something the State can do to enable that individual, outside of his ordinary possessions which any person in significant employment would have on retirement, to invest an appreciable sum to provide himself, in terms of today, with some sort of reasonable income on retirement.
(Cavan): The Deputies opposite seem to miss the point that the object of this Bill is to tax wealth in possession. A right to future wealth is not taxable except in one or two exceptional cases which are dealt with elsewhere in the Bill. This section we are dealing with is the exemption section and it simply exempts all superannuation arrangements, entitlement to pensions however provided, lump sums secured to people on retirement until they receive them.
Deputy Colley seems to suggest that there should be a higher threshold for those who are not entitled on retirement to superannuation benefits than to those who are so entitled. I think that is his case in a nutshell. He seems to think that, because provision is not made for a higher threshold for self-employed people or those in employment which does not make provision for them on retirement, than for people in employment who are entitled to superannuation on retirement, there is discrimination against the former. I do not agree with that.
I pointed out on the last occasion that we have in the Bill several instances which, if Deputy Colley was to argue his case to its logical conclusion, would also suggest there was discrimination. Take the person who has a house worth £50,000 which is exempt, against the person who has only a house valued £10,000. It is not suggested there is any discrimination there. As a matter of fact one might have one person with a house valued for £50,000 and another person with no house at all, who was living in a flat all his life or lived with his relatives. The same argument applies to a person with livestock as against the person with no livestock; the person with bloodstock as against the person with no bloodstock; the person who lives on just the site of the house in the town as against the person who resides in the suburbs in a detached house on an acre of ground. In all those cases it could be said there is discrimination. There is not. Those are exempt.
It could be argued that there is more discrimination there than in the case we are dealing with. In the case we are dealing with we are simply exempting superannuation arrangements. It may be said that the self-employed person usually has tangible wealth in the form of buildings, or land, whereas the employed person very often has not. Secondly, the employed person is usually, by the conditions of his employment, forced to retire at 65 when he is usually unlikely to find other employment, whereas the self-employed person can continue to work, continue to manage his business, practice his profession, until later on in life if his health permits him to do so. You are not comparing like with like.
I did say to Deputy Colley the last evening it was a pity he had not raised this in a more formal way. Of course he is not obliged to give notice; nor is any member of the Opposition on Committee. They can raise any point at any time without an amendment. I do not want to be taken as being critical of the Opposition, but I did say that. I have had the matter gone into and I will give the Opposition what I consider to be a reasonable reply to the point raised by them. As I have said, section 7 is the exemption section. Amongst the many exemptions contained in this section are the exemptions for benefits from superannuation schemes and analogous benefits provided by private individuals for themselves. The scheme of the Bill as far as individuals are concerned is to tax present interests which are in possession and to ignore future interests with one or two exceptions, which have already been dealt with. Therefore, the right to receive a superannuation benefit in the future is in common with all future interests, like contingent life interests and remainders, generally not the subject of the tax. As a result, the exemptions in paragraph (c) are concerned with interests in possession, pension rights which are actually enjoyed by pensioners. We are therefore talking about persons who are retired and who are in the wealth tax bracket.
As I understand the proposition which has been put forward by the Opposition it is that an individual who is self-employed and who has made no provision for himself by way of a retirement annuity should be given a further exemption of such a sum as would represent the value of a superannuation benefit which he would have been entitled to if he had been a member of a superannuation scheme or had made similar provisions of his own. The proposition therefore applies only to those who are above a certain age and who are retired whether on the grounds of age or ill-health and who are in the wealth tax bracket.
In considering this proposition several factors are to be taken into account. It is the nature of exemptions that they apply only to property which is liable to tax. The suggestion does not fall within this principle. It is, therefore, another proposition in that it asks for an exemption for property which does not exist and that, accordingly, an individual should get a benefit for non-existent property.
I must say I do not understand that.
(Cavan): The person who is entitled to look forward to a pension when he retires.
A pension is not non-existent property.
(Cavan): I will come to that in a minute. We will assume for one moment that the superannuation which Deputy Colley is talking about is existent property which may be looked forward to in the future if the person lives long enough. But Deputy Colley is saying that the other person who has no such right should have it taken into account as imaginary property and should be given a threshold in respect of it——
That is a very convoluted way of thinking.
(Cavan): That is what Deputy Colley is saying in effect. What is sought is a special additional threshold for certain individuals. The reasons advanced for this treatment suggest that there should be differentiation between the selfmade man and the individual who inherited his wealth and that the relief should be related to the business element of that. If this is pushed to its logical conclusion the relief should also be extended to employed persons in so far as their existing superannuation benefits might be considered to be inadequate. This suggestion would present enormous problems, a fact which I think it is fair to say the Opposition speakers acknowledge. Deputy Colley said it is going to be difficult to get over this one but that it should not be beyond the ingenuity of the Minister and his advisers to get beyond it.
In a rough-and-ready way I think I said.
(Cavan): Yes. If the principle of special thresholds is admitted it would have to be extended. Clearly there would have to be a differentiation between people of the same wealth to take account of such factors as age, state of health, family circumstances and whether, for instance, an individual has a salary in addition to his wealth. Furthermore to ensure equity there should instead of a flat rate of tax be progressive rates increasing with the amount of wealth.
It is perhaps significant that there is no provision similar to that suggested to be found elsewhere and as far as can be ascertained writers on the subject have not advanced the idea. A very recent and comprehensive study of wealth tax running to over 350 pages which was published after this Bill was introduced entitled "An Annual Wealth Tax" by Messrs. Sandford, Willis and Ironside has this to say on page 139:
The conclusion is that pensions and pension rights should be exempt as the Green Paper proposes, whether they arise under the national scheme, a statutory scheme or an approved private scheme. Similar exemptions should be given in respect of the retirement annuities provided for themselves by self-employed persons or non-pensionable employees where the conditions for income tax relief are satisfied.
This is precisely what has been done in the Bill. There might be some justification for considering the suggestion if the thresholds for liability were much lower and if there were no exemptions such as those for the private dwelling house and its contents. The fact of the matter is that the thresholds exemptions and reliefs in the Bill which combine to produce a low effective rate on all assets of taxpayers are such as to render any further refinements based on individual circumstances unnecessary. The additional administrative costs which such refinements would entail and which would have to be met by other taxpayers could not be justified. Such refinements would themselves create their own inequalities. There is, however, one certain way of ensuring that discrimination which the Opposition claim the Bill creates is removed, that is, by deleting the exemptions for superannuation benefits and for private schemes entirely. If the Opposition introduce an amendment to this effect, I will promise to give it my full attention. I know that the Opposition are not suggesting——
That would not be fair.
(Cavan): It is the only real way. I am not suggesting that the Opposition are suggesting that but what I am saying is that it is the only way of removing the alleged inequality.
If the Minister recognises the problem, surely he can find a way of dealing with it?
(Cavan): There is no way of dealing with it. I am going further and saying that there is no problem, there is no discrimination or injustice, any more than there is in the other instances which I have mentioned. Here I might point out, in one way or another all exemptions bring about some element of discrimination. That is what I have been saying. A town-dweller might object that he should get a further exemption equivalent to that for an extra acre of land which a tillage farmer or any farmer for bloodstock might enjoy. Perhaps the people with the greatest grievance are the many thousands who will never reach the thresholds and for whom all exemptions are academic.
Finally I would like to clear up any misunderstanding which might arise out of Deputy Colley's reference to a figure of £300,000 as representing a value of a pension of £5,500 ten years from now, assuming inflation at 15 per cent per annum, with the result that the pension would then amount to £22,000 per annum. It is not necessary for me to say whether this estimate is right or wrong. All I can do is deal with the present, not with the position ten years from now. What we are concerned with now is the present value of an existing annuity in possession of a pensioner on 5th April last, that is taking Deputy Colley's example, a pension of £5,500 per annum.
Under section 3 of the Bill such a pension is valued in the same way as any annuity which is not charged on property. This value is arrived at by taking the current yield, 14 per cent, on the relevant Government security on 5th April, 1975, that is the 11th national loan 1993-1998 which then stood at £80. On that basis such an annuity would be valued at £40,000. This figure then indicates that if such a pensioner were to be liable to tax he would have to hold additional assets to the value of £60,000 in addition to exempted properties such as his dwelling and contents if he were married. I think those figures put the matter in its proper perspective and put it beyond doubt.
I repeat here that we are dealing with exemptions and to do what Deputy Colley suggests would be introducing an element of unreality into the matter by introducing imaginary property, seeing discrimination where there is none. I keep on repeating, and I will do so ad nauseam that a man without stock is just as much entitled to have a grievance against the man who owns £50,000 worth of livestock as is the man with no superannuation arrangements against the man who has such arrangements.
The Minister's statement is an extraordinary mixture of valid argument plus what appeared to me to be interpolations that I do not think improves his case. Before I go on to the case he said something about the private sector, that the Opposition could put down an amendment as regards that sector. My simple question is why not the public sector? If we were to put down an amendment for the public sector why not for the public sector? I may have misunderstood the Minister.
(Cavan): I am not going to interrupt the Deputy but if he understood me to say that the Opposition could put down an amendment in regard to the private sector I did not say any such thing. What I said the last night was that the Opposition could have put down an amendment but that I was not criticising them for not putting down an amendment, that they were entitled to raise any point at any stage of the Committee Stage.
This is a preliminary point to clear. I may have misunderstood the Minister but the way he used the word "private" in that context suggested a difference in principle between the public and the private sectors. The whole point, of what Deputy Colley wished to say in general terms is that we should try to keep as far as possible the same levels for taxation or benefits, particularly taxation, between the public and the private sectors. That does not mean that the public sector should not be properly remunerated. I, for one, went out of my way the other day to make a comment on that point but what I am saying is that the principles governing the public and the private sectors should be the same and if they are not the same it is ultimately going to bring about difficulties such as, for instance, the recent PAYE difficulties. These difficulties inevitably come and it is interesting to reflect that the difficulties and the imposition on the public service of PAYE occurred because there was a differentiation made at the beginning although I think many in the public sector wanted to treat it flat across the board, that is merely a comment. If the Minister did not mean to imply that and if I misunderstood him I am sorry, I merely want to make the point that we are standing on the principle, the assumption if you like, the hypothesis that the public and private sectors are entitled to the same principles of approach.
(Cavan): When this was raised on the last occasion I made reference to this. It was cleared up when it was said that what Deputy Colley was really speaking about was people who were entitled to superannuation benefit, whether in the public or the private sector, as against people who were not.
I said that before the Minister mentioned "mischief" but that is another point.
(Cavan): We are not discussing the public or the private sector. We are discussing particular treatment of certain individuals.
I am talking about a principle of approach. The Minister has talked about property, property in possession and property not in possession, and imaginary property. He has insisted particularly on interpreting much of what has been said from this side as applying only to the self-employed. I would like to make it quite clear that at one extreme it does cover the self-employed but it also covers an intermediate scale of the spectrum. For that reason I am going to take a fairly typical case in the private sector, big firms in the private sector, which would be by and large on the same level as in the public sector.
I am going to take the case of a superannuation provision in, say, a fairly progressive firm which over the years has within the terms of the Finance Act operated a contributory pension scheme. We have a definition of property in section 1 and we have a definition and delimitation of taxable wealth of an individual in section 3. In that section there is in effect a provision that if somebody has an income but the property from which that income is derived is not, to put it in colloquial language, immediately owned by the individual that the capital represented by that income will be captured for the individual by a process the Minister invoked, a process of calculation to determine the present value of the annuity. It is because of the effect of the definitions in section 2 1 and of the provisions of sections 2 and 3, particularly in relation to annuities, that we have the position here that if these exemptions were not in the Bill then they would be capitalised and assessed for wealth tax. I think that would be the legal position under this section if these exemptions were not in. Let us follow this up in my hypothetical case.
(Cavan): That is not so if the Deputy is going to argue on that. They would be capitalised only from the date on which the person became entitled to receive them.
Of course. Let us get another point clear for the purpose of our argument because this has given rise to confusion. The Minister is making great play with the word "present". He is right in the sense that any annuity would not be chargeable in that sense and be aggregated for wealth tax until it has actually been paid. I freely concede that point. That is the fact. However, I will come back to this because I want to follow the first part of my argument. By virtue of the earlier provisions of the Act particularly in sections 1, 2 and 3, as soon as an annuity became payable that annuity would be captured and would be, so to speak, capitalised for taxable purposes and would be taxable for wealth tax in the hands of the recipient if the recipient's threshold were exceeded.
Let us agree that that would be the legal position if the provisions in section 7 were not there. It will be only in the higher brackets, whether in the public or private sector, and where there has been some accumulation of property as well, such as invested income or something like that, having regard to the thresholds and the exemptions, that the case will become of practical importance. The Minister himself made that case. That is a matter for actuarial determination. It does not take away from the equity of the case I am trying to make. It is a poor defence to escape on the question of the principal of this matter although if I were pleading it, say, in a court, I probably would make my point like the Minister.
I would keep it in proportion and I would not try to mix it up with my main argument. Let us approach the problem on that basis and ask the fundamental question—why is this exemption included? The reason is that if it were not the annuities, by virtue of the notional capitalisation of them provided for in the earlier section, would be aggregated for the purposes of wealth tax in the hands of the recipient of the annuity, the pensioner if you like, and if his thresholds were then exceeded he would be liable for wealth tax correspondingly. That, I think, can be admitted as a fair interpretation of the section. Therefore, these provisions are very correctly put in. The problem left as a residuary is that there will be other members of the community and in our community, which has not yet gone like China, the whole way to administrative socialism, there will be many people who, when they come to retiring age, will have retiring benefits and annuities which, in equity and in actual practical effect, are retirement pensions but who will not have the reliefs in this section available to them. This is where we reach the problem. I cannot say to how many people this relief would be important. That would depend both on the amount of their pension and on the amount of their property. That is for an actuary to determine. In the same way I cannot say how many people are in the category that I am talking about namely those who are, in effect, in receipt of annual income in a retirement situation and who are not in the class which is available for reliefs under section 7. I may be labouring this but I hope I have made myself clear thus far to the Minister. Having said that let me try to suggest what classes are involved and then follow the consequences of that. The self-employed man, for instance, being self-employed, may accumulate a capital sum and on retirement live on that capital sum. The annuity from that capital sum would be the direct equivalent of the annuities contemplated within subsection 1 of section 7.
Let us take the case of a land owner. I do not mean one of the wealthy landed classes, I mean somebody who earned his living on the land, who had property and who sold it but who kept either the whole of the proceeds, if he deemed it necessary, or part of the proceeds to form a fund for his retirement. This man has an income from that fund. It seems to me that that fund will not be exempt from wealth tax. Let us just take the principle here. You have a number of people like that. This is a person at around the 65 years of age mark who capitalises, provides himself with an annuity, without the intervention of any other organisation. It seems to me in that case the sum involved is aggregated to wealth tax. Now staying with the present and recognising that that annuity does not become taxable in that sense, does not become equivalent of that until it exists, and recognising that the thing that would be taxable would be the capital sum supporting that annuity the first part of the case is that that annuity is aggregatable for wealth tax and one asks, in the circumstances, is that fair in principle?
The Minister may argue that if he has enough wealth to give him an annuity and also to breach the thresholds there is no reason why he should not. The fallacy of that argument is that the capital sum which is supporting the annuity is being aggregated in the calculation of the total property taxable, whereas in the case of the exempted annuities under section 7 that is not so. Let us take a specific case. Suppose we take somebody in the scheme about which I have spoken and somebody outside the scheme, both in receipt of the same pension. Suppose that the threshold in that case is £100,000— which would be the married man— in the case of the person in the scheme if he had £95,000 assessable wealth he would just escape wealth tax. In the case of the other man if he was receiving a comparable annuity, and even taking the Minister's base of calculation and I will add £20,000, that would only give a pension of approximately £2,500, that would add £20,000 and would put him over the threshold. So here would be two people who are at the same age, receiving the same pension, in effect, but one having the same taxable wealth without the pension being taken into account. One, because of the provisions of this section, is not assessable to wealth tax because he is under the threshold and the other is paying wealth tax because he is over the threshold. In that case one person is being taxed more in an equivalent position than the other. I am purposely avoiding embellishing my own arguments to try to keep to the straight line, to which I have asked the Minister to keep, but I could talk about security and many other things. Those would be red herrings too. Let us keep to the simple principle that we wish to treat all people equally.
Does the Deputy take into consideration the fact that the person in the private sector is getting an annuity from capital which he owns? In other words, he has capital which the person under the superannuation scheme in the public sector has not got. In addition to the annuity he has got a big block of capital assets. That is a big difference.
The essential point to appreciate here is that, the man who is getting the voluntary pension has a block of money to support that, but remember, in most of the cases concerned, to build that up he was saving. Leave out of consideration here inherited wealth and so on. He has saved this money in his lifetime and now he is getting his pension out of it, what I call the voluntary pension. The Deputy is right as far as he goes. What the Deputy is forgetting is that in the case of the pension scheme I mentioned—and this goes right across the board, public or private—there has also been a saving. In the case of a contributory scheme the actual contributor has been paying that money and it has been accumulated as a saving for him. Where the employers, whether the State or a private company, have paid their contribution that has, in effect, been annual payment and in fact in the private sector, at least, directly so. The accounting in the public sector is another matter but it is merely a matter of technical accountancy. This money has been saved so that notwithstanding the advantage there is in the public sector, mentioned by Deputy Colley, of being payment out of current revenue, and that is relevant to the inflation problem, or the difficulty in the private sector with insurance companies where you are paying for the future from contributions in the present in an inflationary position, but leaving that out, it is a fallacy to suppose that there is not a capital sum in the background supporting the other also.
In practical terms.
In practical terms it is very simple. A, in the recognised pension scheme is in receipt of an annuity and that annuity is ignored for the purpose of wealth tax. B, who has provided himself with an annuity which is on all fours with a pension under a scheme, has that pension supported by a sum of his own. In one case it has a liability to tax, in principle anyway. In the other case it has not. Let us look at it this way. In one case the annuity is supported either by an insurance company or by the State, and I am beginning to think that in the future, because of inflation, the State will probably have to intervene to support all pension schemes, but it is the State which is supporting it and admittedly the State does not want to tax itself. The other man is taxed.
I hope I have made the point as clear as I can. I am not suggesting that there are answers to any arguments but at least I hope I have made that argument in a logical way and I hope that it has been understood.
Would it be too much to ask the Minister if he would listen to me for a moment? He will not find me trying to trap him or anything like that. I will try to develop a point which is not very easy to develop. There will be plenty of time to answer it. I want to speak about what the Minister said on imaginary property. There is no imaginary property involved on either side at the date on which the pension is being paid. In one case in the scheme there has been an accumulation over the years of contributions from employer and employee, whether it is in the public or private sector, under a recognised scheme and that is captured by this section. The big problem arising is the inflationary one, but, from an accounting point of view or from any financial approach, that is the situation. The pension is not being plucked from the air; it is being paid out of property. Take an assurance company, for instance, that is paying an annuity in a case in the private sector. It is paying out of funds collected over the years in contributions largely invested and getting the biggest return, the company averaging out over all the factors concerned. Specious arguments can be made about the State and the fact that money is being paid out of current revenue but essentially the principle is the same.
What I am saying is that my argument so far stands up. I am not making it in any contentious sense. I am making it as objectively as I can. Then the problem is: "What do you do?" At this stage I take the Minister's point about property in the present. In the case of the person who for the simplicity of my argument I am taking to be totally dependent on that pension you could say that that pension is equivalent to what would be a pension within the meaning of the Act and treat it as such. At that stage you could exempt the capital sum pro tanto for as much and in that way you would solve the problem. We did not put down an amendment for that but, just to tease out the problem, you could do that. You could ask, has this man at this age retired? Is he receiving an annuity that is equivalent to, say, the pension in the firm I mentioned, taking that as a standard which would be practically equivalent to the public service in some regards, at least so far as the amount would be concerned? You could say: “We will disregard the capital supporting that annuity to the extent to which that annuity could be bona fide considered as a pension.” This is a clear, concrete proposal. I can see there is difficulty in it.
First of all, there is the question of age. I understand the Minister's problem. He would have to fix an age at which it would happen. The Minister has made great play of the point that somebody in the public service has to retire at a certain age. It is a valid point as far as it goes but it is not completely valid. How many retired people in either the public or the private sector not only have their pensions but have some additional post? It has not been unknown for people who are in receipt of their pensions to find, not additional employment in the sense of 9 o'clock to 5 o'clock working hours, but to have been appointed to boards or to be in receipt of remuneration from various sources. It has not been unknown for a man to retire from one post with his pension and to work in another. There were branches of the public service, like the Army, where the retiring age was early and where people in receipt of a pension got new employment. So the Minister's argument on that point is not quite as sound as it would seem at first sight. There are many people in receipt of pensions who are supplementing their pensions with additional earnings. That, of course, is a matter for the income tax authorities.
I mention this point because of the contention the Minister made about the self-employed man. One of the reasons that make me hesitant about a limited suggestion I made a moment ago is the difficulty of implementation because, quite obviously, it would be antisocial and wrong and very typically totalitarian to try to introduce the principle that if a person had a pension he could not do any other work. We had this old-fashioned idea operating in the case of certain State pensions which constantly came before the House in previous years and it was difficult to get away from what seemed to be a principle. We do not want to go back to those bad old days. It will be common case if we say that whether a pensioner sits back and enjoys his pension or decides that life is still worth living and goes on making an effort is a matter for himself and he should be encouraged in whatever way he makes his decision. I think we agree on that. This is a difficulty all right. I am stressing that point because the Minister's statement was a little over-elaborated. Had he left out some of the trimmings the essential point would have come over more clearly.
Getting back to the question of imaginary property, there is no imaginary property involved on either side. I do concede the Minister this: he is quite right when he says we are not dealing with future property, we are dealing with property vested. The solution that I have suggested, namely, that if a self-employed man, a professional man, who was not in a scheme that is covered by this subsection were to provide himself with a pension by providing over his lifetime a capital sum or else by selling assets at the retiring age to provide himself with an annuity, that annuity should be treated as an annuity under that section. It might not be too hard to meet the case that far, and that would ensure then that all pensions were treated the same. I appear to be repeating myself here because I want to make it clear-cut at this point before coming to the next stage of the argument. In so far as a pensioner is concerned in receipt of an annuity the position is clear: he is covered by this. In so far as a person who has been self-employed or not within a scheme has provided for his future by way of an annuity then the capital sum supporting that annuity could be given the same exemption as is in this section. To that extent a certain amount of equity would be done notwithstanding some of the difficulties that I mentioned in the process.
But now I wonder can I come to what was really our first point and puts Deputy Colley's argument in perspective here, and that is the method of accumulation of that fund. May I repeat? Has the Minister got my point now? Up to this I have been with the Minister and I have said nothing arises until the annuity is payable and being paid and we are only treating the capital sum supporting the annuity. That is one argument. But now let us see the second one. I am sorry to be so long about this. I hope the Minister will bear with me, but it is not easy to tease out a problem like this and to keep it logical. The difficulty we started about arises precisely at this point. This is why Deputy Colley was forced to resort to the capitalisation value of annuities in this argument. It happens like this. In the case of the contributory pension, say, the pension scheme within the Finance Act in the case of the firm which I mentioned, over the years annual contributions have been made—and the Minister will have to forgive me if for a moment I have to talk about the income tax side of equity, but it is all taxation—over the years these sums have been paid and have got a tax benefit in the accumulation. They are available for relief and, as I have pointed out, the pensions payable under the scheme are supported by a capital sum albeit it is a limited interest within the meaning of this Act because it is in the hands of the insurance company, but that capital sum has been accumulated by contribution from employer and employee and there have been, in fact, tax reliefs. Take the case of the man that I am talking about, whether he is the farmer or property man selling out, whether he is the small businessman that has been so ably defended right through all these discussions and represented by Deputy Fitzpatrick of this side of the House or whether he is the self-employed man that has featured so much in our arguments, that man in accumulating a surplus has probably not only got reliefs but he is being fully taxed for income tax on it. But when it comes to the collection of his wealth, the aggregation of the wealth, and particularly if he has to realise even with the 55 years provision—I think it is in the Capital Gains Act—he is actually at a disadvantage already and, in so far as he has been trying to save, all his savings are aggregated for the purposes of all these capital Acts.
Again, do not let us get involved in the application of thresholds or not, because I think we should be as fair to the man who exceeds the thresholds as to the man who is poor enough to be within the thresholds. In these inflationary days I am wondering what these thresholds will really amount to in a short while. The effect of this thing is that the capital sum in its accumulation has been—"unfairly" is hardly the word—but there has been a discrimination in taxation adversely affecting him as compared with those who are in the pension scheme appropriate to a firm or to the public sector.
This is the point where we got confused over time. It is here that one has to look at the flow of time and look at the present in the sense of the present now, the present of the man in the pre-retiral period. This is the relevance of Deputy Colley's first calculation of sums supporting pensions particularly with regard to inflation. This is the relevance of it. Deputy Colley's point in a nutshell is this: if the self-employed man or the man retiring by selling his property or his business were to have a sum to provide for a comparable pension he would all that time in doing it be paying a wealth tax and to that extent the actual sum available for supporting the pension would be reduced or milked for taxation purposes, in a way that, those schemes under Acts of the Oireachtas or authorised by them would not. This is the relevance of Deputy Colley's point here, and this is the importance of bringing in the capitalisation. This has been the essence of the whole argument.
The last thing I would say is this: there is an in-between area. There is the person with the insufficient pension. Suppose there is a late entry to a scheme, or something like that, and that man wishes to support his pension to make up the deficiency. There are many people in the middle executive range both in business and in the State service who are prudent and thrifty enough to provide for supplementing their pensions by annuities. This is a case that, in principle, is exactly the same thing but it is only pro tanto for how much. They come into this argument too. I emphasise that because everybody seems to think we are talking only about the self-employed man.
I have spoken for a long time on this section and I apologise to the House for doing so but I think I have been completely relevant to the provisions of the section and to what the Minister has said. I would ask the Minister to accept our bona fides and have an open mind about the problems we are posing. We will also have an open mind to the difficulties and the logical answer to this. Neither side should assume that the other is either not serious about it, or blind about it. There is a genuine problem here and the question is, can it be met and how far it can be met.
I would like to take the Minister's example in the case being made by Deputy de Valera. The Minister took an example, which is a valid one, that if an individual wishes to retire and has the capital he can provide himself with a pension equivalent to that of a Department secretary retiring on £5,600 with a sum of £40,000 if he purchases current national loan standing at 80 or 100 which would provide him with £5,600. One of the cases we are making is that the discrimination lies in the fact that that £5,600 would only be £5,600 for One year. If, as in the example given by Deputy Colley before we adjourned, capital is to be subject to an inflationary rate, or a cost-of-living rise of 15 per cent, that £5,600 at the end of five years will be worth £2,600 and at the end of ten years it will be down to around £1,000. In the case of a Minister, or a TD, or a public servant, any of the public service categories, Army, Garda, health officials, the position is that the pension will start at the rate applicable but, at the end of the first year, if there is an increase in the cost of living, that pension will be increased accordingly and in subsequent years. Presumably it will not be increased on the basis of the superannuation fund but rather it will be increased by the taxpayer in two years' time, five years' time, or ten years' time.
We on this side of the House, as Deputy Colley has said, welcome the fact that retired public servants have this advantage and this benefit. What we are querying is that no provision is being made under this Bill whereby the individual who has to provide for his own retirement will not be disadvantaged. As far as I understand it, if an individual retires and puts the substantial sum the Minister speaks of in, say, national loan, it will still qualify as part of this property. If his property exceeds the threshold, he will be taxed on it, despite the fact that year after year it will depreciate. If the Minister is making the case that to provide the substantial pension mentioned by him an individual only requires £40,000, if he does a simple sum he will find that if that individual expects to live for five years, it is not £40,000 he needs but £70,000. If he should live for ten years, it is not £40,000 he needs but something in the range of £100,000, unless he is to be faced with a substantial reduction in his standard of living, a reduction comparable with the figures I have quoted. Starting at £5,600, with an inflationary rate of 15 per cent he would end up with something a little over £1,000 a year in value terms.
That is a problem a retiring individual has to face anyway. He can do it probably if he is fortunate enough to be able to buy leasehold property which has fairly short review periods of two years, three years or five years, so that with the fall in the value of money he can increase the rent incomes available to him. The fact is that in comparison with the former Minister, or present Minister, or the Deputy, or any of the range of public servants, what he provides himself for his retirement will be taxable under this Bill, and what we may get by way of retirement in the line of pension which will be, we hope, increased each year in accordance with the fall in the value of money, will not be so applicable.
I put it to the Minister that there is a case in equity. I agree there are problems, but I do not think problems of this kind should be glossed over by trying to compare like with like when it is really like with unlike. It could end up with those who are being treated as like—ourselves and the various categories of public servants—being, shall we say, happy socialists. In effect what we are saying to the individual who is providing the energy and the enterprise is: "We do not make any provision for you." Barring the very large fortunate companies, we are not making provision for the individual who, in fact, is creating wealth whether it is in farming or in industry. The Minister should at least agree to take a look at it before Report Stage because there is an obvious disadvantage under this Bill for the private individual who wishes to make provision for his own retirement.
I do not wish to labour this point unduly. Deputy de Valera has given a thorough exposition of what is involved in this problem. He has exemplified the practical problems involved. Deputy Brugha put his finger on the real problem involved for the self-employed or the businessman.
In the Minister's effort to avoid the allegation of discrimination, he fell back on the argument that, if this is discrimination, there are other areas of discrimination as well in the Bill and we should also have been arguing about them. Could I point out to the Minister that, in the case of the dwelling house to which he referred, a person is not trying to live on the proceeds of his dwelling house. At least in the normal way he is not. It is where he lives.
The realities of the situation are that he has a house, be it large or small, but he has to get his income from some other source. Therefore, the house and the question of whether you exempt a large and a small one at the same time and therefore there is discrimination, is largely irrelevant to the realities of this problem.
The other examples he mentioned, such as exemption of bloodstock and livestock in certain cases, are productive assets. The failure to exempt productive assets from wealth tax is one of the gravest failures of this Bill The fact that some productive assets are being exempted and others are not should not be put forward as an argument to show that we did not protest against discrimination in that regard. The Minister knows we urged very strongly that all productive assets should be exempted.
The Minister said we were talking about imaginary property. I found that argument somewhat disturbing. It seemed to me to suggest a certain line of thinking that, if somebody is a member of a superannuation scheme— let us say he is 55 and he will retire at 65—at age 55 he does not have anything so far as that pension scheme is concerned. Of course there is the present value for his rights under that pension scheme. It is based on a particular lump sum. From the moment he becomes entitled to that pension, or even entitled to a refund of contributions, then his position under the scheme has a present value. That is the reality of the situation. It may even be that, technically on the wording of paragraph (e), it comes within the section as amended. If there is a present value and somebody who is entitled to a pension under a superannuation scheme thinks or suggests that he does not have wealth arising directly out of his rights under the superannuation scheme, he is simply fooling himself.
I am somewhat concerned to hear the Minister put forward as part of his argument what sounded ominously like the argument that such a person does not have any wealth until he gets his pension and then all he has is his pension.
(Cavan): He can assign these rights.
Put yourself in the position of someone who does not have this. To get that pension, how much does he have to pay? That is the real question.
(Cavan): You can put the same argument in regard to the bloodstock or no bloodstock question.
No. The Minister has missed the point. The question of bloodstock or no bloodstock is that for reasons best known to the Government they decided to exempt bloodstock. I do not object to that because bloodstock is a productive asset. All productive assets should be exempt. That is not an argument for saying that we should ignore the position of a self-employed person, or somebody entitled to superannuation. It should now be clear that there is not equal treatment involved in so far as retirement and superannuation are concerned for, on the one hand, those in the public sector and, on the other, those in the private sector. I am not suggesting that the problem is easy of solution. I am suggesting that an attempt can be made to solve the problem which would go a long way to getting some degree of equality in the treatment. There is an obligation on the Minister to try to achieve that equality as far as he can. Having regard to all of these factors and the consequences which can arise due to failure to do so, I urge the Minister very strongly to give consideration to this between now and Report Stage, to see if he can come up with a solution which, while it might not be perfect, will at least show that an attempt has been made and that recognition has been given to the position of the person in the private sector vis-á-vis that of the person in the public sector.
On this imaginary property question, it is a fact that, in the scheme I took as my norm, if somebody leaves the scheme there is a refund of the contributions. Very frequently that refund is apportioned as between the company and the individual. Sometimes the company will give all the contributions to the individual concerned. The accumulated contributions are refunded. The fact that interest is not refunded with them is one of the devices by which the supporting institution, very often an insurance company, provides itself with excess funds or profits. It is not right to talk about imaginary property, whether in the public sector—I bracket the firm as the public sector—or in the self-employed case.
(Cavan): I am afraid we have got away a considerable distance from section 7 (1) (e) which exempts superannuation arrangements from wealth tax. It exempts the capital value of those superannuation arrangements. This paragraph exempts superannuation schemes arising out of the terms and conditions of a person's employment. Some schemes arose perhaps 40 years ago when a person entered into employment. Those were the conditions upon which they entered into employment either in the private sector or the public sector.
I am glad Deputy Colley and Deputy de Valera, and the other Deputies involved, are not making any conflict or controversy between the public sector and the private sector. They are basing their argument on superannuation schemes of one level and another. They are drawing a distinction between a person who is entitled to superannuation on retirement and a person who is not.
In my opinion no discrimination arises under this exemption beyond the discrimination that arises out of any exemptions. If one grants exemptions there will be people who are entitled to them, and people who are not entitled to them. There will be people who are entitled to greater and lesser exemptions in the same category. To that extent there is discrimination, but there is no other discrimination arising under this provision. To the extent that any argument put up by the Opposition will be considered between now and Report Stage, this will be considered, but I do not concede that any valid case has been made for the introduction of any amendment and alteration to this on Report Stage.
I do not propose to drag on this debate on this point any longer, because if I were to do so I would consider I would not be acting in the best interests of the House or in the best interests of the Opposition. I might even be accused of extending one section of what is now a limited debate. I have made my point as clearly as I can both in a general way and in a considered and reasoned way. I will have to leave it to a vote of the House to decide. I suppose that is a foregone conclusion, but if posterity want to raise the argument later on they are welcome to do so and to pass judgment on it.
May I summarise it this way, what this section exempts is superannuation schemes under State and State-authorised schemes. That is all it does.
It exempts superannuation under State and State-authorised schemes and no other superannuation annuities, no matter how provided. That is the effect of the section as it stands.
(Cavan): If the Opposition have a complaint to find with that provision and want to remedy it, it is not this measure they should remedy but another one.
We recognise the Minister's difficulties. We would be glad if the Minister had a look at what has been said.
There are a few technical points I want to raise on the section. The first relates to the one we have been discussing, paragraph (e). There is a list in the section of items which will not be treated as taxable wealth. Paragraph (e) reads:
the right to receive any benefit or any annuity or periodic payment— under any scheme—
What is exempt there is the right to receive any benefit or any annuity as distinct from the benefit or the annuity itself, particularly the benefit. The benefit could, it seems to me, be easily read as meaning the capital sum to which I was referring earlier. It seems that it is possible, on the wording of this, that such capital sum might not in fact be exempt. I want the Minister to consider the wording of it in this way, "any benefit or any annuity or periodic payment or the right to receive same under" and so on.
(Cavan): That is there.
It is not the same thing. What is being exempted is the right to receive. I am suggesting both the right and the benefit itself. Supposing it is an annuity, the benefit of the right to receive the annuity could be deemed to be the capital sum, the capital value of that annuity. What seems to be exempted here is the right to receive it.
(Cavan): The right to receive the annuity is exempt. The periodic payment is clearly exempt, both the right to receive it and when he is receiving it.
The right to receive, yes, but how does the Minister say when he is receiving it that is exempt also? It only says that the right to receive it is exempt.
It can only be a present right.
(Cavan): The right to receive it is exempt therefore the receipt of it is exempt. Of course, it is subject to income tax if he is liable to income tax because that is income, it is not capital tax.
It depends on what is meant by the right to receive a benefit under one of these schemes—whether that means simply the receipt of a pension each month or whether it means, as I suspect it could mean, the capital value of that right.
(Cavan): No, he has the right to receive it up till he is 65 or whatever age is stipulated in the scheme or in his condiditions of employment. After that he receives it and it becomes income. We are not taxing income; we are only taxing wealth. If he does not spend it and puts it in the bank it will be liable here afterwards.
I am not going to pursue it. I have drawn the Minister's attention to it and if he is satisfied well and good.
Can I make the point a little more specific in this way? Take again the scheme I took as the norm for my argument, the public company, and something analogous would apply in the public service. The normal thing is that a person at retiring age, say, 65, receives his annuity. If it is a State or State-authorised scheme that is clearly covered, but three other possibilities arise. On the date of retirement in many schemes—I am not quite clear whether this applies in the case of the Civil Service but a gratuity might be in this category—there is often an option under the Finance Acts to take a lump sum and a lesser pension. Is the lump sum exempt?
(Cavan): It is exempt until he gets it and then it becomes part of his wealth.
That means that anybody, when they come to retiring age and have the option of taking a lump sum, will have to think twice, even though it may be to make a provision for a disabled child. Take a typical case of an executive in one of these pension schemes who, at retiring age has the option of taking say, £10,000 and cutting his pension to half and he wants that £10,000 for a specific purpose. Again, do not complicate the issue by bringing in the other Acts and the exemptions because they are related or anything. It might be, talking about pure merit, the hard cases. Do not let our ingenuity come to give answers of this sort; let us take the essence of the argument. There are cases of unrelated people whom a lot of us might want to help. Let me take it, there is a merit. In taking the lump sum this wealth tax comes into play. Therefore, in taking the wealth tax the benefit once paid is aggregated for wealth. Is that what that means? The section says:
Tax shall not be payable in respect of the following property and such property shall not be taxable wealth—
(e) the right to receive any benefit or any annuity or periodic payment—
It seems that the benefit is not taxable wealth, that it stands apart as long as it stays indentifiable as the benefit. I am making a legal case here, but if benefit is on the same footing as the other alternatives in the paragraph, "or any annuity or periodic payment", then as long as the benefit is identifiable as the sum it is in precisely the same category. I would be prepared to argue that in court. That may be an unintended interpretation.
(Cavan): The Deputy has gone a bit too far there, I hope.
I am giving the Minister the point. Maybe I should have left it to Deputy Esmonde in another place and he would not be very slow about making it. I will come back to lump-sum payments. What about life assurance? Very often these schemes have life assurance attached thereto.
(Cavan): All these things are exempt until one collects them and they become part of one's wealth. Then they are subject to wealth tax.
I see the interpretation the Minister is putting on it. That may be fair enough but the Minister should listen to the interpretation I am putting on it for the purpose of the argument. What about refunds? For wealth I do not think they are important. It would be fair enough to bring in life assurance on the thresholds, having regard to the provisions there. The lump sum is something the Minister should look at. In that sense Deputy Colley's point may have more substance.
I am not wasting time pushing it. When it is looked into the Minister will find there is something in it.
The Minister realises that is the function of an Opposition. He has naturally looked at it from his point of view, it is our job to see can we pick holes in it. It is only in that spirit I make that point.
Could I refer the Minister to paragraph (j) of subsection (l) as the Bill was printed? I know the Minister has introduced an amendment which puts in a new paragraph (j) but the original paragraph starts:
Shares in a private non-trading company...
The Minister brought in amendment No. 9, which has the effect of taking a private non-trading company out of section 5 provided it is controlled by a trading company. That is a fair interpretation of what the amendment does. Therefore, it leaves the assets of that private non-trading company to be taxed in the hands of the shareholders of the trading company which controls the non-trading company. This paragraph makes the shares in a non-trading company non-taxable. Are the shareholders in the trading company which controls a non-trading company to be taxed on the value of the assets or the value of the shares in the non-trading company?
(Cavan): The assets of a non-trading company would affect the value of the shares in a trading company. They would be taxed on the value of the shares in the trading company as enhanced by the value of the shares in the non-trading company.
It is not as simple as that, unfortunately. If they are to be taxed on the value of the assets in the non-trading company that is one basis of approach, but if they are to be taxed on the value of the shares in the non-trading company there is a distinction, as the Minister knows, between an asset basis and a share basis.
(Cavan): In the non-trading company it would be an asset basis, I take it.
It would be part of a trading company's asset investment. It would form part of the whole picture. If the trading company was losing a lot of money as a trading company there might be nothing in it other than the non-trading company's shares but they may be more or less written off by the tremendous losses in the trading company and become practically a nil value. The Deputy is talking about the valuation of the shares held in a trading company?
Yes, but in assessing the value of those shares one has to make a decision whether the value attributed to those shares in so far as it relates to the trading company is to be based on the assets of the trading company or the shares of the non-trading company.
Only in a remote way in so far as the premises held by the trading company would be part of its assets.
It makes all the difference in the world, because if it is based on the shares there is a major loophole. That is all I want to draw the attention of the Minister to.
On the shares in the trading company?
No, in the non-trading company. This exempts shares in the non-trading company, all of whose wealth comes in.
(Cavan): A non-trading company is taxed as an entity. Therefore, if the trading company owns it the shares of the non-trading company will be taken into account in valuing the shares of the trading company.
If the Minister is satisfied that there is not any loophole that is all right with me. Another point I want to draw to the Minister's attention is in regard to livestock and the exemption in respect of same. Does the Minister know if that exemption applies to a person who is a farmer within the meaning of section 10? May I take it on the wording of that paragraph that a co-op which is genuinely farming will not have its livestock excluded from taxable wealth?
Is it only the individual?
(Cavan): Only the individual.
That is what I thought. There is one other matter I want to raise. This section exempts certain property from wealth tax effectively. Some of the items exempted such as livestock, subject to the conditions I have mentioned, and bloodstock are presumably exempted because of their effect as productive assets, in agriculture in the case of livestock, and generally in the economy in the case of bloodstock. An effort is made in a subsequent section to give some relatively minor reductions in liability in the case of some other productive assets.
We have sought, in an amendment, to have all productive assets, as defined in the Bill, exempt from wealth tax. The Government and their supporters on the other side of the House have voted down that proposal. In exempting various items as listed here and other things added in afterwards and not exempting all productive assets on which our growth and the provision of employment depends, the Government's whole thinking on this wealth tax, particularly in our present economic circumstances, is crazy. The effect of what we are doing is to take away with one hand what the Government are giving with the other in the way of a £12 employment premium per week per job for those getting employment off the unemployment register. According to the Minister's interpretation of the Bill, we are giving exemption from wealth tax to foreign owners of Irish assets who are competing with Irish owners, in the case of hotels, supermarkets and factories and various other aspects of our economy. When we take account of that it should become totally clear, I would have thought by now to all the Deputies on the other side, that if you must have a wealth tax the only sensible thing to do is to exempt from the wealth tax all assets which are productively employed, all assets which are being used to create and maintain employment and to create growth in our economy. Anything else, at this time, cannot make sense to anybody. In the light of the failure of this section to exempt from wealth tax productive assets employed in our economy—which we tried to have exempted and which the Government have failed to do—I cannot support this section.
(Dublin Central): Under which section do we exempt church property?
I do not think it necessarily exempts church property, only property comprising a discretionary trust or private non-trading companies.
(Cavan): We can only tax property in the beneficial ownership of assessable persons. That is the whole basis of it.
I suppose they are not assessable persons.
(Cavan): A church is not in beneficial ownership of assessable persons.
Why is the Minister saying that?
(Cavan): It is not in the beneficial ownership of anybody. It is held in trust for the community.
If you tried to walk away with it I think somebody would be able to establish ownership.
(Cavan): The trustees would.
Or else establish new churches. While endorsing what Deputy Colley said, I should like to bring one further point to the Minister's attention on paragraph (i). Here the Minister exempts pictures, prints, books, manuscripts, works of art, jewellery, scientific collections and so on on three conditions, the third of which is that reasonable facilities for viewing are allowed to members of the public or recognised bodies or associations. It is quite clear what the Minister is doing here.
There have been many wellmotivated people who have used their wealth to accumulate artistic treasures or collections. Although they themselves have not been, say, directly engaged in art and science and humanity generally they have devoted their wealth to such a purpose. It is proper that this type of exemption should be given and, indeed, there is one very important collection in this country that has come about through the very laudable activity of a particular person. There is one case that is not covered which should be covered, which is books. I am leaving out professional men. It is very difficult to draw a distinction between a barrister and the type of person I am talking about—but there are people who are either actively engaged—in art or science or study of any nature—let us call them scholars—who are personally and genuinely devoting themselves to study, sometimes in a voluntary way. I am particularly thinking of professional scholars who have retired and are still pursuing their scholarship. We have had eminent scientists and literary men and artists who have, as part of their necessary scholarship, the tools of their trade, books or material. Take the case of books. A scholar in a particular line may over the years have collected a large number of books in his own speciality, be he an academic lawyer, a scientist or a person interested in literature and so on. Provided he is an active scholar—I mean that it is not just a collection; what is covered here in the section is a collection—it is right that an exemption should be made for the benefit of the community. It is his contribution to art or learning that matters, and what is concerned is essentially the tools of his trade. Over a period of years he will have collected perhaps a unique collection of documents, books, manuscripts and so on, which may have considerable value; he requires them for the furtherance of his study, and he is contributing to the community. Anyone who adds to the total of human knowledge is making a community contribution.
If a man has accumulated books and if he is a genuine scholar, he should be exempt from wealth tax because some of the things he has could make a substantial contribution to the community. I am talking now only in terms of the wealth tax; I am not relating this to the capital acquisitions tax or anything like that where the personal element has gone out of it. Such a person might be a wellcircumstanced person, but nevertheless could be making a contribution of a sort that should be exempt here. I ask the Minister to exempt him.
Take the case of the retired professional scholar; I had better dispose of the income tax argument straight away. There would have to be a provision to the effect that no claim in respect of income tax relief on the said property is allowed or where there is a claim there would be an election, because it is quite clear that if he were using it for the purpose of a trade or profession a claim to income tax relief might arise. I am not asking for double relief here. I am asking that in the genuine case there would be an election. There could be a barrister or a university professor, and not only a retired person, who could make a claim for income tax relief, but there should be no double relief; that principle is admitted. The furthest I would go there is to make it a question of election, which might possibly be important. There may be retired persons, or more important still, there are amateurs. There was one very distinguished civil servant, for instance, who contributed to scholarship. That was quite a common occurrence in the past. There could be a retired barrister and also the genuinely scholarly amateur. Over the years a substantial sum may be accumulated, particularly, as everybody knows, the price of books has become so great that there is the problem of publishing books of that nature. There is plenty of pop stuff, but serious works and even serious literature is a problem. I would ask the Minister to consider this.
To go back a few centuries, there is the case of Cavendish, one of the most eminent scientists in the history of physics, who was a wealthy man. He contributed very greatly to science, and if he were living in this day it would be a reasonable plea to say that the paraphernalia and the library that enabled him to make this contribution to human progress should be available. The problem here is one of reasonable facilities. In the opinion of the Revenue Commissioners, if there is a genuine scholar and a genuine asset, provided there is no double taxation relief in income tax, some relief should be given to that person.
(Cavan): I appreciate the point made by Deputy de Valera and I think the Bill as drafted and that paragraph (i) is wide enough to cover the relief sought. It says:
pictures, prints, books, manuscrips, works of art, scientific collections or other things not held for the purposes of trading...
are exempt, provided reasonable facilities are afforded for viewing by certain categories of people, including associations of persons.
Presumably the retired gentlemen mentioned by the Deputy would be members of professional bodies. Supposing a man were a barrister, if the Honourable Society of the Kings' Inns were afforded an opportunity of looking at them that would be sufficient. If he were a member of the Incorporated Law Society, if the Incorporated Law Society were afforded——
I know that exemptions like this are interpreted liberally and in favour of the taxpayer. I do not want to mention particular cases here, but will the Minister allow me to make special representations to him in one particular case?
(Cavan): Certainly. I would not like to go into personal cases either, lest we identify somebody we would rather not identify.
That is my difficulty also.
(Cavan): Deputy Colley referred to exemptions of livestock and bloodstock and availed of that to say that all productive assets should be exempt. I do not want to prolong this debate. I could, but it would not be reasonable for the Government side of the House to encroach on the debate any more than is necessary. But I want to say that I am satisfied and I believe that the public are satisfied that productive assets in this Bill have been treated generously. Productive assets in agriculture have received as generous treatment as was possible. Productive assets in trading companies are granted a special treatment and that is fully recognised. Furthermore, not alone have we exempted specific assets but we have gone further and we have taken the unprecedented step of giving preferential treatment to shares in trading companies. This is an unprecedented step in the field of wealth tax, and it is appreciated not alone here but also abroad and it is appreciated in countries like Britain from where we might expect investment. I do not want to burden the House with lengthy quotations from foreign writers I will just give one quotation from the New Law Journal, 3rd July, 1975, which says:
However, relief also applies to stocks and shares of trading companies, whether public or private, listed or unlisted. Capital can thus take heart that the Irish Government have equated the ownership of shares with the direct provision of employment.
That is not done in the proposed British code of wealth tax.
I am not going to have a Second Reading debate on this again but I am tempted to do so every time Deputy Colley tries to introduce this. It is a fact that if we are to have a wealth tax at all—and it is agreed in principle that we should have it— then this Bill has treated everyone fairly and in a way that is encouraging production, whether it is production in agriculture or in the industrial sector, and we give preferential treatment to shares in trading companies in the hands of investors. There is ample evidence of that and it is recognised by people in Britain who think it worth their while to sit down and think about our Bill and the proposed code in Britain and compare the two of them, who think it worthwhile to sit down and commit their thoughts, comparisons and their analyses to paper.
(Dublin Central): I asked about Church property. Does this mean that all religious institutions such as schools and lands attached are exempt?
I do not see that in the Bill.
(Cavan): There are only three types of assessable persons. There is the individual who is in beneficial possession of wealth; there is a discretionary trust —the exemptions are dealt with here in this section for this wealth—and the non-trading private company. We know from our experience as country or city solicitors that schools, churches, football pitches and all these things that are not run on a commercial basis are held by trustees in trust for the purposes for which they were established——
(Dublin Central): Does that mean, for instance, that Croke Park or any of those places are all exempted?
The definition is that they are held in trust for somebody——
(Cavan): For some purposes.
(Dublin Central): In what section in the Bill is trade union property exempt?
(Cavan): It is not charged.
(Dublin Central): Are they subject to it?
Only on the basis that the Minister assumes that it is held in trust.
(Cavan): Yes, that they are not one of the three people that I have spoken about, an individual, a discretionary trust or a private non-trading company.
In section 2 the Minister has said taxable wealth is taxable and sections 3, 4 and 5 determine the——
(Cavan): Sections 3, 5 and 6.
Sections 3, 5 and 6 determine who are the people chargeable.
(Dublin Central): With regard to the exemptions, we had this before in another Bill. This section of the Bill is one that I was looking forward to, especially as regards Deputy Haughey's amendment. There are several people exempt from wealth tax; many are listed in this section.
(Cavan): No, it is property.
(Dublin Central): I agree. If a trade union use their trade union property for the running of their unions. I think they should be exempt, but I wonder if this section is very broad? There are many trade unions——
(Cavan): What we are exempting here is named property in the hands of taxable entities.
(Dublin Central): If a trade union develop an office block and let it out as office blocks, is it exempted?
(Cavan): Presumably a trade union holds its property ultimately in trust for its members. I suppose there are thousands of members in each trade union and if you wanted to push this thing to its logical conclusion you would have to divide up the property between all of them.
(Dublin Central): I am concerned about the position of an Irishman as regards purchasing property in this country and running it as a business as against a foreigner or a trade union. It is quite obvious that anyone can come here and purchase an hotel, and so can a trade union. Remember we have already exempted these people from capital gains if they operate on a commercial basis. It can be very, very effective, if they use their heads.
(Cavan): Is the Deputy dealing with trade unions?
(Dublin Central): I am dealing with the whole Bill as regards exemptions. I am just mentioning trade unions and I am looking at the provisions as regards a private Irishman in this country who is investing in property. In fact any trade union can invest in real estate or buy hotels or property. They are going to be exempt in the Capital Gains Tax Bill and we are also exempting them in this Bill. Is that correct?
(Cavan): Does the Deputy want them taxed?
(Dublin Central): I am just talking about what the Bill says.
(Cavan): I am asking the Deputy does he want them taxed.
The Deputy is asking the Minister does his proposal cover trade unions. Does the Minister propose to apply wealth tax or not?
(Cavan): No. It does not propose to apply wealth tax to bona fide trade unions.
(Dublin Central): There are so many people exempt from paying wealth tax. First, we have all foreign shareholders in this country who own property. They will be exempt.
(Cavan): That was always the case. They were always exempt from death duties where our Irish people were taxed.
(Dublin Central): I have heard so often during the course of this debate about death duties——
(Cavan): The Deputy would like to forget it. But while it is his business to raise the question, it is my business to keep reminding him about death duties.
(Dublin Central): I am trying to point out the particular people at whom this Bill is directed. I want to find out the people who are exempt from wealth tax. All unions, irrespective of what type of business they pursue, are exempt. Semi-State bodies, which are also running business in this country, will be exempt. Foreigners, who are quite at liberty to come to this country, invest their money, let it be in hotels, supermarkets, factories, will also be exempt from wealth tax. But there is one section of people that will not be exempt from wealth tax. and that is Irish people born in this country, who have lived here and worked here and used their finance in building a factory or building up a business, let it be a hotel or any other type of industries. Those are the men that this Bill is directed at. That is what I want to make perfectly clear to any Irishman in this country, that he is taxed and that we have these lists of exemptions. That is what I object to, as I said before. As a citizen of this country I object to being discriminated against and that is what the Minister has done. Many people are not aware that foreigners are exempt, as are all types of union property, irrespective of whether it is dancehalls or office blocks.
I thoroughly agree with and I welcome the fact that all Church property, schools and religious institutions are exempt. But I object to the fact that we have here discrimination against an Irish person living in this country. Any incentive will be considerably dampened when he looks at the implications of this Bill and when he sees that foreigners in this country owning property side by side with him, trading under the very same circumstances, with whom he has to remain competitive are exempt. He is going to be placed at a disadvantage as regards this Bill. Irrespective of whether we like it or not, this is going to make it much more difficult for him to hold on to his property, especially the type of business that is operating on a very tight margin. We will see more and more of this type of business, especially supermarkets, getting into the hands of foreign shareholders. We will see far more people forming foreign companies.
I know the Minister will say if they are domiciled here they are caught. If there is sufficient money involved, I can assure the Minister that there are people in this country who will get around it very easily. The loophole is here for them if they do not want to be domiciled in this country. If there is a substantial amount of money involved in wealth tax where an Irish person is concerned at the moment I believe there is a way in the Bill to evade that liability, which would be most undesirable where this country is concerned.
These are the particular aspects which I dislike in the Bill. I do not think the average medium-sized businessman would involve himself in the type of operation I am talking about but the bigger person will do so. The average-sized businessman under £200,000 will remain here and he is the person who will be caught for this tax. There is no way out for him. He is a man who probably has lived in this country all his life, his children have been reared here and he is going to be subject to wealth tax while the larger business is going to find some way out of it. If the foreigner is already exempt, I believe that is a bad climate for the future development of this country.
(Cavan): I do not propose to raise the temperature of the debate but I do feel compelled to say that it is immaterial to the Government side of the House whether this section concludes now or whether it concludes at 2.15 p.m. on Thursday. Personally I would not like to see it dragging on until 2.15 p.m. on Thursday, I would rather have an opportunity of going through the Bill section by section having a reasonable discussion on it within the time limit which I consider ample, but if the Opposition insist on getting up and making speeches on sections which were appropriate, if at all, on the Second Stage or on section 2——
This is an exemption of certain property.
(Cavan): I want to tell my namesake, Deputy Fitzpatrick, that the object of this Bill is not to squeeze small- or medium-sized people. It is to collect, after giving generous exemptions, a sum which has been variously named at £3 million to £1,500,000 from comparatively wealthy people at the rate of 1 per cent, with a threshold of £100,000. That is being collected in lieu of a payment by families in this country of £13 million death duties per year. That is the fact of the argument and there is no getting away from it. I do not believe we are dealing with exemptions here. I put it to the House that generous exemptions are given with regard to agriculture, livestock, bloodstock, the individual who has his private house and the contents exempt, which does not happen elsewhere. Furthermore, I repeat that trading companies and the assets of trading companies are exempt as are trade unions. I make no apology to this House for exempting trade unions. Trade unions fought over the years for their rights to represent workers and represent their members.
(Dublin Central): I only asked about that tax. I did not say they should be taxed.
(Cavan): Having been told that they were not taxed the Deputy seemed to go on and develop his argument from there with a view, I regret to say, of trying to set one section of this nation against another. I do not think that is in the interest of this nation at any time. It is certainly not in the interest of this nation at the present time. As I say, Church buildings are exempt, schools are exempt. It should not be necessary to ask that. They are exempt from income tax. They are not exempt from death duties because the owner never dies; the owner of a church or a school lives in perpetuity. He does not die; therefore he is not liable to death duties, nor is he liable to wealth tax.
When Deputy Fitzpatrick speaks about shareholders being liable to wealth tax, they are liable to wealth tax if all their assets including their shares reach a threshold of £100,000 if the person is married and £70,000 if he is single, having in each case disregarded his dwellinghouse and disregarded the contents.
I have an information booklet here from Cement Roadstone Limited and there are in that company 11,300 shareholders. Without going into mathematics or trying to divide that up, it will be very easy to see that if you divide the wealth of Cement Roadstone among 11,300 people you will get about £15,000 per head.
I believe that Deputy Fitzpatrick's argument and the Opposition's arguments have run out and that the people now accept that there is no terror in wealth tax. He would try to get them to believe that each shareholder in Cement Roadstone and every productive company in this country is liable to wealth tax. Of course that is not the case. There is a threshold in every case of £100,000 if a man is married plus his dwellinghouse, plus the contents of it; £70,000 if he is not married. I do not know what standard of authority he is but the writer in the New Law Journal is somebody who is looking in from outside, who has thought it worth his while to get our Bill and read it, study it and compare it with the Green Paper and the British proposals. His reaction is not that we are crippling productive assets here, not that we are doing something that will drive people away, but he is constrained to say that we are equating shares with productive assets. That is something that I am not holding out as the ultimate in authority but I am quoting that as somebody looking in from outside, living in a country where it is proposed to impose wealth tax, a country which is imposing wealth tax, and drawing a comparison between the two countries. His reaction is that we have been lenient on productive assets. I am not going to go back to Deputy Colley's letter but it is there on the record of this House. It is as clear as A B C that Mr. Frank Reilly in writing to Deputy Colley was speaking about American corporations investing money here. That man wrote that letter on the basis that such corporations were going to be taxed here. For the last four or five days Deputy Fitzpatrick has been running the argument against me on the basis that such corporations and such shares are not going to be taxed.
(Dublin Central): I did not say that.
(Cavan): Yes. The Deputy said that they are not going to be taxed——
(Dublin Central): I wanted Irish shares exempt too.
(Cavan): The Deputy ran the argument against me on the basis that shares held by American corporations are not going to be taxed while poor John Irishman is going to be taxed. Deputy Colley apparently conducted a correspondence with an influential American industrialist on the basis that the shares which Deputy Fitzpatrick now concedes are not going to be taxed were going to be taxed.
There is no basis for that statement.
(Cavan): I have. The Deputy produced a letter——
If the Minister refers to it correctly——
(Cavan): I will read it out. It is on the record of the House.
I am aware of that.
(Cavan): This is part of the letter quoted. I quote from the Official Report of 10th June, 1975:
Under normal circumstances I would hesitate to comment publicly on tax proposals now pending before your legislative body. But, as I view it, the damage that may result from the enactment of these measures justifies that I speak out. The Capital Gains Tax Bill, 1975 and the Wealth Tax Bill, 1975 to the extent that they affect shareholders who do not reside in Ireland are the latest in a series of economic measures which are inconsistent with the promises made by the Government to leaders of the Council to strengthen its policy of encouraging American companies to establish industrial facilities in Ireland. Among the factors which have encouraged American companies to make industrial investments in Ireland are the undertaking made on behalf of the Government that for specified periods profits from sales of industrial products outside Ireland would be tax free and that both profits and investments could be freely removed from Ireland without penalty or limitation.
I am concerned that the current tide of legislation which goes counter to these undertakings would seriously undermine the effectiveness of the Council as a recruitor of American investors for Ireland. I suggest to you that the permanent damage to this recruiting programme would far outweigh the benefit of any additional revenue which might be produced by these tax proposals as they relate to American industrial investors and their shareholders.
That can only refer to American corporations, and Deputy Colley quoted it in this House as evidence of the terror which had been driven into the hearts of American industrial corporations. I believe that when the Committee Stage of this debate commenced Deputy Colley genuinely thought that those companies were being taxed. Otherwise he would not have produced that letter as evidence of the terror which has entered the minds of those people. That letter was written by this foreign industrialist to a former Minister for Industry and Commerce, a former Minister for Finance and spokesman for Finance at the moment. I only hope that since this debate Deputy Colley saw fit to write to this industrialist, Mr. Frank Reilly, and explain to him what is involved in this measure and point out to him that American corporations investing in trading companies here and holding shares in those companies are exempt. That is the position.
As far as the letter from Mr. Frank Reilly is concerned the Minister glossed over the fact that it referred both to the wealth tax and the capital gains tax.
(Cavan): The Deputy quoted it here in reference to the wealth tax.
I said both. In regard to the wealth tax the position is that if the Minister has a particular interpretation or particular words in this Bill, and assures the House that American residents who are shareholders in American trading companies holding assets in this country will not be liable to wealth tax in this country, of course we accept that. But, as we pointed out before, the interpretation on which the Minister relies is somewhat stretched but we accept it when the Minister speaks with the authority that is vested in him. It does not cover the situation in regard to the type of case I mentioned, for instance, the private non-trading company which has holdings here. The Minister relies on a list published by the IDA which is not purporting to set out the legal position as to how each American-owned company operating here is legally constituted. It does not cover that. The Minister said we have this outside view which shows how enlightened we are in this country that we were making some concessions in regard to double assets. It may be very heartening to hear the view of some anonymous writer from Britain writing in a legal journal. That is not the problem with which the Minister is concerned now. His problem is the question to which the Irish people want to know the answer. Why, in our circumstances, given the appalling rate of our employment and the contraction in our economy and all the other ills to which we are subject, do this Government propose to apply a wealth tax to productive assets? These are the only assets on which we can rely in order to get us out of the present economic situation.
I am sorry to interrupt but the Deputy seems to be ranging rather wide of the amendment under discussion.
We are discussing the section. I do not wish in any way to stretch it, but having regard to what we heard from the Minister I would suggest that I am entitled to refer to the consequences of this section. It purports to exempt certain property. When the Minister has told us and was allowed to tell us that the reason why wealth tax is being introduced is to replace death duties I think I am entitled to point out to the Minister that wealth tax does not replace death duties. Inheritance tax, which is death duties by another name, and gift tax replace death duties. Wealth tax and capital gains tax do not replace it. The Minister and the Minister for Finance are trying to do a three-card trick with these three Bills. Whenever they are cornered they say that whichever particular one happens to suit them is replacing death duties.
(Cavan): The Deputy has not told us if he corrected Mr. Frank Reilly.
I have not.
(Cavan): He should.
I wish I could. I happen to know what is going on. I know what the IDA are up against. I have met foreign industrialists and, as I have said in this House on many occasions, the reality is not what is in this Bill. It is what they believe.
(Cavan): What Deputy Colley let them go on believing, against the national interest.
The Minister and his colleagues started this with the cancellation of a statutory provision in regard to mining. They have gone on from there.
(Cavan): It is very difficult to answer Deputy Colley's argument because Deputy Tom Fitzpatrick's is different.
I have explained to the Minister and he knows as well as I do, that there is no inconsistency between what Deputy Tom Fitzpatrick and I have been saying. All productive assets, whether foreign or Irishowned, should be exempt. The Minister has to explain to the Irish people why he and his colleagues are applying a wealth tax to productive assets on which we depend for jobs and growth. That is the real question he has to face.
In due course the Minister believes that the people will go along with the line he has taken on this. I think he is mistaken. Time will tell.
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