Before I reported progress a question was asked about silage pits and if they would be exempted and the answer was given, although Deputy Colley would not agree with it, that they would be if they were inside the acre. The point I was making was that this is not possible because of pollution, that this type of silage pit had to be kept away from the main premises and would not be within the acre and that some of them are very costly. Even a rather small one can cost up to £20,000. What I wanted to know was were they excluded if they were outside the acre surrounding the house.
Wealth Tax Bill, 1975: Committee Stage (Resumed).
Debate resumed on the following amendment:
19. In page 13, subsection (1) (b) (i), line 21, to delete "which is" and to substitute "and farm machinery which are".
(Cavan): I should like to explain that the Minister for Finance is engaged in the Seanad today and I am standing in for him. I note the point raised by Deputy Callanan in respect of a silage pit and he inquires whether the silage pit would be exempt if it were situated on the acre of land which is being exempted. With all due respect, this particular point might be more appropriately dealt with on the section because amendment 19 extends to farm machinery, moveable machinery, I take it, the benefit of the 50 per cent reduction. Perhaps we could leave the discussion on the silage pit until we come to the section.
It was not I who raised it. I just came in to explain what I know about it.
(Cavan): I would point out that the amendment deals with machinery. I take it that that machinery is moveable machinery.
(Dublin Central): Does this machinery include milking machines and that type of equipment?
(Cavan): Yes.
Amendment agreed to.
I move amendment No. 19a:
In page 13, line 25, after subsection (1) (b) (iii) to add:
"Provided that, in this paragraph, references to an individual shall be deemed to include references to a trading company controlled by that individual in accordance with section 9 (2) (a) (i)".
The object of this amendment is to extend the benefits of the section in relation to agricultural land and farm machinery, in relation to fishing boats and in relation to hotel premises as defined in the section—to extend that to a trading company controlled by an individual or his family.
As the section is drafted these benefits apply only to the kind of property I have mentioned being in the possession of an individual. The effect of this amendment would be to extend the benefits to what are, in effect, family trading companies, in other words, companies where the individual in question or he and his family control the trading company. I want to suggest to the Minister that it does not make a great deal of sense to limit the benefit of the deductions that are involved to those properties in the possession of individual owners. Individual private ownership is, of course, common but as the Minister will be aware, most businesses today of any size are incorporated. It seems to me that the section, unamended, is really trying to put the clock back.
Failure to accept this amendment could very effectively exclude most of the agricultural and hotel property and some fishing boats which might otherwise benefit under the section. The amendment seeks to give the same benefits where the property is held by a trading company controlled by an individual and his family as those given in the case of property held by an individual.
It is relevant in considering this amendment to note that subsection (3) of this section gives a 20 per cent reduction in market value and a deduction of 80 per cent of the debts even to discretionary trusts and private non-trading companies about which the Minister has been rather scathing in earlier parts of the debate. The Minister may say that he has an amendment coming up, No. 21, which eases the position here, but the fact is that it is extremely limited in so far as, first of all, it applies only for three years and, secondly, it applies only to hotels and, thirdly, while it provides for a reduction in the valuation of 30 per cent, it provides for a debt deduction of only 70 per cent as against 80 per cent in the section as drafted.
The basic question that arises on this amendment is, why discriminate in cases of this kind against the property where it is intended to be relief because it is held by a company controlled by the individual and/or his family? Is there any good reason for this kind of different treatment? I am not aware of it and, if there is not any, I would hope that the Minister would accept the amendment and make the benefit that it is proposed to give worthwhile. There can be little doubt, in a large number of farms, that the benefits proposed by the section simply will not be available unless an amendment on these lines is accepted.
In support of Deputy Colley I would make the following point: in the case of hotels, for instance, certain individuals in the history of hotels and tourist development in this country have made very substantial contributions by virtue of the fact that their energy, their foresight, the confidence they personally command has enabled them to develop an industry. There have been cases where people have made a particular success of, say, even one hotel. In those cases a circumstance that possibly the Minister is overlooking, and understandably so, is that for good commercial reasons a person in that capacity may wish to avail of the benefits of the Companies Acts and to have the benefits of incorporation, and that the method of operation may be through a trading company. In fact, I could think of alternative methods too, and Deputy Colley in the amendment has merely referred to section 9 (2) (a) (1). But section 9 (2) refers to persons corporate or otherwise. The Minister should ask himself the question, what is the purpose of his provision here? The purpose appears to me to be—if I am wrong the Minister will say so—to give a certain benefit under subsection (1) in certain cases, but the cases referred to in paragraph 3 all refer to an individual, which in the whole context of this legislation means an ordinary person who is unincorporated, that is, an individual human being in the simple sense of the term. The point that I am asking the Minister to consider is that in the normal course of business, for good bona fide business reasons, not at all for tax evasion—though I would of course be willing to listen to the administrative difficulties that might arise from the point of view of tax evasion, this side of the House has always been willing to do so—such an individual on the question of limited liability alone might wish to avail of the benefits of the Companies Act through the formation of a private company whether trading or non-trading. If that is so because of the earlier provisions in the Acts which are primarily designed to defeat the use of the private company as a device for avoiding and evading taxation that normal business procedure is not liable to the individual in such a case as we are considering now, with a consequent disincentive.
Deputy Colley has in his amendment referred to a trading company. I would like in going through the principle to say that any of the persons referred to in paragraph 9 (2) if bona fide applied might be considered in this connection. The reason for extending to a discretionary trust is simply that there can be, as Deputy Colley says, a family element, and a desirable family element, in this. Deputy Fitzpatrick knows the circumstances of business in this town. He could add to a list that I myself could supply of family businesses where, in effect, the father and, say, the sons have developed into partners running the business extremely efficiently, giving the area which they serve a first-class service and who are not only contributing to the economic life of the community but are a model of hard work and of responsible citizenship minding their own business literally and in the more general sense. In such cases it is often desirable to resort to the Companies Acts. For that reason, although Deputy Colley mentions trading company here, I might ask the Minister to consider even non-trading company. I would further ask the Minister to consider the possibility that in such a circumstance the device of a discretionary trust might come in because in a case like that there can always be one person who may be an exception and requires the device of a genuine discretionary trust.
Recently I noticed a case where there was an exclusion of an individual in a certain case simply because he was making his own way and it was not required that he should be within the terms of the trust.
For all these reasons, which I hope are serious and substantial reasons, I would ask the Minister to consider in paragraph (b) in connection with Deputy Colley's amendment the possible substitution of the word "person" having regard to the meaning of section 9 instead of the word "individual" right through and, while supporting the amendment in the form in which it is, an Opposition is always willing to accommodate if the Minister is willing to meet. I would strongly urge this approach on the Minister.
In conclusion, other than a fear that we are making an opening for tax avoidance or something of that nature, I would suggest that the Minister seriously consider this amendment and accept it.
I support Deputy Colley, particularly in the matter of farms and hotels which are private family concerns. The vast majority of the hotels in the west were built by individuals who had perhaps two or three sons and the hotels later became co-operatives with nobody but the family concerned. I and other western Deputies have been approached on this matter. Wealth tax does not, at the moment, affect many people in the west but this matter does. Co-operative farming is being encouraged at present. Two brothers may come together and decide to form a company and work in co-operation. It is grossly unfair if this amendment is not accepted. I would like to add my voice to that of Deputy Colley. I have been approached on behalf of a number of reasonably sized hotels which are being run by families as co-operative companies.
I support the amendment and I would ask the Minister to give serious consideration to it as it affects co-operative farming and private co-operative hotels.
(Cavan): In order that we may deal with this amendment and that we do not stray too far away from it, it is necessary that we see exactly what is involved here. It deals with agricultural property, fishing boats, hotels and nothing else. They have been given special treatment in regard to valuation in this section by deducting 50 per cent or £100,000 from the market value and taking the remainder as the value of the property. In regard to the first category, agricultural property, we have given a very generous allowance by way of exemption. First of all, the dwelling house and contents and an acre of land is exempted. Secondly, all livestock is exempted. Thirdly, the machinery, as distinct from the property, is taken at 50 per cent of its value. In regard to individuals, I can accurately say that there has been no demand, in representations we have got, for the extension of this treatment to farms owned by companies.
Farming companies.
(Cavan): Yes. I am saying there has been no serious demand.
I wonder is the Minister mistaken there because the IFA certainly made this point in their representations.
(Cavan): I am saying that we have not been pushed to give this extension. I stand over that. The reason is that very few genuine farms are run by incorporated companies. When we come to the very big farm that might be incorporated, a farm worth £500,000 or more, it is more beneficial for such a big farm to rely on its 20 per cent than it is on the 50 per cent or £100,000. Deputy Callanan has raised the point of people coming together and doing co-operative farming. I do not know to what extent that is practised. Of course, if three brothers, say, decided to farm co-operatively and form a partnership instead of a limited company each of them would have a threshold of £70,000 or £100,000, as the case might be. Each of them would enjoy the exemptions conferred by this section.
Fishing boats are given the same treatment as agricultural land in the section. My information is that there is no real problem in so far as fishing boats are concerned because it is not the practice for owners to form companies to operate the boats.
I do concede that hotels, quite frequently, are run by limited companies and are incorporated for the purpose of running the hotels. However, I am advised that it would not be practicable to extend the relief sought to hotels because there would be wholesale evasion. I would ask the House to note that in the section the relief which is mentioned, that is, the £100,000 or 50 per cent, extends only to bedroom accommodation in hotels. It is a limited part of hotels anyway. Bars or lounges, public rooms, dining rooms and so on do not enjoy the benefit of the 50 per cent or £100,000.
In the amendment which has been mentioned by Deputy Colley and which I propose to move later on, I am giving special treatment to hotels by giving a discount, reducing the value of the shares by 30 per cent. This reduction will go right across the board and apply to the garage as well as the bedroom, it will apply to the public bar which may be used more as a public bar than a hotel bar. It gives, as I say, that generous reduction of 30 per cent. I respectfully say to the House that viewed in this light there is no real necessity for this amendment bearing in mind that it deals with the three types of property I have mentioned—agricultural land, fishing boats and hotels. There is virtually no problem in regard to agricultural land.
The special reliefs in subsection (1) of this section are reserved for agricultural property, fishing boats and hotel premises as defined which are owned by individuals. The amendment proposes to extend this relief to such property when it is in the ownership of a private trading company within the meaning of section 9, which is controlled by a husband, his wife and children or any one of these persons. It is difficult to see how this amendment could be operated in practice. A private trading company is not a taxable entity. Its shares are liable to tax in the hands of individual shareholders. The value for tax is the market value of the shares from which is deducted 20 per cent relief for productive assets. In valuing shares underlying assets are but one of the many elements which are taken into account in addition to the company's past history and future prospects, dividend records, liquidity and so on. To isolate the whole or part of the underlying assets of the company from all the other constituents which go to make up the value of the share and then to apply a relief to these assets and have it reflected in the value of the shares would be virtually impossible. Even where it would be possible it would present enormous valuation problems for both the public and the private sectors. The fact of the matter is that relief from tax can only be given for property which is itself liable to tax since a trading company is not as such liable to tax, it is not possible to give relief to the underlying assets. The amendment is, therefore, unacceptable.
I am convinced that if the House looks at the position of subsection 1 in a practical way it will be seen that there is no real necessity for the amendment.
The net question is should the relief which is proposed to be given in the case of individuals be extended to the case where the property is held by a family trading company? The major reason the Minister gives for not granting that in the case of hotels, where he admits it is of importance, is that it would not be practicable, though, he said at one stage it would lead to evasion.
This is a question which arose on another amendment last night as to how to give effect to this kind of reduction in valuing shares. We are told that this is not possible. How is it that the Minister proposes to do it in his own amendment, No. 21? I do not understand the reasoning behind this. Amendment No. 21 deals with a trading company as the present amendment does. It proposes to give a reduction of 30 per cent in the valuation of property and presumably that will have to be reflected in the shares.
(Cavan): There is no problem at all there. I am simply reducing the value of the shares by 30 per cent.
What is the problem in the other one?
(Dublin Central): The private trading company.
(Cavan): There is no problem about reducing the value of the shares. I have done that by 30 per cent in respect of hotel companies.
Is the Minister saying that there are only three categories liable for wealth tax, namely an individual, a non-trading company and a discretionary trust?
(Cavan): That is part of the——
Is he taking that consistently right through the Bill? From a legal point of view it is important because it would affect the whole drafting of the Bill and the interpretation of the Act from the point of view of law. The Minister says that the only legal persons who——
(Cavan): Individuals, discretionary trusts and a non-trading company are the taxable entities.
The only nonincorporated person the Minister is capturing directly is the non-trading company. Is that the Minister's position?
(Cavan): That is correct.
I am still somewhat mystified. If the Minister's problem is that under the amendment we are discussing it is possible that a good deal of the assets of the company consist of property other than a hotel or whatever is mentioned in this section and therefore it could not be distinguished—if that is what his problem is, that is easily overcome by providing where the assets consist wholly or mainly of property as described in the subsection. There is no great problem there. The real question is whether the Minister is willing to do this. He has demonstrated himself in amendment No. 21 that it is possible to do this. Is the will there on the part of the Minister to give the same concessions in the case of family trading companies owning hotels? Will he give the same concessions to them as he has given to an individual who owns a hotel? If the will is there the method is there.
The Minister said that to grant this would lead to "wholesale evasion". That is not clear to me. Perhaps he could explain this to me.
(Dublin Central): I would like to support this amendment. In these three subsections which apply to agriculture, fishing boats and hotels, the word “individual” is employed. We all know of cases where family hotels were extended and it was necessary for them to form companies because the family was growing up and they had to distribute part of the assets to sons and daughters within the company. I cannot see where there is difficulty in applying this concession if we take the private trading company. Where a private trading company is comprised entirely of members of a family, say three sons or three daughters, why can the Minister not grant this concession? Why does he victimise them because they have formed a private trading company? The Minister has stated that it is only part of the hotel that will be exempt. I agree with him on that. Bedrooms in the hotels are the only part that are exempt. As far as I know, the kitchens of hotels carry a greater capital investment than other parts of a hotel. Why that particular section of the business was not brought in I do not understand.
In the case of fishing boats we know what a small fishing boat cost in the past but we can imagine what the capital investment will be in larger fishing boats, which are necessary if we are to compete against European fishing trawlers in the future. That type of investment will undoubtedly be formed into a company. There will be huge capital investment in this, as much as any large hotel. I would not be surprised if grants were given in the future and companies formed.
The Minister is probably more aware of this than I am. I would not be at all surprised if grants were given on these lines and these could very well be formed into companies' fishing boats. Many fishing boats will fall into the hands of companies. It will develop along that line.
These are the points we must consider when we are legislating for the future. We are not legislating for the past as to what the units will be. We certainly must look to the future and see how these units are going to develop. Private trading companies are being formed every day. They are being formed for various reasons, especially within the family circle. When some members of the family are getting married, it is not possible to allocate a particular portion to each of them and a private trading company is formed where the profits can be allocated. Surely in that type of situation where a family must form this type of a company they are entitled to this concession the same as an individual who is lucky enough to be able to keep it in his own right. We know the hotel business will involve an enormous amount of capital in the future. It would be nothing unusual for two individuals—let it be farmers, or any other type of trader or professional man—to come together, as they have done in the past, and pool their assets, pool their wealth and go into the hotel business. Surely on an occasion such as that they should be entitled to the same concessions. I cannot see why it presents an administrative difficulty and where there could be any evasion in the type of cases I have outlined.
As I said on the Capital Gains Tax Bill and this Wealth Tax Bill, the Minister is visualising a way out for somebody who is devising a scheme to evade wealth tax. You will always get a person like that and 1,000 years from now there will still be people who will be capable of doing that. We must make sure that we do not victimise the average genuine person who is interested in the particular type of industry and trade which the Minister has outlined in this subsection. We must ensure that this genuine person is not victimised because we are going after some smart alec who can employ professional people to get around this section. I would prefer to let him off rather than to victimise decent people who are genuinely trying to carry on a business and trade well within the ambit of this subsection.
The Minister's amendment will be coming up later. It does not go far enough. It is restricted to three years. I agree it is a small step in the right direction, but if Deputy Colley's amendment were accepted it would certainly restore confidence. The Minister knows perfectly well that the major hotels, although within a family unit, are private trading companies. The Minister should look seriously at Deputy Colley's amendment because without it the section will inflict hardship within the family unit, although they are a trading company. Those are the people I am concerned about in this section.
(Cavan): Deputy de Valera put his finger on the matter when he asked a question in regard to entities which are taxable under the Bill. I confirm that it is elementary in the Bill that only three entities are to be taxed, the individual, the discretionary trust, and the non-trading company. That is why it is not possible to give exemption or to give special treatment to property in a trading company which is not a taxable entity. I do not concede what Deputy Colley said in regard to amendment No. 21, which gives more general treatment to hotels. I am not sorting out the property there. What I am doing is giving more generous treatment to hotel shares. I am not sorting out the property bit by bit and saying we will exempt this and we will not exempt that.
What is the problem about doing the same thing in this case? Under the amendment we are recommending here why cannot the Minister adopt the same approach?
(Cavan): In which case?
The amendment we are recommending.
(Cavan): I am doing it in regard to hotel shares.
For three years.
(Cavan): For three years initially and, as the Deputy knows from his experience, these exemptions which are initially for three years have the happy knack of being extended. The relief for agricultural land is intended solely for individual farmers domiciled and ordinarily resident in the State, and that object could be frustrated if the relief were extended to farmers in general. I do not believe that would be the intention of Deputy Colley or the House. The relief is also intended for genuine farmers and, apart from the fact that shareholders would not own the land, which of them could be regarded as genuine farmers? If every shareholder in a farm or company were to be classed as a farmer the relief would be open to abuse. Of course, consistent with the Land Acts if portions of the farm were held under different titles, under different folios, there would be nothing at all to prevent different companies being incorporated in respect of each folio and getting exemptions right across the board. In that way the whole intention of the Act would be defeated.
The vast majority of farms are not incorporated. Of the few that are, most would not qualify for the relief in subsection (1) anyway, either because they would not be genuine farmers, or because their agricultural property exceeds £500,000 in value. The 20 per cent relief against the value of the shares would be more beneficial to them. Despite what Deputy Fitzpatrick says, the information available to me shows that the individual boat owners in the fishing industry whom this relief was intended to benefit do not incorporate their vessels. That is factual. That this is so is borne out by the fact that the matter has not been raised by the fishing industry. That is the factual position at the moment.
(Dublin Central): The development of fishing here will necessitate this type of business.
(Cavan): We will deal with that when we come to it, or when that situation arises.
(Dublin Central): We should try to do it now.
(Cavan): At the moment the question does not arise. I have conceded that there remain the hotels. I recognise that there is a different position there and for that reason, as I have said, I am dealing with it in amendment No. 21 which affords a more beneficial treatment to hotels than what is suggested here. If the relief were extended to companies, the tax could be avoided. A farmer, for example, could set up more than one company to hold his land and get relief several times over. As each company would be a separate legal entity complicated legislation would be required to make the companies aggregable. Those are the simple facts. I do not think there is any real complaint here. We are dealing again with the three types of entities. It is an exemption only extended to three types of property, and Deputy Tom Fitzpatrick, although he knows that that is not so, overlooks it when he is making his argument.
It is very interesting to hear the Minister making the case as to why this relief should be confined to the individual and the abuses which would creep in if it were allowed to be applied to a family trading company.
I recall, I think it was last week, a discussion on a particular paragraph in a Schedule to the Capital Gains Tax Bill, where we sought to get relief in respect of interest payments for individuals and we were told from the other side of the House that it simply could not be done; it had to be confined to companies. Everything was trotted out to show how it would be abused if it were not confined to companies. It could not be given to individuals. The Bill has passed both Houses of the Oireachtas with that provision in it. Now we get the reverse situation. I want to put it to the Minister this way. To make it as simple as possible let me take hotels alone, for which he admits there is a case. If it were administratively possible, does the Minister see any reason, in principle, why the relief being given to individual hotel owners should not be extended to hotels which are in the ownership of family-controlled companies?
(Cavan): Very briefly, I do. There could be avoidance. There could be several companies, one operating the bar and the lounge, another company operating the dining room, another company operating the bedrooms.
That is very far fetched.
(Dublin Central): The Revenue Commissioners would not remain lenient in that kind of situation for long.
If that is the fear the Minister has, how does he propose to police the amendment he has coming up? He proposes to take the property, consisting of stocks or shares in a trading company, whose assets consist wholly or mainly of hotel premises and he proposes to give them the relief specified in the later part of the subsection. If that amendment is passed, is it not possible that people could have different companies in respect of at least different hotels?
(Cavan): That will not create any problem.
It will not, because the Minister is prepared to give the concession across the board.
(Cavan): Not because I am giving a concession to the shares across the board. I am giving a concession to the shares.
Why cannot the Minister do that in the case of family companies owning hotels?
(Dublin Central): Cannot the Minister apportion it?
(Cavan): It is not necessary to do it in regard to farms. It would lead to abuse. It would lead to people who are not genuine farmers going into farming, which is against the national policy. It is not to be encouraged, and that is one reason why we are not doing it in the case of farms. In regard to fishing boats, I told the House the problem does not exist. Deputy Colley says if I have done it for hotels, why do I not do it for farms?
The point is, the Minister has not done it, and does not propose to do it in the case of hotels. That is the real point I am getting at. There are in subsection (1) reliefs for individuals, individual hotel owners. What the Minister is proposing to do under his amendment No. 21 is to give to hotels, which are owned by trading companies, a different kind of relief which is not as great as that provided for the individual hotel owner. Are we agreed on that?
(Cavan): Yes.
The question I put to the Minister was, if it were administratively possible, does he see any good reason why the relief given to individual hotel owners should not be extended to the family trading company owning a hotel? My recollection is that he said he did see objections; that it could be abused. If the position were that it could not be abused, could we get agreement from the Minister on the principle that it should be extended and that the same treatment should be given to the family owned hotel, owned through a family trading company, as is given to the individual?
(Cavan): Deputy Colley is on a loser here and I think he knows it. My case is that it is not possible to give to companies the type of relief we have given to individuals. It is not necessary or desirable to do it in respect of farms. It is not necessary to do it in respect of boats. It would not be practicable or possible to do it in respect of hotels for the reasons I have given, that you could have three companies operating the same hotel attempting to triplicate their reliefs and exemptions. It is not possible to give the type of relief which Deputy Colley seeks. I am not giving it in section 21, but I am giving a different type of relief in lieu of it, which I say is as beneficial.
Is the difficulty in relation to a hotel arising because the relief in subsection (1) is given only in respect of part of the hotel—the bedrooms? If that relief were given to the whole hotel, would the Minister see the same problem?
(Cavan): I would, because the fact that it extends only to bedrooms is part of the trouble, but if I were to give that to a company, there could conceivably be the instance where different companies would be established to run the same hotel.
There would be no advantage if the relief applied across the board. Is not that the reason why the Minister can do what he is doing in amendment No. 21?
(Cavan): Because I am giving it to the shares.
The Minister is giving it to the shares here.
(Cavan): No. I have not given it to shares in hotels.
It is a different relief the Minister is giving in amendment No. 21.
(Cavan): How can I give the relief? Deputy Colley says why do I not give the relief here in respect of shares? How could I give relief in respect of shares attributable to bedrooms? How would I sort out what portion of the shares——
That was my question. Is this the Minister's difficulty?
(Cavan): It is the obvious difficulty. It could not possibly be done. I am doing what Deputy Colley wants me to do in regard to hotels. It would not be socially or nationally desirable to do it in respect of land and it is not necessary to do it in respect of boats.
I do not accept it is being done in respect of hotels, and the major part of the problem is that it is not proposed to relieve hotels except in relation to bedrooms, and we cannot discuss that at the moment. We will be doing it later. That is what the real difficulty is, and it has come out only now.
The more I hear about these tax Bills—not being a lawyer—the further away they seem to be. We were told that what Deputy Colley said a while ago about giving relief to individuals could not be done. Now individuals are being given relief in this Bill. As an ordinary individual sitting here listening to the debate this strikes me very forcibly. The Minister said this could not be given to hotels and that it was not feasible to give it to farms. He said it would be discriminating against farmers by giving it to them on Deputy Colley's amendment. Now if he gives a special rate and takes 30 per cent off the shares of hotels, is he not discriminating? If he were to accept Deputy Colley's amendment on hotels the Minister says he would be discriminating against farms. I agree with him. There are very few farms involved. What I am worried about is the tendency for smaller farms to do this type of thing. There are numerous hotels involved. Most of the hotels in the West of Ireland are family co-operative businesses. This is the point we are trying to make. The more I listen to the tax Bills the more confused I become.
(Cavan): I would not blame the Deputy.
Amendment put.
The Committee divided: Tá, 65; Níl, 69.
Tá
- Allen, Lorcan.
- Barrett, Sylvester.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, Hugh.
- Gibbons, James.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Nolan, Thomas.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Níl
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- Fitzpatrick, Tom. (Cavan)
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Hogan-O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McDonald, Charles B.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Donnell, Tom.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Thornley, David.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Tellers: Tá, Deputies Lalor and Browne; Níl, Deputies Kelly and B. Desmond.
Amendment declared lost.
(Cavan): I move amendment No. 20:
In page 13, subsection (3), line 52, to delete "stocks and" and to substitute "property consisting of stock or".
This amendment is merely textual. Subsection (3) grants 20 per cent relief for productive assets. The subsection opens by referring to property in the State which is used directly in the provision of employment in the State and stocks and shares. Paragraph (a) then gives a deduction of 20 per cent from the market value of such properties. It is arguable that "such property" refers to property in the opening line and does not include stocks and shares. Stocks and shares is a general term. Where a single company is being referred to it is considered to be more correct to say "stock or shares" and the amendment, accordingly, also amends "stocks" to "stock". To remove any doubt "property consisting of" is being inserted before "stock or shares" so that such property in paragraph (a) refers both to property used in the provision of employment and property consisting of stock or shares of a trading company. The reference in paragraph (b) to property will also refer to the two types of property.
Amendment agreed to.
I move amendment No. 20a:
20a. In page 13, subsection 3 (a), line 56, to delete "20 per cent" and substitute "50 per cent."
The object of this amendment is to provide, in the case of all productive property, the kind of relief provided earlier in the section in the case of agricultural property, farm machinery, fishing boats and hotel premises, as defined in the section. The amendment is designed to do that by providing a reduction in the market value of all such productive property of 50 per cent as against the 20 per cent proposed in the section.
The question involved is, why not treat all productive assets equally? For example, why is a factory, which is giving employment, not as worthy of consideration as a farm, a hotel or a fishing boat? Why should such a factory be saddled with heavier overheads? That is the basic question that arises here. The section purports to deal with productive assets but it deals in a different way with different kinds of productive assets. As the Minister is well aware, our contention is that productive assets on which employment depends, on which growth depends, and on which we are all depending in order to get recovery in our economy, should not be subjected to wealth tax.
Given that the Government have decided and voted to subject such productive assets to wealth tax, the question arises, why not treat them all the same way? Why, in effect, say that such things as hotels, fishing boats, agricultural property and machinery should get greater relief than other productive assets such as factories, all of which are giving employment and all of which are important in the rehabilitation of our economy if we are to rehabilitate it?
I want to speak in relation to one element under this section, namely, the farmer's part of it that gets the 50 per cent reduction in dealing with farm machinery and, basically, farm land. I do not know whether it is generally known, but those who pretend to know something about agriculture, the investment in agriculture and, particularly, the return that comes from capital invested in agriculture, say—there is ample evidence to support this—that the return from capital invested in agriculture basically works out in the region of 2½ per cent to 3½ per cent. It is much lower than in any other type of business, when you take the capital and the return on the capital investment. It would be arguing in reverse to adopt Deputy Colley's reasoning on this. This is the thinking behind the special treatment given to farmers under this Bill. There is another matter which should be borne in mind: that is, that basically speaking, in industry the turnover of one's working stock is far more rapid than it is in agriculture. A man takes in livestock at the beginning of the year. He thinks for the whole year; in other words he does not turn over his stock so many times. That underlines the fact that there is such a small percentage return from the total capital invested in agriculture. That is the reason why the farmer objects to this treatment. It is soundly based economics and very necessary having regard to the structure of Irish farming.
I would like to disagree with Deputy Colley. I speak for the hotels. A survey was carried out for 1970 and 1971, which were reasonably good years for the hotel industry, by a firm of accountants in Dublin either for the Tourist Board or the Hotels Federation; I do not know which they did it for. It showed that the average return on the capital invested was 1¼ per cent. I feel that 30 per cent for three years is insufficient for the hotel industry. I am not speaking about hotels in the centre of the city. I am speaking about hotels in general which bring in over £100 million a year. If one were to take a public company, very often they pay out about 20 per cent of their profits and a certain amount of money is reserved for expansion, which is a good thing for employment. Shares in a public company get a 20 per cent knockdown. Now a private trading company is going to get a 30 per cent knockdown. We know what kind of a return people got from their investment in the CIE hotels which in 90 per cent of cases were built in seaside resorts or in a place like Killarney where there would be a seasonal trade. There are none in the big city centres where there is a bigger profit and a better return.
Neither the farmer nor the hotelier, on average, is getting the same return as you would get in a factory. Some factories do not make money, but generally people are not in the factory business unless they get a good return for their investment.
(Cavan): The amendment seeks to increase from 20 to 50 per cent the reduction in respect of property in the State which is used directly in the provision of employment in the State and of property consisting of stocks or shares of a trading company. In order to assess the merits of the amendment we must bear in mind the type of tax we propose to impose, the thresholds which are available and the exemptions given. Tax is being imposed at the rate of 1 per cent, but the effective rate on this type of assets of tax is always well below .80 per cent. It is usually less than .70 per cent in respect of the type of assets that we are dealing with, productive assets on shares in trading companies. The same applies with greater emphasis in regard to agricultural property where the effective tax is as low as .11 per cent, and hardly ever over .52 per cent, when account is taken of the exemptions and thresholds.
Deputy Belton raised specifically the question of hotels. He appreciates that we have recognised the special position of hotels, the low return for money invested at the present. We have dealt with them by giving a discount on shares of 30 per cent. As the Bill stands, it is written into it for three years. A case was made that the state of the hotel business due to a variety of reasons——
This is something the Minister will have to say again on the next amendment.
(Cavan): Therefore I will not say it at great length on this one. Due to a variety of circumstances like troubles in the North, world economic recession and so on, we are providing the exemption for three years. When these exemptions are written into a Bill for three years, whether it is a remission of rates or any other sort of annual relief, the usual practice is that these exemptions are extended from year to year.
Why not do it now?
(Cavan): We are starting off with three years.
(Dublin Central): Do the right thing and then we shall not have to come back again.
(Cavan): I made the point yesterday that our approach to shares in trading companies is regarded by students in Great Britain and writers as an enlightened and a progressive move. In the British proposals shares are valued at their full value. There is no reduction given in respect of stocks and shares in trading companies.
This is an innovation which equates stocks and shares in trading companies with the provision of employment. When we get a reaction like that from Britain where the tax is being considered and which is an industrial country, it is corroboration that what we have done is the right thing. The amount of tax payable in relation to the value of the property is at a very low percentage. It is 1 per cent written into the Bill but, as everybody knows, when you take into regard the exemptions, the thresholds and so on, the effective rate of tax is about a half of 1 per cent.
You hear appeals being made in regard to shareholders in companies and the case being made that the overheads of the company will be increased. That is the case made by Deputy Colley, but I do not accept that the overheads of trading companies are being increased by this Bill. This Bill does not tax trading companies. There can be no doubt about that. I gave the example yesterday of a public company, Cement Roadstone, which is stated to have 11,300 shareholders. Their concern with the amount of money they get in the form of dividends will not in any way affect the company. Dividends of course are subject to income tax and always have been subject to income tax. A case was never made that imposing income tax on shareholders in companies was in some way going to increase the overhead expenditure of the companies and prevent the investment of money into them. Such a case has never been made. It would not be realistic. It would not stand up. I put it to the House that you have the very same situation here. These shares will be valued. The dividends from the shares are subject to income tax; the capital value of the shares will be subject to wealth tax, just as they were subject to death duties up to the present time. The individuals we are talking about, the people who fall into the wealth tax category under existing law within the family, would have been subject to death duties at the rate of 41 per cent or more. There is a threshold here of £100,000 in regard to wealth tax. A person is not liable for wealth tax if he is married unless his taxable wealth exceeds £100,000. He is then required to pay an annual amount which works out at about half of 1 per cent. If that married man died last year and his property was passing to his widow, he would have to pay £41,000 or more. That is the reality of the situation. Nobody likes a new tax. Nobody says "well done"— especially the people who pay it. It is the business of the Opposition to point out to the general public that a new tax has been introduced.
I would appeal to the Opposition not to misrepresent, not to create a false or misleading impression. I believe that a fair study of the tax will prove that it is innocuous. It is innocuous in the sense that it does not harm anybody. It is part of a package——
(Dublin Central): A bad package.
(Cavan):——to relieve people from death duties. The capital gains tax, the wealth tax and the capital acquisitions tax are all parts of a package to relieve people from death duties. Until this package was brought in you had a situation where the pay-as-you-earn system of income tax was rigidly enforced, but capital gains could rocket and were completely exempt. You had a savage imposition of death duties. That is being improved. You have a more equitable system of taxation overall. To say that it is driving money and businesses out of the country is simply not correct. I forgot to make the point yesterday when I was dealing with United States companies coming in here and when Deputy Colley and other Deputies said that this type of package we have introduced would chase them away, that a huge American company have announced the setting up of a factory in Mullingar in the last few days. Presumably that company is well advised on taxation and has not been chased away. I hope we will have more of these companies here because we want more of these companies. We want more industry and employment here. I am convinced that the package, instead of being a hindrance, will be a help. I pointed out—and I do not want to bore the House with it again —that in the Industrial Development Authority publication for circulation abroad one of the incentives they held out was that a system of capital taxation was being introduced but that death duties which ran to 55 per cent were being abolished. I think that the exemption of 20 per cent right across the board on productive assets with a substantial recognition in the case of agricultural property and a big increase in respect of hotel company shares is adequate to meet the situation.
I agreed with the Minister for Finance about the subsidy for the hotel industry by giving 30 per cent reduction in the value of the shares of a company. We must compare that with what you get in a public company. It is 20 per cent on shares in a public company but it is 20 per cent on the dividends of that public company, not on its profits, while in a private trading company, we have not been told yet whether it is on a dividend, on profits or on asset value.
(Cavan): It is on the market value of the shares.
What is the market value of the shares? Is it the asset value of the property owned by that company or is it the profits of that company, or is it the dividends of that company?
(Cavan): I do not want to interrupt Deputy Belton, but it is on the market value of the shares as defined.
How will the market shares be valued?
(Cavan): It is the value of the shares on the market, taking all relevant considerations into account.
Do I take it then that the share of a person who owns 52 per cent is worth double or treble the share of a person who owns 5 per cent?
(Cavan): Not double, but the fact that he has a controlling interest in the company is taken into account in the value of the shares.
That is already fixed now in sections 8 and 9.
Deputy Belton might like to know that an amendment I put down to ensure that account was taken of these deductions in shares was rejected because the Minister said it would not be taken into account.
The position is, as I see it now, that a public company can decide tomorrow to pay 5 per cent of its profits in dividends. The person who is collecting the shares has a 20 per cent deduction in that 5 per cent of the profits and the rest stays with the company. But a private trading company is not valued on its dividend at all; it is valued on the shares in the market; in other words, the profits, asset values and dividends do not come into it at all. Nobody is interested too much in the dividends of a private trading company. It is the profits and asset value we are working on. In this position we have a public company treated preferentially because we are working on the dividend against working on profit and market value in a private trading company. An hotel is not given the same as a public company.
You are not working on the dividend of the public company. You are working on the market value of the shares, and the dividend is only a factor. The asset backing and all the rest of it comes into it. The Deputy is not right in that.
(Dublin Central): Several hotels throughout the country are trading companies and attached to these hotels are fishing rights and golf courses which form part of the company and part of the shares. Do I take it that that is also exempt in this amendment? Are they allowed 20 per cent?
(Cavan): The shares are allowed the percentage relief.
(Dublin Central): Is the Minister not going to differentiate between, say, the fishing rights and the golf course?
(Cavan): No. As I did not do it in one way I will not do it in the other.
We had an appeal a little while ago from the Minister to the Opposition not to misrepresent the position, not to mislead the public and not to misrepresent the provisions of the Bill. In the course of his remarks the Minister did all of those very things himself. First of all, he talked about the effective rate of taxation under wealth tax. I venture to suggest that the Minister did not take into account, and has consistently failed to take into account, the consequences in a private trading company of imposing the wealth tax, in particular in a private trading company where dividends and directors' fees have not been drawn for a number of years, as is not uncommon when the business is being built up. The direct consequence of the imposition of wealth tax in such cases is that the cost of paying the wealth tax will have to come out of the company. It is not just the rate of wealth tax, it is the income tax on it as well that comes out, and you get a rate which is well over twice the rate of wealth tax in such cases. I venture to suggest that the Minister did not take that into account in arriving at what he says was the effective rate of tax.
Furthermore, the Minister said that this was part of a package replacing death duties. The fact of the matter is that the real replacement of death duties is capital acquisitions, inheritance tax and gift tax. The amount of money that is estimated to be involved in the wealth tax is relatively small but the impact of it is quite large, and if the Minister wants to talk about death duties I suggest that he ought really to talk accurately about them. He ought not to say that if a man died leaving property worth £100,000 passing to his widow the death duties payable would be £41,000. That is not correct.
The Minister made other statements in this regard which are, in my view, quite misleading as to the effect of this wealth tax. The real question is that it is imposing a charge which has got to be paid by somebody. It is quite useless for the Minister to talk about this in the case of trading companies not being imposed on the property but only on the shareholders, particularly in the case of private trading companies. Where does the Minister think the money is going to come from? How does he suggest that it is not going to add to the overheads of such companies? It is quite illusory to suggest that this can come out of thin air or that it can come out of the pockets of the shareholders and not affect the operations of the company.
I would suggest that if the Minister wants to appeal to the Opposition not to misrepresent the position he might first attempt himself not to misrepresent the position and acknowledge that of course wealth tax is going to affect the businesses or the shareholders subjected to it. The money has to come from somewhere. It is going to impose higher overheads, and a very relevant question for the Minister to answer is why should one increase overheads of business at this time particularly. The Minister talked about the fact that income tax is payable on dividends and so on. Yes, it is, of course, and has been for many years because it is a form of income. If you tax income, if you tax inheritance and if you tax gifts, effectively you are then taxing all the methods by which a person can acquire money or property. Wealth tax is a tax on too of that again.
(Cavan): In lieu of death duties.
No. I have said if you tax income, inheritance and gifts you are covering all the ways people can get property. But the wealth tax is on top of that again, and I do not know if the Minister has yet recognised the significance of that fact. To compare it with income tax on dividends suggests that he has not recognised the significance of what is involved in this wealth tax. But I would again come back to what I proposed in this amendment, and that is that if you are going to give some productive assets relief to the extent of reducing the value of the assets by 50 per cent you should apply that to all productive assets.
I was interested to hear Deputy Esmonde talk about it and confine his remarks to farms and say, correctly, that the return on investment in farming is very low. Deputy Belton's contribution was largely on the basis, in so far as it related to the amendment, that the return on investment in hotels is very low, and at the end in passing he agreed with Deputy Esmonde that he thought the return in farming was low. That was interesting, but it was particularly interesting to hear the Minister adopting this argument. In other words the case being made for the special relief in the case of farming and hotels was that the return on investment is low.
That special relief also applies to fishing boats. Nobody said the return on fishing boat investment is low. I cannot say at the moment whether it is high or low in relation to farming or hotels. Let us assume even for the purpose of the argument that it is relatively low. Has the Minister considered the implications of what he is saying, that is, that the impact of wealth tax should be related to the return, to the income? This is totally inconsistent in a Bill which proposes to impose wealth tax where there is no return, where there is a loss, and which makes no provision for that. The only justification for that approach is that wealth tax is a tax on property, on assets without regard to the income from it. Yet we hear the case being made by two Deputies and the Minister that the justification for special relief in these cases of farming, hotels, fishing boats, is a low return. I wish the Government side would get their minds clear on what exactly they are trying to do in this wealth tax and what are the principles involved, if any, other than purely short-term political ones, designed to appeal to people who do not understand what is involved, people who are becoming fewer in number.
If the Government benches believe in wealth tax in our circumstances in principle—personally I believe it is ridiculous—at least let them have some consistency in their approach. To advance the argument that there is a low return on particular kinds of wealth as a reason for giving them special treatment is practical, but it is totally inconsistent with a Bill which proposes not to recognise a situation in which there is no return at all, but an actual loss.
Would the shares of a company come into it?
Who is talking about shares in a company?
I thought we were dealing with it.
The amendment seeks to substitute 20 per cent for 50 per cent. That is the reduction in regard to what is defined in the Bill as productive assets other than agricultural assets, hotels and fishing boats. It can include shares, it can include individuals and it can include discretionary trusts. It can also include non-trading private companies.
(Cavan): A non-trading company could not be said to hold productive assets.
Does the Minister realise what he is doing in this section? Does he not know that he is providing this relief for discretionary trusts and private non-trading companies? Such assets can be used productively. The fact that they are held in a particular way does not prevent them from being used productively.
(Cavan): As long as they are used productively.
The Minister is changing feet very quickly.
(Cavan): No. If they are used productively——
That is exactly what I was telling the Minister. The fact is that I am arguing that if there is any case for applying wealth tax to productive assets, and I do not think there is such a case, there is no case for applying in effect a lower rate of wealth tax to some productive assets than to others. To do that you have to involve yourself in saying how productive they are. If you are going to do that, then the approach in the section and in the amendments by the Minister does not do that either. But, in fact, the basic principle in the Bill as shown by its various provisions is that it is a tax on assets and that it is not concerned with the return on investment, with the income of the owner of the assets. Therefore, this whole approach that has been given from the other side has no relevance to what is done or what is required to be done here.
We come back to the simple proposition that is involved in this amendment, namely, if you must put wealth tax on productive assets and if you are going to give a 50 per cent relief in the case of some productive assets, why not give it to all productive assets on which jobs depend? We can cloud the issue in all sorts of ways but that is what is in this amendment. It simply says to delete 20 per cent and substitute 50 per cent. That is what this amendment is seeking to do. Unless the Minister is prepared to accept it, he is saying he is going to give 50 per cent relief to certain kinds of productive assets and 20 per cent to other kinds. The basis at which he arrives at that conclusion has not been made at all clear, but in so far as there is any basis for it it is totally inconsistent with the other provisions of the Bill and with the alleged principles of wealth tax. The Minister can have it one way or he can have it the other but he really cannot have it both ways.
(Cavan): I do not want it both ways. What we propose doing, and what we are doing, is to give a relief of 20 per cent to all productive assets. We recognise three special types of productive assets which are in a special category and which are well known and recognised as a high capital investment and low income return. First is agricultural land and agricultural activity in general. I am not going into that in detail because it is accepted that the net rate of return is very low there. The case was effectively made in regard to hotels falling into the same category at this time and we recognise that. The third category are fishing boats which in addition to having low return, have also the hazards of the sea to contend with. They are usually operated by owners, and they have the hazards of the sea to contend with and all the risks involved in fishing. Deputy Colley speaks of imposing a tax on a company that is not making money but is showing a loss. If that is a trading company and if it is showing a genuine loss, the shares in that company will be valueless or very nearly valueless.
Even though it has assets worth a great deal of money?
(Cavan): That will be taken into account.
The Minister's statement is not correct.
(Cavan): It will be taken into account and the losses will be taken into account. If a privately-owned concern which is being run at a loss continues in this way the goodwill will disappear and the value of the shares will come down. All those things are taken into account. I want to repeat that the shares in a private trading company are liable to wealth tax only when the shareholder is in the wealth tax category. That is the first point I want to make. Even then, the wealth taxpayer has the thresholds and exemptions and reliefs and they will reduce the tax well below .80 per cent, as I have said. The maximum effect of wealth tax on a private company arises when the company is owned exclusively by one person and he has no other property. Take one such case where a person has shares in such a company valued for £500,000. He starts off by getting exemption of £100,000, reducing the net value for tax to £400,000. Assuming he has other net personalty of £50,000, that leaves his total for tax at £450,000. He is asked to pay £3,500 on that. His exempt property which would be reasonable, of £55,000, given his total wealth £605,000 and the percentage rate is .58 per cent. I ask Deputy Colley is there any terror in that for anybody?
Are we talking now about productive assets?
(Cavan): I am talking about shares in a company owned by one person and he has some other property.
In a trading company?
(Cavan): Yes, the shares are.
If we take the Minister's figure as .58, let us assume that is the correct result. That is the measure of the additional overheads being imposed on that business by the wealth tax. Would the Minister keep that in mind?
(Cavan): I would also keep in mind that in the case of a married man who happened to die last year leaving that amount of money, over £300,000 would go in death duties.
It is useless to be comparing wealth tax with death duties. The Minister must know that.
(Cavan): In the case of a married man who had a couple of children, he would have no inheritance tax. He could arrange his affairs so that on his death no inheritance tax would be payable. The position of that man is vastly improved. Deputy Colley knows that.
Would the Minister enlighten us on the capital gains tax liability, for instance?
(Cavan): That is a situation I could not deal with offhand.
That is right.
(Cavan): Is Deputy Colley against capital gains tax, because a couple of years ago he appeared to be against it?
What is on record is the contrary. That is a red herring. The Minister is now saying that this man last year with that kind of money would have had to pay so much: now he is trying to say that he would only have to pay .58 per cent. The Minister knows very well, according to himself, this is a package. He cannot tell us what the man's liability would be under the package. What is he picking one piece out for? That is misleading.
(Cavan): It is not. I am saying that he would have been relieved of well over £300,000 in death duties. If he is a married man with a couple of children he would have no capital acquisition tax to pay, no inheritance tax to pay. In regard to capital gains tax I cannot say but the Deputy knows he would be infinitely better off.
I do not know any such thing.
(Cavan): I should have reminded the Deputy that unless he was selling the property, capital gains tax would not arise.
I want to ask the Minister a question. The Minister was talking about how well off a person was, and he mentioned £3,000 a year tax. If the company is making a loss and there is no income, that tax would still apply, would it not?
(Cavan): If, as I was saying to Deputy Colley, he was making a loss and no income, the property would have a lower value.
That would depend on the interpretation of section 9 and section 8.
(Cavan): Goodwill would be much less. If a loss was being made it would be run down and the value of the goodwill and the shares would be much less.
Would the Minister admit that that situation could very easily lead to a quick liquidation of a company?
(Cavan): It would not be the wealth tax that would cause the liquidation.
Yes, it would. I am talking of a private company now. A £500,000 company is not a small company. If that is liable to a tax of the order of £3,000, that is an outgoing from the person and having reference to sections 8 and 9 it would be a very fast acceleration towards liquidation. That fact cannot be got away from. It is a practical fact, not a legal one. What the Minister is doing now is, in the case of any private trading company that gets into difficulties and is assessed to tax on its assets as it would be under sections 8 and 9, the imposition of tax regardless of the profit position on the assets would accelerate liquidation and would incidentally, if the company has any employment content at all, lead to unemployment.
(Cavan): I would like to clarify the position In taking the £½ million company, I deliberately took the worst possible case from wealth tax point of view, because I took a company owned by one individual with shares valued for £500,000, that individual having no other substantial assets. That is not a usual case; it is a rare bird.
I wonder?
Does not the Minister understand that profitability is shown in the balance? That applies to all companies. It is pretty serious with some companies at the moment. The assets situation is a situation which appears on the balance sheet irrespective of whether the company is floating, viable or not. This is a question that came up last night, that the Minister for Finance should have regard to, that is, the present situation where there are a considerable number of companies whose profitability is in question perhaps for the next year or two years but whose assets as appearing in the balance sheet, their actual physical assets, including potential goodwill or leasehold values, can work out at a fairly substantial sum irrespective of whether that company is making a profit or not. This can become quite serious in relation to the effect of wealth tax.
(Cavan): Of course we are valuing shares here. We are not valuing the property or the assets in the company.
The shares are valued on the assets.
(Cavan): No. The £½ million is the value of the shares in that company taking into account all the matters that the Deputy has been talking about and the assets in the company could probably be worth about £1 million.
That is changing the ball-game.
It is.
The discussion on this amendment has ranged far and wide. Could I just briefly recall that what it is a justifiable approach. All the other matters raised have been largely obscuring what is involved this amendment which is simply to fishing boats and hotel premises as defined in the section. We think that is a justifiable approach. All the other matters that have been raised have been largely obscuring what is involved in this amendment which is simply to give the same treatment to all productive assets. If you must subject them to wealth tax, which we object to, apply it to all productive assets equally. That is what the amendment seeks to do. The Minister is not prepared to do this.
(Cavan): Just three or four sentences in reply. I agree with Deputy Colley that that is the net point in his amendment. The section proposes to give exemption of 20 per cent to all productive assets with 30 per cent for hotel companies but to recognise the special position of high capital low yielding businesses such as farms, hotels and boats. What Deputy Colley wants us to do is not to give any preferential treatment to these special categories, to give special treatment right across the board, which I do not think would be fair.
Would the Minister agree that it is a special category if, in fact, an asset is producing a loss in a particular year and yet he is still going to apply wealth tax to it?
(Cavan): No, that is taken into account in the valuation.
Question put: "That the words and figures proposed to be deleted stand."
The Committee divided. Tá 69; Níl, 65.
Tá
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- Fitzpatrick, Tom (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Joan T.
- Burke, Liam.
- Hogan-O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McDonald, Charles B.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Donnell, Tom.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Thornley, David.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Allen, Lorcan.
- Barrett, Sylvester.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom. (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, Hugh.
- Gibbons, James.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Nolan, Thomas.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
Progress reported; Committee to sit again.