I gather the Minister for Lands will be substituting for the Minister for Finance in this Debate.
Capital Acquisitions Tax Bill, 1975: Committee Stage (Resumed).
Question again proposed : "That section 9, as amended, stand part of the Bill."
That is correct. I am standing in for the Minister for Finance for the time being because he is engaged elsewhere.
I do not wish to go back over all the ground we have covered but might I just briefly summarise what I was saying on this section? I was suggesting that it looks as though the original thinking behind the section was based on the fact that, under the death duty code, there was a provision whereby in certain circumstances duty was payable in respect of gifts where the donor died within five years of making the gift. That would seem to be the basis on which the five-year period in this section was arrived at.
I was also pointing out that if the concern of the Minister is that persons who would have been liable for duty in respect of gifts of that kind would not escape liability we on this side of the House would be quite prepared to support a provision which would ensure that such persons did not escape the liability, whatever it would have been under the death duty code, either in the manner suggested by Deputy de Valera, by aggregation, or even by importing a specific provision that the liability under the death duty code in respect of such gifts would continue until the time had expired. We would support an approach of that kind.
We object to what is being done in this section which is not ensuring the liability of persons who would have been liable under the death duty code but rather is, in effect, applying retrospection. I suggest it is an illusion for the Minister to argue, as the Minister for Finance did, that there is no retrospection simply because tax is not being applied to gifts made prior to 28th February, 1974. I say that because it is quite clear that, on the same amount of money given by way of gift subsequent to 28th February, 1974, a different rate of tax will apply, depending on what happened prior to that date. If that is so, there is no use arguing that there is not retrospection.
If a similar amount of money given by way of gift can be liable for a greater or a smaller amount of tax, depending on what happened prior to that date, it is not reasonable to argue that there is not retrospection.
The major reason advanced by the Minister in justification of this provision was that it was necessary to protect the tax base. I want to suggest that the tax base for a gift tax which commences on 28th February, 1974, is the tax levied on gifts made on or after that date, and is quite independent of anything which occurred before that. The principle involved in this matter is very important. The amount of tax involved cannot be very great but, if the Minister's concern is to ensure that persons who would have been liable under the death duty code will not escape liability, we would support a provision to that effect. In so far as there is any question of protecting a tax base, it can be done in that way. Nothing involved in this matter from the point of view of the Exchequer, or otherwise, could possibly justify retrospective taxation however it is dressed up.
We strongly urge the Minister to think again about this section and to amend it in such a way as to ensure there is no retrospection. If he chooses to do so on the basis of ensuring that persons who would have been liable under the death duty code in respect of gifts do not escape liability, we are prepared to support that proposition if the Minister wants to make it.
In completely supporting everything Deputy Colley has said I ask the indulgence of the House and the Minister who is sitting in for the Minister for Finance while I elaborate on it a little for two reasons. The Minister for Lands has not heard the whole argument in detail. Deputy Colley has given a very concise and precise summary of the position. This section had the mis-fortune to come before the House on the last two occasions just when the House was about to rise at the end of the day, which is not the best time to get objective debate. There is always the feeling that the clock is ruling.
The point which had to be made on this at the beginning is this. I am not suggesting any turpitude or anything like that, because it is a very natural mode of thought, but we believe there may have been confusion as between the two separate taxes imposed by this Bill. The Bill imposes a capital acquisitions tax and, in effect, and actually by legislation as between the operative sections, it imposes a gift tax and an inheritance tax. The inheritance tax corresponds to the old death duty. The gift tax is completely new. With that distinction in mind, to make the case clear to the Minister I will give him the reference. Gift tax is charged under section 4. Inheritance tax is charged under section 10. These are essentially two different taxes grouped together and they are of the one genus with the general tax known as capital acquisitions tax. In other words, it is a tax on capital acquisitions either by voluntary donations inter vivos or by donations on devolution. Capital acquisitions means that it is to deal with the voluntary or automatic donations that are not caught by the capital gains tax. Within the scheme there are two separate categories although in administration and detail there will be certain inter-links : there is the gift tax inter vivos and the inheritance tax which is a tax corresponding to the old death duties, a tax that operates on devolution on a death.
First, let us consider the second category. In the case of the old death duties it was found necessary because of evasions that for a certain period before death voluntary gifts should be captured and aggregated with the assets that became the assets of the deceased. This was necessary for obvious reasons. For instance, if a person was known to be terminally ill and took six months to die it would be too easy a way of evading death duties to give a gift when it was certain that the property was going to pass on death anyway. To avoid that, a period of five years was fixed so that all gifts given in that time had to be taken into account when it came to marshalling the assets of the deceased. This was a good logical reason.
As Deputy Colley has said, the five years visualised in this section from 1969 to 1974 can be considered as analogous to those five years and, on the same basis and logic as before, it is rational to say that gifts given within a certain period of death should be aggregated and marshalled with the assets of the deceased. Otherwise, the loophole that existed in the beginning for escaping death duties would be there to escape inheritance duties.
Thus far we are completely with the Minister and his advisers. From the point of view of equity, of administrative convenience and for other reasons, it seems reasonable to take five years as the Minister is doing here. As Deputy Colley pointed out, it can be done in the way I am suggesting or there are other ways. By all means let us aggregate for five years if a death intervenes. The effect will be precisely the same as it would have been under the old code from an administrative point of view. I am leaving out another significant change in this section but I do not want to complicate my argument at this stage.
Where a death intervenes there is the same kind of gamble as before. Let us consider the situation if this legislation were not introduced, where A gave a gift to his son, B, on 1st January, 1970. If A died before the period in question had expired, the gift would have been brought into the estate, it would have been taxed accordingly, it would have been returned on the Inland Revenue affidavit and assessed. However, if A did not die in the five-year period which expires at the end of this year and if he survives into next year the gift ceases to be of interest to the Revenue authorities and is not taxed.
We submit that in principle this should continue. It is provided for in the Bill but a completely new tax is introduced. The Bill introduces a tax completely unknown to the law, namely, a tax on gifts per se. Heretofore gifts were only taxed in relation to a contingent event, namely, a death. Now we are introducing a new tax, an absolute tax on gifts as they occur. We have debated that principle on Second Stage. I am not impugning the principle of the tax but I am pointing out that we are introducing a completely new tax, that should only become enforceable generally on the date on which this Bill becomes effective. This is what we mean by the element of restrospection. Unfortunately we are not altogether clear when we talk about this matter. Retrospection is one of these points that makes bad law because there is confused thinking on it. Here we have a new tax, that is absolutely in contrast to the contingent nature of its equivalent tax that existed up to now. If it is in any way made operative retrospectively we are introducing the precedent of indiscriminate general retrospection in taxation. Where, I ask, can that principle stop?
I see the Minister taking a note and I shall probably come back to deal with the distinctions on retrospection here. Remember what I have said: on the basis of general, unrestricted taxation, unqualified, new to the law, it is a very dangerous thing to impose retrospection in such a case. Before this Bill is passed and before the dates provided for in the section, the gifts between 1969 and 1974 would have been completely free unless a death which affected them intervened within the appropriate time. If we pass this section they will not be free. I hope I have amplified the point that Deputy Colley has made so that there will be no doubt about it. There are two further points to be made once we have grasped the fact that gift tax per se is new, that if we do this and no death intervenes it is retrospective taxation, clean, general retrospective taxation.
Hardly clean.
Clear is what I meant to say instead of clean. I know the Minister opposite is very fairminded and no doubt will make his case as well as the next but one has the feeling, talking to him, that at least one has been listened to. If I have made that point clear as to the difference between the two types of tax, the legitimacy in the case of the tax under section 10, the complete novelty and objectionable character of the tax under section 4, there are two other points to be made. One deals with the question of retrospective legislation. Sometimes, it is necessary to legislate retrospectively but we should remember as a principle necessary to give certainly to the law, that the application of such retrospection should have a specific nature relating to a specific reason for being retrospective in the particular case and that there is something there that demands retrospection. These are the two prerequisites for legitimacy to justify a legislature in legislating retrospectively—that there is a specific quality about it, that it is to some extent clearly limited to a purpose that is clearly seen and that there is also a good public reason for doing it.
There are clear examples. It is practically never allowed to happen in a criminal case on the principle that the accused is entitled to the benefit of the law, paradoxically, it might be one of the cases where you might easily justify it. In regard to taxation if, for instance, there was a specific case of scandalous and great proportions where some interest wiped the State's eye—to put it colloquially—for a large sum of money in flagrant abuse of the intention of an existing code, one is then justified in legislating retrospectively. In this area the Revenue are sometimes too touchy and instead of coming back here to go straight for the target there is a tendency to put down a barrage and blanket the whole area and probably miss the actual target. That would be a case where you could have specific retrospection, in order that when changing the law you would avoid serious loopholes or gross unfairness but there should be some such element in it and it should be confined to an area.
Neither of these prerequisites applies in this case. Here is a gift tax that is general and unlimited. Nobody could be expected to think that this could happen. I know the Minister for Finance said that one never expects what is coming in taxation. Frequently that is a problem of the Revenue Commissioners—to think out what people are anticipating. A man could have made a gift in 1970 with full expectation of living perhaps another 20 years and having no idea at that time that that gift would ever be brought into account in the taxation code. That illustrates the generality and also the point I made about uncertainty. There can be no certainty in the law about these things. If you push that kind of logic to its conclusion you could suddenly decide to bring into account for some purpose a gift given in the reign of Queen Victoria and there would be no logical reason why you could not do it. If we are to have any jurisprudence or any legal principles and not work completely pragmatically to the logical conclusion that anybody who has the power—the Revenue Commissioners included—to pull a gun and hold up anybody, if you are not to find yourself from a jurisprudence point of view in that position, you must have some principles and I am adumbrating the necessity for seeing this principle here, seeing what principle should apply to retrospection.
The Minister was so considerate on the first occasion when I began bringing in authorities that I am sure there is no need to do it but if I were to embark on that line of country I could project a long debate which would take up too much time. It should be enough for a Deputy to point out to the Minister and the Administration a principle of legislation and of law that should be considered and I shall finish that point by saying that if we are going into details the Minister can give me any number of examples of retrospection particularly in taxation. In which case I will probably be able to come back and show him specifics, show him two things: that the retrospection is limited and that there is a clear specific reason for so doing it related to what is going through. I can think of things in the income tax code particularly in this regard. It should be sufficient for me to say that and to point out that there is this distinction. I will therefore pass on. Having made my distinction on that, I want to make my last point before I repeat, I hope in a sentence or two, the general point. It is this: the Minister himself said—it is a technicality, if you like—that these gifts will not be taxed but they will be aggregated so as to bring up the rate of tax. Look at what that means. I take it that the Minister was referring to the rates of tax set out in the Schedules to this Bill. Take the case of a spouse, child or a minor child where the upper limit is £150,000 for this, where the rate of tax is nil. If there is aggregation above that, tax is captured. Come to the more remote case and substantial amounts of tax could be captured. I take it I am not making a mistake when referring to these Schedules as relating to the rate of tax that the Minister mentioned. If I am, I will gladly acknowledge my error. I do not wish to take up the time of the House.
(Cavan): I think the Deputy is correct.
We have always wanted this to be a friendly, constructive argument between both sides of the House because, as we readily admit, we are supporting the principle of the Bill. There are excellent things in the Bill and I would like to make the Bill better still. My reading is that you are bringing in that gift to lift the level. When you lift the level you are going to charge money. I submit—and I do not want my words to be taken as offensive—that it is a quibble to say if you use the gift to increase the return you cannot attribute the return to being a tax on the gift. That is playing with words. If you use the gift in such a way that you increase the tax yield and a greater sum of money is paid into the Exchequer as a result of including that gift, that gift can legitimately be said to be taxed. Technically, of course, it is not taxed in the sense of being separately assessed but as far as the taxpayer is concerned he is paying more money because of that gift. If you want to make it precise, at the very best, from the Administration's point of view, whatever increase resulted from the aggregation of that tax can be calculated as a percentage of the gift that caused that increase and it is taxed to that per cent.
Not meaning to be nasty or offensive in using the word, I submit it is a quibble to say that you are not taxing the gift. If you jack up the estate into a higher tax bracket and collect more money on it, you can do a sum by which you isolate the extra amount of money payable because of the aggregation of that gift and when you have got that figure you can calculate what percentage that increased taxation is of the gift that is aggregated. I do not see how you can avoid the conclusion that that gift has been taxed by that rate per cent. If we go into that we are getting to the point of scoring debating points. The fact is, it is a taxation of the gift when it is looked on in that way and can be shown to be so.
These are the particular points to be made. Could I pose this practical question, not necessarily for answer in the House but to which an answer should be sought from consideration of the problem: how many deaths have occurred or are likely to occur within the period concerned that would be captured by this? I do not think the sum of money involved would be very much but it is irrelevant because we concede that part of the argument. You have now to ask yourself, how many substantial gifts were made in that period in anticipation of this legislation? Here is a case of proper retrospection going back to 28th February, 1974. That was fair enough because the White Paper was published then and if there had been a gap between that and the passing of the legislation the whole thing could have been rendered completely nugatory. That retrospection has all the elements of justifiable retrospection that I mentioned. But, before that, certainly in the immediate years, one of the problems was the devices that were being used.
There had been a good deal of pressure from the Revenue authorities in the years preceding that for an increase of the five years to a seven-year period. I wonder how much was done in anticipation. I think relatively little, certainly little from the point of view of return to the Revenue Commissioners. If we are practical we find that those who acted bona fide, without ulterior motive, justifiably, without anticipating the new legislation, were entitled to the benefit of the law as it was at that time. The number doing it for other reasons was, in my view, relatively small, unless the Revenue Commissioners know of specific cases. If it happens that there were a number of big cases they should try to deal with such cases specifically. I am not asking for this information here nor would it be correct to give it to me.
I suggest that a lot of money is not being lost to the Revenue Commissioners. The fact that somebody may have got away with something that does not mean a lot to us should not be allowed to influence us against the principles I have set out. We must be careful when in a position of power, as we are, of being influenced by the human reaction: "I will get that so-and-so anyway". I suggest that we should judge coldly what is being lost. There is no other reason for breaking the principle of retrospection unless there has been some serious abuse involving damage to the community or loss to the Revenue Commissioners. If there is anything like that we should tackle the problem but in a more specific way.
If those elements are not there I cannot see what benefit anybody gets from making gift tax retrospective in this way. No matter how small the benefit would be—I called it catch penny last week—I cannot see any benefit that would outweigh the far reaching consequences, the insidious consequences, of extending it unwittingly. There is nothing sinister in this at all; it it incidental in the way it was drafted but it makes it all the more dangerous and insidious that we are breaching further into a principle that should guide us in legislation. The logical end of that is to legislate retrospectively on anything. I have dwelt at length on this matter because on the last occasion my efforts were somewhat abortive—they came at the end of the debate—and because the Minister for Lands is representing the Minister for Finance. I ask the Minister for Lands to ask his colleague to reconsider this on the lines suggested by Deputy Colley. In general terms the Bill is one of merit.
(Cavan): First, I should like to inform the House that I have all the authority in relation to this Bill that the Minister for Finance would have were he present. I found it necessary, when dealing with the wealth tax on behalf of the Minister for Finance, to make that point in reply to a query by Deputy Colley. Had I not such authority this would not be a real debate and it would be unfair to the Opposition. I should like to bring the House back to what is involved in the abolition of death duties as from 1st April this year and the introduction of this Bill in replacement of death duties, particularly what is involved in section 9. Up to 31st March last all estates amounting to £10,000 or more were liable to death duties, whether those estates went to one or several persons and subject to exemptions and concessions in respect of widows and dependent children. Death duties were abolished as from 1st April last, and this Bill proposes to impose a gift or inheritance tax on gifts or inheritances passing from one spouse to another or from a parent to a child provided each gift or inheritance or total of gifts or inheritances, exceeds £150,000. Where the donee is not a child or spouse but a lineal ancestor or descendant the exemption is £15,000. Where it is a brother or sister, the exemption is £10,000 and the threshold is £5,000 for a stranger.
It follows that, in the case of a family man, provided he has enough children, an estate of £500,000, and, indeed, £1 million could be totally exempted. It was necessary to capture all gifts or inheritances which passed after 28th February, 1974, because the White Paper was issued on that date and the world and his wife had knowledge of the proposal to introduce this Bill from that date. Although it could be said to be, technically, retrospection in the sense that the legislation is only being introduced now, two years later, the Opposition accept that as a reasonable proposition. I do not accept that there is retrospection involved in section 9. For some time it has been known that there was a likelihood of a gift tax or inheritance tax being introduced—not so much an inheritance tax because the estate duty was there. On Second Stage, Deputy Colley said he, and his party, when in Government, were considering the introduction of a gift tax to augment or strengthen the estate duty code.
Yes, but there was no public knowledge of that.
(Cavan): While I am not suggesting that there was a leak, other people might have been anticipating that it was intended to introduce such a tax. A gift tax was in the wind and could have been anticipated by people who were directing their minds to taxation in general. It is not proposed to tax a gift that was made within the five years ending on 28th February, 1974, and that is conceded and understood, but it is proposed to take that gift into account in deciding whether gifts made subsequent to that date are to be taxed. A parent could have made a gift of £200,000 to his wife or child in 1973 and that gift will never be subject to gift or inheritance tax. Provided he lived until after the introduction of this Bill, it would not be subject to death duty. He is getting off scot free. The position has improved enormously and many people let out a sigh of relief. If that person made a gift of £200,000 to his child in 1973, and this year makes a gift of £10,000 to that child, the £10,000 gift will be taxed because the threshold of £150,000 has been exhausted. That is what is proposed here. I do not concede for one moment that this is retrospection. It is taking into account the capacity of the donee to pay. The donee who got a substantial gift in the last few years is in a better position to pay than someone who has not.
Is it confined to substantial gifts?
(Cavan): No, it could be a small gift. If a child got a gift of £10,000 the threshold of £150,000 would be reduced to £140,000. He would have exhausted £10,000 of the threshold. As I understand it, Deputy de Valera and Deputy Colley—although protesting strenuously that there is retrospection involved here, which I do not admit —offered across the floor of this House to allow the former death duty code apply to these gifts. Surely that is retrospection.
I disagree with Deputy de Valera as to whether it is retrospection or not.
(Cavan): I could score a debating point here but I will not.
If the law, as it existed then, continued to apply, it is not retrospection.
(Cavan): It is, because that particular law is gone. You would be absolving it as from 1st April last and then you come in here and tax it again.
Are we only dealing with five years in this section?
(Cavan): Exactly, but Deputy Colley would be prepared to collect tax on the gift made within that five years.
Yes, because the law applied at that time.
(Cavan): I am not taxing it and I think the Deputy concedes that. I am taxing the subsequent gift at a higher rate——
The Minister may be improving the net position.
(Cavan):——thereby improving the position of the Revenue. As I say, taking everything into consideration, the removal of death duties and the introduction of this Bill will bring enormous reliefs to families, in particular, to brothers and sisters and, indeed, to strangers. Deputy de Valera asked if there were specific cases and conceded that if there were it would be wrong to spell them out. Then he went on to suggest how we should deal with them. I doubt if that would be possible. I hate invoking the Constitution but it would be quite wrong to legislate for specific cases and I think the courts would set that aside.
I do not know how much or how little section 9 would bring in to the Revenue. In my view, it is a reasonable provision and while I do not believe it is analogous to the five years the Opposition Deputies speak about —do not think the Minister was influenced by that five years when writing it into the Bill nevertheless, the fact that gifts inter vivos were subject to death duties for a long time if they were made within three years of the death, and more recently within five years of the death, that is a precedent which might be borne in mind when considering this section.
I do not accept that there is retrospection here. There has been retrospection from time to time under the income tax code. I do not propose to spell out those incidents but I do not think it will be seriously denied that in the past there have been cases where there was retrospection under the income tax code. Therefore, I do not think there is an innovation here or that we are doing violence to any long established principle. We are not collecting tax retrospectively on gifts made before 28th February, 1974— about that there is no doubt. The fact that those gifts were made prior to the 28th February, 1974, may decide whether any inheritance or gift tax will be payable on subsequent gifts and also the rate of tax paid. I believe there has been a fairly lengthy discussion on this on previous occasions with the Minister for Finance. I know he has considered the matter fully, and I put my position as clearly as I could. I could go into greater detail but I do not think that is necessary.
I can understand the Minister's last remarks because I too do not wish to spell it out in a long debate because what we have said is on the record.
In this pragmatic age when principles are unfortunately not sufficiently adverted to, we are reaping the fruits. In these cases the fruit is the uncertainty of the law and ultimately, it must mean penal taxation in one area as it means lots of things in other areas.
Let me take the Minister up on two points. I conceded that in one sense there was retrospective taxation on the matter of the five years. In the technical sense yes, but Deputy Colley is perfectly correct: it was merely continuing in the new legislation what was there already and it is not retrospective in that sense. Therefore, there is no contradiction between us.
With regard to specific cases, I must accept what the Minister said. But is there enough social reason in what the Revenue lost to make us bloody-minded, to catch so-and-sos anyway? We must be on our guard against that kind of mentality. When I say "us" I mean people in this House because we are passing this legislation, not the people who drafted it or are advising us. If there is no real loss to the State, this is wrong, and even if there was a small advantage, this does not outweigh the breach of the general principles that should rule for application of retrospective legislation which sometimes is necessary, as in the income tax code. The Minister, however, made one significant remark. He got back immediately on this point about the capacity to pay. There is very dangerous thinking in that. By all means for our present and our future let that be an influence, but are you going to justify retrospection on the basis of capacity to pay? If you are, you are opening a very dangerous door. When the Minister for Finance was there I noticed that kind of thinking too.
(Cavan): I seem to have heard the Leader of the Opposition fairly recently making that proposal, that capacity to pay should be taken into account.
Yes, in regard to new tax.
In regard to new taxation, yes.
Death duties did that before.
This is a very dangerous approach.
Death duties were tax.
The Deputy's party are taking credit for abolishing death duties. They are certainly modifying them, and I say there are good things in this Bill and they will be much appreciated. Our anxiety in this is to make the Bill a good precedent too, and the reason we are stressing this point on the section is that we see it as a serious and unnecessary blemish on the Bill, and the only real justification that can be given for it is on the basis of information which I am not entitled to and which I would feel it would be wrong to ask for. As regards the amount of money that would flow from the Exchequer from it, I think that having regard to inflation and all the rest, it cannot be a great deal. Inflation was rampant since 1973, not so much before it. Unless we have captured some very big interests, of which I cannot think, I fail to see how the Revenue can benefit to an extent that would justify this retrospection.
There is a principle here. That principle has to be abrogated and modified in particular cases which I have described. There must be some limitation and there must be a specific purpose. The Minister has failed to show that it is limited, because it is not, and he has failed to give me a good specific purpose. In that connection I do appreciate that perhaps he has a specific purpose that he would feel it was not justified to give me, and that I accept. I, therefore, ask: is it justifiable for the return? Let me take the Minister's own case. The Minister says that it is not retrospective taxation. The Minister gave a case of a man who had given a gift of £200,000 in 1973, and he did not die. As things stand, that was a gift and that was that and would only have been captured if there had been a death duty.
If, as in the example the Minister gave, the man gave £10,000 in 1975, if the £10,000 stood on its own, as it would have without this Act, it would have been intact and so would the £200,000. The position now is that the £10,000 will be taxed on the basis of a gift of £210,000. Take the schedule, and the figure of £210,000 in the £200,000—£250,000 bracket, that is assuming it is a child, a spouse, the best case, the biggest exemption; it becomes a very different kettle of fish under tables 2, 3 and 4, but I am confining myself to table 1, to the sum of £210,000 which is in the category between £200,000 and £250,000, which will then be taxed at the rate of 30 per cent.
(Cavan): And it would have been taxed at the rate of 51 per cent if we had not abolished death duties.
No, the Minister is wrong, I am delighted the Minister said that. The Minister is confusing the matter. The Minister would be quite right if the donor died, but the case that we are making is not the case where the donor dies, which we have conceded; that is under section 10. We are dealing with the gifts under section 4 which are not inheritances, because the donor did not die. The effect of this Bill is going to be that the donor will receive only £6,666-odd instead of £10,000. £3,333 will be lost if I understand the Minister's argument correctly. I am sorry. Thirty per cent is not one-third. The donor gives £10,000, the donee gets £7,000.
(Cavan): But the same donor had given the same donee £200,000.
I know but that has nothing to do with the retrospective case, and the Minister is confusing two things.
(Cavan): No.
You are justifying retrospection on the grounds that somebody has done something in the past. In my submission that is not sufficient, in general principle, to justify retrospection. I am sorry the Attorney General was not here to hear some of our legal arguments on this. I am sure he would have appreciated the full force of the principle of jurisprudence involved. I hope I have not confused the note-taking by that error. All that need be done is to put £7,000 where I said six and one-third thousand pounds and put £3,000 where I said three and one-third thousand pounds. The result of this is that a gift that would have been free under the new legislation will be taxed for £3,000. It amounts to taxing the £200,000 at the rate of £3,000, which is something over 1 per cent, which is in turn something more than the wealth tax. Do you not see what you are doing here? You are going to tax that £200,000 at something more than the wealth tax, because you are going to take £3,000——
(Cavan): Of course, the wealth tax taxes it every year.
It is one of these coincidences. I am not making any great point of it. The result is that you are retrospectively taxing the £200,000. What I want to say to the Minister is this: can anyone deny that the effect of that is to impose a tax of £3,000 retrospectively on the £200,000? If one were to take a gift that would bring it between the tax-paying groups here, one would have to sophisticate that argument by a difference—the difference between the rate payable on the gift—as it would be now and the rate that is paid. On the table I have taken the rate payable on the gift is zero. Therefore, I took the £3,000 on the £200,000 which boils down to a 1½ per cent tax on the original gift.
The only reason I do such sums is to point out that we are right in maintaining that there is retrospection here. The Minister's answer about capacity to pay is not the answer to that argument. It may be a reason but it is not a good one where the principle is concerned. I do not want to detain the House beating this argument around the place. We have conceded that, in specific cases, retrospection for a particular purpose has been justified. This is the case where we think it is not.
I cannot agree at all with the Minister that there is no retrospection. Taking the sum I took there shows it can be so retrospective it can be reduced to a percentage on the original gift. I shall make a final appeal to the Minister, which is simply this: unless there is good, substantial reason, serious loss to the revenue— even if a few people get away with it; we all feel we do not want anyone to get away with anything; we want absolute fairness but there is something broader involved in this—is there enough there to breach the general principle that retrospection should be specific and bear a sufficiently weighty reason? When I say "specific" I do not mean a specific case. Perhaps "limited" would be a better word—that retrospection should be in some way limited. But this gift tax is not limited.
If the Minister would take that point and consider it we would make a plea to him that where gift tax, pure and simple, is involved, where a death does not intervene to capture it under the death duty code, I take it the provision will not carry on forever or will it? Could there not be second thoughts on this section?
(Cavan): I do not intend to prolong the debate on this section. I should like to put to the House as clearly as I can what is now involved in this as between the Government and the Opposition at the end of this debate.
Death duties were abolished as from 1st April last. These inheritance and gift taxes are being substituted therefor. I shall confine myself to the family man. A family man could leave £150,000 to each of his children and be exempt. I am asking the House to say that, in deciding whether the £150,000 threshold has been reached or not, regard should be had to any gifts made by the father to the same child or children since 28th February, 1969. I do not think that unreasonable. The Opposition say it is but they are prepared to concede that some people might get away with something in the line of tax were that allowed.
Deputy Colley offered to carry forward the death duty code in regard to deaths occurring less than five years after a gift was made. Let us see what that means. If that were to be accepted, I do not think it would make Deputy Colley very popular— but, perhaps, he is not seeking popularity—because the effect would be that a man who made a gift of £100,000 to his child in May, 1973, who survived until May, 1975 and left nothing further to that child, if I get my way, will be exempt. If Deputy Colley gets his way, that child will be called upon to pay £51,000 in death duties. That is the effect of the proposition put to me by Deputy Colley. Whatever may be the merit in trying to exempt my proposal, and I do not believe there is any, a proposal to substitute it by that provision, in my opinion, would be outrageous.
I ask the House to accept that what is being done in this section is a reasonable way of dealing with new taxation, of dealing with a move over from death duties to inheritance and gift tax.
I do not wish to prolong this debate unduly and I shall not but there are one or two points made by the Minister I cannot let go without comment.
The Minister has chosen to refer to the exemptions in Table 1 of Part II which are the highest exemptions contained in the Bill. In fact, he could have taken examples of tax being imposed on gifts above £5,000 but he chose the highest ones, in the category of a gift to a spouse, child or minor child of a deceased person. In that case there is no tax payable on a gift of £150,000. The Minister talked about capacity to pay. I suggest that in that regard there are many people, and I am one of them, who believe that someone who gets a gift of £150,000 has capacity to pay tax. However the Minister chooses to provide that no tax will be payable in such cases. What will be the effect? To take his own example again, if a gift were made during the five years with which we are dealing here of £150,000 to a son and if the father survived and then during the currency of this gift another £10,000 were paid, there would be a tax of 30 per cent on that £10,000. If that father had given no gift prior to the introduction of the gift tax and then gave a gift of £150,000 there would be no tax payable. Thirty per cent on a gift of £10,000 and nothing on a gift of £150,000. One could produce all sorts of anomalies arising out of this all because, I would suggest, this section is disregarding principle.
The Minister is mistaken in saying that the suggestion from this side of the House, if the Minister's concern was to ensure that people who would have been liable on gifts under the death duty code did not escape liability—if that was his concern we would not object and would support the continuation of that liability until the necessary five-year period had expired—connotes retrospection. I suggest he is mistaken in that. What is involved here is the five-year period referred to in the first two lines of the section between 28th February, 1969, and 28th February, 1974. Any gift made on or after 28th February, 1974, should in our view be subject to gift tax as provided in the Bill. Any gift made in the previous five years would have been liable and it would have been known by the person making the gift that he was running the risk of being liable to death duties. That was known. To say that such a person who made a gift, knowing that was the law, would then be subject to retrospective legislation if you continued that legislation until the five years had expired from the the date of the gift is, I suggest, both mistaken and misleading. We are not saying to the Minister that he absolutely must continue that liability. What we are saying to him is that, if that is his concern, we will support him in continuing that liability but there is no basis at all for taking into account gifts made in that previous five years in order to fix the rate of tax subsequently.
To do that is, however you look at it and however you dress it up, retrospection and we think the imposition of retrospective taxation in this way is wrong. It is certainly wrong in principle, as can be shown in some instances, and, if it is accepted, it can lead to considerable difficulties in future in different fields altogether far removed from this legislation and in areas in which many more people will be involved, people with far less capacity to pay than those receiving gifts of £150,000, those who are not called upon to pay any tax under this Bill. Many feel such persons have the capacity to pay, and I am one of them. The Minister does not because he provides here that such persons will not have to pay tax.
(Cavan): Does the Deputy propose to put in an amendment to reduce the thresholds?
The Minister should leave me to look after my amendment. He can deal with the Bill, a Bill which he approves and which he has flogged around the country as a great achievement for equity. The fact of the matter is the Minister is providing that no tax is to be paid by way of gift tax by someone who receives from a parent a gift of £150,000. It is not my point of view that such a person has not the capacity to pay tax.
(Cavan): If it is not the Deputy should oppose it.
Allow the Deputy to conduct his own opposition to this Bill.
(Cavan): I will, of course, but I find it rather difficult listening to the Deputy blowing hot and cold.
The Deputy is not blowing hot and cold. The Deputy is pointing out, as he did not only on the Second Reading but earlier on the White Paper, the number of anomalies being produced in this legislation leading to a situation in which millionaires will be far better off than they were before while people of lesser wealth will be worse off. Presumably this was not intended, though some might suspect it was. I am not saying that, but it is one of the anomalies arising from this legislation and it is our obligation and certainly our right to comment on such anomalies. The fact is this section is producing anomalies. It is producing them because it is based on the abandonment of a principle, that principle being that we should not in circumstances of this kind attempt to impose retrospective legislation. This section is doing just that, wrongly in our view, not only because we strongly suspect the amount of money involved where the Exchequer is concerned is not great but, even if it were great, because the Minister and the House should hesitate before imposing this kind of retrospective legislation.
If the Minister proceeds because, in his view, he is justified, then I can only say we do not agree with him and we hope that between now and the next Stage wiser counsels will prevail and the implications of what are being done here will be considered and the Minister will be prepared to amend the legislation. If he is not prepared to amend it, we will give consideration certainly to the question of trying to amend the section ourselves though it would be preferable if the Minister himself would amend it and thereby demonstrate that both sides of this House do not accept and will not support the principle of retrospective taxation in circumstances such as are provided for in section 9.
I have made a stand on principle but I want now to point out one consequence of the Minister's case here to show the kind of thing that can happen. Remember, there is a distinction. If one were dealing with death duties and a death intervened, then the problem would be solved pretty quickly, but this aggregation will continue onwards under the Schedule. The bringing in of this five-year period may have very wide repercussions and may result ultimately, through this device of retrospective taxation, in capturing substantial sums. If you do, there is a certain amount of double talk if not double think about the representation of the limits which were so lauded in this Bill.
I pointed out that if there had been a gift of £200,000 in 1973, as the Minister postulated, and £10,000 were given at a later period, that would amount to a tax of 1½ per cent on the £210,000. Even if the £10,000 had been given completely, it would not have compensated for the inflation of the £200,000 in the period. From a practical point of view, I want to deal with a completely new aspect, the impact of inflation which, incidentally, I fear, will be one of the traps in this Bill. With the rate of inflation at 20 per cent and more, we will find very quickly that the limits in this Bill will not be very much better than the old death duty code. In other words, the benefit the Minister is giving may prove to be relatively temporary.
Let us take the case of a gift of £200,000 in 1973 to maintain a child who is disabled in some way. Are we to go the whole way with certain Members of the Labour Party and say we do not recognise that people are in certain categories in society and that people have been used to certain standards so to speak? Are we to adopt an extremely socialist approach to this? The man who gave £200,000 to maintain an invalid or disabled child at great expense, probably did something luxurious in 1973. Allowing that he was able to get 10 per cent on the £200,000—and remember banks are not paying that rate at the moment; an average of 10 per cent would be a fair level of remuneration on investment— that would leave only £10,000 a year to support somebody who probably required complete hospitalisation, or something like that.
The gift of £10,000 in the following years would not be enough to make up for inflation. Not alone are we giving less but, in effect, we are taxing the original gift. A number of anomalies can arise. The gift would be aggregated and, if the parent found it necessary to make further gifts, unless there were some other specific exemptions or something like that—for the moment I am not considering specific exemptions—inflation would operate. That should also be considered.
As Deputy Colley said, we have made our point. The Minister has stated his attitude. I should like him to accept that we made our contributions in the spirit of improving the Bill rather than obstructing it. I certainly do not want to obstruct it by repetition. I would like the Minister to consider practical consequences of that nature.
(Cavan): Deputy de Valera obviously has not referred to some of the amendments to the Bill.
That is true.
(Cavan): We propose to give exemptions to gifts and inheritances for children.
That is quite true.
(Cavan): With regard to the case taken by Deputy de Valera of £200,000 settled in 1973, all I can say is that, if the parent died in 1975, I would leave all of the £200,000 with the person, but Deputy Colley would take back about half of it.
I want to deal with this on a certain basis. This is a very serious matter in principle. I do not think we should deal with it on any other basis. I should like the Minister to consider what I have said.
The section is agreed on the basis I outlined.
Question put and agreed to.
SECTION 10.
Question proposed: "That section 20 stand part of the Bill."
Could I ask the Minister to indicate, allowing for the different limits and so on contained in the Schedules to the Bill, the difference in principle between inheritance tax and death duties?
(Cavan): The difference in principle between inheritance tax and death duties? I would like the Deputy to elaborate on this question. In principle, death duties caught the entire estate. If a person died leaving an estate worth £20,000, irrespective of who took that estate, whether it was the family, or a stranger, or a charity, it was subject to death duties at the appropriate rate.
Surely that is not quite right.
(Cavan): Yes, it is. It is subject to estate duty at the appropriate rate.
In the case of a widow?
(Cavan): Subject to exemptions for widows and dependent children.
Is that not classifying people in different categories?
(Cavan): The concessions under the death duty code were minimal. They applied only to dependent children and widows. Here, in so far as the family is concerned—and bearing in mind that this is the promise originally given in regard to the removal of death duties—a husband can leave his wife £150,000 free of any inheritance or gift tax, and he can leave £150,000 to each of his children free of inheritance or gift tax. If I understand correctly the question put by the Deputy, that is the answer. Perhaps it could be summarised by saying that inheritance tax looks at what such beneficiary got and ignores what other beneficiaries got. I suppose that is the whole difference. Estate duty looks at what the testator left. Inheritance tax looks at what each beneficiary got with very generous thresholds.
A rose is a rose by whatever name, and a thorn is a thorn by whatever name, and taxation is taxation by whatever name.
(Cavan): There are far fewer thorns in this one.
If you regard the principle as relating to the occasion, they are the same. Both taxes are the same in principle in so far as they arise out of and are occasioned by a death. Therefore, both taxes may legitimately be described as death duties although the former was called an estate duty tax and this is called a legacy duty tax.
Progress reported; Committee to sit again.