I understand that the Minister for Finance has made his opening statement and, as far as he is concerned, the debate could now proceed. I am sure he will be here soon.
Finance Bill, 1976: Committee Stage (Resumed).
Debate resumed on amendment No. 28:
In page 27, line 33, before section 32, to insert the following section:
"32. —(1) In this section—
`society' means a society, registered under the Industrial and Provident Societies Acts, 1893 to 1971, which is an agricultural society or a fishery society within the meaning of section 220 of the Income Tax Act, 1967;
`period of account' has the meaning assigned to it by section 155 (5) of the Corporation Tax Act, 1976;
`wear and tear allowance' means an allowance under section 241 of the Income Tax Act, 1967;
`initial allowance' means an allowance under Chapter I, Part XV of the Income Tax Act, 1967;
`investment allowance' means an allowance under section 22 of the Finance Act, 1971.
(2) In the case of a trade carried on by a society no transaction on or after the 6th day of April, 1976, shall be regarded as an exempted transaction for the purpose of section 220 of the Income Tax Act, 1967.
(3) Where a society comes within the charge to corporation tax in respect of a trade before the 6th day of April, 1976, an accounting period of the society shall end for the purposes of corporation tax on the 5th day of April, 1976.
(4) Where a society carrying on a trade incurred before the 6th day of April, 1976, capital expenditure on the provision of machinery or plant for the purposes of the trade and that expenditure was either—
(a) qualifying expenditure within the meaning of section 11 of the Finance Act, 1967, or
(b) expenditure on qualifying machinery or plant within the meaning of section 26 of the Finance Act, 1971,
an allowance equal to the specified amount of that capital expenditure may at the election of the society be made in taxing the trade of the society for the accounting period which commences on the 6th day of April, 1976, as if it were an allowance on account of the wear and tear of the machinery or plant in that accounting period, and where such an election is made, the amount of the capital expenditure on the provision of the machinery or plant still unallowed as at the time of any subsequent event shall for the purposes of Chapter II of Part XVI of the Income Tax Act, 1967, be deemed to be nil.
(5) For the purposes of subsection (4) the specified amount of the capital expenditure means the amount of that capital expenditure together with any investment allowance in respect of that expenditure after deducting from the aggregate amount thereof—
(a) the amount, as diminished by section 220 (5) of the Income Tax Act, 1967, of any investment allowance made to the society in respect of that expenditure;
(b) the aggregate amount, as diminished by the said section 220 (5), of the wear and tear allowances and initial allowances made to the society in respect of that expenditure for all chargeable periods before the accounting period commencing on the 6th day of April, 1976;
(c) the aggregate of the amounts by which the wear and tear allowances in respect of that expenditure would have been diminished by the said section 220 (5) if the only wear and tear allowances for those chargeable periods in respect of that expenditure were the amounts which would have been made if a proper claim had been duly made by the society for each chargeable period without regard to section 11 of the Finance Act, 1967, or section 26 of the Finance Act, 1971.
(6) Where—
(a) a society comes within the charge to corporation tax in respect of a trade,
(b) the society was within the charge to income tax for the year 1975-76 in respect of the trade, and
(c) a period of account of the society commences before the 6th day of April, 1976, and ends on or after that date.
the income from the trade for the period of account shall be computed (in accordance with the provisions applicable to Case I of the Schedule D) without regard to the provisions of section 220 (3) of the Income Tax Act, 1967, and the income as so computed shall be apportioned to the part of the period of account falling before the 6th day of April, 1976, and the part falling after that date, and for the purposes of subsections (3) and (4) of section 220 of the Income Tax Act, 1967, and section 70 (5) of the Finance Act, 1963, each such part shall be deemed to be a period of account and the income from the trade for that part shall be the amount apportioned to it under the provisions of this section.
(7) Any apportionment to different periods under this section shall be made on a time basis according to the respective lengths of those periods.".
—(Minister for Finance).
Has he finished?
Yes, I am informed that he finished his opening statement.
I was under the impression that the Minister was going through the amendment and had only got to the second subsection. There are a number of technical matters on this amendment on which I would like to get some enlightenment, but we can deal with them later. The most important part of this lengthy amendment is contained in subsection (2) which reads:
In the case of a trade carried on by a society no transaction on or after the 6th day of April, 1976, shall be regarded as an exempted transaction for the purposes of section 220 of the Income Tax Act, 1967.
That subsection proposes to remove from agriculture and fishery co-ops the exemption which they long enjoyed, an exemption which applies only to a limited portion of their activities. There is a considerable misunderstanding in this regard and it should be clearly understood that the ordinary trading activities of these co-ops—those that are generally regarded as being in competition with shopkeepers and so on—are, of course, subject to tax in the ordinary way.
We believe the concept behind this provision is totally wrong, is not in the national interest, should not be enacted, and, if enacted, when we on this side of the are returned to Government we will repeal it. We do not say that lightly. We say it because we believe that what is involved here is very important for the co-operative movement, which itself is very important in our whole economy, and because this provision encapsulates what is basically wrong with the approach to the management of our economy by this Government.
We have a Minister for Finance, aided and abetted by a number of his colleagues and backbenchers, who seek to justify many of the measures he introduced, including this one, on the basis of achieving equity in taxation. He has put forward on occasions the proposition that taxpayers in receipt of equal incomes should pay equal tax. I have had occasion a number of times to deal with this in this House and I think it is necessary to do so again because the only possible justification for this amendment is the proposition that it is achieving equity in taxation. We ought to examine this proposition of what equity in taxation involves and whether we or the Minister for Finance believe in it absolutely. I suggest that when one examines it one will find that one does not believe in it, nobody could. There are many examples but the most obvious and outstanding one is the fact that we provide complete exemption from tax on profits derived from the export of manufactured goods. That is not equitable. In fact, there is clear inequity involved when you give complete exemption from taxation to a company on its profits derived from the export of manufactured goods if you do not give equal exemption to a company earning the same profits but on the home market, and obliging it to pay taxation at the rate of 50 per cent. Whatever else is involved in that, it is not equity in the sense that the Minister for Finance has been using that word.
There are a few people, not many, in this country who would advocate the abolition of the remission of taxation on profits derived from exports of manufactured goods because the reality is that there is much more involved in taxation than alleged equity. Taxation serves other purposes than raising revenue or appearing, on paper, to treat all citizens alike. Taxation is a very potent weapon in the hands of any Government in encouraging growth in our economy and in discouraging tendencies which are not in the national interest. It is for that reason that exemption from taxation is given in respect of profits derived from the export of manufactured goods. It is for that reason that the Taoiseach came in here in the budget debate, after I had raised this point when the Minister was ranting on about equity, to make it quite clear that the Government did not intend to abolish that relief, and rightly so in my opinion.
It is a very potent weapon in the hands of any Government in trying to encourage growth and increase employment in our economy. I am taking that as an extreme example but there are many other examples. One example is the state of our economy today. We have historically high levels of unemployment, the highest inflation rate of any developed country in the world and an enormous and growing national debt.
The Minister for Finance recently stated that we have to reverse this trend to achieve growth. It took him a long time to realise that but at least he has got to the stage of preaching that doctrine. I suggest that he ought to practice what he preaches. If we want to achieve growth in our economy we will have to be ruthless about picking out the sectors in our economy which can produce growth and produce it quickly. When we talk about growth we are not just talking about a mathematical increase in the GNP. Implied in that is more jobs for our people, a lowering of our inflation rate and, because of increased earnings, the ability to pay our national debt and to reduce the necessity for borrowing by increasing the inflow to the Exchequer. All of that is implied when we talk about achieving growth in our economy. It is no good to tell the thousands of people on the dole queues that the Minister is achieving equity in taxation if in the process he is increasing the dole queues, shoving up our inflation rate and increasing the national debt still further.
I suggest, Sir, that a basic obligation of any Government and, in particular, of any Minister for Finance, extends far beyond the taxation code and any tinkering with it in the alleged interest of equity. Alleged, I say, because I hope I have demonstrated that the Minister does not mean it when he talks about achieving equity in taxation. He recognises that there are things that you have to do in the course of taxation policy which are not equitable but which are in the national interest. The question of the exemption of agriculture and fishery co-operatives from taxation is a classic example of one of those things. If we recall that, in dealing with these co-operatives, we are dealing with a very large sector of our economy which is concerned with food and food products we will recognise immediately that we are talking about an area of our economy which has enormous potential for producing growth in our economy.
The employment provided by these co-operatives is at present in the region of 15,000 people. A good deal of that employment is provided in remote parts of rural Ireland where nobody else will provide employment, or is likely to provide employment in the foreseeable future. Consequently, anything which might interfere in any way with the effective operations of these co-operatives should be considered carefully. But more than that, the activities of these co-operatives have enormous potential in the national interest. I am not speaking of the interest of members of these co-operatives and of the farming community but of the interests of all the people. Here is a sector which, if given the right handling and incentives, can contribute very rapidly to the achievement of more employment and more exports. Is that not what we need? If it is what we need, enormous justification is required before interfering with the role of those co-operatives.
One of the things that annoys me about this proposition is that it is so silly. Quite apart from his proposal's potential for causing damage, the reality is that if it is enacted it will do damage but it will not produce revenue for the Exchequer. It may well result in increased prices for the various food items produced by these co-operatives. It may well result in increased prices of inputs to farmers. But one thing one can be reasonably sure of is that it will not result in any increase in the surpluses of these co-operatives. Almost certainly it will result in their reduction. Apart from any reduction that will come about as a direct consequence of this proposal, we may take it that most co-operatives can very easily ensure that they have no surpluses. I suggest that the net result of all this will be little or no revenue to the Exchequer and a considerable disruption of this vital area of our economy. If the Minister for Finance said: "I believe that these co-operatives have tremendous potential for growth in our economy and that is what we need, but I am not satisfied with the way they are organised and I am not satisfied that they are achieving maximum potential, consequently, I am going to reappraise the role of co-operatives with the view to providing incentives to see that they contribute more to the national economy", I——
This is a very important matter. The House deserves to have more Deputies present than just the Minister.
Notice taken that 20 Members were not present; House counted and 20 Members being present,
It is of significance and of interest that the Minister for Finance is reduced to the level of making a false allegation in regard to our party and of threatening businessmen of this party for its opposition to the proposal he has for the taxation of co-ops. For the record, there was no vote in our party on this issue, because the decision was unanimous. That is no. 1.
Afraid to take one?
Second, as I pointed out, co-ops are, of course, taxed and paying tax on their activities which are in competition with ordinary traders. Therefore, the Minister need not try to run either of those hares but the fact that he is trying is indictive of the straits to which he has been reduced.
I was pointing out that, if the Minister had come into the House with a proposal to reappraise the whole role of co-ops to try to ensure that they contribute even more than they do at present to growth in our economy, to the provision of employment, I for one would be in full support of the Minister's proposals. But there is no mention of that by the Minister. I am glad to say that this party is concerned in that regard with the role of co-ops and wants to see them contribute a great deal more for the benefit of the whole of our economy, which they can do, and we are taking steps to reappraise that role in consultation with representatives of farming organisations, because we believe that there is enormous potential involved in these co-ops.
However, we hear talk—and the Minister repeated it again today— about the size of the turnover of these co-ops. Various figures have been tossed around and I wonder what relevance that has to anything. The size of the turnover of any business, I would suggest, is irrelevant to taxation. What is relevant is the amount of profit that is made and here we find an interesting situation. The net profit of co-ops as a percentage of sales is only 2.1 per cent nationally compared with an average of almost 7 per cent earned by public companies. That is not surprising if you consider the reason why co-ops were set up in the first place and the whole reason for their existence. You find that the co-op is not the place for the large scale investor or the speculator or the entreprenuer who is really oriented towards profit. None of those will find a place in a co-op. The maximum shareholding allowable for each individual is £100,000, and the principle of one-man one-vote applies rigidly within the co-ops. As I said, they operate on very low margins, and the maximum dividend payable is 10 per cent and many of them do not pay anything like that.
One of the reasons for the founding of co-ops—not the only reason—was that so many small farmers were being exploited by merchants and very large companies, some of them multinational, although I do not suppose they were called multi-nationals at that time. One consequence of damaging the co-ops is to ensure that such people will get the opportunity again to exploit the small farmer.
The Minister would do well to consider the implications of what he is doing, to consider why these co-ops were set up, the role they are playing at the moment and in particular the the role they could play, given the right urging, the right handling and the right incentives by the State. The co-ops which have built up, some of them, to a very large size have done so mainly by the retention of surpluses as a means of building up their reserves for investment. The taxation proposed in this amendment will result in a depletion of those surpluses, a depletion of the sources of funding their investment, which has already proved to be too low in many cases. Irish co-ops are, of their nature, very much under-capitalised. Of their total resources, share capital accounts for only 7 per cent, while finance from loans and creditors' accounts accounts for 70 per cent.
I would suggest, therefore, that now more than ever it is important that the co-ops are given greater freedom from the controls of the various lending agencies from whom they have to borrow, and the best way to give them that is to enable them to increase their own reserves, whereas this proposal before us will have the effect of lessening their reserves and increasing their dependance on borrowing as a source of finance. The consequence of this will be that the co-ops will go even deeper and deeper in debt and that they will find the cost of servicing this debt through high interest charges to be an increasing burden on their operations. In fact, I have before me details— and I think the Minister received representations also—of a particular co-op whose premises have been taken over by a local authority which plans to build new premises, develop and extend their activities and has projected the manner in which that can be financed, and the projections applying the Minister's taxation proposals show that it simply cannot be done, and if this measure goes through that particular operation is going to disappear.
The Minister should realise that, not only in that case but in the case of all the co-ops, the people who are affected are, in the main, small farmers. Over 70 per cent of the members of even the largest co-ops are small farmers. The Minister brought in measures here to apply income taxation to farmers, but he did not apply it to those under £20 valuation in any circumstances.
Give him a chance. He is working on it.
He is doing it here. That is exactly what he is doing because the great bulk of the people who will be affected are the small farmers the Minister says he is not taxing. We should be quite clear about that.
A smaller mesh in the net.
I believe this whole proposal is grossly misconceived and will do damage to a most important sector of our economy, important economically and important socially, and that damage will affect the small farmers in particular. It will give little or no return to the Revenue and the Minister is here striking a blow at the whole concept of co-operation in agriculture, a concept I have not heard anybody in my time attack. On the contrary, I have heard people encourage and urge that it should be developed further.
It is difficult to understand the thinking behind this. One can only assume that the thinking came from people who just do not have a notion of what these co-ops are about, what role they play in our economy and in rural Ireland. The idea that we should apply this kind of approach is, I suppose, typical of what this Minister has been doing. He applies the thumbscrew more and more in taxation. There might be some possible justification for him doing that if, at the same time, the economy was growing, the Exchequer was benefiting and he was really achieving equity in taxation. Of course, what he is really doing is causing the economy to contract, to become smaller and smaller as the demands on it get bigger and bigger, and those who could and would, given the right climate, contribute to the expansion of our economy, who would turn back the drift in the last few years, who would begin to get the country moving by their efforts and by their investment—here I do not mean just money; I mean effort—who would contribute by their production and by their contribution to exports are all being squeezed harder and harder by this Minister and by this Government.
We believe that the requirements of the country at the moment are that we should identify those sectors of the economy which can, and quickly, add to employment and add to growth and these should be encouraged, urged and given incentives to do just that. This Government are following a course diametrically opposite to that. Nowhere is this better exemplified than in this amendment, an amendment so misconceived having regard to the state of our economy as to be almost incredible. There are a number of Members who know, perhaps, a good deal more about this subject from personal experience than I do and they no doubt will have something to say but, even for somebody who does not have personal experience, it is not necessary for one to be a farmer or a genius to realise that this proposal is totally against the interests of the workers and the businessmen because anything tending to reduce activity in our economy, anything causing the economy to contract further, is not in the interests of any man, woman or child. This will put more and more people on the dole. Already a number of these co-ops are working on marginal levels. They have been retaining workers in a way which would probably earn them a good deal of odium in ordinary commercial circles. But they have a sense of social obligation and they have been struggling to keep workers on in difficult circumstances. The effect of this proposal will be to ensure that these workers kept on in these difficult marginal circumstances will certainly be put on the scrap heap, all for an illusory gain to the Exchequer and a totally misconceived idea of equity in taxation.
I want to conclude by reverting to the only possible argument in favour of this proposal, the alleged equity in taxation. There are Members over there who have been ranting and prattling about equity in taxation when they did not mean one word of it, as I tried to demonstrate earlier. If Members over there really believe there should be equity in taxation, irrespective of economic and social consequences, and this is a possible position, let them get up and propose the abolition of the exemption from tax on profits from exports of manufactured goods. If they are not prepared to do that, let them tell us what are the economic and social consequences of this proposal of the Minister and let them justify them. Let them not try to justify them on the alleged grounds of equity in taxation. We had enough of that kind of nonsense here in the last few years.
As our economy gets weaker and weaker, the dole queues grow and inflation rises we hear more and more about this alleged equity in taxation. If Members opposite believe in equity in taxation let them get up and demand the abolition of favoured treatment in taxation for all groups, including exporting companies, and, if they are not prepared to do that, then do not tell us they are getting at the co-ops in the interest of equity in taxation. Tell us what is the advantage socially, what is the advantage economically, in this proposal. What is the advantage to the Exchequer? Unless we can be given very good and convincing reasons, then Members over there should think again before they go into the division lobby to support this misconceived proposal which, if it is carried, will certainly be repealed after the next election when we are back over there.
Deputies
Hear, hear.
The average clerk typist, who oft-times has to pay dearly for "digs", has to pay on average about £300 a year in income tax. The average married industrial worker with a family to maintain has to pay about £500 a year in income tax. A private company supplying to and servicing the farming community, and making a profit of, say, about £50,000 has to pay about £26,000 in tax. There are many cases of agricultural co-operatives, so-called, with profits of between £1½ million and £2 million paying income tax of no more than £1,000 to £1,500.
Could the Minister quote these?
In the name of all that is holy, and just, and reasonable, and fair, and sensible and related to——
The Minister should give the names here.
Order.
Just name them.
Order.
On a point of order, the Minister should give the names.
That is not a point of order. Will Deputy Meaney please desist?
It is certainly a point of order. This is the crooked argument of the Minister. Let him name these people and name the co-ops.
Deputy Meaney will desist.
A Cheann Comhairle, I want the Minister to define "so-called". I resent that word.
Deputy Meaney will desist from interrupting.
I challenge the Minister to define that word. I resent what he has said.
I suggest that the Deputies opposite reserve their anger for their own party disputes because when their own party is divided down the middle 50/50——
The Minister should cut the waffle.
I have asked the Minister to define "so-called".
I can understand why it is that so many of them showed gross disinterest in other issues of the Finance Bill——
Is the Minister prepared to withdraw the word "so-called"?
I said that certain agricultural co-operatives——
I am a member of a co-operative and I resent what the Minister has said.
The Minister must be allowed to make his speech in his own fashion.
He must be factual.
If the Deputy persists in interrupting I shall have to ask him to leave the House.
The Chair can ask what it likes. I stand as a member of an agricultural co-operative. I will not be called a so-called member by the Minister.
The Deputy must desist or else leave the House.
I have asked the Minister to name the so-called co-operatives.
I shall have to ask the Deputy to leave the House.
Why should I leave the House? The Chair should be fair. Let the Minister name the co-operatives.
The Deputy is being persistently disorderly. He will be afforded an opportunity of making his speech.
I resent the remark. I am a member of an agricultural co-operative——
Deputy Meaney, please leave the House.
The Chair can do what it likes. I will not stand for any Minister referring to properly registered co-operatives in that way. I have asked him to name the co-operatives and to define "so-called".
If the Deputy refuses to leave the House I shall be compelled to name him.
The Chair should name the Minister.
The Chair may name me but that is what I think of the Minister. I am making my stand on this. The Minister should name the so-called co-operatives that are not properly registered. Name the co-operatives that are making all the profits. How many of them are in the red?
Deputy Meaney is right. The Minister should name them.