Finance Bill 1978: Committee Stage (Resumed) .

Debate resumed on amendment No. 13:
In page 8, before line 33, to insert the following proviso after the Table to subsection (1):
"Provided that where, for the year 1978-79 or any subsequent year of assessment, a widowed person to whom section 141 of the Income Tax Act, 1967, applies becomes entitled to relief under the foregoing provisions of this subsection, the amount of the deduction shall, in lieu of being the amount specified in column (3) of the Table to this subsection, be—
(a) for the first five years, an amount equal to the amount specified in respect of a married man in column (3) of the said Table, and
(b) for the next subsequent five years, an amount equal to 50 per cent. of the aggregate of the amounts specified in respect of a married man and a single person in the said column (3).".
—(Deputy P. Barry.)

: The Minister was in possession.

: As far as I recollect I had finished dealing with the points raised on this amendment and I do not propose to add to them.

: When the Minister wound up the discussion on the last sitting day he gave some indication of the background to the thinking about the need to provide special provision for widowed persons and pointed out that the present income tax system recognised that there are special conditions and circumstances attaching to the condition of widowhood. The Minister then talked in detail about the various options proposed at various times either to increase or to reduce the amount of relief and allowances to widows, and I got the impression from what he said that he did not favour either of those approaches and would be happy to see a continuation of the existing position and that this is why he rejected Deputy Barry's amendment. In the course of his contribution the Minister made a statement which cannot be justified by the facts. The Minister argued that between last year and this year the differential between the widowed person and the single person has been maintained. This statement is true only in a sense which means nothing in real terms to the widows. It is true only in the sense that the same extra allowance of £70 has been given to the widow as to the single person. It is not necessarily true that because the same allowance is being given to each, the differential is being maintained. Their allowances were different to start with and secondly the value of £70 in 1977 is not the same as the value of £70 in 1978. If we look at the overall increases in the tax-free allowance between 1977-1978 and 1978-1979 in percentage terms we will see that a married couple with one partner working had an increase of 57 per cent, a married couple with both partners working had an increase of 47 per cent a single person had an increase of 30 per cent and a widow or widower had an increase of only 27 per cent. I fail to see how the Minister can maintain that the differential is being maintained when the position of the widow relative to the single person has been worsened over the intervening term of office.

: If the widow has six children the increase is only 9 per cent.

: I am making the best possible case for the Minister. I am completely leaving out the question of family responsibilities. Would the Minister seriously consider on Report Stage, if he will not accept this amendment, putting in the most minimal amendment which will restore the differential which he says is being maintained but which has not been?

: Has the Deputy available what he says I said on the last occasion because I have no recollection of saying what the Deputy says I said.

: I took a note of what the Minister said as he spoke and the words he used were "the differential has been maintained". The official Report is not yet available.

: I think the Deputy is mistaken, although I cannot swear to it.

: Has the Minister a better recollection?

: My recollection is that what I said was that the increase was the same for the widowed person as for the single person.

: Irrespective of whether the Minister's recollection is better than Deputy Horgan's, would the Minister accept the statistical analysis that has been made by the Deputy and on that basis would the Minister be prepared to respond on Report Stage?

: I can give the Deputy all sorts of statistical analyses which would produce surprising results.

: Sorry, Deputy Bruton has been on his feet for some time.

: I support Deputy Horgan's analysis. Over the years justice has not been done to widowed persons under the tax code and the Minister in the current Finance Bill is accelerating and increasing the injustice. I can illustrate this by comparing what has happened to the tax-free allowance of a married couple with no children, on the one hand, and the tax-free allowance of a widowed person, be it man or woman, with six children. What has happened to these over the years? One would assume that as our society became better off it would seek to provide relatively better for those whose need is greatest, namely, widows or widowers with children. In fact, since 1966 society has been doing the exact opposite. Between 1966 and 1977 the allowance for a widowed person with six children has been increased by 122 per cent whereas the allowance for a married couple with no children has been increased by 179 per cent, a difference of over 50 percentage points. To my mind this is regressive taxation. It is a very bad redistribution of income.

Accepting that all parties have some responsibility for the situation one would have expected the Minister for Finance to have done something to redress the situation in this Bill. One would have expected him to approach this in a very different manner. This year for every £9 increase in the tax-free allowance of a widow or widower with six children there has been an increase of £57 in the tax-free allowance of a married couple with no children. He has increased the privilege in the case of a married couple with no children as against the widowed person with six children. The same case can be made in regard to the widowed person with five, four, three or two children. The example I have given of the widower with six children graphically illustrates the position. This is a wrong approach and I would hope the Minister would consider the introduction of an amendment to rectify this situation between now and Report Stage.

I have already pointed out that the absence of any increase in the housekeeper allowance is again hitting the weakest, namely the one-parent families where the parent has to go out to work and a housekeeper has to be employed to look after the children. The housekeeper allowance is only £65 a year.

: We had all this already and repetition is not in order.

: We are on the section.

: We are not on the section. We are dealing with amendment No. 13. The Deputy can speak on the section when we have disposed of the amendment. What he is speaking about now was dealt with on a previous amendment.

: I concede to the Chair——

: There is no question of conceding. We are dealing with amendment No. 13.

: First of all, I would insist that my recollection is correct and, if it is correct, then the Minister should take the necessary steps to restore the differential at the very least. It is only a matter of a couple of extra pounds on the allowance from the point of view of the differential between the widowed person and the single person. Whatever about the single person claiming he or she is discriminated against, I am sure no one will resent something which is purely the maintenance of the differential. Another point the Minister might consider—he spoke about it himself and it is something recognised in the report of the Commission on Income Taxation—is the heavy burdens that fall upon a widowed person in the tax year in which a partner dies. The tax-free allowance drops from £1,960 to £935, a drop of over £1,000. This is almost certainly the one year in which the widowed person needs everything he or she can get in terms of tax-free allowances. Surely he will accept the basic thinking of the commission and make some move towards special allowances in that particular year.

: In the social welfare code, on the death of the wage earner the full rate of benefit is allowed for 13 weeks following that death. There is recognition there that special financial circumstances exist which warrant special treatment and the same argument should apply here. A widower may be in a very bad position because it is generally accepted that men are less competent housekeepers. In the vast majority of cases the widower must go out to earn a living for himself and his children and he must, therefore, employ a housekeeper to look after his household. There should be a transitional period for a number of years. I do not suggest it should be the period stipulated in my amendment. The Minister may be able to put forward a better suggestion on Report Stage, a suggestion which would be readily accepted and welcomed by people in general, irrespective of whether or not they are married. Most people recognise that special treatment is called for and if the Minister will tell me he is willing to bring in an amendment I shall be quite happy.

: First, if a wife dies during an income tax year the husband retains the married allowance for that year. Secondly, if my recollection of what I said on the last occasion is incorrect and Deputy Horgan's turns out to be correct, I shall apologise to him. Thirdly, Deputies are well aware that the changes in the allowances, including those in respect of widows, to whom this amendment relates, are changes that were promised in the Fianna Fáil election manifesto, changes accepted by the people, and I have no plans to change these allowances in this income tax year.

It is, I suppose, heartening and to some extent touching that Deputies opposite are so concerned about the position of widows. It is unfortunate that their parties did not show the same concern they are showing now when they had the opportunity to do something. One may easily lose sight of the fact, listening to what was said on this amendment, that this section to which this amendment is proposed provides for by far the biggest increase ever seen in the widow's allowance. One has continuously to bear that in mind when weighing up the effects of this proposed amendment.

: On the first point raised by the Minister I would ask him to tease it out a little more. He said a married person whose spouse died during a tax year could retain the tax allowance for the remainder of that year. If a man's wife were to die on 31 March I take it he would get the allowance only for the remaining few days of that tax year and would get nothing the following tax year. Is that correct?

: But if a man's wife died on 6 April he would get an allowance for the entire year?

: That would be correct.

: That appears to be inequitable because the misfortune and the hardship are just as great for the person whose spouse dies in April as for the person whose spouse dies in March yet the person whose spouse dies in April gets a tax-free allowance for 12 months and in the other case the person gets a tax-free allowance for only a few days. Would the Minister at least concede that there should be equality of treatment in this matter and that a tax-free allowance equivalent to 12 months, whether it be in one or two tax years, should be granted in all cases rather than what is being done here?

The Minister referred to widows' allowances and the record of the respective parties. I have figures which show that from 1960-61 to 1972-73 widows' allowances were increased from £259 to £324. That is not a very great sum. The increase in 1974-75, and this is conceding the Minister's point about earned income relief, was from £324 to £550, and when we left office it was £735, against £324 when we came into office. That is a much bigger increase in our short period in office than the increase of about £80 in the entire period Fianna Fáil held office—from 1960-73.

: Is the amendment withdrawn? We are having a lot of repetition.

: I do not want——

: We have discussed this amendment at great length.

: I seriously do not want to delay the House on this. However, I feel the Minister is avoiding the basic point which is not really a question of apologies—I am sure the widows of Ireland would rather action than apologies—but does he accept as fact that, for a given widow in given circumstances and a given single person in given circumstances last year and the same two people this year, without any alteration in their circumstances, the increase in personal allowances given to the widow is 3 per cent less than that given to the single person? Regardless of whether the Minister wants to or proposes to do anything about that, would he not accept that that is a fact?

: I accept that the increase in the widows' allowance is £200, the same as that for the single person's allowance and that it is by far the biggest increase ever given in any tax year.

: But 3 per cent less than the single person's allowance.

: I want to say something about this as somebody who has knowledge of the way widows feel about this budget and the attitude of the Government and the Minister for Finance towards them. As a member of the widows' association I can tell the Minister that they feel they have been dealt with very badly in this budget. Previous speakers said that on a percentage basis widows did not get the same consideration as other sections of the community, notably married persons, nor have they got parity with single people this year.

The Commission on the Status of Women put the widows' case forcibly. Last week the Minister spoke about the lobby that was present and that single persons should have equality with widows. It does not serve any purpose to play one group against another. All women realise that there is a particular problem with regard to single-parent families and to widows. I would like to be able to speak of single-parent families rather than widows but I realise that in widowhood, irrespective of whether they are widows or widowers but particularly if they are widows, the family's standard of living, generally speaking had been determined by the wage of the husband. In Ireland once women are married they have very few facilities for continuing to earn their independent incomes; there are no facilities for the caring of children. Even today women earn roughly 60 per cent of that earned by men.

The standard of living of married women is determined by the wage of the husband. There is a very big drop in that standard of living when the husband dies. These people need special consideration in all legislation, particularly in the Finance Bill. There should be special appreciation of the problems of people who lose their partners. These people suffer traumatic experiences, particularly in the early years of their bereavement. The overheads are not lessened and still must be paid.

The efforts made by the previous Government to try to take those circumstances into account should have been maintained in this budget. Instead we have a situation where the widow's increase is only 27.21 per cent while it is 30 per cent for a single person and 57.27 per cent for married people. The increase in this budget is £70 a year for widows while for married people paying income tax at 25 pence in the £ it is £157 and for married couples paying at 50 pence in the £ it is £315 a year. In this budget we have a situation where the more you have the more you get. If the Minister wants to pursue the point that everybody—single people, widowed people, or single-parent families—should be treated alike, he should have introduced a substantial single-parent allowance.

Deputy Barry, when moving this amendment, made the point that he had no hard and fast views about this. He was putting forward a principle. He said that if the Minister, with the resources of his Department and with the advice available to him that would not be available to an Opposition Deputy, could think of a better system he was prepared to withdraw his amendment in favour of it.

Amendment put and declared lost.
Question proposed: "That section 5 stand part of the Bill."

: I still have the problem which I mentioned on Second Stage and which the Minister did not have time to deal with. Perhaps he would do so now. It relates to Government policy in relation to personal allowances and indexation in general. Unless my memory is faulty, during the period of the last Government considerable political capital was made by the Opposition then out of this. It was, therefore, with considerable surprise that I read in the Minister's speech on 24 May 1978 at column 1764, volume 306 of the Official Report:

I doubt very much if indexation would be a very popular measure at a time when inflation is reduced and is likely to be reduced further.

I must ask whether the Minister has one policy in Opposition and one when in Government in this respect. If they maintained in the past that indexation is appropriate in regard to income tax reliefs dependent on the level of inflation why have Fianna Fáil changed now that they are in Government? It is estimated that the level of inflation this year will be between 7 per cent and 8 per cent and therefore to be consistent with their position in Opposition the Government should restrict income tax revenue increases to 8 per cent. The concessions given in section 5 will probably fail to do this, according to the Government's published figures. It may be that some taxpayers will keep pace with inflation, but others will not and therefore the Minister may be robbing Peter to pay Paul and in the process rewarding some people handsomely at the expense of other taxpayers.

In the Estimates of Receipts and Expenditure published prior to the budget it was forecast that there would be an increase of 21 per cent in income tax receipts if the level of personal allowances remained as it was. In such circumstances one would have expected the Minister to have given allowances which would mean there would be only an 8 per cent increase in income tax revenue. However, considering the £70 million which the Minister is giving in relief in respect of personal allowances, the increase in income tax revenue is nearly 14 per cent compared with last year. Therefore, despite the generous appearance of the reliefs being given we find that income tax revenue this year is estimated to be £624 million as against £522 million last year, an increase of 21 per cent which, considering the £70 million in concessions, means a 14 per cent increase. Because the Minister gives back only £70 million in the budget, it seems as if he has kept £30 million for the Exchequer by pretending he is giving these reliefs in personal allowances across the board. He may be giving reliefs to some people but he is increasing the burdens of others.

: Deputy Horgan is right. In December 1974 Deputy Colley was very eloquent on a motion calling for legislation in regard to indexation.

: I think that was in relation to insurance policies.

: In section 5 widows' personal allowances have not been increased. There is no concession being given to married couples in respect of their children—indeed there is no child allowance concession given under this Bill. During the debate on the amendment dealing with this I said it would appear that the Government have an anti-family bias running right through the Bill. There has not been an increase in children's allowances and in this section, as I have said, there are no concessions given in regard to children. There are allowances for married people, for widowed people and for single taxpayers but there is nothing for children. The Minister referred to the promises given in the pre-election Fianna Fáil document but there are the matters of subsidies in relation to bread, butter——

: We cannot have a discussion of this kind on the Finance Bill. The Deputy will have an opportunity at a later date——

: It appears it was relevant when the Minister said that they were keeping the promises in the document 100 per cent. You did not interrupt him then.

: The Minister was speaking of taxation and if the Deputy speaks of taxation I will not interrupt him. I would remind Deputies that it is not in order to repeat on the section matters that were fully discussed on amendments. I have said that 40 times already.

: It is equal to people what has caused the reduction in the money in their pockets—whether it is the cutting of subsidies or increased taxation. I got the impression on the last occasion that the Minister was extremely sympathetic to what Deputy Desmond referred to as single-parent families and that the Minister would like to do something to help such families. Therefore, I trust that on Report Stage he will table an amendment that will in some way recognise in the taxation code the special, the lonely and unfortunate position in which people find themselves on being widowed.

: As the Minister did not have the opportunity of replying to a question I raised on the last amendment I am putting the question again as it arises on the section. I refer to the situation whereby a person who become widowed in March receives practically no tax concession for that year whereas a person whose spouse died in April gets the tax benefit for the full year.

: I thought I had replied to that but perhaps the Deputy is referring to his suggestion of a year's allowance spread over one or two years.

: That is so. In relation to personal allowances, would the Minister be prepared to accept the recommendations in the NESC paper concerning income transfers? I have not had an opportunity of studying this paper in depth but I understand that it deals broadly with the concept of a negative income tax, with the idea that instead of having one system with its independent means test, independent bureaucy and so on, that allows for the paying out of money while there is another equally independent system in the form of the Revenue Commissioners making the same sort of inquiries about people's needs, taking in money and granting allowances in relation to the number of children and so on, there should be an integrated system whereby both the social welfare code and the tax code would be unified. This would eliminate the situation whereby people qualify for allowances in so far as the Department of Social Welfare are concerned but find that the allowances are negatived by another Department. I appreciate that it would be a major job to remodel our tax system in order to achieve this result but perhaps the Minister would indicate his views in this regard.

: Regarding the question put by Deputy Bruton on the amendment, I am not proposing to make any change in that regard so far as this Finance Bill is concerned. However, I would point out to the Deputy that if his proposition were accepted it would mean the disappearance of the present concession regarding the married allowance which applies from whatever date in income tax year one marries.

: If one were to begin apportioning these allowances on a time basis they would have to apply both ways. Perhaps the Deputy would consider that. If there is a case one way there is a case another way.

: Deputy Bruton is endeavouring to have a special allowance made for widowed people.

: I have no doubt as to which category would be in the greatest need.

: On the question of indexation, I would remind the Deputies that in so far as I, in Opposition, advocated indexation I was very careful to point out that I was doing so in the context of an enormous inflation rate. Also, the Deputies will find that I advocated indexation in a limited area. Deputies opposite tend to forget that while they were in Government the inflation rate for part of the time was running at well in excess of 20 per cent per annum. In the context of this section we are talking of the biggest increases in income tax allowances ever given. This is at a time when inflation is falling, when the whole picture is different.

: Why, then, was the Minister advocating that indexation be underwritten by legislation?

: On the limited occasions on which I advocated indexation I pointed out that I was speaking in terms of the inflation that was raging then. I have pointed out also—Deputy Horgan referred to this but glossed over it—that indexation now, at a time of falling inflation, would be less than popular. If indexation were applied to the rates that obtained last year there would be no increases of the kind proposed here.

The figures calculated by Deputy Horgan are misleading him because, by taking in global figures, he is including a number of factors that do not apply in the case of individuals for instance—increased incomes and increases in the numbers employed gainfully and who are, therefore, paying tax. There are other items but I hope these two alone will illustrate to the Deputy that it is not correct simply to take the global figure and apply it to the individual. If you do that you find that the position of all individuals, whether they are married, whether they have children or whether they are single or widowed, is improved substantially by this section. Indeed, it is of some relevance to remark, since we hear comparisons frequently being made between the situation here and in Britain, that under this section a married person who is in receipt of the average industrial earnings here and whose wife is not earning would be paying £133.95 less in tax than his counterpart in Britain is paying while a single person with a similar income would also be paying less than his British counterpart although in this case the amount would be only £12.70. This situation is being brought about only because of the very substantial increases provided for in this section.

Anybody can find fault with the income tax code and can indicate where considerable improvements can be made. In this regard I would be slow to yield pride of place to any Deputy opposite. But the fact that one does not make the changes that are proposed does not mean automatically that one is unsympathetic to the case or that one does not acknowledge that a fair case can be made. Sometimes the point being made is merely a debating point but sometimes it is of real substance. However, the real test is what one does as distinct from what argument one makes when one is in a position to do something. On that test Deputies opposite cannot afford to throw stones in this direction.

: I agree that one should not compare the total figure simpliciter but is the Minister saying that the growth in money incomes and the autonomous growth in the tax-paying sector will account for as much as £30 million this year, that is the difference between £70 million and £100 million? We do not even know— certainly I do not know—whether the Revenue Commissioners and the Minister's Department have any figures, projections or estimates for a tolerance growth. If they had and if they published them, this might enable us to make more sense of this set of concessions. The basic argument I am making is that it is possible that many people will not benefit a great deal from these concessions.

: Could the Deputy indicate one of those kinds of persons?

: I am just about to. Perhaps I should have said they may not benefit very substantially. In Business and Finance of 20 April 1978 there is an interesting article by Mr. Brendan Dowling on the comparative situation in relation to allowances between the United Kingdom and here. Mr. Dowling points out that married couples with two dependent children and on low incomes are very considerably better off in the United Kingdom than in Ireland because of the introduction of the child benefit fixed cash payment per child, which is untaxed in lieu of income tax allowances for children.

Thus, a married couple with two children on £2,000 per annum would get a net payment from the State of £70 and 8p or 80p—the figure is not quite clear—in the United Kingdom while they would pay a net tax charge, including social insurance, of £40.72 in Ireland. He is talking about a married couple with two children on £2,000 per annum. The Minister may feel this is not necessarily a very representative figure, but figures he has given to me and to other Deputies in relation to the numbers of persons on various ranges of incomes show that far more people have to subsist on this kind of income than we are generally given to suspect.

For example, on 23 May 1978 I asked the Minister specifically about self-employed persons. There is a total number returning income for tax in the self-employed sector of 78,000 people and over half them are in the income range of under £2,500. These are the people who certainly will not benefit substantially from this set of concessions. They may not be even earning enough to earn the full value of these concessions. It might be different if the Government's budgetary and other fiscal policies were designed to make good that deficiency, but there is no sign that that is so.

Question put and agreed to.
SECTION 6.

: I move amendment No. 14:

In page 9, line 3, to delete "payments" and to substitute "payment".

This is a minor textual amendment to substitute the word "payment" in the singular for the word "payments" in the plural in subsection (1) of the new section 6 which is being substituted for section 19 of the Finance Act, 1973, relating to thalidomide children. As I say, it is a minor textual amendment.

Amendment agreed to.
Question proposed: "That section 6, as amended, stand part of the Bill."

: A Finance Bill is a bit like the curate's egg. Lest anybody in the Public Gallery, or anybody who bothers to read what we say in this House, might think the Opposition do not welcome parts of the Bill, or think this is a game in which the Minister must automatically oppose anything we say and we must object to everything in the Bill, I should like to say I welcome this section. I do not have to go back over the history of these unfortunate children and the dreadful mental effect on their parents because of this drug. Anything which can be done to cater for these children or to make life as easy as possible for them is welcome.

Can the Minister tell me if a parent of one of these children—and in some families there are two of them—has private means and sets up a fund, would the income from that fund be free of tax also, or is it related purely to the money which came from the German fund and the money provided by the State?

: It is confined to the moneys received, as the Deputy said, either from the State or from the special fund.

: Any private moneys would be taxable?

: They would be treated differently.

: On behalf of the Labour Party I should like to endorse Deputy Barry's remarks. The settlements arrived at were appropriate. They may never be adequate in the eyes of some people who were damaged by this drug. If a settlement was appropriate it is also appropriate that the measures being taken in this Bill should be taken. There is all-party agreement on that.

Is it envisaged that there will be no further payments at any stage from the foundation to the children concerned? Is it regarded as a shut case? Is there a possibility that further payments may be made from the fund and, secondly, that other individuals may be identified in the future whose birth defects or other growth problems may be traceable to thalidomide? Does this section cover all those eventualities?

: It will be appreciated that I am simply dealing with the taxation arrangements in regard to these payments. I am not in a position to speak with authority on any possible development in the future and whether there will or will not be further payments. I think it is true to say parts of the settlement made involved continuing payments. As to whether there would be any reopening of existing cases, or any acceptance of new cases, I simply do not know. I have no information to suggest either of these things will happen. On the other hand, I am not in a position to say positively they will not happen.

The section is so designed as to cover payments made from existing known sources to thalidomide children. If a new source of payment for these children were to arise and if that should require an amendment of the section, as I think it might, of course the section could be amended. The section as drafted deals with the situation as it is, and as we know it to be. We have no reason to believe that will change but I repeat that, if it did change and an amendment were necessary, it could be made.

Question put and agreed to.
SECTION 7.

: Amendment No. 17 is related to amendment No. 15 and they can be discussed together.

: I move amendment No. 15:

In page 9, subsection (1), line 34, after "if" to add "the company is engaged wholly or in the greater part in manufacturing and if".

I suppose I would be in order if I said a few words about the section in order to explain why we put down this amendment.

: If it is relevant to the amendment.

: It is, indeed. The section gives unrestricted interest relief to individuals who borrow money to invest in a private trading company, irrespective of the size of the investment or the extent of their actual involvement in the company's business. Ironically I note that, even though some reliefs are available in the section, none of the reliefs would be available where the company lend back funds to an individual or a person connected with them, except where the company's business is lending money. This is an anomaly of the relief. A person will be able to get relief on lending money to a company who lend it back to him.

The purpose of the amendment is to take head-on the general approach of the section but to limit it in a way which will ensure that any form of encouragement which it is designed to give to investment or job creation is not compromised by any opportunities it may give rise to for tax avoidance. In the case of a private trading company, the position is at present that a person must be a full-time employee or a director of the firm, and hold at least 5 per cent of the stock, before he can benefit from unlimited interest relief against tax on borrowings for investment in the company. Under the section full-time qualification and the 5 per cent stock limit are both involved, so that a part-time employee or director can benefit irrespective of his investment or his state in the private trading company.

When we talk about employees in this context it is obvious that we are not talking about Joe Soap on the factory floor. He is not going to go out and borrow tens of thousands of pounds to invest with the company on whose factory floor he is working. He would not get past the front door of the bank if he attempted to do so. We are talking about persons in the upper reaches of the company, directors who are employed by the company and so on, who can usually acquire some credit-worthiness with financial institutions simply on the basis that they are in a particular position in a company. The section as it stands opens up the prospects of an individual borrowing to invest in any number of private trading companies, off-setting the interest on his borrowing against tax, and at the same time drawing a return on his investment. This is obviously a technique which could be abused, particularly because the part-time category allows individuals with little or no involvement in the company to benefit. It is seriously debatable whether this unlimited interest relief should be allowed to part-time employees or directors of private trading companies. If there are economic grounds for saying that this should be encouraged and permitted, then it should be restricted as we put down in our amendment, to companies engaged wholly or in the greater part in manufacturing.

The Revenue Commissioners over the years have devised a fairly adequate definition of company activities to decide whether a company is engaged in manufacturing. I would be quite happy to leave judgment to them as to whether such reliefs should be available to people investing in the company. Section 7, unless amended, could operate in such a way that an individual with £40,000 a year income could borrow £150,000 at 10 per cent to invest in one or more private trading companies, becoming a part-time, non-executive director of each of them. His annual interest on his borrowing would be £15,000, but if he is in the 60 per cent tax band—and if there is any justice in this world he ought to be—the real cost would be only £6,000 a year while he would also receive the full benefit of the investments. We are going to give a subsidy of about £9,000 a year to that individual to invest, not just necessarily, wholly or at all in manufacturing, but in any trading enterprise. Because we believe in the importance of jobs and of investments in jobs we put down this amendment and the other one which is suspended from it to restrict this relief to people who make investment in the right way.

: What I have to say must be said in the context of the overall budget strategy to which this Bill gives effect. Certain sections throughout the entire Bill are designed to promote the economy in one way or another. In regard to this section and our amendment we are concerned that the benefit of this position, for which the Minister proposes to borrow substantially, should be, as far as possible within the confines of a Finance Act, confined to the manufacturing sector. That is the area in which, given the terms of reference that the Government and the Minister have set, one can legitimately say that such a strategy is justified subject to a number of constraints and conditions, one of which would be to see an increase in output in manufacturing.

Bearing in mind what Deputy Horgan has said, I would like to hear what the Minister has to say with regard to this amendment. What we are against is that the strategy of the Government could be diverted or undermined by this provision being taken up by people to such an extent that the Exchequer would be robbed of revenue which it otherwise would have got. At the same time the increase in jobs for which the overall strategy is designed would not materialise. Essentially for that reason alone we are attempting to focus this benefit towards the manufacturing sector.

: I am mystified, particularly by what Deputy Horgan said. Some of the case he made and some of the figures he quoted—which I have not had an opportunity to check and I am taking them at their face value— seem to indicate that he was making the case that the relief provided in this section should not be given at all. However, the amendments he moved and supported do not say that. They say that the relief should be given but only in the case of a company engaged wholly or in the greater part in manufacturing.

: That is basically the case.

: The case which the Deputy made seemed as though it could be applied even in the case of a manufacturing company, and he quoted figures to show the amount of relief that an individual could get by engaging as a part-time director in ten companies—let us say manufacturing companies.

: I was referring to trading companies, not necessarily manufacturing companies.

: Surely the Deputy can see that the argument he made could be applied to somebody who does this as a part-time director in ten manufacturing companies. The logic of that was not followed through and the Deputy did not propose that this relief should not be given at all. He said that it should be given in the case of manufacturing companies but not in the case of non-manufacturing companies.

Let us pursue that a little further. The relief is confined to trading companies; therefore, by that definition, we are excluding investment companies and so on and we are confining it to companies which in broad terms are engaged in manufacturing, distribution or the provision of services as normally understood. The Deputies have accepted that the purpose of the amendment is to encourage people to engage in and invest in and risk their money and some of their time at least in enterprises which are likely to create employment. Where did he get the idea that all new employment in this country has to be in the manufacturing industry? Do we not know that to the extent that we increase employment in manufacturing industry we will have a spin-off of at least one-for-one in the service industry? Do we not know also, viewing our overall job-creation requirements and the strategy required to help in the creation of jobs, that we should in our present circumstances pay particular attention to the encouragement of job-creation in the service industries? Yet the effect of the amendment would be to exclude these and deliberately to take away the encouragement—that they seem to agree with in the case of manufacturing companies—from the service industries or distribution. The approach of the Deputies is quite illogical. If this relief creates the jobs, whether they be in manufacturing, in the service industries or in distribution, which more precisely is part of service industry, why should we discourage it? If it makes sense to do it in manufacturing industry, does it not make sense to do it in service industry? I cannot see the logic of the Deputy's position.

: If this option was picked up, has the Minister any idea what it is likely to cost the Exchequer in terms of lost revenue?

: I do not think I could give a figure on that. With due deference to the Deputy I am not sure that it is very relevant. If it is relevant it is relevant to manufacturing as well as to the service industries. The object of the exercise here is to create jobs. If this operates to create jobs why do we say that we will only welcome that if it is in manufacturing and we will not welcome or encourage it if it is in the service industries? I do not think that makes sense. Furthermore, there is provision in the section for relief for employees. While it would be true, as Deputy Horgan said, that employees who would benefit from this in many cases would be in the higher echelons of the work force, they would not all be confined there. Certainly they would not be confined there in the particular cases where there is a limited provision in the Bill in relation to public companies but there would be definite schemes in operation for the taking up of shares by the shopfloor employees at normally advantageous terms. If one gives this relief in the case of a manufacturing company, how does one justify keeping it from not alone part-time directors but employees of companies engaged in the service industries? One either accepts the general proposition in the section and carries it through or one does not accept it. That is a position one can take up but I do not think one can have it both ways; one is either for it or against it.

: We are concerned that the benefit to be gained from this section is not taken up by trading companies. The net effect of that would be that all the money and energy the Minister referred to would go into the creation of what we would consider to be short term jobs based on an artificially stimulated consumer boom. We would prefer, if there are options in this, to focus attention through the benefit of this concession into the manufacturing sector of trading companies rather than into the service and distribution. That is the intent behind our amendment. We feel, in the context of the overall strategy of the Finance Bill, that the emphasis, in so far as it is justified, can be justified only if that money which is being borrowed goes into the manufacturing side of Irish industry. I accept that frequently a manufacturing company that would qualify for this would be importing much of its raw material but nevertheless there are jobs and jobs. In this context, as the Minister stated, we accept on face value the statement from the CII, and others, that for every one industrial job or manufacturing job created one can carry another job, the one-for-one ratio that the Minister referred to earlier.

: That is a minimum. I suspect it is higher; that for one manufacturing job there is more than one other job.

: We do not wish to press this. In the course of a reply to a question tabled by Deputy Horgan on 31 May 1978 about how much this concession is likely to cost we were told that the annual cost was tentatively estimated to be less than £200,000. We are not talking about a lot of money either way. The point we are essentially trying to raise is: in so far as there is discretion in this concession we would like to see it focused on the manufacturing side of trading companies rather than on service and distribution companies. I do not think there is much point in us making a big meal of this. The Minister has heard out arguments and, perhaps, they have not been elaborated as much as he would have liked but I suggest that he consider this between now and Report Stage.

: As far as I am concerned a job is a job and that is all we are concerned about.

: I agree but at the same time a job that is only going to last six months or until such time as we have another recession is not the kind of job that the Minister or anybody else here is concerned with.

: That can be just as true of the manufacturing job as the service industry job.

: We then come back to the ratio we have been talking about, a manufacturing job in the context of the concessions that are being paid for by the taxpayer which is the net effect of this provision. In real terms we are talking about a relatively small tax concession in monetary terms. We want some indication from the Minister that this will be reviewed between now and Report Stage.

: As far as I am concerned a job is a job and I am sticking to this.

: Deputies Horgan and Quinn and the Minister are referring to this section as a job-creation section but I cannot see anything in it that mentions job creation at all. My understanding of the section is that it will hopefully improve industrial relations by giving Joe Soap on the factory floor or the part-time director an opportunity to share in the profits. I would be slow to consider such part-time directors in the same light as the Minister because a lot of the part-time directors are nearly professional directors in that they do nothing else but become directors of public companies. Speakers on this section should stress the point that this is an effort to get some kind of profit sharing or involvement by people in manufacturing and service industries in the running of the enterprise in which they are employed. I do not see any form of job creation in this except in an indirect way.

: The Minister spoke about taking things away from people but in this amendment we are talking about extending something. We have to decide whether we extend it to a lot of people or to a small number of people. There is a logic in the Minister's own remarks about the value of jobs in manufacturing industry. I accept a lot of what Deputy Barry has said although I doubt that the section will be as hugely availed of for this purpose as he expects it may be. If what the Minister has said is true, that the fundamental importance of manufacturing jobs is that they create other jobs and provide the financial and economic basis for other jobs, then the logic of that is that this £200,000 should be focused in manufacturing industry. It will then create a situation in which perhaps next year or the year after a further extension of it might be appropriate.

Amendment put and declared lost.

: Amendments Nos. 16, 18, 19, 20, 22 and 23 are related and may be discussed together.

: I move amendment No. 16:

In page 9, subsection (1), lines 35 to 50, to delete paragraphs (a), (b) and (c) and to substitute the following paragraphs:

"(a) the company part of whose ordinary share capital is acquired or, as the case may be, to which the money is lent is—

(i) both a company referred to in subparagraph (i) of paragraph (a) of the said subsection (1) and a company in relation to which the individual was a full-time employee, part-time employee, full-time director or part-time director during the period taken as a whole from the application of the proceeds of the loan until the interest was paid, or

(ii) both a company referred to in subparagraph (ii) of the said paragraph (a) and a private company in relation to which, or in relation to any company which would be regarded as connected with it for the purposes of the said section 34, the individual was during the said period a full-time director or a full-time employee,

and

(b) the company or any person connected with the company has not, during the period specified in paragraph (a) (i), made any loans or advanced any money to the individual or a person connected with the individual other than a loan made or money advanced in the ordinary course of a business, which included the lending of money, carried on by the company or, as the case may be, by the person connected with the company.".

The purpose of these amendments, apart from amendments Nos. 20 and 22 which are drafting amendments, is to extend the relief provided for by section 7 of the Bill.

As it stands, subsection (1) provides unrestricted relief for interest on borrowings by employees and directors, either full-time or part-time, of private trading companies to acquire shares in or lend money to their companies. The amendments now proposed will make the unrestricted relief available to full-time employees and directors of private holding companies whose business consists wholly or mainly of the holding of stocks and so on in private trading companies.

As it stands, subsection (2) provides for relief for interest up to a maximum of £2,000 on borrowings by full-time employees or full-time directors of public companies to acquire shares in or lend money to the company of which they are employees or directors. The amendments proposed will make this relief available to full-time employees and full-time directors of trading companies, the shares in which are held by a parent company. In other words, the relief which was being provided to either public or private trading companies is being extended to cover arrangements which are very common where there is a holding company, in the case of a private trading company, or a parent company in the case of a public company. In all cases we are talking about trading companies, not non-trading companies. Trading companies are manufacturing companies or companies which are engaged in service industries or distribution. They are trading companies as distinct from investment companies.

Under existing law relief is available for interest on borrowings to buy shares in, or to lend money to, a trading company or a company whose business consists wholly or mainly of the holding of stocks and so on in a trading company, if the borrower (a) owns more than 5 per cent of the ordinary share capital of the company and (b) has, during the period from the application of the loan until the interest was paid, worked for the greater part of his time in the actual management or conduct of the business of the company or of a connected company. The purpose of section 7 of the Bill is to remove the restrictions I have referred to at (a) and (b) so that investment and employee participation in industry and in trading companies generally may be encouraged.

: Are these amendments the result of representations made to the Minister by the accountancy bodies?

: I had representations from a number of sources.

: On this point?

: Yes. It would be true to say that it is a point that was overlooked in the drafting of this section. What is involved in the amendment follows logically if you accept the section.

: The Minister said the function of these amendments is to extend relief to holding companies. Are these holding companies the same as the investment companies to which he also referred in his speech?

: Is the difference between them that holding companies hold shares for investment in trading companies and that investment companies do not necessarily do so?

: Substantially that would be so. In this context it is an arrangement which is quite common for convenience of administration more than anything else. Where an enterprise has a number of businesses of various kinds, manufacturing, service and so on, and each one is operated as a separate company but is owned or substantially owned by the one group, it is very common in such cases to have a holding company which controls the other companies. The holding company itself may not be trading but its assets consist almost exclusively of shares in its trading companies. In such cases if you extend this relief to the trading company it follows logically that it should be extended to the holding company of that kind.

: The point is that one of the subsidiaries may not be paying dividends except to the umbrella company who would then be paying dividends to the shareholders of that company, so that anybody who invested in one of these subsidiary companies would not get any benefit unless he had shares in the major company.

: That is right.

Amendment agreed to.
Amendment No. 17 not moved.

: I move amendment No. 18:

In page 10, subsection (4), before the definition of "full-time employee" and "full-time director" to insert " `90 per cent. subsidiary' has the meaning assigned to it by section 156 of the Corporation Tax Act, 1976;".

Amendment agreed to.

: I move amendment No. 19:

In page 10, subsection (4), before the definition of "part-time employee" to insert " `holding company' has the meaning assigned to it by section 107 of the Corporation Tax Act, 1976;".

Amendment agreed to.

: I move amendment No. 20:

In page 10, subsection (5) (c), line 57, to delete "or".

Amendment agreed to.

: Amendments Nos. 21 and 22 are related and may be discussed together.

: Amendment No 22 is the Minister's amendment.

: It is related to amendment No. 21. There will be separate decisions if Deputy Barry wishes to press his amendment.

: I do not wish to press it.

Amendment No. 21, by leave, withdrawn.

: I move amendment No. 22:

In page 11, subsection (5) (c), line 9, to delete "and".

Amendment agreed to.

: I move amendment No. 23:

In page 11, subsection (5), between lines 19 and 20, to insert the following paragraphs:

(e) a company, other than a private company, shall be deemed to be a company referred to in section 34 (1) (a) (i) of the Finance Act, 1974, if it is a holding company and it is resident in the State, and

(f) an individual shall be deemed to be a full-time employee or full-time director of such a company as is referred to in paragraph (e) if he is a full-time employee or full-time director of any company which is a 90 per cent subsidiary of that company.

Amendment agreed to.

: I move amendment No. 24:

In page 11, between lines 19 and 20, to insert the following subsection:

(6) Section 496 (2) of the Income Tax Act, 1967 (as amended by the Finance Act, 1974) is hereby amended by the insertion after paragraph (b) of the following paragraph:

`(c) for the year of assessment 1978-79 or any subsequent year on the excess of the interest over £3,000;'.

Some years ago it was introduced that people could only claim against tax an amount of interest up to £2,000. The increase in the price of houses means that the £2,000 no longer represents what it was thought to represent, that is, the amount of interest to be paid on medium to large houses. A house that cost £15,000 last year is not a mansion by present standards. The interest on that money would have been £1,600 or £1,700. According to recent figures a house that cost £15,000 last year would now cost £20,000. With a mortgage at 11¼ per cent the interest on £20,000 would now be £2,250. Portion of that interest would not be allowed for tax purposes whereas last year the total amount of interest was allowed. I am suggesting that the £2,000 should be raised to £3,000. I am using 1974 as the basis for my calculation and the capital gains tax introduced then, which the Minister said he is going to index when the Bill is published, would be 81 per cent. To keep the £2,000 in line with the figure that was used at that time, it should now be raised to £3,630. I am suggesting that we should have that figure at £3,000 from now on to ensure that people buying relatively modest houses are not caught as they were never intended to be under this provision.

: As Deputy Barry said, the limit of £2,000 is, in general, related to the cost of servicing loans for house purchase. Of course, it is not exclusively confined to that; it covers any other kind of interest as well of a personal nature.

: But I am mainly interested in house purchase.

: But it is primarily related to that. At the present building society rate of 11½ per cent the £2,000 represents borrowings of about £17,500. If we take a loan of that amount as being 75 per cent of the purchase price, it would cover the purchase of a house costing more than £23,000. We can safely take it that the purchaser of a house of that price at least would be in the 35 per cent income tax bracket and very possibly in the 50 per cent bracket. Relief on £2,000 interest for the taxpayer in the 35 per cent bracket would represent a tax saving of approximately £700 and for the taxpayer in the 50 per cent bracket, a tax saving of approximately £1,000, savings which are not by any means negligible reliefs.

The great majority of borrowing to cover house purchase is covered by the present limit. But, having regard to the movement in the price of houses, I would not be unsympathetic to the case Deputy Barry made. Indeed I might well have provided for some change in this limitation— though perhaps not exactly the one that Deputy Barry proposed in his amendment—but for another factor that has changed this year, that is, the abolition of rates on residential property. This is relevant to consideration of this issue. Perhaps the figure I am about to give represents a fairly extreme case but it illustrates the relevance of it. A saving of £500 in rates out of after-tax income represents, in the case of a taxpayer in the 60 per cent tax bracket, pre-tax income of £1,250. This gain is equivalent to relief on an additional £1,250 interest or, put another way, to an increase in the limit for relief in the section to £3,250 as against the £3,000 proposed by Deputy Barry.

In general the abolition of rates is equivalent to ten to 12 times the rateable valuation of the house purchased grossed up at the purchaser's marginal rate of tax. Therefore the abolition of rates has had an effect in so far as this existing limit is concerned. In practice it has increased the limit over the £2,000. As I indicated, if that had not happened, I would think there was some case for an increase, whatever that increase might be. Having regard to the upward movement in the price of houses I can certainly assure the House that the limit will be kept under review. But in view of the relief being provided this year, through the abolition of rates in the way I have indicated, that is sufficient. I might reiterate that the matter will be kept under review so that if it is necessary to make an alteration in the limit that will be done, but I do not think it is essential to do it this year.

: The Minister prefaced his remarks by saying that perhaps he was quoting an extreme case. I wondered if he knew himself how extreme it was, if he had any indication of the number of householders who would have been paying £500 in rates this year. I suspect that it was even more extreme than he had us believe.

: There were some; not very many, I agree, but there were some.

: Very few in Dublin, Clontarf.

: Not so many there.

: The only comment I want to make on what the Minister said is that the theme appearing to run through this Finance Bill is that one gives with one hand and takes with the other. If the Minister is giving rates relief then he should not take it back this way. The same applies to the capital acquisitions tax and to the rates on farmers, where the Minister is giving with one hand and taking back with the other. Either he is giving or he is not giving.

: I think Deputy Barry is mistaken in relation to this item because we are taking nothing back as regards the abolition of rates. By abolishing the rates we are giving additional relief which did not apply. This £2,000 limit was in operation last year. This year there is the £2,000 limit plus the abolition of rates, so we are not taking it away. The figures I was giving—even though as Deputy Horgan says, the particular example I gave was perhaps extreme—nevertheless indicate that it is true for all cases. I did give the general approach which would cover any case, that is, about ten to 12 times the rateable valuation grossed up at the marginal rate of tax. That would apply to any case. That is an additional item of relief this year and we are not taking anything away when we give it. Therefore I think Deputy Barry is mistaken in what he says about this item.

: The Minister prefaced his remarks by saying that there was justice in the case I was making. He admitted that the price of houses had moved up and that there was merit in moving up the limit of £2,000 but he was not going to do that because the relief of rates had been introduced. Therefore, if the relief of rates had not been there, the Minister would have moved this up.

: That is correct.

: Therefore, the Minister is not giving the relief of rates to these people.

Amendment, by leave, withdrawn.
Question proposed: "That section 7, as amended stand part of the Bill."

: Perhaps the Minister would comment on a point I made earlier in relation to the amendment, that the reliefs available in this section, if the Bill goes through in its present form, will be available to people who borrow money to invest in companies whose business is lending money and who then lend the money back to them. Would the Minister regard this as socially appropriate or not? My second question is whether or not banks qualify as trading companies under the terms of the section.

: I did not hear the second point the Deputy made.

: Whether banks are trading companies within the meaning of this section.

: Yes, banks are trading companies within the meaning of this section.

On the question posed by the Deputy in relation to people whose business it is to lend money, we may be at cross purposes. I think the Deputy may be referring to a provision in the section which is an anti-avoidance measure rather than a loophole, as the Deputy seems to think. In general perhaps I should say that the basic reason behind the relief being given in this section is this. There are broadly two categories of people one can think about who can assist in the creation of jobs in this context. One is the man who is reasonably wealthy, and perhaps has a business or a profession, who is willing to invest a certain amount of his money in a business and take the chance on it. He will not be devoting anything like his full time to that business. He will be in partnership, perhaps, with other people and they will be engaging management and staff. If, as is normal in cases of that kind, he would borrow the money, although he would have the assets on which to borrow, and if he would not get any relief on the interest, he would in many cases decide that it was not worth his while at the cost involved to take the risk. I know of a number of cases where such people have made that decision. They were reasonably comfortable anyway and they felt it was not worth their while to take the risk when in the end it did not make a great deal of difference to their personal situation if they did not invest at all. The object is to encourage people to invest in manufacturing or distribution or services and thereby create new businesses and, therefore, new jobs. That is the basic thinking behind it.

The other category of person involved is the manager, or managing director in some cases, of a company. In general, I am thinking in terms of people who are not terribly old but quite effective in business and whose services are, perhaps, sought by a number of businesses but who do not have a great deal of capital behind them. It is quite common for people like that to be offered as part of the deal when they are engaged share options in the business. Of course, this is a form of incentive to them to build up the business and to the extent that they succeed in that they are increasing the value of the shares they have taken up. Such people, although they may have relatively high incomes, frequently have no real capital behind them and the main thing they have to sell is their entrepreneurial skill. In order to take up the share options they have to borrow money. Such people are affected by the existing limitation and this section is designed to give relief in such cases so as to encourage this kind of development, which adds up, I believe, to a greater dynamism in different kinds of business and if we can get that it follows that we can get more jobs. That is the basic thinking behind the section.

: I do not know if I share entirely the Minister's optimism when we see the way in which manufacturing employment is failing to recover at the moment, according to the latest figures available to me. There are two aspects of section 7 which point in slightly different directions: one is the abolition of the full-time qualification and the other is the abolition of the 5 per cent stock limit. I am wondering whether the Minister has considered the possibility that the simultaneous abolition of both of these makes companies more vulnerable to a loss of majority control to persons who are not directly involved in the companies along the lines the Minister was describing. He mentioned people who are offered share options as part of their remuneration. They can benefit under this section, but so can people who are not directly employed by the company. It seems that there may be a danger here of exposing companies to change of control, passing from inside the company to outside the company, and perhaps ultimately the creation of monopolies which would be inimical to the kind of orderly development of the economy for which we are all looking.

Question put and agreed to.
Sections 8 to 12, inclusive, agreed to.
SECTION 13.

: I move amendment No. 25:

In page 15, line 37, after "made" to insert "in accordance with the provisions of section 58 of the Income Tax Act, 1967,".

This amendment makes it clear that the assessment referred to in the new section 20 is one made on the accounts basis, that is, under section 58 of the Income Tax Act, 1967. Where the assessment is made on the accounts basis, farmers will have the option of electing for the national basis, subject to the conditions specified in the section.

: Here the Minister is proposing to abolish the national basis of assessment.

: No. All this amendment is doing is making it clear that we are referring to an assessment on the accounts basis.

: It is the section which has the intent of abolishing the notional system.

: I do not think that would be correct. This amendment is merely drafting to make it clear that we are referring to an assessment of the accounts basis. Perhaps the Deputy would leave the section until we get to it.

Amendment agreed to.

: Amendment No. 36 is consequential on amendment No. 26 and may be discussed with amendment No. 26.

: I move amendment No. 26:

In page 15, line 40, after "assessment" to insert "up to and including the year 1979-80 only."

We are concerned that the Minister's intentions in respect of notional assessment would lead to inequity in this area and we are anxious to underline that by suggesting this amendment.

: As the Deputy says, the purpose of this amendment is to restrict the notional basis of assessment to the two years 1978-79 and 1979-80. I could not accept this proposition. I could, if necessary, enter into argument on the merits or demerits of this within the taxation system but I do not propose to do that unless I am obliged to do so. The idea of extending the notional system and not accepting the idea behind these amendments was one that was put to the people in the election and was endorsed. It was subsequently adopted by the Government as a matter of policy and enshrined in this Bill. In the circumstances I could not accept these amendments.

: The Minister says he cannot accept the amendments and does not want to do so because of what happened in the election campaign and the various proposals that were put to the people in that regard. But he is also seriously saying that, more or less for the indefinite future, we are to have two categories of businessmen in Ireland—one assessed on a notional basis, if they want so to be, and another assessed on an accounts basis—because it makes nonsense of any attempt to ensure reasonable horizontal equity in fiscal policy or reasonable planning in investment policy to have a situation like that? I urge the Minister to tell the House, regardless of whether this will extend for the next three or the next five years, whether in principle he accepts the fact that at some stage—and the sooner the better—the special protection being extended to the farming community in this transitional period will give way to a system in which their income and their outgoings can be compared on a reasonable basis with those of other members of the community.

: There is a strong case when dealing with the agricultural industry for arguing in favour of the notional system or some similar system on the grounds that it can, while levying taxation, encourage production, which is of course in the national interest. But I want to put it to the House and to Deputy Horgan in particular that when you are dealing with this area especially you can very easily lose if you concentrate on what appears to be the equity of the situation and ignore the reality of how much tax you can collect. For instance, if we were to abolish the notional system I have no doubt that we would collect far less income tax from farmers than we do at present. Whether one takes the view that that is a good thing or a bad thing is not, I think, relevant here. With the notional system, with the multiplier which may change every year in relation to the amount of production and agricultural prices, it is possible reasonably accurately to calculate the amount of income tax that would come from the persons concerned. Experience to date shows that the accounts system as applied to farmers is not the ideal system from the point of view of any Minister for Finance. I say that without regard to the party affiliation of a particular Minister for Finance. A Minister for Finance is obviously interested not only in the amount of revenue for the Exchequer but also, if the tax is applied to a particular sector, to see that there will be a yield reasonably commensurate with the estimate. Experience suggests that situation does not obtain in relation to the accounts system applied to farmers.

: In the arguments adduced by the Minister on this section to date I think there is an element of tongue-in-cheek on his part in his defence of the current notional system. Our amendment is put down on the basis of having a fairly brief discussion with the Minister on this matter and pointing out once again the entirely anomalous situation existing. If I were a farmer I would regard the notional system as being surrounded with very considerable uncertainty in the years ahead as to the tax payments I might have to make. As a PAYE tax person you have the consolation at least of knowing where you are and knowing the system that will be there by and large in the future. But the farmer depending on the system is dependent on the multiplier and on the caprice of individual Ministers, whether they adopt a hard or a soft line. I should not like to be trying to project an investment programme for a farm conscious that by the middle 'eighties such may be the pressure from urban areas, and above all from those subject to PAYE, politically there may be no option but to bring about massive changes.

Already there are straws in the wind. I recall Deputy Callanan, for whom we all have deep respect, seeking from the Minister some indication of what things would be like next year in this general context. We should all like to know. The Minister for Agriculture has been saying recently that farmers in general will have to pay more tax. The area of uncertainty is beginning to open up. I do not think revenue projections should be dependent on the manifesto of one particular political party, even if that is coming apant at the seams now after 12 months.

Therefore, I think there is a serious situation. The Minister earlier said that perhaps instead of the current system one would have, to use his exact words, "something similar". It is the "something similar" that puts the fear of God into farmers, because right into the last general election every Fianna Fáil canvasser who went into every farmyard in the country used the words "something similar" and what Deputy Richie Ryan was not going to do to them in terms of the multiplier and the notional system if the Coalition got back.

Another peculiar kind of argument adduced by the Minister was that at least the yield under the notional system is predictable. Only a week or so ago he was talking about the £14 million for 1978 being perhaps somewhat less—one was not quite sure. Admittedly, while the system has the virtue of simplicity, it is a kind of simplicity which does not merit being included in any country's taxation system. I do not want to prolong the agony of this system which has been exhaustively analysed in various reports, particularly by the National Economic and Social Council and occasionally by the ESRI. I think everybody accepts, from any kind of worker in the Revenue section down to a third year economics student, that the system that now operates, this dual system of farm taxation, is by and large unsatisfactory.

More serious perhaps than any other objection we have raised to the system there is the element of disincentive to productivity. There is a very serious problem here, because there were no productivity criteria built into the payment of this tax. Whatever else one might say about the deficiencies of the accounts system, about the difficulties of the Minister trying to garner revenue from the accounts system and about the views of certain accountants who have made a fortune advising farmers on how to avail of the accounts system to pay less tax, to suggest that the notional system would if it were abolished hinder growth in agriculture is wrong, because it is obvious that if anything it contributes on a disincentive basis.

For all these reasons, which have been analysed time and again in this House and around cabinet tables over the years, we feel that the sooner a planned development of farmer taxation takes place, the better, so that by the 1980's there will be an established norm, a rational criteria of taxation. Most farmers would welcome this because they would be able to plan ahead. We favour some commitment by the Government to the general principle outlined in our amendment. It would be a commitment for broad equity between different sections. There is no greater irritant at a meeting than when one explains particularly to a group of taxpayers in any townland the budget situation under PAYE and the situation under the notional system. People know that it is inherently defective and unfair, that it is a typical creature of the typical politics of pragmatism and expediency of successive Ministers. I urge the Minister to have a look at this question. It is a matter that could be considered by a commission on income taxation. This is one of those areas that could be usefully subjected to critical examination by a commission on income taxation. It is years since we had such a commission and this is the right time to set one up.

In the long run we are in favour of a form of farm accounting system. Most farmers keep accounts. They are engaged in an enormously costly system of production. Most of them like to be involved in a farm accounting system and, by and large, they would prefer to pay taxation on a legitimately derived surplus of income on the farm. With a proper tax system they at least would feel that the perennial political argument which goes on in this House would be ended for all time and they would not be the objects of envy in terms of their non-paying capacity, or in terms of having a surplus out of which they paid virtually no tax for all practical purposes.

For these reasons the Minister should examine the notional system and should try to set some sort of deadline. I know the Minister would have to consult with the farming organisations on such a matter but it is better to do it in the House than by means of a blue paper, a green paper or a projected paper in the years ahead. I have no doubt that the Minister would be even more respected for adopting that kind of reforming approach.

: In discussing the notional system of taxation, which is an optional system it is important to realise that a notional system of one kind or another is used in relation to farmer taxation in European countries. I do not have tabulated information with me but I understand that there is a notional system in operation in Germany based on the potential earning capacity of the land. The farmer must pay so much tax related to the capacity of his land. If he does not use his land properly to get the maximum from it he will still have to pay the tax, but on the other hand if he uses his land properly and gets more than expected from it he can keep the surplus.

From a national point of view, for Germany, there is a lot to be said for that system which encourages the optimum use of the land. Land, unlike any other national resource, is strictly limited in supply and there is a need to ensure that it is used to the maximum extent. When one is devising a tax for those engaged in agriculture one must take into account this unique characteristic of the agricultural industry. The position in relation to our notional tax system is that, in general, it is used to a much greater extent by farmers engaged in intensive farming. Generally they would be farmers engaged in dairying. They are the farmers who are using the notional system and for whom the system is a sensible proposition because per £ of rateable valuation per acre—there is a rough equivalent between the rateable valuation and the earning capacity of the land—they are the farmers who are making more income per £ of rateable valuation per acre as compared with those who opted for accounts, farmers who may be in beef cattle production, for instance, where the gross margins per acre are much lower. The notional system is an encouragement and a benefit to the most intensive farmers.

I do not say the taxation system is the crucial factor in making these people produce more per acre because it is not. The returns in the market place are much more important but, in so far as it encourages farmers to maximise returns, it has merits. I have already said that Germany has this notional system and so has France where there is a notional element permanently built into the system. I agree with Deputy Desmond that it is important that there should be certainty and predictability in relation to one's tax liability. This is as important in the case of farmers as it is in the case of all taxpayers. It is something that must be borne in mind. Care must be taken to ensure the tax code reflects the approach of the EEC. In the farm modernisation scheme the emphasis is on planning for five, six or eight years. Planning necessitates fiscal inputs and financial liabilities outgoings and incomes, and the tax liability is a very important ingredient. In devising a tax system for farmers one must, therefore, take account of the realities and the needs.

The notional system does not, of course, call for the same amount of expense on the part of the farmer because he does not have to hire accountants and he does not have to spend a great deal of time preparing accounts or keeping accounts. Time is money. One must therefore evaluate productivity from the notional point of view of the time spent. I agree that management accounts should be kept by all farmers and failure to keep such accounts can be no excuse. The important thing is to achieve equity between farmers and other members of the community. Equity does not necessarily mean exact equivalents in precise terms of taxation. Equity can be achieved in a number of different ways. I trust the approach will take account not just of the needs of farmers but of the potential of agriculture and the importance of maximising the return per acre from all our land.

: Naturally, I support this amendment tabled by the Labour Party. Equity in taxation demands fairness to all sections. Those on PAYE have a certain objection to the notional system. When the system was first introduced it was intended as a period during which farmers would make the arrangements necessary to produce accounts. We ask in this amendment that the period should be one year. That may not be altogether practicable. I think the Minister should state specifically what the period should be. Those on PAYE argue that they are carrying an unfair share of the burden of taxation compared with the farming community.

It is absolutely vital that taxation should appear to be fair and, while the notional system is retained, that feeling of frustration will continue where those on PAYE are concerned. Farmers should not be a special section and I do not believe most of them want to be a special section. Any I know believe they should pay their fair share of taxation. When PAYE was introduced shopkeepers and others had to keep accounts and they very rapidly fell into line when they found themselves over-assessed by the Revenue Commissioners. There does not seem to be any reason why farmers could not keep accounts. If they have a choice they will naturally opt for the system which gives them the advantage. That is not satisfactory. I think most farmers now keep accounts. If they get grants under the modernisation schemes they must keep accounts and make returns. Of course, these are not for tax purposes, but they are there. I admit farmers are now in the same kind of transitional period as were the small shopkeepers who were over-assessed and it might not be possible for them to switch over in one year. But there is a strong case for their keeping accounts. Those within the tax net are keeping accounts. I believe they would accept what seems to be fair, that is, fair in comparison with people who run small businesses and in some cases businesses which are run in a slipshod manner. These people have to make this kind of return. The day will come when all the people outside the PAYE system will have to make returns to the Revenue Commissioners. What is fair for the small business section of the community is also fair for the farming community and the farmers appreciate that.

The majority of farmers in my area are in the tax net. I believe they see it is only fair that they should have to make returns as the small shopkeeper living in that area has to do. He is not making half as much money as the farmers are making.

When the idea of the notional system was originally introduced it was intended as a breathing space for the people who had not been keeping accounts. This is the biggest area of dispute between the people under the PAYE system and the farming section. It is about time everybody was under this tax system.

: If this amendment or something like it were accepted it would resolve the problem that was raised at least as much on the Minister's side as on this side of the House at an earlier stage in our debate, that is, that there is, as far as I understand, a possibility under the notional system that persons will be assessed for tax on incomes which they have not got because of a bad harvest or a bad loss of one kind or another. The Minister in his reply on Second Stage referred to this problem and said he was thinking of doing something about it. I may be pre-empting the discussion on some of the ministerial amendments, but not as I read the section at the moment is this problem being met.

: I indicated at the conclusion of the Second Stage debate that I had arranged for discussions between the Revenue Commissioners and the farming organisations in relation to this matter. It relates specifically to the provision in the Bill which obliges one to opt for the notional system and to stay with the option for three years. The outcome of the discussions will not be known for some time. I indicated that anybody who opted for the notional system this year would not be bound for three years if satisfactory solutions emerged, which I expected, and if they followed the line of the solution which emerged. Any amendment in this regard would have to await next year's Bill.

: The Minister said that there were discussions going on between the farming organisations and the Revenue Commissioners at the moment which hopefully will have the result that people who are now caught in the notional system for three years will have an option in next year's Finance Bill of coming out again. Is that correct or is it a misinterpretation?

: No, it is not, but I would not at this stage like to give the impression that what is likely to emerge is the right to opt out of the notional system under any circumstances. The principal concern in this regard is that we could have a situation where somebody was being taxed under the notional system on an income he did not have because his herd was struck by disease or something like that. That is the primary concern and the primary reason for making any change. That is why I said that whatever solution emerges—and I believe a solution will emerge—anybody who follows that solution will not be obliged to stay with the notional system for three years. I cannot say at this stage what the solution will be except that its primary purpose will be to try to ensure that a man is not taxed on the notional system on an income he does not have. It is not just a blanket release from the requirement of this section.

: Is the amendment withdrawn?

: Yes, but we will reconsider it between now and Report Stage.

Amendment, by leave, withdrawn.

: I move amendment No. 27:

In page 15, line 40, to delete "30" and substitute "90".

The purpose of this amendment is to allow the farmer a longer time from the date of the receipt of his assessment to decide whether he is going to go for the notional system or for the accounts system. Section 13 reads as follows:

... he shall be entitled, on giving, within 30 days after the date of the notice of assessment, notice in writing to that effect to the inspector, to elect to be charged to tax for that year in respect of those profits or gains on an amount determined in accordance with the provisions of section 21 ...

In other words, the farmer will have to decide within 30 days whether he is going to go on the notional system. I presume that once this Bill is enacted the assessments will go out straightaway and farmers will have 30 days more or less from that date to make up their minds if they are going to go for the notional system or the accounts system. They are also going to have to make up their minds in the following context. If they opt for the notional system they must stay on it for three years, regardless of what might happen to the multiplier. This year it is 90 but next year it could be increased to 200 and the following year to 400. It could be increased in a capricious fashion without any necessary relationship to actual earnings in farming. In other words, farmers could be trapped into the notional system on the basis of its apparent attractiveness this year. But they could suddenly find next year, not because of a disaster on the farm like brucellosis, but because the Minister decided to change the multiplier, that the calculations they had made, which were correct for this year and represented the right thing to have done from the point of view of maximising their output, were not correct for the next year, because the same equation will not apply. They would then find themselves with a much larger tax bill to pay than they had anticipated.

If I have interpreted him correctly, the Minister said there are talks going on between his officials and farming organisations, unspecified, to see if there is a way around this dilemma. He said that if subsequently a solution is to be found, people who by some process of inspiration succeeded in making arrangements which coincide with the solution, so long as their approach is in line with the solution arrived at in the course of these talks, will be all right. But the problem is that they have got to make their decision now, within 30 days of the date of assessment, and there is no indication from the Minister that the talks will have been completed within that period, or that even if the talks reach some solution, although it may be acceptable to the Minister, the Revenue Commissioners and the farming organisations, the Government will agree with the decision. That does not always happen.

Meanwhile, the farmer has to decide in 30 days whether he will go for the notional system. I think the Minister will agree that if he were such a tax-payer he would feel he was being asked to place a great deal of faith in the talks and that he would not feel certain about his position. This amendment has the merit of extending the period during which the farmer must make his decision from 30 days to 90 days. There is a possibility that though the talks may not be completed within 30 days they might be 90 days later.

The decision to be taken by a farmer now will be binding for three years, not one year as heretofore. If the period was 30 days in the past and binding for one year and because the decision now will be binding for three years I suggest that the period during which one must weigh up all factors should also be increased threefold, from 30 days to 90 days. Therefore the period suggested in the amendment is appropriate in the circumstances of uncertainty created by this half promise that something may emerge from these talks.

: Farmers have known the position as it is in the Bill since budget day on 1 February, because I announced at that time this arrangement about sticking to the option for three years, and to suggest that they will need an extra 60 days on top of the period they already have had within which to make up their minds in the light of varying circumstances is a bit unreasonable.

I refuse a basic idea Deputy Bruton appears to have. I dealt with this when replying to the Second Stage debate, but in view of what he has just said I think I had better say it again. The idea that somebody should be entitled to know one or more years in advance what his income tax will be or what his income tax rate will be is a proposition I cannot accept. Other taxpayers are not in that position. The rate of tax, the allowances and the bands, may be changed in any year and there is not a taxpayer who has a guarantee they will not be changed. Therefore anybody who thinks that by going for the notional system this year something may emerge which will enable him to opt out of it, because of his dislike of the omens about tax rates, or whatever, should forget about it. Let him go for the accounts system now and stick to it.

The only thing that is contemplated in respect of the change in the provisions in the Bill is to cover a situation where because of something like disease or some other occurrence a farmer might find himself under the notional system paying tax on an income he did not have. The talks I have referred to are designed to produce a solution to that type of situation—in other words, to try to ensure that a farmer on the notional system will not be obliged to pay tax on an income he does not have. It is not designed to allow a farmer a greater opportunity to assess whether tax rates are likely to change and thereby made a decision on that basis. If he wants to think in those terms he should make his decision this year and he might well decide to go for the accounts system. That is his business. The talks I have referred to will probably not produce a solution earlier than the autumn, and Deputy Bruton was right to suggest that a solution in that regard will not emerge in time for people to make their election in regard to the provisions of the Bill.

: Perhaps it would if 90 days were accepted.

: Not necessarily. The person who is making his election now should decide it on the basis of such things as whether he plans to increase his production substantially for the next few years, whether he is in a position to keep accounts and so forth. The kind of thing that is likely to emerge from the talks I have referred to will only be a solution to what I might describe as a disaster situation or at least a situation in which a farmer is being asked to pay tax on an income he does not have. It is not designed to meet a situation in which a farmer comes to the conclusion, having weighed up all the factors: "I will be better off on the notional system this year and the accounts system next year". Specifically we are trying to prevent farmers from switching from one to the other because, as Deputy Bruton is well aware, this is a fertile method of tax avoidance and that is why this provision is in the Bill.

The amendment is designed to extend the period of election for one system rather than the other from 30 days to 90 days, and I think I should make it clear that the basic system that will work will be that a farmer will be first assessed in the ordinary way, that is, on an accounts basis or on an estimated basis. If he accepts the accounts system he can deal with the matter in the same way as would any other taxpayer. Alternatively, if he wishes to be assessed on the notional basis, by giving notice of his election for the notional basis he is effectively appealing against the assessment that was made. The whole machinery is geared to treating such election as an appeal and the machinery that follows from that is the same as that which applies in the case of an ordinary appeal. One of the aspects of the machinery in the case of an appeal is that there is a limit of 30 days in which to appeal.

I should mention also that in the case of an ordinary appeal there are numerous circumstances in which an extension of the time limit may be permitted. If, for example, a reasonable case is put forward, such as illness, in practice there is a reasonable approach by the Revenue Commissioners. Precisely the same law and administrative practice will apply in the case of an election for the notional system, but because it will be treated as an appeal within the tax system there is no need to extend the period. If one were to do so in this case one would need to extend the period in respect of all appeals if one were not to upset the whole fundamental approach regarding election for the notional system.

It is not intended to provide the maximum possible further period for a farmer to assess his chances as between the notional and the accounts system. By now a farmer should be in a position to make up his mind as to which system suits him best. If he opts for the notional system he must continue on that system for the stipulated period unless he follows a line which I would expect to emerge from the talks. That line, however, will be designed only to cover a situation in which, if the line were not followed, the farmer would be paying tax on income he did not earn. Presumably a farmer's decision on which system to opt for will not be based on that kind of situation, which would be a kind of disastrous situation and one that will not enter into his normal calculations.

: One should not facilitate anybody in using the notional system as a means of avoiding tax by reason of calculations in relation to tax rates for instance, which affect everybody regardless of whether they are on the PAYE system or on a notional system. However, the reason for the amendment arises from the fact that the tax in this case is based on a multiplier of the rateable valuation. This year the multiplier is 90 but next year is could be 200, 400 or even 800. The Minister suggested a valid principle, namely, that one should avoid a situation in which under the notional system a farmer would have to pay tax on income he did not earn. The Minister seemed to imply that the only circumstances in which such a situation could occur would be in the event of some disaster on a farm and that it would be to cater for that sort of situation that the talks with the farming organisations would be concerned. But the Minister failed to point out that such a situation could be brought about by ministerial action, by the Minister deciding to increase the multiplier at a rate much greater than the average rate of agricultural incomes. For example, if we take the average agricultural income increase for next year as being 20 per cent, the Minister, should he decide to increase the multiplier by 100 or 200, could bring about a disaster situation. In such circumstances the farmers would not be satisfied to have to pay tax on the notional system.

Having regard to these points would the Minister consider building a safeguard into the proposals he is working out with the farming organisations in order to safeguard against a situation in which the Minister would decide to increase the multiplier by an amount disproportionate to the increase in agricultural incomes?

: I could not accept that a decision by the Minister for Finance in relation to the multiplier could be regarded as a disaster.

: I was not suggesting that. The Minister had been saying that, for instance, a brucellosis storm would alter the situation.

: I tried to outline the kind of circumstances that would change the situation, but I would not like anybody to be misled in regard to what may emerge by way of relief in so far as the notional system applying for three years is concerned. It will be only in limited circumstances that the relief can arise. I cannot determine it now. It will entail an amendment of the Bill next year. What will be involved will be only a safety net for people who opt for the notional system and who will be confined to operating that system for three years. But nobody should operate on the basis of being able to opt out of that system in the event of his not liking the level of the multiplier. That would be self-defeating.

: I accept that, if a farmer in making up his mind were assured that the Minister would be increasing the multiplier only in line with the general increases in agricultural incomes, the farmer would be able to make a rational decision within 30 days, knowing his plans and his potential. However, there are two incalculables. One is a possible disaster on the farm, such as a herd being wiped out by disease. The Minister has suggested that his talks may be concerned with that sort of possibility. The other incalculable is a possible decision by the Minister to increase the multiplier by an amount far in excess of the average increase in agricultural incomes or, in other words, to depart from the practice followed by him in this Bill and by his predecessor in other Bills in regard to increasing the multiplier. Such an eventuality would not be provided for in the talks the Minister has in mind because it would not concern the type of narrow circumstances to which the Minister has referred. It would not be dealing with individual farmers but with the broad mass of farmers. The Minister has said that other taxpayers are not allowed opt for one system as against another although nobody knows in advance what the rates will be. I am suggesting that, if that is all right for a person in that situation, it should be all right for the farmer on the notional system.

I respectfully submit to the Minister that he is not comparing like with like if he is making that case, because the farmer would be in the same position as that person so far as the tax rates are concerned. If the tax rates go up, they go up for the farmer on the notional system just as they go up for the person on PAYE, and the farmer on the accounts system. I am not suggesting farmers should be able in some way to get out of a high tax rate by switching from one system to the other. I would not countenance a provision to encourage them or facilitate them in doing so.

People on PAYE or other forms of taxation are paying on the basis of what they actually earn. The notional figure could be increased by an amount which is not commensurate with the actual increase in agricultural income. If the notional figure is increased by 100 per cent next year, the farmer has to pay regardless of whether he has any income. We are not comparing like with like when we compare the option to go on the notional system with the option other taxpayers might have of working to a particular level of output or income.

In his discussions, in addition to coping with the type of problem he already recognises, namely, the problem which could arise for a dairy farmer, for example, who opts for the notional system and his herd of cows is cleaned out by brucellosis—the Minister has indicated he is seeking a solution to that problem—the Minister would also need to give an assurance about his own intentions for the next three years in relation to the level of the multiplier, and to relate it to some objective measure of agricultural income so that it would not be possible for him to increase the multiplier wholly capriciously without any regard to what was actually being earned by farmers on the notional system. The Minister would need to give that second assurance before his proposals would be acceptable in any sense.

In any event, all of this is in the area of speculation. We do not know what the Minister will concede at these talks. The farmer will have to make up his mind in the absence of that knowledge. That is unfair and it should not be a feature of the tax system.

: I do not think it is accurate to say it is unfair that the farmer does not know what will emerge from the talks. He has to decide on his option. What I am trying to do in the talks is to cover a situation which could arise in certain limited circumstances. The fact that I am trying to do that does not make it unfair that a farmer has to decide on his option without having regard to what solution may emerge for the limited circumstances. He must make his decision on the basis that those limited circumstances will not exist in his case. We recognise that circumstances might arise out of animal disease. Deputy Bruton seems to think another kind of disaster which might strike——

: I did not use the word "disaster".

: The Deputy did not, but he implied it. He seemed to think the Minister would fix the multiplier at an inordinately high rate and he is looking for an undertaking from me about the level of the multiplier over the next three years. First of all, we are talking about an amendment to extend the time of election from 30 days to 90 days. Of course, that would not solve the problem the Deputy is talking about because, if the multiplier were increased, it would not increase until next year, the year after, and the year after. That is what he is visualising.

Secondly, the Deputy will appreciate that it would be quite impossible for me to give an undertaking on the level of the multiplier next year or the year after at this time. Obviously this has to be considered in the context of the budget. The Deputy also knows that so far—including this year—the level of the multiplier has been lower than what one might call the mathematical level. If one were to consider any undertaking, the only thing one could say would be that it would be in a fixed relationship to that. That might not be an undertaking farmers would welcome. On balance the Deputy will find it is best to leave the situation as it is.

: I do not know about that. I can see the drift of the Minister's argument. Leaving it completely in the air is putting people in a situation in which they do not know what they are deciding about for the next three years. Conceivably there could be a decrease in the multiplier if agricultural incomes were to fall in a particular year. In 1974 there was a serious fall in agricultural income as a result of a drop in cattle prices. The multiplier should be related in some general way within a certain tolerance. There will have to be a tolerance one way or the other in regard to objective data on agricultural income. Some such undertaking would be valuable if the case is being made that farmers must opt for three years.

I have made my case. The Minister will decide what he thinks best. I am sure those who are making representations to him on the matter will also make their views known as to whether they wish for an undertaking from him. I may put down a similar amendment on Report Stage.

Amendment, by leave, withdrawn.

: Amendment No. 27a has been ruled out of order.

: The idea behind amendment No. 27a was to try to emphasise the seriousness of the situation of very large farmers and non-farming international co-operatives buying agricultural land at prices which make it impossible for ordinary farmers, and small farmers in particular, to increase their holdings.

: The Deputy will understand that he may not debate the amendment.

: I thought we were on the section.

: The section is not yet before the House.

: I move amendment No. 28:

In page 16, line 9, to delete "last" and to substitute "first".

This amendment clarifies a point raised in relation to the provision that a farmer who has been assessed for tax on the basis of accounts for a period of three years may then opt for assessment on the notional basis. It has been suggested that the terms of the new section 20 (2) can be read as meaning a farmer would have to remain on the accounts basis for four years. This is not intended and this amendment is designed to make that clear.

Amendment agreed to.

: I move amendment No. 29:

In page 16, between lines 19 and 20, to insert the following proviso:

Provided that the multiplier specified in the formula contained in section 21 (1) shall not be increased for the next two years of assessment following that year of assessment.

Deputy Bruton has covered a lot of points regarding this amendment on amendment No. 27. The position in farming is different from that of the PAYE earner the Minister refers to. The multiplier covers all the farming community, good farmers, bad farmers, lucky or unlucky farmers no matter how hard they work. They may have a bad year and their income may decrease but they will still have to pay the amount of tax which is the product of the multiplier and their rateable valuation, whereas if the individual PAYE payer works less overtime or his income diminishes from some other cause he knows he will have to pay less tax provided that the tax bands remain as they are. The farmer has no such guarantee as regards the multiplier. Should he be sick for six months and his farm is run down, if he has already opted into the notional system he will still be liable for a fixed amount of tax no matter what his circumstances are. The multiplier applies right across the board to every farmer who opts for the notional system in the 30 days after the enactment of this legislation.

We are seeking to try within the notional system to find some formula that will allow these variations in individual farmers' cases to be taken account of. That is the thinking behind the amendments we have put down for this section. We want the farmer to have some confidence that in the third year of his assessment, 1980, if, through some circumstances not taken account of in the talks between the Revenue Commissioners and the farming organisations to which the Minister referred, the farmer's income drops there will be something built into this Bill that will allow him some means of not having to pay tax out of income which he has not earned.

God forbid that Deputy Colley should move out of his present position and be replaced by somebody with less sympathy for the farming community than he has who would increase the multiplier to 150 or 200 in two years' time, when maybe there would be no green £ valuation in the EEC and when price increases would be at their present 2 per cent or 3 per cent level. We are trying to get for farmers some assurance that in that unfortunate set of circumstances they would not be caught for tax out of income which they have not got, apart from the disaster which the Minister spoke about.

: The most effective way to ensure that one is not taxed on an income one does not have is to go on the accounts system.

: That may be so now but in two years' time they will still be caught in this and they may have no income.

: It may be reasonably assumed by any farmer who is weighing up the situation, and having regard to the terms of the talks that I have referred to, that an effort will be made to ensure that a farmer who opts for the notional system this year will not find in two or three years' time that he will be obliged to pay tax on an income that he does not have. That is the general objective, but I cannot undertake at this stage to fix the multiplier for the years ahead. As I have indicated, the fixing of the multiplier is primarily a matter to be dealt with in the preparation of the budget. Farmers who feel that by opting for the notional system and sticking with it for three years they are taking on the risk that the Minister for Finance of the day may increase the multiplier either substantially or unreasonably and that the risks involved are too great must realise that the only sensible thing for them to do is to go on to the accounts basis.

We must never lose sight of the fact that, while the notional system has a number of advantages from the point of view of the Exchequer and of the national economy, it also has advantages from the point of view of many farmers. This unique system—unique compared with other taxpayers, not unique in the sense of applying internationally because other countries have a somewhat similar system—is a form of concession. If they find that the terms on which the concession is available are unattractive I am afraid that the alternative for them is to go on the accounts system rather than be trying to change the terms on which the concessional system is available. There obviously is a limit for any Minister for Finance in what he can agree to allow as part of the notional system. The closer it equates to the accounts system the less reason there is for having a notional system at all. There must be a practical limit to the kind of concessions that can be given in relation to the notional system and I am afraid we have reached one of them in this amendment.

: Could the Minister give us the benefit of his opinion about the notional system? He keeps referring to it as a concession rather than as a form of taxation. I do not regard it as a concession; I regard it as a form of taxation devised to meet the needs of agriculture. The Minister himself suggested that there were benefits to the national economy and the Exchequer in the notional system that took account of the needs and character of agriculture. In an earlier amendment we dwelt on the fact that the notional system encourages farmers who achieve a large output per acre to achieve more, and it encourages farmers, who for one reason or another do not achieve the output target, to increase their efforts to do so. Those characteristics of the notional system are good. I am disturbed by the Minister describing a form of taxation, namely the notional system, as a concession. Last year in the general election campaign the party of which the Minister is a member made a great show of their belief in the notional system and their commitment to its continuance. The Minister is now talking about it as a concession.

: I have always talked about it as a concession because it is, and Deputy Bruton knows that.

: I should like to know what the Minister means by a concession. Does he mean something that he intends to withdraw in the near future? If that is what he has in mind, he should come out and say so. The drift of his argument seems to be "If you do not like the notional you can get on to accounts. I do not mind what you do. If you are not prepared to buy this pig in a poke that I am offering, you can go on accounts". It seems that the Minister does not really want people to be on the notional system at all and that he is seeking any easy way of getting rid of that system altogether. If that is what he has in mind, he should say so. He should not try to do it by this means and we could have a clean honourable and straight debate on this issue. He should not try to do it by this backdoor method of telling farmers that he can give them no guarantee that he will not increase the multiplier by 400 per cent in the next two or three years even though agricultural incomes may rise by only 40 per cent. All the Minister is prepared to say is that he can give them no guarantee and if they do not like it they can go on accounts.

The talks, the parameter of which he so narrowly defined, obviously will not deal with that sort of problem at all. They will be concerned only with individual disasters on individual farms and not with the change that might be made in the multiplier. The Minister appears to be about the business of getting rid of the notional system of taxation. If that is his business he should say so. If the Minister believes, as he and his party evidently believe, that the notional should continue he should not make it so unattractive by virtue of susceptibility to a capricious and unjustified change in the multiplier in subsequent years while farmers are tied to remaining within it.

I asked the Minister if he would give an assurance that the changes he might make in the future in relation to the notional system would be related to some objective data dealing with agricultural incomes but he did not give any indication that he would be prepared to do that. In fact, he tried to suggest that this would be a bad thing from the farmers' point of view. At least it would be a lot better than the present situation because at present farmers do not know where they stand if they opt for the notional system. The Minister's failure to give an assurance in relation to this matter does not arise from the reason he gave, that it was not good for the farmer to give an indication as to what the multiplier might be in advance. It was not that he was afraid that the agricultural income statistics might justify a slightly larger increase in the notional next year than this year. That was not his reason for his lack of anxiety to give an assurance as to what the multiplier might be next year.

The Minister's reasons may be otherwise. They may derive from the fact that he gave certain specific promises. There is no guarantee that he will go one step further than those promises. If something was not in the manifesto there is no need for us to make a case for a change, no matter how good a case is. Given that there was no commitment in the manifesto and that the Minister is not anxious to give a commitment as to what the multiplier may be in the future or whether it may be related in any way to what happens to agricultural incomes in the future I wonder what he has in mind. He is concerned only to stick to the exact words of the commitment he has given and if there is any contingency that is not provided for in the precise commitment given he feels he is at liberty to proceed in any way he wishes. In a sense he is entitled to do that but that does not give the farmers any assurance as to the way they will be treated in the years ahead.

I want the Minister to make a commitment. He should say in advance what the multiplier is going to be or, if he finds that too difficult, define a relationship with or without a tolerance between what the multiplier will be in the next three years and the figures as shown by the CSO or the Agricultural Institute—the Minister can have his pick—as to agricultural incomes. If the Minister gives that assurance he will satisfy a lot of people.

: The Minister said earlier that when an assessment is sent out within 30 days the person who opts for the notional system will be treated as appealing against the assessment of the inspector under section 416 of the Income Tax Act, 1967. That section allows a person to go to the special commissioners to have his income assessed. At that stage that person is included in the notional system for three years.

: When he elects for the notional system he is regarded as having appealed. If he elects for the notional system he is within that for three years.

: Can that farmer who for reasons of ill health or otherwise which will not be taken into account in the discussions between the Revenue Commissioners and farming organisations, in the third year appeal under section 416 of the 1967 Act or will this only apply in his initial entry into the notional system? Can he appeal if his circumstances change and if those circumstances were not taken into account in the talks to be held?

: I may have confused the issue a little when I said that the election was treated as an appeal. That is true but on the other hand it does not mean that when one comes to the third year there is a question of electing again backwards. It could mean an appeal. A farmer always has the right of appeal even under the notional system. He could appeal on the basis that they were working on the wrong rateable valuation or not allowing him the correct deductions. He cannot appeal in the sense of the election for one system or the other. In other words, he cannot elect again except on the basis of the discussions I mentioned. In that regard I should like to state that while I spoke about disease it could be a bit wider than that but it is related to the farmer's income and not to the multiplier. If there was a substantial drop in the farmer's income or some other reason it is possible to provide machinery whereby he could then opt out of the notional system and on to the accounts system but it would be related to the farmer's income and not to the multiplier.

Progress reported: Committee to sit again.