Finance Bill, 1978: Committee Stage (Resumed) .

Debate resumed on amendment No. 38:
In page 19, line 22, after "assessment" to add:
"or for any previous financial year in which rates had been paid which had not been set-off against an income tax payment to the extent that they had not been so set-off."
—(Deputy Bruton).

: In dealing with amendment No. 38, we are also discussing amendments Nos. 39 and 40 which are related.

: I had given the reasons why I could not accept amendments Nos. 38 and 40 and made the case for amendment No. 39. I understand from what Deputy Bruton said that he accepts the reasons I gave and that he may consider trying to amend the drafting of the amendment to achieve a different result and may put down such an amendment on Report Stage. I will give due consideration to any amendment which the Deputy may choose to put down.

Amendment, by leave, withdrawn.

: I move amendment No. 39:

In page 19, to delete lines 30 to 33 and to substitute the following:

"(2) This section shall not apply in the case of an individual to whom section 16 applies, and (apart from paragraph (b) of subsection (1)) shall not apply in any case in which section 19 applies.".

Amendment agreed to.
Amendment No. 40 not moved.

: I move amendment No. 41:

In page 19, in the Table, line 52, to delete "to be"

Paragraph (b) of section 13 provides for the substitution of "is" for "elects to be" in section 22 (2) (b) (a) of the Finance Act, 1974. The existing table reproduces the amended section incorrectly by including the words "to be" and this is correcting that.

Amendment agreed to.

: Amendment No. 42 has been ruled out of order.

Question proposed. "That section 13, as amended, stand part of the Bill."

: This section, which deals with the taxing of farming profits and reliefs to be offset against farming profits is fundamental to the Finance Bill and to the economic and fiscal strategy of the Government. It is our contention on these benches that the reliefs being given are in many cases excessive and that there are no real safeguards to ensure that the reliefs will produce the kind of investment in agriculture that the Minister is presumably hoping will take place. Reliefs in relation to direct taxation of farmers are such as to ensure that comparatively small numbers of farmers will be brought into the tax net.

On Tuesday, 23 May in answer to a parliamentary question the Minister gave the information that in 1978-79 as a result of the change in the rateable valuation and the change in the multiplier there would be approximately 26,000 farmers assessed for tax on their farming profits. This would include people who would appeal against their assessment. Out of a total of 170,000 farmers, this represents some 15.3 per cent. The largest percentage increase and global increase in the number of farmers being brought into the tax net was between 1976-77 and 1977-78 when it almost doubled from just over 9,000 to almost 19,000. We are talking about the 15.3 per cent of all farmers who will be assessed for tax on their farming profits in the coming year. This is not a large proportion of farmers.

We are talking here about the need to establish a progressive policy which will establish horizontal equity and fairness of contribution to the Exchequer between the farming community and the rest. We are not asking for penal taxation of poor farmers any more than we ask for penal taxation of workers whose incomes are below the same sort of limits. It is worth while pointing out that the reliefs being given to the farming community in the Finance Bill are proportionately much greater than the reliefs being given to the ordinary wage and salary earner. The total amount which the authorities expect to collect in tax from the farming community this year is about £24 million and the value of the reliefs is about £5 million, which is roughly one-fifth. The total amount expected to be collected from PAYE and other direct income tax payers is something over £600 million and the amount of reliefs that have been given in that area are approximately £60 million or £70 million. In other words, the ratio of relief to income on the farming side is about one-fifth and on the non-farming side is about one-tenth.

There are a couple of substantial reasons why we quarrel with some of the provisions in this section and they are related to the fact that we are still persisting in treating farming, and very substantial farmers in particular who should be treated as any other businessmen, with a very special degree of care and consideration which most of them, if they are any good at their business, simply do not need any more as protection. In this section we are making substantial reliefs available to very large farmers without any evidence of re-investment. We spent a long time yesterday talking about the need to create investment and to create jobs and many of the reliefs we were talking about are actually contingent on re-investment. There is no such contingency in this section. There is no need for any farmer to invest any money he is saving in any form of further investment in his farm, much less job-creation. There is no need for him to invest any of the savings in providing jobs on his farm for individual human beings. This is in direct contrast to the reliefs being extended to other industries, where the reliefs are contingent on increasing employment quotas. We were arguing against the quotas chosen because we believed that they were not high enough but at least the principle was there—if you provide more jobs you get more relief. Here the relief is not contingent on the jobs.

I would point out in relation to our attitude on this section that what we believe holds good for the town holds good for the country as well. We are a party which believes in re-distribution from the well-off to the not-so-well-off and we therefore logically believe in re-distribution from the well-off farmers to the not-so-well-off farmers, just as we believe in redistribution in city and town areas. This section contains no hint of redistribution. There is nothing for the farmers concerned.

My final point is in relation to the subsection to which we have put down an amendment, which we have now withdrawn with the possibility of putting it in on Report Stage. That is the subsection relating to the possibility that very large farmers now have of offsetting their payment of rates as a direct payment against their tax liability. We oppose that for a number of reasons: first, because it is part of the technique of treating the best developed end of an already favoured industry more favourably than any other business or industry; secondly, because it represents an extraordinary development of the Government's fiscal policy.

What we call things here is important. I have argued with the Minister before regarding his tax splitting provisions whether they should be called allowance splitting, tax splitting or transfers within the family. What we call things is politically important, but as a result of this subsection which now allows farmers to set off rates as a direct payment against tax we have a very anomalous situation created in which farmers with over £60 rateable valuation will be able to set off their rates entirely against their liability for tax. Farmers under £20 rateable valuation will pay no rates because they will be exempt from rates on agricultural land. We are left with farmers with a rateable valuation of between £20 and £60, a very large and numerous group. They will continue to have to pay rates on a graduated basis, but they will have nothing to offset rates against. The irony of the situation is that the Minister and the Government, while in the process, in section 36, of abolishing wealth tax, are leaving in rates on farmers of between £20 and £60 rateable valuation as the only form of tax on fixed assets not capable of being offset against another liability that now exists. The farmers of between £20 and £60 valuation will be the last people under Fianna Fáil to continue paying wealth tax. Effectively, the rates on their property amount to a wealth tax and Fianna Fáil are going to insist that they continue paying it.

: Something must be done to prevent large farmers and non-farming interests from purchasing land——

: That certainly does not arise on this section.

: It arises in this way——

: Yes, it arises but it can be discussed elsewhere. We have already had a long discussion on it today on another Bill on which it should not have come up. It is certainly not relevant on this Bill.

: It is, in regard to relief for interest on money borrowed for this purpose by farmers.

: I shall allow the Deputy to make the point until I see what it is, but it certainly does not appear to me to be relevant.

: I hold it is relevant in the sense that the larger farmers are able to borrow money to purchase further lands, and offset the interest against taxation, something which farmers not in the tax net cannot do. Something should be done to prevent very large farmers being able to offset interest on money borrowed to purchase further land against their tax liability. It might only do a little good but I think it should be included in this section. As things stand, it is far more attractive for these large farmers to purchase land. This is against the common good because they are buying land to add to already large farms. Something should be done to prevent people outside the agricultural sphere—and these are many—as well as those in the top ten in the valuation list in the various counties from borrowing money and claiming the interest against tax in order to add further to the irregularities in our land structure.

: The Deputy has made this point.

: Reference was made to the connection between employment creation and tax. One of the features of taxation is the allowance for depreciation on buildings and investment. There is evidence of very substantial investment by the farming community, particularly by some farmers who are within the tax net. This does not necessarily create direct employment on the farm, but when assessing the employment impact of investment in agriculture it is important not to look at the matter solely from the viewpoint of employment on the particular farm because much of the employment created by agricultural activity is indirect. For instance, you can have employment in contracting firms supplying services to agriculture. I think figures here would indicate a significant increase. You also have—and this is very significant—increased investment in buildings by farmers. We all recognise that the fixed capital on farms in terms of buildings, yards and so on has been insufficient in the past to meet the needs of modern agriculture. There has been significant investment in this area, which is giving employment in rural areas to small building contracting firms. The employment thus created directly relates to agriculture and can be offset against tax.

One should see the provision in that context. Lest one might think this investment was not taking place I would point out that under the farm modernisation scheme there is evidence that last year alone farmers invested approximately £100 million in various improvement works. Most of that, certainly in so far as it involved buildings on farms, created direct employment using Irish materials within Ireland. There is the further employment created further downstream in the processing of agricultural goods and the percentage of goods being processed within the State as against being exported live in the case of cattle is improving.

One of the objects of taxation and economic policy generally is the achievement of what might be described as a regional balance in population.

: I fear the Deputy is getting back to a Second Stage debate. We also had a little of it from Deputy Horgan but we cannot have a Second Stage debate on a section. A brief statement of what is in the section is in order on this Stage.

: I think the regime must take account of the contribution of agriculture towards regional dispersal of population and the maintenance of population in rural areas.

: I am sorry that the Minister has not seen fit to make any comment on my suggestion that the anomalous situation created by this subsection is a situation in which farmers of between £20 and £60 valuation will continue to pay rates while those over £60 valuation will now be using their rates to pay their bills. That seems to me extraordinary, because, if that is true, the continuing rates burden—I will not say anything about the rights and wrongs of rates in general—on the farmers in this particular income tax amounts to a wealth tax. Would the Minister not agree this is a legitimate definition of it? If it is a wealth tax, what are the farmers of the £20 and £60 valuations going to think of the fact that they alone of the farming community, in an era in which Fianna Fáil promised to abolish wealth tax, will continue to remain liable for it? Finally, what is the attitude of the Minister and the Government in general to the concept of average income tax to which, I understand the Government were committed at one stage? That is something which should legitimately have found its way into this particular section?

: If Deputy Horgan made that point before——

: I did not.

: On that point then, that is one of the items forming part of the discussion between the Revenue Commissioners and the farming organisations to which I referred in another context. It does not appear in this Bill because some of the factors involved are rather complicated and require detailed working out to ensure they operate as intended and without causing disruption for farmers who are paying tax. I expect that, arising out of the discussions, it will be possible to make that kind of provision in next year's Finance Bill.

On the question of the payments to be made by farmers between £20 and £60 valuation, I am not quite clear what Deputy Horgan has in mind since these are farmers who do not pay income tax and will only be paying rates. If Deputy Horgan, as he appears to be doing, is urging that they should not be liable for rates, I suggest he is urging they should not be liable for either rates or income tax, which does not seem consonant with what he was saying earlier. It is not clear to me what exactly he is advocating in this regard.

On the question of the number of farmers liable, I think there is a good deal of—I will not say misrepresentation except, perhaps, in the case of a few people—misunderstanding of the position. First, the generally accepted figure of the number of farmers is 170,000. We do not know more accurately because the last census in the quinquennial system was not carried out, but the information available from An Foras Talúntais suggests that the correct figure is probably about 140,000. Of necessity, that has to be tentative. It is also quite misleading to talk about the number of farmers and the percentage of them liable for income tax, misleading because we all know that many people who are included in the category of farmer are people who under any system of income tax, as we have it today, would not be liable for income tax and, therefore, to include them as part of the calculation in arriving at what percentage pays tax is misleading.

I said before—perhaps I should say it again now—that I would regard it as a more accurate measure to take the proportion of national income of different sectors of the community and the percentage contribution they make in income tax. That is by no means a perfect measure. Indeed, it suffers from somewhat similar defects as the ones I have pointed out because there would be a number of people categorised as farmers whose share of the national income would be quite small and who would not be contributing to income tax in any event and, to that extent, the figures would be distorted. If one is looking for a kind of rough and ready measure I suggest it would be much more accurate to approach the calculation on that basis but, if one approaches on that basis, one still finds that the percentage contribution to income tax by the farming community is below that of other sections and there could be a very lengthy debate indeed on whether that should be so, or why it should be so, or why it is so.

I do not propose to pursue that at this stage except to say that I have made it clear all along that I believe that farmers who can afford to pay tax should pay their fair share of tax and that, despite what Deputy Horgan said, steps taken in recent years have not been very effective in this regard. There is good reason to believe—we dealt with some of the reasons on amendments on previous sections— that the provisions of this Bill and, in particular, this section will be more effective in securing a reasonable contribution to income tax from farmers who can afford to pay. Obviously this is a matter that cannot be tested until the measures are in operation but there is good reason to believe, as I say, that they will be more effective than the measures adopted in recent years and, by effective, I do not merely mean effective in collecting more tax, which is an important factor, but in collecting more tax and, at the same time, not operating so as to produce a positive disincentive to farmers to increase production. It is very easy for people to lose sight of the fact, when discussing this topic, that increased agricultural production in general accrues to the benefit not only of the farmers who produce the increase but to the benefit of the whole community. This arises for two main reasons. First, the great bulk of our agricultural products are exported and, secondly, and this point was touched on by Deputy Bruton, the off-farm employment, or employment which is in some sense a spin-off from agricultural production, is very important indeed. Taking agriculture and employment in agricultural-based industry together we find that that accounts for more than half of our workforce. For these reasons it is important that the tax structure should not operate to be a positive disincentive to farmers to increase production.

While the provisions of this section could not by any stretch of the imagination be said to be ideal I believe they are a considerable improvement on the previous provisions in relation to income tax of farmers both from the point of view of yield and from the point of view of encouraging production or, at the very least, not discouraging production. Time alone will tell whether or not that is true, but that is my belief.

: The Minister said he was unclear as to what precisely I was advocating. I was not specifically advocating anything. I was merely stating, and I contented myself with stating, the irony of the situation in which he has effectively removed a tax on fixed assets for the larger farmer and allowed it to remain on the smaller farmer, and this, from a Government which campaigned against the wealth tax.

Question put and agreed to.

: I move amendment No. 43:

In page 20, before section 14, to insert a new section as follows:

"14.—Section 14 of the Finance Act, 1977, is hereby amended so as to allow free depreciation to be claimed for farm buildings in addition to the items of capital expenditure already listed therein.".

The purpose of this amendment is to allow free depreciation to be claimed for farm buildings. As I understand it, free depreciation is already allowed under the Finance Act, 1977, to farmers in respect of most investments, land improvement, constructing fences, roadways, holding yards, drains, land reclamation and so on—I understand similar provisions apply in relation to machinery—but there is not any allowance for farm buildings. In my opinion there should be an allowance for farm buildings on the same favourable basis. The erection of farm buildings is labour intensive.

In the case of farm buildings the allowance is at a rate of 10 per cent for ten years. The case for free depreciation on farm buildings is strong in view of the high employment content involved in the construction of these buildings and also the fact that the materials are indigenous.

: In certain kinds of cases and for certain types of farmers and the work they are doing, a good case could be made for this amendment. Obviously, acceptance of this amendment would have to apply across the board. I would have no difficulty with this if the system of taxing farmers was the same as the system for taxing other traders and businessmen, but of course it is not. There are, and there have to be, substantial differences if one is to recognise certain distinctive features of farming.

A short time ago we dealt with one of the special features which had been introduced and that relates to the treatment of rates. That treatment of rates is not provided for any other kind of taxpayer. That is just one example and there are a number of others. In present circumstances it seems that the allowances and concessions which have been provided for in relation to farmer taxation are considerable and I would not feel justified in extending that at this time. I am not saying this should never be done or that it would never be appropriate to farmer taxation, because it might well be done at some time, but I do not think it is at this time.

: I am still not entirely happy about the comparison between the allowance a farmer can get for a farm building and that for farm machinery. I am subject to correction by the Minister on what I am about to say, but I understand that the capacity for depreciation for the farmer is more favourable for machines than it is for buildings.

: That is correct.

: That is bad from a national point of view. As the Minister is aware, the bulk of our farm machinery is imported—we manufacture very little farm machinery— whereas the labour and the bulk of the material for farm buildings are indigenous. There is practically no import content in farm building whereas there is a very substantial import content in farm machinery.

Apart from the general considerations of tax equity introduced by the Minister into this discussion, from a national point of view there is a case to have at least equivalent encouragement for farm buildings as there is for farm machinery. I would ask the Minister, if he cannot meet my amendment immediately to see how the position of farm buildings can be improved.

: The basic reason for the difference in treatment of farm buildings as against farm machinery is that we are talking here of depreciation and machinery will depreciate much faster than buildings. The allowance therefore is bigger in respect of machinery. The other factors I mentioned are applicable in considering free depreciation on farm buildings. I have already indicated that I do not rule out the possibility of this at some time in the future but I do not think it is appropriate at this time.

: Considerable play has been made of the importance of relating tax concessions generally to employment content and creation. In terms of agricultural taxation there is no way one could have a greater and more immediate effect on employment in rural areas than by the encouragement of building on farms. I would ask the Minister to look at this again from the point of view of (a) employment and (b) the import/export situation. If he analyses the case I am making on those two criteria he will find the argument is as strong in the case of agriculture as it is for industrial buildings. There is free depreciation for industrial buildings but there is not for agricultural buildings.

: I do not want to repeat what I said, but for the record perhaps I should say that the present position in regard to the depreciation of farm buildings is not ungenerous. It provides for an initial allowance of 20 per cent and then an annual allowance of 10 per cent. This means effectively 30 per cent in the first year and 10 per cent each year thereafter. This is not as generous as free depreciation but it is not ungenerous.

: Will the Minister have a look at this issue generally?

: I have been looking at it and, as I indicated, I am not closing the door on it, but I am for this Finance Bill.

Amendment, by leave, withdrawn.
Section 14 agreed to.
Question proposed: "That section 15 stand part of the Bill."

: This section provides that tax on farming profits will be paid on 1 January, not on the double portion as previously. To draw attention to what we see as the mistaken approach of the Minister for Finance, we are opposing the section.

: I support what has been said by Deputy O'Leary. Perhaps the Minister will tell us what is the rationale here, because it appears that no fundamental objection could be advanced to the original way of doing things in the sense that many farmers will have their harvest in by 31 October. They would have got two months' grace in any case from the Revenue Commissioners in which to pay their tax bills. It seems extraordinary to maintain that the double payment will involve the farming community in any real hardship. It could almost be maintained, not only in relation to farmers but in relation to other taxpayers, that the ideal way to spread liability would be to spread it over the whole year, for example, by way of a number of monthly payments. Why was the Minister so impressed by the case made for the need to change the system?

: This was primarily because of the system of tax payment introduced by the Government supported by Deputy Horgan and which lead to enormous difficulties and complications especially in the case of farmers and of which I expect the Deputy has some knowledge. Certainly, there has been a good deal of public comment on the difficulties that arose. The problems relate to the method of assessment, of appeal and of the calculation of what one thinks is due and then liability for interest in certain circumstances if the calculation is not accurate. These various factors operated particularly harshly in the case of farmers. With due deference to Deputy Horgan, I do not think he can suggest seriously that a system of payment by the month would be appropriate to farmers.

Question put and agreed to.
Question proposed: "That section 16 stand part of the Bill."

: I am puzzled by the exact legal implication of this section which appears to have the effect of wiping out by law debts to the Revenue Commissioners that were created under law. We all know of situations in which the Revenue Commissioners can waive liabilities in certain circumstances which appear to them to be genuine. Despite their reputation the Revenue Commissioners are not always the most hard-hearted people in the world. However, I am wondering whether the Minister can indicate that there is any precedent for this kind of provision.

: The Deputy may not realise that the debts to which he refers are debts that were created artificially in the sense that the mandatory method that applied to farmers obliged them to make a payment in September that was based on an imaginary figure. It might well transpire that they did not owe any income tax although they were obliged by law to make a payment. Failure in that regard would make them liable for interest at 1½ per cent per month on the payment that was not made. As I have said these were artificial debts in many cases and not the kinds of debts Deputy Horgan is referring to.

This section gives effect to an announcement I made on 21 October 1977 that farmers who appealed against their 1977-78 assessment and who paid the first instalment of the tax before 1 January 1978 would not incur any interest charge on the overdue tax. Deputies may recall that, in line with the provisions of last year's Finance Act, full-time farmers were in the first instance to be assessed to tax for the year 1977-78 on a mandatory notional basis and that they were required to pay the first instalment on the due date, which was 1 September 1977, notwithstanding any appeal or election for assessment on the accounts basis. If the tax were not paid within two months from the date due there would arise an interest charge of 1½ per cent per month. It was represented by the farming organisations that these special provisions which applied only to farmers constituted a hardship, particularly as the amount charged on the first instalment might represent the full amount of tax due for the year. Accordingly, I made the announcement that where the first instalment was paid before 1 January 1978, the interest charge would not arise.

This section gives effect to that proposal and provides also that any interest charge which arises—for example, where the tax was not paid in full before 1 January 1978—will be calculated by reference to the amount of tax which is found to be due on determination of the appeal and not by reference to the amount charged on the first instalment, the artificial amount, if I may call it that.

Question put and agreed to.

: I move amendment No. 43a:

In page 22, subsection (1), line 9, in the definition of "exempted transactions", after "agency" to add "and, for the purposes of this exclusion, the sale of a commodity by an agricultural society or a fishery society to a person other than the intervention agency shall be deemed to be a sale by the agricultural society or the fishery society, as the case may be, to the intervention agency if that commodity is ultimately sold to the intervention agency".

This amendment proposes to prevent a society from benefiting from indirect sales into intervention. A co-operative society that sells directly to an intervention agency would be excluded from the relief in the existing provisions in section 17 (1), excluding sales to the intervention agency. However, there is a distinct possibility that dairy products may be sold by a co-operative society to a subsidiary company or even to another co-operative society for resale to an intervention agency. A society might sell their products at a normal profit to a subsidiary company. Such a sale would not be excluded in accordance with the present wording of section 17 (1) and the transaction would be an exempted transaction of the society. The subsidiary company would then sell to the intervention agency at a low profit or at cost so that tax on the true profit on the sale into intervention would be minimised or avoided totally.

This amendment would secure that such sales would not be regarded as exempted transactions of the society in the event of the commodities being sold ultimately to the intervention agency by an intermediary.

Amendment agreed to.

: As amendments Nos. 44 and 45 are related, they may be discussed together.

: I move amendment No. 44:

In page 23, subsection (2) (d), between lines 3 and 4 to insert a new subparagraph as follows:

"(ii) shall be laid before the Houses of the Oireachtas as soon as may be after it is given".

These amendments in the names of various Deputies from these benches seek to tighten up the method of registration, of recognition and of the granting of certificates by the Minister for Finance on the recommendation of the Minister for Fisheries entitling certain organisations and societies to be treated in an advantageous way for tax purposes.

The amendments and the subsection to which they relate refer back in a sense both to the definition of a fisheries society and to subsection (2) (b) in relation to the granting of certificates. I am aware that effectively these subsections constitute a reenactment of the 1963 Act. There is something of an anomaly here in the sense that, whereas a fishery society is defined in a certain way, subsection (2) (b) suggests that the Minister for Finance may on the recommendation of the Minister for Fisheries give a certificate entitling a society to be treated for the purposes of this section as a fishery society notwithstanding that one or both of the conditions in paragraph (a) of the definition of "fishery society" is or are not complied with in relation to the society.

This creates possibly an anomalous situation in which the Minister for Finance and the Minister for Fisheries can recognise almost anything as a fishery society they choose to. While we are not suggesting that they will necessarily go out and recognise something totally different from a fishery society as a fishery society, we feel it is time to put into the legislation greater negative safeguards to ensure parliamentary scrutiny of any certificates granted by the Minister for Finance on the recommendation of the Minister for Fisheries. The first part of our amendment insists that a certificate of this sort shall be laid before the Houses of the Oireachtas as soon as may be after it is given. This is common with many statutory instruments and we see no reason why a certificate like this, which could have substantial tax implications for the society concerned, should not be added to the list of statutory instruments which are required to be presented to us here.

The second amendment, if agreed, would create a situation in which the Dáil may take the initiative in revoking such a certificate if it believes that the procedures have been in any way abused. As far as I know, there is no other provision in the legislation for the revocation of a certificate other than by the person who granted it, namely, the Minister for Finance. We believe that this is a power which should more properly be exercised by the Oireachtas as a whole rather than by the Minister.

: The provision here is one which was incorporated in section 70 of the Finance Act, 1963, and for the same reasons it is incorporated here. The purpose of the provisions in subsection (2) of the section is to enable a society to qualify for relief under this section where its membership is less than the prescribed number —50 in the case of an agricultural society or 20 in the case of a fishery society—and/or a majority of its members are not farmers or fishermen. The reason it is provided in this, and was contained in the 1963 Act, is that it was found impossible to frame a definition of an agricultural or a fishery society which would be flexible enough to cover all societies to which it was desired to give relief. For instance, a genuine agricultural society might have fewer than 50 members or its membership might include other agricultural societies. That is a common situation. Sometimes it can include a few local traders or professional people who may be of considerable importance to the success of that society. The certificate of the Minister for Finance is given only on the recommendation of the Minister for Agriculture or the Minister for Fisheries after a thorough examination of the affairs of the society involved. Such an examination may well entail the production to the Ministers of confidential information.

The certificate, when issued, is published in Iris Oifigiúil. If objections are raised or if abuse of the tax privilege is shown, the Minister for Finance may revoke the certificate. Notice of revocation must be published in Iris Oifigiúil. In all, 56 co-operative societies were certified as agricultural societies for the purposes of the former relief, mainly where fewer than 50 farmers were involved or the society had members who were themselves agricultural societies. Certification was refused in one case. No societies were certified as fishery societies. If, as is proposed in this amendment, there was to be a meaningful review by Dáil Éireann of a certificate given in respect of a society it would almost inevitably lead to the disclosure of confidential information on the basis of which the certificate was given. It is possible that in some circumstances the disclosure of such information could be quite damaging to the competitive position of a society.

I consider that the existing safeguards—consultation by the Minister for Finance with another Minister, publication in Iris Oifigiúil of the fact that the certificate has been issued and the power of revocation—which were all incorporated in the original legislation in 1963, are sufficient to prevent any abuse of the relief. I am not aware of—I do not think Deputy Horgan is sugesting this—that there has been any case which would give cause for complaint under the existing legislation. If any objections were raised by Deputies or other persons with regard to the certification of a particular society those objections would be fully taken into account and the powers of revocation that are provided for in the section can, and will be, resorted to if it can be shown that a certificate was wrongly given.

There are a number of other areas where this kind of procedure operates. Under section 70 of the Corporation Tax Act, 1976, which is concerned with Shannon relief the Minister for Finance may give a certificate that such trading activities of a qualifying company as are specified in the certificate are exempted trading activities. He may revoke the certificate on the breach of any of the conditions which are set out in it. The Minister's powers to certify include the certification after consultation with the Minister for Tourism and Transport of trading operations which in his opinion contribute to the use or development of Shannon Airport. If such certificates were to be subject to the requirement that they be laid before the Dáil, with the possibility of revocation after the debate in the Dáil, the kind of procedure suggested here, the climate of uncertainty that would result, would hardly be in the interests of the development of Shannon Airport.

A similar provision operates in regard to the Finance (Taxation of Profits of Certain Mines) Act, 1974, which provides that the Minister for Industry, Commerce and Energy may issue a certificate and directions may be given by the Minister for Finance for the purpose of reducing tax in respect of marginal mines under section 10 of that Act. This kind of procedure is not confined to co-operative societies. The procedure proposed in the amendments would not be an improvement for the reasons I mentioned. I am not aware of any complaints in regard to the manner in which the existing procedure has operated since 1963.

: I am grateful to the Minister for the detail of his reply. I should like to point out the extraordinary situation that in the tons of paper which fall through a Deputy's letter box every day of the week Iris Oifigiúil is not included. It seems to me that after Stubbs Gazette, for which the Minister does not have responsibility, Iris Oifigiúil is one of the more important pieces of public information published on a regular basis by the State. Would the Minister consider adding this to the mailing list of Deputies?

: The Deputy has made a good point which often struck me before. I will consider that.

: Would the Minister make representations to have Stubbs Gazette included also?

: That is outside my ambit.

: Long may it remain so.

Amendment, by leave, withdrawn.
Amendment No. 45 not moved.
Section 17, as amended, agreed to.
Section 18 agreed to.

: I move amendment No. 46:

In page 27, between lines 59 and 60, to insert a new subsection as follows:

(3) (a) Notwithstanding the foregoing provisions of this section, where, a company to which this section applies, claims and proves as respect a 1978 or 1979 period that it complies with the provisions of paragraphs (a) and (d) of subsection (2) of this section, corporation tax shall, notwithstanding the provisions of sections 1 and 79 of the Corporation Tax Act, 1976, be charged on the profits of the company from the sale of goods manufactured in the State at the rate of 25 per cent.

(b) Paragraph (a) shall apply in relation to a 1978 and 1979 period, subject to the provisions of subsections (4), (5) and (6).

This amendment seeks to amend an amendment to section 25 of the Finance Act, 1977, which gave certain reliefs from corporation tax to companies that complied with two rules. One rule was that their sales volume increased by a certain percentage and the other was that the number of people they employed increased by 3 per cent as measured by the insurance stamps they purchased. Section 20 of the Finance Act, 1977 is the relevant section, which reads:

... "specified trade" means a trade which, in each relevant period for which a claim is made under this Chapter consists wholly of the manufacture of goods in the State: Provided that—(a) a trade shall be regarded as consisting of the manufacture of goods in the State in a relevant period if the amount receivable by the person carrying on the trade from the sale in the period of goods manufactured in the State in the course of the trade is not less than 90 per cent of the total amount receivable by the person from all sales made in the course of the trade in the period ...

This was a novel idea when it was introduced in the 1977 Act. The Minister is wise in removing the sales necessity clause from those who are applying for the relief because the sales and employment sections overlapped. Most companies would not increase their staff unless they had an increase in sales.

The point I am making is that the number of people to whom it applied appeared to be restricted and I am sure the Minister has had representations in that regard. The 90 per cent manufacturing level excluded companies that were engaged in manufacturing and were also distributors of other goods. Instead of having a 90 per cent level of sales as a condition for a claimant, the Minister should adopt the format in the export tax relief which is that that proportion of their sales which is manufacturing and which complies with the other conditions would entitle them to claim a 25 per cent rate of corporation tax on that proportion of their total sales that is manufacturing, whether it be 40 per cent, 90 per cent or 75 per cent. The profits on the balance of their trade would be liable to a 45 per cent rate of tax.

: I have received representations from different quarters in regard to this matter, as Deputy P. Barry has surmised. In reply to those representations I pointed out what the problem is and I also tried to point out the solution. Any company which feels itself to be adversely affected by the provision in the Bill can transfer the non-trading income it has to an associated company and thus ensure that its non-trading income will not prevent the application of the 25 per cent rate of tax to its trading profits. It is a relatively simple solution to the problem.

Deputy Barry's amendment would require different rates of tax to be applied to different elements of a company's profit. The whole basis of the corporation tax system is that a company's overall profit is taxed at one rate. There is a procedure whereby the various elements are brought together and a single rate of tax is finally applied. Deputy Barry's amendment would unfortunately affect that basic element and would create serious complications. If there was no other way out of it I suppose we would have to contemplate that, serious as the complications would be. There is a relatively simple way out of the difficulty for any company that feels itself adversely affected. In the circumstances I feel that that solution to the problem is preferable to the one advocated in this amendment.

: How are companies assessed that are engaged in selling on the home and export market and whose profits from exports are free of tax and whose profits on home sales are taxable? I presume there is an answer hidden somewhere in what the Minister said earlier.

: It is hidden in what I said in the sense that the proportion of the total profit attributable to exports is taken to determine the amount of export sales relief on the basis of a single rate of tax, but it is a fairly rough and ready method. By adopting the method of hiving-off the non-trading profit, one could get an accurate measure of the profit which should be subjected to the special 25 per cent rate of tax. In the case of the export tax relief, only one rate is applied and this is basic to the whole system. The method used in export sales relief does not give as accurate a result as would be given by hiving-off the non-trading profit, which would overcome any of the difficulties envisaged. On reflection I think Deputy Barry would probably agree with me that since there is a relatively simple solution to it it is better to take that rather than attack what is the fundamental element of the whole corporation profits tax structure.

: Obviously the Minister and his advisers are much more knowledgable in this field than I, but I cannot see how this attacks any basic concept. The amount of profits earned from export must be assessed in the case of a company that trades in both the export and home markets; otherwise one cannot arrive at a tax charge for that company.

: I may have misled the Deputy in what I said earlier. But I understand that the method used in the case of export sales relief is that the company's profit, overall, is assessed to tax at one rate. Then there is a remission of portion of that tax which is calculated by reference to the proportion of the company's turnover which is exported as against the proportion which is not exported. That division is made on the basis of turnover rather than profit. I think I may have indicated earlier that it was done on the basis of profit; in fact it is done on the basis of turnover.

: That makes it simpler because if one credits that company with the proportion of tax that is due and one gets that proportion of the ratio of its home sales to its export sales to total turnover, then it seems to me to be a simple thing to do exactly the same under this subsection so that the turnover would be divided between the manufacturing sector of the company and the agency, or whatever other section it would be, of the company. One would divide the profits accordingly and charge one at 25 per cent and the other at 45 per cent. It is a different set of sums on one portion of it only. I do not see that it is any great problem.

: But it is two rates of tax.

: I know, but calculating 25 per cent is not a major mathematical problem.

: I am not saying it is a mathematical problem but it presents legal and administrative problems.

: I accept the Minister's word for that but they do not appear very obvious to me nor do they appear to be insurmountable. The Minister's second solution—the hiving off of one company—of course is the neat way of doing it. I am talking about small companies who would not have an experience of that kind in the breaking up of companies, nor would they necessarily have the money to set up a separate company. Their traditional method of trading for perhaps 100 years has been to lump it all together where there might be two, three or four different sources of turnover and, consequently, different sources of profit accruing in bulk to the company. Their auditors—and probably the income tax people—could make a very accurate guess as to which amount of profit was apportionable between any section of the company.

If the amendment I am suggesting to the Minister is not acceptable, there is another way which would certainly help the employment situation and would allow many more firms to claim under this section, and that would be to reduce the 90 per cent to the 75 per cent. Many companies in Ireland— if they manufacture something, if they have a sales force and a distribution network covering all of the Republic —have tended over the years to take on other lines on an agency basis to offset some of the overheads of the heavy distribution costs there are here where too high a proportion of the population is concentrated on the eastern seaboard.

: I am rather afraid that adoption of Deputy Barry's last suggestion might not be as helpful to the overall national interest as he thinks. For instance, by making the requirement 75 per cent, one could find that the other 25 per cent was the sale of imported goods and that one was not contributing at all to employment.

: That is the one that is least attractive to me.

: Yes, it is not terribly attractive. On the other hand, the solution I have suggested, considering the difference in tax rates involved, would not be regarded by most people as unduly troublesome or expensive. Indeed, they could carry on administration of their business in virtually the same way as before except that there would be separate accounting for the different companies. On balance I feel it is the easiest and neatest way of approaching the problem.

: I am quite sure of that, but it is something that has not been traditional in Irish businesses, especially in the smaller businesses——

: I accept that.

: ——which are a very important part of our economy and to which I do not think any of us ever paid sufficient attention or seen sufficiently the problems they have. These are businesses passed on from father to son, who have not been dealing with solicitors, bankers, accountants to any great degree except perhaps for the purpose of drawing up wills, forming a limited company and once a year bringing in accountants to audit their books and whom they consider charge them too much anyway. They have tended to avoid the professional side of their businesses, wrongly. There might be great scope for each of those small firms increasing their work force by two, three, four or even five people under this section if they could be persuaded that they could claim without too great a cost or effort to themselves. Small businessmen generally tend to fear accountants, solicitors and people of that type.

: I cannot quarrel with most of what Deputy Barry has just said.

: But the Minister is not going to give way to the amendment. I accept that what the Minister suggested constitutes the perfect solution but it is not in a practical way available to a lot of small businesses in this country.

: I will have a look at it but I am not terribly hopeful of coming up with a better solution.

Amendment, by leave, withdrawn.

: Amendment No. 47 in the name of Deputy M. O'Leary and others. Amendments Nos. 47 to 65 inclusive are related. Amendments Nos. 47, 56, 60 and 65 are cognate. Amendment No. 58 is consequential on amendment No. 50; amendment No. 63 is consequential on amendment No. 52. Therefore we have amendment No. 47 before the House but we will discuss amendments Nos. 47 to 65 inclusive, together.

: I move amendment No. 47:

In page 27, line 60, to delete "paragraph (c)" and substitute "paragraphs (b) and (c) (i)".

We are concerned here that the amended sales test for 1977 brought in under this paragraph would permit a company to claim that the amount receivable from sales in 1977 was not less than 119 per cent of the amount receivable from sales in 1976. But the income test itself under the section has not been amended. So there is the position that this, rather than the sales test, now becomes a bone of contention. Therefore the provision, without amendment, remains illogical, because if a company meets the test then all of its income is taxed at 25 per cent, whereas if it misses the test by a small amount—all of its income is taxed at 45 per cent. That is the point to which we seek in this paragraph to draw attention.

: I think it would be correct to say, and no doubt Deputy O'Leary will correct me if I mis-state the position, that the effect of these amendments in respect of 1978 and 1979 would be, first, to remove the requirement that not less than 95 per cent of the total income of a company is to be income from a specified trade and to confine the 25 per cent rate of corporation tax to income directly attributable to manufacturing; secondly, to provide for an annual increase in the employment contribution of 5 per cent instead of the 3 per cent provided for in the Bill; thirdly, to retain the requirement regarding an increase in current money terms in sales of goods manufactured by a company, the annual increase being the increase in the consumer price index, or other appropriate index, plus 5 per cent.

In regard to the first point, the removal of the 95 per cent limit, that in effect was the substance of Deputy Barry's last amendment and I do not think I need go back over that again. With regard to confining the special 25 per cent rate of corporation tax to income directly attributable to manufacturing, I think I dealt with this on an earlier amendment by Deputy O'Leary when I pointed out, putting it in simple terms, that a job is a job and as far as we are concerned a job in manufacturing is very desirable in the sense that it would apparently lead to the creation of at least one other job in services or distribution. It does not follow from that that one should not encourage the creation of jobs in services or distribution. I do not think it is necessary for me to go into detail on this because we went into it on another amendment.

With regard to increasing the requirement for employment content from 3 per cent to 5 per cent, obviously there is room to argue in relation to this but I think that the guiding principles must be, first of all, to accept that the object is to get an increase in employment, but if you set the target too high then you will achieve less than if you set a lower target. If the attainment of the target is too difficult many companies will not attempt to attain that target, despite the incentive given. You have to try to balance the incentive against the target. The target of 3 per cent is, as the Deputy knows, one that was not set by me but by him and his colleagues in the previous Government. I do not know that we have sufficient information at this stage to say either that that target is too high or too low, but certainly I would be slow to increase that target of 3 per cent unless there was evidence to show that the 5 per cent suggested in the amendment could be attained by the incentive provided here. Our overall consideration and care must be to try to ensure that additional employment does accrue as a result of giving this incentive.

With regard to the suggested amendment of the test relating to increased sales, quite apart from the method by which this should be measured, and that is dealt with in these amendments, as the Deputy is aware I have proposed in this Bill to abolish altogether that requirement of increased sales. I have done that basically for two reasons. One of them was referred to by Deputy Barry when he said that a firm would not in the normal way engage further staff if they are not increasing their sales. That is a reasonable proposition. The other reason is that the principle we have here is the encouragement of the creation of jobs. To the extent that we can encourage increased sales and increase production this is very much to be desired but I would think it very unfortunate if the incentive could, if related solely to jobs, potentially cause jobs to be created but if it is also related to sales would prevent the actual creation of those jobs. That would be a result which we would all regret and deplore. The best way to ensure that it does not happen is to remove the requirement in regard to increased sales and to concentrate on the real object of this incentive, that is, the encouragement of the creation of new jobs. For these reasons, I feel that these various amendments, if I summarise them correctly, would not improve the position and might in some cases disimprove the position.

: In these amendments we have a rather puritanical lining to these exemptions to be given to companies by tying them to particular results or ensuring that the exemptions would elicit particular actions on the part of the enterprises concerned, either in sales or in employment. I take the Minister's point that if there are too many criteria built in here conditions could be considered, perhaps in some justice, in conflict one with the other. However, surely there is a case to be made for attempting to link the concessions made here to a reasonably high employment target. The Minister is right in saying that we do not have any scientific evidence of the result of the 3 per cent target of the previous administration but if it is very frequently on the lips of the present administration that the private sector remains the major engine of growth, surely we should be insisting on targets, if not in the sales area then in the employment area, in return for which in the manufacturing area these exemptions would be afforded.

: Let us suppose that the incentive works as envisaged and that as a result of it a large number of firms increase their employment content by 3 per cent: would we think it was worth while? Personally I would and on reflection I think Deputy O'Leary would also. I would hate to jeopardise the prospects by making the targets too high.

: We will have a look at some of these targets on Report Stage. We believe that tax exemptions should be tied to a kind of concrete increase in employment.

Amendment, by leave, withdrawn.
Amendments Nos. 48 to 65, inclusive, not moved.
Section 19 agreed to.

: Amendment No. 66 has been ruled out of order. It invloves a potential charge on the people.

Question proposed: "That section 20 stand part of the Bill."

: I am concerned over all this section as to the relative return in extra employment, whether we have worked it out fully or whether we are flying in the dark in handing out these exemptions while not quite clear about the size of company that will give us the greatest yield in expanded and increased employment, which is presumably the social reasoning behind this on the part of the Government. I question whether the kind of employment which they expect to come from the private sector will, in fact, eventuate. But, if that is their thinking, let us assume that they are working towards it, if there is any point in it. On past performance one tends to doubt that the kind of results they are looking for would come. Is the Minister fully satisfied, even accepting his criteria and assumptions that he is getting the maximum employment yield for the exemptions handed out to companies under these various tax bands? Has any work been done on that?

: Obviously the question whether this kind of incentive will work or not can only at present be a matter for surmise. It will be some time before it can be tested. So, I do not think there is much point in wasting time arguing on something that cannot be determined and will not be determinable for some time.

As to the category of firm involved in this, I am sure the Deputy will appreciate that it would be unwise to rely unduly on the larger firms to produce the extra employment required. There is a strong case for saying that one may well get better results from smaller firms that are growing and many of which, hopefully, will become larger firms. These are the kind of firms that would have the dynamic to produce employment in a way that some of the larger firms will not.

There is also the factor that most of the smaller firms coming within the category dealt with in this section tend to be Irish-based and Irish-owned— not all, but most. Within the international constraints under which we have to operate I think that in general the House would favour concessions which would at least encourage if not strengthen the position of Irish-based but particularly Irish-owned companies. It is true, as Deputy O'Leary either said or suggested, that we have no scientific evidence in regard to the particular category of firm affected by this—at least it is not available to me at present—but it is also true that experience suggests that in the category of firms concerned here there is a number of potentially dynamic firms, those most likely to avail of concessions of this kind and thereby not only benefit themselves but also assist in the attainment of our overall objective; the creation of employment.

The other factor I have mentioned in regard to Irish-owned firms is, I think, also a relevant consideration in relation to this section.

Question put and agreed to.
Sections 21 to 23, inclusive, agreed to.

: I move amendment No. 67.

In page 32, between lines 12 and 13, to insert a new subsection as follows:

"(3) In the case of hotels, writing down allowances will only apply in the case of hotels registered by Bord Fáilte Éireann and section 264 (inserted by the Corporation Tax Act, 1976) of the Income Tax Act, 1967, is hereby amended accordingly."

This is the amendment in which we are seeking that, in the case of hotels, writing down allowances will only apply to hotels registered by Bord Fáilte. We seek to ensure that standards will be upheld in the establishments covered under the section. That is the intention of the amendment. I do not know if the Minister has done any thinking in respect of criteria inbuilt here.

: I support the amendment. I am sorry I did not think of it myself as an ex-Minister in charge of tourism. It is essential that the Government do nothing that appears to encourage or help people who supply accommodation to tourists and who do not meet a certain standard, the standard that has been traditionally very carefully overseen by Bord Fáilte. So, in their interest as well as in the general interest of the economy, we should ensure that the State does nothing that appears to encourage or by omission or implication could encourage people who are not registered with Bord Fáilte as providers of accommodation for tourists.

: I am in considerable sympathy with the case made for this amendment but, as usual in cases of this kind, the matter is more complicated than it appears on its face. When industrial building allowances were introduced in 1956 one of the categories included in the definition of an industrial building was:

a building or structure in use for the purposes of the trade of hotel keeping.

The phrase "hotel keeping" was not defined. Presumably it was not intended at the time that the allowance should be confined to registered hotels, because if it had been it would have been possible to achieve this by the appropriate definition.

: I wonder were there any such then there.

: I think there was. We are talking here only about a very small number of businesses, because under the Tourist Traffic Act it is unlawful to describe any premises as a hotel unless the premises are registered with Bord Fáilte. All we are talking about, in effect, are premises that are not described as hotels but which are carrying on a trade which is that of hotel keeping and claim that to the Revenue Commissioners. Under existing law such people are entitled to certain allowances, initial allowances and annual allowances. What is involved in this section is something new, free depreciation. The difficulty I have is that, if we confine the provision to registered hotels, I am advised that that will have the effect of removing from the admittedly small category I described, who are carrying on the trade of hotel keeping but whose premises are not described as hotels, what they have already, which is the initial allowance and the annual allowance.

: May I make a suggestion? As only a small number have enjoyed this facility up to now, surely there is a possibility of a short phasing-in period to ensure that these people, who are not registered, come up to the standards set by Bord Fáilte? We are anxious to ensure that standards are uniform from the point of view of excellence and any exemptions given of a tax nature should be tied to the necessity on the part of the beneficiary to ensure that his facilities come up to the same standards as those of others in the business. Surely there should be some means of phasing-in the small number involved. This Bill could be used to bring that about.

: I must confess I am rather slow to interfere with what is primarily a matter for the Minister for Tourism and Transport. I am primarily concerned with the taxation aspect but, as I have indicated, I am in full sympathy with the idea behind the amendment, which is to confine the new concession of free depreciation to hotels registered with Bord Fáilte. The best I can do is to ask Deputies, given that I favour the principle, to withdraw the amendment and I will have another look at it between now and Report Stage. I imagine we will be able to find some solution. I am not entirely enamoured of the one propounded by Deputy O'Leary, though I may have to come back to it, but I would prefer one that does not take away the existing right.

Amendment, by leave, withdrawn.
Section agreed to.
Question proposed: "That section 25 stand part of the Bill."

: This is the section which allows a taxpayer who makes a contribution to a local authority for the purpose of providing equipment to prevent pollution to deduct the full amount of the expenditure in arriving at his taxable profits. This is a new provision, is it?

: Yes. The broad purpose of it is to provide that, where a taxpayer would have been entitled to tax allowance in respect of capital expenditure made by himself, he will be entitled to the same allowance if he makes the contribution through a local authority. Some cases have arisen, and more are likely to arise, in which for various reasons, including perhaps economy, a scheme is carried out by a local authority rather than by an individual firm but the local authority obliges the firm to contribute its share of the cost. As the law stands, if the firm were paying the money itself for the carrying out of the work, it would be entitled to the allowance. Under this provision where the firm pays through the local authority it will also be entitled to the allowance.

Question put and agreed to.

: I move amendment No. 68:

In page 32, between lines 41 and 42, to insert a new subsection as follows:

"(1) Section 31 of the Finance Act, 1975, is hereby amended by the substitution for subsection (2) of the following subsection:

"(2) Subject to the following provisions of this section, if—

(a) a company carries on in an accounting period a trade in respect of which it is within the charge to income tax under Case I of Schedule D, and

(b) the value of the company's trading stock at the end of the accounting period (in this section referred to as its `closing stock value') exceeds the value of its trading stock at the beginning of the accounting period (in this section referred to as its `opening stock value'),

the company shall, in the computation for the purposes of income tax of its trading profits, be entitled to a deduction under this section by reference to the amount not exceeding the increase in the Consumer Price Index, as applied to the opening stocks, for the period of that excess as if the deduction were a trading expense incurred in the accounting period; and in the following provisions of this section the amount of that excess is referred to as the company's `increase in stock value'.

This is our amendment to the section on stock relief. The Minister's argument is that the amendment will not be required because inflation is supposedly now under control and there is probably less reason for retaining it in its present form. We are not as sanguine as the Minister and that is why we put down this amendment.

: The purpose of this amendment seems to be to restrict the excess of the value of a company's closing stock for an accounting period over its opening stock value for that period to an amount computed by applying to the opening stock the percentage increase in the consumer price index for that period. The restricted deduction would, therefore, be calculated by reference to the price increase during the accounting period as measured by the increase in the consumer price index on the assumption that the volume of trading stock remains unchanged between the commencement and the terminal date of the accounting period.

The CPI is not the most effective way of measuring matters of this kind. It is, perhaps, less effective in this area than in some other areas. Certain kinds of stock may rise much more rapidly in value than the CPI. Far fewer cases, but there would be some, would rise less rapidly than the CPI. One can think of cases where the rise would be far greater than the rise in the CPI and therefore the application of CPI could give quite unrealistic results. The purpose of stock relief is to ease liquidity or cash flow problems for traders whose resources are strained owing to increased investment in trading stocks. The relief makes no distinction between the increase in value of trading stocks attributable to price changes, to volume changes, or to a combination of both.

The consumer price index does not provide a basis for measuring price changes in trading stocks which would be acceptable to traders generally. Even if it were possible satisfactorily to isolate changes in stock values attributable solely to price increases, it is questionable whether as a matter of policy stock relief should take account only of such increases.

Traders can minimise the effect of price rises by judicious purchase of commodities at prices which in their judgment are likely to be lower than the prices which these commodities would ultimately reach. The average cost price of the commodities is thus kept lower than it would otherwise be. In some cases at least the benefit of that would accrue to the customers of the trader.

If we were to accept this amendment it would have a very serious disincentive effect on that kind of anticipatory purchases of commodities by traders and could as a consequence have an effect, possibly serious, on employment and on the price levels of finished goods. On these grounds and on the grounds of the unsuitability of the consumer price index for measuring changes in stock values attributable to price changes, I do not think the amendment is acceptable.

Amendment, by leave, withdrawn.

: Amendment No. 69 in the name of Deputy P. Barry. This amendment through a printer's error was numbered 37.

: I move amendment No. 69:

In page 33, between lines 32 and 33, to insert a new subsection as follows:

"(2) (a) Section 31 and 31A of the Finance Act, 1975 is hereby amended by the addition to the definition of trade in subsection (1) of:

`or any other trade'

(b) Paragraph (a) of this subsection shall apply for the year 1978-79 and any subsequent year of assessment.".

If one accepts the principle of stock relief—at the moment stock relief only applies to manufacturers, builders, farmers and those who directly supply these three categories—it should be available to all traders. The purpose of my amendment is to give stock relief to all traders.

: The categories to which stock relief applies are, as stated by Deputy Barry, manufacturing, construction operations, farming and the sale of goods, excluding passenger road vehicles, to a person engaged in any of these three activities. The effect of what the Deputy is proposing would be to extend stock relief to all trading operations, wholesale and retail. It is true, and Deputy Barry may have personal knowledge of this, that when stock relief was introduced representations were made to this effect. Obviously there is a limit to the extent to which relief can be given in this field having regard to the resources of the Exchequer. I understand that the approach at the time was to try to place the relief where it would do the most good and where it was most needed. It was felt that that was in relation to manufacturing, construction and farming.

The principal idea behind it was to relieve companies which had particularly difficult liquidity problems but it would seem to be impossible to produce an extension of the existing scheme which would be restricted to trades with particularly difficult liquidity problems. Therefore, if you want to extend the existing scheme in practice you would have to extend it to all trading activities. As I said, the primary consideration in not extending the relief to all traders was the cost, which is now estimated at £8 million in a full year. Accordingly the relief was confined to manufacturing, construction and farming and persons supplying them, because it appeared that the need for expansion of production and employment, and the possibilities of doing so, were most evident in those areas.

The granting of stock relief to persons who carry on, say, distributive trades, would be unlikely to increase, except perhaps marginally, their volume of sales or to achieve a significant increase in employment in those trades. If you did extend it in that way, cash businesses—such as supermarkets and other distributive businesses which have quick turnover of stocks and obtain a reasonable period of credit from their suppliers—might I think with reason be said not to merit the advantage of such stock relief, at least to the same extent as persons supplying goods to the manufacturing, construction or farming sectors.

There is another matter I should mention. It is incidental to this but is of considerable relevance from the point of view of the Minister for Finance. As the Deputy knows, unlike Britain, we do not have advance corporation tax which is payable in Britain to the Revenue by companies when they are paying dividends. What happens here is that there is no advance corporation tax but people are credited with tax in respect of dividends paid and in some cases, depending on their individual circumstances, can actually claim refunds of cash from the Revenue. This happens even in cases where because of various allowances available to the companies paying the dividends, the corporation tax to cover the refunds, or the credit, is not received by the Revenue.

To provide stock relief of this kind across the board would add to that problem. It arises at the moment in regard to the various kinds of allowances given, depreciation and so on, but the proposed amendment would add to it. It is a problem at the moment that the Revenue are obliged to give credit and in some cases actually make cash refunds out of tax notionally received from companies but in fact not received. In a few cases it may be received later, but in all other cases it will never be received, unlike the position in Britain where they have an advance corporation tax.

While the Deputy may not regard this as a relevant argument on this amendment, as Minister for Finance I have to regard it as relevant. Anything that would extend that situation is something I would have to view with great concern. However, even on its merits, I feel the case for the amendment is not sufficiently strong to justify the arguments against it.

: I understand the point the Minister is making about supermarkets and people further down the line not getting extended credit from their suppliers and not being affected to the same extent by the increase in the cost of their stock, but the restrictions in this regard are rather stringent. Is it not a question of one's closing stock minus one's opening stock and that only by the amount that exceeds 20 per cent of profits?

: Therefore, if inflation is decreasing, closing stock compared with opening stock is unlikely in many cases to exceed 20 per cent of the profits of a company. I would accept the point made by the Minister about some traders at the retail level who get extended credit and who are not affected to the same extent by increased stock values, but there are similar categories of suppliers not supplying to the three categories mentioned here—the manufacturers, the builders and the farmers —who are supplying people other than those and who see their competitors being able to avail of stock relief while it is not available to themselves. As inflation decreases the numbers benefiting from stock relief will become fewer.

: I appreciate the problems that arise in the kind of cases outlined by the Deputy but perhaps this kind of apparent anomaly is inevitable unless one extends the relief across the board. If a line is drawn anywhere there is bound to be the kind of problem mentioned by Deputy Barry. If we were to extend the relief across the board we would have problems of cost and there would be inappropriateness in the kinds of cases I have outlined and there is also the consideration that the relief was intended primarily to assist firms with particular liquidity problems.

: That is so but there was also the employment factor.

: In so far as it would assist particularly difficult liquidity problems it would help employment. That was the thinking behind it but the kind of difficulty mentioned by the Deputy whereby a firm would not benefit from the relief while their competitors would so benefit is only marginally a case for extending the relief as proposed by him. It is much more a case for more equitable treatment as between one taxpayer and another, a sentiment that is laudable in its own way but which is not very easy to achieve especially in the context of a relief which was not introduced and which is not intended to be introduced for the purpose of achieving equity of taxation but to meet an ad hoc problem of difficult liquidity situations arising out of inflation and other factors that were very acute when the measure was introduced.

Amendment, by leave, withdrawn.
Section 26 agreed to.

: As amendments Nos. 69a and 69b are related they may be taken together.

: I move amendment No. 69a:

In page 35, subsection (2), lines 2 and 3, to delete "and 167 (2)" and to substitute ", 167 (2) and 178".

This amendment is required for the purposes of the next amendment, which is No. 69b. The two amendments relate to fixed rate distributions, such as preference dividends, on stocks and shares which were in existence prior to 6 April 1976. The present amendment provides that section 178 of the Corporation Tax Act, 1976, shall have effect, in relation to distributions made on or after 6 April, 1978, as if the standard rate for the year 1978-79 and subsequent years of assessment were 30 per cent.

The amendment is a technical one necessitated by the proposed alteration by the next amendment of the rights of holders of the stocks and shares to which section 178 of the Act referred to applies. The two amendments, taken together, will mean that companies will be required to pay to the holders of their fixed-rate stocks and shares in existence prior to 6 April 1976 net dividends amounting to 70 per cent of the former gross dividends, rather than 65 per cent thereof so that the proposed tax credit of 30/70ths and the dividend paid will together equal the former gross dividend.

Regarding amendment No. 69b, section 27 provides that the normal tax credit in respect of a dividend paid by an Irish company on or after 6 April 1978 will be reduced from 35/65ths of the dividend to 30/70ths of the dividend. This amendment and the one immediately preceding it are concerned with fixed-rate distributions such as preference dividends on stocks or shares which were in existence prior to 6 April 1976.

Section 178 of the Corporation Tax Act, 1976, was enacted in order to enable preference stocks or shares issued before 6 April 1976 to be classified on the same basis as preference stocks or shares issued on or after the date, that is, on the basis of the net dividend payable. The Corporation Tax Act introduced a new concept in relation to dividends under which, broadly speaking, what was previously a gross dividend became a net dividend which carried a tax credit equivalent to the amount of the income tax formerly deductible from the gross dividend.

Section 178 of the Corporation Tax Act, 1976, provides in effect that the right to a dividend on or after 6 April 1976 on fixed-rate stocks or shares is satisfied by the payment of a dividend equal to 65 per cent of the former gross dividend at the fixed rate. The proportion of 65 per cent was fixed by reference to the year 1966-67 when the tax credit in respect of a distribution was 35/65ths of the distribution. The result was that the reduced dividend and the tax credit applicable equalled together the amount of the former gross dividend at the fixed rate. As the tax credit in respect of a distribution is now being reduced from 35/65ths to 30/70ths of the distribution, a distribution amounting to 65 per cent of the former gross dividend, together with a tax credit of 30/70ths, would no longer be equal to the former gross dividend and would amount only to 93 per cent approximately of that former gross dividend. If the House wishes I can give an example of how this works out.

The proposed amendment provides that from 6 April 1978 the right to a dividend on fixed-rate stock in existence prior to 6 April 1976 will be satisfied by payment of an amount which, together with the tax credit applicable thereto on the date of payment, will equal the amount of the former gross dividend. The purpose of the two amendments is to maintain the gross income to which holders of such stocks were entitled when the stocks were issued. Prior to the introduction of corporation tax such persons received the gross dividend less tax at the standard rate but many holders of such stocks were exempt from tax so that effectively they were in receipt of a guaranteed income at the gross rate so long as the company could pay the dividend. For that reason the amendments are designed to maintain at the same level the gross incomes to which the holders of these fixed-rate stocks were entitled.

: The amendment is agreed but I do not think it covers the point I raised on Second Stage.

: No, it does not. It relates only to stocks at fixed rates. They are a very special category. The point raised by the Deputy applies more across the board where there is a variable rate of dividend.

Amendment agreed to.

: I move amendment No. 69b:

In page 36, between lines 24 and 25, to insert the following subsection:

"(6) Section 178 (1) of the Corporation Tax Act, 1976, is hereby amended by the substitution in the definition of A of `of assessment in which the dividend is paid' for `1976-77' and the said definition, as so amended, is set out in the Table to this subsection.


A is the standard rate per cent for the year of assessment in which the dividend is paid,".

Amendment agreed to.

: I move amendment No. 69c:

In page 36, between lines 24 and 25, to insert the following subsection:

"(7) (a) This subsection applies to a distribution that is made by a company on or after the 6th day of April, 1978, and to which section 64 of the Corporation Tax Act, 1976, applies.

(b) The reference to certain tax credits in the definition of B in subsection (2) of the said section 64 shall, in relation to distributions to which the said section 64 applies and which—

(i) were received by a company that makes a distribution to which this subsection applies, and

(ii) were made before the date aforesaid,

be construed as a reference to thirty-nine forty-ninths of those tax credits.".

Section 64 of the Corporation Tax Act, 1976, provides for a reduced tax credit in the case of distributions out of income which has been relieved from tax under the exports sales relief. In many cases, particularly where groups of companies are involved, this income will consist not only of trading income but of distributions from other companies which themselves carry a reduced tax credit because of export sales relief. Where these distributions were received prior to 6 April 1978 the reduced tax credit is computed by reference to the standard rate of 35 per cent. Where these distributions are redistributed by the recipient company on or after 6 April 1978 they will carry a tax credit computed by reference to the rate of 30 per cent. Accordingly, it is necessary in relation to distributions received prior to 6 April 1978 to scale down the tax credits attaching to such dividends, that is B in the formula A + B/C in subsection (2) of section 64, by applying to them the fraction 39/49ths which represents the ratio which 30/70ths—the new fraction for calculating tax credits in respect of distributions made on or after 6 April 1978—bears to 35/65ths, the fraction for calculating tax credits in respect of distributions received before 6 April 1978. This amendment is in relief of the general body of taxpayers, that is those liable to tax at the standard rate or higher rates. I imagine that Deputies present will be relieved to hear that because I am sure my explanation is not very clear.

: Did that cover the point I made on Second Stage?

: We accept the Minister's word that it is in relief of the general body of taxpayers.

Amendment agreed to.
Question proposed: "That section 27, as amended, stand part of the Bill."

: I have referred already to points I raised on Second Stage and the effect this section will have on investors in Irish companies. I had hoped that the Minister's amendments would cover the points I made but they do not do so. The Minister has told us that this section is consequential on last year's Finance Act when the rate of corporation tax was reduced from 50 per cent to 45 per cent. With the tax credit applied this year at the new fractions shareholders generally in Irish companies will be receiving 7 per cent less in the way of dividends than they received up to now. Shareholders in this sense means ordinary individuals and, just as important, it means charities and pension funds. The Minister told me when replying to the Second Stage debate that if this was so it was a matter between the shareholders and the company involved if the dividend had been reduced by this amount. The snag about this is that if the shareholders press for an increased dividend it can only be paid out of profits that were intended by the company to be retained hopefully for further investment and increased employment.

One of the purposes of reducing the corporation tax last year to the 45 per cent level was to get companies to retain a larger proportion of their profits in the company rather than paying it in tax in the hope that they would invest this in job creation. This year a measure is being introduced that will have the effect of the shareholders at their annual general meetings insisting on a greater proportion of the profits allowed to be retained by the companies to be distributed to them. If that is the case we are nullifying any good the introduction of the reduced rate of corporation profits tax brought about in the 1977 Finance Act.

: Before I reply to the Deputy I should like to tell the House that it has been brought to my attention that there is a small printing error in page 35, line 53, which reads:

subparagraph (1) applies shall not exceed the amount which would

That should read:

subparagraph (i) applies shall not exceed the amount which would

I take it that there is no objection if that is corrected on re-printing.

: In regard to the point made by Deputy Barry, it is possible to get into a very detailed and complicated argument on this issue but I do not think it is necessary to do so in order to understand what is involved. I am not making a party political point of this but it is important nevertheless to put it on the record that what is being done in this section was contemplated by my predecessor as a necessary consequence of the reduction——

: I conceded that point when we were dealing with an earlier section, the 3 per cent increase in sales. When these new measures are introduced there are things that appear necessary to be done at the time but with the experience of reliefs or concessions of this nature it is possible in 12 months time for one to change one's mind without any loss of face but for the good of the community. That is all I am doing.

: The Deputy would be right to change his mind about certain matters to which he subscribed before if he thought it would improve the position to do so but I do not think he would be right to change his mind on this amendment. My predecessor, speaking on the Second Stage debate on the last Finance Bill, as reported in the Official Report of 10 May 1977 at column 494 said:

I might mention that provision is not being made in this Bill as regards the rate of tax credit which will apply to distributions made by companies which will have benefited from the reductions in corporation tax provided by these chapters; this matter will arise for attention and will be appropriately dealt with next year when distributions will fall to be made out of 1977 profits.

I am saying that because I want to make it clear that it seemed to my predecessor, as it seems to me, that if you reduce the rate of corporation tax it follows logically that you must adjust the tax credit provided for in law. If you do not, you are simply providing for a bigger tax credit. The fraction already laid down is inappropriate when there is a new rate of corporation tax. This would be true whether the corporation tax rate were increased or reduced.

If we look at what is involved in this matter it is clear that, if a company, in determining the dividends it is going to pay, distributes the same proportion of its post-tax income as last year, the shareholder is not going to lose anything; in fact he would be marginally better off. If the company decides to distribute a smaller proportion of its profit in dividends than in the previous year, then the income of the shareholder will be reduced. That is an inevitable consequence for any shareholder of any company which decides to distribute a smaller proportion of its post-tax income than it did in the previous year.

: Unless the profits have grown.

: Yes. The question of whether or not a company decides to distribute the same proportion as the previous year, or a larger proportion, or a smaller proportion, is a matter for the company and its shareholders and not a matter for the Revenue. The Revenue are concerned with the tax levied and the tax credit to be given on the dividends. The decision on the proportion of profit to be distributed is one for the company and its shareholders.

If the company has 5 per cent extra available as a result of a reduction of 5 per cent in corporation tax and decides to maintain the proportion that it distributed last year, the effect of that would be to divide the additional money available between the company and the shareholders. That will mean that the shareholders will more than maintain their income while the company will be getting a larger proportion of its profits available for reserve or re-investment than it had before. It is conceivable, and could be good practice, that a company would decide to reduce the amount of profit that it distributes by way of dividend and to plough back a bigger proportion of its post-tax income into the business. That is a matter for the company to decide. If that decision results in a reduction in the income of the shareholders, it increases the value of the shares at the same time because there is a greater investment by the company. If he is losing in the short term he is gaining in the long term. Either way, whatever happens to him is the result of a decision of the company and not of a decision of the Revenue. That being so, I believe that a number of the views expressed in regard to this section have been misconceived and have ignored or overlooked the point I have been making: that the decision in regard to the proportion of a company's profits to be distributed by way of dividend is not a matter for the Revenue. The Revenue is concerned only with the method by which such profits and dividends should be taxed and tax credits given.

Question put and agreed to.
Sections 28 to 32, inclusive, agreed to.

: Amendment No. 69d is ruled out of order.

: I move amendment No. 70:

In page 39, after line 17, to insert the following subsection:

(3) Section 47 of the Finance Act, 1977, is hereby amended by the substitution of `31st day of December, 1979' for `31st day of December, 1978' in each place where it occurs.

This amendment introduces an additional subsection to section 33 which deals with stamp duty on contracts relating to office buildings. Subsection (1) abolishes stamp duty on contracts made on or after 14 April 1978 for the construction, alteration or enlargement of such buildings. Contracts made before that date remain liable for duty. Under existing legislation relief from stamp duty is available in respect of such contracts. That relief is related to so much of the Construction, alteration or enlargement as is carried out in the period from 26 January 1977 to 31 December 1978.

I have decided that this period should be extended to 31 December 1979 so that work undertaken next year will be taken into account to give relief to contracts that remain liable for stamp duty. This decision is in line with the underlying reason for the abolition of the duty on new contracts, namely, to encourage the construction industry to boost its employment potential. I might say also that it would seem to me to be illogical to have the position where earlier contracts were free from stamp duty, later contracts were free from stamp duty but the ones in between were liable. Part of the work under some of those in-between contracts might be exempt from stamp duty and part liable. It seems to me that it is not a very logical position. This amendment is designed to take what I might call the contracts in the middle out of liability, like those before and after them.

Amendment agreed to.
Section 33, as amended, agreed to.
Section 34 agreed to.

: Amendment No. 71 in the names of Deputies Bruton and Barry has been ruled out of order. Amendment No. 72 in the names of Deputies Bruton and Barry has also been ruled out of order for the same reason, that it is a potential charge on revenue.

Section agreed to.
Question proposed: "That section 36 stand part of the Bill."

: This is the part of the Bill putting into effect Government proposals on the wealth tax. It does not abolish the Wealth Tax Act itself. Subsection (1) states:

Wealth tax shall not be charged, levied or paid under the provisions of the Act by reference to any valuation date occurring on or after the 5th day of April 1978.

We, in this House and outside—on other Stages of this Bill and again on this section—made the point that, in the first place, this section will mean a loss to the Exchequer in the current year of £8.5 million. This amount of revenue to the Exchequer has been lost to the benefit of those who, if anyone is able, are certainly in a position to pay their fair contribution to the upkeep of the economy.

The defence has been made by the Minister and his colleagues that the tax operated as a disincentive to industry and employment creation. We would reply that no sound evidence whatever has been produced to show that the wealth tax, as operated by the previous Government, was a disincentive to industry or to employment creation. There are perhaps some who would argue to the contrary. The Minister made the point in his budget speech earlier this year—and would do so presumably now—that the wealth tax, in addition to being a disincentive to employment, operated as a disincentive to foreign investment here. Again there is no evidence to support that view of its consequences.

The suggestion has been made throughout the controversy that the wealth tax—which this section seeks to delete—was some kind of unique measure unknown in any other country. Variants of the wealth tax operate in a great number of countries— Denmark, Germany, Luxembourg, the Netherlands, Finland, Iceland, India, Sweden, Norway and for all I know, elsewhere further afield also. I am not convinced that its abolition would create one extra job. A great deal has been made of the point that its abolition would bring about conditions in which extra jobs would be created in the economy. No sound evidence has been adduced to suggest that these consequences would follow. Possibly the strongest argument of all for its retention—if we are to hold autonomous groups in our community to fair bargains, if we are to maintain consensus in our community—is that justice must be seen to be done in the tax area. By the elimination of that measure introduced by the previous Government I am afraid the Minister and this administration have given the all-clear to the creation of an even more unequal society than the one they inherited when they came into office. The deletion of this section is at the very centre of the kind of actions this administration have been taking since coming into office, the kind of management of the economy which is producing, every day, even greater inequality in our already divided society. It is obvious that it will not stop there. By pinning our hopes on the kind of incentives offered in this section, by rewarding those already so amply rewarded in our society, by defending that action with such tawdry argument that employment would follow in its wake, we are giving the all-clear to the wealthy in our society that their day has come. We are certainly suggesting that the only means of survival in the Ireland of today is to claim more, seek more and not worry about the justice of what one's position should be or what is one's claim.

We made the point that by abolishing the wealth tax this administration gave an annual bonus of £2,000 to the 5,000 most wealthy in our society. It is far from being the case that any benefits would accrue to the economy by this measure; in fact the reverse is the case. It gives the all-clear to those who want to throw any objective criterion out of the window, those who desire no objective criterion when it comes to seeking monetary reward. The Government should be working towards—as they often say publicly they are working towards—bringing fairness into the economy, ensuring that inflation does not start up once more on a domestic basis. Of course we all know that whilst a good deal of inflationary pressure comes from abroad, we also know that at home we can add to it by our actions. If we at home suggest that the impact of our actions on employment can be ignored, that the administration of the day can put forward the argument that the economy will be improved by releasing from fiscal obligation in the taxation area the upper portion of our society, it is clear that we are releasing into our society an even stronger dose of envy than there is there already. It is clear also that we encourage those whose slogan is comparability, those whose slogan is—out with objective reasoning in relation to claims. Certainly we encourage and usher in the kind of casino society which is on the way here already.

This measure has not been defended on logical grounds by this administration. They have suggested that this measure somehow, in some strange way, has an impact on employment. That case has not been made adequately and we have not been convinced by anything they have said. If anybody from this administration could prove that employment would benefit by the deletion of this section, we would look at it again. That case has not been made. It is a specious argument, a very thin one which has been used over and over again and which does not stand up to rational argument.

If there were sustainable complaints about the incidence of the wealth tax, if there were those who could maintain that their economic operations were suffering as a result of it, and if the Minister could say that cases had been brought to him where this tax appeared to damage good economic enterprise and could give the reasons to the House, this party would have heard his case and would give a great deal of attention to any changes he would suggest. We were not treated to this kind of approach. We were treated to an unsustainable case for the complete abolition of this tax. It is important in the tax area that justice be seen to be done. Justice was not seen to be done when this rather modest imposition on those who were in a position to pay was removed at one stroke as part of an election commitment—not on the basis of its benefit to the economy but, one suspects, for reasons having little to do with the economy.

If a well-proven case could have been brought forward by the Minister to suggest that employment was suffering, that business had departed from the country, that others were contemplating departure, that investment was being pulled out, we would certainly have heard what objections there were to the tax and how the tax was bringing about that situation. I am not aware of any well-argued case being brought forward to prove these consequences of the tax. I believe the tax was removed without a great deal of thought as to the consequences for the economy.

Those people who welcomed its departure and who thoughtlessly came to the conclusion that this was a measure to restore business confidence may yet regret it. It suggests to wage and salary earners that there is very little equity left in our taxation system. They see this as the sign that this administration are not interested in justice in our taxation system. They understand the necessity for greater investment in job creation, but they cannot understand the order of priorities in which we have to borrow so much abroad and £8 million to £10 million is spent in the capital area in giving this kind of exemption.

The case has not been made that employment will be improved by it. There are no sound economic arguments for this measure. Highly emotive arguments have been put forward which have not been sustained. A good deal of the so-called unpopularity of this measure with the business community was based on a misunderstanding of its incidence and exaggerated claims about the numbers who would be involved. It was a very modest measure which lay very lightly on those who came within its net. I believe that they will be the first people to regret its passing when they see the consequences it may have on other sections in our society.

: I suppose no measure introduced by any Government has provoked such controversy as section 36 of the Finance Bill, 1978, with the suspension of the wealth tax. The reason put forward by the Minister and his other colleagues in Government is that it caused the flight of money from this country during the years of its operation. On the Second Stage of this Bill, on 24 May at column 1770 of the Official Report, I said to the Minister: "The Minister is saying that there is evidence that the money went out". The Minister replied: "The Deputy is saying that there is evidence that the money did not go out, so we are in the same position". That is true. The Minister has made this assertion on a number of occasions and has never produced one bit of evidence to support his contention that the wealth tax was responsible for money leaving the country.

I would remind the House that the wealth tax was one of the taxes which was introduced by the previous Government in substitution for estate duty, which was abolished by that Government as being an unfair duty. We understood estate duty to be responsible for the breaking up of many farms and small businesses because it had to be paid at the time when the owner or principal shareholder in the business died and a fair sized proportion of what he owned had to be paid in estate duty. We then introduced a number of taxes in substitution for what we considered to be a most unfair tax. One of these was the wealth tax.

One of the charges against the wealth tax is that it was responsible for money leaving the country. In the three years before we came into office, the proportion of GNP which was devoted to fixed investment was 21.6 per cent in 1970, 22.7 per cent in 1971 and had been declining to 21.5 per cent in 1972. In 1973 and 1974 the amount of investment increased and in 1975, at the height of the depression, it decreased again; but it decreased to 23.7 per cent and this is when the wealth tax, according to its opponents, was supposed to be biting hardest. The level of 23.7 per cent of GNP devoted to fixed investment was 2½ points higher than when we came into office in 1973. Last year, when the wealth tax was still in operation, 25.2 per cent of GNP was devoted to fixed investment. The argument that it was responsible for chasing money out of the country is ill-founded. Any rational person who is in the category paying wealth tax—and they are very small in number—would prefer, I believe, having thought about it, to pay over a period of years prior to his death a reasonably small sum of money annually rather than have his farm or business sold off after his death to pay a fairly large sum of money.

If we look at section 36 in conjunction with the Schedule, where the tables are included for capital acquisitions tax, we will see that in a kind of backdoor way the wealth tax is now being substituted for by the capital acquisitions tax inasmuch as the thresholds at which these taxes are payable have not been raised at all in the category where most people are caught, that is, the transfer from one spouse to another, from a spouse to a widow or widower or to a child. It would seem to me that the present Government are intent on introducing another form of estate duty by a backdoor method and are at the same time now abolishing wealth tax and the fair amount of income collected by it in the last three or four years.

: There are a number of aspects of this matter that I want to mention, but perhaps I should first deal with the one referred to by Deputy Barry when he referred back to the debate on the Second Stage when I was concluding. He says, rightly, that I made a few references to the fact that I believed the wealth tax had caused money to leave the country but what I actually said in this regard, as reported at column 1767 of the Official Report for 24 May 1978 is:

There is some evidence of an outflow of money as a result of that being introduced.

That was not a very forceful statement, but it provoked Deputy Barry and Deputy Garret FitzGerald and I wondered why it did so, especially as I had received in the Department of Finance evidence to support the statement I had made.

Deputy Barry said—and not for the first time—"I have nothing in writing, but the month before we left office I specifically asked and was assured that there was absolutely no evidence in this regard, unless some came up since." He also said: `I inquired and was assured there was no evidence and it was very carefully watched for the three years." Apart from the merits or demerits of this argument, I confess that Deputy Barry's and Deputy FitzGerald's reaction seemed to me to question my credibility and integrity in this matter, because I said that I had information in the Department of Finance which would justify the statement I made which was:

There is some evidence of an outflow of money as a result of this wealth tax being introduced.

I said on the occasion that it seemed that either I was right or Deputy Barry and his colleague were right or there was a lack of probity on the part of public servants and that I would pursue this matter. I have pursued it and I find that there is no evidence whatever in the papers in the Department of Finance and nobody there has any recollection of Deputy Barry asking for or receiving information on this topic from the Department of Finance. He may well have sought and obtained information from some other source.

The departmental files show that the question of capital flow in the context of capital taxation was first looked at on 2 April 1974 just before some of the capital taxation measures were due to come into operation. The analyses show that it was not possible at that stage to identify particular capital outflows and it was concluded that there was no evidence to show that such outflows had resulted from the proposals about the taxation of capital. This was brought to the attention of the then Minister for Finance by the former Secretary of the Department, Mr. C. H. Murray, on 4 April 1974. Subsequently officers of the Central Bank intimated that they had heard reports in banking circles of funds being transferred abroad.

Perhaps I may add here that they were not the only people who heard these reports. Although the Central Bank was unable to substantiate this or produce any further information, monitoring began in the Central Bank to detect possible flows of funds and by the latter half of 1974 there were some indications that resident balances with the associated banks outside the State were increasing. Increased inflows under other heads, however, meant that there appeared to be no net loss of funds in so far as the banks were concerned. Subsequently, monitoring revealed a broadly similar pattern and in early 1975 it was concluded that, while it was impossible to isolate the magnitude involved, it seemed a fair inference that financial flows had been influenced both inward and outward by taxation proposals here and in the UK. This conclusion and the results of further studies were also submitted to the then Secretary of the Department but the files do not indicate whether he showed them to the then Minister or gave him copies.

I have available here a table setting out the figures as the Department of Finance now see them. For the period 1972-1976—it is based on data published in the Irish Statistical Bulletin for December 1977—the figures show that there has been a significant net capital inflow in every year. However, when normal inflows and outflows are identified—for example, Government foreign borrowing, changes in the banks' net external position—there remains a residual item which is regarded as private capital. This item was positive in 1974 but has been strongly negative suggesting outflows, in 1975 and later years.

This bears out the result of the departmental and Central Bank monitoring since 1974. I may add that the Central Bank in its annual report, 1977, at page 37 stated with reference to the balance of payments and official external reserves that the figures indicated "that residual net capital outflows amounted to about £50 million". The bank's annual report is laid before both Houses and a copy is supplied to every Deputy and Senator. The Central Statistics Office in statistics published in the Irish Statistical Bulletin for December 1976 and 1977 also recorded net outflows of other private capital in Table 6.

However, a much higher degree than is normal is associated with this figure. The identification of capital flows presents many difficulties and involves a good deal of estimation and even published figures should be treated with a good deal of caution. That is why I said on 24 May last that "there is some evidence of an outflow of money as a result of the wealth tax being introduced". I worded that very cautiously. I think any objective observer listening to what I have just said and with the information available of the results of the monitoring of the situation by the Department of Finance and the Central Bank, will agree that in the circumstances I was not making a meal of the evidence available.

I want to emphasise two points arising out of this. First, there can be no doubt that the evidence available, such as it is, and with the inherent defects that I referred to indicates that there were outflows of private capital from 1974 with the introduction of the wealth tax. The second point is that, whatever inquiries were made by Deputy Barry, whatever denial was made by Deputy Garret FitzGerald in this regard, I trust it will now be accepted that, when I said that, I had received advice and information in the Department of Finance on this matter and I was telling the truth.

On the general question of the wealth tax I said, I think at the time it was introduced or shortly thereafter, that it seemed to me to be somewhat similar to the situation of Nero fiddling while Rome burned. I must say it still seems that way to me. It is no good people talking, as Deputy O'Leary did, about justice and justice being seen to be done, if unemployment is mounting, which is precisely what was happening when the wealth tax was introduced. The primary requirement of justice is that people get the opportunity to work. That is the first requirement. Even if one adopts the somewhat neutral argument put forward by Deputy O'Leary in relation to this aspect of the matter—I think it would be fair to say his argument was there was no evidence that the introduction of the wealth tax had cost jobs—I would argue that there is no evidence that the introduction of the wealth tax has produced any jobs. It was introduced at a time when the primary requirement was more jobs and I would disagree with Deputy O'Leary when he says there is no evidence of any loss of jobs. I know, and I imagine most people in this House, if not all of them know of the specific jobs lost directly as a result of the introduction of the wealth tax. It is impossible to quantify the ones lost indirectly as a result of the introduction of the wealth tax. Different people have different information on this matter but there can be little doubt in the mind of anybody who makes any kind of reasonably objective inquiries into this matter that some jobs were lost indirectly as a result of its introduction and that the number of jobs which could have been created were not created. Indeed, that is borne out by the information I gave earlier in relation to outflows of capital.

Deputies should realise that, quite apart from the direct effect involved, there is the matter of what might be referred to as confidence. Now confidence is a vital element in the climate required if the economy is to grow and jobs are to be created. You cannot quantify it or put a value on it in terms of money but we all know that, if it is there, even somewhat inefficient firms and defective schemes may operate successfully. If it is not there the most competent firms and businessmen will not succeed. In this area the introduction of the wealth tax, on the one hand, and its abolition on the other was a vital matter.

I think it was Deputy O'Leary who said he believed a great many business people were under a misconception about the wealth tax and its effects. Now, whether they were right or whether they were wrong, the fact that it was believed to be a barrier and a disincentive to private enterprise was sufficient to have caused damage and should have been sufficient to have caused the then Government to have paused and thought again about the effect of what they were doing.

It is not sufficient to say that the requirements of justice were that it should be introduced for the redistribution of wealth. Those who say, and there are people who say it, that it was at such a low rate it could not be said to have dissuaded capital investment cannot really argue at the same time, as they have attempted to do, in favour of wealth tax as a redistribution of wealth and the achieving of social justice. In the three years of the existence of the wealth tax the amounts collected were £3.7 million in 1975, £6.5 million in 1976 and £5.8 million in 1977. This can scarcely be said to represent any worth-while redistribution of wealth in the context of a current budget in excess of £2,000 million. Surely not worth while at all, if there is anything at all to be said for my argument about the immeasurable but unmistakable disincentive effects of such a tax.

There is another aspect of the wealth tax, which it seemed to me, and it still seems to me, the supporters of the wealth tax have tried to avoid. But it is a very important and a very relevant issue. It is that the wealth tax operated so as to discriminate against the Irish entrepreneur in favour of a foreign one. We gave numerous examples of this. That fact was not denied and I hope no one will attempt to deny it now so that we do not have to get involved in that argument as to whether it did or did not. I think it is now accepted that it certainly did operate in that way because it was applicable to Irish people—I am speaking now in broad, not technical terms—and not to foreigners. How can one in a context in which we are trying to encourage growth, in which we are trying to encourage the creation of jobs, justify that kind of disincentive? In particular, how can one justify it when it works against Irish people and in favour of foreigners? This is not just an incidental effect. It is a fundamental aspect of any wealth tax introduced here. For technical reasons it works out that way.

I would pose the question to any Deputy who now retrospectively wants to support the introduction of the wealth tax in 1974 to say clearly how does he propose to justify the application of wealth tax to Irish people and its non-application to foreigners competing with those Irish people in this country in the same trade? I could not possibly justify it. On practical and theoretical grounds and on the evidence available, the introduction of the wealth tax was a major mistake if one's object was to get our economy into growth and to create as many jobs as possible as soon as possible. It was a mistake. I suggest that Deputies opposite, whether from Fine Gael or Labour, would do better if they cannot bring themselves—and this is probably expecting too much—to acknowledge that mistake, would do better to forget about the whole thing, and, when they see that the mistake has been remedied and can see already around them the consequences, leave the matter alone and let us get on with the job of building growth into our economy and creating employment.

Let us not waste too much time going over the mistakes that were made in 1974. In case anybody thinks that that last remark implies that no mistakes are being made today and no mistakes will be made next year, I am not saying that. We all make mistakes, but that episode introducing the wealth tax was a most unfortunate mistake for this country and especially for our unemployed. Most people who understand what is going on welcome the fact that the Government have corrected that mistake and that the results are already being seen with beneficial effects for all those people who are looking for jobs.

: I was not a Member of this House in 1974 nor a member of the party to which I now belong. I am inclined to believe that if I had any doubts at this time about the wisdom of the application of a wealth tax as part of our general approach to economic and social problems, the Minister's speech might almost have convinced me of its value.

There was one particular aspect of his speech I would like to take up and follow down the road a little—he did not follow it very far and if he is to be logical he has to follow it down the road—and that is in relation to a particular criticism of the wealth tax. He made a number of generic criticisms, criticisms of principle if you like.

He made a minor meal, to use his own phrase, of the fact that the wealth tax was introduced in 1974 at a time when unemployment was substantial and was increasing. Therefore, we are entitled to ask: what weight does this factor hold in his argument? Are he and his party against wealth tax in principle? If so, why was it not included in the manifesto? Or was he simply saying that the bad thing about the wealth tax was that it was introduced at that particular time in our political and economic history and in relation to the general economic and psychological climate of the country? If one of the main problems about the wealth tax was its timing, we are entitled to ask the Minister and Fianna Fáil this question: if it is wrong to introduce a wealth tax when unemployment is high and rising, how and when is it right to abolish wealth tax when unemployment is being reduced and prosperity is increasing?

: Surely the Deputy is not satisfied with the present level of unemployment and prosperity?

: I did not say any such thing.

: If it is not implied surely there is no logic in what the Deputy is saying.

: If the Minister listens he will hear the logic at the end. The question I am putting to him is this: is he saying that there are no circumstances in whatever degree of prosperity in which a wealth tax is a useful means of redistributing wealth and power in our society?

: Is the Deputy putting a rhetorical question or does he mean it? If he means it I will tell him that I have repeatedly said when it was introduced and since what our stance on that was. If he is putting it as a rhetorical question I know I need not bother to reply to it.

: I am unaware of precisely what the Minister's position is in this regard. If he is saying and if he proposes to reply to me to the effect that he, his Government and his party are in principle opposed to a wealth tax of the kind we introduced in 1974 in any circumstances regardless of the degree of prosperity in the country, it is legitimate to ask why Fianna Fáil did not make it one of the points at issue in the document they presented to the people.

On section after section of this Bill the Minister has fallen back ultimately on the argument that he is putting this, that and the other into the Finance Bill because it was part of a programme which was presented to the people in 1977, accepted and endorsed by them and that is the mandate which entitles them to put that in here. When Fianna Fáil were in Opposition I believe—my memory may be incorrect—that they were pressed to state whether they would actually repeal the wealth tax if there was a change of Government. I do not recall an unambiguous commitment in that regard.

As I said, that was not in the manifesto. It formed no part of the written commitment given to the people by the then Opposition a year ago and we are entitled to ask why not. I believe the answer to that is very simple, that is that the Minister's party depend on the electoral support of a considerable number of people whose only possible attitude to the wealth tax could be one of approval and if there were a decent and properly organised wealth tax as part of a general system of redistribution of power and resources in society they could only stand to benefit from it.

At the recent Fianna Fáil Ard-Fheis the Taoiseach made considerable play of the statements and the attitude of the present Opposition in relation to the then announced decision by the Government to abolish the wealth tax. He did not need to use the platform a Taoiseach is given at the Ard-Fheis of his party to poke fun at the Fine Gael Party or this party. It was quite clear that he was responding to a growing sense of unease in the rank and file of Fianna Fáil, a sense of unease which no doubt he was astonished and dismayed to find had been fuelled by the persistent and unrelenting criticism of the Government's newly announced plans in that regard in relation to the wealth tax. The Minister was trying to reassure the critics but I doubt that he succeeded. If any message goes out from this House today it should be that we will lose no opportunity to continue to emphasise the retrogressive nature of this proposal in such a way as to continue to add to that sense of unease which I am sure is experienced by the less well-off members of the population who support the Minister's party.

We are talking of the decision to decline to make any further assessment of the wealth tax after the beginning of this financial year. We should not be deceived into thinking that this is all that is involved because when the wealth tax was introduced it was not something that sprang fully armed from the soil or which was totally unrelated to anything else. It was part of a package of capital taxation that was designed to replace another package of capital taxation. Consequently, it does not make sense to deal with the wealth tax in isolation.

The Minister has argued that the redistributive element of the wealth tax was slight and that not a very great amount of money was collected. That may be true compared with some of the money that the Minister is giving away in this Finance Bill. However, the amount that would have been collected this year by way of wealth tax would have paid twice over for school books for every primary school child in the country. That is the sort of equation that will make sense to the people and which will be made to make sense to them by the remarks from this side to the House. If anything, the Minister's remarks about the weakness of the redistributive element of this tax are almost an indication that we were too cautious, that when the Government which I supported later introduced wealth tax, they acted in the worst way possible by introducing a good principle but by not pressing it to the point where it would begin to make a difference. When we consider the various thresholds and reliefs given in respect of wealth tax in the 1974-75 Act, it will be seen that of all the countries that operate wealth tax, we were one of the most generous.

The Minister made play of the new-found confidence which he alleges the Government are responsible for by reason of the abolition of wealth tax. I find it impossible to understand how the same tired economic formulae, which have not produced in the past the sort of dramatic results which the Minister says are needed now, can achieve that result in the future. This talk of confidence is talk on the level of soap powder advertising.

The Minister made a considerable issue also of the fact that the wealth tax as it operated tended to discriminate in favour of foreign entrepreneurs and against Irish entrepreneurs. Listening to the Minister one would think that Ireland was the only country ever to introduce a wealth tax and that Irish entrepreneurs were the only domestic entrepreneurs discriminated against by reason of wealth tax. I am not aware of the details of the wealth taxes that operate in other countries but if the defect which the Minister ascribed to our wealth tax is a fundamental and inherent defect of wealth taxes in general——

: In this country.

: ——why should it not be a defect of wealth taxes in other countries? We should be very glad to hear evidence to the effect that this defect was not a defect of wealth tax in other countries.

: Many of these other countries are not trying, as we are trying, to attract people from abroad, an activity on which we depend largely. The Deputy seems to be in favour of discriminating against Irish people who are creating jobs.

: The Minister must not put words in my mouth.

: We should like to hear where the Deputy stands in relation to this discrimination. He must be either for it or against it.

: Are we not dealing with the question of wealth tax?

: In Deputy Quinn's absence I pointed out this discrimination, a discrimination of which perhaps the Deputy was unaware when he supported wealth tax.

: I was here then but I was polite enough not to interrupt.

: The Deputy must not have been listening.

: I am not aware of any country that is not interested in foreign capital investment. In particular I am unaware of any country that has a wealth tax but which is not interested in attracting foreign capital investment in order to create more jobs. If these countries have succeeded in resolving the problem that has been identified by the Minister, he should be endeavouring to solve the problem for us in the same way rather than to be throwing out the whole package. In relation to the redistributive element it is true that in at least one of the countries in which I am aware of there being a wealth tax, that is, Sweden, this tax has contributed materially during a substantial period of time to a shift in the balance of resources in society and to a greater equilisation of wealth and incomes.

In relation again to the international scene it could be said that one of the problems we experienced in relation to wealth tax was not specifically of our making.

Progress reported; Committee to sit again.