Finance Bill, 1978: Committee Stage (Resumed) .

Debate resumed on amendment No. 29:
In page 16, between lines 19 and 20, to insert the following proviso:
Provided that the multiplier specified in the formula contained in section 21 (1) shall not be increased for the next two years of assessment following that year of assessment.
—(Mr. P. Barry.)

: I had almost finished what I wanted to say on this amendment. If any Deputy has any further query on it I will endeavour to answer it.

: The Minister had started to reply to the point raised when the debate was adjourned yesterday. He got up very quickly now in the hope that we would not notice and that he would get away without replying to the points raised. It was a good effort but not successful on this occasion. Fortunately we got up in time this morning.

The main point I was making in common with other Deputies was in relation to the Minister's attitude in requiring farmers who opt for the notional assessment to stay on it for three years regardless of what might happen on their own farms and, more important, regardless of the fact that the Minister might decide to increase the multiplier by a disproportionate amount, say, from 90 this year to 200 next year, regardless of the trend in agricultural incomes in the intervening period. There could be a disportionate and unfair increase in the multiplier which would change all the calculations.

If the Minister increased the multiplier without regard to what happened in terms of increases in agricultural incomes in that period, farmers on the notional would have to pay income tax based on a notional income which was far in excess of their actual income in the particular year. Farmers are being asked to accept on faith that the Minister will not do this. They are being asked to opt for the notional for three years and to stay on it without any assurance from the Minister that he will not increase the multiplier by an amount disproportionate to the average increase in agricultural incomes in the period.

I asked the Minister two questions. First, would he give an assurance that he will not increase the multiplier by a disproportionate amount and that any increase in the multiplier—and one cannot rule out an increase obviously —will bear a relationship to the average increase in agricultural incomes. That is a fair request and I should like to hear the Minister's point of view. The second question is a little more important perhaps from the political point of view. Is it the Minister's intention to do away altogether with the notional? He referred to it as a concession. He adopted a slightly cavalier attitude towards the arguments I have just outlined in saying: "If the farmer does not like the notional he can always opt for accounts. He does not have to go on to the notional. If he does not like buying a pig in a poke, if he does not trust that I will not increase the multiplier by a disproportionate amount in the next three years, even though the farmer must stay on it for three years regardless of what I do, he has 30 days to make up his mind and he can decide to go on accounts and forget about the notional system."

Given the imponderables the farmer is being asked to assess in this situation and given the apparent inability of the Minister to understand the difficulties that a farmer faces in making up his mind on this, it seems that the Minister is seeking to do away with the notional system by the back door and that his real intention is to make it so difficult and uncertain for farmers if they opt for the notional system that they will give up the ghost and say, "Ah, forget about it, we will go on accounts. That is what the Minister wants us to do". If this is what the Minister really wants it is in considerable contrast to what the farmers were told about the Minister's party's attitude to farmer taxation during the general election campaign. There is a phrase in the Fianna Fáil manifesto which refers to the Fianna Fáil notional income tax system. They adopted the proprietorial adjective to describe the notional system that they were going to introduce. This was not going to be just a modification of the system which obtained under the previous Minister for Finance. No, it was going to be a Fianna Fáil notional system, thereby implying that this was an integral part of the Fianna Fáil approach to agriculture. It was to be their own notional system, one which they held out to farmers as a particularly attractive aspect of their election programme. They did not tell the farmers all the difficulties that might arise. The Government's attitude indicates that, far from wishing to retain the notional system as they appear to do in their manifesto, and to make it their very own, they want to get rid of it entirely through the back door by putting farmers in the position that they have little or no choice but to opt for accounts.

I have already dealt with the arguments in favour of retaining a notional element within our farming taxation system. They are, first of all, that a notional system of taxation exists for farmers in many continental countries. It exists in Germany and in France to the best of my knowledge. The idea behind it is to optimise the output from the land because land is a unique asset in that it is strictly limited in supply. Under a notional tax system, under which you pay a certain amount regardless of how well or how badly you work, you provide farmers with an incentive to produce more because they will not be penalised for producing more from each acre. In an Irish context that means encouraging enterprises like dairying where the output per acre is high and where we as a country have a comparative advantage vis-à-vis other European countries where there are longer winters, higher feeding costs during the winter, and where dairying is much more marginal than it is here. The notional system suits dairying and has been opted for, I would say, although I have no figures to quote, in large measure by dairy farmers. The most intensive form of agriculture in this country is dairying.

The notional system provides an incentive to production per acre. That is the nub of the argument. Yet it seems that the Minister by the attitude he is now adopting wants to get farmers off the notional system because he is providing them with no answer to the very genuine problems they are facing. I would like his answer on this.

: I have already said on at least two occasions in response to Deputy Bruton that it is impossible for me to give an undertaking in regard to the level of the multiplier at this time. It is a matter that has to be determined at budget time in relation to the level of what I might call the agricultural index. Deputy Bruton understands that as well as I do.

With regard to his second point concerning the abolition of the notional system, if I had wanted to abolish the notional system I would have done so. On the contrary—one would never suspect this from listening to Deputy Bruton—it was his party in Government who were phasing out the notional system from the point of view in certain circumstances of a Minister for Finance and of a farmer. It is a system that is not available to any other kind of taxpayer and in that sense it is a concession. The option is open to any farmer to go for the accounts system which corresponds with that applying to other taxpayers. I repeat that in so far as there was any question of phasing out of the notional system, Deputy Bruton's party were doing that.

: Can the Minister give any undertaking as to the level of the multiplier in the years ahead? Does he not think it unfair to ask the farming community to enter into a contract, so to speak, for three years on the notional system when they have no idea as to what tax they will have to pay? It appears that his answer to that is, "OK, they have the accounts system". Bearing in mind that tax is new to the farming community and with a sizeable proportion of that community over the age of 55 years it is impossible to get them to accept the accounts system. I agree with an accounts system because such a system is important for other than tax purposes. The fact remains that you will not get a farming community to accept the accounts system overnight. The Minister's answer is not valid. The Minister cannot give any indication as to the level of the multiplier over the next three years, yet he is asking farmers to commit themselves to accepting the notional system for that time.

The Minister's colleague, the Minister for Agriculture, on a television programme recently expressed what he said was his personal view, that farmers should pay more tax. I would take this to mean that the multiplier over the next three years would be increased. I ask the Minister to bear in mind, first of all, that the valuation system on which the notional system is based is totally out-dated and unfair. Because the farming community will not readily accept an accounts system the Minister should give some commitment over the next three years if he is asking them to tie themselves to that system. Does the Minister accept that it is most unfair to tie farmers to a system of that kind?

: I do not accept that and I have already dealt with the point in the course of the debate. No taxpayer knows what his liability is going to be over the next two or three years. It has been argued that he knows at least what the tax rate is going to be, but of course he does not.

: That is not what was argued.

: Tax rates may change. What is involved here is the notional level of the income. If a farmer wants to be taxed exactly on his income with all the appropriate allowances he can go on the accounts system.

: That is not a valid answer.

: The Minister will not let him opt for the accounts system next year if he goes on the notional system this year.

: I will not agree to a farmer switching from accounts to the notional system and thereby avoiding any liability for tax. Is Deputy Bruton advocating that?

: I am not.

: If he is not advocating it that point is of no value.

: If the farmer has not an income——

: The Deputy is merely making a debating point. He does not mean it, obviously. As far as a farmer on the notional system is concerned, the notional system determines for the purpose of income tax what his income is. If he opts for the notional system it is reasonable to assume that he does so because he believes that under it his notional income will be less than his actual income. As far as the multiplier is concerned I am sure Deputy Creed is aware of the fact that the multiplier, even as increased this year, is considerably below its true value. It would be a reasonable assumption for any farmer to make that whatever level the multiplier might be fixed at it would not be fixed beyond its true value. That is self-evident.

: Is that an assurance?

: It is self-evident.

: Regardless of the circumstances of the farmer?

: Yes. If the Deputies opposite would contemplate fixing it beyond its true value they should say so but it seems to be self-evident that it would not be fixed beyond its true value.

: That is something.

: That is something that was there all the time for anybody who was interested.

: It is the first time the Minister has given that assurance and I am glad he has done so.

: The Deputy knows that he was painting a picture of something that would not happen when he talked about a Minister for Finance, whoever that might be, arbitrarily fixing the value of the multiplier above its true value. I do not believe the Minister for Finance of the Deputy's party would contemplate that kind of situation. I do not think my predecessor, for all his faults, would have contemplated that. If Deputy Bruton would contemplate it, the country is fortunate that it is unlikely for some time to come that he will be determining this matter. In the absence of ideas of this kind being imposed by people like Deputy Bruton I believe that reasonable people will see for themselves that there is no likelihood of the multiplier being increased beyond its true value. The level at which it would be fixed is, obviously, one that cannot be announced in advance.

Any farmer who is contemplating the notional system obviously has to take into account the possibility that it could be increased, but he does not know at this stage, and neither do I, what the true value of the multiplier will be next year, not to mention the year after. There is nothing one can do about giving a firm assurance to anybody who wants to go on the notional system as to what the value of the multiplier will be next year or the year after. In the nature of things that has to be that way. I have already indicated that people who want to go on the notional system have, particularly as a result of the Bill, a number of concessions involved in the form of deductions from the notional income but if they feel that this would not be in their interests they are entitled to opt for the accounts system. As a matter of interest in 1976-77 more than 60 per cent of farmers opted for the accounts system which may suggest something to Deputies. It is clear that the proposal in this amendment is one that could not be accepted by any Minister for Finance.

: Last night I asked the Minister about section 416 of the Income Tax Act and I do not believe he replied to that question. I do not think the Minister appreciates how nervous a lot of farmers who have medium to large sized farms are about the fact that he is the Minister who is introducing this notional system that will hold for three years. They all remember that he was the Minister who raised the income tax level to 80 per cent, the highest it ever was here. It was his successor who brought that level down to 60 per cent. That is why farmers are nervous of the present occupant of the office.

: I am sure they remember that he and his colleagues were phasing out the notional system.

: As Minister for Finance Deputy Colley imposed a penal taxation on farmers. Under him 80 per cent of their income was taken away in the form of tax and the farming community are afraid that something similar will happen when he gets his hands on some of their money. They are afraid that he will lower the valuation and increase the multiplier until he gets to a figure equivalent to 80 per cent of their income, as he did with the ordinary PAYE taxpayer. If the circumstances of a farmer who opts for the notional system this year change next year can be use the machinery under section 416 of the Income Tax Act to appeal that assessment for tax in the second and third year? The Minister for Agriculture on television recently felt that more farmers should pay tax and in this connection I should like to know what the position will be if the valuation level is reduced resulting in more farmers being brought into the tax net. Will they be in for two years or will they have three years also?

: We are dealing with farmers who are liable to income tax and not with any notional scenario with regard to the liability of farmers who are not liable for tax. I dealt with the question of an appeal last night. An election for the notional system is treated as an appeal against an assessment which is originally made on the accounts basis. Having made that election as the Bill stands a farmer is obliged to stay with the notional system for three years. Subject to the discussions that are taking place between the Revenue Commissioners and the farming organisations, the position of the farmer on the notional system for the three years will be that he cannot, because his income drops, change to the accounts system.

: I understand that but if he opts for the notional system can he use section 416?

: He can appeal on the basis that he has been wrongly assessed under the notional system or not allowed the allowances or deductions he felt he was entitled to.

: It is my view that under section 416 one is allowed to appeal against the level of assessment and one can dispute the fact that one was earning X amount of money.

: If he has opted for the notional system he is not entitled to appeal on the grounds that his actual income is different from that deemed to be his under the notional system. That is the whole basis of the notional system.

: Even though the circumstances would have changed in years two and three?

: No. That would effectively mean that he is switching to the accounts system. Subject to what emerges from these discussions, what is contemplated is to provide the machinery to enable the farmer to switch to the accounts system if there was a very substantial drop in his income as a result of disease or for some other reason. As the discussions have not yet produced anything—and I do not think they will produce anything earlier than the autumn—I cannot be more specific. I am anxious to indicate the kind of thing that is contemplated so that there will be no misunderstanding of the circumstances in which it will operate. It would involve a substantial drop in the income of the farmer concerned. It does not relate to the level of the multiplier, which is a matter of general application, but to the individual circumstances of the farmer concerned. As they would be circumstances of considerable hardship, I would contemplate an arrangement whereby a farmer who has opted for the notional system would be allowed to change to the accounts system. Subject to that, it would not be open to a farmer who has opted for the notional system to change to the accounts system for a period of three years. The allowance of such a procedure for switching from one to the other from year to year is a certain recipe for tax avoidance.

: The Minister said that a farmer on the notional system could change midstream, so to speak, if his herd became diseased and he had to sell them at an obvious loss of income. There are more difficult cases of hardship such as a farmer dying and his widow having to take over. Does it only apply to disease in the herd or does it apply to other circumstances in which a farmer could produce evidence of loss of income?

: I am not in a position to spell this out because it has not happened yet. Anything arising out of it would involve an amendment next year. The principle governing the discussions will be to give an option to somebody who is tied to the notional system for three years in circumstances of a considerable drop in income.

: Would it not be a hardship if the multiplier was increased?

: I have already dealt with that matter at some length. I have made it clear that I am talking about a change in the income of the farmer, not in the general level of the machinery applied to all farmers under the notional system.

: Is the Minister saying that any changes that arise out of the discussions which he is presently having with farming interests will not become operative before next year? Does that mean that if hardship occurs this year the person concerned may not expect relief?

: The hardship contemplated is one that would arise if somebody were bound for three years to stay with the notional system and thereby be taxed on an income he did not have, where his income was substantially below the notional income he was deemed to have.

: The Minister said it was self-evident that the multiplier would not be increased beyond its true value in the next three years. What in the Minister's view would be the true value of the multiplier? How would it be calculated?

: Is the Deputy serious in putting that question?

: The Minister has stated his intentions in the matter and I want to know what it means.

: The Deputy is now asking a question on a number of detailed technicalities which I could not possibly deal with across the floor of the House.

: I asked the Minister to give an assurance that the multiplier would not be increased in any one year by more than the percentage increase in average agricultural income in that year.

: That is a different proposition.

: I know it is and it was in response to that that the Minister made the statement that he made.

: It was in response to what Deputy Creed said that I made the statement.

: The Minister said it was self-evident that the multiplier would not be settled beyond its true value. He did not imply his personal involvement in the matter. The farming community should know what the Minister meant by "self-evident".

: What was self-evident was what I said was self-evident.

: What is "true value"?

: Is the Deputy asking how the multiplier is calculated?

: The Minister used the phrase "true value".

: How would the Deputy describe what I described as "true value"?

: The Minister cannot be serious.

: The Minister will appreciate that these words were his choice. Since he chose them to convey his meaning it is up to him to say what he meant.

: I am sorry the Deputy does not understand it, but all the farmers involved understand it.

: The onus is on the Minister to say what he means.

: Deputy M. O'Leary may not know what I mean but I can assure him that all the farmers concerned know exactly what I mean by the true value of the multiplier.

: Deputies Creed and Bruton are farmers.

: I do not understand it.

: The Minister used these words and we should know what they mean.

: What does Deputy Bruton understand by the multiplier and how it is arrived at? If I am to attempt to answer his question I must define terms. It is obvious that words which are quite clear do not convey a meaning to Deputy Bruton. Perhaps Deputy Bruton will tell us what he understands by the multiplier and how it is arrived at.

: The multiplier is the figure by which the rateable valuation is multiplied. The Minister says that that figure will not be set beyond its true value. Farmers will have to decide within 30 days whether or not to opt for this system without any knowledge of what the multiplier will be in future years. The only assurance we have got from the Minister after a lengthy discussion is that it is self-evident that the multiplier will not be increased beyond its true value. As farmers will have to make up their minds on the basis of the Minister's statement, what the Minister says and what he means are going to count. My interpretation of the multiplier or of the notional system is of no relevance to farmers at this time. I am not going to be determining the multiplier or the notional next year or the year after. Therefore it is a question the Minister should answer seeing that the farmers will have to make up their minds within 30 days whether or not to opt for the notional system on the basis of the Minister's statement that it is self-evident that it will not be increased beyond its true value.

: I have never had any difficulty in dealing with the farming organisations. They seemed to understand fully what was meant by the true value. I am in some difficulty in dealing with Deputy Bruton if he does not understand it because I do not understand what he does not understand.

: May I make a point? If next year the Minister changes the threshold from 60 to 50 it will bring a large number of farmers into the taxation net who will have to opt for the notional or the accounts system. Is the Minister telling us that a farmer coming into the taxation net, having to make up his mind for the first time, would understand the Minister saying that the multiplier would not be increased beyond its true value? I doubt it very much.

: Yes. Perhaps Deputy Creed could tell us if the troops have arrived yet or does he still have to keep it going?

: There is absolutely no necessity to keep anything going. There are two questions here. For the sake of argument I am prepared to accept the Minister's statement that neither he, nor any other Minister for Finance would increase the multiplier beyond its true value. But he made another statement, which was if I heard him correctly—that the multiplier at present was below its true value. Might I ask the Minister by what process of ratiocination he arrived at that conclusion because the processes of thought which led him to that conclusion must have involved a comparison between the present value of the multiplier and its real value. If he does not know or cannot tell us what one of these is how did he arrive at that conclusion?

: Of course I know but what I said is that, in order to explain it to the House, I would have to go into a number of technical details. Whatever about other Deputies I rather suspect that Deputy Bruton knows just as well as I do and that he is simply engaging in a further filibuster. The fact is that I do know. The farming organisations know; certainly their members know—I know that personally——

: If the Minister knows he should tell us.

: It is like asking me to explain what is the consumer price index and how is it arrived at.

: We do not need to know the complex processes by which the true value of the multiplier is defined. All we want to know is if it is 90 in the Finance Bill, what should it be if it were to match the real value? Is it 100, 120, 160?

: I am sorry, that was not the question Deputy Bruton was asking. If that is what the Deputy wants to know—this year, as the Deputy knows, it is 90 in the Bill—the full value of the multiplier would be 112.

: How is 112 worked out?

: How is the consumer price index worked out? That is the kind of question the Deputy is asking.

: Obviously the Minister does not know.

: I have a detailed brief on it but I do not want to waste the time of the House going into technicalities which are not relevant to the issue.

: We appear to be getting into a lot of repetition. Unless there is something new to bring to bear on the debate on this section, I will put the section.

: I feel that the farmers should be told what exactly the Minister's assurance means. The Minister's failure to explain how this calculation is arrived at suggests that he does not know. He says he has a detailed brief which apparently he has not read. I suppose he has a lot to read and I do not blame him for not reading everything, but I thought at least he would have had a rough idea of the true value of the multiplier and how it is arrived at. Evidently he has not. He is asking the farmers to make up their minds on the basis of calculations which he is unable to explain to the House.

: In view of the fact that Deputy Bruton proposes to be somewhat personal in his criticism I should say that I believe that he knows precisely how the multiplier and its full value are worked out. I believe that he has been trying either to muddy the waters or simply to filibuster and that if Deputy Bruton does not know he ought to consult with a number of farmers, neighbours of his, who will give him a lesson on how the multiplier is worked out and their views on how it should be worked out. I think also that Deputy Bruton now is endeavouring to confuse the issue as far as he can but I do not think he will succeed in convincing people, particularly the farmers, that suddenly he and his colleagues have changed their spots. The farmers know that they were the people trying to get rid of the notional system on which they are now trying to elaborate and so on. They had the chance to do it and they did not. They should stop this bluffing, please.

: Is the amendment withdrawn?

: Do Deputies wish me to put the amendment?

Amendment put and declared lost.

: I move amendment No. 30:

In page 17, line 13, to delete "subsection" and to substitute "section".

This is a simple drafting amendment which substitutes the word "section" for the word "subsection" in subsection (1) of section 21 which contains the provisions for assessment on the notional basis.

Amendment agreed to.

: Amendment No. 31 in the names of Deputies Bruton and P. Barry. Amendment No. 32 is consequential. They should be taken together.

: I move amendment No. 31:

In page 17, line 16, after "C" to add "or (V×90)—W—D."

The purpose of this amendment is to allow depreciation of machinery as an alternative to contractors' fees in the notional system. It is not proposed that farmers should be able to claim full contractors' fees and depreciation, or a mixture of both. It is merely proposed that they must be able to opt for one or the other. At present the concession being given, incorporating contractors' fees as one item which may be set against the notional income, has a slightly anomalous effect if a man gets in a contractor to do his work for him. In view of the large value of contractors' machinery nowadays their fees involve perhaps quite a substantial element of depreciation of that machinery because it is wearing down very fast.

We all know from experience how often these machines break down, how quickly they become either obsolete or worn out. Therefore there is an element of depreciation of the contractors' machinery in the fee being charged to the farmer. The fact that a farmer can, if you like, indirectly claim that depreciation on the notional system if he uses a contractor whereas he cannot do it if he uses his own machinery seems to me to create an anomaly which makes it much more attractive for the farmer to use contractors' than have his own machinery. Many farmers may have their own machinery or engage in farming in a way that they feel having their own machinery is the right approach. It would seem to me that giving them the option of depreciation or contractors' fees, as we suggest in this amendment, is a reasonable suggestion which I hope the Minister will see his way to accepting.

: The notional system provides for certain deductions; it does not allow for others. The deductions to be allowed in the notional system cannot be viewed in isolation from the level of the multiplier. The multiplier is fixed having regard to a number of factors which include the kinds of deductions which may be made. I am speaking of the statutory multiplier. The matter of allowing the fees of agricultural contractors is primarily because I believe that the operations of agricultural contractors should be encouraged. The idea of farmers spending a great deal of money and tying up a great deal of capital in machinery for which they have relatively little use in so far as they confine its use to their own land is obviously uneconomic from their point of view and from the national point of view and consequently the use of agricultural contractors is something to be encouraged.

If, however, a farmer is in a position where he is on the notional system but it is economic for him to make heavy investment in machinery for his own use and he feels that he should be allowed the depreciation charge, he can of course opt for the accounts system and get the same depreciation allowances as other taxpayers or traders. It seems likely that most people who would be on the notional system would be inclined to use and should be encouraged to use agricultural contractors rather than invest heavily in machinery. Both from the general policy point of view and from the point of view of the specific issues involved in settling the level of the multiplier, it seems that the present position—the position as outlined in the Bill—is more satisfactory than the one which would obtain if we accepted these amendments.

Amendment, by leave, withdrawn.
Amendment No. 32 not moved.

: I move amendment No. 33:

In page 17, lines 53 and 54, to delete "but not including" and to substitute "and includes the conveyance on or off the land of goods or animals but does not include".

This amendment provides that deductions will be allowed to farmers using the notional basis of assessment in respect of payments made to agricultural contractors for the conveyance on or off the land of goods or animals. Under the terms of the new section 21 of the Finance Act, 1974, which is now being inserted by section 13 of this Bill, an allowance is to be granted under the notional system of assessment for payments made by farmers to agricultural contractors for agricultural work performed by them on the farmers' land. The conveyance of animals or goods, particularly off the land, cannot be said to be covered by the definition of agricultural work, which speaks of work forming an integral part of the cultivation of farmland or the harvesting of the produce of such land. The amendment ensures that such expenditure will be deductible on the notional basis of assessment.

Amendment agreed to.

: I move amendment No. 34:

In page 17, line 59, after "1967" to add:

"and shall include contributions towards a pension fund for the employees concerned".

This is an amendment to seek clarification rather than change the provisions of the Bill. As I understand it, wages are allowed as a deduction against the notional system; but there are some farmers who are doing something which is desirable and should be encouraged, namely, contributing towards a pension fund for their employees. It is important that such contributions, as they are in effect part of wages, should be deductible also. The Minister may be able to tell me that this is implied in the definition of W in line 20. If it is and if the Minister can assure me of that, I do not see any need to press this amendment. I should like to have clarification.

: I cannot give the Deputy that assurance. The purpose of the amendment appears to be to extend the definition of emoluments to include contributions made by a farmer to a pension fund in respect of an employee for whom he is claiming a deduction under the notional system of assessment. "Emoluments" is defined in section 110 of the Income Tax Act, 1967, as meaning anything assessable to income tax under Schedule E.

In effect, the amendment is seeking the granting of a further deduction on the notional basis. As I have said in relation to another amendment, the deductions to be allowed on the notional basis must be looked at in relation to the level of the multiplier. If a farmer wants to claim deductions for items such as this or any others which are not included in the formula laid down for deduction on the notional system, then it is open to him to lodge accounts and go on the accounts basis and claim deductions, including deductions for contributions to approved superannuation funds for employees, as provided in the Income Tax Act. If he does that, he will be able to claim deductions and relief on the same basis as any other person engaged in trade or business. While he is on the notional system the deductions allowable have to be considered in conjunction with the multiplier. It is a notional system and different from the ordinary accounts system. In so far as this amendment would involve extension of the items which may be deducted under the notional system, I cannot accept it.

: I am sorry that the Minister has not changed the situation. He has explained it in a way which I did not understand. I thought the amendment was not really necessary, but obviously it is. From the social point of view I feel that the creation of pension funds for farm employees should be actively encouraged because, like everybody else, farm workers must retire at some stage and it is important that there should be a pension fund available for them. Their employers have a responsibility to create such a pension fund. The Minister would be doing a good day's work which would not cost a great deal of money if he were to accept this amendment. It would be encouraging a proper and responsible approach on the part of farmers towards the retirement and security in retirement of their employees.

As the farmers on the notional system will probably be the more intensive farmers, they are more likely to have employees than are farmers for whom the accounts system is more appropriate. Therefore, the question of having a pension fund for such employees is relatively more important in respect of farmers on the notional system. While farmers on the accounts system have an incentive to create a pension fund, it now appears that farmers on the notional system do not. This is an anomaly which could have a bad effect in the long run and I would ask the Minister to take another look at this. I do not think that accepting this amendment would cost very much money and I would be interested if the Minister could give an estimate of the cost. Perhaps the Minister would consider this before Report Stage.

: I would not disagree with the proposition that this kind of activity should be encouraged and, as I have indicated and the Deputy accepts, it is encouraged under the accounts system. I have not figures available as to what the cost of this would be, the reason being that the actual calculation of the multiplier is mathematically affected by items of this kind. If this were to be allowed the calculation of the multiplier would be affected. To accept that, therefore, would mean changing the multiplier. So, the Deputy will see that it is not something I can contemplate with equanimity but I shall certainly look at it with sympathy between now and next year so that if it is being allowed the necessary calculations can be made in calculating the multiplier for next year.

: I can see why the Minister could not give the figures here but perhaps he could indicate, if not now on Report Stage, what would be the change in the multiplier that would be required to make this allowance.

: I shall see if I can get that.

Amendment, by leave, withdrawn.

: I move amendment No. 35:

In page 18, to delete lines 12 to 16 and to substitute the following:

(III) (A) has, in respect of that person, paid employment contributions (within the meaning of the Social Welfare Act, 1952) for the period or periods during which the said person was employed by him in that year, or

(B) in a case where such employment contributions are not payable by the individual in respect of that person by reason of the employment of the said person being an employment specified in or by regulations under Part II of the First Schedule to the said Social Welfare Act, 1952, has employed that person on a full-time basis throughout the year for the purpose of working the farm land occupied by the said individual, has paid wages to that person in respect of such employment and, in relation to that person, has complied with the employment regulation orders under the Industrial Relations Acts, 1946 to 1976, in force during that year which would apply if the person were an agricultural worker (within the meaning of the Industrial Relations Act, 1976),

This amendment provides for deduction under the notional basis of assessment in respect of payments made by a farmer to members of his family for work done on the farm. Deputies will be aware that there was a provision of this kind before and I presume they will be aware that it was abused to the extent that many farmers, by a strange coincidence, seemed to be paying sums to their relatives which just equalled the level at which that relative would, if paid any more, become liable for income tax. It had to be stopped. It was stopped and as this Bill stands, without this amendment, it does not make any provision for this kind of deduction. But after considerable discussion and examination of the situation I decided that it is possible to meet the case where legitimate payments are made without abuse arising and the method provided for doing it in this amendment is to allow the deduction provided the member of the family concerned works on the farm full-time and is paid at least the minimum agricultural wage. On that basis I think it is possible to avoid the abuse. I suppose it is obvious that in such circumstances the person receiving a wage will be liable to income tax. That will establish a degree of control that would not arise if we did not have this provision. I believe that the allowance should be made but it should not be open to abuse and I hope this amendment will achieve both these aims.

: I welcome this amendment. I hope it is devised in such a way that it will work as the Minister hopes it will.

: Could the Minister give us an idea, in a situation in which the member of the family is being paid the minimum agricultural wage and with the tax allowance for a single person, what amount of tax would normally be levied on the taxable income of such a person presuming he had no other allowances? I do not know the level of the minimum agricultural wage at present but would he be paying any substantial amount of tax?

: Substantial, I do not know, but the minimum agricultural wage at present is in zone A which is the Cork city area, the eastern half of County Cork, Dublin county borough and county and Bray urban district, £2,230 per annum or £42.90 a week. In zone B, which is the rest of the country, it is £2,210 or £42.50 a week.

: And the single allowance is?

: I understand about £300 in tax would be paid.

: Plus social welfare contributions? Am I to understand that as well as the income tax which is paid by the employee the employer in order to qualify for this relief in respect of what he is paying to his relatives will also have to stamp cards?

: Not in the case of a relative, no; in the case of any other employee, yes. There is a technical problem as regards stamping cards for a relative. I think one has to be under some form of apprenticeship or something like that. In this case there would not be a card stamped.

: So that the relatives although employed, being paid wages and paying income tax are in an unfortunate position as we are here in this House and do not get the benefit of a social welfare stamp?

: That is correct.

: It may also be said in favour of the amendment that it will encourage farmers to pay relatives assisting on the farm a reasonable amount of money.

: One hopes so.

: That is something that is needed.

Amendment agreed to.
Amendment No. 36 not moved.

: Amendments Nos. 37, 38, 39 and 40 are related. Is Deputy Horgan moving amendment No. 37?

: I have been instructed to withdraw this amendment with the possibility of reintroducing it on Report Stage. I should hate to think that I was prejudicing the amendments of Deputy Bruton and Deputy Barry and indeed of the Minister for Finance by doing so.

: Yes, but they are related. We can have separate decisions on them. If No. 37 is being withdrawn, we shall discuss the others separately.

Amendment No. 37, by leave, withdrawn.

: With amendment No. 38 we can discuss amendments Nos. 39 and 40 which are related.

: I move 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."

The purpose of this amendment is to make the system more equitable in view of the fact that by virtue of the agricultural grant changes that have been made recently farmers' rates in some cases have been doubled or more. The quid pro quo for this doubling of farmers' rates while the rates of many other people apart from commercial people have been abolished, was that they could set off these rates against their income tax. This doubling of rates applies only to farmers who are within the income tax net. The problem is that farm income is very variable. The allowance does not take effect until about 18 months after the rates have been paid. That is another defect in the system. It may well be that a farmer paid a very substantial amount of rates in 1978, but when he would come to pay income tax on 1 January 1980 in respect of the 1979-80 year, which is the year in which he would be able to set off his 1978 rates against his income tax, because that was a bad year and he had not earned an income which would put him in the tax net he would not get any benefit from the ability to set off his 1978 rates against his income because his income for that year was not taxable, or his income could be such that he only needed to use part of the rates he had paid in 1978 to put him outside the tax net.

Amendment No. 38 is to meet that situation, so that, if in 1980 a farmer finds he does not need to use the very substantial increased rates he paid in 1978 to put himself outside the tax net because he has not earned the income, this can be kept on credit for him and he can use it against his income for 1980-81 or some subsequent year. In this way the farmer will not lose the value of the concession simply by the accident that in one year in maybe five he does not have a taxable income, that rates paid 18 months previously cannot be set against it because of the way the section is drafted at the moment. This is a fair proposal which I hope the Minister will accept. From the point of view of the Exchequer it has the merit that, if the farmer does not need to set off his rates against his income tax, the Exchequer will have the use of the money. The farmer will not receive any interest on the money; it will be an allowance stored up for him and any interest to be derived from the money will go to the Exchequer. This is not a profligate proposal but merely one which allows something which the Minister concedes ought to be allowed to be deferred, if it is necessary to use it, and it would avoid injustice.

Amendment No. 40 is designed to deal with a farmer who has another trade or profession, not a farmer with another permanent fulltime pensionable job. It is to deal with the small agricultural contractor or shopkeeper, who is quite common in rural Ireland. Without such farmers acting as shopkeepers and contractors these facilities would not exist, because in many parts the demand for these facilities is not great and nobody could hope to make a living from providing them. The services provided by the small agricultural contractor and shopkeeper, as the Minister acknowledged in an earlier discussion, ought to be encouraged. However, the position is that both these people within the meaning of finance legislation will not be able to avail of the concession of setting off their rates against their income tax, nothwithstanding the fact that if they have a valuation in excess of £60 this year their rates were doubled and in some cases were more than doubled.

A full-time farmer or a farmer with a full-time pensionable job can set off his rates against his income tax. My amendment is designed to cater for a limited category of cases. It does not envisage that a large builder who is also a farmer, who is earning twice as much from his building business as he is from his farm, will get the concession of setting off his rates against his income tax. I propose that if his income from the trade or profession is less than half his income from farming he will be able to get the concession in relation to setting off his rates against his income tax. The trade or profession must be very much a subsidiary activity. This is a reasonable amendment towards which the Minister would have no innate hostility. I hope the Minister will be able to see his way to accept it.

: I will deal with my amendment first. Amendment No. 39 rewrites subsection (2) of the new section providing a credit for rates. The purpose of the subsection is to exclude from the provision of the credit for rates, firstly, farmers with another trade or profession and, secondly, those entitled to marginal relief. Those entitled to marginal relief with valuations in the range from £60 to £69 will get the appropriate credit for rates by means of a formula adopted in the new section 19 which provides for marginal relief. Subsection (2), as it stands, excludes marginal relief cases not alone from the credit position but from the prohibition of the deduction of rates in computing income. If we left this uncorrected this would result in farmers in the valuation range from £60 to £69 being entitled to both a deduction and a credit for rates. The amendment corrects this.

Deputy Bruton's description of amendment No. 38 seems to be quite different from how it appears to me. From my point of view the purpose of this amendment is to provide for a carry forward of credit for rates where the amount of rates paid in the previous financial year exceeded the amount of tax charged on full-time farmers in respect of the profits or gains from farming but, since there was no credit for rates prior to 1978-79, acceptance of this amendment would mean a farmer could claim credit for so much of all of his rates paid in years prior to 1977 as would cancel out his income tax liability. This totally nullifies the provisions extending income tax to full-time farmers and so I could not accept that this is a reasonable proposition.

With regard to No. 40, the purpose of this amendment is, as Deputy Bruton, I think, said, to provide a credit for rates in the case of farmers carrying on another trade or profession —they are farmers to whom section 16 of the Finance Act, 1974, applies— provided that the income from the other trade or profession is less than one half of farming profits. from the profession of other trade is less than one half of farming profits. The farming profits of individuals to whom that section applies are computed in the same way as profits from any other trade. Therefore, a farmer to whom section 16 applies—in other words, one who is carrying on a profession or another trade—is entitled to a deduction as distinct from a credit in the computation of his farming profits in respect of his rates.

We know that prior to 1974 there were a number of examples of people engaged in business and professions who were escaping from tax liability on their non-farming profits by attributing such profits, or part of such profits, to farming and section 16 of the 1974 Act was introduced as an antievasion measure. If we accepted this amendment No. 40, I am afraid we would be restoring to a great extent the pre-1974 facility such people had for evading tax on their non-farming profits because, of course, what they would tend to do would be to inflate their farming profits so that the tax they should pay would be sufficient to absorb the whole of the rates by way of credit and, by doing this, they would effectively avoid liability for tax.

: They would inflate their farming profits?

: Yes, to the level whereby it would take the whole of the rates credit to absorb it. They would inflate them by putting in as farming profits, profits derived from another occupation. That is what was done before and there is no reason to think it would not happen again.

: Was it not done before in reverse?

: No. Since there was no tax on farming profits before 1974 they inflated their farming profits by attributing to farming profits they derived from another business or occupation and did not pay tax on them and what would happen here would be that they would attribute to farming their profits from another business or occupation in order to set them off against rates and, while it might not be as bad as the situation I described, I am afraid it would be getting close to it and defeating the object of the anti-avoidance provisions of section 16 of the 1974 Act. I could not, therefore, accept the amendment.

: I accept the criticism of amendment No. 38 by the Minister in relation to allowing farmers to set off as a percentage profit rates paid in 1976 and 1975 and so forth, against their income tax. It was not, is not and will not be my intention that that should be a consequence of the amendment. I concede it would be as it is at present drafted. While I maintain the points I made, I concede that the amendment as it stands needs to be withdrawn and redrafted.

: The Deputy is giving the Minister an opportunity to sound like Robin Hood for the first time in this debate.

: Is Deputy Bruton withdrawing his amendment?

: I am contributing to the discussion.

: I want to get the other amendment before the House if this one is withdrawn.

: I am discussing the matter.

: Deputy Bruton is indicating his intention to withdraw the amendment?

: That is correct, I am. I am getting help from the Minister. That is wonderful. I would like to see this operating. While not operating retrospectively in relation to rates paid prior to 1978, I would like to see a provision along the lines I have mentioned operating forward into the eighties. The Minister's criticism of the amendment as at present drafted would not apply to an amendment which was redrafted to have that more limited effect. I hope to be able to do that between now and Report Stage.

The Minister will concede that there are a substantial number of farmers who are carrying out small non-farming trades or professions which are socially beneficial. While nobody wishes to facilitate the type of evasion of tax he mentioned, I would ask him to consider, if not accepting my amendment which proposes that the trade or profession must be less than half in terms of income of the farm income, accepting an amendment if the figure were a quarter, or something like that, in order to provide for the cases where the trade or profession is genuinely subsidiary to the farm and in no sense could the farm be used in the manner he described for tax avoidance. Would he be prepared to consider an amendment along those lines?

: I would have some difficulty in doing so because it seems that the main point about the proposals involved in these amendments for rates is that they are equating rates with income tax. This would mean that not alone would the rates be set against the current charge to tax but they would wipe out future liability to tax. In effect we would end up with a situation where we would be having claim for refunds wherever the rates exceed the tax. The overall effect would be that we would be repaying part of the rates paid in any year by way of a refund of income tax. That is the basic effect of approaching the rates position as it is approached in these two amendments. The Deputy will understand that I cannot accept that approach.

: I am looking for a deferred allowance, not a refund.

: Not at the moment, but that would be the next move.

: Not at all.

: As far as I am concerned the rates can only be regarded as credit which can be claimed by full-time farmers on the basis set out in the Bill, which is limited, as the Deputy knows.

Progress reported: Committee to sit again.