Finance Bill, 1978: Report Stage .

: I move amendment No. 1:

In page 7, after line 52 to insert the following:

"(2) Notwithstanding section 5 of the Finance Act, 1977, the rates specified in the following Table shall, for the year 1978-79 and any subsequent year of assessment apply to married persons.

Part of Taxable Income

Rate of Tax

Description of Rate

(1)

(2)

(3)

The first £625

20 per cent.

the initial rate

The next £1,250

25

,,

,,

,,

reduced rate

The next £3,750

35

,,

,,

,,

standard rate

The next £1,875

45

,,

,,

,,

higher rates.

The remainder

50

,,

,,

On Committee Stage I made the point, which has been borne out by a number of newspaper references in an extremely interesting article—which we should all read—in last week's Economist of the coming revolution of the taxpayers. I am sure they are dramatising the situation but in that article they say that in 20 years' time the taxpayers will resort to violence if they do not get their way. More and more people are sucked into the tax net every year or even into the marginal tax net, which is far more expensive than the ordinary one, because of inflation and stable tax bands. The Minister argued on Second Stage and also on Committee Stage that he has increased the allowance dramatically for people paying income tax. That is true of the marriage allowance, which has been increased quite considerably. It is the bands which should be increased if we are really sincere about not taking a larger slice of peoples' incomes than before.

I put down my amendment to try to get the bands to bear some relation to the value of money. I suggest that over a four-year period they should be increased annually by 25 per cent. This means that the £500 band would now become £625 and the next band of £1,000 would become £1,250. I believe the sense of discontent which many taxpayers feel would be offset if they were ensured of the goodwill and determination of the Government and of the Oireachtas not to see their position worsened because of the effects of inflation on their salaries. The effects of inflation would be offset by the widening of the tax bands so that they would be increased this year by 25 per cent and by 25 per cent in the years to come. I feel this is a worth-while reform in the tax system, which would ensure that when any extra pounds wage earners get, moves them from one tax band into a higher tax band its effect will be offset.

: This amendment would have the effect of increasing the rate bands and reducing the top rate of income tax for all married taxpayers. The cost of it, as I indicated on the Committee Stage, would be about £35 million in a full year. When we consider what is already in the Bill in regard to increases in various income tax allowances which will cost £97.6 million in a full year. It will be clear that the provision of reliefs costing a further £35 million could not be undertaken at this time. At any given time there will always be room for improvement of various kinds in allowances in the income tax code. Something a person discovers as he makes improvements is that he can always be accused of failing to make commensurate improvements in other areas. It is always possible to juggle the figures to produce a case for that.

When we see that we are providing in the Bill for an increase of £630 in the married allowance and that that is seven times bigger than the largest increase ever given in the case of the married allowance, and that we are increasing the single allowance by about four-and-a-half times the increase given last year, we realise that this Bill contains by far the most generous increases in allowances affecting all taxpayers that have ever been given. As Deputies are aware, the allowances are precisely in accordance with the undertakings given in the Fianna Fáil election manifesto and they are being implemented in this Bill at a very substantial cost.

The increase in personal allowances, combined with a pay increase of 8 per cent, will give an increase in weekly after-tax income of £7.88p or 13.2 per cent to a married man with two children who has £70 a week, a little less than average industrial earnings.

However desirable other changes might be, in the circumstances it will be obvious to everyone that further improvements this year cannot be contemplated. The attitude of the average taxpayer is that he would like to see the proposals for increases in the allowances as contained in this Bill implemented as soon as possible so that he may get the benefits as soon as possible. What may happen later on is another matter. Here we can deal only with the situation for this year. Since the situation for this year is as I have described it, increases of unprecedented size way above anything ever given before, I do not think there will be any general dissatisfaction with the proposals in the Bill.

Amendment, by leave, withdrawn.

: Amendment No. 2 is in the name of Deputy O'Leary and others. Amendments Nos. 3 and 4 are related and, therefore, we can discuss Nos. 2, 3 and 4 together.

Amendment No. 2 not moved.

: I move amendment No. 3:

In page 8, to delete lines 11 to 19.

This amendment arises from discussion on Committee Stage regarding the limits of income tax reliefs on premiums paid towards a pension. There is an overall limit of 15 per cent whether the premiums are towards a pension for one's self or for one's spouse. There is a further limit in the part of the Bill that we propose to delete which states that although the overall limit is 15 per cent there is also a limit of 5 per cent on deductions in respect of contributions in respect of the spouse. Given that there is an overall limit, I do not see much point in having a subsidiary limit in respect of contributions concerning a spouse. I do not think the Minister was able to give a cogent reason for this on Committee Stage. However, he may have had time to consider the matter since then and I should like to hear his views.

: As the Deputy has said, this was mentioned on Committee Stage. The position is that if the amendment were accepted the only limit applying in cases of this kind would be the 15 per cent. That would mean that the limitation of 15 per cent would apply to provision for annuities for widows and for children.

The limit of 5 per cent to which the Deputy referred was introduced as a relieving measure but also it was kept at that limit as an anti-avoidance measure. The primary purpose of the provision is to enable a taxpayer to make arrangements for a pension or annuity on retirement. If we were to take away the limitation of 5 per cent, it is clear that very generous arrangements could be set up, for instance, in respect of young dependants with, of course, a tax relief in respect of those arrangements.

: The overall limit of 15 per cent would still apply.

: Yes, but since the 5 per cent would not apply it would mean that in regard to provision made for young dependants a full 15 per cent could be devoted to the provision of very generous annuities for young dependants. Clearly we are talking here of people who are very well off but they are precisely the people who would avail of this if they were given the opportunity because they would get very generous tax deductions in respect of arrangements of this kind. I do not think that is the intention of the Oireachtas. Much more in line with what I would presume to be the intention of the Oireachtas would be that a taxpayer primarily would make provision for his own retirement and, in conjunction with that, he would make provision for his wife and children in the event of his demise.

It is sufficiently clear that the existing arrangements of a 15 per cent limitation and 5 per cent in the case of the widow and dependants meets the normal requirement of the normal taxpayer and that the abolition of the 5 per cent limitation would not be of real benefit to the ordinary taxpayer. The only people who would benefit would be those of considerable wealth and income, although the people most likely to gain are those with considerable wealth but not necessarily an enormous income. If they were to devote all of the provision they were making from income in respect of superannuation for, say, their children, they could arrange for generous payments without having to make arrangements for their own retirement because of the level of their own wealth.

It was not the intention of the Oireachtas to facilitate cases of this kind by allowing tax relief in respect of such premiums. I believe that the existing limitations of 15 per cent and 5 per cent meet the requirements of the ordinary taxpayer for whom this provision is intended. There would not be any advantage to the ordinary taxpayer in abolishing the 5 per cent limitation as proposed in this amendment.

: I cannot follow the Minister's argument. Basically, he is saying that it is perfectly all right for a person to allocate 15 per cent of his earnings towards creating a pension for himself. If he is trying to create a pension for his children or wife he may set aside only 5 per cent. The distinction does not make any sense. There is as much possibility of avoidance of tax in respect of the creation of a pension for one's self as there is in the creation of a pension for one's children or wife. Why should one be allowed to be more generous to one's self by going all the way up to 15 per cent?

: The Deputy will appreciate that these arrangements are normally made together. It is the one arrangement of the pension for the person and his dependants. If one is doing that, then the amount one has to pay in respect of the pension for dependants is much smaller than the amount one has to pay for the pension for one's self.

: I accept that that is likely to be the case. I cannot see why a man who wants to devote 15 per cent of his earnings towards creating a pension for his wife and children should be told that he may not do so, while a man who decides to make no pension provision for his wife and children can, if he wishes devote up to 15 per cent of his earnings towards the creation of a pension for himself. There does not seem to be any justification for that distinction.

The Minister made a passing reference to anti-avoidance measures, but the potential for avoidance of tax is just as great in the case of a pension provision for one's self as it is in the case of a pension provision for one's wife and dependants. Therefore, there does not seem to be any justification for the existence of the part of the Finance Bill which this amendment seeks to remove, nor has any justification been adduced by the Minister in his reply. I expected some reason to be brought forward in his reply. I feel that this amendment should be pressed.

Amendment put and declared lost.
Amendment No. 4 not moved.

: I move amendment No. 5:

In page 8, between lines 40 and 41, in column (3) of the Table, to delete "935" and substitute "955".

This is a deceptively simple but fundamentally important amendment. It refers to that portion of the table in section 5 of the Finance Bill which establishes the appropriate tax-free allowance for widowed persons. There were a number of amendments on Committee Stage which were designed to improve the lot of widowed persons in particular and there was a great deal of argument about them, most of which was rejected by the Minister on the grounds that the increases being given in the Bill were substantial and that any further increases would involve the Exchequer in too substantial an outlay.

In the course of that discussion the Minister went to some length to defend what he had done. Specifically, he went in some detail into the background of the decision to give widowed persons a certain tax-free allowance and to distinguish that allowance from tax-free allowances payable to other persons. In describing an argument which was made by single people at column 787 of Volume 307 of the Official Report, the Minister said:

In so far as children are concerned there are special allowances to cater for them, and as an individual the single person should not treat it in the same way as the widowed person. That is the argument made with perhaps increasing frequency.

He went on to say:

That argument has not been accepted, as is evidenced by the fact that the differential in favour of the widowed person as against the single person has been maintained.

Later on, at column 788, he said:

The approach that we have at the moment and have had for a number of years is to give a widowed person an allowance which is bigger than that of a single person but to give it on a permanent basis. In the long run this may well be the most satisfactory thing from a widowed person's point of view.

During the discussion on Committee Stage I pointed out to the Minister that, although he had given the same extra allowance of some £200 to the widowed person and to the single person, the fact that he was applying the same figure to a different base line, £665 in the case of a single person and £735 in the case of a widowed person, meant, and could not mean otherwise, that the differential he was claiming had been maintained was, in fact, being eroded. In other words, in real terms, in terms of the purchasing power of a widowed person compared to a single person, under this Finance Bill the widowed person is approximately 3 per cent worse off than the single person.

As reported in Volume 307, column 945 of the Official Report of 13 June I said:

The Minister argued that between last year and this year the differential between the widowed person and the single person has been maintained. This statement is true only in a sense which means nothing in real terms to the widows. It is true only in the sense that the same extra allowance of £70 has been given to the widow as to the single person. It is not necessarily true that because the same allowance is being given to each, the differential is being maintained.

As reported at column 946 the Minister said:

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

I then commented:

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

The Minister said:

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

He want on to say:

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

He was then asked by Deputy Quinn whether he would accept the statistical and factual analysis of what I had said and his only reply was:

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

Later at column 949 the Minister said: ... if my recollection of what I said on the last occasion is incorrect and Deputy Horgan's turns out to be correct, I shall apologise to him.

At column 951 I said I was sure the widows of Ireland would rather action than apologies. I now put it to the Minister that he did say what I said he said and that, not only was his recollection incorrect on that occasion, but the analysis on the basis of which he maintained that the differential had been unchanged is also incorrect.

It is for that reason we put down this amendment. It increases the tax free allowance for widowed people by, as far as I can recall, about £20. It is the absolute bare minimum needed to restore, in real terms, the differential between the tax free allowances of widowed persons and single persons. If the Minister really believes and maintains that the level of the differential which existed last year should be carried forward into this year, he has no option but to accept this amendment which I urge him to do on behalf of this party.

: I support this amendment. Relatively the position of the widowed person is worsened in the allowances set out in the Bill. Their real value is not maintained. A case could be made for even more generous allowances for widowed persons. Our case has been confined to the criticism that their position vis-à-vis single persons appears to have worsened. I am not clear whether the Minister denied this, or agrees with it, or accepts our case. The provisions for widowers are not of a piece with the kind of concessions made to other categories of taxpayers. At this point there is no need to make the general case about the real need for generosity towards this category of taxpayers, both men and women. A great deal of family responsibility devolves on their shoulders. That case has been made amply elsewhere. We repeat the criticisms made on Committee Stage that the allowances do not appear to be adequate.

: First of all, on the basis of the Official Report available, I want to apologise to Deputy Horgan in so far as my recollection of what I said earlier would appear to be incorrect. I promised him if that were so I would apologise, and I am now doing so. I have to add that what I thought I said, and what I think I said, was that the difference was being maintained, that is, the £200, although, as reported, it is, as Deputy Horgan stated, the differential.

In response to the question by Deputy Quinn as quoted by Deputy Horgan I forget the exact words but the import of what I said was that one could produce all sorts of statistical analyses which would produce surprising results. I was saying that in a general sense. The fact is that, if we look at the situation as dealt with in this amendment, we find that the difference between the single person's allowance and the widowed person's allowance is being maintained, that is, the difference in cash terms.

I do not dispute Deputy Horgan's figures in regard to percentage changes. One could take the situation of a married couple and talk about the difference between what is being done for them and what is being done for the single person. One could work out certain percentages. One could approach the matter on at least two other different bases to get different kinds of results. What I suggest really counts with any taxpayer is what he is actually getting into his pocket. Here the position is that the widowed person is getting an increase in his or her allowance of £200. That increase is four times greater than the increase granted in either of the two previous years. That is what really counts with the taxpayer, I would suggest. As against an increase of £50 in 1977, this year the increase is £200.

One can juggle the statistics around, the percentages, the differential arrived at by percentages, and so on, but nothing will alter that fact. The increase this year, at a time of lower inflation, is £200 as against £50 last year. I would be the last to argue— and, indeed, I would be very foolish to argue—that the allowance in respect of a widowed person or, indeed, the allowance in respect of most other categories, is as large as it should be and as we would like it to be. I am not arguing that. I am arguing that the overall increases in allowances for all taxpayers, as provided in this Bill, far exceed anything ever done before.

The cost is very substantial, the best part of £100 million in a full year. It is what we undertook to do this year, and in the case of a widowed person it represents an increase in the allowance four times greater than that granted last year. That is not to say that it should not be bigger in any circumstance, but it is to say that the argument in regard to disimprovement in the differential calculated on the basis of a percentage does not have anything like the same reality as that of an increase of £200 in the allowance, which is four times greater than last year. That is what counts to a widow who is a taxpayer, and the proposal in the amendment, however attractive it may seem, does not alter the fact that the allowance provided for in the Bill is so substantially greater than what was done last year that the arguments on the percentages involved tend to become a little unreal.

: I wish to seek leave to raise on the Adjournment of the Dáil today the subject matter of Question No. 34 of 13 June last.

: I will communicate with the Deputy.

: I do not think I have ever heard that having being done before.

: It is perfectly in order. I am sure the Minister will find it useful to know when he comes to sit here again.

: I doubt if I will remember it, it will be such a long time ahead.

: I can assure the Minister he will not have the slightest difficulty in remembering it.

I want to make a point in favour of the amendment. The Minister had money to disburse this year on tax allowances, and the way he can be judged is on the priorities he used in disposing of that money. I should like to illustrate the Minister's priorities this year in spending that substantial amount of money by making a comparison between the increase in the tax allowance he has given to a married couple who have no children and a widowed person with six children. This year he has increased the TFA of a married couple without children by 57 per cent and of a widowed person with six children by only 9 per cent. That is the reverse of the type of priority we should have and it serves to accentuate injustice. Deputy Horgan's amendment goes a small way towards righting the injustice created in the Bill and I therefore support it.

: Though I accept the Minister's apology, I am more than disappointed that he has not accepted the substance of the amendment which, as Deputy Bruton has pointed out, is the absolute minimum we could look for in the circumstances. This amendment is based on our understanding of what the Minister said on this matter during Committee Stage. There was, is and should be maintained a special relationship between the TFA of a widowed person and a single person.

When the Minister was replying to the amendment he went into some detail on the different forms of statistical analysis and he spoke of the ratio between the TFA for single and married people, but none of this was in issue on Committee Stage except, perhaps, the case of taxing married working women. The ratio that was in issue on Committee Stage was that creating a differential between single and widowed persons.

The Minister's response to the amendment was in two forms. First, he argued that one could not make a valid case by pointing to this ratio without ignoring other cases in relation to other ratios, and I have tried to make a case for the point I understood the Minister to have made on Committee Stage.

The Minister's second line of defence was to argue that the size of the differential involved, as extended by the marginal amendment we have put down, is irrelevant when compared with the total size of the increase in the TFA. I submit that the two are important and that you cannot allow one to become so important as completely to destroy the importance of the other. The Minister also argued that the differential between the two has been maintained with all that that implies, but there are several different ways of looking at tax-free allowances. One can look at them in terms of percentage difference, in terms of net disposable income, and in cash terms. I submit that of all these ways only one suits the Minister's book and that is the cash one. I suspect that the percentage basis and the net disposable income basis go against the Minister.

I should like to make it clear that we do not regard this amendment by any means as an answer to the problem of widows, especially those with families. We argued on Committee Stage, and will again in the future, for fair treatment for people in this situation. The amendment was not designed to do more than to restore the differential in last year's scheme for allowances and the Minister has not only refused to accept the amendment but he has decided to create a situation which will erode the differential, and this is something this party will resist as, I am sure, it will be strongly resisted by widowed persons throughout the country.

Question "That the words proposed to be deleted stand" put and agreed to.
Amendment declared lost.

: I move amendment No. 6:

In page 8, to add to the Table as follows:—

"

Finance Act, 1975:

Section 11

(housekeeper allowance)

165

600

"

On Committee Stage I moved an amendment, supported by Deputy Peter Barry, to increase the allowances for income tax purposes in certain cases, with particular reference to an employed person taking care of somebody who is incapacitated. The Minister's reply was that the cost of incorporating the amendment would be approximately £11 million and that he could not contemplate it this year.

Therefore, I have selected from the four allowances I sought to have increased on that occasion the one which I believe to be the most deserving of all and which also has suffered most from not having been increased in the past. This is the housekeeper allowance.

That allowance is one which may be obtained typically by a single-parent family where the parent has to go out to work and has to have some-body in to look after the house and the children. In 1949 the then Minister for Finance, Deputy MacGilligan, decided to introduce a housekeeper allowance of £100 against the tax of the person concerned to entitle that person to some allowance against tax and thereby enable him or her to pay a housekeeper to look after the children and the house. If such an allowance was not paid there might be a risk that the person might not be able to go out to work, his services would be lost to the country, he would be a charge on the Exchequer because he would have to go on social assistance rather than go out to work and the community and he or she would lose.

That allowance was introduced against tax for perhaps the most deserving of all familial situations that one can envisage. It was introduced at a rate of £100 in 1949. It is now £165; it has gone up by £65, a mere 65 per cent in almost 20 years. We all know what has happened to inflation since. The Minister opposite never ceased telling us what happened to inflation since 1974. We know what happened to inflation since 1954. Inflation since 1949, when this allowance was introduced, has exceeded by an immeasurable extent this 65 per cent for the most deserving of all cases in a family situation from the point of view of relief from the Exchequer.

I propose increasing this housekeeper allowance from its present level of £165 to £600. The Minister said in Committee that the overall cost of my original amendment, which would have covered a wider range of categories than this one would have been about £11 million. The cost of increasing the housekeeper allowance would be substantially less than £2 million and possibly not more than £1 million. Spending £1 million on this category of cases, clearly forgotten as far as our tax code is concerned, would be £1 million well spent. It would not unbalance the Minister's financial package. Given its high social value, and its limited social cost, I hope that the Minister will accept this amendment.

: First of all, I want to correct one or two misstatements, unintentional I am certain, by Deputy Bruton. The housekeeper allowance was not, as he thinks, introduced in 1949; it was introduced in 1920. In 1949 it was increased from £45 to £100. Deputy Bruton said, correctly, that since then it has gone up to £165, but the point which had arisen on Committee Stage already now arises here. Of that £65 increase £40 took place in 1974-75 and was merely compensating for the abolition of earned income allowances, so that effectively the position is that the increase in that allowance since 1949 has been only £25.

: That strengthens my case.

: That is one view of it.

: There is no other view.

: Another view is that the experience with this allowance since 1920 is that it clearly has not kept pace with other allowances or with the increase in inflation. One could speculate for some considerable length of time on the reason for that. That is the way it has happened. I do not subscribe to the view that the record of increase in this allowance over the years since 1920 was a good one or that that record suggests in any way that there is some defect in this allowance by which it would not merit increases at more frequent intervals and in line with at least the fall in the value of money.

: Is the Minister saying that there is no defect in it?

: I am saying that the non-increase in the allowance over such a long period would suggest that there is a defect. I do not go along with that proposition——

: ——but there must be some significance in the fact that successive Ministers for Finance over the years have not found it necessary or desirable—or possible, most likely —to increase this allowance commensurately with most other allowances. Other Ministers for Finance perhaps over the years have found themselves explaining to the House why this allowance was not increased in a particular year's budget, but none of them has been in the position that I am in today of being able to point out that anybody who would benefit from that allowance has benefited to an unprecedented degree on the basis of increased allowances contained in this Bill. Therefore, even if there is not an increase in the housekeeper allowance, there is a very substantial and unprecedented increase in the allowances of the taxpayer concerned. It does not specifically meet the problem met by this allowance, but it does mean that anybody who might have benefited by some increase in this allowance is not being ignored or overlooked and is in fact getting the benefit of very substantial increases in allowances applying to all taxpayers provided for in this Bill.

The question of increasing this housekeeper allowance is one that obviously has to be considered from time to time, but the circumstances of the increases this year are such that it is not the most pressing matter in relation to income tax allowances for the reason that I mentioned, that anybody who would benefit from it is already benefiting to an unprecedented degree from the across-the-board allowances provided for in this Bill. All such persons are not a priority issue this year because they are benefiting to that degree. That is not to say that there is not a case for increasing the housekeeper allowance or that it will not be increased in the future, but that the case for increasing it this year is far less than it has been in any other year because the taxpayers concerned have benefited to an unprecedented degree. I do not find myself in a position to accept this amendment with the increased cost of something in the region of £2 million involved.

: Is it £2 million?

: So I understand.

: Then the blind person's allowance and the incapacitated relative allowance must have cost practically nothing.

: I indicated on the last occasion that the bulk of the cost would be in the housekeeper allowance. On this occasion the people concerned will be benefiting to an unprecedented degree and therefore do not need the same degree of priority that they might need in other circumstances. I cannot accept the amendment. I am in a considerably stronger position perhaps than my predecessor was when he failed to increase this allowance in that the persons concerned are gaining very substantially anyway in the across-the-board allowances. I am not saying that there is no case for increasing this allowance nor that it will not be increased at any time in the future but that I cannot accept it for this year in the circumstances I have described.

: The Minister made considerable play of the difference between his position and that of many of his predecessors in relation to this amendment. I suggest that there are other differences which the Minister did not mention which would encourage people to take a different view of the amendment. One of the factors that obtained up to the last four or five years in relation to this allowance was that we had a social welfare system which was considerably less well developed than it is today. My main argument in support of this amendment is that it could have a very beneficial effect in relation to increasing employment opportunities and in allowing scarce money for social welfare to be diverted into other important social welfare objectives. The reason, I suspect, that successive Ministers for Finance did not to any great extent increase this was because there was not then an increasing sector of the social welfare recipient group which might have benefited from it. There should have been a major discussion between the Minister for Finance and the Minister for Social Welfare about the possible beneficial effects of accepting this amendment.

One of the results of the growth of the social welfare system over the past few years has been a growth in the number of single persons with family responsibilities in receipt of allowances from the State which are barely adequate and in some cases are inadequate. These people are caught in a poverty trap, they cannot afford to go to work, they have to stay at home and live on whatever the State can afford to give them. There are, I suspect, the better part of 10,000 people in this situation. We are not insisting or demanding that all such people should go to work. We are strongly in favour, especially when their children are young, of giving them the maximum State support in order to enable them to remain at home and look after their children, but as their situation changes and the children begin to grow up they should be encouraged to go to work not just for their own sake and the sake of increasing the productivity of the economy but because they could, by employing people to help to look after their children, increase the employment available in the community.

Although I am sure we can find out by way of a parliamentary question we do not know how many taxpayers are actually claiming the housekeeper allowance. I suspect the number is fairly small. It seems to us like a good idea that it is being allowed to die and it should really be looked at now as part of an integrated approach designed to allow people who want to, to get back to work and to encourage them to create more jobs. The present situation is that the £165 allowance may not even cover the cost of a social welfare stamp for a person they might employ to look after their children. The potential for imaginative and comparatively inexpensive initiatives in this field by the Minister and the Government has been completely overlooked and I would urge the Minister to look at it again, certainly between now and next year, not just in terms of the £2 million it might cost but in terms of what it might do to the social fibre of the country in allowing people who wish to, to work. One of the problems is that many of the people I am talking about would not be on the unemployment register to start with, so that simply sending them out to work would not necessarily reduce the numbers on the live register, but if it is important as the Minister maintains, to get people to work whether or not the live register is reduced as a result, this is a secondary consideration. I would strongly urge the Minister to accept this amendment.

: The main reason why the housekeeper allowance has not been increased over the years is that apart from the reasons put forward by Deputy Horgan the matter was not really raised here in a serious fashion as it has been raised under this Bill. Having listened to the Minister I feel he is sympathetic to the case being made and I am almost confident that he will do something about it next year as a result of this debate. I redesigned the amendment to facilitate the Minister in accepting it by minimising its cost and by confining it to the housekeeper allowance alone. I can sympathise with the Minister's anxiety not to make any change in his tax package although I feel that if ever an exception should be made it should have been made for this amendment because it relates to perhaps the case of greatest hardship and neglect in the tax code.

The Minister did not really produce any reason for the failure of successive Ministers to increase this allowance. The Minister said that there was no defect in the allowance and that one could speculate as to the reason and that there must be some significance in the fact that successive Ministers did not give any increase, but the Minister was evidently unable to find any reason on searching through the Department files or he would have told us the reason. There is no reason why this allowance was not increased beyond mere neglect of the most severely handicapped section, namely, one-parent families.

The Minister claimed that the allowances that had been given across the board in this year's tax concessions in some way helped people in this category to an extent that would justify or partially justify not increasing the housekeeper allowance. This is manifestly not true. The likely case in which a housekeeper allowance would be sought would be that which I have cited in this debate of a widow or widower with a large number of children. I would point out again that this year, although there have been generous tax allowances given, in the case of a widower with, say, six children, his tax allowances have been increased by only 9 per cent whereas the tax allowances of a married couple with no children have been increased by 57 per cent. Therefore, proportionately more of the allowances this year has been given to types of taxpayers who would never have to apply for a housekeeper allowance and far less had been given to the type of taxpayer who would be likely to apply for the housekeeper allowance. The Minister's priorities in giving out this money are such that they strengthen the case for increasing the housekeeper allowance because it is that type of family that has been most neglected this year in the allowances and increases granted.

However, I do not wish to end on a note of acrimony because I believe the Minister is sympathetic to the case made. Indeed I am confident that as a result of this discussion he will be able to do something next year.

: Is amendment No. 6 withdrawn?

Amendment put and declared lost.

: I move amendment No. 7:

In page 10, line 4, after "company" where it first occurs to insert "engaged wholly or in the greater part in manufacturing".

This is the amendment by which we sought to tighten the section which permits people to offset what we see as the unrestricted interest relief for individuals who borrow to invest in a private trading company. The purpose of the amendment was to limit this allowance, to ensure that if the effect of the section was designed to enhance employment prospects this would not be interfered with, but rather to ensure that there were certain limits to the possibilities of the income tax relief that could be gained under the section. As we saw it the section, unamended, would permit rather beneficial rewards to accrue to a very small number of people. That has been part and parcel of our approach to the various sections of the Bill: if rewards and incentives are to be given to individuals in the hope that extra investment will follow and that, as a result, employment will be created, we have not been against that principle but rather sought to hedge it round with socially just criteria thereby ensuring, first, that individuals who could benefit under the various sections could not do so in an unrestricted way.

Of course, at present the position is that in the case of a private trading company a person must be a full-time employee or a director of the firm and must hold at least 5 per cent of the stock before he can benefit from unlimited relief against tax on borrowings for investment in the company. Under the section full-time qualification and the 5 per cent stock limit are involved so that a part-time employee or director can benefit irrespective of his investment or of his state in the private trading company.

There is the question raised in the section whether it can be decided that a company is engaged in manufacturing. The Revenue Commissioners have their criteria for so deciding. Unamended section 8—if an amendment of the type we proposed was not accepted, and the Minister did not indicate on Committee Stage that he was willing to accept it—would operate in a way that an individual with an income at almost the £50,000 a year level could borrow a sum three or four times that amount at 10 per cent to invest in one or more trading companies, becoming a part-time, non-executive director in each case. Certainly his success in becoming a part-time director would be enhanced by the kind of transaction I have mentioned. Then the interest on his borrowings would be in the order of £15,000 but, if he belonged to the appropriate band —say the 60 per cent—the real cost would be £6,000 a year only and, at the same time, he would be receiving the full benefit of the investments. Therefore in effect we would be giving a rather substantial subsidy to somebody for whom it was not in any way necessary. It is to avoid the possibility of that type of rather hypothetical and rare situation that we put forward this amendment.

As we indicated to the Minister on Committee Stage we were willing to consider any other changes he might wish to ring out on such an amendment. All we were concerned to do was to preserve the overall point of the section, to ensure that it could not be seen as yet another hidden form of assistance for those who were not in need of such. We wanted to preserve whatever usefulness lay in the idea or attraction that employment and incentive had for such people to invest but we wanted to avoid some of the side effects we did not think were socially just.

: Deputy M. O'Leary mentioned that the benefit conferred in this section is confined to a small number of people. The effect of his amendment is to confine it to a much smaller number of people. I listened, I hope attentively, to what he said and I still have not heard a case for this amendment. If we take the situation Deputy O'Leary described towards the end of his contribution of somebody borrowing, say, £50,000 at 10 per cent and investing it in companies—I did not check Deputy O'Leary's figures but I think the point of what he was saying was—such a person would be able to invest £50,000 in perhaps a number of companies, become a part-time director to benefit under this section and, instead of having to pay £15,000 interest would have to pay £6,000 only because of income tax relief.

It appears from this amendment that Deputy O'Leary and his colleagues think that that is all right provided that the company in which the investment is made is engaged wholly or in greater part in manufacturing. That is the effect of the amendment, to confine the relief to cases where the company is engaged wholly or in greater part in manufacturing. Therefore, the principle of somebody getting that kind of relief apparently is acceptable to Deputy O'Leary and his colleagues. That is not the principle that is involved here. What is apparently involved is whether it is worth while doing this in a trading company, giving this relief against a trading company which is engaged in trading other than manufacturing. The whole object of giving the relief is to encourage the creation of employment and it would appear from the amendment that the Labour Party accept that this incentive should be given for the purpose of encouraging the creation of employment.

That brings us to the question which I raised on Committee Stage: is not a job a job and if such an incentive will create employment in distribution or any of the services why should we not give the incentive? If it is acceptable to give the incentive provided a job is created in manufacturing, why not give it in the case of distribution or any other service? It seems there can be only two logical explanations for the approach which is apparently involved in the Labour Party thinking on this matter. One is that there is something inherently objectionable in trading other than manufacturing—in other words, in distribution or other services. That seems so unlikely that I must reject it. The only other explanation for this stance is that investment of this kind in manufacturing may produce jobs; investment of this kind in trading other than manufacturing will not produce jobs. I am not aware of the evidence for this thinking; I have no evidence of it at all.

I mentioned in dealing with this matter on Committee Stage that it is quite clear, taking a general view of our situation in regard to the need to create jobs, that a considerably greater stress will have to be put in coming years on services as distinct from manufacturing, not that we have to lighten or reduce our efforts in regard to manufacturing but rather that we have to increase and intensify our efforts substantially in regard to employment in the services. I do not think it is necessary for me to go into detail as to why that is so; I would imagine that would be acceptable on all sides of the House. If it is acceptable, what is the basis for this distinction that appears to be at the root of this amendment? While employment in manufacturing has the great advantage that it will create a spin-off in employment or at least one job in the service industries for each job in manufacturing, the converse does not necessarily hold true, though it does hold true to some extent because there is a greater consumer demand for manufactured products if there are more people in employment in the services, but the relationship could not be shown to be one for one.

The real question is: is not a job a job? If the job is created in the service industries, are we to say it is not sufficiently worth while to give this kind of relief? I do not know if this is what the Labour Party are saying, but I cannot accept that proposition. The whole purpose of this section as amended is to encourage the creation of jobs, whether such jobs are in manufacturing industry or in service industries. Our need to create jobs is so great that I cannot afford to make what may be fine doctrinal distinctions between jobs in manufacturing and jobs in service industries. As far as I am concerned, a job is a job. To the extent that the provisions of the section as passed by the House so far will encourage the creation of jobs in any sector, I think it is worth while and we should try to give that incentive and to ensure that it will operate effectively to encourage the creation of jobs.

It may be that I have missed the substantive point involved in this amendment. I do not think I have because we discussed it on Committee Stage. If I have, no doubt I will be told so. If I have not, then it seems to boil down to whether a job in manufacturing is the kind of one you want and if so you do not give any incentives to the creation of further jobs in service industries. I do not accept that proposition and therefore I cannot accept the amendment.

: I should like to address myself to the general question raised by the Minister as to whether or not we are against the creation and extension of this relief to industry and to industrialists. It would be quite ingenuous of a Minister or of anybody else to deduce the attitude of this party to taxation, taxation reliefs and taxation reliefs for investment in general from one amendment in the Finance Bill. Certainly we can say that in the mixed economy in which we operate we are by no means doctrinally opposed to incentives and especially not to incentives which have as their objective the creation of jobs. We believe, on the other hand, that there are incentives and incentives and that incentives must be judged on the basis of their effectiveness and of their social consequences and these are the criteria which we attempt to apply to a fully formed and framed Finance Bill such as the one before us.

During the discussion on Committee Stage the Minister gave as his estimate —he insisted it was an estimate—that the cost annually to the Exchequer of this particular concession would be something less than £200,000. I am sorry there is nobody else on the Minister's side who might be able to give us this information, but it would be interesting to find out what anticipated volume of investment or reinvestment this £200,000 relates to. Presumably it would be related to the marginal rate of tax for the person making the borrowing and the subsequent investment.

If the cost to the State is £200,000 or less, it does not seem likely that the anticipated volume of investment or re-investment would be very substantial. One of the reasons why we have put down this amendment to confine the relief to manufacturing industry is that we believe in the fundamental importance of manufacturing industry; and if there is a comparatively limited amount of investment or re-investment to take place as a result of this concession, then there is a very strong argument for concentrating it in the area of manufacturing industry.

Part of that argument was referred to by the Minister when he referred to the spin-off effect on jobs on the service industries and other areas based on jobs on manufacturing industry. He argued to soften the effect of this that of course there was a reverse effect as well and that service jobs tended to create manufacturing jobs, although not to the same extent. We hold that we must insist on the positive value of job creation in other areas as a result of investment in manufacturing industry. That is why we want to concentrate this £200,000, this negative investment by the State, in the area where we feel it will do most permanent, long-term good.

The problems of investment in manufacturing industry are very substantial. We got a particularly dramatic example of them the other day when, in answer to a parliamentary question I put down to the Minister for Industry, Commerce and Energy, the House was informed that the capital cost of each of the 800 permanent new jobs at the Alcan Development in Limerick was £350,000. That is the size of the problem we are talking about. It tends to underwrite the overall view of this party that the problem of providing not just jobs but enough jobs and the right kind of jobs in manufacturing industry will never be wholly or adequately dealt with by the type of concessions we are talking about here.

That basically is our case. This amendment is only an attempt to point out to the Minister and the Government that their whole strategy of incentives and initiatives in relation to industrial employment needs review. We have already established that the amount of State aid to industry in terms of grants from the IDA, and Gaeltarra, excluding even for the purposes of argument, Fóir Teoranta, now amounts to about two-thirds of the amount the State collects in corporation profits tax each year. There seems to be a diminishing return from the type of concession we are giving. The situation is so serious that it warrants a very fundamental overall rethink. Our amendment is designed to alert the Government and the public to that need.

: Is the amendment withdrawn?

: No, it is not withdrawn.

Amendment put and declared lost.

: I move amendment No. 8:

In page 11, to delete lines 11 to 14.

I move this amendment on the understanding, which perhaps is not correct, that it applies to the provision concerning tax relief for interest on loans generally where a private individual is concerned or a farmer on the notional tax system as distinct from the tax relief which is unlimited on loans to a business.

: I am sorry: I do not get the point.

: My problem is that section 8 as it stands refers to relief to individuals on loans applied in acquiring interest in companies.

: Did the Deputy say section 8?

: Yes, page 11 of the Bill as amended.

: The section numbers are changed.

: I understand that you can have income tax relief on the interest up to £2,000 on a loan against your personal tax but that under the provisions of this section, as it stands unamended, that loan or the money advanced or any part of the loan or money advanced must be repaid within 12 months of the date on which it becomes due. If that is the case in respect of personal loans and the tax relief on interest in such cases, I believe such a requirement should not apply. Obviously, a borrower, for reasons not foreseen when the loan was arranged, could be unable to repay and if the relief were retrospectively withdrawn it would result in a claw-back of tax relief which had been given. This would be unfair in that it would add to an already difficult situation. If the man were not able to repay the loan on time presumably he was already in trouble. If he also had to repay all the tax relief he got it would be unfair and add greatly to his difficulties. It would also create problems for his creditors assuming he was in financial trouble. If the Minister for Finance claimed back tax relief against interest given in the past this clawback would take priority over all other civil debt and could mean that the person in question would not be able to repay any of the debt due to his ordinary civil creditors, because all his remaining limited assets would be necessary to meet the repayment of tax relief on interest paid which he had been granted by the Revenue Commissioners. All this would happen just because he was unable to repay the debt on time.

My understanding is that this amendment will effect a change in the position in respect of all cases of income tax relief for interest on personal loans and where interest is being claimed as an expense under the notional system of taxation of farmers. I may be wrong.

: May I interrupt the Deputy? I think the Deputy is talking about an amendment which he had down on Committee Stage which dealt with the requirement of repayment within 12 months of the due date. I think his present amendment does not relate to that but to the definition of the kind of companies from whom the borrowing is made.

: I think that there may be a drafting problem here.

: Yes. The reason I say that is that I find it a little difficult to reply to the Deputy's amendment if he is talking about something which is not, in fact, before us.

: I can see the Minister's difficulty. When I moved the amendment I could see there was some problem. Although the amendment may not be correctly drafted— these amendments had to be put in very quickly and adjusted to the Bill as amended in Committee, and so difficulties were bound to arise in the drafting—my main point is, and it is one to which I should like the Minister to reply if I am in order, that I feel here there is a possibility that interest could be withdrawn retrospectively simply because a debt was not paid at the proper time. There could be a clawback on interest over a number of years either in the case of normal tax relief or in relief of loans applying——

: The Chair finds itself in difficulty now. We appear to be discussing something which is not before the House, if I understand what the Minister and Deputy Bruton said a moment ago, and we cannot continue on that line. We can discuss only the amendment which is before the House and we are told it is not the amendment the Deputy wants discussed.

: If the Chair is satisfied I am out of order or irrelevant I am sure he will tell me so, but what I am seeking to do is to withdraw lines 11, 12, 13 and 14 on page 11 which provides:

the loan or the money advanced or any part of the said loan or money advanced is not repaid within 12 months of the date on which it becomes repayable;

That is one of the conditions applying to relief of interest for taxation purposes in certain circumstances. The area of doubt is whether or not the condition applies to a broad category of cases, including all personal loans, or whether it applies to a narrow category of cases in respect of loans obtained for the purpose of acquiring an interest in a company or companies. The arguments are relevant one way or the other. They might have stronger force if they were relevant to the wider area of cases but they are still relevant even when applied in the narrower confine. The Minister should reply to the arguments because they are valid. They would obviously be of more public interest if they applied to the wider range of cases. Basically, it is unfair to the taxpayer and to his creditors to claw back interest paid over a long period.

: I trust what I am about to say will be relevant both to the amendment and to what Deputy Bruton was arguing but, if it is not relevant, I hope someone will correct me, either the Chair or Deputy Bruton.

: I doubt if the Chair will do it.

: Both might be out of order.

: As I understand it, Deputy Bruton's primary concern is the condition that the loan or the money advanced is not repaid within 12 months of the date on which it becomes payable. He fears that, if that happens, the interest allowance proposed here will be withdrawn and withdrawn retrospectively. I do not quite follow his point there. Am I on the right wavelength?

: Section 8 (5) (c) provides:

a loan shall not be regarded as having been made, or money shall not be regarded as having been advanced, in the ordinary course of a business if—

The conditions are then set out and one of the conditions is the one to which the Deputy has referred and therefore, we are talking here about a very limited number of cases in which the loan is not regarded as being made in the ordinary course of business. The most ordinary kind of case is a loan from a bank made in the ordinary course of business. This is purely an anti-avoidance provision. It does not apply in the kind of case the Deputy has in mind. It is simply designed to determine whether or not a loan has been made in the ordinary course of business.

It would be possible for a person to arrange things to get unlimited relief, or at least the relief provided in this section, simply in order to avoid the payment of tax and so it is necessary to set out certain conditions in order to determine that the borrowing is a genuine transaction. One of the conditions is that the loan, if it is being claimed as a genuine loan for the purposes of the section, is advanced in the ordinary course of business and, in order to determine that, these various tests in clause (c) are laid down, one of which is the one referred to by the Deputy:

the loan or the money advanced or any part of the said loan or money advanced is not repaid within 12 months of the date on which it becomes repayable;

That is only one of the tests and it applies to a very limited number of cases. It seemed to me from what the Deputy was saying that even the ordinary £2,000 relief would not be available unless these conditions were complied with. That is not so. If we are talking about the same thing the ordinary £2,000 limit applies anyway to anybody even if it has nothing to do with the course of trade.

: Then the problem about when it is repaid does not arise.

: I am satisfied with that. That is my main point.

: Is Deputy Bruton replying now?

: There remains the limited point.

: We cannot have a Committee Stage debate. We will allow the Minister to reply briefly but we may not get back on Committee Stage.

: If difficulties arise the Minister can look at this next year but it still seems to me, on a strict interpretation of the section, that a loan could be given quite legitimately in the limited circumstances envisaged in section 8 for the purchase of shares in a company in the ordinary course of business, and with no tax avoidance motive whatever, but subsequently when the loan comes to be repaid it could be deemed, solely on the grounds that it was not being repaid on time, not to have been made in the ordinary course of business.

After large amounts of interest had been paid, after tax reliefs had been claimed in respect of such interest it could then be determined belatedly and retrospectively that from the outset the loan was not a loan given in the ordinary course of business and therefore that all concessions that had been granted and obtained legitimately could, by virtue of something which happened subsequently be made null and void under subsection (5) of this section. That is the problem I see now after further discussion; not the problem I thought existed at the outset and it is not as big a problem as I thought but I contend there is still a problem. Would the Minister indicate if I am wrong? If not, perhaps he would deal with this next year.

: Very briefly, the situation is that if the loan is got from a bank or a company whose ordinary business it is to give loans, no problem arises. It can only arise in the event of this complicated business of loans and associated companies and so on. We do not think in those circumstances that the kind of problem the Deputy is talking about can arise. In fact, I am advised it will not. I will have a closer look at it in the light of what the Deputy has said to see if there is any possibility of this and if so we will see if we can do something about it.

Amendment, by leave, withdrawn.

: I move amendment No. 9:

In page 11, between lines 33 and 34, to insert the following:

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

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

This amendment is to add a new subsection to section 8 and seeks to amend the Finance Act, 1974, which limited the amount of interest which could be claimed against tax to £2,000. The idea was to prevent people borrowing money in large amounts as had been happening for some time, and then claiming the interest they are paying on that money against their tax liability.

People who had borrowed money as ordinary mortgages on their houses were also included but at that time the cost of houses was much less than it is now. Except for people living in very large houses very few house owners paid more than £2,000 interest on their mortgages in a year. The cost of houses has increased enormously. I was looking at an advertisement in a newspaper for a relatively modest semi-detached house in Dublin costing £24,500. In order not to bring into this net people who were never intended to be caught, the figure should be raised to £3,000.

: The £2,000 limit was fixed in 1974 when the building societies' lending rate was 11¼ per cent. The rate of 9½ per cent which was in operation up to 1 June this year has now gone up to 11½ per cent. If all other factors had remained static there would be no ground for raising the £2,000 limit, in other words, we would be back to where we were, other than the one Deputy Barry has referred to, that is, the rise in the cost of houses.

However, there are other factors to be taken into account. The abolition of rates has been an important factor. It is true that the benefit to the individual taxpayer will depend upon the valuation of his house and the level of rates charged in the area where he resides. If we take County Dublin for the purpose of illustrating this, rates for the current year are £11.65 per £1 valuation and house owners with rateable valuations of £25, £30 and £45 will benefit respectively from the abolition of rates to the extent of £290, £350 and £525. It may be said that the house owner with a rateable valuation of £45 is exceptional, but it is not as exceptional as it might be thought. It is important to bring it into account in order to compare the gain from that with the gain from the proposal to raise the interest limit from £2,000 to £3,000 as put forward by Deputy Barry.

It would be accepted that the house owner with a house of a rateable valuation of £45 is likely to be in the higher rate of tax bracket and is probably chargeable at 50 per cent or 60 per cent. The saving of £525 in rates represents pre-tax income of £1,050 in the case of the 50 per cent bracket taxpayer. An equivalent saving to him by virtue of an increase in the interest limit to £3,000 would arise only if he had a loan of more than £26,000 from a building society for the purchase of a house at a cost of some £35,000, assuming the loan represents 75 per cent of the purchase price.

In the case of a house owner with a house of rateable valuation of £25, his benefit of £290 from the abolition of rates represents pre-tax income of £440, assuming a marginal rate of tax of 35 per cent. An increase of £440 in the interest limit would provide an equivalent benefit, but interest of £2,440 would service a loan of £21,200 from a building society at 11½ per cent for the purchase of a house costing over £28,000. I think this would be an unrealistic situation for such a house owner and it is clear that the greater benefit for the majority of house owners is derived from the abolition of rates.

If we look at it in this way the case for increasing the limit to £3,000 this year is not as strong as it might appear at first sight. The substantial improvement brought about in the case of most house owners, viewed as taxpayers, from the abolition of rates has effectively altered the limit of £2,000, if we are thinking in terms of house purchase. It is true that the limit concerned must and will be kept under review. It will certainly be reconsidered next year with reference to the circumstances then prevailing. In the circumstances of this year, for the reasons I have mentioned and the effective increase in the limit which has taken place in the case of borrowers for house purchase purposes as a result of the abolition of rates, the case for increasing the limit this year does not stand up.

: So far this amendment has been discussed in the context of borrowers for house purchase purposes. However, it would be wrong to assume that this is the only category to which the limit of £2,000 interest for loans applies. It applies also in the case of a farmer who opts for the notional tax system. We all realise the desirability of farmers investing in their holdings. They must become involved in substantial debt in order to do so. The traditional problem of Irish agriculture was that, instead of investing in their holdings, farmers were investing in the banks and leaving large amounts of money on deposit. If such farmers are to be encouraged, not only to withdraw that money from the bank but to become involved in substantial debt in order to improve their farms, to increase productivity, to increase stocks and so on, we must do everything possible to give them the incentives that are necessary. We must be conscious of the fact that increased productivity in the sphere of products that are processed subsequently means increased employment for our people.

During the Committee Stage debate the Minister indicated that approximately 38 per cent of tax-paying farmers are on the notional system. The position is that, if a farmer who is assessed on the notional system is borrowing both to improve his farm by way of drainage, for instance, and to increase stock while at the same time he is borrowing for the purpose of building a new house for himself, all the loans are lumped together and if the total interest exceeds £2,000 in a year he may not claim tax relief on the excess interest. That is not a desireable situation. As has been pointed out both by the Minister and by Deputy Barry, the £2,000 limit was set in 1974 and, regardless of the calculations the Minister has made regarding house prices and so on, the situation is that the cost of investment in farms, the cost of farm buildings and the cost of such works as land improvement projects and farm roads has increased by perhaps 100 per cent since 1974. Therefore, regardless of how interest rates have fluctuated since then, the interest would be greater because the amount borrowed would have to be much greater if a farmer wished to do the same work now as he might have done in 1974. In these circumstances he may well be in the position of being in excess of the £2,000 interest limit.

As I have said before, it is in our interest to encourage farmers to borrow money in order to expand their holdings. Irish land is seriously understocked. I understand that the added value of agricultural land in Holland is about six times as high as is the case here and that grassland in Holland produces about twice as much as is the case here. This difference cannot be attributed to a difference in climate. The difference is due to the fact that historically our farmers have not been in a position to invest in their holdings for the purpose of expanding them. To this extent they need every encouragement possible if they are to achieve comparable output with their competitors on the continent. We can encourage them to expand in such ways as buying more stock and more fertiliser and by erecting buildings in which to winter cattle. We can give them that encouragement by providing for substantial tax relief on the interest they must pay on loans.

As has been pointed out already, the farmer who opts for the notional system is the one who is most intensive because he is producing more income per £ rateable valuation than the farmer who opts for the accounts system. It follows that the farmer in the notional system is also likely to be the one who has incurred heavy debt.

: Is he not likely to be in the accounts system?

: Not at all. The position is that the people who opt for the notional system are likely to be intensive dairy producers, for example, whose rate of production is very high and consequently whose income per £ of rateable valuation is very high, too. Therefore it suits such farmers to pay a fixed rate of tax related to their rateable valuation, whereas a farmer who is not intensive, who, for example, is in dry stock production, is likely to have a low income per £ of rateable valuation and perhaps would be below the amount provided for in the multiplier of 90. The less-intensive producer, then, is likely to opt for real profits and accounts in having his income assessed for tax purposes because on that basis he is likely to pay less tax than if he opted for the other system.

Although only 38 per cent of tax-paying farmers are in the notional system, these are likely to be the ones who pay the most interest and who, consequently, are the ones concerned most with this £2,000 limit. Notwithstanding the Minister's argument, which related strictly to house prices, there is a strong case for increasing the interest limit in terms of tax relief.

: I agree, from an agricultural point of view, with the arguments put forward by Deputy Bruton. At today's rates an interest of £2,000 would mean a debt of about £18,000. An input of £18,000 is a relatively small amount in terms of investment in agriculture today. In 1974 an input of that size would have made some impact on farm modernisation, but today it is merely a drop in the ocean. The Minister realises that 38 per cent of farmers are using the notional system; but as one moves down the line in valuation from £75 to £60, one finds the greater proportion on the notional system: one is now dealing with the more intensive farmer, the smaller acreage farmer, and it is more relevant. Most of those are dairy men. Deputy Bruton is correct when he says that we are dealing with the more intensive man who will use the notional system more than the larger farmer. The Minister should take into consideration the amount of money the £2,000 will serve in 1978.

: I spoke primarily as an urban TD from the point of view of the houseowner and the cost of houses nowadays. There is no argument from the national point of view to the points raised by Deputy Bruton and Deputy D'Arcy.

Amendment put and declared lost.

: Amendment No. 15 is consequential on amendment No. 10, so we will discuss both of them together.

: I move amendment No. 10:

In page 15, line 41, after "assessment" to insert "up to and including the year 1979-80 only".

The Minister on Committee Stage said that he was not in a position to accept the amendment. Disquiet was then expressed about how long the notional assessment system was to last. The Minister referred to discussions between the Revenue Commissioners and farming organisations. He did not tell us his exact attitude to the duration of the notional assessment system. We were left very dissatisfied about the lack of clarity on that point. He said that our amendment was largely decided by the election result last year. Our speakers said that it would be preferable from the point of view of the agricultural industry if a fair system was decided one way or the other.

During Committee Stage many speakers expressed their fears about the effect on farming and its prosperity of the uncertainty attending the notional system. Deputies were worried about the lack of a statement from the Minister about how long the system was to last. Reference was also made to the multiplier, the lack of a clear criterion on which farmers could decide their policy in relation to their individual holdings. It was said that this was a matter of concern to farming organisations. We are all agreed that because agriculture is a basic industry there should be certainty about the intentions of the Minister for Finance of the day in regard to that industry. There is still a good deal of confusion about what the Minister has in mind in regard to the total taxation position of farmers. He said on Committee Stage that he believed more revenue could be raised by the dual system presently operating. He said that any Minister for Finance had an obligation to look into the type of revenue he could raise. Even though there might be a lack of certainty with regard to his long-term objectives, the Minister said that revenue was being raised at present by a combination of the two systems.

Our amendment seeks to elicit from the Minister his exact intentions in regard to the notional system. His decisions in this area are far more important than the opinions of the Opposition, because he is the person in the driver's seat and his decisions have the force of law. Whatever system is adopted, it should be fair and should not penalise productive farming. It should assist the industry on which so much of our prosperity depends.

The Minister could, even at this late stage, do a good deal to get rid of a lot of confusion which exists in the industry at the moment by clarifying his long term intentions in regard to the notional system of assessment. In this amendment we are seeking to discover the Minister's attitude by confining it to two years, but we are really more interested in discovering the Minister's mind in relation to the whole notional system of taxation for farming. While some people outside farming may say that it benefits the farming community to have this choice, there are many farmers who claim that there is a good deal of unfairness built into the notional system. It is true that the notional system is utilised more by farmers in the most labour-intensive side of the industry, the dairying side. The Minister could offset a good deal of the criticism at present levelled at the notional system if he clarified the matter.

: I am afraid Deputy O'Leary is confusing the issue somewhat when he refers, on the one hand, to the multiplier and, on the other to the discussions taking place between the Revenue Commissioners and farming organisations concerning the right of somebody who has opted for the notional system, and would be bound for three years, to opt out in certain limited circumstances. These are incidental matters and really do not affect the issues before us in this amendment.

The purpose of the amendment is to put an end to the notional system of farming taxation after the tax year 1979-80. In so far as that proposition is concerned, I rejected it on Committee Stage and I must reject it again. As I understand it, the previous Government proposed to get rid of the notional system. Page 18 of the Fianna Fáil manifesto said:

Fianna Fáil will retain the notional system of farm taxation and allow rates on agricultural land as an instalment of a farmer's tax bill.

That was and is the position of the Government, which was endorsed by the people. In those circumstances I am sure Deputy O'Leary does not expect me to accept an amendment the purpose of which is to get rid of the notional system after we had campaigned for and undertook to retain it.

: I agree with Deputy O'Leary in seeking to have the Minister clarify the position in relation to the long-term taxation of farmers. He has not done this despite the invitation from Deputy O'Leary. I would not go along with the proposal contained in the amendment for the suspension of the notional system for the taxation of farmers.

This form of taxation is of benefit and is an incentive to the most intensive forms of agricultural production because it is they who are likely to be earning significantly more than their notional income according to the notional method of calculation. Therefore, they are not penalised on marginal additions to their productions and to their income beyond that level. It is in the national interest that farmers should be encouraged to produce the maximum, not only from the point of view that it increases their income and the amount they spend in their own locality in purchases of goods for their farms, in building materials and so on but also—and even more important— because increased agricultural production means more employment in the processing of agricultural goods, in creameries, in meat factories and in all the downstream industries associated with agriculture.

Therefore, I would argue that our tax system for farmers should be designed in such a way as to provide an option such as exists at the moment and to encourage the maximisation of production from a given quantity of land. Land is a strictly limited resource. As Mark Twain said, "They have stopped making it" and we must ensure that it is used to the maximum extent. Therefore, a system of taxation must be devised specifically designed to meet the unique quality of land use here and the production from land. Because land is a unique commodity, one that is strictly limited in supply, in itself that justifies a special method of taxation in respect of land use and, consequently, a special method of taxation for agriculture. It was in order to meet that special case that the notional system was devised by the previous Minister for Finance and I hope it will be continued.

Deputy O'Leary was quite correct in seeking from the Minister a clear statement of his long-term intentions for the next four to eight years in relation to the taxation of farmers. All of us recognise that farmers must plan ahead. The whole thrust of the farm modernisation scheme as introduced by the previous Government, and which is presently in operation under this Government with EEC aid, is to get farmers to draw up plans for the following six years, to get them to work out these plans in detail, to assess their likely income and the inputs that will be necessary to achieve that income in the next five or six years.

The whole emphasis is on farm planning and one of the most important ingredient in any plan must inevitably be one's likely tax liability. At the moment farmers do not know what amount of taxation they will have to pay next year if they are on the notional system. There is another category of farmers, those who are below the tax threshold, with a valuation of less than £60. They do not know their long-term position in relation to taxation. They are in a similar position to the farmers on the notional system in that they cannot draw up their plans to take account of their liability to taxation because they do not know their likely liability. It is the right approach for a Minister for Finance, economically and politically, to spell out his intentions in this matter clearly in advance for a period of four or five years. I hope the Minister will give an indication of where he is going so far as farmer taxation is concerned in the next four or five years. To the extent that Deputy O'Leary was seeking to elicit information—unsuccessfully, as it happened——

: He was not. He was seeking to abolish the notional system. The Deputy had to support him re-luctantly——

: I am afraid we are getting into the whole area of farmer taxation on a limited amendment.

: To the extent that Deputy O'Leary was seeking an indication from the Minister of his long-term intentions it was a valuable exercise and I am sorry the Minister did not give such an indication. However, for the reasons I have given I do not support the intention contained in the amendment of restricting the notional system for the next two years.

: The Minister is not availing of the invitation to clarify the matter in regard to his intentions——

: I thought it was very clear in the manifesto.

: ——towards that large and respectable body of men, the farmers.

: I think the farmers understood the manifesto.

: We are on Report Stage. The Deputy should be allowed to reply without interruption.

: As I understand it, there have been some regrets expressed recently. We are withdrawing the amendment. We wish to look at some further drafting changes that may be required.

Amendment, by leave, withdrawn.

: Amendment No. 11 is in the name of Deputy Bruton and Deputy Barry. Amendment No. 12 is consequential and, therefore, amendments Nos. 11 and 12 may be discussed together.

: I move amendment No. 11:

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

As I pointed out when I supported amendment No. 9 in the name of Deputy Barry, the farmers to whom these amendments apply are farmers on the notional system. They are limited in the amount of interest they can claim as an expense for tax purposes to £2,000. If that amount had been increased it would have given them an incentive to invest in machinery, buildings and so on. However, the Minister failed to do that. In the light of his failure to accept amendment No. 9 we must find some other means of encouraging farmers who are on the notional system to invest in their holdings, in the purchase of machinery and new buildings. Amendments Nos. 11 and 12 seek to do this.

The amendments seek to allow farmers on the notional system in substitution for claiming contractors' fees as an expense, if they do not wish to do that because they have their own machinery and have invested heavily in their farms and are not using outside help, to make a claim for depreciation in relation to the capital expense. Many farmers may not use contractors to any significant extent. During the years they may have built up their farms and be in a position to do their own work. They do not need contractors and the concession is not of great value to them. However, they would be interested in a concession in relation to depreciation of the substantial capital investments they have made.

The main point is that by granting this concession the Minister will encourage that 38 per cent of taxable farmers who are in the notional system. As I have pointed out, they are likely to be more intensive farmers and in order to encourage them to invest in farm buildings, fences, roadways, holding yards, drains and land reclamation they should be allowed to set off the depreciation of such investments against their tax.

Let us consider the impact of increased investment by farmers in the notional system on farm buildings, fences, roadways, holding yards, drains and land reclamation. These investments almost exclusively involve money spent within the State. Farm buildings will involve local contractors. locally produced building materials and will substantially increase employment in rural areas. It has been traditionally recognised that the greatest need for employment creation is in these areas. In order to attract industry into rural areas the IDA have undertaken their various regional plans and have given selective rates of support towards industry in essentially agricultural regions. Yet, as Deputy Horgan pointed out, the cost of creating a new job in industry in those regions can be extremely high.

I believe, as the Minister said, that a job is a job. A job in a local building firm, primarily dealing with the erection of farm buildings, fences and local roadways is as good as one created by the IDA in a massive industrial plant which has probably been created at great cost to the Exchequer in terms of grants and at great cost to the balance of payments in terms of imports of machinery and capital equipment.

A job created by means of this amendment in services to farmers will have no significant import costs because all of the materials involved will be domestically produced. Furthermore, it will be located in rural areas where there is a very great need for employment and where the infrastructural costs of new employment are not significant. For instance, to create a job in Dublin for somebody living in Mountmellick one must provide him with a house in Dublin. On the other hand, if a job can be created in agriculture or in an associated industry, the infrastructural costs and the cost of capital investment will be less. Therefore, there is a strong case for supporting this amendment as it would have a significant impact on unemployment in rural areas.

I would further argue that one of the major obstacles to intensification of agriculture is lack of farm buildings. Our traditional pattern is one of farmers producing cattle off grass at the end of the autumn and having to sell them at less than their value.

: I can see the relevancy, but I am afraid the Deputy is going into great detail on simple amendments.

: The problem has been that farmers have not been able to winter their cattle because they did not have farm buildings in which to do it. We need to encourage investment in farm buildings so that we can have, as the Green Paper pointed out, a balanced production of both milk and beef throughout the year in order to ensure a maximum return. The major block in eliminating an unduly high seasonality in agricultural production, which not only reduces the farmer's income but also reduces the effectiveness of our processing industries, is the lack of buildings on our farms.

If buildings were provided on our farms for housing cattle indoors during the winter we would be able to produce cattle at a steady level for slaughter throughout the year and we would be able to produce almost the same levels of milk from the land throughout the winter. This would ensure a better utlisation of the very extensive and expensive facilities for the processing of milk products. This factor has been identified in the Green Paper as a block towards agricultural development.

This amendment, which will allow farmers in the notional system to set off as a depreciation their investment in farm buildings, fences, roadways, drains, holding yards and land reclamation, will contribute directly towards the creation of employment by direct employment on buildings and by increasing absolute production and the seasonal distribution of production. The capital allowances proposed in the amendment is not one of free depreciation. The farmer will not be able to opt for the notional system for three years or undertake huge investments and set them off against his tax in one year. I would not wish to facilitate that kind of activity. The main reason the Minister introduced the three-year rule was to avoid such activities on the part of farmers. I have drafted the amendment in such a way as to avoid that situation. The capital allowance may only be claimed at a rate of 20 per cent per year for five years. The farmer cannot claim 20 per cent in one year but must claim at a steady rate over a period of five years. Therefore, the type of activity which the Minister wishes to avoid would not be facilitated by my amendment.

The last measure of relief contained in the amendment relates to investment in land reclamation by farmers in the notional system. I believe there are a million-and-a-half acreas in need of reclamation. They are insufficiently drained. In some cases there is not sufficient access to them, or the fencing is such that they cannot be properly cultivated. But, most likely, the problem is that they are insufficiently drained. Our agricultural production could be increased dramatically if farmers undertook substantial programmes of land reclamation. By allowing depreciation to farmers on the notional system who undertake to invest in land reclamation, this amendment would assist in having more land reclamation carried out.

The Government have already recognised the need for such land reclamation in the western region. It is hoped that they will provide an additional impetus with EEC money made available for this purpose. Sometimes I am doubtful about whether that will happen or whether the EEC money will be used to substitute for funds which would otherwise have to be provided by the Irish Exchequer, thus saving money for the Minister for Finance. We will discuss that later.

If that is the priority, and it should be the priority, we should also use the tax code to encourage land reclamation. My amendment would have that effect. If the farmer goes for the option of claiming depreciation, he cannot also claim contractors' fees. It is in substitution and not in addition. Therefore, the likelihood of its being used as a significant means of reducing overall taxation is not great. It would adjust the way in which taxation could be paid and reliefs claimed, so as to put an emphasis on what is obviously socially and economically valuable, namely, greater investment in buildings and land reclamation.

: This amendment applies only to people opting for the notional system of taxation. As reported at column 1050, Volume 307, of the Official Report of 14 June, the Minister said:

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....

Deputy Bruton's amendment is an alternative to the fees claimed for contractors. That is the kernel of the amendment. Large numbers of farmers cannot and will not use contractors to carry out work on their farms because that is uneconomic for them. A fair number of these people are in the tax net at the moment. The Minister is depriving them of any tax benefit. The amendment is reasonable.

It is also specified that the tax relief in question should go towards farm buildings, fencing, roadways, draining and land reclamation. Most of the materials used would be home produced. As the Minister said on numerous occasions, a job is a job no matter where it comes from. The number of jobs which could be created in doing this type of work has never been appreciated. Fencing of our farms has been neglected over the past ten to 15 years due mainly to the introduction of large machinery. Farmers should give more attention to this. The trees grow here and the wire is made here.

As Deputy Bruton said, farm buildings have been somewhat neglected over the past ten to 12 years. If a farmer does not maintain an existing building and erect new buildings, he will find himself left behind very quickly. Allowing people on the notional system to claim tax relief for hiring machinery could be described as discriminatory. I wonder has the Minister something else in mind? Is he trying to get the men who hire out machinery into the tax net? Is that his principal motive on this issue?

I always believed there should be special tax concessions for land reclamation. Approximately 25 per cent of our land is lying idle. Every acre of land brought back into production is of benefit not only to the farmers but to the nation as a whole. When the Minister is thinking of taxing farmers in any direction, he should give special consideration to land reclamation. I have seen figures indicating that land reclamation can cost up to £400 per acre. That type of figure frightens farmers. If we had a special tax concession for one year, tremendous benefit would accrue to the nation as a whole. I encourage the Minister to accept this amendment.

: The case made for this amendment would be very compelling indeed, particularly in relation to the creation of jobs, the use of home materials and the encouragement of land reclamation, if the incentives involved were not already contained in the income tax code. But that incentive is there available to any farmer who wants to avail himself of it. If he goes on the accounts' system he can claim all of his allowances and reliefs on the same basis as any person engaged in trade or business. Therefore the incentives the Deputies have been talking about are there in the system. The only thing is that they are not available to those who opt for the notional system.

That is what the amendment is about, not about the value of this kind of allowance because those allowances are already available. We are really being asked should this be extended to the notional system. One will have noted a tendency, understandable, but one which a Minister for Finance who is committed to the retention of the notional system must avoid and reject, and that is that if you think about the basis for the notional system you will find there is a restriction on the income side on the basis on which the income is assessed and, of course, correspondingly there has to be a restriction on the basis on which expenses and allowances are assessed, and unless the restriction is carefully watched in relation to the expenses side one will end up with a system in which all of the expenses and deductions allowable under the accounts system will be allowable under the notional system, but on the income side there will still be a restriction on how to assess the income.

Clearly this is not feasible, and of necessity and virtually by definition, the notional system must contain only a limited number of items for deduction of fairly general application both from the point of view of trying to ensure that there is a reasonable balance between the estimated income and the items of expenses that may be claimed, and of trying to ensure that the system is reasonably simple.

We must not forget that the notional system apart from anything else is of considerable advantage to a farmer who has not been keeping accounts. It is useful to him in the sense that it should be a fairly simple system, but to the extent that we introduce more and more forms of deductions and allowances we complicate the system and get it closer to the accounts system. It is necessary to keep this in perspective and unless we restrict substantially the kinds of deductions and allowances available under the notional system we will move towards the accounts system.

I said earlier that as a Minister for Finance committed to the retention of the notional system, it is essential that I do not agree to the erosion of the basis of the notional system so that we would end up with the accounts system only. I know that is not the intention of the Deputies in putting forward this amendment, that they simply want to ensure that some of the benefits of the accounts system will be extended to people opting for the notional system without extending to them the disadvantages of having income assessed on the basis of reality rather than the notional system, and in so far as they try it is fair enough, but it is a different matter to accept it.

I want to point out not only to the Deputies proposing the amendment, but to others outside the House who might be tempted to make a case based on a similar premise, the danger if one pushes too far with the allowances available under the notional system. What one will be doing is abolishing the notional system in practice. My party and I do not intend to abolish the notional system. We believe that its advantages from the point of view of individual farmers, the economy as a whole and the Exchequer from the point of view of the collection of tax which can be estimated reasonably in advance cannot be vitiated by the kind of things that have happened in recent years in relation to farmers' tax. There are many arguments in favour of the notional system.

My party committed themselves to retain the notional system in the election manifesto. That was endorsed by the electorate and in pursuance of that commitment I am making the necessary provisions in this Bill and I cannot accept that the real, genuine and necessary distinction between the two systems should be eroded, because the only consequence of that would be the abolition of the notional system. Any farmer who believes that the kind of expenses referred to in this amendment should be claimable by him can, of course, opt for the accounts system and can claim in the same way as anybody in trade or business the various allowances and expenses appropriate; but I am afraid there is a tendency for people, an understandable human tendency, to want to have it both ways. It is not a matter I can simply ignore.

Debate adjourned.
Business suspended at 1.30 p.m. and resumed at 2.30 p.m.