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Dáil Éireann debate -
Thursday, 12 Oct 1978

Vol. 308 No. 2

Capital Gains Tax (Amendment) Bill, 1978: Second Stage.

I move: "That the Bill be now read a Second Time."

This Bill represents a further step in the Government's announced programme of reform of the capital taxation code. The main objective of the Bill is to mould the tax on capital gains into a form which, while reinforcing the tax on speculators and "get-rich-quick" merchants, will, at the same time, refrain from penalising the person who has devoted much time and effort to building up a business. Almost everyone will, of course, gain from the proposed adjustments for inflation contained in the Bill.

As I mentioned in my budget statement in February of this year, this government have never opposed the principle of a tax on capital gains. However, we do believe that such a tax should not have the effect of penalising hard work and inhibiting enterprise. The Government believe in a more refined system which will not penalise genuine effort and unduly bear on gains accruing from hard work and investment. In opposition, the present Government were highly critical of certain aspects of the Capital Gains Tax Act, 1975. We believed that the Act contained a number of major faults, chief of which was that it did not distinguish between gains which were the returns of investment and hard work over the years, and speculation which aimed at a quick profit with little or no economic input. A second major fault with the 1975 Act was that it did not distinguish between real gains and paper gains resulting from the high inflation of recent years. In such circumstances a person could be taxed on a purely nominal gain, whereas there was a loss in real terms. The continuation of such a situation is unacceptable to this Government and amending provisions are, accordingly, provided for in the present Bill.

A further unsatisfactory feature of the 1975 Act was that a person, subjected to compulsory acquisition of his property by a local authority or other body, could find himself not alone compelled to give up his property but also liable for capital gains tax on that involuntary disposal, even though payment of that tax might have been deferred under the provisions relating to roll-over relief. We consider that in such cases the vendor should be at least entitled to acquire property, similar to that which was compulsorily acquired, without being taxed on what was after all an involuntary disposal.

The Bill now before the House, as well as rectifying these major flaws in the existing legislation also changes some other features of the capital gains tax code, particularly in relation to property passing on a death and to disposals within the family by persons over 55 years of age.

I now turn to the individual provisions of the Bill.

Section 1 is the Interpretation Section and is self-explanatory.

Section 2 increases the basic rate of capital gains tax from 26 per cent to 30 per cent. This increased rate will apply in the case of those disposals which will not be able to benefit from the special tapering relief contained in section 4.

Section 3 proposes a fundamental reform in capital gains tax. It provides that, in calculating the gain on the disposal of an asset, the allowable expenditure (such as the cost of the asset and certain enhancement expenditure) may be adjusted in line with changes in the All Items Consumer Price Index between acquisition and disposal. When the Capital Gains Tax Act, 1975 was before the House I pointed out that the lack of any such provision was a major flaw in that legislation especially in the light of the very high inflation of that time. While this Government have taken steps which have had the effect of contributing significantly to the lessening of inflationary pressures, it is, nevertheless, desirable as a matter of principle that such provision should be made at this time. We do not consider it satisfactory or equitable to impose capital gains tax simply on the basis of an increase in the monetary value of an asset between one given date and another. In the circumstances of recent years one could easily be in the position of being taxed on a paper gain which was, in fact, a loss.

The effect of this section is that any increase in the value of an asset due to inflation as measured by the consumer price index should be taken into account in deciding the real gains consequent on the disposal of that asset. It is not proposed that the new indexation arrangements will operate in such a fashion as to charge an amount in excess of the monetary gain or to transform a monetary loss into a gain. Also, the new procedures will not operate so as to increase a monetary loss or transform a monetary gain into an allowable loss.

Special provision is made for assets held on 6 April 1974, which was the commencement date for capital gains tax. Under the 1975 Act either the market value at that date, or a time apportionment method, would have been appropriate in order to determine the gain in the case of assets held on that date which were subsequently disposed of. Section 3 (2) provides that the market value on that date will be the determining factor in future. Because only the gain since 6 April 1974 will be liable for taxation in the case of disposals of such assets, and since it will be necessary for indexation purposes to obtain a valuation of those assets at that date in any event, the time apportionment method is no longer appropriate.

Section 4 proposes a further fundamental change in the rate structure of capital gains tax. The new structure is based on the principle that the rate of tax should be related to the length of time for which an asset is held between acquisition and disposal.

A basic aim of any capital gains tax should be, I believe, to discriminate between the speculator and the genuine entrepreneur or businessman or farmer. Equity clearly demands that investment and hard work should not be penalised while economic logic demands that a capital tax should not act as a disincentive to economic activity. A man who builds up a business over 15 or 20 years, putting time, effort and money into its improvement and expansion, should not be taxed on the same basis as somebody who simply buys and sells an asset within a short time, relying solely on market forces to increase the value of the asset in question.

One way of making a distinction between the two categories in the capital gains tax system is to have the rate of tax depend on the period of ownership. The length of ownership can be regarded, in general, as an indicator as to whether the owner acquired the asset as a genuine non-speculative investment or whether he acquired it merely in the hope of disposing of it to achieve a short-term gain as soon as market forces were favourable. Accordingly, section 4 proposes that there will be a reduction in the rate of tax payable for every period of three years during which an asset is held before disposal, leading to total exemption after 21 years. The period of 21 years will run from the date of acquisition of the asset, irrespective of when it was acquired. In passing I may say that a distinction between long and shortterm gains—the latter being generally regarded as being in the nature of income—is clearly recognised in the taxation systems of more than half of those OECD countries which tax capital gains.

As development land gains and gains arising out of the discovery of mineral deposits normally arise from factors other than the time and efforts of the owner of an asset, this tapering relief will not apply to such gains or, consequentially, to gains from disposals of unquoted shares deriving the greater part of their value from such land or assets. In addition, the relief will not apply in the case of disposals by companies. However, tapering relief will normally apply in relation to the sale by an individual of his shareholding in a company.

Section 5 rectifies another major omission in the 1975 Bill. It provides that, where certain assets are compulsorily acquired and the whole of the compensation received is invested in similar or comparable assets, the assets compulsorily disposed of and the replacement assets will be treated as a single asset and, for the purposes of capital gains tax, a disposal will be treated as not having taken place.

In keeping with our belief that the taxation code should not act as a disincentive and should treat people fairly, it is considered that a man should not be penalised on the occasion of a compulsory disposal of an asset provided he reinvests the compensation in a similar or comparable asset. In such a case his possession of the asset in question has been terminated through no fault of his own and it is clearly inequitable to tax him in such circumstances as if it were a normal realisation of assets. If, however, a man chooses not to reinvest the compensation in similar or comparable assets, then he is using the occasion of the compulsory purchase proceedings to realise his assets and so his liability must be dealt with under the normal rules. If an amount greater than the amount of compensation received is invested in the new asset, the extra amount will be treated, for the purposes of sections 3 and 4, as having been invested in the purchase of a new asset. Of course if a part of the compensation proceeds is not reinvested there will be a part disposal of the original assets for the purposes of the capital gains tax.

These provisions should help to ensure equity in cases of compulsory disposal of assets and to encourage reinvestment of compensation moneys.

Section 6 changes the law concerning the transfer of assets on death. Under existing law, if a person inherited an asset and subsequently disposed of it, any gain on the disposal was calculated by reference to the cost of the asset to the deceased owner and not by reference to the value at the time of the deceased's death. This valuation approach has several drawbacks. First, it means that a beneficiary could be liable for capital gains tax on gains arising during a time when he did not own the asset. Secondly, it encourages the retention of business or farming assets in the hands of successors who might not have the capacity to use these assets to their best economic advantage. Thirdly, where the successor or executor has to sell the inherited property in order to pay debts incurred by the deceased or for other reasons, the imposition of a charge to capital gains tax could create a financial problem in certain circumstances. The arrangements I am introducing in section 6 avoid these drawbacks by providing that assets acquired on a death are valued by reference to the market value at the date of the death. The transfer of assets on death continues, of course, not to be an occasion of charge to capital gains tax.

Section 7 is concerned with the acquisition of settled property by an absolute owner on the death of a life tenant and provides for a new valuation arrangement as at the date of death of the life tenant in line with that set out in section 6.

Section 8 extends the relief provided under section 27 of the Capital Gains Tax Act, 1975 in three important ways. Section 27 gave total relief from capital gains tax in the case of disposals of certain business assets on retirement by a parent to a child or, in certain cases, to a niece or nephew, if various conditions were fulfilled. One of these conditions was that the value of the assets transferred did not exceed £150,000. The existence of this qualifying limit meant that any person with a farm or business worth more than £150,000 was discouraged from transferring the property to the younger generation during his lifetime. The removal in this Bill of the £150,000 limit will encourage the early transfer of family property into younger and more active hands, which is desirable on both economic and social grounds.

The second change made in the section 27 relief under this Bill relates to the proportion of the total assets transferred. Up to now, the relief would apply only if the entire farm or business property was transferred. No provision was made for a situation where a father wished to hold on to a small part of his farm for himself while transferring the major part to his son, or to a situation where he wished to transfer say half to his eldest son at a certain date and the remainder to a younger child at a later date. Section 8 remedies this deficiency by enabling the section 27 relief to be given if either the whole or only part of the asset is disposed of to the child.

The third change allows the parent to benefit from both the section 27 and section 26 reliefs contained in the 1975 Act. The section 26 relief relates to disposals outside the family where the consideration does not exceed £50,000. Up to this, the two reliefs were mutually exclusive and consequently the situation, where a father wished to sell part of his business or farm for cash outside the family, say to provide for his old age, while transferring the remainder of the property to his children, was not catered for. Under the provisions of section 8, the two reliefs can now apply in any particular case if the other conditions governing the reliefs are fulfilled.

Section 9 is concerned with the interaction of the new reliefs provided in sections 3 and 4, that is, indexation and tapering rates, respectively, with the operation of the roll-over relief arrangements contained in section 28 of the Capital Gains Tax Act, 1975.

Section 10 amends the anti-avoidance provisions in section 39 of the 1975 Act relating to disposals to and by charities and certain other bodies in order to adapt those provisions to the new provisions for indexation and tapering rates. It is not intended, however, to interfere with the exemption given to genuine charities under section 22 of the 1975 Act.

Sections 11, 12, 13 and 14 provide for amendments of a technical nature to the Corporation Tax Act, 1976 to bring the corporation tax code into line with the changes introduced by sections 2 and 3 of the Bill.

Section 15 brings the period for lodging appeals against a capital gains tax assessment into line with the period of 30 days allowed in the case of income tax assessments.

Section 16 and Schedule 1 are concerned with the technical details of the operation of the indexation and tapering reliefs contained in sections 3 and 4, including, in paragraph 6 of the Schedule, a provision to counteract avoidance of tax by manipulation of the tapering relief by certain shareholders in close companies.

Section 17 and Schedule 2 provide for the necessary repeals in the Capital Gains Tax Act, 1975, as a consequence of the measures introduced in this Bill.

I commend the Bill to the House.

At the outside I should like to say that the Fine Gael Party are not opposed to capital profits or, indeed, to revenue profits both of which are the legitimate rewards of business initiative. That type of business initiative is essential if we are to have economic growth. However, something else is essential for economic growth and I do not think this Bill will help to bring about this third necessary element. We need industrial harmony. If we are to achieve industrial harmony it must be seen that all sections of the community bear their fair share of taxation and this includes capital and revenue profits. They should be taxed as well as income. This Bill will virtually abolish capital taxation. The amount that will be collected under it will not be worth collecting

We should compare this with the fact that PAYE payers in the period from 1 January 1978 to 15 September 1978 contributed to the National Exchequer 20 per cent more than they did in the period 1 January 1977 to 16 September 1977. They are the latest figures I have. The amount of their contribution has increased by £70 million. The Minister may argue that this is accounted for by the increased employment; but the Minister for Economic Planning and Development, before the Dáil adjourned, said that the bulk of the new employment the Government intended creating would come on stream in the public sector in the months of July, August and September and those people would not yet be taxed. That Minister also admitted the other day that the amount the private sector had contributed in increased employment had fallen short of his expectations and target. We are talking about the existing taxpayers, 95 or 98 per cent of the people employed, and they faced an increased bill from the State of 20 per cent in 12 months.

It is obvious that the much-heralded budget cuts were not cuts at all because the amount has increased so much. I blame the Government for the unhealthy state of industrial relations here. It is not possible to have industrial harmony or good industrial relations if one section of the community feel they are being unfairly treated. The passing of this Bill will not improve the situation, although we will attempt to amend it during the course of its passage through the House. The ordinary wage earner will see this Bill as a method of again increasing the inequity between those who have incomes and those who have capital which they can use to make fairly substantial gains.

At the time the Minister introduced the budget I stated that the abolition of wealth tax and the amending of the capital gains tax was certain to affect industrial relations. I was proved right. Within hours of that announcement by the Minister for Finance the much-heralded 5 per cent, the corner stone of the Government's economic policy, became 8 per cent and we all know what happened to it since. I should like to quote to the House what the Minister said about this 5 per cent during the course of his budget speech and Members will see from this what a mockery has been made of this 5 per cent. The Minister, as reported at columns 357 and 358 of the Official Report of 1 February 1978, said:

I should like to clarify aspects of the pay target proposed by the Government. The target was formulated only after careful and detailed examinations of the requirements of the economy in both the short and medium-term. Demands for flexibility and for adjustments in line with inflation have to accommodate themselves to the need for pay moderation. The Government's commitment is unequivocal and, if agreement to such moderation cannot be achieved, we shall have to take the necessary measures to ensure that excessive increases, if any, are recovered from those who secure them.

Within three days that prop had been knocked from under the economic policy. This Government do not seem to be able to get into their heads the fact that people must be treated fairly as regards taxation. The wealth tax has been abolished, capital gains tax has been virtually abolished while at the same time income tax payers are being asked to pay more. What happened to the 5 per cent that was unequivocal, according to the Minister on 1 February last, but which became 8 per cent within three days? Last week the Minister for Economic Planning and Development admitted that many settlements in the private sector were now at 16 per cent, more than three times as much as was thought to be acceptable by the Government and twice as much as the wage agreement.

When Fianna Fáil were on this side of the House we were told often enough that wages policy was a matter for the Government. There is a hand-washing exercise going on in this regard now. The only people who are being kept to the 8 per cent are the public sector employees. Does the Minister seriously think he can hold that line when neither the Minister for Labour nor any other economic Minister has uttered one word or attempted to intervene in one situation where 16 per cent wage negotiations are being agreed by the unions and employers? Does the Minister not realise what this is doing to our exports? Does he not realise the loss in competitiveness that is bound to result from this? Does he not realise that this is helping to increase inflation? All this is happening because of this Government's attitude to equity in taxation: they do not believe in it. They have announced that they would do this in the face of all advice.

Sometimes I suspect that some of the trade union leaders are secretly pleased that this situation has come about. It is like playing a match: you can get yourself into a position where you are fouled so that you can get a free. The Government have fouled the ordinary income taxpayers by these two measures. Now the trade union leaders feel morally free to look for similar increases in pay. We cannot blame people for seeking to get the best reward possible for themselves. The fact that many of them have the muscle to do this is regrettable. People in key positions feel they have the moral right to do this when they see the direction in which this Government are moving in regard to taxation. The PAYE taxpayer is being continually ground down.

We welcome the indexation in this Bill because it is fair. A man should not be taxed if he has not made a real gain. There may be a paper gain but there may not be a real increase in the value of his assets; it is the devaluation in money which has brought about the increase. During the Finance Bill the Minister strenuously resisted any effort to give the same facility to ordinary wage earners. That is unfair. If indexation is fair sauce for the capital gains goose it should be fair sauce for the PAYE gander.

This Bill will do most damage to industrial harmony. If the extra boon that has been created by increased wages, alleged tax cuts and massive borrowing by the Government had been used to create more jobs, one might say that it might balance out over a number of years; but it has not. It has gone into a massive increase in imports. This is the very sad thing about what has happened here this year. In the first five months of 1978 imports increased by 26.7 per cent, despite the fact that a number of commodities, such as fuel, coffee and tea, came down in price, and retail sales increased by 19.7 per cent. This means that there has probably been a much greater penetration of imports on the home market than before.

When the Minister announced the credit squeeze last week he said that this was part of the tactics for our entry to the European Monetary System and would help to curb imports. The Central Bank said the same. On the same day the Minister for Industry, Commerce and Energy put an advertisement in the papers saying that the battle against imports had been won. That is a ridiculous situation for two Government Departments to be in.

I accept that section 3, which introduces indexation and permits the adjustment of allowable expenditure by reference to the CPI, taken in isolation is a good move which we welcome. We accept that it is improper to tax the illusory paper gains that occur when prices are rising continually. When the 1975 Capital Gains Tax Act was introduced the then Minister felt that indexation was impractical and argued that the low 26 per cent rate compensated for this. It follows that since we are now having indexation the capital gains taxation rates should be brought into line with income tax rates. When we study this Bill we find that this is not what the Minister proposes. Section 4 proposes that the rate will vary from 0 to 30 per cent depending on how long the assets have been held. It is probable that most assets are sold after a period of ownership of, say, six years. Under section 4 the tax, after six years ownership, will be only 21 per cent.

We cannot accept that it is fair that capital gains—most of which are realised by the better-off sections of the community—should be taxed at the lower rate than applied to wages and salaries. We argue that if indexation is introduced—and we welcome this innovation—then the real gain left, if any, should be added to the taxpayer's income for the purposes of income tax and taxed at whatever is the appropriate rate for that taxpayer. I would concede that it might be fair to permit the taxpayer to opt to have the gain spread over four years because capital gains tend to be much more variable than other forms of income. But in our view the ridiculously low rates provided in section 4 are quite unacceptable. Furthermore there seems to be no logical reason for charging a rate of 7½ per cent on the sale of an asset which has been held for 15 years as against 6½ per cent for one which has been held for nine years. Capital profits are either good or bad in themselves. Whether they are made over a short or long period of time is completely irrelevant. The rationale and thinking behind any Capital Gains Tax Bill should be to prevent people from changing from income to Capital Gains. That should be the cornerstone of any Capital Gains Tax Bill. That is not the case with this Bill.

Another thing I do not understand in this Bill is why the half income relief section of the 1975 Act is being repealed. It seems to me that that was of benefit to a man on a small income who had to dispose of an asset for reasons perhaps of ill health, because he fell on hard times and had to get money quickly but whose income at the same time was very small. That man is being penalised now whereas the speculator, who will invest his money in land, will get relief. That seems to me to be most unjust. I want to give an example to illustrate how this is so. Let us take a married man with an income of £1,800 per annum. He makes a gain of, say £5,100 within the year. Under this Bill—his income is £1,800; he gets a married allowance of £1,730 and therefore his taxable income is £70 at the 20 per cent tax rate, which is £14. That is on his income. Then let us take the gain he has made of £5,100. He has an exemption of £500; his liability is £4,600 at 30 per cent which is £1,380 plus the £14 payable on his income. Therefore his liability on capital gains and income in that year—and remember he is a poor man with an income of £1,800 per annum—is £1,394. Under the existing Act, with the half income relief, he would have an income of £1,800; he would have half the capital gain which would be £2,500, plus the excess of £100 leaving him taxable on £4,400 less his married allowance of £1,730, leaving him with a taxable income of £2,670, the tax on which would be £760. He is not a wealthy man. He is somebody who has had to sell an asset on which he has made a gain of £5,100. Yet that man, who is comparatively poor, will be charged an extra £634 capital gains tax under this Bill as opposed to the 1975 Act. That seems to me within the capital gains structure itself to be unjust not to mention the inequities to which I have referred already.

The whole structure of this Bill will encourage speculation. The present Minister, when replying to the debate on the 1975 Act, defined speculation and repeated that definition this morning. I believe it will have an effect also on the already too high price of farming land. Why should anybody with, say, £100,000

to invest, which he is reasonably sure he will not want for three years, five years or some such period, invest that amount in ESB stock at present available, or buy what would be only 35 acres of land now in some parts of the country if it is not development land? I am speaking now about ordinary farming land. Under the provisions of this Bill would it not pay that man far better—provided he is going to hold the land for three years, five years, ten years or whatever—from his individual monetary point of view to go out and compete, drive up the price of land, putting his money there rather than investing it in, say, ESB stock or any other stock, the income from which will be taxed at a rate perhaps as high as 60 per cent? If he holds that land for even three years he will be taxed on the gain only at 30 per cent, half the rate. At the same time he is helping to push up the already too high price of agricultural land obtaining at present. I can foresee that under this Bill this is what will happen. It will not be development land, because that will be taxed at the top rate, but rather farming land which will be speculated on. It will drive money into things like antiques, diamonds, all those assets that wealthy people can play about with. Leaving that aside, the point I want to make is that this will create further competition for agricultural land already too high in price as people see the financial advantage to themselves of investing money the tax on which, if they hold it for a period of time, will be considerably less than had they invested the same amount in stock such as the ESB or an Irish industrial company.

There are other sections of the Bill which will reduce the tax yield for no good reason. The Minister referred to one of them, section 14 of the 1975 Act. That section provided that where persons inherited assets on a death they did not pay tax but stepped into the shoes of the deceased person. If they sold the assets they had to pay tax on the gain, not alone the gain made between the time they inherited it and sold it but the gain made during the life of the deceased. That was a fair arrangement and I do not think it imposed any hardship. However, section 6 of this Bill provides that where a person inherits assets, the gain which accrued during the life of the deceased person disappears from the tax net completely. The beneficiaries of a will can now sell an asset and pay no tax whatever if it had been in the hands of the deceased for 21 years. If we had a very severe capital acquisitions tax which ensured that tax was paid on most properties passing on death there might be something to be said for the new proposal. But in fact our capital acquisitions tax is a very mild one with an exemption of £150,000 for a widow and each child. In those circumstances there is no justification whatever in section 6 of this Bill.

To conclude, we have no hesitation in welcoming the indexation proposals and would only wish that they might be extended throughout the whole tax code and not just to the people who make capital gains but to people who have to pay tax on their income, to personal allowances, child allowances and to the tax bands. The other sections of the Bill are so unfair to the rest of the tax paying public that as a party which at least attempts to concern themselves with fairness and justice we are obliged to oppose this Bill.

The House will be well aware of the history of the legislation which the Government are now amending and I make no apology for belonging to a party who were fundamentally responsible for the introduction of the capital gains tax in the first instance in 1975. The Minister in his introductory remarks pointed out that his Government have never opposed the principle of a tax on capital gains. It is a fact however that during a lengthy period in office prior to 1973 they never did anything meaningful about imposing tax on capital gains. It was left to the Government which succeeded that Government to do something about it and what they did is enshrined in the Act of 1975. It could be argued that it was electorally dangerous to introduce a capital gains tax at a time when the country's economy generally was just about to experience the effects of the major recession which hit the world trade about that time.

It could be argued—and I believe it was argued in this House and in the other House—that the capital gains tax which was being introduced in 1975 was one of the factors which would affect that magic ingredient known as business confidence. There is very little evidence for that. Business confidence, such as it is, is much more directly related to marginal tax rates on income tax than to capital gains tax or indeed to wealth tax. The introduction of a capital gains tax in 1975 was long overdue. It was comparatively mild in its extent and in its application. In so far as it did not contain any immediate indexation provisions it was only following a line of action, of conduct if one likes, which had been popularised by several previous administrators, that of allowing fiscal drag to do the work of the Dáil in respect of increasing effective tax rates.

We all know how in the sixties successive Fianna Fáil Governments used fiscal drag to bring more and more taxpayers into the PAYE system and used the result of that fiscal drag to finance a number of important economic and social expenditures. The reluctance to incorporate indexation in this Bill was, I suspect, although I was not privy to the decisions at the time, no more than a fairly cautious device inspired by the cautious paymasters in the Department of Finance to ensure that the effective rate of tax would become a little stiffer as the years went on without the need for amending legislation every 12 months.

It is interesting to see that the Government are not proposing to repeal the capital gains tax as they would like to repeal the wealth tax. No doubt they will, if they stand by their word, repeal the wealth tax once the last amount of outstanding money due under it has been collected. But to tell the truth, they might as well have repealed the capital gains tax as introduce this amending legislation which so effectively nullifies some of the major provisions of the Act and which offers such enormous scope to the legions of accountants and tax lawyers who make a very special and lucrative practice of finding loopholes in our tax legislation. It might as well have been repealed holus bolus.

The Government, not for the first time, are trying to have it both ways. They are trying, with their radical face, to say "We are in favour of capital gains" and then, with their much less radical face, and in much smaller print, saying "These are the capital gains which we are in favour of." When one looks at that small print and when one looks at those capital gains provisions one will see, as Deputy Peter Barry has argued very eloquently, that the effective yield from this tax is such that it hardly merits the name capital gains tax at all. I would like to see some calculation which will give us some idea of the relationship between the cost of collecting whatever will be collected and the amount which will be collected because it is, of its nature, a tax which is difficult to administer and in which evaders and avoiders need to be sedulously pursued and this puts a substantial strain on the already overstressed capacity of the Revenue Commissioners.

The obvious inference from this is that if this now negligible amount of tax is to be collected at all it will cost a huge amount to collect or the many gains which ought properly be subject to tax simply will escape the net. One of the most fundamental changes which have been imported in the Bill before us is that of indexation in relation to time. Here I would like to quote from the Minister's speech where he says:

In passing I may say that a distinction between long and short term gains—the latter being generally regarded as being in the nature of income—is clearly recognised in the taxation systems of more than half of those OECD countries which tax capital gains.

I do not dispute the accuracy of this statement but I must draw attention to the phrase which says that short term gains are generally regarded as being in the nature of income. It seems to me inescapable that gains, whether they are capital gains or increases in income, are all gains of one kind or another, and all gains in a society which claims any degree of horizontal equity in tax, ought to be taxed. This Bill introduces a system whereby anybody who wants to defer tax on income by converting it into capital and holding it for a number of years, is allowed to do so. A person may not hold it for a great number of years. On the tapering basis, he will have to pay at least some tax, but if he holds it for 15 years and has to pay 7½ per cent tax on it, how much more advantageous and attractive a proposition is that to him, if his ordinary margin of tax rate is in the region of 50 or 60 per cent. Among many incentives here we are offering people the incentive to defer income arising from the sale of property as far as possible, because under this legislation the longer they defer the sale of their property the less tax they will have to pay. In the end they will be paying little or no tax on something which has been taxed neither as capital nor income.

The raising of the threshold in relation to family dispositions is another provision to which I would draw attention. The later stages of the Minister's speech point out that the original Act,

gave total relief from capital gains tax in the case of disposals of certain business assets on retirement by a parent to a child or, in certain cases, to a niece or nephew, if various conditions were fulfilled. One of the conditions was that the value of the assets transferred did not exceed £150,000. The existence of this qualifying limit meant that any parent with a farm or business worth more than £150,000 was discouraged from transferring the property to the younger generation during his lifetime. The removal in this Bill of the £150,000 limit will encourage the early transfer of family property into younger and more active hands, which is desirable on economic and social grounds.

The huge majority of agricultural holdings simply do not come anywhere near the £150,000 limit and it is precisely in these holdings where a change of ownership should be encouraged in order to increase agricultural productivity. The argument inherent in this Bill seems fallacious on the grounds that it will not make any positive or negative difference to these critical agricultural holdings. The removal of the limit is no doubt related to the escalating value of agricultural land. The £150,000 limit in cases of agricultural land was reasonable in 1975 and continued so for some time despite inflation and other circumstances. Within the last few years and especially during the last 12 to 18 months there has been galloping inflation in farm prices which cannot be laid at the door of the previous Government but which can be laid at the door of this Government by virtue of their failure to ensure that any benefits in the agricultural sphere which have been arising from our EEC membership were equitably distributed between agricultural and non-agricultural communities. We are now talking about agricultural land at £3,000 per acre. The original £150,000 limit was then applied to a farm of roughly 50 acres. Recently, a farm in Meath with a building was sold for an average price of £12,000 an acre. This escalation in the price of agricultural land is the result of a policy that fails to tackle the problem of redistributing the gains from the common agricultural policy. It is a failure which this Government in its fiscal legislation to date shows every sign of repeating in the future. The logic of this Capital Gains Tax (Amendment) Bill does not tend to increase efficiency of large agricultural holdings. All it means is that large agricultural holdings which represent a very substantial amount of wealth, will be able to escape any effective forms of capital taxation as long as the owner has children or other relatives to whom he is, in his own time, prepared to bequeath them.

An anomaly in another area is that the reliefs which are being introduced in this Bill are not apparently available to companies which are resident here. I have no special sympathy for companies within the capital gains tax bracket but I must contrast the Minister's apparent unwillingness to facilitate Irish companies who have no doubt facilitated his party substantially, by allowing them an exemption under the Capital Gains Tax (Amendment) Bill, whereas part of the Government's complaint against the wealth tax was that it discriminated against people who lived here. This is a kind of carrot and stick approach where some people are liable for capital gains tax because they live here whereas they are not liable for wealth tax because we cannot have a wealth tax which discriminates against people who live here; but we can have a capital gains tax which does not in any sense favour companies resident here. I suspect that the answer to that may be something to do with our obligations under the EEC, but the anomaly is there. There is also another anomaly which is perhaps more serious. It can be pointed out by reference to the Minister's speech, page 3, where he enunciates in the manner of somebody enunciating a fundamental principle:

We do not consider it satisfactory or equitable to impose capital gains tax simply on the basis of an increase in the monetary value of an asset between one given date and another.

Take the question of a man who lodges £20,000 cash in the bank. He pays income tax on the interest of that money but it is possible that having paid the appropriate amount of income tax, he will have made a net capital gain in a period of 12 months simply by leaving the money in the bank. That capital gain is a short term gain and would not be subjected to any tax. However, it could be described as speculative. The reason for this is that there seems to be some kind of distinction between cash and other assets. The anomaly which this Bill is presenting for our admiration is that a capital gain on cash will not be taxable while capital gains on other assets will be taxed to a decreasing and eventually nugatory extent.

The anomalies I have spoken of are only details. My fundamental problem with this Bill is that it appears to give the impression of being a liberalising piece of legislation whereas in reality it neutralises effectively the basic legislation. To this extent it will contribute substantially to the psychological climate of an inflationary tendency, a situation which must already be causing the Government serious concern. But I have little sympathy for them since they are the authors of their misfortune.

It is significant that neither the wealth tax proposal nor this capital gains tax proposal featured in the famous manifesto. The reason for this is clear. If these two proposals had been in the manifesto in any degree of detail it would have been more clear to the Irish people what the people who were then in opposition and who are now in Government were actually about.

I do not think the Deputy would suggest that our attitude either on capital gains or wealth tax was a secret from the public. As the Deputy should remember we had been hammering this for a long time.

I remember that Fianna Fáil's attitude in opposition was not secret but there was an absence of an explicit commitment in the pages of the manifesto, a document to which not only the Minister but other Members of the Government retreat willingly when pursued by people from this side of the House as to why certain things are not being done. We are told that whatever we are pursuing is not in the manifesto. What is important now, especially as we approach a critical national wage agreement, is that the psychological climate be right. Far from creating that sort of climate this legislation will make matters considerably more difficult. One day recently I read in The Guardian an article that was written by one of that paper's political correspondents. It was a judicious summary of the Government's economic and fiscal policies. The correspondent assessed, and with some accuracy, the risks the Government were running. He said also that they were pursuing reflationary policies at a speed that would turn Mrs. Thatcher's hair grey overnight. He went to great lengths in putting forward the Government argument of what their policy involves and said it is not merely an economic or a fiscal reflation but a psychological reflation. Something which gives the Irish people hope that they have not had before, hope that they did not have during the term of the previous Administration.

If we look at what is happening in our economy we do not find much evidence of hope. Rather, in the growing balance of payments crisis, in the uncontrolled consumer boom, we find evidence of a population who are spending enormously because of a fear that they may never have as much money to spend again. It is this climate that is dangerous for our economic growth and prosperity but this is the sort of climate that is being encouraged and underpinned by this sort of carpe diem legislation from the other side of the House. It is this climate which far more than any climate of hope has been created by this Government and which will ultimately be their downfall.

I congratulate the Minister on bringing forward this innovative legislation. So far as I can ascertain this is the first occasion in any western European country that inflation has been recognised by tax legislators. I was not a Member of this House when the Capital Gains Tax Act, 1975, was introduced but from reading the debates of that time I find that the present Minister for Finance opposed the legislation on the principle of there being different types of capital gains. The Minister maintained all along that the quick-buck speculator should be taxed. This party have never opposed the principle of capital gains tax. Therefore, the Minister is being logical in following through in his first budget the principles he enunciated while in opposition. Sometimes promises made by people in opposition are forgotten when those people are returned to office but there has been no question of that so far as the Minister is concerned. He has been consistent from the outset.

The idea of capital gains conjures up various pictures to people. The ordinary working man who is within the PAYE system will not understand readily why a man who realises a substantial gain on an asset that was held for a couple of years should not pay tax on that gain. In the interest of equity it is important that such gains be taxed. The Bill before us distinguishes between the person who holds an asset for only a short time and the one who holds an asset for many years. Consequently, if a person holds an asset for as long as 21 years he will not pay tax on the gain whereas if he sells at any time during the 21-year period he will be taxed on a sliding scale of between zero and 30 per cent.

The other major part of the Bill is the inflationary clause. From my reading of the Bill I understand that all assets will be deemed to have been acquired at market value at 6 April 1974 and that the inflation index as measured by the consumer price index in the mid-February preceding the year of acquisition will be used to update the cost or the valuation of that asset. If that person realises those assets within the 21-year period then the effects of inflation will be taken into account. I hope that this principle of inflation relief will also be in future tax legislation.

The old Act left quite an anomaly with regard to the disposal of family assets. If a person was over 55 years he could dispose of his assets within his family up to £150,000. That was not so effective in the last few years and prevented people from transferring farms to their children because the price of land is so high that it would not take a very large farm to go above the £150,000 threshold. This Bill eliminates that completely and it means that if people over 55 years of age wish to dispose of their farms, for example, there will be no capital gains liability whatever if they dispose of them to members of their families.

The 1975 Act also had a separate relief that if a person was over 55 years of age the assets could be disposed of outside the family if the consideration was less than £50,000. This relief is being continued, and I welcome it. There is also a provision in the new Bill that if children receiving the assets sell them within ten years they will be subject to two charges of capital gains tax. There will, first, be the assessment made on their parents, if the relief does not apply and, secondly, an assessment on any gain accruing to the children. It appears that inflation and tapering will also be applied to each disposal. This Bill will increase slightly the disadvantage of putting assets into companies because they will be liable at 30 per cent. I recognise the Minister's thinking is that the benefits of inflation and tapering are for the individual and that they should not benefit companies. However, there are many very small family companies who own small pieces of property. Perhaps on Committee Stage the Minister might consider an amendment to take recognition of that.

A slight fault I find with the Bill is that the tapering is only given if a claim is made within two years. Capital gains tax might only affect an individual once in his lifetime and he might not be very conversant with dealing with it. If he does not apply within two years he will not be able to get his tapering relief. All taxpayers may not be aware of that and there may be a case for removing the time limit or having the period changed to ten years. The tapering relief is only available to a person. Perhaps the ten-year restriction applying to assets passed to children on retirement might be a possible disadvantage to lifetime transfers of farms and so forth. Those points which I have made are very insignificant in regard to the total effects of the Bill. There are a number of very important sections in it which are better left over to Committee Stage. I would like to welcome the Bill and to congratulate the Minister on such an innovative measure.

Since I came into the House I have been concerned with my concept of social equity in the community in which I live and in the country in general. Over the past few years I have seen continuing vicious inflation which has done tremendous damage to the poorer sections of the community. Anybody who is in politics at national or local level is well aware of the poverty and social deprivation which is to be seen in the cities and throughout the country. I hold a clinic in Waterford city every week and I am told sad tales of broken marriages and people living in sub-standard housing.

We are not discussing either broken marriages or sub-standard houses on this Bill. It is just a Capital Gains Tax Bill. We must get on to taxation.

I am well aware of that. I would like to put it to you that this Bill is part of a social policy as well as dealing with taxation.

The Deputy will get ample opportunity to discuss poverty, housing and all those matters on some other occasion.

I submit it is directly relevant to the Bill. It is very important to evolve in Ireland a just and equitable society. I have noticed over the past few years a growing distinction between the haves and the have-nots in our country. This Bill is a continuation by Fianna Fáil of that rift in our community between the haves and the have-nots. I do not wish to come into conflict with the Chair. I wish to support what has been said by the Fine Gael spokesman. The first thing to be noticed about the Bill is that it increases capital gains taxation in relation to speculation. I welcome that and I support it.

The question of indexation which has been introduced in this Bill merits comment because it will favour the very wealthy. A total of 87 per cent of the tax revenue comes from the income taxpayers in the country. The workers pay through the nose. Week in, week out, they pay their income tax to the Exchequer. In the nine months from 1 January 1978 to 15 September 1978 the income tax paid was £434,589,000, a colossal sum when compared with the £6 million received in capital tax. It is an interesting comparison because every day we read of sales of pubs and other properties but very little of the profit seems to be finding its way to the Exchequer for redistribution to those who are in need.

There is no question of Fianna Fáil introducing an equitable system of taxation for PAYE payers. Are they not as entitled to it as anybody else? So far, no attempt has been made to treat them equitably and this Bill is a continuation of the pay-off by Fianna Fáil to the many businessmen who gave substantially to their election coffers in order to help them buy their way back into power.

I submit that our society is evolving into one of haves and have-nots. It is a wrong policy to be pursuing and it will cause serious social unrest which will manifest itself in a number of ways. There will also be serious social deprivation among certain sections of the community. The next time round the people may give Fianna Fáil their answer and throw them out.

According to the first page of the explanatory memorandum, development land is not included in the indexation system. What is the position in regard to agricultural land which is held by the estate of a deceased person for a number of years before being disposed of for distribution to the beneficiaries? If the land is development land at the time of distribution, will it benefit from the indexation? This is a genuine query and I should like the Minister to comment on it. Why is indexation relief not given to companies? I understand and agree with the position in relation to non-residents, but why are small companies not entitled to benefit from the same indexation as people? If a person disposes of an asset, why is the net profit realised not treated in the same manner as income? Why should there be a distinction? If it becomes part of his income it should be treated as such. If he makes a capital loss why is the capital loss allowed against his liability for income tax?

This Bill is a reflection of the type of society being promoted by Fianna Fáil. They are promoting a society in which the haves are gaining at the expense of the have-nots. When I say "have-nots", I mean genuine cases and old age pensioners. I do not mean those who would not work in a fit, but I do have sympathy for those who are not getting a fair share of our wealth. The number of poor is increasing because of inflation and because of Fianna Fáil's lack of social commitment as exemplified in the budget and in the Green Paper. Their priorities in regard to the poor are in serious contrast with the love and affection which they have for the wealthy. This Bill is another reflection of the negative attitude of Fianna Fáil towards the poor.

In discussing this Bill I do so with all the limitations of not being an economist but with some of the advantages of somebody who has given a fair amount of thought to the structure of the society, the equity within that society, and an equitable system of the organisation of that society. It is quite clear that this is a remarkable new example of the new class of leader within Fianna Fáil and their rapid departure from their earlier concern for the working class interests in our society.

The Capital Gains Tax (Amendment) Bill, 1978, is designed to make the already wealthy very much richer. It is a discriminatory Bill. It is a class Bill. It is a Bill which is going to intensify bitterness. It is going to engender envy. It is going to justify the legitimate claims of the trade union leaders. If their members are to live and work within a free enterprise society in which, to use Connolly's tough phrase, "the biggest pig gets the most swill", then they are not going to accept limitations on their demands for a fair share of the cake. The Minister is legitimising whatever action they decide to take in order to get what they can because their interests are not being defended as prior interests by the Fianna Fáil Government.

The chosen people in the Fianna Fáil catalogue are the wealthy few, the already wealthy, people in land speculation, stocks and shares gamblers, the people who get our mineral rights by having enough money to buy them, take them from under the feet of ordinary people and all the other gamblers within the capitalist system who exploit the weaknesses of that system. I cannot understand the rationale of reasonably intelligent people who come here with this kind of Bill at a time of such crisis, such growing and threatening crisis, in the whole of the western capitalist democracies and particularly in our country.

Obviously, the first factor is the 30 per cent rate of taxation. Why is this discriminatory rate fixed for the wealthy section of the community? What justification could there be for treating these people differently from the vast majority? The preceding speaker said 87 per cent of tax revenue was collected from the ordinary people.

In view of the fact that the Deputy is repeating it, may I point out that statement is incorrect?

The great bulk of tax is collected from the ordinary people and collected—and this is true—at a rate of approximately 60 per cent, twice the rate charged to people such as those who recently, in the building societies—a most important section of private capital investment—said that they were not interested in lending money for building houses, that they were interested in making profits. They make no bones about it and the leaders of Fianna Fáil in the building societies made that clear, that they are interested in profits. It is this kind of person in our society who is being put in a privileged position by this privileged rate of 30 per cent tax. This is certainly straying a long way from the early policies of the Fianna Fáil Government—slum clearance housing, social benefits, schools and so on.

There is no case whatever for allowing this negligible rate of taxation—negligible compared with the rate most of us pay—and then adding the escape hatches. Without the help of even a mildly competent accountant there are many ways of evading paying taxes for the most simple and unthinking mind. As far as I can see, the Minister does not even want them to pay, does not expect them to pay even the 30 per cent on real capital gains from acquisition due to either death or inheritance and then the sale of the asset.

Under the tapering out scheme, the 20 or 21 year provision, it is quite possible that somebody by holding an asset long enough and making a capital gain on it, will pay no tax at all on the sale of the asset. So, not only is it discriminatory in its rate but this Capital Gains Tax Bill is also discriminatory in the provision which allows the person to not even pay the 30 per cent. Why is this bonus given? Why handpick a tiny minority of already very wealthy people and give them first a discriminatory rate of tax and then say "If you are clever enough you need not even pay that tax", because they have one particular asset, capital, while the ordinary worker whose only asset is his skill or craft trade or profession gets no such consideration from the Government.

The average tax rate continues to increase and this decision by the Government to make capital gains inflation proof by indexing is an extraordinary decision to again protect the wealthy from the hardship that all the rest of us must suffer in taxation and as a result of inflation, when you think of PAYE in the sixties, the number of people in the net at that time and the number now paying various degrees of tax. No attempt has been made beyond the fixed wage settlements of 3 per cent, 4 per cent or 5 per cent, as may be, to protect the real incomes of people from the savage imposition of taxation which has taken place in recent years. Why should these other people be given this privilege of indexation in relation to profits made in many cases in a particularly disreputable way? All over the city there is great need for houses, ordinary working-class houses, houses for white collar workers and all we get are large office buildings in all directions, most of them extremely ugly due to the philistine standards and values of these people because all they want is space to sell for profit, as Senator Ryan told us recently on behalf of his company. Why should the Government treat them with this respect, care and privilege? The legislation purports to deal with the quick profit speculator. If it did that it would be welcome but quite obviously the Minister has taken this opportunity to protect the interests of his own class. In relation to family businesses——

Did the Deputy say "his own class"? Did he say I was protecting my own class?

Personal remarks should not be made in this House about any Member.

If I am protecting my own class, what is Deputy Browne's class? In my view it is the same as mine. He has a profession as I have and he is in politics as I am. What is the difference in our class?

I am a first generation peasant——

The Deputy must get back to the Bill. We are not discussing the class of any Member of this House. The Deputy should listen to the Chair and get back to the Bill. I would ask him not to make personal remarks about any Member, Minister or otherwise.

I am a first generation peasant, like the Minister, but I have not forgotten it, unlike the Minister.

I see. That is the definition of class. A very sound theoretical basis.

Yes, it will do for the neophyte stage I am at.

The Deputy must get back to the Bill. He should not use it as an excuse for making a speech that has no relevance to it.

It is relevant. If the Chair had stopped the Minister intervening I would not have had to answer his question.

If the Deputy had not referred to the Minister as he did there would not have been any intervention.

All right. The Chair protects the Minister.

I will protect each Deputy in the House so long as he is in order and is dealing with the matter before the House.

It is not derogatory to talk about class, for goodness sake.

It is when the Deputy is suggesting his class is different from mine.

Of course it is different.

What is the difference?

I have stated the difference.

What the Deputy thinks he has remembered or forgotten——

Is there no such thing as a working class or a wealthy class?

We are all Members of this House. Deputies must speak on the matter before the House.

The Deputy said I was protecting my own class. If I am, I am protecting Deputy Browne's class.

Is there no such thing as an exploited class?

The Deputy knows he is only making a fool of himself.

Who is being personal now? Is it in order for the Minister to call me a fool?

I did not call the Deputy a fool in the sense he means but in so far as he is taking it that way I withdraw the allegation.

Members of the House must not make any further personal remarks. Will the Deputy please speak on the Bill.

As Marx said, "every form of society tries every possible device before it finally destroys itself". That is what the Government are in the process of doing.

Before I was interrupted by the Minister I was dealing with the decision to remove the limit of £150,000 with regard to family businesses. There are difficulties in the capitalist system in trying to preserve family businesses. The figure of £150,000 seems a quite substantial figure but now it has been decided to remove that limit. What is the justification for that? I presume a case might be made for saying that £150,000 is out of touch with reality and the question of doubling or quadrupling it might be considered. At any rate there should be some limit on the kind of firm that will be exempt from taxation because of transferance, death or for some other reason.

There is also the extraordinary provision whereby the stock market gambler can continue accumulating larger and larger profits. If he does so long enough he will not have to pay tax. Presumably large family firms such as Guinness can come in under this provision when they transfer or when a death occurs. The land speculator, mineral wealth speculator and the stocks and shares speculator have been put apart from the rest of us. They have been made into a new elite, a new class—that is a dangerous word—who, in the opinion of the new class in Fianna Fáil, are not like the rest of men simply because they are so wealthy and powerful. It is obvious that the whole trend of the latter-day legislation by Fianna Fáil is exemplified in this Bill in its very powerful and very dangerous class attitudes, although not half dangerous enough for me in some ways. If anything can help to push us on towards serious revolutionary changes in our society it is Bills of this kind and the discriminatory, unjust provisions of the Bill that will be used, as were other provisions of Fianna Fáil legislation in recent years. It is justification of the kind of society where all feel that they have as much right as everybody else and that they will use any and every device available in order either to get what they consider are their just demands or if they do not they will pull that society down.

I will be brief because I am sure the Minister wishes to finish before lunch-time. The Government's capital taxation package at this stage can hardly be described as a package. It can be described simply as a write-off. I am wondering about the real relevance of what we are talking about here this morning. In 1977 about 1,500 people paid £1.5 million in capital gains taxation. I respect the figures because there is not a known number of actual payers. We know that the number of chargeable assessments issued by the Revenue Commissioners in 1977 was 1,833. Allowing for duplication, I estimate that there would probably be about 1,500 people who in 1977 were liable for payment of capital gains tax. We know that the estimated receipts for last year were £1.5 million.

In effect this Bill is emasculating any rational system of capital gains taxation beyond recognition and for this year of 1978 it is giving back about £1 million to about 1,500 people. It is giving them that much relief. That is the nub of what we are talking about here today. There has been no reference to it in the Minister's speech introducing Second Stage of this Bill. I want to draw a very interesting contrast in regard to about 1,500 of the wealthiest section of the people who are being given relief of about £1 million by the Minister in their liability for capital gains tax, and simultaneously in the first nine months of this year alone the ordinary PAYE income tax payer has paid in an additional £74 million. The contrast is stark and illuminating if one looks at it in that context. In the first nine months of this year income tax payments were over £460 million. In the first nine months of last year income tax payments were £385 million. Therefore in the first nine months of this year there is an additional payment of about £73 million paid by persons liable for income tax. They have been paying more out of their taxable incomes while a very small, relatively better off number of people, including a number of companies and individual trusts set up by such persons, are getting back virtually £1 million relief in capital gains tax.

The Minister and the Fianna Fáil Party have made great play, totally spurious play, that they really are in favour of a capital gains tax. If I may quote the Minister, he wishes to reenforce a tax on speculators, get-rich-quick merchants and so on. This is totally false. The Government, by way of their wealth tax and capital acquisitions tax amendments in this year's budget, are giving away £1 million in capital acquisitions tax alone and the wealth tax gave away £8.5 million. Now we have a capital gains tax to give away an as yet unassessed amount, because it is payable a year in arrears. This is a very substantial amount. The Minister might as well, therefore, write off the £1.5 million gained in 1977 in capital gains. For practical purposes we have abolished it at the behest of no more than 400 or 500 people, who clearly said to the Minister, Deputy Colley, and his colleagues at the last general election "Abolish it if you want our votes and our unlimited financial support for your election campaign." We have a unique parliamentary system here whereby there is unlimited expenditure on parliamentary elections, something which is virtually unique in the western world and therefore anybody can put a price on his support to a political party. This is what happened and we know it did. We know that the Fianna Fáil Party in 1976 and 1977 were flooded with money from about 400 or 500 people who said "Well, if we are going to get back £1 million relief in capital gains we might as well throw in £500 now to the Fianna Fáil Party; it is a damn good investment." That is what happened.

I have a simple suggestion to make to the Minister. He would at this stage be as well off abolishing capital gains tax altogether.

Absolutely right.

Let us not continue with this masquerade of taxation. Let us say to the Revenue Commissioners, those exalted gentlemen sitting in Dublin Castle, "Look, dismantle the section of the Revenue Office dealing with capital gains. Let us release those assistant secretaries, principal officers and inspectors of taxes. Let us forget about printing all those forms." In the context of general revenue the income from capital gains now is peanuts. Peanuts are more valuable. One has to bear in mind that the total Government income at this stage from capital taxes is something in the region of one quarter of 1 per cent of national revenue. We might as well abolish capital taxation altogether in the context of having any meaningful system. If we are getting, as we are, a total of £10 million out of a total national revenue this year of something in the region of £2,350 million and next year say £2,500 million, I wonder if it is worth our while having at this stage a capital taxation structure at all, certainly in terms of capital gains. The only industry the Minister is providing at present is one for tax consultants who, by and large, would be paid for telling people what they are no longer liable for. They will get substantial fees for doing that. The thing has gone out of all bounds and there can be no real prospect of a normal return to the Exchequer.

Last year we collected £1½ million in capital gains tax and I should like to know what it is estimated we will collect in 1978. No indication was given in the Minister's speech of what that figure is likely to be and we were not given any indication at the time of the introduction of the budget. I accept that the tax is paid in arrear but there should be some indication of what will be collected. Will we collect £750,000 next year? What will be the net effect of this Bill be? What will it cost to collect this tax? Surely the cost of collecting it will run to between £300,000 and £400,000. One can take a stab at what the full figure will be and reach a rational figure in that context.

This is not a system aimed at catching speculators or the get-rich-quick merchants. It has no relevance in that context. As a member of Dublin County Council I can give the Minister many examples of speculation in land, urban building property and in house gains of a substantial nature. The people concerned laugh all the way to the bank and dodge out of the direction of the Revenue Commissioners any time they sense they might be approaching them.

If the Deputy would tell us a little more about that we might do something about it.

At this stage I will merely refer the Minister to his long experience of consultancy between 1973 and 1977 with the firm he worked with and the inquiries he got. I do not think it would require much imagination to elaborate on that.

I did not have experience of that kind but I would be interested to hear about it.

I will not stir up any further problems for the Minister in that regard. For the first nine months of 1978 we collected £6.6 million in capital taxation while in the same period in 1977 we collected £8.2 million, a decrease in that income of £1.6 million. Income tax in the first nine months went up from £385 million the previous year to £460 million, an increase of almost £74 million. There has been a decline also in the income from corporation profits tax. In the first nine months of 1977 it was £6.5 million while in the first nine months this year it was £3.9 million, a decline of £2.6 million. It appears that the only people who are effectively paying any kind of taxation at this stage and are now paying 90 per cent of all taxation income are the PAYE payers.

This is the third time I have heard something like that in this debate. Is the Deputy saying that PAYE payers are paying 90 per cent of all taxation?

I am talking about income tax.

And that it is 90 per cent of all tax revenue collected?

The Minister knows well that PAYE is a lesser proportion of the total figure. It looks like we are coming to the situation where 90 per cent of general revenue of the income taxation structure is now being borne by PAYE payers. It is rapidly reaching that stage and the Minister is aware of that. One does not have to go chasing through the Exchequer returns for the first nine months of this year to get ample evidence of what I am talking about.

In the context of running into another national pay agreement I should like to state that there is not a trade unionist—I accept that a large number of them voted for the Minister as is their democratic privilege—who will not view with some degree of jaundice and a degree of chagrin generally the fact that the capital taxation structure is being dismantled and the income taxation liability is being progressively increased on him in return. That is a reality which does not need a great deal of stressing. The Minister should take seriously our advice. The system has been refined out of existence.

It would be interesting to see what we will get from this new system next year but I have no doubt that the new industry of tax consultants will have a field day largely by writing nice letters to people to tell them that they have no liability under this new system and requesting a fee of £100 for this information. The 1,500 people concerned will be only too happy to do so because they are laughing all the way to the bank with their £1 million. They are not putting their money into the great productive three-stage rocket of Deputy Colley's. That rocket is faltering all the way up and the third stage has not taken off yet. Like 100,000 other Irish people in the last six months they went off on foreign holidays with the money they should normally have paid over to Deputy Colley. They enjoyed themselves immensely and the country has lashings of new cars and expensive pubs, but such people have not created one job. They are laughing because, like Margaret Thatcher in the run up to the British general election, Deputy Colley lost his nerve on the run up to our last general election. He would have won that election anyway because we had made enough of mistakes to hand it over to him. There was no need for that kind of handout, payoff and privileged give away of capital taxation. No amount of codology by the Minister that he is after the get-rich-quick people will change my view in that regard. They are all laughing at Deputy Colley because they know that their liability has been massively reduced and they are on the pig's back.

The people, when they see how that £1 million has dropped for such people, will have a backlash on this issue. The young people will do so because they are not hidebound to political conventions. They will be very critical of the dismantling of capital gains taxation by the Minister when they see the amount of wealth that is around them and realise that they have no prospect of benefiting from it.

We have had what I suppose was a fairly predictable line from the Fine Gael and Labour benches. After all, this Bill is rectifying the basic mistakes in the Bill which they brought in and clearly they had to pretend in dealing with it that it was of no consequence or, alternatively, that we were simply wiping out capital gains tax, as Deputy B. Desmond tried to suggest. This was predictable. The Opposition addressed themselves only to a very limited extent to the major amendments in the existing law being implemented in this Bill and which I outlined in my opening speech. They may not wish to be reminded of these matters but I am afraid it is my duty to remind them of what is involved and what was involved in the Bill they enacted here.

The first thing I would like to draw attention to is that a number of Deputies, not least Deputy B. Desmond and Deputy Browne, seemed to be under the impression that capital gains tax is something for which only the rich are liable. One of the problems about it is that quite ordinary people of modest means are becoming liable to capital gains tax, and have been in the last three years, and still do not know it. They have not been caught up with yet because they are not aware that they are liable for it. Let us not imagine we are dealing only with very wealthy people when we are talking about capital gains tax.

It would seem to me that the major changes being made are matters of principle which should apply whether the taxpayer is very wealthy, modestly wealthy or not very well off. Those principles are outlined in my opening speech. The two major things involved are first, the question of tapering relief and second, the question of indexation of the gain in order to assess the liability.

On the question of the tapering relief, it is all very well for Deputy B. Desmond to wax eloquent about Fianna Fáil before the election indicating to people that they were going to do them a very good turn on capital gains, money flowing into the coffers and so on, but Deputy B. Desmond knows as well as I do, and as anybody who is interested in the topic knows, that what is in this Bill represents what was said by me and my colleagues, when we were on the Opposition benches, consistently in 1974 or 1975 when the existing legislation was being enacted. This is nothing new. It is a matter of principle and the principle is that if you are going to apply capital gains tax you should not apply the same rate of tax to the speculator—and I do not use that term necessarily in a derogatory sense—to the person who makes quick profit with little or no economic input. He is entitled to do it under our system, but if you are going to tax him you should tax him considerably more heavily than the person whose capital gain arises from a lifetime of hard work in a business or on a farm.

There is not a speculator who does not believe he works hard.

I maintained that principle when on those benches and I am maintaining it here. I did not hear one Opposition Deputy when dealing with this Bill genuinely tackle that problem and say: "I do not accept that. I think it is wrong." Nobody said that, and that is what is involved in this Bill as far as that principle is concerned.

We had the contributions of people like Deputy Browne who likes to think of himself as one of the exploited class and I suspect that he thinks the rest of the people in this House, the Deputies on this side and the Deputies on the other side too, are the exploiting class. Of course, he does not want to be confused with the facts. He thinks that the workers on average pay a 60 per cent rate of tax as against the top rate of capital gains tax of 30 per cent. I want to suggest to Deputy Browne that if he had the slightest interest in the workers he would have a more accurate idea of the rate of tax they pay. If they were paying a 60 per cent rate of tax we might have the revolution he is looking for. I do not take kindly to somebody posing as the friend of the workers against the alleged exploiters who does not have a clue about what the workers are living with; what kind of tax they are paying and what their concerns are. I would suggest that their concern in relation to capital gains tax is that they want to see the guy who makes the quick buck pay tax, and that is what we are doing in this Bill.

Now the question was asked, and this was posed by one of the Deputies in the debate: why not treat capital gains as income and tax them as income? That is a proposition I considered but there are snags to it. First, you have to decide if you are distinguishing between the speculator and the person who made the gain after many years of work and then draw the line somewhere as to what will be the top rate and what will be the tapering rate. If you are going to draw the line, for the purpose of having the top rate the equivalent of income tax, you have to take one year as your period. Once you do that and say that any gain made within a year is to be treated as income—I think this is done in some countries—immediately you are up against this problem. If a person has capital losses he will be able to set them off against his income tax liability. I do not think that is a proposition that would appeal to many people.

On balance, it seems that the approach we have adopted of a tapering rate in three-year intervals over 21 years from a 30 per cent rate to a nil rate may not be perfect but it is as close as we will get to implementing the principle of taxing the speculator much more heavily than the person whose capital gain arises from work over many years in building up a business or a farm.

The other major item involved in this Bill is the application of indexation. The case was made, and it was predictable that it would be made, that if you do this in the case of capital gains, why do you not do it in the case of income tax? That is plausible, but think about it. A capital gains tax is a tax on a gain.

As I pointed out when introducing the Second Stage, under the present law, with no provision for indexation, a paper gain on which somebody may become liable to capital gains tax may in fact be a loss. Whatever argument there is for indexation in relation to income tax nobody is charged income tax if he does not have an income. But one can be charged capital gains tax if one does not have a gain. There is an essential difference between the two. For that reason I believe that in the case of capital gains tax, because of the nature of the tax as its name implies, indexation is justified. The argument that what is done in regard to capital gains tax will provide an excuse for irresponsible action in wage negotiation or will be the cause of social unrest was advanced in this debate. It may or may not be surprising, depending on how one looks at the situation, to find that the argument was made both by Deputies Peter Barry and Browne. It is not true because the basic thinking behind that argument is that which the Coalition Government had, the belief that the great majority of people are concerned with the politics of envy. They are not; they are concerned with getting a fair deal for themselves. They are not concerned with doing down the other fellow and the fairest deal they can get in present circumstances is to see a real effort being made to create jobs. That real effort is being made. The taxation system has to be as far as possible geared to helping and facilitating the effort to create jobs. The concern of the average man in the street in regard to capital gains is to ensure that the fellow who make a quick profit will pay a fair amount of tax thereon; he is not concerned with the total yield or whether it is up or down. We all know that the total yield under existing law, or as it is expected to be under this Bill, is largely irrelevant in terms of revenue to the Exchequer and what it can do to help or hinder social progress in the sense of tranfer of money from the Exchequer.

The argument that what is done or is not done in this Bill could in any way justify irresponsible action on the wages front is a false one and is not one which I think Deputy Barry, on reflection, will want to repeat.

The Minister did not listen to what I said.

I am sorry if I misrepresented the Deputy. I did not intend to.

The Minister did not listen to what I was saying. That is not the argument I made.

There were a number of detailed points raised some of which can best be dealt with on Committee Stage but there are a few to which I should like to refer now. Deputy Barry Desmond referred to the decline in corporation profits tax yield. I think he is being slightly misled in his reading of the situation because the corporation profits tax, as such, has been abolished and replaced by or subsumed into corporation tax. That was done in 1976. Inevitably, in those circumstances, the yield from corporation profits tax is declining because we are dealing only with arrears due in the past. That is why there is a decline. But corporation tax, including arrears of corporation profits tax, yielded £77 million in 1977 and is expected to yield £107 million this year.

I do not know if there is any point in correcting a misapprehension on the part of Deputy Browne because he clearly did not want to be confronted with the facts. But in case he might be misleading anybody else, when he talked about roll-over relief being an escape hatch for speculators—I do not purport to be quoting his exact words but that was the sense of what he was saying—I should say that roll-over relief does not apply to somebody who sells stocks and shares. It is available only to a trader and in respect of certain types of assets, plant and machinery, land and buildings used in the trade, and goodwill. The relief is available only in so far as the proceeds of those items is reinvested in business. Therefore the picture being painted by Deputy Browne in that regard is totally false.

In connection with some of the comments made on the yield perhaps I should point out that the yields will not be greatly reduced until 1980. The reason for the drop in yield between 1979 and 1980, as indicated in our estimates, is that in 1979—since capital gains tax is payable a year in arrear—the yield will consist to a large extent of tax relating to disposals made before 6 April 1978, that is, before this tax Bill applies at all. The drop relates largely to yield from transactions to which this Bill will not apply.

Deputy Collins raised some queries. Personal representatives will qualify for indexation in respect of the period during which they had the assets, that is, from the date of death to the date of disposal. If the land in question is development land when it is disposed of the tapering rates will not apply.

Deputy Barry queried the abolition of the alternative charge provided for, I think, in section 6 of the 1975 Act. That section provided for an alternative basis of charge to income tax. With the introduction of indexation and tapering rates we consider that section 6 would produce an unnecessary additional complication necessitating additional complex calculations. That is the only reason for the change. I understand, for what it is worth, that in Britain they have also done away with this provision.

They will tell you that this was something that was of use and could avoid hardship in some very small cases. I think it is worth looking at again.

I am not closing my mind to it. Perhaps we could pursue it a little further on Committee Stage.

Deputy McCreevy referred to the tapering relief when he said that the time limit of two years for claiming this relief was too short. He was particularly concerned with people who might be liable for capital gains tax once in their lives and would not be familiar with this situation. Incidentally, he showed by what he said that he is aware of the fact that capital gains tax is a tax which can and does apply to people of relatively moderate means all over the country. It is not simply a tax applying to either very well-off people or people who are engaged in speculation only. In any event, the point he was making was that such people, not being familiar with the law on the subject, could well find that they had not applied within the two years. I want to reassure him that the position is that one must apply within two years or such longer time as the revenue commissioners may by notice allow. This will cater for taxpayers who inadvertently overlook claiming and who are the people with whom the Deputy was concerned. There are other matters of detail that we can more conveniently deal with on Committee Stage.

The Second Stage is normally concerned with the principle of the Bill and in this case more so perhaps than in many other Bills. It became quite clear that we were dealing with the principle and I want to reiterate that as far as this Government are concerned the major principles involved in the amendments which we are making to the existing law are principles which we have enunciated consistently ever since this matter first came before the House when we were in opposition and we are applying those principles in this Bill. We are doing so because we believe it is the right thing to do. The approach we are taking to tapering relief, thereby distinguishing between the speculator on the one hand and the person building up his business over many years on the other, plus the approach in regard to indexation in relation to capital gains tax, are approaches which logic and reason require.

We have always said so and we are doing what we said we would do. We are practising what we preach and in doing so we may be discomfiting Members of the House on the other side who I suspect know in their bones that the criticism we made of the Bill they brought in was justified and are therefore in a somewhat difficult position in trying to criticise the Bill we have now brought in but which is implementing the changes we then advocated and to which they on their part did not listen at the time we advocated them.

When is it proposed to take the Committee Stage?

On 26 October 1978.

That is Thursday week. We have another problem to deal with on that date.

I am not suggesting that it be taken on that date. We will order it for that date and that will mean it will not be taken before that.

Committee Stage ordered for Thursday, 26 October 1978.
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