Vol. 321 No. 10
I move:
That simple interest at the rate of 15 per cent per annum, without deduction of income tax, shall be payable on any death duties outstanding after the date of the passing of the Act giving effect to this Resolution:
Provided that, in any case where such duties are being paid by instalments, the said interest shall be payable thereon at the rate of 9 per cent per annum in lieu of the rate aforesaid.
Is it usual to move the Financial Resolution at this point?
It can be moved at any stage.
Will the Minister give us an explanation with regard to this resolution? It was circulated only this morning.
This arises because of the low rate of interest—9 per cent—which is charged on outstanding death duties. It is felt that in view of the current high interest rate it would be an encouragement to people to stall in paying their outstanding debts. It is proposed to increase the rates in order to avoid that.
What is the current rate?
It is from 9 per cent to 15 per cent.
Is the Minister writing into legislation an interest rate of 15 per cent irrespective of whether the interest rate goes up or down?
I am not writing it into legislation.
It will be passed in this House and it will become law.
I am sure the Deputy is as interested as I am in seeing a proper balance between those who pay on time and those who do not. It would seem reasonable to ensure that the interest rates applicable on outstanding debts should be commensurate with the interest rates applicable at the moment. They are not. At 15 per cent they would be less than the going rate. It seems reasonable to increase it from 9 per cent to 15 per cent in the circumstances.
We must oppose this because this would mean that, unless it was revoked by the House in the future, no matter what the interest rates were in commercial banks or any institution the interest rate for people who are overdue on their payment of death duties would be 15 per cent, even if they came down to 7 per cent or 8 per cent outside the House.
The Deputy must know that the figure of 15 per cent is a good bit below the actual going commercial rates of this state. I hope that we will see a reduction in the historically high interest rates which apply here and elsewhere at the moment. Although I am hopeful about this I cannot see a reduction to a level which would mean that this would be a penalty rate, having regard to what the rates might be in the course of the coming year. So far as we are dealing with the outstanding tax I am sure it is acceptable by all that those who pay on time, who meet their obligations to each other, should not be at a disadvantage. Those who have been delaying their payments should not be encouraged to do that by abnormally low interest rates. There is disturbing evidence of people being advised to withhold because of the low rate of interest at the moment. Nobody would want to see that continuing. I presume that applies to both sides of the House.
Would the Minister not agree that, if there are delayed payments at the present time, in many cases it is farmers with large families and business people with large families who are unable through no fault of their own to meet this when it is due? Would he not agree that due to the high inflation and the recession we have at the moment, which is due to a large extent to the non-governing of the Government, many of those people are unable to meet their commitments? Would he not agree that it will place an undue hardship on those people and that the majority of people meet their commitments when they are due if they are able?
This has nothing to do with the majority of people who pay their tax or with those who face hardship one way or the other. This is in relation to a significant number of outstanding cases where people have not paid. Let me remind the Deputies opposite, in case they think what is being done here is unprecedented, that it is bringing the interest rates back to something even below the going rate at the moment, at 15 per cent. The Deputies opposite should remember that there was a similar provision during the time they were in office, except that it was 18 per cent rather than 15 per cent. There is no use in implying that what is being done here is something new and tyrannical when in fact the evidence is there that it was even higher before. Having regard to the historically high rates at the moment it would seem reasonable at least to adjust this, if not in line with these rates, at least somewhere close to them.
May I ask the Minister a question?
The Chair at this stage would like to point out that this is not a debate in Committee. If there is to be a debate the ordinary rules of time must apply.
We are debating a motion.
The time limits would be a Member of the Government or Minister of State opening the debate, no limit; first speaker from a group in Opposition, one and a half hours; the other Members, one hour; Member of the Government replying, 2 hours. These, according to Standing Orders, are the times which apply. That, of course, means only one speech from each person.
On a point of clarification, what type of taxes and duties are covered by the expression "death duties"? Are we talking about capital acquisitions tax? What area is covered by the expression "death duties"? As the Minister knows, most of those were abolished by the Coalition Government some years ago.
We are talking here about estate, legacy and succession duties. It is appropriate to mention that in respect of all other taxes the interest rate is 15 per cent at the moment. We are lining up the estate, legacy and succession duties with that rate in respect of outstanding liabilities.
I do not propose to take all of the time available to me. I am grateful to the Ceann Comhairle for his indulgence in this matter. We are dealing here with an unprecedented situation because the development of interest rates here in the past year arises in a new context, the European Monetary System, with tight exchange controls and an independent currency. The determination of the level of interest rates is therefore an entirely domestic matter. It was not the case prior to March of last year when our currency was linked in parity with sterling, there was no exchange control and when in the nature of things Irish interest rates could not deviate by more than a relatively small fraction from interest rates elsewhere. In those circumstances the level of interest rates was not primarily a matter of Government responsibility. While no doubt from time to time Oppositions have criticised Governments about interest rates, there was not much Governments could do about it. That is as true during the period when the National Coalition were in power as when Fianna Fáil were in power. References to the 18 per cent, which the Minister allegedly implied applied previously, are irrelevant.
We are now in a position where interest rates are determined by our policy. The reason why interest rates are at their present level is quite simple and should be clearly understood by everyone in the country. It is because the Government pre-empted the greater part of the available credit because of their failure to control their own finances, which they have allowed over three years to get totally out of control in a manner which is excoriated by the Central Bank in a report recently published.
The Deputy must know that a debate on the economy is hardly appropriate on this motion.
I am not debating the economy.
If the Deputy wants to open up a full debate on the economy on one of those resolutions, he can do that.
I am not debating the economy. I am discussing one issue only, interest rates and the reason why interest rates are at their present level. The reason why the Minister's ruling was 15 per cent is because the general level of interest rates is now very high. He has correctly said that they are higher than 15 per cent. Why are they higher, why is it necessary for the Minister to move this resolution? It is necessary because the Government by pre-empting the greater volume of credit have so reduced the volume of credit available for the private sector that the supply and demand factors operating, the demand for credit exceeding supply, have pushed up interest rates domestically to a level twice that in some other nearby countries.
There is still some delusion on the part of people in the country that our interest rates are at their present level because they are like that in Britain and as long as the British have high interest rates we have to have them. This, of course, is nonsense. We have tight exchange controls and an independent currency. It is we who should determine the interest rates. Just as Germany with rather looser exchange control arrangements vis-à-vis Britain and ourselves have interest rates at half our level, so could we have, if this Government pursued a policy of financial prudence. The Government have forced interest rates to the present level. The Government have pre-empted the greater volume of credit and have thereby narrowed the market for credit to the private sector to a point where interest rates have been forced up to a level where many forms of borrowing exceed 20 per cent in terms of the free market that relates to institutions other than the associated banks, thereby forcing the associated banks to increase interest rates in order to remain competitive.
We are, for the first time, facing a situation where the Government by their incompetence and mismanagement have forced interest rates to this level and are now penalising the people who owe money to the Revenue Commissioners in relation to death duties, which they are in many cases unable to pay because of the credit squeeze enforced by the Government's incompetence which has pushed interest rates to this level. If ever there was a vicious circle this is one. The Government over-borrow creating a credit squeeze so that people cannot borrow the money necessary to pay and will be forced to sell out their firms in order to pay. They will find themselves doubly penalised because they cannot pay. The Government's policies have made credit unavailable for the purpose of tiding them over to enable them to maintain their firm until they can pay the money. They are now forced to pay a level of interest which has been forced up artificially by the Government.
I recognise that there is a clause which deals with the question of payment by instalment and that there is an element of alleviation in that. Obviously that alleviation is not available to everyone. If it were, there would be no mention of 15 per cent. That 15 per cent will be applied to people who are unable to pay death duties because of the Government's policy and who are forced to pay this interest rate because of the Government's policy. In those circumstances and in the conditions now prevailing since last March this measure is unacceptable and indefensible. That is the least that could be said by anyone with any knowledge of the present economic situation or any concern for justice between the Government and people especially people in the position of having to pay death duties where in fact the integrity of the enterprise may be threatened because the vast bulk of enterprise here is privately owned.
We enormously alleviated the burden of estate duty which is limited now to inheritance and acquisition tax. The original death duties are gone but for some people there still remains a burden which they cannot discharge in these circumstances where Government policy has left them with no available credit and is penalising them by charging a penal rate of interest which derives from the Government's incompetence in managing the economy.
In relation to sums owing to the State by way of taxation whether capital or current it is evident that interest of some kind has to be paid. But in relation to death duties in particular certain problems arise some of which have been adverted to by Deputy FitzGerald and others which should also engage the Minister's attention. One of the problems that may arise is in relation to the length of time it takes to complete certain legal formalities which may be necessary before the person who has been assessed for death duties is in a position to pay them. There may be no hardship in the paying of these death duties but the legal formalities that must be completed before he can acquire control of the resources with which to discharge his debt may be totally out of his control. Anybody here who has had the experience of administering or helping to administer the estate of a relative or friend will know that the delays can be considerable even though they may relate only to small amounts of money and to what appear to the lay person to be small legal points.
In relation to the rate of interest to be attached to outstanding death duties, death duties are a wasting asset. The previous Government decided to abolish death duties and introduce a different system of capital taxation. In these circumstances and given this Government's attitude to capital taxation in general, it is inescapable that the Government's newly discovered need to put this rate of interest on death duties outstanding is related not to any concepts of equity or encouraging rapidity of payment but simply to the fact that they are extremely short of money owing to the financial policies adopted in other areas. If the Government had not abolished wealth tax they would not be in here with this resolution hounding the relatively few people who are still liable for the payment of death duties in respect of estates that they may be administering for an additional 10 per cent interest. This resolution can only be seen in the general context of the Government's frenetic attempt to pick up a few quid anywhere they can to help pay the massive bills they have amassed for the Irish people over the last three years.
We are talking about interest rates charged on debts owed to the Revenue Commissioners in respect of death duties. I presume that all of the deaths in question took place prior to 1 April 1974. I understand that there are quite a number of people whose estates have not been sorted out even after that period because of legal delays. The people now find themselves in the position that they have to pay death duties at this stage, when farmers for instance, have very little money available and if they sell their land as some of them will be forced to do, it will be sold at a very low price. I understand that the price for good agricultural land has fallen in some cases below £1,000 an acre whereas the price was £3,000 an acre last year. This means that in order to meet the estate duty due, people will have to sell almost their entire farm. To force them into that position by suddenly jerking up the interest rates is unfair.
No one can deny that there is just cause for having an interest rate on outstanding debts but the fundamental objection to this provision is that the tax itself is unjust. The estate duty tax was done away with in 1974 and it was common case that it was an unjust tax. To come along now and try to squeeze a little more out of the people who were caught in the net of this very unjust tax before it was abolished is to pile injustice on injustice.
We on this side of the House cannot accept that. The issue of the justice or otherwise of estate duty was decided by the people in the 1973 general election. They decided in 1973 when they elected the National Coalition that they wanted to be rid of estate duty and they got rid of it, but Fianna Fáil are back now after the 1977 election and obviously they have not forgotten the people from whom they were happily levying estate duty in the period up to 1973. Now they want to increase the interest rate on those people who, because of the excessive delays which often occur in the processing of estates, have not been in a position yet to pay off the amounts liable to them. This is not a fair measure. We should not have this matter brought before us, not so much because of the interest rate arguments as because of the fundamental injustice of the tax in question namely estate duty.
The first point that I would like to make here is that the death duties which are at issue here on this interest question are due on deaths which occured before 1 April 1975, that is five years ago. We are talking in respect of duties that have been outstanding since that time.
If only the Minister had explained that at the outset.
I listened to a lecture on economics from the Leader of Fine Gael. I hope that at least he will allow me to state the facts on this issue and I might be able to give some comment by way of my view on his economic lecture theme as well. The second point is —Deputy FitzGerald touched on this— that it is clear on the face of this resolution that, even though we are talking about duties outstanding since that date, these duties, as is stated clearly in this resolution, may be paid also by instalments over a period of years. Where that is the case, where they are being paid by instalments over a period of years, the rate of interest that is applied is 9 per cent which Deputies will recognise at this time is, to say the least of it, unusually low. What we are talking about is not where payments are being made by instalments over that five-year period and into the future, whatever arrangements there may be, but about defaulting cases. The sole purpose of this amendment—if you can call this a penalty in these circumstances—is to impose an appropriate addition by way of penalty at the rate of 15 per cent on defaulters but in line with the normal rate of interest charged on all outstanding tax which is 15 per cent. This has been the one out of line since 1978 at 9 per cent and now only in respect of defaulters is it being increased to 15 per cent which is the interest rate generally.
Let me now give a little of the background on which Deputies opposite should inform themselves before they come in to criticise what is being done here to introduce a balance to say the least of it, and, I suggest also, equity as between all outstanding tax and in this case between those who pay by instalments and those who are not doing so and are defaulting. It is rather important to be put on the record of this House that the rate of interest on unpaid taxes was raised to 18 per cent in 1975. Note the year, note the figure. The circumstances speak for themselves.
Tell us what you get for an acre of land.
The rate of interest on outstanding taxes was reduced to 15 per cent in 1978. Note the year, note the figure. It is a little strange that Deputies at this stage, years later when the interest rates are higher internationally than they were at that time——
It is irrelevant.
If it is irrelevant, I had to listen to the Leader of Fine Gael make some reference to it this morning when it did not seem to be irrelevant at all, and I intend to come to that in a moment. The argument made particularly by the Leader of Fine Gael does not hold up and, while he can express the concern that he wishes and try to imply that this is a penal tax or penal approach to a tax debt, he can say that and get it off his chest, but it does not square with the facts, the record or what I am proposing to do here now. Whatever it is that Fine Gael would like to misrepresent they are free to do it, but I am entitled to state the facts and then have the facts judged for themselves. I presume there would be unanimity in this House on the basis that defaulters should not be encouraged to remain defaulters as between those who pay their tax or duties and so on promptly and those who do not. If what Fine Gael are suggesting here is that defaulters should be encouraged by reference to the fact that, even after five years, the rate of interest chargeable on their default should be at 9 per cent, let the public be aware of it. Let them say that they are in favour of giving very special provision to defaulters at a rate of 9 per cent. If that is the case—and that is what they are suggesting—they might as well have it known outside. What is proposed here does not in any way even bring it into line with the current interest rates in the normal course of commerce or advances for any purpose. It is being raised to 15 per cent in this area in line with outstanding interest on all other tax. Anyone who wants to argue that as being unduly vindictive a penalty or whatever else can argue that, but I am not convinced of the sincerity of someone so arguing or by his argument or reasoning in presenting it.
I know what happens. Someone comes in here this morning and finds that there is something on about raising an interest rate on a resolution and then says that here is another chance to have a go. Without giving it very much thought he is up and having a go and then I get the lecture on economics from the Leader of Fine Gael. Now I want to make some reference to that. He said in very strong and coercive tones, and I quote and I challenge him to justify this on any economic criteria: "The Government and the Government alone have forced the interest rates up to their present level". That is a wonderfully absolute statement from a person who presents himself from time to time in this House and makes passing reference to himself as an economist to imply that that means that the rest should take a little more notice of what he says than of what we say.
As one who has qualifications also, perhaps not as an economist but at least in the business of looking at all of the arguments and analysing them, I state that it is not the Government and the Government alone who have forced interest rates to where they are. That record does not stand up and the Deputy knows that. As I said to him in this House, the increase in interest rates amongst our partners in the EEC—to leave it at that and never mind America where they are coming down at the moment and we hope to see this reflected in the Bundesbank rate, the Lombard rate, the Westminster Bank and so forth although there is no sign of that yet—in absolute terms was higher since June 1978 anywhere than here. I am not talking proportionately, and I said that in the presence of the Leader of Fine Gael not long ago in this House because he had implied that I was sheltering behind the special argument when I talked of proportionate increases. I am not one to say that that is great, that is marvellous, and because of the fact that others have suffered we should say we are lucky. I am not saying that. I am simply saying as a fact that that is the case. Obviously the inter-bank market reflects the going rates in this area.
I take issue with Deputy FitzGerald when he says it is different now that we are not tied to sterling. If it is different, it is because, as we are within the EMS and not just following in line with sterling, as was the case before the link was broken, we are in an international money market where capital inflows and outflows will affect us as is the case with every other country. If as a small open economy we were to attempt to have interest rates way below those which apply in the other countries with which we trade, and who draw on the same sources of income——
No one suggested that.
That is the impression I got.
Why are they less than 10 per cent in Germany?
Does the Deputy now withdraw his suggestion—and I am quoting exactly what he said—that the Government alone forced up interest rates? Does the Deputy say that is a credible position?
Yes. Why are they less than 10 per cent in Germany? The German Government's policy is different from ours.
The Deputy must know that, if anything, they have always been very much less than 10 per cent in Germany. He seems to have a penchant for figures. Sometimes he skips gaily over the figures which suit him. He gives an impression of great assurance, great study and great analysis. He has seen it; he has studied it; and he will tell us all the consequences of his deep study. He has overlooked the fact that the gap between the interest rates here now and those current in Germany is less than normally.
To their benefit. Answer the question. Why are our rates double those in Germany?
The Minister must be permitted to reply without interruption.
The Leader of Fine Gael wants to be cast in the role of lecturer, specialist, expert in economics and, if any of us raise any issues with him, apparently we have neither the right nor the capacity to do so. I have never accepted that.
I have never asserted it.
In his own modest way as an economist and someone who looks at all these objectively he makes statements and puts them on the record in an objective tone but in a very subjective and misleading presentation. If anything is misleading it is to say something in an apparently objective way but really in a very subjective and misleading way. Despite the attempts by Fine Gael this morning to imply that what is being done here is unreasonable and out of line, I want to say they have picked the wrong issue. If they want to say people who have defaulted should be allowed to pay at interest rates of 9 per cent as against every other outstanding tax due—even when we are not talking of default at 15 per cent—let them put it on the record that they are promoting or encouraging defaulters even in respect of those areas where after five years people have not yet paid the outstanding duties. Let Fine Gael stand over that.
A Leas-Cheann Comhairle——
I was instructed by the Chair that on a resolution——
The Minister has concluded.
I waited to hear each speaker.
We raised the point that, if a farmer wanted to sell an acre of land or so many acres of land he could get £3,000 an acre last year to help to pay death duties. Now land is selling at £800 an acre.
The Deputy may not make a further statement.
He did not reply to the relevant points raised.
The question is that the resolution be agreed.
Some people have to sell their whole farm to pay the duty.
