Dáil Éireann debate -
Thursday, 14 May 1981

Vol. 328 No. 14

Finance Bill, 1981: Report Stage (Resumed).

Debate resumed on amendment No. 8:

In page 8, before line 12, to insert the following:

"—Notwithstanding anything in the Tax Acts, the amount of rent paid by an individual on a principal private residence, which exceeds £10 but not greater than £50 per week, shall be deducted from the total income of that individual for the year 1981-82 and any subsequent year of assessment."

—(Deputy Bruton.)

Mr. B. Desmond

The Minister will recall that yesterday, on behalf of Deputy O'Leary, I supported this amendment. I should like to know if the Minister has any thoughts in relation to any prospects of relief being afforded in relation to rent payments in respect of private accommodation. Is there any working paper or document available at Government level which might afford any measure of relief to such persons? It is not my intention to press the amendment but I was wondering if there was any intention of granting relief. It was interesting to hear Deputy Fitzpatrick of the Minister's party alluding to the need to give relief to persons paying substantial rents for private accommodation vis-á-vis the ordinary relief afforded to mortgage holders. It has been suggested that because of mortgage relief the Government should consider giving relief in the direction I have asked.

The Minister will recall that the general intention of the Labour Party amendment was that persons paying at least £10 and not more than £50 per week for rented accommodation should get some mortgage relief for such payments. The Minister told us he could not find his way to accepting that amendment but perhaps we might tease out from him if any thought is being given to that principle within the Department of Finance or the Revenue Commissioners. It may feature in the next three or four weeks in a certain campaign.

Mr. Bruton

An amendment designed to provide some measure of tax relief in respect of people living in rented accommodation is desirable because if those people were living in a house which they had the ability to purchase they would get tax relief on the interest being paid on any loan they took out for that purpose. As a general rule one can say that people living in rented accommodation are less well off than people living in their own house because it is usual that they live in rented accommodation because they do not have any option. They live in such accommodation because they cannot afford to buy a house of their own.

It is somewhat ironical that there should be a tax relief for people who can afford to buy a house of their own on the interest they pay whereas those who cannot afford to buy a house do not get tax relief on any of the payments they make. The result of this has been a diminution in the amount of available rented accommodation because the rents that can be charged in these circumstances are not sufficiently remunerative to encourage people to provide adequate amounts of this accommodation. The result is a scarcity of rented accommodation in many parts of this city and other major towns. Deputy O'Leary's amendment will have the effect of making much more rented accommodation available in the medium term, because by giving relief to the tenant in respect of his or her rent it would become more profitable for both potential landlords and potential tenants to enter into more arrangements for the leasing of housing accommodation and we would have more rented accommodation, an easier situation in the housing market and more mobility in our economy, since rented accommodation is a more mobile product.

The Minister for Finance argued that any introduction of relief on income tax for rented accommodation would lead to an increase in demand for rented accommodation but no increase in supply, and hence to an increase in the rents and the benefit therefore going to the landlord. This, of course, is not true because rented accommodation can be made available relatively easily. The conversion involved internally in most houses to make them available for rental can be carried out relatively quickly. There is no need to buy sites or to get planning permission in most cases because making available rented accommodation usually involves merely relatively minor internal reconstruction. In the event of relief being made available for rented accommodation the supply could increase to meet the increased demand very quickly.

It is quite the opposite in making relief available for new house accommodation. It is not possible to make new house accommodation available quickly. An increase in demand for new house accommodation generated by an increased housing grant, such as the present Government have made so much of introducing, is not going to be matched by an increased supply as quickly as would be an increased demand for rented accommodation, because it has to involve the purchase of new houses. The concession for which the Government have the money to introduce — namely, the increased grant for new house accommodation — is certainly going to have the effect that the Minister mentioned of benefiting builders rather than home owners because supply cannot be increased physically quickly enough to match increased demand. The opposite is the case in respect of the concessions sought in this amendment and, therefore, the case that the Minister has made has no substance.

I do not know the basis upon which the Minister made the estimate of £40 million as the cost of this concession. I am sure he is well aware that many landlords who are letting rented accommodation at the moment are not paying tax. If tenants were able to claim their rent or even a part of their rent as relief against the tenant's income tax they would return the name of the landlord and in many cases this would lead to the identification for income tax purposes of landlords who hitherto had not been paying tax on the rents that they received. Far from costing money, a concession of this nature could generate increased revenue. The Minister, of course, in making his estimate took no account whatever of this phenomenon.

Deputy O'Leary's amendment may go too far in so far as it proposes to allow the whole of the rent up to a certain ceiling as allowable expenditure for expenses purposes on the part of the tenant. Even if a part of the rent were allowed, that would be my preference. That would have the effect of giving some relief to the tenant but it would also have the full effect of identifying landlords who have been avoiding income tax. If the Minister wanted to make a constructive move in this direction he need not have gone the whole way with Deputy O'Leary's amendment but he could have introduced his own amendment which would have cost less because of restricting the relief to less than the whole of the rent payment for the purpose of the income tax of the tenant while at the same time having the full effect of identifying landlords who might not at the moment be paying tax.

The Minister has adopted a shortsighted attitude in refusing this amendment, and it is significant that in this Finance Bill the same Minister proposes to give relief to landlords who build rented accommodation. They are going to get tax relief, but the proposal to give relief to the tenants as proposed in Deputy O'Leary's amendment is rejected by the Minister. We see his scale of priorities. He is happy to see an income tax relief going to landlords who build accommodation on the income that they might derive from the rents, but he is not happy to see any relief going to the tenant in respect of the tenant's income tax. That indicates his approach and the type of people who have influence on him in making policy decisions. It indicates a totally wrong scale of priorities and a wrong approach to the solution to this problem.

An Ceann Comhairle

Is the amendment withdrawn?

Mr. B. Desmond

Is there any response from the Minister? He has already spoken on the matter.

An Ceann Comhairle

Deputy Bruton has replied.

Mr. G. Fitzgerald

This is Report Stage, but the Deputy will not be aware of that because he is not sure. The Deputy is well aware of my sympathies.

Amendment put and declared lost.

Mr. B. Desmond

I move amendment No. 9:

In page 8, before line 12, to insert the following:

"—For the year 1982-83 and any subsequent year of assessment the amount of reliefs and allowable deductions from the total income of an individual for income tax purposes, and the amounts specified in section 3 of this Act, shall be increased by the percentage figure as represented by the Consumer Price Index to mid-February of each year."

Mr. Bruton

The purpose of amendment No. 9 is to introduce indexation in the income tax code. The Minister indicated on Committee Stage that he would not do this, but it is appropriate that this matter be considered on Report Stage also. It is of great concern to working people in respect of their taxation that the Government are able, through what is euphemistically termed buoyancy of revenue — namely, the fact that tax allowances do not in many cases keep pace with inflation — to get increased revenue without the necessity of coming into the Dáil and getting sanction for that simply because inflation has devalued the allowances and a higher burden of real taxation is charged solely as a result of inflation without any approval by this House. That is taxation by stealth, and indexation would remove the possibility of taxation by stealth — namely the increase in the real burden of taxation without the sanction of the Oireachtas — by increased allowances. Indexation does not prevent a Government from increasing the real burden of taxation if they consider it necessary, but it does prevent the Government getting increased revenue without the sanction of the Oireachtas. Consequently, this amendment is an appropriate one to be considered on Report Stage as it was regrettable that the Minister has not seen his way to accept this because it would not have prevented him from increasing revenue in future years. It would merely make him do in the open what he and other Ministers of all parties have in the absence of indexation been able to do in the past by stealth.

Mr. G. Fitzgerald

This amendment is exactly the same as that put down by Deputy O'Leary on Committee Stage which was withdrawn after a very brief discussion. I pointed out at that stage a number of things regarding indexation. Of course, there have been many calls for indexation of the personal allowances and the rate band structures, but I will demonstrate to the House again, as I did on Committee Stage, the progress that has been made in that whole area during the term of office of the present Government. Individual taxpayers have benefited to a far higher degree or extent than they would have done had the allowances and structures been linked to indexation. I said that in the budgets of 1978, 1979, 1980 and 1981 the full year cost to the Exchequer of the improvement in the allowances in the rate band structures was £500 million. During the period of those four budgets had indexation as suggested in this amendment been used, the full year cost would have been only £324 million. Therefore the taxpayers because of the policies and because of the action of the Government have in fact run well ahead in that respect. There is £176 million of a difference. I can appreciate the Deputies opposite raising points like this because during the term of office of their Government this did not happen.

The improvements have been substantial and have been well ahead of what they would have been had there been indexation. I would also like to say that the Commission on Taxation must be looking at suggestions like this and when they report they may well have suggestions to make regarding this. As I said, the taxpayers have benefited to a far greater extent than they would have done by indexation. After a very brief discussion on Committee Stage the same amendment was withdrawn by Deputy O'Leary.

Mr. Bruton

Not all the allowances have been indexed.

An Ceann Comhairle

We cannot have a Committee Stage discussion.

Amendment, by leave, withdrawn.

Mr. B. Desmond

I move amendment No. 10:

In page 8, before line 12, to insert the following:

"—Income derived from the payment of an old age pension to a person qualified under the Social Welfare (Consolidation) Act, 1981, shall not be assessed to tax for the year 1981-82 and any subsequent year of assessment.".

Amendment, by leave, withdrawn.

An Ceann Comhairle

Recommital is necessary in respect of amendment No. 11 as it involves matters which did not effectively arise on Committee procedure.

Bill recommitted in respect of amendment No. 11.

Mr. G. Fitzgerald

I move amendment No. 11:

In page 17, between lines 10 and 11, to insert the following:

"17.—As respects any relevant accounting period within the meaning of section 38 of that Act, Chapter VI of Part I of the Finance Act, 1980, is hereby amended—

(a) by the insertion in section 39 after subsection (1) of the following subsection:

`(1A) The definition of " `goods' " contained in subsection (1) shall include—

(a) fish produced within the State on a fish farm, and

(b) cultivated mushrooms cultivated within the State,

in the course of a trade by the company which, in relation to the relevant accounting period, is the company claiming relief under this Chapter in relation to the trade and references in this Chapter to " `manufactured' " shall be construed—

(i) in relation to fish, as including references to produced, and

(ii) in relation to mushrooms, as including references to cultivated,

and words in this Chapter cognate to " `manufactured' " shall be construed accordingly.

(1B) The following provisions shall apply, for the purpose of relief under this Chapter, in relation to a company that carries on a trade which consists of or includes the repairing of ships—

(a) repairs carried out within the State to a ship shall be regarded as the manufacture within the State of goods, and

(b) any amount receivable in payment for such repairs so carried out shall be regarded as an amount receivable from the sale of goods.

(1C) (a) In this subsection " `engineering services' " means design and planning services the work on the rendering of which is carried out in the State in connection with chemical, civil, electrical or mechanical engineering works executed outside the territories of the Member States of the European Communities.

(b) Where a company carries on a trade which consists of or includes the rendering of engineering services, the following provisions shall apply for the purpose of relief under this Chapter—

(i) the rendering within the State of such services shall be regarded as the manufacture within the State of goods, and

(ii) any amount receivable in payment for such services so rendered shall be regarded as an amount receivable from the sale of goods.

(1D) The inspector may by notice in writing require a company claiming relief from tax by virtue of subsection (1B) or (1C), as the case may be, to furnish him with such information or particulars a may be necessary for the purpose of giving effect to that subsection, and section 41 (2) shall have effect as if the matters of which proof is required thereby included the information or particulars specified in a notice under this subsection.', and

(b) by the insertion after section 39 of the following section:

`39A.—(1) in this section—

" `the airport' " has the same meaning as in the Customs-free Airport Act, 1947;

"`company"' means any company carrying on a trade;

"`the EEC Treaty"' means the Treaty establishing the European Economic Community, signed at Rome on the 25th day of March, 1957;

" `the Minister' " means the Minister for Finance;

"`qualified company"' means a company the whole or part of the trade of which is carried on within the airport;

"`relevant trading operations"' means trading operations specified in a certificate given by the Minister under subsection (2);

"`trading operation"' means any trading operation which, apart from this section, is not the manufacture of goods for the purpose of this Chapter but is carried on by a qualified company.

(2) Subject to subsections (5) and (6), the Minister may give a certificate certifying that such trading operations of a qualified company as are specified in the certificate are, with effect from a date to be specified in the certificate, relevant trading operations for the purpose of this section, and any certificate so given shall, unless it is revoked under subsection (4), remain in force until the 31st day of December, 2000:

Provided that—

(a) any trading operations in respect of which the Minister has given a certificate under section 70 (2) of the Corporation Tax Act, 1976, (or a certificate which has effect as if it were a certificate given under that section) shall not be certified as relevant trading operations unless the Minister is satisfied that those operations arise from an initial investment; and

(b) in determining what constitutes an initial investment for the purposes of this proviso the Minister shall have regard to the principles for the time being applied by the Commission of the European Communities in accordance with the powers vested in it by Articles 92 to 94 of the EEC Treaty.

(3) A certificate under subsection (2) may be given either without conditions or subject to such conditions as the Minister considers proper and specifies therein.

(4) Where, in the case of a company in relation to which a certificate under subsection (2) has been given—

(a) the trade of the company ceases or becomes caried on ceases or becomes carried on wholly outside the airport, or

(b) the Minister is satisfied that the company has failed to comply with any condition subject to which the certificate was given,

the Minister may, by notice in writing served by registered post on the company, revoke the certificate with effect from such date as may be specified in the notice.

(5) The Minister shall not certify, under subsection (2), that a trading operation is a relevant trading operation unless it is carried on within the airport and falls within one or more of the following clases of trading operations—

(a) the repair or maintenance of aircraft,

(b) trading operations in regard to which the Minister is of opinion, after consultation with the Minister for Transport, that they contribute to the use or development of the airport,

(c) trading operations which are ancillary to any of those operations described in the foregoing paragraphs or to any operation consisting, apart from this section, of the manufacture of goods.

(6) The Minister shall not certify, under subsection (2), that any of the following trading operations is a relevant trading operation—

(a) the rendering of—

(i) services to embarking or disembarking aircraft passengers, including hotel, catering, money-changing or transport (other than air transport) services, or

(ii) services in connection with the landing, departure, loading or unloading of aircraft,

(b) the operation of a scheduled air transport service,

(c) selling by retail,

(d) the sale of consumable commodities for the fuelling of aircraft or for shipment as aircraft stores.

(7) In the case of a qualified company carrying on relevant trading operations, the following provisions shall apply for the purpose of relief under this Chapter—

(a) the relevant trading operations shall be regarded as the manufacture within the State of goods, and

(b) any amount receivable in payment for anything sold, or any services rendered, in the course of the relevant trading operations shall be regarded as an amount receivable from the sale of goods.

(8) (a) Where at the end of any relevant accounting period a qualified company has fifty or more full-time employees, the aggregate of all amounts of relevant relief under this Chapter to which the company is entitled for all relevant accounting periods shall not exceed an amount determined in accordance with the principles for the time being applied by the Commission of the European Communities under the powers vested in it by Articles 92 to 94 of the EEC Treaty, and there shall be made such additional assessments or adjustments of assessments as may be required in any case in order to give effect to this subsection.

(b) In this subsection—

" `full-time employees' " means, in relation to a qualified company, employees who are employed by the company on a full-time basis in relation to relevant trading operations and the duties of whose employment are such that they are required to devote substantially the whole of their time to the service of the company;

" `relevant relief under this Chapter"' means the relief under this Chapter to which a qualified company would not be entitled but for the provisions of subsection (7).

(9) (a) The Revenue Commissioners may make regulations for the purposes of giving effect to subsection (8) (a) and to provide for any ancillary or consequential matters.

(b) Every regulation made under paragraph (a) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the regulation is passed by Dáil Éireann within the next twenty-one days on which Dáil Éireann has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

(10) The inspector may be notice in writing require a company claiming relief from tax by virtue of this section to furnish him with such information or particulars as may be necessary for the purpose of giving effect to this section, and section 41 (2) shall have effect as if the matters of which proof is required thereby included the information or particulars specified in a notice under this section.'.".

I would like to point out to the House that there is a minor drafting correction to the amendment in paragraph (a) of the new section 17. In the second line "subsection" should read "subsections". It is a minor drafting amendment.

This amendment is intended to extend the relief from Corporation Tax provided by Chapter VI of the Finance Act, 1980, that is the 10 per cent scheme, to trading profits arising to companies from a number of areas: (1) Sales of cultivated mushrooms cultivated within the State; (2) sales of fish produced in a fish farm within the State; (3) repairs to ships carried out within the State and (4) engineering services, design and planning rendered in connection with certain engineering work executed outside the territories of the member states of the EEC where the work in connection with such services is carried out in the State and certain trading operations of non-manfacturing carried on at Shannon Airport. That is mainly what is involved in the amendment.

Mr. Bruton

Will the Minister tell us the relevance of the reference in paragraph 17 (2) (b) to Articles 92 to 94 of the EEC Treaty?

Mr. G. Fitzgerald

The Deputy must be aware that when we replaced the export sales relief scheme with the new 10 per cent scheme I referred to, obviously certain approvals had to be obtained from the EEC. Furthermore, approval for any subsequent alterations to it, such as are now suggested, will have to be obtained as well. In the case of ship repairs full approval has been obtained. Approval in principle has been obtained in other areas and further discussions are taking place on the engineering services, design and planning.

Mr. Bruton

What is the significance of the fact that the section to which I referred says: "In determining what constitutes an initial investment for the purposes of this provision the Minister shall have regard to the principles for the time being applied by the Commission of the European Communities in accordance with the powers vested in it by Articles 92 to 94 of the EEC Treaty." This does not say the Minister shall have regard to regulations made by the European Commission. If it were regulations made by the European Commission people who wished to know what their position was in regard to this relief would be able to refer to some legal tests.

The section says "the principles applied by the Commission of the European Communities". These may be administrative principles which are not formulated anywhere in statute, European or Irish. People, therefore, wishing to know their position have, within the terms of this amendment, no means of doing so because it merely refers to administrative principles. I cannot see how legislation such as ours should include administrative principles applied by an agency outside the State which need not necessarily be formulated in writing. The idea of our making legislation based on what the Commission officials may informally say to someone else in the Community and making the effectiveness or otherwise of our legislation contingent on that type of negotiation, of which people in this country may be quite unaware of and have no means of becoming aware, is introducing into our legislation something which should not be in it. It makes the legislation so completely imprecise as to be valueless. What does the Minister mean by the terms he has used in this context?

Mr. G. Fitzgerald

In this section we are specifically referring to the Shannon operations. That condition limits the extent to which existing companies in Shannon, who have qualified under the Shannon exemption scheme, will be able to avail of the new relief. Details of how it will operate have yet to be finalised with the Commission. The legislation, as it is presently drafted, provides that the Minister will not certify any existing trading operations as relevant trading operations for the purpose of the new relief unless certain initial investment has been undertaken. This latter term "initial investment" has a technical meaning in the context of the principles laid down by the Commission for the co-ordination of regional aid systems. That is basically the reasons for that.

In the discussions to extend that scheme it was agreed that the relief would be granted subject to the principles laid down by the Commission. The benefits and the advantages are obvious. The Deputy asked why such a section is inserted. The reason is, as I have tried to explain to him, that the principles will be based on the concept of aids to initial investment for jobs creation. It is in the interests, basically, of extra jobs in that particular region and the aid that existed under the export sales relief to that type of industry in the Shannon region. It is merely endeavouring to assist those industries.

Mr. Bruton

What are the principles now applied by the Commission in regard to this matter?

Mr. G. Fitzgerald

They are based on a concept of aids to initial investment or jobs created and specify limits to such aids for different regions in the Community. In the case of the services sector, if aids were limited by reference to initial investments, little aid could be granted to that sector in comparison with the manufacturing sector. It is the alternative measure by reference to aid per job created which applies to this sector. Details of the principles have yet to be worked out with the Commission but they are in the interest of these extra jobs in the Shannon region.

Mr. Bruton

Is the Minister saying that there are no principles in regard to this matter in operation at present?

Mr. G. Fitzgerald

I said there are principles.

Mr. Bruton

The Minister cannot have it both ways. He says the principles are yet to be agreed. Therefore, there are no principles in operation at present.

Mr. G. Fitzgerald

I did not say that. I said details of the principles——

Mr. Bruton

What are the principles?

Mr. G. Fitzgerald

Aids to initial investment or jobs created.

Mr. Bruton

That is not a principle.

Mr. G. Fitzgerald

Under the principles currently applicable the maximum aid per job created that can be granted to a project by the Irish Government from 1 January 1981 is 17,500 European units of account.

Mr. Bruton

Per job?

Mr. G. Fitzgerald

To jobs per project. The Commission have agreed that businesses below a certain size need not be subject to any limits and we are at present trying to work out the details and numbers involved, the size of the business carried on by the company and the number of employees. We are trying to identify non-manufacturing companies at Shannon which can avail of this relief.

Mr. Bruton

Is the Minister saying that a company with a project which is receiving aid of less than 17,500 u.a. shall not be subject to any control by the Commission? What is the relevance of the figure?

Mr. G. Fitzgerald

The relief will be available only to new activities starting on or after 1 January 1981, the date the 10 per cent scheme was introduced. Existing activities which qualified for relief under the Shannon exemption scheme may, however, qualify provided there has been a fundamental change in the carrying on of those activities involving new investment.

Mr. Bruton

The Minister is now saying that existing activities at Shannon shall not qualify for the 10 per cent corporation tax unless they are involved in new investment. Is that right?

Mr. G. Fitzgerald

Yes, and these are the details we are trying to work out at the moment.

Mr. Bruton

The Minister is saying that new activities undertaken on or after 1 January 1981 will qualify for this purpose. How can a firm which is contemplating investment at the moment or has made investments in the last five months know in the light of this section whether it qualifies when the Minister is unable to tell us the principles being applied by the Community in regard to this matter?

Presumably these companies will be liable to tax in respect of new activities from 1 January 1981. On what basis will they be taxed between the period 1 January 1981 and the date when these new principles are enunciated by the Commission? If it transpires that the Commission laid down principles which are at variance with what that company expected when the investment was made, will they find that, in respect of incomes received from 1 January, they will be at a higher rate of tax than the 10 per cent rate they expected? This is the point I have been trying to make all along.

Although this section is extremely long, detailed and wordy, it means little or nothing and provides no guidance simply because there is no guidance as to what the principles are. I do not understand why the term "principles" is used. The Minister referred to Articles 92 to 94 of the Treaty of Rome. Article 94 says:

The Council may, acting by a qualified majority on a proposal from the Commission, make any appropriate regulations for the application of Articles 92 and 93 and may in particular determine the conditions in which Article 93 (3) shall apply and the categories of aid exempted from this procedure.

Given that there is specifically a power in Article 94 to make regulations to apply Articles 92 and 93, I do not understand why the Minister refers to "principles", instead of saying, in determining what constitutes an investment, that the Minister shall have regard to actual regulations, which he is empowered to make under Article 94, which will be in writing, and to which people can refer and know exactly where they stand. These principles are not referred to in any article of the Treaty of Rome. There is no procedure whereby principles may be enunciated under any of the three articles referred to by the Minister. How will people know whether they are entitled to the 10 per cent rate?

If this section is designed as an incentive to invest, people will have to know before they make the investment if they are eligible. We are using this section as an incentive to invest not only in the future but also to investments which may have taken place since 1 January. Yet those people have no means of knowing whether they are eligible for the 10 per cent rate. That is not much of an incentive. I would like the Minister to indicate why he is using the term "principles", and what are the principles in operation at the moment? He did not tell me about that. He said something about an initial allowance in regard to investment but his answer was not even a sentence with a verb——

Mr. G. Fitzgerald

Another professor dawning in the ranks of the Fine Gael Party.

Mr. Bruton

—— and there is no way of knowing what he meant. What are the principles now in operation? What remains to be negotiated, and when it is negotiated where will it be set out in precise terms so that people will know whether they qualify?

Mr. G. Fitzgerald

I have been listening to a lecture from Deputy Bruton, obviously delivered for the benefit of other people in the House. He is reading well this weather, playing to that group of people. We cannot deny him that privilege. We know too well what a malfunction he performed when he was in different Departments. He is now the new found professor, lecturing us across the House. Let me educate him. The principles he referred to are those laid down in a communication from the Commission in February 1975, referring to regional aid throughout the Community. It goes on to state that the Commission, with experts from member states, may sit down and discuss the details of how to co-ordinate and avoid distortions in different areas, or to adjust the principles to areas such as those we are trying to cover here, that is, the introduction at Shannon of assistance for new and existing companies.

As the Deputy should known, existing companies will have relief available to them until 1990 in the form of Shannon export sales relief, if they so wish. New companies, if they have fewer than 50 employees, are not restricted as to the amount of relief. That is the position we are endeavouring to incorporate here in the interests of generating further activity in Shannon. When the Deputy across tries to lecture me, I am saying to him that while this Government are here, and we will be here for a long time, we will continue to ensure that by every means open to us the principles of 1975 will be applied to the best advantage of the various parts of Ireland so that there will be additional job creation.

It seems to me the Deputy is opposing this section. If he is, let him come out and say so. If he does not want to have this aid extended to Shannon industries let him tell us, or is he arguing against our negotiating details of the principles that he does not know about but which were contained in a communication from the Commission of 26 February 1975 and relating back to 1 January 1975? The Government will continue to negotiate the details of those principles to the best advantage of the country.

Mr. Bruton

I thank the Minister for at last telling me where the principles are to be found. If I had not pursued the matter we would not have known that the principles are contained in the communication of 26 February 1975. Indeed people who might have been concerned to avail of such aid would not have known about it because during the debate on this section there has not been any mention or any explanation of the communication or where the principles were formulated. The Minister said the principles are in a communication of the Commission. A communication to whom? Where and for whom was it published?

Mr. G. Fitzgerald

It is in the Official Journal of the European Communities, No. C319, dated 3 February 1979.

Mr. Bruton

I am glad we have got that far. Would the Minister please tell me what are the principles? This is the first reference I have heard or seen to this communication in the debate or in the section. As an Opposition Deputy as competent as anybody else at trying to interpret the laws of the land, I did not have any way of knowing about the existence of this obscure 1975 communication addressed to someone as yet unstated. Apparently that communication is to determine the meaning of legislation we are trying to enact in 1981. Not having had the opportunity to see the communication in time, the Minister might have been sufficiently thoughtful to let me know that this was relevant to the section. If he had let me know I would have read the communication.

Not having read the document, would the Minister tell me what are the principles contained in the communication, in broad terms? One cannot determine the significance of this section if one does not know the details of the principles. Apparently details of the principles still have to be worked out. What has been worked out and what remains to be worked out and when will the negotiations be concluded?

The Minister tried to pretend I am opposed to the section because I asked questions about what the section meant. Of course I am not opposed to the section. I am in favour of relief by way of grants to industries, but relief for which people do not know whether they qualify or not is worthless. It is in order to ensure that the relief will be sufficient and that people will know whether they qualify for it and therefore make the investment we are all trying to encourage that I have been asking the Minister to explain these matters. Instead of making partisan points, I would have thought the Minister would have welcomed the fact that I had sought details so that the section would become more fully understood and so that the objective we all have in common, to encourage the establishment of industries, would be more fully achieved. I am surprised the Minister has adopted this attitude.

Mr. G. Fitzgerald

I do not accept responsibility to tell any Opposition spokesman what his role should be. He should do his homework, as I had to do in my Opposition days. However, I will try to give him as much information as I can on the position that applies now. The principles are based on the concept of aid to industry for jobs created and they specify limits to such aids for different regions of the Community. In the case of the services sector, if aids were limited by reference to initial investments, relatively little aid could be granted to that sector in comparison with, say, the manufacturing sector. The alternative method for applying aid in respect of jobs created is applied to this sector because obviously there is a different structure in the services sector, as the Deputy should be aware.

Under the principles currently applicable, the maximum aid for jobs created from 1 January 1981 is £12,106. The Commission have agreed that businesses below a certain size would not be subject to any limit on aid because, being small, their effect on Community trade is insignificant, and it has been agreed that for the services sector the criterion used in identifying the size of the business being carried on should be the number of employees and that for the purpose of identifying non-manufacturing companies at Shannon, any company with fewer than 50 employees will be regarded as not subject to any limit on relief. However, any company with 50 or more employees must be subject to a limit, to be determined in accordance with the principles. The details to be worked out, therefore, are in respect of companies with more than 50 employees.

Mr. Bruton

When and where were the details promulgated of the principles to which the Minister referred and still subject to negotiation?

Mr. G. Fitzgerald

Where, obviously, is between our own people here and the Commission. When? As soon as possible. I am not in a position yet to say when specifically. But it is a matter of urgency that is being pursued with all possible speed in the interests of employment in Shannon. With regard to the maximum which has yet to be agreed, I was going to give the Deputy those points. It can be identified by reference to a number of things — the number of employees, the reference rate which will be changed from year to year, and it appears that there will be a rate particular to the beginning of each accounting period, the exchange rate and the period over which relief is granted. These are details that have yet to be worked out but will obviously be pursued quickly in order to get the maximum benefit for that type of activity in the Shannon region. The Deputy asked why it was introduced in this Bill, and why it could not be finalised before the introduction of this section. The Deputy will appreciate that if I had not brought in this amendment it could not have been introduced until next year's Finance Bill and I believed that it was important enough to introduce it in this year's Finance Bill despite the fact that some of the details have yet to be finalised.

Mr. Bruton

Where will the details be set out? Will they be set out in any regulation which can be referred to by people wishing to know whether or not they qualify? Will it be merely an administrative agreement between the Minister and the Commission? If that is the case it would be unsatisfactory for people wishing to know whether or not they qualify because it would not be accessible in a public document.

Mr. G. Fitzgerald

On the question of the employees, the Revenue Commissioners will be making the regulations. In the other areas it will be a matter for the Minister for Finance when the communications are received from the Commission and, of course, they will be available through the normal channels.

Mr. Bruton

The section does not provide for the making of regulations. Subsection (9) says that the Revenue Commissioners may make regulations for the purpose of giving effect to subsection (8)(a) and to provide for any ancillary or consequential matters. But there is no provision in the section for the Revenue Commissioners to make regulations in respect of subsection (2)(b) which is the section in respect of which the Minister says regulations will be made. I would like to know under what power these regulations will be made. I will repeat that for the Minister when he is finished.

Mr. G. Fitzgerald

I am sorry.

Mr. Bruton

The Minister said that the regulations will be made to set out these details. The section, however, does not confer powers for the making of regulations for this purpose. There is a power for making regulations in respect of subsection (8) but there is no regulation-making power in respect of subsection (2)(b). I would like to know on what basis the regulations will be made.

Mr. G. Fitzgerald

I said earlier to the Deputy that the Revenue Commissioners would make regulations in respect of employee numbers. The Minister would then issue a certificate in respect of the other criteria. Subsection (2)(a) and (b) means that it is at the Minister's discretion to decide whether to issue a certifircate or not when the details have been worked out. That discretion rests with the Minister for Finance.

Mr. Bruton

The problem is that the basis upon which the Minister may or may not decide to issue a certificate is to be laid down not by the Minister but on the basis of principles applied by the Commission of the European Communities. To say that the Minister may or may not grant a certificate is not an answer to the problem because people will not know whether or not the Minister will be able to issue such a certificate unless they know what the principles are. The Minister said that these principles would, in part, be laid down in regulations made by the Revenue Commissioners in respect of the number of employees. I pointed out that there is no power in the Bill for the making of such regulations. I will repeat what I am concerned about here. Will the conditions be sufficiently precise for people to know whether they qualify or not and to know therefore, whether it is worth their while seeking to set up this investment in Shannon? I would like the Minister to indicate how these powers are going to be exercised.

Mr. G. Fitzgerald

The position is fairly well protected on the basis that, as the Deputy knows from the operations in Shannon initially, the company so deciding or contemplating must get a licence to operate from the Minister for Industry, Commerce and Tourism and must then approach the Minister for Finance who may, after consultation with the Commission and the Revenue Commissioners, and if the criteria are right, issue a certificate.

Mr. Bruton

Is the Minister saying that each individual case is going to be discussed with the Commission?

Mr. G. FitzGerald

It is a matter of interpretation. We are talking about the initial investment. An initial investment would be interpreted as investment in fixed assets, the creation of a new establishment, extension of an existing establishment or engaging in an activity involving a fundamental change in the process of an existing establishment. Investment in fixed assets by way of the taking over of an establishment which was closed or would have closed had such takeover not taken place would also be deemed as an initial investment. The manner in which initial investment is defined is identified in the regional aid systems of the Member States and will be examined by the Commission in the course of its review of existing aid systems under Article 93 (1) of the EEC Treaty. The Minister for Industry, Commerce and Tourism will give a licence to operate. If this is forthcoming the Minister for Finance may if the request complies with the details of the interpretations, issue a certificate in respect of the company.

Mr. Bruton

Where will the detailed agreements in respect of the interpretations be published? That is what I am trying to get an answer to.

Mr. G. FitzGerald

They will not be published.

Mr. Bruton

Then how will people know whether they qualify or not? The whole purpose of legislation and the purpose of this sort of debate is so that people will know what the law is after these provisions have been made. The Minister is now telling us that the applicability of this section will be determined by agreements which will not be published. We are wasting our time discussing this section if its applicability is based on agreements which have not been made and when made will not be published. The Minister will accept that it is not a satisfactory way in which to encourage investment here, to make laws which are so obscure that people will not know whether or not they qualify.

Mr. G. Fitzgerald

I am surprised at the Deputy who had a brief innings in the Department of Industry and Commerce. The Deputy is far removed from the scene. If we pursued the Deputy's line the details of every IDA project would have to be discussed here. This is enabling legislation to benefit the Shannon region and not a great number will be involved in it. From his brief experience on the fringes of the Department of Industry and Commerce the Deputy should be aware that certain exemptions have existed in Shannon. The details here relate to initial investment aid. The Revenue people will make regulations in relation to the number of employees but under the existing Shannon exemption scheme a certificate is given at the Minister's discretion and there are no published rules or regulations. The Deputy is not with it, possible due to lack of experience. If we were to lay down rigid guidelines we would inhibit rather than encourage and promote industrial development. If the Deputy is opposed to the help we are trying to give to the Shannon region he should say so.

Mr. Bruton

I am not interested in what the Minister has to say about my past and it is irrelevant to the section.

Mr. G. Fitzgerald

The Deputy is obviously accepting my comments.

Mr. Bruton

I am anxious to elicit from the Minister what the section means. I regret that the Minister has to engage in personal remarks so as to get time to be briefed by his officials in order to answer my question. It is a pity that the Minister cannot answer the question without making a lot of irrelevant remarks at my expense which are merely taking up the time of the House.

The purpose of incentives is to encourage people from abroad to locate here. The IDA have the job of selling Ireland abroad and this section and the incentives in it will be one of the major ways in which to encourage investment particularly in the Shannon region. The IDA and others concerned with promoting Ireland, the private individuals who may meet foreign industrialists, might wish to explain the incentives available here. If I met a foreign industrialist I would like to be able to tell him what incentives are available but the problem in regard to this section is that the Minister is not able to say what the incentives are because he cannot say whether or not he would be able to issue a certificate under this section because the principles under which he may be able to do it are not yet agreed with the Commission and even when they are agreed they will not be published. People would like to know whether they can qualify, in advance of sending somebody from abroad at considerable expense to talk to the IDA. Having gone to that expense they could well discover that they did not qualify on the basis of agreements which have not been published and to which the Minister refers in this section. Why is the Minister not prepared to publish the agreements? If the Minister were to say that the agreements would be published we would know that when an agreement was entered into it would be published and people would be able to know whether or not they qualified. Will the Minister be so kind as to indicate that he will publish agreements? If that is done I will be satisfied.

Mr. G. Fitzgerald

The Deputy should have some idea of the confidentiality involved in the approach to projects of this nature. We do not lay down in public the IDA criteria for any project and the IDA have been extremely successful. We are talking here about the Shannon Airport area which is controlled by SFADCo. The necessity is there for a licence by the Minister for Industry, Commerce and Tourism to operate there in the first place and a certificate from the Minister for Finance is also necessary. As the amendment says, a certificate may be given with or without conditions as the Minister considers appropriate. New companies know in advance that they are subject only to a restriction of over 50 employees because in their case the term "initial investment" is not relevant. The certificate under the existing Shannon exemption scheme is at the Minister's discretion and each case is looked at on its merits. After Commission principles are communicated, they are published in the Official Journal but not in advance. I am not trying, as the Deputy seems to infer, to hesitate to lay down rules and regulations but I am taking into account the practicality of doing it as it should be done. We are basically talking about initial investment. The Deputy seems to be saying that we should publish certain regulations. I put it to the Deputy that each project can be totally different and it is unreal for him to talk about laying down certain rules in that sort of situation. There is no change in what is happening at present in respect of the issue of certificates other than where we are talking about the initial investment where certain details have to be worked out. New companies know in advance that they are subject to a restriction of over 50 employees. In the Shannon region we are talking about mostly small industries employing sometimes considerably fewer than 50 employees.

The Deputy is exaggerating. Basically this amendment introduces tax changes in respect of a group of things — including the Shannon Airport region. It is in the interests of encouraging further activities in that region. Since the fifties successive Governments have treated it as an exempted area. What we are doing here in the main is merely giving a concession to some small employers and it is certainly in the interests of jobs in the Shannon area. There is nothing sinister or wrong in what I am doing here. The certificate under the existing Shannon exemption scheme is at the Minister's discretion. There are no published rules and regulations.

Mr. Bruton

The issue of certificates is not at the Minister's discretion. It is quite clear that in determining an initial investment for the purpose of issuing a certificate he is bound by the principles laid down in Articles 92 to 94 of the Treaty of Rome.

Mr. G. Fitzgerald

I accept that.

Mr. Bruton

Therefore it is not at the Minister's discretion. The Minister has also said that the interpretation of these principles shall be contained in an agreement entered into by the Minister with the Commission of the European Communities. That would be an agreement made once and for all which would apply henceforth. I asked the Minister would that agreement be published and he said "No". I cannot understand how anyone could know on what basis the Minister would issue a certificate unless the terms of the agreement entered into are known. I cannot understand how the Minister would wish to conceal from the public the terms of an agreement which he will enter into in the future with the European Commission.

I do not believe for one moment that there is anything sinister in this, but there may be something sloppy, or something that will not work involved in this, simply because if one does not publish the basis upon which the Minister may issue certificates, no one knows where he or she stands. I never said that I wanted to know, or have published, the details of individual negotiations with individual firms. I am not concerned with that at all. What I am interested in are the principles of criteria for the granting of certificates, those principles which will be contained in an agreement which the Minister says will not be published. How can one interpret principles on the basis of an unpublished agreement? As I said, the Minister does not have discretion because he is subject to these principles, which are not only obscure at the moment but, if one is to understand correctly, will remain obscure. How can the Minister, or I or anyone else, in whatever capacity we may be, going abroad to try to sell this country and to get people to locate their industries in Shannon, sell it on the grounds that these people may get the 10 per cent tax relief if they qualify on the basis of principles which are contained in an agreement which we will not publish? One would not be in a very strong position to try to sell this country on that basis and that is what I am trying to elicit from the Minister and get him to elucidate.

Mr. G. Fitzgerald

The Deputy used the word "sloppy" and I would not agree with that. It may be true to say that this is premature, but it is sensible and desirable that it should be. One could, of course, in typical conservative style, wait until next year's Finance Bill to introduce this and allow a year to go by when all the details of interpretation and so on had been worked out with the Commission. I would not like to do that, because a whole year would be lost. The Deputy has said that we are somewhat premature but we are premature in the interests of the Shannon region and I hope that the Deputy will accept that. Interpretation of the principles is one thing but changes in those interpretations obviously will be communicated and will be, as the communications themselves are, in the Official Journal.

Mr. Bruton

Where will the agreements be published?

Mr. G. Fitzgerald

Agreements with whom?

Mr. Bruton

With the Commission.

Mr. G. Fitzgerald

Any changes in the interpretations of the principles will, of course, be published.

Mr. Bruton

Where will the agreement to which the Minister has referred, be published?

Mr. G. Fitzgerald

The agreements will, of course, be published. But I am not talking about agreements with the Commission; I am talking about details of principles being worked out.

Mr. Bruton

Will they be published?

Mr. G. Fitzgerald

Yes. On the interpretation, that is.

Mr. Bruton

Where will they be published?

Mr. G. Fitzgerald

In the EC Official Journal.

Mr. Bruton

The agreement between the Minister and the Commission will be published?

Mr. G. Fitzgerald

No, changes in the EEC interpretation. I think the Deputy is confused.

Mr. Bruton

I certainly am, yes. I hope the Minister will be able to remove that confusion.

Mr. G. Fitzgerald

This is to some extent premature. I accept that. However, it is premature in the interest of the Shannon region. I could wait until next year's Finance Bill.

Mr. Bruton

It is not premature; it is late, actually. Might I explain why it is not premature at all?

Mr. G. Fitzgerald

I will not accept the Deputy's explanation because he is going to use a hypothetical argument——

Mr. Bruton

No, it is not hypothetical. Would the Minister like me to explain it?

Mr. G. Fitzgerald

——on why it did not happen on 1 January.

Mr. Bruton

Yes, because it did not happen on 1 January and, far from being premature, it is extremely late. This interpretation should have been sewn in before the law took effect.

Mr. G. Fitzgerald

Again, the Deputy is showing his lack of knowledge of the situation. It is not law since 1 January. This section seeks to amend the 10 per cent scheme which applies to manufacturing industries from 1 January and to extend it to other areas—for example, mushroom cultivation in the State, ship-repairing in the State, among other things about which we are talking here.

Mr. Bruton

This amendment will be effective from 1 January 1981?

Mr. G. Fitzgerald

Yes.

Mr. Bruton

So people do not know now what law they have been operating under for the last five months. So, this section is late. That is absolutely true.

Mr. G. Fitzgerald

How would the Deputy argue if I did not bring in the section until next year?

Mr. Bruton

The Minister should have brought it in last year, if he had been in his present office.

Mr. G. Fitzgerald

Would the Deputy not accept that the major difference between his party and mine is that we at all times try to improve existing legislation in the interest of jobs and job creation in this country? He has selected in this amendment a particularly small area, I wish it were very much bigger, but it is particularly small. We are talking about services within the confines of the Shannon region, for the most part about small service industries. This section is largely a framework for the relief to which I have referred. Changes in the interpretation of principles by the EEC will, of course, be published; but at the end of a day a certificate, with or without conditions, must be issued by the Minister for Finance. Is the Deputy saying that the strict details of how something can apply to company A should be published?

Mr. Bruton

No.

Mr. G. Fitzgerald

I am glad that he is not.

Mr. Bruton

I am not concerned with individual companies.

Mr. G. Fitzgerald

That seemed to be the line he was taking.

Mr. Bruton

What I am concerned about is what are the principles, so that one can know. The Minister has not yet given the principles.

Mr. G. Fitzgerald

I read the principles to the Deputy.

Mr. Bruton

I have been spending a lot of time on this, because the Minister has not been giving answers to legitimate questions.

Mr. G. Fitzgerald

I am afraid that the Deputy has not done his homework on the Bill.

Mr. Bruton

The difference between the Minister and myself is that I have done my homework on the Bill and that he does not appear to have done. However, that is not my concern; it is his.

Mr. G. Fitzgerald

That was not apparent last week.

Mr. Bruton

These certificates will determine whether people can have a 10 per cent relief. Whether or not the Minister may issue certificates is not at his discretion. He is subject to principles. The Minister has told us that those principles will be contained in the existing regulations of 1975 and by way of an agreement by him with the Commission. He has not told us yet if the agreement will be published. Therefore, people will not know in advance whether they qualify. I am asking the Minister again to tell us the reason for not publishing the agreement. I am not asking him to publish details of individual negotiations relating to individual firms. It would not be fair to do that but why not publish the agreement?

Mr. G. Fitzgerald

I have said that any change in the interpretation will be published in the EC Official Journal. We are talking about existing companies and the initial investment aid but the Deputy is aware that these companies can avail of the export tax relief—Shannon exemption—until 1990.

Mr. Bruton

But new companies are not included. The principles are not elucidated.

Mr. G. Fitzgerald

There is a clearly defined limit of numbers for new companies and that is 50 workers. The principles refer to the initial investment and to what is the interpretation of that. Existing companies can avail of the Shannon exemption until 1990 but the details of the interpretation of the principles have to be worked out and finalised with the EEC. They will be published. The Deputy is making a song and dance of what is basically something that I would wish to see being much better. We hope that what we are doing in this regard will be an encouragement to a number of small companies in the Shannon region. I do not understand why the Deputy is making so much of this. I have given him the principles in outline and reminded him that they have been published. I told him also that some changes will need to be made in the published document of 1975 in that regard if, as we are hoping, we will be able to bring about changes in the interpretation. Any such changes will be published. Basically what are involved here are aids to services-sector industries operating in the Shannon region.

Mr. Bruton

I understand the Minister to say now that the agreement will be published.

Mr. G. Fitzgerald

I have not referred to the publication of an agreement but to changes in the EEC interpretation. When I was talking about agreements I meant agreements with companies setting up.

Mr. Bruton

The agreements will be between the Minister and the Commission and not with individual companies. I take it that new agreements relating to the interpretation of the principles will be published.

Mr. G. Fitzgerald

Changes agreed with the EEC in respect of the interpretation will be published.

Mr. Bruton

Goods are defined here——

An Leas-Cheann Comhairle

We are having a good deal of repetition.

Mr. Bruton

——as the production of fish on fish farms and the cultivation of mushrooms which is a form of agriculture. Why has the Minister not sought to extend the 10 per cent relief in these cases to agriculture in general?

Mr. G. Fitzgerald

Both of the products referred to by the Deputy were covered by the export relief that did exist. Because of that we are endeavouring to assist two areas of operation to which concessions applied under the old exports sales relief.

Mr. Bruton

I take it that it would not be contrary to EEC rules to extend this concession to other forms of agriculture.

Mr. G. Fitzgerald

To do so would be extremely difficult. As I have pointed out, the two products concerned qualify for export sales relief and will continue to so qualify until 1990. For the purposes of that scheme both products were treated in the context of manufacturing, but I take the point the Deputy is making that that could be questioned. So far as I know the term used was "closely akin to manufacturing". Because of that situation we considered ourselves justified in having the concession extended to these two areas, but the Deputy will appreciate the difficulties of extending it further. To do so would go far beyond the budgetary situation and would only add to the difficulty in having any further extension accepted.

Mr. Bruton

The application of the 10 per cent rate to an additional sector of the economy would appear to me not to be something that could be determined to be contrary to EEC rules. If the Minister were to decide in the morning that he wished to apply the 10 per cent rate in order to retain profits in agriculture as distinct from the income taken up by the farmers — I am not asking the Minister to do this but I should like to have the matter clarified since the farming organisations are looking for this concession — would that be contrary to EEC rules? If so the farming organisations who have been seeking this 10 per cent rate would like to be made so aware.

Mr. G. Fitzgerald

I am not saying specifically that that is the case but such a situation could possibly be described by the EEC as amounting to aids to agriculture. However, this is a totally different area. We are not talking about bringing in sectors who are not included already in the old scheme but we are trying to accommodate within the new scheme some of those who enjoyed the benefits that applied under the old export sales scheme. I appreciate the reason for the Deputy mentioning agriculture, particularly when fish production and mushroom cultivation have been mentioned, but both these activities benefited under the old scheme.

What the Deputy is talking about involves an entirely different area because it would not be confined to agriculture. There would be the construction and many other sectors also to be considered. Apart from the question raised by the Deputy as to whether there could be problems with the EEC in respect of any such move, there is the whole question of budgetary considerations, of how taxes are imposed and so on. This would be going back to the Commission on Taxation, to what is their view on corporation tax.

Mr. Bruton

I accept all that but I am only trying to find out whether the extension I am advocating would be contrary to EEC rules.

Mr. G. Fitzgerald

I am not saying that it would be contrary to EEC rules but that it could be construed as being an aid to agriculture.

Mr. Bruton

The Minister has said that fish farming and mushroom cultivation are analagous to manufacturing. The Minister is aware that poultry and egg production and, to a large extent, pig production, are analagous to manufacturing because of the intensive nature of such production. While there might be a case for not extending this to all of agriculture, those aspects are so industrialised that there could be a case there. I can see at some future date the Minister wishing to assist those sectors by applying the 10 per cent rate to them. I should like to know if that can be done now and that is the reason I am raising this issue.

Mr. G. Fitzgerald

I accept that there are many other sectors. The Deputy mentioned poultry, tomatoes and so on. What we are trying to do here is to use a rear-guard action to get into this new scheme mushroom and fish-farm producing which were under the old export sales relief. The other forms of production mentioned by the Deputy were not. The Deputy can take it that there will be no objections to that development.

Amendment agreed to.

Amendment reported.

An Leas-Cheann Comhairle

The next amendment is No. 12 in the name of the Minister to which Deputy Bruton has tabled two amendments. Amendment No. 13 is related. The Minister will move amendment No. 12 and following that Deputy Bruton will move his amendment. Recommittal is necessary here.

Mr. Bruton

At what stage will we discuss No. 12 as introduced?

An Leas-Cheann Comhairle

We will be in Committee on these amendments and they can all be discussed together. Amendment No. 13 is related.

Bill recommitted in respect of amendment No. 12.

Mr. G. Fitzgerald

I move amendment No. 12:

In page 19, to delete lines 42 to 48, to delete all lines in pages 20, 21 and 22, and in page 23 to delete lines 1 to 50 and substitute the following:

22.—(1) (a) In this section——

`certificate of reasonable cost' means a certificate granted by the Minister for the Environment for the purposes of this section, stating that the amount specified in the certificate in relation to the cost of construction of the house to which the certificate relates appears to him at the time of the granting of the certificate and on the basis of the information available to him at that time to be reasonable, and section 18 of the Housing (Miscellaneous Provisions) Act, 1979, shall, with any necessary modifications, apply to a certificate of reasonable cost as if it were a certificate of reasonable value;

`certificate of reasonable value' has the meaning assigned to it by section 18 of the Housing (Miscellaneous Provisions) Act, 1979;

`house' includes any building or part of a building used or suitable for use as a dwelling and any outoffice, yard, garden or other land appurtenant thereto or usually enjoyed therewith;

`lease', `lessee', `lessor' and `premium' have the meanings assigned to them by Chapter VI of Part IV of the Income Tax Act, 1967;

`qualifying lease', in relation to a house, means a lease of the house the consideration for the grant of which consists——

(i) solely of periodic payments all of which are, or fall to be treated as, amounts by way of rent for the purposes of Chapter VI of Part IV of the Income Tax Act, 1967, or

(ii) of payments of the kind mentioned in paragraph (i) together with a payment by way of premium which does not exceed 10 per cent. Of the relevant cost of the house;

Provided that the lease shall not be a qualifying lease if the terms of the lease contain any provisions enabling the lessee or any other person, directly or indirectly, at any time to acquire any interest in the house for a consideration which is less than that which might be expected to be given at that time for the acquisition of the interest if the negotiations for that acquisition were conducted in the open market at arm's length;

`qualifying period' means the period commencing on the 29th day of January, 1981, and ending on the 31st day of March, 1984;

`qualifying premises' means a house—

(i) which is used solely as a dwelling, and

(ii) the total floor area of which—

(I) is not less than 30 square metres and not more than 75 square metres in the case where the house is a separate self-contained flat or maisonette in a building of two or more storeys, or

(II) is not less than 35 square metres and not more than 125 square metres in any other case, and

(iii) in respect of which there is in force either a certificate of reasonable cost the amount specified in which in respect of the cost of construction of the house to which the certificate relates is not less than the expenditure actually incurred on such construction or, if it is a new house provided for sale, a certificate of reasonable value wherein the amount for which the house to which the certificate relates is stated to represent reasonable value is not less than the net price paid for the house on the sale in respect of which the certificate is granted, and

(iv) Which, without having been used, is first let in its entirely under a qualifying lease and thereafter throughout the remainder of the relevant period (save for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

`relevant cost', in relation to a house, means, subject to subsection (3), an amount equal to the aggregate of—

(i) the expenditure incurred on the acquisition of, or of rights in or over, any land on which the house is constructed, and

(ii) the expenditure actually incurred on the construction of the house;

`relevant period', in relation to a qualifying premises, means the period of ten years beginning with the date of the first letting of the premises under a qualifying lease;

`total floor area' means the total floor area of a house measured in the manner referred to in section 4 (2) (b) of the Housing (Miscellaneous Provisions) Act, 1979.

(b) (i) For the purposes of determining, in relation to any claim under subsection (2), whether and to what extent expenditure incurred on the construction of a qualifying premises is incurred during the qualifying period, only such an amount of that expenditure as is determined by the inspector, according to the best of his knowledge and judgment, to be properly attributable to work on the construction of the premises which was actually carried out during the qualifying period shall be treated as having been incurred during that period.

(ii) Where, by virtue of subsection (4), expenditure on the construction of any premises includes expenditure on the development of any land, subparagraph (i) shall have effect, with any necessary modifications, as if the references therein to the construction of any premises were references to the development of such land.

(iii) Any amount which, by virtue of subparagraph (i) or (ii), is determined by the inspector may be amended by the Appeal Commissioners or by the Circuit Court on the hearing, or the rehearing, of an appeal against that determination.

(c) For the purposes of this section, other than for the purposes mentioned in paragraph (b) (i), expenditure incurred on the construction of a qualifying premises shall be deemed to have been incurred on the date of the first letting of the premises under a qualifying lease.

(d) A person shall be regarded for the purposes of this section as connected with another person if he would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968.

(2) Where a person, having made a claim in that behalf, proves that he has incurred expenditure on the construction of a qualifying premises, he shall be entitled, in computing for the purposes of subsection (4) of section 81 of the Income Tax Act, 1967, the amount of a surplus or deficiency in respect of the rent from the said premises, to a deduction of so much (if any) of the expenditure as falls to be treated under any of the provisions of this section as having been incurred by him in the qualifying period and all the provisions of Chapter VI of Part IV of the said Act shall apply as if the said deduction were a deduction authorised by the provisions of subsection (5) of the said section 81:

Provided that where any premium or other sum which is payable, directly or indirectly, under a qualifying lease, or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor, or any part of such premium or sum, is not, or is not treated as, an amount by way of rent for the purposes of the said section 81, the expenditure falling to be treated as having been incurred in the qualifying period on the construction of the qualifying premises to which the qualifying lease relates shall be deemed, for the purposes of this subsection, to be reduced by the lesser of—

(a) the amount of the said premium or sum, or as the case may be, the said part of such premium or sum, and

(b) the amount which bears to the amount mentioned in paragraph (a) the same proportion as the amount of the expenditure actually incurred on the construction of the qualifying premises which falls to be treated under subsection (1) (b) as having been incurred in the qualifying period bears to the whole of the expenditure incurred on the said construction.

(3) (a) Where a qualifying premises forms part of a building or is one of a number of buildings in a single development, or forms part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary—

(i) of the expenditure incurred on the construction of the said building or buildings, and (ii) of the amount which would be the relevant cost in relation to the said building or buildings if the building or buildings, as the case may be, were a single qualifying premises,

for the purposes of determining the expenditure incurred on the construction of the qualifying premises and the relevant cost in relation to the qualifying premises.

(b) Any apportionment required by this paragraph shall be made by the inspector according to the best of his knowledge and judgment.

(c) An apportionment made under paragraph (a) may be amended by the Appeal Commissioners or by the Circuit Court on the hearing, or the rehearing, of an appeal against any deduction granted on the basis of the apportionment.

(4) In this section references to the construction of any premises shall be construed as including references to the development of the land on which the premises are constructed or which is used in the provision of gardens, grounds, accessor amenities in relation to the premises and, without prejudice to the generality of the foregoing, as including, in particular—

(a) demolition or dismantling of any building on the land,

(b) site clearance, earth moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works,

(c) walls, power-supply, drainage, sanitation and water supply, and

(d) the construction of any outhouses or other buildings or structures for use by the occupants of the premises or for use in the provision of amenities for the occupants.

(5) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs:

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

the person who, before the occurrence of the event, received or was entitled to receive a deduction under subsection (2) in respect of expenditure incurred on the construction of the qualifying premises shall be deemed to have received on the day before the day of the occurrence an amount by way of rent from the qualifying premises equal to the amount of the deduction.

(6) (a) Where the event mentioned in subsection (5) (a) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the said house passes shall be treated as having incurred in the qualifying period an amount of expenditure on the construction of the said house equal to the amount which, under any of the provisions of this section apart from the proviso to subsection (2), the said lessor was treated as having incurred in the qualifying period on the construction of the said house:

Provided that, in the case of a person who purchases such a house, the amount so treated as having been incurred by him shall not exceed the relevant price paid by him on the sale.

(b) For the purposes of this subsection and subsection (7), the relevant price paid by a person on the sale of a house is the amount which bears to the net price paid by him on that sale the same proportions the amount of the expenditure actually incurred on the construction of the house which falls to be treated under subsection (1) (b) as having been incurred in the qualifying period bears to the relevant cost in relation to that house.

(7) (a) Subject to paragraph (b), where expenditure is incurred on the construction of a house and before the house is used it is sold, the person who buys the house shall be treated for the purposes of this section as having incurred in the qualifying period expenditure on the construction of the house equal to the amount of such expenditure which falls to be treated under subsection (1) (b) as having been incurred in the qualifying period or the relevant price paid by him on the sale, whichever is the lower:

Provided that where the house is sold more than once before it is used, the provisions of this subsection shall have effect only in relation to the last of those sales.

(b) Where expenditure is incurred on the construction of a house by a person carrying on a trade or part of a trade which consists, as to the whole or any part thereof, of the construction of buildings with a view to their sale and the house, before it is used, is sold in the course of that trade or, as the case may be, that part of that trade, the person who buys the house shall be treated, for the purposes of this section, as having incurred in the qualifying period expenditure on the construction of the house equal to the relevant price paid by him on the said sale (hereafter in this paragraph referred to as `the first sale') and, in relation to any subsequent sale or sales of the house before the house is used, paragraph (a) shall have effect as if the reference to the amount of expenditure which falls to be treated as having been incurred in the qualifying period were a reference to the said relevant price paid on the first sale. (8) A house shall not be a qualifying premises if it is occupied as a dwelling by any person who is connected with the person who is entitled, in relation to the expenditure incurred on the construction of the house, to a deduction under subsection (2), and the terms of the qualifying lease in relation to the house are not such as might have been expected to be included in the lease if the negotiations for the lease had been at arm's length.

(9) A house shall not be a qualifying premises unless—

(a) it complies with such conditions, if any, as may be determined by the Minister for the Environment from time to time for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards of construction of houses and the provision of water, sewerage and other services therein, and

(b) persons authorised in writing by the Minister for the Environment for the purposes of this section are permitted to inspect it at all reasonable times upon production, if so requested by a person affected, of their authorisations.

(10) Paragraph 5 of Schedule 1 to the Capital Gains Tax Act, 1975, shall have effect as if a deduction under subsection (2) were a capital allowance and as if any amount by way of rent deemed to have been received by a person under subsection (5) were a balancing charge.

(11) An appeal to the Appeal Commissioners shall lie on any question arising under this section or under section 23, other than a question on which an appeal lies under section 18 of the Housing (Miscellaneous Provisions) Act, 1979, in like manner as an appeal would lie against an assessment to income tax or corporation tax and the provisions of the Tax Acts relating to appeals shall apply and have effect accordingly.".

Amendments Nos. 12 and 13 are connected and they have the effect of replacing sections 22 and 23 of the Bill as passed in Committee by two new sections. The provisions in question provide for a special allowance of 100 per cent of construction expenditure, including certain costs of conversion of existing buildings, incurred after budget day and before 1 April 1984 in the provision of moderate-cost rented residential accomodation. I appreciate that the Deputy was rather critical of this decision earlier and I should like to make a number of points in relation to this now.

Mr. Bruton

It was not in relation to this section. The Financial Resolution related to another one.

Mr. G. Fitzgerald

The Deputy, as usual, is incorrect. This morning the Deputy was criticising this move by the Government in arguing another amendment.

I should like to point out that there are many valid reasons for this move. There is first of all the stimulus it will give to increased employment in the building construction industry. We are all aware that housing lists in urban areas are a matter of concern to the Government, local authorities and the community, and I hope that the introduction of the sections in the Finance Bill will aid both areas substantially. The activity generated not only within the building industry but also in the allied related distribution industries should be compensatory factors. I intimated to the House on Committee Stage that the existing sections were being replaced in their entirety because they required a number of amendments, the bulk of which are of a technical nature although one or two involve substantive changes. I shall try to explain what is involved.

The most important change is that, in the case of a flat, the new tax relief will not be given where the total floor area exceeds 75 square metres, about 800 square feet. This new maximum floor area, which replaces the existing maximum of 125 square metres, will operate to exclude luxury flats from the scope of the relief while retaining the incentive for flats of moderate size. Another major change will provide that a certificate of reasonable value must be in force where a new house or flat is purchased from a builder and subsequently let by the purchaser. This will ensure that relief will not be given to persons who buy premises for letting which are not regarded by the Minister for the Environment as representing reasonable value.

Mr. Bruton

Reasonable value at the time of building or at the time of purchase?

Mr. G. Fitzgerald

Reasonable value for what it costs at the time of purchase. I will deal with the point later. This will ensure that relief will not be given to persons who buy premises for letting which are not regarded by the Minister for the Environment as representing reasonable value. That is extremely important and hence the need for a certificate of reasonable value. Where a house or flat is let by the person who built it or had it built, there will, of course, be no sale price and in these cases there is no change in the requirement that a certificate of reasonable cost should be obtained. It has been urged that expenditure already incurred before budget day should qualify for relief. In fact some Deputies opposite made that point last week. One of the technical amendments — subsection (1) (b) of the new section 22 — makes it clear that any expenditure related to work carried out in the qualifying period will qualify for relief so that houses or flats in the course of construction on budget day will get relief for that port of the expenditure relating to work done after that date. To allow relief for all expenditure incurred where a house is partly constructed before budget day would be inconsistent with the main intention of the sections which is to stimulate new investment leading to new building activity and employment creation in the building and allied industries.

Furthermore, new capital allowances normally operate from a date not earlier than budget day and are confined to expenditure incurred after budget day. Before dealing with the section in detail I should like to point out that the proposed relief for the provision of moderate-cost rented residential accommodation has been widely welcomed both for the assistance it will give to the construction industry and for the effect it will have in adding medium-priced houses and flats to the pool of rented accommodation throughout the country. I have just set out in general what is involved in the sections. Does the Deputy wish to make any point at this stage?

An Leas-Cheann Comhairle

The Deputy at this stage will deal with his two amendments. Deputy Bruton will now move amendment No. 1 to amendment No. 12.

Mr. Bruton

I move amendment No. 1 to amendment No. 12:

In subsection (1) (a) in the definition of "lease" to insert "(which for the purposes of this section includes an unwritten agreement to any tenancy)" after "lease".

The purpose of this amendment is to encourage the provision of rented accommodation. For the purpose of deciding whether accommodation qualifies as rented accommodation the section states that it shall be leased or subject to a lease to a tenant. My amendment seeks to determine whether or not "lease" in this context will include the type of unwritten weekly agreement which applies to much of flat accommodation in this city and in other towns. As the Minister is no doubt aware, most people living in bedsitters or flats are not there subject to a written lease. They are there subject to an agreement whereby they may stay there each week more or less at the discretion of the owner. This is the position with furnished accommodation but not with unfurnished accommodation. I am putting forward this amendment not because I think necessarily that it might be a good thing, in fact, I think the amendment might be the wrong thing to do. I am putting it forward simply to find out exactly what is the position. Will people who set up accommodation with a view to letting it in this way — unsatisfactory from the point of view of the tenant in that he or she does not have any clear statement of his or her rights — be capable of benefiting from this concession? That is the purpose of the first amendment. The second amendment is in a sense related in that it is concerned to ensure that people who let accommodation having availed or availing of the tax concession conferred——

An Leas-Cheann Comhairle

Are we getting into the second amendment?

Mr. Bruton

Yes.

Mr. Bruton

We are discussing the whole lot.

An Leas-Cheann Comhairle

Right, we are discussing the two together by agreement. We are moving one and discussing the two.

Mr. Bruton

I will move amendment No. 2 now.

An Leas-Cheann Comhairle

No, we move one but we debate the two.

Mr. Bruton

The second amendment is to ensure that people who benefit from this concession in so far as they may be relieved of tax on the rent they received from accommodation after the coming into force of this section shall charge fair rents and operate on a fair basis. The amendment which I am putting in here is obviously not complete in the sense that it merely says "to the fairness of the tenancy agreement" as one of the things which may be determined by the Minister for the Environment in determining whether a person is qualified. Obviously, one would need to be more precise as to what one means. Again, my amendment here is not concerned with changing the law but merely with raising a question which I think the Minister would need to answer.

To sum up, the purpose of my two amendments, which are designed more to elicit information than to change the section is to ask (1) will someone who lets property on an unwritten agreement qualify for this section, the unwritten agreement, of course, being unsatisfactory in any respect from the point of view of the tenant, (2) is there any power within this section to prevent relief being obtained by people who charge unfair rents or operate tenancy subsequently on a basis unfair to the tenant? Having made those two points I would like to comment on one point which arose in the Minister's introduction to the section.

An Leas-Cheann Comhairle

At this stage I would point out to the Deputy that we are debating fully the two amendments to amendment No. 12 and also amendment No. 13 which is related.

Mr. Bruton

That is probably the best way to do it.

Mr. G. Fitzgerald

He is always an agreeable man, Sir.

An Leas-Cheann Comhairle

Yes, I would hope so.

Mr. Bruton

What happens to a certificate of reasonable value where the property is built by one person who obtains a CRV in relation to it and sells it to someone else who then sells it — for instance if there is a delay? I build a property and a CRV is given, say, in February of 1982. There is a delay of two or three months. Meanwhile property values go up, as they tend to, and I sell the property three months later to another person at a price higher that that related to the CRV because there has been an intervening period during which property values had gone up, and that is a perfectly legitimate operation. Will the other person be able to avail of the relief, having bought it at a price in excess of that related to the CRV, having bought it later than the CRV was given?

Mr. G. Fitzgerald

The first of Deputy Bruton's amendments seeks to ensure that the term "lease" will be treated as excluding an unwritten agreement to any tenancy. The definition in section 80 of the Income Tax Act, 1967, which is used for the purpose of this section reads:

"lease" includes an agreement for a lease and any tenancy,

It follows from this that any tenancy agreement, written or unwritten, is covered by the definition and the term is interpreted in this broad way for the purposes of taxation of rental income. As regards the present section, as long as the lessor is receiving rent from the premises under any lease or tenancy he may claim relief under the section for appropriate construction expenditure. In the circumstances the amendment proposed appears to be unnecessary. As the Deputy said, he is taking questions as much as anything else by way of these amendments.

On the related amendment, section 22 (9) (a) provides that the premises shall not qualify for relief under this section unless, and I quote—

it complies with such conditions, if any, as may be determined by the Minister for the Environment from time to time for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards of construction of houses and the provision of water, sewerage and other services therein...

There is no provision in that Act for the imposition of conditions relating to the fairness of a tenancy. The fairness of a tenancy obviously is something referred to by the Deputy in his amendment and that question is a matter between landlord and tenant and is very much dependent on the circumstances of each case. It would not be fair to expect an inspector of taxes to exercise a judicial role in such a matter and in the absence of a provision in general law, which would be a matter for other legislation such as the Housing Act to which I have referred. There is no way in which a condition as to fairness of tenancies could be attached to this section, or, if there is, it is in another area. If such a condition could be imposed it might be necessary for the purposes of policing it to exclude from the relief all unwritten tenancies because their fairness could not be demonstrated and they could well be the fairest of all. It would be impossible to set criteria for determining fairness, because the terms of a tenancy are those agreed between the landlord and tenant. As long as the terms do not involve any breach of the law it is not clear how anything other than a subjective view of their fairness could be taken. If the rent seems high, it was, after all, agreed at the time of the tenancy. If it or any other matter is not in accordance with the tenancy agreement, recourse to the courts would be available.

It is understood that the general question of legislation relating to private rented accommodation is being reviewed by the Minister for the Environment, and that is appropriate. As I have said, it is unfair to expect the inspector of taxes to operate to some extent in a policing role and to try to adjudicate on whether a tenancy is fair or otherwise. When I say it is being reviewed by the Minister for the Environment, as the Deputy knows, certain aspects are before the Supreme Court at present in the matter of constitutionality and no doubt my colleague, Deputy R. Burke, will be looking at those very closely.

The Deputy went on to ask the question about the transfer after three months. This is the kind of section that I like to hear the Deputy debating on because a lot of soul-searching has gone into preparing this section and I would be interested in hearing any points made by him. He referred to the delay in sales. We have covered the situation where the sale takes place after a period. In other words, if A, after a period of years, having claimed the tax relief, disposes of the property within three or four years, there is a clawback in that case against the original owner. The new purchaser gains the benefit for the remaining years up to the maximum of 10 years.

The case the Deputy referred to was where the builder builds and fails to sell or, for some reason, holds the property, presumably without renting it, and then sells it. We will say, for argument's sake, that it was built in February 1981 and that a certificate of reasonable value has been granted for a figure of £40,000. If there is a delay up to December of that year, for example, he may then sell the house to the purchaser. If he sells at an increased price he will, of necessity, have to go to the Department of the Environment for a further certificate of reasonable value, which he may not get, depending on whether the new increased selling price is a reasonable one.

The Deputy is probably trying to ensure that there is not a speculative effort by someone to make a profit on the transaction and then add the benefit to the new person by way of income tax relief. There is no reason why the original builder cannot sell but there is no guarantee that he will be able to get a certificate of reasonable value at the new price. That would be a matter for the Department of the Environment to decide at the appropriate time.

Mr. Bruton

Every time this accommodation is sold or resold will a CRV have to be obtained?

Mr. G. Fitzgerald

It is only in the case the Deputy referred to.

Mr. Bruton

Where it has not been used.

Mr. G. Fitzgerald

Yes.

Mr. Bruton

Would the Minister explain what he means by a clawback? He said that if a person had built the accommodation, rented it and availed of the tax relief for three or four years in respect of the rent received, then sold it to somebody else who could continue benefiting, the first party would be subject to a clawback. I do not see why he should be subject to a clawback because he has only availed of a tax relief to the extent of the rent received by him as a means of compensating for the costs he has already incurred. If the rent did not exceed the costs incurred he would not have availed of the relief to the full so he would be passing on the ability to somebody else to avail of the remainder of the relief available to him in the form of a relief on the subsequent landlord's income tax. That fact would be reflected in the price at which the property was sold because the person buying it would know he or she had a certain amount of tax relief which was also being bought from the owner of the property. I cannot see how there would be any need for a clawback in that situation because the amount of tax relief claimed by the initial landlord is already limited by the costs incurred and the amount of income tax for which he would be liable.

Mr. G. Fitzgerald

This, basically, is a provision to prevent the allowance being used for any other reasons than what it is intended it would be. The relief is against rental income not necessarily related entirely to the project. It is a tax relief against rented income. If A sells after four or five years he would not be selling for the good of anybody's health. There would be a profit element in it. The income relief allowed for the period for which it was rented would be a clawback. The purchaser could avail of the balance of the remaining years up to 10 years.

Sub-section (5) provides for a clawback if during the period of 10 years the premises cease to be let or otherwise cease to be a qualified premises. It could be extended beyond the space limitations we have laid down in the section or it could be sold by the landlord. The clawback will be effected by deeming the landlord to have received an amount by way of rent sufficient to cancel the deduction received by him or which under the section he would be entitled to receive at that time. In effect, the clawback matches the relief already given which can at that time be claimed.

It may be argued that only a portion of the relief allowed to the person disposing of the premises should be clawed back and a correspondingly reduced amount allowed as a deduction to the successor. However, the granting of the allowance is conditional on certain criteria being met in relation to the house for a period of 10 years. If a person divests himself of a house in the relevant period, he is also divesting himself of the responsibility to satisfy the criteria and is passing the responsibility on to the successor. If the full clawback was not made at the time the premises changed hands the successor might breach the conditions under which relief was due and at that time it might not be possible to recover the relief granted to the original owner. If the new owner did any of the things I have mentioned earlier that could put it outside the terms of the scheme, this could give rise to various schemes whereby qualifying premises might, for the purpose of tax avoidance, be transferred between connected persons prior to a change of use.

For that reason the clawback I have referred to is necessary.

Mr. Bruton

This is a very complicated section and it is very difficult to understand what it is all about. The fact that it has only been introduced in the last few days does not help matters. The new section 22 states:

Where a person, having made a claim in that behalf, proves that he has incurred expenditure on the construction of a qualifying premises, he shall be entitled, in computing for the purposes of subsection (4) of section 81 of the Income Tax Act, 1967, the amount of a surplus or deficiency in respect of the rent from the said premises, to a deduction of so much (if any) of the expenditure as falls to be treated under any of the provisions of this section as having been incurred by him in the qualifying period...

It seems to me that the amount of income tax relief he may claim is related to the amount of expenditure he undertook originally in building the premises. That is my reading of this section but it seems to be different from what the Minister said. Is that correct?

Mr. G. Fitzgerald

That is the position.

Mr. Bruton

Then there is a limit. I am trying to figure why there has to be a clawback because he can claim only as much in tax relief as he spent. If that limit already exists and if he sells the premises within the ten year period not having availed of all the relief, why must there be a clawback on the relief he obtained?

Mr. G. Fitzgerald

The bones of these subsections have been before the Deputy for some weeks. I admit new sections have been inserted because of the many amendments made, most of which were technical. On the point the Deputy raised, there are two reasons why this would have to be the case. In the first three years he is entitled to offset his income tax relief against rental income, not necessarily confined to the particular building we are talking about. He may have got substantial relief over the three year period and he is now about to sell. Because of that, in justice, the clawback should be there and should be allowed to the new purchaser. It can go on beyond ten years, but the proviso here is that he must hold it for ten years before the clawback disappears.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): If he does not keep the premises for ten years he must pay back?

Mr. G. Fitzgerald

That is right. The other reason is that there might be a danger of manipulation if we did not have that clawback. After five years he could hold the tax relief, then sell the premises for purposes of a change of use and it would no longer be rented accommodation.

Mr. Bruton

Suppose the landlord could avail of all available relief related to the building cost in the first five years and in the sixth year, without selling the property, changes the use, can we clawback then?

Mr. G. Fitzgerald

The clawback still applies. Subsection (5) provides for a clawback of relief if during the relevant period of ten years the premises ceases to be let or otherwise ceases to be a qualifing premises, for example by extending the space limitations, or it is sold by the landlord or passes in any other shape or form.

Mr. Bruton

The relevant period and the qualifying period are different. Is there a definition of the relevant period anywhere?

Mr. G. Fitzgerald

Yes, the qualifying period is three years.

Mr. Bruton

Where is the relevant period mentioned?

Mr. G. Fitzgerald

It is ten years from the first letting.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): Suppose the man who got the benefit of the tax relief died and for the purposes of winding up his estate to pay capital acquisitions tax his widow had to sell the premises, would she have to refund that amount?

Mr. G. Fitzgerald

That is a valid point. The clawback and allowances under subsection (5) will take place where a qualifying premises passes on a person's death and the appropriate allowance under subsection (6) (a) will then be made to that person's successor in title provided the premises continue to be a qualifying premises. If the premises pass to a surviving spouse and continue to be used as a qualifying premises, it has been suggested that the provisions of subsections (5) and (6) (a) should not operate and the allowance should be treated as continuing without interruption. This would obviate any hardship which might ensure from the clawback of relief from the estate of the deceased person, even though the full allowance is subsequently available to the successor.

However, if as suggested, the provisions of subsections (5) and (6) (a) were not operated and if probate were taken out in the year of death—for example take year three—then by virtue of section 211 of the Income Tax Act, 1967, no additional assessment could be made in the deceased's estate after year six. The surviving spouse could sell the premises after that time, say in the middle of year seven, and it would not be possible to assess the deceased's estate so as to recover the allowances which had not been clawed back. Does that answer the Deputy's question?

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): It does, if I understand the Minister. Say a man constructs a qualifying premises for residential purposes and within the first five years he has availed of all the tax reliefs to which he is entitled on the basis of his expenditure and then he dies, then, as I understand it, if the premises remain a qualifying residential premises and are not sold by the widow, there will not be a clawback. If, for financial or other reasons, the widow has to sell the premises, will there be a clawback?

Mr. G. Fitzgerald

Yes, but I would not see difficulty in the earlier years because obviously we are talking about an extremely valuable property. Under the relief provisions structure it is very unlikely that cases of hardship of the nature the Deputy is thinking about will arise for a number of years. In the meantime, the terms will be reviewed before 1984 and that is the year in which to review the problem in the light of practical experience of serious hardships being encountered. By 1984 the property will obviously be a valuable one.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): She might have a valuable property but she might have inherited substantial debts and therefore the net value of the estate might be in minus quantity.

Mr. Bruton

I am withdrawing amendment No. 1.

Amendment, by leave, withdrawn.

Mr. Bruton

It might not be possible for the Minister to make an amendment at this stage with the effect of setting off any liability to tax against any clawback in respect of acquisition tax. In order to pay acquisitions tax the widow might be forced to sell. That is not the type of situation the Minister has been trying to deal with. The type he is dealing with is a case where a property would be sold voluntarily to make a quick profit. The Revenue Commissioners might force the widow to sell.

Amendment No. 2 not moved.

Mr. Bruton

I want to make the point that the Minister should consider this in the context of possible legislation to encourage people to draw up fair tenancy agreements. What I am asking is that under new tenant legislation only agreements which are fair and comply with certain standards would be deemed to qualify for relief.

Mr. G. Fitzgerald

I do not foresee any major problems in the initial year. Deputy Bruton spoke about allowance against capital acquisitions tax and I cannot foresee this as creating any hardship because the threshold is very high and the person concerned will have very valuable property. I have all the sympathy in the world with the case made by Deputy Fitzpatrick but as I have said the matter will be coming for review in 1984 and it is extremely unlikely that hardship cases will arise in the meantime. I sympathise also with Deputy Bruton's sentiments in regard to fair tenancy agreements, but the Finance Bill is not the appropriate vehicle to deal with that matter. The Minister for the Environment is investigating this area, and as well this area is the subject of an action in the courts and therefore is sub judice. I share the Deputy's anxiety to have progress made in that area but it is a matter for the Department of the Environment. The position at the moment is that there should be an unwritten tenancy which could be much fairer than any written one. If we adopted the Deputy's suggestion we would be putting an impossible burden on the tax inspectors who would have to decide what are fair and unfair tenancies.

Mr. Bruton

I was not suggesting they would be doing the work. I was talking about the Department of the Environment.

Mr. G. Fitzgerald

I share the concern of the two Deputies. In reply to Deputy Fitzpatrick's point, I do not anticipate that this will be a major problem between now and 1984.

Mr. Bruton

My theory is that the Minister may have dismissed too lightly the point made by Deputy Fitzpatrick and myself about hardship in the case of a widow. It is all very well to say that a widow may be well off because she inherits valuable property, but suppose she gets a lot of property but no cash and as a result of her husband's tax allowance may still have to pay capital acquisitions tax as well as income tax. The clawback of the income tax relief enjoyed by her husband would mean she would have to sell. What little remained after the payment of capital acquisitions tax would go to pay the income tax. The Minister has said this will not arise in the next year or two but the Act we are making here today will apply ultimately until 1994, ten years. In effect, there will not be an effective review until 1994. Now is the time to remedy that situation.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): If I understand the position correctly, I do not think the Minister's argument that because the property is valuable and that it will be appreciating, there can be no hardship in the next few years, is valid. There need not be, assuming that the deceased person had considerable assets or assuming that the deceased person was not heavily in debt. But there could be a case where his business went wrong and in fact he was not possessed of any money and was heavily in debt. Even if he is heavily in debt, because he has availed of this income tax relief his widow will have to go further into debt to pay back the amount of the relief which her deceased husband had benefited by. For that reason I say that the Minister's argument about there being no likelihood of hardship arising within the next few years is not a valid argument. Hardship could arise and I think it is unfair.

Mr. G. Fitzgerald

I want to take the points raised by both Deputies. Here we are talking about landlords and property. We are giving a rather generous concession and it is understood that there would be some conditions laid down. The point was made here by both Deputies that the widow might be in difficulty. But the widow in a capital acquisitions tax situation would not have any problem about taxation unless her property or assets realised more than £150,000. That is a very sizeable sum. We are not talking about a poor widow on the side of the road in this situation.

(Interruptions.)

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): My argument is not based on liability for capital acquisitions tax.

Mr. G. Fitzgerald

The point made by Deputy Bruton was. He is not talking about the woman on the side of the road with no worthwhile income. We can look at it over the period of three years. We can see what the experiences have been and, if necessary, review the situation then. But at this stage it is a generous concession and I think that it would be unwise not to write in some conditions.

Amendment agreed to.

Amendment reported.

Mr. G. Fitzgerald

I move amendment No. 13:

In page 23, to delete lines 51 to 54 and in page 24, to delete lines 1 to 32 and substitute the following:

23.—(1) This section applies to expenditure incurred on the conversion into two or more houses of a building which, prior to the conversion, had not been in use as a dwelling or had been in use as a single dwelling.

(2) As respects expenditure to which this section applies, section 22 shall, with any necessary modifications, apply as if the expenditure incurred on the conversion of the building into two or more houses had actually been incurred on the construction of the houses and as if—

(a) in paragraph (ii) of the definition of `qualifying lease', the reference to the relevant cost of a house were a reference to the market value of the house at the time the conversion is completed:

Provided that, in the case of a house which is a part of a building and which is not saleable apart from the building of which it is a part, the market value of the house at the time the conversion is completed shall, for the purposes of this paragraph, be taken to be an amount which bears to the market value of the building at that time the same proportion as the total floor area of the house bears to the total floor area of the building.

(b) in paragraph (iv) of the definition of `qualifying premises', `subsequent to the incurring of the expenditure on the conversion' were inserted after `without having been used',

(c) the definition of `relevant cost' and subsections (6) (b) and (7) (b) were deleted,

(d) the references in subsection (3) of that section to relevant cost were deleted,

(e) the references in subsections (6) (a) and (7) (a) to the relevant price paid on the sale were references to—

(i) the net price paid on the sale, or

(ii) in case only a part of the expenditure to which this section applies falls to be treated, for the purposes of subsection (2) of that section, as having been incurred in the qualifying period, the amount which bears to the said net price the same proportion as that part bears to the whole of that expenditure.

(f) the references in subsection (7) (a) to a house being used were references to the house being used subsequent to the incurring of the expenditure on the conversion, and

(g) in subsection (9) (a), `section 5' were substituted for `section 4'.

(3) This section shall not apply in the case of a conversion unless planning permission in respect of the conversion has been granted under the Local Government (Planning and Development) Acts, 1963 and 1976.".

Amendment agreed to.

Bill recommitted in respect of amendment No. 13a.

An Leas-Cheann Comhairle

Amendment No. 13b is related. We will debate amendments No. 13a and 13b together.

Mr. G. Fitzgerald

I move amendment No. 13a:

In page 26, between lines 29 and 30, to insert the following:

"CHAPTER VII

Profits or Gains from Dealing in or Developing Land

27.—In relation to the computation for the purposes of income tax or corporation tax of the profits or gains or losses of any period ending on or after the 6th day of April, 1981, section 17 of the Finance (Miscellaneous Provisions) Act, 1968, is hereby amended by the substitution of the following subsection for subsection (1)—

(1) (a) Where, apart from this section, all or some of the activities of a business of dealing in or developing land would not be regarded as activities carried on in the course of a trade within Schedule D but would be so regarded if every disposal of an interest in land included among such activities (including a disposal of an interest in land which, apart from this section, is a disposal of the full interest in the land which the person carrying on the business had acquired) were treated as fulfilling both of the conditions specified in paragraph (b), the business shall be deemed to be wholly a trade within Schedule D or, as the case may be, part of such a trade and the profits or gains thereof shall be charged to tax under Case I of Schedule D accordingly.

(b) The conditions referred to in paragraph (a) are:

(i) that the disposal was a disposal of the full interest in the land which the person carrying on the business had acquired, and

(ii) that the interest disposed of had been acquired by such person in the course of the business.'.".

This is the section that we brought in yesterday and which Deputy Bruton objected to as being a late entry at this stage of the Bill. I apologise to Deputy Bruton and the other Deputies for introducing this section so late. But having studied this problem of tax avoidance with the people concerned I felt justified in introducing this and I also felt that the Members opposite would agree that it was right to introduce it although I appreciate that it is later than one would have liked.

The new provisions are designed to counter tax avoidance schemes in the land development area which are becoming more widespread and, if not stopped, would cost the Exchequer many millions of pounds. I am well aware that the complex nature of the legislation and its late circulation will have given Deputies little time to study its terms in detail. However, I hope that, when I have explained the background to its introduction, the House will agree that I had no alternative but to introduce it at this time.

Over the past year or so the Revenue Commissioners have become aware of the prepartion of tax avoidance schemes in the area of land dealing and development, schemes which involve the operation of several artificial transactions and which are designed to deprive the Exchequer of the tax properly attributable to the profits derived from those developments. The schemes already put into operation and those which, it is believed, are in course of preparation will, if successful, cost the Exchequer close to £30 million, a figure which will increase as the years go by. The schemes devised involve multiple — and quite artificial — transactions in land between connected companies with the sole objective of dramatically reducing the tax base of the group of companies as a whole.

It is a feature of this type of sophisticated tax avoidance scheme that the profits to be earned and which are planned to escape the proper tax charge do not emerge for a year or so after the scheme has been set in motion.

Second, accounts are not presented to the Revenue until a considerable time after the transactions take place. Thus, it was not until relatively recently that the Revenue were in a position to assess the full extent of what was happening and to consider what steps ought to be taken to counter these operations. As will be appreciated, the drafting of the complex legislation now before the House was not an easy task but if it were not to be introduced now, a further year would be made available to tax planners to exploit these devices to the further detriment of the Exchequer and the general body of taxpayers.

Perhaps I might give an illustration of what is happening and the artificial nature of the schemes devised, based on two actual cases at present before the Revenue, showing how the avoidance schemes have been designed to operate. One of the cases is based on a leasing operation and the other involves the creation of an annuity which is charged on the land to be developed. It is important to note that, in each case, all the companies involved in the planned operation are within the same group.

In the leasing case, a small piece of land was acquired at a cost of £40,000 and flats were built, which brought the total cost to £200,000. The associated company, to which the developed property was ultimately transferred, claimed, legitimately, in computing their profits on the sale of the flats, a deduction in respect of the £200,000 which they expended in acquiring the property. But they also claimed a deduction of a further £200,000 which they did not expend but which, because of intermediate operations between the companies, was artificially generated.

These intermediate operations in essence involved the granting of a lease by one company to a second company, the sale of the reversion to a third company, and the subsequent acquisition by the second company, which already held the leasehold interest, of the reversionary interest. If the company's claim is upheld the loss of tax in this case, because of the adoption of the scheme, will amount to close on £100,000 and other cases following the same line will deprive the Exchequer of millions of pounds.

In the annuity case there was a similar type of operation involving three companies in a group. As a result the land dealing company claimed as a deduction in computing their profits not only a sum of £60,000 which they had expended in acquiring property but also a sum of £800,000 which they did not expend but which had been artificially generated within the group by way of creating and cancelling an annuity. The loss of tax involved in this case is over £350,000. Again, it will be seen that if these manoeuvres are not countered there will be a heavy leakage of revenue which no Government could countenance either in terms of money or in terms of equity.

These schemes make use of an alleged weakness in section 18 of the Finance (Miscellaneous Provisions) Act, 1968, which was an anti-avoidance provision. The Revenue view of the section was rejected by the Appeal Commissioners but an appeal by way of case stated is being taken to the High Court. A final decision in the matter is unlikely to be available for a couple of years and it is therefore necessary to take legislative step to secure that, if there is a flaw in section 18, it should be closed immediately. Even if the outcome of the case is favourable to the Revenue, it is felt that these avoidance schemes can be adjusted so as to escape the tax charge in other ways.

Before going on to explain the terms of the new legislation, I want to emphasise three points.

The legislation is not intended to hit any genuine case or to inhibit any genuine commercial structure. It is not intended to do other than secure the proper tax charge on actual profits.

The new measures will apply only in respect of periods of account ending on or after 6 April 1981.

Because of the short time available to draft the provisions, it may be that tax planners will be astute enough to find further ways to get round them.

It is, therefore, appropriate at this stage to refer to the clear warning in my budget speech that tax avoiders could not continue to rely on their schemes being successful merely because of the long delay between the birth of those schemes and the enactment of corrective legislation.

In the light of what is happening in this area, it may well be that any amendment of the present legislation which may be found to be necessary next year or the year after should be made operational from the commencement of the present legislation. Tax planners should bear this in mind if they apply their energies to new ways of getting round the legislation at present before the House.

I am sure Deputies will agree that abuse of the tax system in this manner should be stopped. If it transpires that the anti-avoidance provisions now proposed operate in practice so as to impose a charge where it would not be just and reasonable that such a charge should be imposed, the Revenue Commissioners will make use of any means open to them within the limits of their role in the care and management of the taxes not to apply the new legislation to such cases. If this is not possible, amending legislation will be introduced to ensure that genuine commercial transactions which have no tax avoidance elements are not jeopardised by the new legislation. The essential object of this legislation is to ensure that real profits are taxed in a just and reasonable manner.

Mr. Bruton

I agree with the Minister, now that he has explained what he is trying to do, that it should be done at top speed. I accept that if this sort of thing is going on it should be stopped and every means should be used to stop it. We cannot afford to have this sort of measure adopted by individual companies to frustrate the just collection of taxes. It is highly unsatisfactory however that legislation — in this case legislation introducing not an amendment but five new long sections into existing law — should be introduced in this manner on Report Stage. The Minister said that it may be that in some cases, because of the haste with which the legislation has been drafted, it might have unintended effects in doing damage to genuine transactions. I appreciate that the Minister also said that he would do everything in his power, both legally and administratively, to ensure that that does not happen. The Minister however admits the possibility. If the legislation had been introduced in time there would have been a greater opportunity not just for Members of the House but for people outside to give us information which we could use to eliminate these unintended deficiencies. By introducing the amendment so late the Minister makes it harder for this appropriate legislative correction process to operate.

A very crucial question is when did the Appeal Commissioners determine that the Revenue Commissioners' interpretation of these sections of the Finance (Miscellaneous Provisions) Act, 1968, were not the correct ones? Until then the Revenue Commissioners thought there was no problem. As soon as the Appeal Commissioners made the ruling they knew there was a problem and they should have immediately taken action to put it right. For us to decide on whether or not the Revenue Commissioners and the Minister acted with sufficient speed we must know when they first came to know whether or not action was necessary. For us to know that we must know when the Appeal Commissioners made the relevant determination. Before I go further, will the Minister answer that question?

Mr. G. Fitzgerald

I will try to get the date for the Deputy, but first I have a few more points. I am satisfied that this legislation will close this door without hurting the genuine transactions to which I refer. What I have said is safeguarding the interests of the genuine person carrying out the genuine transaction in the unlikely event of there being a loophole. Another aspect is that it was only in recent times that the magnitude of the problem was established. I then had the option of waiting until next year's Finance Bill or of bringing in an amendment as I have done. I appreciate the Deputy's support for stopping tax exploitation of this nature. I had the choice of allowing a leakage to continue for a whole year or of bringing in a section late in the day. I took the wiser choice.

I would dearly love to have given the Deputies more time to consider the amendment which is before us. I take the Deputy's point that it is a long amendment. It took some considerable time to draft, because of its complexity and my absolute insistence that every step be taken to protect the genuine transaction which, from all our points of view, was extremely important. It is sad that people find ways and means around our tax laws to the extent that has occurred in the case which I brought to the notice of the House.

On the other hand, if I did delay, I have no apology to offer to anybody because I was ensuring that, as far as possible, the person involved in a genuine carrying on of business would not in any way be adversely affected by these amendments. It was important that I should achieve that. It was to safeguard the position in the unlikely event of there being someone undeservedly or unfairly hurt by the amendment that I made the points which I did make at the outset.

The first decision — and there were two — of the Appeals Commissioner was made in late 1979, early 1980. The second decision was made three or four months ago, in 1981. Both of these decisions are involved in the case before the High Court. Not only was that date important but, obviously, that decision had not yet been taken by the Appeals Commissioner. The Revenue Commissioners had the difficulty of establishing the position as they saw it, along with the obvious magnitude of the problem and its ramifications. All those matters have been very recent and very disturbing. However, I want to compliment the Revenue Commissioners on bringing the matter to my attention. I had the option, and the Deputy would have had no crib if I had taken it, or leaving the matter over until next year. I would not have been doing my duty as Minister for Finance if I had not, at the first possible opportunity, introduced what was a very complex amendment. While apologising for what Deputy Bruton would call its late entry, I make no apology on behalf of the Irish people that I should bring it in this year. To delay a further year could have cost the Exchequer millions of pounds.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): Has it a retrospective effect?

Mr. G. Fitzgerald

No.

Mr. Bruton

I heartily agree with the Minister that the Government should have acted this year in the matter. I do not understand how the problem, which first came to light in the Appeal Commissioner's decision in late 1979, has not been acted upon until now.

Mr. G. Fitzgerald

That is an over-simplification of the matter. There was a further decision in 1981.

Mr. Bruton

I shall put it this way. The Revenue Commissioners were aware from late 1979 that there was a problem and did not propose any legislative measures to deal with that.

Mr. G. Fitzgerald

They thought that that was not necessary.

Mr. Bruton

The extent of the problem became more evident as time went on, but the latest decision was taken three or four months ago, according to the Minister. This Finance Bill was introduced only one month ago. The Revenue Commissioners had all the evidence, it would seem, three or four months ago. Why did they not introduce measures to counteract the situation on the original Finance Bill which was only introduced a month ago? The Minister may say that they did not know all the possible difficulties in drafting it and that is accepted. However, could they not have done what the Minister has already done in the case of the concession regarding rented accommodation, that is, introduce a section, at least giving people notice of the broad lines on which they were thinking and, on Report Stage, substitute another section? At least people had something to go on in respect of the way the rented accommodation legislation would work because they had the original section which was subsequently replaced by another one. As far as this matter is concerned, they had nothing to go on, because there was no section whatever. That is a failing. I do not want to make a meal of this. There is no Member of this House, or of any official body, who does not succeed, on occasion, in doing less than he or she would wish to do. I am sure that the Revenue Commissioners and the Minister would have preferred to introduce the legislation properly and in time. It would seem that they had the time to do so. I feel that they should have done it, but I have made my point.

I wish to raise a few queries on the section. It is an extremely long one, as the Minister has pointed out. Firstly, I notice that section 27 (1) (a) changes what was originally section 27 in the 1968 Act. Whereas, in the 1968 Act, the profits referred to were being taxed under Case IV of Schedule D, under this new section they are to be taxed under Case I of Schedule D. Now, Case I of Schedule D relates to quarries of stone, slate, limestone, or chalk, quarries of pits of land, gravel or clay, mines of coal, tin, lead, copper, pyrites, iron and other mines, ironworks, gasworks, saltsprings and works, alum mines and works, waterworks, streams and water canals, inland navigations, docks, drains or levels, fishing, the rights of markets and fairs, tolls, railways and other ways, bridges or ferries and other concerns of like nature having profits arising from or out of the lands. It also contains any trade not contained in any other schedule. I am not quite sure why it is necessary to change that from Case IV, which is simply tax in respect of any annual profits or gains not falling under and not charged by virtue of any other schedule. The two appear to mean the same thing. The change does not make sense to me.

Secondly, at the bottom of page 2 it says:

An account shall not be taken of any sum which is paid or payable at any time by a trader as consideration of the forfeiture or surrender of the right of any person to annuity or other annual payment unless the annuity or other annual payment arises under a testamentary disposition.

If I understand that as meaning that something which is passed in a will — which is a testamentary disposition — shall be taken account of for the purposes of this section, I cannot quite see why a will is something which one should consider to be a means of tax avoidance. No-one has control over the date of his or her death and could hardly use death as a means of avoidance of tax. If I am not misunderstanding the section I would see the inclusion of testamentary disposition as among the factors that can be taken into account as a basis on which taxed property passing would be taxed, as not being appropriate.

Another point which must be taken into account is in respect of the provision for valuable and sufficient consideration, all of which is required to be brought into account for computing, for the purposes of income tax and corporation tax, the income of the person to whom that consideration is given. That does not seem to make much sense because account must be taken of all these matters anyway. Therefore, to say that one may not exclude from account matters that must be included in it seems to me to be an unnecessary and complex procedure. We know that matters that are liable for tax must not be excluded.

The next point relates to 18 (3) (ii) (II) (A) which reads:

has not at any time carried on a business of dealing in or developing land which is, or is to be regarded as, a trade or a part of a trade,

That relates to a particular class of people. If any consideration is given to one of those people who at any time has carried on this business, that fact may not be excluded from account regardless of the circumstances. Therefore, if I had been a developer 20 years ago but had severed all contact with that type of business, I would be treated differently from another person in exactly the same situation but who had never been a developer. A particular class of people should not be treated differently from others merely because of something they did in the past.

The next item relates to paragraph (II) (B). Another type of person to whom a transfer of property must be taken into account is someone who is not and was not at any time connected with any of the following persons:

(aa) the trader,

(bb) a person who is or was at any time connected with the trader, and

(cc) any other person who, in the course of a business of dealing in or developing land which is, or is to be regarded as, a trade or a part of a trade, holds or held an interest in land upon which the annuity or other annual payment was charged or reserved,

What do the words "connected with" mean in that sense? Could they not mean anything? I am sure the Minister had a specific idea in mind in using this term but there is no definition of it. I presume it means a financial connection or does it include merely people who have been related by blood or by marriage without there being any financial implication involved?

Another point here is a drafting point. I refer to paragraph (4) which reads:

(4) Where—

(a) a sum (hereafter in this subsection referred to as the said sum) is payable—

(i) by a person (hereafter in this subsection referred to as the relevant person) who is not the trader,

(ii) as consideration for the forfeiture or surrender of the right of any person to an annuity or other annual payment....

Am I to take it that (i) and (ii) relate to a person who is not the trader and that they both apply——

Mr. G. Fitzgerald

May I interrupt the Deputy for a moment?

An Leas-Cheann Comhairle

The Chair was just about to interrupt because the Deputy has put many questions.

Mr. G. Fitzgerald

He is confusing everyone, including himself. Let us take a few of the questions first and try to ascertain what are the Deputy's problems. We do not believe that he has a problem at all.

An Leas-Cheann Comhairle

The Chair would suggest that as we are in Committee, we take a question or two at a time and have those answered rather than to proceed in this fashion of going backwards and forwards.

Mr. Bruton

The reason I went through the various points was to give the Minister and his advisers the opportunity of being able to answer at least the first few questions by the time I had finished.

Mr. G. Fitzgerald

The Deputy is confused. What is the problem about section 17?

Mr. Bruton

It is section 27.

Mr. G. Fitzgerald

This is only a technical point.

Mr. Bruton

I am referring to what was case four in the old Act.

Mr. G. Fitzgerald

What was case four in the old Act?

Mr. Bruton

This is a substitution for section 27 of the old Act.

Mr. G. Fitzgerald

Section 17 of the old Act.

Mr. Bruton

Why, then, is there a reference to section 27?

Mr. G. Fitzgerald

Can the Deputy blame us for being confused? Is he not confused himself? The section as numbered relates to the new Bill but the Act we are amending is the 1968 Act — section 17 of that Act. The next point related to the question of annuities. The Deputy may take it that what I said at the outset was that we are only interested in ensuring that the person who is using the system for an artificial annuity is controlled, in other words, that those with a genuine annuity in whatever circumstances exist shall not be interfered with. To illustrate what is intended perhaps I could cite an example for the Deputy. If I take a particular case and refer to it as case Y, the case involved in the creation of an annuity. Let us say that company D had been dealing in land and at the relevant time held 30 acres. Company E was incorporated as a wholly-owned subsidiary of company D, the latter having subscribed £800,000 for shares in company E and shortly afterwards company E paid to company D the sum of £800,000. In consideration of this amount of money, company D undertook to pay an annuity of more than £140,000 to company E. The annuity was secured on the 30 acres referred to.

At this point the £800,000 which company D had given to company E in subscription for the shares had come back to company D as consideration for the annuity. The object of the exercise was to burden the 30 acres with the payment of the annuity. Company D sold the land which was encumbered with payment of the annuity to another associated company, company F, for £60,000 and the latter company, through the acquisition of shares in company E, acquired full ownership of that company. Company F were now in a position to secure cancellation of the annuity and could sell the 30 acres without any encumbrance or burden. Company F sold the unencumbered land for £900,000. The company, relying on a certain interpretation of section 18 (2) (c) (iii) of the Finance (Miscellaneous Provisions) Act, 1968, claimed it was entitled to deduct in addition to the cost of acquiring the property, £60,000, a sum of £800,000 which it did not expend but which represented the market value of the annuity that was artificially created for this purpose. The amount of tax involved in this case is more than £350,000. The Deputy may take it that the annuities about which he is concerned are safeguarded.

Mr. Bruton

Section 18 (3) of the amendment states:

Account shall not be taken of any sum (hereafter in this subsection referred to as the relevant sum) which is paid or is payable at any time by the trader as consideration for the forfeiture or surrender of the right of any person to an annuity or other annual payment unless—

(a) the annuity or other annual payment arises under—

(i) a testamentary disposition, or

By a process of a double negative it appears to include a testamentary disposition.

Mr. G. Fitzgerald

The position is that the redemption of an annuity created under a will is not debarred. An annuity properly transferred will be recognised for the purposes of the Bill.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): What kind of tax would a person get away with in such circumstances?

Mr. G. Fitzgerald

It could be income tax, corporation profits tax or capital gains tax.

Mr. Bruton

There is reference in the amendment to "connected persons".

Mr. G. Fitzgerald

That is defined in section 16 of the 1968 Act.

Mr. Bruton

Subsection (3) (II) (A) refers to someone who has not at any time carried on a business of dealing in or developing land which is to be regarded as a trade. That seems to exclude a class of persons regardless of when they may have carried out the development of land. This provision may be necessary but, on the other hand, it could be unjust in that it might include persons who had given up developing land many years ago and are not involved in such undertakings now. The section appears to include them if they were involved at any time. Perhaps the Minister would consider putting in a limit of say, five years?

Mr. G. Fitzgerald

This is in regard to the second sale of an annuity, where the genuine annuity goes ahead for the normal consideration but is then brought out for tax avoidance purposes. It is to prevent abuses in this area.

Mr. Bruton

The matter is so complicated I do not think we will get very far. I think it would be appropriate for the Minister to put in a limit of five or ten years to eliminate people who were involved in the development of land so long ago that it is irrelevant now. Perhaps the Minister would consider my suggestion before the Bill is put before the Seanad.

Mr. G. Fitzgerald

I am quite prepared to have a look at it. I do not think the Deputy should be worried about this matter. The purpose is to protect the genuine transaction. As I am sure the Deputy will appreciate from the example I gave, there could be a very considerable time lag of years from the beginning of the operation to the ultimate tax situation. The Deputy suggested the inclusion of ten years but land could be held for much longer than that time. I think the Deputy might be complicating the situation even more.

Mr. Bruton

Section 20 (6) of the amendment reads:

For the purposes of this section—

(a) where, whether by a premature sale or otherwise, a person directly or indirectly makes available to another person the opportunity of realising a gain, the gain of that other person shall be treated as having been obtained for him by the person first mentioned in this subsection, and

What is meant by a premature sale? In section 20 (10) there is the following provision:

Subsection (3) (c) shall not apply to so much of any gain as is fairly attributable to the period, if any, before the intention to develop the land was formed...

That seems to involve the Revenue Commissioners in deciding the state of a person's mind about when he formed the intention to develop land, but who can state when that person first thought of developing land? It is a very difficult section to interpret. I wonder if that problem had been adverted to.

Mr. G. Fitzgerald

The Deputy spoke about subsection (6) of the amendment. That explains how a gain could be obtained by one person for another. It is for the purposes of subsection (3). The Deputy asked me to define the word "premature". Obviously it is the dictionary definition — occurring before the usual or proper time. It is for the purpose of preventing a gain in a transfer from one individual to another. It is to protect that situation developing.

Mr. Bruton

Subsection (10) of the amendment refers to the fact that the Revenue will be involved in deciding fairly when a person first formed the intention to develop the land. That is completely subjective. You might make up your mind to do something and not do it for two or three years. The Revenue will be involved in some sort of psychological inquiry as to whether you had made up your mind. I wonder is that feasible for them. Perhaps the Minister has to have something as loose as that to catch the people he wants to catch, but it is not very satisfactory to have the law based on the judgement of an inspector as to subjective states of mind. It is not precise.

Mr. G. Fitzgerald

It is a question of accepting the word of the individual. I take the Deputy's point but there will have to be realism in all of this. Eventually it might finish up in the courts and they could decide.

Subsection (10) of the amendment deals with the case of land which although not originally acquired with the objective of making a gain from its disposal is developed at a later stage with that objective. In such a case the subsection restricts the gain chargeable under this section by applying the rules relating to case one, thereby ensuring that the land is deemed to have been purchased for a consideration equal to its market value at a time when the intention to develop it was formed. One must deal with the factual situation. If there is a dispute it can be decided by the courts. I do not think there is anything to be gained by pursuing this or changing it.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I agree with Deputy Bruton when he says avoidance of tax in the manner described by the Minister is highly undesirable and should be stamped out. I take it the cases the Minister quoted are real cases with the names left out. They show a very extensive avoidance of tax under the law as it stands. Therefore it is quite legal. I agree that the law should be amended. Since as far back as the introduction of the PAYE system of income tax I have always thought that the tax system as a whole should be fair and equitable. People in the PAYE system—and they go right up to the top so long as they are not self-employed—have to pay their full amount of tax and it is only correct that the tax system should be fair and equitable and that everybody should pay his fair contribution.

I was a bit alarmed to hear the Minister saying one of the reasons why he has to introduce this amendment on short notice is that there is a case stated pending in the High Court and he anticipates that it will be two years before that case is disposed of. If that is so, it discloses an entirely undesirable state of affairs and shows that, for some reason or another, the courts are not working as expenditously as they should be, or giving the service they should be giving.

In this case because the person affected is the State, the Minister can come in here with a new section in a Bill to protect the State. Suppose this fault in the law or this uncertainty in the law was not the concern of the State alone and, instead of the State and a private citizen, two private citizens were involved, this would have to remain in abeyance for two years, we are told, until the courts got around to dealing with it. That should not be. It is far too long a delay.

There have always been delays about these cases stated in regard to income tax, and so on. They should be cut out. If there are delays extending up to two years in the courts, or in any section of the courts dealing with common law, or equity, or criminal law, or anything else, somebody is at fault. Something needs to be amended. The system needs to be changed. The Minister gave this reason in a very casual way. Attention should be drawn to it and the responsible Minister should look into it with the President of the High Court to see if this sort of delay can be shortened and a proper service given.

Amendment agreed to.

Amendment reported.

Mr. G. Fitzgerald

I move amendment No. 13b:

In page 26, between lines 29 and 30, to insert the following:

"28. —(1) This section is enacted to prevent the avoidance of tax by persons concerned with dealing in or developing land.

(2) (a) In relation to the computation for the purposes of income tax or corporation tax of the profits or gains or losses of any period ending on or after the 6th day of April, 1981, Part IV of the Finance (Miscellaneous Provisions) Act, 1968, is hereby amended by the substitution of the following section for section 18:

18. —(1) Where a business of dealing in or developing land is, or is to be regarded as, a trade within Schedule D or a part of such a trade, the provisions applicable to Case I of that Schedule shall, as respects the computation of the profits or gains of the business, have effect subject to the subsequent provisions of this section.

(2) (a) Any consideration other than rent or an amount treated as rent under section 83 of the Income Tax Act, 1967, for the disposal of an interest in any land, or in a part of any land, shall be treated as a consideration for the disposal of trading stock and shall accordingly be taken into account as a trading receipt.

(b) Any interest in any land which is held by a person carrying on a trade (hereafter in this section referred to as the trader) and which has become trading stock of the trade shall thereafter, until the discontinuance of the trade, continue to be such trading stock.

(c) Where the trader has acquired an interest in any land otherwise than for consideration in money or money's worth, he shall, subject to paragraph (d), be deemed to have purchased the interest for a consideration equal to its market value at the time of acquisition.

(d) Where at the time of acquisition of an interest in any land the trade had not been commenced or the interest was not then appropriated as trading stock, the trader shall be deemed to have purchased the interest for a consideration equal to its market value at the time of its appropriation as trading stock.

(e) Any consideration (other than receipts falling within section 81 (1) (b) of the Income Tax Act, 1967, the profits or gains arising from which are, by virtue of that section, chargeable to tax under Case V of Schedule D) for the granting by the trader of any right in relation to the development of any land shall be taken into account as a trading receipt.

(3) Account shall not be taken of any sum (hereafter in this subsection referred to as the relevant sum) which is paid or is payable at any time by the trader as consideration for the forfeiture or surrender of the right of any person to an annuity or other annual payment unless—

(a) the annuity or other annual payment arises under—

(i) a testamentary disposition, or

(ii) a liability incurred for—

(I) valuable and sufficient consideration all of which is required to be brought into account in computing for the purposes of income tax or corporation tax the income of the person to whom that consideration is given, or

(II) consideration given to a person who—

(A) has not at any time carried on a business of dealing in or developing land which is, or is to be regarded as, a trade or a part of a trade, and

(B) is not and was not at any time connected with any of the following persons—

(aa) the trader,

(bb) a person who is or was at any time connected with the trader, and

(cc) any other person who, in the course of a business of dealing in or developing land which is, or is to be regarded as, a trade or a part of a trade, holds or held an interest in land upon which the annuity or other annual payment was charged or reserved,

or

(b) the relevant sum is required to be brought into account in computing for the purposes of income tax or corporation tax the profits or gains of a trade of dealing in or developing land carried on by the person to whom the relevant sum is payable.

(4) Where—

(a) a sum (hereafter in this subsection referred to as the said sum) is payable—

(i) by a person (hereafter in this subsection referred to as the relevant person) who is not the trader,

(ii) as consideration for the forfeiture or surrender of the right of any person to an annuity or other annual payment, and

(b) the said sum is not required to be brought into account in computing for the purposes of income tax or corporation tax the profits or gains of a trade of dealing in or developing land carried on by the person to whom the said sum is payable, and

(c) the trader incurs expenditure (hereafter in this subsection referred to as the cost) in acquiring any interest in land upon which the annuity or other annual payment had been reserved or charged,

then—

(I) the trader shall be treated as having expended in acquiring that interest an amount equal to the amount which would have been expended if the right had not been forfeited or surrendered, and

(II) the excess of the cost over the amount determined in accordance with subparagraph (I) shall be treated for the purposes of subsection (3) as having been payable by the trader as consideration for the forfeiture or surrender of that right,

and for the purposes of this subsection all such apportionments and valuations shall be made as appear to the inspector or, on appeal, to the Appeal Commissioners, to be just and reasonable

Provided that this subsection shall not apply where the relevant person carries on a trade of dealing in or developing land and pays the said sum in the course of carrying on that trade.

(b) Any provision of section 18 of the Finance (Miscellaneous Provisions) Act, 1968, which applies in relation to the computation of the profits or gains or losses of any period ending before the 6th day of April, 1981, but which, by reason of this section, does not apply in relation to the computation of the profits or gains or losses of any period ending on or after that date, shall, in particular, not apply in relation to the determination of the value of the trading stock of a trade at the commencement of any period ending on or after that date.

(3) Part IV or the Finance (Miscellaneous Provisions) Act, 1968, is hereby amended by the substitution of the following sections for sections 20, 21 and 22:

20. —(1) This section shall not apply to—

(a) a gain realised before the 6th day of April, 1981, or

(b) a gain accuring to an individual which, by virtue of section 25 (private residence) of the Capital Gains Tax Act, 1975, is exempt from capital gains tax, or which would be so exempt but for the provisions of subsection (10) of that section.

(2) In this section and in section 21—

" `capital amount' " means any amount, in money or money's worth, which, apart from this section, does not fall to be included in any computation of income for the purposes of the Tax Acts, and other expressions which include the word ""capital' " shall be construed accordingly;

" `chargeable period' " means an accounting period of a company or a year of assessment;

" `land' " includes any interest in land and references to the land include references to all or any part of the land;

" `share' " includes stock;

references to property deriving its value from land include references to—

(i) any shareholding in a company, or any partnership interest, or any interest in settled property, deriving its value or the greater part of its value directly or indirectly from land, and

(ii) any option, consent or embargo affecting the disposition of land.

(3) This section shall apply in any case where—

(a) land, or any property deriving its value from land, is acquired with the sole or main object of realising a gain from disposing of the land,

(b) land is held as trading stock, or

(c) land is developed by a company with the sole or main object of realising a gain from disposing of the land when developed,

and any gain of a capital nature is obtained from the disposal of the land—

(i) by the person acquiring, holding or developing the land, or by a person connected with that person, or

(ii) where any arrangement or scheme is effected as respects the land which enables the gain to be realised directly or indirectly by any transaction, or by any series of transactions, by any person who is a party to, or concerned in, the arrangement or scheme,

and this subsection shall apply whether the said gain is obtained by any such person for himself or for any other person.

(4) Where this section applies, the whole of any such gain as is mentioned in subsection (3) shall, for all the purposes of the Tax Acts, be treated—

(a) as being income which arises at the time when the gain is realised and which constitutes profits or gains chargeable to tax under Case IV of Schedule D for the chargeable period in which the gain is realised, and

(b) subject to the following provisions of this section, as being income of the person by whom the gain is realised.

(5) For the purposes of this section land shall be treated as disposed of if, by any one or more transactions, or by any arrangement or scheme, whether concerning the land or property deriving its value from the land, the property in the land or control over the land, is effectually disposed of, and references in subsection (3) to the acquisition or development of land or property with the sole or main object of realising a gain from disposing of the land shall be construed accordingly.

(6) For the purposes of this section—

(a) where, whether by a premature sale or otherwise, a person directly or indirectly makes available to another person the opportunity of realising a gain, the gain of that other person shall be treated as having been obtained for him by the person first mentioned in this subsection, and

(b) any number of transactions may be regarded as constituting a single arrangement or scheme if a common purpose is discerned in them, or if there is other sufficient evidence of a common purpose.

(7) In applying this section account shall be taken of any method, direct or indirect, by which—

(a) any property or right is transferred or transmitted to another person, or

(b) the value of any property or right is enhanced or diminished,

and, accordingly, the occasion of the transfer or transmission of any property or right, by whatever method, and the occasion when the value of any property or right is enhanced, may be treated as an occasion on which tax becomes chargeable under this section.

(8) Subsection (7) shall apply in particular—

(a) to sales, contracts and other transactions made otherwise than for full consideration or for more than full consideration,

(b) to any method by which any property or right, or the control of any property or right, is transferred or transmitted to any person by assigning—

(i) share capital or other rights in a company,

(ii) rights in a partnership, or

(iii) an interest in settled property,

(c) to the creation of any option or consent or embargo affecting the disposition of any property or right, and to the consideration given for the option, or for the giving of the consent or the release of the embargo, and

(d) to the disposal of any property or right on the winding up, dissolution or termination of any company, partnership or trust.

(9) For the purposes of this section such method of computing a gain shall be adopted as is just and reasonable in the circumstances, taking into account the value of what is obtained for disposing of the land, and allowing only such expenses as are attributable to the land disposed of, and in applying this subsection—

(a) where an interest in land is acquired and the reversion is retained on disposal, account may be taken of the way in which the profits or gains under Case I of Schedule D of a person dealing in land are computed in such a case, and

(b) account may be taken of the adjustments to be made in computing such profits or gains under section 84 (2) and 85 (4) of the Income Tax Act, 1967.

(10) Subsection (3) (c) shall not apply to so much of any gain as is fairly attributable to the period, if any, before the intention to develop the land was formed, and which would not fall under paragraph (a) or (b) of that subsection; and in applying this subsection account shall be taken of the treatment under Case I of Schedule D of a person who appropriates land as trading stock.

(11) If all or any part of the gain accruing to any person is derived from value, or an opportunity of realising a gain, provided directly or indirectly by some other person (whether or not put at the disposal of the person first mentioned in this subsection), subsection (4) (b) shall apply to the gain, or that part of it, with the substitution of that other person for the person by whom the gain was realised.

(12) Where there is a disposal of shares in—

(a) a company which holds land as trading stock, or

(b) a company which owns directly or indirectly 90 per cent, or more of the ordinary share capital of another company which holds lands as trading stock,

and all the land so held is disposed of in the normal course of its trade by the company which held it, and so as to procure that all opportunity of profit in respect of the land arises to that company, then, notwithstanding subsection (3) (i), this section shall not apply to any gain accruing to the holder of shares as being a gain on property deriving value from that land (but without prejudice to any liability under subsection (3) (ii)).

(13) In ascertaining for the purposes of this section, the intentions of any person, the objects and powers of any company, partners or trustees, as set out in any memorandum or articles of association or other document, shall not be conclusive.

(14) For the purposes of ascertaining whether and to what extent the value of any property or right is derived from any other property or right, value may be traced through any number of companies, partnerships and trusts, and the property held by any company, partnership or trust shall be attributed to the shareholders, partners or beneficiaries at each stage in such manner as is just and reasonable.

(15) In applying this section—

(a) any expenditure or receipt or consideration or other amount may be apportioned by such method as is just and reasonable, and

(b) all such valuations shall be made as may be necessary to give effect to the provisions of the section.

(16) For the purposes of this section partners, or the trustees of settled property, or personal representatives, may be regarded as persons distinct from the individuals or other persons who are for the time being partners or trustees or personal representatives.

(17) This section shall apply to a person, whether resident in the State or not, if all or any part of the land in question is situated in the State.

21. —(1) (a) Where a person (hereafter in this subsection referred to as the first-mentioned person) is assessed to tax under section 20 and that assessment to tax arises in consequence of and in respect of consideration receivable by another person (hereafter in this subsection referred to as the second-mentioned person)—

(i) the first-mentioned person shall be entitled to recover from the second-mentioned person any part of that tax which the first-mentioned person has paid, and

(ii) if any part of that tax remains unpaid at the expiration of six months from the date when it became due and payable, it shall be recoverable from the second-mentioned person as though he were the person so assessed, but without prejudice to the right to recover the tax from the first-mentioned person,

and for the purposes of subparagraph (i) the inspector shall on request furnish a certificate specifying the amount of income in respect of which tax has been paid, and the amount of tax so paid; and the certificate shall be evidence, until the contrary is proved, of any facts stated therein.

(b) For the purposes of this subsection any amount which by virtue of section 20 is treated as the income of a person shall, notwithstanding any other provision of the Tax Acts, be treated as the highest part of his income.

(2) If it appears to the Revenue Commissioners that any person entitled to any consideration or other amount chargeable to tax under section 20 is not resident in the State, they may direct that section 434 of the Income Tax Act, 1967 (interest, etc., not payable out of taxed profits), shall apply to any payment forming part of that amount as if the payment were an annual payment charged with tax under Schedule D, but without prejudice to the final determination of the liability of that person, including any liability under subsection (1) (a) (ii).

(3) Section 20 shall have effect subject to any provision of the Tax Acts deeming income to be income of a particular person.

(4) Where, by virtue of section 20 (3) (c), any person is charged to tax on the realisation of a gain, and, by virtue of subsection (10) of that section, the computation of the gain proceeded on the footing that the land or some other property was appropriated at any time as trading stock, that land or other property shall be treated on that footing also for the purposes of paragraphs 15 of Schedule 1 to the Capital Gains Tax Act, 1975 (appropriations to and from stock in trade).

(5) Where, by virtue of section 20 (11), the person charged to tax is a person other than the person for whom the capital amount was obtained or the person by whom the gain was realised, and the tax has been paid, then, for the purposes of paragraphs 2 and 4 of Schedule 1 to the Capital Gains Tax Act, 1975 (profits taxable as income to be excluded from tax on capital gains), the person for whom the capital amount was obtained or the person by whom the gain was realised, as may be appropriate, shall be regarded as having been charged to the tax so paid.

22. —(1) The inspector may by notice in writing require any person to furnish him within such time as may be specified in the notice (not being less than thirty days) with such particulars as the inspector thinks necessary for the purposes of sections 20 and 21.

(2) The particulars which a person is obliged to furnish under this section, if he is required by notice so to do, include particulars—

(a) as to transactions or arrangements with respect to which he is, or was, acting on behalf of others, and

(b) as to transactions or arrangements which, in the opinion of the inspector, should properly be examined for the purposes of sections 20 and 21 notwithstanding that, in the opinion of the person to whom the notice is given, no liability to tax arises under those sections, and

(c) as to whether the person to whom the notice is given has taken, or is taking, any, and if so what, part in any, and if so what, transactions or arrangements of a description specified in the notice.

(3) Notwithstanding anything in subsection (2) a solicitor shall not be deemed for the purposes of subsection (2) (c) to have taken part in any transaction or arrangements by reason only that he has given professional advice to a client in connection with the transaction or arrangements, and shall not in relation to anything done by him on behalf of a client, be compellable under this section, except with the consent of his client, to do more than state that he is or was acting on behalf of a client, and give the name and address of his client.'.

(4) Schedule 15 to the Income Tax Act, 1967, is hereby amended by the insertion in column 2 thereof of ` "Finance (Miscellaneous Provisions) Act, 1968, section 22" '.".

Amendment agreed to.

An Leas-Cheann Comhairle

Amendment No. 15 is consequential on amendment No. 14 and they may be debated together.

Mr. Bruton

I move amendment No. 14:

In page 28, to delete lines 6 to 28 and substitute the following:

"Hydrocarbons. 32.—(a) In this section —".

This amendment is designed to remove from the Finance Bill the increase the Government are imposing on the price of petrol and diesel oil. This has been recognised by many people as the most undesirable feature of the recent budget introduced by the Government. It is particularly hard on people who have to use their cars to get to work. Many people live a considerable distance from their work place. As a result of increases in oil prices paid to people in the oil producing countries, they have already had to bear substantial increases in the price of petrol which they must use to get to work. Now the Government intend further to increase the price by the imposition of these additional duties.

I realise that at this stage it is too late in the day for the introduction of an amendment of this nature to make any difference because the Government have made their calculations. If this item of revenue were to be removed the budget would be even more unbalanced than it is already. It is not my intention to make the Government's budget more unbalanced than it is already. Particularly in recent years the Government have been having far too large deficits on their budgets.

In introducing this amendment I am not seeking to change the shape of the budget after the event because it is too late. The considerations I am putting forward should have been taken into account by the Government before introducing their budget. However it is appropriate that we avail of this Report Stage to point out to the Government and the people the serious consequences of the increase in petrol price, so central an element of the budgetary strategy of the present Government, a strategy which involved a direct increase in the cost of living, an increase so serious in the first quarter of this year that in the second quarter of this year, in order to undo some of the damage they had done in the first quarter, the Government were forced to introduce subsidies which will cost almost as much and perhaps more at the end of the year than the amount of revenue they will gain from the increased petrol price.

If ever there was a budgetary strategy that was counter-productive it is that pursued by this Government in this budget. The increase in petrol price, pushing up the cost of living, threw calculations workers and employers had made in the wage agreements they had negotiated into disarray by achieving a disproportionately large increase in the consumer price index in the first quarter of the year, directly as a result of this budget and in particular as a result of the increased petrol price. That dislocation was so serious that in the second quarter of the year the Government had to come along and spend a lot of money in the form of subsidies to try and undo some of the damage done in the first quarter. Therefore we have a zig-zag budget policy, going in one direction in the first quarter of the year and in completely the opposite direction in the second quarter. There has been no sense of consistency, no sense of direction in the approach of the Government either to the management of national finances or to the scope and shape of taxation and the methods whereby revenue should be raised.

In introducing this amendment at this stage I am not seeking to have the petrol tax increases done away with. It is too late in the day to do that because the Government are already raising that revenue and, were it to be done, the budget would be thrown into even further imbalance. I am using this opportunity to make the point which must be made about the inconsistent manner in which the Government have approached taxation, in particular their handling of inflation — the imposition of excise duties on the one hand, which increase the cost of living, to be compensated for a few months later by subsidies which reduce it.

A further point I should make about this matter is that in many cases the increases imposed by the Government in these duties increase substantially the costs of Irish industry. As we know, the level of duty on energy paid by Irish industry is already substantially ahead of that paid by competing industries in other countries. This falls particularly heavily on native industry which has been in existence for some time. New industries, with new investment plans such as those we discussed earlier this morning, can get tax concessions which in many cases more than compensate for the high level of taxation they must pay on the energy they use. New and, in many cases, foreign industries do quite well under our tax code. Not only in many cases does existing Irish industry not benefit under the various schemes devised by the Government for attracting investment here — because it has made its investment and its job is running a business rather than making new investments — but it must pay the high levels of excise duty levied in particular on energy under our tax system. The level of energy taxation on industry in this country is significantly higher than that on the same products in other countries.

I have put forward these amendments in order to indicate the serious inconsistencies in the policies of the Government in the hope that, by so doing, they will have some effect in influencing public opinion in the matter of increases in taxation of this type.

Mr. G. Fitzgerald

Deputy Bruton's speech could be described as a Second Stage one rather than moving an amendment on Report Stage. I presume I will have the same freedom of facility to answer all the points raised by him.

I shall commence by referring to the amendment put down by Deputy Bruton and say that the Government, when preparing the budget, had to have regard to the many diverse sectoral interests that had to be taken into account. They had to assess how best all sectors could be treated in a reasonable way and where extra revenue could be raised. Of course, as is always the case with a concerned Fianna Fáil Government, social welfare recipients rated a very high priority group. For the second consecutive year we increased the social welfare long-term recipient benefits by 25 per cent.

An Leas-Cheann Comhairle

The Deputy certainly broadened the scope of the amendment when he was moving it, but we cannot broaden it even more at this stage. The Minister must deal with the amendment before the House.

Mr. G. Fitzgerald

Of course, but I want to explain, a Leas-Cheann Comhairle, why taxation on items——

An Leas-Cheann Comhairle

We cannot go into social welfare and other matters.

Mr. G. Fitzgerald

——such as cigarettes, tobacco, drink and petrol had to be considered as a less harsh way of raising revenue than direct taxation.

It is interesting to note that Deputy Bruton, displaying in a consistent way the continued inconsistency of Fine Gael spokesmen in different areas and locations, is moving an amendment advocating the removal of the increase but not saying where the extra revenue is to be found. That is typical of the policies suggested by them or the motions and amendments they have introduced on this and many other Bills. I would say to Deputy Bruton, that no Minister for Finance wants to make any further imposition by way of taxation, direct or indirect, if he can avoid doing so. But considering this was a year in which the greatest ever social welfare benefits were given, substantial income tax reliefs, aid to the disabled never given prior to this, concessions to the farmers everybody agreed that were needed, some item of revenue had to be looked at and on this occasion the indirect taxes were those chosen. I regret that there had to be any increase of any indirect tax but the reality of the situation is that we are the Government who cater for a broad sector of our people. Is the Deputy suggesting that we should not have looked after the social welfare people, that we should not have looked after the farmers, that we should not have helped the PAYE sector?

An Leas-Cheann Comhairle

We cannot have a debate on all of these matters. We must adhere strictly to hydrocarbons.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): In imposing taxes the Minister for Finance should have regard to their effect on our economy in general. I am afraid the Minister for Finance, in proposing a tax of 15p per gallon on petrol, on top of a tax of 20p per gallon last year, totally disregarded their overall effect on the economy, on the cost of living, on our competitiveness in the home and foreign markets and their effect on demands for wage increases.

The Minister and his party are very fond of laying the blame for everything on the cost of energy, attributing all the ills and evils that are facing the economy to the astronomical increase in the cost of fuel and energy. In that atmosphere one would have thought the Minister would have avoided petrol which, due to circumstances beyond his control, is going up in price rapidly anyway. On top of the increases imposed by the oil-producing countries, on top of the increases resulting from the fall in the value of our £ against the dollar, the Minister puts on another increase and the effect of it goes right through the economy. It is manifested in the cost of transporting goods from place to place and so puts up the cost of living.

Furthermore, we have now reached the stage when people have to use transport fuelled by petrol to get to work resulting in increased cost of travelling. In addition the cost of CIE transport is enormously increased as a result of these taxes. That body is already losing millions and tens of millions of pounds per year. In fact it is being allowed to run down by the Government because they increased its operating costs and refused to give it any increased subsidy.

In latter years it was nice to see the rural parts of Ireland being repopulated, to see people who worked in cities and provincial towns being prepared to live several miles away from their work and drive in and out each day because, I suppose, they like living in the country and because they can get sites for houses there cheaper than immediately beside the towns. Now they are confronted with this tax on petrol which makes it much more expensive for them to live. That is most unreasonable. It is an entirely inflationary proposal in the budget and the result is that it makes us less competitive on the foreign market; it aggravates our balance of payments situation and the balance of trade at a time when our trade balance according to the Central Bank publication and other publications recently is absolutely alarming and has gone beyond danger point.

The Minister may say that we should tell him where to get the tax but it is his business as Minister for Finance in introducing proposals like this to weigh up their effect on the economy and raise the money in a way less damaging to the economy. When we were dealing with motor car tax I tried to extract from the Minister the amount of money raised by this additional taxation this year. I understand at least £50 million extra is raised by this 15p per gallon. That coupled with the new tax on motor cars represents a despicable piece of double dealing on the part of the Government who got into power in 1977 on the basis that motor tax would go and that motoring would become less expensive for the young and the not-so-young. The Government went back on that as they went back on so many other promises they had held out. The net result is that motoring is now much more expensive even in real terms than when this Government took over in 1977 and there is no apology or explanation from them.

That might be understandable if the present members of the Cabinet said that their predecessors in the party made mistakes. That might get them out of that, but here we have a situation where the country is suffering, the cost of living is going up, wages are going up and as a result we are not as competitive as we could be on the home market. Consumer goods are coming into the country in hundreds of millions and a proposal such as the Minister is putting before the House makes it easier for foreign goods to undercut Irish goods on the home market. That is a very large part of our trouble. Because our manufacturers and producers are less competitive on the home market they have a smaller base and are as a result very much less competitive on the foreign market. Less goods are being produced and we now have mass unemployment, unemployment at the rate of 160,000, as counted by Fianna Fáil. If we counted the number of unemployed in the manner used before Fianna Fáil changed the rules I am sure that figure would be at least 140,000 at present and we have been told by the experts that before the end of the year the unemployment figure will have increased.

An Ceann Comhairle

The Deputy is moving away from the amendment.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): This is all part of the cause of the problem.

An Ceann Comhairle

I am sure the Deputy will agree that he is stretching this.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): At a time when we should be conscious of our unemployment situation, of our balance of payments position and of our balance of trade, and at a time when we should be doing something to improve the position, we are faced with a proposal which has the direct opposite effect. It is crazy economics and it shows the straitjacket which bad management of the economy since the famous manifesto of 1977 has landed us in. No government with room for manipulation or that had got themselves into a straitjacket situation would be doing a thing like this. It is too bad that the country must suffer because of the bad management of our economy.

Mr. Bruton

I feel strongly that this increase in petrol prices was central to the budget strategy of the Government earlier this year. That strategy has proved to be a failure and as a protest against that I must press my amendment to remove the sections increasing the price of petrol and diesel.

Question put: "That the words proposed to be deleted stand."

The Dáil divided: Tá, 55; Níl, 23.

Tá

• Ahern, Bertie.
• Ahern, Kit.
• Allen, Lorcan.
• Andrews, Niall.
• Aylward, Liam.
• Barrett, Sylvester.
• Brady, Gerard.
• Brady, Vincent.
• Briscoe, Ben.
• Browne, Seán.
• Callanan, John.
• Cogan, Barry.
• Colley, George.
• Conaghan, Hugh.
• Connolly, Gerard.
• Cowen, Bernard.
• Daly, Brendan.
• Filgate, Eddie.
• Fitzgerald, Gene.
• Fitzpatrick, Tom. (Dublin South-Central).
• Flynn, Pádraig.
• Fox, Christopher J.
• French, Seán.
• Gallagher, Dennis.
• Geoghegan-Quinn, Máire.
• Haughey, Charles J.
• Herbert, Michael.
• Hussey, Thomas.
• Keegan, Seán.
• Kenneally, William.
• Killeen, Tim.
• Killilea, Mark.
• Lawlor, Liam.
• Lemass, Eileen.
• Leonard, Jimmy.
• Leonard, Tom.
• Leyden, Terry.
• McEllistrim, Thomas.
• McSharry, Ray.
• Molloy, Robert.
• Moore, Seán.
• Morley, P.J.
• Murphy, Ciarán P.
• Nolan, Tom.
• Noonan, Michael.
• O'Donoghue, Martin.
• O'Hanlon, Rory. O'Leary, John.
• Power, Paddy.
• Reynolds, Albert.
• Smith, Michael.
• Tunney, Jim.
• Walsh, Seán.
• Wilson, John P.
• Woods, Michael J.

Níl

• Barry, Richard.
• Bermingham, Joseph.
• Boland, John.
• Bruton, John.
• Cluskey, Frank.
• Collins, Edward.
• Corish, Brendan.
• Cosgrave, Liam.
• Cosgrave, Michael J.
• Deasy, Martin A.
• Desmond, Barry.
• Fitzpatrick, Tom (Cavan-Monaghan).
• Griffin, Brendan.
• Harte, Patrick D.
• Keating, Michael.
• L'Estrange, Gerry.
• Lipper, Mick.
• Mitchell, Jim.
• Murphy, Michael P.
• O'Donnell, Tom.
• O'Toole, Paddy.
• Timmins, Godfrey.
• Treacy, Seán.

Tellers: Tá, Deputies Moore and Briscoe; Níl, Deputies L'Estrange and M. Cosgrave.

Question declared carried.

Amendment declared lost.

Amendment No. 15 not moved.

Mr. Bruton

I move amendment No. 16:

In pages 30 and 31, to delete lines 31 to 47 and 1 to 21 respectively.

Amendment No. 16 is concerned with removing the increase in the motor tax which is misnamed a motor registration fee in the Bill. This Government obtained power on the basis of promises, one of which was to abolish motor tax. Since then they have been progressively re-introducing it in the form of what they call a fee. This year the revenue from this so-called fee for the registration of motor vehicles is going to be about £13 million. The cost of administeration of this fee comes to no more than £2 million, so the revenue will make a profit of £11 million on this fee. The nominal position in regard to fees charged by this State is that they do not cover, or just barely cover, the cost of administering the service given. In this case the fee charged is yielding a revenue of five or six times as much as the cost of administering the service. Therefore, to call the motor tax a fee is a complete misnomer. We are proposing in this amendment, perhaps in the dying days of this Dáil, to reveal the complete falsity of the promise, on which the present majority in this Dáil was obtained, of abolishing motor tax. In practice, that tax has been re-introduced.

Debate adjourned.