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Dáil Éireann debate -
Thursday, 25 Mar 1982

Vol. 333 No. 4

Financial Resolutions, 1982: Financial Resolution No. 1: Capital Gains Tax.

I move:

(1) That in this Resolution—

(a) "development land" means land of the kind described in section 4 (3) (a) (i) of the Capital Gains Tax (Amendment) Act, 1978 (No. 33 of 1978);

"shares" has the same meaning as in section 4 (8) of the Capital Gains Tax Act, 1975 (No. 20 of 1975), and

(b) references to the disposal of development land include references to the disposal of shares deriving their value or the greater part of their value directly or indirectly from that land, other than shares quoted on a stock exchange.

(2) That paragraph 11 of Schedule 4 to the Capital Gains Tax Act, 1975, shall have effect, as respects any disposal of development land made on or after the 26th day of March, 1982, and before the 26th day of July, 1982, as if—

(a) in subparagraph (2), "equal to 30 per cent. of the said payment" were substituted for "on one-half of the said payment at the rate of such tax in force at the time the payment is made",

(b) in subparagraph (3), "the amount of the payment at the rate of 30 per cent." were substituted for "an amount equal to one-half of the payment at the rate specified in section 3 (3).",

(c) in subparagraph (4), "the amount so estimated at the rate of 30 per cent." were substituted for "an amount equal to one-half of the amount so estimated at the rate specified in section 3 (3).",

(d) in subparagraph (5), "on or after the 26th day of July, 1982," were inserted after "be given", and

(e) after subparagraph (6), the following subparagraph were inserted:

"(6A) Notwithstanding the provisions of subparagraph (6), a certificate under that subparagraph in relation to a disposal shall not be issued unless an amount of capital gains tax equal to 30 per cent. of the consideration for the disposal has been paid.".

(3) It is hereby declared that it is expendient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

The principal effect of this resolution will be to tax profits on the sale of development lands at a rate of 50 per cent. I am sure that this resolution will recommend itself to all sides of the House. The previous Minister for Finance intended to tax these profits at the rate of 45 per cent. We felt it appropriate to increase that to 50 per cent. Everybody knows that there is considerable public disquiet about the profits being made on the sale of development lands or lands for development purposes and I think a tax of 50 per cent on these profits is not unreasonable.

While the full provisions of this very complicated measure can only be outlined in the Finance Act, the tax will become operative as and from today. It is a very complicated area but I think the explanation I have given covers its salient features. From 12 o'clock tonight profits made from the sale of development lands will be taxed at 50 per cent as distinct from the normal capital gains rate which is now 40 per cent in most other areas.

My first reaction to this resolution is that the very fact the present Government voted against a proposition along these lines when they voted against the budget as a whole in January——

They did not vote against it as a whole.

The budget was described as a disgraceful document by Deputy O'Donoghue who no longer holds an economic portfolio for Fianna Fáil. As we now know, the present Government have adopted most of that budget, including this item. What worries me slightly about it is that by voting against that budget and bringing the Government down they have allowed a number of people who were engaged in development land transactions and who would have had to pay this additional taxation if that budget had gone ahead to accelerate those transactions in the period between the defeat of that budget and the introduction of this one. Many transactions which would have borne taxation have been rushed through in the intervening period as a result of the defeat of the previous budget. It is something to which attention needs to be drawn. The additional rate of taxation being charged here only compensates in this year for the lost revenue from the fact that not only were two months' transactions exempted entirely but also during that time so as to avoid paying taxation people were able to rush through transactions which might have taken place in the first six months of this year.

It is also worth drawing the attention of the House to the fact that, notwithstanding that this proposal increases the level of capital gains tax on a particular type of transaction, the overall yield of capital taxation this year is being substantially reduced, more than halved, from that which obtained in the January budget. The provision for tax on discretionary trusts is now to be the subject of an inquiry by the Commission on Taxation. I will not repeat the arguments I made in my initial reaction to the budget where I pointed out that we believe the use of discretionary trusts, not as a genuine family instrument of dealing with family problems but as a pure avoidance device, is something which should be stamped out now and should not require a Commission on Taxation. The increase in the rate on development land transactions is purely a cover for the fact that substantially less revenue will be raised from capital taxation this year because of the abandonment of any attempt to deal with the use of discretionary trusts as an avoidance device. As I pointed out in my earlier contribution, I do not believe that this measure should fall, nor would it have fallen, on using discretionary trusts for genuine family purposes but merely on their continued use for tax avoidance purposes. The fact that the present Government have entirely abandoned dealing with that problem by referring it to the Commission on Taxation, and thereby significantly reducing the yield from capital taxation, is a regressive measure and gives bad example in that it shows an unwillingness to tackle a form of tax avoidance by people who are financially well advised and expensively advised as to how to form these trusts so as to avoid capital acquisition tax which other people in the same situation would have to pay if they had not got the benefit of this artificial device of a discretionary trust. Failure to face that issue has thrown a shadow over the Government's approach——

The Deputy will recollect that when he was on the other side of the House, during the discussion on the Financial Resolutions I was careful to remind the House that this is a debate of a quasi-Committee Stage character in which one is expected to present specific questions in order to elucidate what is proposed or to look for additional information. The general debate is reserved for a later date. I would ask the Deputy and other Deputies to realise that is the nature and the form of this debate.

I respect what you have said, and it has been well said. I just wanted to make that point because it is germane to the overall impression I have got. Strictly speaking, it does not come within the ambit of this resolution. I hope that this tax will not have the effect of discouraging necessary development of land for housing. Obviously the development of land for housing is something that gives significant employment. It must also be borne in mind that people are free not to sell land for housing development if they choose not to do so. Clearly, when imposing taxation on a particular transaction one must bear in mind the danger that if it is taxed too heavily the transaction will not take place at all.

Of course if transactions in regard to land for development do not occur, there will not be development and if there is not development there will not be housing. Therefore, it is necessary that we should continue to monitor this measure, monitor its effect over the coming years so as to ensure that it will not inhibit necessary development. It is important that we should have a sufficient land bank available for housing. We have very great pressure for new houses because we have a much younger population than most other countries. We have more people of the age at which they are getting married and setting up homes and therefore there is more pressure on housing land here than elsewhere. The planning authorities also have had a tradition or a regulation in regard to relatively low density of housing by comparison with other European countries and this also results in a greater demand for more and more land for the same number of housing units than would occur in countries which have as a norm a higher density of houses.

I do not say we should try to change the traditional view of the Irish people which requires a lower density of houses, but one cannot ignore this matter in terms of demand for areas of serviced land. This means we have to be careful to ensure there will be a steady flow of land into the market and for that reason we must be careful, when we are framing legislation such as this, to ensure that the tax will be drawn in in a way that will ensure that the State and the community will get a fair contribution from those who are making substantial windfall gains as a result of services provided on their land at the expense of the State.

That is what this measure is broadly designed to do. Apart from the rate, it is almost exactly the same measure I would have been proposing here. One cannot object to it. In the way I drafted it, it will have the effect of getting a fair share of the profits from these transactions without inhibiting the flow of transactions in such a way as to create scarcity of land for housing. At the same time one is entering an area which is new, into which no previous Government had endeavoured to go. I am proud I was the Minister for Finance who introduced this concept of a special tax on development land. I am glad I tackled this problem which has been avoided by Governments even though it was known to be a problem since the sixties. It had to wait until the budget of January 1982 for someone to attempt to tackle it.

I wish the Minister well in his endeavour to obtain revenue from this source. However, he must be careful to monitor this to ensure that an adequate supply of land will come into the market for development. My biggest regret is that the Government have reduced the estimated yield from capital taxation from that which we proposed in the January budget. It is a surprise to me. It is something the Government must explain. This is a time when everyone else in the community is being asked to make tremendous sacrifices.

I have just one query. We are told that there will be a new high rate of capital gains tax in the case of gains within one year, and the following year. Then we are told those new high rates will apply to disposal of development land within three years of acquisition. It is not clear if the special reduced rate in the case of compulsory acquisition within one, two or three years will apply.

It will not.

Land compulsorily acquired within one, two or three years, will be taxed at 40 per cent.

There are two different things involved. I admit it is confusing. The new provision in regard to short-term capital gains will now apply at 60 per cent for one year in the case of normal development profits from development land. Apart from short-term gains, the rate will be 50 per cent.

That does not answer my point.

It is on page 34 of the budget statement.

If it is compulsorily purchased within one year the rate of capital gains tax is 60 per cent but if it is compulsorily purchased within two or three years the rate is 40 per cent. The additional short-term tax does apply in the case of compulsory purchase.

It is difficult to see the rationale behind that distinction. If a person is unlucky enough to have his land compulsorily acquired within one year of acquiring it he pays tax at 60 per cent but if it is acquired in the second year after acquisition the tax bill falls to 40 per cent. There seems to be an unjust anomaly in that. If a person falls to lose his land through compulsory purchase at any time, even months after he has acquired it, who is to say whether he bought it in anticipation of its being compulsorily acquired? He should get the benefit.

It could leave the thing open.

But in trying to close that loophole we are leaving an anomaly in that if a person can manage to avoid the compulsory purchase for 13 months he has a substantial tax saving. I would suggest that where compulsory acquisition is concerned it should be 40 per cent.

I see the point. But there is the other aspect that if we do not have this provision it could leave a loophole there. Somebody who was aware that a piece of property was going to be compulsorily acquired could buy that in advance of the compulsory acquisition and have the profit they made at the rate of 40 per cent. But I do accept that there is the appearance of an anomaly there at any rate. Perhaps it is something we could argue more about when we come to the Finance Act.

I would make one observation and that is that in the situation where the local authority will need to acquire land for housing there would be a tendency—it is there already—for the vendor to increase the price by the amount he would pay in capital gains tax. I would like to have this situation looked at. Perhaps some legislation could be introduced to counter that, because if the price is put up by the amount that would be paid in capital gains tax the State would have to pay anyway.

I am not too clear on Deputy Sherlock's point.

This could happen in cases other than compulsory purchases.

If the local authority move to acquire land for housing I can see a situation where the vendor would put the price up by the amount of capital gains tax to get his pound of flesh. There are indications that this is happening already.

It should not arise in the case of compulsory purchases because in such cases the valuer should value the land at its market value apart from any element of capital gains. There should not be a problem there. I could see, however, that in the case of a willing, free sale the vendor might add on the capital gains element to the price he is charging to the local authority. The only safeguard there is that the local authority would not pay that inflated price and in the event of agreement not being reached on a proper price they would compulsorily acquire the land. However, I see the point and perhaps it is something we can look at.

(Cavan-Monaghan): I would like to deal with the question of capital gains tax. Since the system of PAYE was introduced several years ago it became incumbent that equity be introduced into the system of taxation so that everybody would pay their fair share, because under the system of PAYE the wage earner or income earner who is paid a salary or wage has no escape; he must pay through the nose because his tax is deducted from his pay packet. Until PAYE was introduced there was a system whereby capital gains were not taxable at all so that while a man on a wage or salary had to pay the last penny, there were vast sums of money being made by dealing in land, in house property and shares, and these were not taxable at all. The result was that an individual could have a tax-free income of £50,000 a year by way of capital gains but another man might have an income of about £2,000 a year and pay the full income tax. That was remedied during the 1973-77 period when the national Coalition Government were in office. We introduced a system of capital gains tax which was a means of getting at the speculator, the land dealer, the house dealer and the dealer in shares, and as a result he was made to pay his fair share of taxation. But on Fianna Fáil returning to office in 1977 they proceeded to amend our Act and they pulled its teeth and rendered it harmless. They introduced a tapering system whereby the tax varied from 30 per cent down to as low as 3 per cent and rendered it meaningless. They did that because they were under pressure from wealthy supporters and people of that sort.

The Deputy is wandering very far. Would he address himself to the question?

(Cavan-Monaghan): I am. With the greatest respect, sir, I have just dealt with the history of it.

We are not concerned with history here. We are concerned with what is before us and I ask the Deputy to put questions or look for information in respect of what is before us. The Deputy knows as well as I do that there will be a later opportunity for him to wander at any length on the generality of capital gains tax.

(Cavan-Monaghan): I will not be general. I am at the stage now where I have said that in 1978 the capital gains tax as introduced a few years previously was virtually abolished. I am glad that following the proposal of Deputy Bruton in the January budget to restore capital gains tax in a meaningful way the present Minister for Finance has followed his example. They have restored more or less in the same form the capital gains tax which was introduced in 1974 and virtually abolished in 1978. We have a situation now where a dealer or speculator will have to pay his share and that is good. It is, as Deputy Bruton said, a great pity that the amount of capital taxation provided for in the January budget has been drastically reduced in this budget. It is an injustice to the ordinary wage or salary earner. When we speak of PAYE——

We are not concerned with wage earners or PAYE.

(Cavan-Monaghan): We are very much concerned with them.

They do not have great amounts of land to sell.

(Cavan-Monaghan): No, but unless we tax the man with a great amount of land to sell, the man who has to pay income tax will have to pay much more. That is what I am concerned about. It is good that this meaningful system of capital gains tax has been reintroduced as it will relieve the ordinary taxpayer somewhat. It is a pity that the provisions of the January budget which provided for much heavier capital taxation and introduced more equity into the system have been dropped by the present administration.

This resolution increases taxation in the January budget from 45 per cent to 50 per cent.

(Cavan-Monaghan): The Taoiseach stood on his head from 1978 when he abolished capital gains tax.

This resolution increases capital gains tax.

Could we put the debate back on its feet and discuss Financial Resolution No 1?

(Cavan-Monaghan): That is what I am trying to do. If the Taoiseach would cease to interrupt——

I want to clear up a point for Deputy Cooney when this political polemic is finished.

This is a political House.

It is financial business.

Deputy Fitzpatrick is in order to proceed without interruption.

(Cavan-Monaghan): The Taoiseach does not like this because he abolished the tax in 1978 and is now forced to restore it.

I never tried to put tax on social welfare benefits or on children's shoes.

The Taoiseach did.

The Taoiseach put tax on food.

(Cavan-Monaghan): The Taoiseach put tax on food and clothing. We abolished it. The Taoiseach has a short memory.

(Interruptions.)

He is not the first Taoiseach who forgot.

The House should direct its attention to Resolution No. 1. and realise that we are not in general discussion. We are dealing with the resolutions in Committee-type debate where it is in order to look for specific detail in respect of the resolution.

(Cavan-Monaghan): The Taoiseach put a point to me and I should like to reply to it.

The Deputy does not have that freedom now.

The Deputy is filling in time.

(Cavan-Monaghan): Deputy Lenihan has enough to do and should go and do it.

There is the farmer's friend.

(Cavan-Monaghan): The Taoiseach mentioned the fact that he did not impose taxation on social welfare benefits. The night before the budget in January I heard the present Minister for Trade, Commerce and Tourism, Deputy O'Malley, on television demanding that short-term social welfare be taxed. The Taoiseach need not shake his head.

The Deputy is out of order and knows it. He is an experienced Member of the House. I will not continue to remind him that he is out of order. He should direct himself to Resolution No. 1.

(Cavan-Monaghan): I will. I was on my feet——

That is obvious.

(Cavan-Monaghan): I was interrupted. I wanted to clarify something. The fact that capital gains tax has been reintroduced is good. I am sorry that there is not more capital taxation in this budget because if there was it would introduce more equity into the system. It is a pity that the provisions of the January budget were not followed in that regard.

I want to straighten out a query posed by Deputy Cooney and make it clear that in the case of the disposal of development land the position will be that there will be a basic rate of 50 per cent. If it is disposed of within one year it will be 60 per cent even though it is compulsorily acquired. There is a concession to people whose land is compulsorily acquired. If it is acquired after three years in ownership the rate is 40 per cent.

I take it from what the Taoiseach said that there is no remission in the case of compulsory acquisition if it takes place within three years of the acquisition of the land.

Will the lack of exemption in the case of compulsory acquisition apply from the date of the making of the CPO or the date of the confirmation of the order?

That will have to be dealt with in the Finance Act. It will be the date of the disposal of the property that it will be operative from.

As the Taoiseach is aware it would be the date of disposal which presumably would be the date of confirmation because it is then the legal change in ownership takes place.

It would be the date the compensation is agreed to.

It could be five or six years before proceedings take place and consequently the penal rate could be easily avoided.

In the case of compulsory acquisition?

Yes, if the date is not the date of the order. But there would be injustice——

These are matters which can be spelt out in the Finance Act. It may be desirable to make the date, the date the compulsory purchase order is made.

There might be consequences.

I cannot say at this stage.

Mr. Boland rose.

Deputy McCreevy has indicated that he wishes to ask a question.

It is usual that the changes in the capital gains tax are put forward in the Finance Bill. Why is it necessary to put through a financial resolution tonight on this one area relating to development land? There were other changes in the capital gains tax regarding disposals and so on. This resolution just deals with the disposal of development land. Why is it necessary to put it through in this way as a Financial Resolution?

Does that mean that this area of change in the capital gains law is not to be incorporated in the forthcoming Bill? This is a very complicated area, as the Taoiseach knows. Will that effect any change in any way whatever in the Finance Bill? Will we have an opportunity of discussing this area again?

Secondly, I would like to know the significance of paragraph (2)(a). My understanding is that where development land is sold after tonight 30 per cent of the price of the land will have to be paid before the relevant certificate is issued. I would like some clarification as to the significance there. Perhaps the Taoiseach could enlighten me.

This is a new and much more severe imposition of tax than would normally be covered by an increase in existing tax. Therefore, it is felt desirable that there should be a Financial Resolution making it effective on and from tonight. Of course, that does not prevent any changes we wish to make being made in the Finance Bill and they can as we wish be made operative from tonight or not, as the Finance Bill provides. This at least gives us the authority to make everything operative at and from midnight tonight. The answer to the Deputy's question is yes.

What is the relevance of the date 26 July 1982? Paragraph (2) says:

...disposal of development land made on or after the 26th day of March, 1982 and before the 26th day of July, 1982, ....

A Financial Resolution can operate for only four months.

Did Deputy Boland indicate he was anxious to ask a question? He did not, apparently.

In pursuing a little further the point raised on the other side of the House, could the Taoiseach explain how this resolution operates to achieve the effect of giving a general power, as he seemed to indicate just now? As I read it—it is not a very readable resolution —the operative paragraph is (2) and that paragraph does nothing except amend certain parts of paragraph 11 of Schedule 4 of the 1975 Act. The first amendment substitutes for saying that a sum shall be deducted representing

on one-half of the said payment at the rate of such tax in force at the time the payment is made

an amount of capital gains tax

equal to 30 per cent of the said payment.

Could the Taoiseach explain how that achieves the objectives stated in the budget speech and how it has this general effect of giving overall power in this area which he says is necessary and is achieved by this phraseology? The effect of this appears to be very limited. It affects only paragraph 11 of Schedule 4 of the Capital Gains Tax Act, 1975, in a very limited way. I am in genuine difficulty in understanding the operative effect of this. I have a number of other questions but I do not want to confuse the issue and I would like the Taoiseach to clarify that point first.

The only way I can help the Deputy is to outline for him what the resolution achieves. The resolution simply deals with the position that as and from midnight tonight profit from sales of development land will attract taxation at a rate of 50 per cent. This is the upshot of all the legal phraseology which is in front of the Deputy and myself. If the Deputy wishes to ask me any question about the specific operation of that tax I will endeavour to answer it. All that gobbledegook in Resolution No. 1 secures the simple purpose that as and from tonight at 12 o'clock the sales of development land will attract capital gains tax at 50 per cent.

Perhaps the Taoiseach will explain. The wording of the Act as now amended will read as follows and on the face of it is not self-explanatory that it will achieve the effect of the 50 per cent tax. It says: "Upon payment of the consideration for acquiring an asset to which this paragraph applies, the person by or through whom any such payment is paid shall deduct thereout a sum equal to 30 per cent of the said payment and the person to whom the payment is made shall allow such deduction upon receipt of the residue of the payment" and there are other ancillary clauses. On the face of it, it charges a 30 per cent tax, not a 50 per cent tax. I am sure it has in some mysterious way the effect the Taoiseach says it has.

30 per cent is only payment on account.

The only figure mentioned anywhere in this is 30 per cent. If all his resolution does is give the power to withhold the figure, how does that have the general effect stated by the Taoiseach of bringing within the grasp of this tax all transactions at the 50 per cent rate? I am sure this is a very clever way of doing it, but it is not a very obvious way.

The Deputy knows enough about these things to know that the Revenue Commissioners and the Parliamentary Draftsman are skilled enough in their trade to put before us a resolution which will achieve what we want to achieve. The upshot of the whole resolution is that at and from 12 o'clock midnight profit from sale of development land attracts a capital gains rate of tax of 50 per cent.

I know enough not to accept such a statement without querying it.

What aspect does the Deputy wish to query?

This House is here to legislate and we must know what we are legislating. The Taoiseach has twice failed to answer my question as to how a requirement to be able to deduct or withhold a sum equal to 30 per cent of the payment has the necessary effect, as a result of that, of imposing a tax of 50 per cent. If something else somewhere in the Act adds on the 20 per cent, perhaps that is the answer. But the Taoiseach should answer the question and not tell me simply that I must trust the Parliamentary Draftsmen and the Revenue Commissioners. It is not the job of this House to take things on trust. Our job is to legislate and to know what we are doing. I do not know what we are doing at this moment and it is fairly obvious that the Taoiseach does not know either.

The purpose of the resolution is to provide for the withholding of 30 per cent pending payment of the 50 per cent charge which will be imposed in the Finance Act.

Oh, so the Taoiseach was not correct in telling the House that the effect of this is to require 50 per cent tax and that does not necessarily follow at all.

That will be the effect.

That will be the consequence of the Finance Act which the Taoiseach is thinking of introducing?

The resolution makes it possible to do that.

(Cavan-Monaghan): Who will be liable for the payment, the vendor or the purchaser?

The purchaser.

At the moment he is required to deduct a sum representing an amount of capital gains tax of one-half of the said payment. Now he is required to deduct 30 per cent of the said payment. How does that produce the effect of giving a 50 per cent capital gains tax? Why is it necessary for the purpose and how does it achieve that purpose?

The primary purpose of this resolution is to increase the deduction falling to be made by a purchaser of development land from 15 to 30 per cent on a consideration. The resolution will, in addition, during the period in which it has statutory effect limit the right to obtain a clearance certificate by imposing a condition that such a certificate may not issue in respect of disposals of development land made after today unless a tax payment of 30 per cent of the consideration for the disposal is made to the Revenue. The Finance Bill will make adequate provision for giving relief in cases where the tax paid at the rate of 30 per cent is found to exceed the tax payable under the proposed new regime for disposals of development land.

I am somewhat confused. When Deputy McCreevy spoke earlier the Taoiseach said that this resolution, if passed, would leave the option of a tax at 40 per cent or 50 per cent as appropriate but that the other option was that the date would be determined by the Finance Act. Did I understand the Taoiseach correctly?

No. The operative date is tomorrow in all cases.

Do I understand that if this resolution is passed any transactions after today will bear tax at the rate of 40 per cent or 50 per cent as appropriate?

Yes, provided it is confirmed in the Finance Act. The only way it can be received is by the Finance Act but this will enable us to ensure that the provision in that Act will be effective.

If this financial resolution is to assist in this objective, why is it that nowhere in the resolution do either of the tax rates contemplated appear?

As long as it is in the Finance Act, it will be operative from tonight.

Do I gather that this resolution is redundant? What does this do which the Finance Act could not do if the resolution were never passed?

It enables the Revenue Commissioners in advance of the Finance Act to deal with these transactions and make sure that they do not evade the 50 per cent tax which will be provided for in the Finance Act.

Will the Finance Act make retrospective provision for taxation of transactions after tonight?

One could say that but it will not be retrospective in so far as it is being announced tonight.

My reading of this is not what the Taoiseach has said.

The only effect of this resolution is that 30 per cent of the sale price of development land will be withheld after tonight. Prior to this there were different regulations. My interpretation of this resolution is that it does not impose any of the rates and it is just a device to withhold 30 per cent of the price of development land.

That is correct.

The rates will be imposed by the Finance Act.

It enables the rate which will be imposed by the Finance Act to be effective from tonight.

Yes, because it might not be possible to recover moneys from people who dispose of land after tonight, non-residents, for example. The purpose of this resolution is not to impose rates but to enable this withholding payment to be made. Am I correct?

Absolutely.

I am a member of Dublin County Council and during recent weeks we have rezoned 1,436 acres in our development plan. One would want to be a very poor speculator in development land not to appreciate the identity of the original resolution put forward by the previous Government with an operative date of 28 January and the resolution now put forward with an operative date of 26 March. One would have completed all one's transactions long before tonight and I have no doubt this has happened. That is why I strongly query the anticipated yield from this measure in 1982.

I am glad the Deputy raised that because Deputy Fitzpatrick and others have been suggesting that there will be lesser returns from capital taxes under our budget than would have been the case under the January budget. That is not so.

That is what the Minister said.

No. The overall return from capital taxation in the full year as a result of our budget will be £11.7 million as against £11 million in the January budget. That would be in a full year but naturally we have lost because one does not know what transactions took place between January and today. I would be reasonably confident that increasing a tax on development land from 45 per cent to 50 per cent would more than compensate for any transactions which might have taken place since January, particularly when one adds in the new provision for a 60 per cent rate of tax on capital gains within 12 months.

I am glad the point was pressed by Deputy McCreevy and myself because the Taoiseach had unintentionally misled the House and subsequently sought to prevent us from pursuing the matter further by saying we should take it on trust that what he had said was true. It turned out that what he had said was unintentionally incorrect. It shows the importance of probing these matters. I would now inquire in what way withholding 30 per cent of the money ensures that a non-resident who carries through a transaction, winds it up and gets out, pays 50 per cent or 60 per cent? I do not understand the logic of this. I can see that if one insists that 30 per cent rather than 15 per cent be withheld one is better off but it does not achieve the objective of 40, 50 or 60 per cent if the man gets out in time.

The rate is regarded as appropriate.

It was said that the effect of this resolution was to ensure that the tax would be paid in the case of a non-resident who wound up his affairs and left the country. It does not ensure anything of the kind because only 30 per cent would be paid instead of 15 per cent.

That would be 30 per cent of the consideration. Profit is a different thing. It would be an extraordinary transaction if 30 per cent of the price did not more than cover 50 per cent.

I take it that our provision that indexation should not apply beyond the agricultural value of the land will still operate.

That being the case, if there is no indexation land could well have been purchased at a tiny fraction of today's price and sold for a figure many times over the value of the land. In that case 30 per cent of the value of the land would not represent a capital gains tax of 50 per cent or 60 per cent. It does not follow.

It was 15 per cent and that was regarded as adequate when the rate of tax was 30 per cent; therefore 30 per cent should be adequate when the rate of tax is 50 per cent.

No, because we are now introducing a tax in which there is no indexation. Once you remove indexation in respect of the value of the land over the agricultural value, the capital gain in money terms can become many times greater through inflation and therefore the amount involved for capital gains tax to be paid even at the same rate— never mind increasing the rate—would be many times greater by virtue of that alone. Increasing the rate from 15 per cent to 30 per cent does not in any way keep up with the impact of the increase in the tax following from the abolition of indexation and the increase in the rate.

There is nothing to suggest that the rate of 30 per cent would not be adequate. It would be very draconian to go beyond 30 per cent of the consideration in the case of these transactions. If the Revenue Commissioners suggest that it is not enough it can be changed in the Finance Act.

We have moved a long way from the situation in which we started. It now transpires that this is a minor measure which will withhold part of the payment to ensure that someone does not disappear with the money, but it will be a smaller proportion of the capital gain, in view of the abolition of indexation. The first half hour of the debate has been based on a misconception.

The Minister for Finance in his statement today said that this will be applicable as from tonight. As the Deputy knows, that is now regarded as sufficient to get you out of the retrospective legislation trap. The statement by the Minister for Finance and this resolution make it possible. The 50 per cent tax will be applicable as from tonight on profits from development land.

Nothing in this resolution has any impact on the retrospectiveness of the legislation. That part of the Taoiseach's statement is incorrect. Taking him on his first point, that the Minister's statement enables the tax deductions to be retrospective, I must ask the Taoiseach because of the likelihood of a number of transactions in the interval, why the date in the resolution is not 28 January in view of the number of transactions that have occured since that date? By making it 26 March instead of 28 January, anybody who has known of this has had an opportunity to defeat this. The failure to maintain that date in this resolution has enabled people to get away with it by closing transactions in the meantime.

I doubt if that would stand up. The January budget did not go through. Apart from that there is the fact that we are increasing the rate to 50 per cent from the January budget figure of 45 per cent. That is to make up for possible losses in the interval.

The Taoiseach is telling us that the announcement of it by the Minister—the budget has not gone through yet, though it probably will — is sufficient to save this legislation. But a similar announcement was made by Deputy Bruton on 28 January in respect of a tax on development land.

It never went through.

This has not gone through yet. Is the Taoiseach telling us that the announcement alone saves the legislation?

With this resolution.

The Taoiseach has not explained what this resolution has to do with the retrospection or non-retrospection of this legislation. The assertion that it has, has not been backed up. Unless the Taoiseach has something to add, we can forget about that part. Will he agree to substitute 28 January for 26 March? The Taoiseach has said that the giving of the notice is sufficient.

I did not say that. I referred to the combination of the Minister's announcement and this resolution. I said that would get over the matter of retrospection. It will enable the Revenue Commissioners from tonight to give effect to this punitive provision about depositing 30 per cent of the purchase price. That gives it legislative effect straight away.

How does that enable action to be taken to impose a tax of 50 per cent with retrospective effect from today given, as I have pointed out, that this 30 per cent would be less than the amount of the tax due? I am not complaining about that, but this provision does not enable the Revenue Commissioners to collect in every case amounts necessarily equal to the 50 per cent. Because it does not give that power, in what way does it save the Finance Act becoming retrospective?

I am satisfied. The precedent is sufficiently well established that the announcement by the Minister for Finance in his budget speech and the subsequent legislation in the form of the Finance Act get you over the constitutional difficulty in regard to retrospective legislation.

Will the Taoiseach explain again how this will have any retrospective effect?

The Minister's statement and the resolution give legislative effect to this provision. The two should be sufficient to enable the provisions of the Finance Act to be retrospective to tomorrow.

We are entitled to be told how what we do here will be effective and how it will operate. I have asked repeatedly in what way this resolution will produce the effect of making nonretrospective legislation retrospective in respect of a tax of 60 per cent when the amount being withheld could be very much more. Will the Taoiseach please explain in what way the resolution will have that effect? It is no good going on asserting it. It must be explained to the House before the House passes it.

This resolution is quite clear to me. It states clearly and sensibly that the deposit to be paid is based on the consideration of the sale of land. No matter what the price of the land, 30 per cent of the price will be immediately whipped away to the State. I would imagine that 30 per cent of the sale price of land would almost certainly be enough to cover 50 per cent or 60 per cent of the profit on the sale of land. It appears to me to be crystal clear.

Deputy Brennan may not have been here earlier. We are talking about a capital gains tax without indexation. The land could have been bought 30 or 40 years ago for some hundreds of pounds an acre and sold now for tens of thousands of pounds per acre. The profit on that could represent 95 per cent of the amount, and 30 per cent of that would not yield a general rate of tax of 60 per cent. I may misunderstand matters of legality in this respect but perhaps the Taoiseach would explain it to me.

My understanding of this resolution is that indexation tapering relief is being done away with. That relief allowed that if a person had an asset for longer than 21 years he did not have to pay tax and if he had it between zero and 21 years he paid on a sliding scale. Indexation tapering relief is applying the inflation index to the price of land. Under this resolution indexation relief will be continued for the existing use of land.

Let us take an extraordinary situation. If land was sold for £100,000, this resolution would enable the solicitors to hold £30,000 and after tonight that money would be held as a deposit on foot of final liability of the capital gains tax. When the computations are made the capital gains tax may be far less. For the full sum of £30,000 to be paid as tax the profit on the land would have to be greater than £60,000. That still would not relieve the taxpayer of his liability to pay capital gains tax. This resolution enables solicitors to hold money in case the sellers abscond without paying tax.

So far as I can see, the question of 28 January and 16 March does not arise. It is only from tonight that money will be withheld. Money which has been paid out during the last two months cannot be withheld. The date in the Finance Bill will be the relevant date for the disposal of the land. We seem to be talking at cross-purposes. It is possible that the finance legislation could say that all disposals paid after last November should be brought in. It is the date in the Finance Bill which will determine what disposals will come within the ambit of this new capital gains tax legislation.

In years past the Revenue Commissioners went back to the date the tax was originally announced because to do otherwise could give some people an unfair advantage. Perhaps the Taoiseach could assure me that my understanding of this resolution is correct.

Deputy McCreevy finally demolished the Taoiseach's argument very effectively when he said that this resolution has nothing to do with the question of retrospectiveness. As he pointed out, it is irrelevant. This resolution relates to the withholding of money from now on and to safeguard——

On a point of order, this resolution is exactly the same as that brought in by Deputy FitzGerald when he was Taoiseach and by Deputy Bruton as Minister for Finance. The only change is the date and the amount.

If the Taoiseach would listen to my argument. He is not very receptive. I will take my argument stage by stage, carefully and slowly because it does not seem to have sunk into the minds of the Deputies on the other side of the House. First, I want to tell Deputy McCreevy he is wrong in saying that indexation relief is to apply and only tapering relief is abolished. That is true of capital gains tax generally but in our budget we did not allow indexation in respect of the appreciation in the then existing use value on the date on which the gain was computed. I want an assurance that this will apply also to the tax now being introduced. Therefore there is not indexation in respect of the existing use value, only its agricultural value.

I want to know what Deputy FitzGerald is attributing to me. Indexation applies to the current use value of development land, as was in his resolution and is in our resolution.

Obviously I have to use words of one syllable. Deputy McCreevy suggested that indexation relief applies fully and only tapering relief was being abolished. I want to point out that he is confusing two things. In this case indexation relief applies only to existing use value, that is agricultural value. Consequently the whole of the increases in the value of land arising from urbanisation, which could be 90 per cent or 95 per cent, becomes liable for taxation at 60 per cent. Therefore the 30 per cent withholding does not give a guarantee that one can achieve the 60 per cent amount in respect of somebody who completes a transaction and is now out of the country.

As Deputy McCreevy properly argued, this resolution has nothing to do with retrospectiveness. Having got that out of the way—that the resolution is irrelevant — the question is, from what date should this tax apply? What I have been proposing here for the last half hour is that it should apply from 28 January. If it does not, as Deputy Desmond pointed out, many people — given notice by our budget of the intention to impose this tax and nothing said by Fianna Fáil during the election suggested a contrary intention in this respect — will have carried through transactions and by virtue of being given notice and the budget being defeated they will have prevented the State from acquiring revenue which it is entitled to and would have acquired if the budget had not been defeated. I propose that the effective date should be 28 January to cover the problem of avoidance arising from the defeat of the budget.

This resolution has nothing to do with the question of retrospectiveness, as the Taoiseach said, the mere announcement by the Minister of his intention is sufficient to get over that problem, and as the previous Minister announced his intention at the time, it is clear that constitutionally, on the basis of what the Taoiseach said, if we insert 28 January there is no constitutional problem in respect at least of the amount of taxation we then sought to impose. I suggest that the taxation be imposed from 28 January to 26 March at the rates we proposed and from 28 March at the proposed by the Taoiseach. In that way we will get over the problem of avoidance which Deputy Desmond pinpointed nearly an hour ago and which I have been trying to get at since. I think we have now disposed of all the arguments and I ask the Taoiseach to accept my suggestion.

I think Deputy FitzGerald is unnecessarily complicating this matter. It is clear from the resolution that the 30 per cent of the sale price in normal circumstances would cover the profit.

Deputy Brennan is not following the discussion and he is not helping us. Only the agricultural value is indexed and that is only a tiny part of the total. The rest is no longer indexed for the purpose of this tax. In the case of urbanisation, land development or sales in areas of, say, County Dublin, the bulk of the capital gain made on a transaction by somebody who has held land for several decades will now be liable for tax. At 60 per cent that would be a sum far in excess of 30 per cent of value. That is the fourth time I have said that and I hope it is clear.

I am saying this because this resolution has no necessary relationship to the question of retrospectiveness. Therefore we come back to the Taoiseach's statement that the announcement by the Minister for Finance of his intention to impose the tax of itself gets over the constitutional obstacle. I propose that the tax should be imposed from 28 January at the rate we proposed and from 26 March at the rate he proposes, so that nobody would have got away with anything because of the accident of the budget being defeated.

Is there any prospect of the Taoiseach giving an assurance to the House that the Finance Bill will contain the necessary retrospective date — 28 January? We are dealing with the tax treatment of development land. I am speaking as one who was last year's chairman of Dublin County Council and in the knowledge that in the course of the draft development plan we have rezoned 1,453 acres from agricultural use to industrial, commercial and residential use. Tomorrow there will be before use at a meeting of the county council proposals which would bring in from agricultural use to development land purposes 1,000 acres of land in the south Dublin fringes and also 2,500 acres stretching from Poppin-tree to Kilbarrack. I have got to know County Dublin during the past 20 years or more and I know what people who own agricultural land stand to gain from such rezoning. I have estimated that on the treatment proposed from 28 March to 26 July the yield to the Exchequer will be about £600,000——

Plus 5 per cent.

—and that as the Taoiseach knows is the equivalent of the value of about 20 acres of development land. This is the sort of farce that we are talking about in the context of the legislation that we are trying to introduce tonight.

On 27 January Deputy Bruton presented a very careful statement to the House. He estimated that on the treatment proposed then the yield to the Exchequer would be £1.5 million in 1982. He gave instances relating to indexation relief being allowed. All I am saying here is that while the motions are similar the change of date is a very important factor. The people we are talking about, that wide spectrum who have invested money, are very active and know the difference between one date and another. They know exactly what to do. The only way of containing that situation is for the Taoiseach to agree to what we are proposing and on that basis we would be happy with the resolution though we have grave reservations about the discretionary trust aspects that are not in the Resolution but which will be in the Finance Bill.

I have no objection to this tax applying to development land between January and now. It may well be though that it has to apply only at 45 per cent. Therefore, we would have to have two rates, one rate between January and March and another from March onwards but that is all subject to legal advice regarding how such provision would stand up in the Finance Bill.

It was worthwhile having the discussion from the point of view of getting that assurance. I would merely suggest that we amend the date here to read 28 January. The Taoiseach has said that this resolution is identical with the one tabled in January. I do not have the January resolution before me but if both resolutions are identical there can hardly be any problem about retrospection. Since the resolution was before the House then people have been on notice.

My understanding of the constitutional position is that we cannot create retrospectively a criminal offence. In other words, if something that I do today is subsequently declared by the Oireachtas to be a criminal offence I cannot be charged retrospectively with such offence but I am not aware of anything in the Constitution which prevents retrospective taxation.

I do not know about the constitutionality of that but there has grown up the tradition that in order to be operational the provision must be in a statute or must be effective from the day on which it was announced.

What is the basis of the suggestion that a mere announcement by a Minister for Finance overcomes the suggested difficulty?

I do not think you can have retrospective legislation but I am sure that it is not possible to have retrospective taxation. However, so far as I know both here and in Britain there has grown up the convention that that problem can be overcome if the legislation is retroactive to the date of the announcement in Parliament.

Is the Taoiseach aware of any precedent for that?

While I cannot quote any such precedent, I am sure there are plenty.

In the light of that, would the Taoiseach agree to amend the date of the resolution?

I cannot do that.

It might run out. It can last only four months. In any case I do not think that it is necessary.

Is it not the case that the Finance Bill will have to be through by the end of May anyway?

My advice is that it could be dangerous to backdate the resolution. What we are talking about now is the operative date in the Finance Bill on which the tax will apply. This resolution deals only with the withholding question.

Why would it be dangerous to backdate? I take the point that the period might run out but must not the Finance Bill be through by the end of May.

The resolution cannot be backdated because it can have effect for only four months. This means that it could cease to apply before the Bill was passed.

By when must the Bill be passed?

July. The existing 15 per cent applies in the interim.

The Taoiseach is probably right about the later date for the passing of the Finance Bill having regard to the late date of the budget. Therefore I can see that there could be a problem there.

Regarding the questions about the constitutionality of retrospection, so far as I remember, Mr. Ryan when Minister for Finance, on being asked the maximum time in which one could have unlimited interest set against taxable income, said that the applicable date was the date on which the provision was announced. Therefore, there is ample precedent for what is being suggested. In order not to give people an unfair advantage we should make 28 January the date of the resolution.

But the rate could be only 45 per cent between then and now.

I would agree with that.

I wish to make just one point for the record. I am concerned with the decision in respect of discretionary trusts. I hope it will be understood fully by all Members of the House that the anti-avoidance legislation that was introduced was for the purpose of dealing with cases in which people abused discretionary trusts by way of putting money into a trust so that when a death occurred, despite all the children being adult, no capital acquisitions tax was paid. There is avoidance on a large scale, a scale which can be seen from the figures given in the budget proposed in January and by the loss of capital taxation by way of the dropping of discretionary trusts. I hope Deputies are clear that, in voting for this budget, they are voting for the dropping of an anti-avoidance measure which would bring in substantial sums of money, would bring in three-fifths of the total amount this year that would have come in capital taxation.

That is not so.

What is now proposed in dropping it is to get rid of most of the additional capital taxation brought in in January in our progressive budget. I hope Deputies are clear that in voting for this budget they are voting for the abolition of the bulk of the capital taxation we brought in. When Deputy Sherlock was speaking I had the impression that he thought this budget was having the opposite effect. This is a budget of remission of capital taxation. It is a budget to help the tax avoiders, to help the people who have put money into discretionary trusts, not for legimate reasons because there is a question of infant children whose interests have to be protected, but in order to avoid capital acquisitions tax being paid on death and when all the survivors are adults, so that they will never pay capital acquisitions tax.

That is not in Resolution No. 1.

That will avoid it completely.

I must draw the Deputy's attention to the fact that he has now departed from Resolution No.1.

I am sorry. I merely want to add that this provision is not unexpected. Some weeks ago I was informed that during the campaign an assurance was given on behalf of the Fianna Fáil Party that if elected they would get rid of this discretionary trust legislation because of the effect it would have on some of their supporters. I was expecting this to happen. It will be interesting to see certain Deputies voting for this provision.

That is not relevant.

At the risk of being out of order I reject everything Deputy FitzGerald is saying. It is a travesty of the position. What he is saying is not true, and he knows it is not true.

It is not relevant to Resolution No. 1.

It is something I was told weeks ago. I waited to see if it would happen and it did.

It is not relevant to Resolution No. 1.

Deputy FitzGerald is becoming very adept at throwing in these sort of scurrilous accusations without being able to back them up. I will disprove another scurrilous accusation he made if I am put to it.

The fact is that the Government dropped this tax.

We did not drop it.

We must leave this because it is not relevant to Resolution No. 1.

It is more relevant to this than to anything else.

In what way is it not relevant?

It is not relevant to Resolution No. 1.

With profound respect——

I have now made a statement to Deputy Desmond and he cannot question it. Is Resolution No. 1 agreed?

On a point of order, this resolution relates to the question of development land and, in so far as development land is an integral part of many aspects of discretionary trusts, it is entirely relevant.

I have ruled that it is not relevant to Resolution No. 1. The Deputy may not question that ruling. If he persists, I will have to declare that he is being disorderly and ask him to leave the House.

I do not want to——

Will Deputy Desmond resume his seat?

Under protest.

I am asking Deputy Desmond to resume his seat.

It is an outrageous ruling based on absolute ignorance of the resolution.

Question put and agreed to.
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