Dáil Éireann debate -
Tuesday, 8 May 1984

Vol. 350 No. 1

Finance Bill, 1984: Committee Stage (Resumed).

SECTION 11.

Mr. O'Kennedy

I move amendment No. a26a:

In page 15, subsection (1), lines 42 to 44, to delete the definition of "associate" and substitute the following:—

"‘Associated' has the same meaning in relation to a person as it has by virtue of section 103 (3) of the Corporation Tax Act, 1976, in relation to a participator except that ‘relative' in that subsection shall not include a brother or sister;".

During the course of debate on Second Stage, I put forward a number of amendments with a view to clarifying the regulations introduced in this new scheme and also to ensure that they could effect the purpose of maximum participation in new share issues under the scheme. As I indicated on Second Stage, this amendment is one which would allow brothers or sisters to participate who, under the proposal, are automatically excluded from participating in the taking up of shares in this new investment scheme. I indicated that there could be no basis for excluding a brother or sister, as such, who would have no association with the company other than that relationship. A brother or sister carrying on business or living in another part of the country should not be implied to have such an association within the meaning of this Bill. Otherwise a concept could be introduced into this provision which will be unduly restrictive, like so many others to which I shall be referring in the course of this debate. In this amendment I have not asked that this exemption apply to sons or daughters, fathers or mothers, or any lineal ancestor or descendent such as grandparents and grandchildren. My only reason for not doing so is that it would involve a complex amendment and would add to the unreasonable and unnecessary complexity of this Bill and of this section. At the time available to me I was not able to formulate an amendment to exclude parents or great-grandparents. These people should not, by definition, be prevented from participating in the scheme which may be promoted by a company with which they are only associated by their relationship to the promoter.

Minister for Finance (Mr. Dukes)

If I might, before addressing myself to the Deputy's question, say a word about a proposal I have to make in relation to the Bill which has not been covered by the agreement reached, I wish to give notice that I intend to put forward on Report Stage amendments to Part 1 of the Bill which have been discussed on Committee Stage. Those amendments concern secttion 43 in relation to farming stock relief and two amendments in relation to section 39, one on the film industry and one relating to the chartering of ships. I mention this because those sections are not scheduled for discussion under the agreement.

Mr. G. Mitchell

Under section 11, "qualifying trading operations," is either manufacturing in respect of which a company is entitled to relief from corporation tax under Chapter VI of Part 1 of the Finance Act, 1980, or the rendering of services in respect of which employment grants were given by the IDA under the Industrial Development (No. 2) Act——

Mr. O'Kennedy

I would point out that we are not discussing the section yet and I have a whole series of amendments on the section. If the Deputy is to be allowed to make a general point on the section when we are dealing with merely one amendment, we shall never get through this unduly complex Bill.

An Ceann Comhairle

There is only one amendment on this section.

Mr. O'Kennedy

There are more, but we are on the amendment at this point.

Mr. G. Mitchell

Which amendment? The monitor does not show any amendment.

An Ceann Comhairle

That is the only one.

Mr. O'Kennedy

In my name.

An Ceann Comhairle

There is one amendment on this section that has been served and that is amendment No. a26a.

Mr. O'Kennedy

That is what I am saying. Could we deal with the amendment first of all and take up the issues on the section?

Mr. G. Mitchell

I would agree with that, but the Deputy should move his amendment.

Mr. O'Kennedy

I moved it.

An Ceann Comhairle

Deputy O'Kennedy has moved the amendment and that is the only matter that is before the House for discussion at the moment, amendment a26a. When we dispose of that we will take the section.

Mr. G. Mitchell

The Order of Business quite clearly shows section 11. There is no amendment whatsoever.

An Ceann Comhairle

I called the amendment.

Mr. G. Mitchell

I will make the point at a later stage.

An Ceann Comhairle

Is the amendment pressed?

Mr. Dukes

I would like to indicate to Deputy O'Kennedy why I oppose the amendment. While I can understand the point he is making, section 14(2) of the Bill specifies those groups of people who would not be entitled to the tax relief provided for in this part of the Bill. The purpose of Deputy O'Kennedy's amendment is to exclude a brother or sister from that list of associates and consequently to enable those people to invest in the firm and to get the tax relief. The difficulty is that, were we to act in the way in which Deputy O'Kennedy suggests we act, it would be possible for an individual to channel investment through his brothers or sisters and thereby gain a relief on investment of an amount that would be considerably in excess of that for which we have provided in the Bill. For that reason the excluded persons are as they are in the Bill. I have given this a good deal of thought and I find that, given the kind of scheme it is, given our intention that we want to get new capital into companies and given that the relief is, I believe, rather generous, I could not accept the Deputy's amendment because it would open up too many possibilities and, let us say, exploitation of the relief in question.

Mr. O'Kennedy

It would be possible for any individual to channel investment through any person if that was his intention. Brothers or sisters as such should not be excluded. I do not think that any of us is unaware of the fact that many brothers and sisters have no association, good, bad or indifferent, with what their brothers or sisters are promoting. I think it is an unreasonable restriction, but if the Minister cannot see his way to accepting it then I must accept that as being the case. However, I think it is to be regretted and that it is extending a principle which does not apply elsewhere.

Acting Chairman (Mr. Prendergast)

Is the amendment withdrawn?

Mr. O'Kennedy

It is not being pressed.

Amendment, by leave, withdrawn.

Section 11 put and agreed to.

SECTION 12.

Acting Chairman

Amendments Nos. 26a, 26b and 26c will be taken together by agreement.

Mr. G. Mitchell

Are we going on now to section 12 and leaving section 11 altogether?

Acting Chairman

The section is agreed.

Mr. O'Kennedy

I move amendment No. 26a:

In page 16, subsection (1) (c), line 37, to delete ", and it appears".

Here we are dealing with three amendments together and I would like to outline briefly the intention here. These amendments relate generally to the role of the Revenue Commissioners and again it is an attempt by us to make this scheme workable without undue interference, so to speak, or unnecessary inquiry on the part of the Revenue Commissioners. Let me deal with each of them in turn. The first one is to delete the words "and it appears" and each amendment refers to section 12 (1) (c) which at present requires that:

(c) the company provides satisfactory evidence, and it appears to the Revenue Commissioners after such consultation, if any, as may seem to them to be necessary with such person or body of persons as in their opinion may be of assistance to them,...

I am proposing that all of those words go out, and we will be left then with a provision of the following nature: "and the company provides satisfactory evidence to the Revenue Commissioners that the money was being used or is being used or is intended to be used with a view to the creation or maintenance of employment in the company". In amendment No. 26c, which is included in what we are taking together, I am proposing that all of the other unnecessary qualifications which are included here, and which are very complex, should be excluded, and we would wind up on my proposal, the proposal of Fianna Fáil, with a very effective, simple, transparent provision which would read as follows, and I will read it finally on the basis that anyone in or outside the House will understand, which is in sharp contrast to the position at the moment: "that the company provides satisfactory evidence to the Revenue Commissioners that the money was used, is being used or is intended to be used with a view to the creation or maintenance of employment in the company." That is the purpose of the scheme, to create and maintain employment. All of those other qualifications introduced at this stage by the Minister, like many other qualifications he has introduced elsewhere in the Bill, make it so unnecessarily complex as in our view to defeat the very purpose for which the Bill was intended.

The need to maintain or create employment has never been so obvious than it is at this stage. We have just seen reports from the Central Statistics Office that indicate the level of job losses up to September last year. We have had 30,000 redundancies notified to the Department of Labour. The number of people unemployed increased by 33,000 in the last 12 months and we have had forecasts that it will be up to 20 per cent of the labour force at the end of, say 1987 if this Government were to last their full term. Incidentally we have also clear indications of something about which we will hear a great deal more very soon, that something that we thought was a historical characteristic in this country is now a matter of very pressing concern. I am referring to emigration. The unemployment figures today would be much worse were it not for the fact that emigration, unfortunately, has started again as is evidenced from reports from the Irish Centre and Irish communities in England and elsewhere.

Mr. Dukes

On a point of order, I wonder what connection the statements by the Deputy have with the amendments we are looking at. We have agreed a series of timings for the consideration of different sections of this Bill and I am quite anxious to facilitate the Opposition in every way in dealing with those amendments.

Acting Chairman

The point of order is accepted. I ask the Deputy to confine himself to the technical aspects.

Mr. O'Kennedy

The purpose of any Bill, even the technicalities, is to have an effect. The effect of this scheme should be to encourage investment for the creation and maintenance of employment. I want to see it as simple and transparent as that and I am giving the reasons why that is absolutely essential.

I do not intend to go into great detail but these figures are important to underline the need to promote investment which is falling dramatically and is now at a level of about 22 per cent of GNP, the lowest it has been for about 15 years. In view of those factors, rising unemployment, falling investment and the surveys from the Department of Labour and the Central Statistics Office, which underline that the manufacturing industry particularly is at the lowest level of employment, even lower than it was in 1966, it is essential that we make this scheme work. I welcome the scheme. I called for it throughout the last 12 months but I wanted much more than the Minister has seen fit to introduce. I called for it without restrictions of a kind which will make it ineffective. It is for that reason that I am proposing at this stage that we should not have the restrictions which are introduced here in relation to consultation with the Revenue Commissioners and also all of the other qualifications that are in subsection (1) on pages 16 and 17.

I would like to say in relation to the consultations with the Revenue Commissioners, which I propose to delete, that if I am requiring that the company provide satisfactory evidence to the Revenue Commissioners is that not enough? They already have a function. It must be satisfactory evidence. The Minister wants to have it that "the Revenue Commissioners — I am trying to delete this as well — after such consultation, if any, as may seem to them to be necessary with such person of body of persons as in their opinion may be of assistance to them" ... We can all see what will happen there. If it is written into the Bill public servants, particularly the Revenue Commissioners, feel that means they should get in contact with AnCO, the IDA, SFADCo, the local development authority and the local county development team to really feel they have had the consultations which the Minister provides for in the Bill.

I do not believe that is necessary. I have enough confidence in the Revenue Commissioners normally without requiring them by implication to engage in all these consultations. I believe that what will meet the needs of this section is simply that the company provide satisfactory evidence to the Revenue Commissioners, that the money was used, is being used or is intended to be used for the creation or maintenance of employment in the company. Even the most ill-informed potential investor will know exactly what that means and will not have to go through all types of channels and consult with professionals to find out if his particular idea can be implemented. I did not go through all the details the Minister has in this section because if I did I would only confuse the issue. I believe that what I have suggested will meet the needs.

Mr. G. Mitchell

It will be interesting to hear what the Minister has to say about this particular suggestion. I do not believe it will make a great change on the practical implication of this suggestion. In view of the fact that this is a similar scheme to the business start-up scheme of 1981 in the UK, are such words and such terms included because there has been a lot of abuse particularly in the earlier years in relation to the scheme in the UK? Has the Minister taken the necessary steps to ensure that the amounts so used are for the purposes for which the section wants them to be used, that is to create investment and employment? We should be careful that we are simply not opening up an avenue for people who have been considering their bond-washing activities to reinvest their funds somewhere else.

The purpose of this is very clear and I presume the proposed wording is to ensure minimum abuse. Will the Minister ensure that where employment and investment is achievable the Revenue Commissioners will take a positive view and that we will not be putting unnecessary obstacles in the way of people? If we can get people to invest their own funds through the section in employment and in necessary investment in business it will be a very welcome thing. Will the Minister ensure, while we have the necessary restrictions to stop loopholes and abuses, that we do not through the implementation of the scheme, put unnecessary obstacles in the way of such people? It can take from the whole scheme if that happens. It is really a question of balance. The Minister's comments on the words "as it appears to the Revenue" will be very interesting to hear.

Mr. O'Dea

Acceptance of our amendment would involve simple and straight-forward legislation whereby people would be encouraged to invest for the reasons for which the Bill has been brought in, in the first place. If too many qualifications, restrictions and verbiage are put into a Bill you create more traps for the unwary. What about the situation under subsection (3) on page 17 where one of the purposes is to enable the company to identify new markets. Suppose the company identify new markets which subsequently turn out to be unsuccessful because they cannot sell to those markets. There are various traps like that for the unwary in the Bill which may result in the relief being withdrawn. I would like to ask the Minister a question in relation to lines 13 and 14. The investment must take place with a view to creating and maintaining employment in the company. What about the situation where the company use the money so invested to maintain half their labour force if they are contracting?

Mr. Dukes

As usual Deputy Mitchell has hit the nail right on the head. The intention of the scheme as it is drafted in the Bill with the amendments which I have to other sections, which I do not intend to go into at the moment, is to have a scheme that will assist us in giving an incentive to people to put new capital into developing companies with a view to the overall expansion of those companies without running the risk of seeing some of that new capital made available as a result of this relief being frittered away into unproductive activities or activities which do not create employment. As Deputy Mitchell said, we have had before us the experience of the UK system where a very broadly written system, and one that was possibly far too simple in its original expression, proved over the time to be subject to abuse and also proved in some instances to be simply a vehicle for giving tax relief to people who were involved in activities, while they were legal, economic and all the rest of it, which did not have the effect we are trying to get here, of increasing employment and improving the situation in the firms concerned. That has been my main concern. As I said on Second Stage, we are aiming to target this measure very precisely in order to get the effect we want. That is the intention of the drafting of this particular section.

As far as Deputy O'Kennedy's amendments are concerned, the first two amendments have to do with subsection (1) (c) of section 12. We provide there that the Revenue Commissioners, who are the people who have to decide at the end of the day on a day by day basis, if a given application for relief is admissible, should be able to get advice. That is why we provide for the consultation. The Revenue Commissioners are not investment analysts. They are not people who can say whether any firm will succeed but they are the ones who must say that relief in the case in question is either appropriate or otherwise. It is only reasonable that in the event of the commissioners having any doubt as to a firm complying with the criteria, they should be in a position to get advice from an outside source on a matter that is not properly within their remit but which must be decided before a decision can be made on the making available of relief. This is not intended in any way, nor would it be used, as an obstacle to the operation of the scheme. It is intended to give the commissioners the opportunity of informing themselves so that the scheme can be operated as it is intended to operate.

Deputy O'Dea raised a question in relation to line 7, paragraph 3, which is on page 17. This relates to the provision to enable companies to identify new markets and to develop new and existing markets. The question of what happens in the event of a bad debt and a company finding that they are not able to sell applies to the whole scheme. In the nature of things, we would have investments in the companies that do not pay off but we cannot know that in advance. What we are looking at here is what the intention of the investment is. We are not legislating for the success of the investors though we would hope that the maximum possible proportion of the investment would bring about the result we want. It is not in any sense a trap for the unwary in this tax year. We are not inciting people to make bad investment decisions. If people have funds to invest we are trying to encourage them to put these funds into companies that are involved in these kinds of activities.

In the light of experience with another scheme of this kind, it is reasonable that we should specify the purposes for which the investment should be used. Deputies will note that in that part of section 12 beginning on line 43 and continuing to the end, there are two conditions that must be satisfied simultaneously. One is that the money be used for one of the three purposes set out and at the same time that the investment take place with a view to the creation or maintenance of employment in the company. The kind of activities that we want companies to engage in seem to me to be reasonable in definition, to be reasonable and logical expressions of what we want companies to do and by extension to exclude those kinds of activities for which we do not consider this tax relief to be appropriate.

The fact of defining the activities excludes all others. In this we are building on the experience of the UK scheme where the investment funds were used for a number of purposes that did not add anything to the level of economic activity. We do not wish that to happen here because we want to mobilise available capital into productive activities that will increase output and employment. It is for those reasons that we have drafted the measure in this way. If we were to accept Deputy O'Kennedy's amendments, we would simply open up the possibility of a leakage from the scheme thereby rendering it less effective than we would wish it to be.

Mr. O'Kennedy

There are three points arising from the Minister's remarks. First, acceptance of my amendment would not, as I thought I made clear, prevent the Revenue Commissioners from obtaining necessary advice or from having consultations or discussions that would appear to be reasonable. My proposal is that a company provide satisfactory evidence to the Revenue Commissioners that the money was being used, is being used, or was intended to be used with a view to the creation or maintenance of employment in the company, whereas putting in the sort of details as set out in the Bill might lead to a potential investor, even if he has nothing to hide, saying this seems to suggest that the commissioners will consult with bank managers and with others in relation to the matter. Anything that seems to the potential investor to be an unnecessary restriction will be likely to damage the effectiveness of the scheme. That is why we must endeavour to concentrate on the position of the potential investor in terms of how he reads the legislation.

My second point is that my proposal would not prevent the commissioners from having consultations. Thirdly, what I am trying to achieve is that the scheme works effectively and transparently. I am not trying to encourage tax evasion. This should be clear from anything I have to say during the course of this Bill but we had better acknowledge from the start that one of the consequences of this scheme will be that a bona fide investor within the terms of the scheme will, by investing in companies such as the ones we have in mind, be in a position to reduce his tax liability. To that extent the provision is a means of avoiding a heavier tax liability. Therefore, we must acknowledge that a scheme introduced with a view to attracting people to invest so as to reduce their tax liability should not be so circumscribed by all kinds of restrictions that it would mean they have not the means available to them to invest because reducing a company's tax liability is something the Revenue Commissioners want to avoid.

Mr. Taylor

Is the converse not true in that if they were being allowed avoid tax they would have money to invest?

Mr. O'Kennedy

I have a certain sympathy at least with the consistency of Deputy Mac Giolla, for instance, who opposes every section of this Bill. It seems from what Deputy Taylor has said that this would be his view also. The view that I think Deputy Mac Giolla has is that either we go all the way and say there will be nothing to encourage people to reduce their tax liability although they may invest in business or industry——

Mr. Dukes

Reductio ad absurdum. That is nonsensical.

Mr. O'Kennedy

It is not.

Acting Chairman (Mr. Prendergast)

The Chair would ask Deputies to address themselves to the technicalities of the section. Deputy O'Kennedy, though not entirely unprovoked, is inclined to wander.

Mr. O'Kennedy

I, too, recognise that the scheme should not be abused. I do not wish the powers of the Revenue Commissioners to be limited but neither do I wish that unnecessary provisions be written into legislation which is already far too complex. The Minister referred to the experience in Britain where he says it was found there was an avoidance which was not intended. Consequently, we have here a lot of gobbledegook. The trend in this Bill has been to control and direct to such an extent that the child is being suffocated before it begins to grow. That is my concern. I hope the Minister can accept the amendments, as it is as much in the Government's interest as in the interest of the Opposition that the scheme should work.

Mr. Dukes

The Deputy is killing a good case by exaggerating. We are not suffocating anything. The scheme is designed to do something specific. The objective of the scheme is not to encourage people to invest in order to reduce their tax liability. It is to reduce people's tax liability in order to encourage them to invest.

Mr. O'Kennedy

It is the same thing.

Mr. Dukes

That is not so. Deputy O'Kennedy, because of the way he makes the point, is contributing to giving to the scheme a flavour that I do not wish it to have. Basically, the Deputy's heart is in the right place even if it is difficult to accept that on some occasions.

Acting Chairman

The Minister may be damning him with faint praise.

Mr. Dukes

It depends on the relative degrees of stoniness and he is miles ahead of me in that regard. The Deputy spoke about putting himself in the mind of the investor when looking at this section. However, in relation to this section, he should put himself in the mind of the company because the company have to give assurances to the Revenue Commissioners that their activities properly qualify for relief. The company want to attract funds and to show potential investors that they are a good proposition and that they think about the markets and so on. For that reason, the prescriptions we have in the Bill for the company are precisely the kind of things which the company would want to show potential investors whether they are getting tax relief or not on the money they invest. The Deputies opposite seem to be confused regarding complication on the one hand which they see as something which makes life difficult, and simplicity on the other which they see as something that facilitates operations. The provisions in this part of the Bill are not all that complicated when you read through them.

Mr. O'Kennedy

When you read through them.

Mr. Dukes

Exactly. In any of the discussions I have had — and I have had many — with people who are interested in this scheme and have spoken to me about it, I have not found any great clouding of their minds with detail or a feeling that it is unnecessarily complicated. I found considerable anxiety on the part of a number of those people to ensure that the scheme did not make the same kind of mistakes as were made in the UK scheme. We must target it properly so that we get full value from it. I am sure we all have the same objective in that respect.

Mr. G. Mitchell

I understand the effect of the Bill will be that amounts subscribed by a wife are deemed to have been subscribed by her husband. Could the Minister say whether subscriptions made by a husband and wife will be treated in the same way as they are normally treated for income tax where their allowances can be apportioned equally? The section says there must be investment in the company for research and development or various other matters and employment. I hope the Minister will lay greater emphasis on employment and that employment on its own will be sufficient for this section. I know Deputy O'Kennedy has an amendment of a technical nature and I am just making a very general point which the Minister might consider on Report Stage.

Mr. O'Dea

With regard to subsection (2), creation or maintenance of employment, does that cover a situation whereby the money is used to maintain a lesser labour force instead of going into liquidation?

Mr. Dukes

If, for example, a company with the assistance of investment made available under this scheme were able to maintain only a reduced workforce but conformed to the other criteria here, that investment would qualify under the scheme. With regard to Deputy Mitchell's questions, in relation to a husband and wife the maximum allowable subscription under the scheme of £25,000 applies to each spouse separately so that there could be two subscriptions of £25,000. Of course, the amount of tax relief they would get depends on the total income against which the allowances could be set. Deputy Mitchell also asked whether employment on its own would be sufficient. The answer is no because we want to ensure that the other things also happen and that the investment undertaken by the company would enlarge their capacity to undertake qualifying trading operations and enable them to engage in research or development, technological acquisition or to identify new markets. We are essentially talking about the development of either new companies or new activities in a company and all these other things must be essential parts of the activity we are trying to promote.

Mr. Taylor

It appears that the Revenue Commissioners are given a judicial function here to receive and consider the evidence and make a quasi-judicial decision on it. Would the Revenue Commissioners do that or would it be a delegated function to an inspector of taxes? Is it envisaged that there could be any appeal against that decision from a disgruntled applicant for approval of a scheme? In section 12 (a) from the point of view of the investor, there is a limitation to an individual as distinct from a company whereas, from the point of view of the recipient, there is a limitation of a company as opposed to an individual. Is it intended that a company which might wish to invest pursuant to this chapter would be debarred from so doing having regard to the fact that it is confined to an individual? With regard to a partnership, would the fact that they had not put the cloak of limited liability on themselves mean that they would be debarred from availing of any funds which might improve their business under this proposal?

Mr. Dukes

It is probably going a bit far to say that the Revenue Commissioners would have a judicial function in this respect. In this instance, as in any other, the Revenue Commissioners have to make up their minds whether a given claim for a tax relief is admissible under the terms of legislation. They have to make up their minds whether a particular application conforms to the conditions for the granting of that relief for individuals who invest funds in companies or, as we will see later in the Bill, through funds into particular companies. It is a relief designed to encourage individuals to invest in companies. The reason for keeping it like that is that we want to mobilise new investment. Normally, when we speak about companies that have investable funds, they are already looking around to make investments and are in a different situation from individuals. We want to draw forth from individuals funds which might otherwise be used for other purposes.

Mr. O'Kennedy

Has the Minister any objection in principle? Supposing a small company is doing well but, within the limits of its operation, it cannot find scope to reinvest for the development of employment within its own activity. The Minister is preventing such a company from investing in another company with which it has no association. He is distinguishing between an individual and a corporation, or a corporation sole for that matter, simply because it is a company. That is what I understood him to say.

Mr. Dukes

No, not at all. There is nothing in these sections of this Bill that prevents a company which has profits and cannot develop within its own activities from investing in another company. The very framing of the Deputy's question leads me to remark on something which is fairly common when we talk about a Bill like this. We are providing a new means to encourage individuals to invest money. We are not doing anything to change the situation of other sources of investment. A company that is now making profits and cannot find a way within its own activities——

Mr. O'Kennedy

Under the scheme. I do not need a lecture from the Minister and I will not take it from him. Is a company qualified or disqualified from investing in another company under the scheme?

Mr. Dukes

That is not what the Deputy asked.

Mr. O'Kennedy

That is what I did ask. The Minister cannot attribute to me a need to understand something I already understand. I read this in great detail and I have heard from people who are concerned to make the scheme work. Is the Minister excluding companies from investing in other companies where it would be helpful for the development of a second company to gather investment funds from whatever source, or is he distinguishing between investment funds of companies and individuals?

Mr. Dukes

For the purposes of this scheme I am distinguishing between investment funds from individuals on the one hand and investment funds from companies on the other hand.

Mr. O'Kennedy

I think the Minister is wrong.

Mr. Dukes

I want to provide a new encouragement for individuals to invest in particular kinds of companies. That is the purpose of this. We have a new addition to the number of reliefs available for individuals.

Mr. Taylor

I should like to probe this a little further as the person who first raised the point. From a logical point of view it is difficult to see the reason for drawing the distinction and the limitation of it to an individual. If the intent of the section is to turn non-productive funds into a productive purpose which will provide employment and the other things specified, what difference does it make whether the source comes from an individual or from another company?

Mr. O'Kennedy

Hear, hear.

Mr. Taylor

While it is true that a company has open to it the whole gamut of investment opportunities on the market place, they are all open to an individual also. A company might be very well endowed with funds which it uses in a non-productive manner by using bank deposits, or something of that nature. It might well be pleased to avail of the facility which is being thrown open by this section. It is difficult to see the logic of drawing a distinction and in leaving this investment opportunity open to an individual as opposed to a company if a company has non-productive funds.

The Minister did not deal with my second congruent point that from the receiving end of the investment it is limited to a company. The logic of that is equally difficult to see. Why debar from the benefit of this opportunity a business which is being run and built up by a number of individuals who have not decided to put the cloak of limited liability around themselves? On the wording here they would be debarred. It must go into a company. A partnership of two, three, four or five people working away and making furniture, or whatever, would be debarred. There may be a logic in that but, if there is, it escapes me. Perhaps the Minister can clarify it.

The Minister replied to the point I made about the Revenue Commissioners making a judicial decision by pointing out that it is comparable to other decisions the Revenue Commissioners make all the time on tax reliefs. That is correct, but when they make those decisions on tax reliefs and so on a person who is aggrieved by their decision may appeal to the Appeal Commissioners and in some circumstances to the Circuit Court. I wonder whether a person aggrieved at being refused this relief by the Revenue Commissioners would be entitled in like manner to appeal to the Appeal Commissioners or the Circuit Court as appropriate.

Acting Chairman

Is Deputy O'Kennedy pressing the amendment?

Mr. O'Kennedy

I am. The Minister has not replied to the points made by Deputy Taylor and myself.

Mr. Dukes

On the question of why limit the receipt of these funds to a company, it is part of the conventional wisdom — and perhaps we could analyse whether or not there is a good reason for it — that the development we are trying to encourage here is normally carried out by new companies starting up. The simple answer to Deputy Taylor's example of four or five people working together and making furniture, or whatever, is that if they want to have the benefit of investment funds made available under this scheme, they have only to incorporate. That is not very difficult to do. The advantage from the point of view of administering a relief scheme is that when it is a company it must comply with the various conditions and criteria set out here. There are the various relevant periods as described in the sections which we will be discussing later.

It allows us to construct a scheme which gives some reasonable framework for the investor to make up his mind as to whether this venture is one in which he should invest. If we were to apply the benefit of this to individuals, it would be far more difficult for the investor to make up his mind because he would not have the same controls, to use the word so beloved of Deputy O'Kennedy. He would not have the same controls and he would not be able to track it through in the same way as we do with a company.

Mr. O'Kennedy

It is the Minister who loves controls, not me.

Mr. Dukes

In the words of the Deputy's party leader, that was a sprat and he rose very nicely to it. It is a very enriching experience to go dapping like this in the waters.

Mr. O'Kennedy

The Minister is a great angler. I wish he were as good at promoting activity in the employment area.

Mr. Dukes

On the question of whether there is an appeal from a decision made by the Revenue Commissioners, if someone feels he has not been allowed a relief which he should have been allowed under the terms of the scheme, he can always have a further discussion with his inspector of taxes. I might add in passing that the other controls written in here would have to be looked at and would make it easier for the Revenue Commissioners to apply whether the relief should be given. They have more points of reference to use in order to judge the scheme. As to whether we should provide a specific appeal in relation to the reliefs, I should like to tell the Deputy that it is something I will have to consider a little more. If it appears to me that there is a lack in the provision here in relation to the appeal, I will come back to it on Report Stage. It is something I will take up with the Deputy between now and Report Stage to see if there is such a lack in the provisions.

Mr. O'Kennedy

The Minister did not tell the House why he had excluded companies from investing. He indicated why he was confining it to qualifying companies to be in receipt of investment funds but he did not reply to the point made by Deputy Taylor and I as to the distinction that justifies preventing small companies investing in other companies in the same way that individuals can. I asked the Minister to explain the logic of that limitation but, as far as I know, the Minister did not refer to it.

Mr. Dukes

I said it was deliberate that we wanted to provide here a relief to individuals to invest money in companies who might not otherwise do so. That seems to be a source to be tapped for investment funds that could be made available for companies. Taking the case quoted by Deputy O'Kennedy, if there is a company making profits that cannot find use for those profits in its own business there is not anything to stop the owners or shareholders of that company from drawing funds from it — by way of dividends, for example — and then individually investing that money with the benefit of the scheme. Equally, there is not anything to stop the company from making a bid or acquiring part of the shareholding of a qualifying company but without getting the benefit of the relief. I intend this quite simply to be a means under which we can attract individuals to come forward with investment funds.

Mr. O'Kennedy

I received a lot of representation from small companies who feel they could make a contribution through other companies because there is a limit to the development that can take place within their own companies. Some of the companies are family concerns. They want to participate, although maybe not to the same extent as individuals. The case made by Deputy Taylor and I is a reasonable one and I do not know why the Minister should for the first time make a distinction or impose a disability on companies that does not apply to individuals in terms of their right to invest in the scheme. However, if his mind is made up on that I will not argue any further.

Mr. Dukes

This is not the first time we have distinguished for tax purposes in regard to the way we treat companies and individuals.

Mrs. Owen

Is there any way the Minister can extend the scheme to include worker co-operative groups, such as the Liffey Trust, who are anxious to be involved in this? I do not know if this matter has been raised already.

Mr. O'Kennedy

That arises on a later section.

Mrs. Owen

We are discussing the type of people or companies who can invest and my point is relevant.

Acting Chairman

I should like to remind the House that we have 12 sections to get through in the next two hours. I am anxious to make progress. Is Deputy O'Kennedy pressing his amendment?

Mr. S. Brennan

I should like to raise a point on the section. On the question of giving relief, I should like to know if the Minister has considered the fact that because the relief is confined to the year in which the shares are issued a certain black market or trading in this type of relief is likely to grow up in the latter half of the year. There will be pressure before 5 April each year, perhaps in the last few weeks leading to that date, for funds to get the shares issued and tucked away and have the taxation concession nice and neat before the end of the tax year. Other provisions in the taxation law allow reliefs like this to be carried forward against income the previous year——

Acting Chairman

The Deputy seems to be wide of the amendments we are dealing with.

Mr. S. Brennan

On the contrary, I am referring specifically to section 12 which gives relief to the individual in the year in which the shares are issued. I am trying to be helpful.

Acting Chairman

We are dealing with the amendments. The section will be dealt with later.

Mr. S. Brennan

I am anxious to make the point to the Minister that a certain black market may arise unless he allows the relief to be carried forward. The attention given to projects when there is only ten days to go and an investment has to be made will be quite shabby because it will be very late.

Mr. Dukes

The problem to which the Deputy has referred is more likely to be one that will arise in the first year of operation of the scheme. I have considered it in detail and with people who intend to manage funds dealt with in the scheme. I am not so sure that it is as great a problem as some people believe. I think it is an initial problem. There is a provision in the way the scheme is written to provide that the funds invested should be invested as quickly as possible. There would always be a tendency for funds, other things being equal, to wait until late in the tax year for a few different reasons which will be dealt with in different sections of the Bill. In fact, there are some provisions in the Bill that would not be in it if we were not trying to deal with the problem raised by Deputy Brennan. Some complications inevitably will arise. It is not enough to say that this is too complicated.

On the point of the carry forward I would be against it because we want to ensure that we give a relief when entitlement to it arises. Entitlement to it is defined as the issue of shares. The event that gives rise to the entitlement is the acquisition by a company of the new capital and that does not happen until the shares are issued. If we are talking about funds investing, to make a decision on a fund there would have to be a closing date for the formation of the fund. A fund manager will decide how much he or she is going to get into the fund and by what date. Apart from the initial period, that will be decided by the fund manager on the basis of the experience he has had with the market and investments. The manager will be left with enough time during the currency of a given tax year to make decisions without them having to be rushed in the way Deputy Brennan feared.

Mr. Taylor

I should like to ask the Minister what the cost of the scheme will be to the Exchequer in a full year?

Mr. Dukes

We have been through that on Second Stage. My answer is that I do not know. It depends on how many people take advantage of the scheme and the marginal rate of tax of the different investors in the scheme. It is impossible to give any type of prediction as to how much it will cost. On the question raised by Deputy Owen——

Mr. O'Kennedy

I have tabled an amendment which will be considered later to give effect to what Deputy Owen has mentioned. It will be dealt with about three sections from now. I appreciate the point made by Deputy Owen but it does not arise now.

Mr. Dukes

I hate to leave a lady waiting but since there is an amendment on this point I will wait until we reach it before replying to the Deputy.

Mrs. Owen

I do not wish Deputy O'Kennedy to mislead the House. I asked the Minister if he had given any consideration to the matter, in case Deputy O'Kennedy may be of the opinion that I will be going through the lobby with him.

Mr. O'Kennedy

The thought did not occur to me.

Amendment put and declared lost.

Amendments Nos. 26b and 26c not moved.

Mr. O'Kennedy

I move amendment No. 26d:

In page 17, subsection (3), line 23, to delete "Chapter" and substitute "section".

This is a drafting amendment and I will not press it if the Minister does not wish to accept it. I am seeking to delete the word "Chapter" and substitute the word "section".

Amendment, by leave, withdrawn.

Acting Chairman

There is a recommendation that amendments Nos. 26e, 26f, 26g and 26h be taken together.

Mr. O'Kennedy

That is agreed. I move amendment No. 26e:

In page 17, subsection (3), line 24, after "deduction.", to insert "However in case of a designated Fund as provided for in section 27 of this Act subscription to the Fund shall qualify the individual for the relief.".

When a person has invested, the proposal in this amendment is that he should not be deprived of relief. It takes time to place a fund in investment because the fund manager must have an opportunity to look around to find an outlet for the fund. This will involve inquiries and professional advice in order to ensure that the fund will be placed effectively in the interests of the investors. Those studies are being made on behalf of the investment but the investment has not been placed yet — in other words, the fund has not gone into effective investment — and the fact that the moneys are made available and deposited should not disqualify the investors from getting interest relief pending actual investment.

I am suggesting that before any such scheme could operate the fund manager would have to say that he already has an investment organised, even before he has any money with which to organise it. There would have to be consultation and the investors would have to respond to suggestions about schemes. Then they would put their money forward on that basis. Pending the placing of the fund, once the money has been made available by the potential shareholders it should qualify for interest relief.

In relation to the second amendment, the proposal is to delete subsection (4) which provides that the relief shall be given on a claim and shall not be allowed unless and until the company has carried on the trade for four months, and if the company is not carrying on that trade at the time when the shares are issued, unless the company begins to carry it on within two years after that time. I want to encourage investment not just in existing companies or those that have been carried on for two years. I want to allow people to research programmes for investment, to do a market analysis of outlets. These days many people promoting companies will look at what the market prospects are and should be.

My point is that people should be doing such market research. This is a desirable thing because after 12 months or so it could lead people to decide not to proceed further. People should be encouraged to ensure the maximum rate of success and therefore encouraged to do a market analysis of likely successful outlets. If it transpires that people decide not to go ahead the Minister should take that into account and at that stage he should not exclude a company that did not actually trade in view of analysis information. In the private sector there is always a risk element — some companies succeed and some do not, and if people do research they should not be penalised for not proceeding.

The third one of my proposals is that if there is an issue of shares it should not be left at large all together. I am going along with what the Minister has in mind in the two-year limit but I am suggesting that the relief should not be withdrawn unless the company does not carry on the trade within two years after the time of issue of the shares. The Minister and I are not too far away from each other. I am looking for the relief to apply in the meantime——

Mr. Dukes

That is the distinction.

Mr. O'Kennedy

Of course there is a distinction if the Minister approaches it on the basis that every investment can be legitimised on the premise that the company will be launched successfully. A company's success cannot be guaranteed in advance. One will not invest unless he has some kind of insurance, and I want such people to be excluded.

Amendment No. 26h is consequential. It provides that people should not be excluded from tax relief simply because actual trading had not started. People would be investing in something new and should be encouraged to do so to maintain and to create employment. In all these cases the intention is to maintain or to create employment, and the fact that a company does not do that should not mean that investors should be penalised. They should be allowed to do full market research into the likelihood of success. If people decide after doing that research not to go ahead they should not be penalised for their prudence.

Mr. G. Mitchell

The arguments put forward by Deputy O'Kennedy are interesting but I have not heard anything which would convince me that there is a strong case for what he is saying. The date of issue of the shares rather than the date of payment determines the year of assessment in which relief is granted. If the shares are issued in 1983-84 the relief is granted in 1983-84. The other requirement is that relief shall not be given unless the company has been carrying on trade for four months. That is a reasonable provision.

If Deputy O'Kennedy's suggestion was to apply and the four month period was extended to two years people could automatically invest £25,000 without having any concrete evidence that what they were putting forward was a viable entity. Yet they would get relief for two years. They would have two years in which to dream something up and if the investment did not mature we could claw it back, presumably without getting interest on the amount allowed for tax purposes. Sixty five per cent of £25,000 is £16,250. It would not seem reasonable for a person to have the use of that money for two years at the expense of the taxpayer unless we could be sure that at the end of the period the money would be refunded to the Exchequer with interest, in which case the Exchequer would not be at a loss, or we could be certain that some business would materialise.

We do not know what the economy will be like in two years time or what our needs will be in terms of employment. Presumably our long-term employment difficulties will still be with us. It would be possible to go along with Deputy O'Kennedy's suggestion if we were sure that it would not be used to avoid paying tax. I did not hear anything in what he put forward to suggest that it would not be used as a loophole. Perhaps if we could incorporate a section which would allow the State to recoup the amount due with interest that would discourage people from trying to avoid paying tax.

Mr. O'Kennedy

There is no way in which we can be sure. I am not suggesting that we can be sure that some people would not use this as a means of avoidance. The day we try to guarantee that some small minority will not use it for the wrong reasons we will be living in an unreal world. What I am trying to ensure is that we will not penalise people who are going to start. At present, it is confined strictly to people already engaged in manufacturing industry. If the company do not carry on business within two years of the issue they are out. People who are investing do not know that. People who invest for the purpose of launching a new company should be helped to launch it rather than prevent it from doing so.

Mrs. Owen

Deputy Mitchell referred to a clawback. The amendment put forward by Deputy O'Kennedy does not refer to any clawback. It is very general and states that the relief shall not be withdrawn. He does not say whether the relief gained by an investor over two years when the company was supposed to be carrying out market research can be clawed back if the company does not take off after two years.

Mr. O'Kennedy

Deputy Owen sounds like a chairman of the Revenue Commissioners. The Minister is quite capable of dealing with that.

Mrs. Owen

I will try to be capable too.

Mr. O'Kennedy

We will have a whole body of Revenue Commissioners.

Mrs. Owen

There is an onus on the House to try to prevent loopholes in the tax laws. This amendment would give rise to a position where people could invest in a company for two years and then after a while they might move on to another company and get another two years of relief. That could happen.

Mr. O'Kennedy

I assure the Deputy it could not.

Mrs. Owen

I do not know how the Deputy can say that.

Mr. Dukes

He will do his Revenue Commissioner bit.

Mrs. Owen

There is an onus on the House to ensure that legislation does not give rise to tax avoidance. I have grave doubts that the Deputy's amendment could be made watertight. What he says sounds fine in theory. He is telling people they can have a little flutter for two years. We need more than that to make sure that the money will not be invested by unscrupulous investors who could dress up a company and make it seem as if they were doing market research and so on. They would get two years of a tax incentive and then they could move on and do the same thing elsewhere. This amendment is flawed. It does not mention clawback.

Mr. O'Kennedy

It is not my role to clarify misunderstandings Deputies on the other side may have.

Mrs. Owen

Do I misunderstand the Deputy?

Mr. O'Kennedy

One never makes reference to clawback as such in these matters. The Minister did not refer to clawback either. Neither do I.

Mrs. Owen

The language in the Bill——

Mr. O'Kennedy

The Bill does not refer to clawback. Am I on the same level as the Minister in that regard?

Mrs. Owen

Clawback would not be necessary under the terms of the Bill. The Deputy is talking about relief. He does not say whether it would be retrospective.

Mr. O'Kennedy

If I am trying to clear the air——

An Ceann Comhairle

We must have order.

Mr. Taylor

The measure proposed is a new and radical one but I have some reservations about how it will operate in practice. It is a major concession and would enable people who use it skilfully to achieve, in many cases, massive reductions in their tax liability. If we are to take it on board great care would be required in its administration. Deputy O'Kennedy feels that people who are about to start an operation should not be penalised.

Mr. O'Kennedy

I am talking about investors not the company.

Mr. Taylor

It is intended that this section will give a benefit to people who start and not to people who may start or intend to investigate starting. It is time enough to give them the concession when they have started, are seen to be in operation and achieving what is intended in the section before we give them a relief of something over £17,000 off their tax bill.

The point made by Deputy Mitchell and Deputy Owen is well taken. One could visualise a situation where it would be open to gross abuse. A person could become involved in the idea of a scheme rather than the practicality of a scheme. While the research is being carried out he has tax relief based on his input of £25,000, or more if his wife is included, for six months, one year, 18 months up to two years. The company may never see the light of day. It may be nothing more than a twinkle in the eye; it may be nothing more than, for want of a better word, a ready-up situation. This is a very major serious concession under which a person with a large income can write £25,000 off his tax, or £50,000 if he brings in his wife. This means a major loss to the Exchequer and a massive reduction in this person's tax bill for something which may not get under way. This is a surprising amendment; it is not well taken and should be withdrawn.

Mr. O'Dea

Deputy O'Kennedy's amendment is very logical. The purpose of the amendment is to allow companies to acquire finance to start an operation which will lead to the creation of employment. As regards the two year provision, under our amendment, if accepted relief would be granted immediately; but if the company fail to commence trading after two years the relief will be withdrawn. The whole thrust of the legislation as drafted is to delay the relief. The Revenue Commissioners can consult with one or any number of people they like in order to be satisfied that the company and the individual meet the qualifications necessary. No claim for the relief is to be allowed before 1 January 1985. In later sections of the Bill there are provisions for the granting of certificates by companies to individuals to submit to the Revenue Commissioners.

If somebody wants to invest £20,000 in one of these companies he will do so at a net cost of £7,000. It is essential that that person get back his £13,000 as quickly as possible. Nobody wants to be without that money for any period of time. I want to ask the Minister if it is not true that many of the claims under section 23 of the 1981 legislation have not yet been processed by the Revenue Commissioners. Therefore, it is possible that a person who invests £20,000 in one of these companies on the basis that it will cost only £7,000, may have to wait several years to get back his money under the legislation as drafted. That cannot be the Minister's intention.

Mr. G. Mitchell

The opposite could be argued as well. A married couple could invest up to £50,000 — earlier I gave a figure of £17,250 but it should have been £16,250 multiplied by two, which gives a sum of £32,500. This couple could have £32,500 invested, on deposit or in a building society for two years, without any intention of creating a business. After two years they may decide to set up a business but in the meantime they have Revenue's money.

Mr. O'Dea

Interest is payable on such money.

Mr. G. Mitchell

The point I am making is that interest is not being paid to Revenue but to the individual or the company.

I would support this amendment if I thought it would create employment and achieve the main objectives of the Bill, but if we leave the gate open people who have that kind of money to invest will have no difficulty in using this to avoid tax. The objective of the legislation is not to provide an incentive for people to avoid tax but to create employment. We suggest that instead of giving the person the benefit which accrues to him from the date of the issue of the shares provided the company trades within four months — we extend that period to two years — there is no reason why the company engaged in research——

Mr. O'Kennedy

The Deputy has that wrong.

Mr. G. Mitchell

The Deputy is suggesting that we delete the four months as well? Is that so?

Mr. O'Kennedy

Yes. I want to provide capital to start businesses. The legislation confines this scheme to those engaged in operations for four months; I am not.

Mr. G. Mitchell

It might never get off the ground.

Mr. O'Kennedy

They might not have the money to get it off the ground.

Mr. Dukes

The Deputy is broadening the matter——

An Ceann Comhairle

Order, please.

Mr. G. Mitchell

It appears that Deputy O'Kennedy proposes to give the exemption from day one to companies which need not trade for two years.

Mr. Taylor

Or who may never trade.

Mr. O'Kennedy

That is not so.

Mr. G. Mitchell

That is the point I am making. Deputy O'Kennedy knows this will encourage tax avoidance. He has not put forward anything positive which would create employment, the main objective of this section.

Mr. S. Brennan

This scheme lacks a lot of courage. On the other hand it says we want venture capital and seed capital to get businesses started, but there are so many barriers here that people will not avail of this scheme. The reaction I am getting to this scheme is that it is an exciting scheme; but there are too many barriers, and one of them is this four months provision. I take Deputy Mitchell's point that you have to see the shape of the company for four months before relief is allowed, but if we are genuinely interested in seed and venture capital to get businesses started, it has to be taken into account that the business may never trade. The Deputy asked why give relief to a firm which may never trade, but if you do not give relief the company may never trade because the funds will not be available. In other words, we are saying that we want to see the firm running and then the State will pitch in. I am not saying that is unreasonable; I am just saying that the Government are not biting the bullet. If they want venture capital they have to stand up and say so. If a person goes to the IDA with a good idea and says he wants money he will get it immediately. Nobody is saying they are a crowd of gangsters or that it is a ready-up situation. It is not unreasonable to suggest that a similar IDA operation be practised here; the day I invest the money, before we start producing, the relief should be given.

Mr. G. Mitchell

Deputy Brennan has put forward an interesting argument, but it seems from it that there are no businessmen left in the country. That is not true, we have businessmen, but listening to Deputy Brennan one would think we did not, that people needed to be subsidised and assisted in everything.

Mr. S. Brennan

It is not a subsidy.

Mr. O'Dea

It is an incentive.

Mr. G. Mitchell

Really what the Deputy is asking the State to do is to take up to 65 per cent of the risk for two years without knowing if it is legitimate trade.

Mr. S. Brennan

The IDA do more than that.

Mr. O'Kennedy

That is because of the exorbitant tax rate.

Mr. G. Mitchell

I have greater faith and trust in our business community than the Deputies opposite.

Mr. S. Brennan

It is given for relief.

Mr. G. Mitchell

I do not believe that we have a business community that needs the type of handholding which the Deputies opposite request. Does the Minister have any information of the sort of investment funds in the UK which have been generated as a result of similar legislation there? I know that he has no idea as to what might be got in this country, but if he had some information about the UK we could make some comparison and get some idea as to the potential of investment contained in this legislation.

Mr. Dukes

I must say——

Mr. O'Kennedy

Stand up. Éirí leat.

Mr. Dukes

——that the discussion has gone into a lot of by-ways which seem to have been somewhat without interest in terms of the scheme which we are discussing. Deputy O'Dea claims to have found that the intention of the Bill is to delay the relief by having consultations and not giving relief until 1 January 1985.

Mr. O'Dea

Not the intention, but as to the letter.

Mr. Dukes

He has even raised a most extraordinary question about section 23, but I do not have here the information to answer that. Even if I had, it would not be relevant on this Bill. The intention of this scheme is not to delay relief. I am bringing in a scheme which provides a tax relief. We shall see the shape and direction of the scheme far more clearly if we get hold of one simple idea. The event which gives rise to the tax relief is the capital passing into the hands of the company. That is what we want to get companies into a position where they can get their hands on capital to carry on business. The capital passes when the company issue shares. That is our central intention.

Deputy O'Kennedy said very reasonably that in many cases people get an idea but must carry out some market investigations. There is nothing in this proposal to stop them from doing so, or to stop people saying that they will make capital available, or from giving capital to the company during that period. It is reasonable that before one gets relief one must show that the capital is actually producing the kind of results wanted from the scheme. That is what the provisions of this section are aimed at bringing about.

Mr. O'Kennedy

We must be clear. The Minister is against any relief for people who are prepared to invest seed capital in a company that does not actually get off the ground. In that case, we are at two different levels in this argument. It is not venture capital. What the Minister wants is guarantee. Before the Government invest, they have to know it will succeed in making a profit.

Mr. Dukes

Not at all. For Deputy O'Kennedy to say that suggests that he has not really read the provision about which we are talking. There is no way in which a guarantee can be given.

Mr. Taylor

It is a poor amendment.

Mr. Dukes

The event that gives rise to the relief is the acquisition of capital by a company. That is what we want to happen — the transfer of capital from subscribers to companies or indeed, through funds. It is that which gives rise to the relief. The first amendment says that simple subscription to a designated fund under the terms of the scheme would give rise to the relief. That would not really be in keeping with what we want to happen. People could subscribe to a designated fund and the money could sit in the fund indefinitely without any investment in seed capital or venture capital taking place on the part of the fund.

Mr. O'Kennedy

The designated fund as provided for in section 27, if the Minister will read my amendment——

Mr. Dukes

I have read the Deputy's amendment very carefully.

Mr. O'Kennedy

Would the Minister please not misrepresent what I am saying.

Mr. Dukes

We put in the word "funds", so that there is another channel other than the direct contact between an investor and a company which is an appropriate one for this purpose. It is when the money is invested and gets into the hands of the company that the relief is available. That is the activity which we want to start off. Deputy Mitchell has, in fact,——

Mr. O'Kennedy

Put his finger on it.

Mr. Dukes

Hit the nail on the head.

Mr. O'Kennedy

He always does that.

Mr. G. Mitchell

I thank the Deputy very much.

Mr. Dukes

The name on the head of the nail is "O'Kennedy". However, that is the essential point which I want to make. The amendments put forward here would distance the relief from the transfer of capital to the company. It is for that reason that I oppose them. It is not all that relevant for Deputy Brennan to say that we are looking for an absolute guarantee or that we are being too careful. Of course, it is possible that people may invest funds in a company which never trades. If the company never trades, or goes out of business for a bona fide commercial reason before the event can arise, no relief is given. We have not had the event which is the cause of giving relief, which we want to provoke and which will have the wished for results. Of course, there is no guarantee that every one of these ventures will succeed, not by any means. Neither is there any requirement for a guarantee that the event should succeed before relief is given. That would be totally unrealistic. On the other hand, we must be sure that before the relief is given the happenings which we want to provoke have actually taken place. That is why I suggest to the Deputy that this group of amendments are a little out of keeping with his own view as to the necessity for the scheme.

An Ceann Comhairle

If we are to make the best use of the time available, we should get through the business more quickly.

Mr. Taylor

I want to ask a question which is not on the lines of what we have previously discussed. It is in connection with the requirement of trading for four months. If a company are engaged in research and development, which is a qualifying factor under paragraph (II), with a view to create or maintain employment, if that research and development programme goes on for four months is that sufficient, or does the relief come into operation only when actual trading is being carried on, as distinct from research and development?

Mr. Dukes

No. The company must be trading for four months. It is not enough for a company to say that they are thinking about a new product. One of the activities covered here is a company engaging in research and development, acquisition of technological information and data and the development of new or existing products or services or the provision of new products or services. These are what the extra capital is to enable the company to do, but the company must be trading in whatever one of the qualifying trades they are engaged in.

An Ceann Comhairle

Is amendment No. 26e being pressed?

Mr. O'Kennedy

Yes, and the others. They should be taken together.

An Ceann Comhairle

I cannot do that. I must put them separately.

Amendment put and declared lost.

Mr. O'Kennedy

I move amendment No. 26f:

In page 17, lines 25 to 30, to delete subsection (4) and substitute the following subsection:

"(4) The relief shall not be withdrawn unless the company does not carry on the trade within 2 years after the time of issue of the shares.".

An Ceann Comhairle

I am putting the question: "That the words proposed to be deleted stand".

Question put and declared carried.

Mr. O'Kennedy

I am not pressing the next amendment.

Amendments Nos. 26g and 26h not moved.

An Ceann Comhairle

Amendment No. 26i is out of order. Amendments Nos. 26j and a30a are related and may be taken together by agreement.

Mr. O'Kennedy

In view of the time factor I am not going to press amendment No. 26j. It is simply to tidy it up. There is also the risk that what I say would be misunderstood or misrepresented.

Amendments Nos. 26j and 26k not moved.

Section 12 agreed to.

SECTION 13.

Mr. O'Kennedy

I move amendment No. 26 1:

In page 18, subsection (1), line 28, to delete "£500" and substitute "£200".

This cannot be misrepresented. We are proposing here to reduce the minimum figure for participation in the scheme from £500, which the Minister proposes, to £200, which we are proposing, and in so doing we propose to encourage workers, small investors and the like to participate. We would like to encourage an investment awareness throughout this community from the lowest worker to everyone else, to give that feeling of cohesion and involvement and to help to generate employment. For that reason I am suggesting that the figure of £500 is too high and the figure of £200 would be more effective to achieve that purpose and I ask the Minister to accept that figure.

Mr. G. Mitchell

I am asking the Minister to consider accepting the amendment in the name of Deputy O'Kennedy to reduce this figure from £500 to £300. It would have the effect of giving people with small amounts of money an opportunity to invest in small businesses and business opportunities and to become involved with managed funds. For some people the difference between £300 and £500 is a good deal of money. This would give some small investors an opportunity to invest if the Minister would consider starting at £300 rather than £500. I support the suggestion and I hope the Minister will find it possible to accept this amendment.

Mr. Dukes

A Cheann Comhairle, I wonder if for a moment, with your permission, we could reverse roles in this kind of discussion. I would like to ask Deputy O'Kennedy if he has considered what would be involved here for the companies themselves under the provisions of the Bill as it is. We are talking now about individual investments directly into companies. The company would have to issue a certificate each year for each investor who wishes to claim relief. Obviously, if the Deputy's amendment is to have any effect you would have a larger number of cases like this——

Mr. O'Kennedy

Of course we are well aware of it.

Mr. Dukes

——and the obligation on the companies. If the Deputy has considered that — and Deputy Mitchell has mentioned it also — and he still feels that this is an amendment he would wish to make, I would accept the amendment.

Mr. O'Kennedy

I am pleased that the Minister is doing so. I have considered it. Is the Minister accepting the amendment?

An Ceann Comhairle

Is amendment No. 26 I agreed?

Amendment agreed to.

Section 13, as amended, agreed to.

SECTION 14.

Mr. O'Kennedy

In view of the Minister's response to my last amendment and of the time factor, I am not going to press these amendments. I would like an opportunity to come to some other matters more substantial.

Amendments Nos. 26m and 26n not moved.

Mr. Dukes

I move amendment No. 27:

In page 19, subsection (2) (b), line 4, after "director" to insert "or employee".

The purpose of this amendment is to include employees among the people who would qualify for relief under this scheme. I would like, if I may, to take amendments Nos. 27 and 28 together.

An Ceann Comhairle

Amendments Nos. 27 and 28 may be taken together by agreement.

Mr. O'Kennedy

On the basis that we accept these amendments, I would have hoped, but the time does not allow it, to propose a more simple form. Nonetheless, I accept the amendment.

Amendment agreed to.

Mr. Dukes

I move amendment No. 28:

In page 19, lines 6 to 32, to delete subsection (3) and substitute the following subsection:

"(3) An individual is not connected with a company by reason only that he, or an associate of his, is a director or employee of the company or of another company which is a partner of that company unless he or his associate (or a partnership of which he or his associate is a member) receives a payment from either company during the period of five years beginning with the date on which the shares are issued or is entitled to receive such a payment in respect of that period or any part of it; but for that purpose there shall be disregarded—

(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by him or his associate in the performance of his duties as such director or employee;

(b) any interest which represents no more than a reasonable commercial return on money lent to either company;

(c) any dividend or other distribution paid or made by either company which does not exceed a normal return on the investment;

(d) any payment for the supply of goods to either company which does not exceed their market value; and

(e) any reasonable and necessary remuneration which—

(i) (I) is paid for services rendered to either company in the course of a trade or profession (not being secretarial or managerial services or services of a kind provided by the company itself), and

(II) is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule,

or

(ii) in case he is a director or an employee of either company and is not otherwise connected with either company, is paid for service rendered to the company of which he is a director or an employee in the course of the directorship or the employment.".

Amendment agreed to.

Mr. O'Kennedy

In view of the time factor I will not be moving amendment No. a28a. In any event, now that I have accepted the Minister's amendment this one falls.

Amendment No. a28a. not moved.

Question proposed: "That section 14, as amended, stand part of the Bill."

Mr. S. Brennan

This is the section that limits the figure to 30 per cent. Has the Minister considered very carefully arriving at that figure of 30 per cent? In this country, generally speaking, companies tend to be tightly held. Would he not feel that a figure of 40 or 50 per cent would be more reasonable? In some other country where shareholdings tend to be small 30 per cent might be reasonable, but in Ireland where a vast majority of small companies are 80 to 90 per cent owned by a family or a handful of people, perhaps 50 per cent would be more sensible.

Mr. Dukes

I have considered that matter carefully. In most cases 30 per cent gives you control of a company even where, as the Deputy says, companies are fairly closely held. The more successful a scheme like this is the more that would be the case. I have talked about that and thought about the figure of 30 per cent, and on balance I think it is a reasonable threshold to apply.

Mr. O'Dea

In the proviso to section 13 (1), in the case where an individual making an investment is a wife, what is the position? Secondly, could the Minister confirm that the £500 or the £25,000 or any sum between £5,000 and £25,000 need not be invested in one sum?

A Deputy

It is now £200.

Mr. O'Dea

My apologies — between £200 and £25,000. Can the Minister confirm that it does not have to be invested in one sum and that during the year of assessment it could be invested in aggregate amounts? Are these figures of £200 and £25,000 confined to one company?

Mr. Dukes

At the risk of being disorderly and in order not to be disobliging, I say that the amounts are amounts in any given year. They do not have to be in one company.

Question put and agreed to.

SECTION 15.

Mr. O'Kennedy

I move amendment No. 28a.

In page 20 subsection (2), line 44, to delete "unquoted".

We will have to deal with this one separately and again it cannot be misunderstood and certainly will not be misrepresented in view of the Minister's comments on my previous amendments. This is to allow quoted companies to be included in the scheme in addition to those unquoted companies to whom the scheme is confined at the moment. I think the Minister will have received numerous representations, as we have, to include publicly quoted companies in the scheme. They need participation through a new scheme of equity and a new shares issue as much as anyone else does. We should be encouraging development of the Stock Exchange. The view generally, even from the Stock Exchange themselves, is that the Stock Exchange is not at all as effective an avenue for capital and seed capital as they would wish to be themselves. I think that all of the arguments to be made on this have been sent to to the Minister as they have been sent to me. I have been convinced by those arguments that we should not exclude the few — they are very few — publicly quoted companies from the scheme. For that reason I ask the Minister to accept this amendment or, if he cannot, to explain why.

Mr. G. Mitchell

My understanding of this section is that throughout the relevant period a company must remain an unquoted company. I do not know what the thinking behind this is. I can understand that the whole idea is for new venture capital and seed capital, but where a company gets off the ground, causes employment and becomes a worthwhile venture and perhaps after a period of 18 months or two years decides to seek a quotation on the Stock Exchange or perhaps decide to trade in unlisted securities why would these provisions not apply to them at that stage? What is the thinking behind the company having to remain an unquoted company for the whole of the period? I can understand why that would be the case at the beginning. Perhaps the Minister would tell us why the requirement is that the company should be an unquoted company for the whole period.

Mr. S. Brennan

Deputy Mitchell has hit the nail on the head in this regard. The key question in section 15 has to be that under this scheme a company will not be able to go public within a three year period. If I put my £25,000 into a company which do extremely well and within a three year period they decide to go to the Stock Exchange to seek further funds by way of public quotation, the way I read this scheme I very likely would lose my relief. It is a direct disincentive to companies who are successful to go to the stock market and seek support.

Another point I want to make is that unless Irish companies are encouraged to seek Stock Exchange quotations the ownership of public quoted companies in the future is likely to stay in the hands of institutional investors rather than go into the hands of individuals. If a quoted company are allowed into the scheme individuals will be brought into control and ownership of quoted companies more and more. If they are excluded and that trend continues and the scheme is successful, institutional investors will more and more be in direct ownership of the companies.

Many companies on the Irish Stock Exchange are smaller in lots of ways than a lot of the unquoted companies. Some of those presently on the Irish Stock Exchange are much smaller than many of the companies that can now take the investment. I do not want to name any company — I am sure the Minister has some in mind — but very large companies will now be able to avail of this scheme while much smaller struggling companies on the Stock Exchange, who got funds there, cannot get this. That seems to be discriminatory and not very helpful.

There are very limited funds available for investment in Irish companies. Those who are presently on the Stock Exchange need funds also. On the other side of the scale, there will be a channelling away from them into this new scheme. That is not very fair to the companies who need funds in that regard. I do not believe it is appropriate in the Irish context to make this enormous distinction between a quoted company and an unquoted company because at the end of the day in terms of operation there is really not an enormous amount of difficulty.

I ask the Minister to accept Deputy O'Kennedy's amendment and allow companies on the Stock Exchange to avail of this. The Minister can still keep the provision that a person would have to leave his money in for five years. Whether I put my money into a designated fund or whether I go down to the Stock Exchange and put it into a company which is publicly listed there, as long as I leave it in for five years what difference does it make to the State? One could argue that the Stock Exchange being more public one would see a lot more and a lot more would be disclosed. Would the Minister not have another think about this and allow in certain quoted companies or perhaps those on the unlisted stock market or some variation of it? It is discriminatory to totally leave out quoted companies.

Mr. Taylor

The amendment proposed by Deputy O'Kennedy a while ago and accepted by the Minister reducing the minimum that might be invested from £500 to £200 now embodies the concept that a large number of small investors could be participating as contributory shareholders with their venture capital in unquoted companies. This is as the section stands at present. I cannot remember exactly but I believe there is an upper limit on the number of shareholders who are permitted under the Companies Act in an unquoted company. I believe a private company may not have more than 50 shareholders. If I am right about that it means that if there were a large number of small investors, if you had 50 people putting in the minimum now of £200 each, you could not raise a vary large amount of venture capital for that company. The questions then arises, if the Minister is not prepared to go so far as to meet Deputy O'Kennedy's amendment, of making provision under which a larger number of small shareholders would be permitted in an unquoted private company.

Mr. O'Dea

Has the Minister considered the disincentive effect of how the section may operate? If somebody invests under this scheme in one of the qualifying companies and after a couple of years' operation the majority shareholders, who may not have invested under the scheme, decide it is time to go public, the people who have invested in all good faith will lose their relief. That is a powerful disincentive and I certainly feel that I should discourage people from investing under this scheme.

Mr. G. Mitchell

This question of unquoted and quoted could be disposed of by saying that the whole purpose of the scheme is to encourage people to invest money in the company for a long period whereas the purpose on the Stock Exchange can be for people to dispose of shares very quickly and make a profit in that way. In any event they would not get the proposed benefit. In anticipation that the Minister might say that, I would like him to consider the case of a company, being an unquoted company, becoming very successful and after 18 months or two years seeking a quotation. Surely the shareholders in the company who do not dispose of their shares but continue to invest on the original basis should be given some special consideration? I can understand that there may be some difficulty where a company are quoted at the moment. Surely there is a different case where a company start off as an unquoted company but because they become successful and because of this injection of venture capital they later come to the stage where they can expand and go to the market for funds? Surely there is a different case to that in which the original investors do not dispose of their shares?

Mr. Dukes

The purpose of this scheme is to encourage people to invest in ventures which will add something to the level of activity and the level of employment. We want to get people to put their money there. The Deputies opposite, I believe, have this very much in mind. Part of what we want to do is to see if we can alter the balance in relation to risk and in relation to taking risks. That is essentially what this scheme does. It is an encouragement to people to take a risk. We give them a tax break in order to encourage them to take a particular kind of risk. We are deliberately setting out to affect the climate in which people take risks. That is the kind of scheme it is and is a legitimate kind of thing to do.

In doing that, we are in some sense changing the balance between less risky and more risky investment. We are putting in another ingredient into the more risky investment that makes it a bit more attractive. That is one part of it. The other part is that, while we would be talking in many cases about companies that exist already, we wish to provide also for new companies that are being set up in terms of seed capital, as Deputy Brennan referred to it, or venture capital. Of its nature that is the kind of operation that takes some time to show its pace. Deputy Brennan is at least as familiar as I am with the developing theory of what happens to seed capital companies and the stages they go through in their development. We want to ensure that a company have that amount of capital available to them for a period and that is why we say the investor must leave this money in for five years.

A company will build up a record over a period of years. A company who are already publicly quoted have a track record. Therefore, the risk an investor takes in buying shares in a publicly-quoted company is somewhat different from the risk involved in buying shares in a new company. The publicly-quoted company can indicate their ability to manufacture or to provide services and to make profits whereas the company only setting up do not have that sort of track record. Neither do a company becoming involved in new activities and who are not quoted have that kind of track record. Therefore, we are altering the balance in favour of that company.

Mr. S. Brennan

A company could be started on the Stock Exchange.

Mr. Dukes

I am coming to that. As is outlined in the guide issued by the Stock Exchange, one of the conditions of admission to the unlisted security markets is that a three-year trading history is normally necessary. It is no accident that there is a similar provision in this Bill. The Bill provides also that a company may seek a public quotation after three years without the investors suffering any diminution of their tax relief. In terms of the Stock Exchange rules, if the company are a new one, they can then become eligible to apply for a quotation on the unlisted securities market and they can go further than that if they so wish. Those different pieces of the jigsaw then are together.

Deputy O'Dea asked about the position of a small or minority shareholder if within the three-year period the majority shareholder decided to go public. In that case the consequences would flow from the provisions of the Bill except to the extent that the majority shareholders had an entitlement to tax relief within the terms of the Bill. In that case they would not decide to go public until such time as they could do so but the company could do so without affecting their own tax relief position. I doubt that there would often be situations in companies where none of the majority shareholders had entitlement to tax relief within the provisions of this Bill while the majority of the smaller shareholders had that kind of tax relief.

Mr. O'Dea

That is possible.

Mr. Dukes

Normally in a company like that both the majority and the minority shareholders, depending on the number involved, would have some entitlement to tax relief.

Mr. O'Kennedy

May I take it that the Minister is not disposed to accepting our amendment?

Mr. Dukes

I am not disposed to accepting the amendment.

Mr. O'Kennedy

In view of the time factor involved perhaps we could move on to the next amendment.

Mr. Dukes

I was explaining the position because Deputy Brennan seemed to have some interest in it.

Mr. O'Kennedy

We all have but unfortunately we do not have the time to go into it in depth.

Amendment, by leave withdrawn.

Mr. Dukes

I move amendment No. 29:

In page 21, subsection (2) (b) (ii), line 5, after "wholly", to insert "or mainly".

Question put and agreed to.

Mr. O'Kennedy

I move amendment No. 29a:

In page 21, subsection (6), line 29, after "up" to insert the following:

", save shares issued to employees of the company under a profit sharing scheme.".

This amendment is to provide an exception in the case of party paid up shares in a profit sharing scheme. As the Bill stands, shares in order to be issued must be paid up in full, but I think all of us would recognise that if there is to be an exception it should be in respect of an improved profit sharing scheme for employees. If we wish to encourage a commitment from the workforce we should first encourage profit sharing schemes. All of us would be anxious to promote profit sharing, worker participation and industrial democracy at every level. It is the purpose of this amendment to do that. If the Minister is not disposed to accepting the amendment, perhaps he would give his reasons.

Mr. Dukes

I am not disposed to accepting the amendment. There are two different operations envisaged here. It would not necessarily be the case that employees benefiting from a profit sharing scheme would be issued with new ordinary shares. One of the conditions of this scheme is that the shares which create the qualification for relief must be new ordinary shares. That would not necessarily be the case under an employee participation scheme.

Mr. O'Kennedy

But what about those cases where that would be the position?

Mr. Dukes

The second point is that we have a scheme already to encourage employee shareholding. That scheme is being improved in this year's Bill. For those reasons I am not prepared to accept the amendment.

Mr. O'Kennedy

While welcoming the slight encouragement in the Bill in respect of promoting profit sharing schemes, it is regrettable that what are also a feature of a profit sharing scheme — partly paid up shares — should be included. Obviously, workers are not usually able immediately to buy up shares. I regret that the Minister does not appear to see the logic or the desirability of what is proposed in my amendment.

Amendment, by leave withdrawn.

Mr. Dukes

I understand from the Dáil Office that a couple of points have been raised about the money Bill status of section 14 and of the Second Schedule to the Bill. I intend introducing draft amendments on Report Stage to deal with those points.

Section 15, as amended, agreed to.

SECTION 16.

An Leas-Cheann Comhairle

As amendments Nos. 29b, 29c and 29d are related they may be discussed together.

Mr. O'Kennedy

I move amendment No. 29b:

In page 22, subsection (2), to delete lines 39 to 44, and substitute the following:

"(a) be carried on by a body corporate and must not wholly or mainly consist of any of the following trades:

(i) distribution trades,

(ii) professional services, or

(iii) banking, financial, insurance and services ancillary to any of the foregoing:

Provided, however, if in the case of (i) to (iii) above the service qualifies under Chapter VI of Part I of the Finance Act, 1980, or the rendering of services in the course of a service".

This is a substantial and important amendment and it represents the reason for our having to rush through so many other parts of the Bill. It is a great pity that, although we are working to an arrangement to deal with all parts of the Bill, we must rush through a Bill as detailed as the one before us and have merely one-line replies which do not do justice to what we are supposed to be doing here, that is, legislating.

The Committee Stage of any Bill is hardly exciting. It is never very sexy from the point of view of public presentation. However, our job is not to entertain. It is to deal with matters of substance and argument. If detail is not very entertaining, that is too bad; but we must do our work.

The Minister is confining the scheme as outlined in section 16 to manufacturing industry. I am glad he has met the argument we made some time ago and has not confined the scheme to new manufacturing industry. He is now extending it to manufacturing industry and to certain international trading services, namely, consultancies and the IDA and SFADCo recognised services. That is as far as it goes. To put it simply, our amendment — and this is the most important we will be making on this Bill — proposes that this provision for investment should not be confined to manufacturing industry. A job is a job wherever it is created. From the latest trends in unemployment we see the need to maintain and generate employment at every level. Our amendment would have the effect of enabling this scheme to be operated through a service sector, with the exception of distribution trades, which we understand should not be included for many reasons, professional services and banking, financial, insurance and services ancillary to any of the foregoing. With those exclusions only, we see no reason why the other services such as those in the construction and tourist industries, which have a capacity to generate much more employment than the manufacturing industry, should be excluded. It is essential that the Minister should adopt our proposal. The IDA project that we will create 1,000 new jobs in the manufacturing industry this year but that will not be nearly enough to meet our employment requirements. From the figures issued by the Central Statistics Office we can see that the numbers employed now in the manufacturing industry are fewer than they were in 1966 and falling. It is regrettable but true.

The numbers unemployed at present are about 20,000 more than the numbers employed in the manufacturing industry. A recent report issued by the ESRI suggests that, on current trends, unemployment could rise to 325,000 by 1991. This indicates that we must do something radical and positive and give clear signposts for investment in any area which will generate and maintain employment. Having regard to the experience in the United States, Japan and other countries which have developed economies, it is obvious that the service sector is the engine of growth for employment, and that is not denigrating the contribution of the manufacturing sector. The numbers employed in the manufacturing industry in the United States are nearly the same now as 20 years ago. Nonetheless, they have witnessed an increase of 2 per cent in each year of the 20 years in the service sector of their economy.

If we look at the trends in the manufacturing industry here we must recognise that they are very discouraging. As the IDA have limited their projections to 1,000 new jobs this year, do we really think that this scheme is going to be a signpost for new growth and development of employment on a major scale? I have not had time to argue about the impact which the scheme will have because of the unnecessary complexities but I believe that all but the most technically illiterate will be discouraged from investing because of its complexities. However, it is important to realise that, if we want to generate employment, we cannot confine it to the manufacturing industry. On that basis, we are proposing that this scheme would allow participation and we have done it in a very simple form which is not particularly characteristic in the sense of some of the definitions in the Bill. We say it should be applied to all trades except distribution, professional services and banking, financial, insurances and services ancillary to any of the foregoing. Is there any reason why jobs created in the hotel industry should be distinguished from those created in the manufacturing industry? Are they not as valuable? Is the same amount of employment not involved? Is there any reason why jobs created in the construction industry should not be as important in terms of critical unemployment? Is there any reason why agricultural developments, where three young farmers form a company and need capital for development purposes but cannot afford it because of high bank charges, or perhaps because of inherited charges, should be excluded?

I acknowledge that this scheme is desirable and we have been calling for it for the past 12 months. The Minister should take his courage in his hands and promote investment right through the corporate trades with the exception of those I have mentioned. Nothing short of that will make any impact on the drop off in investment here, especially over the last couple of years. We have heard of black holes and investment leakages and we have seen the increase in the rate of unemployment. We must create a better climate for investment in every area. For that reason, this amendment is vitally important. If the Minister could give some indication of his readiness to extend the scheme beyond the limited areas to which it applies at present we would have achieved something. If it is confined to the manufacturing industry basically, with the constraints and technicalities involved, it will not make an impact.

At an investment conference recently I was asked by a pessimistic if not cynical businessman how long it would take to get the country moving if the right climate and encouragement were there. It did not take very long to do this some time ago. In 1957 and 1958 the change was dramatic because the right signals were given and the proper signposts were erected on the basis that investment was welcome. Work will be rewarded. Achievement will be honoured. Above all else the confidence to achieve it will be promoted in every direction. It did not take even six months to bring about that dramatic change. That can be done now by the Government, provided they put up the right signposts and signals. What I have suggested is the kind of thing that is required.

It would not cost very much money. Deputy Taylor may have asked about this earlier. In the UK where it extends to the services sector in some areas, the evidence is that the cost to the Revenue is relatively very little. If we were to extend that scale over here, or even with a full-blooded application of the scheme, in initial terms we might be talking of a loss of £10 million in one year, but there would be a much greater benefit to the Revenue in a very short time through all of the increased investments in activity and jobs which would be created.

Deputy G. Mitchell rose.

Mr. O'Kennedy

I have not finished yet. I am tempted to keep going now that I see Deputy Mitchell standing up. I ask the Minister to accept my amendment.

An Leas-Cheann Comhairle

Deputy Taylor.

Mr. G. Mitchell

I thought that might happen. That is why I stood up.

Mr. Taylor

I must express some surprise at finding Deputy O'Kennedy, a former Minister for Finance, moving this amendment. He indicated that he was unable to give adequate thought to what the financial and fiscal consequences would be if the measure was introduced by the Minister.

Mr. O'Kennedy

I did not say that.

Mr. Taylor

A fortiori he said——

Mr. O'Kennedy

The Deputy should not misrepresent me.

Mr. Taylor

That is what he said. He said he had been unable to give adequate attention to what the financial consequences would be of the Minister's proposal.

Mr. O'Kennedy

I did not say that. The Minister could not specify the amount and I said I could not either.

Mr. Taylor

The consequences of Deputy O'Kennedy's amendment would make the mind boggle. He is proposing that virtually any kind of investment would accord the investor tax relief on the amount of his investment, no matter what he put it into, bar the professional services and the limitations in his amendment. That must be one of the most ill-thought out proposals to come before the House for quite some time. One would find it hard to imagine what the effects would be on the income tax revenue to the Exchequer were this amendment to be implemented. Of course we all want to encourage economic activity, but to say that any person who makes an investment in anything may deduct that amount——

Mr. O'Kennedy

Not in anything. The Deputy should not misquote me.

Mr. Taylor

In anything bar distribution trades, professional services, or banking.

Mr. O'Kennedy

Banking and ancillary services, insurance, building societies. The Deputy should read the amendment correctly and not misquote me.

Mr. Taylor

Even granting those, they are pretty limited in the spectrum of economic activity. To say any person who makes any investment in anything bar those can take the amount of his investment off his income tax returns I can only describe as unreal. I cannot believe Deputy O'Kennedy could put that forward here on any realistic basis. We want to see jobs provided and economic activity generated, but not financed by reducing the income tax bills of the wealthy. That is what it amounts to. That would be a licence——

Mr. O'Dea

To create jobs.

Mr. O'Kennedy

Exactly.

Mr. Taylor

——to people on large incomes to make substantial reductions in their income tax, and to reduce it by £32,000 on maximum.

Mr. G. Mitchell

Per year.

Mr. Taylor

The result would be indefinite in the extreme. The whole scheme has a question mark over it. It is new. It is tentative. I have reservations about the concept behind it. To broaden the scheme to the extent that across the entire spectrum of economic activity, bar the three exceptions Deputy O'Kennedy mentioned, one could make an investment and relieve oneself of one's income tax burden in that way borders on the irresponsible.

Mr. S. Brennan

I do not accept that the amendment is irresponsible because Deputy O'Kennedy is excluding a large number of the difficult areas. Deputy Taylor should remember that in the United States some 60 per cent of people employed are employed in service industries. Throughout Western Europe generally manufacturing is not growing; if anything, it is in a decline. More and more jobs are being provided in service industries. If one were to take seriously the economic analysts in this and other countries, one would see that the greatest scope for future employment in most of the western world appears to be in the service areas.

Mr. Taylor

It is manufacturing that needs a boost.

Mr. S. Brennan

The whole economic thinking that only manufacturing is of use is being questioned increasingly. In our small country we have two enormous assets. One is our land from which we can have agricultural production, and the other is our people, neither of which we import. In so far as people can be developed, they can be developed without being imported as service people providing service industries. The whole trend towards grant-aiding capital machinery increases imports. As against that, it must be attractive to grant-aid a little labour and try to remove and reduce taxation on employment, for example, the PRSI levels. I would not be as black and white as Deputy Taylor about the usefulness of tackling unemployment by providing service type industries. It might be appropriate for a small country like ours. If we want to have employment in that area, I do not see the difficulty in extending the scheme to the labour intensive industries, the service industries.

I have to make the point that, almost by definition, not quite, the service industries are labour intensive. Because of that, if the idea behind the scheme is to create employment, the thrust of the scheme should be in the areas which are labour intensive, and not in the areas which are necessarily capital intensive. I put that forward as one argument. The restriction is contrary to Government policy which is to create employment. This would appear not to be tackling an area which is the fastest growing area.

I should like to ask the Minister to put on record that the food processing industry is deemed to be manufacturing and, therefore, will qualify. I believe that is the position. If the Minister cannot accept Deputy O'Kennedy's amendment — I have no doubt he has his own strong reasons for not accepting it, if that is his decision — he might consider the spirit of it. The Bill states that an employment grant has to be paid under section 2 of the Industrial Development (No. 2) Act, 1981. In other words, the IDA, under the 1981 Act, will have to deem the company to be eligible for an employment grant. To take account of what will be in the industrial White Paper will the Minister not consider including "IDA approved services" without stating specifically that it must be paid under the 1981 Act? I can see a position arising, after much discussion on the White Paper on industrial policy, when we may decide that services are not on the backs of industry but are good in themselves. We may decide to broaden the range of services which are respectable, as it were, economically. If we did we would be tied by this legislation which states that an employment grant has to be paid under the 1981 Act. If the Minister cannot accept Deputy O'Kennedy's amendment he should insert the wording I have suggested so that the IDA can be flexible.

Recently the Government announced that they were allowing the computer software industry to be considered as a service industry so that it could qualify for the 10 per cent. That was a good decision and I compliment the Government on it. Overnight it brought that industry into the 10 per cent area and deemed it to be manufacturing. If the change we have suggested is not made and if the matter is not left to the IDA on a day-to-day basis the Minister will be unduly restrictive. The Minister should consider changing the wording to allow flexibility so that if the IDA decide next year that a different type of service company was interesting, and equally as exciting as the computer software industry, they could say that it qualifies without it being necessary for us to legislate for that.

Mr. G. Mitchell

The manufacture of goods within the meaning of the 1980 Finance Act is the term that applies here. That includes certain non-manufacturing services at Shannon and other items such as fish produced within the State, cultivated mushrooms, or repairs carried out to a ship within the State and design and planning services in certain circumstances. As Deputy Brennan mentioned, there is also the question of the IDA under the 1981 Act. Quite a number of concerns already qualify under the section proposed by the Minister. Before Report Stage I should like the Minister to consider the fact that because a company must make a claim for manufacturing relief it cannot at any time in the future become entitled to export sales relief. I do not know if the Minister intended that to happen but perhaps he will discuss it with his advisers to see if it is likely to occur.

It is my belief that if on a cost-effective basis the State would be better off in terms of what it will not have to pay out in unemployment benefit and so on and what it will get in in the form of PAYE and PRSI by people being employed and having a better way of life we should decide to encourage this investment in a wider range of activities. It would be going too far for the Minister to accept the amendment proposed by Deputy O'Kennedy because it is very wide. Under our existing system I do not have any difficulty in supporting a broadening of the scheme if (a) there will be an improvement in the number of people employed and (b) it will be cost-effective for the State.

Before we get carried away about the State encouraging people to invest in employment we should look at the other tax incentives given by the State. For instance, the State gives capital allowances to many companies that are outside the limitations expressed by the Minister. With regard to the tax advantages to individuals we might just as well ask why the State should give tax advantages to banks in so far as they allow companies to deduct bank interest against tax thereby encouraging them to take loans from banks. The same thing applies here. We are saying that if people take the risk we will give them a certain tax advantage and that may encourage more to take risks which in turn may lead to more employment. We should not have any ideological hang-up about this. If at the end of the day the cost-effectiveness of this is sufficiently advantageous to the State I would welcome the widening of it. It may be that when the scheme is in operation the Minister may decide to broaden it.

If we accepted Deputy O'Kennedy's amendment we would be taking too broad a sweep all at once. However, for the future I hope the Minister has an open mind on this. We must be serious about our intentions. Different points of view are being put forward about employment in the future. According to one economic report we should consider whether the public service should be a vehicle for employment while another report suggests that it should be the manufacturing area. It appears to me that in the area of leisure time development there is potential for the future. After the scheme has been in operation for a while the Minister might consider broadening it.

Progress reported; Committee to sit again.