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Dáil Éireann debate -
Tuesday, 8 May 1984

Vol. 350 No. 1

Finance Bill, 1984: Committee Stage (Resumed).

SECTION 16.
Debate resumed on 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".
—(Deputy O'Kennedy.)

I have not outlined our reasons for opposing various sections in this Chapter. We are opposing this Chapter and the various sections in it because of the principle of tax relief for the wealthy. When we give tax relief to someone, somebody else has to pay more. Tax relief for people with wealth means less well off people have to pay more. Payments to the Exchequer must be kept up. The more relief we have at the top the more must be paid at the bottom. That is a simple fact of life. The principle of tax relief has been opposed by the Commission on Taxation.

The Minister was supposed to bring in a tax credit system this year but did not do so. Tax relief in such a broad chapter would lead to more loopholes and tax evasion. I am sure there are hundreds of loopholes in these sections. They are wide open to tax evasion. Deputy O'Kennedy's amendments only extend the scope for tax evasion. Every amendment he put down opened up further scope for tax relief for those with wealth. They would also open up further loopholes for tax evasion and tax fiddling. There is no indication in this or any of the other sections that the number of jobs created will relate to the loss of revenue to the Exchequer. The appropriate action the Minister should adopt is to take full tax from those with wealth and incomes which can produce money for investment and provide the IDA, the National Development Corporation or whatever other agencies for job creation the Minister has in hand——

The National Development Corporation or other agencies.

Fianna Fáil set up a fair number of agencies themselves.

Who pays for them? The taxpayers.

Various agencies have been set up by various parties over the years. These agencies or semi-State bodies are constantly short of money or are taxed to bring in revenue, such as the ESB. This is because tax relief is given to those who have money to pay tax.

The workers will have to pay more tax to fund the agencies.

I do not intend to hold up the business of the House because, if the Bill is to be rushed through, it may as well be rushed through. If the tax relief system is the one to be adopted — this is most favoured by the Government and Fianna Fáil — the relief should be related to the number of jobs created. In that way the loss to the Exchequer would be directly related to the number of jobs created. While various sections attempt to make sure that they are engaged in job creation there is no guarantee that this is so. They will give all the reasons in the world as to why it is not possible to create employment. All they have to do is maintain the existing number of jobs and say that the money was used to hold on to them. If we are intent on job creation the relief should be related to the number of jobs created.

In view of Deputy Taylor's comment that the scope of my amendment is so broad as to allow all kinds of loopholes, I would be disposed to add in addition to "distribution trade", "distribution and transport trade".

Deputy Mac Giolla's view is that we should take the tax but put it back into all kinds of agencies and development corporations. Our approach is diametrically opposed to that. It is fine if you take tax from everyone and put it into the maw of the State to spend on agencies and so on.

The Deputy wants to take less tax and spend more money.

I want to spend less money and the Minister is aware of that. If Deputy Mac Giolla had been present for all of the debate he would have noticed that I proposed my amendments on the basis of guaranteeing employment for workers. That is the only interest we have on this side of the House. If Deputy Mac Giolla cannot recognise that obvious fact, too bad for him and those he claims to represent. If one is against the private sector, in Deputy Mac Giolla's world, there are places where one can go, but an entirely different system is in operation. If one wants full-blooded socialism one can go and get it, but one will not get it in a democracy such as ours. In other places everything is done by Big Brother. If that is the way The Workers' Party want it, let it be. At least they are consistent. We are not for Big Brother who controls everything. We are for every individual, whether worker or business man, being encouraged and rewarded for effort. We have not done anything other than promote the interest of the worker. The Minister agreed to reduce the minimum qualification from £500 to £200. Is it a wealthy man who puts in £200? Will we use emotional arguments about only the very rich investing in these schemes? We are not concerned with them but rather with the very poor. We will not be misrepresented.

(Interruptions.)

Deputies Taylor and Mac Giolla want to maintain the divisions in society between us and them, between the workers who are the slaves and the bosses who are the masters. It is not like that. What we want to do is promote an atmosphere where all can participate equally. We will not be misrepresented by The Workers' Party. Let them go to another climate and place where they will find what they want. They will not find this kind of a discussion in such places.

There is nothing wrong with the climate here.

We have heard much discussion about tax equity in recent years. How would this proposal appear to the man on the street where we would find people barely getting by on social welfare and thousands on low incomes of £90, £100 or £110 a week?

The Deputy voted against them last week.

They do not have £100 or £200 to put up as risk capital. What do they see? They need every penny they can come by to meet their needs. They would look at a broad scheme proposed by Deputy O'Kennedy under which people with incomes of £20,000, £30,000, £60,000 a year——

And £7,000 and £6,000.

——are enabled to subscribe capital into any form of investment, other than distribution trades and the transport trade, professional services or banking and financial institutions, and knock off the amount of their investment from their income tax return. If a person with an income of £50,000 invests £20,000, he will not really be investing £20,000 because he would be paying £14,000 or £15,000 in tax. That is money he owes the Exchequer. In reality his £20,000 investment is costing him about £5,000. That is the situation that will be seen by the man in the street.

I am putting the question in less than five minutes.

What effect that would have on the general public perspective of tax equity which we should all be trying to attain I cannot begin to imagine. I could comment further on this but I realise the time is limited.

I would like to point out that the scope of the scheme is a good deal wider than some people seem to think. I thought Deputy Mitchell was going to elaborate on this a little but he left a bit of the nail for me to hammer home. We have already included in the 10 per cent scheme — that is, in the definition of manufacturing processes — a number of things like making movie films, developing and printing films, engineering services for projects carried on outside the EEC and so on. The services we are adding include data processing services and software development, technical and consulting services, research and development services, publishing services, international financial services, health care services and a number of others. We are not talking about a scheme which covers only a very small part of our industrial or service base, quite the contrary. We are talking about a scheme which will cover a fairly substantial part of it.

The corresponding scheme in the United Kingdom is not confined to manufacturing and a restricted number of services, there is no limitation on it, but 38 per cent of the funds were invested in computer-related business, which would be covered by our scheme. In the United Kingdom scheme agriculture was originally included and it was found that some of the most undesirable abuses came about because people used the scheme simply to finance purchases of agricultural property under the guise of getting involved in an agricultural business. They did not add, as is our intention, to the total level of activity and employment.

Agriculture is very much more important here than it is in the United Kingdom. The Minister should learn from that——

The Minister to reply.

The Deputy may not be over-impressed by reference to the United Kingdom scheme but I find no difficulty in looking at what happened to similar schemes in other countries and learning from those lessons to ensure that we get the results that we want from this scheme.

The scheme has been delimited to get the best results and the best multiplier effect we can from the application of investment to the kind of activity we have talked about. We could spread the net wider. There would be no difficulty doing that. It would require no imagination whatsoever. We could spread the investment jam a little more thinly and get a lesser result, but we are talking about a sensible balance between the requirements——

It is better to spread it at home than to let it go out of the country.

I am sorry, a Cheann Comhairle, but I was tempted to be rude to the Deputy a few moments ago when he spoke about black holes and so on, but I will skip that. In short, I do not accept the Deputy's amendment because I do not think it is necessary to go that far to get the effect we want from this scheme. I will leave it at that because we could talk about this for quite a long time. I did not expect that this modest section of my Bill would be the occasion for a major philosophical debate between the proponents of Deputy Mac Giolla's philosophy and Deputy O'Kennedy.

As it is now 6.45 p.m., in accordance with the order made by the Dáil on this day, I must put the following question: "That the amendments set down by the Minister for Finance to Chapters III to VI inclusive, of Part I of the Bill and not disposed of are hereby made to the Bill and in respect of the sections undisposed of in those Chapters, other than section 33, that the sections or, as appropriate, the sections as amended are hereby agreed to."

Our amendment still stands. It has not been voted on.

The time is 6.45 p.m. and I must put this question.

On the basis that our amendment has not been put we will be opposing it.

The Committee divided: Tá, 72; Níl, 58.

  • Allen, Bernard.
  • Barnes, Monica.
  • Barrett, Seán.
  • Barry, Myra.
  • Barry, Peter.
  • Begley, Michael.
  • Bell, Michael.
  • Bermingham, Joe.
  • Birmingham, George Martin.
  • Boland, John.
  • Bruton, Richard.
  • Carey, Donal.
  • Cluskey, Frank.
  • Conlon, John F.
  • Connaughton, Paul.
  • Coogan, Fintan.
  • Cosgrave, Liam T.
  • Cosgrave, Michael Joe.
  • Coveney, Hugh.
  • Crotty, Kieran.
  • Crowley, Frank.
  • D'Arcy, Michael.
  • Desmond, Barry.
  • Donnellan, John.
  • Dowling, Dick.
  • Doyle, Avril.
  • Doyle, Joe.
  • Dukes, Alan.
  • Durkan, Bernard J.
  • Enright, Thomas W.
  • Fennell, Nuala.
  • FitzGerald, Garret.
  • Flaherty, Mary.
  • Glenn, Alice.
  • Harte, Patrick D.
  • Hussey, Gemma.
  • Kavanagh, Liam.
  • Kelly, John.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McCartin, Joe.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McLoughlin, Frank.
  • Manning, Maurice.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Molony, David.
  • Moynihan, Michael.
  • Naughten, Liam.
  • Noonan, Michael.
  • (Limerick East)
  • O'Brien, Fergus.
  • O'Brien, Willie.
  • O'Donnell, Tom.
  • O'Keeffe, Jim.
  • O'Leary, Michael.
  • O'Sullivan, Toddy.
  • O'Toole, Paddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Prendergast, Frank.
  • Quinn, Ruairí.
  • Ryan, John.
  • Shatter, Alan.
  • Sheehan, Patrick Joseph.
  • Skelly, Liam.
  • Spring, Dick.
  • Taylor Mervyn.
  • Taylor-Quinn, Madeline.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Andrews, David.
  • Aylward, Liam.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Brennan, Paudge.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Burke, Raphael P.
  • Byrne, Hugh.
  • Byrne, Seán.
  • Haughey, Charles J.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Kirk, Séamus.
  • Kitt, Michael.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • Leonard, Tom.
  • Leyden, Terry.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McEllistrim, Tom.
  • Mac Giolla, Tomás.
  • Molloy, Robert.
  • Nolan, M. J.
  • Noonan, Michael J. (Limerick West)
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Connolly, Ger.
  • Coughlan, Cathal Seán.
  • Daly, Brendan.
  • De Rossa, Proinsias.
  • Fahey, Jackie.
  • Faulkner, Pádraig.
  • Fitzgerald, Liam Joseph.
  • Flynn, Pádraig.
  • Gallagher, Denis.
  • Gallagher, Pat Cope.
  • Geoghegan-Quinn, Máire.
  • O'Dea, William.
  • O'Hanlon, Rory.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • O'Malley, Desmond J.
  • Ormonde, Donal.
  • O'Rourke, Mary.
  • Power, Paddy.
  • Reynolds, Albert.
  • Treacy, Noel.
  • Wallace, Dan.
  • Walsh, Joe.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael.
  • Wyse, Pearse.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and Taylor; Níl, Deputies B. Ahern and Briscoe.
Question declared carried.

We now move to Chapter VII.

CHAPTER VII.

SECTION 43.

Amendment No. 48 is covered by the Resolution we have just passed.

Section 43, as amended, agreed to.
NEW SECTION.

I move amendment No. 48a:

In page 52, before section 44, to insert the following new section:

"44. — The Finance Act, 1983 is hereby amended by the substitution of the following section for section 52:

‘52. —Notwithstanding anything in this Chapter the amount of advance corporation tax which a company shall be liable to pay shall be the lower of the following two amounts:

(a) in respect of distributions made by it in an accounting period ending on or before the 31st day of December, 1984, shall be one half of the amount of advance corporation tax which apart from this section the company would have been liable to pay in respect of those contributions:

Provided that where part of an accounting period falls before the 1st day of January, 1985 and the other part falls in a period beginning on that date this subsection shall apply as if the part ending on the 31st day of December, 1984 and the part beginning on the 1st day of January, 1985 were two separate accounting periods:

(b) in respect of any distribution made by a company after the 8th day of February, 1983 (not being a dividend to which section 49 applies) an amount equal to:

A – (B–C)

where:

Ais the amount of advance corporation tax which would have been payable apart from the provisions of this section;

Bis an amount obtained by applying the rate at which the advance corporation tax is calculated in A to the aggregate amount of all deductions obtained by the company under section 14 of the Corporation Tax Act, 1976, in respect of all accounting periods ended on or before the 31st day of December, 1983;

Cis an amount obtained by applying the rate at which the advance corporation tax is calculated in A to the amount of all distributions made by the company since the 5th day of April, 1976.

Provided that for the purposes of paragraph (b) of this section all distributions made by a company and allowances under section 14 of the Corporation Tax Act, 1976 shall be deemed to be distributions or allowances of the parent company in the case of all its 75 per cent subsidiary companies within the meaning of section 107 of the Corporation Tax Act, 1976, but so that any distributions paid by a company to its said parent company shall be disregarded for the purposes of this proviso.'.".

The purpose of the amendment is to try to alleviate the difficulty that has been created for a number of Irish companies by the imposition of advance corporation tax associated with the dividend payment by these companies where, in particular, they have a very substantial amount of capital allowances due to them in respect of heavy investments that they made in this country in recent years in the not unreasonable belief that the circumstances under which they raised substantial finance at the request of the Government in some cases would be continued to be honoured by the Government and would not be changed, and would not be changed in effect retrospectively. The amendment is a complicated one and I am not going to go through all the detail of it, but the net effect of it would be to enable companies who made very substantial investments here in recent years to utilise in full their capital allowances and not to find themselves in the situation now that they are in effect, paying tax on the double by having to pay advance corporation tax as well as having borne tax already on the profits which they generated last year and this year.

The very fact that this whole problem relates to something with a name like advance corporation tax suggests to many people that it is some form of taxation on enormous companies that do not matter tuppence to the man in the street and, therefore, something like this should be nodded through as being pure and ideologically a good thing and its consequences for the country and the credibility of the country should be ignored. I do not look on it in that fashion. I have a particular interest in this which I do not deny, a personal interest in this limited sense that I was a member of the Government who gave certain assurances to one company in particular and who gave general assurances to companies generally in terms of encouraging them to incur capital investment in this country. I feel that, through no fault of mine or of any of my colleagues in Government, those companies have been misled.

It is not just my view. I can produce for the Minister, if he wants it, a long list of views from stockbrokers and from the representatives of various financial institutions who habitually have invested in this country and who, in all our interests, should continue to invest in this country. They take a very jaundiced view indeed of the arrangements that have been made here in relation to advance corporation tax. Most of the views are expressed on behalf of institutions by stockbrokers. People here like Deputy Mac Giolla and others will make out that if stockbrokers are complaining about something that is being done, therefore it is almost axiomatic that it was the right thing to do, and some of the latter-day socialists in the Labour Party who are still adhering or pretending to adhere to those views say the same thing. That is childish and immature. In this country we want more and more investment and we are frightening off the very people who can give it to us and the very sort of people who have given it to us in the past.

I will take at random the published views of the Life Association of Scotland, a large UK financial institution with heavy investments here. They say: "What concerns us is the retrospective aspect of advance corporation tax and its consequential inhibiting influence on dividends, in effect clawing back something which had been previously given." The Friends Provident Life Office, a similar type of institution, say: "We are very disappointed at the retrospective way in which this tax has been done. The element of retrospection is unfortunate, a retrograde step, leaving the distinct impression on external investors at least, although it applies also to domestic investors, that the republic is an unreliable high risk investment area." Goodbody and Wilkinson, the Dublin stockbrokers, say: "As investment advisers our strongest objection to the ACT legislation is its retrospective effect on companies who have substantial undistributed revenue reserves which have already borne tax and have invested heavily and may now find themselves facing major unbudgeted and retrospective tax outlay." The Stock Exchange, Dublin, generally state that: "ACT has brought a retrospective change in tax. It takes away what had been for good reasons given." Bailey, Gifford and Co., Investment Managers, Edinburgh, state: "We are a firm with funds under management of some £650 million sterling. We have quite sizeable investment in Ireland and we, accordingly, take a close and active interest in developments in your country which might affect companies operating there. We now find that one of the main planks on which our investment case was based has been removed by the introduction of ACT. In the circumstances it appears to us that what has been done is tantamount to retrospective legislation". I have about six more of these but to a great extent they are saying much the same thing in different ways. It is fair to say that it is the universal view of the investment community that this is an unfair, penal and retrospective act of double taxation which has seriously affected the credibility of this country and put in jeopardy future investment by people who were advised by people like these, who control insurance, pension and other major funds of that kind.

I believe this is the first instance of retrospective taxation where taxation already existed. A distasteful aspect of it is the fact that it has introduced this concept of retrospective taxation. It is now to be borne on the distribution of accumulated profits which have been fully charged to tax on the day ACT was introduced. As such, it is in effect a levy of 54 per cent with retrospective effect on past tax profits. I know that in reply the Minister will say that cash did not actually pass in respect of the previous tax profits but we know that those companies were availing, as they were entitled to do, of their capital allowances.

It is not normally the practice to refer in the House to the affairs of an individual company but in the particular circumstances it is appropriate and necessary to refer to the affairs of one large Irish company because on 2 July 1980 I, as Minister for Industry, Commerce and Tourism, with the agreement of the Government and of the Minister for Finance of the day, wrote a letter to the chief executive of Cement-Roadstone Holdings Limited giving them certain assurances in exchange for their assurance that they would undertake without delay certain major investments in the country which they did on the foot of the assurances I gave. They expended over £100 million on one project. That company feel aggrieved. They are entitled to feel aggrieved and many other companies, Irish and foreign, will look with some scepticism, cynicism and considerable reservation in the future at any such assurance given by any member of an Irish Government if this particular procedure is persisted and if this amendment is not accepted by the Minister.

In the course of that letter I said:

I have accepted the National Prices Commission's recommendation that the Carsberg method of calculating depreciation and interest be applied to claims from Irish Cement Limited using a percentage cost to capital of 13 per cent. The working of this methodology will be subject to periodic review by the Commission with an initial review after five years and thereafter three year intervals.

The letter goes on at some length on the question of prices and in particular on the question of this Carsberg methodology. That Carsberg methodology which was approved by the National Prices Commission, which I accepted and the Government approved of, takes into account, in making the calculations on which this agreement was based, the fact that if this company spent £100 million they had corresponding capital allowances and that they would get value for those capital allowances. Does the Minister or anybody seriously think that that company would have invested in the country over £100 million if within a few years of doing so and at the very time they came on stream, the whole basis on which they had financed that project would be swept from under them?

I am not saying anything that the company have not publicly said. They will clearly be in a very difficult position in endeavouring to arrange any such future financing of any major project in the country if they ever intended to undertake it. It is very unlikely that that particular company will ever undertake again in the country anything of that magnitude. There are many other companies who might have under consideration the building of projects which would be of that magnitude or of a greater magnitude. Are they likely to do it in these circumstances in the light of what they have seen happen?

It would be easy, in reply to all this, to paint this as somebody making a case on behalf of large, rich companies and so on. The Minister should face up to the reality, which is that the two largest Irish manufacturing public companies are rapidly disengaging from the country. The largest of them have now more than 70 per cent of their assets invested abroad. They generate 100 per cent of their profits from abroad. The company of which I have spoken, who have very heavy investments here, have a substantial part of their assets abroad and most if not all of their profits are generated from abroad. When we see the views that are taken about their situation in the country by some of the largest indigenous manufacturing companies here it will not be long until other smaller companies begin to take the same view. There was a tradition in the country of honouring agreements, of not changing the law retrospectively and of not changing the rules after companies had committed themselves to a particular course of action. It was one of the strengths up to very recently of the country that that was the situation and that people could be confident that things which might happen to them in certain other countries unexpectedly would not happen here even if there were repeated changes of Government as we have had over the years.

I often recall being able to give assurances in the United States in relation to the provisions of the 1980 Finance Act relating to the new corporation tax rate brought in at that time that in my view it would continue to be honoured by all Irish Governments up to its expiry date of 31 December 2000, because I was able to point to the fact that the earlier incentives, which were introduced in 1958, had been honoured without exception by a long succession of Governments of different political parties from 1958 up to the time I was talking in 1980 and 1981. I could no longer give that assurance. In all honesty I would have to say to companies now: I am very sorry, nothing happened between 1958 and 1983 but it did happen in 1983 and I cannot say that you would have the certainty now you would have enjoyed in the years between 1958 and 1983.

Briefly the effect of this amendment is not to seek to change the principle of what is involved here. It is simply to seek to remove the penal, unfair, retrospective aspect of it and allow companies which have incurred heavy capital expenditure here — and which are not entitled to capital allowances — to continue in that situation until the capital allowances they enjoyed up to last year have run out fully. In the case of some companies with very big capital allowances that may be as much as five, six or seven years. In the case of other companies it may be a question of only six, 12 or 18 months. As far as I can see the amount involved for the Exchequer is negligible. It has often been very difficult to ascertain exactly what net extra money the Exchequer reaps from this in the longer term. But it has had a fairly catastrophic effect on some companies. Because of their experience it has at least equally seriously called into question the validity of a lot of potential investment in this country that is more necessary today than at any other time.

Am I correct in thinking that we have until 7.30 p.m. for this?

That is correct.

I shall be very brief to enable the Minister to reply, I hope positively, to this amendment.

Very quickly I want to support my colleague, Deputy O'Malley, in everything he has said. I have not the detailed knowledge of this matter that he has. The Minister will have gathered that Deputy O'Malley feels very strongly about this. Deputy O'Malley was personally very deeply involved in encouraging a major investment by an indigenous Irish company, by one of our best, native companies, and there is a great deal at stake in this matter. It is very technical and complicated and might appear to some to be an accountancy matter only but it is more than that. What we are concerned with here is to endeavour to ensure that this company which in all good faith — at a time when it was very badly needed — made a major investment in this country in a very sound, productive enterprise project be allowed use up its capital allowances as long as they continue to subsist deriving from this major investment. In putting down this amendment we had in mind one particular company but, of course, it affects many others and the principle is of general application.

In one respect the Minister is on very weak ground here, that is that he has to some extent admitted the validity of our argument when, last year, he agreed that half only of his provision in regard to advance corporation tax would come into operation: in other words, he postponed the full implementation of the new provision in regard to advance corporation tax. I hope the reason he did so was that he saw the validity of the argument we were then advancing. Having done that he is now in a very false position in not accepting this amendment because it has been very tightly drawn. Because of the way it has been drawn I am assured by experts that it will obviate the difficulties and problems which the Revenue Commissioners feared in regard to our proposal last year. In other words, I am led to believe that it will not result——

The Deputy has just five minutes left.

If the Minister's experts examine it carefully I can assure him that this amendment will ensure that nobody who is not entitled to it will be able to gain at the expense of the Revenue. That is what we have tried to achieve in this amendment.

In conclusion I want to fully support Deputy O'Malley in what he has said. We believe that a serious injustice is being done to this company but that it is more than that. Because of the manner in which advance corporation tax has been introduced something is happening here which is to the detriment of investment by indigenous Irish companies in Irish enterprise. That is what we are concerned about. On this occasion I appeal to the Minister — because of the very restrictive and limited way in which it is drawn — to accept this amendment.

We discussed a similar proposal on Report Stage of last year's Finance Bill. I said then, and it is still the case, that a proposal of this kind would very substantially reduce, if not entirely eliminate, the amount of advance corporation tax which a company with a large volume of capital allowances would pay. Of course it is the case that many companies have large amounts of capital allowances, so to speak, still unused.

The operation of advance corporation tax obviously means that the payment is made by companies which are paying out dividends. It is only right that we reflect on the system with which advance corporation tax is intended to deal. In the situation as it obtained before advance corporation tax, a company that paid dividends of, say, £2 million, carrying tax credits of £1 million, would pay no tax if it had an appropriate amount of capital allowances unused. Under advance corporation tax, as the scheme obtains at present, such a company would pay £500,000 to repay to the Exchequer, in effect, the tax credit that is given to the people who receive those dividends. An advance corporation tax is in fact a payment by the company of the amount of the cost of the tax credit that is given to the people who receive dividends in advance of the company's own payment of corporation tax. The system is designed to avoid a situation in which the Exchequer, the Revenue, taxpayers, pay out the tax credit — as was the case up to now — without ever getting any matching tax revenue from the people who benefited from the tax credit. That is the logic of advance corporation tax. That is what the system is intended to bring about.

In equity I cannot see any argument against doing that. If a tax credit is given there should be no net cost to the Exchequer, there should be no net burden to be carried by the general body of taxpayers——

But there is not.

That is what the advance corporation tax system avoids. It avoids a situation in which one pays out a tax credit in the confident knowledge that one is never going to collect that corresponding amount of taxation. The continuation of the 50 per cent base for advance corporation tax which we have at present will involve a cost to the Exchequer in 1985 of approximately £5 million. That represents the amount of tax credit which would otherwise be paid out by the Revenue without any corresponding tax being paid on it by the company concerned or by the people who receive the dividends at a later stage.

We discussed a similar amendment this time last year and the situation has not changed in any respect since then. I am afraid I must say that the justification for the system remains exactly the same now as it was then. The arguments against it remain exactly the same. I cannot find a reason for taking a different view from the one I took last year. I do not intend to make a reply along some of the lines Deputy O'Malley indicated. I will not make a reply to the effect of denigrating in any way the investment activities of any Irish or non-Irish company setting up here. That is not my business. The suggestion that in some way the operation of ACT is designed to stop people investing is absolutely nonsensical.

That is the effect.

The operation of ACT simply means that the Exchequer and the taxpayer do not bear the burden of a tax credit in cases where no tax is paid. The effect of the amendment would be largely to take away revenue from advance corporation tax in 1985. The situation has not changed in any respect since this time last year. I continue to take the view I took then and I oppose this amendment.

A company which is now suffering losses and is therefore not liable for tax but which has built up revenue reserves which have been fully taxed over the years may feel it necessary in order to retain shareholder and institutional confidence to pay a dividend this year. Does the Minister consider it equitable that a company which pays a dividend in that situation should also bear on that dividend, paid out of already taxed revenue reserves, advance corporation tax of several million pounds?

I find it entirely equitable that a company which pays out a dividend to which a tax credit is attached should make a payment of advance corporation tax. If that company subsequently has a liability for corporation tax, the amount of ACT paid is offset against that corporation tax. If the company subsequently does not have a liability for corporation tax I see no reason why the Exchequer should make a present on that distribution of the amount of the tax credit.

It is now 7.30 p.m. and in accordance with an order of the House made earlier today I must put the question.

Question: "That the amendment set down by the Minister for Finance to section 48 of the Bill is hereby made to the Bill and, in respect of the sections undisposed of in Chapters VII, VIII and IX in Part I of the Bill, that such sections and, where appropriate, the section as amended are hereby agreed to" put and declared carried.

Certainly if we had time there would be a vote.

CHAPTER X.

SECTION 63.

I move amendment No. 50:

In page 60, lines 14, 15 and 16, to delete "issued by An Post and Bord Telecom Éireann and guaranteed by the Minister for Finance as it applies to the forms of security specified in paragraph (d) of that section." and substitute the following:

"issued—

(a) in the State, with the approval of the Minister for Finance, by the European Coal and Steel Community, the European Atomic Energy Community or the European Investment Bank as it applies to the forms of security specified in paragraph (a) of that section, and

(b) by An Post or Bord Telecom Éireann and guaranteed by the Minister for Finance as it applies to the forms of security specified in paragraph (d) of that section.".

The purpose of this amendment is to extend to securities issued by the European Coal and Steel Community, the European Atomic Energy Community and the European Investment bank the exemption from capital gains tax granted to Government and other public securities by the 1975 Act. I have been approached this year by the European Investment Bank with a request that they be allowed to raise certain amounts on the Irish market and I have approved an issue of £10 million to be made by that institution. What I want to do is to extend to the securities of the European Investment Bank and the other bodies the same capital gains tax treatment as is now accorded to Government and other public securities.

We will not oppose this amendment. I would point out that the Minister's view in this matter is in sharp contrast with the view he took on the amendment of which we have just disposed. Here he is prepared to facilitate the raising of capital on our rather meagre domestic market by these institutions of the Community when, despite the very cogent argument put forward by Deputy O'Malley, he refuses to facilitate the raising of capital by indigenous manufacturing industries. The Minister is adopting a very mixed approach to different areas in this Finance Bill. In this amendment he is facilitating the raising of capital on our market by outside institutions whereas he resisted an appeal from us to help investment in Irish companies by institutions in the same domestic market. That being said, we have to play our part in Community affairs by facilitating this proposal from the European institutions, although, having regard to the relative state of development of respective economies throughout the Community, it is somewhat ironic that these large Community institutions should be coming to our capital market and raising funds there. It is not a point we would wish to press very strongly. One imagines that there are other markets in the Community where capital is much more freely available and in much greater amounts than is the case in our market. However, if we have to do this as part of our contribution to the Community and its operation, so be it.

Deputy Haughey has seized an opportunity to make a point that is rather unrelated to the amendment at issue.

Nothing wrong with that.

The extension of this treatment to securities issued by the European Investment Bank is in keeping with a resolution passed some 24 years ago by the Council of Ministers of the European Community. The particular question of the European Investment Bank has arisen only this year. It is all very fine for Deputy Haughey to make his rather opportunistic and irrelevant points when he knows very well that the European Investment Bank has been a major source of funding for a number of projects in this country. As a prudent banker, if no more, it would wish to have a certain component of our currency in its funding resources because of the kind of lending it undertakes. To use this amendment as a hook on which to hang the other points Deputy Haughey made in relation to the previous amendment seems to do no justice to his feelings about this or the previous amendment.

Amendment agreed to.
Section 63, as amended, agreed to.
SECTION 64.
Question proposed: "That section 64 stand part of the Bill."

We are opposed to the section because we see it as illustrating once again the way this Government are attacking private residences and the security in which every citizen invests, that is, the security of his own home. In the course of the debate on the Finance Bill last year we witnessed an example of the Government's determination to introduce an income-related property tax. During this discussion I should like the Minister to disclose the amount that has accrued to the Revenue as a result of that tax so that we might contrast the small amount it has produced with the amount that may have been taken out of the economy as a result of it. The Government's position on that tax was taken to accommodate the Labour Party. Despite all the cogent arguments we put forward last year against the imposition of the tax, the Government proceeded with it. I understand that something of the order of £700,000 or £800,000 gross has resulted from the tax. Allowing for the fact that our whole taxation system is already much too complex, the introduction of a scheme to attack private residences or income related to them commended itself to the Government.

In a sense, the Government are being consistent this year. They are being consistent with that unreasonable stance taken last year. This year they are proposing in this section to apply capital gains tax to residences which up to now would have been exempt, on disposal, from capital gains tax. I am talking of a residence that is on a site of up to one acre. The Government are proposing that on the disposal of such a residence capital gains would accrue on that portion of the proceeds of the sale which can be attributed to what one might call the development element in the sale cost.

There are a number of anomalies in that approach. One might ask how long is a piece of string or what part of the string contains different elements within it because the Government propose now to enable the Revenue Commissioners to conclude that when a house is sold, a certain amount of the proceeds would have been got as being the value of the residence for residential purposes, that so much more apparently is to be free from capital gains tax but that there is another element in the sale price of a house and one acre which embraces an enhanced value element attributable to speculation or development potential on the site and that that element is to be made liable for capital gains tax.

This is importing into the legislation another attack on the principle of the private residence. We must encourage investment and activity that will generate employment but we must face the fact that regardless of what people do in the course of commerce, investment or anything else, if they are successful they will invest some of the profit in their homes. They may buy bigger or better homes for their families. This is totally commendable in a society that has always encouraged home ownership. On the one hand the Government may be pretending to encourage that but on the other hand they are attacking the concept very severely.

In addition to my question as to the return last year from that ridiculous piece of legislation to which I have referred, one might ask also what the Minister expects to get from what he is proposing here. The amount of money involved would need to be considerable to justify a proposal of this nature which of itself will signal further to people that if by any chance they come into a more secure way of life and if by way of reward for their work they earn money they would like to invest in their homes, they had better think twice. Those are the kinds of signals that this Government are putting out all over the place. They may talk as much as they wish about trying to create a climate for what the Minister calls competitiveness — that is so that we might somehow minimise the effect of the lack of policy on the part of the Government — but signals such as the one we are addressing here and such as the one I have referred to in relation to last year's Act indicate clearly that if a person happens to have a house on one acre and intends selling it, he will be caught on that, too.

The level of taxation in this economy has reached intolerable proportions. One would wish to see a balance within that range between income tax, capital taxation and the various other forms of taxation but the level of our total taxation is now at about £6,125 million. That is a huge increase since the coming into office of this Government, an increase of the order of almost £2,000 million. However, the appetite has not been satisfied and there are other areas one can point to. No doubt, the Government will attack some more areas. All this means that we will only succeed in telling people that if they work they will be penalised, that if they invest, they will be penalised and that if they buy a house that is a little better than the one they have and then sell it, they will be penalised also.

I do not see the reason for continuing with that kind of approach apart altogether from the fact that sections of the Revenue Commissioners are already unable to cope with the whole taxation system. For evidence of that we might only inquire about the number of people who are waiting for tax rebates that are theirs by right or inquire about the number of people who are waiting for subcontractors' certificates. Indeed, there is a suggestion that that section of the Revenue Commissioners are not even answering the telephones.

On a point of order, what has this to do with the section before the House?

It will have a direct effect on the building industry.

That is pure pretence. It is taking the matter out of context.

No one measure that any Minister introduces here will confine itself by way of the nice tidy effect that the Minister in his precise little way would package.

The Deputy knows very well that the problem in relation to subcontractors' certificates relates to the question of whether people have made tax returns, in many cases going back for years. It has nothing to do with this section of the Bill. However, if the Deputy considers that he must talk out this section because of not having anything else to say about the rest of the Bill, that is a matter for him.

I repeat that the Revenue Commissioners for whom I have very considerable respect, having worked with them as Minister and also having experience of dealing with them, have found themselves unable to cope with the voracious appetite of this Government in dreaming up new forms of taxation. The system is not able to cope with all of this taxation. I merely gave an example of one that is no more nor no less important than any other. Perhaps I should not have mentioned it. The Minister was touchy on that. I merely made the point about people waiting for tax rebates. I am sure the Minister has some contact with the public in his work as a Deputy and is consequently aware of the problem.

That is not what I referred to.

That may be so but instead of introducing measures of the kind proposed here which require new forms and more manpower, we should use the means and the manpower that exist to work the system as it is. For that reason, although with very slight confidence, I appeal to the Minister to drop this section. I am sure the Minister knows that the value of a private home on the open market is now about the same in money terms as it was three years ago. There is a slump in the market and people who invested in a house to live in as being the safest and most desirable investment now find that if they had put it into pension bonds they would have done much better. It is time we asserted that the private residence is something which the Government are not going to attack at every opportunity. We strongly oppose this section.

It is an exaggeration to say that the Government have inundated the Revenue Commissioners with a new range of taxes. I can think only of one new tax imposed in the last two budgets.

Which one?

The residential property tax.

What about levies?

Levies have been there for a considerable time; they are not a new form of tax. It ill becomes Deputy O'Kennedy to make false statements and to heckle everyone else who tries to make a contribution.

A levy is a tax. What about advance corporation tax?

If we were to follow some of the recommendations of the Commission on Taxation perhaps we would do just that and indeed we have been berated for not doing so. The Deputy cannot have it both ways. It is not the Government's intention to take something away from people. This legislation is to introduce equity and it is only intended to take something away from someone who makes a development gain over and beyond the normal capital gain. It is equitable between capital gains taxpayers and income taxpayers and it is also equitable between capital gains taxpayers.

Why should someone who has a house on one and a half acres of land pay tax on a half acre when disposing of the capital asset when perhaps a neighbour has a development gain but because his house is on a acre of land he does not pay? There must be equity and I agree with the suggested taxation of the development portion of capital gain. It is not fair to say that there is a significant change for nearly all taxpayers because most taxpayers who dispose of their houses are not involved in capital gains because they are on less than an acre and are not being disposed of for development purposes. They are buying another house in which they will be living. It only applies to people whose houses are going to be knocked down to build a roadway or a block of offices and who will make a development gain. That is the only portion of the gain which is taxable. If, for instance, a person sells his house on an acre of land at the price which other houses in the area were selling for he would not have to pay any tax. I do not think it is unreasonable to tax the development gain.

With regard to compulsory purchase orders, Dublin Corporation will be laying many new roadways in the inner city and the city generally, which will mean many CPOs. The amount which the local authority, and the Exchequer, will have to pay will be increased because of the tax element to the beneficiary. Someone who has a CPO served on him and receives compensation of £120,000 might find that because of the tax involved the State may have to pay him £150,000 to enable him to pay tax. For that reason, compulsory purchase order cases should be exempt from this section.

That would not be right.

Deputy O'Kennedy should not interrupt. Where the State or local authorities are making a compulsory purchase order they should be exempt from this provision because the amount the State will have to pay out will increase in order to pay tax. There will be unnecessary bookkeeping, taking in expenditure with one hand and paying out money with the other.

I support Deputy O'Kennedy. This section reflects and is further evidence of the anti-private home ownership attitude of the Government which is manifested by the restriction of mortgage relief for tax purposes and the threats of further restrictions to come. It is also envisaged by this abominable property tax which has made us the laughing stock of the civilised world. It takes away the one concession an individual has under our capital gains tax legislation——

That is not true.

A person's home was protected from the impact of capital gains tax. That is no longer the position. It would be helpful if the Minister were to give an example of how this legislation will work because, like the residential property tax, it will give rise to a great deal of confusion and many court cases. My understanding is that the development element of the gain is taxable; in other words, if you acquired property before April 1974 it has a certain market value but, if the current use value is less than the market value, part of the market value is attributable to development potential. The current use value is deducted from the market value which, in turn, is deducted from the same sum when the property is disposed of. If property on 6 April 1974 had a market value of £30,000 and a current use value of £10,000 we presume the £20,000 extra is due to development potential. If the property is sold after the Bill becomes law it may be sold for £100,000 but if it did not have development potential the value would be £30,000 and, therefore, the increase in value due to development potential is £70,000. In that case you deduct the original increase in value due to development potential from the £70,000 and take 50 per cent. That is how the calculation is worked out.

I hope the Minister will give us an example of how it operates when he is replying. If that is correct, the Minister is leaving out of account the fact that part of the increase in the development value will also be due to inflation and should therefore be indexed in the normal way. I should like the Minister to tell us why he proposes to tax this increase in development value at 50 per cent, without providing appropriate indexation for that part of it which is due to inflation.

The reaction to this section of the Bill on the other side of the House is like the reaction to some other sections. It is grossly exaggerated. For Deputies opposite to make long Second Stage speeches, if I may say so, about taxation generally on this section seems more than a little inappropriate.

It is very clear from the way in which the section is written that it in no way constitutes an attack on a person's home or residence. If Deputies look at the provisions of the section they will see exactly what is involved. It is not by any means intended to attract the tax inspector's attention to somebody who gets a good price for his house. It is not intended to stop people from trading up. It is not intended to stop people from buying a better house.

It applies capital gains tax where a substantial gain is arising in comparison with the current use value of the house at the time it is sold. It covers cases where there is a development gain and where we are not talking about somebody selling his house in order to move to another one and trying to get the best possible price on the market for his house. In deciding whether or not a particular sale of a particular house fell to be examined under the sections of this Bill, three factors will be taken into consideration. Obviously the first is the price. If the price is far above the current use value of the house in question, it would fall to be examined by the inspector of taxes. I am not speaking about somebody who gets a good price for his house, somebody who would normally expect to get £60,000 for his house and gets £65,000, or £70,000, or £75,000.

The second factor would be the purchaser. Who is buying the property? Is he a developer or somebody who wants or intends to take up residence in the house? If you have a house which would normally be valued by the market at £60,000 and you get somebody to pay £70,000 for it and move in, that is not a case where there is a development gain and, therefore, the capital gains tax provision set out here would not apply.

The third factor which will be looked at is the planning situation in the area. Was there an application for planning permission to change the use of the house or of the site either just before the sale or after the sale which would have materially affected the price of the house? This measure will not be of any relevance to the 90 per cent of people who sell their houses every year and promptly move into another, having sold it to a person who is moving in with his family. That is not what is intended. I am not at all convinced that Deputies on the other side of the House believe for a moment that is what is intended.

The Minister should not worry about our beliefs. We have argued them and we hold our own beliefs.

If all of those factors together indicate that there is a change in the use, that there has been a very substantial increase in the value of the house, and that the person who bought the house intends to make a different use of the property, it will fall to be looked at for the purposes of this section.

Of its nature it is not the kind of measure that will be applied very frequently and it will not be terribly difficult to implement. It will arise only where you have a conjunction of factors such as the ones I have outlined. If they do not exist, or if that conjunction does not exist, the question does not arise at all. Where it does arise, it seems to me to be the kind of case where the tax inspector will have to discuss the matter with the potential taxpayer. As in most cases of that kind, they will probably reach agreement as to what the figures are on which they had to work.

The Minister is living in a very unreal world.

If Deputy O'Kennedy thinks the world I am describing is rather unreal, I am afraid he is mistaken. I have the dubious pleasure occasionally when I get out of my office to inhabit the same world as Deputy O'Kennedy as we did last Friday night.

That is not what I mean.

I wonder is the Deputy suggesting that world was unreal. The meeting I was at was real. I do not know about his. This kind of comment on a section like this shows that the Deputy does not take his own remarks all that seriously.

On Deputy Mitchell's question about compulsory purchase orders I have to point out that the 1982 Finance Act, section 36 (3), made special provisions for compulsory disposals of development property owned for over three years. Disposals of that kind of property are taxed at 40 per cent of the rate instead of 50 per cent.

Forty per cent of the capital gain?

Forty per cent instead of the 50 per cent which would normally apply to voluntary disposals of development land. Having considered the matter because Deputy Mitchell raised it with me——

That was in 1982 before the Minister came into office. We will not get a further concession from the Minister.

Does the Deputy feel it was a concession? I remember feeling at the time that it seemed a perfectly reasonable approach to take. I did not regard it as a concession. I thought then that it seemed to be a perfectly reasonable approach to take and, in the meantime, I found no reason to change my mind. I still find it perfectly reasonable. I do not see any new reason to do something different.

Did the Minister say the rate was 40 per cent of the capital gains tax rate?

The capital gains tax rate is 40 per cent on compulsory disposals of development land. Voluntary disposals of development land are taxed at 50 per cent on that portion which represents the capital gain.

That is a 10 per cent concession.

It seems to me to be reasonable in the case of compulsory disposals where the people who made the disposals did not voluntarily decide to dispose of the property themselves in order to make a gain, but found themselves obliged to dispose of the property. It seems reasonable that we should make some distinction between that kind of case and the case where people voluntarily dispose of land. I have no difficulty whatsoever in commending one of my predecessors for what seems to me to be a sensible measure, just as I would find no difficulty in castigating him retrospectively for another measure which he took and about which Deputy O'Kennedy did not seem to have many critical remarks to make at the time. It has created a few problems in our tax system ever since then.

In relation to the method of operation of the system, I would like to be of assistance to Deputy O'Dea who raised a question in regard to that. In my brief I have a number of examples of how the tax will work in different cases. I do not know what the House or Deputy O'Dea would feel about quoting them now but it would be rather tedious to go through them and read out columns of figures. If Deputy O'Dea agrees I will give the examples to him later.

That is all right.

The Minister did not reply to the question I put. How much does he expect to get from this in 1984?

About £255,000.

I thought it would be a figure in that region. For a full year would it amount to about £500,000?

I should have said that the figure I quoted would be for next year. There will not be any revenue this year.

Again, we are introducing a scheme that will have a minimal return to Revenue. A total of £250,000 out of a total tax bill of £6 billion is very small. For that reason we must ask what is the purpose of this.

There is the obvious purpose of equity.

Equity seems to be so much in the Minister's mind that he ignores reality. It is not something I would commend to any Minister. It is clear from the Minister's reply that Deputy Mitchell, and his constituents, will find that when the compulsory purchase order is made on their plots — we are not talking about wealthy people and I presume he is not — they will be caught. A house and up to one acre when sold are caught now. They have always been exempt before.

Not necessarily.

I do not find that very reassuring. If the value that accrues is in the judgment of the Revenue Commissioners above the normal use value and has a development element in it, it is caught, and Deputy Mitchell should recognise that. We are talking about people to whom if there is a road development programme — it could be in Inchicore or anywhere else — it is open to the Revenue Commissioners in view of the enhanced value for the development purposes to say that that element of it is above the normal use value allowing for an inflation index and on that capital gains tax will have to be paid. When Deputy Mitchell votes on this he should know that that is what he is voting for. There is no point in making all the precise realities we are facing in this proposal. The explanatory memorandum is very honest on this.

It is accurate.

It states that section 64 restricts the relief from capital gains tax, which is provided for in section 25 of the Capital Gains Tax Act, 1975 — we had things to say about the Coalition Government of that time — on the disposal by an individual of his only or main residence, including its grounds not exceeding one acre.

The Deputy's Government did not abolish that between 1977 and 1981 although they abolished a lot of other things.

The explanatory memorandum refers back to main residence and grounds not exceeding one acre and that includes every house and back garden from south Kerry to northwest Donegal and around this city. The explanatory memorandum states:

... where consideration for a disposal on or after 25 January 1984 of such property is significantly inflated because of development potential.

It does not have to be a price that is realised at all on the actual development but development potential. The reassuring words are:

In effect, only such part (if any) of any chargeable gain which reflects a real increase (i.e. over and above the rate of inflation) in the current use value of the property disposed of will be relieved from tax.

In other words, the rest is included. The Minister in his calm style told us reassuringly that he envisages a certain conjunction of factors applying, price, purchaser, and planning situation. I should like to tell the Minister that his reassurance is not of any consequence to us. The Minister is only Minister of the day and when he departs the legislation stays after him. It will not be too long before another Minister will be in his place and he will be stuck with this legislation until he introduces measures to get rid of it. Even allowing for the examples given by the Minister I do not think he believes the reassurances he has given. It is obvious that anybody with any experience of the human condition — the Minister must have some — does not believe this.

The Deputy is outdoing himself; the compliments are really flying.

People cannot be tidied, packaged, regulated and controlled as if everything was going to work out as systematic and precise as the Minister is presenting this in the House. We are dealing with humans and he wants to operate directly and control them in such a way that their previous habits will not operate. According to the Minister's example the factors are the price factor, the purchaser and the planning situation. We have this tidy approach from this tidy ministerial mind. Over and above the value in the open market this comes into play and, therefore, we are dealing with a mathematical slide rule on open market values. The Minister must be aware that open market value is held in law to be what a willing purchaser is prepared to pay and a willing vendor is prepared to accept. It varies according to what is called the market demand. For instance, one might find a purchaser in one part of the town of Ennis who is prepared to pay because he wants a house now more than a person paid one month earlier for a similar house in another part of the town. It happens all the time. A person may pay a greatly enhanced price because he or she wants a house now. That is open market value but not necessarily use value. The Minister is referring to a use value. A new concept is being introduced in that somebody will determine a use value, allow for inflation and anything over and above that can then become the part that is liable to tax. The only way one can find a market value is by putting a place up for sale. That gives a market value and that has been held in law.

The Minister is being so precise and tidy but so unreal in this an in other ways. Those tidy definitions do not equate to reality. They may be represented here in a calm reassuring way but that it not reality. One may get an enhanced price for reasons other than development potential, but if one does what is to stop the Inspector of Taxes saying that the price is because the property has a development potential, that the person who bought it had something in mind and thought that in about five or ten years time he would sell it for a better price, or that part of town is popular and perhaps something will happen there? Look at the purchaser. Will people selling their homes shy away from potential purchasers who happen to be associated with the building industry? What about auctioneers? Will there be a difference in approach by the tax inspector if the purchaser is an architect or surveyor to what it would be if he was a doctor or a lawyer? The Minister mentioned that as being one of the conjunction of factors, as he so tidily put it, in this tidy world where everyone behaves as if they were robots. People do not react that way. One of the mistakes the Minister makes is assuming that they do.

Not at all.

The more the Minister tries to do the more he proves that he is out of touch with the way people behave. As a result of what the Minister said tonight many people will have second thoughts about developing their homes. I am not sure if all three must operate together. They are examples given by the Minister which will not matter when the Revenue Commissioners come to adjudicate on them. What a Minister says here will not matter even in a court.

Deputy Mitchell might as well know now that the question he asked has not been answered satisfactorily because it cannot be. The only concession made was in the year before the Minister came to office. It was in respect of people who as a result of a compulsory acquisition got an enhanced value for their property. The application of a capital gain was reduced. It only applied to houses on sites of over one acre. The present Minister is not prepared to follow that path. He has decided that if as a result of a compulsory acquisition a person gets an enhanced price he will be caught. When the development plan for arterial roads and so on goes through there will be many people who will be caught.

Deputy Mac Giolla is not here now but he pretends to be concerned for workers. If they get an enhanced value for their property, their one-eighth of an acre or one-quarter of an acre will be liable for capital gains tax. That is why this section is a nonsense and all for the sake of £¼ million.

I do not have the same nervous approach to this as Deputy O'Kennedy. There may be some properties in my constituency where there will be CPOs. People will be obliged to pay tax only on the development gain if it arises and not on the capital gain. Previously if the house and site was in excess of one acre one had to pay tax.

How will indexation affect the development gain? Will it take the development gain into account or will that be disposed of in the capital gain? If a person is caught for tax on that portion of the capital gain which is development as a result of having a CPO served on them, will there be roll-over relief if they invest in a similar type property? What do the provisions of the new legislation state in relation to that? As this will not bring in any income this year and in a full year will only bring in £¼ million, it does not justify the kind of comments made about it.

That is why we say it was a nonsense.

It is not very frightening and will not affect most people in the disposal of their property.

It is a mean little piece of taxation.

Very few people will be unable to contribute, because of the happy position they will be in.

The legislation expressly recognised that part of the increase in the value of the current use value will be solely due to inflation. Does the Minister agree that part of the monetary increase in the development value will also be due to inflation? Does he propose to tax that at the full rate or will he give any relief for inflation?

Is the Minister saying that the cost of this change this year will be £¼ million or does it refer to the total relief on main dwellings?

The £¼ million is the extra tax revenue that will accrue in 1985.

How does the Minister estimate that?

It is a guess.

That is all it could be.

If I knew how many people would sell their principal private dwelling and make a development gain on it in 1984 and if I knew what price they would get and how much tax they would pay, I would know so much about the workings of the economy——

And how many CPOs?

——that I would not be in here. I would be outside making millions for myself with that kind of prediction capacity.

Would the Minister confirm that the £250,000 refers to a natural increase in the take for capital gains tax?

The additional capital gains tax would be from this measure.

If we did not have this measure——

If we did not have this measure we would not have the £¼ million. If we did not have it we might have an increase in capital gains tax revenue in 1985.

We are not used to guessing.

I should like to remind the Deputy who spent some time on Second Stage inviting me to guess how many people would take advantage of the risk capital scheme, which I did not take up, that I gave him a straight answer. We are not legislation on this. To fling that at me and miss the fact that the word "significantly" appears there is rather naive.

It has more status in law.

The intention and scope of this measure are made very clear in the section.

The Minister told us it would bring in £10 million. It took in about £3 million.

I refer Deputy O'Kennedy to the new section 10 (a) to be inserted in the Capital Gains Tax Act, 1975 and specifically to page 61 of the Bill, lines nine to 25 which set out the matter clearly.

Like everything else in this Finance Bill.

The Deputy was worried about the definition of current use value. This was first defined in the Finance Act, 1982, another one of the many things in that Act which the Deputy appears to have overlooked.

As far as indexation relief is concerned, it would not apply to the development element in the base value of a property. It appears that there would be few cases, particularly since we are talking about private residences, where there would be any development element in the base value. Full indexation will apply to the current use value for the purposes of the Capital Gains Tax Act, 1975. There is no roll-over relief on private residences. To the extent that it applies it is only to business premises.

Question put and agreed to.
Progress reported; Committee to sit again.
The Dáil adjourned at 8.30 p.m. until 2.30 p.m. on Wednesday, 9 May 1984.
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