Finance Bill, 1984: Report Stage.

Mr. O'Kennedy

I move amendment No. 1:

In page 9, line 19, to delete "£5,000" and substitute "£5,400".

An Ceann Comhairle

Amendment No. 2 is related. Amendments Nos. 3 and 4 are consequential on Nos. 1 and 2, respectively. Amendments Nos. 1, 2, 3 and 4 are to be taken together, by agreement.

These are the proposals that I am submitting for consideration by the Minister in relation to tax exemption limits and the category of people to be exempted from income tax. We have all of us acknowledged that the increase in the level of income tax has become a matter of very considerable concern. The Minister himself has acknowledged that the levels of taxation are high and that he also would wish to work towards more acceptable tax levels. We are concentrating here for that reason on that category of our population on whom the burden falls most heavily — obviously, those on very low incomes. I propose in these amendments that the tax exemption limits be increased in the case of a single person from £2,500 to £2,700 and for a married couple consequentially from £5,000 to £5,400.

If we were really to introduce an exemption that would relieve the burden of the growing tax bill for those people in line with inflation we would be proposing an indexation which would cost the Exchequer probably something of the order of £95 million this year and £159 million in a full year. We have, because we are conscious of that cost to the Exchequer, balanced the position. Even though we feel strongly that the lower paid, in particular, should get the benefit of an exemption limit which should be indexed in line with limits set in 1980, when I was Minister for Finance, but because of the arguments the Minister has made in the House about the inability of revenue to make those adjustments, we have taken that on board. We have very reluctantly confined ourselves to making those minimal proposals for increasing the exemption limit from the figure proposed by the Minister of £2,500 to £2,700, which represents about £53 a week and from £5,000 to £5,400, £106 a week for a married couple. Everybody is reacting to the tax bill but we might as well face the fact that those who are most severely penalised by the heavy rate of tax are the lower paid. Many of those people will find themselves on social welfare payments. Many of them will be retired workers, who formerly worked for county councils. The people I am talking about here are probably not employed at all. They are either retired or unemployed.

As the House recalls on Committee Stage we also proposed adjustments on the age category which, regrettably, the Minister could not accept even though the cost to the revenue would be only something of the order of £400,000, to relieve certain categories of old people over 65 and 75 from the burden and worry of taxation. We obviously still feel very strongly that the Minister should have accepted that amendment but he did not and, unfortunately, we cannot raise it again today. In this case the general exemption limits would also help the people who have age exemption qualifications as well. The Minister mentioned that the total cost of this in a full year would be £5.4 million. You can look at what we are proposing as a total cost to the State of £5.4 million out of a total tax bill of £6,125 million. I suggest to the Minister and his colleagues in Government from the Fine Gael Party and the Labour Party that is a miniscule proposal out of the total tax bill.

You can also look at this proposal in terms of cost to the people subject to taxation. The significant thing I want to underline here is that last year those who failed to qualify for exemption, the lower paid who just came into the tax net, did so at 25 per cent. This year those who just fail to qualify, who are over the limits I have mentioned, earning £104 to £106 for a married couple, come into the tax net at 35 per cent, an increase of 10 per cent on their tax bill. It may well be that, because they are at that level in society, the amount they pay may only be £1.25, £1 or 75p a week, but that sum of money for them is a matter of very considerable anxiety. When we compare the cost to the State of accepting it, trying to create the balance between equity, which does not just exist between taxpayers but must also be between the taxpayer and the State, and looking at the balance that way, there can be no argument which would suggest that the Minister would do an injustice to anybody or would deprive the State of necessary revenue from the taxpaying public by increasing the exemption limits to what we propose.

We probably should have proposed higher figures if we took into account indexation in line with inflation but we did not. The Government have said this, and if the Labour Party were here at any time during the debate they would have said it also but they have not been here to express this in the Dáil. The Workers' Party and we have said that the need of the moment is to have particular concern for the lower paid. For that reason I press the Minister, on reflection and having regard to the minimal cost this would have, to accept the amendment. The figure I quoted would be a gross figure of £5.4 million in a full year. The net cost would probably be something of the order of a little over £3 million. We must have regard to the number of people concerned and the fact that this year the Minister has removed fewer people from the tax net under the exemption proposals in the budget than any previous Minister for Finance in the last few years. Perhaps the only person who could compete with him is the Minister for Finance last year, who is himself. In every other year the tax exemptions excluded a much larger number of people than the 30,000 people the Minister will be excluding this year. One always adjusts one's exemption limits because of the impact of inflation. The Minister has not gone far enough this year.

I know the Minister has had some time to consider this. I know he showed a certain degree of understanding and sympathy. I hope he can translate that understanding and sympathy into action at this stage and that he will accept this amendment. If he does not accept it we will find that a married couple with a princely sum of £104 per week, and with all the outgoings they have to face with increasing costs and rent, are coming into the tax net at 35 per cent. I said last week during the Committee Stage debate that apart from the money factor there is the worry and anxiety this causes to people at this level of income. I said to the Minister that I presume he meets them in the course of his clinics — we all do — old people particularly who really do not know anything about filling up tax forms and who worry unduly when these forms are sent out to them by a machine. They do not respond as a machine; they have to worry about it.

I do not know what will have been the experience of Deputies over the weekend, but I had three such people with me over the weekend — they had not even read this debate; they do not read the papers — who were concerned about their tax bills, frankly the kind of people who should not be asked to contribute to this growing tax take of the State of £6,125 million. For that reason I would hope that the Minister, on reflection, would see the justice and necessity of accepting this amendment. Really it is a case of res ipsa loquitur— the facts do speak for themselves. If I were to speak here for another hour I could not underline the necessity any more than do those facts.

Mr. Mac Giolla

In the event of our not having put down our own amendments I support Deputy O'Kennedy's and the general tenor of his remarks in regard to the need to increase the exemption limits. The point was made on Committee Stage, and it is particularly pertinent and relevant, that they should be increased at least in line with the inflation rate which would be approximately 10 per cent. Unless those exemption limits are increased by that amount the whole idea of their maintenance even at previous rates is meaningless. The Minister, simply by not adhering to the inflation rate, is bringing new people into the tax bands. People in the lower income brackets are being brought into the tax net, people who we believed last year and the preceding year would not have to pay tax. I doubt if it is the Minister's intention to move further down the scale, bringing more people into the tax net in that way. The only way to avoid that is to increase the exemption limits. The general level of tax of PAYE workers is something that has been emphasised and talked about for a number of years past. It is something which is causing tremendous frustration. The reason people are somewhat quieter about it now than they were, say, two years ago is that they cannot see they will get anywhere by shouting about it. There is this general talk on the job that we need to do more than just march, that it is a waste of time marching or talking, nobody will listen to us, they will listen to others all right but not to us, so we need to do something more than that. This is the type of attitude that can very easily develop particularly when, in addition to having to cope with enormous tax deductions, PRSI contributions and so on there is the actual insecurity of the job. No job is secure any longer. Job security was something which maintained a level of acceptance or perhaps lack of action by people at work, but that feeling of security no longer exists. Therefore there is a much stronger urge to take some kind of action within the job, whether through strikes, sit-ins, goslows, or whatever. There is a general feeling among people at work that they are not getting reward for commitment to the job, which formerly meant one would be in it for life, one would receive a decent wage and so on. That has all been eroded very rapidly over the last two years because of rapid closures. Therefore the amount taken out of one's pay packet at the end of the week that one never really gets into one's hands is now one of the most frustrating aspects of a job.

I might reiterate what we asked on Committee Stage, that single parents, widows, widowers, separated spouses, with dependants, be treated in the same way as married couples. The single parent, the widow or widower has precisely the same outgoings and problems in relation to dependants, mortgage repayments or rent repayments on the same house and so on. In the case of a woman she will have the additional problem of trying to find a job and, if she does, she will then have to pay somebody to look after the children and house, which means she will have increased expenditure. Therefore, the single parent finds it much more difficult to cope. Yet they do not receive the same tax allowances as married couples. I might add that the numbers in this bracket are increasing rapidly because of the number of marital breakdowns and separations which are increasing at present.

Mr. G. Mitchell

I should like to ask the Minister to do two things. I would ask the House to realise that one of the biggest upsurges there has been in recent years has been this march about PAYE, and I do not think we should feel too comfortable about the containment of the PAYE protest. I believe people feel very strongly about the way the PAYE system operates so that something like 90 per cent of total income tax receipts is being collected through PAYE contributions. These people do feel cheated. They work very hard and, at the end of the week, receive something like half of their entitlement, in most cases, which is very difficult for most people to understand. It does away with incentive to work, with a feeling of fulfilment, leaving people feeling cheated at the end of the day. The only way in which that problem can be tackled is by cutting public expenditure and thereby reducing PAYE contributions.

I would say to the Minister that there is no point in awaiting further protests, marches or whatever. There is only one alternative available at this point — until there is sufficient growth — that is to cut public expenditure and relate that to cuts in PAYE contributions. I would urge the Minister to reduce those PAYE contributions, by increasing the tax allowances through whatever machinery he likes.

Indeed in relation to allowances generally, particularly the exemption limits, people are not aware of their entitlements, particularly old people. I would ask the Minister to take steps to have such information made available to people, in leaflet form or whatever, so that they can be made aware of their entitlements and claim them. I take more than a passing interest in income tax and, for that reason quite a lot of people come to see me about this matter, as I am sure has been the experience of the Minister and indeed Deputies O'Kennedy and Mac Giolla. One of the biggest problems I encounter is that in many cases people have not been claiming the allowances to which they were entitled. Again I would urge the Minister to ensure that people are made aware of their entitlements, particularly the exemption limits, from which very often older people can benefit but of which sometimes they are unaware.

Minister for Finance (Mr. Dukes)

As I said on Committee Stage, we have been putting forward provisions in the budget and the Bill this year and have allocated as much as we possibly could for the general relief of income tax. We have distributed, as far as we could, in favour of people who are most in need of assistance. All exemption limits have been increased this year. The general exemption limit has been increased by £100 for a single person and £200 for a married couple. They are now £2,500 and £5,000 respectively and the age exemption limits are increased beyond that, by considerably more than the general exemption limits. The reason is that last year the only increase we were in a position to make was in the general exemption limit and we are now providing for an extra increase in the age exemption limits this year in order to restore the relationship that previously existed between the general limits and the age exemption limits.

We are talking about distribution of the total amount available in budgetary terms this year for the relief of taxation. We discussed this in some detail on Committee Stage and Deputy O'Kennedy placed emphasis on what he saw in the light of the information that I gave him as the minimal cost of bringing about the extra improvements which he suggested. There is a point where you decide how much is available and how you are going to distribute it. When you have made that decision of course you can visualise other improvements which would only have a minimal cost. However, the creeping expansionism in various allowances for which the Deputy is pleading is precisely what gets you into trouble in budgetary terms and leaves you at the end of the year with rather less resources and a great deal more in terms of commitment than you intended to have.

It is not the case, as Deputy O'Kennedy suggested, that people who pass the exemption limit are immediately in the 35 per cent band rate. Even if they have to pay tax, as I have said time and time again, the change in the personal allowances this year, combined with the effect of the abolition of the 25 per cent tax rate, means that they will pay less tax this year than last.

Deputy Mitchell spoke about the degree to which people understand or are aware of these various provisions. I agree with him in that regard and I will look at measures we can take to make people more aware of their allowances and entitlements under the income tax system. Deputy Mitchell's experience in this regard is probably similar to Deputy O'Kennedy's and mine in that a very high proportion of queries which I receive as a Deputy about income tax are quite quickly resolved by examining their tax-free allowance form and explaining how the system produces the result they are querying. That is far more often the case than one where a taxpayer has neither claimed all the allowances to which he is entitled—

Mr. O'Kennedy

That is for those who are lucky enough to consult the Minister for Finance.

Mr. Dukes

That is a most extraordinary statement even if it is somewhat complimentary. The vast majority of Members of this House are sufficiently familiar with the operation of the income tax system to be able to determine, broadly speaking, whether a tax-free allowance takes account of the taxpayer's position. We are all sufficiently well versed in the tax system to know what questions to ask a constituent in order to determine whether he has claimed or been allowed the full amount to which he is entitled.

Mr. O'Kennedy

They should not have to approach us.

Mr. Dukes

It is very enjoyable to have this kind of debate with Deputy O'Kennedy but, if he will wait for a few moments, I want to refer to the question raised by Deputy Mitchell. I will look at measures we can take which will increase public knowledge of the various allowances and exemptions which are available to taxpayers.

That is a Tipperary hare which I do not intend to chase. I find references to PRSI in the context of the amendment we are discussing totally irrelevant. I will not chase after that one. The improvements which are contained in this Bill in the general exemption limits and the age exemption limits allocate to those persons who will benefit from them £4.3 million of tax relief this year and just over £7 million in a full year.

As I said on Committee Stage, that represents what I would regard as being a fair proportion of the total amount available for tax relief this year. It represents a fair apportionment of that relief between different groups of people. There are other people who will get some measure of relief of taxation this year. The total amount we were able to provide in the way of relief was a figure which we would all wish to have increased. Within the budgetary framework of this year, that was not possible. We have spread it around in what appears to us to be the most equitable way.

Mr. O'Kennedy

It is a very thin spread.

Question put: "That the figure proposed to be deleted stand part of the Bill."

The Dáil divided: Tá, 70; Níl, 53.

Tá

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

Níl

Ahern, Bertie.
Barrett, Michael.
Brady, Gerard.
Brennan, Mattie.
Brennan, Paudge.
Brennan, Séamus.
Briscoe, Ben.
Burke, Raphael P.
Byrne, Seán.
Collins, Gerard.
Conaghan, Hugh.
Connolly, Ger.
Coughlan, Cathal Seán.
Daly, Brendan.
De Rossa, Proinsias.
Fahey, Francis.
Fahey, Jackie.
Faulkner, Pádraig.
Fitzgerald, Liam Joseph.
Flynn, Pádraig.
Gallagher, Pat Cope.
Geoghegan-Quinn, Máire.
Harney, Mary.
Haughey, Charles J.
Kirk, Séamus.
Kitt, Michael.
Lenihan, Brian.
Leonard, Jimmy.
Leonard, Tom.
Lyons, Denis.
McEllistrim, Tom.
Mac Giolla, Tomás.
MacSharry, Ray.
Molloy, Robert.
Moynihan, Donal.
Noonan, Michael J.
(Limerick West)
O'Hanlon, Rory.
O'Keeffe, Edmond.
O'Kennedy, Michael.
O'Leary, John.
O'Malley, Desmond J.
Ormonde, Donal.
O'Rourke, Mary.
Power, Paddy.
Reynolds, Albert.
Treacy, Noel.
Tunney, Jim.
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.

Amendment declared lost.

Mr. O'Kennedy

I move amendment No. 2:

In Page 9, line 21, to delete "£2,500" and substitute "£2,700".

I thought that amendment was taken in conjunction with the last one?

An Ceann Comhairle

It was discussed with it.

Question: "that the figure proposed to be deleted stand", put and declared carried.

An Ceann Comhairle

Amendments Nos. 3 and 4 cannot be moved on the defeat of amendments Nos. 1 and 2. Amendment No. 5 has been ruled out of order.

Mr. O'Kennedy

I move amendment No. 6:

In page 10, to delete the Table and substitute the following:—

"TABLE

PART I

Part of Taxable Income	Rate of Tax	Description of Rate
(1)	(2)	(2)
The first £1,000	25 per cent.	the standard rate
The next £3,000	35 per cent.
The next £2,000	45 per cent.	the higher rates
The next £2,000	55 per cent.
The remainder	60 per cent.

PART II

Part of Taxable Income	Rate of Tax	Description of Rate
(1)	(2)	(2)
The first £2,000	25 per cent.	the standard rate
The next £6,000	35 per cent.
The next £4,000	45 per cent.
The next £4,000	55 per cent.	the higher rates.
The remainder	60 per cent.

PART III

Part of Taxable Income	Rate of Tax	Description of Rate
(1)	(2)	(2)
The first £1,500	25 per cent.	the standard rate
The next £4,500	35 per cent.
The next £3,000	45 per cent.	the higher rates.
The next £3,000	55 per cent.
The remainder	60 per cent.

We have put down approximately 100 amendments to this Bill and in moving this amendment I have little confidence that the Minister will change his stance; he will stubbornly refuse to accept it, no matter how good a case we make. The Minister has not made concessions on our amendments, with two exceptions. He accepted an amendment to the employment incentive scheme to reduce the minimum amount of investment from £500 to £200, which will cost the Minister nothing, and a further amendment to increase the commission on management sums from 1 per cent to 5 per cent, which will not cost him anything.

No matter how well based our arguments have been in favour of making some allowances, some adjustments, some exemptions in respect of the lower paid, his answer has always been the same — the script has been written and it will be delivered. One begins to wonder whether there is much point in even going through the motions of making our case.

Of course our job is to make a case and I propose to make it briefly once more in the hope that it may have some effect on the Minister or that it will bring to public attention what the Minister refuses to acknowledge, that our tax burden is insufferable and is having a very damaging effect. It is important that on this amendment, which relates to tax bands, I should explain the amendment would restore the 25 per cent tax band and eliminate the 65 per cent band.

I emphasise that in income tax this year the Minister will make approximately 20 per cent more than he took last year. He proposes in this Bill to increase the take from income tax to £1,952 million as against £1,664 million last year. Even last year the income tax bill was too high but again in 1984 the Minister is proceeding in the same direction, although he must have some awareness of the damaging effect it is having. He is ignoring that and is imposing a further 20 per cent on the tax burden. Income tax now represents a growing imposition on the wealth of the country.

In 1979, income tax represented 18 per cent of our total income. This year it will represent more than 23 per cent. That is too big a growth for any economy to bear. It is an increase of 5 per cent of our total wealth. It has reached such a figure that some action must be taken, and the only one who can take that action is the Minister for Finance. Of course the Minister's answer has been that he has given concessions here and there and that they are all that can be afforded. For the life of me I cannot identify any of them. Of course he has picked isolated cases in which the tax is about the same as last year, but across the board the tax take has been increased by £300 million. That is too much.

The income tax take this year is close to the equivalent of the take from all taxes five years ago, and I include indirect taxation and the others. That is how enormous the income tax bill has become. As Deputy Brennan and I have been saying, income tax does not have to be the main instrument to get money in. It is that anyway, but the manner in which it is being applied can be qualified to ensure that certain allowances and exemptions will be used to promote certain worthwhile activities which will give employment. One such activity which is not covered by this amendment for obvious reasons is one which I hope the Minister will bear in mind for next year.

Our economy is more open than any other in the 23 OECD countries. We are more dependent on exports than any other of those countries. We must sell to survive, but it is clear that our marketing efforts are not as effective as we would want them to be. Córas Tráchtála have done a good job but their allocation this year has been reduced and this will prevent them from doing their job in the manner in which they would like to do it.

The Minister may be aware that in a recent OECD survey of their 23 member countries Irish companies came last in terms of marketing awareness. We have the same influence or impact on the European market as Malta in terms of consumer products. If one goes to supermarkets in Paris, in Brussels, in Bonn or elsewhere one will note that our products are not on their shelves. There is a fantastic job to be done and there is a great need to generate activity to promote employment.

For that reason, the Minister has a great opportunity to acknowledge the fact that we need to encourage marketing personnel, sales people, to give more time and effort abroad. At the moment they will not because companies find there is no allowance for the time their personnel spend away from home on the promotion of products. There is no incentive because they will be paying the same rate of tax as those nicely ensconced in their safe offices here at home, without the same security. The Minister can provide the incentive to those people through the tax code. I can tell him it is something we will do when we get the opportunity.

Apart from the pharmaceutical and high technology firms which we helped to set up when we were in Government, firms are not measuring up. They may be pretending they are but they are not. We do not blame them because, if one takes VAT and the impact of the total tax bill into account, one will appreciate the discouraging effects.

On Committee Stage I gave examples of the take-home pay of workers here and in Britain. Here, a worker earning £12,500 comes into a 65 per cent tax band but his counterpart in Britain does not come into a 60 per cent tax band until he is earning £45,000. As far as competitiveness is concerned, therefore, we are erecting impossible barriers. Our indirect taxes are far higher. Competitiveness is not the only factor. In order for the Minister to support his own argument he will have to have a close look at the levels of taxation which are inordinately and unacceptably high. It is for that reason that I press him to accept our amendment although I do so without any degree of confidence.

In response to many of our amendments the Minister gave the standard reply. Part of that reply was "in the circumstances of this year". Coming from anyone else that might suggest an openness to consider change in the circumstances of next year but I wonder if that is so. If there is not it will be to the disadvantage of the Government as well as the economy. It is not part of our duty to advise the Government on their immediate political interests. I hope that if the Minister is prepared to acknowledge that there is something in these arguments he will keep an open mind on them and look at them again for next year. I would be happy for the Minister to get the credit for introducing some imaginative tax allowance for marketing personnel, abolishing the 65 per cent tax rate and restoring the 25 per cent rate. The consequences would be beneficial to the country.

Mr. S. Brennan

Let us be clear about what the Minister has done in section 2. He has abolished the 25 per cent rate of taxation. There were 72,000 taxpayers in that band. I am not suggesting that they all moved into the 35 per cent band but as many as 50,000 of them have done so. The other rates of taxation have been altered. I compliment the Minister for improving the personal allowance. That was a generous gesture and I acknowledge it.

Taxation really bites in the bands and not in the personal allowances. If the bands do not change it means that people pay more tax. The bands, taking inflation into account, are probably worth 10 per cent less this year than last year. Therefore, people are paying 10 per cent more taxation they they would have been if the Minister had adjusted the bands for inflation. Taxation is biting deeper and deeper. We have told the Minister time and again that he can only carry that so far. When we come to a stage where it bites very deeply, the economy will suffer because people will not have any incentive left.

During the Second and Committee Stages of the Bill we tried to quantify what the changes in the personal allowances would mean. A single person earning £8,000 with a mortgage of £2,000 and paying PRSI would have 42p extra a week as a result of the change in personal allowances. That will not buy very much nor does it keep pace with inflation. A married person with three children earning £11,000 and paying mortgage interest of £3,000 will get £45 a year or 86p a week extra. Very little relief is given. If we want to give tax relief it must be done through the bands.

As regards the report of the Commission on Taxation, many people in the House would be happy to see a lot of the recommendations implemented quickly. I appeal to the Minister to look at the recommendations. If we could do it without the acrimony or bitterness of party debate we might get somewhere in reforming the taxation system which, in fairness to the Minister, he has said time and again must be reformed. Unfortunately the first report of the commission is still lying there. The second one has been produced but there is no evidence in the Bill that anything in it has been taken up by the Minister. I hope that we can grapple with the reports of the commission and that they will receive genuine political debate on all sides and not just political Pavlovian reaction.

Deputy Mitchell called for public spending control. Public spending is higher now than it was when the Government came to office. We would be grossly irresponsible if we put down amendments screaming for reduction in taxation and at the same time seeking increases in public spending. That would be foolish and a very short-term approach. The Government have not made any impact on public spending; therefore they must come into the House and seek increases in taxation which is what this Bill does.

Mr. Mac Giolla

I agree with the arguments put forward by Deputy O'Kennedy in regard to the bands at the lower end of the scale but I would not agree with him about cutting out the 65 per cent band at the top of the scale. The higher the income the more allowances one gets under our complicated income tax system. This Bill will give new allowances to those at the top who have money to invest, buy shares or whatever. When one is in that bracket one has a second house, a series of insurance policies, investments and so on all of which carry various allowances. There are practically no allowances at the bottom end of the scale. The 65 per cent tax band begins when one is over the £25,000 mark. I do not believe that a 65 per cent tax band at the top in unreasonable. We would increase it if one went above that. We suggested earlier that the 65 per cent tax band should not begin until one was on £27,000 but when one went into the £30,000 bracket one would move into a higher band of 75 per cent. As the top end of the scale carries more allowances so a higher level of taxation should be imposed there.

The Minister is suggesting that——

An Leas-Ceann Comhairle

The Deputy can conclude on his amendment. I appeal to you to refrain from interrupting.

Mr. Dukes

I am glad Deputy O'Kennedy has been assured that if he wishes he can come back to that point. In my view it is not very useful to dispute facts. There is not a conflict between his perception of the fact that people are paying more tax and what I have been saying, but there is perhaps a greater degree of specification in the various factors involved.

The Committee divided: Tá, 70; Nil, 54.

Tá

Barnes, Monica.
Barrett, Seán.
Barry, Myra.
Bermingham, Joe.
Boland, John.
Bruton, John.
Bruton, Richard.
Carey, Donal.
Conlon, John F.
Connaughton, Paul.
Coogan, Fintan.
Cooney, Patrick Mark.
Cosgrave, Liam T.
Cosgrave, Michael Joe.
Coveney, Hugh.
Creed, Donal.
Crotty, Kieran.
Crowley, Frank.
D'Arcy, Michael.
Deasy, Martin Austin.
Desmond, Barry.
Donnellan, John.
Dowling, Dick.
Doyle, Avril.
Doyle, Joe.
Dukes, Alan.
Durkan, Bernard J.
Enright, Thomas W.
Farrelly, John V.
Fennell, Nuala.
Flaherty, Mary.
Glenn, Alice.
Hegarty, Paddy.
Hussey, Gemma.
Kavanagh, Liam.
Kelly, John.
Barry, Peter.
Begley, Michael.
Bell, Michael.
Kenny, Enda.
L'Estrange, Gerry.
McCartin, Joe.
McGahon, Brendan.
McGinley, Dinny.
McLoughlin, Frank.
Manning, Maurice.
Mitchell, Gay.
Molony, David.
Moynihan, Michael.
Naughten, Liam.
Nealon, Ted.
Noonan, Michael.
(Limerick East)
O'Brien, Fergus.
O'Brien, Willie.
O'Leary, Michael.
O'Sullivan, Toddy.
O'Toole, Paddy.
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.
Barrett, Michael.
Brady, Gerard.
Brennan, Mattie.
Brennan, Paudge.
Brennan, Séamus.
Briscoe, Ben.
Browne, John.
Byrne, Seán.
Collins, Gerard.
Conaghan, Hugh.
Connolly, Ger.
Coughlan, Cathal Seán.
Daly, Brendan.
De Rossa, Proinsias.
Fahey, Francis.
Fahey, Jackie.
Faulkner, Pádraig.
Fitzgerald, Liam Joseph.
Flynn, Pádraig.
Gallagher, Pat Cope.
Geoghegan-Quinn, Máire.
Harney, Mary.
Haughey, Charles J.
Kirk, Séamus.
Kitt, Michael.
Lenihan, Brian.
Leonard, Jimmy.
Leonard, Tom.
Lyons, Denis.
McEllistrim, Tom.
Mac Giolla, Tomás.
MacSharry, Ray.
Molloy, Robert.
Moynihan, Donal.
Noonan, Michael J.
(Limerick West)
O'Dea, William.
O'Hanlon, Rory.
O'Keeffe, Edmond.
O'Kennedy, Michael.
O'Leary, John.
O'Malley, Desmond J.
Ormonde, Donal.
O'Rourke, Mary.
Power, Paddy.
Reynolds, Albert.
Treacy, Noel.
Tunney, Jim.
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.

I move amendment No. 7:

In page 14, to delete lines 47 to 49, and in page 15, to delete lines 1 to 38.

This is the issue of the income levy that we debated at some length on Committee Stage. In view of the fact that the Minister has resisted any of the proposals we have made on the tax bands themselves and on the exemption limits, we must press this issue also, unfortunately, for obvious reasons. First of all, this was introduced by the Minister as a temporary levy. Secondly while this levy is not stated to be for youth employment purposes, because it was another 1 per cent levy the impression was being conveyed that, in a sense, it also was intended to generate employment.

The impact of these levies, the 1 per cent youth employment levy and this levy which we are imposing this morning which is not expressed to be for any purpose other than raising money, is unacceptable to us. In the course of the debate on Committee Stage I said what I reiterate now, but having regard to the amount of detail we had to pursue perhaps this did not come across as strongly as we would wish. I said that as an indication of the basic difference between us and the Government, these levies would be examined very strongly by us coming into Government, the one under discussion particularly, to abolish it so that we could generate employment. The other 1 per cent levy which is supporting the Youth Employment Agency we will also examine with very close scrutiny because we are convinced that agencies, corporations or other State schemes are not what will lift this economy. The people themselves, workers, promoters, businessmen, small contractors, given signals, will respond. They will get the economy moving again, but they are deciding now that the price is too high. A 1 per cent levy on gross income is manifestly unfair. It is not even a levy on what you take home, what you can call your own at the end of the day. It is a levy on what you might otherwise call your own if the Government had not increased the tax burden to the extent that they have.

I gave figures. One cannot make comparisons with the yield from levies because that was dreamed up by this Government only over the last couple of years. A levy imposed on a notional income, gross income, at this stage is manifestly unfair and affects different people in different ways. It is particularly damaging in that it is a tax on enterprise, effort and incentive. We must be one of the few countries in Europe with a levy of this kind over and above the normal tax provisions that exist in every state. We are the only one to dream up this idea that we are also going to impose a levy on gross income as if it were net income. That is a very important issue. Unfortunately, when it was introduced everything was done hurriedly and we were given the impression that it was time we had some degree of responsibility and rectitude.

Perhaps the Government were given credit for being responsible in taking difficult decisions and so on, but at the end of the day it is the result that counts. For instance, the budget deficit which the Government were attacking and were intending to eliminate over a four-year period is forgotten now. Far from being reduced, it is increasing and will continue to increase. One of the main purposes of introducing these levies and increasing taxes was to reduce that deficit. You will never reduce a deficit simply by imposing taxes. You can reduce deficits — a very fundamental responsibility of Government — only by generating activity and employment, and thereby increased revenue, by creating the right climate for activity and investment. I want the central point in everything that guides us in approaching this Finance Bill to be that we will not focus on taxation or new forms of taxation or increase levels of taxation with a view to balancing the books in our economy. I acknowledge that that is the responsibility of every Government, but we will not do it. Apart from our objection in principle to that approach, we have now clear evidence from this Government that it does not work. That is probably even a more persuasive factor in helping us to reach that firm conclusion than anything else might be and it must be a persuasive factor for the Government at this stage. We discussed the figures involved here on the last day we debated this measure and we came up with £73 million. The Minister said that if in a full year we had to find £73 million through the normal taxation system, we would either have to add an extra surcharge on the existing rates or reduce tax-free allowances by an amount sufficient to produce the same income. He seems to acknowledge that this is not part of the normal taxation system. For that reason he has dreamed up an abnormal instrument of taxation, a levy.

Who knows when the general recommendations made by the Commission on Taxation will be studied seriously? As a former Minister for Finance I know that no Minister can do that overnight and if I were sitting where the Minister is I could not do it overnight. However, when I established that commission I asked them when examining the whole taxation structure to have regard in the recommendations they made to the needs of the economy also, and that is in the first paragraph of their terms of reference. I believe they had regard to that in their general proposals. I know that one could not expect the Minister today to introduce overnight what they propose. Obviously, you must consider what the impact on revenue will be, but at least one should not move in the direction which is totally contrary to what the commission suggest. In introducing levies of this kind that is exactly what the Minister is doing. The commission indicated particularly that we should not introduce new forms of taxation. Maybe you could increase levels of existing forms, but they argued as strongly as they could against new forms of taxation, particularly having regard to the complexity of the existing system. If the Minister cannot — I suspect that he will not — respond positively to our proposal, I press him at least to show an openness to considering it in the context of next year. The Minister has not made a general criticism of our approach. He has mentioned the cost of each proposal but he has not accused us of being irresponsible in the way we presented our amendments. We were entitled to that response from him because when I was Minister for Finance the Deputy Leader of Fine Gael, now Minister for Foreign Affairs, proposed amendments which had not been costed.

An Leas-Cheann Comhairle

We are dealing with amendment No. 7.

Mr. O'Kennedy

Some Deputies opposite suggested yesterday that we were trying to curry favour. By comparison with the proposals made to me three years ago our proposals are modest. I would ask the Minister to look very seriously at this issue and if he cannot accept our proposal now he might have regard in drawing up next year's Finance Bill to the divisive impact of this measure. We hope that our arguments during this debate may have some effect at the end of the day.

Mr. S. Brennan

The temporary levy of 1 per cent has become permanent. A levy of 1 per cent on gross income is probably equivalent to 3 per cent or 4 per cent on net income, although it can vary according to the level of tax. The effect of the 1 per cent levy is to increase the 35 per cent band to a real level of 38 or 39 per cent. It is a real increase in taxation. I welcome the exemption of the lower paid. This is an enlightened move which I unreservedly welcome. I would question how many people are in that band, how many will be exempted and the precise cost.

Deputy O'Kennedy, to conclude.

Mr. O'Kennedy

An Ceann Comhairle

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

Question put and declared carried.

An Ceann Comhairle

Amendment No. 8 is in the name of Deputy O'Kennedy. Amendment No. 9 is related. Nos. 8 and 9 to be taken together, by agreement.

Mr. O'Kennedy

We discussed these matters on Committee Stage at some length and I am not moving these amendments.

Amendments Nos. 8, 9, 10, 11 and 12 not moved.

Mr. O'Kennedy

I move amendment No. 13:

In page 18, to delete lines 1 to 7 and substitute the following:

"(8) Relief shall not be withdrawn by virtue of a dissolution or winding-up provided that such dissolution or winding-up is for bona fide commercial reasons.".

An Ceann Comhairle

Amendment No. 25 is related. Amendments No. 13 and 25 may be discussed together, by agreement.

Mr. O'Kennedy

We are actually proposing in those amendments that a very simple form of words be used which would ensure that relief would not be withdrawn if there is a dissolution or winding up for bona fide commercial reasons. Our amendment states:

Relief shall not be withdrawn by virtue of a dissolution or winding-up provided that such dissolution or winding-up is for bona fide commercial reasons.

The section as it stands states:

Where by reason of its being wound up, or dissolved without winding up, the company carries on the qualifying trade for a period shorter than four months, subsection (4) (a) shall have effect as if it referred to that shorter period but only if it is shown that the winding up or dissolution was for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

We are proposing to delete the words: "and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax". We are proposing this because if this matter is to be determined fairly between the parties there are standard practices in the commercial world and, where there is a bona fide winding up or dissolution for commercial reasons, that is recognised by everybody as being what it is. A court adjudicating on an issue of that sort would have many precedents to guide it whether it was bona fide for commercial reasons. The Minister goes on to add that they must also show that it was not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax."

I want to make it very clear that I do not want to see any tax evasion as a consequence of this, but to put in the implication that because it is a winding up or dissolution and one of the purposes of that or the main purpose was to avoid tax, is introducing the wrong implication, particularly when so many companies are being wound up. I am sure tax avoidance is the last thing on their minds at that stage. I said last year that there are many companies or individuals associated with companies who are escaping their tax liability by winding up and dissolution and there are many people, who having disolved existing companies and left large bills with the revenue, and passed on their responsibility to discharge their tax to other taxpayers, then go out and form new companies. We have seen many examples of that. I want to make it quite clear that we are totally opposed to that to the extent that over a year ago I invited the Minister and the Government to, as quickly as possible, introduce new company legislation to guard against that kind of scandal. I was told on the Order of Business over a year ago that the Government were considering that legislation. That loophole is still there.

We are totally opposed to that, and I assure the Government that as soon as they bring in that legislation they will have our full support. It is neither necessary nor reasonable to put in the kind of provision in the Bill because it will be almost impossible, if you start to get Revenue Commissioners involved, to avoid them asking: "Was this part of a scheme or arrangement, the main purpose of which or one of the main purposes of which was the avoidance of tax?" You could have ten main purposes, but if one of the main purposes in the eyes of the Revenue Commissioners was the avoidance of tax the relief is withdrawn. That is going too far and is putting undue restriction on a scheme of this kind which we all hope will succeed. I know that we have to assume that the Revenue Commissioners and inspectors of taxes will discharge their responsibility in an objective fashion and that they will not put people through the hoop unnecessarily. Having said that, what is proposed in the Bill invites unnecessary and burdensome enquiry, and it will not meet the need of promoting this scheme which I hope will succeed. Deputy Mac Giolla may have something to say on this. There is a contradiction involved If, by investing in a scheme, you reduce your tax liability, which is what this scheme is intended to promote, — I am sure the Minister will agree with that——

Mr. Dukes

My reading of it is that this is an attempt to make them do that. However, I must reiterate that every section opens up new ideas, affords new openings for people to avoid tax and that all investment will now be arranged in some way or other to come under the provisions of this section.

Mr. S. Brennan

We are dealing here with sections 12 and 21 and the amendment. I know what the Minister is endeavouring to do by inserting section 21 under the heading "prevention of misuse" but it is such a "catch all" section I have to conclude that the Minister is here legislating for one's intentions. Is this a new departure in taxation law, where one legislates for the intention, the motive, behind the investment as opposed to the specific detail of tax law? I understood that taxation law had to be specific, that it could not be general in this sense.

Section 21 says:

An individual is not entitled to relief in respect of any shares unless the shares are subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Why not put in the word "artificially"? The Minister is inviting all sorts of unnecessary complications. He is not prepared to define his terms. There is ample precedent for defining specific terms of that sort at the beginning of the Finance Bill. The Minister is refusing to do that. The Revenue Commissioners are being given power to say that one of the main purposes or intentions is to avoid tax. How do we determine what an intention or a purpose is in a person's mind? We only know the facts. A person invests in a scheme and he gets a benefit provided in the legislation. That is all anybody can adjudicate on.

In this instance we are going further and saying that, if in the view of the Revenue Commissioners one of the purposes or the main purpose is to avoid the payment of tax, you are excluded from the scheme. That is moving into a new world altogether. It could be a very simple world. A very short Finance Bill could be brought in next year dropping everything but including a provision that, if the Revenue Commissioners believe one of the purposes of this or that scheme is the avoidance of tax, immediately the hammer falls. I am against this sloppy kind of thing. I do not think we should have a vague notion that we can find out what is in somebody's mind, what his intention is, and have subjective interpretations.

A certain person who may not have been a diligent taxpayer five years ago might have mended his ways. The Revenue Commissioners remember him and say that his only purpose is to avoid tax. He might legitimately be doing exactly the same as everyone else, but they remember him, and perhaps with good reason, and they come to the conclusion that he should not benefit under the scheme and that he is excluded.

If the Minister is not prepared to define what he means by avoidance, or why we should talk about one of the purposes or the intentions being to avoid tax, he is creating a new avenue not only here but elsewhere also. The incidence of reduction of tax liability can now be interpreted in a subjective way. We have invited him to tell us if there is any similar provision in any other Finance Act. I do not think there is. If there is I would be reassured to learn that we are not doing something entirely new now. People are encouraged to reduce their tax bill in one way or another, in terms of mortgage interest, VHI contributions and so on. One of the consequences of this would be that you would reduce your tax liability.

If the Minister put in a provision in relation to mortgage interest that if the Revenue Commissioners are of the opinion that one of the purposes or the main purpose of that was to avoid tax, where would we go? How can they prove what your intention is? They can only look at the facts and say either you qualify or you do not. What we have suggested is in acceptable language which everyone will understand, bona fide commercial reasons. Everyone knows what that means. A court can determine what it means. If a company is wound up for anything other than bona fide commercial reasons, everyone knows what that means.

It is time that those who wind up or dissolve companies for other than bona fide commercial reasons were dealt with effectively, as this Government have failed to do. They have been looking at it for long enough. I do not want to see people like that evading tax. People who have devices available to evade tax would have a new one if it were to be used in that way. Equally I do not want to see something as general and as vague as this being introduced and for the first time we are legislating for intentions.

Mr. Dukes

It might comfort the Deputy to know that Chapter IV of the 1974 Finance Act is headed anti-avoidance, and there are references to avoidance of taxation in that Act. So it is not the first time this has been used.

Mr. O'Kennedy

If the Minister likes to pass it over to me I will look at it but, before I see it, I am quite sure it is nothing like what we have here. The Minister comes from a betting county and I bet him it has no phrase of this kind in it.

Mr. Dukes

I was quite interested to notice that the Deputy hesitated on two occasions about using the word "evade" when he was talking about avoidance.

Mr. O'Kennedy

I am talking about terminology of this kind. This kind of thing has not surfaced before. The Minister, the legislators and the Revenue Commissioners should be obliged to frame legislation in the proper way to encourage the people we want to encourage, and to ensure that bona fide commercial transactions will not be discouraged or obstructed because someone may think the real intention was undesirable, although the Minister refuses to define exactly what he means by tax avoidance.

Question: "That the words proposed to be deleted stand part of the Bill" put and declared carried.

Amendment declared lost.

Amendment No. 14 not moved.

An Ceann Comhairle

Amendments Nos. 15, 16, 17 and 56 are related and may be discussed together. We are putting in Deputy O'Kennedy's amendment for discussion purposes and separate decisions will be taken.

Mr. Dukes

I move amendment No. 15:

In page 18, to delete lines 44 to 49, and substitute the following:—

"(1) (a) An individual qualifies for the relief if he subscribes on his own behalf for the eligible shares in a qualifying company, is not at any time in the relevant period connected with the company and does not during that period receive from the company any dividend which is a distribution to which either section 64 or 76 of the Corporation Tax Act, 1976, applies.

(b) For the purposes of this section and paragraph 2 of the Second Schedule, any question whether an individual is connected with a company shall be determined in accordance with the following provisions of this section.".

Amendments Nos. 15, 17 and 56 are designed to meet a point raised by the Dáil Office which advised that certain provisions of section 14 could endanger the Money Bill status of the Finance Bill. Section 14, and paragraph (2) of the Second Schedule, propose, in the context of the relief we are talking about, rules for determining whether an individual is connected with a company. The Dáil Office suggested to me that as it is drafted those provisions are wide enough to be regarded as applicable to matters outside the scope of the relief and that such a wide application of those rules would invalidate the Money Bill status of the Bill. The amendments I am moving put that matter beyond dispute.

Mr. O'Kennedy

I agree with the amendment.

Amendment agreed to.

Amendment No. 16 not moved.

Mr. Dukes

I move amendment No. 17:

In page 18, line 50, to delete "the company" and substitute "a company".

An Ceann Comhairle

This amendment was discussed with amendment No. 15.

Amendment agreed to.

Amendments Nos. 18 and 19 not moved.

Mr. O'Kennedy

I move amendment No. 20:

In page 22, 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".

An Leas-Cheann Comhairle

Amendments Nos. 21 and 22 are related.

Mr. O'Kennedy

I dealt with this matter at considerable length on Committee Stage and, because of its considerable importance, I should like to assert the necessity for broadening the scope of the scheme beyond the rather narrow application of it to manufacturing industry and certain limited services. I appeal to the Minister to keep his mind open, in terms of the operation of the scheme, to our proposal. Everyday the numbers engaged in manufacturing industry fall. Even if things turn good this year manufacturing industry will not provide extra jobs. That is not in any way to denigrate or criticise manufacturing industry but it is the reality, a reality that exists in other countries also.

Many people have contracts with companies. We are trying to encourage linkage contracts with small companies. The IDA are now telling companies that it is important to maximise employment here by subcontracting. If a company from the USA or Japan is brought in here we are trying to share as far as possible the development of that company with other companies. If their association with the company enables them to receive value from the company for commercial consideration for services they have provided, they should not be excluded from participating in the scheme. That is what my amendment intends to achieve.

If the Minister says that his very complicated amendment, which amended the existing provisions of the Bill, achieves the same thing, I should be happy, I am anxious to ensure that no person, worker, employee or person associated with the company by virtue of business arrangements for normal commercial reasons is excluded from participation in the scheme. Otherwise contractors and so on will be excluded because they might have a commercial arrangement.

Mr. Dukes

We had that down and the Minister accepted it. The other area is this one here. We are not going to limit the commission to one per cent. That is about the only effect I can boast about in all the weeks debating this Bill and I think I should put that on the record. I am not pressing the amendment.

Amendment No. 28 not moved.

Mr. Dukes

I move amendment No. 29:

In page 46, to delete lines 37 to 39, and substitute the following:—

"(e) In this subsection—

‘child' has the same meaning as in section 27 (inserted by the Capital Gains Tax (Amendment) Act, 1978) of the Capital Gains Tax Act, 1975;

‘personal representative' has the meaning corresponding to that assigned to personal representatives in Part XXIX of the Income Tax Act, 1967.".

This amendment is designed to extend the meaning of the word "child" for the purpose of the relief available to a successor. The reference is to the definition in section 27 of the Capital Gains Tax Act which exempts from capital gains tax certain transfers by persons over 55 to their children. This amendment will secure the situation where the relief given by subsection (5) on a transfer of a business or farm includes a nephew or a niece who had worked substantially on a full-time basis in carrying on or helping the carrying on of the predecessor's business. Essentially this is to extend into this particular part of tax law the favoured nephew or the favoured niece.

Amendment agreed to.

Mr. Dukes

I move amendment No. 30:

In page 49, between lines 22 and 23, to insert the following:—

"(c) Where a company carries on a trade of operating ships in the course of which a ship is let on charter, paragraph (b) shall not have effect so as to treat the letting on charter as the leasing of machinery or plant if, apart from this section the letting would fall to be regarded for the purposes of Case I of Schedule D as part of the activities of the trade.”.

One of the amendments of which I gave notice on Committee Stage was to enable relief to operate. Because of an unintended application of the restrictions imposed on machinery or plant in section 40 of this Bill, this is designed to get over a restriction which appeared from the wording and which had not been intended.

An Leas-Cheann Comhairle

Amendments Nos. 31 and 32 are related and can be discussed together.

Mr. Dukes

I move amendment No. 31:

In page 51, line 11, after "plant" to insert "(or, for the purposes of paragraph (a) in the case of a film to which section 6 or 7 of the Irish Film Board Act, 1980, applies, the cost of the making of the film)".

If I might make a point, in amendment No. 32 there is a printing error. The full stop which now appears after "the Irish Film Board" should be a comma.

Amendment agreed to.

Mr. Dukes

I move amendment No. 32:

In page 51, line 13, after "the Industrial Development Authority," to insert "the Irish Film Board."

Amendment agreed to.

Mr. O'Kennedy

On amendment No. 33, this matter was debated in some detail and the Minister did not respond and I cannot see that anything we say on this side now will change his mind.

Amendment No. 33 not moved.

Mr. O'Kennedy

I move amendment No. 34:

In page 66, lines 23 to 51 and in page 67, to delete lines 1 to 30.

This is the amendment relating to the application of capital gains tax to private residences. I just want to recall some of the facts that emerged on the Committee Stage. First of all, the position hitherto was that a private residence on a site of less than 1 acre was exempt. That is the first point. Secondly, where compulsory acquisition occurred on a site of over 1 acre as a consequence of a decision introduced by my colleague, Deputy Gene Fitzgerald, the application of capital gains in respect of the proceeds of such a sale was reduced from 50 per cent to 40 per cent in respect of the element of profit, if you like to call it that. Now, as a consequence of this decision, for the first time the Government are proposing that the sale of a private dwelling on a site up to 1 acre, which has hitherto been excluded, will now be included for capital gains. Arising from queries raised by Deputy Mitchell and Deputy Briscoe, who is here — and this is a matter that many Dublin Deputies must be concerned about — it is clear now that under a scheme for compulsory acquisition of property by a local authority in respect of road widening operations or for other purposes if the sale price is enhanced beyond the normal current use value, the term used by the Minister, that element of the sale price which the Revenue Commissioners will decide is attributable to the development potential will attract capital gains tax at, thanks to a former Fianna Fáil Minister for Finance, 40 per cent as distinct from 50 per cent.

There are many private residences along the route proposed for the Southern Cross road. Many of the owners of these residences may find that the enhanced value of the property, because of its being required for that development, is such that in the view of the commissioners it exceeds a certain current use value and consequently becomes liable for capital gains tax. We object in principle to this. I have asked the Minister how much he expected to gain from this imposition and he gave a figure of £250,000 as representing what he guessed would be the result.

In these circumstances why are we introducing a tax attack on private residences? How can one justify that kind of approach? My guess is that the tax will yield considerably more than the figure mentioned by the Minister, but I do not know how one can be expected to express to the Revenue Commissioners that so much of the sale price of a house is attributable to the development potential of the site of the house. How can that be proved? Basically, as has been established in legal definition, the market value of a house is the price that a willing purchaser is prepared to pay and a willing vendor prepared to accept. Until such time as a house is put on the market one will not be aware of its market value. For obvious reasons, some purchasers are prepared to pay more than others might pay. In the same way some vendors are prepared to accept less than others, but someone in the Revenue Commissioners is now to define what the value of each house is.

This brings us back to the debate we had at length last year on that nonsensical income-related property tax. If in the opinion of the Revenue Commissioners the market value they put on a house is exceeded, the owner will become liable for capital gains tax. We consider such a tax to be unworkable and unfair. If it is to produce revenue only of the order suggested by the Minister it will result in the loss of more revenue than it will produce, because many people will see it as yet another signal of an attack against what some would call wealth but which others would regard simply as basic security. Some people will view the tax as a sort of compromise within the Government, a compromise that leads to a situation of introducing measures in some instances that will not in effect yield revenue but which apparently will satisfy some element in the Government of a determination to attack wealth.

The problem is that we do not have nearly enough wealth. There is no incentive to promote wealth by comparison with any of the other countries with which we must compete. At least, if Deputy Mac Giolla had his way we would have a different system, not the kind of system that operates in the Federal Republic of Germany but that which operates in Eastern Germany or Yugoslavia. We have a free enterprise system and we should not indulge in these niggling measures to attack it at every possible opportunity. This tax is an attack on those who would sell their private residences in order to move to better ones in different areas. Why should they not be in a position to do that without being penalised? Are we to tell people that they must not do so and that if they get a good price for their house they will be liable to capital gains tax? There are differentials that apply at that point but we are restricting the right of people to sell. The Minister says he will be influenced by three factors. One is that the question of the person buying will be taken into consideration. The buyer had better not be a builder because immediately it would be assumed by the Revenue Commissioners that the site was for development purposes.

Mr. G. Collins

I do not think any builder could afford to buy a house at the moment. The Government have left them all bankrupt.

Mr. O'Kennedy

I hope the Minister will reflect on the points I have made and will realise that what he is proposing will be negative in terms of returns.

Progress reported; Committee to sit again.

Dáil Éireann debate - Thursday, 10 May 1984