Finance Bill, 1984: Report Stage.

I move amendment No. 1:

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

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 ofres 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.

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.

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.

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.

I do not dispute the fact that we are dealing with the incomes of people who are not well off by any standards and for whom any imposition of tax represents a burden. We are talking about the extent to which it is possible, within the overall budgetary framework this year, to alleviate their position. The proposals in the Bill represent a fair distribution of the amount available for tax relief this year between the different groups of people whom we wish to help. I do not know if it would serve any purpose to go through all the figures again but I wish to repeat that, in relation to the general exemption limit, the change I am proposing will bring 9,600 people out of the tax net.

That is the smallest number in years.

The age exemption limits will bring a further 5,400 people out of the tax net. Deputy O'Kennedy mentioned people on the margin and he should take account of the fact that in addition to the operation of the exemption limits, there is also provision for marginal relief.

That has always been there.

I will illustrate the effects of the operation of marginal relief. If we take a married person with an income of £6,000 who is not taxed under PAYE——

Why would he not be taxed under PAYE?

I am talking about somebody who is self-employed, it does not really matter. If a person has a total income of £6,000 and a married allowance of £3,600, that means he has a taxable income of £2,400. If he is in the 35 per cent tax band that would produce a tax liability of £840. However, when we look at the marginal relief provisions, we do a different calculation. On a total limit of £6,000, the exemption limit is £5,000. With an excess of income over the exemption limit of £1,000, the maximum tax payable is 60 per cent of the excess which is £600. The operation of marginal relief there is worth £240 to that couple and moderates the tax liability for those whose incomes are not very far above the exemption limit——

They also pay PRSI.

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—

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

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.

They should not have to approach us.

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.

There is one further point to which I should like to refer very briefly. Deputy O'Kennedy has been talking about the cost of the various measures he put forward in relation to the total tax bill. He has been referring to a total tax take of around £6,000 million, if I understood him correctly.

Over that, £6,130 million.

The post-budget estimate for total tax revenue in 1984 is £5,343.8 million.

My figure includes PRSI and things like that.

We are talking about tax revenue. There is a figure of £626.9 million of non-tax revenue. I do not know whether that is part of the Deputy's calculations, but the total tax revenue figure is £5.3 billion.

I want to be precise. I am talking about tax and levies and PRSI contributions and social welfare contributions to the State, and the total comes to the figure I have mentioned.

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.

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.

  • 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.

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?

It was discussed with it.

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

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.

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.

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.

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.

This year we expected that the self-employed would be assessed on current year earnings. Unfortunately that has not been done. Will the Minister give a guarantee that it will be implemented in the coming year or that steps are being taken to have it implemented?

I want to take advantage of this amendment to put a suggestion on the record. Forms 11 and 12 are very detailed: they require a lot of information but give very little information. I suggest that the forms sent to taxpayers might be redesigned to incorporate on the back page details of allowances and tax bands. That could be very usefully done and would not cost the State anything. People find it impossible to read the eight page tax form. If this was shorter and gave details of the tax bands and allowances, it would be a very useful exercise. I suggest that the Minister might consider this.

Since Amendment No. 5 is out of order, the table at Part III of Amendment No. 6 seems to fall. What is being proposed is that we reorganise the tax rates and bands, bring back the 25 per cent and take out the 65 per cent rate. This proposal would mean that we change one part of the system which is central to the arithmetic of it all — Deputy O'Kennedy has drawn attention to the arithmetic. Since the purpose of the Finance Bill is to give legislative effect to what is in the budget and since in the time which has passed since budget day I have not found any major change in the situation which would allow me to look at the way we raise tax revenue, I cannot accept the amendment.

A great deal has been said about the fact that people come into the tax net at 35 per cent. There are people who this year will pay tax at 35 per cent who were paying tax at 25 per cent last year, but with the operation of the increase in allowances those people on the same level of income will be paying less tax in 1984-85 than they were in 1983-84.

That is not so.

For a given level of income they have gained from the change in the personal allowances and the tax rates. That was the result we deliberately set out to achieve.

If one adjusts upwards by even 10 per cent, less than inflation, one sees they will be paying more tax this year than there were last year.

An Leas-Ceann Comhairle

The Minister to continue.

I appreciate the point Deputy O'Kennedy is making——

I am beginning to wonder where the Minister is going to get the extra £300 million if people are paying less tax this year.

Deputy O'Kennedy will be able to make these points when he concludes on his amendment.

Deputy O'Kennedy has shown a very considerable facility in skating over the bits of the ice that are thin in order to get to the more solid points. The fact is that for a given level of income the change in the allowances and tax rates — from 25 per cent to 35 per cent — reduces the total tax bill. That is beyond dispute.

The fact is that a given person pays more tax this year.

For a given person the situation may change——

That is the point.

——because that person is not still operating at a given level of income. A person who earned £8,000 in 1983-84 and has £8,500 in 1984-85 may find that the total amount of tax he pays increases.

That will happen anyway and, as the Deputy knows, that is what creates an increase in tax revenue from year to year. We do not all stand still in terms of money incomes. As income increases people move up through the bands and that produces extra tax revenue.

The Minister is suggesting that——

An Leas-Ceann Comhairle

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

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.

We have brought about a result where tax liability for a large number of people will be less this year than it was last year. We have distributed the amount available for tax relief in as equitable a way as we could, and I have found nothing in the arguments put forward by Deputy O'Kennedy or Deputy Brennan to lead me to change my mind about that particular process. If it makes Deputy O'Kennedy any happier I could qualify that by saying that I found nothing in the arguments he and Deputy Brennan put forward and the situation we are in that would lead me now to change my mind about this. That is a qualification we do not need to go into.

No surrender.

Deputy Mac Giolla asked for a guarantee for the self-employed. While that is not directly relevant on the amendment, I would like to repeat for Deputy Mac Giolla's benefit what I said in my budget speech about the taxation of the self-employed. I said that on further examination of the problems associated with the introduction of current assessment arrangements I had reluctantly come to the conclusion that it was preferable to retain the existing system for the time being, and I explained at length what some of the difficulties are.

I do not want to have an excessively complicated system to achieve the kind of result Deputy Mac Giolla has in mind, but I would remind him that we have changed the specified amount to be paid by the self-employed from 80 per cent to 85 per cent of the liability they think they will have when all the accounts are done.

I do not intend to go further into these matters because I have said clearly that the system proposed in the Bill is designed to bring about certain results, one being a reduction in tax liability and another the distribution of the amount available for relief in taxation this year in the most equitable way possible, given that the total amount involved is nothing like as large as we would like.

I am calling Deputy O'Kennedy to conclude the debate on his amendment.

The Minister has become a Houdini——

Compliments.

He is now telling us that this Bill will reduce tax liability. I want to put it on record that to reduce tax liability while increasing it by £300 million is something only a magician like the Minister could present.

That is about the most twisted phrase the Deputy has come out with.

I will explain.

An Leas Cheann Comhairle

Deputies may speak only once on Report Stage.

When he moves his amendments the Minister will have a chance to speak twice. I am beginning to see how the Minister works his Houdini act. When they get their pay packets the public know if they are paying more or less tax. The Minister is suggesting that——

At a given level of income.

But a different level of income does not attach the same person. A person who is earning £8,000, if he earns exactly the same figure this year will be paying less tax but he will not be earning exactly £8,000 in either the public or the private sector. Even allowing for minimal adjustments to cope with inflation he will probably be earning something of the order of £8,700 or £8,800 allowing for minimal adjustments. It is not the figures that pay tax, it is people, and that same person will be paying considerably more tax this year than he did last year. That applies at every level.

Frankly, the Minister is ignoring reality when he talks about at a given level of income less tax is liable. That is, of course, self-evidently true but it is the same as if he compared these figures with figures five years ago. Could you believe, a Cheann Comhairle, that those figures this year will pay less tax than they would have paid five years ago? Obviously money values have changed considerably in the meantime and, allowing for inflation, salaries and wages have had to increase to counter that. That is not a real comparison at all, and when the Minister says he is reducing the tax at given levels of income he is doing no such thing. These are given levels of income but not on given people. The individuals whose salaries or wages are adjusted will be paying more tax this year and if they happen to move up into a new band they will pay considerably more tax. If a single person happens to earn £7,500 he will pay an exceptionally high rate of tax. That is the argument and that is the only case the Minister should answer.

The facts speak for themselves. One cannot say that the tax bill at a given level of income is lower while, on the other hand, there are fewer employed. This is important, particularly in the productive sector and the number falling all the time. Only yesterday we had the report from Fóir Teoranta where more and more indigenous industries will go to the wall and if they are in difficulties, then their employees are also in difficulties and they are the people facing these tax bills. Fewer people are employed than last year in manufacturing industry and in the productive sector and yet a diminishing number in employment will pay £300 million more in tax. That is the issue that has to be explained. There is no point in trying to create the impression that somewhere along the line somehow some figure is liable to less tax than last year. The reality is the diminishing number lucky enough to be still in employment will have to pay more tax, and in many cases considerably more. That is why we press the Minister to accept this amendment.

Question put: "That the words proposed to be deleted stand".
The Committee divided: Tá, 70; Nil, 54.

  • 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.
Amendment declared lost.

Amendment No. 7, in the name of Deputy O'Kennedy.

On a point of order, you seem to be moving from section 4 to section 10.

We deal only with amendments on Report Stage.

When passing the sections later in the day, will we have the opportunity of putting amendments?

The only sections we will be dealing with are those to which amendments are proposed and they are affected only to the extent of the amendments.

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.

We are dealing with amendment No. 7.

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.

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.

I am worried about the limit of £96 per week and the stipulation that a person whose income comes under that limit will not have to pay the levy. I can see tremendous scope for fun and games with people earning £95 a week because £97 would put them into the net. How realistic and sensible is it to have such a sharp cut-off point? I appreciate the difficulties. How many taxpayers are paying the income levy and how many taxpayers are there in total?

I would have to say to Deputy O'Kennedy that income from this levy is included in the budgetary calculations. To forego it as he proposes would cause a very substantial problem of the order of £74 million this year.

Would it cost that much this year?

That is the amount for a full year but we have provided for an income this year of £74 million from the levy. If we were to add the other levy we would be talking about a figure in excess of £150 million. To characterise the levy as dangerous or divisive is stretching language to a point which is not appropriate. There is a difficulty in having a levy on gross income.

Deputy Brennan exaggerated more than a little. A 1 per cent levy on gross income would be equivalent only in exceptional circumstances to a 3 or 4 per cent levy on net income. For it to turn into a 4 per cent levy on net income the net take-home pay would have to be 25 per cent of the total. I doubt if there are many people who take home only 25 per cent of gross pay. Of course it turns out at more than 1 per cent of net income.

Another way of looking at it is to see what we can do in other ways to replace the revenue from this levy. One can think of a number of combinations. One of them is the imposition of a surcharge of 4.3 per cent on the existing standard and higher rates of income tax or a 3.7 per cent surcharge on all rates of income tax. Another method would be to reduce the single person's allowance by £164 and the married allowance by £327. Those would be ways of going about raising the amount of revenue but in my view they would not be acceptable.

If that was the focus.

There could also be a reduction in public spending.

That is true, by £74 million or £150 million. If Deputy O'Kennedy wants to pursue that line I would like to hear him because I have been waiting for 15 months or more to hear any single suggestion that would accommodate in any way with the kind of line he is pursuing. I have a feeling I will have to wait much longer, which is a pity, given what Deputy Brennan said earlier this morning and last night. Perhaps we may see some movement there before too long. We live in hope.

Regarding Deputy Brennan's questions, the exemption of persons with incomes under £96 per week from payment of the levy will reduce revenue by about £5 million this year and by about £9 million in a full year. I would expect that 350,000 people would be taken out of the levy net as a result of the change. The total number paying the levy at present is about 788,000 people. The total assessed under PAYE Schedule D and on the farming side is 1,138,000 and we deduct from that the 350,000 who will be taken out as a result of this measure. We then have 788,000 people paying the 1 per cent levy this year.

Deputy Brennan also asked how we would manage the £96 a week cut-off point. The problem would arise no matter where the threshold was fixed and somebody will always be just on the wrong side of any threshold. I do not think it would be appropriate to operate some marginal relief scheme to get over the difficulty and I have decided to adopt the simplest and most straightforward method. I doubt that there are many people who would allow their income to be kept below £96 per week for any period.

For the self-employed it is based on the accounts.

Yes. It is based on the accounts at the end of the year.

If you show less than £5,000 you do not pay the levy.

If the accounts show an income of £5,000 or less the levy is refundable.

It is on a current account basis.

No. It is on the same basis of assessment as at present. Once we have established the income in the year we can decide whether the person should have paid the levy. If income was below £5,000 the levy would be refunded. Those are the details of the more general points. I come back now to the point which I made at the beginning. This is a matter of £74 million and that would cause a very substantial disruption of the present budgetary balance. For that reason, I cannot accept the amendment.

Deputy O'Kennedy, to conclude.

We find that even fewer taxpayers are being asked to meet the needs of the Revenue. We shall have about 12,000 fewer this year than last year and with current trends in employment — or rather unemployment — the likelihood is that there will be fewer still next year, unfortunately. Some projections which we have heard from objective commentators suggest that we are going towards a figure close to 300,000 within the foreseeable future, and I am speaking about 1990. That is frightening. If this trend is to continue, the burden of taxation, levies and PRSI contributions will be completely unbearable.

This is the basic difference between us. Each time the Minister replies, perhaps understandably he makes the case that if he were to give this relief he would have to impose a tax somewhere else to adjust the books. He would have to either put a surcharge of, I think he said 3 per cent——

It is not to adjust the books.

To find the revenue.

Yes, it is to find the revenue.

This is where the difference exists between us. We in our party believe that in taking the narrow approach which the Government have taken from day one——

It is to provide the services, and I have still to hear of the approach which the Deputy would take.

——and in last year's budget, particularly.

Please, Minister. The Deputy must be allowed to speak without interruption.

It is not just in adjusting the entries on the national Exchequer returns that one can find extra revenue, and we insist on that. It is not just the accountant who increases the revenue on any enterprise. It is not just the bookkeeper who promotes the health of any enterprise, or increases the revenue from it. He has his appropriate role, but that is it. It is the management of the whole enterprise which will guarantee its profitability. If that is true in terms of an enterprise, it is true also in terms of a national enterprise — the economy, for which the Minister is basically responsible. If the total focus on the health of this economy is on the current budget deficit which is now, as I said earlier——

You are playing a worn out record. It has nothing to do with reality.

It is all right, apparently, if the Minister repeats the same thingad nauseam, but it is not good enough for me to do it.

One must be able to provide the services.

The Deputy, without interruption.

Perhaps the reason for our both playing worn out records and scratching the old record a bit is because there is a basic difference between us. We are obviously not able to bridge that gap of communication between us. We on this side cannot convince this Government — and this Minister in particular — that the function of Government is not discharged by simply making adjustments in terms of revenue. That is not discharging the function of Government.

Nobody ever said that. These are Aunt Sally politics.

One must create a climate in which the people out there — who will be the people to bring us through this recession, and we must come through it at some stage — will be encouraged to make the effort again. All kinds of objective commentators are ackowledging that every day. On the day, there is a new survey. Another came yesterday from Fóir Teoranta. It may be a survey pointing out the impact on our indigenous industry, on attitudes in Ireland or the present mood of depression, the problems of unemployment, the cynicism which is abroad about all of us in here — there may be other reasons for that, as well. The impression that we ourselves are either unaware of our role or ineffective in discharging that role is abroad out there and we cannot ignore it. As long as the Minister confines his purpose to the narrow channel it will not change — it cannot change. That is why I am saying that between now and next year he must take a broader view. I do not now know how he will resolve matters with his colleagues in the Labour Party. We may hear public statements from the Tánaiste in the meantime taking issue with what are assumed to be public positions of a Minister in the House — that may be the constraint. There will be quite a lot of focus on that when we consider public expenditure programmes for next year's budget.

We cannot have a general debate now. We are very near it at the moment.

It is not the issue of politics as to how to balance the public positions.

He is looking forward to the next meal, now.

The real issue is whether or not the Minister is prepared now to look at the impact of levies such as this. I had a visit from a mountain farmer over the weekend and only confidentiality prevents my disclosing his name. He owns 100 acres within a radius of about 15 miles of Nenagh. He and his wife are over 65 years of age and live on a pretty miserable holding. I find that the 1 per cent levy is being demanded of them. In the old days their PLV would have been £12. The Minister has given them the reassuring words that if they pay it first, this levy is refundable, because it is on gross income. If they had the time, the advice, or the determination to produce accounts — which they are not capable of doing — it would be refunded.

That is downright insulting.

To your constituents.

The evidence is downright insulting. I have a great respect for these constituents, do not worry.

The Chair must be addressed.

I am not trying to denigrate them. They are the salt of the earth, but I do not know what I said that is considered insulting. You might not have many of them in Kildare, but I have them in the hills of Tipperary.

Oh, I have.

That is the result which a levy on gross income achieves, and it is nonsense. I would hope that next year when the Minister looks at the whole matter he will consider this temporary levy which is now becoming permanent and see that imposing it on gross income is manifestly unfair and damaging the whole economy in terms of killing enterprise and incentive.

Is the amendment being pressed?

It is, yes.

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

Question put and declared carried.

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.

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.

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.".

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

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——

Investing.

If by investing in this scheme you reduce your tax liability are you not actually avoiding a greater tax liability? The scheme itself is one for avoiding a heavier tax liability through investing in it.

You can say the same about having another child.

Maybe, but I want to be clear so that we can have logic in this. People who actually respond to a scheme that enables them to reduce their tax liability or avoid a heavier incidence of tax may now be disqualified if one of the arrangements for the scheme was for the main purpose of avoiding tax. This is unnecessary. If I felt there was a risk of people using this simply for tax dodging I would certainly support what the Minister has. We are dealing here with winding up and dissolution. I believe if we put in "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" that protects the revenue and other taxpayers. If it is dissolution or winding up of a kind that is not for bona fide commercial reasons and we find the promoter surfacing under a new name and a new company they will be hit hard by our proposal. Do we not want to get after people who are abusing the company legislation and the exemptions there? For that reason the Minister should accept our two amendments.

I might make one point, which is whether an allowance or an encouragement at this stage constitutes tax avoidance. It would be fair to define tax avoidance as the taking of steps which the Government or the Revenue authorities of the day did not intend or desire should be taken in order to avoid tax. But the provision in this section is for an allowance, like any other allowance, against tax to encourage people to do something the Government want them to do if they meet certain requirements, because it would be of greater benefit to the Government for them to do so than for the Government to take the money in tax. Therefore, it is not an avoidance; it is an incentive to invest in growth, in employment, in something positive in the community. The same could be said of any other allowance the Government grant, whether it be a capital allowance to industry, an interest allowance, even a married allowance. This is simply another allowance to do something the Government want citizens to do, when they will be given this incentive. It is not an avoidance measure and should not be confused with such. An avoidance measure is something quite separate. Certainly that is not something a Government would be setting out as a provision of any Bill. Rather it is something people do which might be described as anti-social or anti the desire of the Government or the Revenue authorities of the day.

This whole section in regard to investment allowance will add further complications to the tax system and will be found to be very bad law when passed.

Section 12(8) 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, ...

Where a company carries on a qualifying trade for a period shorter than four months they should not qualify at all whereas this provision allows them to qualify. It appears to me that, as a result of this subsection, no one will now invest in industry at all except in accordance with this procedure — in other words, everybody who ever invested will now receive tax allowances under this investment allowance scheme. I cannot understand why Deputy O'Kennedy wants that portion removed because obviously the whole section will be used as a method of avoiding tax. Every new section in a Finance Bill is studied very carefully for that purpose, as to how the provisions can be used in order to avoid paying tax.

The reasons advanced by Deputy O'Kennedy in regard to the need for new legislation on company law are quite correct. We were promised such legislation by last autumn but we have not heard a word about it since Deputy Cluskey withdrew from Government. That area has not been amended. That leaves this whole procedure wide open to be used for the setting up of companies, winding them up and there is no problem about it. One could set up a thousand new companies at any time while this situation obtains. Therefore until such new legislation is implemented one must take it that companies must be looked at from the point of view of whether they will use this provision to avoid paying tax. Although I do not think it makes much difference one way or the other, as I see it the Minister is saying to companies that they must prove that this winding-up procedure does not constitute a tax avoidance scheme. Probably it renders it somewhat more definite that they have to so prove.

I would agree with that, that they should be obliged to prove that it is not a tax avoidance scheme.

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.

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.

On the surface there is nothing wrong with that. But the whole section is pitched at people who are paying high taxation. The section is saying to them: if you like to make some investment in certain companies which will provide employment you can get a tax deduction. Therefore one is appealing to their desire to reduce their tax liability.

To back up what I am saying section 27 (8) goes on to say that this fund will be established "for the sole purpose of enabling individuals who qualify for the relief... to invest in eligible shares...". In other words, one is allowing, cajoling, attracting individuals. The Bill seems to contradict itself in its wording. I know what the Minister wants to do — and I support it—to prevent wholesale abuse. Section 21 contains the phrase "or one of the main purposes". Is that the first time a section like that has been included in a Finance Bill? Evading tax is illegal; reducing one's tax liability is not. What that section appears to say is that if one of one's main purposes is to reduce one's tax liability, the Revenue can maintain that one is not eligible. It would seem to me to be too general, not sufficiently specific, detailing precisely the kinds of schemes one wants to stop rather than just specifying that one's main purpose is the avoidance of tax. I would have thought the whole scheme could fall on that. If everybody who wanted to invest £25,000 is not doing it for the good of the company or the country the Revenue can suddenly decide that they are doing that because they want to reduce their tax bill, then quote them section 21 and they are out the door. Section 21 does not deal with the actual winding-up, as such. It appears to deal with the whole scheme right across the board. That is a "catch all" phrase and is legislating for the intention behind the investment. If the intention is noble, to create employment, then one is in. If one's intention is to reduce one's tax bill and avoid tax, as opposed to evading it, one could be in trouble. Therefore, one must convince the Revenue that one does not want a tax reduction, because that would be sinful but that what one does want is to help the creation of jobs and hope to God that they, the Revenue, share one's intentions. That is the first time I have seen a generalised piece of tax law in a Finance Bill.

On section 12 I want to reiterate a point I made to the Minister before, that was the idea of carrying forward or carrying back the relief. I ask the Minister to consider that again because I think we are going to have quite a burdensome fine tuning of investments in the few weeks leading up to 5 April each year which will cause a glut in the market and some investments may not be very sensibly made. However, I will not labour this point.

It is an extraordinary spectacle to see Deputy Brennan and Deputy O'Kennedy trying to face in two directions at the same time. Only one thing can happen when you try to do that — you become totally disjointed.

That is unfair.

Deputy O'Kennedy said he fully supports my intention in bringing forward this scheme and making sure that it is not abused for tax avoidance but he then says we should take out the provisions in the scheme which allow me to ensure that. That is nonsensical. He then argues on the crazy basis that because the scheme is designed to give people a tax relief we should then tell them about a way to avoid tax.

I did not say that.

It is the application of mental ingenuity to a non-problem.

Was that section in last year's Finance Bill?

We did not have this provision in last year's Bill. We are saying that a tax relief will be available if people invest in certain kinds of companies because the essential purpose of this is to get capital into companies so that they are enabled to expand their output and to give more employment. If people invest in that way there will be a tax benefit for them. We are not inviting people to avoid tax, we are saying that if they act in a particular way there will be tax relief on the money used for that purpose. That is not avoiding tax. You might as well say that having another child is avoiding tax——

Will the Minister define what tax avoidance is?

Tax avoidance is not illegal.

We cannot have a discussion on tax avoidance.

Tax avoidance is not intended and that is why I put provisions which will allow us to look at the objectives for winding up a company. The specific provision about which we are talking eases the contraints in the case of a winding up. If we have a bona fide winding up of a company when the company has been trading for a period of less than four months we will consider that the previous provision which defined four months will specify whatever period is involved if it is less than four months. We must recognise that some of the ventures financed under this scheme will fail. We do not want ventures to be wound up for the purpose of avoiding tax liability. We are not talking about the individual who has made money available to a company——

Would the Minister explain what he means by "avoidance" as distinct from "evasion"?

I did not think it necessary to do that because, in his opening remarks, Deputy O'Kennedy showed that he understood the concept perfectly well. Where a company is being wound up for an artificial reason, the aim of which is to avoid paying a tax liability, that is not something which we would wish to continue. Deputy Brennan asked me what kind of schemes I want to stop and why I do not provide for them in the Bill. The answer is simple and will strike a chord in the Deputies opposite. If we were to do that we would have a couple of hundred sections in the Bill because I would have to get an unfortunate expert in the Revenue Commissioners to think of all the possible avoidance schemes that could be used and legislate for them in a proper parliamentary form. That would be a futile exercise and that is why the provision is written in the way it is. It is very clear and straightforward——

It is so clear the Minister will not explain it.

The provision in the Bill gives a very fair and necessary warning and makes its purpose very clear. I am talking about companies, not individuals. If they get involved in this with the intention of abusing it to avoid a tax liability that will not be accepted under the terms of these sections.

Section 21 says that an individual is not entitled to relief.

The Deputy should read the whole section. It says that 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.

Most people who invest do so to reduce their tax bill. What is wrong with that?

The Deputies opposite seem to be hung up on their excessively ingenious interpretation. The scheme does not invite people to avoid tax. The scheme says that if you invest in companies that conform to the provisions set out here your tax liability will be reduced. That is the kind of encouragement which Deputy O'Kennedy and Deputy Brennan have been selling here for the last couple of days whenever we talked about tax or tax liability, tax rates or the kinds of tax which are applied. It precisely and deliberately does one of the things which they asked me to do over the last couple of days but now, because they find a provision which may be objected to by some people, they are claiming spuriously that the scheme is a tax avoidance device when it is nothing of the kind. It is completely inconsistent with the position they have been adopting for the last couple of days to pretend that it is. We are warning people that we will not acquiesce in the abuse of this scheme to avoid tax and that we will not acquiesce in any of the kinds of arrangements specified here. It is perfectly reasonable to say that, when we are providing for what would happen, for what view we would take in the event of the winding up of a company for bona fide reasons, we should also say that we will not take that particular view where it does not appear that the winding up is for bona fide commercial reasons.

The Minister's concluding line has supported my argument. They will not take that view where it appears that the winding up or dissolution of a company is for bona fide reasons. That is precisely what I am asking him to accept in our amendment. That is the reality. He has gone further and, as Deputy Brennan has mentioned, we are introducing here——

I did not interrupt the Minister. I asked him to define for us what exactly he means or the Revenue Commissioners mean. It is important that the public who might invest should know what the Minister means by avoidance. He introduced that term in this context. If he will define for us now, so that any potential investor will be fully aware of it, what exactly is the meaning of avoidance I will sit down. He has not defined it.

A scheme which is artificially designed to avoid taxation liability.

A Cheann Comhairle, did you ever hear the likes of that? You ask somebody what he means by avoidance and he says a scheme that is designed to avoid tax.

The Deputy is now asking me to define something with which he said he fully agreed in his very first words.

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.

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.

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.

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

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.

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.

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.

I agree with the amendment.

Amendment agreed to.
Amendment No. 16 not moved.

I move amendment No. 17:

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

This amendment was discussed with amendment No. 15.

Amendment agreed to.
Amendments Nos. 18 and 19 not moved.

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".

Amendments Nos. 21 and 22 are related.

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.

Since I raised this matter on Committee Stage I have had numerous inquiries from people interested in the scheme asking if it was to be confined only to manufacturing industry and certain services. Those people wanted to consider the possibility of the development of employment schemes in certain service operations. The Minister should bear that in mind. This is where the growth in employment is occurring elsewhere. On the last day I noted that there was comment when I mentioned that in the United States the numbers employed in manufacturing industry were exactly the same as they were about 20 years ago. I mentioned something then about round figures. What I was doing was rounding up to the nearest 100,000 or thereabouts. I could otherwise have said precisely the same. The numbers employed in manufacturing industry where the real growth has occurred, even in Japan, are not increasing. Numbers employed are increasing throughout the service sector and that is what we should aim at. The Minister should give the impetus to that development here. Otherwise the scheme is being surrounded by unnecessary constraints. I understand that the Minister has to ensure that the scheme is not used for tax evasion but the Minister might as well encourage people to avail of the scheme as widely as possible. If the Minister cannot accept our amendment now I hope he will bear it in mind as we see the operation of the scheme. I regret to say that with all the constraints, qualifications, ifs and buts, it will not be as successful as we would all wish it to be.

I should like again to put a suggestion I made on Committee Stage to the Minister. The Bill restricts the service companies to those that have received a grant under section 2 of the Industrial Development (No. 2) Act, 1981 and I find that very restrictive. On Committee Stage I suggested that the Minister delete that and insert words such as "IDA approved services". That would give the Government of the day a great deal of flexibility in responding to changing circumstances in the economy. That is a reasonable suggestion. If the Minister cannot see his way to accept Deputy O'Kennedy's proposal for broadening the net generally my suggestion, if adopted, would give the IDA maximum flexibility. I should like to make a plea to the Minister, as I have done consistently throughout the debate, for a special policy approach to labour-intensive industries. The service industry is the most labour-intensive industry. It has got to the stage of development here when it should be separated from other industry. Policies should be brought forward to assist labour-intensive industries. The Minister has an opportunity to adopt that suggestion, if he cannot see his way to do what Deputy O'Kennedy is asking. The IDA may not want to pay grants in some cases but the sector may be ideal for inclusion in the scheme. We should not pin one to the other in that very rigid way.

I should like to say to the Deputies that when first looking at what we would cover in the scope of the scheme I had tended to have a fairly restricted view of it on the basis that we wanted to find the areas where we would get the greatest spin-offs. In other words, where by promoting development we could get for that given investment the biggest downstream result in terms of spin-off and linkages into other activities. In many ways that is the case with manufacturing industry. Whatever one may say about the total number of people employed in manufacturing there is no doubt that, irrespective of what is happening to the degree of labour intensity in manufacturing, the very fact that more goods are being produced gives rise to demands for more services. It creates the income that supports the provision of more services. I was looking at the way we could get the best possible multiplier effect from investment that would be encouraged with the aid of the scheme we have here. There are still very good reasons for looking at their manufacturing base as being the impetus for the spin-off effects which I have described.

However, there are a number of services we need to look at in a different way. Perhaps to call them services may obscure the issue to some extent. One example is in the computer services area where, as Members know, we have classified computer services as qualifying for the 10 per cent tax rate because the case was reasonably made to me that in terms of the classic definitions what was being done was a manufacturing process although it did not look like that from the outside. Obviously, that would be an area that would qualify for investment under the provisions of the scheme. We looked elsewhere also in terms of other services for which commonly there is a substantial demand abroad that can be met by Irish firms. It is for that reason that we added in a number of service areas, those covered by the Finance (No. 2) Act, 1981. I listed those the other evening. When one takes this all together it means that the scope of the scheme is now fairly wide. It covers fairly wide-ranging activities in manufacturing and services and in some of the grey areas that seem to be neither completely manufacturing nor classically definable as service areas.

In this provision we have picked areas, both in manufacturing and services, in which we can expect, particularly in the service area, development in the next few years. In the service area there are band wagons on to which we should like to see our firms jumping and getting involved. We have included data processing, software, technical and consulting services, commercial laboratories, administrative headquarter services, research and development, media recording, training, publishing, international financial services and health care. That covers a wide spectrum of service activities in areas in which we can expect demand for services to increase over the years.

They are IDA services.

I have itemised them for the benefit of the House so that we can appreciate the scope of the activities that will be included in this scheme. I appreciate the points made by Deputies opposite but they should take account of the multiplier effect we want to have from this and therefore the possibility of encouraging concentration of investment in areas which will give us the greatest spin-off and that will sustain development and expansion in other areas. It is for that reason that we have defined this so broadly and I do not think that at this point we should define it as broadly as Deputy O'Kennedy's amendment would have done.

I can understand that the Minister might not want to see it defined as broadly as I do in the amendment but it is clear that we should not so narrowly interpret the scheme as to give it a limited effect. Over the years we have developed a practice of grant-aiding manufacturing industry so that there have been grants for physical assets, factories, factory bays, buildings and equipment. That traditional pattern has worked quite well but it is not working effectively any longer. I do not blame the IDA for this——

That is not true.

The Minister must know that one of the bigger problems now is to find somebody to occupy some of the factory bays we have. If we built factories and automatically got tenants we would be in business. In the old days our big problem was to find the money to build factories — we had tenants queueing up.

That is only part of it.

It is a considerable part of it.

The Deputy is saying that the advance factory programme does not seem to be working as well now because there is not the same demand; but there is a difference in saying that from saying that the policy does not work.

The Minister should not misrepresent me. I have not said we should depart from the policy. However, what we should be doing is using the resources, the skills and the status of the IDA and CTT who have achieved a remarkable status abroad and have served the country well. We could give them new terms of reference more appropriate to the needs and potentials of today, focusing more on the added value of the skills of our people particularly in service industries. If our people were given that challenge they would respond.

It is no longer a question of transferring money from elsewhere to build factories and give grants for machinery. That is important but we must realise there is a new dimension, which is the growth of the service sector generally. We should encourage every area, for instance the construction industry. Why not promote this kind of thing in that industry so as to encourage less costly type construction of hotels and housing schemes. This could be done through research development and marketing in that industry. The Minister knows that the traditional leaders in that sector are investing abroad. I do not want to name them but the big names in the construction industry are not investing here any longer. The chief executive of one of them came to me as Opposition spokesman on Finance simply to make me aware that henceforth they would be investing abroad in the ratio of seven to one and maintaining just a skeleton activity at home.

We must look at that position and try to encourage people to invest here. Tourism and the hotel industry are major employers but that sector is not included here. Aer Lingus and some of our bigger entrepreneurs find it more profitable to invest elsewhere. With the exception of one new hotel being opened in this city recently we have seen nothing but closures. The cost factor is probably too much for individual promoters. If we can encourage others to participate with a potential promoter why should they be excluded? These things provide valuable jobs. Throughout the world recession, tourism has been one of the growth areas, perhaps the only one apart from high technology and pharmaceuticals. That has been the case everywhere, unfortunately, except in Ireland. I do not want to associate it with the continuing tragedy in the North. What I want to get across to the Minister is that if he does not do this today — obviously he is not opposed to it — he should bear in mind that the future development of employment here will be through the added value of skills of our people. The Japanese have proved this. So have the Swiss and the Americans. They have been developing because they trained people in skills and encouraged them to develop and apply their skills. That is why those economies are succeeding. At least the Minister should keep an open mind——

I rarely have a closed mind.

Amendment put and declared lost.
Amendments Nos. 21 to 23, inclusive, not moved.

I move amendment No. 24:

In page 24, to delete lines 26 to 46, in page 25, to delete lines 1 to 44 and in page 26 to delete lines 1 to 36 and substitute the following:

18. —Relief shall be withdrawn if the individual receives value from the company other than for commercial consideration or in consideration for services rendered.".

A person who works for a company is given value for the work he does. For that reason he should be within the scope of the scheme. A worker should be encouraged to invest in the development of the company employing him. If he receives value from the company for services rendered he should not be excluded from the scheme. The Minister has put down a long amendment which might have the same effect. If we simplify it and put it in the form I have it in, workers will be encouraged to participate in the scheme.

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.

Deputy O'Kennedy is proposing to substitute a very brief section for a very detailed section which is comprehensive and not complicated. I assure the Deputy that the section as it stands in the Bill achieves what he has in mind.

Deputies O'Kennedy and Brennan were arguing earlier for precision and clarity in relation to a different section. Now the Deputy is arguing against that if he persists with this amendment. The purpose of section 80 is to ensure that a person cannot get relief under this scheme and at the same time get back from the company through some other channel the money he put into the company and thereby set at nought the objective of the scheme. If that happened the financial position of the company would not have improved as a result of that person buying shares.

We would lose much of the effect of the section if I accepted the Deputy's amendment, which is not specific or detailed. There is no intention that anyone who has a business relationship with the company — for example, selling goods to it — should be debarred by that fact from participating in the scheme. The assurance the Deputy is seeking is met by the Bill.

The Minister has given my an assurance and so I will not press my amendment. He asks me to accept too much when he says that his amendment is comprehensive but not complicated. There are two and a half pages of the most intricate and complicated qualifications one could find. If the Minister tells me the effect of that will achieve what I have proposed, then I am happy. It is on the record. I hope people will not waste too much time going through all this to ensure that people other than those about whom we are concerned will qualify for relief.

Amendment, by leave, withdrawn.
Amendments Nos. 25 and 26 not moved.

I move amendment No. 27:

In page 33, to delete lines 30 to 43, and substitute the following:

"(b)the subsidiary or each subsidiary is a company falling within subsection 2 (a) of section 15, or is a company to which the proviso to subsection (1) of section 54 of the Corporation Tax Act, 1976, or the provisions of section 78 of that Act apply:

Provided that where the subsidiary has been formed outside the State to sell outside the State goods or services manufactured or provided by the qualifying company referred to above, or any other subsidiary of that qualifying company, this subsection shall not apply.".

This amendment is intended to ensure that participation through a subsidiary company formed for the purpose of promoting exports will not debar one from the application of the scheme in the parent company. The reason we put down this amendment is because we must encourage the effective marketing of our products. Product development and marketing is of vital importance. How the product is developed and presented is the guarantee of success. We have seem many examples where we have the best elements in our product but it is not always marketed in the most effective or sophisticated way. Recently the chief executive of a leading supermarket chain in the Federal Republic of Germany visited our country and told us that we rated on a par with Malta in terms of our impact on the consumer in Germany. That is the reality and we might as well face it. The Minister has had experience of that as I have had. We must all try to promote our products and must have market leaders like Irish Distillers and so on. Our products do not feature on the shelves in shops in Brussels, Paris and so on. What you will find are German, Dutch and even Belgian products with Irish-sounding names. These people know that in the minds of the consumer Ireland is a place with good rich soil, clean air and basically good products. Because we have not marketed this advantage, others are doing it for their own advantage. Any name with an Irish connotation — Erin, Alanna, Shamrock — is being picked up by these sophisticated marketing people in other countries. We are way behind. For that reason it is not surprising that in terms of marketing strategy and marketing awareness Irish companies are at the bottom of the OECD list. We cannot stay there because we are totally dependent on our export drive to expand in some cases and even survive.

That is why we focus so much on encouraging a more sophisticated marketing programme on a national level and on the enterprises themselves. CTT should be given more funds, not less, to do their job. We should be encouraging the establishment of subsidiary companies abroad to market and sell our products because these subsidiaries are essential to realise the maximum potential of the parent company. Our amendment says:

Provided that where the subsidiary has been formed outside the State to sell outside the State goods or services manufactured or provided by the qualifying company referred to above, or any other subsidiary of that qualifying company, this subsection shall not apply.

In other words, the restriction shall not apply to a subsidiary company formed outside the State for that purpose. I would have thought that case almost unanswerable. If this company is to be excluded from participating in the scheme that is very regrettable because these are the types of companies we should be actively promoting. I hope the Minister would see the need to encourage that development and that he would insist that some companies, be they subsidiary or otherwise, would not only be allowed within the scheme but that they would be actively encouraged to participate in the scheme. That is the direction in which we should be moving.

If the Minister can assure me that he will accept the amendment or that that is already in the Bill, I would be happy to accept that assurance but from what I have seen subsidiary companies formed outside the State to market the goods or services manufactured within the State are excluded, and I would like to ensure that they are included.

Subsidiary companies formed outside the State to market the products of a qualifying company would not qualify under this scheme because I do not want to have a situation in which we are giving tax relief to Irish investors who would provide funds which would be channelled abroad to provide employment elsewhere. Deputy O'Kennedy should have another look at this section which says that these conditions apply to a qualifying company in the relevant period, which in this case is three years from the date of issue of the shares. Most of the time we will be looking at new companies or companies which are setting up new activities. Given that that is the area we are talking about, I am not sure we will find that many companies which qualify under the terms of the scheme will be in a position to consider setting up subsidiaries abroad, nor do I think that many companies would find it economic or justifiable to set up a subsidiary abroad to market their products.

The section as it now stands shows this very clearly but I take the point that we are much more likely to meet a situation where a manufacturing company set up here would set up a subsidiary in the State to be a sales company for the manufacturing group. That would qualify under the terms of the scheme. That is probably the more common situation we will be likely to meet.

That having been included in the original scheme and having talked to a number of people about the point at issue, I felt it would be right to provide, as we have done here, for a subsidiary company which carries out the trade consisting solely or mainly of any one or more of the following trading operations — and they are listed on page 33 of the Bill:

(I) the purchase of goods or materials for use by the qualifying company or its subsidiaries,

(II) the sale of goods or materials produced by the qualifying company or its subsidiaries,

or

(III) the rendering of services to or on behalf of the qualifying company or its subsidiaries.

That appears to cover the case we are most likely to meet in relation to the activities we are trying to stimulate by the operation of this scheme.

I do not think it would be in keeping with the scheme to accept Deputy O'Kennedy's amendment. I note also that the effect of his amendment is to widen the scope of the section to incorporate a number of companies which do not now qualify and this would broaden the application of the scheme more than I think would be wise or appropriate.

I welcome the fact that the Minister has to that extent responded to what we said on Committee Stage, and we now have provision for companies, the sale of goods and materials produced by the qualifying company or its subsidiary——

I had decided that before our discussion on Committee Stage.

I had no way of knowing that. We made a case for it on Committee Stage but I will give the Minister the benefit of having decided this before Committee Stage.

The Deputy did not put an amendment down.

We did. I spent three days trying to work out amendments and this was one of the amendments we put down, although not in the same words.

The Minister said he cannot accept this amendment because he is not in the business of providing incentives for employment outside Ireland. I would go along with him that there is no reason why we should give tax reliefs for providing employment outside Ireland but — and this is the significant difference — we should give encouragement where that activity or employment outside Ireland will generate much more employment and activity at home. There is a distinction to be drawn. It is very good to have the sales personnel or the section of the activity being encouraged at home, but it must be recognised that we are an island people and to that extent are disadvantaged when compared with those who live in the heart of the market, be they German, Dutch, Belgian or any other nationality. Sometimes they do not know when they are crossing a border. Because we are disadvantaged we should encourage firms to break into new markets which are vital to our development programme. For that reason I believe the Minister and the Government should encourage Irish companies either on their own or in a group to form subsidiary companies abroad to market their products. There is no question about that. That is something that should be actively encouraged. That is one of the weakest elements in our whole development programme. This morning we discussed tax allowances, tax bands and so on. There are people who may spend 100 days in the working year abroad promoting the products of Irish companies and I believe they should get a special tax incentive for that. Unfortunately they do not and I hope that when the Minister comes to prepare next year's Finance Bill he will bear that in mind. We need to have more and more of these people out there.

We should certainly encourage the establishment of subsidiary companies for sales and marketing to promote products manufactured here. I do not want to give too many examples because that might appear to denigrate the efforts of some companiesvis-á-vis others. I put it this way: in the food processing sector we could do with a whole range of subsidiary companies abroad to guarantee that what we produce in this sector can be sold abroad with advantage. There is ground for improvement in this regard. For instance, we sell a product to the Germans and, because we know what is good, then the Germans should eat it. We define the terms. We send them our soups and they had better eat them. We should recognise that they have different habits of eating and a different standard of living and what we must do is find out what those habits are and supply the market accordingly. We are not doing that. The impact of the development I suggest would be very significant. I do not think it would cost the State anything. Supposing you happen to employ three Germans in Dusseldorf in one of the subsidiary companies, what is wrong with that? Their input into the marketing and sales promotion of the company would be effective. I do not want to put words into the Minister's mouth but surely he can reconcile the two. If the end result will be to generate employment at home, then the argument is conclusive.

I gather the Minister is not disposed to accept this amendment. I regret that and I hope the scheme will begin to operate but it will not operate in my opinion as nearly as effectively as it could if the Minister were to adopt this amendment. However, I hope he will at least keep an open mind on the possibility of extending into areas like the service sector with subsidiary companies of the kind I have outlined. Business people have come to me and told me this is an area which should be promoted and they feel this exclusion will damage the potential that exists for development. I hope next year the Minister will appreciate fully the significance of this and adopt our amendment.

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

Amendment No. 28 in the name of Deputy Michael O'Kennedy.

I am not going to move this amendment. There are only two areas in which the Minister has actually conceded throughout this debate and this is one of them. That was that he reduced the minimum from £500 to £200.

On the Committee Stage the Deputy had a different approach.

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.

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.

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.

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

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.

I move amendment No. 32:

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

Amendment agreed to.

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.

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.

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

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.