I have not been following as closely as I intended to and wished to the reports of the debates in the other House and I do not know what I have read or what I have not read, if the Minister could understand that position; but, obviously, a mistake was made in the preparation of the section, though I do not exact an acceptance of that from the Minister. I wonder how, in fact, this thing is going to work. Will there be amending legislation required, because we all know that there will be assessments made after the 15th December next relative to this year after which date the decimalisation code will operate and a recurring decimal will be applied. I have two questions. The first question is, is it intended to have an amending Bill to deal with the situation after that date, and the second question is that from my own understanding it would seem to me——
Finance Bill, 1970 [Certified Money Bill]: Committee Stage.
Are we talking about section 2?
I am a bit lost.
He is referring to the two-thirds.
Yes, I am sorry.
The second question is that, administratively, it seems to me that this kind of relief is going to be very costly in so far as it is going to make the matter of raising assessments more complicated. At this point of time nothing can be done about it, but I wonder whether the Minister would consider for the future some adjustment in the decimal allowance which would eliminate this additional calculation which has to be made in the case of many taxpayers. I have great sympathy with the Minister in his position, not merely in the major problems from Second Reading but to be thrown in deep into the troubled waters of income tax and estate duty not to mention stamp duty and these other elements that are headings to different parts of this Bill. Therefore, as I said, I am not demanding. My request to him in relation to this is, first of all, there is a question of what we do after 15th December next.
After the 15th February, 1971, decimal day.
Did I say after the 15th December? It should, of course, be after the 15th February. My concern is what we do after that in the matter of making available these revised reliefs, and, secondly, whether any costing has been done of this kind of relief, whether some other type of adjustment might not be found which would make the net cost to the Exchequer more beneficial. In making these remarks I do not want to threaten the Minister with an evening of costings debate, because I do not intend to, particularly when we are actually in a position where we cannot do anything about this Bill.
We can only hope that if he sees any defects in it the Minister will improve it next year and invite the Revenue Commissioners to consider these paragraphs that are referred to as extra-statutory concessions in regard to a number of the provisions in this Bill. At some other time I should like to be told the theoretical basis on which extra-statutory concessions operate. I do not personally understand the theoretical basis. I think it is that the Revenue Commissioners might leave themselves open to surcharge by the committee operating on behalf of the Dáil. I am not certain of that.
Senator FitzGerald has made the point I was about to make. The date 15th February seems to be the sacred cow, the sacrosanct date. I presume it is because of our relationship with the British economy, because the British Exchequer are bringing in decimal coinage on that date. If it is not for that reason why are we adhering to that date? Why do we not have the commencement at the beginning of the financial year? There may be reasons for it.
Senator FitzGerald made another point and the Minister issued it in tabular form. It occurred in another Bill where yards were being changed to metres. There is the provision here of two-thirds and one-third involving a recurring decimal all the time and it does not seem appropriate to have it brought in in this way. I suggest to the Minister that it would be easier to make it one-half of the first £100 of taxable income.
Senators may have noticed that I looked somewhat mystified during the last contribution. The reason is that I was searching section 2 for 15th February.
It is section 3.
We can deal with it now. The 15th February was decided on here largely, I think, because it was the date decided on in Britain. If we had a different date it would add considerably to the confusion, and with the best preparations in the world there will be certain confusion during the changeover to decimal currency. It was to reduce the possibility of confusion that we decided on the same date.
That is fair enough.
In regard to the calculation, this should not really present any problem because, if necessary, the calculation can be made on the basis of two-thirds of 7s and then the result converted into decimals. The Decimal Currency Bill provides a schedule which shows exactly how the conversion is done.
With regard to the cost of administration, I am advised that virtually all assessments will have been made before 15th February, but those which still remain can be dealt with in the way I have indicated. There is no reason, therefore, to anticipate that there will be any noticeable increase in the cost of administration.
I accept the Minister's statement in regard to the date. Indeed, I had guessed what his answer would be. It seems extraordinary to me—of course, we have no power over it—that the British Exchequer should have picked 15th February when they could have picked the beginning of the financial year.
My point about administration did not relate to decimalisation but to the reduced relief. The inspectors making the assessments will have to give time for calculations to be made at the reduced rate. A great deal of time, obviously, was involved in this matter. We had a reduced rate of relief which we abolished for administrative reasons and I should like to know why we restored it. Is the reason that fewer taxpayers will be affected? Is this the answer that would justify the additional cost that must be involved in making these calculations and assessments?
The reason for the reduction was what I referred to earlier on Second Stage—an effort to reduce the incident of income tax on people who are now within the net. Some will be released by the minimum earned income relief and there will be some within it who would marginally be liable. It is to reduce the incidence on them as well as to reduce the incidence of income tax on everybody that this is put in. In regard to the calculations, I have no information at the moment as to costings but I do not believe there will be any enormous amount of cost or trouble involved. When I said in the other House that the preparation of the PAYE assessments have been gone ahead with and was nearly finished in anticipation of the passing of this Bill, exception was taken by some people there. I hope this will not be so in this House. In the other House exception was taken to the statement on the basis that this was a case of the Civil Service treating the Houses of the Oireachtas as rubber stamps. This is a misconception because, of course, if the Oireachtas decided to change this, the calculation would have to be made in accordance with any such change. It is commendable that the Revenue Commissioners should have made arrangements in so far as they could so that if the House agreed with the proposals the taxpayers concerned would not be inconvenienced by holding them up for a long time during which they would not be able to get the allowances to which they were entitled. I hope this explanation will not upset Members of this House. It indicates that a great deal of the difficulty that might have been involved in this has already been overcome and I do not think it presented undue difficulty. It would be only in the case of assessments having already been made out so that a fresh start would have to be made that real difficulties such as envisaged by Senator FitzGerald would arise. It is true that the situation he envisaged could arise in the case of non PAYE taxpayers but in terms of numbers, PAYE taxpayers are the bulk.
Could not the same result have been achieved by raising the personal allowances by an amount that would give corresponding relief? Of course, the object is to give additional relief on the first £100 and this is desirable but would not the method I have mentioned reduce calculations?
Yes, I believe that could be done but it would take a great deal of juggling to ensure that it would not cost more than this is costing.
I think Senator Russell had a valid point.
It is all right. I do not wish to develop it.
I imagine the House is not concerned unduly except to ensure that the relief is given.
By way of explanation, I must say that I was led into a trap by Senator Alexis FitzGerald with regard to the date, 15th February. It was he who first mentioned that date.
And I was led into a trap by the Minister's speech on Committee Stage in the Dáil.
Who led the Minister into the trap?
I note here that any designated area is any undeveloped area but I was wondering whether county boundaries might be breached in this? In my county, for instance, north Meath adjoins the Cavan-Monaghan border. There is great similarity between the two but yet there is considerable unrest because people only across the border are entitled to get much higher grants than people in County Meath because of their location.
I am familiar with the type of argument that Senator Jack Fitzgerald has in mind but may I point out that in this case this is merely a technical development following on what was done in the Act of last year. I think it was entitled The Industrial Development Act, 1969. This changed the name to designated areas. It was necessary to change the name there and this Bill is merely technically following it. The point raised by Senator Fitzgerald is one that can be dealt with only by the Minister for Industry and Commerce.
I understood that the designated areas included Waterford and Galway. As far as I can remember, some three or four years ago the then Minister decided that industrial estates would be established in designated areas and Galway and Waterford were the two centres to start with. At one time we were trying to make a case to have Limerick declared a designated area but we did not succeed.
What Senator Russell has said reminds me that county boundaries are breached as, for instance, they are in Limerick.
So they should be breached.
Galway is a designated area but Waterford is not.
I am almost sure that Waterford was a designated area.
Not for the purpose of the Industrial Development Act. It does not qualify for the higher level grant. It cannot be described as such within the meaning of this section anyway.
I accept that.
This is the section where an employer is expected to anticipate the income of an employee up to the level of £2,000. In other words, the onus is being put on an employer on whom sufficient onus is placed already by way of collecting of taxes. He is now being asked to anticipate the earnings of an employee. This was mentioned first in the Dáil debate. it is my opinion that there is too great a tendency in most of these taxation bills to put the onus on employers. Under this Bill employers are not only becoming tax collectors, they are becoming computing machines because they have to assess how much their employees are going to earn. They must find out if their employees are going to earn an income over £2,000 a year. Am I correct about the figure?
The Senator is right. There are two figures involved here, one is £900 and the other is £2,000. The principle which the Senator is talking about applies in this section. In the case of the £900 limit it is true that the employer has to anticipate this but any return he gives is only based on his knowledge and belief. He does not take on any liability if he is wrong in his assessment of it. In the case of employees earning over £2,000 limit, this only applies when the employee has actually received it. Furthermore, I understand that this liability to anticipate, as the Senator puts it, is not new. It is merely a change of the figures to take account of the new reduced rate relief. It is not a new principle. It has been in operation previously.
The fact that the principle is not new does not make it any better.
No, but the point I am making is that it has operated, as far I know, without undue difficulty. It would be reasonable to argue if it were a new principle that it was going to cause a great deal of difficulty but it has been demonstrated that it does not.
I take it the figures £900 and £2,000 appear in the regulations?
I cannot find them in section 127 of the Income Tax Act.
The existing practice to which I have referred arises under the regulations. There will be new regulations made covering these new limits.
It has been indicated that they are the figures which will be included.
They will correspond exactly with the existing regulations except to make the necessary adjustments for the reduced rate relief.
I thought the Minister was correcting me slightly in what I said. Is it not a fact that under section 5 the employer has to anticipate an income up to £2,000?
Perhaps, I should give a little more detail on this. In order to retain the relative simplicity of the scheme of deductions and deductions under PAYE, effect is being given in this section to the new reduced rates and minimum earned income reliefs by coding in these reliefs by way of provisional deductions in income. For this purpose employers will be asked to supply a list of married employees whose earnings are not likely to exceed £900. Where this information is given the contemplated regulations will oblige the employer to notify the inspector should the earnings exceed that figure. Let me say here that this is for the benefit of the taxpayer without which he would not get the benefit until the end of the year. If it is clear at the beginning of the year that the earnings of an employee will exceed £2,000 maximum earned income relief of £500 is coded in as a deduction from income and the tax free allowance certificate and the tax deduction card issued require deductions of tax to be made at the standard rate. In every case, effect is given to the one-fourth earned income relief by authorising deduction of tax at three-quarters of the standard rate. If in one of these other cases the earnings go above £2,000, the continued application of the one-fourth earned income relief would result in the maximum of £500 being exceeded. To overcome this situation it is proposed to oblige employers by regulation to notify the inspector that the earnings of an employee have exceeded £2,000 unless he already holds a tax free allowance certificate authorising the deduction of tax at the standard rate. This liability is to notify the earnings of an employee are in excess of £2,000.
This does not involve the employer taking any money from the employee?
He has to anticipate up to £2,000 but it does not involve him in extracting money by way of tax?
Where the income earned has exceeded £2,000 and the employer has notified the Revenue Commissioners of this fact it means that the allowances already given would have to be adjusted so that in due course it would probably mean that the employer would have to make deductions because of this but only in the normal way as he has been doing in the past except that there is an amendment in the tax free certificate.
I only wanted the Minister to bring out the actual implications of this section. I am not objecting to it.
What is the meaning of section 6 (b) which states that one is entitled to a reduction of either £249 or £274? Presumably, £249 is a single deduction but how does the £274 arise?
It relates to a widow or a widower.
In section (a) a married man is allowed a deduction of £424 or £524. Is that the standard married man's allowance? What is the additional £100 mentioned in the section? Does that relate to the first year of marriage?
It relates to the first year of marriage.
This is a welcome amendment but I do not think the Minister goes far enough. I wonder if the Minister, with the assistance of his officials, could give us some idea how the wife's earned income relief operates in Britain and how the figure of £74 in this Bill compares with it. We will have to increase this figure in order to draw married women back into employment in the years ahead. I do not think the Minister will find the figure of £74 is high enough. I should like to have the Minister's views as to what he thinks about the situation. I am sure he has had representations both as Minister for Industry and Commerce and as Minister for Finance about the question of earnings for married women. We shall have to take cognisance of this factor in the years ahead. It is certain that there will be far more married women working and available for work in factories here. It would be unwise to shut our eyes to that fact. Now is the time to take steps to ensure that they can earn reliefs comparable to those in other countries, particularly Britain.
I agree with Senator Russell except on one point. I do not know why we should compare ourselves with England at all times. We should not compare ourselves with anybody. The Minister will probably agree with me to this extent. Anything we do will come from the resources of this country. Anything we do will depend on what we can produce. One of the great resources of this country—and the Minister implied it in his speech—is labour. Senator Russell has a point here. The Minister in his remarks to the Seanad or the Dáil said that he wanted to attract more female labour into industry. This provision does not go far enough to attract them. The £74 is not enough. Senator Miss Owens said that it would be better if, for this purpose, a marriage partnership were dissolved and if each person got his or her full allowance as if they were single people. The Senator did not put it as I have put it. She did not suggest that the marriage partnership should be dissolved but that each one of the partnership should get a full individual allowance.
I should like to support Senator Russell in his observations on this point. I deal with a fairly large factory. According to advice we are given, the factory could literally multiply its exports according to the availability of female labour. This is the restricting and limiting factor. We could double the exports. This is almost entirely an export factory. As I understand the position, I agree more with Senator Russell than with Senator Belton in thinking that we must look at the UK position. The position in Britain with regard to the wife's allowance is that man and wife should be allowed in their joint assessment the equivalent of the personal allowance which, I think, would raise that figure of £74 to £325. In addition to that, there is another factor which cannot be ignored in dealing with a married couple and that is that the earned income relief given to such a couple does not stop at £500. It is two-ninths up to a maximum of £890 and one-ninth on the balance up to a figure of £1,660. This would mean £1,600 plus £325 where we have £500 plus £74.
This is the position of the skilled husband taking a job back in Dublin where his skills are needed because they might make employment of others possible. Such a man would consider his position under the legislation operating with regard to taxation and would find that he and his wife would be subject to much higher taxation if the wife went to work. Their joint net income would be much less than in Britain. It is good that the Minister has come from the Department of Industry and Commerce to the Office of the Minister for Finance. The Revenue Commissioners will become aware of the economic consequences of fiscal changes. I do not know what the cost of making this adjustment in the earned income relief is. In making any calculation of the cost of the £325 and £74, if I am right in my figures, the consequences in terms of yield of income, the extra work, the extra taxation resulting from the people employed, and the exports gained would have to be taken into account. I have some reservations about whether the Revenue Commissioners have done so. It would be quite an operation to make that calculation. Between now and next year I should like the Minister to see that calculations are made on this matter and that in making them account is taken of the earnings for the economy which are produced by the people who are persuaded to go back to work. It has been found that married women are better employees than they were when they were young.
I should like to make a strong plea for this. I should like the Minister in the course of the next year to try to induce many married women back to work. In our own field we are becoming dependent on married women to do part-time work as radiographers, medical technicians, laboratory technicians and nurses. These are highly skilled women whose services are being lost to the country when they get married because of the very poor earned income relief. We do not want to keep them out because we have a shortage in these groups. We must not only give relief, but we must also induce them to return to help the country in this particular field.
Senator Alton has said what I intended to say. Under the new Health legislation, which was before this House during the winter, there are incentives for domiciliary nursing services and also for married women coming back as nurses. The incentive here given to raise the allowance to £74 may not be sufficient. Hospitals and health services in general may not function effectively because of the lack of nursing services and the lack of personnel in these services. I think that every possible inducement should be given to nurses to return. I rather feel that the impact of this will be very serious for the community in future years. It may finally be that the Minister for Finance may have to provide extra money to allow married nurses back again. They cannot usually live in, but the domiciliary nursing service under the new Act is going to be expanded out of all recognition. Senator Alton will agree with me on that. Unless the Minister gives greater inducements for them to come back, the nursing service will be short of staff very quickly and having regard to the shortage of nurses, such relief would be very acceptable.
First of all, I should say in response to a question put earlier that in Britain the married women in employment gets an additional allowance equal to the single person's allowance. The effect of this for a married couple is almost the same as the allowance for three single people. What we are doing here is making the allowance the same as for two single people. It is not the same as for three because we could not think of this on the grounds of cost for one reason. It is difficult to estimate the cost but, as far as we can estimate, it would be very heavy.
What I am about to say may disappoint a number of Senators but I think I should say it. We are increasing this figure here for two reasons—one, that the general fall in the value of money would indicate that there should be an increase in it, and, secondly, the shortage of women workers in a number of areas is leading to much difficulty, as has been mentioned by Senators. However, I have reservations about this and I would think very hard before I agreed to increase it any further under present circumstances. The reason is that the areas in which there is a shortage of women workers are largely in the cities, but there are some parts in the rural areas more than in the cities—there are a number of places in the country—where there are plenty of women looking for work who have not got it. I do not think that we should go overboard in catering for this problem until we have solved the problem of employment in the areas of the country for the young women who need work, so I am going some of the way but I have reservations about going further until we have solved this problem.
I think that the Minister has made a good case in regard to that in that conditions in the rural areas are different from the cities. I am more concerned with a city, and the one I have in mind has an industry with which I have some association, the clothing industry. The Minister has had representations made in regard to that industry which in Britain, and to an increasing extent in this country, employs married women. We are reaching a situation in the Limerick area, taking in a large sector of the rural area around Limerick, for as the Minister is aware the Limerick factories and the Shannon Airport factories draw their personnel, as I think Senator Honan would agree, from an area as much as 35 or 40 miles outside, so that, in fact, we are drawing on the pool of rural labour. The situation is rapidly being reached, certainly in Limerick, where there will be an acute shortage of female labour. Whether we like it or not—I have my own reservations on the question of married women working—we will have to offer inducements to more married women to encourage them to take up employment. I appreciate the Minister's points. This could be a situation which could change very rapidly, but at this juncture I think that the Minister largely agrees that this is something that should be taken cognisance of in the next Budget and the next Finance Bill.
I agree with what the Minister says, but there are areas—we may be one of the exceptional ones— where many young girls find it very difficult to get employment and, indeed, I think that this spreads itself into a different field where people nowadays are doing two jobs instead of one while there are quite a number of people walking around the streets and standing at the labour exchanges. I do not think that anything should be done to worsen that situation. I could not say how you could apply this suggested relief on a selective basis, and if you were going to apply it it would have to be applied right across the board, because there are many small shopkeepers with their wives participating in the running of the shop and necessary to maintain the business and I would say that they would be people who should be included in this. I know many working-class people whose wives work in hospitals as maids and one thing and another, so that if this were applied it would have to be right across the board.
I was just about to make the point that has been made by Senator Honan, but I want to add a little to it, because we must also think of the wives who are at home caring for young children. They are working in a very real sense. Therefore, if we are going to give reliefs of this sort consideration should undoubtedly be given to the desirability of getting married women who are in a position to work into work, but, on the other hand, it should not be used to encourage women with young children to leave the home for the sake of the work. Any inducement offered, consequently, I would say would probably be better given either by an increase in children's allowances or an increase in the marriage allowance as long as there are children who are under a certain age, or that the wife would be entitled to that relief as long as she had children under a certain age irrespective of whether she worked or not. It is a complicated process, and I agree with the Minister that it is something that we should go fairly carefully about.
I get confused at times about figures and various other details in this Finance Bill. This, in fact, gives relief to a family with children, and the lowest relief is given on the second child. I do not think that there is relief for the first child.
From the second only. The relief goes upwards. In other words, the liability to pay tax is reduced from the second on?
No. The allowance is reduced. There is a reduction of £15 in respect of the second child and £19 for the third or subsequent children, which would become £23 for the third or subsequent in 1970-71 and onwards.
In other words, relief given to the taxpayer goes upwards after the first child for each succeeding child. This cuts entirely across the principles in the Social Welfare Bill, which is entirely the opposite. Under the Social Welfare Bill the children's allowance is for the first child and it goes upwards for the subsequent children. This proposal reverses the situation under the Social Welfare Bill. Is this not so?
The position is reversed. First of all, this amendment is consequent on the increased children's allowances given in last year's Budget and this year's Budget. It was decided, I think last year, that the children's allowances should become subject to tax where they had not been previously, for the reason that lots of people are getting them who do not really need them. It is in application of this principle that this has been done. The effect is that income tax allowances are reduced to correspond with the increased payments being made. These are related only to the increases given in allowances.
I see a conflict between the explanatory memorandum and the Bill. The memorandum states that the income tax deductions will be reduced where there are two such children by £15 for the second child, and so on.
There must be more than one child if one is talking about the second child.
"Such child" seems to be a very loose way of stating it. The "such" means over and above the first. It would have been all right if it read "in the case of a second child".
The thing is clear enough to me.
Could you not say "two such children"? I think it is quite clear.
The Revenue Commissioners know what is it all about.
I should like to know what is the purpose of this. Is it to deal with somebody who deposits sufficient money to get £70 free of tax which he does not disclose to anybody or is it to bring the industrial and provident societies up to the level of commercial banks?
This section of the Income Tax Act of 1967 was the most welcome piece of legislation ever introduced for a struggling attorney. I should like to know how have the figures been worked out; what is the basis? It relates to self-employed persons who wish to provide pensions for themselves. I am aware of the usefulness of the provision but is the intention here to put these self-employed persons into a non-risk category such as the Revenue Commissioners?
There are two reasons for the figure of £750. As the Senator probably knows, it was £500. One reason is the continual one we meet, the fall in the value of money. The other is partly coincidental. The limit in operation in Britain is £750. It has been in operation there since 1956.
I think it is pertinent for me to explain my views while we are discussing this section. For convenience, I wonder if it would be possible to discuss this section together with the following section.
That can be done, if the House wishes.
I am convinced that there was an excellent intent behind the original enactment of the provisions which it is here proposed to amend, but I want to place on record my view, based on very considerable experience, that I have known of no case of a public flotation where the matter of availability of this relief changed the judgment of people making the flotation. I think this is a relief which is costing the revenue money without bringing any benefit to the economy. I realise that the Revenue Commissioners and the Minister have difficulties in regard to any concessions in respect of any existing industry. Consideration should be given as to whether this relief should be retained in relation to State issues. I understand that these two sections are to deal with situations which probably have arisen in which there were defects in other sections in relation to public companies because certificates could not be issued until a later date. This is the sort of situation which these sections are designed to improve. In so far as they make that improvement they are welcome.
There have been a few cases which have come to notice in which companies have issued stocks and shares but omitted to apply for the requisite certificates and no relief could be given between the date of the issue of the stocks or shares and the date of the certificate. The object of these sections is to amend the provision subject to which a 20 per cent relief from income tax and surtax was granted in respect of dividends and interest on stocks, shares or securities of Irish companies. The amendment here has effect in relation to dividends or interest paid on or after 6th April, 1966. The relief has hitherto operated from the date on which the certificate was issued. In regard to the other point raised, it is a fairly novel experience for a Minister for Finance to have such a suggestion made to him in either House and I will give it consideration between now and next year's Finance Bill. If what Senator FitzGerald says is correct, and I have no reason to doubt him, it would make sense to take away this relief if it is not having the effect it should have.
Surely we would be prohibited by reason of established practice in Common Market countries from giving special relief to Irish companies as against other companies.
In so far as we would be prohibited from doing that, there would be, I hope, a fairly lengthy transitional period. This is assuming that it goes. It is always possible that we could negotiate either for its full retention or for its retention for a longer period than the transitional one. I am not inclined to give up anything until negotiations are completed. I say this on a general principle but on the basis of what Senator Alexis FitzGerald is saying it may be that we should give it up anyway irrespective of the EEC if we are not gaining anything by it.
If it is an advantage, I would be inclined to hold on to it.
Senators Russell and FitzGerald might come to grips with it and advise the Minister later.
I can understand the Minister's predicament here. Probably it might be more decent to refer to these people as subcontractors rather than "lumpers". In fact, I think the term "lumpers" is exclusive to the construction industry. These are people who agree to become subcontractors without notifying anybody. If I use the term "registered", I do not mean it in its literal sense. I mean that they do not notify the Revenue Commissioners.
There is an avoidance of tax on the part of these people. In the building industry these people, labourers and skilled workers, unite to work by contract. I am not including them among general bona fide subcontractors. In this section the Minister is endeavouring to get these people in his net. However, I wonder if the effect of the section will be worth the effort. There may be some people who are caught within the net but I am not so sure that this will not act as a disincentive because if these people never came together to do a particular job they would be ordinary employees of a builder. They would work certain hours and they would be entitled to wet time pay and so on but under the “lumper” system they are a unit working on contract and they will be prepared to work in any type of weather. That is why I say this section may act as a disincentive. I accept the Minister's reply on Second Reading when he said that it was not possible to assess the amount of money being lost to the Revenue Commissioners on account of these people because, as the Minister pointed out, if he knew that he would know who the people were.
It is my opinion that the machinery to be set up will be used at the expense of machinery doing work that will gather in taxes in another field. Either new machinery will be used to collect the taxes or existing machinery will be used for the purpose. I wonder if the cost involved in collecting this tax will be worthwhile. Combined with that it is to some extent a disincentive to these people. There are further objections also in that there may be subcontractors who are bigger than the contractor and the subcontractor may be having money collected from him by the contractor who, in fact, is a smaller builder. This does not appear to make sense and the Minister might have a further look at this. I can sympathise with him in his intent in this section.
I should like to endorse what has been said on this section by Senator Belton. I am not very happy about this section because I, too, consider that it will act as a disincentive in getting houses built more quickly. As a member of a local authority, I find that in general it is the small contractors who take the small jobs, especially the building of isolated cottages. Generally, they depend on getting those houses built by a subcontractor. A difficulty will arise for that type of person but I also have another type of person in mind. I think this section will militate very much against a person building his own house under the Small Dwellings (Loans and Grants) Act. Perhaps such a man would, with family help, have the foundation dug out, filled in and left ready for block layers. He would then employ a couple of block layers. He would supply the material and they would complete their work in ten days or so. In the same way he will get the house roofed, the woodwork and plastering done, and by doing it in this way he can save a considerable amount of money. He may do the labouring himself instead of employing block labourers. I am concerned about that type of person who now finds added to the difficulty of finding a site, acquiring a grant and getting permission to build that he is liable to pay to the Revenue Commissioners the tax due on the money he has paid to the subcontractors.
What are the penalties going to be for non-compliance? Will they be fixed by regulation or will it be a financial penalty?
It will be financial.
They will have to pay it out of their own pocket if they do not stop it?
Yes, I do not mean they would have to pay the tax out of their own pockets. The penalties are the usual penalties under the Income Tax Act.
Are these penalties in addition to paying the tax due?
Anyone who knowingly does not deduct the tax will have to pay a penalty in addition for failing to do so.
I should like to support the case made by Senator Belton and Senator Jack Fitzgerald. I think we all agree with the principle that where a legitimate profit is made tax should be paid on it but I am not quite clear of the workings of this. If a subcontractor does a job for £200 the contractor must deduct £70 and pay him £130. Is that correct?
That assumes that a subcontractor or "lumper" has made a profit on the transaction. He is being taxed on his total receipt from the job, there is no allowance for his costs, including the costs of his own labour. This is wrong in principle. It is possible that the subcontractor or "lumper" may not have made a profit but he is being taxed on the total receipts of the job without consideration being taken of the costs of his own labour and other costs which he may have to bear. Like Senator Jack Fitzgerald and others I have a good deal of experience of local authority house building. I have a fair knowledge of the dependence which contractors have on subcontractors who do work under extraordinarily adverse conditions. The incentive of getting the job finished quickly and getting a handsome return for it stimulates them to get on with the job when other workers may not be inclined to work. The Minister should go very slowly about introducing this new schedule. We shall all be interested to hear the enormous amount of money that is being lost to the State as a result of this gap in the income tax code. If the Minister could demonstrate that, I think the House would be more sympathetic towards this section. I would have to be satisfied that the tax gatherers were losing a great deal of money before I could justify interfering with the present system. It is an established system which has worked pretty well in the past particularly in regard to local authority housing and SDA housing. I question whether the Revenue Commissioners are going to secure all this extra tax revenue as a result of bringing in this provision. It is not impossible to imagine that there may be collusion between the contractor and the subcontractor to avoid this form of tax. I would have a good deal of sympathy with a hard-pressed contractor who had employed a "lumper" if he made some arrangement with the "lumper" to avoid paying this tax. The Minister may have information which we do not have but I would ask him to have another look at it.
Does this section not cover contractors as well? In other words, if I get a contractor to build a house at £4,000, is he not caught under this section unless he produces a certificate?
This means that every contractor and subcontractor must produce a certificate?
Has the Senator checked on the definitions?
It appears to me that all contractors are caught, not just "lumpers".
If A requires work to be done and he enters into a contract with B, B is the principal contractor. The section does not apply here but where B subcontracts part of the work to C, the section would apply to the contract between B and C.
It seems to be much wider than that. Subsection (2) states:
Subject to the provisions of this section, where in the performance of a construction contract, whether made before or after the commencement of this section, in the case of which the principal is—
(a) a person who, in respect of the whole or any part of the construction operations to which the contract relates, is himself the contractor under another construction contract, or
(b) a person carrying on a business which includes the erection of buildings,
If he is caught under subsection (b) I shall have to stop 4,000 seven shillings from him. The section is so wide that it does not apply only to "lumpers". It includes contractors as such and it will lead to a tremendous amount of difficulty. What a contractor will do in such a case is that he will push up the price of the house. He will say to himself that he is going to be stopped 7s in the £ on this job and he will have to get an auditor to work out the cost and verify what he has earned. I would be fearful of anything that would push up the already spiralling building costs. If the Minister is dealing merely with "lumpers" I can sympathise with him because I do not feel anybody should be able to escape the tax net, but where a contractor has a fixed home and the inspector of taxes feels he is liable for income tax he sends him a notice of assessment, which is considerably higher, and if he does not pay he sends him an estimate of the amount and if he does not appeal against it he will be fined if this section includes contractors.
In the latter part of his remarks Senator Nash made the point that is worrying me. I do not like the section at all particularly the effect it will have on the consuming public. People who want to get houses built will have to face increased costs. The natural reaction of a subcontractor faced with this tax is that he will put the price up by approximately one-third, which is the amount of this tax. While admittedly in turn the consequences of that would be more money going into the revenue net because more would be deducted for income tax, in so far as the consumer is concerned I am afraid this may mean an increase in the price to him.
The other point I want to make is one I have made to the Minister already. It is in relation to the penalties involved here. Two sets of circumstances are likely to arise. There could be accidental omission to make the deduction. I would like to know if there is an automatic revenue penalty in circumstances where the deduction has not been made, whether it is accidental or deliberate. How is one going to differentiate between the person who deliberately refuses to make the deduction and to pay over the tax to the Revenue Commissioners and the other case where a perfectly bona fide mistake is made? Will there be a penalty which is automatic or will it be discretionary on somebody's part as to whether it will be waived? It seems to me that the penalties are to be dealt with by regulations. I do not know whether I am correct in that or not. If that is so, it is not a situation which I would like to see exist. Nor do I like generally the idea by legislation here of compelling the principal to act as tax gatherer. I am sure the Minister will make a sound case for this and I will not obstruct him on it. I would like very much to know the answer to the point raised by Senator Russell as to what estimate is worked on as the loss which has been occurring over the years in this particular field. I presume some estimate must have been made before this section was introduced. What, in the Minister's view, is likely to be the increase in tax revenue as a result of the operation of this section?
Almost everything I wanted to say has been said already. I agree with the point of view which has been put forward by the Senators who spoke on this section. I do not agree with Senator Nash. I think the section applies only where there is a contractor intervening.
Would the Senator indicate where the contractor is excluded?
At 2 (a) or 2 (b).
He does not come in under 2 (b). If I employ a person to build my own house, do I come in?
No. You are not a principal.
The principal is the person carrying on the business.
You are only the principal if you are a contractor carrying out a contract under a construction contract.
To clarify this let us consider a person who is building his own house and subcontracting it all the way. Is he the principal?
Not under this section.
I think he is. It is not his normal business but he is liable for the money he is paying those people.
He is not. If the Senator looks at subsection (10) he would see that a business man who is building for his own occupation or that of his employees is exempt also.
I pin my faith to subsection (11) which gives the Minister the power to fix the date on which this comes into operation. It is conceded from all sides of the House that any evasion there may be must be stopped, whether it be little or large. I invite the Minister to be very slow in bringing this section into operation. This is the section of the Finance Bill which gave me the most concern. I think I am correct in saying that subsection (7) was introduced at the Report Stage in the Dáil debate by the Minister. There is a tone about it which I do not like. It suggests that the respectable contractor will be distinguished from the subcontractor who is not so respectable. There will be found to be in existence legitimate useful elements in the building trade in Ireland if this is examined by people with other things beside tax evasion in their minds.
Senator J. Fitzgerald has described the situation where trades people including plasterers, plumbers, electricians and painters carry on genuine small businesses in the building industry. They may possibly be engaged in tax evasion but they are improving the efficiency of the building industry. The Minister should be most careful to see that such persons who may not have been schooled in the idea of having an established place of business are not adversely affected. The question arises whether it is right that the deduction in many cases where people do not so establish to the satisfaction of the Revenue Commissioners that there is an established place of business should be at the full standard rate. There may be people engaged in evasion using materials which should be taken into account in considering what their net incomes would be. The Minister should look at what was proposed in the British legislation. There could be a case under the proposed law of the Commissioners there now being satisfied that the deduction proposed to be made should not be at the full standarl rate but at a lower rate than that.
The Minister should consider the effects of this section. We have a construction industry here whose capacity to erect buildings is strictly limited by the availability of skills. Some body should make a study of the possible consequences of a flight of these skills from our land as a result of any legislation we might enact. I agree that we must let some skilled tax evaders go. This might be right. Before bringing the section into operation the Minister should assess this element also because at the same time as we are enacting this legislation there is a programme whereby we are trying to attract back to Ireland skills whose availability determines the number of unskilled people we can employ. Everything else I wanted to say has been already said on this section.
Firstly, on the question of whether a person building his own house is covered, I gather that Senator Nash was looking at the definition of a construction contract. It is correct that if he refers to subsection (2) he will see that even in the case of a construction contract as defined, the section applies only in the case in which the person is either a person who in respect of the whole or any part of the construction operation to which the contract relates is himself a contractor or a person who carries on a business which includes the erection of buildings, so that a person who builds a house for himself would not come under either 2 (a) or 2 (b). Consequently, section 2 would not apply.
I thank the Minister.
Would he come in under 2 (b) if he happened to be a building contractor who got someone else to build his house?
Oh, well now, I do not think that I will pursue that one.
Rightly so, Minister.
The question was raised as to how much revenue was involved in this. As I said earlier to Senator Belton, we do not know. If we did know we would not have this problem because we would not have to be doing it. The only thing is that the indications which we have are that it is reasonably significant, but perhaps even more important is the fact that it is growing and if we do not take some action it will almost certainly grow considerably as a form of tax evasion and we could not contemplate just letting it mushroom in that way.
The point was made, and I think it has some validity, that this might act as a disincentive, that it might cause the disappearance of certain skills in the construction industry which at present exist. I cannot say categorically that neither of these things will happen. I do not know positively that they will, but it seems to me that it is possible that they could happen to some extent. In these circumstances we are forced to consider the principle involved here. I do not think that this House can really contemplate deciding solemnly that either because it will act as a disincentive and thereby reduce efficiency in the industry or because of the loss of some special skills in the industry—that for these reasons this House should solemnly decide that these people should not be taxed. We really cannot make that decision, but I think that most of the arguments put forward would involve that.
It may be said that if the amount involved is small there are other tax evasions going on that we are not getting after and the same principle applies, but as I have said, the indications are that it is significant at present and that it will certainly grow considerably if we do not take action. For that reason I think we are justified in taking action on this.
As to the actual operation of the section, what I had in mind in drafting the amendments which were introduced in Dáil Éireann and which are achieved, I believe, in the section as it now stands were these things: firstly, what you might call genuine bona fide subcontractors whom Senator Alexis FitzGerald referred to as respectable people. I admit that there is this awful distinction in this section.
Yes, legitimate subcontractors, as Senator Russell says. Having a registered place of business and undertaking to furnish or having actually furnished accounts to the Revenue Commissioners, they get a certificate which will ensure that this section will not apply to them, and no problem arises for them. This leaves us then with the people who either cannot or will not comply with the simple conditions in relation to the certificate. Some of them will not be able to do this because of the way the "lumping" operation is carried out. Groups of people get together, but they change; some change from one to another; they move from one job to another; and in many cases it would not be easy for them to have accounts. I am concerned in these cases where it is not possible for them to comply with the requirements to get a certificate, but where, while they are not actually rushing into the Revenue Commissioners to pay tax, nevertheless, they wish like other citizens to live with an easy conscience as regards the Revenue Commissioners. In such cases their position will be that they will apply to the Revenue Commissioners giving details of their circumstances, and every time money is deducted it goes to the Revenue Commissioners and they will be enabled on a monthly basis to get from the Revenue Commissioners a refund of any tax that was taken in excess of what should have been deducted from them on a proportionate basis, that is, after the first month, they would get the repayments to which they would be entitled for that month and so on during the year—they would get the proportionate repayments. A special section will be set up in the Revenue Commissioners to ensure that there is no delay in dealing with these cases. I have given instructions to the Revenue Commissioners that I want to ensure as far as it is humanly possible to do so that in the case of "lumpers" who, as I say, want to act as ordinary law-abiding citizens but cannot do so because they are unable to produce accounts or for some similar reason they will be facilitated as much as possible. I think that they may have some difficulty, but after the thing gets going they will be able to settle down.
We have a third category. These are people engaged in this business who have no intention of paying tax if they can possibly avoid it. It was mentioned at an earlier stage that they not only avoid paying income tax but they do not contribute to social welfare, and this can raise problems for them and their families afterwards, and certain other things, but here I am concerned directly with tax. I want to say quite frankly that I have not any sympathy with those people. What is going to happen to them is that they will have deducted from their payment tax at the standard rate of 7s in the £, and unless they have considerable income from some other source, this will mean that more tax is deducted than they are liable for and, therefore, I would expect the bulk of them will report to the Revenue Commissioners and will get their allowances and work on the basis of the monthly adjustment. The truth of the matter is that many of these people, strictly speaking, should be operating under PAYE, but because of the way the system operates they amount to independent contractors. It is possible that some of these groups who have some form of stability would as a result of this change their system and have one man nominated who would enter into the contracts, receive the money and pay them. He would be a subcontractor and employ them. Of course, if you reach that stage, it is a question of PAYE deductions and the problem does not arise.
I think we have gone as far as it has proved possible to go, as far as ingenuity can bring us, to ensuring that the genuine subcontractor will not be inconvenienced at all, that the "lumper" who wants to conform is convenienced as much as it is possible to convenience him and that the "lumper" who is trying to evade his liability will get his deserts.
Is not the person Senator Fitzgerald spoke about free? He spoke of a private individual.
It does not apply there.
I am grateful to the Minister for the way in which he explained the problem but I am not satisfied that it will not be a disincentive to those engaged in building. We have had talk about respectable contractors with registered places of business. Everybody knows that the type of people who are being caught here are not sophisticated people. They are hard bitten people who go round the country with a trowel and plumb rule, with a couple of labourers, to get a job done as quickly as possible and to get as much money as they can. This provision will increase the price of building.
Take for example a man who will charge £150 for block laying. The contractor will say to him: "I have to deduct 7s in the £." That man will not be interested. He will say to the contractor: "Deduct as much as you like but I want £150." That is what will happen. I do not want to introduce a discordant note into this discussion—I would be the last to hurt the Minister —but it appears to me that we always get our inspiration from across the water and that we are now following the road trod by Roy Jenkins, and we know what happened to him.
Please God the same will happen here.
He has been very deaf to the pleas of Fine Gael.
I cannot agree with Senator Fitzgerald. Of course, all tax is a disincentive. If you are in a factory and you employ men overtime they know they are already taxable before they start their overtime. They are not inclined to come back for that reason unless they want to make more money. In this case I cannot see the disincentive content any more than in the case of the ordinary contractor who might be said to want a bigger net profit for himself. I do not think that will happen. All the subcontractor has to do is to write to the inspector of taxes and state: "I am doing subcontracting work. I undertake to give you accounts at the end of the year." Then, the Revenue Commissioners shall—there is no choice—they must give him a certificate and he can go ahead with an easy mind. It only means he must undertake to pay his tax the same way as the unfortunate labourer does. I have no sympathy with anybody who tries to dodge paying tax. If everybody paid the tax to which he is liable there would be greater revenue with which to help people in need.
I do not think anybody who has spoken on the section has suggested that there should be tax evasion. The main point made by most speakers was whether this is worth the candle. My feeling, notwithstanding what the Minister has said, is that it is not. The type of people who do these small jobs of work are not the sort of people to write polite letters to the Revenue Commissioners. They are people who see a chance to make money, who will take on a contract for £100 or £200, who do a job as quickly as they can and then go and look for another.
I am afraid the effect of this will be to kill this trade altogether and to add to the cost of building. A point the Minister might have made and which I am making against myself is that the illegitimate "lumper", if I may use that expression for want of another, will be put out of business, but is it likely that the business he loses will go to the legitimate contractor? If so, it might be a welcome development, but I do not think it will happen.
The Minister said "lumpers" will be facilitated when they apply to the Revenue Commissioners for refunds of money. We know that when the Department have to pay out, it is three weeks before they do so. Could these rebates be paid in a week? Those people would like to have their money fairly quickly. Secondly, there is the problem of the "lumper" who is married. He is paid in cash up to his tax free allowance. What he earns over and above that allowance he is paid by cheque. Will this section cover him?
In regard to the question of repayment, it should be possible to do it within a week. That is what is anticipated. With regard to the second point made by Senator Crinion, it was possible to do this heretofore more easily because there was not any obligation on the employer. This places an obligation on him and it creates a somewhat different situation. Senator Jack Fitzgerald said we were copying the British in this. I should like to say that the Revenue Commissioners have been working on this for quite some time on the lines now included in the Bill long before the British proposal.
Maybe Jenkins got his inspiration from here.
In fact the British system is not in operation at all but the system they were proposing is a great deal more elaborate than ours, which is relatively simple. There were two Bills in Britain. One was the Finance Bill in Britain the other was their Construction Industry Contracts Bill but, because of the general election, this Bill did not go through and the corresponding section of their Finance Bill was withdrawn. Therefore, it is not in operation there at all. I repeat that I accept that to some extent this may act as a disincentive for some people. Indeed it will act as a disincentive for anybody who has succeeded in working away, earning money on these contracts but who is not paying any tax. I suppose it could be said that for them to have to pay tax now would be a disincentive but that is not a good enough reason for us to decide that such people should go on not paying tax. There are lots of other people doing the same kind of work in their capacity as employees but who are paying income tax to the full under the PAYE system. One must have some regard for these people and for all other taxpayers as well.
I agree that these "lumpers" work very hard but if the circumstances arise as mentioned by Senator Jack Fitzgerald when these people would say if they were getting £150 for a job that they wanted £150 and that the contractor could fix the adjustment—if that happens—there would be a return to the Revenue Commissioners of the money from the contractor but the contractor would have to indicate to whom the money was paid and in respect of whom it was paid. My opinion is that the third category we were talking about would not want to pay anyway. As far as the Revenue Commissioners are concerned they will have the names and addresses of these people from the contractor. I have no sympathy with that category but I think I have made it clear that there are people engaged in this kind of work on a "lumping" basis who are good citizens, who are working hard and who are willing to meet their obligations as citizens but who may not be able to furnish accounts and so on. It is for such people that we have provided this arrangement for repayment on a monthly basis and the Revenue Commissioners would ensure that such people are facilitated. We cannot go any further than that.
I cannot say to what extent this will be a disincentive or to what extent it may add to costs in building. One can only speculate as to whether it will act as a disincentive and no one can say what will be the reaction of the "lumpers". We shall have to wait and see how it operates but I cannot accept the proposition and I do not think Senators are urging me to accept that we should deliberately decide these people should not pay any tax.
That is not the point.
We do not think you will get your tax.
Let us see how it works.
It could be a disincentive because those people who, at this time of the year, would probably work for 16 hours each day would not be inclined to do so because they would have to pay tax and this in itself might slow down building.
On that point I would support the Senator. No one in this House would wish for legislation that would exclude tax evasion but before bringing in this measure I would urge the Minister to examine some aspects of the building industry during the past few years to see whether tax evasion has not led to the pooling of skills but which does not tend to produce houses that are less costly. I invite the Minister before bringing this measure into operation to consider very carefully whether he should not bring in this legislation until next year when he could propose a deduction not of 7s but at a rate lower than that because if this is done these people will not be treated in a worse fashion than PAYE people.
There are two aspects to the administration of this section. One is the cost of its administration and the second is, when it is implemented, the cost to the building industry. The Minister said, and I accept, that he could not give me any answer to this. I can see the reason why he cannot do so but could the Minister change this Bill so that by regulation or otherwise he could frame the section in a way that he could impose it or take it away by regulation—in other words, to give it a chance? We agree that anybody who is trying to avoid tax should not be allowed to do so but I am more interested in whether the cost of the implementation of the legislation will be worthwhile.
Is the Senator suggesting that the Minister should provided by order that it may apply but then have provision that it could be withdrawn?
That is not possible. There is a provision in subsection (11) that it would come into operation on such day as the Minister by order appoints and that it would stay in. There are two reasons why I cannot change this. In any case, I would not be disposed to changing it, apart from the more obvious difficulty.
I have sympathy with the intent of the section but I am interested in its worth because I think it will cost more than its worth.
Is there not another aspect to this? The subcontractor concerned may be eligible for income tax allowances if he is staying away from home or he may be allowed on certain equipment that he uses for his work. He would need some professional advice as to what allowances he was entitled to.
He would be entitled to claim certain expenses in connection with his work. I think the ordinary expenses that are claimed in such cases would apply also to these subcontractors once his business is known. It may be there are some rather more abstruse ones which unless claimed are not allowed, but this applies to every taxpayer.
I know that but under this section we are bringing into the tax net people not used to it. They should be told about this in their own interest so that they can make these claims.
Many of them were used to paying tax unless they opted out of paying.
Can the rate be varied?
The point has been made about deducting at less than the standard rate. Senators must realise we are dealing with people who are moving around changing their home addresses as well as their working addresses, it is very difficult to catch up with them and when we do manage to catch up with them they have usually spent the money. I have tried to meet the man who wants to conform as an ordinary citizen by the provisions we have made here including the monthly arrangements and allowing him to get all the allowances to which he is entitled. If we make it less than the standard rate of tax it might well be that it would be worth while simply to ignore it.
I do not think anybody would agree with reducing it. They are either liable or they are not.
A very strong argument to reduce it was made in the other House but I came to the same conclusion as the Senator, that it is either on or off.
May I intervene to say that we still have a fair distance to go on this Bill and time is running out? As the Bill must be passed tonight I assume Senators are prepared to sit on.
There was an agreement that we should finish this Bill today but that was to some extent interfered with because the Bill was not taken this morning. The understanding was that we were to spend the entire of yesterday and today dealing with this Bill. I speak for an agreed group here and as far as we are concerned we are prepared to sit on as long as necessary to finish it.
I wonder if the Minister will agree to consider the suggestion I made that while bringing "lumpers" into the tax net he should also ensure they pay social welfare contributions so that when they are out of work they can receive benefits?
I am giving consideration to this. I cannot ensure that this will happen but I think it will be a spill-over from the operation of this section. The main reason most people did not pay social welfare contributions was that they felt they would be marked on the books of the Revenue Commissioners. Once they are on the books of the Revenue Commissioners I am sure many of them will be anxious to obtain social welfare benefits.
I do not think it is enough to say a number will be anxious to obtain social welfare benefits. Employers are required to deduct social welfare contributions and make tax deductions and in return employees are paid benefits when they are unemployed. These people have been working very hard and have earned a lot of money and now we are going to try to get them to pay tax. If we are going to get them to pay income tax we should ensure they pay social welfare contributions. I would ask the Minister to devote his talents to devising a scheme whereby they are obliged to make social welfare contributions.
I cannot do what the Senator asks because I do not deal with social welfare contributions. That is the function of the Minister for Social Welfare who will, no doubt, give some thought to this but I cannot undertake anything on his behalf. I appreciate the regard the Senator has for my talents but they are limited to my functions as Minister for Finance.
Would the Minister differentiate between subcontracting for the provision of dwellinghouses in view of the housing shortage emphasised during the discussion here on the Housing Bill and subcontracting for such things as runways, wells and sewers? Senator Jack Fitzpatrick made a genuine case for the person trying to provide a house for himself or a small contractor trying to provide houses locally.
I shall have a look at it but I do not think it is administratively practical.
I understand section 18 relates to the new section 53.
I do not know whether this point was made in the other House, but does this take in the case of a sale by way of long lease?
Unless the whole interest of the vendor is transferred it does not operate.
May I ask why not?
The principle on which this has operated is that the person who makes the investment is the person who gets the allowance. The Senator may say where somebody takes on a long lease he is in fact making an investment which would entitle him to allowances but the effect of what he has suggested is that the allowance should be apportioned between the original investor and the person to whom he sold, assuming that the investment of the person taking on the lease is smaller than the original investment. This is not always the case.
A person taking on a long lease is usually paying a rent and a fine. If the fine is big the rent will be correspondingly small and vice versa. What is happening is that the fine is in effect a commutation of rent and to the extent that that happens the rent paid is smaller. A person who was taking it solely on a rent without any fine is clearly not entitled to this. Simply because there is a commutation of it does not entitle him to do so. The fact that the allowance is available to the lessor must be taken into account in arriving at the terms of the least both in relation to the fine and the rent. It can not be said that the person who was taking the lease, namely, the lessee, is losing out on the allowance to which he would otherwise be entitled. The allowance continues to exist. If the lessor is getting the allowance the lessee can make a bargain with him and have this taken into account. I do not think any injustice is being done to the lessee. It would be unjustifiable to give the allowances I have mentioned to the lessee and in practical terms it would be extremely difficult in some cases. I took the Minister to say that it was allowed if the entire interest of the vendor was going.
If you have a case where the vendor is a lessee who is assigning his interest in a lease, does that count?
If the vendor is entitled to the allowance and assigns his whole interest, the allowance will go with it. I am not going into the circumstances but if he is entitled to the allowance it would go with the whole interest.
Does this mean, in fact, in practical terms that the allowance is going to be available only to a person who acquires the entire interest of the vendor and, in effect, any relationship of lessor and lessee between vendor and purchaser is excluded by this section if the allowance is going to be got for the benefit of the purchaser? Am I wrong in thinking in the management of industrial estates that it might be desirable that the transaction should be carried out by a lease rather than by way of sale? If this is correct, does it not have adverse effects on the management of industrial estates in so far as it would tend to put the person negotiating into a position where he would want assignments and the difference between coming into one estate and another would be changed and this would be bad for some estates?
The allowance would be available to the person coming into the industrial estate who did not erect the factory but was coming in to occupy it, provided that he acquires the entire interest in the premises and is the first user of them. His expenditure would be deemed to be the expenditure incurred by the person who actually erected the premises and he would then be entitled to the allowance. The situation is different if he is not the first occupier and if the premises have already been occupied and the allowance given. In those circumstances the allowance only changes hands if the whole interest changes hands.
It seems one cannot run an industrial estate unless one is able to secure a relationship with each particular person who acquires a factory where he will conform to general requirements with regard to the estate. One can only do this if you do not sell out the entire interest. The purchasers in industrial estates in most cases will be taking leases and will not be getting the benefit of this.
That is true if they take on leases and are not first occupiers.
I am assuming they are the first occupiers in every case.
If they are first occupiers they will be entitled to the allowance.
Not unless the word "sale" includes "demise by way of lease".
That is correct.
Which is correct?
It is correct that even the first occupier will not be entitled to it unless he gets the whole interest of the vendor. In such a case, where he is not getting the whole interest and, therefore, not the allowance, the vendor will get the allowance and the purchaser will, in negotiating his terms, allow for such and thereby, in effect, get the allowance then.
I know what Senator Alexis FitzGerald is trying to get at, that is, the management of an estate. Surely the last Planning Act covers this? This is the clause which can be built into a lease on an industrial estate. It has been taken out of the hands of the landlord in the last Planning Act.
Not necessarily. It might be desirable even in relation to an industrial estate as it might be in relation to a shopping centre from the point of view of management to provide that particular premises will be used only for particular purposes. That would be a matter for the management to arrange. One may get permission from the planning authorities for the use of structures without designating the actual business. It may allow light industrial use or heavy industrial use but the management may decide that the particular industrial use to which a premises is to be put shall be the making of cardboard cartons in one area and something else in another area.
The Minister said that in allowing these terms this concession would not apply to the person who would otherwise have bought the premises. This person who was getting the allowance would be the builder or developer who would take this into account and the lease would be arranged accordingly. What is the point of this section?
I do not know what the Senator means. The allowance was in existence prior to this. The purpose of this section is to enable the allowance to be given not merely to the person who built the premises but to somebody who acquired the builder's whole interest before they were first occupied. In that case the allowance goes to the purchaser. There is only one allowance and the builder loses it.
This point has been made in the Dáil. I am ready to be corrected. My point relates to subsection (3). I am not clear on the effect of a three-partner partnership where three partners become two. I am clear where there is the position where seven partners become six: there is no discontinuance resulting from anyone dying or retiring. If you are one of a two-partner partnership and there is a retirement there is a discontinuance for the continuing partner. There is an exception here providing for the case of a single individual whose death leads inevitably to the discontinuance of the profession in which he was practising but there is no provision for the discontinuance resulting from the death of one of two partners. We try to arrange all sorts of things to suit ourselves but arranging our deaths is something that is more difficult to negotiate. Tax avoidance of this kind by two partners arranging that one of them shall die so that particularly beneficial results should flow from discontinuance because of his death is an unlikely form of tax avoidance.
In Britain there is an option in all circumstances whether it be a two-partner operation or three, four or five, for the continuing partner to opt not to have a discontinuance, but there has been a failure here to reconcile the operation of the partnership provision of the 1965 Act with this section which is in fact a copy of the UK section. This should not apply in the case where a single individual has discontinued by reason of the death because he is one of two partners. I recognise that we can do nothing about amending this Bill at this stage, but I would refer to those extra-statutory concessions available to the Revenue Commissioners and inquire whether these could operate in the case of death of one of two partners. There may be two partners for whom this may have very serious consequences which could be cured by subsequent legislation.
The case for not excluding the case to which Senator Alexis FitzGerald has referred is related to another Act which applies——
Section 62 of the Income Tax Act.
Yes. It applies to trading partners.
It has a similar effect.
To comply with what Senator Alexis FitzGerald is suggesting we would logically have to apply that to section 62 and if we were to do that this would lead to very substantial evasion. The section was introduced to prevent that evasion, so I find it impossible to accept it in this case without doing it in the other case, and if I were to do it in the other case there would be substantial evasion which I cannot contemplate.
The question of using extra-statutory concessions to meet this would not really operate in such cases. The authority for these extra-statutory concessions lies in the care and management section usually at the end of a Finance Act. These extra-statutory concessions really operate in cases which are not within the letter of the law but are within the spirit or intention as far as these can be gathered. It is fairly narrow and I do not think that it could be contemplated that it would operate in this case.
I am absolutely at a loss to see how evasion can result from death. Section 62 of the Income Tax Act before me makes this exception where a trade is carried on by a single individual and is discontinued because of his death similar to subsection (3) of this section, but if you amend this I agree with the Minister that logically that involves amendment of section 62. Why should a death of one of two partners be treated differently from the death of a single individual or one of three, or four or five partners? I completely fail to see that distinction or how it can lead to evasion. I have said as much as I can on the subject and I will leave it to the Minister for consideration on another date.
This, I take it, is designed to cut out the practice of buying companies with losses forward. I do not know whether I am correct in stating this.
I cannot say if it would be covered by this.
This has given a good deal of concern in the legal profession as to the results on those cases where you have a genuine situation where a rescue operation is envisaged, where you have a lot of debts in the company and the creditors agree to arrange things to realise some of the debts to enable the company to be reconstructed and continued, with other people putting up fresh capital and taking over the management. I have seen this happen and, in relation to creditors called together to assist a company which is in difficulties, this will now give rise to income tax liability of the company. It has been suggested to me that the section as drafted catches many more fish than it was intended to catch and may cause damage which it was not intended to do.
I think I have understood Senator FitzGerald's point, but if I have I do not think that it is correct to say that the company which would release the debt in the circumstances would lose out as a result of this section. The liability only arises in respect of debts which are set off against profits and subsequently released, which I think does not arise in the case which Senator FtzGerald was talking about. It will have the effect in that kind of case—more or less a composition and reconstruction where heretofore the Revenue Commissioners tended to lose out—that they will now get their fair share of tax, but I do not think that the company which is concerned will lose out because it will only apply where debts have been set off against profits and subsequently realised.
There is a real weakness in this section if I read it correctly in relation to section 20. This is designed to provide relief for persons who die or go out of professions at particular ages. Assuming you have somebody who goes out at the age of 65 and whose date of birth is right under the section, he gets relief of three-quarters, but the relief under section 25 is available only if the individual who is seeking to get the benefit of the section is engaged in the employment on the date of the passing of the Act. I know of cases where persons of more than 65 years will have retired before the date of the passing of the Act. Therefore they are not in practice and therefore they do not get the three-quarters relief provided for in section 25. They get caught under subsection (2) of section 20 in respect of sums received.
I understand that this could arise only in a small number of cases in a brief transitional period. If any such case emerges, the Revenue Commissioners would be prepared to give concessional relief on the basis of the section.
There was a commutation of tax which used to apply. There are large numbers in the teaching orders who have taken vows of poverty and who are not entitled to receive any money for themselves. Anything, the order get is expended in charity and they are heavily in debt. Many orders got badly into debt and they found that certain members of the order who had become very old were not entitled to teachers' pensions. They are all qualified teachers and when they took salaries as teachers they found that despite their vows of poverty and despite the fact that they cannot have money of their own, they were charged income tax and given only personal allowances. Their income on a salary basis, which approximately amounted to the same figure as they formerly got as capitation grants, became taxable. This is causing considerable hardship and I would hope the Minister will consider it, if he has not done so at the moment.
I would want to have a look at it.
I would be grateful if the Minister did that.
I will have a look at it.
The point I am about to make has been made already and I hope I am not being repetitious. I refer to section 26 (1) which applies the charge to all sums arising from the carrying on of the trade or profession. The words occur in it "their amount or value". There is an alternative, and presumably the Revenue Commissioners will be concerned with the higher amount. "Value" suggests something that is net. The same "value" appears in section 20 (2) but there is relief provided in section 20 (4) for expenses incurred in bringing in the amounts. The question of relief is not provided in section 26.
I would need an opportunity to look closely at section 20. Does it include the words "amount or value"?
Yes, in subsection (2), line 4.
Offhand I cannot explain the reason for this but I can tell the Senator that the effect will be the same to the extent that the use of the word "value" is intended to convey the idea of the amount less the cost of collection. The Revenue Commissioners would so interpret it.
My observations will be much briefer than they would have been if the Leader of the House had not cajoled my Leader into terminating the debate tonight. I suggest that the Minister asks the Revenue Commissioners to have a look at the provisions in the 1894 Act. I think section 7 (10) provides for relief from double charge of duty. I may be anticipating, but section 37 of the Bill provides for relief from double charge of duty in certain cases. There should not be, of course, double charge of duty in any case. It was not intended in the 1894 Act that there should be. Of course the same property does not pass on death and I am certain that the Revenue Commissioners have no intention to make any double charge in any case.
There may, however, be times when people may get irritated at finding that somebody has been very witty in relation to some aspect of his affairs and that he so arrange them that no duty is payable. Then it may be found that the person so arranging his affairs exposed himself to double charge. I do not think this is fair or right because I think double charges should be excluded. In any case, it would make for better legislation. I shall give one case where a man forms a company. The Minister said that some companies are formed for the purpose of evading estate duty. This can be done rightly and in certain cases for the proper protection of people coming after.
I made a calculation today at the Library for the Minister. Really, I brought the figures more up to date. A man who, in Ireland, would be regarded as being very comfortable at least would now have to pay in real terms of estate duty six times what he would have had to pay in 1939. I invite the Minister to have an entirely new look at the whole code of estate duty. Let us assume we must collect £8 million but perhaps we could add whether by reorganising the scale this could be done. In Britain, for example, a man with a farm gets immediate relief of 45 per cent of the value of that farm. It is not assessable at its future value.
Senator FitzGerald seems to think that a man with assets of, say, £10,000 would pay a lot in death duties. According to my calculation, if a man leaves all of his estate to his wife or dependent children he would have to have at least £15,000 before there would be liability for death duties because the widow would get an abatement of the first £1,000.
That is correct. I was going to make this point in relation to what was said by Senator FitzGerald concerning liability in Britain. It is true that there is an abatement in respect of agricultural value. If there is a side value other than the agricultural one, this becomes liable in the normal way. I must make the point also, however, that farmers in Britain are liable to income tax and there is also the factor that we operate a system of abatements in respect of widows and children as had been pointed out by Senator Nash and this is quite substantial. Such system is not in operation in Britain. Therefore, if we wish to compare the two we should take these matters into account.
With regard to the other point raised by Senator FitzGerald double charge of duty would not arise. As I understand it between the 1894 Act and our section 37 here there should not be any case in which the double charge should arise.
Somebody in the Law Library misled me.
I would suggest that the First Schedule be discussed in conjunction with this section.
It is the First Schedule that I wish to discuss. The Minister's attention was drawn during the Dáil debate to these duties on property. The First Schedule reads:
CONVEYANCE or TRANSFER on sale.
Of any stocks or marketable securities.
The relative figures are set out thereunder. One of the points that are important to realise in relation to this is that heretofore in this country there was a different rate of stamp duty relating to the transfer of what might be regarded as real property in the sense of its being immovable property, lands, houses and so on. Between that on the one hand and the transfer of property there are matters such as the transfer of goodwill, of licences of various kinds and matters of that sort. I wish to refer in particular to the question of the transfer of goodwill. Heretofore and for as long as I have been a practising lawyer, the position was that on the transfer the rate of duty was fixed at 1 per cent. The rate of duty in relation to property other than goodwill, what I have referred to as real property, varied according to the amount of the consideration. We could regard it for purposes of giving an example of stamp duty payable on the transfer of property which would average 3 per cent.
The transfer of goodwill up to now has been 1 per cent but it is proposed here by virtue of the definition set out on page 35 that there is to be a higher rate of stamp duty in matters such as goodwill. Up to now the position was that if a person was selling a business as a going concern, he was selling the premises in which the business was carried on. The practice was to calculate as between property on the one hand and the goodwill on the other. When the apportionment was made the value of the property was charged at whatever the appropriate rate of duty might be, which I shall regard for the purpose of this example as 3 per cent and the value of the goodwill was liable for duty at the rate of 1 per cent.
My recollection of the line the Minister took in his Second Reading speech was that this was being introduced for the purpose of stamping out a practice. I think I am correct in recalling that he described the practice of apportioning an excessive amount to goodwill in transactions of this sort. I do not know what evidence the Minister has that any such practice exists or has existed. I would be interested to know what evidence he has.
My experience is, and I hope this will be confirmed by Senator Nash and other practising lawyers, that when an apportionment of this sort is made more often than not the apportionment is made on the basis of a valuation prepared by competent valuers. If it is not done on that basis the stamps branch of the Revenue Commissioners —the adjudicating branch—would quickly call for evidence of that sort. Where an apportionment of this sort is made the adjudication office would require to be satisfied as a matter of course that the apportionment is a genuine apportionment and the amount of condition put on the premises on the one hand as against the goodwill on the other is the fair market value of it. I do not appreciate what evidence there can be to say that there has been a practice of apportioning an excessive amount to goodwill. Even if that practice did arise or did exist the way to deal with it would be to try to stamp out the practice instead of equating the duty for goodwill with the remainder of the property by making people pay the same rate of duty on goodwill as is payable on the remainder of the property. Other steps could be taken to arm the Revenue Commissioners with ways of penalising people who put in for duty avoidance purposes a valuation which is excessively loaded as to goodwill.
I do not know what the original reasons were for having the duty on goodwill fixed at 1 per cent and variable duty changing from time to time on property at a different rate. Whatever the reasons which inspired it originally I can see sound reasons for keeping the differentiation today. Goodwill is an intangible. There is a certain amount of speculation involved in any sale of goodwill. Even in a business of a rather impersonal nature, there is still something intangible about it. Certainly it is entirely—perhaps that is an exaggeration—it is largely intangible and speculative when talking in terms of the transfer of goodwill in relation to any business or professional practice depending largely on personal attention. I am thinking, for example, of the transfer of a doctor's practice, a lawyer's practice or a veterinary surgeon's practice, where, to a large extent, the goodwill will be tied up with the individual. No matter how successful and how large the particular practice may be, and no matter how high the hopes of the purchaser are that it will continue at the same level, however good the intentions of the vendor to try to continue at the same level by doing what he can to facilitate the transfer of goodwill, there must be an element of doubt because of the intangible nature of the asset. It may be that ultimately through no fault on the part of the vendor or the purchaser the goodwill turns out to be less valuable than had been thought. It seems to me this is a sound argument for keeping the rate of duty payable on goodwill, provided—and I concede this to the Minister—the apportionment as between the goodwill and the premises is fairly arrived at—given that, it seems to me that there is still a strong case for a differentiation in the rate of duty. This is going by the board here not only in relation to goodwill but in relation to other property including licences.
I have, so far, been talking on the Schedule. If I can go back to section 40 there is another point here which I think should be considered by the Minister and the Revenue Commissioners. Section 40 is to come into operation either on the 1st August, 1970, or whatever date the Bill passes, whichever should be the later. We, in this House have facilitated the Minister so much in this matter that it would seem to me that the relevant date will be the 1st August.
I think it will be a little later.
It will not be the fault of this House if it is.
I am not complaining about that.
The section provides that it will come into operation on 1st August, 1970, or the date of the passing of the Bill, whichever is the later, but shall not have effect in respect of any instrument executed before such coming into operation. This means, if there is a sale of what I call real property on the one hand and intangibles such as goodwill on the other, it has got to be stamped before 1st August in order to get the benefit of the old rate of duty for goodwill. There may be a number of cases where this will not be possible even though the contracts have been entered into and the actual deed of sale or transfer executed before 1st August. I am sure most legal practitioners have had difficulties on account of the bank strike. One of the emergency methods evolved to deal with the situation is that while legal practitioners, with the consent of their clients, are continuing to close sales on the basis of accepting cheques, they are doing it on the condition that they will not part with the deeds whether it be the final deed of the sale or transfer deed or the earlier documents of title until the bank situation permits of cheques being lodged and cleared. Talking from personal experience I have dealt on behalf of vendors with a number of such cases where the arrangement I have made in order to facilitate the purchaser to go into possession is that I will accept the unguaranteed cheque which is offered to close the sale but I will not part with the deeds. I will give the purchaser's solicitor an undertaking that as soon as the banking situation permits I will lodge his cheque for clearance and when cleared I will send on the deeds. That is a method which has probably been adopted by a number of my colleagues in the legal profession.
In such cases the deeds would have been executed?
Not necessarily fully executed. Possibly that case I am speaking about is weaker than the next one I am coming to. A number of the deeds will not have been executed. Others might be executed by one party and not by the other. I have cases in mind where notwithstanding my advice as to how the matter should be dealt with in order to facilitate the purchaser my client will not allow me to close until the banks reopen and the matter can be dealt with in an ordinary way. In such a case there will be no question of the deed being executed by anyone until the banks reopen. There is another set of circumstances where contractors have entered into contracts involving the sale of businesses including goodwill such as contracts involving the sale of professional practices where the contract has been entered into but where for one reason or another and possibly on account of the bank strike, the matter will not be closed until after the 1st August. The Minister will know from his own experience as a practising solicitor that very often for one reason or another, and more particularly where the question of possible goodwill is concerned, it may be necessary to have quite a lapse of time between the initial negotiation and entry into the contract and the deed of final handing over. Obviously, the bigger the business involved the more likely it is that the time-gap between the initial negotiations and the contract on the one hand and the final closing on the other hand will be a long one. I have in mind a particular case which is not really comparable with what I am saying because it involves the purchase of shares and the buying into a company but is the kind of thing which is likely to operate where the contract, to the best of my recollection, was entered into in March last and where there are a number of conditions that have to be fulfilled before the contract falls due for coming into operation and before it can be finalised. A number of those conditions have been complied with and there are others in the course of being dealt with and, no doubt, they will be complied with. One way or another, it is unlikely that in that particular case the finalisation will take place before August, September or October.
I can visualise exactly the same situation arising in the case of a number of contracts where the question of goodwill is involved. The particular one I have in mind does not come into that category but is running on parallel lines. It seems to me that if this goes through as it stands at least some consideration should be given and some exception made to the cases where contracts were genuinely entered into before this change of law was proposed and where those contracts will not be finalised until after the 1st October.
With reference to the stamp duty, I see that on marriage settlements for the future instead of the old stamp duty of 10s irrespective of the amount there is now 5s per cent. It is not that 5s per cent makes a great difference. A man is transferring his farm to his son or a daughter on marriage——
I understand there is no change.
I am delighted to hear it.
If I might deal first with the later points made by Senator O'Higgins. I do not think in fact there will be any problem at all in the cases the Senator outlined. He was speaking of certain cases and he said that a genuine contract was entered into before the 1st August or the date of the passing of this Bill. Where a genuine contract was entered into, the contract can bear the duty and, indeed, in the case of goodwill has to bear the duty, and where it was entered into before the critical date the existing rates of duty will apply. I do not think there is any problem in the circumstances the Senator outlined. With regard to the general question of changing the rate of duty on goodwill and on other items, I would like to remind the House that prior to 1947 the same rate of duty applied to all property, moveable or immoveable. What we are doing in effect is restoring that position. The change was made in 1947 because at that time a first effort was made to inhibit the sale of land to non-nationals by increasing the rate of duty on land and property, immoveable property, in the sense that Senator O'Higgins used it. There have been changes since then, of course, but it is from that date that the change between the two kinds of property arose. Prior to that they were the same.
They were the same at what level, though?
One per cent over £500.
I think that is a different matter.
That is a relevant point.
One question is the principle of whether they should be treated differently. The other is the rate. I think it is clear enough that except in that special situation which arose in 1947 the principle was that they were treated as being the same and subject to the same rate of duty. I questioned this when I heard it, as to why there was a difference, and the reason is what I have given. There is no reason in principle why they ought to be treated at a different rate of duty. It is true, as Senator O'Higgins pointed out, that the rate of duty has increased since 1947 above certain levels of value, but if the principle is accepted that they are the same for the purpose of stamp duty and should be treated similarly as they were prior to 1947 then I do not think one can object to applying the higher rate which has been applied to land and premises heretofore. We are not proposing to change that. Simply what we are proposing to do is to restore the position as it was prior to 1947 by applying the same rate of duty to all these properties, but we are applying the current rate of duty. The one exception to that is and has always been stocks and shares, which are in a different category. They were an exception prior to 1947 as well, and they are still an exception.
What is the point of going back to 1947?
Because that is when the change took place. Prior to that all property—land, goodwill, book debts and all—were treated in the same way, subject to stamp duty at the same rate.
At what rate?
One per cent.
If we are going back to 1947 conditions should we not go back to them in their entirety?
That is a different matter.
I accept the Minister's explanation of the reason but I thought that the differential went back far beyond that. I am a bit troubled at one thing that the Minister said. He said that the case of a genuine contract for the sale of goodwill or involving the sale of goodwill presents no difficulty because the contract originally, he said, in the first instance can bear the stamp duty and in the case of goodwill must.
Would the Minister check that? If I enter into a contract with Senator Nash to sell me a business as a going concern for £x I think that, unless I am entirely wrong, that can be stamped as far as the contract is concerned at 6d and that at a later date when the final date is going to be entered into the question of apportioning as between the premises and the goodwill will arise. I know that there are some cases—for example in connection with an agreement for a lease which is to be followed by a lease the Revenue Commissioners may request that the stamp duty applicable to the lease will be paid on the agreement for a lease, and then when the lease is ultimately presented for stamping it would not bear stamp duty because it has already been paid. Possibly what the Minister has in mind is that there may be some similar discretionary power in the Revenue Commissioners to look for apportionment at the time of the contract.
The basis for what I said is in the Stamp Act, 1891, section 59, subsection (1), which provides that any contract or agreement for the sale of any equitable estate or interest in any property whatsoever or for the sale of any estate or interest in any property except lands, tenements, hereditaments or certain other kinds of property shall be charged with the same ad valorem duty to be paid by the purchaser as if it were an actual conveyance for sale of the property agreed to be sold.
If you are selling a pub with the goodwill the pub is excluded.
This is true. This is the point I was making. Again I will confess that my recollection, which may be getting rusty now, from my days of practice was somewhat similar to that of Senator O'Higgins, but one thing he can be sure of is that whether duty must be paid on a contract or not it may be paid on the contract, and therefore his problem about contracts entered into before the critical date does not arise.
It does not arise in the case where stamp duty has been paid on the contract but if I am right in my contention that you can, and unless I am greatly mistaken frequently do, have contracts which involve the sale of goodwill—the example I have given is the sale of a public house or something like that as a going concern which is not stamped ad valorem on the contract; it is stamped with a 6d postage stamp in some cases. I am talking about cases presented at the Castle for stamping and stamped at 6d—let us assume that such cases do exist and that the transaction is not finalised until mid-August, am I not correct in saying that in those cases the new rate of stamp duty will be payable on the purchase date?
No, because even in the cases described by the Senator where the contract has been stamped with 6d it may be re-presented for payment of duty in respect of the goodwill.
Will the Revenue Commissioners keep that in mind?
We received representations with regard to this from the Incorporated Law Society and I wrote to them to that effect. I assume that this will be communicated to their members.
I hope that they will circulate all their members to keep them right on this point.
May I ask the Minister what is understood by a contract? You can have a written contract——
Perhaps I could short-circuit it. In this case we are talking only about written contracts.
Excuse me a moment. Supposing it is agreed by the representatives of a purchaser and a vendor that by certain letters on a certain date there was an agreement—the Minister understands the point now that I am making?
Supposing it was by letters——
Then it is a written contract. If it amounts to a written contract in law then it is a written contract.
I accept that.
The Minister going back to his early legal days will see that Senator Belton's point was a good one. You may not have a formal contract in one document but you may have correspondence which when taken together amounts to a contract.
That is roughly the issue.
It is a matter of law as to whether it amounts to a contract. I am not saying and I do not want to be taken as saying that any series of letters produced amounts to a contract.
Would the Minister explain the section for the benefit of the House?
Section 10 of the Finance (Miscellaneous Provisions) Act of 1968 imposed a duty of 6d on policies of life insurance not exceeding two years. Provision has been made here to increase that to 1s. The section is merely a re-enactment of the provision in relation to short-term life policies and the amount has been increased to 1s because there was not any decimal equivalent for the existing duty.
I thought the Minister explained that the duty was sixpence. By increasing is to a shilling we get an increase of 100 per cent. I thought the Minister also said that there was no change, that it was simply equating with decimalisation.
I do not know where the confusion arises. Something I said must have been ambiguous. The section is a re-enactment of regulations which are applicable to short-term life policies contained in section 10 of the 1968 Act. The regulations are a re-enactment but the difference is that the duty is going up from sixpence to one shilling.
I simply want to say in relation to this section—I do not wish to hold up the House by repeating many of the remarks I made on Second Reading—that I think the section should not go through without at least the attention of the House being drawn to the fact that this is what I described earlier as press-button taxation. It is the provision by which the turnover tax is being doubled.
The Senator is being premature.
The Senator is reading the Bill as introduced. The numbering of the sections has been changed.
The remarks I have recorded already are now relevant.
I do not think anybody at this late hour of the evening wants to repeat what was said on the Second Reading, but we should be on record as saying that we do not want this provision to go through without comment. I wish simply to reiterate the views I expressed on Second Reading. I do not think this is the way to tackle this problem and I should like to record my disagreement with this section.
I do not think this should be rushed through or that it should have even the appearance of being rushed through the House. We have been talking today about inflation and I am quite convinced this is one of the most inflationary measures one could produce in a Finance Bill. We have been talking also about incentives. This is an inflationary measure which will be an incentive for those in employment to demand increases in wages and salaries. I will not go into it in detail because it would be unfair at this hour of the night, but I should like to say that this will not work out as a 2½ per cent increase. It compounds itself to a great extent. I am opposed to the whole idea. If the Minister had introduced an added value tax at a low rate I might have accepted it and at least it would have represented a training for us if we are going into the Common Market.
Subsection (2) of the section applies as from 1st May. Since this provision was supposed to have been aimed at providing increases for social welfare groups, can the Minister suggest why the increases in social welfare benefits were not given from the same date? I suggest that this should be done in regard to future measures of this kind. Would the Minister also enlighten the House as to whether he thinks the doubling of the turnover tax is an inflationary measure?
I dealt with inflation in general at sufficient length earlier and I do not propose to go into it again.
What about my other point? I asked the Minister to consider whether he felt it would be a worthwhile suggestion that if taxation is being increased in order to fund social welfare increases the new taxation should commence only from the date at which the social welfare increases commence.
It would not be workable to introduce the two on the one day. There may be a time when we can achieve this result. We brought forward the social welfare benefits this year to 1st August. There were occasions when the increases in social welfare benefits were given from 1st October and sometimes even from 1st January.
If the Minister had brought them forward another few months he would have done something worthwhile.
I am sure the Senator can visualise the practical difficulties involved.
I wonder would the Minister enlighten me on certain points? I wish to say at the outset that I accept the principle behind this. However, I am not so sure there is not a loophole in it. Supposing a big firm, through agents, established 20 or 30 of these trading establishments, would it cost them more to form the various companies and would it benefit them to do so under this section?
We have no reason to believe that this has been happening or that there would be any benefit from it.
I am just drawing to the Minister's attention the possibility that it might happen.
I do not think they would really benefit under this section because they would have to pay at the wholesale level.
I do not accept the relevance of the term "wholesale level". If the same three or four people form companies and run shops under different company names they could buy in bulk and get permission on bulk value.
Yes, but they would have to pay the tax.
The fact of being registered would render them liable. Perhaps the Senator has in mind the possibility of their not being registered.
But this is being increased to £1,000 a month.
That is the registered limit. When they purchase at wholesale level while not being registered they would become liable to turnover tax on their purchases because they are not registered.
I can still see the possibility of evasion. They could buy in individual names of the various shops in such a way and to such an extent as there might be evasion. They would probably pay by cheque there and then in the names of the individual shops.
But we have no evidence that this is being practised.
In relation to this section I would ask the Minister whether there is any precedent for a section of this sort. The reason for the section is self-evident but it seems to be a most extraordinary section. Maybe there is precedent of some sort for this but let us consider what we are doing here. The legislation deals with a contract that has already been made between two parties. This is where the reason is self-evident—the change in the turnover tax, if legislation of this sort were not introduced, would be very expensive on one of the contract departments. What the Minister is doing here is endeavouring to solve that situation but the way in which he is doing it seems to me to be extraordinary by virtue of an Act of Parliament altering a contract that has already been entered between two partners. For myself, I would prefer to see this done in some other way. I should like to see the same effect being achieved but in a way other than legislative activity interfering in contracts, the terms of which have been arranged and entered into by the contracting parties. We are not saying that in addition to the payment one of the contracting parties may recover something from the other but we are saying "as an addition to the payments specified in the contract".
We are hereby altering the terms of a contract which has already been entered into. If the Minister can tell me there is precedent I shall be happy and accept the amendment but I do not recall any Act which provides for interference in this way. I know of several Acts in which it is said that there will be an implied condition and that such shall be implied in relation to particular contracts. I know of legislation which provides that people cannot contract out of obligation imposed by legislation but what is proposed here is new to me.
From a practical point of view, I think it would be impossible to have this otherwise because tax can be paid either on goods invoiced or cash received. If a person is manufacturing or wholesaling he can pay turnover tax as he invoices but in that way he is running the risk of paying turnover tax on bad debts. He can also say that he will pay turnover tax on cash receipts. In that case, if he has invoiced goods in advance, the purchaser has received the goods but the wholesaler or manufacturer does not receive payment until this comes into force. He then has to pay the increased tax on the cash received. From the point of view of revenue it would be impracticable to do this in any other way.
This is precisely the same kind of arrangement as was provided for when wholesale tax was introduced in 1966 and, again, when the rate of wholesale tax was increased in 1969 so that there is precedent for it. There may be others that could be regarded as analogous but this is the answer.
Apparently I overlooked making the point in 1966.
The only thing here is that goods purchased but not invoiced before the 1st May, 1970 will be liable early in August.
If, for example, I purchased goods and received them last April but did not pay for them then and had not paid for them before the 1st May, I would now have to pay the additional 2½ per cent. Has the Minister given any consideration to this point or to the fact that by the continuing failure of various people to settle the bank dispute, a person would not, perhaps, have been able to pay for them. Therefore, because of this dispute with the commercial banks he is obliged now to pay an additional 2½ per cent on the contract originally made. One could also take the case that where a contract was entered into after the 1st May and both parties to the contract agreed to deceive the Revenue Commissioners it would be simple for them now to backdate invoices and private cheque books are freely available so that they could backdate also the cheques and in that way avoid the 2½ per cent taxes which came into operation from 1st May.
That would not be possible because if you receive a cheque in the running of your business you issue a receipt for it and enter it in your ledger. At the end of each month you have to send a statement to the Revenue Commissioners even if you have not cashed the cheque because of the bank strike. The Revenue Commissioners insist that this statement is sent in every month.
I am sure Senator Nash has heard of cases where returns are not properly made.
The bank closure does not affect it.
So far as the first point which the Senator made is concerned if goods were purchased but not paid for prior to the 1st May they attracted the additional turnover tax. The bank closure began on the 1st May so I do not think the problem arises.
It seems to me that the provisions of this section are operating very harshly on certain people engaged in the tourist industry who, we all know, have not been experiencing the most marvellous year. Many people in the industry published brochures, as they were advised to do, by the Minister for Transport and Power in the middle of 1969 setting out their 1970 prices. They entered into agreements with holiday makers from abroad to come and stay in their hotels and holiday camps at those prices. I was speaking recently to a large scale operator in the holiday camp field who attracts considerable numbers of British tourists every year—although not to the same extent this year. He pointed out that while he would be entitled to ask them to pay an additional 2½ per cent on the agreed price he did not feel it would be correct to do this because of the difficulties the tourist industry is already in. He is doing his best to persuade them to come back next year and he feels if he asked the tourists to pay this 2½ per cent this year they definitely would not come back again next year. Would the Minister consider granting concessions to these people who have to quote prices many months in advance? Must this section apply so rigidly to them?
I could not contemplate exemptions of this nature. There are a number of other people in exactly the same position who offer goods and services at certain prices. The same thing applies to them. This provides a degree of certainty as to what the liability is. If the person concerned in the Senator's instance decides for what are good and sufficient reasons not to charge this additional tax, that is his business. He is entitled to do that, but as he is liable he could charge it to them. I could not contemplate exempting him or, indeed, all the other numerous classes who would make representations.
Does the Minister agree that this is another factor operating against the tourist industry at the moment?
All sorts of industries have all sorts of difficulties at any given time.
Could the Minister give an outline of what is contemplated here? I think all of us are prepared to support and do more than pay lipservice to the necessity for saving. It was made quite clear by the various contributions on Second Reading and also by the Minister in his reply, not only how desirable but how essential savings are in the present economic atmosphere and the inflationary situation which is there to be corrected. I am not saying this is an effort to throw cold water on the idea but I often think that when we talk about inflation on the one hand and savings on the other we are going around in a vicious circle. Savings are, as I say, not only desirable but even necessary in an inflationary situation. Unless people have real confidence that the inflationary situation will be overcome they will not save. The purchasing power of the £ has decreased here by nearly 50 per cent in a short time. There is no incentive in that sort of situation for any worthwhile savings. Obviously, if a person is going to put money by, particularly if he is going to do it as a patriotic duty in order to help the economy of the country in response to the appeals made by the Minister or others to do this, he is entitled, when he is deliberately postponing the enjoyment of the spending of that money, to know that when he spends that money he is going to get at least the same value as the money he is putting aside. The big problem we are up against here—and money values are falling all the time— is that the person who puts aside a pound which is worth 20s gets back 15s or 13s when he comes to realise it. I do not want to discourage insurance policies but it is very much the case that the person who took out an insurance policy 15, 20 or 25 years ago visualised a return in the terms of money values as they were when he was entering into the insurance contract. We all know he is not getting that today and this is the problem.
I should like the Minister to give us his ideas of the type of scheme proposed to be operated. As far as I am concerned, the more attractive it can be the better. The more attractive it is the more likely it is to achieve some degree of success and the more likely is the person who responds to the exhortations to save in relation to a scheme of this sort to get reasonable value for his money.
It is true that an inflationary situation is a disincentive to saving. This is another argument for controlling our existing inflation. Nevertheless, I think that there are still quite a number of people who are anxious to save if they get the right scheme and the right terms. I believe what we have in mind will prove to be the right scheme and the right terms. I undertook on Second Stage to give details of the terms of the scheme.
Senators will have noticed that section 18 of the Bill provides for exemption from income tax of any form of the interest paid under a saving scheme. Section 53 provides for the actual operation of the scheme by the Minister for Finance, a bank, a trustees savings bank or a building society. A scheme other than a scheme operated by the Minister for Finance must be approved by him and all schemes must be certified by him in order to qualify for tax exemption.
The new scheme will be managed on my behalf by the Department of Posts and Telegraphs. Under this scheme a person will undertake to save through a trustees savings bank, Post Office, or direct to the appropriate section of the GPO, Dublin, a stated instalment each month for 12 consecutive months and to leave the total so saved on deposit for a further two years. The instalments must be in complete £s subject to a maximum of £20 per month. For each £12 left on deposit for two years a bonus of £3 or 25 per cent will be payable. If employers and employees agree, the instalments may be paid by deduction from pay and the employer may pay the money to the GPO. A person who had saved the maximum of £240 would receive a bonus of £60 after two years. The bonus is equal to 9 per cent per annum compound interest free of tax. In the case of a person liable to income tax at 7s in the £ this is nearly 14 per cent per annum gross. If a person withdraws his savings before the end of the two year period has passed, the interest at 4 per cent per annum, tax free, will be payable for each calendar month following that in which the final instalment is paid. With exemption from income tax, this is equivalent to about 6 per cent per annum gross. If a saver does not complete the 12 monthly instalments, he may withdraw his savings but no interest or bonus will be payable. The proceeds of the scheme will accrue to the Exchequer and form part of the central fund.
The Minister gave details of this scheme to the Dáil.
I knew what the Minister was going to say. After the 12 instalments the first year can the person come into the scheme in the second year?
That is correct.
As I understand what I read and what is implied in sections 53 and 18 is that this is referable to an instalment savings scheme. It might be worth the Minister's while to look at it from the point of view of a person who might be able to afford to enter the scheme on the basis of paying the money in one sum and not paying by instalments. I do not know whether the Minister's scheme envisages that happening. If there are such people, perhaps, they should be encouraged. All the money is savings. While the basic idea may be to cater for small savings in the sense of contributions by monthly instalments as the Minister has suggested by arrangement with employers and employees I would suggest to the Minister that the scheme should not be restricted to payment by instalments. I agree that it is necessary or desirable to restrict certain things. If there are people who are prepared to put down the payments for 12 months altogether the Minister should not rule them out. People may find it easier for one reason or another, perhaps, because of overtime worked, back pay, or a bonus due, to put down the 12 months payments together. Such money might otherwise be spent and not saved.
I could not agree with that suggestion. There are existing saving schemes and numerous methods of investing money of the kind the Senator has in mind. The idea here is to encourage savings out of current earnings. If we were to adopt Senator O'Higgins' suggestion we would find ourselves paying a fairly high interest rate on peoples' savings and money already invested would be transferred into this scheme to earn a higher rate. This rate is designed to attract people who will save out of current earnings.
That is a fair answer. It should be made clear that the person who even locks up 6d in his own house and does not spend it is saving and even that kind of saving is worth encouraging in the present situation, once the money is not being spent to increase inflation.
What is the position of a husband and wife working? Can each have an individual account and each qualify?
Yes. Each individual is entitled to the terms I have outlined.
The Revenue Commissioners will not lump the income tax?
This will not be a matter for the Revenue Commissioners. Not alone will it be exempt but the Commissioners will not be notified of the details in it.
We had better tell the "lumpers" about this.
This section enables the Minister to postpone the date of redemption of certain Government stocks. Subsection 3 provides that the Minister may make an order paying interest between the original date of redemption and the deferred date. May it be assumed that the rate of interest payable for the current Government loan will be the interest payable on the loan originally?
Oh, yes. In fact, what I propose is to pay interest for the period from 15th July to the new date of redemption, and to pay that interest at the rate of 8 per cent per annum which is roughly half of 1 per cent above the yield to redemption on short-dated British and Irish Government stock and three-quarters per cent above the Exchequer Bill rate.
Is this not a bit ridiculous? Is the situation not as follows? If the Minister or anybody else has money on deposit or in any type of account with one of the commercial banks that are at present closed, that money is his, which he is legally entitled to, and that bank when it accepted his account entered into a legal obligation to honour cheques presented by him to draw on that account so long as there was money there.
I do not think that this arises on the section.
I will explain what I am getting at. If a person so desires he would have quite a legal case for getting his money from the commercial banks. In the same way the Government chooses the Bank of Ireland to operate the particular loan in question. The money borrowed by the Bank of Ireland does not belong to the Bank of Ireland but to the Government, and the Government have the right to demand the return of that money because of the fact that the bank would surely have entered into a legal obligation with the Government to make available to the Government money which was their own and not the banks. Also in relation to this could not the Government—presuming that the first suggestion I have made is not correct, though I think that it is, but if the Minister would disagree with it—bearing in mind the realities of the situation—could the Government not make cash payments to the people concerned, with the commercial banks bound on reopening to recoup this out of the moneys which they hold in relation to this loan at the present time?
The question of the precise obligations undertaken by a bank to its customers is one for the courts and not for me. The question of payments being made to the people concerned here by the Government and then recoupment when the closure ceases is not a practical one, because the registers which when the banks are open change every day are in fact in the custody of the Bank of Ireland. There are difficulties about obtaining them, but even if they could be obtained the problems of making sure that any such payments were made only to the persons entitled to them and of making sure that all the details were on the register would be such as would render the suggestion not practicable.
The case I was making was this simple one: granted that the register may be at the moment in the Bank of Ireland, this register belongs not to the bank but to the Government, who are legally entitled to it, and I notice that the Minister did not disagree with me about that. The Government are legally entitled to the registers, and I am sure that the Minister from his vast legal experience will feel with me that if the Government chose to have recourse to the courts it would be felt by the courts that the Government had a perfect right to have restored its registers, and not only that but to have restored to them their funds in relation to this loan. I want to suggest to the Minister not only that this section is completely unnecessary but that this could act as a test case on behalf of all the other people who have money at present tied up because of the closure of the commercial banks, and it might even serve to popularise the Minister in his personal capacity where people would feel that he was prepared to take this action on their behalf.
I agree. I want to make one or two points to the Minister. I would like to declare a modest interest in this as a holder of a modest amount of one of these stocks. I want to ask the Minister in relation to subsection (2) here which says that as soon as reasonably may be after the closure ceases the Minister shall, by order, fix a date not being more than three months after such cessor for the redemption of the stock. I want to ask the Minister, while I quite understand that he should feel the need to have the amount of elbow room that the three months would give him, does he intend to utilise the full period or is it his intention to fix the redemption date reasonably soon, say a month after the banks reopens? I think that most Senators will appreciate that in terms of redemption when you come into the list within the last six months, or say a month or two or three from the redemption date, that can have quite an effect on the market value of the securities. I think I am right in saying this—the Minister will correct me if I am wrong—that in relation to at least one of these stocks the original redemption date was about October, 1970, and I think it was announced by the Minister's Department that the redemption date had been advanced to July. The result of that was to increase the market value of that stock by three or four points or thereabouts, so it would to my mind have quite a bearing on the market value as to what the Minister does, whether he fixes it at 6 months—I think that the nearly par value would be maintained if he did that—but if he were to postpone the redemption date for three months after the reopening of the banks I think it might have the effect of depreciating the market value of the securities. I do not know whether the Minister feels free to express his intentions at this point, but I suggest that he might bear it in mind in any event.
I should say that it is my intention to effect this redemption as soon as it is possible to do so, but the information I have would indicate that it is unlikely to be very much before three months—that the whole of that period is likely to be needed in order to take the necessary steps for the payment of dividends and redemption.
The Minister is not giving an answer to the second point which I have put to him.
I did deal with it the first time but the Senator repeated it a second time. I do not intend to go on giving the same answer to questions that have been asked more than once.
The second point— and the second time I spoke about this—was that the Minister was forced to the point of not being able to get money from the banks because they held the registers. The Government are entitled to the registers, and I do not see why the Minister in order to operate that scheme properly, and indeed to bring about a very rapid conclusion of the trade dispute, would not consider taking this action. Not only would he be able to make repayments on his loan, but the commercial banks would be back in operation within a week.
The banks would be open long before that matter got through the courts.
In case there might be a misunderstanding, I did not say the banks refused to make the registers available. I said there were reasons why it was difficult to obtain the registers. I also said that even if we had them, the difficulties involved in ensuring payment to the right people were such that it did not make this a practical proposition.
The State is entitled to everything within the confines of the Bank of Ireland on that loan.
I just want to ask a few questions on this. First, how will this be implemented? Who will determine which are smuggled pigs and which are not? How will identification be made, and by whom?
First of all, it is not possible to identify smuggled pigs. If it were, we would not have this problem. Therefore it cannot be approached from the simple angle of applying a levy to smuggled pigs. It will be approached on the basis that the levy will be imposed where there are certain grades of pigs, very heavy or very light, which are most likely to have been smuggled. The amount of levy would be determined by the going rate.
For smuggled pigs?
For pigs, having regard to whether they were smuggled or not. The levy would be imposed in relation to grade and weight. The amount would depend on the market price but there is provision, or there will be, for exemption from such levy based on, say, the supply of pigs from sources such as fattening stations and so on, where there is no doubt as to the source of the pigs—that they were not smuggled. This cannot be done on a broad basis, but in general this is the way it would be approached.
Does the Minister mean there will be a levy on all fat pigs? Especially in the area from which I come, the factories buy fat pigs. The pigs are fattened to a certain weight. This is a requirement.
I cannot say there will be a levy on all fat pigs, nor can I say there will be a levy on all light pigs. It depends on the circumstances at the time. Any order will be made after consultation with the Minister for Agriculture and Fisheries whose bailiwick this is. There is provision for exemption from such levy in cases where it can be clearly demonstrated that the pigs are our own product.
How can the Minister stand over the statement that it can be clearly demonstrated they are our own pigs? I can foresee tremendous difficulties in operating a scheme like this. The further one goes away from the Border the more likely the exemption. That being the case, the pig producer living close to the Border will suffer because of his proximity to the Border. How can one identify an Orange pig or prove that a pig is not home produced? Must one produce a birth certificate for a pig? I do not see how the scheme will operate. I am sure that John B. Keane and people of his sort will have a field day on this.
The Senator is not doing too badly at the moment.
If this smuggling danger which gave rise to this extraordinary piece of legislation ceases, does it mean the automatic end of this legislation?
Certainly there will not be any levy imposed if the danger does not exist.
I am saying this quite seriously: if the danger should cease to exist, will the Minister give an undertaking that this levy will not be continued—that it will not be imposed on what he described as home produced pigs? In other words, will he undertake that this will not be a levy purely for the purpose of raising funds?
I would certainly give that undertaking. The sole purpose of this provision is the prevention of smuggling. There is no other reason for it.
Something must be done; that is agreed; but the Minister by this legislation is putting the onus on the factory manager to prove that the product he is processing has not been smuggled. I do not think that is fair.
This is purely an enabling measure which will operate only after consultation with the Minister for Agriculture and Fisheries.
Will the Minister be slow in appointing inspectors to look after smuggled pigs?
The Senator is trying to be funny but he is not succeeding.
But the Minister is smiling.
How does section 14 of the Habitual Drunkards Act, 1879, come to be repealed in the Finance Bill, 1970? I make that my last question of the evening.
This is an old provision for a duty in respect of houses in which habitual drunkards were kept. We are abolishing that duty.
On the basis that we have none now?
Not that we have no habitual drinkers, but that we have no such houses.