Seanad Éireann debate -
Thursday, 22 Jul 1971

Vol. 70 No. 18

Finance Bill, 1971 (Certified Money Bill): Committee Stage.

Section 1 agreed to.

SECTION 2

Question proposed: "That section 2 stand part of the Bill."

Mr. McDonald

In this Finance Bill the Minister has been unfair to the lower paid workers by virtue of section 2. This is the only occasion during the last ten years when the Seanad have had an opportunity of amending the Finance Bill, because we have it at least a week or a fortnight before the other House adjourns for the summer recess. Therefore, I look forward to the Minister meeting some of the points we raise.

With the present rate of inflation it is unfortunate that the Minister has seen fit to remove the concession that the people who are just within the income tax net enjoyed heretofore. I wonder would the Minister consider reverting to the position that obtained prior to the introduction of this Bill.

The category of workers that this will affect are the manual workers, especially those in areas where employment is difficult to be found. The people who will be most adversely affected by this section are those we see cycling many miles to work to such places as Bord na Móna or other hard manual employment. If the Minister was seeking to collect a certain amount of money it would have been more equitable had he sought to get it at the other end of the income scale.

Mr. Boland

This section is the one that seeks to abolish the concession of having the first £100 of income charged at a lesser rate of tax. The amazing thing about it is that section 2 of the Finance Bill, 1971, is seeking to abolish section 2 of the Finance Act, 1970. Here was a provision that was introduced with a great fanfare of trumpets by the then Minister. He, much more eloquently than I could, pointed out what a good provision this was and how much it would benefit the lower income groups because the first £100 of their income would be charged at so much lower a rate.

Just a year later his successor comes along and takes away what was given last year. One can be forgiven for wondering what section of the Finance Bill, 1971, will be cancelled by a similar section to this in the Finance Bill, 1972. It is an amazing way to run a Government, or to balance a Budget, or to produce the yearly main Finance Bill, to introduce a concession which was generally acclaimed one year and to remove it the following year and to justify the removal of it by pointing out that it was necessary in order to give the concessions that were given in the Budget.

The fact remains that we are removing a concession of last year's Budget. This does not seem to be a very efficient way to try to produce the annual Budget. I should like the Minister to let us know how much money he estimates will be netted because of the cancelling of section 2 of the Finance Act, 1970; in other words, how much money will the Exchequer get by taking away the concession of charging the first £100 at the rate of 4s. in the £ tax.

The physical task of re-gearing the system last year and the administrative cost of charging the first £100 of income at 4s must have been quite a considerable one, because the existing system was being changed to allow for this new provision. Whatever that cost was, we surely will get at least an equivalent cost by removing it again and reverting to the old system. I wonder if the Minister can, first of all, give us his estimate of how much money the implementation of section 2 will net for him, and secondly, if he could put any estimate on the administrative cost of introducing a concession last year, operating it for a year and cancelling it this year.

Minister for Finance (Mr. Colley)

First of all, let me make it clear that in the preparation of any Budget, there is no law, no moral obligation or no tradition or custom which inhibits the Minister for Finance from taking such action in relation to changes in the rate of taxation as appear to him to be the most appropriate in the light of the economic circumstances with which he is dealing.

Secondly, I have referred to the fact that the Budget this year was framed in a context in which it was necessary to reduce the rate of increase in Government expenditure to ensure that no action taken in the Budget would have any effect on the operation of the National Pay Agreement, and, at the same time, to provide reliefs in the sum of approximately £9 million. Faced with this situation and having examined the various possibilities, it seemed to me that the most effective and appropriate way in which a substantial portion of that £9 million available and required for redistribution could be raised was as indicated in section 2 of this Bill. Allowing for the concessions which were also introduced and which are dealt with in later sections, the net effect of section 2 and the other sections giving the concessions, will be to yield £5 million in the current year. This is, of course, a substantial portion of the £9 million which is being redistributed.

For the reasons which I have indicated, it was not possible to raise this money by means of indirect taxation. It would have been possible to raise it by increasing the standard rate of income tax but there were a number of objections to this. One of these was that this would, of course, apply to companies whose rate of tax had already been increased last autumn from 50 per cent to 58 per cent. Weighing all the circumstances together, this appeared to me to be the most appropriate way in which to do it. I would remind the House that the impact of section 2 will be less than £12 per annum in the case of any taxpayer. Furthermore, it must be weighed in conjunction with the other concessions the effect of which is to remove from the tax net approximately 20,000 taxpayers and to reduce the income tax paid by approximately 40,000 taxpayers. I do not think it can be said, taking these sections together, which one must do to get the financial picture, that there is any great hardship being imposed on anybody. Nevertheless, it provides for us the bulk of the revenue necessary for the various concessions announced in the Budget.

To suggest that it could have been raised simply by increasing the rate of tax for people in the higher income group is quite unrealistic. Unfortunately, we do not have enough people in the higher income group to make it possible to get that kind of money without an absolutely penal increase in the rate of tax which they pay, the effect of which would be to ensure that the yield went down instead of up. Having regard to the constraints which I have mentioned, this was the only way open to us, but, as I say, it has not operated to create any real hardship for anybody. In those circumstances, I feel the section is deserving of the support of the Seanad.

As anticipated by Senator Boland, I do not have a figure for the estimate of the cost of the administrative arrangements which were necessary. I would remind Senator Boland again that the net yield estimated in the current year from this and the concessions being given in other sections, is £5 million.

Dr. Belton

It is amazing when one remembers the arguments which were adduced last year by the Government for granting this concession, to hear the same Government now adducing arguments why the concession that was given last year should be abolished. There is obviously a great inconsistency in the arguments coming from the Government. Last year the rate on the first £100 of taxable income was reduced from 7s to 4s., the Minister said £5 million would be collected. In the Dáil he said £5½ million.

Mr. Boland

What is £½ million to the Minister for Finance?

Dr. Belton

£5½ million was the figure given in the Dáil. I do not understand why within one year, there should be a complete change of attitude, a complete change of arguments. According to his statement, the Minister is raising £5½ million, not £5 million. In spite of what he states, the first £100 of taxable income affects the lower income group mostly. The concession made last year was probably welcomed by most wage-earners. The Minister has stated how valid his arguments are. I do not know if this is the best way to raise the money he is looking for; it may be the easiest way; it may require less administration; it may be less expensive to collect the money this way, but I am very dubious as to whether it is the most equitable way.

Mr. J. Fitzgerald

I think section 2 of this Bill is the most disappointing section in a disappointing Bill. As other speakers have pointed out, it takes away a relief which was given only 12 months ago by another Minister for Finance. If one went back on the record of the debates both in Dáil Éireann and in Seanad Éireann, one would find that there was quite an amount of backslapping and of congratulating the Minister who had given this relief on the first £100. This section is relieving the lower income group of £12 per year which to the Minister, from his remarks a moment ago, appears to be a very small sum indeed. We heard mention of "it is only the cost of a packet of cigarettes per week." But the cost of a packet of cigarettes per week means something in a pay packet. What is the value of discussing the rights, wrongs, merits and demerits of this particular section when the people we are talking about are already having these deductions made from their pay packet under PAYE? It is a mean provision to seek from the hardest working and lowest paid section of the community the £9 million that the Minister required to balance his Budget and to enable him to give the reliefs that were given can be described as going back on a promise made 12 months ago. Surely there must have been some other way of doing it.

Mr. Colley

For instance?

Mr. J. Fitzgerald

The Minister was not the architect of the Finance Act, 1970, but a word with the then Minister would perhaps have elicited how it could have been done and how he could avoid, having given this concession to those people 12 months ago, taking it back now because he could not find another way of reimbursing the Exchequer.

Mr. Colley

It is significant that the only suggestion we had as to how this money might have been raised was a casual remark by one Senator that it should have been raised from people in the higher income group. I have already dealt with the unreality of that. Senators deliberately chose to ignore the circumstances in which this year's Budget was prepared and in which it was essential to avoid anything that would endanger the National Pay Agreement; that we succeeded in doing that in this year's Budget and, at the same time, we gave reasonable reliefs to the most necessitous members of the community. One would think, listening to Senator J. Fitzgerald, that this concession was related solely to the lower paid. It was not, of course; it relates to all taxpayers.

Senator Belton referred to a statement I made in Dáil Éireann when I said the yield would be £5½ million. That is in a full year, but in the current year I said it was £5 million.

Dr. Belton

Then I misunderstood the facts.

Mr. Colley

I should also like to say that the considerations which operated in the Budget, and which I have outlined, were and are vitally important to the whole economic future of this country and of every person in it, to both the lower and the higher paid but, particularly, to the lower paid. The signs are that the policy we are pursuing is beginning to pay off. We need not have any sense of complacency about it, but the signs are there showing that we are on the right road. One of the very important factors in this is that this Budget did not interfere with the National Pay Agreement. This is far more important, particularly to the lower paid workers, than the fact that they will have to pay an additional tax of, in many cases, something under £12 a year. It is more important to them that we should manage to win the battle against inflation than that they should have to pay less than £12 a year additional taxation. In these circumstances, I suggest that anybody who gives any thought to this, and who tries to come up with an alternative method of raising this amount of money, will find straightaway that he is coming up against the problem I have outlined: whatever he suggests is either not going to yield the money or it will have repercussions, particularly on the National Pay Agreement, which could be far more costly than any additional tax imposition on the amount of money raised by the Exchequer as a result of section 2.

Question put and agreed to.

SECTION 3

Question proposed: "That section 3 stand part of the Bill."

Mr. Boland

I am in the same difficulty this afternoon as I was in this morning because I have risen only very slightly from the abysmal depths of my ignorance on financial matters having listened to the Minister and his colleagues speaking on the Central Bank Bill. I wonder if the Minister would explain to the House what were the provisions which operated heretofore in relation to situations such as this.

Mr. Colley

It will be noted that the provisions of this section are confined to cessations occurring on or after the 6th April, 1972. That is the first thing to note. This is an anti-avoidance measure. At the moment, on the cessation of a trade or business, the last year and previous year of business are brought into account and the Revenue Commissioners may assess tax on the basis of the actual profits earned in those two years. There are methods by which, under the existing law, certain arrangements can be contrived to bring a business to an end when there has been in one year a particularly large profit. Arrangements can be so contrived as, in effect, to pay very much less tax than would normally be payable. The purpose of this section is to extend for another year the period over which the Revenue Commissioners may have a look at what the actual profits were and, if necessary, assess tax on the basis of the actual profits in those years. The effect of this will be to make it more difficult at least to contrive a situation in which one avails of this to evade tax. The fact that it brings in the additional year makes it less easy for somebody to contrive this situation. They may, of course, have the situation brought about purely by chance and one cannot object to that. What we are trying to get at is the situation in which this was contrived. We believe that adding on another year will make it far more difficult to contrive this form of avoidance.

Mr. Boland

I merely wondered whether it would be possible that, where a trade or profession ceased because they were not operating successfully and perhaps had returned a small profit in the last year of trading, by this adjustment the provisions would turn out to be more than had applied heretofore. What I envisaged was a situation in which the owner might have been in serious financial difficulties anyway and this was one of the reasons for ceasing and then he would find the tax demand completely inordinate. Is it possible for such a thing to happen if the Revenue Commissioners want to operate it that way?

Mr. Colley

I would not think so. In circumstances in which a business is closing down because of financial difficulties one may take it that the profit is either non-existent or very small. Of course, the Revenue Commissioners cannot charge tax on profits which have not been earned. Therefore, the kind of situation which Senator Boland envisages cannot bring about a situation in which inordinate demands of tax are made because the tax must be related to the actual profit earned. I will not go into all the details, unless the House wishes me, because it is rather complex but I will give a few figures which might illustrate what can happen. If we assume that a man who is trading on his own earns profits as follows: for the year ended 30th April, 1967: £2,400; 30th April, 1968: £3,000; 30th April, 1969: £12,000; 30th April, 1970: £3,000. In that case, under the existing law, the tax which he would pay on those profits would total £6,400 whereas under this proposal the tax he would pay would be £15,250.

In each case the tax is related to the actual profit. In neither case would he be charged tax on profits which he did not earn but because of this contrivance which relates to the date of cessation, the end of an income tax year, it happens in those circumstances, which I have outlined, that under existing law that instead of paying tax at the rate of £15,250, which is the correct rate of taxation on actual profits earned, he would pay only £6,400. As I say, unless the House wishes me to I will not go into the actual details of how this works out.

Mr. Boland

The Minister is oversimplifying it. Really what he is doing is allowing himself provision to look back over a longer period.

Mr. Colley

That is right.

Question put and agreed to.

SECTION 4.

Question proposed: "That section 4 stand part of the Bill."

Mr. Boland

This is the section which is designed to catch those who are operating overdrafts outside the State and evading tax both within the State and in whichever country they are operating. There are two questions which I want to ask the Minister. He probably has not got the answer to the first here. How many people does he envisage, or how many companies would he envisage would be affected by this and what amount does he expect the implementation of this section would produce in any one year? Secondly, when one appreciates that what the person has been doing is deliberately and consciously to evade payment of income tax in quite a legal way, does the Minister feel that the allowance of a period of 12 months, up to 6th April, 1972, is not perhaps inordinately long?

Mr. Colley

On the first question raised by Senator Boland, it is not possible to estimate how much this will yield. I should say, of course, that it applies only to individuals and not to companies. If I may quote something I said in the Dáil debate it sums up pretty accurately all I can say about the estimated yield. It is from Volume 253, column 770. In response to a question on this point I said:

It is difficult to estimate it accurately, as the Deputy will understand, because all the cases have not come to light. However, we do estimate at least £20,000 to £25,000 a year is involved in tax. It may well be substantially more, but we are pretty sure it is at least that.

In fact, something I have heard suggests to me that it may well be substantially more. We do not know because since it was not liable to tax it is not possible for us really to estimate it.

The position is that the extension to which Senator Boland referred is not unduly long because anything else could only be regarded as retrospective. We did consider that section 4 should not operate in a case in which a debt was incurred in 1971-72 before the legislation was foreshadowed in the Budget speech if the foreign income is applied during the year 1971-72 in satisfaction of the debt but any debt incurred in this way after the date of the Budget speech would be caught. To go further than that would be retrospective and would be unfair. As the Senator pointed out somebody doing this was acting within the law so that it would be unfair to make it retrospective.

Mr. Boland

I have no time for all this talk about "retrospective". Ministers have certain devices which they use to suit their own ends. It is rather like this interpretation of "may" and "shall". One can always take it that it will be a "may" interpreted in whichever way the Minister wants it to be and whichever way the Opposition do not think it should. In the very same way when any Minister wants to make a case retrospective action in legislation is wrong and when he wants to make another case retrospective action is necessary and in the common good. There are a lot of unfortunate people operating quite legitimately within the law who were pretty shocked when the Minister arrived with his autumn Budget last year, which he has referred to here already, and introduced quite a retrospective element of taxation far as companies operating quite legitimately were concerned.

Here we have a situation where a number of people—we do not know how many—were operating and using a loophole within the taxation code and were doing that to evade payment of taxation. The Minister, quite rightly, wants to close that loophole. In fairness, anybody operating or endeavouring to use one of these loopholes will have to say to himself: "OK, fair game, I got away with it for so long but he announced in the Budget today that it is stopped and that is it." To announce that it is stopped but that you are going to give him 12 months to make up for his legal sins of the past is being an overcharitable confessor especially when we see where under other sections people of much more modest means, as in section 2, will be asked to pay it immediately. Unfortunately, because it was not implemented immediately, we are asked to pay quite a lump sum in one particular month. That has more or less been got over now, but the sort of person who would be operating this legal loophole would be in quite a different category, probably in the category of a person who would be paying the wealth tax, which the Minister does not want to produce. To allow them 12 months to remedy their legal sins of the past seems to be just a little bit too generous. It is, perhaps, something which the Minister might consider in the future. We all know that in every Finance Bill a certain number of legal loopholes will be closed, and just as soon as they are closed a bevy of gentlemen will leave here to consult the best financial brains in London to see what other ones they can open and which ones they still have available to them, and some of those will be closed in the following year's Bill and so this never ending battle will go on.

I suggest that when we are closing some of the financial loopholes in the future we accept the fact that we will make people pay tax, which they should have been paying anyway, and which they have been evading. They ought to start paying it right from the day the closing of the loophole is announced. Admittedly, in this case that would have been unfair, but to allow a whole year is being over-generous.

Mr. Nash

I could not find myself at all in agreement with those sentiments. There is no use saying that people should have been paying tax. Surely people must only pay tax that is due and payable by them. If there is not tax due and payable it should not be paid nor should the payment be made retrospective because the Minister for Finance sees a method of getting further tax. This is entirely wrong and it is contrary to the ordinary principles of justice and I would not agree with it.

Mr. Boland

I am not suggesting that there should have been any element of retrospection, I am merely saying the period of grace which the Minister has allowed, which is a year, is over generous.

Mr. Nash

The 28th April, 1971, it is already past.

Mr. Boland

The period of grace goes up to 6th April, 1972.

Mr. Nash

Subsection (5) says:

This section shall not have effect in relation to income applied in or towards satisfaction of a debt for money lent before the 28th day of April, 1971, or of a debt incurred for satisfying in whole or in part any such debt, unless it is so applied after the end of the year 1971-72.

Mr. Colley

I could not accept any element of retrospection in a matter like this. I think Senator Nash is perfectly right that anything that was done in this case, or in similar situations, which was legal, is not something for which one is entitled to penalise people. One can close the loophole all right. While I do not want to get involved in going back over the old ground about the company taxation, I want to say again, for the record, that in my view there was no retrospection involved in that. It was passed in the autumn and no tax was payable under that provision before the 1st January of this year. Taking it on a straightforward basis, you cannot say that that is retrospective. I do not want to get involved in that argument, but I accept the principle.

Mr. Boland

I do not think any of us do.

Mr. Colley

You cannot apply retrospection in a case like this. I was delighted to hear what the Senator had to say about people who had not been paying tax and their liability to pay it, especially having regard to those who do pay their taxes. A great deal of this Bill is concerned with people who have a clear liability, not availing of a loophole, but under the law as it stands have not been paying their taxes or have not been paying them promptly. This is designed to get after them and move them. I trust that we have the full support of Senator Boland on those issues.

Mr. Boland

We will cross each bridge when we come to it.

Mr. McDonald

Could the Minister give the House any indication of the percentage of taxpayers who either do not pay or are slow in paying, or of the amount of money involved in the last financial year?

Mr. Colley

I could not do that, but I think I can say it is expected, as a result of the various provisions in this Bill designed to speed up and improve collection, that that will yield an additional £2 million.

Mr. Boland

I suppose we cannot be too hard on these people when we see what the Comptroller and Auditor General had to say about the Appropriation Act of 1969.

Mr. Colley

What he has to say is his business. It is not necessarily the view of a constitutional lawyer.

Dr. Belton

Will the question arise in the future if and when we become a member of the Common Market? Will it affect any type of taxation such as this?

Mr. Colley

Not directly, but in the longer term there will be a harmonisation of different kinds of tax which will alter the basis of our tax structure. It will not immediately direct our ordinary taxes.

Dr. Belton

It will not happen for some years? What I was really trying to get at was, was the time wasted in bringing in this measure? If the harmonisation is to occur in the immediate future. It might be a waste of time.

Mr. Colley

No.

Dr. Belton

I accept the Minister's word.

Question put and agreed to.

SECTION 5.

Question proposed: "That section 5 stand part of the Bill."

Mr. Boland

This seems to be a very small thing.

Mr. Colley

It is a very small item but it is an anomaly which has been found to exist. The cost of the registration of a patent, say, is chargeable, but it was found that there was this anomaly that the cost of registration of a trademark was not allowable as a deduction. It is simply remedying that anomaly and there is very little involved in it either for the Exchequer or for the people concerned. It is just an anomaly that has come to light and this is remedying it.

Mr. Boland

If the Minister closes up all these little anomalies now——

Mr. Colley

We will do the best we can as we go along.

Question put and agreed to.

SECTION 6.

Question proposed: "That section 6 stand part of the Bill."

Mr. Boland

This is the section that allows for an increase in the earned income for single people and widows from £125 to £150 and for married persons from £225 to £250. Could the Minister give us any idea of how much the provisions in this section will cost? Another point on which I should like the Minister to elaborate is this: Could the Minister say how long the existing figures for minimum earned income relief have been in force?

Mr. Colley

This figure was brought into existence last year. I do not have a breakdown for this but the estimated cost to the Exchequer of this, plus the other two reliefs which are coming up, is £1 million, in this year.

Dr. Belton

Is this the one that the Minister is fumbling by stealing back the £5½ million on the first £100? The Minister is making a case that he is giving concessions and so he will have to take back this £5½ million. Is this one of the concessions that he says was directed——

Mr. Colley

No. I think perhaps the Budget passed the Senator by. That was not what I was saying. I was saying that the net yield from section 2, less this and the other reliefs that are coming up in the Bill, would be £5 million in this year and in a full year £5,500,000. The cost of these income tax reliefs in this year is £1 million but the net yield, taking what is coming in under section and what is going out under these reliefs, in this year is £5 million.

Dr. Belton

It will be £6 million gross.

Mr. Boland

Section 6 is one of the factors you are balancing against section 2.

Mr. J. Fitzgerald

It will take in £6 million under section 2 this year?

Mr. Colley

That is right.

Mr. J. Fitzgerald

And £6½ million next year?

Mr. Colley

Yes. The concessions in section 2 were the concessions made in the Budget to people in receipt of social welfare, to agriculture, and to various other people such as Old IRA people, public service pensions, widows of Old IRA men and all the other categories of people who benefited under the Budget. They were the concessions to which I was referring. The money required under section 2 is required to pay for those concessions.

Mr. Boland

What would be the gross yield under section 2?

Mr. Colley

As stated by Senator Fitzgerald it will be £6 million this year.

Ruairí Brugha

But sections 6 to 12 rely partly on section 2.

Mr. Colley

They do. They are related and they must be related if one is trying to——

Ruairí Brugha

If some of the Senators on the opposite side are objecting to section 2 then surely they should be objecting to sections 6 to 12 as well.

Mr. Colley

Senator Brugha is trying to be logical but maybe they are not.

Mr. Boland

It all depends on the company one is in.

Mr. J. Fitzgerald

The House is trying to be logical.

Question put and agreed to.

Sections 7 and 8 agreed to.

SECTION 9.

Question proposed: "That section 9 stand part of the Bill."

Mr. Boland

I am delighted to get an opportunity of speaking on section 9 for the very simple reason that it is virtually a carbon copy of a similar section in the earlier Finance Act which allowed a widowed person a housekeeper allowance. I must admit that it is some time since I read that earlier section but I think this section is more or less modelled on it.

Section 9 intends to allow a housekeeper allowance to an unmarried mother who is engaged in a full-time occupation. That housekeeper allowance would be paid in respect of a family relative whom she has working for her. If she can prove that there is no such relative available, or prepared to live with her, she can claim a housekeeper allowance in respect of some person whom she employs to look after her child. The same provision applies to a widower who has to employ a person to look after his children while he is at work.

I want to crave the indulgence of the Chair and the ear of the Minister to make the point that it is quite difficult for a widower to find a suitable person, who has no other source of income, to look after his children. I have come across a case where, apparently, the Revenue Commissioners are insisting that because the widower employs a married woman he is not entitled to claim a housekeeper allowance for her because her husband is already claiming for her in his allowances. This man cannot get a single person to mind his children. If he could he might not want to do so because ideally the best person to mind the children is someone who is a mother herself. The Chair has been very good in allowing me to make a case on an Act that has been in force for some years. I hope the Minister will take heed of it.

Acting Chairman (Mr. Sheldon)

The Chair trusts the Senator has concluded his reference to it.

Mr. Boland

The Chair is very trusting. A very similar situation will probably develop in this case. Let us look at the situation quite seriously. If an unmarried mother with a child has to go out to work, as most unmarried mothers have to, she could probably not afford to pay very much to some person to look after her child. It is most likely in such a case that she will not have a female relative living with her who does not have any other source of income. More than likely she will have to employ a person to come into her home or flat to take care of the child or else she will have to board out the child in a créche or a nursery.

In my opinion if an unmarried mother was to put her child into a day school or nursery she would not be entitled to claim a housekeeper allowance. If she would be entitled to claim such an allowance I would be delighted to hear so from the Minister. If she boards out her child to some person in the locality who will mind the child in her home it is almost certain that that person will be a married person whose husband has already claimed for her. While the intention of section 9 is good and admirable—as good and admirable as the intention of the original section in relation to widowers—I am afraid that the 1967 section has produced a lot of difficulties. I imagine this section, from the point of view of the unmarried mother, will be an even more difficult one under which to claim.

Both of these categories of people are people who suffer a fair amount of hardship. Perhaps the Minister would consider relaxing this restriction about female relatives and about a person being claimed for twice, if the person happens to be a married person, in these cases.

Mr. McDonald

I, too, should like to welcome this section and also section 11. It denotes an awakening of the Government's social conscience. I should like strongly to support Senator Boland's plea that the Minister should go that little bit further and relax this restriction. Experience has shown that there are quite a small number of people involved under this provision.

Mr. Colley

Senator Boland is correct in thinking that what is involved here is simply an extension of section 139 of the 1967 Income Tax Act which provided the housekeeper allowance for a widower, a widow, a married man, whose wife has deserted him, or a woman, whose husband has deserted her. This is an extension of that provision to an unmarried mother, who is engaged in full-time employment or who is engaged full-time in a trade or profession, and who secures the services of a housekeeper to look after her child.

The situation envisaged by Senator Boland, where the unmarried mother boards out her child during the day with a neighbour, and pays the neighbour to look after the child, is one in which the unmarried mother would be allowed that expense as a claim under this section. It is true to say that the married woman neighbour in receipt of this money would have to account for that money. I think the situation Senator Boland was talking about arises only where a female relative of the applicant is involved. As he said, whatever about the other cases, it is not very likely in the case of an unmarried mother that the female relative problem will arise. The problem to which he referred arises more frequently in the other cases under the 1967 Act. It is unlikely to arise in this case.

Mr. Boland

Does the Minister not think that most unmarried mothers will board out their child by day to a married neighbour? It will not be worth the neighbour's while to take the child, if she has to pay tax on the money she gets. It is a vicious circle.

If the unmarried mother gets her housekeeper allowance, and then the other person has to pay tax, it will not induce her to take the child. It had been my understanding that as it operated under the 1967 Act in respect of widowers, the allowance would not be paid where the person involved—the person with whom the child was boarded out—was already being claimed for in respect of her husband, or whoever was responsible for her. In that case the allowance was being refused to the widower and I assume that with the marvellous consistency of the Revenue Commissioners, it would in turn be refused to an unmarried mother in the same sort of situation.

Mr. Colley

That arises in the case of a female relative only. It does not arise in any other case.

Mr. Boland

In the particular case which I recall it was in relation to a person who I am virtually certain was not in any way related to the widower concerned. She agreed to come to the widower's house each day to look after his children and provide a meal for them during the day. He was informed by the Revenue Commissioners that he would not be allowed a housekeeper's allowance in respect of her because her husband was already claiming for her. She was in no way related to the widower. Would the same situation not arise in relation to the operation of this section?

Mr. Colley

I am advised that that should not arise if the person concerned was not a female relative. If the circumstances are as outlined by the Senator, perhaps, he would have another look at this on the basis that if it is not a female relative, then that situation should not have arisen in that case. I should like to point out that in the case we envisage of the unmarried mother boarding out the child during the day with a married neighbour, the married neighbour would have an allowance of £99 per annum free of tax, earned income relief. However, we cannot take the view that income derived in this way should be completely exempt from tax. It is the only way that we could meet the point being made by Senator Boland.

Mr. Boland

It is a difficult problem. It is more complicated in its operation and more difficulties arise in its operation than, perhaps, are envisaged by the Minister.

Mr. Colley

That may be.

Mr. Boland

Perhaps the Minister will have a look at its operation some time

Mr. Colley

I will.

Question put and agreed to.

SECTION 10.

Question proposed: "That section 10 stand part of the Bill."

Mr. McDonald

We all agree with the principle here. However, I cannot understand why the Minister would not put in a simple section, giving the idea that we do not have to have this type of amendment, year after year, in the Finance Bill. Surely we all agree that if the old age pensioner gets an increase of 40 new pence or 50 new pence it should not be taken off by the tax collector. While we all agree with this, would it not be easier to delete the figures altogether, and just replace that section with the general principle? I envisage something like what is contained in the latter half of the explanatory memorandum. In this way we should not waste the time of the Oireachtas by bringing in these types of amendments, especially when we all agree with the principle and support the section as it stands.

Mr. Boland

The case was very validly made in the other House. Contrary to all the beliefs of the Department of Social Welfare, there exist a number of contributory old age pensioners for whom the old age pension is the only income they have. Of course, I appreciate that a person could have quite a considerable income and still qualify for a contributory old age pension. The case was made to the Minister in the other House more or less in passing, and it is worth re-emphasising here. It would be well worth while, if there could be included by way of amendment of section 142 of the 1967 Act, provision for a dependent relative allowance to cover the contributory old age pension as well, where it could be shown that that pension was the only income of which the dependent relative was in receipt.

Mr. Colley

On the point raised by Senator McDonald, while it is true that this relief applies to all categories, nevertheless, the section could be so drafted as to relate, without figures, to whatever the current rate for noncontributory pension was. I will consider that for the next Finance Bill and draft it in that way. I think it would simplify it.

I shall now refer to the other point about relating it to the level of the contributory pension. As I explained in the other House, there are a number of reasons why I found it impossible to accept it. One was the cost and others were reasons of principle. One must remember that since there is no means test in relation to the contributory pension, we would be departing completely from the basis of this, which is related to means. We could well find ourselves giving the benefit to people who did not require it, thereby depriving people who would be much more in need of that benefit. On the whole, for practical reasons and for reasons of principle, we should adhere to the practice we have been following, that is, to relate it to the level of the noncontributory old age pension.

Question put and agreed to.

SECTION 11.

Question proposed: "That section 11 stand part of the Bill."

Mr. Boland

This is to provide a deduction in assessable income to persons. Does this refer to persons in receipt of a blind pension? How is one to satisfy the Revenue Commissioners that the degree of blindness exists?

Mr. Colley

No, it is not related here to the receipt of a blind pension but rather to the production of a certificate by an ophthalmic surgeon as to the degree of blindness. The degree required would be that if a person cannot, with correcting lenses, read the largest letter on the standard chart at six metres, then his central visual acuity would be said not to exceed 6/10. The reference to a limitation in the field of vision means that looking at a central point on a chart used for the internationally recognised Snellan Test, the field of vision is limited on either side of the central point to the degree stated in the section. This definition is taken from an American statutory definition in relation to a similar kind of thing. I am advised that it is a fairly generous approach to it.

Mr. Boland

I am rather surprised that there are not several special sections in the Bill to enable the Exchequer to finance any activity that McKinsey and the Public Service may feel like.

Question put and agreed to.

SECTION 12.

Question proposed: "That section 12 stand part of the Bill."

Mr. Boland

Will the Minister explain section 12?

Mr. Colley

The purpose of this section is to ensure that that part of the contributions under the Social Welfare Acts which is referable to the new death grant and retirement pension which were introduced by the Social Welfare Act, 1970, shall be allowed as a deduction for income tax in the same manner as the contributions referable to the other contributory benefits mentioned in section 224 of the Income Tax Act, 1967.

Mr. Boland

In other words, this provides that the actual social welfare contributions which a person pays each week may be deducted before making income tax assessment?

Mr. Colley

In effect.

Mr. Boland

The Minister is probably aware that the Minister for Health has visited this House recently and also the other House and has, by dint of numerical strength rather than by logic, taken through these Houses legislative measures which will mean that the same persons who will pay these social welfare contributions will be made to provide £5 million extra to the Exchequer through the health contributions. They will have to start paying those fairly soon.

I am a little bit surprised that if the Minister should allow the social welfare contributions to be deductible before tax is assessed why will he not allow the Health Contributions Act contributions to be deductible also? After all, in equity or even in logic, as the Minister was mentioning the unfortunate people in the limited eligibility health category, they will be saved £700,000 a year and for that privilege they will have to pay £5 million by way of weekly contributions or other means——

Mr. Colley

And receive services worth a very minimum of £30 million.

Mr. Boland

And receive services which they are already in receipt of and entitled to. I know the Minister would prefer not to go into the field of health because he is probably anxious to get through as many sections as possible today. Does the Minister not feel that the health contributions ought also to have been included here and if he does would he consider including them? If he does not, would he say why not?

Mr. Colley

In response to a question by Senator Boland when he asked "Does that mean the social welfare stamp is being allowed as a deduction", I said "In effect." I do not want there to be any misunderstanding about it. It does not mean that the whole of the social welfare contributions are allowed but the portion that I mentioned in reply. This section provides for additional items that may be deducted, that is, the contribution referable to the death grant and retirement pension.

I do not know how Senator Boland arrived at the conclusion that health contributions will not be allowed because these health contributions do not exist yet. When they do, then the matter can be dealt with. We cannot be making provision for them when they do not yet exist.

Mr. Boland

In the Finance Bill, 1972?

Mr. Colley

Possibly.

Mr. Boland

Take the ordinary Joe Soap who will pay for his health services by way of taxation, by way now of a weekly health contribution. Surely it is the final indignity if the Minister will allow a situation to exist for a year when he will be doubly taxed because he is taxed on the health contributions which he is obliged to make under the Health Contributions Act. In all fairness, it seems to be stretching the tolerance of the middle income group or the limited eligibility category, as they are referred to in the Health Contributions Act, a little bit too far. In effect, it would amount to £5 million. Even if the Minister did include it in the Finance Bill, 1972, it would have meant somewhere around £3 million between now and then to the Exchequer. We are getting it once and also getting the tax on it.

Question put and agreed to.

SECTION 13.

Question proposed: "That section 13 stand part of the Bill."

Mr. McDonald

I, of course, support the idea in the section which specifically exempts road vehicles. I wonder if the Minister would consider giving a special concession to firms who would propose to purchase intercontinental road transporters for the purpose of exporting directly to continental Europe or, indeed, to Britain on the ferry.

Carriers operating cross-Channel or to Europe have a monopoly on our roads here. This is a type of activity that our own carriers or even CIE should get into. Especially if we are going into Europe, Irish companies should be seen to take our goods. Our lamb trade should increase to France and our frozen meat to most of the EEC countries. If this concession were given, even for a few years, to allow any of our carriers to enter this line of business, the Government would be encouraging expansion. After all, it is a business and does it really matter what it is as long as our people are employed? It is of paramount importance that lorries with Irish markings should be seen to carry our goods abroad. I come through County Kildare every day and all the lorries that I see that are taking frozen meat from the chilling factory in Kildare are all foreign owned.

An Cathaoirleach

This is section 13 which, according to the explanatory memorandum, applies to capital expenditure on new machinery or plant other than road vehicles.

Mr. McDonald

It exempts road vehicles and I was asking the Minister if he would include road vehicles which are purchased specifically for the export trade. This type of vehicle is not available here because the continental lorries that I see here have sleeping accommodation and are a very expensive type of lorry. If our Irish hauliers were to purchase them with the 35 per cent import duty or levy that applies to them, it would place them in a position of not being able to compete with the European or, indeed, the British or Northern Ireland hauliers. I see no reason why CIE and some of our more progressive private hauliers should not be encouraged to tackle this trade and to have lorries travelling to Britain and Europe with Irish markings and proudly portraying an Irish image abroad.

This is very important especially if we are really going after the fresh lamb trade to France. We are at present exporting a relatively small amount of this commodity to France despite a 20 per cent import tariff there. If we enter the EEC, there are good prospects for this trade. Why does the Minister not encourage our hauliers to be on the ball there and to get across with our agricultural exports and not to depend on European carriers to do it for us?

Mr. J. Fitzgerald

I agree with many of the points made by Senator McDonald. Before supporting his argument, I should like to hear the Minister speak on this. There are many reasons why what Senator McDonald said should be done in this case might be done. As against that, one could give reasons as to why it should not be done. I should like to know what the Minister has in mind when a 60 per cent allowance can be made for new machinery or plant other than road vehicles. We all know that in many factories there is total dependence on a certain type of road vehicle. I am thinking of bulk loaders for cement, for flour, ready-mixed cement, et cetera. I should like to get the Minister's views on this. Is this specialised type of carrier included in the 60 per cent?

Mr. Colley

These kinds of vehicles were never included in the initial allowance and, as Senators have seen from the Bill, I do not propose to include them now. The principal reason for this is that the cost to the Exchequer would be prohibitive. If one were to confine it, as suggested by Senator McDonald, obviously the cost would not be so great but it would become impossible to resist claims for similar treatment for different kinds of passenger vehicles. It is surprising how ingenious people can be. Once an extension like this is granted, a logical case can be made for a further extension and I would be much afraid that the Exchequer could not afford it. I certainly could not contemplate this in the present financial year, whatever might be the position in the future.

Mr. McDonald

Surely for a start the Minister could confine it to the meat trade only. Those special containers or lorries are really plant because they are very expensive items of equipment and even the lorry cabs are a special job. I remember at the Derby in the Curragh some of those foreign lorries going to the chilling factory in Kildare and one would think the race was taking place in France.

Mr. J. Fitzgerald

That is what happened to Linden Tree.

Mr. McDonald

If we are to be able to sell our Irish meat, the packaging is important. The stock which rolls on and off our ferries should be Irish lorries and Irish registered vehicles. I should think a dozen applications would be the maximum the Minister would receive because we have only a handful of factories and I do not think all of them will be in the export trade. Would the Minister then give a concession to the meat trade especially since the export of Irish lamb is so important to the Irish farmers? The Minister may not be aware that lamb prices this year have taken a drastic nose-dive and it is very important to the Irish agricultural economy that we should boost in every way possible the export of lamb.

If we had our own vehicles they would be a type of advertisement on the road down to Paris or wherever they might go. Since the numbers of vehicles will not be great whether it be CIE who take on the service or some of the more progressive carriers that we have who take it on, why leave this type of business entirely to continentals?

Mr. J. Fitzgerald

I do not want to argue against what Senator McDonald has said but if I were the Minister I could make a good argument against it. What I mean by plant is having a type of truck that carries ready-mixed cement. It carries bulk cement. It is on the road for one purpose only. You cannot remove the back of it and have a lorry, as you can with a container. You put a container on a lorry and you take it to the port and your lorry may be used for anything else after. You cannot use containers for ready-mixed or bulk cement for any other purpose. They are part and parcel of the plant and a good case should be made for the reduction of the 60 per cent. If the Minister could see his way to do what Senator McDonald has asked in the case of the meat containers that is very good if it will help the export of lamb or any other commodity, but I feel that the lorries to which I am referring are geared for one purpose only and I do not think anybody could try to drive a coach and four through any regulation the Minister might make in that respect.

Mr. McDonald

On a point of clarification, the vehicles I am speaking about are also just single-purpose vehicles equipped with deep freezes for meat without removable bodies.

Mr. J. Fitzgerald

The fellow with the ice cream van will look for the same concession.

Mr. McDonald

He will not be going to France with it.

Mr. Colley

There is no evidence at all to suggest that the export of lamb would be inhibited in any way by the absence of Irish lorries to transport the lamb. Regarding the suggestion by Senator Fitzgerald, if the people concerned want to make a submission about it to me or to the Revenue Commissioners on the lines made by Senator Fitzgerald, I would be prepared to consider it but not in the current Finance Bill.

Mr. J. Fitzgerald

I have no vested interest either.

Question put and agreed to.

SECTION 14.

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

Dr. Belton

I should like to ask why an exception is made in relation to hotels, holiday camps, registered holiday cottages, market garden buildings. What was the purpose of excluding them from this remission?

Mr. Colley

Hotels, market garden buildings and registered holiday cottages get another form of allowance which is better than this as a kind of compensation for the fact that they do not get the export tax relief.

Mr. Boland

The hotels will need a very special allowance this year, especially the new hotels.

Question put and agreed to.

Section 15 agreed to.

SECTION 16.

Question proposed: "That section 16 stand part of the Bill."

Mr. Boland

Would the Minister give some details to the House as to what this section is about?

Mr. Colley

This is another anti-avoidance measure. The existing law provides that where in consequence of a settlement income is paid during the life of the settler to or for the benefit of a child of the settler in any income tax year at the commencement of which the child is an infant and unmarried, then the income is to be treated as the income of the settler for tax purposes. In the case of a child born after the 6th April in any year of assessment the parent can, in that year, divert his income by way of a settlement in favour of the child and since the child was not an infant and unmarried on the 6th April that year, the income cannot, under the existing law, be treated as part of the parents' income although for subsequent years it will be. This section allows a taxpayer, if he wants to arrange his affairs in that way to do so but if the child was born at any time during the income tax year, then the existing law would operate in respect of it.

The device has been used fairly frequently for income tax avoidance and a substantial amount of income tax and surtax could well be avoided in the year of the child's birth by virtue of it. That is why we propose to close the loophole. Under this section the test will be not whether the child is an infant and unmarried at the beginning of the year but whether the child is an infant and unmarried at the time the payment under the settlement is made.

Mr. McDonald

Is this section designed to encourage savings?

Mr. Colley

It is designed to prevent avoidance of liability for income tax and surtax.

Question put and agreed to.

SECTION 17.

Question proposed: "That section 17 stand part of the Bill."

Mr. McDonald

In this instance the Minister is, perhaps, going that small bit too far. I have had more time to study the explanatory memorandum since Tuesday last. Nevertheless in the case of an individual who finds that he has been engaged in an activity which is liable to income tax through no fault of his own this 9 per cent will be a penal imposition on him, more especially if he finds he was liable for tax for two to five years back. I do not know if this is possible but it might happen. At 9 per cent it would not take more than six or seven years for the demand to be doubled with compound interest. The 9 per cent is, indeed, a penal interest because even if a taxpayer wishes to avoid paying tax on the nail and invests at 9 per cent, his net tax-free interest will not be 9 per cent. He will be lucky if it is 4 per cent. The Minister has said that this was to discourage people from investing at a high rate of interest. This argument does not hold because it is impossible, especially with inflation, to get a net interest rate of 9 per cent. The amount that the Minister will gain by this will be negligible. On the other hand, the Bill will be prohibitive to a number of people who are caught up in the tax net, especially if they are assessed with tax on some other activity, the liabilities for which they were unaware of, for a few years back. I would ask the Minister to have a look at this. Nine per cent is altogether too high. As the tax would form part of the taxable income at the interest of 9 per cent, if a person were lucky enough to get a net interest rate of 9 per cent from an investment it would be compounded. I feel that the Minister is going a little too hard. In addition, it is proposed to reduce the period of grace from three to two months. I would remind the Minister again that this year is the first year in a long time that the Seanad will be able to effect an amendment to this Bill by virtue of the fact that the Dáil is still in session. It will be possible for him to go back there next week or the week after with any amendment that he may accept here.

Mr. Boland

Now we are coming to the really contentious part.

Mr. Colley

This is one of the sections on which I expect the full support of Senator Boland in view of what he said earlier.

Mr. Boland

The Minister has great expectations, but I doubt if I will be able to live up to them. One of the difficulties I find in speaking on the Finance Bill is that as far as the Seanad is concerned we are this afternoon like political eunuchs. No matter how much we may disagree with any provisions of the Bill we are inhibited from expressing that disagreement in terms of voting.

Tomás Ó Maoláin

What is to stop you?

Mr. Boland

The idea of reducing from three months to two the period of grace for payment and at the same time of increasing by 50 per cent the amount of interest payable from the due date of assessment seems to be unduly penal. I would envisage a situation whereby people might have to liquidate assets in order to meet the tax demands in these cases. There was already provision whereby the commissioner could direct that a certain amount of money could be paid pending the termination of an appeal. I wonder if the Minister would explain to the House why it has suddenly been decided that this provision is no longer effective.

As Senator McDonald has said, at 9 per cent the rate of tax is virtually a commercial rate. I do not think the Minister will catch too many people who could, as he said, have invested their money and be earning fat interest while awaiting the determination of an appeal. Rather will he unduly harass many small business people who are already up to their ears in trouble because they have got as far as the appeals section, the Revenue Commissioner. If they are also expected to pay 9 per cent interest on whatever amount is eventually decided is due, it could, indeed, be the financial straw that would break many a small man's back. I do not like this provision either whereby, as the explanatory memorandum states:

...tax charged by the assessment will carry interest from the date on which it would have been due if there had been no appeal. Interest will not, however, be charged in such cases if an agreed payment on account has been made within two months from the due date and if any balance of tax found to be due on determination of the appeal is paid within two months of such determination. Neither will interest be charged where a payment which is made without agreement within two months of the due date proves to be not less than 80 per cent of the tax found to be chargeable on the determination of the appeal and where any balance of tax is paid within two months of the determination.

It is surely very much a case of a reversal of all that has applied in our courts, in our taxation system and elsewhere. It is the idea that a man is innocent until found guilty. The effect of section 7 is very definitely that one is guilty unless it happens that the appeal finds one innocent. Because we have decided a person is guilty the only way he may get any partial remission of this penal interest rate is by paying quite a large sum of money immediately. If the appeal rules that he has paid too much it will be given back. This does not seem to me to be operating in a very enlightened manner. I can quite understand why the appeals commissioners would be anxious to see that people of large incomes, who had been evading tax for a considerable length of time and who had well within their resources the wherewithal to meet the demand, ought be made pay that as quickly as possible. However, I would suggest to the Minister that the majority of appeal cases which go before the appeals commissioners more often than not concern a small business person who through his own folly or otherwise has not paid this tax, has not paid it for some considerable length of time, perhaps, because he was not aware that he was liable for tax in this regard. Suddenly this person is faced not only with a taxation demand which makes him blench but also with a demand to pay what is virtually commercial interest rates on that figure. The Minister ought to take a very close look at this. It could turn out to be one of the harshest impositions that has come before us in any section in any Bill in recent years.

Dr. Belton

The Minister may be able to defend himself in what he says here, but from what I see year in and year out the income tax code is becoming more complex. One could nearly devote one's whole education to understanding the income tax code and to advising other people on it. The more complex a code like this income tax code becomes the harsher the burden will fall upon those who have to pay smaller sums in income tax. Those companies or persons who have to pay large sums of income tax will, of course, have income tax consultants that the smaller business people cannot afford to pay. It is the smaller business people or maybe smaller companies which will be caught in the net that is being provided under this section. That is a point which I would like the Minister to examine. It may be through ignorance that income tax is not paid.

Even to a man in business who is reasonably well educated the complexities of the income tax code are like cross-word puzzles. Wealthy companies, companies from whom the Minister is expecting large sums in income tax, can employ special income tax advisers to advise them as to what they should do. The income tax advisers will know the legislation on income tax and will advise these people, but the people who pay small sums in income tax cannot afford to have these income tax advisers and may be caught in this net that is primarily designed. I presume, to catch large sums of money. It will not catch the large sums of money. it may get money by the imposition of the 9 per cent after two months from the date of assessment. That 9 per cent which has been explained will, of course, be compounded because it will be taxing tax all along the line, month by month, not year by year.

That is the point I want to make about this. It does not apply to this provision that is being brought in this year by the Minister. It applies generally throughout the code and through many other codes of taxation. Wealthy companies can afford to employ consultants either to enable them to keep within the law, but only just, or to save them money in certain ways, but a person who is paying income tax at a lower rate or without surtax cannot avoid payment because he will not have that expert advice.

This is a point which I should like the Minister to look at in this. All this legislation here is only making money for the boys. Certain types of legislation that is not consolidating legislation makes money for barristers and counsel. The same thing is happening here.

Mr. Nash

I appreciate the hardships which Senators have referred to, but the situation is simply this. To balance the Budget an extra £2 million is required. This £2 million is lost because some people will not pay their income tax in time. It may be a hardship on them to have to pay interest on it, but it is a question of balancing the hardship. If they do not pay it, somebody else has got to pay it, and it is subsequently paid by the man who is paying his income tax in time. You have got to pay more tax to make up for it. Which is the greater hardship? Who should pay in those circumstances? Obviously it is the man who does not pay in time.

It would be completely unfair to put a greater load on the man who pays his tax in time and to say to him: "In addition, because some people do not pay their tax in time, you must pay an extra six pence or an extra three pence, as the case may be, in your income tax to make up for them." People who are earning salaries and wages are really paying their tax in advance. They are paying every week, every month or every quarter, as the case may be, according as their wages or salaries are paid, in advance before they have got their full year's earnings. The other person is paying in arrears. He is assessed on the previous year's earnings. For both those reasons, while I sympathise with what has been said, I think if there is to be a hardship it should be on the man who has not paid in time.

Mr. Colley

I think Senator Nash has put very lucidly some of the issues involved here. I do not think anybody could quarrel with the principles which he has enunciated. There are one or two other points which I want to mention. First, I think it was Senator Boland who mentioned the power under the existing law for an appeal commissioner to direct a payment. The problem that arises there is, first of all, that this is a matter for the commissioner himself; it is not a matter which will be controlled by the Minister for Finance. Secondly, the commissioner finds himself in the position that in many cases there are no accounts and he is not in a position to say what the amount of the payment should be if he has no figures on which to work. It is for that reason that it is necessary to supplement that power that exists.

I would regard this section and similar sections later as being very important in this whole Bill. For reasons of justice as between one taxpayer and another, as far as we can reach that outlined by Senator Nash, and equitable treatment as far as we can reach it as between one taxpayer and another, and also from the point of view of the Exchequer itself, it is important. For every day that tax which is properly due is not paid there is a cost to the Exchequer. When this is added up, over all the amounts due and not paid, it becomes quite a substantial burden which, as Senator Nash has pointed out, is borne by people who are paying their tax, and maybe by all the people who are paying their tax by deduction and paying in advance. It seems to me that the principle involved in this is one that all Members of the Oireachtas must support.

It is not unduly restrictive on a taxpayer in the sense that he has two months to pay and if he is disputing the amount he can either make an arrangement with the Revenue Commissioners, which will exempt him from liability to interest until the determination of the appeal, and then he had another two months in which to pay, or if he disagrees with the amount being suggested by the Revenue Commissioners he can make his own assessment. If he pays a sum which turns out to be 80 per cent of what was due, then he does not become liable for any interest and he has another two months from the date of determination of the appeal to pay the amount actually found to be due.

This is fair treatment for any taxpayer. Add to that the fact that if he overpays he gets back the overpayment plus interest at what Senator Boland has described as virtually a commercial rate. This is not unfair to any taxpayer. Somebody mentioned—I think it was Senator McDonald—the question of the possibility of going back over three or four years and charging interest at 9 per cent on that. That cannot arise because either the person has already been assessed and should have paid his tax before now, in which case he will be liable to 4 per cent up to the date of operation of this section and 9 per cent thereafter, or, if he has not yet been assessed but the Revenue Commissioners have come across him now and proceed to assess him in the next few months over the last three or four years, he is only liable for interest from the date of assessment. In that way the kind of situation that has been envisaged will not arise.

By and large, I do not think that any fault can be found with this provision on the basis of equity or on the basis of the interest of the Revenue Commissioners balanced against the interest of the individual taxpayer and the general taxpayer who is paying his tax and paying it promptly. The primary purpose in this section and in the other similar sections is twofold; it is, on the one hand, to ensure prompt payment of tax in the interest not only of the Exchequer but of all taxpayers, and secondly to ensure as far as we can equitable treatment as between one taxpayer and another. When one considers the situation of a taxpayer who is paying his tax by way of PAYE and compares that with the kind of case we are dealing with here, it can only be agreed that the kind of case we are dealing with here is being very fair and everybody is being generously treated.

Mr. McDonald

I certainly should not like to be put down as speaking on behalf of people who do not want to pay their fair share of taxes. Nevertheless, I often wonder if the Revenue Commissioners, who look to be nice ordinary people, are getting a percentage "rakeoff" of the total proceeds or whether they are paid salaries in the ordinary way. I think the 9 per cent interest rate is punitive and I should prefer if such figures were not written into the Bill.

The bank interest rate is a variable figure; it goes up a half per cent one year, or down three quarters per cent another year, and I would prefer to see this section without the figure put in, or that the Minister could relate the figure to the prevailing interest rates. It may happen that in a year or some time in the future the Minister's 9 per cent may very well be 2 or 3 per cent higher than the prevailing interest rate. Any of these things can happen if the present rate of inflation continues. I consider legislation to be bad legislation when we start inserting figures that may be unfair or meaningless in a few years time. I do not remember if the Minister mentioned what percentage of the taxpayers would be involved in this or what percentage of the taxpayers were asked to pay the 4 per cent interest rate last year.

Senator Nash dealt, in some degree, with those people who are subject to PAYE. He made a case for them and I certainly would agree with the case he made. What about the company or the private concern who collected, free of charge and almost without thanks, the PAYE on behalf of the Government? If, through some clerical error or oversight, that money is not passed on by a company on the appropriate date is it fair to ask that company to pay 9 per cent interest because of this? Commercial life and business people in this country have saved the Exchequer and the Revenue Commissioners hundreds of thousands of pounds by the work they have put into collecting taxes since the introduction of PAYE. Indeed, they are getting scant recognition for their efforts and very little thanks.

I consider this section will place an added imposition on those companies, especially on companies with a high rate of company taxation. This point has been completely overlooked. I do not have to remind Senator Nash of this fact because as a businessman with considerable experience he knows all the pitfalls and difficulties in this regard. Whether those people be large or small employers we should not forget the valuable contribution they have made in saving the Revenue Commissioners many hundreds of thousands of pounds through their collection of the PAYE tax throughout the years.

In view of the fact that the bank interest rate is a variable figure I would ask the Minister to substitute for the 9 per cent some figure in proportion to the bank rate of the day. Each year the bank rate goes either up or down 1 per cent or 2 per cent. I can see the situation now whereby the bank rate should be reduced and those borrowing from banks would be very grateful if it did. The Minister is making a tremendous profit at the expense of people who, through no fault of their own, will be called upon to pay this rather punitive interest rate of 9 per cent. It is altogether too high, especially when we consider that any tax that may accrue from this money not being paid promptly will itself be subject to income tax. I think the Minister is trying to get it on the double. In his efforts to get people to pay their taxes more promptly—we would all like to see that—he seems to be coming down too hard on a minority of cases. We should endeavour, when dealing with legislation of this kind, to ensure that no section of the community will be put to the wall by virtue of a rather heavy imposition of the Revenue Commissioners.

Mr. Nash

The case made by Senator McDonald was that it costs many companies a good deal of money to collect the PAYE tax. From practical experience it has been found that it takes one expert book-keeper an entire day per 100 employees to calculate the tax, prepare the tax slips, get it deducted and make out the net balance each week. Senator McDonald contends that in those circumstances the tax which is deducted must be sent on at the end of the month to the Revenue Commissioners. If that tax is not paid by the end of the month it carries an interest rate of 9 per cent. He feels that that is rather penal in the circumstances because, through illness on the part of one of the office staff or the accountant, through oversight or otherwise, it might easily be overlooked. He, therefore, considers it as a penal tax.

I am inclined to agree with him in that respect. PAYE must be met and you get no leeway. If you fill in the wrong amount because the bookkeeper is ill, three or four months later you will get the additional assessment with its extra 9 per cent. Considering this tax is paid in advance there should not be a penal interest like this if it can be established that it was a genuine mistake and that there was justification or an explanation for it. I can quite appreciate the difficulty of legislating especially for such matters.

There is no doubt that there would have to be a fixed rate of interest and the fixed rate of interest must correspond, more or less, with the rate the Government have to pay on national loans which at present is about 9 per cent. Next year, if we are fortunate enough to be able to borrow at 6 per cent, one would expect this rate of interest to come down in next year's Finance Act. I can appreciate that if 9 per cent is the borrowing rate, you would have to have a fixed rate of interest. The Minister was absent during portion of Senator McDonald's speech and I have taken the liberty of reiterating what he said, so that the Minister can explain his outlook on it.

Mr. Boland

I want to ask the Minister several questions on this section. I am sure that the Minister knows very well, from his present position and from his former heights of glory in the legal profession, that very often there can be a genuine disagreement between the tax inspector and the person concerned as to how much is actually owed. Under the provisions of this section, even in a case like this where genuine disagreement exists, the only way whereby a person can escape paying this punitive rate of interest is if he pays a figure which subsequently turns out to be 80 per cent of the decided amount after the appeal.

I should like the House to consider the case of a small shopkeeper, or indeed the case of a small door-to-door van salesman whom I heard about only a few days ago. He thought that he had settled his affairs with God and the Revenue Commissioners—sometimes I am not too sure who comes first; we know who comes last because in these cases they affect one in the land of the living and in the hereafter—and was suddenly asked to pay £85. Can one picture where a door-to-door van salesman, operating on a daily basis, making cash purchases and selling each day at doors, was going to find £85? If that man had a genuine disagreement with an inspector and he went on appeal, apparently the only way whereby he could escape paying 9 per cent interest rate on whatever figure the appeals commissioners finally decide is if he pays a figure which amounted to 80 per cent of £85. My financial adviser, Senator Belton, tells me that is £68. This would be quite beyond his means. Can the Minister say if this is a fair enactment in cases where there is genuine disagreement? Can he say if it is envisaged that there will be a minimum figure below which interest will not be charged, or if so that it will not be charged at this rate?

Let us take a figure of £1,000. Those who owed something below that figure and were disputing it and going to the appeals commissioner were probably again those least able to pay out immediately the figure involved. I suggest to the Minister that the section would have been far more acceptable had a minimum figure been included, below which the interest payments would not have been as harsh as those now envisaged. Perhaps the Minister would explain the position to us, first of all, in relation to the genuine disagreement, and, secondly, in relation to the apparent absence of a minimum figure. As we so often compare ourselves to Britain, I am interested to know what rate of interest is charged there? In addition, would the Minister consider the case of a trading company who could be placed in serious financial embarrassment because of the provision? Would he explain what the equivalent tax allowable interest rate would be for a trading company on a figure of 9 per cent interest?

Mr. Colley

I am sorry but I do not understand the last question.

Mr. Boland

If one takes the case of a trading company operating with certain allowances and making their normal returns, say, in the current financial year but the returns of the previous financial year are in dispute. Because they are in dispute, they go to the appeals commissioner; and with all the complicated procedures set out in section 17, they end up paying 9 per cent on whatever the final determined figure is. That 9 per cent is money which they are taking out of the current year's trading figures and out of the current year's operation. Consequently, it affects the current year's operation also to a greater degree. Would it be something which could be deductible in the current year's figures?

Mr. Crinion

There is one thing which strikes me about Senator McDonald's suggestion to have a current rate. If the Minister accepted that, it would not be very popular in the country as current banking rates are slightly higher than the 9 per cent.

Mr. McDonald

I mentioned to tie it to it, so that if the banking rate goes down this also goes down.

Mr. Crinion

We also have a Finance Act every year. If the Minister considered that the 9 per cent was too high, I should hope that he would naturally bring the interest down to the bank interest rate if that was 6 per cent or 7 per cent. He must keep it almost in line with banking rates, because otherwise it would only encourage people to appeal every income tax claim and keep delaying it. It would be easier to pay, say, 6 per cent or 7 per cent interest to the Revenue Commissioners than to pay a high rate of bank interest on an overdraft.

Mr. Colley

That is happening in a number of cases.

Mr. Crinion

I know.

Mr. McDonald

Can the Minister give us the percentage?

Mr. Crinion

That is the reason why he must bring the interest rate up to a realistic level. The Finance Bill is the one Bill that must be renewed every year. I know that the Minister and the Revenue Commissioners examine the records before the annual Budget, in order to keep an eye on who is escaping through the net and to try to prevent it.

Even if Senator Boland's door-to-door salesman had such a row with the inspector of taxes he was always at liberty to go to his solicitor or to an income tax consultant, or he could go to a public representative like the Minister. Between the three he might have been able to get some satisfaction. The Revenue Commissioners can be human at times. The Minister has been realistic in this figure because people were using it as another way of securing overdraft accommodation.

Mr. Colley

It should be clear that there must be a fixed rate of interest. If the taxpayer did not know what rate of interest he was liable to this would be a very unsatisfactory position. As has been pointed out it is reasonable to assume that in the event of a drop in interest rates with a Finance Bill coming in at least once a year there would be every opportunity to reduce the rate of interest in this corresponding to the drop in the going rate. If the Minister did not initiate such a change I am quite sure his memory would be jogged in either or both Houses of the Oireachtas. The only statutory exemption at the moment as regards an amount of tax due not being liable for interest is that interest is not chargeable on an amount of tax not exceeding £1. That is in relation to a point that was made by Senator Boland.

I do not think that there should be an approach on the basis that, if the amount due is below a certain figure, what might be regarded as a fairly reasonable figure, either no interest or a smaller rate of interest should be payable. I am reminding the House again of the fact that we are trying to achieve, as far as we can, equity between one taxpayer and another. Many taxpayers are paying, as has been pointed out, by deduction in advance. If one wants to get some kind of reasonable correspondence then those who have the advantage of paying in arrears should certainly not be given the further advantage of either paying no interest, if it is overdue, or a reduced rate of interest.

I understand that the rate of interest charged on unpaid tax in Britain is 6 per cent. It may be that arising out of this Bill they may change their minds on that, but that is their business. As far as I am concerned the going rate here is very close to 9 per cent. The Government actually pay a bit more than that at the moment and therefore the figure has to be at that level. I would say, in regard to the case referred to, that if there is genuine disagreement, which is justified, then the taxpayer would be found not to be liable for the tax and would not have to pay any interest. If, however, there is genuine disagreement but he is liable for the tax, then the fact that he has had a long period during the appeal in which he did not have to pay, it should not be available to him to avoid paying the tax and paying the interest on it, again comparing him with the person who has to pay in advance.

Dr. Belton

You would have too many appeals.

Mr. Colley

The position is that there are many appeals taken at the moment which are not bona fide and which are dropped at the door of the court. The whole object is to delay payment and thereby become liable only to the existing rate which is 4 per cent and thereby save money. It is well worth people's while to do this. We cannot allow this to continue by having a built-in inducement to do it. It is not in the interests of the general taxpayers that this should be allowed to continue.

The question was raised if interest paid in this way is allowable as a business expense deductible by a company. It is not and I do not think it should be. Their interest is payable in this way. It is payable because the company concerned were liable for tax and did not pay it in the due time. It would defeat the whole object of the exercise if one were to allow this to be a deductible tax expense. It would effectively reduce the rate of interest very substantially and it would give an advantage to a trading company not available to other taxpayers. This is intended to be in the nature of a penalty for non-payment of tax on the due date and thereby to induce prompt payment of tax. To allow it as a tax expense deduction would defeat the whole object of this section.

Reference was made by Senator Boland to the door-to-door salesman. I was reminded, when he was talking about it, of something that often comes to my mind. Whenever there is any talk of restraining dividends one is led to believe that all dividends are paid to widows with large families who are completely dependent on the dividends. One never hears of anybody else receiving dividends. Similarly, in this case, one might be tempted to think that all of the people concerned by this will be the small hard hit people. Of course, some such will be affected but most of them are not in that category at all.

Mr. Boland

That is accepted.

Mr. Colley

Let us take the hard case, which as we know makes bad law, and examine it. In that situation this man got a demand for £85. Either he owed that money or he did not. Either it was due for tax or it was not. If it was not properly due, it was open to him to appeal and to establish that it was not due, in which case he did not have to pay that or the interest on it; but, if it was due, then it was due on profits which he had already earned. Although he may not have been well off there are plenty of other people paying tax who are less well off and they have to pay on the dot. I see no reason why he ought to get special treatment as compared with other taxpayers who are not as well off as he is.

It may be that he would have difficulty in paying this money. I would suggest that in such a case he would have to come to an arrangement with the Revenue Commissioners for payment of the money by instalments. He would, of course, have to pay interest on the money outstanding. He is already getting a privilege as compared with many other taxpayers who are not as well off as he is. Although that case may seem hard on the face of it, when it has been examined it does not seem that there is any particular injustice being done to that taxpayer as compared with many others.

Mr. Nash

Since a man gets no allowances for business expenses on the 9 per cent if he underpays, may it be assumed that, if he is overassessed, pays too much tax and gets the 9 per cent back from the Revenue Commissioners, he will not have to pay income tax on that?

Mr. Colley

That is correct.

Mr. McDonald

I am still not convinced by the Minister's argument. In section 17 the 9 per cent should not be as definite as it is. I am not 100 per cent familiar with the paying over of the PAYE but I understand that there is a certain date of every month by which the previous month's tax must be sent in. The smaller the company, the more they will feel the pinch. Even a bank holiday can knock out some companies' schedule or if a bookkeeper falls ill or in the event of a strike, is it fair to clap on 9 per cent on a month's PAYE on companies when it is clearly not their wish that it had not been paid or it was outside their control?

If this section remains as it is it will be mandatory on the Revenue Commissioners to collect 9 per cent. Surely it is possible to amend this section in some way so that people who endeavour at all times to meet their obligations and are caught out by an industrial strike or even a bank holiday or illness of a person who deals with PAYE will not be penalised? The Minister must take into consideration situations of this kind because 9 per cent is a fairly heavy burden no matter how much PAYE is being paid. Would the Minister not have a clause in this Bill that would be enforced only where people consistently endeavour to evade paying? I cannot see that that would complicate matters very much.

All these companies are unpaid tax gatherers and I doubt very much if the Revenue Commissioners give any free time to this problem. Each company have to employ, at their own expense, people to send in the cheque in respect of PAYE each month. It is a mounting bill in practically all cases and is becoming more complicated with each Finance Bill. It is a pity the Minister cannot see his way to meet people who, through no fault of theirs, are unable to meet a deadline perhaps one month in the 12.

On the other hand, as Senator Crinion said, we have a Finance Bill here each year. I am here for about 11 years and this is the first year that the Minister came before the Seanad in a period when the Dáil was still in session. The cry then was, "We cannot attempt to amend this because the Dáil is not sitting." This year we have two weeks before the Dáil goes into recess and it is possible to put in an amendment. Otherwise there is no point in discussing an annual Finance Bill. The Finance Bill is never amended in the Seanad and hardly ever amended in the Dáil either.

I emphasise that 9 per cent is a very high figure and I refute the idea of having a definite figure. That is bad. It should be related in some way to the prevailing bank interest if it must be there at all. Perhaps the Minister might tell us how many people paid the 4 per cent in the last financial year. If the Minister is basing so much hope on increasing the revenue by jacking up the 4 per cent to 9 per cent he will be aware of how many people were called on to pay interest at the rate of 4 per cent and the total amount that this figure realised.

Mr. J. Fitzgerald

I should like to ask the Minister a question in relation to what Senator McDonald has said. He has mentioned the case of PAYE being stopped at source. The Minister, by way of answer to his question, said that it had to be in by the 5th day of the following month. Is that correct?

Mr. Colley

For each month ending on the 5th.

Mr. J. Fitzgerald

Nine days? In the event of it, not being in, for example, until 14 days or perhaps 21 days, has interest been charged?

Mr. Nash

Yes.

Mr. J. Fitzgerald

Has it so happened? Has it been rigidly enforced? I know it has not been enforced in the case of turnover tax. I know the penalty is there.

Mr. Colley

There is provision in the law and I am told it is enforced.

Mr. Nash

Even to the day.

Mr. Boland

The Minister appreciates that very often it takes time to fix up the affairs of the estate of a deceased. I envisage that among other hardships that this section might bring about you could have a situation whereby, because of the delay in taking out letters of administration, the executors would end up by being obliged to pay this interest rate also. Is that possible?

Mr. Colley

I want to correct something I said earlier where I referred to the existing rate as 4 per cent. I am afraid I was thinking of the estate duty section rather than income tax. The existing rate is, in fact, 6 per cent.

Mr. Boland

The Minister makes me feel even more ignorant than I am.

Mr. Colley

I would point out also in relation to the case about non-payment of PAYE that this is money which does not belong to the employer concerned but is tax deducted from his employees, and the employer has the use of that money which is not his. This is some compensation for the expense incurred. Senator Nash made a case earlier where there is a genuine mistake occurring. He went on to say that, while he felt this was a case that deserved consideration, he recognised there was considerable difficulty in legislating for it. There is. Senators will see that if they think about it. All I can say in that regard is that I will have a look at this and if I think something can be done about it I will bear it in mind for the next Finance Bill. Without having examined it, it appears to be almost impossible to frame a provision that will cover that case and will not lead to loopholes.

On the question raised as to what happens when tax is due and the taxpayer dies and there is a delay in taking out the probate or letters of administration, I am advised that when a taxpayer dies during the period of grace, that is, when interest has not begun to run, it is the practice to allow a similar period of grace from the date of extracting the probate or the letters of administration. During that period the tax may be paid without attracting interest. But where the taxpayer dies after the period of grace, that is when interest has already begun to run, then the interest charge is maintained up to the date of payment on the basis that the tax should have been paid prior to the taxpayer's death.

Mr. Boland

Including the period of taking out probate?

Mr. Colley

Yes. In the case where it was not due at the date of death, then allowance is made for the period of taking out the probate. This seems to me to be the fair and only possible approach to it, because the tax was due before the taxpayer's died anyway.

Mr. Boland

It would seem to me that if you began to charge interest from the date of probate and in addition charged interest for whatever period had elapsed from the time interest became payable up to the time of the death, that that would be fair, but I cannot see the fairness of including the period from death to letters of administration being granted.

Mr. Colley

It seems to me there are sufficient delays in the matter of administration of estates without building in another inducement for further delay.

Mr. Boland

Most of the delay is in the Probate Office.

Mr. Honan

That is a case I had not thought of but I can imagine in a case like that if a person were dying or if his death were expected his affairs would not usually run too smoothly around that period. If it were outside the period of grace, when interest was incurred, I know that there would be a number of cases where the executors may not have the power to make a payment to cover the tax without taking out letters of administration or probate. Anybody who has had the experience of taking out probate or even administration knows the great difficulties.

I would imagine that some arrangement could be made with the Revenue Commissioners because they will eventually get estate duty and probably death duty. If administration could be taken out in a week, a month or two months, I could see some sense in it, but sometimes this laborious business may run into a year and it would be a very heavy imposition on a small estate. It is not just a question of a person dying and executors having to take out probate. Nobody has the freedom to liquidate the debt with the Revenue Commissioners because they have not the authority to do so.

I do not know the solution to this problem but there is a very serious injustice built into the idea that if a person has tax outstanding at the time of his death he is outside the period of grace. This poor man is dead and it is the people who have to deal with his affairs who have the responsibility. You cannot write a letter to somebody and get probate the following day.

People who have a small estate could suffer a great hardship.

Mr. Nash

Senator Honan is quite right in this regard. The big trouble arises again in the estate duty section. We all know that if an estate is fairly substantial it sometimes takes six or eight months to clear it through the Estate Duty Office. Before you can do anything else you will be charged income tax, if it is due, plus 9 per cent. You will also have to pay estate duty plus 9 per cent.

Mr. Colley

Sorry, but you will not be charged the interest on the estate duty while the case is in the Estate Duty Office.

Mr. Nash

All right. Sometimes a businessman dies, then his auditors come along, take stock, get an up-to-date balance sheet and profit and loss account up to the date of his death. From my experience, if you can get them to do that within five or six months you are doing very well. You are allowed two or three months according to this Bill. There is no personal allowance whatsoever when you come to pay income tax on that estate before it is distributed. It will take 12 to 18 months before you can distribute it. You distribute it very quickly if you do it in 12 months. There is no personal allowance despite the fact that that man may have willed his estate to a son, daughter or somebody else. The executor is assessed with income tax on the estate without a personal allowance. The interest paid on estate duty is not allowable as an expense nor is the interest paid on the income tax.

If during the year the business makes a profit of £600 you pay income tax on the £600 without any personal allowance. If you have also paid as interest on estate duty of £100 you cannot set off that £100 against the £600. If you could it would help to balance things out. Likewise, if you could set it off as an expense in the case of a deceased person I think it would help. I realise the difficulty in drafting for all this. The Revenue Commissioners on their own initiative, with the consent of the Ministers representing Parliament, could make such an allowance.

I have found some cases of great hardship. If something like this could be cone, the executor could go along on his own initiative very often. He could borrow the money from the bank. He will pay the bank interest. He is not allowed to set off the bank interest. That is the trouble. If there could be some way whereby the interest on the estate duty and the interest on the tax, where tax is due, could be set off as an expense against the income from the estate and tax were then chargeable for the year after that on the net income of the estate, it would be much more equitable. I do not know if it is practicable. I should not like to be asked how you could draft legislation for it. If the Revenue Commissioners could do it on their own initiative it would avoid tremendous hardship. Perhaps the Minister would have a look at that.

Mr. Boland

I am genuinely surprised to think that the interest would be paid from the period of death to the time of taking out probate. It is really unfair.

Mr. Colley

I will have a look at the suggestion made by Senator Nash although we should remember that in some cases, maybe not in all, the estate is earning interest until the probate is taken out and the estate is distributed. I should also like to say in regard to a point raised by Senator Nash that the beneficiary under an estate, if he is the beneficiary of the income on the estate, on receipt of the income, can go back and claim the allowances. A sole beneficiary is normally regarded as being entitled to the allowances as from the date of death. I will examine this point. Again, I would remind the House that there is the other side of the coin that interest may be earned during this period when probate has not been taken out.

Question put and agreed to.

SECTION 18.

Question proposed: "That section 18 stand part of the Bill."

Mr. Boland

This is the section whereby when the appeal commissioners eventually decide that the unfortunate applicant was right all along and that the inspector was demanding too much tax from him, he will be entitled to get back the money in the event of his having already overpaid. May we just confirm the point made by Senator Nash that in that event the interest which is to be payable to him would not be taxed in that year?

Mr. Colley

Yes. I can confirm that.

Mr. Boland

In this section you are giving the poor innocent back something which you have already taken from him.

Mr. Colley

Sauce for the goose and sauce for the gander. It is fair enough.

Mr. Boland

The goose is getting the better part of the golden egg.

Mr. Colley

That may be because the gander was getting away with murder.

Mr. Boland

I am always nervous of ganders in the Minister's party.

Question put and agreed to.

Section 19 agreed to.

SECTION 20.

Question proposed: "That section 20 stand part of the Bill."

Mr. Boland

This is the section which raised quite an amount of contention in the other House because of the decision of the Minister to ally in one section the words "neglect" and "fraud." Certain people seemed to feel that cases of neglect, as defined, ought not to be included in the same section and be liable to the same sort of penalty as cases of fraud. There was quite a lengthy debate on it in the other House. Perhaps the Minister would again outline why it is equitable to equate fraud with neglect.

Mr. Colley

Of course the question of equating fraud and neglect is only superficially true. It is equating them for the purpose of section 5 but they are not equated for the purpose of the penalties which follow from fraud and the penalties which follow from neglect. In relation to other provisions of the law, one becomes liable for much greater penalties for fraud than one does for neglect. That is the first point I would make.

The second point is that neglect in the sense meant in this section is different from what is regarded as neglect by the layman. It does not comprehend what would be regarded as a genuine mistake made by the taxpayer. This point was raised some years ago when a somewhat similar provision was being made although, in a way, a more penal one in relation to the power of the Revenue Commissioners to go back over the taxpayer's affairs for an unlimited number of years where there has been fraud or neglect. On that occasion the late Deputy Sweetman raised this point in Dáil Éireann. In the course of the debate on it he asked the then Minister for Finance, my predecessor, to give an undertaking in his corporate capacity that if it should be held that a case of genuine mistake were to come within this definition of neglect, action would be taken to amend that position in legislation. My predecessor, in his corporate capacity, gave that undertaking. I repeated it in Dáil Éireann on this Bill and I am now repeating it here in this House. I am advised that no such interpretation has arisen but if it should arise I am repeating that undertaking in my corporate capacity.

Mr. McDonald

We all agree as far as fraud goes but how far does neglect enter into it? Exactly what is meant by neglect?

Mr. Colley

This is the statutory definition of neglect which is incorporated in this Bill taken from section 186 2 (d) of the Income Tax Act, 1967:

In this subsection "neglect" means negligence or a failure to give any notice, to make any return, statement or declaration or to produce or furnish any list, document, or other information required by or under the Income Tax Act provided that a person shall be deemed not to have failed to do anything required to be done within a limited time if he gives it within such further time, if any, as the Revenue Commissioners' officer concerned may have allowed, and where a person has a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.

Mr. McDonald

That seems fair enough.

Mr. Boland

I accept that is fair. I would not be so perturbed as some of the people in the other House seem to have been. The point was made there, and I do not think answered very adequately by the Minister, that where somebody files returns for a tax year and through neglect in the office of the tax inspector, through the forms being overlooked and nothing further emanating from the tax office to the person concerned, it would be very fair on the part of that individual to decide that he would wait until the tax inspector contacted him. He should not have to contact the tax inspector and find out how much the tax inspector had decided he had to pay. At the same time, might he not fall into this category, assuming the tax inspector eventually finds his forms—this can happen because I know of a particular case— and might he not under this definition subsequently be found guilty of neglect by omission when in fact the neglect was really because of administrative error in the tax office?

Mr. Colley

No, I could not see such a case arising at all. Assuming that the taxpayer concerned has made such returns and accounts as are required and that the delay then occurs in the office of the inspector of taxes, the position then is that until the inspector of taxes has disposed of the matter and made an assessment, the man is not liable to pay tax and therefore he is not liable to pay interest on it. That is assuming the delay is solely due to a hold-up in the office of inspector of taxes. If, of course, the delay is due to the failure of the person concerned to make the return or if he has made an inaccurate return, then this question of neglect as defined here comes into play. One would have to examine each case on its merits.

Mr. Boland

Could I put it to the Minister another way? Supposing the tax inspector is not aware the person is working in the country—let us say he is employed by a British company and the tax is not being deducted by the British employer—the tax inspector is not aware of the existence of the person concerned but the person involved eventually contacts the tax inspector himself and says: "Look, I am here, in existence, earning money and I should be paying income tax but nobody has ever sent me a form to fill up so I have done nothing about it."

What is the situation now? They sit down together and they get details of his income over the past number of years while he has been in employment. Is he then immediately liable to the 9 per cent interest on foot of the definition of "neglect"? Let us take a second example where the same person contacts his tax inspector and says: "I am in existence. I am earning money, will you contact me." He hears nothing from the tax inspector for perhaps six months and at that stage files his returns for the previous two or three years and again hears nothing more from the tax inspector for six months. In each case there is some element of neglect, whether the man is coming within the legal definition as defined by the Minister or not, in the case of the person involved. There is also an element of neglect, at least to an equivalent extent, in the case of the tax inspector.

Mr. Colley

In neither of such cases would the Revenue Commissioners try to invoke this section.

Mr. Boland

As we are on this section, the Minister forgot to answer a question of mine on an earlier section but it is also applicable here. Here the rate of tax will be .75 per cent per month. When we were on section 17 I asked the Minister what the British equivalent was.

Mr. Colley

I did not reply to that; it is six per cent. I also said at the same time by mistake that ours was 4 per cent and I subsequently corrected that to 6 per cent. Our existing rate is 6 per cent and so is the British rate. The Senator may perhaps remember that I said that, arising out of this Bill, I might take a new approach to it.

Question put and agreed to.

SECTION 21.

Question proposed: "That section 21 stand part of the Bill."

Mr. McDonald

I was complaining earlier on that the 9 per cent interest was rather punitive. Surely here we have a 12 per cent interest rate. I wonder what is the necessity for this abnormally high rate of interest? Is there any particular reason why it is necessary to penalise the local authorities to this extent, seeing that the Minister for Local Government is looking for low-cost housing?

Mr. Colley

Of course, no well-run local authority would become liable to this rate. What is involved here is the same rate which applies in the case of PAYE, wholesale tax and turnover tax. The reason that it is 12 per cent is that it is dealing with other people's money. It is not their money and if they hold on to it they have an additional advantage. That is the reason why the rate is at 12 per cent. I am quite sure no well-run local authority will become liable to this interest charge.

Mr. J. Fitzgerald

It was section 17 of the Finance Act, 1970, which gave rise to a big discussion here at that time. The Minister has said that no well-run local authority will be caught up in this.

Mr. Colley

I said "will become liable to this rate of interest."

Mr. J. Fitzgerald

The Minister will agree that it is the way in which it was interpreted by the Revenue Commissioners since 5th April. It is quite on the cards that a number of local authorities will be caught, because there were people working for local authorities who could be described as subcontractors who would have been caught up if representations had not been made and a different interpretation put on it from the one which is being put on it by the Revenue Commissioners. Would that be correct?

Mr. Colley

No, I do not think that is correct. The misinterpretation was by the local authorities, not by the Revenue Commissioners.

Mr. J. Fitzgerald

Perhaps that is what happened, but the subcontractor in that particular case was the victim of the misinterpretation of the local authority. I should like to see the correspondence from the Revenue Commissioners on their demand notes in that connection because they might be partly responsible for the misinterpretation by the local authority.

When we were discussing this here 12 months ago we were dealing with the subcontractor on the building site. At that time I prophesied that there would perhaps be a reduction in the output on the building sites, because these people would be inhibited in carrying on in the way in which they were. They were going to be caught up in the tax net. A very good case has been made by many Senators and by the Minister, with which we agreed, that a number of these people were not paying social welfare contributions, and in many cases, as a result of illness or perhaps death, the families of employees suffered.

The introduction of section 17 at that time has meant that perhaps some of the best workers who were engaged in the building industry are not in it any more. I have some experience of this and no matter how you try to encourage these people to pay their social welfare contributions or to make income tax returns they are not prepared to do it. A great many of them have left the country and the building trade and housing output have lost out as a result.

Tomás Ó Maoláin

Does the Senator suggest that special preference should be given to these tax dodgers?

Mr. J. Fitzgerald

No, I do not.

Tomás Ó Maoláin

From a Labour Party man that is strange.

Mr. Colley

I should like to say, first, that I have not got here the correspondence from the Revenue Commissioners to local authorities but I have seen it in another connection. I think the fact that only a certain number of local authorities had difficulties, whereas most of them had not, is evidence enough that the difficulties arose on the part of some local authorities and they are being sorted out now. Those that could be sorted out before were those that could not have been sorted out in this section. On the remarks made by Senator Jack Fitzgerald I should like to say that I do not know how many of the "lumpers" have left the country as a result of this section. I doubt if anybody does. I suspect that it may not be very large because there are similar provisions operating across the water.

What I do know is that very many thousands of these men, especially in cities like Dublin, Cork, and Limerick who were out of the PAYE system simply as a tax dodge, have gone back into it, where they really should have been. By going back not alone are they, as touched on by Senator Jack Fitzgerald, paying tax, but they are paying their social welfare contributions and the very difficult situations that had arisen before, when there was illness or injury and they were not paying social welfare contributions, are being avoided. So far as I am concerned the operation of this particular section of the 1970 Act has been very successful in achieving the object we had in mind, despite the forecasts by some people in this House and in Dáil Éireann that we were wasting our time and it could not be done. I want to say that it is being done.

Mr. J. Fitzgerald

What evidence has the Minister that it is being done? How many of these people registered, as they were asked to do?

Mr. Colley

Some did, but what is more important is that the people who could not register as they were not genuine subcontractors have mostly gone back as employees paying PAYE, which is what they were originally and what they really should be.

Mr. J. Fitzgerald

But these people could not register because they had not a recognised place of business. As I pointed out 12 months ago, these were people who carried a hammer and trowel, had an old car or an old van and they performed the work of block-laying of a house or the foundations for the walls. This was their job and sometimes they worked 16 hours a day. Why were they not allowed to register from their own place of residence? Somebody was the boss of this little outfit; somebody was in control of it. There may have been three or four of them in it.

Mr. Colley

The boss kept changing. This was part of the dodge.

Mr. J. Fitzgerald

Not in all cases.

Mr. Colley

Not in all cases, I agree, but in many cases.

Mr. Fitzgerald

Why was no provision made for these people to register? Why was it only the people with the plush office who could register?

Mr. Crinion

One of the reasons why the Revenue Commissioners were a bit strict on them was that they had been used to PAYE and they had been working satisfactorily. At one stage they worked for what they got out of it, out now that they are coming into the tax net the first time they will get a tax assessment on 1st January next when they will get a bill for quite a substantial amount. They will probably not be able to meet that bill because they will not have saved up to meet it. We had this situation in the mid-fifties, before PAYE, where young people at that time got bills on 1st January for £50 or £60 and they had no hope of meeting such high bills. In some cases they paid the tax by the week but, in most cases, it was a case of hopping across the water. Having had that experience, the Revenue Commissioners felt that, if an employee had not an established contractor, they would have the same trouble arising again.

My own experience has been that, where a contractor came up with a genuine case, and where he intended to meet his tax commitments, provided he had a letter from his auditor, the Revenue Commissioners accepted the explanation. The person must make a genuine case to show that he intends to pay the tax. In quite a number of cases contractors have dodged paying tax and they felt apparently that, if they could get registered, that would provide another way of dodging tax for another few years. The Revenue Commissioners need to be assured that the man intends to pay his tax commitments.

Mr. McDonald

I think it is wrong of the Minister to bring into the net local authorities building houses by direct labour. As the Minister well knows these houses are mainly built by direct Government subsidy or Government grant. We have the constant difficulty of getting payment of such grants and loans from the Department of Local Government and it can very often happen that a lumper, or one of these small subcontractors, may be pressing the local authority very hard for payment for work done. It often happens that the county council may, in view of the pressures brought to bear on them, pay off some of these subcontractors out of other funds. It is unfair, therefore, to charge them 12 per cent on the moneys they would be deducting from these subcontractors or lumpers because the delay is caused by the Department of Local Government which has not received the money from the Department of Finance for the housing subsidies in question. It is a vicious circle and I think it is wrong; it adds an additional percentage, although the percentage may be small, to the unit costs of houses.

Surely in the case of local authorities and, indeed, in the case of voluntary building agencies, this 12 per cent could well be waived or dated at least from the date of payment of the grants or housing subsidies. This is a genuine difficulty. Some of these people may very well have to give in to pressure to pay a small subcontractor many months before the Department of Local Government transmits the housing subsidies or housing grants to the local authority. We, on local authorities, have this experience every year; we have difficulty in getting grants. If the houses are not completed until after Christmas we may very well have to wait until the beginning of the new financial year in April to receive our grants or payments. This is something that the Revenue Commissioners have overlooked. Seeing that it is all public money I see no reason why this imposition should be levied. The present trend seems to be—I think the Minister for Local Government has made a policy point of it— that the Department gives sanction more quickly to low unit cost housing than to the traditional type of houses councils built up to this. There is an anomaly here and the Minister should look again at this 12 per cent interest charge.

Dr. Belton

It is more than 12 per cent.

Mr. McDonald

One per cent for each month.

Dr. Belton

Compound?

Mr. Colley

No, 12 per cent.

Mr. McDonald

The interest should be due only after the payment of the State grants. This would hold good for the building societies as well. Both the voluntary housing societies and the local authorities are very dependent on the two-third State subsidy from the Department of Local Government. As the Minister knows, his own Department holds up the payment of these grants. This causes great difficulties in the local authorities and surely this is a case where the 12 per cent could be waived or at least backdated until the day of the payment of the grant or subsidy to the council.

Mr. Colley

I do not know what Senator McDonald has in mind. I do not intend to follow him up the alley of payments to local authorities by the Department of Local Government and sanctioned by my Department. We could argue for a long time on that point. The facts of the matter are that, if this provision for deduction was not there, the local authority would have to pay £100 to a subcontractor. Because of this provision the local authority will have to pay only £65. Whatever way you look at it, the local authority is paying less than it would otherwise pay if this provision were not there. Leaving aside all the extraneous matters, the effect of this will be that the local authority will pay less at the moment out of their allegedly strained resources than they would otherwise be paying.

Mr. McDonald

The Minister is obviously basing his argument on the fact that there is £100 due to a lumper or subcontractor, and the local authority, because of pressure, pays off the contractor. They may not have the money to do so but sometimes, if the council makes a good case and the figure is not too high, a small contractor can get paid perhaps an instalment on his money. This money may not be out of the appropriate grant.

Mr. Colley

But if this were not here they would be paying him £100. Because of this compulsory deduction they pay him only £65.

Mr. McDonald

Yes, but the Minister, by virtue of this section, is putting the onus on the council to pay the remainder of the £100 direct to the Revenue Commissioners before they get it from the Minister's Department. The Minister is the fly in the ointment.

Mr. Colley

According to the Senator they would be paying out £100 anyway to the subcontractor.

Mr. McDonald

The Minister does not get my point.

Mr. Crinion

The Senator does not get the Minister's point.

Mr. McDonald

I do.

Mr. Crinion

If that section was not there——

Mr. McDonald

I am in favour of the section up to a point. I am in favour of the section if the Minister would agree to waive the 12 per cent interest rate in respect of local authority and voluntary housing societies. The local authority cannot pay out 100 per cent of the cost until the Department of Finance and the Department of Local Government, between them, make up their minds to pay the housing subsidy which amounts to 75 per cent of the cost, in my county anyway, to the local authority. Sometimes we wait for six to nine months, perhaps a year, for payment. Is it fair to ask a subcontractor to wait that length of time, until the Department of Finance condescend to allow the Department of Local Government to pay the housing subsidy? It is possible, and in many cases a point can be stretched, to give the subcontractor his 65 per cent. We would all be agreeable to that. Would the Minister not give us the concession of not having to pay the 35 per cent until such time as the grants come through from the Department of Local Government? This is a very reasonable request Otherwise, he is going to inflate the estimates. When you start a housing scheme it is impossible to estimate the exact date on which the grants will come through, especially if the houses are completed in, say, the months of December, January or February. In those cases, it is most likely that the housing subsidy will not come through until the beginning of the next financial year. Any Member of the House who has any knowledge of local authorities knows that. This section is designed to inflate the cost of local authority housing, despite the fact that we are making every effort, at the direction of the Minister for Local Government, to contain the unit cost of local authority housing.

Mr. Crinion

My experience of local authorities is that if the contractor who is dealing with a local authority mentions to the Revenue Commissioners the amount of work that he is doing and produces a letter from an auditor, he will have no trouble in getting registered. I know of quite a few. They were caught in the month of May and I think every one of them has since been registered. Normally, they are contractors of standing. In regard to the subsidy, my experience has been that the local authority is never allowed to go ahead until the loan is sanctioned for the houses.

Mr. Colley

I am glad that the Senator made that point, because I did not want to be solely defending my Department. However, this is the basic point in the whole argument.

Mr. Crinion

That more or less covers the point, because they cannot go ahead until the loan is sanctioned.

Mr. J. Fitzgerald

"Sanctioned" is one thing——

(Interruptions).

Mr. Nash

I can see Senator McDonald's point. The loan is sanctioned. I have acted for contractors many times in this connection. However, it is one thing to sanction a loan and another thing to collect it. Frequently, the local authority will not collect its loan until six or eight months after it is due and the unfortunate contractor is out of his money. Senator McDonald's point is as follows: let us assume that a contractor at that stage, as many of them are "lumpers", is due £1,000. For one reason or another, he has not registered; he is careless and is usually one of those fellows who carries his books in his head. If in that case before the local authority get the subsidy, in order to help him out, they borrow £650 from a bank and give it to him on account, they should not have to borrow a further £350 to give to the Revenue Commissioners. In other words, their liability to the Revenue Commissioners should not arise until such time as they get the money from the Department.

Mr. Colley

Of course, their liability to the subcontractor should not arise either.

Mr. Nash

It does arise. The subcontractor has done his job. They enter into a contract with him and their liability is to him. It is no part of the contract that he is not going to be paid unless and until they get the subsidy. The contractor is due his money. One of the reasons why local authorities at the moment find it so very hard to get contracts at a reasonable price is because they are so slow to pay.

A Senator

Hear, hear.

Mr. Nash

There are a vast number of small contractors doing work for local authorities at the moment. They are gravely embarrassed and I have heard many of them say that they will never again touch a contract for a local authority. Some local authorities realise this, and before they get the subsidy they borrow money from the bank and make a payment on account to him. Senator McDonald's point is that they are making this man a payment on account of half or two-thirds of what is due to him. If they pay only the £500, they should not right away have to pay another £250 or £300 at that point. In other words, they should not be liable to pay the tax until they get the subsidy.

Mr. Colley

Is Senator Nash distinguishing between the subsidy and the loan?

Mr. Nash

Yes. They will not get that until six months after a contract is finished.

Mr. Colley

But surely the contract provides that the full payment is due to the contractor at a time which relates it to the payment of the subsidy, because his work has to be inspected and passed.

Mr. Nash

The contract provides as follows: periodically his work is inspected by the engineer. A certificate will be passed to him for 90 per cent of the work done. Therefore, when he has his work done, when his houses are ready for occupation, he calls on the engineer to inspect them. The engineer inspects them and passes them at that stage. Then there is usually 10 per cent or 5 per cent left over for six months, in order to ensure that there are no defects. He is entitled to his money then. In 19 cases out of 20, the unfortunate man will have to wait for a further six to eight months for the subsidy. Every member of a local authority, including Senator Crinion, will admit that. This is one grave defect in local authority housing and it is pushing up the cost of it.

Mr. Colley

It is not due to any hold up by the Department of Finance.

Mr. Nash

The inspection has been carried out. The money is not available.

Mr. J. Fitzgerald

I think that we have gone completely away from the section and I hope that I was not responsible for that, because it was Senator McDonald, Senator Boland and I who initially raised the question. There has been talk about county council "lumpers" or subcontractors. As discussion developed, I find that the subcontractor in this context is a housing contractor who submits a tender in reply to advertisements in a local paper for the building of local authority houses. He is a contractor and is not a "lumper" or subcontractor.

Mr. Colley

The Senator is right.

Mr. J. Fitzgerald

Therefore, I submit that we are dealing with two different things. I was amazed when I heard my colleague, Senator Crinion, trying to confuse the genuine contractor who has a place of residence with the lumper who the Minister submits, has not a place of residence.

I should like to refer to a point raised by Senator Nash. I do not know if Senator Nash is a member of a local authority. I am a member of one, and in fairness to local authorities, I do not agree that there is any hesitancy on the part of contractors to tender for work of the local authorities because they are slow to pay. Those of us who are members of local authorities will agree that every effort is made by way of payment to induce contractors to proceed and finish the contracts which they have tendered for. It is unfortunate that so many contractors have so much other work apart from local authority work so that the local authority comes second in many cases.

Senator Ó Maoláin passed a remark that I was making a case for those tax dodgers. I was not making a case for those people described by the Leader of the House as tax dodgers. I was making a case for their right to register and go to McInerneys, Walls or any of the other big contractors and take a site for houses from them to build by subcontract from the foundations to the wall-papering or to do any other work that they wish to do by subcontract. They should be entitled to register as such. They should not have to have registered offices. In that way they would have to pay their taxes because the contractor who had employed them would be liable under PAYE for their income tax. That is the way I understand the section. If I am not correct perhaps the Minister will tell me so.

Mr. Colley

First of all, on the suggestion made in relation to this section, I cannot accept it for a number of reasons. I do not wish to enlarge the scope of the debate but let me point out that, if it were accepted, within a few weeks of the payment being made by the local authority to the subcontractor that subcontractor would be demanding from the Revenue Commissioners a refund of the sum retained by the local authority which would not have been paid by the local authority to the Revenue Commissioners.

Mr. J. Fitzgerald

Would the local authority have to supply it themselves if they did not submit it to the Revenue Commissioners?

Mr. Colley

That is the whole point of the section.

An Leas-Chathaoirleach

It is the only relevant point that arises.

Mr. Colley

I would also like to say that, as far as I know, the cases about which Senator Crinion was speaking were, in fact, genuine subcontractors or lumpers because if they were not the problem would not have arisen. It was that precise problem which Senator Fitzgerald spoke about, registration, and it was the registration which Senator Crinion had come up against and had dealt with. Perhaps I might be allowed to indicate what the broad policy is as it has been operated. It has been to refuse certificates to labour only subcontractors who, in general, are not more than itinerant tradesmen operating from their homes or lodgings who frequently move from place to place with no established place of business. These are the cases in which there has been widespread evasion of tax in the past. In some cases of labour only, subcontractors certificates have been issued where the circumstances were exceptional. These would be, for instance, where the subcontractor has been charged to tax under Schedule D on the basis of regular returns and accounts or where the business was on such a scale that it could clearly be said to be an established place of business. This was indicated in the Bill and the regulations connected with it. It has operated as envisaged and it has operated very successfully. If I may return to the section. I repeat that the effect of the suggestion being made would be that the Revenue Commissioners would be asked to pay refund tax which in fact they had not received.

Question put and agreed to.

Progress reported; Committee to sit again.