Finance Bill, 1974 (Certified Money Bill): Second Stage.

Question proposed: "That the Bill be now read a Second Time."

On a point of order, no reflection is intended on those who produced this copy of this Bill—one could not complain under the circumstances—but we are in the difficulty that we have just been presented with the Bill and it is difficult to know precisely in what way it varies, if at all, from the original draft of the Bill. Is there any possibility of getting some indication of what amendments, if any, were accepted in the Dáil?

I shall try to convey that to Senators in the course of my speech. I should not like at this hour to say, off the cuff, what has happened since earlier on today.

I should like to apologise to you, A Cathaoirleach, for the lateness of my arrival, but I was meeting a delegation.

The primary purpose of the annual Finance Bill is to give statutory effect to the taxation proposals contained in the annual Budget. The background against which I introduced my budget of April last was one in which a slowing down which had already begun to develop in the pace of international economic expansion had become aggravated by the oil crisis. The primary economic aim of that budget was—as was the aim of my first budget in 1973— to promote growth and ensure that the economy operated at a level close to full utilisation of capacity. In the years immediately prior to 1973 the growth rate of national production was below its full potential and the budget of 1973, therefore, aimed at taking up the slack that had developed in the economy. It was particularly successful in promoting economic growth, which is, of course, but a means to an end, the end being, in our case, increased employment, a high level of resource utilisation and improved living standards for our people. In 1973, there was an increase in employment of more than 6,000, a fall in the number unemployed and an increase in total population.

The growth of the economy in the period covered by the last financial year was all the more striking when viewed in the light of the deterioration in the international economic scene, the unprecedented rate of increase in world commodity prices, the oil crisis and the severe industrial disruption in the economy of our main trading partner, Britain. It was vital that this impetus should not be lost. When I introduced my budget in April last, the indications were that the likely slowing down in economic growth internationally would affect us adversely and it appeared probable that imported inflation would result in a weakening in domestic demand and a fall in employment. It was, therefore, particularly important to avoid fiscal measures that would aggravate the situation that was likely to develop during the year. It was in these circumstances that the Government decided on a significant budgetary stimulus for the economy again in 1974. This was provided by increasing the combined current and capital budgets by more than £240 million in the year to end-March 1975 together with a reduction, at a cost of more than £27 million in that year, in personal income taxation. Events since I introduced my budget have justified this expansionary strategy. The further disimprovement in the interval in the external situation, the unfavourable developments in the agricultural sector and the reduction in domestic purchasing power attributable to the increase in the price of oil and oil-based products will make the achievement of the target growth rate of 4¾ per cent then set for the economy in this calendar year difficult to attain and will make a somewhat lower growth rate—of the order of 4 per cent—more probable. In this matter of lowered growth rates this country is not, of course, out of line with trends abroad. Almost all our fellow members of the European Community, for example, are expecting growth rates below 4 per cent this year.

The increase in the public capital programme provided for in the budget was of the order of 20 per cent in the year to end-March 1975, the main head of increase being the building and construction sector. I might add that recently the Government have decided to divert to housing a further £9 million in 1974 to enable local authorities to meet increased demand for house purchase loans. The boost to the economy on the capital side of the budget was supplemented by the level at which current Government expenditure for the year was settled, one item of which in particular calls for comment.

I am referring to the social welfare increases. In the period since this Government took office Exchequer expenditure on social welfare has all but doubled. Further, the work was continued of extending the scope of the social welfare services and generally improving them by, for example, easing means tests and lowering qualifying ages.

The final aim of my budget was that to which in a general sense the measure before this House to-day is mainly devoted. I speak of greater equity in sharing the tax burden in the community. Two major measures in this Bill— the reform of the system of income taxation and the widening of its base to include the wealthiest farmers— contribute in no small way to the fundamental reshaping of the tax code which is a major aim of Government policy.

A further important contribution towards greater equity in the distribution of tax burdens is being made by a number of provisions in the Bill designed to counter tax avoidance and evasion. These measures are reasonable and some are, I think, overdue in our circumstances. As I have indicated more than once, I am keenly alive to my responsibility to ensure that individuals are not allowed by intricate devices to shift their tax liabilities on to the general body of taxpayers.

The Bill also provides for miscellaneous matters including some referred to in my budget statement. Such matters are the more liberal treatment for tax purposes of retirement benefit schemes, improvements of procedures for assessment and collection of tax, a special relief for marginal coal mines and also some customs and excise changes and some stamp duty changes.

I now turn to the details of the various provisions of the Bill. Part I which relates to income tax and corporation profits tax constitutes the bulk of the Bill and is subdivided into a number of chapters, the content of which I shall now outline briefly.

Chapter I deals with the new unified structure of personal income taxation. The provisions of this chapter are designed not only to simplify a tax code which has grown steadily more complex and confusing to the average taxpayer but also to provide substantial increases in the main personal tax allowances which give relief to every taxpayer. As I remarked in my budget statement, it is hoped that the simplification measures contained in this chapter will go a long way to making personal income tax more intelligible to the average taxpayer and that they will secure an easing of the growing administrative burdens on both the private sector and the revenue machinery, particularly in regard to the operation of the PAYE system. I might also add that the changes provided for in Chapter I will result in a personal tax structure broadly similar to that already in operation in other EEC countries.

The principal changes involved are outlined in sections 3, 6 and 8. Section 3 provides for the new structure of tax rates, comprising a standard rate of 35 per cent, a reduced rate of 26 per cent applicable to the first £1,550 of an individual's taxable income, and higher rates of 50 per cent, 65 per cent and 80 per cent applicable to the various bands of an individual's taxable income over £4,350. Sections 6 and 8 outline the new personal allowances announced in the budget.

A provision which was not mentioned in my budget statement is that contained in section 9 which fixes a limit of £1,000 on the amount of life assurance premiums which may qualify for tax relief. Under the old tax code relief from surtax was not given in respect of life assurance premiums, but under the new simplified tax structure it would be anomalous to retain this exclusion. Accordingly, since relief may now arise at rates up to 80 per cent on the appropriate fraction of premium payments in the case of individuals with high incomes, it is necessary to impose a limit on the amount of qualifying premiums. It will be clear, however, that this limit will not adversely affect the vast majority of taxpayers who are saving by means of life assurance. Furthermore, in any case where a taxpayer before budget day was paying premiums in excess of £1,000, such higher figure will continue to be eligible for relief.

One result of assurance premiums being eligible for relief at a taxpayer's marginal rate of tax is that the absolute cash differential of rebate between a premium paid to an Irish Life office and a premium paid to a non-Irish office operating in this country has been widened in cases where a rate of tax in excess of 35 per cent is involved. I have received representations from the non-Irish offices that this results in a worsening of their competitive position in relation to the Irish Life offices. I am prepared to accept the validity of their complaint and I have announced in the Dáil my intention to restore the pre-budget level of the differential. However there are practical difficulties in amending the provisions of this year's Finance Bill because the Revenue Commissioners are already preparing amended tax assessment certificates for 1974-75 on the basis of the proposals contained in the Bill and it would cause undue delay in their issue if they had to be altered at this stage. Accordingly, amending legislation will be introduced next year which will restore the pre-1974-75 level of differential between the Irish and non-Irish life offices.

Section 5 provides that on payment of dividends, interest and other similar payments, tax will in future be deducted at the standard rate in force at the time of payment and not, as at present, calculated by reference to the tax rates in force in the various tax years over which the payment may have been accruing. This was recommended by the Commission on Income Taxation but since the standard rate of income tax has remained unchanged since 1966-67 it will make little material difference.

The other sections in Chapter I together with the First Schedule are largely of a consequential nature. I shall now deal with Chapter II of the Bill, that is, sections 13 to 28 inclusive which contain the provisions necessary to give effect to the Government's proposals in regard to the taxation of farming profits.

After careful consideration of all the factors involved, the Government decided that farmers the rateable valuation of whose land is £100 and upwards would be subject to income tax as from April 6, 1974. I announced this decision in my budget statement. I also indicated in that statement that, as this was the first time that farming profits would be assessed, certain options would be provided for farmers. The most valuable of these is probably the choice that they are being given, for a transitional period, of being assessed on a national basis rather than on what would be the usual basis of actual profits derived from farm accounts.

Another important feature of the outline of the scheme announced in my budget statement was the proposal to provide relief for farmers the rateable valuation of whose land is £100, or only slightly exceeds £100, so as to ease farmers into the tax net. As promised in my budget statement, consultations have been had, in the interval since then, with the National Economic and Social Council and with representative farming organisations. These consultations have proved very useful and have been taken into account in devising the provisions in the Bill. There are, however, some matters on which final decisions have not yet been taken and which will continue to be the subject of consideration.

I shall now comment briefly on the various sections in this Chapter. Section 13 contains definitions and is self-explanatory. Section 14 repeals the provision in the Finance Act, 1969, which exempted farming profits from income tax. Section 15 is the general charging section bringing farming profits into tax under Case I of Schedule D. To be outside the charge it will be necessary to show that the rateable valuation of all farm land occupied—or deemed to be occupied—under the provisions of section 13 during the year of assessment did not at any time during that year exceed £100, subject to section 16.

Section 16 is an anti-evasion provision. In my budget speech I referred specifically to the fact that the exemption of farming profits had given a spur to tax evasion which, I indicated, I was determined to counter. The exemption of farming profits encouraged certain people with substantial income from non-farming sources to purchase farms so that they could attribute an undue amount of their total income to their farming activities. In this way, they were able to reduce, and in some cases wipe out completely, their tax liability. This section is designed to put an end to this. It brings into charge farm profits in cases where the rateable valuation of the farm occupied by an individual or his wife exceeds £50 and where either of them carried on, solely or in partnership, at any time during the year another trade or profession, or held a directorship of a company carrying on a trade or profession in which one or other of them controls more than 25 per cent of the ordinary share capital. The purpose of the £50 valuation floor is to avoid bringing into the charge to tax the smaller farmer who has to augment his farm income by working, say, as a tradesman on his own account or as a small contractor.

Section 17 contains provisions necessary to deal with persons who might so arrange their affairs that they could claim to occupy land of valuation of less than £100 and in this way escape the charge to tax. Occupation is defined and it is provided in the section that beneficial ownership and/or occupation of land will be the test, rather than legal tital, for determining whether the £100 valuation applies. The individual is deemed to be the occupier where his wife occupies a farm, or where a farm is beneficially owned by himself or his wife but is occupied by any other person.

Section 18 provides for apportionment of the rateable valuation where property which does not consist entirely of farm land or where farm land is divided into two or more distinct occupations.

Section 19 provides the marginal relief, as it is described, which I promised at budget time in order to avoid farmers being thrust too abruptly into payment of tax. This marginal relief will not apply in the case of farm profits brought into charge by virtue of section 16, that is, where there is non-farming income from another trade or profession. The relief will be given by means of a graduated diminishing remission of the tax appropriate to the farming income which would actually be payable in the particular case on a sliding scale up to £119 land valuation. At £100 valuation, only one-twentieth of the tax will be payable; at £101 two-twentieths, and so on up to £119 valuation when the full tax on the farming profits will be payable.

Since it would be unreasonable that the additional amount of tax payable in respect of each extra £1 valuation should exceed the notional extra income from that extra £1 valuation, the proviso in the section introduces a £40 ceiling on the additional tax payable for each extra £1 valuation.

Section 20 provides for one of the options I referred to in my opening remarks.

Assessment of farm profits for 1974-75 would, in accordance with the usual practice, be based on the profits arising in the preceding year. Farmers however are being given the option of electing for assessment on the actual profits for 1974-75 or—and this emerged from my consultations with the farming organisations—if the farmer so wishes, on the profits or gains of the calendar year 1974 instead.

Section 21 provides for the national basis of assessment, which I said earlier was probably the most valuable of the options. Under the notional basis of assessment for 1974-75 profits are arrived at by multiplying the rateable valuation of the farm land by 40. From that figure, rates on land, depreciation of farm plant and machinery and the wages paid to farm labour can be deducted. Of course, the appropriate personal allowances and reliefs available to taxpayers generally may also be deducted. The farming organisations sought that payments to contractors for work performed on a farm should be allowed as a deduction and I have agreed because such payments are broadly equivalent to a payment for labour and, to a certain extent, depreciation. This section provides accordingly.

Section 22 provides for an allowance for capital expenditure on farm buildings and related works. I am satisfied that the annual allowance of 10 per cent being provided for in the section is quite reasonable. I have taken account of representations I received about the more rapid obsolescence rate of many modern farm buildings and I am happy that this allowance, which corresponds to a 10-year life, represents a fairly generous estimate of the average life of the various types of farm buildings. A distinction has, of course, to be made between the farm buildings themselves and the plant and machinery they contain. In regard to the latter of course separate rates of depreciation allowance, including free depreciation, apply under the general income tax law.

This allowance will also apply to up to one-third of the expenditure incurred on farm dwelling-houses but will not be given where assessment is on the notional basis for the reason that the latter basis represents, as matters stand, a very favourable arrangement for farmers and there is no case for making it more beneficial by allowing any items beyond those I mentioned in dealing with section 21 to be deducted.

Section 23 provides that relief, under section 20 of the Finance Act, 1969, will continue where dividends are paid by a company after April 6th, 1974, either totally or partly out of farming profits that were exempt up to April 5th, 1974.

Section 24—the first of three sections in this Chapter relating to the treatment of farm losses—provides that farming losses incurred in years when farming profits were exempt from tax cannot be carried forward against profits assessed for 1974-75 or any subsequent year. Under the provisions of section 26, which I shall be coming to shortly, loss relief will, in general, be allowed only where farming profits are being charged to tax. Where loss relief is admissible, it would clearly not be appropriate that losses incurred prior to the bringing of farming profits into the charge to tax should be allowed. So, where loss relief is admissible against farming profits, only those losses incurred in 1974-75 or subsequently will qualify.

Section 25 provides that depreciation allowances in respect of plant and machinery referable to the period when farming profits were not subject to tax should not be allowed against chargeable profits.

Section 26 is the second of the sections relating to the treatment of losses. This section is basically an anti-avoidance measure. I indicated in my budget statement that the exemption of farming profits had encouraged tax avoidance in that losses arising from farming activities could be set off against other income so as to reduce or wipe out tax liability. When farming profits were exempted from income tax in 1969, the relief for farming losses should, logically, have ceased also. However, it did not and the relief constituted a benefit which, together with the availability of the full appropriate personal allowances as a set-off against non-farming income—I will be dealing with this aspect in section 28— made the exemption of farming profits much more valuable than a simple remission of tax. Now, however, that there are farmers who are subject to tax it would be particularly difficult to justify any longer providing the same loss relief for farmers who are not subject to tax. Section 26 accordingly provides that, as from 1974-75 and subject to the overriding requirement in section 27, relief in respect of farming losses will not be allowed except where the profits would be chargeable to tax.

Section 27 contains an overriding restriction which will govern the grant of farming loss relief and as well loss relief in the case of market gardening. As from 1974-75 there will be a requirement that, in order to qualify for the relief, the holding is being run on a commercial basis and with a view to the realisation of profits. This is designed to exclude so-called hobby farmers from the relief. These are persons who engage in these activities, not to make a living, but as a pastime. Their income is mainly derived from non-farming sources and they can afford to incur expenditure on a scale above what would normally be necessary to make a profit on such activities.

Losses are incurred in these cases in the knowledge that they will be set-off against the non-farming income, of an order or for a period of time that would not be accepted if the farm were being run on a commercial basis. This section accordingly provides for the exclusion, as from 1974-75, of hobby farmers from the relief and also for the exclusion of those who incur losses in the immediately preceding three successive years of assessment since such recurrent losses are an indication that the farm is not being run on a commercial basis.

The final section in this Chapter of the Bill, section 28, concerns one of the incidental effects of the exemption of farming profits which permitted a farmer to set off the full appropriate personal allowances against the non-farming income of himself and his wife. As I mentioned in my budget statement, where farmers were not now being brought within the scope of income taxation, only one-half of the appropriate personal allowances is being allowed as a set-off against non-farming income, whether of the farmer or of his wife. The restriction will however apply only where the rateable valuation of the land of the farm is more than £20. Further, marginal relief, by means of a sliding scale, will be provided to graduate the tax payable where land valuations are a few pounds over £20. Finally, where farming profits fall short of one-half of the personal allowances, the restriction will be abated accordingly.

Chapter III of Part I deals with the restriction of tax relief on loan interest. As the giving of tax relief on such interest effectively increases the burden of taxation on those who are not in a position to benefit from the relief, it is reasonable, in principle, to have a limit on the amount of non-business interest which may qualify for tax relief. The need for urgent action on the introduction of a limit became clear early this year when it was learned that a number of individuals with high incomes were abusing loan interest relief. They were borrowing large sums of money and, without regard to the consequential burden being thrown on other taxpayers, had used their borrowings in various tax avoidance schemes so as to reduce substantially or to nullify their own tax liabilities.

To protect the general body of taxpayers, I announced that with effect from January 10, 1974 the amount of interest allowed to qualify for tax relief would be limited to £2,000 a year, but that borrowings for genuine business activities would not be affected. The necessary legislative provisions are contained in sections 29 to 53 of the Bill. The restriction of relief for non-business interest is mainly provided for by section 29. Sections 44 and 52 provide that non-trading interest arising outside the State will be subject to the same restriction. Section 53 provides that the restriction of relief for non-business interest will apply as regards corporation profits tax on the same basis as for income tax.

The continued allowance of unrestricted relief for interest incurred for the purposes of a trade or profession is provided by sections 29, 42 and 51. Similarly, unrestricted relief for borrowings to acquire an interest in a business in whose direction and management the borrower is actively involved is provided by sections 33 to 36.

Section 46 provides for the deduction of interest in the computation of rental income arising abroad on the same basis as provided by section 81 of the Income Tax Act 1967 for rental income arising within the State.

An exclusion from the restriction of loan interest relief in favour of interest on money borrowed to pay death duties is allowed under section 29 while section 32 provides a special measure of relief for individuals who have to take out a bridging loan on a change of residence.

Provisions to prevent the avoidance of the restrictions are contained in sections 35, 37, 38 and 41 and cover such artificial transactions as the spreading of interest charges between connected persons, the payment of interest in disguise and the withdrawal of business capital for personal investment.

Some transitional provisions are contained in sections 30, 39 and 40 to ensure that there is no gap in relief for allowable interest and, conversely, that there will be no double allowance. Sections 47, 48 and 49 effect some consequential changes relating to co-operative societies and retirement benefit schemes.

Some procedural changes concerning the payment of tax on loan interest are required for administrative reasons and are effected by sections 31 and 50. Generally speaking, companies will be required to deduct tax on payment of annual interest, other than bank interest, while individuals will be required to pay annual interest in full except in the case of interest paid to non-resident persons. Sections 43 and 45 provide for a consistent basis of assessment to tax in the case of interest affected by these procedural changes.

Chapter IV of Part I comprising sections 54 to 63 is designed to counter various avoidance techniques and so prevent loss of tax.

Section 54 counters an abuse of the tax reliefs which were designed to encourage industrial exports. Some tax-relieved companies have begun to operate a scheme whereby, instead of paying normal taxable remuneration to their directors and senior executives, tax-free dividends are paid to them. The avoidance of the tax charge in this way cannot be justified. Accordingly section 54 enables the Revenue Commissioners, subject to the usual rights of appeal, to treat the remuneration portion of the dividends as being emoluments assessable to tax.

Section 55 ensures that gains arising from the disposal of certificates of deposit before maturity will be chargeable to income taxation in the ordinary way.

Section 56 provides that additional shares accepted by a shareholder in a company in lieu of a dividend shall be regarded as income up to the value of the dividend which could have been accepted instead.

Sections 57 to 61 are designed to close off a loophole in our taxation code which had been used by some wealthy people. By transferring funds to a company specially set up in a country abroad which charges little or no tax on income, an individual resident here could escape liability to Irish taxation on the income from those funds. The sections mentioned provide that where an Irish resident has power to enjoy income from assets transferred abroad, such income is to be treated as his for Irish tax purposes. The usual rights of appeal are included andbona fide commercial transactions are exempted from the provisions. A provision entitling the Revenue Commissioners to obtain necessary information is also included, subject to a special limitation on the type of information that banks and solicitors may be required to furnish.

Sections 62 and 63 are designed to close two loopholes used by property development companies to avoid tax. Section 62 counters an arrangement whereby some of the costs of a development could be charged against the subsequent rental income. Section 63 is designed to prevent the avoidance of tax by the sale of shares of a company engaged in property reconstruction or alteration rather than the sale of the property itself.

Chapters V and VI of Part I comprise sections 64 to 75. These sections provide for a number of miscellaneous matters including some taxation reliefs and changes in procedures and administrative controls. The effect of section 64 is that directors and employees who are in effect owners or part-owners of businesses may become members of retirement benefit schemes approved for tax relief purposes. Sections 65, 66 and 67 expand the scope of the tax relief for retirement annuity premiums, so as to allow the grant of benefits to dependants, the commutation of part of the annuity and an increase in the limits of allowable premiums.

Section 68 is designed to ensure that the present tax reliefs available for the export of milk products and bacon products will continue under the new voluntary marketing arrangements which accord with EEC requirements.

Section 69 effects a small measure of simplification by obviating the necessity for a formal hearing of a tax appeal by a Circuit Court Judge in cases where the appellant and the Inspector of Taxes reach agreement beforehand. An improvement in administrative procedures is also provided by section 70 which obviates the necessity for the Collector-General to attend personally at District or Circuit Court proceedings for the recovery of tax.

Sections 71 and 72 are concerned with PAYE tax procedures. The termination of the cumbersome and little-used stamp book system of remitting PAYE tax is provided for by section 71. Section 72, which requires an employer to notify his tax office when he becomes liable to register for PAYE or when he ceases to be liable to remit tax or to be registered for PAYE purposes, is aimed at preventing practical difficulties in the operation of the PAYE system.

The furnishing by rating authorities on request by an Inspector of Taxes of information relating to rates and rateable valuations is required by section 73 in connection with the taxation of farming profits and also as a general anti-evasion measure.

The relief for marginally profitable coal mines, provided by section 74, is on the same lines as the provision for marginally profitable mines of non-bedded minerals included in the Finance (Taxation of Profits of Certain Mines) Act, 1974, the Bill for which was recently before this House.

Section 75 extends up to 31st December, 1974, the exemption from corporation profits tax which has been enjoyed by building societies and certain other bodies for many years.

I now come to Part II of the Bill which is concerned with Customs and Excise duties. This group of sections relates to a number of miscellaneous matters which were not referred to in my Budget Statement.

Section 76 raises from 13p to 50p the exemption limit from customs duty on certain small consignments or parcels. This increase in the exemption limit which will benefit consignees is proposed to take account of increases in price levels and also as an administrative economy as the collection cost in respect of small amounts of duty exceeds the corresponding revenue yield.

Section 77 removes the spirits duty chargeable on spirits contained in recognised medical preparations or used for scientific purposes. Because of the nature of the uses of the spirits in question there is merit in abolishing the duty chargeable. Furthermore, the yield from the duty has been small and the cost of collection disproportionately high.

Section 78 gives officers of the Revenue Commissioners and members of the Garda authority to enter premises, other than dwellings, to sample the oil in the tanks of vehicles, for the purpose of checking whether rebated oil is being used illegally. Access to places of business such as marts and sandpits is necessary for the effective administration of the rebate provision.

Section 79 increases the rate of rebate on unmanufactured tobacco where the quantity of leaf received by a licensed manufacturer in any year does not exceed 50,000 lbs. This provision is intended to assist small companies and I am satisfied that it is warranted to prevent loss of employment.

Section 80 confirms three Orders made by the Government under the Imposition of Duties Act, 1957 (as amended), details of which are outlined in the explanatory memorandum circulated with the Bill. Part III of the Bill covers two matters relating to stamp duties. The effect of sections 81 and 82 is to replace on a permanent basis the Order made last September which restricted to office blocks in the Dublin area the 15 per cent rate of stamp duty imposed by the Finance Act 1973.

Section 83 doubles the rates of stamp duty on transfers of non-Irish stocks and marketable securities in line with the recent British increases. Even if we did not increase our rates, Irish purchasers of British securities, by virtue of our double taxation arrangement with the UK, would still have to pay the new doubled rate in the UK before transfers could be registered. Of course the UK Government would be beneficiary of the increase.

Part IV of the Bill provides for some miscellaneous matters mostly of a routine nature. Section 84 is the annual provision relating to the Capital Services Redemption Account. Section 85 provides for an amendment of the Provisional Collection of Taxes Act, 1927, which is the Act that enables taxation changes to be made with immediate effect by resolutions passed in the Dáil subject to legislative confirmation within defined time limits. The amendment of the Act is of a purely consequential nature to take account of changes in Dáil Standing Orders which involve abolition of the concept of "Committee on Finance". The 1927 Act was drawn in terms which referred to resolutions passed by the Committee on Finance and amendment is considered necessary to prevent the Act becoming ineffective.

Section 86 provides for the repeals specified in the Second Schedule. Section 87 is the usual care and management clause, and section 88 contains the usual citation, construction and commencement provisions. I commend the Bill to the House.

There is much in this Bill to which the Minister devoted himself and in regard to which we can have substantial and detailed debate on Committee Stage. As far as our group are concerned we propose to have a very comprehensive debate, section by section on the Committee Stage on a number of matters that were not reached or even attempted to be dealt with in the Dáil last night because, first of all, of the approach by the Government in bringing in this major measure at an unprecedentedly late stage with the result that a number of important amendments to be discussed were rushed through the Dáil during the night. More than half of the amendments put down were not discussed. This is a serious situation which we hope to rectify here as far as our group are concerned by putting down amendments and having a real Committee Stage debate next week.

I would like to have heard much more from the Minister in his Second Stage introduction on the general state of the economy, where we are going, how the budget and the Finance Bill fit into the overall strategy of handling the nation's finances and developing the economy in the immediate future and in the years ahead. There has been nothing in the Minister's introductory speech to inform us on what is—to put it mildly— becoming a very worrying situation. I said it here on the Appropriation Bill debate in December and said it in the Finance Bill debate last August that there is no point in the Government adopting an ostrich-like, euphoric attitude to this very serious problem. We are in trouble financially; we are in trouble economically, so let us face up to it. Let us acknowledge the facts and give the country some leadership. Let us give leadership to the Confederation of Irish Industries, the trade union movement, the Irish Farmers' Association and everybody who is concerned in the development and expansion of the economy. This is totally lacking in the Government's approach. They have been over-politically conditioned from the word "go".

I do not think that an economy can be run and the financial affairs of any community can be organised on the basis of a public relations exercise. Public relations is all very well in its own place but public relations as such does not get down to the brass tacks of running the economy in a businesslike way by informing people of the facts of life and not having people waking up to a situation where rampant inflation results overnight with massive loss of jobs. There are indications already in the building sector of what I am talking about. I think that given the proper leadership and given the proper attitude to their job in the national interest, the Government could take a lead by telling people the facts of life and, to put it bluntly, to stop codding people.

I am not just relying on what I have said here in the House or what colleagues of mine have said in the other House. I am relying on serious documentation that we have had from the Central Bank and also from the Economic and Social Research Institute. In this documentation we see facts and figures that are seeking to warn people of what I am talking about. The Minister comes into this House and quotes different figures. The Minister has already been caught out in regard to credibility on the matter of insurance in a particular section in the Dáil on Committee Stage, which took a long time last night. It is a very dangerous matter for a Minister for Finance in the highly sensitive area of capital movements, dealing with people who can make or break this country, to be flippant in regard to public statements of any kind. I am surprised that, in a script that was obviously prepared in conjunction with his officials in the Department of Finance, reference has not been made to very important warning signals that have been issued by both the Central Bank and by the Economic and Social Research Institute —the latter body in their last two publications for March and June of this year. I would have thought that it was an elementary duty on the part of the Minister for Finance, and on the part of his officials, to come to the Oireachtas and tell us candidly what the position is in regard to the economy and where we are going financially.

I would suggest that this may very well be the attitude on the part of the governor of the Central Bank, and I quote from page 14 of the Central Bank report in which he issues a cautionary marginal comment or sidenote which is rather reminiscent of an accountant who would be concerned about his credibility and his reputation in warning a board of directors as to where they were going:

The statement on monetary policy which is reproduced here was issued by the Central Bank on 21st June, 1974.

Therefore, the balance of payments deficit referred to there of £150 million and specified in page 14 as being the aspiration for the current year in regard to a deficit just was the position as of 21st June, 1974. It is highly significant that this is appended, typed, written in, specified obviously by a man who is concerned about his reputation and his credibility in advising the board of directors known as the Irish Government that as of 21st June, 1974, the balance of payment deficit was anticipated to be £150 million. The extraordinary contradiction that arises here —and I want very serious elucidation on this aspect from the Minister—is that in the very same month—June, 1974— we have the quarterly economic commentary of the Economic and Social Research Institute. The president of the institute is the governor of the Central Bank, Dr. Whitaker. I will quote from page 5 of that document which summarises their conclusions:

Probably the most serious developments have been those in relation to external transactions. Exports of goods and services are forecast to grow by 25½ per cent while imports of goods will grow by 40 per cent. The result of these developments is that the balance of payments deficit on current account is likely to be of the order of £250-300 million.

Now we have two published documents —one from the Economic and Social Research Institute with a very high-level council chaired by the governor of the Central Bank, who forecast the balance of payment deficit in the current year to be likely to be in the order of £250 million to £300 million. The Central Bank, in the same month, says that it is £150 million but the governor of the Central Bank or somebody on his behalf has put in the cautionary note in the margin that that was the position on 21st June, 1974. It is like a good accountant warning a very dicey board of directors.

These are the facts and let us not start running away from them. It is time we had more from the Government on basic matters of this kind rather than a lot of nonsense with regard to the economy generally and to developments which we do not hear about in the Finance Bill. This Finance Bill is all right in regard to the regulatory matters that are there. It is all right in regard to the improvement of the allowances in the income tax code. A lot of these are matters which we can debate on Committee Stage and discuss and improve and amend. I am talking about the fundamental aspect of where we are going in the economy. This is not a situation that has arisen overnight. The Economic and Social Research Institute forecast this development last March, and gave the warning light to the Government then. They emphasised what might be a point of view that the Minister might think could come from a Fianna Fáil cumann member. In the first paragraph on page 5 of the March quarterly volume they say:

It will be argued in Section 3 that although taking the year as a whole the growth in economy was very rapid a different picture emerges when one looks at developments during 1973.

This is the year of change, the year in which the Minister states in the first page of his statement in this House:

In the years immediately prior to 1973 the growth rate of national production was below its full potential and the budget of 1973, therefore, aimed at taking up the slack that had developed in the economy.

The March, 1974, report of the Economic and Social Research Institute says:

The upsurge in the pace of economic activity occurred in the second half of 1972 and the first half of 1973. Indicators of economic activity suggest that little or no growth occurred in the second half of the year compared with the first half. The high growth rate for the year as a whole, then, is due to a combination of the continued upsurge in the first half of 1973, and a carry-over effect which arose from the fact that the level of economic activity at the end of 1972 was well above the average for that year.

Although that is a quotation from March, 1974 report of the Economic and Social Research Institute, which is presided over by the governor of the Central Bank, the Minister has the audacity to suggest in the first page of his document that in the years immediately prior to 1973 the growth rate of national production was below its full potential and that the budget of 1973 aimed at taking up the slack that had developed in the economy. This is a complete contradiction.

This is too serious a matter for political point-scoring. The Minister overindulges in point-scoring. It is more important to get down to a study of the basic documentation which is on the Minister's table. Many of his own advisers are probably giving him that sort of documentation and advice. There is a lack of political will on the part of the Government to implement policies that can put our country's finances in order and get the economy going on a basis of ordered and balanced growth leading to fuller employment—growth not based on gimmicks but based on economic reality. Then we can have full social development and benefits in every social area.

This should be the ordering of priorities by the Government. I do wish to refer to other contradictions here. If I may quote again from a later document from the Economic and Social Research Institute, they are far less confident than the Minister in regard to the gross national product increase in the current year. The Minister glibly talks about a growth rate of 4 per cent and apologises for coming down from 4¾ per cent to 4 per cent. The Economic and Social Research Institute think—and they are cautious about this—that the economy might rise by 2¾ per cent during the present year.

They were also wrong in their estimate last year.

This is not a matter for point-scoring. I will not go into this situation regarding housing, or the total lack of confidence which has been engendered by the Government's approach. In this area both the Central Bank and the Economic and Social Research Institute are emphatic about the fact that a large measure of the rampant inflation that is taking place, the total lack of control and direction of our monetary affairs, lies at the Government's door and cannot be blamed entirely on the energy crisis, as it is called. That has been a contributory factor, but the Government's monetary and financial policies are also to a large degree, in their view, the main factor in this. It is dishonest for the Minister to say, as he stated in his budget statement, that all the difficulties which we now encounter can be ascribed to what is called the oil or energy crisis.

That is an easy way out of a problem —the public relations machine through which the Government have sought to inculcate this notion of false optimism or euphoria in people, that all of the present economic and monetary problems can be ascribed to the energy crisis and the issue can be dodged like that. We are now in a situation where, as far as future progress is concerned, it can no longer be dodged. The main reason for this situation is the fact that the Minister and the Government created a real crisis of credibility in regard to our capacity to manage our financial and monetary affairs.

Our external reserves, which are now of the order of £450 million, could disappear in less than two years on the assessment by the Economic and Social Research Institute. I am quoting from pages 36 and 37 of the Central Bank report where they talk about the deficit in the balance of payments. They refer to the balance of payments deficits which were there during the 1960s. I quote:

The consequences for the economy would probably have been adverse in the short-term had the enlarged deficit not been financed by an expanded net capital inflow rather than by a reduction in the level of the official external reserves. In fact, the expansion of the net capital inflow during these five years was so great as to cause a rise of over £150 million in the reserves, most of the increase taking place in the years 1971 and 1972.

That means in layman's language that, because there was confidence in the Administration of the time by reason of its credibility and standing in the financial economic and business world, it was able to attract an inflow of £150 million, most of which, as the Central Bank Report states on page 37, took place in the years 1971 and 1972. The bank could finance and pay for deficits on the external trading account.

Now we have a situation where we are creating a balance of payments deficit in the region of £250-£300 million, and we have also got a lack of credibility and confidence which will discourage that capital inflow. The Minister and the Government must face the problem then. Because there was confidence during the late 1960s and because there was credibility in the financial situation at that time, there could be a rise in our reserves and it could come to where it is now, in the region of £447 million, by reason of an inflow of capital moneys, particularly in 1971 and 1972.

There is now the double fall situation that, on top of a balance of payments problem, there is a situation in which the Government, by announcing financial policies off the top of their head and picking them like rabbits out of a hat have discouraged the inflow of reserves into this country; the reverse is the position. I should like some facts from the Minister on the outflow of capital reserves that has taken place from the banking system by reason of the ill-judged wealth-tax announcement, and the whole attitude of announcing policies before party conferences in regard to mining taxation and the whole attitude of playing to the gallery in regard to financial matters.

You cannot play to the gallery with regard to financial matters. Financial matters and people concerned with finance and commerce are very serious people. It is a very serious worldwide business and one cannot lose one's credibility or cause a lack of confidence. We spent far too long in this country, under all Governments, building up the good name of this State. The good name was well built up by agencies like the Industrial Development Authority, Bord Fáilte and other agencies. We cannot have this eroded, nor can we have a situation where people might put a question mark opposite the feasibility of putting money into the Irish economy. In my view, this has been the cardinal sin of the present Administration. I have mentioned other ones, but the cardinal sin has been the lack of confidence and credibility which has been deliberately created by tinkering around with the financial machine. You do not tinker around with finance or financial matters.

I was a member of a Government which had to bring in unpopular taxation measures. They were brought into Finance Bills given to the Dáil, voted on in the Dáil and decided on. We never floated a balloon in regard to a taxation proposal and withdrew from it. We never floated a balloon in regard to the wealth tax which was floated and then deflated. The net result is that everybody is the loser. There is no gain to the Revenue Commissioners, because it has been withdrawn for political reasons. There is certainly a grave loss to the economy by reason of damage done to credibility and confidence on the part of investors in the economy.

The whole approach has been disastrous, has stemmed from a desire to secure political popularity, has been based on the false assumption that by reforming the Government Information Services you can, in some way, popularise yourself as a Government and lull the people into a state of complacency.

To put it candidly, the chickens are coming home to roost. I do not like saying it, but I have got my authority in the Central Bank Report and in the Social and Economic Research Institute reports. These reports are very serious for every man, woman and child in this country. I feel it is the bounden duty of the Government to face up to the fact that they may have to be unpopular and that in taking unpopular measures they will have respect and backing from the people. By dodging these issues they are betraying a trust that has been built up during the years in the Irish Administration, a trust which has made us a solid country from the point of view of investment throughout the world. The Government have a very serious trust in this respect and I should like to see evidence that they are serious about it, rather than any political point-scoring.

There are many other matters which can be dealt with on Committee Stage. We intend to have a very serious and detailed Committee Stage debate on this Bill. I should like the Minister for Finance to resolve for this House where he stands in regard to the views expressed by the Economic and Social Research Institute, its President, Dr. Whitaker and his agents, in the Central Bank Report and in particular to specify the exact meaning of Dr. Whitaker's marginal rule inserted on page 14 of the Central Bank Report, in which he emphasised that he will not be responsible for a position that might emerge on 21st July, 1974, due to Government incompetence in the field of finance.

I am somewhat surprised that I am getting in so early. One would have thought that a Senator on the Government side of the House would be called on to justify something that appears in this Bill. It is an unusual situation when this does not happen.

As Senator Lenihan has suggested, one of the most interesting aspects of this Bill is that it is so late in appearing. To some extent one can understand this situation. One of the salient characteristics of this Government who have all the talents has been the extraordinarily incompetent way in which they order their legislation. In recent months we have had a constant and unprecedented succession in this House or Bills being brought in at the last minute. In some cases there have been appeals to us to agree to Motions for Earlier Signature by the President. It would seem that for some reason this Government are simply unable to administer their legislation in such way that Bills will be introduced in time to enable both Houses of the Oireachtas to have adequate debates on them. I must say I admire the Minister's stamina and strength in standing up here after such a short interval, having spent all of last night discussing this matter in the other House, though I can hardly be said to sympathise since it seems to me he brought this penance on himself.

In the case of this Bill, one wonders if there was some other reason for its long delay—if the Minister was advised by certain people to do something in this Bill, to deal with the problems which we all know we are facing with regard to inflation, the extremely serious balance of payments problem and the other financial and economic problems which face the country.

In this process of pressing and apparent resistance on his part, one wonders whether that is the reason the Bill was somewhat delayed. It is quite unprecedented to have a situation where a Finance Bill appears in the first week or so of July—that it should be so delayed in view of the fact that the budget this year was a relatively early one. At any rate, we are left with the position, whatever the cause may be, that the provisions of this Bill, while important, are quite irrelevant to the country's present needs. It includes important provisions that will have to be debated in some detail on the Committee Stage, such as the extensive changes in the rates and method of collecting income tax and sur-tax, the tax on farmers and the confidentiality required by accountants and solicitors.

However, the essential point that stands out in every line of this Bill is that it is utterly irrelevant to the real needs of the country. It is irrelevant in the sense that it does nothing to attempt to solve the general financial and economic problems from which we suffer.

However, it is perhaps relevant in the sense that the whole tenor of the budget is to make these worse. Almost everything the Minister did in the budget was guaranteed to increase the inflationary tendencies from which our economy suffers.

I do not need to remind the Minister and Senators of the famous, or infamous, 14-point declaration which more than any other single occurrence at the time of the last general election was responsible for the election of the Coalition Government and for the fact that the Minister is now Minister for Finance in that Coalition Government. I do not need to remind the Minister and Senators of the particular point in relation to prices, a most effective one, in which his party promised the public that in exchange for their votes the cost of living would be stabilised. Obviously, there is no need to point out that far from being stabilised, the cost of living has increased at an unprecedented rate.

The most significant point about that proposal is that since attaining office, on the strength of the promise that living costs would be stabilised, the Minister, in particular, and his Government in general, have done nothing to achieve this end: they have been happy to depend on the activities of the Prices Commission—that once derided body left for them by the Fianna Fáil Government—which they now rightly, within their limited sphere, rely on. Not alone have they not taken other steps to try to stabilise the onset of inflation but in their general economic policy they have been feeding fuel to the flames all along.

Last year we had, as international official figures show, the worst rate of inflation in Europe, at any rate the worst rate of inflation in the EEC. In the past 12 months for which we have figures, the cost of living in Ireland has risen by 16.2 per cent. In that respect we are worse than any other country— worse even than Italy which is looked upon as a semi-bankrupt member of the European Community.

But that is not the worst aspect of our record. It is not simply that we have the worst, the most rapid, the most South American-style of inflation in Europe, but we are unique—I hope the Minister is proud of this uniqueness—in being the only member Government of the European Economic Community which has taken absolutely no counter measures to deal with inflation. All the other countries of the Economic Community, even Britain which has a rather crackpot type of socialist Government at present, have taken measures in one respect or another to deal with inflation and their balance-of-payments problems, to endeavour with greater or lesser success to bring in some kind of an incomes policy.

We are unique in that not alone have we not taken steps of any kind to deal with the general problem of inflation or our balance of payments, but we have a Minister for Finance who spends his time telling us how happy we all should be, how much better off we are than other countries and how successful his Government have been in avoiding all the problems which other Governments face. We have a Government which on the face of it would seem to be one composed of ostriches who bury their heads in the sea of inflation and pretend that it does not exist. Not only do our Government do nothing about inflation, they ignore it and pretend that these economic problems are non-existent. They have deliberately adopted a variety of policies which have fostered strongly the onset of the development of inflation.

We have, for example, the excessive spending of the current budget. These are matters into which I must go in greater detail later on. In the nine-months period from the date of the budget to the end of next December, there has been a planned budget deficit on the current account of £76 million. We have very large scale foreign borrowing for capital expenditure. Our Government are allowing, and by their budgetary policy have encouraged, the development of an enormous trading deficit.

The effects of inflation are obvious to everybody. At the rate inflation is at present—about 16 per cent per annum and it looks like increasing still further by the end of the year—we have a situation in which prices will double every five-year period. It is worthwhile quoting the recent report of the Central Bank. At page 13 it is stated:

... we face a future in which, even if inflation gets no worse, prices will be doubled—and the Irish pound halved in purchasing power—every five years. It is time that inflation was recognised——

I would suggest that the Minister should pay special attention to these words because it is the one thing that he does not recognise

——as the enemy of economic progress, of social justice, of the young seeking jobs in Ireland, of the saver and, indeed, of democracy itself. It is being seriously questioned whether democracy can for long survive inflation at the rates now being threatened in various Western European countries. A high and rising rate of depreciation of money can impose too great a social and political strain by bringing about an over-rapid and haphazard redistribution of income and wealth. Inflation is seen as a socio-political, even more than an economic problem. It reflects a struggle within society between rival sections, all demanding greater material prosperity for themselves than the resources of the nation will allow.

In terms of practical Irish considerations, let us take a couple of examples of what I suppose the Central Bank Report may mean. We have been told in the last couple of days by the Economic and Social Research Institute that this year, far from real incomes increasing, as the Minister has so often said his policies aim to achieve, there will be an actual decrease in adjusted GNP. In other words, while in theory there may be 2¾ per cent or so increase in GNP, because of the onset of inflation, the vast increase in imports, increased price of imports and so on, the actual standard of living of the Irish people will decline by 3¼ per cent this year.

Take, for example, the position of the social welfare classes, the old age pensioners. The Minister and the Government have again and again claimed to be aiming at social justice. They have spent very large sums in increasing social welfare payments. They have been able to do this partly because this year and last year a total of £60 million has come our way from membership of the EEC. They have been able to do so also by the simple expedient of not asking the taxpayer to pay for it but by increasing these social welfare benefits out of budget deficits. They have given considerable increases in that way. They have boasted about this and have preened themselves on it.

I suggest to the Minister that he should consider in the light of the onset of inflation the position, for example, of a contributory old age pensioner. In the two budgets of 1973 and 1974, the total increase to a contributory old age pensioner has been 37 per cent. That sounds very good until one realises that from the beginning of 1973 to the end of 1974 the cost of living will have risen by a minimum of perhaps 32 per cent and a rather more likely 34 per cent, so that by the end of this year all the boasted benefits to our contributory old age pensioners will have almost vanished, as the Minister so dramatically put it last year, "in a sea of inflation".

Now we have the building industry creating another of these fears about which the Government tell us so often that the problems they simply do not exist. They have been told by the Central Bank and by the Economic and Social Research Institute that there are problems in the building industry, but the Minister for Local Government still insists that there are not any problems. We are in the position in the building industry, as the Institute of Chartered Surveyors stated only yesterday, where the cost of building in the past 18 months has risen by 44 per cent. That 44 per cent in 18 months is the kind of figure one has to have regard to when one listens to the Minister for Local Government boasting about the increased funds being made available for building. All these things also disappear "in a sea of inflation", to use the words of the Minister for Finance.

Another curious aspect of Government policy with regard to inflation has been that all along we have been maintaining that inflation is an international affair and that after all we in the little island of Ireland cannot be expected to do anything about it, that it is outside the control of this or any Government, and that so long as we have the Prices Commission scrutinising everything, that is all that can be done about it. Indeed, the Minister himself in a speech concluding the Second Stage of the Finance Bill in Dáil Éireann, at column 846 of the Official Report said:

If the cost of living is rising, as indeed it is, it is primarily due to factors outside our control.

Of course, the Central Bank has shot down that one in its recent report.

With respect, they have not. The Central Bank acknowledges that more than half of it is due to foreign causes.

Yes, that is the point I am about to make. The Central Bank states that half the increase in the cost of living is within our control and calls on the Minister and the Government to control that half. The report states that if the Government did their duty the rise in the cost of living next year could be down to 7 per cent. That is a different story from the one we had from the Minister and the Government when they pretended it was altogether outside their control and that there was nothing they could do about it because it was, after all, international affairs such as oil, energy, rising prices and that an Irish Government could take no action. That is not what the Central Bank said at all.

Yet nothing has been done. I listened this morning, briefly, to the Taoiseach speaking in the Adjournment Debate in the Dáil. He concluded his speech with ringing words—I do not know whether "ringing" is the right description of the Taoiseach's oratory—about the existing rate of inflation with its dire consequences for living standards and employment. They are fine phrases with which we could all agree, but what is the Minister doing about it and what are the Government doing to deal with the existing rate of inflation with its dire consequences for living standards and employment? It was all very well for the Taoiseach to say that in the Dáil this morning, but here we have the Minister coming in with the Finance Bill which has nothing to deal with inflation but contains a great deal to increase inflation.

The essential point that apparently has escaped the Minister is that there is not, either in this country or in any other country, any question of a simple choice between holding back inflation and increasing employment. There is no justification for choosing a policy of increasing employment, as the Minister has done, and making this a kind of virtuous excuse for doing nothing about the other problem of inflation. The difficulty is that, ignoring inflation, by spending money like water in a variety of directions in an effort to increase and to maintain employment, the danger is that the Minister before very long will find that he has lost on both counts, that he has vastly increased inflation while at the same time very considerably reduced employment.

Now we come to what surely must be one of the most desperate problems facing the Minister at the present time: the whole question of our balance of payments. This, of course, is inextricably bound up with the question of inflation. The balance of payments has always been a problem for us in Ireland. We have constantly had a considerable adverse trade balance which has almost never quite been made up by invisible receipts. Particularly in recent years the balance of payments has tended to creep up so that last year, at some £86 million of a deficit, it was by a considerable margin the highest deficit we had ever faced. It was a deficit we were able to face because increased imports of capital meant that we ended up the year with just about the same external reserves as we had at the start—I think about £3 million more.

The Minister in his budget statement suggested that this year, because of the energy problem caused by the increased cost of oil, the balance of payments deficit might be about £140 million. I remember listening to him and wondering how he got that figure because if the deficit last year was £86 million and the increased cost of oil this year was some £100 million—I think the Minister and his Department have tended to use an approximate figure of £100 million— it would seem that his suggestion of £140 million as the balance of payments deficit for this year was somewhat optimistic. In any event, it is already quite clear that it was ludicrously over-optimistic.

It is worthwhile considering in some detail the trade figures for the first six months of this year. We find that January was a good month: both imports and exports increased, but exports increased just a little more, so in fact our import excess for January was about £2 million less than January, 1973. After that, the results month by month become steadily more catastrophic. February was a very bad month although, in comparison with later months, it seemed quite good. The import excess goes by some 50 per cent from £22.93 million to £35.82 million. There was an increase of some 40 per cent in imports.

In March, imports increased by more than 50 per cent and the import excess went up by £25.9 million to £56.93 million—almost trebled—in the month of March. That was the month during which the Minister was preparing his budget. I accept that the results of one or two months could have been just a chance and the Minister was justified in ignoring them when preparing his budget estimates. However, in April the import excess more than doubled from £22.29 million to £66.72 million. The month of May was just as bad. Again, the excess was more than doubled from £26.39 million to £63.19 million. Last month—the last of the six months for the first half of the year—June the import excess could be said to be slightly more satisfactory in that it only just about doubled from £19.34 million to £42.5 million.

We find that in the first half of this year that there was an increase of 88.4 per cent in our import excess, or in money terms some £137 million. That is for half of the year. Even allowing for some increased receipts for tourism this year, even allowing for an extra £30 million or so that we will get, apparently directly or indirectly, from the EEC, the only effect of these figures can be that if there is no radical improvement in the second half of the year, we may expect an external payment deficit in this year of something more than £300 million.

The trading figures for the second half of this year—while one can never prophesy or be quite sure: the Minister knows far better than I how they will work out—would seem to suggest that they will not be better. There will be increased wages due under the National Pay Agreement coming in the autumn. Again in the autumn will be the inflationary effects of increased budget spending and decreased income from income tax. There will also be the fact that the trade figures last year were much more satisfactory in the second half of the year than the first half. The adverse balance of trade in the first half of last year was about £25 million less than the second half. It would seem that if there is any improvement in the second half of this year, if one takes place at all, it will be relatively small. Therefore, it looks as if we are faced with a balance of payments deficit this year which will not be far off £300 million.

This, obviously, would create a very, very serious position for this country. What are the Government doing about it? The Minister merely keeps claiming that all is well. In his introductory speech to the Finance Bill in this House the Minister did not utter one word, good bad or indifferent, about this mountainous balance of payments deficit with which we are faced.

He could have used the opportunity of this Finance Bill to take some steps to deal with the inflationary problems and the balance of payments problems with which we are faced. He could have used the opportunity to do something to cut the rate of inflation; to do something to reduce this enormous mass of imports. He has not done so. He has apparently decided that he must reject the advice which, in public, and I suspect in private, has been facing him from all sides.

We are now in the position that it is too late to take any action which could be effective this year. I do not know if the Minister may have to take some remedial action by a supplementary budget in the autumn. Of course, budgets cannot have an effect overnight. Even if he were to bring in some kind of budgetary legislation towards the end of October, it would be the end of the year before any substantial result could take place.

The Minister has, in effect, taken the decision that inflation, and our balance of payments position, are to be left to look after themselves for the whole of 1974. The problem in all these cases in this type of situation is that if you take action in time and if you admit that there are little problems that all governments must face in taking remedial action in a situation of this sort, it may well be that relatively mild action could be effective. The difficulty now is that if the Minister next autumn or even in his ordinary budget next January or February, then takes action, it will be needed. That action may require to be very drastic indeed.

It seems to me that the Minister completely misread our entire national economic position in his budget. In the course of his speech, at column 1424 he stated that farmers' incomes should rise substantially this year. The present position is such that that seems, to say the least of it, to be an unduly optimistic assessment of the position. I am not blaming him in any way for what has happened, because these are matters which are very largely beyond his control, but he stated that tourist receipts should show a considerable increase this year. From what one can see, and from what one can hear, it seems only too likely that any increase will be minimal, and certainly the volume of tourism is hardly likely to increase. Any money increase has been made because of increased prices that tourists had to pay for food and accommodation. The Minister stated that the volume of imports could be expected to decrease. I have already said what has happened to them: some of 50 per cent increase and 48.8 increase in imports in the first half of this year. He said there would be a deficit in the balance of payments of £140 million but as we know it is likely to be double that. He said the prices could be expected to go up by 14 per cent in this year and, in fact, it seems far more likely that the increase will be between 16 and 18 per cent. When all these basic foundations on which the budget was constructed have been shattered one must wonder why the Minister in this Finance Bill sticks so closely to a policy that has, in fact, totally failed. The Government seem, as I already said, wedded to a policy of expansion no matter what.

In the year of the most dangerous inflation that we have ever faced he has a budget deficit of £76 million in nine months. Why did the Minister not know that this was bound to add to inflation and to the volume of imports? What other effect could it have?

I should again like to quote the Central Bank Report, which at page 10 states:

The 1974 budget was merely another, though major, advance along an expansionary road which has carried the annual rate of increase in public current and capital expenditure from just over 13 per cent in 1969 to 23 per cent last year.

This seeking by the Government of an increasing proportion of national income will be a cause of strain even if the public, corporate and personal, were prepared to make way for the Government by giving up an increasing proportion of their own income to higher taxation and saving. But experience shows that they are not, with the result that beyond anything deliberately planned public and private spending runs far ahead of real national output and undue pressure is put on domestic prices and costs and on external payments.

The Minister, with his cheerful insouciance, in the Dáil on the end of the Second Stage of the Finance Bill said:

There is nothing in the Finance Bill, good, bad or indifferent which adds in the least to the pressure of inflation. It has had quite the reverse effect and that is your great disappointment——

"Your great" referring, I presume, to Deputy Colley and Fianna Fáil in general. What kind of nonsense is that coming from a Minister for Finance? It has quite the reverse effect. I appeal to the Minister to tell us when he concludes this debate in what way has the budget had the reverse effect. In other words, in what way has the budget had the effect of reducing the volume of inflation?

We have had, as part of this general spendthrift expansionary attitude of the Government, altogether unprecedented foreign borrowing in this year, indeed last year also, for the capital programme. I will be going into that in greater detail later. Having taken all these risks, risks which one can only describe in present circumstances, as quite unjustified what has the Minister, or the Government, achieved? We are going to have, if one is to believe what the Economic and Social Research Institute have suggested, in this year an actual fall in real growth in adjusted GNP, a fall in living standards, for the first time since 1956/57. This, I suppose, is significant and certainly a rather tragic point. We have an agricultural depression for which I do not blame the Minister but the only budget contribution to that situation is for the first time, to impose income tax on the farmers. We have a threatened depression in the entire building and construction industry which comprises 40 per cent of our entire capital development programme and here the only Government contribution is to deny that there is any problem. We have huge deficits, both in the budget and in our balance of payments, and we have, as I already mentioned, unprecedented recourse to foreign borrowing.

Here again it is worth quoting the Central Bank. I should, perhaps, explain, in case the Minister might misunderstand my position, that I am by no means universally in favour of everything the Central Bank say. I would not like it to be thought that at all times, and in all places, I would accept everything the Central Bank say. They have their own viewpoint which we politicians do not always necessarily acceptin toto. However, they are worth quoting in some detail on this occasion because everything they have said over the past few months has, alas, turned out to be correct. At page 11, with regard to this question of external borrowing, they say:

The growing extent to which this rising volume of public expenditure has to be financed by external borrowing is a special cause for concern. At end-March 1974 about £165 million of external Government debt was outstanding, as against only £55 million five years before, and the indications are that this figure will be of the order of £300 million at least by end-March 1975, while that of State bodies will probably have reached some £200 million by the same date. Apart from the risk of becoming so dependent on a possibly unsustainable source of finance, the servicing of Government external debt by way of payments of interest and principal, which have to be financed sooner or later by taxation, involves a transfer abroad of real domestic resources, the amount of which may be aggravated by the revaluation of the foreign currencies in which the debt is expressed, and is not alleviated by any recovery of income tax. In recent years Ireland has experienced the reality of the revaluation danger in relation to Deutschemark and other foreign borrowing by the Government.

In this year to date, that is in the last six months, we find that the Government borrowed £15.5 million in Dutch guilders—that was in March. In April they borrowed £11 million in Belgian francs. Again in March the Agricultural Credit Corporation availed of a £6.4 million Euro-dollar credit facility for one year, and they also made a £2¾ million public loan issue in Swiss francs. In June, the Government arranged a credit of $200,000,000, £82 million. Again last month they raised £10 million in European units of account on the European capital market and the ESB negotiated a loan of £12½ million, in dollars. In the first half of this year the European Investment Bank have given three loans to various bodies or institutions in Ireland amounting to just under £10 million. The total of this foreign borrowing in the first six months of this year is approximately £150 million. The total for 1973, which was by far the heaviest year we ever had for foreign borrowing, was £44 million. In the first half of this year we had borrowed, either the Government or the semi-State companies, £150 million abroad. This type of borrowing is, of course, extremely dangerous. It is expensive in the sense that, as the Central Bank pointed out, there is no drawback of income tax from it. If one borrows money from an Irishman obviously income tax is deducted or surtax is charged on the interest. If it is borrowed from foreign markets it cannot be done. It is all a dead loss to the State.

It is also very unwise to rely to this extent on this sort of money because there is no guarantee of its continued availability, particularly in present circumstances where there is heavy competition for loans on the international market to deal with various countries' oil and energy problems. There is also the likelihood, unfortunately a strong one, of continued devaluation of sterling. This already happened in the past and the likelihood is that a year or two from now this £150 million that we have borrowed, and whatever further money is borrowed between now and the end of the year, will, in terms of the Irish £, cost us a great deal more.

The whole operation is as inflationary as printing banknotes. Except if the Government printed £150 million in banknotes and scattered them around the country there would not be anything to repay to foreign borrowers. The whole exercise, by means of which a large part of this year's capital expenditure has been financed, is highly inflationary and extremely dangerous from the point of view of the future development in regard to Irish capital spending.

We have also, as part of this heavy expansionary, not to say inflationary, activity of the Government in the financial field the overall heavy increased spending in the 1973 and 1974 budgets. We find that on the current budget, taking these two years together, there has been a total increase in expenditure of 48 per cent. On the capital programme the increase has been 54 per cent. Anyone would not object to even a 100 per cent increase in the capital programme if there was even some remote prospect of financing a substantial part of it from home funds.

The problem with the Government's budgetary policy, and the very steep upward trend in expenditure, has been that these bring about, inevitably, and have brought about already, a very strong bias towards consumption. Most of the stimulus from this heavy borrowing, mainly external, has resulted in an increase in consumer imports rather than the promotion of investment and economic growth. One cannot help feeling that a considerably less sizeable borrowing provision could well have been sufficiently expansionary to meet the justifiable aims of the Government, and would have held a great deal less risk of intensifying the inflationary pressures that already existed. It was clear from the start that the only effect of this budget would be to increase, significantly, the foreign payments deficit in 1974 as well as increasing the tendency for prices to rise. Along with these inflationary aspects of the budget there is not one single measure, however unimportant, in the budget, designed to curb inflation.

The Minister, in introducing his budget in 1973, and again in 1974, claimed that the policy in these budgets was framed in accordance with basic economic considerations. One must do the Minister the credit of suggesting that that, in fact, is not correct. It is impossible to believe that any Minister for Finance could really believe that his budgets for 1973 and 1974, particularly the budget for this year, were really framed in accordance with economic considerations. On the contrary, it seems clear that the first two Coalition budgets have been intended to gain a cheap political popularity. More and more the Minister, and the Government, will find out that in this they have not succeeded.

Mr. Raymond Smith, writing in theEvening Herald of 24th July about the Minister and his budget said:

The Minister for Finance, Mr. Ryan, lost a great opportunity in his last budget to take concrete action. But, of course, he had one eye on the local elections and was not going to rock the boat at that stage. He blatantly allowed political considerations to take precedence over the health of the economy and must stand accused in the eyes of the public, who will now have to brace themselves, no doubt, for a real hair-shirt affairs, when Mr. Ryan makes his next budgetary statement to the Dáil early in the New Year.

I am afraid that is, indeed, the position. The whole policy in this budget is more or less on a par with the Minister's frequent catch cries, his references, at frequent intervals, to soaking the rich to help the poor and so on.

We have another example of this facile and extremely unwise approach to economic taxation policy, this curious matter of the White Paper on Capital Taxation. That all arose out of a particularly silly part of the Coalition's election policy, one of the 14 points which made the idiotic though highly successful proposal to abolish death duties. When they got into office they suddenly realised that this would mean that all kinds of exceedingly wealthy people would be enabled to continue amassing wealth without anything coming to the State by way of death duties. The Minister then issued his White Paper of which the only kindly thought one can utter is that it clearly cannot have had adequate consideration.

In connection with the White Paper we have an early version of the curious events which took place in the Dáil a few days ago when we had the Taoiseach voting against his own Government Bill, and when we had the Minister for Defence dealing in his inimitable fashion with this White Paper, a White Paper issued by the Government of which he is a member. At column 197 of Volume 272 of the Official Report he said:

I am not defending one line of the White Paper. It is not mine, neither is it the Cabinet's. The proposals in the White Paper were produced by civil servants to replace death duties. There are more ways of killing the cat than by choking it with butter. There are enough brains in the Cabinet to find the right way to handle the matter. Fianna Fáil, and Deputy Haughey, in particular, in a despicable political act wants to pin the White Paper on us, but it is not ours.

And a little further down:

Let the farmers take from me as a positive guarantee that we are asking for their representations on the White Paper. If they hear anyone in a pub saying the White Paper is ours, let them check if he is in a Fianna Fáil cumann before they make their decision.

This was an early version of this somewhat eccentric coalition type of co-operative Government that we have had also in more recent days in the Dáil. In spite of these rather eccentric announcements by Government Ministers, in spite of the fact the Minister has fortunately retreated in many respects from the terms of his and his Government's White Paper, the general effect has been extremely bad. At a time when economic and financial conditions are very difficult it has had the effect of creating great uncertainty with regard to investment.

In a year, then, the whole concept of the White Paper being needed to bring about social justice, to right the discrepancy between the rich and the poor —the kind of thing the Minister produces as catch cries at frequent intervals —seems, when one looks at the figures, to be altogether without foundation. If one takes, for example, some interesting figures which were published recently relating to member countries of the EEC and the proportion of their total current revenue in any particular year which comes from capital taxation —that is, death duties, wealth tax,et cetera—we find that, except for Britain, which has a slightly higher proportion than we have, we with our 1.9 per cent of total current budget stemming from capital taxes are far higher than any other member country of the EEC. Our proportion of revenue from capital taxation is more than double the average of the EEC as a whole. This is the kind of figure which simply makes nonsense of these rather childish representations that the Minister is so given to making about the necessity for the taxes suggested in his White Paper because of a need to redistribute wealth in Ireland. There is a need to redistribute wealth, but we are not going to do it by producing White Papers which are so lacking in proper thought that they have to be scrapped inside weeks and we are not going to do it by pretending that things are different from what they really are.

We have had the Economic and Social Research Institute in recent days saying, in fairly strong terms, that in the national, economic interest it would be very unwise to do what the Minister suggested and bring in all these provisions at once, these three types of capital taxation. One need not say very much about the detailed provisions in the budget now as, on Committee Stage, we will go into them in great detail, but the taxation of farmers should be mentioned as a typical example of the facile, and frequently inaccurate, way in which the Minister puts proposals before us. He was at pains on many occasions—we must remember that the local elections were in the offing—to assure Deputies in the Dáil and the public in general that only 9,000 farmers in the country would be affected by his proposals. The rights and wrongs of these proposals can be dealt with on Committee Stage but it is worth while mentioning that when reality supervened, in the shape of the small print of this Finance Bill, it was obvious that far more than 9,000 farmers would be affected by his proposals.

The Minister spoke, in his introductory speech here today, of taxing very wealthy farmers, as he put it. "Very wealthy" is a fine phrase. Actually, he said "the wealthiest farmers" should be made contribute. When it comes to the small print in the Bill a large number of farmers of £20 valuation and upwards will be affected because of the procedure for halving the allowances in certain cases. A very large number will be affected, who, by no shred of the imagination, could be described as the wealthiest farmers. We have a revision which is not of fundamental, national importance, but is of great importance because of the implications. We have the provision under which solicitors and accountants are to be forced to reveal confidential information about their clients.

None of us wishes in any way to encourage or condone fraudulent behaviour by any citizen or fraudulent evasion of taxation, but sometimes it appears that the Revenue Commissioners, with all respect, get away with murder. Neither the Minister nor anybody else would dream for a moment of bringing in a Bill to say that a solicitor, for example, who had discovered that a client had been engaged in some criminal activity, should be forced to go to the Garda and reveal this information in order that the client could be prosecuted; this would rightly be looked upon as an appalling breach in the confidential relationship between solicitor and client.

Yet, on this occasion, as on many others, simply because it is a revenue matter, the Revenue Commissioners think they can come along and break all the rules which, if it were an ordinary criminal matter, would be considered utterly inviolate. This is the type of provision we see over and over again in legislation giving powers to the Revenue Commissioners far beyond those given to the Garda or to any other body of that kind. In the case of solicitors and accountants this is a totally unjustifiable provision and one which may turn out to be unimposable. I know the Minister will say that this exists in Britain and other countries. That should not in any way affect us; we are dealing with Irish conditions, Irish solicitors and Irish accountants and Irish customs. It has not been the custom here and it will be resented very deeply. It will not even be effective because if a man with money wishes to send the money to some tax haven abroad, he can still do so; he just will not tell his solicitor or his accountant. In any event, if, as seems likely, the solicitors' and accountants' professions refuse to co-operate with the Revenue Commissioners in this matter there is very little they can do about it.

On the general issue of the simplification which has been carried out in this Bill one can congratulate the Minister but the Minister is being over optimistic in his suggestion that this in some way will make the whole income tax code plain and simple. Anyone who reads this Finance Bill will soon be disillusioned of that idea. The income tax code is, and always will be, exceedingly complex and it is foolish for the Minister to suggest that because of the simplification of the rates of tax the ordinary man-in-the-street will be able to understand it. He will not. Nonetheless, any simplification in this respect is to be welcomed.

The Minister, in carrying out this simplification, has fallen of course into the trap which often catches out people who try this kind of thing. Simplicity leads very often to crudity, to inequalities and, as a result of this simplification, we have, what seems to me not only a most extraordinary situation arising but the traditional and very long-standing differentiation between earned and unearned income has disappeared. It always seemed to me that that was a thoroughly justifiable provision in our income tax code, that a man who earned his income paid less tax than a man who did not. The Minister may argue there are elderly widows and others who are relying on interest from investments left them by their late husbands but it is very easy to deal with such people by providing special exemptions for them.

On the general basis of the difference between earned and unearned income, I cannot see any justification in principle for treating them alike. What the Minister did in his Finance Bill was to give considerably increased marriage allowances, children's allowances and so on and, in the case of most people who earn their income, he eliminated a good part of these by doing away with the £500 deduction for earned income. While everybody gains, the £800 is by no means as great an improvement as it seemed.

The person who had nothing but unearned income had no £500 to lose and therefore gets the full benefit of the increased allowances in the budget. In the case of somebody with a considerable unearned income the gain directly as a result of the budget is several hundred pounds. This certainly seems totally contrary to principle and to the Minister's alleged policies. We had him introducing the Finance Bill in the Dáil saying at column 530, Volume 274 of the Official Report, in grandiose tones:

There will be one law for all: not one for the rich and another for the poor.

Here is a direct case where the rich or, at least, those who do not have to earn their income gaining very considerably in comparison with those who have to earn their income. There was a good deal of controversy about this in the Dáil. Again as a result of the simplification in income tax, those who pay surtax at the highest rate can now get insurance premiums at only 20 per cent of the cost because they can claim 80 per cent off their insurance premiums. While one welcomes the general simplification, it has resulted undoubtedly in inequalities of this kind which go completely against what the Minister claimed to be doing and, perhaps, hoped he was doing; it has the effect, at least in certain cases, of helping the rich. These are details we can deal with in the Committee Stage. The really salient point about this Finance Bill is that it is utterly irrelevant to the problems of the present day.

Listening to Senator Yeats and for, a short time, to Senator Lenihan, one would think that the end of this country was in sight. Certainly they seem to have painted a picture of unrelieved gloom. I rather got the impression that they will be disappointed if things do not turn out as badly as they predict. I suppose it is fair to quote from the various publications which always appear before the budget telling the Minister what he should do and, after the budget, telling him what he should not have done. Perhaps I might be permitted to quote from some of the same sources from which Senator Lenihan and Senator Yeats quoted, but not from the same paragraphs:

The Central Bank re-affirms its support of policies directed towards the maximum sustainable growth of output and employment....

It goes on to say:

The Central Bank desires that monetary arrangements should support the maximum sustainable growth of output and employment. To this end, and in light of the budget and more recent economic forecasts, monetary policy has been adjusted so as to conform to the Government's objective of raising real national output by about 4½ per cent, while limiting the balance of payments deficit to some £150,000,000.

TheIrish Banking Review of June, 1974 also has some interesting comments to make on the budget. They are worth quoting:

The Irish economy faces a much more uncertain and difficult prospect in 1974, and it was in this context that the budgetary measures were determined. The budget opted unreservedly for expansion by providing wide-ranging increases in social welfare, together with some tax concessions, without any tax impositions. Allied to the strongly expansionist current budget went an equally expansionist capital budget which provided a rise of 20 per cent in public capital spending...

The Minister was able to quote supporting advice for his policy from many independent quarters, apart from the Department of Finance, thus, the OECD favoured a general expansionary budgetary approach in its report on the Irish economy, published in advance of the budget. The OECD concluded that the pre-budget prospect was for a shortfall of one percentage point from the 4½ per cent growth rate, in real output which the organisation accepted as a reasonable target for the Irish economy in the present year. If public financial policy were to support growth towards full capacity working in 1974, the OECD accepted the deficits in the balance of payments and in the public sector would increase. It expressed the view that an increased deficit on the current budget need not be considered undesirable.

The decision to opt for an expansionist policy in the present difficult economic situation, where economic growth is under threat from a variety of influences, is to be supported.

Like everything else, you can quote for and against in any Government policy. In the final analysis, we must await the outcome of the measures introduced by the Minister in his budget and implemented in this Finance Bill.

In looking at the Finance Bill and the budget which preceded it, it is important to have a look at the background and, in particular, at 1973, which the OECD economic survey described in most respects as a particularly successful year for Irish economic management: it recorded a growth rate of 7 per cent—a near record for this country—a significant increase in living standards, increased interest in Ireland as a base for new industrial development, a most important development for our country; an increase of over 6,000 in industrial employment; the evidence of net immigration and the greatest distribution of all time in social welfare benefits; the highest level of house building ever recorded; substantial increased public spending on education, health and other services and a completion with much success of our first full year as members of the EEC.

Secondly, we must have a look— obviously this is a matter for careful study by both Government and Opposition—at the outlook for 1974. It is obvious that, getting towards the end of 1973, the possibility of an economic slow-down in Europe generally was very much on the cards following several years of growth and expansion. The onset of the energy crisis turned this possibility into reality and, although supplies of oil have been restored to near normal, the impact of the huge increase in prices is still working its way through every facet of our economy. In addition, the abnormal increases in the price of imported raw materials have greatly increased the pressures on our domestic inflationary situation. This serious state of affairs is not confined to Ireland; according to OECD figures, the rise in prices exceeded 10 per cent in 17 out of 24 member countries of the organisation. Increases of this order have played havoc with the balance of payments of all European countries and have tempted the imposition of restrictions which would have a most detrimental effect on international trade and, consequently on employment and expansion. Whatever methods are adopted by industrial countries to combat the twin evils of balance of payments difficulties and increasing inflation, it is certain that 1974 will see a lower rate of growth in all countries than would have been achieved if the huge oil price rises had not occurred.

This is particularly dangerous for our economy, possibly the most open economy in Europe and which is greatly influenced by factors outside our shores. External trade forms and will obviously continue to form a very high proportion of our total trade, so that any changes in the terms of trade must have an undue influence, over which we have no control, on our domestic price structure. We are further inhibited from exercising effective control of our economy by our link with sterling which demands that the value of the Irish £ rises and falls in value with the fortunes of the British £, in other words, with the prosperity or otherwise of the British economy. On balance to date this link with sterling has served the economy reasonably well, particularly as our trade with Britain continues to occupy a very substantial, although declining, proportion of our total trade. However, it may well be that, in the light of the changing and widening pattern of our external trade, the time has come to examine closely whether our close ties with the British £ should be continued in its present form.

Notwithstanding the gloomy forecasts we have heard in the House this afternoon, some of the forecasts made at the time of the budget and even earlier in the year, the first six months of this year, have not been as unfavourable as some of the forecasters suggested. It is true that imports have increased very substantially, up by £263 million, or 48 per cent, as against an increase in exports of only £125 million or 32 per cent. This has widened the balance of trade gap by £138 million but it should be recalled that almost £55 million of the import increase was accounted for by the increase in oil prices over which this or any Government would have no control. In spite of the destructive effects of the oil crisis, the huge increase in the price of raw materials and the three-day working week in Britain, exports from this country in the first six months of the year increased in value—I emphasise the word "value"—by 42 per cent. Even allowing for price increases, it is obvious that, notwithstanding all these difficulties, we increased our volume of exports substantially for the first six months of the year—no mean feat in the light of the difficulties to which I have alluded. This gives us cause for reasonable optimism for the remainder of the year, provided certain controls are exercised over our economy— controls it is within our power to exercise.

In spite of all the current economic difficulties and the troubles in the North of Ireland, Bord Fáilte report that tourist numbers so far this year are up by over 5 per cent. Another economic index which is frequently quoted, although I did not hear it quoted this afternoon, is that, despite the huge increase in our trade deficit, our external reserves at almost £400 million are approximately the same as they were this time last year. Retail sales, an indication of prosperity of the body politic, increased by 2 per cent in April, the last statistic I found available. Showing the confidence in the economy both by Irish and foreign industrialists, imports of capital goods increased by some 35 per cent.

These are all indications that, notwithstanding current difficulties in the economy, and they are very real difficulties—I do not suggest they are non-existent and they must be tackled by the Government—we should remember that our growth for 1973 was the highest in Europe and, for 1974, even at the reduced rate of 4 per cent, or perhaps a shade less, we will compare more than favourably with the other EEC countries.

One point which I should like to stress, and I am sure the Minister is very much aware of the fact, is that we must continue to encourage Irish and foreign industrialists to invest in manufacturing and industrial concerns. We must maintain our competitive edge. We cannot allow costs to rise to such an extent that, in the first instance, we will not be competitive with our own exports and, secondly, fail to remain an attractive base for the establishment of industry here by foreign entrepreneurs.

Unfortunately we have no control over something like half the rate of inflation because it is imported but we have, in theory at least, control over nearly 50 per cent. Herein lies the task for the Government to ensure that control is exercised to such an extent that domestic inflation will not ally itself to import inflation and put us in the position of being non-competitive against our European partners and competitors.

This will require a major effort, not only by the Government but by the people themselves to keep the economy moving along the right lines, to maintain employment, to distribute income fairly and to ensure that the less well-off and the underprivileged are cared for and protected against uncontrollable price increases. Some of these aims may seem incompatible, particularly in the light of our open economy. However there are signs that prices of commodities may be levelling off and in some cases actually declining.

This encouraging trend, allied to a policy of moderate income increases in line with productivity increases, could have a most beneficial effect on our economy. Certainly, if one is to judge by the number of major industrial firms who have decided to locate their plants in this country, it would appear that the foreign industrialist has more confidence in the future of the Irish economy than some of our politicians, whose gloomy forebodings are equalled only by their inability to propose constructive measures for the difficulties which best our country like others at the present time.

In all the circumstances the Minister was right in going for an expansionist policy notwithstanding that this involved substantial external borrowing and a widening of the balance of payments deficit. Of course it would be grand if we could avoid borrowing abroad or increasing our balance of payments deficit, but what is the alternative—a cut in industrial expansion, a slowing-down in the economy and mass unemployment? Provided the borrowing is used for capital purposes and the balance of payments deficit is not out of line with our external reserves of £400 million, the risk involved must be worth taking and it is surely preferable to a policy of stagnation and its attendant miseries.

As I said at the outset, the policy of the Government will either be justified in the months to come or else it will be proved to be what the two Senators who have spoken so far have predicted and lead to uncontrollable inflation and, as a consequence, considerable unemployment. I do not believe that will happen. I think the Minister and the Government were justified in taking the risk they took in the budget and in the measures outlined in this Finance Bill. They have decided—in my view, rightly—that it is better to borrow, even to borrow abroad, and better to chance increasing our external trade deficit over the next 12 or 18 months in the belief that the world international trade in general will improve. Indications are that this will be so. We may have to introduce severe measures. We may get to the stage where we cannot allow costs to rise any higher. It may become necessary for the Government to limit incomes by statutory measures. I hope that will not become necessary. The alternative to measures of this kind, however unpopular, would to be see inflation get completely out of hand with the consequent loss of jobs, mass unemployment and mass misery, particularly among the less-privileged and weaker sections of our community.

These measures will justify themselves only in the light of coming events. I believe that we must remain in the race as regards keeping our people employed. The risk of unemployment is the greatest risk of all, the greatest social danger, and even if it means going into debt to continue employment I believe this is the best policy in the long-term interests of the country.

In approaching the Finance Bill it is best that we should be able to reserve the detailed discussion of many of the more controversial parts to Committee Stage when we hope we will be able to get some further elucidation from the Minister in charge. I hope we will be able to have a reasonable Committee Stage debate next week and that we will not be subject to the all-night sessions which do nothing to enhance the standing of Parliament. They are something we should avoid at all costs and I hope they will be avoided here next week. I certainly will promise to do my best on this side to avoid that happening.

To discuss some of the financial happenings on the Finance Bill is rather difficult. There is a great element of guesswork involved. With the world situation as it is today, with such galloping inflation, it is very hard to predict what the next 12 months will bring. We have had sufficient shocks in the last 12 months to realise that nobody looking at the situation 12 months ago could have foreseen anything like the difficulties and troubles that the world at large and ourselves experienced. By and large, our performance has been much the same as that of other countries. The shock of the oil crisis experienced by the economy and the fact that we had to spend another £100 million on imports of raw materials will wipe out three to four years of real growth. The difficulty is that every section of the community resists any effort to wipe out its gains over the past few years and so the inflation merry-go-round continues.

We have had a spate of reports that come at this time of the year and, especially, the Central Bank report. In some ways it makes gloomy reading, but it is something that is salutary and we should take its lessons into account. The first question we must ask ourselves is: where does the cut-back policy begin? While we all would like to say that inflation is something over which we have little control, the Central Bank report makes it quite clear that only about half of the inflation is imported, that the other half is the product of the inevitable forces within the country, wages and salary rises, cost increases and so on, which are passed on. There is a very good case why they must be allowed, yet the cumulative effect is to double the amount of imported inflation. On the other hand, we are not an island in this and we cannot but take notice of something that is happening in other countries. The point is well made here that, if the United States could return to the stability that it had in the late fifties and early sixties, that would be a factor that would play a tremendous part in turning the corner on the inflation course. We do not see much prospect of that occurring at the moment, so I do not see what we can do in the short term, except of course increase productivity and try and cut unnecessary spending.

This is where I come to the first really card criticism of this year's budget. I hannot understand why there was no increase in tax rates on liquor and cigarettes. It was crying out for such an increase and we have the most striking statistics as to the amount of our total national product being spent on drink— £124 million. I cannot understand why the Minister for Finance was so remiss that he was not there to take the extra bit for the economy, and at the same time to damp down this tremendous spending on drink. In some ways it is a reaction to the uncertainty of the times in which we live. Today, with all the great increase in prices, one says: "What is the use in saving." Yet the Government would find that there are many places where the money got from drink could have been spent. I believe that it would not have been unreasonable to have expected at least an additional 5 per cent to 6 per cent increase on drink in the past budget. That would have brought in anything from £6 million to £8 million. Why was that money not taken up? I can think of a vast queue of deserving applicants for that £5 million or £6 million.

I hope that we will see the Minister for Finance back with an autumn budget and that it will be a budget aimed at repairing that deficit. I am not in any way attacking drink, as such. We can all enjoy a social drink, but the fact is that far too much of our income is being spent on that. It is the Government's duty to ensure that they exercise some moderating influence on it. I know the excuse that is being given, that if this were put on, it would aggravate the position in regard to the cost rise clauses in the national wage agreement, that it would push up the cost of living index so much that this, in turn, would add a few more percentage points to the cost of living index. If that is the case, it is high time that the cost of living index was altered so as not to give way to such obvious luxury or unessential spending.

Now we come to the greatest threat that hangs over us today: the balance of payments deficit, which the Central Bank estimates is likely to run to £150 million this year. More recent estimates would put it higher still. We are probably heading for £200 million or beyond it. Obviously that is a matter of the gravest concern. It is a problem facing practically all the countries in Western Europe today, yet it is one that we have to try and make our own efforts to do something about. Obviously the only way we can improve the balance of payments is to increase exports—one of the most positive influences—exports that have very little of an import content in them. That is why the central place of agriculture in our economy again is underlined. It is going to be much more underlined in the months ahead when once again agricultural exports will prove our only sure hope of securing any moderation in the size of the balance of payments deficit.

This is why I come to a second criticism of the budget, in that the budget—I hate to say it at this stage, but it has to be said—shows a lack of sympathy with agriculture and its problems. I do not mind the income tax on farmers which has been introduced in the budget. In fact, ten years ago the National Farmers' Organisation —now the Irish Farmers' Associsation —had been asking for this, provided that it recognised the fact that rates were a taxation on farming, and that these had to be included in this new system. In addition, the absolute necessity for the development of Irish agriculture should be recognised. At the time of the referendum decision to join the Common Market, we were all out advising on the great prospects that lay ahead for agriculture in the Common Market, when we had the figures to say that we should at least double our agricultural output, the number of cattle, by 1980. We had the estimates given for the cost of this. I think the estimate was something like over £1 million investment. Yet within two years of that, we have brought in by an Irish Government a budget which proceeds to tax farmers' incomes without making the slightest efforts to encourage farmers to reinvest some of their income in the further development of their farms.

We recognise that if we are to compete in Europe in agriculture there are three factors involved. There is the know-how, the manpower and the finance. As far as know-how is concerned or equipment for the job, we are far behind others, and in financial development and so on we are much farther behind than that. Therefore our approach to agriculture at present should be dominated by the necessity to encourage investment in agriculture, investment from the farmers' own savings because it just does not make sense today to borrow for investment in agriculture. Borrowing over the past two years may have seemed wise when it appeared that investment in agriculture could yield a reasonable return. That has succeeded in getting the most progressive of our farmers heavily encumbered with debt as the progressive farmers became after the first world war, and from which they did not recover for 20 years afterwards.

I would say in all seriousness to the Minister, and I say it as one who welcomed the change of Government and as one anxious for their success—I think it is wrong for any party to be too long in Government—that they are on the wrong road in agriculture. They must recognise that the Irish Farmers' Association, the Creamery Milk Suppliers are reputable organisations on the Irish scene. They are organisations that have played a temendous part in getting our farmers geared for the challenge and the opportunities of the Common Market. Therefore I would caution any Minister for Finance against treating their advice lightly or alienating them in any way. The approach to agriculture should be like the approach to the Bill we had on mining here some two weeks ago. The approach was that we had to get the mines developed. The capital had to be got for that. Those who invested capital in it had, first of all, the right to get back their investment before the State could expect to get its proper share of what was produced. I think the analogy to agriculture is fairly apt at present because it has had so many ups and downs that the capital in it is a high risk capital, and I think by and large the only source for that risk capital is the ploughed-back gamblings from the people concerned.

I hope that in the months ahead the Government will prove more sympathetic to the difficulties of our farmers. There was a report in today's paper by Professor Sheehy of University College, Dublin, showing that this year farmers' incomes will be back to 1970 level unless we can make an adjustment by getting the Green £ accepted, which would recover some of that loss. Basically the Minister for Finance will realise when the autumn comes the only means of holding some semblance of a line against the balance of payments deficit will be our agricultural exports. I hope then that we have a more positive approach, especially when it is realised the many advantages we have in the agricultural line. In the Allied Irish BanksReview we have the fact that 91 per cent of our agricultural enterprises are grass-based compared with only 37 per cent in the EEC. With the way that the cost of imported feed is going, the only means of survival is full reliance on our grass and its products. Consequently, we have a built-in advantage there. I hope the Government realise that the aims we had a year or two ago of doubling the output of our agriculture would mean almost quadrupling our exports. Let us not get could feet about that. Let us press ahead on it, but you will only press ahead on it if it is based on the retained savings of the farmers, large and small.

When that day has come there will be more for everyone. We hope that confidence will return again. Confidence, of course, has been badly shattered by the total collapse of the young cattle and the store cattle trade. We only hope that the very belated measures now taken by the EEC will have some stabilising effect in the autumn. If they do not, our Government will have to take some remedial measures. They cannot rely completely on the EEC for this. France is not doing it, and other countries that get into difficulties, including England, are not averse to putting a subsidy where it is needed. I believe there is a case for subsidy for the small cattle to ensure that these are kept for the beef we want to produce in future years. There is a big problem, but in this problem we have a very excellent Minister for Agriculture and Fisheries, a man who really knows what is required and who has sympathy with and understanding for the farming community and, indeed, a high standing with the farming community. Therefore, the Minister for Finance and the Government will realise the expert they have got in charge of agriculture and I hope they will give him the assistance and the tools that he needs to keep our agriculture on an expansionist course.

Many of the questions I should like raised are probably best dealt with on Committee Stage by way of amendment. There are some anomalies here that I find are very difficult to understand. Section 16 has been given as an anti-avoidance measure. This measure comes in when a man owning land and who is self-employed in a profession or trade has a valuation of over £50. Under £50, his land does not count. On the other hand, in section 28 there is a similar situation but this time the man is not self-employed, he is employed by somebody else. At that stage his land counts from £20 up. Why is there such a difference? His allowance is halved if his land is valued between £20 and £100. I should like to know why is there a difference in treatment between these two categories of people.

I feel that in section 28 the notional allowance by which a man with a farm of less than £100 valuation could take one of three courses but one of these courses would mean he would forfeit half his personal allowance. It seems that that puts an undue premium on being a bachelor. If there is a bachelor Deputy, it means he will lose half of £500, that is, £250 of his allowance would be credited against the farm, whereas another Deputy with seven children would have a total allowance of £2,200 half of which is £1,100. This seems to be a rough sort of justice where the bachelor would lose only £250 in allowances whereas the other would lose £1,000. Or, taking the situation as compared with last year, the man with the large family would have a much bigger jump in his tax assessment compared with the bachelor. Perhaps this is something which we can tease out a bit more on Committee Stage. I listened to some of the debate in the other House last night and it seems that these anomolies are there.

I should like to ask the Minister if he would give sympathetic consideration on Committee Stage to introducing some investment allowance in agriculture. I think that it is the only stimulus that can be given to encourage the owner to invest. I would like to move some amendment to that effect on Committee Stage. I do not envy any Government their task in such an explosive and inflationary situation. We all appreciate the difficulties involved but I think the criticisms I have made on the basis of apparent lack of sympathy for agricultural expansion and the failure to make the non-essentials, especially alcoholic drink, carry their proper share of taxation are justified. There are very grave defects in the present budget.

Any Finance Bill, because it affects in a most fundamental way the citizens, companies and commercial organisations of the State, is most important legislation. Its effects are far reaching from a social as well as an economic standpoint. Therefore, it deserves scrupulous and detailed examination by the Legislature. No one expects the levying of taxes to be received with jubilation by the community but to provide for our social services and to aid economic expansion, money must be provided and for this the Minister for Finance is, of course, responsible.

This year, the Minister into his Finance Bill has introduced a major change in the structure of taxation as a whole as, for the first time, the tax net has been extended to include the farming community. The farmer has a traditional role in our society apart from forming the greater section of our community. He has contributed more to the wealth and stability of our country than any other sector. His income was, for many years, unstable. He patiently weathered years of financial losses.

In the past year or two the farmers have incurred considerable capital expenditure and borrowed heavily in order to compete with our fellow Europeans in the EEC. This is encouraged, rightly so, by the Government. But, they now find themselves with some of their hopes quite shattered with the markets having collapsed, and this is the year, nevertheless, that the Minister chooses to further discourage them by the imposition of taxes. It may appear that that tax really only affects some farmers but I believe that it is just the thin edge of the wedge. Once the Bill has been passed the net can be extended to include all farmers no matter what their valuation is. All farming activities are brought in and all farming profits are made liable to tax. Some small farmers, however hard they worked, found it difficult to provide their families with a decent standard of living. The more committed and ambitious of these farmers, rather than leave their farms and emigrate, sought to increase their incomes by off-farm work. In a number of cases the wives co-operated by participating in such things as farmhouse holidays.

The Minister now proposes to disallow such farmers their personal allowances where off-farm income arises. This will kill off the initiative which was there and may lead to further rural depopulation. Socially as well as economically this is a bad thing. Every encouragement should be given to the faming community to stay on the land. It is our natural wealth and our rural population is the back-bone of the country. If the farmers are left free to improve the quality of their lives, the young may be more willing to stay on the farms.

There is another section of the community who must feel that Chapter III of the Bill is punitive to excess. The Minister may claim the Government restrictions on loans from building societies and the restriction of tax relief on interest loans may eliminate abuse in tax evasion, but it is not the speculator who will suffer. The thrifty citizen, usually a young man with a family who has budgeted and committed himself to purchase his own home finds that because of current increased interest rates and the proposed Government restrictions, he has financial commitments which he could not foresee at any time and may not be able to meet.

The problem which has been facing the building societies for some time is that they are unable to pay competitive rates of interest to attract and hold funds for house purchase lending. Social considerations have prevented them from raising mortgage rates in line with rates charged by other lending agencies. The building societies have been unable to offer investors the rates payable by the other institutions. This problem has resulted in a severe reduction in the availability of funds for house purchase. For example, in September, 1972 the clearing banks were paying 4 per cent on small deposits and 5¼ per cent on deposits over £25,000 while the building societies at that time were paying 5½ per cent free of income tax to investors. The banks were then charging rates ranging from 9 per cent to 11¾ per cent on loans to private individuals and the building societies 9 per cent on house purchase loans.

The position now, however, is that the banks are paying from 6 per cent to 10½ per cent on deposits while the societies are giving only 8 per cent plus the income tax. They have clearly lost the competitive edge which they had for so many years. Until it is restored, there will not be sufficient money available to meet the needs of house purchasers. The temporary subvention 14 months ago by the Government has enabled the building societies to pay the present 8 per cent investors' rate of interest while holding down the borrowers' rate to 11¼ per cent. This compares with the current bank lending rates to private individuals ranging from 14 per cent to, I understand, 16¼ per cent according to the length of the repayment terms.

Comparisons with other institutions offering investment and borrowing opportunities show that the building societies have similarly lost their competitiveness. The period of high interest rates will continue for a long time andad hoc measures are no longer sufficient or appropriate. If relieved of the income tax which they pay on their investors' interest the societies could then offer a competitive rate on investments without receiving any subsidy from the Exchequer. Subsidies payable to the building societies are now running at an annual rate of £3 million, I understand.

Near that. I am sure the Senator appreciates that if they gain that tax concession it will be equivalent to an additional subsidy of £5 million— it will be a loss to the revenue of £5 million.

I intend to present a point to the Minister which I hope he will deal with. I should like to deal with points he has raised in the other House. I would appreciate if the Minister would deal with that point and I am gratified that he thought it so important as to advise me at this stage.

I will keep the Senator straight.

He is welcome here tonight. He had a hard night in the other House and we would not wish to annoy him in any way. I mentioned a subsidy running at a rate of about £3 million. The subsidies, however, have not been sufficient to maintain the flow of funds into the societies. The exemption from income tax of the interest would represent a loss of £4 million in tax revenue in the current year. I understand that this figure is almost correct. The spin-off in benefits to the community would transcend such a loss. Money being used at the moment to finance less desirable projects from other finance institutions would be directed once again towards housing, relieving and complementing the local authority efforts, enabling the achievement of the national housing objectives, restoring the building industry and ancillary services of builders-suppliers, furniture retailers and manufacturers to the level of activity which existed two years ago.

The restoration of business activity is of paramount importance to the economy, not only in terms of employment but in the buoyancy of taxation revenue which would ensue. By giving the building societies this income tax relief the benefits would not only be to the investor, who would receive a higher rate of interest from the societies than at present. This would merely replace what he can now receive from other institutions. It is irrelevant whether he or the institutions pay the tax. The benefit would go to the borrower as his interest rate would be lower than it could possibly be otherwise.

People may argue that the rich people would benefit as a result. This could be very easily remedied by limiting the amount of each individual's investment. It should also be understood that the exemption sought would stop at the 35 per cent tax rate. The difference between that rate and the higher rate would still be levied directly on the individual in the same way as surtax was assessed in the past. Tax concessions to promote housing finance is a feature of other European countries. Building societies do not exist to make a profit to the same extent that a joint stock company does. The societies are mutual institutions. I am quite satisfied any surplus revenue over outlay is very modest indeed. It provides societies with reserves to meet their growing commitments and would remain liable to income tax in the hands of the societies. The proposed measure to exempt the building society interest to the investor from income tax would be of incalculable benefit to the national well being. Any tax lost would be more than compensated for by the recovery of the building industry and the subsidiary activities related to construction, materials and household necessities, by the maintenance of employment in the sector and the accompanying tax revenue rather than redundancy and unemployment costs. Most of all it would enable families and newly-wed couples to provide themselves with the basic necessity of a home.

At this stage I should like to deal with a number of sections contained in this Bill, in particular sections 59 and 73. I would be surprised if the Minister was not aware, judging by the wording of section 59, that it is not confining itself to the particular purposes stated. On reading it closely it is evident that it is open to the Revenue Commissioners to apply this section to areas beyond the scope of this Bill. In brief, I feel it is giving the Revenue Commissioners unlimited powers in the invasion of the individual's privacy.

Under this section, the Revenue Commissioners may require anybody to furnish them with such particulars as they think necessary for the purposes of sections 57, 58 and 60. The Bill does not protect anybody from having the disclosures being made about matters which do not come under sections 57, 58 and 60. The Minister should give immunity to anybody who would be affected by such disclosures in respect of any other matters under the Income Tax Acts which do not relate directly or indirectly to matters under sections 57, 58 and 60. The public, who are masters of the Oireachtas, are entitled to full disclosure by the Revenue Commissioners of the effects of the Finance Bill, 1974, on their personal and financial affairs. It would appear that under section 59 (1) the Minister is attempting a new form of nationalisation, mainly, stealth by omission; that is omission to make the public fully aware of the Act. Subsection (2) compounds the Minister's mistake by introducing a retrospective aspect in the legislation. Paragraph (a) states:

as to transactions with respect to which he is or was acting on behalf of others,

Again, I feel that the Minister should remove the phrase "or was acting". If he fails to remove that phrase he should impose a strict time limit in respect of the retrospective element in that subclause.

In respect of the persons who may be required to furnish information to the Revenue Commissioners, it would appear that the Minister, or perhaps his advisers, are under the illusion that the vast majority of people are solely committed to evading their proper tax liabilities. I am also concerned, that the Minister, again by stealth, or perhaps to satisfy the whims of others, is intent on destroying the professional bodies in this country; that is to say, most of the tax advice is presently given by various members of the accounting bodies and the Bar Association. This is quite a serious matter. Does the Minister seriously suggest that the vast majority of these associations are full-time felons?

In respect of subsections (3) and (4), the Minister, or his advisers, have given a limited relief from the obnoxious clause to solicitors and bankers. One is bound to consider whether in respect of these two professions, that subsections (3) and (4) will not be repealed at a later stage, thus giving nobody in any profession any relief. Having given very careful consideration to section 59, I cannot see how the Minister could possibly allow the Bill to advance any further without excluding this section.

I am shocked to find that the oppression of the professional bodies is compounded by the Minister's flight of fantasy in section 73. Under section 73 the Bill is deliberately vague in its wording. It states, in subsection (3):

Every person shall, at the request of any inspector, or other officer acting in the execution of the Income Tax Acts, produce as soon as may be to such inspector or officer, as appropriate, any survey or valuation or record on which the rates for any rating area, or part thereof, are assessed, made or collected, or any rate or assessment made under any Act relating to the county rate or municipal rate, which is in his custody or possession and permit the inspector or other officer to inspect the same and to take copies thereof or extracts therefrom, without any payment.

Unfortunately, I do not have the benefit of the learned advice that the Minister has in the interpretation of this section. It would appear that anybody, not necessarily an employee of the local authority, can be subjected to an inquisition in respect of any survey or valuation or record in respect of any property on which the rates are assessed. I fail to see the purpose of entering this subsection in section 73 for the purpose of merely discovering the information as set out in the explanatory memorandum on section 73.

In the explanatory memorandum it would appear that the purpose of this section is to empower an inspector or other officer to obtain, from a rating authority, details of rateable valuation to deal in valuation. I am sure it is the common impression of this House that the public rateable valuation begins and ends with the rateable valuation of their house, farm or other property, and does not extend to any survey, valuation or record in respect of property which may be lodged with the local authority.

Therefore, in the event of ascertaining the rateable valuation of property, subsection (3) will contribute information additional to what could be got under subsection (1). The only purpose for retaining this subsection is to gain access by stealth to information for wealth and capital gains tax, which are not covered by Schedule D. If the Minister, or his advisers, require the information they should do so openly and draft the appropriate amendments to the wealth and capital gains tax.

The Minister should remember that the income tax code should not develop into a witch hunt. The ultimate aim of all laws and that includes all tax laws, is the increased welfare of all citizens. This cannot be obtained by a tax code so punitive that it drains the resources of existing business to such an extent that instead of any further development they can become extinct or that it discourages the extra effort of ambitious youth. What we need now, but what we are not getting, is a feeling of stability in leadership and positive proposals from our Government.

I will be brief because the briefer I am the quicker this Bill will become law and the reliefs embodied in it will become available to the people who have been paying under the PAYE system over the years. The quicker will there also be established a sense of social and economic justice in the field of individual taxation. Up to now in this particular area a feeling of discrimination has existed.

There are enough divisions in this country over some of which we have absolutely no control. We can exercise some control over some and one of them has been in this field of personal feeling as between rural and urban communities, namely, as regards what the farmers got away with and what the urban dweller had to pay under the income tax system. This Bill will remove this discrimination which has existed over the years and, for that reason, it is to be commended. The Minister has at long last grasped this nettle.

What has the Minister been trying to achieve by this Bill? There are three points—irrespective of what I would call a mixed Irish stew—which have been thrown at him by the Opposition today. It is probable that tomorrow he will be blamed for the bad July weather.

The Minister has attempted to tackle the problem of tax evasion. One example of this existed under the Finance Act, 1969, where farming profits were exempted for income tax purposes. No doubt this led to certain well accepted abuses and avoidance in the years since then. It is good to see this measure being brought in to put an end to that type of tax evasion. The Minister is attempting to reform the existing tax calculation system, to simplify it as far as one possibly can simplify such a complicated structure as the income tax system, and he has adjusted allowances to a more appropriate level to what they should be in today's circumstances. The Minister has introduced income tax in the farming community not by stealth, as Senator Hanafin implied, but on a very fair and open basis. He has started off with a valuation figure of £100 and indeed we find from his speech that under this graduated scale system the figure of £119 valuation will have to be reached before the full amount payable in tax will be due. He also has covered the case where a farmer has only £50 valuation and another source of income outside farming.

This is only social and economic justice. The discriminatory method of income tax which has been looked upon by all urban dwellers over the years as an injustice has been a contributory factor to a feeling of division between rural and urban communities. This is one little step, small though it may be, which will help to narrow that division. The Minister has attempted in the transitional period to ease the burden placed on any farmer under these proposals. He has imposed a notional figure which, when we look at it closely, is less than it would have been 12 months ago and which is less than it should be on average taking into account the earnings of farmers in the last few years. The Minister has told them that the actual 1974-1975 figure will be the accessible figure in determining what tax they have to pay, if any. The losses can be carried forward from one year to another.

The argument has been made that the time is not opportune for this system. I regard the mentality behind this argument as one of trying to be all things to all men. There is a social justice that must be grasped and it must be grasped immediately. This is what the Minister has done.

The Central Bank's report has been bandied across the floor this afternoon. It is fortuitous for the Opposition that it has come to hand. In presenting the black side of that report they should have, on balance, given an indication as to what the Central Bank had to say as regards economic development and the outlook in other EEC countries and throughout the world in general. If they read page 55 they will find what the situation is for other countries and, on reflection, I am sure they will agree that we are not doing so badly after all.

The Opposition have a béal bocht about them in this debate. They have become the prophets of gloom this afternoon, crying wolf at every opportune moment. When the Opposition persist in this argument I see in them a sense of worry because they realise that these cries of gloom and foreboding and disaster for this country are not registering with the public. That is what is worrying them. They have only to look into their own hearts to find the reason for that. The public are not so easily lead astray nowadays and it is not so easy to plant in their minds mischievous assertions that blame the Government for everything. The people have access, through the media, to what is going on in the world and they know that our positionvis-á-vis most other countries is not too bad.

When this present cloud of recession lifts, as undoubtedly it will, I have no doubt that what the Minister did in his budget of last April will prove correct. The Central Bank—just to balance statements or quotations out—acknowledged he was right. On page 17 of their report they said:

it appeared in early 1974 that the rate of growth of the Irish economy this year would be little more than half that achieved in 1973. While the prospect for growth now seems somewhat better than this, largely due to increased public sector investment,

We owe that more optimistic outlook for the future to the Minister, which is more than the Opposition would lead us to believe.

My contribution on this Bill will be very brief and I reserve the right to criticise the Bill more fully on Committee Stage. I criticise the Bill on what it does not contain rather than what it contains. Going by the Minister's speech, I believe it was designed solely to please certain sections of the community who have a political way of thinking rather than trying to do justice to as many people as possible. Anybody who has read the Minister's speech will know, without any doubt, that was the thinking behind the Bill. It was more important to please certain sections of the community, because of their political affiliations, in order to create the idea that everything was being done to promote the more socialist and just society we hear so much about at present.

It is extraordinary that in this Bill we have approximately one chapter dealing with new methods of taxation. I refer to income tax on farmers and farmers who have off-farm employment. These people have found it necessary over the years to find off-farm employment because their farms were inadequate to provide them with a proper income. When people talk of taxing farmers I ask them: "Why was it necessary for every government in the world to subsidise agriculture over the past 20 to 30 years?" It was necessary to subsidise those engaged in agriculture because they were unable to provide themselves with an income from agriculture. All governments found it necessary to subsidise farmers in as many ways as possible in order to provide them with a reasonable income.

Because farmers have begun to come out of the woods some think they became millionaires overnight. That is not the case. It is true that they had good years in 1970, 1971, 1972, and part of 1973, but immediately everybody said: We must tax the farmers. Every housewife complained of the price she was paying for farm produce but she forgot that the middle-man was getting more out of it than the farmer who produced the goods. The result of all this was that an anti-farmer climate was built up within trade union circles, within housewives' circles, through the media and elsewhere.

Everybody felt that the farmers were making a fortune, that it was time to get hold of some of that loot and channel it back into the Exchequer to have a more equitable distribution of wealth. It is well to ponder for a moment to try to realise the hazards that have been associated with farming over the years. First, why was it necessary to subsidise farmers? It was necessary because they did not have an adequate income. We must bear in mind that farming is a game of chance. If a worker has a job in industry he is guaranteed a weekly wage and he knows, no matter what happens, he will get that wage, but the farmer has no such guarantee. He may have his good years. The past few years were good years for the Irish farmers but this year is a disastrous one.

It is extraordinary that the Minister thought fit to introduce those new measures at a time of crisis in agriculture. This is the most inopportune time the Minister could choose for his new taxation measures. No farmers objects to paying his fair share of income tax or other tax, so long as it is an equitable and fair system. VAT was introduced on all agricultural purchases in 1972 and, from rough research I have done, I have discovered that the average farmer at the moment pays £100 per year in the form of VAT which he did not contribute prior to 1972. Therefore, he is already making a sizeable contribution to the tax returns.

I should also like to remind the House that the high rate of value-added tax which is being charged for certain items of farm machinery should be taken into account when the Minister is assessing income tax on farm incomes. No farmer buys goods, such as machinery, just for the sake of buying them. He buys those items because he needs them if he is to derive an income from his holding. Therefore, he is contributing a form of taxation which his brother in industry does not pay. He is paying in the form of tax on farm machinery. In some cases VAT at 19.50 per cent is charged on certain items of farm machinery. That is very high as the average is 6.75 for most other goods.

Those factors should be considered by the Minister before this Bill becomes law. I believe that he must consider that the farmer is already paying millions. The figure I got roughly was £100 per farm which is an average of £2 a week in new taxation, which the farming community did not pay prior to 1972. That is one reason I advance at this time why income tax should not be levied on the smaller farmers, those who have a job and their small farm.

The reason that most of our farmers, or their wives, took up this type of employment was because they needed it in order to make a living. I am not particularly worried about the bigger farmer because he is in a position to withstand this form of income tax. He is in a position to withstand more than one bad year in agriculture. I am worried about this new system of taxation which is about to be levied on the part-time farmer. He is part-time because he had hoped to provide additional capital to enable him to add to his holding and so eliminate the necessity for off-farm jobs. The Minister is actually putting a tax on thrift when he puts a tax on the farmer or his wife with the part-time job. He is killing the intiative of people who are prepared to work seven days of the week and long hours each day. I know of many part-time farmers who, when they come home from work in the evenings, go out to work on their farms. That goes on seven days of the week. Those people will no longer have the incentive to try to provide themselves with additional capital in order to purchase a small addition to their holding and so eliminate the necessity for those part-time jobs.

It is widely rumoured that this development is just the thin end of the wedge in so far as taxation of farmers is concerned. It is believed that next year the Minister will reduce it to £75 per farm valuation. He will be getting many more people into the net but he will have some difficulty in collecting his first instalments of the tax from the farmers with the £100 land valuation. I am convinced that this is going to be a very expensive scheme to administer. The old proverb is still valid: farmers are born in debt, they live in debt and they die in debt. Any banker or financier can say that they hold 85 per cent of all land certificates. The few that are lodged in solicitors' offices or safes are very few in comparison with the amount lodged against overdraft accommodation or loans with the Agricultural Credit Corporation or the banks.

The Minister should have taken into consideration the indebtedness of all farmers. Farming is a game of risk and farmers indebtedness has never been fully understood. There are good years and bad years but coupled with that, as I said earlier, no farmer objected to paying his fair share of taxation. It must also be borne in mind that he is paying rates on land above £20 valuation. That is a substantial levy already on his land.

When I made some inquiries with regard to the amount of rates many of our farmers are paying on land and buildings, I was amazed. The man with the job pays rates on his house only, but the farmer pays rates on his land, land which he uses to provide himself with an income which his partner is already guaranteed in industry, in professional services or in whatever job he has chosen.

The Minister's timing in introducing those new sections was wrong, partly because this year has been a disastrous one for farmers. It is a year in which other countries are finding it necessary to come back to the aid of the farmer. Many farmers felt that when we became members of the European Economic Community all farm subsidies would go, The farmers were jubilant. They always felt that they would like to see the day when they could stand on their own feet and make their living from agriculture. We now find that European countries have gone back to the idea of subsidising the farming community in an effort to tide them over their difficulties. This year will probably be unique in that it will be the first year in our lives that farm subsidies are much lower than any other year; they are lower in many ways: the farm modernisation scheme has taken over from the land project, the farm building scheme, the local improvements schemes and many others. The result is that the farm modernisation scheme has not got off the ground and there is no work being done in that sector. There will, therefore, be another saving to the Minister for Finance, a saving on schemes usually administered by the Department of Agriculture and Fisheries.

The time was inopportune to introduce this Bill with its new methods of taxation. The inability to pay should be considered and the fact that already, through VAT, thousands of farmers are included in the tax net. That should be taken into consideration. If you want to make farmers liable for income tax, you must make allowances for the goods they purchase on which they pay value-added tax. They must pay this tax out of necessity because they must buy spare parts for their equipment and machinery. They must replace worn out parts and obsolete farm machinery. On all those items they must pay value-added tax at rates varying from 6.75 to 19.20 per cent and that is yielding a huge amount of revenue to the Exchequer and it is something the Minister must take into consideration, especially now when agriculture is in the doldrums.

My contribution wil be brief because, like previous speakers, I think it is on Committee Stage that the most useful comments can be made on this Bill. The only sections that I wish to deal with now are those affecting the farming community. A certain section of farmers are now about to be penalised by this Finance Bill. I do not object to taxing people who should be taxed. That is only right and there are, perhaps, some very big farmers—when I say "big" I mean in the £200 valuation category—who should be taxed, but this year is certainly not the year for imposing a tax on the farming community when their confidence is completely undermined. There is no need for me to say why their confidence has gone. Last year and in other years they were getting excellent prices for their cattle, sheep and pigs. This year that is all gone. We were of the opinion that once we got into the Common Market, all our problems would be solved. Those of us who travelled through Europe, especially in the EEC countries, before entry were amazed at the high prices European farmers there were obtaining for their products and we were sure that, once we got into Europe, our incomes would be brought up to the level of all other sections here. Unfortunately that has not been the evolution—not yet anyway. It looked as if it would be the evolution the first year of entry but, this year, the reverse is the position.

Taxing farmers on a valuation basis is most unfair because valuations vary, not alone from county to county but from townland to townland, not to mind parish to parish. I know farmers with only 60 acres of land and their valuation is £100. I know other farmers not a mile away with 200 acres of land and the valuation is only £90. In recent years, due to good management drainage, manuring, and so on, a great deal of bad land has been made good land and it is now able to keep the same number of cows per acre, the same number of dry stock or sheep as the good land. It might be asked why did not the fellow with the good land make his land twice as good but you reach a stage in land where you cannot improve it and the man with 50 or 60 acres who had made a good job of his land could not go any further.

Is it fair that a farmer with 70 acres of land carrying a valuation of £100, milking 60 cows, should pay income tax while his neighbour, with 200 acres and a valuation of £90, milking 60 cows, should be exempt from tax? Such a system of taxation would be very unfair and farmers, if they are to be taxed, should be taxed under some other system. We were told that there are only 9,000 farmers in this bracket—the £100 valuation bracket, or over—but I understand it has since been discovered that there are more than 9,000. I know in County Tipperary there are 600 of those farmers.

Perhaps I should mention that there are 8,800 above the £100. There are about 7,000 in the other category, that is above £50, who have other incomes as well. That makes 15,000 in all.

It is 9,000 above the £100. The farming community feel that taxing the £100 valuation man this year is just the thin edge of the wedge and, next year, the man with £90 valuation will be taxed and, in a few years, every farmer will be brought into the tax net.

In the last six months farmers' incomes have fallen rapidly while expenses have increased considerably. Young cattle cannot be sold except at give-away prices. The cost of feeding and everything else has doubled or even trebled. The only section of the farming community not seriously affected just yet is the dairying section. Dairy farmers are getting a good price for milk but, if they are getting a good price for milk, they are getting a very bad price for calves; calves that were sold for £50 last year are making only £10 this year. Costs have gone to a point at which they are reducing the profit of the dairy farmer. The cost of manure, feeding, hay, anything you mention, has jumped.

I often hear people from cities and towns talk about how well off the farmer is. They envy the farmer if they see him getting a big price for cattle, for wheat or for beet. They forget about all costs. If the farmer has an exceptionally good year they think he is a millionaire. Farmers consider themselves lucky if they have one good year in three. I wonder would the Minister be prepared to tax them on that basis. I am sure if he averaged their profits for three years he would find their profits are practically nil. If the farmer was paid for the hours he works he would be the highest paid person in the country. Actually he is the lowest paid. Most farmers work 12 hours a day, six days a week. If a man is a dairy farmer he has to work seven days a week. One hears other sections grumbling about paying income tax. I am quite sure that the farmer would be only too willing to pay tax if he had the same working hours and the same working conditions as other sections and little or no responsibility.

When entry into Europe was first mooted some years ago farmers were led to believe that, once we got into Europe, there would be no rates on agricultural land and, instead of rates, one would pay income tax. Most farmers were quite satisfied with that because they felt the burden of income tax would not be as great as the burden of rates. Now we find that, as well as paying rates, we will also be paying income tax.

To compel the farmer to pay income tax and rates is the last straw. We all know about the last straw being the one that breaks the camel's back.

Another section of the rural community will also be affected by this Bill, namely, the farmer's wives who run guest houses or holiday homes where the valuation is over £50. Most of these run a small business during the summer months. The profit is very low; it could be described as mere pin money. If the provision here is implemented many of these people will be forced out of business. That will mean a loss to the tourist industry as well as to the farmers' wives. If they are to remain in business they must increase their charges and that will put holiday homes out of the reach of Continental visitors and Americans, as well as out of the reach of students and retired people living on pension. Farmhouse holidays are most acceptable for those who wish to savour true Irish hospitality, with personal attention, fresh food and open fires, something we do not see very often nowadays.

It was only in recent years that this holiday scheme really got a boost and became popular. It has helped to give new life to rural areas. Villages benefitted considerably as a result of visitors staying in guesthouses. The tourist industry benefitted also. Whatever money was made in running guesthouses in the past few years was ploughed back into the houses again, to build an extra room, perhaps, or add a bathroom, and, if these people are taxed now, they will have to go out of business.

If I might interrupt the Senator: I tabled an amendment to the Bill last night in section 16 (3) which exempts the farm guesthouses from tax.

I am very pleased to hear that. I would like to thank the Minister for having done that.

I have a certain amount of sympathy for the Minister for Finance at a time like this. Over the past number of years we have heard it said by practically everybody caught in the tax net, and also by the people receiving small social welfare allowances, that there was a great deal wrong with the system of taxation. On the other hand, we had farmers and small business people continuously complaining about the system of rates; we all know it is not the ideal way in which to levy taxation on any section of our community. It is, of course, only natural that people who get relief will complain, particularly this year when they are experiencing a very serious inflationary trend, that the reliefs are too small, while, naturally enough, all the people caught under the new clauses in the Bill will complain that this is the wrong time in which to levy extra taxation on them.

I have a great deal of sympathy for the farming community in the trying year that they have just experienced. All of us realise that farmers are discouraged and to some extent, disillusioned because of what has happened in the past year. Having entered the EEC, with all the prospects of a common agricultural policy which would guarantee the farmer an income that would give him equality with other people in his own particular region, we find that this has not been the pattern and farmers are very, very disappointed indeed. But I believe this is to a large extent temporary. The common agricultural policy of the Community, if it is protected by all the member States, should be successful. As the country with most to gain per head of income from this policy it is in our best interests to protect and maintain the common agricultural policy with all the power that we can commend and all the influence that we can bring to bear on our neighbours in Europe.

After the disappointing experience of a reduction in income and being told that markets for bacon, pigs and milk could not be filled for the next decade, we found Irish farmers in great numbers rushed to the financial institutions, such as the Agricultural Credit Corporation, which has been generous and considerate in supplying finance to farmers over the past three or four years, and to the banks which have, though to a lesser extent than the Agricultural Credit Corporation, made a contribution to the financing of agriculture to enable farmers to reap the benefits of the common agricultural policy and the better prices farmers hope to get in the future.

At this stage it is natural that farmers should view with some dismay the idea of introducing any form of taxation which might threaten to make life even a little more difficult for them. It is only natural they should ask why, at this particular time of all times? At this particular time we have a new Minister for Finance. We have a new Government committed to pursuing equitable policies, policies which will be seen to be equitable to all sections of our community. It is only natural that a socially, conscious Government, a Government prepared to listen to all sections of the community and a Government concerned for the working people and those in receipt of social benefits, would listen to the voices of all these people. There is a section of our community which earns a better income than other sections and the people in that section have got away without making any contribution to the national kitty by way of direct taxation and it is only fair that the Government should take note of that and seek to allay the worry and concern of those who feel they have to pay more than their just share.

The Minister has approached this matter with the absolute concern that a Minister for Finance should have for any section of the people. He has consulted with the farming interests involved and he has approached the matter in a very informed way. He has, at the same time, introduced us to the idea that every section of the community must be taxed according to income. Every individual must be taxed according to the income he has. Even if this has certain repercussions and certain effects on our major industry, nevertheless, it is important that the Government should be seen to treat all the people of the nation equally when it comes to the question of who pays what according to his income.

The point about the fall in farming incomes over the past number of years has been sufficiently well made by the Opposition in the other House. So have the difficulties facing the farming community. Regardless of valuation, the argument being made is that farmers with over £100 valuation will be caught in the tax net. This is not true. No man has to pay income tax on his valuation alone. Some farmers get unemployment assistance based on valuation. That scheme was introduced for a particular reason. It was designed to ensure that a small farmer developing his holding would not be deprived of assistance and production and progress retarded. It was a good idea.

So far as income tax is concerned, there is no suggestion that a man has to pay income tax according to his valuation alone. Farmers may not be fully aware of this. There has been too much talk about taxing farmers. The question is not one of taxing farmers because their farms carry a particular valuation; they will be taxed only if they achieve a certain level of income. This is an important factor.

Out of the very small number of farmers, 9,000 in all, who have a valuation in excess of £100 only a small percentage will have to pay income tax, taking into consideration the level of borrowing on many farms of this size, and the many hard years through which farmers lived before our entry into the EEC. Entry encouraged them to go on to a new programme of borrowing and investment and many farmers are now repaying loans and mortgages, both short-term and long-term. Taking all these matters into consideration, only a very small percentage of farmers over the £100 valuation will have a tax bill to pay at the end of the yar.

It has been suggested that part-time farmers with a valuation of over £20 will be caught in the tax net. That is not correct. It is clearly stated in the Bill that, so far as these farmers are concerned, until now they could claim all their personal allowances out of their non-farm income. Now, according to the Minister's statement, the restriction will apply only to the rateable valuation and, from now on, the farmer will be able to off-set only half his personal allowance against his non-farm income. The man with a valuation of £20 works a very long day and we must take into account the overtime he works and the normal industrial rate he would get if he were to work the same hours in his job as he does on the land. When we take into consideration his positionvis-á-vis the man who works beside him in industrial or other employment, who may live in a council house and must pay rent, who has an income of £30 per week approximately, and has no other income on which to fall back, we know that the latter is forced to pay tax out of his wages and in regard to the man with the £20 land valuation—in some cases this consists of 30 or 40 acres; in other areas it may be 20 acres—is it not only fair to provide that this man should be allowed only half his personal allowance out of his non-farm income?

What the Minister seeks to do in this Bill in relation to agriculture is not to raise money from the agricultural community; the Minister does not believe that, as a result of this Bill, any worthwhile revenue will come into the Exchequer from the agricultural community. I believe that the level of farm income is so low at present that the farmer has nothing to worry about from the point of view of taxation. The Minister is merely establishing the principle that every citizen must pay his fair share towards the national welfare out of the income he makes.

I should like to see this whole matter thought out more carefully before taxation is applied to the farming community. There are many other sides to this problem which will have to be looked at. While farming may be described as a business, involving a system of keeping accounts, day-to-day changes in values of stock, the high risk involved, different incomes from different types of farming, and therefore the rateable valuation not being an indication of a man's capacity to earn money. All these matters will have to be carefully weighed up before the taxation of the farming community is finalised. Some people say that what the Minister is doing is the thin end of the wedge. It all depends on how one looks at it. Is it the thin end of the wedge driven into the farming community to exact from them payment of taxes they cannot afford? I do not see it in that light. This Bill presages the introduction of the principle of fair play for every section of the community but, before that principle is extended to cover the farming community, the Minister and his advisers will have to consult with all concerned and take into consideration fluctuations in prices and all the other concomitant disadvantages, together with the question of rates on land and buildings. All these matters must be reviewed before there is any question of the application of the principle of income tax to agriculture in any wider sense than is laid down in this Bill. The Minister has had to face a very difficult task and it is inevitable that those in Opposition should make a case for those on whom taxation is raised. The Minister has ably and conscientiously taken into consideration the problems and gone a considerable way towards the introduction of a taxation system which is fair and equitable to every section of the community.

The whole question of social welfare and aids for the under-privileged and other sections of our community must, naturally enough, come into the calculations. It is a pity that the rate of inflation we have experienced during the past year has made things so very difficult for every section of our community. Despite our best efforts, inflation seems all the time to keep that little bit ahead of income. Nevertheless, the Minister has done everything in his power to balance the situation and introduce a system which is fair and equitable to all sections of our community.

Naturally, the Opposition are tempted to cry out and complain about the plight of the farming community. We do not blame them for taking advantage of the situation and pretending they are very concerned.

Debate adjourned.
The Seanad adjourned at 10 p.m. until 10.30 a.m. on Friday, 26th July, 1974.