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

Before we take up consideration of the Committee Stage of this Bill I should like to indicate that I have ruled recommendation 31 in the name of Senator Yeats out of order as it involves a potential charge on the public revenue.

In regard to the grouping of the remaining recommendations for the purpose of debate I would suggest that (a) recommendations 3 and 4 be taken together, (b) 7 and 8 together, (c) 17 and 18 together, (d) 20 and 22 together, (e) 26 and 27 together, (f) 28 and 29 together, (g) 32 and 33 together, and (h) 35 and 36 together. For the convenience of Members the groupings will be mentioned again when we come to the various recommendations.

These are not agreed yet?

This is for the information of the House. The groupings will be mentioned when we come to the recommendations.

SECTION 1.

Question proposed: "That section 1 stand part of the Bill."

Am I correct in thinking that the deletion of the words "assessable income" is the first statutory step towards eliminating the differentiation between earned and unearned income? This differentiation was introduced long after the introduction of the income tax code. A considerable amount of debate took place prior to its introduction. I understand why it is desired in modern industrial circumstances to make clear that a large number of people who are paying income tax are not being taxed at the rate of 35 per cent but at 26 per cent. This is the political—in the wider sense of that word—and social justification of the change, to make the rate apply in fact, the rate which is nominally used, to produce the tax return. It can be justifiable to apply such a rate to categories of income without it necessarily following that you abolish altogether the differentiation between earned and unearned income. There is a signal difference between the two. Unearned income can justifiably be treated at a higher rate of taxation in so far as the recipient of that income has a higher taxable capacity than the person who has to go out and earn it. If he does not do that he does not have an income: the other man can realise capital to meet the charge.

The possible introduction of the consideration of wealth tax may weaken the contention but perhaps it is worth raising the question here. The points which arise from that general regard to rates and so on may more properly be made on a later section.

The section employs an existing term, "reduced rate". "Reduced rate", as it is in the code at present, is applied to situations which exist where the recipient of the income in question is enjoying a reduced rate of taxation because the type of income he receives has the benefit of export tax relief, to take one example. Now we are applying the reduced rate phraseology in a manner which could be confusing to a segment of an individual income as distinct from a type of income which the taxpayer receives. Would the Minister not consider it more appropriate to use different nomenclature here in describing that lower rate, which might be the term used to describe it, rather than use the term which is already in the code and applied to an entirely different type of situation.

It might be an appropriate moment to say that it is difficult for the Minister to consider doing anything that may arise from anything that is said today having regard to the time and circumstances under which the House is debating this Bill because if we discovered some shocking matter in some line of this Bill it would have to be written into the legislation, if the majority so decided—shocked though they might be—because there is no Dáil now to take our recommendations. This leads me to suggest that the Minister might consider it appropriate to have a miscellaneous provisions Finance Bill every year. This would take in all the technical changes which could receive objective consideration to which they are entitled. Our observations could be considered by the Dáil, which would still be in session. The ordinary Finance Bill would deal with the policy changes of the year. It would fundamentally have been decided by the will of the people as expressed in Dáil Éireann and could go through at this time of the year. We might have an annual Finance Bill dealing with technical matters which would come before the two Houses in, say, October to the spring. I hope that is relevant to this first section of the Bill.

This is a welcome suggestion from Senator A. FitzGerald. It is a rather fruitless exercise going through constructive technical amendments. A number of amendments are down in the knowledge that they are recommendatory and as the Dáil is not sitting nothing can be done about them. It is more appropriate that we separate the policy matters in the Finance Bill consequent on the budget from the various reform provisions that are necessary in the actual machinery operating in regard to the whole tax machine. The idea of having a miscellaneous provisions Bill dealing with such matters at a time of the year when Dáil and Seanad could give full consideration to it on Committee Stage and make contributions of a constructive nature on technical aspects could be considered by the Minister. That type of discussion should be separated from policy discussion. It could be seriously considered by the Minister.

I would hope that this is the last occasion on which Oireachtas Éireann would find itself dealing with a Finance Bill of this kind at a time when one of the Houses has already risen for the long vacation. The change in the financial year will impose new disciplines and a new time schedule which ought to bring about a situation in which the principal Finance Bill of the year would reach the Dáil in April/May, and be in this House by June or early July. It could possibly be a great deal earlier but it would seem more than likely that in future the other House will be sitting when this House is considering the Finance Bill. No Minister for Finance arranges the business of the other House or of this House so I cannot say with certainty what may occur, but it is reasonable to anticipate that the same dilemma might not occur on future occasions.

The new definitions in section 1 are required because of the new method of taxing for the year 1974-75 and subsequent years. It is, therefore, necessary to amend the definitions contained in the 1967 Act which will be no longer applicable to the new régime of taxes. I can see that there might be some semantic confusion as visualised by Senator A. FitzGerald but dare I say that this confusion might only occur temporarily in the minds of the experts? To the ordinary person the exercise of looking back to what occurred some years ago does not apply. They are primarily concerned with what is occurring currently andin futuro. That is what will really matter so far as definitions are concerned.

We are dealing with the taxation system from now on. If anyone wants to find out what a particular set of words mean in earlier periods he will have to go to the 1967 Act. From 1974 on, of course, the 1974 Act will apply.

The old definition of assessable income was total income less earned income relief. Since earned income relief is being abolished there is no further need for the definition of assessable income. The abolition of earned income relief is being compensated by a new reduced rate of tax in conjunction with increases in the various personal allowances.

As regards paragraph (d), I can understand what Senator A. FitzGerald said about the reduced rate. He accepts that there are certain constraints with regard to what the Minister for Finance may accept at this particular stage. I do not think the use of similar terminology will, in practice, cause any confusion or difficulty.

With regard to the timetable for passing the Finance Bill, the Minister knows far more about such matters than I do as an ordinary layman. I would be surprised to find that his optimistic assessment of the situation to be brought about in future years was correct. Up to now the Finance Bill has to be passed within four months of the beginning of the financial year, that is, by 31st July or 6th August, I never quite know which. Equally, as from next year, when the financial year and the calendar year coincide, the Finance Bill will have to be passed within four months from the beginning of the year, that is, by 30th April. We will have precisely the same scramble as we have always had, except that it will be a couple of months earlier.

The problem, unlike other legislation, is not really one of the Dáil being brought back in order to deal with our recommendations, but that by the time the Bill reaches us in the Seanad the time, as on this occasion, is almost up. I can see us sitting in Easter Week or shortly after Easter or even on Easter Sunday, in order to deal with Finance Bills in future. We will have precisely the same timetable as we had in the past, except that it will be three months earlier.

Everyone will agree with the gist of Senator Yeats' argument. This is not a new thing. We have always had this in the Seanad. There is a prospect that that situation will be altered. At least it will be altered to the extent that when we are discussing the Finance Bill in future, the Dáil will be in session and there may be more of an air of reality about endeavours by the Seanad to make recommendations.

Senator Yeats' point in regard to the time bar exists. I am not entirely sure what it is either. The Minister should deal with this seriously and use his influence in the ordering of business in the other House to ensure that in future the Seanad will not be faced with a time limit which constrains us to try to get the Bill through within a matter of hours or days. I support Senator Yeats' plea to the Minister in that regard. The Minister should ensure that when the change comes, in addition to the Dáil being in session, the Seanad will get a reasonable opportunity of considering the legislation in, not necessarily an unhurried atmosphere, but certainly a less hectic atmosphere than we have been accustomed to on previous Finance Bills. That would be well worth doing from the Seanad point of view.

Now that the matter of a timetable has been introduced, I would like to get clarification from the Minister. There was a notion that this Bill had to be enacted within four months of budget day. My information is that there were no new tax measures introduced by resolution on that day in the form of indirect taxes —customs, excise, anything of that kind or indeed any change in the tax situation within that area. There is a provision under the Provisional Collection of Taxes Act, 1927, which indicates that changes in taxation of that kind must be enacted within four months of being announced to the public. That did not arise in the case of this budget. There was no special resolution of that kind. In my view, the whole notion of trying to bull-doze this legislation through the Dáil and Seanad in the manner in which it has been done was entirely unnecessary and was a fiction used by the Minister to ensure he could bulldoze this Finance Bill through without proper debate.

By reason of the absence of a resolution of the nature that I suggest under the Provisional Collection of Taxes Act, 1927, was the Minister obliged to have this legislation within four months of budget day? Was he obliged by law to have this Finance Bill four months from budget day? I am quite certain that it was not necessary and that, in the absence of a specific resolution under the 1927 Act, the Minister used the traditional argument which is grounded very solidly in a specific section of that Act where there was no need so to do. He imported that argument into a situation where it was not relevant. That is the reason behind all the disorder that has been created in the course of the debate in the Dáil and which leaves the Seanad in the position in which it is debating a financial measure largelyin vacuo, when really the Dáil should still be considering this matter and should have gone right through to their amendments were it not for the guillotine approach adopted by the Minister and the Government. I should like clarification of the specific point I have raised.

I will give clarification on two points. First of all, the Government imposed no guillotine whatsoever.

I said: "Guillotine manner".

They did not act in a guillotine manner at all. There was specific agreement by the Opposition in the Dáil that they would take, during the normal working day, the whole Finance Bill. The Opposition, for their own reasons, chose to dig in on earlier sections of the Finance Bill with the result that they found themselves running out of time and apparently considered they would be unable adequately to take as much of the Finance Bill as they wished.

The Bill was rushed through.

They then requested that the Government agree to sit all night and the all night sitting was in response to the desire of the Opposition that they would be given more time and also in response to the desire of the Opposition, and, indeed, of the Government—I would say both sides of the House—that Dáil Éireann could go on vacation last Friday. But there was no effort whatsoever on the part of the Government to curtail time. We were only too willing to take the Finance Bill earlier than it was taken on Committee Stage; again, the Government accommodated the Opposition.

The Bill was introduced far too late.

In every possible way the Opposition were accommodated. At no time did I assert that it was necessary, because of the Provisional Collection of Taxes Act, 1927, to have the Finance Bill through in four months from the date of the budget. The 1927 Act to which Senator Lenihan has referred provides that:

A resolution under this Act shall cease to have statutory effect in or upon the happening of whichever of the following events....

It describes then a number of events, the last of which is:

(g) The expiration of a period of four months from the date on which the resolution is expressed to take effect or, where no such date is expressed, from the passing of the resolution by the Committee on Finance.

In the Dáil I stated and I repeat here why it is desirable to have the Finance Bill through before the end of the current session of the Dáil and Seanad. Until such time as it is through, new assessments of liability of tax on the reliefs we propose in this Bill cannot formally be made by the inspectors of taxes. Some tax allowance certificates have issued under the PAYE system but they are not formal assessments of liability to tax; they are indications of instalments which employers should deduct from employees' wages and, at the end of a tax year—when income allowances are fully known—the necessary adjustments are made. No formal assessment to liability can be issued until this Bill is through and, were it not now passed by both Dáil and Seanad during the current session, there would be a considerable delay in the issuing of the amended assessment certificates to taxpayers and a consequential delay in collection of revenue.

That would seem to be a good case for delaying it.

It might be from the point of view of a taxpayer who was not receiving any benefit from the State. I should like to see anybody point out some taxpayer who does not receive benefit from the State. We all receive benefit and the State requires the revenue in order that society can survive. Therefore, it is essential that this Bill be got through in order that the machinery of the State, which is working to the benefit of everybody, is kept operating smoothly.

Question put and agreed to.
Section 2 agreed to.
SECTION 3.

I move recommendation No. 1:

In page 5, after line 35, to add to section 3 the following subsection:—

"(3) Interest payable on any investment not exceeding £5,000 in a registered building society shall not be subject to the charge to income tax created by this section."

The problem facing building societies for some time is that they have been unable to pay the competitive rate of interest to attract funds. This is a very recent occurrence. Some time ago when the clearing banks were paying 4 per cent on deposits and 5¼ per cent on deposits over £25,000, the societies were paying 5½ per cent. Banks were then charging rates ranging from 9 per cent to 11¾ per cent on loans to private individuals, societies were charging 9 per cent on housing loans. The position now is that the banks are in fact paying 8 per cent to 10½ per cent on deposits and societies are paying 8 per cent, plus tax, and have clearly lost the competitive edge.

By relieving societies of tax on investments not exceeding £5,000, this would represent a loss, I believe, of no more than £2¾ million in tax revenue. The spin-off in benefits to the community would transcend such a loss. Money now going to finance less desirable projects would be directed again to 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 levels of activity which existed certainly two years ago. The restoration of business activity is of immense importance to the economy not only in terms of employment but also in the buoyancy of taxation revenue which would ensue.

Social reasons have prevented the societies from raising mortgage rates in line with other lending agencies. In spite of statements made in the other House and elsewhere and given some prominence in papers, it is not the intention of building societies to raise mortgage rates. That is completely in deference to the middle class borrower purchaser who has, in 75 per cent of loan cases, committed himself to one-third of his income. By agreeing to this recommendation I believe the Minister would be doing something worthwhile and helping to recover the state of the building industry. One of the arguments used in the other House was that it might benefit the rich man. Nobody can say when you are dealing with investments not exceeding £5,000 that you are benefiting the rich man. I do not know what a rich man is these days. It would appear to me that the rich man is the man we should be trying to encourage as he is the only one that has the money to put into building societies.

The Government have attempted several measures in this respect. They have made available £9 million for SDA loans. That in itself is encouraging but, at the same time while the limit of loans is confined to £4,500 and the cost of a house at the present time is running to anything up to £7,500, it is not likely that many people will avail of the money offered as very few people who qualify for this loan could save £3,000. The £5 million spoken of the last day is something but not enough.

I should like to support strongly Senator Hanafin in this recommendation. It is a practical one that is in line with the realities today in the construction industry and in regard to the social problem of people seeking houses. This problem just cannot be dismissed either by the Minister for Finance in the other House or by the Minister for Local Government as he did in a radio interview last Sunday as being rich man's talk. We are talking about people, many of whom have modest incomes, who want to own their own house or who are living in their own houses and are making repayments on foot of loan obligations at the present time. There are also many people who are seeking to put themselves into that position. It is a very modest and reasonable ambition held in particular by many Irish men and women. There is no point in bringing class talk into a debate of this matter. This, indeed, is the sort of area which we should be encouraging from two points of view—the construction industry and its employment potential and from the very desirable point of view of encouraging people to buy their own houses and have them built according to their own requirements.

It is not enough for any one to adopt the doctrinaire attitude that local authorities can look after this whole industry. They cannot. They have a contribution to make, too, but neither from the financial point of view nor from the actual practical construction aspect are they equipped to deal with the problem. The ideal situation is to preserve a balance between public enterprise and private enterprise in this area. There is no point in dishing out £9 million to the local authorities even though it is excellent in its own way and at the same time having a totally unrealistic ceiling of £4,000 in regard to this matter. It is not being realistic. It is a charade to say that the money is available and side by side with that to have the financial limitation. It means that much of the money will not be taken up. Many of the local authorities would not be in a position physically, administratively and technically to do the job that is talked about but at the same time £5 million —an utterly devisory amount—is allocated to the private sector who are equipped technically and financially to do the job, who have, in many cases, got the necessary requirements to do the job, and who have not got to endure the delays that local authorities have to endure in regard to the acquisition of land.

This industry is in a position to do the job, but it is falling asunder. I am not saying that it is in a position to do the whole job, but there should be a balance between private and public enterprise in this sector. There is no point in saying that an extra £5 million to the building societies will regenerate the private sector of the building industry into a massive deployment in the construction of houses. In the case of £5 million to the building societies we are talking about fewer than 1,000 houses. That some method of attracting funds to is the reality.

This recommendation suggests a practical way in which the Minister can do something about the real problem in the situation and the real problem is to encourage more funds into building societies by offering an incentive such as we envisage in this amendment or, indeed, any other incentive that the Minister may think fit, but some incentive must be given in this area because if there is no incentive of this kind, the present situation will continue. Doling out £5 million to the building societies which is welcome in a limited way is not the answer to the problem. The real answer to the problem is to ensure a continuing flow of funds into the building societies so that there is an attraction as far as the investor is concerned. As we envisage here in the amendment it is for the person who is investing less than £5,000, so that investment is attracted from the area originally designed by the building societies to attract investments, that is, from the small investor. The whole purpose originally of the building societies was designed to attract such money. The amendment suggests a way of relieving income tax payable on interest of such investment not exceeding £5,000. It is a practical way to help in the situation. Rather than doling out money by way of grants to building societies, by way of making finance available to building societies, we must give an incentive in the areas where there will be an attraction for money to flow into the building societies automatically. I know it would be at some cost to the revenue but it would be far less cost ultimately to the revenue and the economy than the other way of doing it—of enabling finance to be ladled in in times of crises without radically tackling the problem. This is a practical way of meeting this real difficulty faced by the building societies. Unless this difficulty is faced there will be unoccupied houses and people will be crippled by bridging finance because of the inability of building societies to meet them. There will be a total inability either for the construction to proceed and for the proposed householder to receive his money unless some method of attracting funds to building societies is devised. Therefore, I support Senator Hanafin's recommendation.

During the debate that took place last week there was no objection in principle to any area of the Bill which tried to wipe out evasion of taxes. Some specific matters may have been brought up and some exemptions may have been sought but, in principle, nobody objected to the idea. If a subsection like this were inserted in the way it is framed and in the particular part of the Bill into which it is proposed to insert it, there would be nothing to prevent a person, who would be very welcome, indeed, from investing his £5,000 between five or six building societies. Within a year he would have become quite a rich man by comparison with a worker who would be earning, say, £40 because the investor's money would be free of tax. I am not against the idea of encouraging investment in building societies and some of the points made would be acceptable to me. The way the amendment is written and the manner in which it would have to be placed as an extra subsection would leave the door wide open to abuse.

Senator Harte's intervention is very much in line with the Minister for Local Government's attitude when he made his classic announcement on radio a few days ago: "To hell with the rich." I think that Senator Harte——

He did not say that.

Could I put the record straight? I did not say: "To hell with the rich." I do not know whether the Minister did or not.

I was listening to him. He said some very strange things, indeed. His attitude betrayed arrogance and extraordinary ignorance of what his functions as Minister for Local Government ought to be. What the Minister for Local Government should be doing is finding out how building societies can best be helped to lend people money to build houses. If a very rich person lodges £10 million in a building society he makes a lot of profit probably at the expense of the Minister for Finance, but that £10 million would be available for house building.

We are not talking about sur-tax.

It is exactly what you are talking about. If we are talking about rich companies and rich people, what could be richer than the banks? The Minister for Finance has now made an arrangement with the banks whereby they will lend £5 million to building societies. Apparently their lending rate will be so high that mortgage holders will pay higher interest rates and the banks will make a profit. But at least £5 million will be made available.

Any reasonable proposal that makes money available is one which ought to be supported. This business of saying certain people might make a profit is flying in the face of common sense. This amendment does not enable anyone to lend £10 million to a building society and make a considerable profit out of the transaction. We are all interested in the provision of houses for our people and consequently should welcome anything which might persuade people to leave £10 million or £20 million in the coffers of the building societies. If, as a result they make a tax-free profit, it might be regrettable, but the ultimate effect on the community would be beneficial. If, as suggested by Senator Harte, £5,000 were given to say, ten building societies, that would not be a sufficient amount. If Senator Harte and the Minister for Local Government were less interested in soaking the rich and more interested in providing houses in the private sector we might all get along better.

On the face of it one would say that the recommendation had considerable attractions. As pointed out by Senator Lenihan, building societies in normal circumstances attracted the small savers. For reasons outside their control and outside the control of the banking industry in general they can no longer do that. They cannot compete with the associated banks and other borrowing institutions who offer enhanced interest rates.

I would agree with Senator Harte when he says the obvious answer to this amendment is that there is no limitation on the amount that an individual can deposit with a building society provided he puts it into enough names. Senator Yeats demonstrated that even more effectively when he said it would be better to let somebody deposit £10 million and have a tax-free income of £800,000 a year than to have a shortage of funds in the building societies.

We ought to be realistic about this whole question of adequate funds for the building societies. There are only two ways in which building societies can compete in the market for money. One is by the Minister for Finance continuing and extending the present subsidy arrangement in which case the normal taxpayer pays it. The man who can never afford to buy a house because of income restrictions but who pays taxes indirectly is subsidising the individual who borrows money to buy or build his own house. There is a limit to how far one can go with that policy. There is a limit to the amount which we put on the back of the small taxpayer who will never own his own house.

The other alternative—which is the unpopular one—is to allow interest rates to rise, in which case the borrower would pay more. I do not see any solution to the problem. It is a difficult decision that other countries as well as ourselves have to face. Either the taxpayer or the borrower will have to pay the interest. A combination of the two is perhaps the answer. Until inflation shows some signs of moderating and interest rates become stabilised the present position is likely to continue.

The Minister for Local Government has been criticised for remarks he may or may not have made. Taking one remark out of context is not quite fair to him. Demand for loans to purchase houses has been increasing very substantially. If there was a depression—as has been suggested—in the building industry or a depression in the economy generally people could not afford to buy houses and there would not be any borrowing. In actual fact, borrowing has increased. Shortage of funds and high interest rates are problems general throughout Europe at present. The only solution I can see is that the Government should continue their present policy of subsiding, at least to some degree, the interest rates of building societies.

Could I ask the Minister if the 1¼ per cent subsidy is tax-free to the building societies? That subsidy, even though it is only a fraction, could mean a saving to the building societies.

I should like to support Senator Lenihan's plea that more funds and more investment be encouraged into the building societies. It seems that some type of tax-relief would be the most effective way. Interest today does not hold its ground against inflation. A sum of £100 deposited in a building society and withdrawn a year later is worth £90. The original amount plus interest scarcely amounts to the real investment. This principle was recognised by the Minister quite recently in connection with both the wealth tax and the capital gains tax. It would be unrealistic to reckon either of those on a fixed basis. The basis has to change to take account of inflation.

There is a very serious defect in our whole approach to interest rates. We do not take account of the extraordinary situation we have at present in regard to inflation. It should be at least as profitable for an investor to put his money into a building society as to buy up property in the hope of capital gains and to pay whatever capital gains tax the Minister may decide on.

Taxing interest on money invested in worthwhile projects must not be overlooked. It must be made at least as attractive to invest money in worthwhile projects as to speculate and hope for capital gains. The more people who build their own houses the better it will be for all, especially for the small taxpayer because the greatest burden on him is providing houses for many of those in the public sector who could very well afford to provide their own houses.

There is a certain mentality among people that because their people before them got houses from the public authorities they themselves are entitled to similar houses, irrespective of their income. White collar workers have a tradition of thrift and try to provide their own houses. Such workers are making an effort through the building societies to provide their own houses, even though their incomes in many cases are far less than many of those on the county council and corporation lists. We cannot be satisfied with the present level of private house-building. We must do something to encourage savings, whether it is saving by investing in a house or saving by investing money in building societies.

I did not intend to intervene in this debate but, having heard Senator Quinlan, I thought I should. Like many Members here who are also members of local authorities, I have been surprised at the statement made by Senator Quinlan. He inferred that local authority houses were built to house people who were a burden on the taxpayer. I should like to point out to Senator Quinlan that some people have been housed in local authority houses who could have made an effort to avail of SDA loans and grants to build their own houses. Had they done so, they would have been better off than if they were housed by the local authorities. A person occupying a council house is on full rates from the date of occupation and his rent is assessed on his income. He is not getting something for nothing from either the State or the taxpayer. The person building his own house has a ten-year remission of rates and he has the advantage, if he is a person who would normally be housed by a local authority, of getting a State grant of £450 and a supplementary grant of £450. To infer that people who are allocated houses by a local authority are a burden on the taxpayer is an exaggeration.

I fear the people who proposed this recommendation are deluding themselves if they think that what they are proposing would be of any real assistance to the community. One direct consequence would be to draw money away from other agencies, including those that are supplying money for essential industrial development. We had a call today from the Confederation of Irish Industry for more credit later this year so that they may meet their industrial production requirements. We have a constant demand for increased credit for agriculture, needed today because of the very difficult circumstances generated by the European and the world food markets. Other agencies are supplying money to the construction industry, both in respect of houses and industrial and commercial activity. The Trustee Savings Bank and the Post Office Savings Bank are also there on the market competing for money for essential purposes.

We had criticism levied recently because the Central Bank, endorsing Government policy, would not make money available for special purposes but said they would keep it for productive purposes—for exports and for the housing industry. The Central Bank issued the guideline that we should conserve whatever money was available for the most essential purposes. To adopt this recommendation therefore would have a grievous distorting effect on the money market. It would mean that the person who is liable at the top rate of income tax, 80 per cent, would get a return on money from the building society of 28.6 per cent. A person liable at a rate of 65 per cent would get a return of 23.3 per cent; a person liable at 50 per cent would get a return of 18 per cent. A person who at present is liable at a rate of 35 per cent gets a return of 12½ per cent. A real return on the investment, although it is 8 per cent tax free, would be 12½ per cent, in addition to the existing rate. This could not be justified. It would have a most damaging effect on the whole money market. The result then would be that the State would be in more grievous difficulty than at present in supplying money for essential needs.

We had here today reference to a gross misinterpretation put upon remarks of the Minister for Local Government on Radio Éireann last Sunday. He did not say: "To hell with the rich." What he said was that the primary obligation of the State was to come to the help of those most in need. His opponent on the programme then said: "So you are saying: To hell with everybody else." The word "hell" was used by his critic, not by the Minister. The Minister was not saying that, but if anybody suggests that, as a proper approach to public policy, the State should not come to the assistance of those most in need before it comes to the assistance of others, I would like him to stand up and say so.

I do not think that would be the will of the people and it certainly is not the will of the present Government to give most help to those least in need. That, in practice, would be the effect of the proposal. The cost, which would have to be borne by the general body of taxpayers, would be £5 million. If £5 million is to be expended by the State on housing I can think of better ways to spend it than by giving a new subvention to those who are better off, the people who have incomes which carry liability to tax at the rate of 80 per cent. If Senator Hanafin states by way of reply, and I suspect that he might be considering limiting the concession to 35 per cent only his recommendation does not achieve that. His recommendation would give the concession right across the board to those who are liable for the highest rate of income tax. Income tax now will include what used to be sur-tax.

Would the Minister agree to limiting it to 35 per cent?

No. At the moment depositors in building societies have income tax paid on their investment on their behalf at only 70 per cent of the standard rate. They are already getting a concession. Building societies have other concessions—they do not pay corporation profits tax—and there are yet other concessions which make the interest rate of the building societies 4.3 per cent higher than it would otherwise be. I cannot see that there would be any further justification for the variation in that rate.

I should like to deal with a point raised by Senator Russell. He wishes to know whether the interest subsidy given by the State to the building societies is taken into account in calculating liability of building societies to tax. The liability which lies on the building societies is not for them to pay tax on money they get; it is rather to pay the tax which is payable by the depositors. The composite rate of tax, which is only 70 per cent of the standard rate, is calculated on the interest actually paid to borrowers. This subvention by the State is not taken into account although in real terms it means that the interest is there—the State has to pay it, the building societies receive the money but they do not generate a profit on it and the money does not go into the pockets of the depositors with the buildings societies.

I cannot accept that this would have a damaging effect, to use the Minister's words, on the money market. We have limited it to investments not exceeding £5,000. I should like to reply to Senator Harte on this. I accept his interest in doing the right thing by the building industry. I accept that he wants to see more houses built and more jobs, if not created, at least retained in supporting agencies to the construction business. He mentioned the practice of money being placed in other people's names in other agencies. In my experience people are reluctant to have their money placed in another person's name. This would not affect me even if it were true. I would still be pleased to see the person with £10,000, £15,000 or £20,000 investing in an agency where the money will be used for building houses. I should like to point out to Senator Harte that we are doing such a person no favour; he can get a better rate of interest in other lending agencies where money is being used for less desirable projects. Senator Harte's argument is certainly not good enough to turn down this amendment.

I think Senator Russell suggested that mortgage rates should be increased. If that is not what he stated I will go no further.

He did not.

I apologise for even suggesting he might have made such a statement.

He said there are only two ways of getting money—one was to continue to subsidise and the other to let the rates go up. There is no inbetween.

The Minister has no intention of continuing subsidising. I am aware of the alternative. This form of subsidy is clear-cut, there is nothing unusual about this. In Germany there is no tax on savings. One enters into a saving type of contract for buying one's own house after a period of time. I think it is seven years. There is no tax on the savings.

I should like to say to Senator Russell that it is not the intention of the building societies to increase the mortgage rate. It is not going to be done in spite of what has been stated in the Press and elsewhere.

A weakness has been pointed out in my recommendation—that it would cover those who are liable to sur-tax. I thought it would be understood that the exemption sought would stop at the 35 per cent tax rate and the people in the sur-tax bracket would still be levied in the same way. That is the only positive argument I have heard from the Minister for not accepting this amendment. If that is his only argument, I intend to put down a further amendment on Report Stage.

There are various points arising out of the Minister's reply with which I should like to deal. In this famous discussion which took place with the Minister for Local Government, whatever about the circumstances in which he did or did not say: "To hell with the rich", he did make his general attitude crystal clear. In answer, not as the Minister suggested, to his opponent but to the chairman of the discussion, the employee of RTE who was conducting the discussion, he made it clear that in his view a man earning £2,600 per annum, buying himself a small three bedroomed, semi-detached house, qualified as one of the well-off. I listened to this discussion with fascination. The Minister for Local Government made it clear that in his view that person should look after himself and he, the Minister, considered that it is his duty to look after people who really needed his help, unlike the rich man on £2,600 per year who was buying a three bedroomed semi-detached house. He made his position quite clear. I was appalled but that is the position in which we are with our Minister for Local Government.

The Minister also points out the danger that if you had too large a tax incentive you might have a diversion of funds to building socities from other areas which might need the money also. We are in the position, and the Government have accepted this, that the building industry is in danger of being run down through lack of money. The Government in recent days have diverted money from other places in order to help the building industry. The Minister for Finance provided £9 million for local authority loans and he made a claim, though he has given no details, that that £9 million was to be taken out of capital expenditure somewhere else, that he was not only diverting it from other sources of money but in this case was closing down £9 million worth of capital expenditure somewhere else in order to enable the building industry to have this money.

Equally, at a time when the Central Bank, as the Minister has pointed out, have given stringent instructions to the banks with regard to the amount of credit they are to make available, the banks are giving £5 million to the building societies at the injunction of the Minister. It is obvious that that £5 million will be taken out of the money market somewhere else and at a time of stringent credit it is obvious that someone else somewhere will find himself short of money. In the situation we have at the moment the building industry needs a great deal more than the £14 million they have been given, however you do it you will have to divert that money from somewhere else. that stands to reason. With regard to the danger that the State, the Minister or the Revenue Commissioners might lose money in taxation if they were to give large funds to the building societies free of tax, we should have some regard for the realities of life in this year of 1974.

In the first six months of this year, that is from January to June, inclusive, the Government and various semi-State institutions, in each case with the authority of the Minister for Finance, borrowed £150 million abroad. A total of £150 million has been taken into this country, from, presumably, rich organisations, companies and individuals outside Ireland, in order to pay for part of the cost of the capital expenditure, including building and construction this year. Indeed, the £9 million the Minister is providing for local authority loans may well come from this source, ultimately.

This enormous sum, which presumably will be increased still further by the end of 1974, is coming from abroad. In many cases, I imagine the Minister is paying considerably more than 8 per cent interest. No taxation or income of any kind accrues to the Exchequer from that. This is £150 million, that we, the taxpayers have borrowed, on the instructions of the Minister for Finance and no tax is payable. What on earth is the difference in principle between that situation and the suggestion in this very mild little recommendation that people might be allowed to lend £5,000 to building societies without paying income tax? The Minister is borrowing was sums,holus bolus, all over the place in the highways and by-ways, which we will have to pay back without collecting any taxation.

Of course it is not a mild little recommendation. If it were I might have some sympathy for it. I am very amused with the alacrity with which Senator Yeats leaps to his feet in defence of the rich on a recommendation which is allegedly put down by the proposer in defence of the poor. This is a remarkable conjunction of interests. Let me say that the debate on this "mild little recommendation", as it has been so described, in fact, brings out a very different sense of values which exists between both sides of this House in respect of capital.

As far as I am concerned, capital has social obligations, as much as anybody else, and as Senator Harte pointed out, people would drive a coach-and-four through this. There will not be just one parcel of £5,000. For some people there would not be just two, three or as many as there are building societies but as many names as they can depend upon to safeguard their capital.

The reason why the Income Tax Acts are as thick and comprehensive as they are is because people try to avoid paying tax. The reason why some of the richest people are tax advisers is because those who are richer than they are will pay them vast amounts to avoid paying tax. It is the height of naïvety to suggest that this "mild little amendment" would not be ridden through by people who would use it as a means of avoiding paying their legitimate contributions to the affairs of this State. If Senator Hanafin is serious and sincere about this—I do not rule out that possibility even though he sits on the other side of the House— might I suggest to him that he withdraw it and recast it in a form that would really safeguard the interests of the small investor? I am not aware of the number of people Senator Hanafin knows who have £5,000 at their disposal for investment in any sort of financial institution. I must confess that I come from a class of society where I do not know one. Senator Hanafin might have regard to the investigation of the distribution of investment in building societies which was carried out by the National Prices Commission and see exactly how the building societies have been turned away from their original purpose which was, in fact, to accumulate small savings, and how very large numbers of influential investors have had recourse to them over the last five years when there has been a very remarkable growth in their assets.

We are dealing with a situation that in one sense is far too new. Building society assets have absolutely exploded out of all recognition in the last five years. We are dealing with a hyper-inflationary situation. Of course there are negative rates of interest on investments in building societies and we are up against a problem. Is it right, in any event, to invest short-term for long-term borrowings? That is a problem we will have to answer ourselves. Might I suggest that in so answering this very real problem, we will have regard to the dilemma that Senator Russell has posed for us, for which there is no answer. If we have recourse to "mild little recommendations" that will be used by people to avoid the taxation which they must legitimately pay, what is the point in saying to a man: "Because you are rich, put money into a building society and get a return of £5,000 or £6,000 tax free; we regard you as being more valuable to society than a doctor who performs life-saving operations on a patient, or the man who operates in the central control room of our electricity generation or even the man who actually builds the houses," and infer that in some way those who own capital are more valuable to society than those who simply invest their labour in society. This is at the root of this discussion. I do not rule out Senator Hanafin's sincere and genuine interest in this matter, despite his sallies in defence of the rich, or doubt that he is really interested in the small saver, or that he wants to see people housed. I want to point out to him that this "mild little recommendation" is not really the vehicle to achieve his objectives.

I am rather surprised by some of the things said by Senator Halligan.

I am far more surprised at the Senator's.

First of all, it must be understood that the only lending agencies for house-building at present are the building societies, apart from the local authorities. The £9 million made available to local authorities is not good enough in the sense that the ceiling figure for loans is £4,500. To build an ordinary house now, it costs in the region of £7,500, plus the purchase of a site, which means that the qualified person in this case would have to have saved £3,000 or £4,000. This could happen but is most unlikely.

Apart from banks, who are unwilling to lend money on a long-term basis, the only other agencies are building societies. It must be taken into account that they are non-profit making societies. If there are profits they are liable for income tax. All the money is put to use. They are not profit making like a joint stock company.

The argument about the rich man keeps coming up. Senator Halligan stated that he did not know of anybody who had £5,000 to invest and that he came from a class of people who had not £5,000. That may well be. I do not grasp the argument there. I have seen much poorer days than Senator Halligan. I do not know rich men or what a rich man is any more. All I am concerned about is that money should not, as it has done, leave this country. If money is not put into building societies there will be no building, no work in the construction industry, or down along the line to the furniture manufacturer and various other people. I respect all the views which have been given here today. I think people are not viewing this in the proper light. It has been suggested, and this is encouraging, that if certain weaknesses—I do not accept that there is any weakness in this recommendation—were covered we could then expect support for it. I am encouraged somewhat by what was said by Senators on the other side of the House and I will put in a further amendment on Report Stage.

I just want to say one or two things in relation to Senator Halligan's rather eccentric remarks. I do not know whether it is worthwhile dealing with the matter at all but obviously those of us who have spoken on this subject are not in the least bit interested in the rich but what we are interested in—and I would recommend to Senator Halligan and to those who think like him that what they should be interested in also—is the typical case of the young man—perhaps a relatively junior civil servant or even a trade union official—who is trying to get married and buy himself a small house and who, in looking for a loan from the building societies will find that he cannot get any loan and so cannot get a house.

These are the people in whom we must be interested. There would be no need for this amendment if the Minister for Finance had made available a sum to the building societies sufficient to enable them to give young married people, who are not rich, loans. It is because the Government have made it clear that they are not going to make an adequate amount available—the derisory amount of £5 million is apparently going to be the limit—that we must try to support a recommendation such as this in order to make money available to the building societies from somewhere. It will not come from the Government; it will not come from the banks: it can only come from investors. We have to find some way of encouraging investors to give sufficient money to the building societies for these people who are just as entitled to the support of the Minister for Local Government as others—although he does not seem to think so. It is simply a matter of getting the money made available and is not in any sense, as Senator Halligan and a few others suggested, a matter of kow-towing to the rich. We have no interest whatever in the rich; we are simply interested in people who are trying to buy houses and who cannot get loans.

I would like to point out that this is not the first Minister for Local Government who appeared to have attacked the rich. The previous Minister for Local Government did not agree with belted earls either.

I would like to pose this thought to the Seanad: why is it that many people are willing to pay 25 per cent and 30 per cent on money that they have borrowed for an article like a motor car which will quickly depreciate and yet they are most disturbed if, because the price of money is rising, they might be required to pay 12 per cent or 13 per cent—while the going rate for any other type of borrowing is higher than that—when the asset which they are purchasing is increasing in value at a far greater rate than the interest which they pay?

Is the Minister trying to make the argument for an increase in mortgage rates?

I have posed a thought to the Seanad and I have passed it to the country at large. If society considers it tolerable—and apparently they do—that people should borrow money at fantastic rates of interest to purchase a wasting asset why is it that some people say that it is wrong that a person should pay the going rate for money to buy an asset which is not wasting but is increasing at a rate twice and, in some cases, three times faster than the rate of interest which they pay? This is a question at which our society should take a serious look. If there were not agencies borrowing money to lend at fantastic rates to the consumer society, on a wasting asset, then money might not be so scarce for what is regarded as an essential commodity, to wit, a house. That is an essential and very simple question at which society must take a look. It is a question that some people have been running away from because political mileage could be obtained out of arguing against increases in the interest rates for borrowing on houses. A worth while consideration is that people who are borrowing money to buy houses and are paying interest on it and are liable to tax receive a considerable concession from the State in that they can set off their interest liability against their tax liability, and thereby, at the standard rate they can save 35 per cent or possibly more.

One of the issues of policy in this Finance Bill which has been severely criticised is the Government's proposal to limit to £2,000 interest per annum the amount which can be set off in that way against tax liability. That in itself, is something which can help the small man down the line. I agree that on both sides of the House there are Senators anxious to help such people. If the high rates cannot be offered by borrowing agencies to relend on wasting assets or to relend at high rates on those who can afford to pay them, then there will be so much more money for the smaller man down the line who needs it for urgent purposes.

I notice that Senator Hanafin referred to the desirability of attracting money for essential purposes like housing and he accepted that it was proper that we should try to divert money from what he considered less essential purposes. He was careful enough not to identify them. I take it that he would not want to draw money away from industrial developments which are maintaining and increasing employment opportunities. He would not want to draw it away from agricultural credit which will develop the productivity of the agricultural industry.

I would rather see houses than office blocks or supermarkets.

I am with the Senator there. This Government have taken action by increasing the stamp duty on office blocks, particularly in Dublin city. I share the view, which is held by many people, that it is undesirable that money can be borrowed by people to generate speculative profits but all these things are part and parcel of the money system. We have to face these realities. We had a lecture from the other side about the necessity not to take up a doctrinaire attitude. My attitude on this is not a doctrinaire one at all. I am drawing attention to market forces and facts that other people appear to want to ignore. But they cannot be ignored. If they are ignored, the supply of money will dry up. Money, as I said on the Second Stage of this Finance Bill, is like water: it finds its own level. Money will go where the interest rates are most attractive.

That is the purpose of the recommendation.

Yes, but what the amendment is proposing is that the interest be paid, in this case, not by the users of the money, but by the general body of taxpayers. If the State does that for one purpose— admittedly, a desirable and acceptable purpose, that of building homes—the State can only do that knowing that, as a consequence of doing so, money will be drawn away from somewhere else.

The argument is advanced here that the State has done something for the public sector by providing £9 million for SDA and local authority housing but that the private sector is not being looked after. If the private sector is private then it behoves the private sector to accept the disciplines of the private sector which may require that they recognise what is happening on the market. Do not let the private sector say that they are private, provided that the State subsidise them. The State is already providing subsidies for building societies that are costing the general body of taxpayers over £16 million. We are now being asked to provide a further £5 million. It seems to me that you have crossed the border between private and public sector when you are moving away from operating as a private agency and asking the State to pick up your bill.

Does the Minister not consider such a ceiling insufficient?

It is a lot higher now than it was 18 months ago.

We are not dealing with that particular issue here. What we are dealing with is a request that the general body of taxpayers should step in to give further relief to one of the agencies in the money market. I do not think that can be done without distorting the flow of money for many essential purposes. There are many forces at work here and one of them cannot be picked out and spoken of as the solution. Senator Hanafin knows there is a lot of truth in what I am saying.

I should like to take up this on an issue of principle. The basic problem is that building societies are the only agencies that cater for long-term housing finance, outside the local authorities. They are under the discipline of the financial limit of £4,500—which I think is totally un-realistic—and an income limitation of £2,200.

£2,300. The SDA is now £2,300.

There is an income limitation of £2,300 and the finance limitation of £4,500. That is not dealing with the building situation. Giving £X million of this—£9 million—to the local authority to deal with the building situation under the income and financial constraint is unrealistic. The basic problem lies with the banks and insurance companies. They are the people who do not invest long term and are making profits. They are the people who have been contributing largely to the speculative investment which the Minister deplores. Has any effort being made to get the banks and insurance companies into some joint effort together with the building societies? It can be done through the existing building societies or by bringing in the banks and insurance companies.

If the Government are reluctant to grasp the nettle in regard to the banks and insurance companies, they should do something about the building societies that are catering for private building. The Government are not facing up to the responsibility. Local authorities are working under totally unreal limitations. Building societies have not got the funds. Banks and insurance companies have funds and are capable of doing the job provided they have discussions with the building societies to see how best the job can be done.

I do not think the answer lies in asking the banks to advance £5 million. It is a small help. It is a derisory help because it will not build more than 1,000 houses. It is not getting down to the guts of the problem. Our amendment is a help in the sense that it diverts funds from one part of the money market to another. Any suggestion of this kind is bound to do that. This needs to be done for the agencies who are providing the finance. If the Government are unwilling to adopt some method of long-term finance for private house building, then they must rely on the building societies and must do something practical for them in order to attract funds. If it distorts the money market, why be worried about it? Is it not one of the objects of Government to ensure that money flows in the right directions and to provide the incentives to enable money to flow in the right directions? The priority direction at present is householding both from the employment aspect and the social aspect. In our economy the construction industry ranks far higher in percentage terms both in regard to employment and economic activity than in any other Western European country. This, I feel, is what the Minister should be looking at.

Spin-off developments which flow from a recession in the construction industry would be very serious. A recession tends to create one of these escalating situations because many industries are affected by lack of housebuilding. Our friends here who represent trade unions are well aware of that from the representations they are getting from their members in a number of unions associated with the ancillary industries related to the construction industry.

If the Minister and the Government are serious in their intentions they must be logical. I have suggested one logical way in regard to the insurance companies and the banks. If they do not do that and if they do not give a substantial rise in the limit in regard to local authorities—which would express their seriousness in this matter— the only other logical way is to divert funds in this manner to the people who are agreed to do the job. I suggest that this amendment or some adjustment of the amendment should be taken seriously by the Minister.

I must point out to the Minister that when dealing with this amendment in my name we are talking about a sum of money in the region of £2¾ million. That is the figure involved in the loss to the Exchequer. A government subsidy would not be necessary if the Government agree to this amendment.

The Minister said that people are prepared to pay 30 per cent of their money for a car and various other things. Not only are they willing to pay but willingly they have paid the 30 per cent. The Minister said people are critical of the amount they had to pay for mortgage loans from the building societies. Was the Minister suggesting that building societies should increase their mortgage rates, thus attracting more money for lending?

I posed a question and the Senator has not answered.

I must point out to the Minister that 75 per cent of the borrowers from building societies have committed one-third of their total income to repayments. Is the Minister suggesting I should be answering with more fire because it affects myself? It seems to me that the Minister is suggesting this as an alternative to the building societies.

Question put.
The Committee divided: Tá, 13; Níl, 22.

  • Brennan, John J.
  • Brosnan, Seán.
  • Cowen, Bernard.
  • Dolan, Séamus.
  • Eachthéirn, Cáit Uí.
  • Garrett, Jack.
  • Hanafin, Des.
  • Keegan, Seán.
  • Lenihan, Brian.
  • McGlinchey, Bernard.
  • Ryan, Eoin.
  • Ryan, William.
  • Yeats, Michael B.

Níl

  • Burton, Philip.
  • Butler, Pierce.
  • Deasy, Austin.
  • FitzGerald, Alexis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Harte, John.
  • Iveagh, The Earl of.
  • Kennedy, Fintan.
  • Kerrigan, Patrick.
  • McAuliffe, Timothy.
  • McCartin, John Joseph.
  • Mannion, John M.
  • Markey, Bernard.
  • Moynihan, Michael.
  • O'Brien, Andy.
  • O'Brien, William.
  • O'Higgins, Michael J.
  • O'Toole, Patrick.
  • Owens, Evelyn.
  • Sanfey, James W.
  • Whyte, Liam.
Tellers: Tá, Senators W. Ryan and Garrett; Níl, Senators Sanfey and Halligan.
Recommendation declared lost.
Question proposed: "That section 3 stand part of the Bill."

Let me make a very quick observation on this section. I think I am correct in expressing the view that the increase in the personal allowances taken with the introduction of the new bands of taxable income, result in everyone getting some tax reduction, but the significantly greater amount of this goes to those who enjoy substantial unearned income. I should like to know if that is correct.

The second point is a general one relating to the figure of £1,550 and the rate of 26p. Any of us can divide by 25 but it is rather difficult, unless one carries a computer, to divide by 26. If we were making the change what would have been the cost of adjusting the figure to 25 rather than 26? Why not make the £1,550 either £1,500 or £2,000 to fit in with the general scheme of simplification, which I understand to be the Minister's inspiration?

The bands used here, say, the £2,000 bands, I think these were used six years ago or more. It would seem the bands should bear some relation to the value of the £. In other words, I should have thought that if £2,000 was appropriate for a band six years ago the figure today should be nearer to £3,000.

I had intended to deal in particular with the matter raised by Senator Alexis FitzGerald. It seems to me to be altogether extraordinary that, as part of this so-called simplification of the income tax situation, this long-standing distinction—which has continued for generations between earned and unearned income—should be abolished.

The Minister in his budget considerably increased, at least notionally, the various allowances. This is a matter we shall deal with later on section 6. He increased the allowance for a married man from £494 to £800, for a single person from £299 to £500. There is a considerable increase also in the allowance for children, now some £200 or so; yes, from £155 to £200 or from £170 to £200 as the case may be. In the case of the majority of tax-payers—in particular in the case of those taxpayers who earn their own income or a considerable part of it— a substantial part of these increases is purely notional because, as a set off against these increased allowances, there is the ending of the concession which existed formerly for earned income. Everyone still gains but he gains a great deal less than the exact amount of the increased allowances, because if the income is large enough—and, indeed, it need not be very large— then, in effect, an extra £500 is added to the income for tax purposes. I am not sure if I am phrasing this in the correct technical way but that is what it amounts to.

Therefore, a considerable part of the benefit of the allowances disappears, although all taxpayers do gain something, some rather more than others. But in the case of those whose income is entirely unearned, particularly if their income is substantial—and we have had a great deal of talk in the last few minutes from various Senators about the necessity for not giving tax concessions to the rich—we have a situation where those who are well off, and not only are they well off but they are particularly well off in the sense that they have substantial unearned incomes, have gained the full benefit of those tax allowances. Because they had no earned income concession, no £500 to lose, they gained the full extent of the benefit given by the Minister with regard to these increased personal allowances. Therefore, the people who gain most from the budget are precisely those people with substantial unearned income that we should be least anxious to help. This is what the Minister and the Government apparently look upon as social justice. It is an extraordinary decision. It is a decision which is impossible to justify in principle. The only justification which I can see at all is that, in a certain passion for what our friends in the EEC Commission describe as harmonisation of the tax system, it was decided that it would be simpler to eliminate altogether the difference between earned and unearned income. The Minister has given this totally unjustifiable benefit to those who have substantial unearned income.

The second point I wish to make is the obvious one, that the various rates of taxation set out in this section of 50 per cent, 65 per cent, 80 per cent are unduly high. People who have by no means large incomes, who could not possibly be described as rich or wealthy, nonetheless pay very considerable proportions of their income in taxation—far higher than most other countries. With regard to Great Britain, our immediate neighbour, the difference is not great but with regard to most other countries, an Irish taxpayer, whether he be an executive, a higher civil servant or even not such a high civil servant, pays a very, very high rate of tax on a relatively small income. I know the Minister has promised, in the unlikely event that he brings in his wealth tax next year, to bring about reductions in these rates. The rates he has suggested as suitable would be, perhaps, in the presence of a wealth tax, reasonable; but they become less reasonable if not accompanied by a wealth tax. Nonetheless, they are at any rate, in themselves, more reasonable than the rates set out here. I am not making too much of a point about these rates because the Minister has promised within 12 months or less, within nine months, to eliminate them as set out in section 3. They are undoubtedly too high and I imagine that the Minister will probably accept that they are too high.

Certainly I agree with Senator Alexis FitzGerald that 26 per cent is a very curious figure. Again, I think it evolves from this passion for simplification. The original earned income rate was one-quarter of the 35, which made more or less 26, and that is the way it is left. But certainly it would seem more sensible to have the figure fixed at around 25. If the Minister is interested in simplifying tax, which I think he is, and interested in making it such that the ordinary man in the street can relatively easily understand it and understand in particular how much he owes, he could make the calculations for all of us much easier if it was at a rate of 25 per cent when all one would have to do was divide by four. I do not feel the Minister could lose very much tax and, even if he did lose, he could make up his loss by changing slightly the commencement and cessation levels. At a time when we are trying to simplify taxation, 26 per cent seems unnecessarily complex.

It is always difficult to get this point of view into perspective under any tax heading. No matter when we speak of tax it is a subject of controversy because, by its nature, it is confiscatory.

Having regard to the fact that the figure of £1,550 is the starting point of the 26 per cent, it seems to allow me an opportunity to raise the point I am raising at the moment. Therefore, in that context, it would be relevant. I speak about people who have given a lifetime of service to some industry and who, perhaps after 30 years' service, qualify for pension emoluments to the extent of thirty-sixtieths of their remuneration at the time of retirement. If this amounted to, say, £12, £8 of that would be tax free. In addition to this, the retired person would be eligible for unemployment benefit until at the age of 68, he would qualify for the old age pension.

Unlike a pension, unemployment benefit is not subject to tax. Therefore, when a person converts from unemployment benefit to an old age pension he is hit in two ways. First, in respect of most of the pension funds there is a clause inserted giving the company—I am speaking of private companies, not State institutions—the right to abate in, say, the case of a person who is eligible for a pension of £8.25, thirty-sixtieths of that amount. What is left is added to his income, and because it is part of a pension now, it becomes taxable. Here we have a situation where a man had an income of £20.25 made up of a pension of £12 and £8.25 unemployment benefit. While he was entitled to £20.25 as a benefit the only taxable amount was about £4. Not only do the company have the right to abate him when he converts from the unemployment to the old age pension but the remainder of his income is also liable to income tax. I think something could have been inserted in this section to resolve this kind of situation.

I realise that pensions are a high cost factor but, despite that, some consideration should have been given to provide for increases in the cost of living. There are some pension fund arrangements which have in-built betterment clauses. Perhaps, the Minister might give some indication as to whether there are any means of having a phased approach to this problem.

I believe in making life simple and that is one of the reasons why I am trying to simplify the tax code. I can tell Senator FitzGerald that, of course, the precise rate of new tax to equate to the change in the removal of earned income relief should have been 26.25 per cent. So, I did go 0.25 of the way with the argument which he advanced and made it 26 per cent. At least that will save people the difficulty of calculating the 0.25 per cent. I do not think 26 per cent is a very difficult figure to arrive at. After all, you can quickly calculate 25 per cent and add 1 per cent to it. You could do that as quickly as you would draw the line under the answer. If I had made it 28 per cent it would have been quite difficult. Then you would have to get a quarter and add 3 per cent. I would accept that that would be more difficult than just adding a simple 1 per cent, which only requires the removal of the decimal point two places.

The cost of yielding 1 per cent in the tax would have been £7 million roughly.

How much?

Seven million pounds. The concession of 0.25 per cent cost £1.75 million. It is quite a lot to any Minister for Finance and shows he should not be reckless in coming to decisions about concessions.

The question of the greater benefit going to people with unearned income is something that I have looked at very carefully. One could not have achieved a comparatively simple new form of taxation and at the same time retained some kind of surcharge for the unearned income. Most people with unearned incomes have mixed incomes, partly earned, partly unearned. Every effort that we made to strike a formula which would not put any taxpayer at a disadvantage as a result of the change produced some loss for people with mixed incomes. One then had to decide whether to let a bad situation continue which was confused, complicated, caused frustrations and produced several injustices, or to try to make a shot at a change. We took the second alternative. By and large, we have produced a fairer system which is more readily understood and a lot easier to calculate, even if the reduced rate is at 26 per cent, than the old system of the unearned income and earned income relief, and so forth. We bore in mind, too, that we will be introducing a wealth tax next year and that this is likely to touch people with unearned incomes more substantially than people without them. It is a factor to be borne in mind that the wealth tax will have, to some extent, the same effect on unearned income as the old system which amounted to a surcharge on the income from capital.

Senator Quinlan referred to the desirability of adjusting the bands of taxation. I quite agree with him. This is a matter to which I made reference when I addressed the Confederation of Irish Industry on the 15th May last and announced that contemporaneously with the introduction of wealth tax, the top rate of income tax would be reduced from 80 to 70 per cent. The new top rate will apply to taxable incomes from £10,350 instead of £8,350 at present. This will be achieved by substituting for the present two bands of taxable income at 50 per cent and 65 per cent, three bands of £2,000 each chargeable at rates of 45, 55 and 65 per cent.

We are in a situation at present where people in the higher income brackets have to pay such a significantly higher rate of tax that they have to be paid a great deal more here, in order to have the same take-home pay as they would if they were employed in Northern Ireland or Britain. This has had a damaging effect upon our capacity to obtain and retain the best managers and executives that our economy requires. This, quite frankly, is the thinking behind our proposal to adjust these top rates of tax. We too have to pay what the market requires. As a result of the income tax concessions in this year's budget a person whose earnings are under £5,000 will now pay less tax than his counterpart in Northern Ireland or Britain. We have moved away from the old situation where a large proportion of our people were paying higher rates of taxes than in Britain although they are still high by international standards. However, as long as the demand exists for greater public expenditure the taxation will have to be imposed in order that revenue can be collected. There are only two sources, as Senator Russell pointed out. They are taxation and borrowing. Prudent people do not borrow too much at the high rates now chargeable. The money market is drying up on the international scene as many people will have noticed. The room for manoeuvre that we have is not as great as we would wish.

I have considerable sympathy—as have other people in public life—for the pensioners mentioned by Senator Harte. The problem is complicated by the fact that unemployment benefits and assistance are not subject to tax. If we were to treat the people in the category he mentioned in a special way we would have to treat similarly people who had savings upon which they were drawing or who required the interest on their savings in order to maintain a standard of living to which they had been accustomed and which they would have a right to expect in the autumn of their years. The relief would be quite costly. I am not certain off-hand what the figure would be, but it would run into several million pounds.

Rather than giving special exemption to a particular category, I should prefer to try to relieve all people who are in the lower income bracket irrespective of the source of their income. Under this year's Finance Bill we are releasing 60,000 people at the bottom of the scale. That is the best way to ensure that the people Senator Harte has in mind will not be caught within the net. If I had the £7 million to spare which would have been required to make the 1 per cent reduction in the reduced rate I would have preferred to use it to take out more people at the bottom of the scale.

Question put and agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."

This section deals with the treatment of taxed income. It brings the income in under case IV and gives credit for tax deducted. The single point I want to make is that there might be something to be said from the point of view of simplicity, presentation and operation which the Minister has in mind for treating all the income of individuals within the Schedule D category on the basis of a previous year. Under this section there will be different treatment of income according to case III or case IV. In one case the measure of tax will be the income of the previous year and in another it will be the income of the actual year. If all were treated on the basis of the previous year agreement could be reached without waiting in many cases for the out-turn of the actual year. Consideration could be given for setting out the opening and closing provisions of relevant cases. Has the Minister considered the advantages of this type of treatment? The adjustments for the commencing and closing years cause some confusion and in very many cases people do not have final figures for taxation. What are the advantages in maintaining the different measures for the different cases within that Schedule D?

I can think of one very obvious advantage, namely, it accrues to the Revenue at a time of very rapid inflation. If the settlement were to be made on the basis of the preceding year when incomes might well be 20 per cent or 30 per cent less, the yields would be less than in the following year if the income had risen by the amount of the inflationary factor. I would not pretend to answer offhand the many other administrative reasons that may exist for the different bases of assessment. I will note what the Senator said and will communicate with him or discuss it with him. If necessary I shall bring in an amendment on a future occasion.

Question put and agreed to.
Section 5 agreed to.
SECTION 6.

I move recommendation No. 2:

In column (3) of the Table to subsection (1), to delete "800" and to substitute "1,000".

This refers to the allowances for the married man and the single person. The view has been widely held that a married man's allowance should be double that of a single person. It is not simply a question— as it is often put—that it should not be made cheaper to live in sin than to live in the married state. There is a more important social reason. In view of the expense incurred by all married couples—mortgage costs and so on—it seems reasonable that the allowance should be twice that of a single person. Nobody could suggest that it is any cheaper for a married couple to live together than for two people to live separately.

Before the allowances were raised in this budget the married allowance was £104 lower than two single allowances. Two single allowances at £299 amounted to £598—£104 more than the allowance last year for a married man of £494. The married man's allowance is now £800 and a single person's allowance increased to £500. The married allowance is now not £104 but £200 less than two single allowances. The premium—if one can put it that way—for living in sin has almost trebled. It seems that this is undesirable. There should be an adequate allowance given to married people to help them meet their many and varied expenses.

People who are in a position to know tell us, and I have no reason to doubt them, that living in sin is not a cheap activity, that wise people, rather than live in sin, will be wed. The cost of the concession sought by Senator Yeats would be £15 million in a full year which would not be warranted. If £15 million were available I would again consider it should be spent to relieve from the tax net those in the lower income groups.

Married couples received tax concessions this year. Married people with children did comparatively well. A married man with three children and an income of £2,000 received a tax saving of almost £1 per week this year. To give a concession of this kind would be an unwise use of very scarce resources and could not be justified.

It is a very emotive issue and one can easily invoke the picture of two single people of opposite sex living together and paying less tax as a justification. We are not particularly sinful in this country and I have looked at the tax position in several countries and have yet to find any country which treats the married couple the same as two single people of the opposite sex living together. If two cannot live as cheaply as one, it is certainly true that two can live more cheaply together than if they are living apart. They can usually live under the one roof, for instance, and that in itself is a reduction in expenditure.

These are the facts of life. I have told the Seanad the fiscal cost, and in all the circumstances it cannot be justified. Senator Yeats produced an argument that we should treat the nonworking wife the same as the working wife—that the concession of £200 which will be given now as a working wife's allowance should be given irrespective of whether or not the wife is working. This would be undesirable because there are many wives whose husbands have substantial means and they would get the benefit. The benefit of £200 to the working wife is provided as an incentive to wives to work if they are in a position to do so and also as a relief to the wife who has to work and must incur certain expenditures which are not allowable under the ordinary tax law, such as the expense of getting to and from her place of employment. This almost doubling of the working wife's allowance which was given over the last two years is an incentive deliberately provided for the working wife. I cannot see that the day has yet arrived when we should extend that to all wives.

The Minister must be a mind reader because while I have every intention of making a statement about the allowance for working wives when we come to discuss that section, so far as I am aware I have not yet made a statement about them. The Minister seems to be under the impression that I have done so. He must be able to see inside my mind.

I hope this does not upset the Senator.

It is legitimate to mention in passing that the problem of the taxation of wives' incomes adds to the tax burden of those who are married. I do not propose to press this amendment or to ask the House to divide on it, but one is justified in pointing out to the Minister that two single persons do not usually each set up a household. Single people usually live with parents or relatives. It is on marriage that all the expenses come upon people. A person has been living reasonably happily and cheaply with parents and suddenly that person is involved with mortgages, motor cars and all kinds of household expenses he never had before. The ordinary couple who get married find that their expenses, collectively and separately, go up enormously. For that reason they deserve some sustenance from the income tax authorities.

I do not suggest that the Minister should spend £15 million on raising the £800 to £1,000. That would be a foolish way to spend £15 million. I put this recommendation down to raise the issue, but when the Minister was changing the allowances it would have been possible for him, for example, to give £450 to the single person instead of £500 and £900 to the married person, or to arrange them in such a way that it would cost him no more but that the married allowance would be double the single allowance. I am happy to withdraw this recommendation, having made my point.

Recommendation, by leave, withdrawn.
Question proposed: "That section 6 stand part of the Bill."

While we welcome the concessions which have been granted by the Minister in this section, people in the public services generally and the professions who are the backbone of the community, are dissatisfied with the levels of the concessions. At various teachers' congresses and annual delegate meetings of those in the public services, the levels of the concessions have been criticised.

The point is made that even though increases have been granted in the concessions, taking inflation into account and the depreciation in money values over a long number of years, the people in the middle income groups are way behind. They have had their position eroded because of the economic factors to which I have referred. Those people are on fixed incomes. They are affiliated to the public services committee of the Irish Congress of Trade Unions and the Irish Conference of Professional Service Associations. They are steady people in the community. They are on fixed incomes and are easily identifiable as taxpayers. They are captive taxpayers. There is no escape. They have borne a heavy burden of taxation over the years without complaint. They just pass various resolutions at their annual delegate meetings or congresses but they leave it at that and send an annual deputation to the Minister seeking further concessions. They are a responsible group in the community and they deserve some consideration.

Many of the young people these days start married life with a burden of debt around their necks because of the high cost of houses and the high cost of living, the high cost of services generally. They are fighting an up-hill battle practically all their lives. They never seem to be out of debt. They are excluded from the provisions of the Small Dwellings Acts so far as housing is concerned. They must seek loans at high mortgage rates.

The Minister should in the next budget up-grade the concessions he has granted in this budget. At a time when it would appear that the concessions were equitable a formula should be devised whereby there would be an automatic adjustment of allowances, taking into account the various economic factors militating against those to whom I have referred.

I think the Seanad knows well my anxiety to do what Senator Brosnahan has just mentioned, but, the cost of giving any reliefs is exceedingly high. A sum of £32 million annually is the cost of the reliefs which so many people regard as being inadequate. Nevertheless the reliefs given put the people in a more advantageous position than they have been at any time since 1972. We gave increases which are significantly greater than were given in 1972.

Perhaps the greatest and most significant relief was given in this year's budget to people in the middle income group. Not only did they receive improvements in the personal allowances under the income tax code, but what was termed the clawback in last year's budget has been removed altogether. Therefore they received, in addition to the direct income tax benefits under this year's budget, the full benefit of the social welfare children's allowances increases of last year and this year. In addition to that, having got the full benefit of the social welfare increases for the children's allowances, they also got greater tax concessions for their children than they ever received before. For such people, if they had a sense of grievance—and they certainly had: they voiced it to me in deputations and in correspondence—we certainly removed a considerable amount of the justification, if such existed, for that sense of grievance. I accept that they certainly felt there was justification for their grievance.

The percentage tax savings are certainly higher for the people in the lower income bracket. As long as one has a socially conscious Government it must always be so. I can give some examples. A married couple with children have savings correspondingly higher, but if they have no children a £1,000 earning, which would be very small these days, gives a saving of 41.9 per cent. At £1,500 the tax saving is 17.6 per cent; at £2,000 it is 11.4 per cent; at £2,300 it is 14.7 per cent; at £3,000 it is 10 per cent and so on down the line, the percentage tax saving becomes smaller the higher one goes until you find a person with earnings of £10,000 has a tax saving of 3.15 per cent.

We gave the savings where they were required by people who were in necessitous circumstances. We have now arrived at a stage where the gap between social welfare benefits and the tax liability is small. We have given a very specific undertaking that we will regularly revise the rates of taxation to take account of inflation and any other factors and I would hope that we would not again get into the situation of delaying adjustments in these tax allowances for seven or eight years. If it is done regularly, then at least the situation will not get any worse. If God is good, if the economy is right and the right man is Minister, then the situation will get very much better.

What the Minister has just said and what Senator Brosnahan was referring to is related to recommendation No. 5, which I have down, to section 12, and it is on this point of inflation eroding tax allowances. The Minister has stated that he hopes to review the matter regularly having regard to the rising cost of living, with a view to increasing tax allowances to compensate for the rise in the cost of living. That is all very well coming from a Minister for Finance, but, revenue exigencies being what they are year in year out, that will not happen until long after it should be done. I would suggest that the purpose of the recommendation, which we will be debating more fully, meets the point of view that the Minister has been talking about by in some way pegging the consumer price index number to a gradual growth in the allowances over the years. This would eliminate the need for the Minister for Finance coming along at a much later stage long after the justification arose and it would be a painless way year in year out.

I wonder if this particular aspect of the level of allowances might be left until the recommendation is reached.

I will leave it. I want to close by taking the Minister up on his point that this is a practical way in which we can deal with inflation and at the same time ensure that whoever the Minister for Finance is he will be compelled to ensure by legislation that the allowances keep pace with the rate of inflation, because there is no point in trusting any Minister for Finance to do this in the year when it should be done. The Minister acknowledges, in principle, that the allowances should be raised to keep pace with inflation. In fact it will not be done until six or eight years after the justification for the need.

I should like to briefly refer to the question of the working wives' allowance. We should thank the Minister for giving what in percentage terms is a very substantial increase. It started off a few years ago as 39 per cent then gradually crept up to 52 per cent and 74 per cent and 104 per cent and now it has been doubled to 200 per cent, for which one ought to be grateful as far as it goes. One is less grateful when one realises that in Britain this figure is 625 per cent. Not merely the Revenue Commissioners but all Government Departments spend a large part of their working lives reading British legislation and slavishly copying it into our own legislation. The trouble is that they usually slavishly copy what suits them. If there is some British proposal that will get more out of the taxpayer and cost the State less, it tends to be copied; but if it is something which would be rather expensive to bring in it is carefully ignored. We find this figure of 625 per cent exists in Britain and I have no doubt that it has been docketed in some file in the inner recesses of the Revenue Commissioners, but they have not felt obliged on this occasion to follow the British practice. The Minister should bear in mind that by international standards, not merely British standards, our figure of 200 per cent is still very much below the international norm.

On a matter of social history: the reason why it is much higher in Britain is that following the last war there was a campaign there to get the wives out to work in order to get the economy moving again. In the same period our problem was to get work for the men and to get even a moderate income for a vast number of people. When we still have an unemployment rate hovering around 6 per cent and more, we have to try to strike that social element in balance with the other considerations. It is something that I am well disposed to do. One must have a look at the cost and the social implications. Perhaps as the economy expands we can look forward to the day when more moves can be made on this front.

Question put and agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."

I would like to make a point on this section.

Business suspended at 6 p.m. and resumed at 7 p.m.

In making my short observation on section 7 I would like to approve, in particular, of the various changes in amounts which were made in the previous section, where odd amounts such as £494 changed to £800, £299 became £500, £324 changed to £550, £104 became £200 and so on. They were rounded off to easily comprehensible figures.

In relation to the amendment to section 142, which is section 22 of the 1920 Act which was amended four times since its original enactment by the substitution of different figures to produce finally the figure of £489, I suggest that when this kind of change is being made the symmetry achieved by the addition of specific sums might be regarded as less sensible than the final result of the addition, that even though it might be out of line with other changes in the code, if it ends up with something that makes sense, particularly when the figure we are talking about is a restriction of an income to £489, any adjustment upwards, say to £500 a year—to take a non-controversial figure—could not but be a marginal improvement to quite a number of people.

In this kind of case the Minister might, throughout the code, see where he could make changes which could not be too costly so as to provide very valuable reliefs and extend them to very difficult human situations which are increasing in number because of inflation. The Minister is doing what he can to beat this inflation but there are many forces at work that are not under his control, either international forces or domestic forces. We are living in a situation where people, whose fathers thought they were providing for them in a modest way but which would see them through their lives are being gradually impoverished. That is a generalisation not directly relevant to this section, but directed generally towards the problem that:

Sorrow's crown of sorrow

Is remembering happier things.

There are many such people who were reared in more agreeable times and who now find themselves, through no fault of their own in most cases, in very great difficulty.

I would ask the Minister to round off these figures to retainable sums wherever he can. I suggest that these marginal reliefs cannot be costly in the staggering way which the Minister indicated that a change in the percentage rate from 26 to 25 would be. At the end of the day, these costs would not be found to be very great. The people who would benefit from them are many people who are in real need of benefit and who would be deprived because they are not sufficiently flexible in relation to the problem.

I suppose that as £500 is the nearest round figure it is probably the figure that Senator FitzGerald would regard as the suitable one at which to round off this figure. I can sympathise with his point of view. Certainly £489 is an odd figure in such a Bill. But this is a consequence of not making any new policy decision. Perhaps, this is due to cowardice on my part but if it is, it should be spelt with a small "c". Many new policy decisions have to be taken every year and I suppose a certain number of events occur without any new overall assessment being made. This is certainly one of these.

This figure of £489 is due to the fact that we have adjusted the dependent relative allowance from £60 to £80 to compensate for the removal of earned income relief. It also raises the income level of the dependent relative from £347 to £409 to take account of the latest increase in the rate of the non-contributory old age pension which came into effect on 5th July. It has been the practice to keep the income limit for the purpose of the dependent relative allowance at the same level as the maximum non-contributory old age pension so that a person could have a relation receiving the non-contributory old age pension in full without suffering any disadvantage as a consequence. But the dependent relative may have other income and the upper limit at which the deduction formerly disappeared is being correspondingly increased to £489, which is £80 over the £409, to cater for this type of case.

I accept the wisdom of Senator FitzGerald's approach but against that I have to balance the moral of the labourer in the vineyard, because one finds very quickly, as Minister for Finance, that if you do the right thing for one particular person, somebody else is bound to quote that as a reason why his rate of pay, his rate of benefit, his rate of pension should be correspondingly increased. There is constant pressure on a Minister to relate one person's claim to the claim or reward of somebody else. Therefore, I could not imagine that this decision to round off the figure of £489 to £500 could be taken in isolation. That would be quoted as an example which ought to be followed in many other cases and it is unimaginable what the ultimate cost would be.

Question put and agreed to.
Section 8 agreed to.
SECTION 9.

It is agreed to take recommendations Nos. 3 and 4 together.

I move recommendation No.3:

In page 7, line 55, to delete "3rd day of April, 1974" and to substitute "2nd day of July, 1974."

The matter raised—or the principle, more appropriately—was discussed in the Dáil. It raises very real issues on the credibility aspect in regard to what should come from the Minister for Finance and in regard to the principle of retrospection as applying to any financial regulation or legislation involving retro-active enforcement as far as the citizen is concerned.

Insurance premiums have been relieved of income tax for some years with a view to encouraging investment. It is a legitimate and practical form of saving. It involves taking out premiums under the various schemes advanced by insurance companies. It has become a practical and productive vehicle for private and personal saving for a number of years. One of the very constructive elements in the finance legislation heretofore was that such premiums on life assurance should be encouraged. There has been a tax concession in respect of them.

The Minister proposes in this section that in any case where the aggregate of the premiums reaches £1,000 this particular concession will be removed. People are no longer being allowed any tax relief in respect of premiums over £1,000. There is a case for and against that. The case that would be made by the Minister is quite obvious. It is a high-level premium and he is entitled to bring premiums over that level into the income tax net.

What I have sought to do in these two amendments is to remove the retrospective element that is introduced. Not alone is the Minister removing income tax relief from premiums in excess of £1,000 but he is making that provision retro-active to 3rd April, 1974. This would appear to be a very dangerous development. It hits at the whole basis of finance legislation and regulations made under finance legislation. It introduces for the first time, in the Finance Bill published early in July, a proposal that would make such premium expenditure in excess of £1,000 retro-active to April 3rd. That aspect is bad enough.

The further aspect touches on the credibility of the Minister who at no stage in his financial speech or in subsequent discussions until the publication of the Finance Bill mentioned this provision. People were entitled to take the Minister's budget speech at its face value. They were entitled to go ahead and take out premiums with insurance companies in excess of the aggregate £1,000. I am sure a number of people did. They did so on the basis that this practice of investment in insurance companies and of channelling their personal savings into various types of policies would continue. They were under the impression that such a practice was exempt and that the procedure was continuing as it was heretofore. The Minister did not mention it in his Budget speech.

Between April and July people went ahead on the basis of a ministerial speech in which there was no reference to this rather important curtailment of tax relief. There was no reference to it in his ministerial speech or in any forum which the Minister chose to pick. The correct forum was in his Budget speech. That is the speech on which the Finance Bill is based.

I know of no case where a serious measure was introduced in a Finance Bill that was not announced in a budget speech. I certainly know of no case where a measure of any consequence not announced in the budget speech was subsequently made retrospective in the financial legislation. I am not going to the heart of the matter in these two recommendations. We can discuss that on the section. We should not get into a debate on the merits of whether this curtailment of tax relief on premiums in excess of £1,000 is necessary or otherwise. That is a matter of opinion. If the Minister wishes to do this it should be done retrospectively only to the publication of this Finance Bill. I will go further and say it should be retrospective only to the passing of the Finance Bill.

What I propose is to delete the 3rd April, 1974, which was budget day, and substitute "2nd July, 1974", the date the Bill was published. When it was published people had notice of the fact that any premiums in excess of £1,000 would no longer qualify for income tax relief. They had notice of that only from 2nd July, 1974. They had no notice for three months— from 3rd April to 2nd July. There was no indication in either the budget statement or any subsequent statement that this tax relief which was the position in law would be taken from them.

I suggest that the practical way to deal with a problem on which I feel very seriously is the deletion of the "3rd April" and the insertion of "2nd July". Perhaps the Minister has some good reason for this. If so, I would like to hear it. I cannot see why the retrospective date should not be deleted and 2nd July inserted. This would ensure that no element of retrospection would be incorporated in the section. It would also ensure that people who did not have notice will not be prejudiced. It will ensure that the basic principle of tax legislation is upheld. In other words, people can only be taxed after notice is given. Notice was given to these particular people on the 2nd July by the publication of the Bill. By the deletion of the 3rd day of April and the substitution of the 2nd day of July, the Minister meets the point of view I am expressing.

The second recommendation is on the same principle. It is another way of doing the same thing. At the end of the section, it adds a global provision that "provided also, that the said restriction shall not apply retrospectively". The better way of doing it would be to delete "3rd day of April" and substitute "2nd day of July".

Unless there is a very good reason from a revenue point of view for doing this, the Minister is doing a serious injustice to the people involved who are being treated in a retrospective manner. I am not thinking so much of them, though they have a strong case, as of introducing legislation in regard to finance, revenue and tax matters any principle of retrospection. If the door is opened here, where will it end? This may not be a very important matter but it has always been a fundamental principle of tax legislation and enforcement that people got notice. People were taxed properly up to date of notice, whether it is the budget speech, financial resolution or Finance Bill. Until any of these steps were taken and an announcement given to the public about them, one did not arbitrarily change in any way the tax scheme. I ask the Minister to accept the recommendation in good faith. It is not a party political matter. It is a matter which is concerned with the fundamental policy of taxation and revenue.

I do not support this recommendation. I cannot see anything retrospective in what is proposed in this Bill. On the 3rd day of April, which is the day on which the Minister introduced his budget, there was a limitation, one-sixth of the total income, on the premiums which were available as an allowance for the assessment of tax. That relief was not available in relation to any other than the 35 per cent tax rate. The relief which was announced on 3rd April was extended to cover the previous sur-tax rates for which it had not previously been available.

There is nothing retrospective in establishing that a relief which is announced is not going to go back beyond the particular day. As I understand it, retrospective taxation is to apply the retrospective tax back; it is not to limit the relief, which is what is proposed in this section.

Senator A. FitzGerald has given an ample and precise reply to Senator Lenihan's recommendation. It is only on the passing of this Finance Bill that the additional concessions can be enjoyed by certain taxpayers who are lucky enough to be in the higher income group and who can afford to pay life insurance premiums. We are dealing with premiums here; not the value of the policies or of the amount to be paid on maturity of the policy. We are dealing with those who can afford to pay £1,000 and upwards out of their annual income towards life insurance. We have a limit, as Senator A. FitzGerald pointed out, of one-sixth of income being the maximum amount of life insurance premiums available for tax relief. We are dealing with people whose incomes are in excess of £6,000 annually. The number of such fortunate people in our community is estimated to be approximately 5,000. Are such people suffering any disadvantages as a result of this Finance Bill? Senator A. FitzGerald has given us the answer that they are not. They will enjoy benefits which they have not previously enjoyed. Heretofore, they were limited to one-sixth of their income on any premium they could pay but the maximum relief they could get on it was 35 per cent.

Now they can go up to 80 per cent on the premium. So, as we are introducing this new concession for them, which is part and parcel of the code of the new simplified tax system, we are also introducing a limit to the amount of benefit which such fortunate people can enjoy. There is no element of retrospection. As Senator A. FitzGerald pointed out, the question of retrospection only arises if you increase the liability of a taxpayer for a past period. The period with which we are dealing is the period commencing in April of this year, not any period before that. A new concession is being introduced but we are saying there should be a limit to this concession. If we did not do so, the ramification would be very great.

Senator Lenihan stated if he thought there was anything substantial from the revenue point of view, he would concede that the proposal, as drafted, had merit. There would be a very significant revenue loss if people with substantial incomes were able to spend a large proportion of their incomes in buying for themselves substantially tax relieved insurance. That would not be desirable. Anybody with an income of £6,000 per annum and upwards, is not so näive or their advisers are not so foolish as to lead them to believe that benefits of this kind would be brought in without some limit. If they ever had such an idea, it must have been dispelled in January last when I indicated that we would limit the amount of interest on personal borrowings which could be set off against tax relief. This Government have given clear indications again and again that there will be a limit to the use by people who have unlimited means of tax concessions, which were intended for the majority of people to deal with their personal and family problems. When people are in the category of having a very high standard of living and still have surplus cash, we then get into an area of possible massive tax avoidance. We would be opening the door to this if we did not have a limit.

We are breaching no principle here. We are doing no more than observing what has been long recognised as a proper principle of taxation. I would refer the House to the case of Hudson v. Kirkness in which the learned judge said and I quote:

It is notorious, and indeed invariably happens, that the Finance Act for a particular year does not pass into law until the then current financial year has to some extent elapsed.

That is the position this year. The judge continued:

Nevertheless the time unit with which the Finance Act invariably deals for the purposes of assessment is the financial year, and it deals normally with the taxable income in respect of the then current financial year.

That is what we are doing in this Bill. The judge went on to say:

That, of course, does not mean that it is retrospective. It is merely the unit of time in respect of which the taxation is imposed.

We are dealing with a new benefit which is being introduced for a taxpayers. We are confining that benefit, as it is being introduced to premiums which are not in excess of £1,000.

Therefore I would urge Senator Lenihan to reflect upon what I have said and to accept our anxiety not to breach any principle of not introducing legislation which would have an element of retrospection. I would find that an anathema. I would not wish to do it; I am not doing it. What I am doing here is ensuring that, as the benefit is being introduced, it will be limited in scope to people who have premiums of not more than £1,000 a year. This will be a very substantial measure of relief and we would not be justified at all in extending it any further.

Listening to this debate, and in particular, reading the Minister's memorandum, it occurs to me that quite possibly—the Minister may deny it—this whole problem arose through inadvertence because the memorandum refers quite clearly to "3rd April, 1974 (Budget Day)". If that memorandum means anything it must mean that whoever framed it thought and thought wrongly, that this provision had been announced in the budget. Of course, we all know it was not. If it was not thought to be announced in the budget, what is the point of putting in "3rd April, 1974 (Budget Day)"?

The Minister has just read out this law case—I did not catch the name of it—in which it rightly says that as a matter of practical day-to-day politics the Finance Bill is always passed during the financial year and, therefore, the financial year is what one has in mind. As we all know the financial year begins on 6th April, not on 3rd April. The reference here to "3rd April (Budget Day)" is misleading in the memorandum because there was no reference to this in the budget.

Reading the memorandum and assuming it was written for some purpose it seems to me that whoever wrote it appears to have been under the impression that the Minister had made this announcement. Of course, if the Minister had made this announcement in his budget then there would be no problem at all. But he did not make the announcement and, as a result, there was a direct encouragement to people—arising directly out of the Minister's own budget—to take out policies in order to take advantage of these benefits that the Minister seemed to be heaping on the Irish taxpayer.

Somebody in the Revenue Commissioners then realised that this fortuitous benefit might perhaps go further than anyone wished and so the Minister mended his hand in the Finance Bill. But not having referred to this in his budget speech, surely equity would suggest that those who did take advantage of the encouragement given to them by the Minister, even though he may not have intended to, should be allowed to benefit from their having taken advantage of the Minister's own encouragement. Certainly, the fact that the memorandum refers to "Budget Day" suggests to me that at least that whoever wrote it imagined that the Minister had referred to it.

I am sorry to say that I cannot yield on this because it involves no element of retrospection. It is common knowledge that a budget statement does not cover all the small print of the Finance Bill. If it did you could produce a Financial Resolution to say that everything that had financial consequences on this year's budget statement should henceforth be the law, and that would be the beginning and the end of the matter. But there are many matters that require spelling out in detail in a comprehensive Bill, and this is one of them. As I said earlier, when a very substantial concession was being introduced nobody but the most naive person would have thought that it would be introduced without limit.

I doubt if there are many, if any, policies taken out on the basis of an expectation that this concession would be introduced without limitation. Were this amendment now to be accepted, it would not be beyond the wit of some people—and I do not for one moment suggest; still less do I even think that anybody here is contemplating any people like this—to back-date policies and to get a massive tax concession for years to come on the basis that the restriction of £1,000 did not come into operation until the date suggested. On that account, one simply cannot entertain this for a moment because of the serious consequences that could arise if this concession were to be made.

I come back to what I said earlier: that the fundamental approach to tax laws requires that any new taxation should relate to a particular tax year, to the current year. What we are doing here is providing an additional benefit. We are limiting that benefit and the limitation will apply only from the commencement of the additional benefit. I do not think that that is unreasonable and it certainly contains no element of retrospection.

The Minister says it is not retrospective; I say it is. The Minister says that the section itself does not contain any retrospective element. All right; I will give way to the Minister in regard to the first recommendation we are discussing here, which suggests going back to 3rd April. Recommendation No. 4 says:

In page 7, line 58, after "subsection" to add:

"; provided also, that the said restriction shall not apply retrospectively".

The Minister assures me that it is not retrospective. I want to copperfasten what the Minister said by inserting: "provided also, that the said restriction shall not apply retrospectively". If Recommendation 4 goes in, I think both points of view are met.

I do not have to warn Senator Lenihan of the perils of unnecessary verbiage in legislation or in legal documents. It tends only to confuse things. The principle, I assert, is well established in law. I have quoted case law and I invite Senator Lenihan to quote case law against me if I am wrong in the law that I have produced here. The words that he suggests are unnecessary and would only tend to confuse the issue.

Recommendation, by leave, withdrawn.

I move recommendation No. 4:

In page 7, line 58, after "subsection" to add:

"; provided also, that the said restriction shall not apply retrospectively".

Recommendation put and declared lost.
Section 9 agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."

We are now abolishing sur-tax. From now on the only form of direct taxation will be income tax. I wonder could the Minister enlighten us as to what effect, if any, this will have on the various income tax interest concessions—bank interest, mortgage interest, all these things—which are entitled to be set off against income tax? What changes, if any, is this likely to bring? We had the position which brought the Minister into his problem over insurance premiums. Are there many other areas of this kind?

In future, all income tax allowances will be allowable as a set-off, subject to whatever limitations there may be, such as the limitation I have just mentioned. Heretofore there were certain allowances, in relation to surtax, which were not available, as the Senator said but in future they will be.

Will the Minister be making further changes in future Finance Bills of the kind that he had to make in regard to insurance if he discovers this is getting too expensive?

I would not like the Senator to think there was a change: I would not consider it a change. As I was improving the benefits to the taxpayer I decided that a limit should be imposed; but I am not introducing any change in the law other than a change in the benefits, and then limiting those benefits. I cannot foresee what the future may require. On several occasions I admitted that the more one tries to reform the law, the more likely it is that some anomalies or difficulties will be thrown up which were not foreseen. It is better to have the courage to try to make the right decisions and make necessary changes, accepting that by doing so one may make a mistake, rather than to do nothing for fear of making a mistake. If any serious disadvantage arises that was not foreseen the matter can be easily corrected in a succeeding Finance Bill. I would hope that I would have the courage, if that becomes necessary, to do so or that my successors in office would have the courage to do so.

The Minister appreciates that any mistake in this instance will redound to the benefit of those who are extremely well off. They are the ones who stand to gain and not the more impoverished type of taxpayer. If anyone gains as a result of the abolishment of sur-tax, it would be those who are very well off and who are paying interest.

There will not be that much to gain, because the rates of tax are not being changed at the moment: the titles are being changed. I agree that the availability of certain allowances is being increased, but if we attempt to simplify the code—and there is no doubt that this is necessary—then we consider it desirable that the allowances should be available as well.

I want to emphasise that I see these changes as being likely to produce more revenue. That may seem to be a contradiction, but we have had a contradiction for several years past. We have had more and more people technically entering this sur-tax bracket because incomes were rising. A few years ago the number of people with incomes of more than £6,000 a year was regarded as being only 2,500; now it is regarded as being 5,000, but the amount of sur-tax has been falling. The reason it has been falling is because of the high rate of tax—80 per cent. People had a very specific incentive to avoid tax and they found ways of avoiding the main burden of tax by perfectly legitimate means, because the law recognised these means as legitimate. They included various set-offs, including principally the set-off of interest on personal borrowings. Now that we are making the allowances available right across the board for all income tax payers, irrespective of the rate of interest they pay, I would expect that the incentive to avoidance would be less.

It is very important to try and produce, if possible, the right philosophical approach to taxation. I do not imagine that we shall ever get all mankind to accept with equanimity the necessity for tax. We all tend to resent it. But if we get to the position where we forget we are paying tax, then we will not be so angry about it. When people are buying cigarettes or drink, or something else that answers an immediate need or which is secondary to their principal activity, they do not mind the burden so much. When people at sur-tax levels have had to pay out huge lump sums twice a year they began to think of ways of avoiding tax. The changes that we have produced here will ensure that the climate of taxation will diminish the tendency to avoid and will in the long run increase the yield.

Question put and agreed to.
Section 11 agreed to.
NEW SECTION.

I move recommendation No.5:

In page 8, between lines 2 and 3, to insert a new section as follows:

"Where, in any of the provisions of this Chapter and of Part I of the First Schedule, a specific sum is mentioned as a deduction falling to be made from the total income of an individual for the year of assessment 1974-75 such sum shall, for each subsequent year of assessment, be deemed to be increased by such percentage sum as is equal to the percentage sum by which the Consumer Price Index has increased during the twelve months' period ending on the date to which the Consummer price Index is calculated next preceding the commencement of the year of assessment."

This is the recommendation to which I referred already in discussing the earlier section on allowances. Both Senator Brosnahan and the Minister mentioned that the rate of allowance, even though increased under this Bill, would of course, if inflation continues at its present rate, be eroded fairly quickly. The Minister, when replying to Senator Brosnahan, mentioned the importance of regularly adjusting the allowance rates so as to take account of inflation.

In a few brief words on that section, which I shall repeat as being relevant to the amendment itself, I decried the whole notion of depending on a Minister for Finance, or the Department of Finance, the Revenue Commissioners, or the Government of the day—all of whom are, naturally, very concerned about containing revenue and increasing it, and who depend on the State taxation and revenue machine as represented by the Minister for Finance to keep pace, year in year out, with the diminution in the value of allowances—to have a look at it regularly to ensure that this will happen. It will not happen in that way and the Minister knows that as well as I do. It will be years afterwards when it has finally been borne on the Minister for Finance and the Government that inflation and the rise in the cost of living has diminished and eroded totally an allowance that may have been increased the last time the allowances were increased. At that stage, years afterwards and under pressure of public opinion, the Government will bring in a measure again increasing the allowances, as they have been increased under this Bill.

What this recommendation seeks to do is to avoid such a situation. That is, where the taxpayer whose allowances have been eroded by inflation is dependent on the goodwill of whichever Government is in power or the Minister for Finance and what pressure he can exercise, what agitation can be developed by them, to ensure that the scale and rate of allowances is improved. This is the wrong way to do it from the point of view of justice, as far as the taxpayer is concerned. That is the way it will happen, if this recommendation is not accepted.

In X number of years' time the taxpayer will realise that the allowances set out here in this Bill will have disappeared or will have diminished substantially in value, and he will be looking for a better deal. Legitimate agitation and pressure will take place, and eventually some Minister for Finance will yield. That will all have taken place years after the initial erosion of the allowances began. Any improvement eventually initiated by the Minister for Finance will barely catch up with, and probably will not catch up with, the erosion that has taken place. Then the erosion procedure will take place all over again.

I have no faith in the notion that we are not going to have to live with inflation—not, hopefully, in the rampant form that exists at the moment— but we shall have to live with inflation in one form or another. Eventually, when the Minister for Finance gets around to improving the allowances, it will be at a stage when inflation will more than have taken care of the allowances. He will, hopefully, catch up with the erosion that has taken place, in the meantime, and then the whole process will start again.

The recommendation, I suggest, is a more practical way to approach this question. In straightforward terms what it means is that the allowances increase in accordance with the increase in the Consumer Price Index. As the Consumer Price Index increases, the allowances also increase. There is then a direct parallel development between increased allowances and the increase in the cost of living.

If, as was suggested here, that procedure can be written into section 12, it means that any specific sum mentioned as a deduction to be made from the total income of an individual falls to be made from the total income for the year of assessment 1974-75. Such sum shall for the each subsequent year of assessment be deemed to be increased by such percentage sum as is equal to the percentage sum by which the Consumer Price Index increased during the 12-months period ending on the date to which the Consumer Price Index is calculated.

The Minister may criticise the details of this recommendation. Let us not talk about the technical details but the principal details involved. You establish by an amendment of this kind a direct relationship between the diminution in the value of allowances and the increase in the cost of living. The increase in the cost of living will have an automatic in-built statutory effect on the allowances being increasedpari passu in each piece of finance legislation.

If we are serious about dealing with inflation it is fundamental to deal with the people who are hardest hit by it.

These are the people about whom we are talking in this chapter of the Bill. The people who are hit most by inflation are the very classes who are paying income tax with the allowances that they have been allowed,et cetera, under Chapter 1, of this legislation. That is why I put in the amendment at the end of section 12, which is the last section of the chapter. We are dealing now with the chapter that concerns income tax payers. These are the people who are in the forefront as regards inflation impact. All the other sections of the community are hit less hard because there are various “outs” as far as they are concerned.

A person on a fixed income who has no other source of income is hardest hit by inflation. This category is broadly referred to as the middle-class. I do not like the word "class". Formerly many of those people were called the working class. Broadly speaking the working people in the community, regardless of whether they are blue-collar or white-collar workers, do not own property but who do not depend on social welfare are seriously affected by inflation. This is not confined to white-collar workers because there are plenty who were regarded as working people, who used live in public authority houses, who are now in an income bracket where they want to buy their own houses and who are now in the income tax category, and rightly so. How do we help this category who are seriously affected by inflation? Social welfare categories are looked after every year in the budget by way of an automatic rise.

I agree with some of the views expressed by people from the Labour Party, notably Senators Harte and Halligan, that many people in the upper income brackets can look after themselves. I am talking about the people in between, those earning wages and salaries, who have no other sideline or income, and who are totally dependent on their fixed incomes.

The Minister is well aware of the facts and gave an assurance that the scale and level of the allowances will be looked at regularly, with a view to remedying any erosion caused by inflation. I respect that but I know, from some experience, that this is not the way governments work. Long after the actual need to deal with a situation arises, governments will come in with some way to help to level up the rate of allowances and the procedure will start again. I would suggest to the Minister to write into finance legislation some principles which will enable these allowances to be tied to the Consumer Price Index or some other indicator which will ensure that as inflation increases allowances will increase and their real value will not be eroded but will be maintained at a reasonably consistent level. That is the purpose of the recommendation. I propose it to the Seanad on the basis that in this period of very serious inflation it should commend itself to the Minister and to the House.

The proposition in itself is a symptom of a very dangerous disease which is afflicting our society and which leads people to the conviction that we are always going to have inflation. On that account it is felt we must have all our actions accelerated because of the expectation of inflation. This leads to a situation in which inflation feeds on inflation. I am not opposed to the idea of having an automatic regulator but I would not regard the Consumer Price Index as being the appropriate one. In relation to the capital taxation proposals I am having a very serious examination done of the best way of devising a suitable regulator which would have allowances adjusted.

Why do I say the Consumer Price Index is unsuitable? First of all, it is compiled at present on the basis of a basket of goods and services which are now out-of-date. At the moment, a number of agencies of the State are involved in devising a new basket of goods and services which would update the Consumer Price Index and which would be related to the goods and services that people now expect. Some of the items in the basket at the moment are obsolete and anachronistic. On the other hand there are several goods and services which now use up quite a sizeable slice of people's income and which are not in the CPI.

I suspect the new basket indicator will reduce the cost of living index.

That would be an improvement if it truly reflected the position outside. There is another aspect of the Consumer Price Index which I think must be borne in mind. Not infrequently the CPI rises because prices contain an element of taxation. If one of the purposes of taxation is to redistribute property from the better-off to the less well-off, it is wrong that the Consumer Price Index should be used as a base for calculating increases to be given to the better-off. If you kept on doing that you would never redistribute property because the better-off would get compensated either through taxes, tax concessions or incomes, year after year to make up for what in the previous year the Legislature considered they ought to surrender to the less well-off. Until such time as we have a Consumer Price Index so detailed that we can identify the tax element from the other cost element it is not a suitable instrument. Let me remind the House that this factor was emphasised in the most recent report of the Central Bank which drew attention to the tax element in the Consumer Price Index and emphasised that it was inappropriate that that should be taken into account, if it was intended to be a reflection of the conscience of society in redistributing incomes and property.

The National Economic and Social Council are also occupied with the problem of the Consumer Price Index and how appropriate it is for measuring what should be future income increases. So, as I have heard what Senator Lenihan has to say I hope he appreciates we are not poles apart in principle, but this is not quite the time to build a legislative norm. I will continue to activate my own mind and those of my advisers on this and I hope it will be possible in the not too distant future to produce something satisfactory. Very few countries have yet done this. Canada did it, I think, last year. It may well be that the Canadian example will be followed elsewhere and it will be useful for us to study whatever experience that country may have before we make a decision ourselves. We will be watching all this. I certainly want to avoid a situation—and the Government have pledged themselves to this—in which we fail to revise the allowances. I accept, without political point-scoring, what Senator Lenihan has said about the difficulties which any Minister for Finance has in framing his budget. If he is not under some legal constraint he will tend to leave over until next year the making of some policy decision if it has a revenue loss element. That is not peculiar to this country; it happens everywhere where democracy or a dictatorship operates. We will have to be very careful when we go about building in a regulator that we do not produce something which is going to be even more difficult to administer than the systems we have had to operate in the past.

One can accept, up to a point, the Minister's point that a definite ruling might encourage the public to get a kind of inflation syn-drome—if that is the word for it—that would convey a sort of general impression that prices will go on rising forever. Nonetheless, we have to have regard to realities. Prices are going to rise between now and the time of the next budget by somewhere in the region of 16 per cent and in next year's budget the married person's allowance which is £800 at present would need to be about £930 to leave him back where he was this year. This is the kind of situation the Minister is faced with and I hope the Minister will bear it in mind and will not permit these marriage allowances to go down and down in value. We must accept that none of us wants to create a general climate in which everybody feels that inflation is going to continue forever. Nonetheless, at the moment we are in a period of almost raging inflation and by next year, £930 would be needed to give the same effect as £800 this year.

As regards the new basket which the Minister says is being prepared, I am very happy to hear this because I have felt for a considerable time that the old one is clearly very much out of date. Senator Lenihan was, perhaps, being a bit cynical when he suggested that the new basket would reduce the cost of living. If the thing is done right, the opposite ought to be the result. Clearly a new basket must have a great deal more weight given to, say, the motor car. We all know how expensive it is. Services of various kinds which have inflated enormously, mortgages and housing generally and things of that kind are not given very much weight in the original basket. They should be given far more weight in the new one. All these things have increased in price far beyond the general rise in the cost of living so that a new basket, if it were compared with an equivalent basket of, say, five or ten years ago, would probably show a considerably greater rise than the old one. This is one of the problems which the Minister will have to face. I hope that in his next budget, or any future budgets which he may be bringing in, the Minister will have regard to the facts of everyday life.

I should like to thank the Minister for his approach to this matter. The Consumer Price Index basket is a separate matter. I agree that it has been unsatisfactory in its method of computation and a new method of compiling it is long overdue. Of course, it will not lead to any reduction. We know that. I also agree with the Minister that even though it was the only indicator or regulator that we could incorporate in the amendment at present, for many reasons, including the one we are talking about—the variations that occur from time to time in it as people's needs change—it is not the most satisfactory indicator or regulator. I would not like to see this matter put on the long finger and I appreciate that the Minister has an interest in not doing this. It is too easy to get into a situation that once the allowances are there and have been written into the Act, that that is the end of the story for another ten years. It is this situation we wanted to avoid when tabling this amendment both in the Dáil and in the Seanad. Undoubtedly, many people in the Government and in the Department of Finance feel they have done a great day's work on this and there have been improvements but let us be realistic. We are going to have to live with inflation, not, I hope, at the present rate but there will be some degree of it well into the years ahead.

There is no point in people sitting back on their oars and saying that they have increased allowances in the Finance Act, 1974, and that they do not have to do anything more until 1984. That might be the reaction of the administration and the Minister for Finance. It is to avoid that mentality developing that we have put down this recommendation which would write into legislation an automatic regulator on which adjustments in allowances would take place each year. As he has indicated, the Minister is proceeding on these lines also. I agree with him that the Consumer Price Index is by no means the ideal regulator but it is the only one that occurs to us at the present time. I hope the Minister devises a better one and we hope it will not take him too long to do so. If example is to be taken from Canada or elsewhere, let it be taken quickly because we cannot put this on the long finger. It is too serious. I would expect that within a year or two, we would have some really expert thought given to what type of regulator can be written in and when that is devised, as best suiting our circumstances, it should be incorporated in legislation. It should not be left there as just a pious aspiration on which Government, ministerial and administrative decisions can be made. When, after full examination, it proves to be the best type of regulator, have it written into legislation. However, on that basis and in view of the way in which the Minister has met the matter, I withdraw the recommendation.

Recommendation, by leave, withdrawn.
Section 12 agreed to.
Sections 13 and 14 agreed to.
SECTION 15
Question proposed: "That section 15 stand part of the Bill."

At this late stage in discussing former taxation all we can do is to indicate some weaknesses in the present approach and express some hopes that in the time ahead the Minister and the Government will pay due heed to the many defects which exist in the present approach.

I am not so naive as to expect that at this stage we can hope to have any recommendation passed in regard to this Finance Bill. With the Dáil in recess no Minister for Finance ever accepted a recommendation. Let us approach the matter in this spirit and look at the general problems enshrined in these new sections. Let us try to find the basic weaknesses.

At the outset it should be said quite clearly that nobody quarrels with the farming community or any other section of the community paying their due share of taxation. We proceed from there to examine what is the best way for the farming community to make this contribution so that the returns to the nation will be maximised. We can take a parallel here from the recent Mining Act where we had the question of our mines and their development. When they are developed, we have glowing accounts and estimates of the thousands of millions of pounds sterling we can get from them.

I suggest to the Minister seriously that Irish agriculture is in much the same state as our mining. It is a case where the paramount consideration of the Government over the next ten years should be to try to develop Irish agriculture in the way in which we believe it can be developed. The Minister and many of us stood on platforms before our entry into the EEC painting glowing pictures of what Irish agriculture would achieve within the EEC. We had estimates made which led us to believe we could double our production from agriculture in the next seven to eight years. There was an estimate given by the Agricultural Institute team which placed the cost two years ago at approximately £1,000 million. That is a reasonable estimate.

We are now at the cross-roads. The question is "Do we want to develop Irish agriculture or do we want to jog along as the beef ranch of Europe where a man with a dog and a stick will earn a modest living for himself provided he has a few hundred acres, but will be no good to the rest of the community." That is not what we want. If we compare figures for the production of Irish agriculture with European agriculture, we can see we are scarcely at half their productivity.

The reasons are well known to us. Irish agriculture never got a chance. We had the Economic War. After the world war, when we might have expected some relief, some development prospects, England got on to the cheap food policy and we have been plagued with that and recurrent periods of boom and slump ever since. Since the second war Irish agriculture has had hardly more than 1 per cent increase in production, whereas England, with great encouragement by the Government, because they needed to develop, averaged 4 per cent over most of the period. The same applies to European countries.

We can do likewise if we have the courage to give every incentive and encouragement to the farming community. I advocate using the income tax code in the sense of a whip, something that will reward those who are prepared to develop and expand what they have got, to get the most out of their land and quickly send the others to the workhouse, or whatever the modern counterpart of that is.

The Minister has set a limit here at £100 valuation, which is a farm of between 120 and 150 acres. If we take a farm of 200 acres it is at most a 60 cow farm with one man. It is capable of going to at least 120 or 150 cows with three men. Is it a prize worth striving for to put three men in employment where there is one working? What is the cost of this? The land remains. It is an overhead, though a shocking overhead at £600 per acre and is out of all touch with reality compared with returns which can be got for capital in any other form of investment. To increase the average farm from the 60 cow up to the 90 cow—Senator Butler would be able to contribute more accurate figures—in generally accepted figures, even with some scaling down, would cost approximately £300 per cow, including all the extra equipment needed, such as silos. That is a £27,000 investment over and above what is already invested there.

This poses a question for economists. Is an investment of £27,000 justified nationally for the employment of two men? For the first time in the past six months the economics of increased production in agriculture have been questioned. If we have confidence in the future we must develop our agriculture. We believe there is a hungry world with an increasing population that requires to be fed and that we are approaching food shortages in the future. They are there today: we have not got around to distributing the food where it is needed. We must have confidence in the future and make this investment. It is a problem, as the Minister or any economist will realise —£27,000 for two men. The return is not very marvellous: perhaps it is in the order of £40 or £50 per week. Industry at present would be definitely superior to that. I have not seen recent figures on industrial employment but probably activity on a moderate scale would involve something in the order of £8,000 to £10,000 per worker. What is the State prepared to do when an industrialist comes in and asks £8,000 to £10,000 per worker? All sorts of inducements are available. For example, you have the grant to start off the industry which often is 25 to 50 per cent of the capital involved and the tax free concessions based on exports because we feel we must have employment.

I am asking the Minister and the Government to look at this problem in great depth over the next six months to see what is our policy with regard to investment in agriculture. Do we consider the investment cost too high at the figures I have given? Are we prepared to go? If we are, I suggest that putting three men where there is one working today on one of the larger farms demands at least as generous treatment as we would give a proposition to have a factory expand its capacity by 200 per cent.

The Government are fortunate that they have a Minister for Agriculture and Fisheries who knows the business. My advice to the Government at this late stage of this Bill is to listen to the Minister for Agriculture and Fisheries. Let him give the facts and figures, guided by the Agricultural Institute which has confidence in the future.

I have been privileged throughout my membership of this House of being actively associated with that group who believe in the future of Ireland which began with the future of Irish agriculture. We are rightly concerned with the failure of these sections here. I am dealing with the section as a whole; it is probably the best way to deal with it. We are involved in a whole new tax code. I am suggesting that the incentive is missing. The mechanics of assessing a tax are there but the incentive is not there. There is no incentive to spur the man on to expand his farming, no incentive for increased employment or increased production. It is not even certain that the increased stock which he must put on the farm will be free from being reckoned for tax purposes until they are sold. The farmer, rightly, has been looking for zero rating in the case where an animal is bought and until it is sold there should be no question of any capital adjustment. Her whole contribution is what she produces. This is allowed in all countries.

Perhaps the Minister would indicate that he favours that approach. The IFA are having consultations with the Revenue Commissioners but, by and large, it is a matter on which the Government should give the lead. The Minister should recognise quite clearly that the principle of zero rating for added stock is a perfectly valid and lawful one.

At a time when capital is needed badly for development the tax situation of the larger farmer puts a premium on sending the farmer rushing headlong to the nearest tax consultant to see how he can avoid paying tax or how he can minimise it. The ways to minimise the tax are to take the money out of farming. It is the direct opposite to what any progressive Government with any consideration for agriculture should desire. The tax consultant will tell the farmer that he can have insurance policies; invest so much in insurance. He is told also about retirement annuities. He is told if he puts some money on deposit in the bank—which is the last place it should be at this stage—he and his wife can have £140 interest before any of it is taken in tax. That will tie up a couple of thousand pounds in capital. He will be told to take expensive holidays at various agricultural shows such as the fatstock show in London—a legitimate business expense. His income can be whittled down in that way. That is the advice the tax consultant will give the farmer. We want the farmers to do what they have been doing in the past, to continue to exercise frugal living, stint themselves, forget about the retirement annuities and to keep insurance premiums to a minimum, and forget about all this expensive travel. We want them to get down to the job of saving every £ they can and putting it back into modernising the farm. The present Bill does not go anywhere near achieving that. That is the greatest defect I find in it. If the idea of erecting a building and being allowed to write it off by 10 per cent is not the Minister's joke of the year, I do not know what a joke is. Farmers always try to pay as they win. Where will they get the money? They are allowed only 10 per cent. The tax takes at least 30 per cent of that amount, so where do you go? In other words, building would have to be accelerated by much more than 10 per cent because we are in a transition stage where we want the people to get on with the building. Indeed, people are so much in debt over the last two years because of the fact that everybody—I as well as the Minister and everybody in these and the other benches—encouraged people to invest.

Senator Butler was foremost in that with his creamery concern in Mit-chelstown, and rightly so. The banks received them with open arms. The result is that farming has incurred more debt in the past two years than in the previous 50 years. Unless things take a quick upturn farmers will be in very serious difficulties. These are the realities. It was an unfortunate blunder, with such a lack of confidence and a sudden evaporation of the great hopes of the past two years, to bring in tax at this stage. In fact, if due to the economic situation this year some real concession was made proper encouragement would have been given to the farming community.

There are some specific points that I will deal with more on the recommendations. I want to make those general points before dealing with the recommendations. I am making them more in sorrow than in anger. A great deal of the work that the Minister for Agriculture and Fisheries and his Department and the Agricultural Institute are trying to do, as well as the work of Macra na Feirme, the IFA and those of us who believe in the potential of agriculture, has suffered a great set-back not due to the fact that farmers are being taxed—let us welcome that—but due to the fact that the investment allowances are not there and that the proper writeoffs for investment in buildings have not been given, and that recognition of investment over the last two years has not been given. I hope that the Minister will learn a good deal over the next six months. He has a very good tutor in his Minister for Agriculture and Fisheries.

I wish to add a few points to what Senator Quinlan said. His ideas are right. Sometimes he did not apply them very liberally. There is one question I want to ask the Minister. The last day I asked him if any consideration was given in his Department to what he is going to do about the basis of assessment of a poor law valuation in agriculture. I claimed then and I claim now that the basis of the poor law valuation is very unfair. I itemised the case of a man with 80 acres of land with a poor law valuation of £8 and a man with 15 acres of land and a poor law valuation of £22.22p.

It is most unfair and it applies across the board in different parts of the country. Something positive must be said or done by the Minister for Finance, the Minister for Agriculture and Fisheries or, indeed, the Minister for Lands, or jointly by the three of them. A proper regular basis of the poor law valuation should be drawn up, no matter what the cost may be, so that an equitable share of all the cake distributed under the poor law valuation basis should be applied.

Here it is written in the Bill "of £100 or more". I am not one to find fault with any man with a poor law valuation of £100 or more paying tax. I know from experience in the past if a Fianna Fáil Government were in power and brought this Bill into this House they would not be let away half as lightly as the Coalition Government of this day.

At one particular time the farming organisations were sitting in the gutter in Merrion Street. Now the Department of Agriculture and Fisheries are in Kildare Street, but there is nobody parading around the city with berets and walking sticks. One cannot take the IFA in particular as seriously as they sound. Times have changed and their methods, modes and aspirations have changed as well. They do not seem to me to be as serious as they should be. The IFA make the case that any farmer with £100 valuation starting off in the month of February of any year—if he lives in the county that I live in—will have a rates bill of £700. All rates on land are calculated at £7 in the £.

The point should be made here that it is unfair to be asking them now for the second time to come up again with taxes. I would like to know, when the Minister is replying, if he could tell me what type of farmers are exempt who have a valuation of over £100. I think that is important, too. Senator Quinlan rightly said that we all preached at the EEC referendum time that we would double our production. We were not asked to double our production, but if we did we would be in clover. We only produced 50 per cent more and the farmers are back now to the stage where there is not much clover except when watching the bank manager at Mass on Sunday. You would bow your head every time you would look at him. Farming is in a desperate state.

I made the point the last day on Second Reading that there has been no reinvestment of capital into agriculture. Nothing has been done by the Government since they went into office regarding the reinvestment of money in agriculture. Now they are taking more money from people in agriculture. Could the Minister assure the House, the people, and in particular the farming community that this money—small or big as it may seem to be—will go back into agriculture? The taxable profits as suggested by Senator Quinlan —the zero-rating of the cow for instance—are not fairly assessed. A cow, for example, is a productive animal. Where the zero-rating should come in is on the profits of the product of the cow, rather than on the cow itself.

It is very necessary that this be done. For the last six or seven months it is quite obvious and evident that the bigger farmer, who normally bought the lighter stock, did not purchase. He waited until this Bill came in so that his stock would not be assessed until after that date. It has caused great concern. It is responsible in part for the price of small stock in the counties of the west where light cattle have been at an abnormally low rate. I am sorry for bringing this point up. I did not get Senator Quinlan's point clearly but obviously that is where it lies. It is very important that it is from that base, and if and when this is put in it will be understood by all. I agree that Deputy Mark Clinton, the Minister for Agriculture and Fisheries, is the "Solomon" of Agriculture in the Government. He is as good a man as I presume Senator Quinlan thinks he is and he should make his presence better felt in the Government. However that is another question.

I spoke previously about the EEC. After making that statement I inquired if it was acceptable. We have reached a stage where the Government must say, if we are not to allow Britain to wag our tails for as long as we live, that we are in the EEC and we are there to stay. We have lost a lot of money on the regional policy. The application of this policy seems to be a dead duck because of Britain. However, I would like the Minister to realise those few points, particularly about the basis of poor law valuation and the proper basis of application of the rates, with the profit of the produce of stock.

I want to make one point of a technical nature which is appropriate to this section. Section 18 (2) (a) of the Finance Act, 1969, which provides for the exemption of profits from farming, is repealed. Paragraphs (b) and (c) are not repealed. I refer, in particular, to paragraph (c) which is an existing provision of the Finance Act, 1969, and exempts the profits in the occupation of woodlands managed on a commercial basis with a view to the exemption of profits from taxation. The language used is that the "profits or gains arising from the occupation of woodlands shall not be taken into account for any purpose of the Income Tax Acts". The section does not say that the occupation or the rateable value or the valuation of the woodlands from which the profits or gains are taken or derived shall not be taken into account.

This scheme for the taxation of farmers provides for an exemption in respect of lands with a valuation of less than £100. It includes a special provision to deal with a case where the valuation is in excess of £50, but not in excess of £10, where certain other conditions are complied with. A farmer with a valuation of £95 would get the benefit of the exemption of section 3, if that was all he owned. If he also occupied woodlands valued at £10, those profits would be exempt under section 2 of the Finance Act, 1969. Because they were valued at £10 they would bring the total lands he occupied in excess of the £100. Then he would be assessed on a valuation of £95. I am sure that was not intended. It was intended that the exemption of profits or gains from woodlands occupied for commercial purposes was to be continued. When that exemption was made, there was an exemption also from all farming. That was the reason why the language of the Finance Act, 1969, was so expressed. The section needs, at some time, an amendment to make it clear that it is not merely the profits or gains in the occupation of woodlands which are exempt, but that the valuation of the woodlands is not to be taken into account in the application of sections 15 and 16.

I do not want to repeat what I said on the Second Stage, but I would like to make a few comments on Chapter 2.

An Leas-Chathaoirleach

We are dealing with section 15.

I am aware of that. This deals with a taxation code hitherto unknown in this country. I am convinced that if the Minister for Finance was introducing his budget now instead of last April we would not have this section in the Finance Bill because farm profits have deteriorated to such an extent. First, it has only been in the last few months that farm costs have outpaced farm profits. Secondly, the losses sustained by the farming community under the brucellosis eradication scheme have not been properly assessed by the Government. Many farmers have had their entire herds destroyed under the scheme. As a result they had to go to the Agricultural Credit Corporation to borrow huge sums of money to purchase disease-free stock at a premium. Their stock is now worth less than when they bought them. They must still meet the borrowing which they made in order to re-stock their lands. They borrowed at a time when money was freely available. The value of their stock depreciated. There is no provision in this Bill to compensate those people for the losses they have sustained, through no fault of their own, because they complied with regulations under the brucellosis eradication scheme. This was one of the most costly schemes ever undertaken. The real brunt of that scheme will not be felt until all the southern same extent as the midlands. counties become involved in it to the

The timing of this Bill is wrong. It comes at a time when farmers have just begun to enjoy their first real measure of prosperity. Many of them now find themselves worse off than their fathers were during the economic war. The taxing of farmers will become the joke of the century. I have it on good authority that many of our bigger farmers are not prepared to pay tax. The only way to get it is through the county registrar, the sheriff, or the civil bills officer. He will have to take some stock or property from them in order to meet the levy assessed upon them.

The part-time farmer or the farmer who secured off-farm employment is the person who will be caught. He is already in the tax net. He will be doubly caught with the restriction on personal allowances. It will force him off the land in the long run. No provision was made for the carrying out of a proper land survey valuation throughout the country. In parts of County Westmeath a farmer with 50 acres can have £100 land valuation— that is, a 50 Irish-acre farmer. In other parts of the country the average is £1.25 per acre. Therefore a farmer with a £100 valuation will not be a big farmer. I am sure people in general will agree that a 50-acre farmer today —especially if he is engaged in the beef business, as are most of the Midland farmers—will not make any exorbitant or enormous profits.

I feel that the timing of this Bill was wrong because of the situation which has arisen due to the collapse of the beef industry and the marketing arrangements which we had hoped would be available to us in Europe. The more developed nations have now introduced emergency measures to compensate their farmers; for example, the French Government have introduced emergency measures to compensate their farmers for losses which they have incurred through loss of farm income.

Again the Minister failed to take the advice of the farming communities. I have here some cuttings from theIrish Farmers' Journal dating from April 12th, and each of those offered sound advice to the Minister.

Yes, I agree.

The case which has been made by theIrish Farmers' Journal was a reasonable one. I mentioned in my speech on the Second Reading that there are already millions of pounds being collected from the farmers which were never collected before. For example, take the heading: “Red diesel ban will cost £100,000 a year.” That is just one item. You are getting millions more from the farmers. This new section could have been postponed for a time when farmers would be in a position to pay. We should bear in mind that no farmer objected to paying his fair share of taxes, but the ability to pay is something that should be considered at present. The ability of our farmers to pay any further forms of taxation is questionable at present. Therefore this Bill will not have the effect which the Minister hoped it would have. I know he has no hope at all with the bigger farmer, who is possibly in the best position to pay, because he is not in the tax net. But the small farmer with the off-farm job will be caught because he is already in the tax net. He is the man for whom I feel most.

I did not intend to speak on this section. All the previous speakers on this section talked about tax on farmers. That is a wrong description to give it. The only thing about which we should talk about is tax on ranchers.

Senator Keegan mentioned Westmeath. I have done some research into the holdings in Westmeath. There are 12,500 holdings in Westmeath and 8,500 of these are under £20 valuation. None of these people is paying rates on lands.

Thanks to Fianna Fáil.

There are 1,600 between the 8,500 and under the £33 bracket. These people are paying partial rates. The balance of a couple of thousand are between £33 valuation and up to and over £100. There are not 200 farmers in Westmeath with £200 valuation. There are about 500 in Westmeath with £100 valuation. These are the only people in the county who will be asked to pay tax. We would describe them as "ranchers" because they have more than 100 acres of land. There is no point in Senator Keegan telling you that £100 rateable valuation gives a farmer 50 acres of land. That is ridiculous.

Go down to Walshstown and find out for yourself.

(Interruptions.)

I could not find them and I have been a member of the same county council as Senator Keegan. He made a statement here today to the effect: why should the farmers not be taxed on their profits? There are two ways of assessing their tax. They can be taxed on their profits or on their valuation. I feel they would choose to be assessed on profits and, if they showed a loss, they would pay no tax.

It has been said here today on the other side of the House that the farming community are losing money. I would agree that they lost money this year because they paid £80 for calves last year whereas this year they can be purchased for £1 per head. Therefore they have been misdirected. The speaker said the court messengers—he did not describe them as such but I call them that—would have to come and collect the tax from the big farmers in the country. The "court messengers" did not have to collect tax from the farm labourers. The farm labourer is paying tax every week. He is not getting away with one penny.

There are people who have been speculating with land and making huge profits. They put up grassland this year for 11 months which rose to £80 an acre; put up new grass hay which rose to £110 an acre; old meadow hay went to between £56 and £60 an acre. Yet people will tell one there is no money in land. Put up a small piece of land for sale in any part of the country and one will ascertain whether or not there is money in land. It is for that reason that I believe everyone in the Twenty-six Counties should pay his fair share of tax and not have the ordinary working man or the white collar man carrying the burden while people who own racehorses, and so on, pay no tax. I can see no reason for leaving the ranchers out and nobody else is included in the Bill. Everyone under £100 valuation will not be taxed. I am quite sure, in a county like Westmeath, where 75 per cent of the people are under £20 valuation, we should not worry too much about the people being asked to pay tax.

This section is just the tip of the iceberg. It is the tip of the iceberg that the Minister allowed to appear above the surface in the course of his budget speech. It is the only part of the iceberg that the Minister allowed to appear until after the local elections. It is the only piece of the iceberg that up to this moment Senator McAuliffe has been able to see. He is still apparently under the impression that nobody will be affected by this Bill except the farmer with the £100 valuation or more. He has told us several times that nobody else in County Westmeath, or indeed anywhere else, will be affected.

Section 15 starts off by saying that all farmers are to be liable to tax because they are carrying on a trade. Then in subsection (3) there is a saver which states that they shall not be covered unless the valuation of their holding is £100 or more.

A little further down in the following section—section 16—under certain circumstances somebody with a valuation of £50 can be liable to tax. Later on in section 28 we find that farmers with valuations of £20 or upwards are affected, not in the sense that they are directly taxed by the Minister, but in the sense that they can lose up to half their total allowances which can be a considerable amount. If a man, with a wife and six children, loses half of his allowances, £1,000 is added to his income for tax purposes. That is no joke. Apparently, as far as Senator McAuliffe is concerned, all he has so far appreciated are the direct terms of section 15 with which we are dealing at the moment. It is the only part that was allowed to appear until comparatively recently when, in the month of July, at last this Finance Bill appeared.

As Senator Killilea has already said, none of us will weep too hard about the woes of the tax-paying farmer of £100 valuation or more. Whatever one might think about the Minister's sense of tact or discretion in bringing in a new form of taxation for the farmers in a year when a great many farmers are going to lose money, and a great many more are going to make very small profits, and whatever one may feel about this being a sensible year in which to carry out a change of this kind, we can accept that in normal circumstances a farmer with a valuation of £100 and upwards can perfectly well afford to pay some income tax. Whatever about the £20 farmers and the way in which they will be affected by this Bill, or the farmers with £50 and upwards, there is very little doubt under the provisions of section 20 that in a normal year the £100 farmers will pay very little income tax. In this particular year, it is likely that many of them will be able to show a loss. In a more profitable year they will still pay very little. The more intensively a farmer farms, the more capital expenditure he goes in for, the more men he employs and, so, the less tax he will pay. In fact, in many cases, even though they may be making very large profits in their normal agricultural year, it is likely they will pay no tax or a very small amount. I do not think we need weep too much for them.

However, section 15 has to be read in relation to the rest of this Bill. It is only the tip of the iceberg. It starts off by saying that all farmers are covered and it is only in subsection (3) that there is mention of the £100 valuation. One wonders if it is not quite clear that in future years, this £100 will go down, perhaps, to £90, £80, £70 or £60. After all, when Gladstone introduced income tax it was a penny or twopence in the £ and we know that we have developed quite a bit since then. That is why it is unrealistic to think that this is the end of the line, to assume that forever more it will be the £100 farmer who will be taxed. We need not be in any doubt that this is the first step along a long road. Senator McAuliffe and others may expect that in future years a great many farmers in Westmeath and other places will be taxed. As I have mentioned already, as far as this Bill is concerned, in this year of 1974, a very large number of farmers apart from those with a valuation of £100 and upwards are going to be affected by the income tax laws.

Senator McAuliffe spoke about farm labourers paying tax. He stated that he believed that everyone should pay it and he referred to those who attend race meetings. I understood that the owners of stud farms are not included in the provisions outlined, which means that those people who go to race meetings and who own stud farms will not be affected by the Bill. Am I right?

They will be affected by it.

The owners of stud farms were exempted from compulsory tillage in the 1940s.

I was not around in the 1940s. I am told that if the owner of a stud farm has a stallion he will be exempt.

He is not exempt if he has a stallion.

They are not exempt, if they have a stallion? So they get rid of it?

The stallion is exempt but not the farmer.

In subsection (3) of section 15 there is one word that is very important and which could go unnoticed by many people. That is the word "occupied". I presume that a person could own a farm with a valuation of less than £100 and still be caught by the provisions of this section, if he is in the habit of taking land each year on the conacre system. It is a very common practice for farmers to rent 40 or 50 acres of land on this 11-month system in any one year. Would the Minister tell me that if a farmer has a valuation of, say, £60 and takes land for a year, the valuation of which is £50, would he be subject to income tax as outlined in this section?

Perhaps I had better explain that in detail when I am replying.

It is obvious to me that this must be the case otherwise the word "occupied" would not be used. I imagine that the renting of land is a fairly common practice in most counties among farmers who take extra land for growing potatoes, beet, or for normal grazing.

When I spoke on Second Stage, I referred to areas where the valuation of land is excessively high, due, I understand, to historical reasons. This is particularly so in relation to land alongside rivers. In my own county we find that along the River Swilly the land is valued very highly. If my interpretation of this subsection is correct, any farmer who is in the habit of taking land along this area could quite easily put himself in the tax net. I do not disagree with the principle of taxing farmers. I agree with Senator McAuliffe's statement that every citizen should carry the burden of taxes. Before this system is implemented for the farming community there should be a reassessment and possibly a revaluation of the land.

This would be a big undertaking. It has been talked about for many years and it would take a long time to do. If the farmers who will now be obliged to pay taxes were relieved of their very heavy rates commitments, the principle of taxing them would be a good one. I could be accused of playing politics if I were to stand here and oppose word for word everything the Minister is proposing in this section. If I were sitting over there and the Fianna Fáil Government introduced this legislation, I would support it. If the Fianna Fáil Government introduced this legislation, I would advocate the same as I am advocating now, that there should be a second look at the system of rates so far as the farming population and all those of us who are in business and who have a heavy rates and a heavy tax burden are concerned. I should like the Minister to explain what he means by "occupied" when he is replying to this section.

The danger of a fellow like me getting into the middle of a debate of this nature is that I do not know which Senators may have a valuation of £100 or over. I do not know if they are representing their own particular view or whether they are representing the views of farmers who have this type of valuation. If they are representing the views of the other farmers who have this type of valuation, they should not base their case on the fact that this was a bad year. The real purpose behind taxing the farmers is to regulate the situation with regard to the rest of the community, based on the principle that you cannot live in a society and take the benefits of that society and not live up to all of its obligations.

You cannot adopt the attitude "We welcome change so long as it affects the other fellow." The source of taxation has always been the cause of controversy because it hits the individual and, as I stated earlier in this debate, because of its confiscatory nature. Time should be taken to explain the system to some of the farmers as their intelligence is being insulted to some extent. Realising that the collection of taxes is not for the benefit of private individuals and, having regard to the contents of the particular section we are referring to, all that is happening is that there is a regularising of the situation. People are being asked to contribute in proportion to their ability to do so. This is the principle behind the section.

The reference to the £100 valuation or more is indicative that what we are looking for is a contribution from people in proportion to their ability to pay. I am leaving aside the question of this being a bad year. The Minister may have some comments to make on that. We must bear in mind that when talking about the collection of taxes, we are talking about the creation of jobs. For example, this year there are 6,000 jobs. We are talking about the encouragement by the Government of IDA grants in an endeavour to create employment. Unemployment should be tackled and the farmers have a role in society to tackle that problem.

They want to support the system we live in and they cannot lower its prestige by trying to get out of their obligations under that system. In trying to evade one's obligations particularly in the employment field one is causing moral suffering. These are the points the farmers who can afford to pay should be looking into rather than making a political game out of it and pointing out all the deficiencies.

Many of those who are unemployed would be surprised to hear those who can afford to pay tax say that they wish to evade their obligations to society. Farmers who can afford to pay tax will understand the position. For example, even in my own particular area, we get people screaming about it. If anyone has ever been in hospital he will have seen a nurse doing a great job being run off her feet until all hours of the night and suddenly there is a motion involving the nurses' pay. The minute somebody tries to draw taxes to get money to start paying that and maybe rates or tax have to go up in order to pay it, we have the very same people who were screaming to have the nurses properly treated coming back and screaming about the increase in taxation. We have got an emotional situation here. All we are trying to say is that in relation to the person that has this £100 and over valuation the situation should be regularised. We must bear in mind that nothing can be given back to people without first taking it from them and also that the object of the Bill is to take as little as possible out of the pockets of all of the community. Maybe somebody is making a little bit more capital out of it than the farmers would really want them to make—those with the £100 valuation. If the case is put to them, looking at the objective side of what the purpose of the alterations in the Bill are, then no great case can be made against bringing them within the taxation net.

There are people who may have special problems. I do not mind them being taken into consideration but that is a matter for the Minister. From my little knowledge of farmers I have found them to be very practical people. When practical points of view are put to them, they accept them. I do not know whether some of the people are representing themselves here or whether they are representing the farmers or whether it is a nice political game.

This section of this Bill is very badly timed. I do not think it is necessary, especially this year. I believe it is only the thin end of the wedge. This is the first year that the farm modernisation scheme is being introduced and getting started. The transitional farmer when he reaches £1,800 a year, is going to be taxed whether his valuation is £100 or £50 or £20. In order for him to become a commercial farmer he would have to increase on that again. I am sure that his profits will be taxed no matter what valuation he has. I am not worrying about the £100 valuation. We have very few of them in Mayo. We have about 10 per cent of the farmers in Mayo who will be able to operate under the farm modernisation scheme. The remainder have no hope of ever reaching it. I am surprised at Senator McAuliffe saying that it is only the farmer with the £100 valuation who will be taxed. The farmer in Mayo who has a valuation of 25p in the Erris Peninsula and who supplements his farming by working in Bord na Móna, the power station or for the county council is taxed on the PAYE system like the man working in an office. If he has a valuation of over £20 which very few of them have, he will lose half of his personal income and be doubly taxed. If he has a valuation of over £20 and he supplements his farm income by working outside he loses half of his personal income and is taxed on the other half. He is doubly taxed.

Allowances.

Yes, I mean half of his personal allowance.

Before the Senator goes too far there is a difficulty that section 15 which we are debating at the moment is only concerned with the farmer of £100 valuation and over. I know it is difficult to discuss this question without adverting to the position under later sections but I do not think we should debate all the cases of taxation of farmers unless the House would agree that the later sections would not be debated at all.

I am only using an argument against an argument that was put up by Senator McAuliffe. He told us of the number of people in Westmeath who were under £20, under £50 and under £100. He said that only the £100 farmer was being taxed. I maintain that the small farmer——

The Chair is in the difficulty that it is only the farmer with valuation of £100 or more who is taxed under section 15 which is the only section now before us.

We were allowed earlier and I thought we had agreed to discuss the whole principle.

The Chair can see that it is difficult to discuss this as fully as Senators would like without adverting to other sections in the Bill. What must be avoided is a full debate on other sections which would then be repeated at a later time.

A Chathaoirleach, I missed my chance by not speaking before you came in.

While we here may have to glance at the closed circuit television to see what section we are dealing with in regard to this particular Bill I am certain that every farmer realises what section 15, Chapter II, of the Finance Bill, 1974, really means. It initiates a tax code to rope in each and every individual member of the farming community. In regard to the £100 valuation, naturally, a start must be made somewhere. It is a very unfair start from the farmers' point of view but it is a start. Eventually, it will snowball through coming Bills to the point where every farmer will come within the income tax code. When the taxation of farmers was initiated in Britain it was brought in in the very same style as the present Minister for Finance has done here in this country. Now, every farmer in Britain comes within the income tax code.

The poor law valuation in regard to farming is not the proper manner to approach this. It is possible, as Senator Keegan stated, that an individual farmer in Westmeath with a 50 Irish acre farm has a valuation of £100. I know a farmer in my county with 70 to 75 statute acres whose valuation is £100. I can quote the case of a person who has £101 valuation. I would call him a very progressive farmer because about ten or 12 years ago that man's total land valuation was £45. He is so progressive a farmer that he has developed to the stage where he now owns land to the total valuation of £101. He has three sons ranging from 15 to 21 who worked with him in the earlier stages on the smaller farm and developed that farm to the extent that he can acquire a holding quite close to him, and work and develop that holding. That man now finds that apart from the £600 rates which he has to pay this year, he will have to meet an income tax bill at the end of the coming year.

Some Senator classified men in that category as "ranchers". If any Senator went to the farmer I am speaking about and told him he was a rancher I know the answer he would get. This individual I am talking about finds himself in the position that he has retained three sons to work and develop his land. Those three sons will eventually enter farming. It is what they have earned a good living at. Naturally that man in three or four years' time, when perhaps two of his sons decide to get married and continue farming, will have to divide that holding between his three sons. Can he then be classified as a rancher? Where does he stand then? I would not like to tell that man that he was a rancher. I feel quite certain that no one here would like to do it, including Senator McAuliffe.

We are dealing with income tax in regard to £100 valuation. An average sized farm of 75 acres can be aligned with a £100 valuation. It is only the thin end of the wedge. Year by year I visualise this valuation being reduced, drawing in more and more farmers each year. The farming community are well aware of this. This is a start and eventually all farmers will be engulfed. While later sections deal with other valuations—the £50 valuation and the £20 valuation—this section is a political gimmick on behalf of the Minister and the Government. They are trying to get across that only the wealthy farmers will be taxed. The two following sections deal with the small farmer who will be involved in income tax.

It has been said that 9,000 farmers will become involved under this valuation and that they, according to the Minister, are very wealthy men. This is a complete falsehood. Many of those 9,000 farmers are anything but wealthy. Fifty per cent of them are fast developing farmers. They are farmers who have acquired and developed more land in the past ten or 12 years since farming got off the ground. Most of the 50 per cent have gone to the banks and raised this money to procure this land and develop it. This section will ensure that they will pay tax on their income, when they have very strong commitments in regard to repayments of their loans. This is a start and it is a black day for the farming community.

I would not like to let the opportunity pass without saying something on this section. While it deals with the valuations of £100 or over we cannot but reflect on what the real purpose of the exercise is. We are not so naïve as not to know when a Minister introduces tax of any kind he does so for the express purpose of getting extra money for the Exchequer. That is not done by getting some money from a few hundred individuals. Naturally he expects to spread the net as widely as possible. It is no exaggeration to say that when the first barrage of publicity has died down, and when it becomesde facto as far as the farming community is concerned that this tax has been introduced, the Minister will not have any difficulty whatever in tightening the noose and widening the scope until eventually every farmer is within the tax net.

Reference has been made to the number of farmers in the £100 or over valuation bracket. I must admit I am not too conversant with figures as far as the whole country is concerned, but I know they are relatively small. In my county they are very, very small. As a trade unionist all my life and as one who has paid income tax since I earned my first penny I feel that every citizen should pay his fair share of taxes. At the same time I must admit that when I was growing up the predominant thought in most young men's minds was, even among the members of the same family, not who was going to inherit the farm but who was going to get stuck with it. We had endless emigration to America and England from our area because they realised then that farming was a drudgery. It was a very strenuous, difficult and hard occupation. It was subject to the tramautic conditions of the elements, to the fluctuations in markets, bad prices, a 24-hour day and seven-day week. The fellow who came home from abroad always had the polish and the gloss. He was able to afford a motor car but the poor fellow who remained at home had no such luxury.

It is a very difficult life even in 1974. As early as nine o'clock this morning, when I was travelling through Killeshandra, the farmers had their cows milked and the milk sent to the creamery. They were about to look at their fields of hay which have been lying there for the past two weeks due to inclement weather.

It was suggested that the Minister might produce some evidence, figures and statistics, to show that the farmer in 1974 was doing reasonably well, and that most of this cry was nonsense. No amount of statistics or juggling with figures will convince the ordinary farmer in County Cavan, County Leitrim, County Donegal or County Fermanagh that this has been a boom year for farming.

I listened to the cattle market report today and cattle prices today are down by 50p per cwt. On a 12 cwt animal this means a reduction of £6. Since January last cattle prices have fallen by £50 a beast. There is very little incentive for farmers to continue in that line. It is all very well for people who are in safe employment to ask: "Why not tax these farmers, who have been avoiding tax for so long?" There are very few farmers in my area who would be able to bear the burden of taxation. If there is a large number of farmers with 100,200 or 300 cows, with high valuations, why do the Government not break up these ranches and put families on them? They talked about doing this often enough when they were in Opposition.

Many people had to emigrate to Britain and elsewhere when conditions were bad here and no alternative employment was available for them. Now there is a recession in most countries and many of the emigrants are coming back to this country. I know from letters received from some of those who emigrated to Britain and America that they would be very glad to return now to their little mountainy farms and take up jobs in some local industry rather than eke out an existence in some multi-storey flat in another country. "Far away hills are green." Our population is increasing and the Oireachtas should be very wary of what we are doing at present. I should like to raise my voice in protest. The farmers are a hard-working body of men. The farming family is the ideal unit for this country. They are the people who keep the small towns with their rural schools and colleges in existence. The day we introduce some scheme which is going to drive these people from the small farms we are taking a retrograde step. We will be driving these people into built-up communities, implementing in another way the so-called Mansholt Plan. We will make it so difficult for the small farmer that if he takes a job in the local factory he will be caught in this taxation net. He and his family will have to emigrate. Eventually, his farm will close down and immediately this happens the Forestry Division will take over his land. The land will not be sold to his neighbours; that would enable at least one family to stay in the area.

I do not want to see this situation developing. There must be other methods of taxation. If a farmer is in a financially sound position, he will pay tax. Many of them do. Many work in local industries and, of course, pay tax. There are many who farm very small areas, especially in the west of Ireland and in the 12 countries that have been designated. These are the hardest working people in Ireland. You will not find many farmers from Cavan galloping around chasing foxes. We have no stud farms or hunting packs in my constituency. Our farmers have no time for them. Most of these farmers are engaged in dairying and they have very little time for enjoyment, except the odd football match. Their outings are very few and far between.

People in cities have a wrong image of the farmer. They may have seen some of these swanky farmers—there are a few of them, I admit—with foreign titles who have other incomes as well as farming, going off to race meetingset cetera. These may have given the impression to the people of Dublin that the farmer is extremely well-to-do. That type of farmer does not in any way represent the majority of farmers in this country. If we put the small farmer from County Cavan into this bracket we would be creating a wrong impression and we would be doing a very wrong thing. Let me tell those living in Dublin who have schools, colleges, universities near them in built-up areas that the people in the country have not got these facilities. We have not secondary schools, footpaths outside our doors, street lights, running water. We have none of these facilities. We do not begrudge them to our neighbours in large towns and cities. It is not our fault if commodities are dear in the city. The small farmers are not making large profits. The city man can look around for the answer as to what is causing the high prices and I can assure him that the profits are not going into the pockets of the small farmer.

The Senator is making a Second Reading speech on the section.

I am sorry, but being a farmer's son, I have to go from one field to another. I do not know what provision has been made in the section regarding the amount of money the farmers have to pay to erect houses and farm buildings. This year they went through a tremendous blitz and not alone from the elements. A severe gale struck this country in March or February which blew down many outhouses. Replacements are very expensive. When other people are able to play golf or enjoy themselves at the seaside, do they ever stop to think what the small farmer is doing, endeavouring to get his children out to the school bus which may have to travel 10 or 12 miles to a secondary school? Even if his children are fortunate enough to get a scholarship to a university it will cost him a considerable amount to maintain them there. He and other members of his family have to sacrifice their time, their money and their energy so as to ensure that at least one member of the family will eventually get a decent job.

The rest of the family probably will not wish to spend their whole lives on the farm, and the reason must be obvious to everyone. Irrespective of what the Minister thinks, the money is not there. The drudgery is there and no system has ever been devised which will guarantee the farmer a five-day week or a six-day week. The type of cow has not yet been devised —I do not know whether science will be able to evolve one; if it can, all the better—that will conform to a five-day week. They would be a Godsend to the farmer. In 1974 any Government should have adverted to the fact that at last we had entered the EEC. Before we entered our prices may have reached EEC standards in some cases, but entry may have increased some of our prices. At least our observers who go abroad would have noticed the progress made in agriculture in other countries, particularly in the main EEC countries. In the goodness of their hearts they should have seen to it that the farmers of Ireland would be given every incentive and encouragement for the first three or four or five years and even up to the transitional period was finished in 1978.

There would have been ample time then for the Minister for Finance to say to himself: "This is 1978. We have been in the EEC since 1973. There has been a transitional period. In the meantime, I have given them every incentive and encouragement to build up their reserves and to adapt themselves to new methods, to learn all the latest techniques where necessary. In 1978 I respectfully submit it might be opportune to consider this market."

To bring this Bill in in 1974, is unsuitable especially at a time like this when farmers cannot get rid of their produce and when farmers over the year have been subjected to selling their goods in a market, such as the British market, at whatever price suited them. The farmers have now experienced that the EEC market is not much better. There seems to be a glut of beef in the EEC countries. It is ill-timed to introduce this measure at present.

Somebody referred to the numbers of people in the country and in the world who are hungry and who have not sufficient meals. We all agree that there are millions of them. This has happened as far back as I can remember. I know it would be an act of charity on behalf of the Government if we were able to make a present of our surplus meat and so on to these people but, after all, people have got to live. We cannot really make presents at the expense of the individual farmers.

I am afraid the Senator has wandered far from section 15 now.

I was only adverting to a reference which was made by somebody else already that half the world were hungry. I was agreeing wholeheartedly with him.

If the Senator would confine himself to farmers who would become hungry as a result of section 15 it would be in order.

Many industries are based on farm products and I mention specifically the manufacture of milk powder. It has become a new industry in my constituency and, indeed, all over the country. It employs an enormous number of people such as those who drive the tankers, take in the milk, fill the bags and count them and drive the lorries. All these functions create employment potential. Without the farmers it would be impossible for this industry or any of these industries located in a place such as Killeshandra or down in Cork or anywhere else to survive. It would be impossible for them to carry on but for the fact that there are farmers who are dedicated people. It is their way of life. Farming was carried on by their fathers before them. It is a profession and a skill. While they may not have degrees or academic qualifications, there is no doubt about it but the average farmer has a tremendous amount of useful lore and learning in his head so far as his own profession of farming is concerned.

It would not be easy for any person, whether he is from the city or from the university, to go down the country and work a farm successfully on the meagre resources that the average farmer has at present because the skills are important. It would be detrimental to the economy of this country if the farmers, or industrialists who have based their industries on the raw material coming from milk, such as cheese and milk powder manufacture, went out of existence. There would be unemployment. The Minister would not be getting any income tax from those people while unemployed. This naturally would mitigate against him from the other end.

Senator Quinlan referred to the amount of money it takes to put a person into gainful employment. He drew comparisons between the amount of money it would take to put a person into some particular industry and the amount of money it would take to keep a person working on a farm. The average farm in this country supports three, four or five people and, indeed, often nine or ten.

If these farmers, by any stroke of the imagination or by any ill-timing of taxation or any other method, were able to get employment somewhere else this would create far more problems than it would solve. That certainly is the danger. I do not want to see the small farmer wiped out. If these big ranches are in existence, there is a problem for somebody else. There are a lot of land-hungry people in this country. There are probably 60,000 of them hoping to get land from the Land Commission. The land is not there. They should put pressure on some of these people who are moaning because some of these fellows with a £100 valuation or more——

I am afraid the Senator has returned to his Second Reading speech again.

I was trying to confine my remarks to section 15.

I am glad the Senator remembered it. It is some time since he was there.

I thought I was referring to section 15. I am trying to keep as near the section as I possibly can. I wish to refer to this matter of taxation on farmers with a £100 valuation or over. Naturally, in fairness to all, no matter how one tries to confine one's remarks to a few short sentences about the whole affair one naturally has to advert to the fact that there are other types of farmers in the country. By comparison, one tries to compare their income with that of the fellow of £100 valuation or over it.

It should be our aim, of course, to try to ensure that we would provide more employment. That is tremendously important at present. Our population has increased, and while that is laudable, I can assure the House that we on this side of the House advocated from the very beginning that we would build up little industries in every town and village to the best of our ability. These little industries would take the overflow of population from the small farms so as to give employment. We must ensure that we do not deprive anybody of employment and particularly people who are living in the rural areas, the western seaboard and the underdeveloped counties. The population has been dropping as I said on many occasions, but the houses are there. Let us keep the people. Do not let forestry in to take over the whole lot. We know that the employment potential in forestry is very small. If there were sheep, and so on, on these farms, on these mountainy regions and commons it would certainly increase the sheep population. It certainly would make those adjoining farmers much richer and probably better able to pay when the Minister brought them into the tax net. So far as I can ascertain we as farmers have more or less got away from——

Could I intervene? It is now 10 o'clock which is the normal time for adjournment. In view of the fact that the Seanad has been discussing section 15 for over an hour, the House might like to agree to sit until the conclusion of this section.

I do not know. I intend saying very few words on it.

There seem to be about four more speakers offering.

As there are four more speakers, we will reconsider the position at 10.45. A lot depends on Senator Dolan.

Will I move the adjournment?

It is a matter for the House to consider its own business. The Leader of the House has suggested that the House should continue to debate this section with the possibility of reconsidering the matter at 10.30 or 10.45.

There is general agreement that we should try to finish this section. I am hoping that it might be done before 10.45 but if it is not done by then we should look at it again.

It is agreed to continue consideration of section 15 and to reconsider the matter at 10.45 if the section has not been agreed to by that time.

You may have rightly suggested that I have strayed from the £100 valuation but it was not my intention to be disrespectful to the Chair. In a matter such as this it is hard to keep within the ordinary £100 valuation because there are very few of those people in my constituency. I do not know very much about them. Farmers, especially those who pay workmen, should pay their share of taxation. As the workmen pay tax, it is only reasonable to expect that the farmer should do likewise. What I am worried about is this: when an Act is passed and something new is introduced in the beginning people do not advert to the full facts of what is contained therein. I am not an ignorant man so far as this is concerned but I respectfully submit that very often legislation goes through, people think it is so and so and very often they get a rude awakening. I would hate to see a situation reached where farmers would be annoyed by people calling to the premises in the middle of the dinner or some other time investigating how many hens he has on his farm and so forth.

These matters should be approached in a friendly and helpful manner. They should not cast reflections on these officers. People who have been in the Civil Service for a long time seem to have an idea in their heads that if a farmer has six or eight cows, that those cows will have six or eight calves and that everything will go right. They never seem to make any allowance for cattle dying or sows having only one pig. They seem to have a set number. There will have to be a more charitable approach to this matter.

I hope it will be a long, long time before the tax net is extended in so far as the majority of the farmers are concerned. Anybody of farming stock knows from experience the difficult life these people lead. I can assure the people who are clamouring for this taxation that they would not tolerate the smells and discomforts often associated with working in farmyards. I am quite sure many of them would not even go near them. I would like everybody to know that life on the farm is not all sunshine. All this so-called luxury which is projected so far as the farming community is concerned may exist for a few who inherited farms or who got them very handy but the majority of the small farmers do not own the land; they have it for their lifetime. He can never realise the so-called capital in it. He must pass it on to a son or somebody else. While it might be valued by the Revenue Commissioners or somebody else at £10,000, that is a sum of money the farmer never saw in his life and never will.

I should like to say a few words in connection with this. I understand that there is general agreement in principle to applying the income tax code to farming. I am sure I will be corrected from the other side if I am mistaken in this. As I understand it, the principle has been approved by the spokesmen for the chief Opposition—the Fianna Fáil Party. It is agreed in principle that the income tax code should apply to farming and there seems to be no justification why it should not be extended.

Senator Dolan made the case—a very accurate and fair one. He spoke of days in the past, the difficulties encountered by farmers and the situation, which he described rather graphically, as it affects his own county. I accept his description that the attitude in a farming family was not who will get the farm, but who will be stuck with it. Undoubtedly, that was the situation not merely in Cavan but elsewhere in the country in the past. They were hard days. They were very difficult days. There were times during the Economic War when that attitude was fairly prevalent amongst the farming community. No one can doubt that. The case was made here this evening that everyone is wrong who thinks that there is money in farming. We are told that the profits are not coming into the pockets of the small farmers because the money is not there.

This leads me to believe that possibly some people have a completely wrong impression about what is being done under section 15 of this Bill. We should recognise a very simple fact, which we may be overlooking. It does not matter whether the farmer's valuation is over or under £100. If he has not got a taxable income, he will not be paying income tax. In other words, if there is no money going into the farm, and the farmer is not making enough money to qualify to pay tax, he will not be an income tax payer whether his valuation is over or under £100. Looking at the matter from a logical point of view, it does seem—and I think this is generally conceded—to be wrong to have an income tax code applicable in the country where the farm labourer may have to pay income tax and also have to pay rates on his dwelling, while an employer, by reason of the operation of law, is completely exempt from income tax.

That situation is at least being ended to the extent that if the farmer is earning enough from his farm, after all allowances are made— whether they be allowances against farm buildings, dwelling house, farm machinery, etc., and the ordinary allowances which are made to every other income tax payer—if, over and above that he earns a taxable income and warrants taxation is there any reason under God's heaven why he should be exempt from tax while his farm labourer is not? That is all that is involved in this. If the farmer does not make a taxable income, then he does not pay tax. In addition to that, the farmer is getting the additional concession that he does not have to pay tax anyhow unless he has a land valuation of £100 or more. No other section of the community are getting that concession. The case is made, and I sympathise with it to a great extent, that so far as the farmer is concerned, he is paying rates on his farm, on his means of production and so on. That is not confined to the farmer. It is a mistake to single out the farmer as being in an exceptional position so far as the payment of rates is concerned, leaving out entirely any question of abatement of rates, employment allowances, and so on.

The businessman who runs a factory, the shopkeeper who must pay rates on his shop, the guesthouse keeper who has to pay rates on his guesthouse, the solicitor who pays rates on his office, all of these people also are paying rates out of what might be regarded as their means of livelihood or means of production.

While I sympathise with the farmer who is paying heavy rates, I do not think that that is an exceptional situation as regards the general question of rates and taxes. The principal matter to bear in mind in relation to this section is that the farmer will pay tax only if he has a taxable income, if he is making enough out of his farm to put him in the tax bracket and if, in addition to that, he has a land valuation of £100 or more. It is in those circumstances only that the farmer will be caught for tax under this legislation.

Having regard to the broad agreement in principle to the idea of all sections of the community who have taxable incomes being required to pay income tax, it does not seem to me that, in this particular instance, the farmer is being badly treated by the Minister in introducing this legislation. I think most farmers are prepared to look the world in the face. Many people make poor mouths on behalf of the farmers; very often it is on behalf of the farmers and not the farmers themselves. The farmers have gone through very difficult times throughout the years but they have remained on the land; they have taken pride in their work. I think they are perfectly willing to regard themselves as the equal of any other section of the community. I do not think they want to be singled out for molly-coddling; they are prepared to stand straight, to walk straight and to pay their share of the taxation of this country in order to make the country a better place for all of us.

Whenever the matter of taxation of the farming community has arisen in the past, usually an emotional discussion took place. This section clearly sets out the category in the farming community which are, within the present Finance Bill, to be involved in assessment to income tax. There has been a great song and dance over that by some of the speakers from the other side of the House in so far as this embraces an all-in farming commitment to income tax. Nothing could be farther from the truth and let us face this in a realistic and practical way. The section specifically states that farmers with valuation in excess of £100 will have an assessment in relation to their profits to ascertain their involvement in income tax.

It amazes me to hear Senator Yeats say that in any case their profits will be negligible. And if that is so, there is no problem for the farmer with a valuation in excess of £100. Therefore, there should be no major objection if the situation is that the assessment will reveal that there is no involvement in tax in their case. I am amazed at all the Senators on the other side of the House who have spoken in a unified manner in opposition to section 15. Not today or yesterday, but down the years they have met violent opposition from the ordinary farm labourer, industrial worker, from the small business community that we, as a people had developed an unjust and unfair taxation code in so far as that up to 1974 we had failed to take any account of a substantial volume of high income people in the farming community.

The Minister is to be congratulated on having had the courage to make this break-through which has been demanded for so long by the masses in this country. We all know that the taxation code, as implemented and experienced by workers and others down the years, placed the burden entirely on single persons earning in excess of £6 per week and upwards.

Reference was made to the fact that the farmer's rate is a difficult one without relation to hours, weekends and so on. This is quite true. But I would point out also that amongst the masses of people who felt aggrieved for a long number of years by this unfair taxation code, we have a substantial volume on a seven day shift system in industry required to build up our exports. Nobody in the past mentioned that the night allowances, the Sunday allowances or the shift allowances of such people, because of their importance to industry and to the export trade of this country, should be exempt from tax. They have had to pay the full impact of income tax on all their earnings.

Senator Harte mentioned the emotion which is felt for nurses and other professional people who spend all of the seven days and seven nights of the week rendering a service to the community. He asked why a case could not be made for exemption on their behalf because of their special duties, without regard to hours or weekends. Of course, this was never contemplated.

As I have stated before, there are hundreds of thousands of farmers who cannot and never will be brought within the tax net because their earnings will not reach that target. If and when any Minister for Finance proposes to change the terms of the present section 15, then I am sure the Oireachtas Members will deal with it with the knowledge and information that will be available to them at that time. It is futile and irrelevant to be speaking of situations in relation to this Finance Bill that do not exist within its terms.

Senator Dolan mentioned the mass emigration of small farmers down the years. This is true but I would remind Senator Dolan that there was a mass exodus of workers also. So the disaster of emigration was not particular to any one section of the people.

The greatest criticism of the system of taxation has been from those people who come from the small farming community and who comprise the vast work force. These brothers, sisters, sons and daughters of small farmers objected to a system that allowed large farmers to be exempt from tax.

I have said most of what I want to say on this subject on the other Stage of the Bill. Having listened to the arguments that were made from both sides of the House, perhaps my view might well be put again particularly since I am probably the only one here who pleaded guilty to being one of the people who will be caught in the net of taxation of farmers whose valuation is more than £100. Still I believe that there is no deep difference of opinion between the views that I would express and the views of Senator Harte and Senator McAuliffe who talked on this subject. If the other 8,999 farmers were present tonight and had the opportunity to make a contribution on this subject it is unlikely that there would be any significant difference between what they would say and what was said by our colleagues here.

Nevertheless, there has come into this debate some apparent difference between the people who identify with the trade union movement and the business section as against the farming community. I think that this is completely imaginary. All the Minister has done in this Bill is to establish the principle of taxation of all sections of the community—the principle of every section of the community making their fair contribution. The kernel of the whole subject was touched on more seriously by Senator Quinlan than by any other speaker here. On that, I would like to dwell very briefly.

Normally when one takes into consideration the question of tax on farmers one conjures up a picture of the very well-off farmer who owns or who has inherited a very large farm which is well managed and in respect of which there is no burden of debt or mortgages or all the other things that many of us are familiar with. This man who earns a very good income and who perhaps has labour employed—such men are in a very small minority nowadays— can enjoy a very high standard of living without having to pay any income tax. Such people are a source of great scandal in a community such as ours. One such case in a whole county would be the cause of much scandal and one such case would be one too many. I think that the Minister is to be congratulated on establishing this principle. Nevertheless there is the other side. The farmer by his very nature during the past couple of hundred years, was in the situation where he always found himself under some urge or some compulsion to save his supper for his breakfast and his breakfast for his supper. Many people who have no experience of agriculture do not realise that a farmer can make an income this year but no income next year. Old customs die hard and so the farming community generally speaking did not live it up when they made a year's profit. For this reason the farmer in his own particular situation deserves special consideration and special attention on this whole subject. Most farmers when they made a profit reinvested it in the land. It provided for an expansion of their own industry as well as of the national assets.

We must remember that farmers expand in food production because they are self-sufficient in all the most important agricultural produce. Exports of our agricultural products, as well as generating industry for the benefit of all our community, bring in the capital that we need to maintain and increase the standard of living of all of us.

Taxation of the agricultural community will be expanded. What the Minister is doing in this Bill is only a start. There will come a time when all farmers will be liable to income tax under particular circumstances. The rateable valuation of a man's land is not the correct basis on which to assess his tax. However, it may be all right to start with. The Minister, his staff and his advisers will learn many things during the first year or two in which they operate this system. It is not at all a reasonable way in which to decide whether a man is in the income tax net. The only way to decide that is to take into consideration what a man earns.

The principle of remission of tax and of encouragement to further invest or reinvest money should be seriously considered as this whole question of taxation of farmers becomes more important. Because it has been introduced this year, because farm incomes are so low and because a very small number of farmers are involved, the amount which will be gained from this exercise will be insignificant. The amount of revenue will not even pay the cost of the administration of the system. However, I believe the Minister has done the right thing. The argument that it should not have been introduced at this time was not a valid argument and is irrelevant. I think the idea had to be introduced at some stage. It took a courageous politician to introduce it. The Minister for Finance and the Cabinet with the social conscience that we know they possess have faced up to this problem. I hope that in the years ahead a much more careful look will be taken at this whole subject. The farmer who makes an income and reinvests that income for the expansion of the industry, to make his farm more viable, is doing a service to the country and to the industry. He is generating employment and revenue. He is bringing money into the country. The principle of remission of tax in favour of the farmer who makes an income and reinvests it in the land must be seriously considered. We all know—this is the other side of the argument— that when people get a permanent job they also get a good income. I have had experience of this and also of paying wages. If a young man in his teens becomes employed and receives wages, it does not make any difference if he gets £20 or £40 a week. In the vast majority of cases the same amount of money will end up in that man's pocket at the end of the week. Unfortunately, young people do not see the need to save and the present inflationary trend does not encourage them to do so. However, whether a man is a wage-earner, in industry or in farming, perhaps we might establish a principle that what is reinvested for the development of our resources and the expansion of our industry should be regarded as being of special importance and remissions should be given.

The points raised by Senator Quinlan and the arguments he put forward are very relevant to this debate. While they may not be as important today as they will be when we come to the stage of considering future Bills on this subject, the Minister and his officials should bear these arguments in mind.

I am very grateful to the House for instructing me on agricultural problems. We have had very useful contributions from both sides of the House and most of them were objective. I share with Senator O'Higgins the recollection that some spokesmen of the Fianna Fáil Party, including their Leader, Deputy Lynch, expressed themselves as being in favour of taxation of farming profits although, listening to many of their colleagues here, one would not have assumed that they are in favour of taxation of farming profits. A number of them made it clear that they were against it in principle and were objecting not merely to its introduction but because its introduction would be a wedge which, they said, would be driven home so that all farmers would be brought into the tax net.

As several Senators have remarked, including Senator Moynihan, the truth is that even if all farmers were now brought into tax, it is only a minority who would become liable. At present the Irish farm structure is so inadequate from the point of view of making a decent livelihood from it that most farms would not qualify for a long, long time to come. No matter what prices were to be received for farm produce, most of them would not become liable because their structure is too small. There would want to be fewer farms and of a larger size before liability to tax would arise for most.

What are we doing this year? We are bringing within the tax net no more than 8,820 farmers out of about 170,000.

That is under section 15.

I shall come to the other point when we come to the other sections. Under section 15 that is all we are doing. Some full-time farmers are being brought into the net. Many emotional speeches have been made by representatives here. Of course I recognise that Senators represent the whole State and that they have no particular constituency. However, many of them did not recognise that because they spoke about their own constituency as though it were a Dáil constituency in which they happened to dwell. I know most of the problems in County Cavan, on which we heard an excellent address from Senator Dolan for about half an hour. In that county there are no more than 71 farmers with rateable valuations of £100 and over; in County Kerry there are only 62; in County Leitrim 10; in Mayo—which was also introduced into the debate—no more than 31. These are a fair indication of the very small scale of the problem in what one might regard as the poorer farm areas of the country. There are other locations where the numbers are greater but if they are greater, so too are the prospects of making a profit because the land there is better.

I have never defended the present valuation system. I have admitted, from the word "go" that it is an imperfect system. This was recognised 14 years ago in various assessments which had been made of the possibility of farmers being brought into the tax net. In 1966 there was a firm recommendation made to the Government of the day to start revaluing all the properties in the country. It was pointed out that this would take 11 years. If it had started in 1966, we would have only three more years to go before the whole valuation of the country was completed. That would be a lot nearer to producing a new system. I wonder how naïve are those who are advocating the revaluation of the country.

Does anybody think that he, or his friends, would be paying less at the end of it? I have my doubts, speaking as a layman, and not presuming to be a valuer. Those who have had their properties revalued for any purpose have seldom been satisfied afterwards that they did better than if they had left things alone. Even people who appeal against revaluation of properties know that they do so at their risk, because when the appeal is heard the valuation may be increased yet again.

There are a number of perils in the remedy that has been offered in regard to the revaluation of the whole country. A £100 valuation was chosen by the Government because it was regarded as a fair indication of the probable ability of people above that figure to pay a contribution towards tax. The contribution which will be paid at the lower levels above the £100 will be very, very small. Senator Cowen spoke about the iniquity of charging a man with a valuation of £101. He contrasted his miserable position with the man whose valuation is £99 and who would get off scotfree. But, of course, we have provided a measure of marginal relief.

Take the case of a farm with a valuation of £101. If the farmer were to opt for the notional basis of assessment, which we are offering, using a multiple of £40, this would mean that he would be assumed to have a gross profit of £4,040, from which there would be deductions in respect of rates, depreciation of farm machinery and labour costs. On the basis of the figures furnished by several different sources who have produced figures of farm incomes and liabilities, we calculate that in setting off those items as allowances the gross profit would be £2,320. If the man is married and has three children, his tax allowances would amount to £1,400. His taxable income would be £920, out of which the tax would be £239. That is not the end of the story. By reason of the marginal relief which we are offering, under section 19 that man would pay tax of no more than £24. Can you think of any more gentle and considerate way of introducing taxation?

What about the man with a valuation of £120?

He is in a better position to pay more than the man of £101 valuation. The more I hear criticism of our efforts to be fair and gentle and to provide marginal relief, the more I realise that what the critics are saying is: "You did wrong. You should have brought all farmers into the tax net." We are really hearing the gospel of envy. The person who is caught says: "Why am I caught? My farm is not as good as that of the man down the road, who has a lower valuation. He should be in too." Of course, we should all feel better if other people had been brought in. I do not mind saying that that is one of the reasons, although not the main one, why farmers are being brought in; because there is a great feeling of frustration, indignation and injustice, and of a great sense of inequity. If people are single, they are caught at £10 a week, and £16 if they are married. They have no way of avoiding tax, while people who have more substantial incomes than they can escape the net. They feel a great sense of annoyance and frustration.

I do not think that anybody who is sane looks forward with relish to the payment of tax. I do not mind people objecting to being asked to pay taxes which they did not have to pay previously. I would think they were soft in the head if they accepted that joyfully. However, I congratulate Senator McCartin and others who, at least, can concede and take the broad view, even though they will have to pay the tax themselves. They see the justice of the case and that is the correct way.

I join with Senator McCartin in commending Senator Quinlan's speech. I should like to assure Senator Quinlan that I am as interested as he is in the agricultural community or, indeed, my colleague the Minister for Agriculture and Fisheries.

It is my one concern to see development but the question is whether we can afford efficiency today. Unless we are very optimistic about the future the returns do not justify investment.

I agree but one of the related consequences of taxation is that people tend to borrow in order to offset interest liability against tax liability. People prefer to pay interest to the lender than to pay tax to the Revenue Commissioners.

You cannot make money out of borrowing at present rates.

I am not pretending you can. I agree it is not the best time to borrow. Those who have borrowed and who have the liability to pay interest can offset that interest against their tax liability. Many people who have not paid tax in the past are more scared of the system we are introducing than is really justified.

Senator McAuliffe argued that if the case were put fairly to people most of the farmers who will be liable to tax would accept it as being reasonable. I would remind the House that the issue has been put in a very democratic fashion very recently to the whole country. It has been put fairly and unfairly but let us not blame our political opponents for endeavouring to make such mischief as they can out of it. If the positions were reversed we would be playing the same game as they are playing today. The verdict in the local elections proved very conclusively that a sense of justice and understanding prevails in the country. If there was any sense of indignation and frustration—such as was painted by the Opposition—the Government parties would not have won the local elections.

At that stage nobody was covered except the £100 farmer. Section 15 was the only piece in existence then.

I would not whistle passing the graveyard.

I would like to remind Senator Yeats that the point was made from many public platforms that this was the thin end of the wedge, that it was £100 now and that eventually it would be £50.

It is £20 now. That is the trouble and that was not told in the local elections.

Nobody with £20 valuation will have his farming profits brought within the tax net.

They can lose a lot of money.

An Leas-Chathaoirleach

The Minister on the section, please.

Senator Quinlan and other Senators suggested that zero-rating should be applied to added stock. This is one of the problems we have been discussing with the farming organisations and our discussions are continuing. I am sure a satisfactory solution will be found. We had the suggestion of averaging profits. I regard this as an acceptable principle because the valleys and peaks of profits in farming are very changeable. Quite clearly, it would be unfair to subject profits in one year to taxation if the losses were not to be available for bringing forward or for averaging. We are endeavouring to carry on constructive negotiations with those who are best in a position to know the problems.

Senator Dolan referred to the desirability of the whole system being operated in a friendly manner. I share his desire. People who have had experience of the Revenue Commissioners have found that it seldom pays to be at arm's length with them. In discussing a problem with them they are usually found to be very humane. It is proposed to have meetings with farming organisations at which representatives of the Revenue Commissioners will attend to discuss problems and when all the details have been settled to explain the operation of the system to them. The explanations by the Revenue Commissioners will include explanations to farmers about their rights to allowances and set-offs and so on. It will not be a one way operation.

Senator Fitzgerald raised a point about woodlands. He considered the Bill as drafted would mean that the rateable valuation of woodlands would be taken into account in assessing a farmer's valuation. That is not true. Woodland is not regarded as farming land. It would not be brought into the measurement.

An Leas-Chathaoirleach

May I intervene for a moment, please? It was agreed at 10 o'clock that we would review the position of the sitting at 10.45.

Let us finish.

I will only be a few minutes and I will endeavour not to be controversial.

That will be difficult for the Minister.

Many of the speeches were such that they do not call for a reply. I endorse most of the sentiments expressed. If I do not mention Senators specifically by name they will appreciate that I have accepted a great deal of what they said provided they are on the right side of the House or have been reasonable if coming from the other. If I do not mention the Opposition Members, they will know it is because I disagree with most of what they have said.

This has been a wide ranging debate and I think nothing can contradict the principle we have in mind in reforming the tax law, that is that people with comparable incomes will pay a comparable amount of tax. That must be our first approach and that is what has led us to bring farming profits within the tax net. We are bringing in a system which will be transitional. It has this notional factor. It has a number of other considerations. We are not in a position to say how long the transitional provision will operate. We would consider it desirable in the interests of the farming community that the problems arising should be identified before we draw up a detailed system of concessions and incentives. Anything done in a hurry is seldom done well. We have only brought in those who have a taxable capacity. No reasonable person can maintain otherwise.

We will not be providing a disincentive. Ever since man was first taxed the taxpayer said taxation was a disincentive. If it were such a disincentive man would long since have ceased to strive. Oftentimes the tax burden makes one strive even harder in order to pay the tax and have more left at the end of the day. I would not expect that our farmers have much greater capacity for hard work as they are already working so hard but I think there will be an incentive to, perhaps, greater efficiency, to a better use of land and of assets. Perhaps farming here will become a little more sophisticated. This in itself would be an asset to farming. That is how the industrial and commercial sectors are operating as a result of tax provisions. The same will probably emerge in respect of the farming community in the years ahead.

Question put and declared carried.
The Seanad adjourned at 10.50 p.m. until 10.30 a.m. on Wednesday 31st July, 1974.