Seanad Éireann debate -
Wednesday, 31 Jul 1974

Vol. 78 No. 20

Finance Bill, 1974 ( Certified Money Bill ): Report and Final Stages.

Mr. Hanafin

I move recommendation No. 1:

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

"(3) Income payable on the first £5,000 invested in registered building societies by any individual shall not be subject to the charge to income tax created by this section."

This recommendation was changed for the purpose of trying to cater for the views expressed by Members on the Government benches.

We have reached the stage—which, by giving figures I proved on Committee Stage to the satisfaction of all —where building societies no longer have the competitive edge in attracting funds. I should like to present some figures to the Minister. In dealing with investments not exceeding £5,000 to all building societies the total amount involved is £112 million invested in the societies, that is, investments from individuals not exceeding £5,000. The associated banks deposit accounts have £906 million on deposit; non-associated banks, such as the merchant and the industrial banks have £514 million on deposit. The total with building societies is £188 million. It is clear, therefore, that the attraction for investors has been directed towards associated banks and non-associated banks because the building societies have lost the competitive edge. When this happens people no longer invest; they go where the interest is greater. When the building societies have no money, they cannot accommodate would-be borrowers and, consequently, no houses will be built or if houses are built there are no customers for them. The effects of that are that the construction industry is moving into a disaster area and all the services depending on the construction industry will also be affected, the furniture manufacturers and the various other groups. Vast unemployment then occurs. I am sure nobody here would like to see a situation where the construction business would move into a disaster area. There might be a difference of views as to how this might be prevented. We believe that the surest way of prevention is to accept this recommendation.

In its original form I would have thought it more acceptable despite what has been said about the rich man. The views expressed by the Government side seem to be more concerned about the rich man rather than about the people who are dependent on building societies. It is not only the workers in the industry who will be affected but also those who are saving for a home of their own. Most people who avail of building societies belong to the middle-class group. I say "most". All the exceptions are on the other side. Included in that group are trade unionists, people employed in industries and in offices, all of whom would be dependent on building societies for loans. If no money is available no building will take place.

All the views expressed by the Government side seem concerned only with the rich man. As I stated on Committee Stage, I am not concerned about the rich man but I should like to see his money invested in this country rather than outside the country. If money is invested outside the country the benefits go to the banking institutions in the countries in which it is invested and to the individual himself. The £9 million made available to local authorities is not as good as it seemed at the time. The ceiling of £4,500 is a deterrent to many people in accepting the loan facilities. They might not have the balance of the money and might not be in a position to save the sum necessary for building or buying their own homes.

We make this recommendation in the hope that it will be accepted and because it meets the views expressed by members on the Government side. We see from the figures given that the building societies have lost their competitive edge. I believe that this is the only way we can prevent the construction industry from disaster. If this recommendation is accepted it will bring stability to the construction industry and all its ancillary services. If it is not accepted, it will lead to far-reaching problems. We are proposing what we believe to be the solution. If this is not accepted we will meet with disaster and the responsibility will lie with the Minister.

Mr. Lenihan

I support this recommendation. There is no need to emphasise the importance of the construction industry. It is a real barometer as far as our economy is concerned, both from the employment aspect and the house-building aspect. A large industry has been built up particularly on the house-building side. What is happening now in regard to house-building is only part of the general situation in the construction industry and all its ancillary industries. In the house-building sector of the industry, finance is not available. There are three ways in which finance should be available. One is through local authority sources but here we have a limitation of £2,250 in regard to income and a limitation of £4,500 on loans. It is a totally inadequate source of supply. Giving £9 million to local authorities while these limitations exist is unrealistic and totally dishonest.

The second way in which funds can be obtained to revive the private house-building industry is a way which, if the Government were honest about it, they might consider. The banks and the insurance companies should be brought together under the aegis of the Central Bank or the Government and they should be told to advance moneys for private house-building. Banks have made substantial profits in recent years, so this is one way in which action should be taken if the Government want to face up to their responsibilities.

Mr. Halligan

Is that nationalisation?

Mr. Lenihan

Let the Government work out for themselves how they should do it. This proposal is a long-term method; it is not going to solve the immediate problems. The Government are reluctant to tell the local authorities to raise their financial and income limits when it comes to providing land for house-building and enabling people to build their own houses. For practical purposes the Government have circumscribed the local authorities by the limits they refuse to raise. It is ludicrous to give finance in the situation where the limits are too low and where there is not the physical and administrative capacity in the local authorities to carry out the job. The suggestion I offer is a long-term one. The Government should examine closely how they can best organise the banks and the insurance companies who have the necessary funds to use them for long-term housing planning.

Thirdly, we come to the building societies with their expertise gained over the years in advancing loans for house purchase. The problem here, as Senator Hanafin said, is lack of sufficient funds. The Government should examine how best to solve this problem. There is no point in saying that money can be doled out by the banks to a limited extent. A sum of £5 million is only a drop in the ocean, it would not build even one thousand houses. Like giving £9 million to local authorities, this grant is unrealistic, and is not a proper approach to the problem.

Even if our recommendation involves a diversion of funds from other sources to building societies, as the Minister stated yesterday, why not do it? If the Government are serious about the private housing programme they should make a policy decision to adopt such measures as would enable funds to be diverted to building societies for private house-building. The Minister made it quite clear yesterday that he regarded this as a substantial enough effort to enable funds to be so diverted. The only objection he had was that our recommendation would cause a distortion in the flow of funds. Is this not what government is supposed to be about? A government should organise finance for social priorities. If building houses is not a social priority in our situation at the moment where the construction industry is on its knees, I do not know what priority means.

On his own admission the Minister says that acceptance of this recommendation would cause a distortion in the flow of funds and would cause a diversion of funds from what he called "other desirable objectives". If we consider the priority of "other desirable objectives" I would regard the private house-building industry as the most desirable objective. If substantial funds are diverted into the building societies, why not? The Minister tried to frighten us off yesterday with financial gobbledegook, saying that our recommendation was going to divert funds and distort the money market. I do not care if it distorts the money market so long as it provides ample funds for building societies which are best equipped administratively to handle this grave problem. There may be a better long-term solution, but I am speaking about the immediate problem. We must prevent the construction industry from collapsing.

This is not a very radical recommendation. We have introduced tax remissions and incentives in many areas in the past. We provided export tax reliefs in order to attract investment; that also cansed a diversion of money. Any proposal advanced by a government who give preference to one particular area of development compared to another is a distortion of the money market and is a diversion of funds. That is what a Government are supposed to be doing, so as to organise society. They can distort the money market and can divert funds where it is socially and economically desirable in a given situation.

Our thinking behind this recommendation, and our recommendation yesterday, is that at this very critical juncture in the state of the construction industry the one way to revive it and increase employment is to provide funds for the building societies by causing a diversion of money to them. This can be done by giving the tax remission which we suggest. We have amended the Committee Stage recommendation to meet the point that was made on Committee that by some method people could benefit by having a number of £5,000 blocs, as it were. We suggest in this recommendation that income payable on the first £5,000 invested in registered building societies shall not be subject to the charge of income tax. This applies only to the first £5,000 invested in any building society. This undoubtedly will cause a diversion of funds into building societies. I do not care if it causes a diversion of funds from banks who are making enormous profits. If it causes a diversion of funds from deposits in those banks to building societies, I ask: why not? Here is a practical way in which the Minister can, as of now, radically change this matter, radically put the building societies in funds within a matter of months and prevent a catastrophe in the building and construction industry.

I would not like to hear an emotional reaction or approach to this. This is a very practical, sensible and well-worked out proposal. It is a proposal that we have discussed with many leading financial and house building people, people experienced in the business. We have tested out their brains on this matter and they have come up, after a consensus of views, with this as being the most practical injection that could be given just now to the building industry via the building societies. It is practical, simple and straightforward. The only thing that is wrong with it is that it puts the decision into the lap of a Government who are incapable of making a decision.

An Cathaoirleach

I understand the House wishes to consider at about 11 p.m. what it wants to do in regard to the completion of the business.

Mr. R. Ryan

I will be brief if that is any assistance to the Seanad in making up its mind as to what it wants to do.

Mr. Yeats

Let us finish.

An Cathaoirleach

It is agreed to sit through?

Mr. R. Ryan

I cannot add anything to the words of wisdom which I spoke yesterday on this matter other than to point out that the present arrangement under which building societies pay only 70 per cent of the tax liability of their depositors, depositors being exempted from 30 per cent of their tax liability, is a non-statutory arrangement and if any change needs to be made it can be made on the same non-statutory basis. It does not require the power of the Finance Act to implement it. As the House is aware, discussions are to take place shortly with the building society movement. Discussions have been taking place with other financial institutions, all for the purpose of ensuring that the Government's priority in housing will receive the necessary finance and I would suggest that is the best way in which to do it.

Money flow is a very sensitive thing. Nobody will deny that, I am sure. In fact, we have been listening to too many orations from the far side of the House about not being sensitive enough about the sensitivities of the money market. This is an area of great sensitivity and if you leave it to us you can be sure we will get the money flowing in the right direction.

Mr. Hanafin

The Minister has said that we can be assured that he will get the money flowing in the right direction. That is all he said. He did not state what we can be assured about. He said that his priority was to provide the necessary finance for housing. In proposing this we felt that this was a method where Government subventions would not be necessary and we based our argument on the fact that it would attract more investment. I quoted a figure there to which the Minister did not refer. I said that £112 million is the total amount of investment from investors of moneys not exceeding £5,000 in building societies. One could not expect that that figure would be doubled if there was a tax exemption, but if there was a 50 per cent increase, or if there was a 25 per cent increase, one can appreciate what that would mean. At the present rate it has attracted £112 million. If there was a 25 per cent increase it would be far greater than all the subventions that have come from the Government. We believe that this is the answer to the crisis that is just upon us. We understand from people who are involved in the building industry that very shortly, after the holidays, many people, skilled and unskilled, will be let off. We are moving too fast into the disaster area. We believe this is the answer. The Minister has given us an assurance. Perhaps he has decided he should not spell out why we should accept his assurance. We are very hopeful that he will consider and implement the recommendation we have placed before him because we believe it is the answer to what we consider an absolute emergency.

Recommendation put and declared lost.

Mr. Yeats

I move recommendation No. 2:

In page 10, after line 32, to insert:—

"(8) For the purpose of this section the renting of land on conacre shall not be treated as occupation of land."

There was some discussion today on the question of conacre. May I summarise the position as it emerged after a good deal of discussion today? In section 17 the methods are set out in some detail for assessing precisely what valuation farmers throughout the country should be reckoned as having for the purposes of this Bill, for the purpose of finding out, for example, under section 15, which farmers are reckoned as having a £100 valuation or more, under section 16 the £50 farmers, under section 28 those who have £20 valuation or more and are allowable under the provisions of that section. Obviously this question of the precise legal technicalities that are set out in this Bill to decide what their valuation is, is a matter of very considerable importance to the farming community.

It has emerged from the discussions we had and what the Minister said that the great bulk of conacre lettings —I do not suppose there are any figures available but I suppose I am safe in saying that probably 80 per cent or so of all conacre lettings are for grazing purposes—are not covered by this Bill. Therefore, those who take these conacre lettings for grazing purposes do not find any change, under section 17, in their valuation. The problem arises with the remaining 20 per cent or so. According to the Minister, because they are for tillage purposes, the growing of beet, setting of potatoes, grain crops, they will, on the contrary, have the effect of increasing the valuation of those who take these conacre lettings and therefore, conceivably, in a number of cases bring them into the provisions of section 15, section 16 and section 28, and render them fairly fortuitiously to the imposition of income tax or perhaps to the halving of their various allowances under the Income Tax Acts.

It seems to us on this side of the House to be an altogether faulty method of imposing income tax law that a man who takes conacre for setting beet should find his valuation increased whereas a man who takes conacre for the purpose of grazing should not find his valuation increased. There is absolutely no reason in principle why this should be so. It seems to be quite clearly bad law, bad in the sense that, as the Minister himself has said, there should be a certain certainty about income tax law, there should be a certain clarity which enables people to know how much income tax they are liable to pay or whether they are liable to pay income tax at all. It puts two adjoining farmers in a totally different income tax bracket potentially, or valuation bracket certainly depending on how they use the land taken on conacre. The Minister said that this is necessary in order to eliminate the possibility of tax avoidance. This obviously is not the position. As I have already said, about 80 per cent or so, at a reasonable estimate, of all conacre lettings are probably for grazing. If tax avoidance is possible, and I do not see how it could arise in the great majority of conacre lettings, then tax avoidance is no way hindered by the provisions of this Bill, because the Bill relates to only a very limited number taken for the purpose of tillage. The sensible step for the Minister to take now would be to accept this recommendation and eliminate altogether from section 17 the renting of land for conacre. That would be a sensible step because it would eliminate a great deal of difficulty and ill-feeling likely to arise.

Mr. Lenihan

I think the very chaotic reaction of the Minister to this debate today is indicative of the sort of chaos that will unfortunately accompany the administration of this tax. The Minister, at the end of the debate on Committee Stage, admitted as much and said that they would be watching the matter very closely in the coming months with a view to rectifying the position. The recommendation is a very straightforward two-line one which would meet the case. It is quite clear that one cannot have this differentiation between two types of letting. There are innumerable lettings in rural Ireland of all kinds and descriptions. There is a mountain of case law on them. I have checked on it. The lawyers, the accountants and all the advisers will have a marvellous time getting people in or out of the £20, the £50 or the £100 valuation. They will have a marvellous time bringing clients under or over the various levels and deciding which lettings are in; the Minister has suggested a straightforward grazing letting, an 11-months' letting, which remains with the owner and does not transfer in order to let the tenant or lessee into an increased valuation position. The Minister thinks that. He says there is a law case. There are several law cases. I checked on that too.

What I suggested on Committee Stage will be the only way to administer this. I am saying this in the interests of the Revenue Commissioners, of the Minister and in the interests of taxation. The only way this can be administered is by administering it on a straightforward valuation relating to ownership and that is the purpose of our recommendation. It eliminates all conacre lettings as coming under the definition of "occupation" of land. If you stick strictly with "occupation" and fix your valuation limits accordingly you will run into very little legal difficulty and very little administrative difficulty. There will be very little evasion. You will not have a whole host of advisers, who will themselves be farmers, trying to evade and you will not need a very heavy bureaucracy in order to administer the Bill as it stands.

The Minister said this would lead to evasion. I do not see how it would. I do not see why you cannot have the rated occupiers as the people liable for income tax. If you start defining and segregating the various forms of letting, if you have one form of conacre letting for tillage transferring occupation and bringing the farmer who is engaging in the tillage, even if he is a very small farmer, up over the £100, while his neighbour renting the land for conacre grazing will not be liable for tax at all, you will have the ridiculous situation in which one is taxed because he is in tillage and the other is not taxed because he is in grazing. You will have the very real danger, as the Minister admitted, of the double taxation to which Senator Jack Fitzgerald referred. The people who own the conacre tillage land will be taxed on their valuation and the man who takes the conacre tillage land will be taxed on the valuation that he has taken over from the lessor. This is something that could be challenged very easily in the courts. What will happen, unless this recommendation is accepted, is that the Minister will run into enormous trouble and the Revenue Commissioners will run into enormous trouble.

We are trying to ease their burden. We are trying to be helpful here— which we should not be—in a very practical way by saying, in practical terms for the purposes of this section, that the renting of land for conacre should not be treated as "occupation" of land. That brings one straight then to rated occupation. The rated occupier, and only the rated occupier will be the person primarily liable and chargeable. If you go into this other area of conacre you will be into an enormous area of potential litigation and I can assure the Minister the Irish farmer is probably one of the most ingenious people in the world in adapting himself to finding a way out of legal difficulties. He will have the help and assistance of a band of advisers of all shapes and sizes and qualifications, lawyers and others, who will enable him by every means available to evade and get round what, I think, will prove to be administratively impossible.

The Minister, at the end of the debate on Committee Stage, was coming round to a point of view somewhat like our point of view on this. His view was to let this take its course and see how it works. I guarantee it will not work and the Minister this time next year will be bringing in a section rather like what we suggest here. The Minister could avoid a great deal of trouble for himself and the Revenue authorities if he accepted a recommendation on the lines we suggest.

Mr. Keegan

I support this recommendation. I warn the Minister that the hob-lawyers will win this battle. They won in the past against the British landlords. For generations they have been winning battles like this and they will win again now. The Minister is wrong and it is foolish of him not to withdraw this section. He is segregating the different types of lettings, conacre for grazing and conacre for tillage, be it beet, or wheat or anything else.

He will add to food costs. A man takes conacre for the purpose of growing beet and the Minister will tax his efforts and, in doing so, he will add to the cost of food production. The same argument applies to conacre for wheat, for barley, for oats, or anything else. That should clearly indicate to the Minister and his advisers the wrong being perpetrated in this section and the Minister and his advisers would be well advised to withdraw the section altogether.

Mr. R. Ryan

There is no statutory definition of conacre——

Mr. Lenihan

That is the trouble.

Mr. R. Ryan

——and that is a very good reason for not withdrawing the section. If the section were deleted, the hob-lawyers in different parts of the country, with the different practices that exist, would certainly have the kind of field-day Senator Keegan has in mind. They have enough to do with what is in the Bill and we should leave it at that. They would not be able to cope with what they would have to cope with if we put in conacre as well.

Mr. Yeats

I do not think the answer of the Minister is very satisfactory. Even if there is no set definition of conacre, it is not beyond the wit and the ability of the Revenue Commissioners to frame some kind of definition which would avoid these extremely serious problems that will arise if they try to distinguish between the man who grazes cattle and the man who grows beet. Certainly the hob-lawyers will have a field-day. Within the ambit of section 16 the Minister can add a new trade or profession now for the farmers on the cold, long winter nights as hob-lawyers for their neighbours. This could be a very profitable source of revenue for farmers in the long winter nights.

Mr. R. Ryan

The Law Society would scarcely countenance that.

Mr. Yeats

As Senator Lenihan has said, it is quite clear in next year's Finance Bill we will find some quite complicated definition of conacre which will get the Minister out of this difficulty.

Recommendation put and declared lost.

Bill received for final consideration and passed.

The Seanad adjourned at 11.30 p.m.sine die.