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

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

This is the section in which some of the rest of the iceberg begins to appear. The Minister originally unveiled this whole proposal in his budget as a simple, straightforward issue involving the taxation of farmers with a valuation of more than £100. He told us at frequent intervals that that was all that was involved and that 9,000 farmers would be affected. When we come to section 16 we find that many other people are affected potentially or directly. Not only that, but they are affected in a very strange and inconsistent way.

One can see the basic purpose in this section, but it is framed in a way which would lead to considerable variations in taxation between people who have almost identical incomes and ways of life. For technical reasons some are affected and others are not. Before I get down to details, I would like to ask the Minister about one small point which is not of importance but which concerns a curious method of drafting. The Minister said yesterday, and one can only agree with him, that unnecessary verbiage should be excluded from legislation. I would ask him in regard to line 51, page 8 and again line 3 on page 9, what is the precise meaning of a phrase. For example, subsection (1) (b) says: "whose spouse, in a case where the individual is a married person". I understood that when you were a spouse you were a married person or if you were a married person you had a spouse, I cannot conceive why it is necessary to make those statements. If ever there was a case of unnecessary verbiage I think this is it. If it means anything I would be happy if the Minister would enlighten me as to what it does mean and why it is necessary to have this phrase in.

We have a situation here where a farmer of £50 valuation or more who is excluded by subsection (3) of the previous section, is brought back into the income tax code and brought back in a particularly onerous way because he is not given the alternative of the notional basis of assessment that farmers of £100 valuation or more are given. He is brought into the income tax code if either he or his spouse, in the case where he is a married person, has various forms of alternative income. The amount of the income does not appear to matter. As I understand this section, if either a farmer or his wife has an income of even £50 a year or, theoretically, even £10 a year, then he is brought within this section and is liable to income tax on the whole of his farming profits as well as his income of £10 per year. Not only that, but it would appear from the wording of subsection 1 (a) that the form of employment must be such as qualifies him as some kind of freelance. If a farmer's wife is employed as a nurse working in her own time, freelance for fees, then they come within the ambit of this section. If, on the other hand—and this seems extraordinarily inconsistent—his wife is employed in the local hospital for a salary, then they do not come within the ambit of section 16.

There have been many complaints over the years about, for instance, a farmer's wife who is a schoolteacher, working alongside other schoolteachers, and who, because her husband is a farmer, is taxed, but her husband is not taxed on his farming profits. They have a considerable advantage. As I understand it, under the wording of this section, if she is employed as a schoolteacher for a salary this section does not apply at all. The wording of the section is such that it is extremely difficult to know who is covered and who is not.

When we get to paragraph (c) of subsection (1) we have a very curious provision which is apparently intended to catch certain people to whom the Minister referred in the Dáil, veterinary surgeons and others, who apparently have been making very large incomes and claiming it all against lands that they hold. While this is intended to catch them, the trouble is it catches a lot of other people as well.

The Minister in the Dáil produced a couple of cases which seem to me to be absolutely weird. He spoke of a veterinary surgeon who made, I think, £45,000 from his veterinary practice and who had 30 acres and claimed that he really only made £1,500 from his veterinary practice and all the rest on his 30 acres. The Minister said that to deal with that kind of person this subsection was needed. I just cannot believe that it is beyond the ingenuity of the Revenue Commissioners, with all the powers they possess and the ingenuity that we know they possess to go down to the 30 acres and see the few sheep and a goat or whatever it is the man has and say: "Would you tell us how you made £40,000 on these 30 acres?"

I should have thought a 30-acre holding that made a profit of £40,000 in a year would be a rather remarkable holding. One could not but imagine that one would need to have the whole 30 acres under glass, or something of that kind. It would be a very remarkable holding, and when one considers the powers of the Revenue Commissioners and their ingenuity, one just cannot believe that this section is needed to deal with that situation. It is quite clear that the cases the Minister quoted had long since been shot down by the Revenue Commissioners with their great powers. They are well able to deal with that kind of thing and whatever about other less obvious evasions that may be taking place and that might be needed to be dealt with by this paragraph, the cases that the Minister quoted in the Dáil are ridiculous and it is quite clear that they could not possibly have stood for a moment.

Under paragraph (c) where the farmer or his wife are directors of a company carrying on a trade or profession and they own 25 per cent of the shares or more in that company, then they come within the ambit of this section and have to pay income tax in full on their farming profits. To begin with, one of the problems with this whole section is that income has nothing to do with it. I have already mentioned that the farmer's wife, and the farmer himself if he happens to do a few odd jobs around the neighbourhood and makes £10, £20 or £100 in the year, are covered—that they find themselves suddenly having to pay income tax not on a notional basis at all but on the full amount of their farming profits.

Senator Alexis FitzGerald shakes his head, but I cannot in this section see any minimum which brings them within the ambit. There may be a restriction on the amount they have to pay, that the income is very small, but once you have £10 income, as I understand it you are within the ambit of the section in some shape or form. But income has nothing to do with it. Whether you have £10 a year or £1 million you still come within the section. In regard to the provision about being a director of a company and having 25 per cent of the shares, there is no distinction between a small company which may be making no profit and, say, ICI. You could have shares worth millions and still not qualify either because you only had 24 per cent or because you were not a director. We find also that this word "director", which is a very grand word, is meant to imply some sort of big businessman or else some veterinary surgeon who has made his business into a company. We find later on in the section that the word "director" is a purely superfluous one and is to include under subsection (5) any person who holds any office or employment under a company. So if your wife works the odd time as a typist in a family company she is counted as a director although she may not do any directing and have nothing whatever to do with the management of the company. It is a phrase which is entirely misleading because while it obviously covers directors it also covers anybody else who works for any kind of a salary in the company.

It has nothing to do with income. You could be the owner of immensely profitable shares making a very, very large income and simply because you were not a director because you did not have 25 per cent of the shares you still were not covered in any way by this section. A great many people who are not at all in such a good position, farmers struggling along on £50 or £60 valuation farms might quite unexpectedly find themselves paying simply because they or their wives were making some small income somewhere and would find themselves paying income tax on their farming for the first time under farming profits.

One wonders are there many farmers of £50, £60, £70 valuation farms who form time to time do not make a little bit of money one way or another by doing odd jobs around or by their wives working at different things. One wonders at the proportion that would be affected. It seems to me that a very high proportion, contrary to what the Minister has been suggestting, of farmers of £50 valuation or more are at risk and could find themselves this year and next year or ten years from now covered by section 16, and although they are well below the £100 mark they might find themselves suddenly paying income tax, and paying income tax on their poor farming profits, whereas the larger farmer, the more wealthy farmer whom the Minister is really trying to get at, with £100 valuation or more, has automatically the right to apply this purely notional basis of assessment which it is clear from the provisions of section 21 in many cases will mean that he will pay no tax or a very small amount of tax. But the farmer of £50, £60, £70 valuation can find himself caught by this section, paying full income tax on his entire profits.

This seems to be altogether unjust because it goes far beyond what the Minister originally said he was doing, and particularly unjust because it is so chancy. There should above all else in the income tax code be an element of certainty about who is in and who is out. Here you have a situation where by the merest chance the fact that a spouse or the farmer himself did a little bit of work they found themselves caught. It is chance because so much depends on whether you are working for a salary or working in your own time; chance because you could have 25 per cent of the shares in the company and yet not be a director; and then your wife decides to take a job as a typist for a while in the company and all of a sudden you find yourselves counted as directing the company under this section. Then you are brought into the ambit of it.

It is doing precisely what the Minister has said he does not want to do. You have identical cases side by side and due to some mere chance arising out of the operations of this section one farmer may find himself paying income tax and his neighbour, who is in precisely similar circumstances, finds that he will not be paying. For these reasons it seems cumbrous, unnecessary and unjust.

Last night when we were discussing another section it was said I was referring to section 16. I am glad now that we have move to section 16 which I think is a very important section. As I said on previous occasions, I and most people conceded that it is only fair all citizens should bear their fair share of the taxation. There is nothing more frustrating to a taxpayer or to any individual to learn that by various means of filling in forms,et cetera, some people are able to escape the tax net. This is something that has to be righted, whether they be farmers, workmen or company directors. It is only fair that any Government should aim at trying to ensure that all citizens will bear their fair share of taxation.

People long ago, particularly people in sheltered employment, in the professions and so on, adverted to the fact that farming is a very hazardous and very difficult occupation. As I have said on previous occasions, the farmer is not there by choice; it was his way of life and was handed on to him. He is only the custodian of the farm for the time being. Much play is often made regarding the value of a farm being £20,000 or £10,000. That money never comes into the hands of the farmer. His father had not the money nor his grandfather. When he passes it on to his children the farm will still be there but it very seldom realises any cash. Consequently, when people talk about the value of a farm being £10,000, £5,000 or £6,000 they convey the impression that a farmer is a very wealthy individual. In this section we are talking about farmers with £50 valuation and farmers who are trying to eke out an existence. In order to supplement their income perhaps the farmer himself or his wife may seek other employment. This is the kind of trend we have been trying to develop. I think it was a very healthy one whereby people living in their own homes on a small farm got a part-time job in a local factory, with the county council, the Forestry Division or with somebody else. That is a good development which I believe in the long run would help to stem the tide of emigration from rural Ireland. It would give the farmer some confidence in his future. It would give him some security so far as the weekly income is concerned and with the extra money he might earn he would be able to provide some of the finances necessary to ensure that he would farm in a profitable way.

I am not sure if the Minister has adverted to the fact that because of our entry to the EEC tremendous improvements are necessary on our farms. Instead of taxing farmers who are trying to eke out an existence we should give them extra incentives. They need extra capital to gear themselves for the step forward that one would expect our farmers to take since our entry to the EEC. I pointed out on a number of occasions the deplorable conditions in which the farming community find themselves at present.

I cannot allow the Senator to discuss the general conditions of farming. Last night a great deal of licence was allowed on section 15, which was debated for two hours, and the Chair must ask Senators to confine the debate to the provisions of the individual sections in the remainder of this part of the Bill.

I appreciate that and I will endeavour to keep within the guidelines you have set. I was trying to make the point that people living on small farms in rural Ireland should not be penalised because either the husband or the wife try to augment the meagre existence they get from those small farms by taking a job in a local factory, with the county council or in the borough. These jobs are very rare and very sparsely placed as far as rural Ireland is concerned. Consequently, nobody could blame a farmer, especially in a year such as this, for trying to augment his meagre existence or income in some way.

I should like to point out to the Senator that I fail to see anything about employment in section 16.

I thought that under section 16 if either of the partners earned money or took up any particular job that this means they will lose their tax free allowance.

Would the Senator please give way for a moment? No, this does not deal with employment. It deals with somebody who has his own profession or is conducting a trade himself but it does not relate to somebody who is in the employment of another. Such a person, employed by another would come under the ordinary tax code in relation to the income from the employment. This is primarily an antievasion measure to prevent people setting off profits which they earn from some other business against their farming utility in order to avoid their tax liability.

I just want to find out from the Minister how would it affect people who might return here from England. For instance, the husband was away in England, the family were at home working on the farm and the husband eventually decided to come home because times were bad there. While he was over in England he acquired some little trade. He was able to build a wall, erect a silo or work a forage harvester or something like that. He spent some of the time during the year helping out his neighbours or out earning a little money. I would like to know what the position would be in that case.

If he works as a contractor liability would arise. If he works as an employee of another, liability under this section would not arise.

If he works as a contractor himself he must pay?

This word "contractor", like the word "director" to which Senator Yeats referred, very often conveys to people, who might not be very familiar with the facts, the impression that we are talking about somebody such as McAlpine or some of these huge contractors. In fact, in the country, very often under the forage harvester grants and so forth, a man may cut the silage for four or five neighbours. That is a good service. It is an essential service especially with the type of wet years we have been having recently. In such a situation I do not think it is absolutely fair that by taxing this man we may put him out of existence and leave these small farmers in a much worse state than they would have been had that man not returned and set up this type of service for them. I think these things should be encouraged. When you take into consideration the price of the machinery involved and the amount of capital that that person would have to put into it, I cannot see why it is worthwhile going after a person like that who goes out to help his neighbours.

I would like the Minister to try, to the best of his ability, to satisfy the ordinary farmers because the majority of them are under £50 valuation but, as I say, they very often partake in work such as I have mentioned.

The Minister's grandfather was a dispensary doctor in my county and I know that he has a good knowledge of County Cavan, the Killeshandra area and the whole north-western area of the county. He would know the type of farming we carry on and he would be reasonably disposed, if possible, to helping those farmers. This criterion regarding valuation is not a uniform one. In the past under the Griffith valuation, as he well knows, there were many headings used for setting a valuation which would not appertain today. I think that in making this assessment of valuation the Minister and his Department should devise some method whereby there would be some relief given to people who live in areas where the soil is very wet and clammy and where farmers are not able to keep their stock most of the year.

I should like clarification on a few points. The necessity for this provision is understandable in the case of a person living with another person who is engaged in farming or if the person himself is engaged in farming and carrying on another trade or profession. The obvious example was given by the Minister in the Dáil with regard to the veterinary profession. It is usual for those practising that profession to be in farming as well. Substantial profits from the profession are put against the profits from the land. The main purpose of this section is to avoid that type of evasion in regard to a trade or profession being carried on by a farmer or his wife and the profits from it put against profits from farming.

But there is an injustice here on reading this section in conjunction with section 28. Section 28 cuts the personal allowance in respect of farmers of over £20 valuation who are in employment or whose wives are in employment. This appears to mean in effect, that not alone are you, with some justification, getting at the farmer with over £50 valuation whose wife or himself may be a trader, but you are also cutting the personal allowance in respect of that person by half. Am I reading this correctly? Under section 16 that person with over £50 valuation is now liable to taxation in respect of farm profits. That is fair if there is a profession, trade, or a directorship bringing income into the household. But in addition, the personal allowance in respect of that trade or profession will be cut by half under section 28.

Reading the two sections in conjunction with each other this would appear to be the case and if so would appear to be highly inequitable and undesirable. I should like clarification from the Minister on that point.

I should like to welcome this section as it is long overdue. The intolerable situation had been developing in farming that if farm land came on the market it was very seldom that a farmer or a farmer's son was in a position to buy that land. A person who has made his money in some other walk of life in that area or indeed in any part of the world, if he wished to invest his money, could do so in Irish land. When a small farmer has been hoping all his life to buy a small piece of land nearby it is taken by some stranger. This is not in the interests of agriculture or in the interests of the farmers in the locality.

The situation had developed that a farmer's son in many cases was not in a position to buy any land. We have been told in this House that farm land is making unrealistic prices; it is, but the price of farm land has dropped considerably over the past 12 months since it became apparent that this type of speculation in land would no longer be tolerated to the same extent as in the past. This has tended to keep out speculators and those who wanted a safe place to invest money. The price of land is now tending to drop to a more realistic figure but it must drop much further before it could be profitable for a small farmer to buy land and pay the going rate of interest.

This section will serve a useful purpose and will keep out the speculators. Some of them made a good job of farming but some did not. They were happy to invest money in land, leave it to appreciate over the years and make no use of it. This will do no service to the agricultural community nor to the nation. This section is to be welcomed.

I am worried about one aspect of section 16. I am not worried about the professional who buys land for the sake of investment, I am not worried whether that professional be a veterinary surgeon, a solicitor or a doctor; I am worried about the farmer who carries out contract work. Possibly two brothers became partners in the operation of contracting machinery for silage making, hay-making, hedge-cutting, manure-spreading, land-drainage and so on. This work was often done on a lease-lend basis: "I will do your drainage if you will do some farm work for me." That is one of the oldest systems in operation in Irish agriculture and it should be left as it is.

The people who are operating those machines are already making more than a worthwhile contribution to the Exchequer in the form of value-added tax on farm machinery which is to them a new tax. They are also paying a 200 per cent increase on diesel oil, fuel oil, lubricating oils and greases, and so on. If those people are included in the tax net, farm costs are being put further up the scale and the burden which has already become increasingly heavy on the farming community is being increased. The farmer with £50 valuation who has to go outside that farm in order to secure additional income for his family should not be caught in the net.

Before the Minister replies, I should like to ask a question. It appears that the main provision of this section is to ensure that accounts must be produced by those with a valuation in excess of £50. Under section 28, does it mean that if anyone under that valuation has an income from a trade or profession which is also subject to section 28, and above a valuation of £20, is subject to certain losses, or is he absolutely free above the £50 valuation on the land?

Where a person is liable to tax on farming profits he will not suffer any diminution of personal allowances. It is only in cases where the farming profits are not brought within the tax net and such a person has a non-farm income, there may be a diminution of personal allowances in order to prevent in future the abuse which has happened in the past, that is the situation in which people were setting off the tax allowances against non-farm income and were consequently paying little or no tax even on the non-farming income. If the farming profits are within the tax net, the reduction in the personal allowances will not apply.

The section does not apply if they are under £50 valuation. Does that mean that the profits on the farm are not counted?

Under £50, they would not be counted, if they are over £50, they would be.

There is a discrepancy here. If somebody has a profession and if he has a farm under £50 valuation that does not apply but if a person were working as a teacher or at some paid sideline then under section 28 the farm would be counted in some way, from £20 upwards.

Not the farming profits.

There is still a penalty for it. There is a loss of half the allowances.

My difficulty is why there should be £20 in one case and £50 in the other?

The person has two incomes.

That point arises on section 28.

I will come back to section 28. I have a recommendation down to get clarification.

This section seems justifiable enough when one takes into consideration the case of the company director who has a holding, a fairly large business man or woman, or a professional man or woman who also has a portion of land. The point raised by Senator Dolan is a very just one. One must consider the case of a farmer with a higher valuation than £50 who helps out his smaller neighbours to a great extent in regard to farm work. There is the farmer with a higher valuation of £50 who is well geared with machinery and who at various times in the year helps out the smaller farmer in his area. To my knowledge, they do this for a very minimal charge. If such a farmer, through this section, sees himself in a position where he is going to be caught for tax on this actual work naturally the tendency from his point of view will be not to continue the work.

This is one reason why I would be totally against this section, taking into consideration this type of farmer. Any of us from rural areas knows where the farmer of this size and valuation is in that position. He carries out this work and helps his smaller farming neighbours. I know in cases they charge very little for this work. Through this section, this farmer is going to be caught for tax. I feel when he is, through this section, caught for tax the smaller farmer is going to be victimised.

I understand this section is not merely an anti-avoidance section but also a section designed to facilitate the detection of evasion. In general terms I would, therefore, support it. Having said that, I see considerable scope for avoidance in the section when the section does, in fact, get enacted. I can see the section being conveniently avoided by a mass resignation of directors. It is, in fact, taking place around the country at the moment where people find themselves only able to control 25 per cent of the ordinary share capital of the company. Apart from that particular device, it would seem quite easy to avoid the section by a formation of a portfolio-holding company which enjoys the income from the ordinary share capital but does not control it, either directly or indirectly or by any means.

It is, perhaps, worth nothing in connection with the section—I think I understand why this is omitted from it—that it does not apply to the case of someone who is, as the Minister pointed out, in employment, however large the income he receives from the employment, as distinct from carrying on a trade or profession. When it does apply, however little he derives from the trade or profession, even if he derives nothing, the section would seem to apply. It also does not apply to a man who has a substantial portfolio of investments yielding him an income in respect of which he does not engage in any activity at all. In that case he can have a farm with a valuation of £50, enjoy his income and not be subjected to the constraints of the section. You might say that that is contemplated deliberately by the Minister in preparation of this, in so far as such a person is paying his income tax on his portfolio income. Neither does it apply to someone who is a director of a company—if I am understanding the applicable law-carrying on a trade outside Ireland. The company may be incorporated outside Ireland, even if it is carrying on a trade in Ireland. You can have a person who is a director of a company which is not a company within the Companies Act, 1963, not being within the description of that in the definition section and the company could be carrying on a trade here and the section would not apply.

I wonder whether that aspect of it was sufficiently considered in so far as it must, in certain circumstances, facilitate and make it desirable for a person in such a position to shift his company from a company under the Companies Act, 1963, to a company which is not under that Act.

There is another anti-avoidance section later but that anti-avoidance section, as the Minister will know, applies to individuals only transferring capital. It does not apply to persons other than individuals transferring capital. I think it would not affect the matter. The last point I want to make—I do not think there is a great deal in it but it is worth noting—is that the taxation arises under the section even where the interest in the trade, profession or the occupation do not overlap. You have a man with a farm which he sells in July and starts up a trade or profession in October. The section applies even though he never had the farm and the trade or profession at the same time. I do not know whether it is a situation which will arise in any degree that matters.

Very briefly I would like to say simply that Senator Alexis FitzGerald has confirmed all one's suspicions about this section. He has pointed out, in effect, that the size of the income is of no importance. The Senator pointed out also that this section is aimed at the rich—the big company directors, veterinary surgeons and so on with the very large incomes who have been defrauding or attempting to defraud the Revenue Commissioners of their just dues—who, having able legal assistance, will be able to avoid it with very little difficulty. We are left, therefore, particularly under clauses (a) and (b), with the position that those unfortunates who are not rich and who have not got skilled legal advice and who never even heard of this Bill or this section, will find themselves to their amazement suddenly caught up in a maze of income tax law that they had never expected would affect them.

When earlier on I said in respect of this section that a farmer or his wife who was carrying on a trade or profession might, in fact, only be earning as little as £50, or even £10 or £5 a year, Senator Alexis FitzGerald shook his head. I have the highest respect for Senator Alexis FitzGerald so when he shakes his head I worry.

I withdraw the shake.

I realise that he was shaking his head because now one need have no income at all.

If a farmer engaged in a trade, profession or some sort of odd job, and was prepared to offer his services in the locality, but did not in fact make money from it, as Senator FitzGerald rightly pointed out, he can still be caught under this section, even though neither he nor his wife were in receipt of any income off the land. He will still pay tax on his farming profits. In order to catch a few people who, according to Senator FitzGerald, would have no difficulty at all in evading tax because they have already taken the necessary steps to evade it, the Minister will do a great deal of damage to many people who simply cannot afford it.

There are a number of farmers with valuations between £50 and £100. They go into small contracting, both in regard to farm machinery and small contracting generally, because they are that little bit more capable, financially and otherwise. These are not enormous business; they are small. A very high proportion of people with £50 to £100 valuation are engaged in such businesses. By casting the net widely here, one is bringing down the £50 valuation and putting a tax on the farming community and taxing farm profits. I would be very concerned that this section could be used as an umbrella, under which not just £100 valuation farmers but £50 valuation farmers might be caught.

I share the disquiet of other Senators on the ease with which this tax can be evaded— by all but the group of farm contractors. They are the most essential group in farming today. The whole success depends on the silage contractor, the manture spreader and others who come in to boost up the tiny work-force that is at home. In addition, the modern farmer cannot afford the equipment. I have seen these at work. They are the most hard-working group of people in the country and the least businesslike. Most of them go "bust". They have no business sense, no idea of keeping accounts, or of what it costs them. Their charges vary from almost nothing to excessive charges. They are totally unrealistic charges for the work they do. They put in what could be called "slave labour" or, indeed, lower than that. In the season they work for 15 to 20 hours each day. The Government should consider this matter with the greatest concern. They should try to help these farmers who are generally young people. They are prepared to face the type of hard work nobody else would face in order to get a few pounds together in the belief that they will make a fortune. Many of them wind up the other way. They have no business sense and this is the weakest part of our farming development side at the moment.

It now appears that they are the only group who will be caught by this section. I have no sympathy with any of the other groups. It is proper that they should be caught. This Bill will defeat itself, if due to professional advice some escape while others are caught. The Minister should examine this section very carefully during the next six months, and see that it is amended in the next Finance Bill. This is a big task but one that will have to be done. Above all, the farming contractors will have to be protected and encouraged.

Are there any means in this Bill by which something like that could be done? We are all aware that because of the dispute between the agricultural instructors and the Department, quite a large amount of farm land had been rescheduled for re-drainage; they were not able to do that over the last five or six months. The cost of land drainage pipes has increased out of all proportion but there are other difficulties which confront farmers and contractors at present. This should be deferred for a couple of years, to ensure that people could catch up with the backlog of land drainage.

The Minister would be well advised to exclude from the Bill this section which concerns the tillage contractor. Because of the importance of this section to the agricultural community, to the developing farmer, and to increasing production on all farm land at present, the agricultural contractor plays a very important role in agricultural production.

Several Senators have drawn attention to apparent discrepancies in treatment between one type of farmer and another. The principal case which has been made against this Bill really boils down to a plea that all farmers should be brought into the tax net, and then discrepancies would not arise. When farmers are making a plea for those who are being brought within the tax net, their plea, to a large extent, appears to be based upon envy of those who are not.

The case has been made that there should be exemption for men who are working very hard, for 14 and 20 hours a day, seven days a week. That is an attractive case to make, but it should apply to everybody, irrespective of whether he is working hard at farming, at construction or at teaching or other professions. The tax system must be a neutral one. It must apply to people irrespective of whether they work harder than others, or work unsocial hours, or overtime. If we are to maintain neutrality in taxation enactments, then we cannot take account of the several pleas that have been made for different cases. This is primarily an anti-avoidance measure that is completely justified by the figures I have already quoted. Reference has been made already to professional men claiming to be earning no more than £1,500 from their profession, and £45,000 from comparatively small farms. That is the kind of scandal that has to be stopped. There is no way of stopping it except by a section such as this. The Revenue Commissioners have challenged accounts, and returns from people who have made such returns, even in court, and they have not succeeded. There is only one way of preventing it, and that is to stop the evasion which is possible as long as farming profits are exempt from tax. Since 1969 the exclusion of farming profits from tax has stimulated this tax evasion and avoidance. Quite clearly firm action must now be taken against it.

The case of the vet has been quoted. I will just give some other examples. I think when examples are quoted people will see how justified we are in bringing in this measure.

Did the vet with the £45,000 out of 80 acres win his case?

I am not sure of the number of acres. He won his case. It is farcical that it should be so, but it happened.

We agree on that.

I will give some other case examples so that Senators will see how justified this section is. A general merchant claims profits on his business of £6,600—and, of course, he pays tax on that—but he claims that out of a comparatively small farm his profits are £10,295. Anybody knowing anything about farming would know that he could not conceivably make that profit out of farming.

The Minister is answering a case that has not been made.

They are few and far between.

They are quite numerous.

If the Minister wants to get out of here by 5 o'clock, he can do so by dealing with our points and not be setting up Aunt Sallys for himself to knock down.

The Minister will stay in the Seanad as long as the Senators want to debate this matter. The Minister is in no hurry to get out.

The point was not made from this side of the House. This is a debating Chamber. I would suggest that the Minister might answer points made from this side of the House, and not be——

Since Senator Lenihan has appealed to me the Chair must say that the Chair heard the point made.

I am making the case that this is an anti-avoidance measure and that it is fully justified.

Agreed, and agreed necessary on certain points. But that is not the point.

And the various anomalies that have been raised here are cases which are so minor as not to merit serious consideration. For instance, we have been told here that we will prevent farmers helping their neighbours. This is a ludicrous case to make. Farmers will obviously continue to help their neighbours whether this section is introduced or not.

Not if you are going to punish him for it.

And, if cash passes in those circumstances, it is most unlikely to come to the notice of the Revenue Commissioners. The kind of situation visualised on the other side is a farcical one that would require thousands of inspectors to stand over every farm holding, watch the activities of every farmer and see if he left his farm to work for somebody else. Senators know that is a totally unreal picture to paint. Opponents of the Bill have painted pictures here which are untypical of rural Ireland; even through they have pleaded that they know a great deal about rural Ireland.

There is no other way of dealing with the avoidance of tax about which we are talking than by a section such as this. I want to emphasise that we are dealing only with people who have a separate trade or profession. We are not dealing with people who work for other people. If they are employees of other people they will be subject to tax on their income. We are ensuring here that people who have an income outside farming do not avoid paying their proper share of tax on that non-farm income. Again, I think that is something with which Senators are in agreement or do I understand from some of the remarks that they are not? At the moment the man who contracts himself out to do silage work or any other work for a farmer is liable to tax on income from that contract work. Perhaps he is not paying it at the moment but he is liable for it. We are not changing that situation at all. What we are doing is ensuring that he cannot set-off profits earned from such work against his farming activities to avoid liability altogether. I think this is entirely justifiable. It would be contrary to the whole approach and purpose of this legislation if we were to grant the exemptions sought by the Opposition.

Senator FitzGerald mentioned foreign companies. The home of the foreign company would have to be carefully chosen because, if somebody is using a foreign company as a means to tax avoidance, the company may be liable to tax in the country of its location. We are taking further anti-avoidance measures in this Bill to ensure that as far as possible—and I know this requires perhaps more knowledge than people are willing to give to the Revenue Commissioners—this does not occur. The Revenue Commissioners will be pursuing cases of this kind, to ensure that liability to tax is not avoided by such ingenious methods. If such methods are used, and identified, they will be corrected in future Finance Bills. There is no reason for not taking one necessary step forward simply because one cannot take all steps at the one time. There is no reason why we should not move some way in the right direction because we cannot complete the journey. We are moving in the right direction in this section. If it gives rise to unforeseen difficulties, then we will amend it.

We discussed this issue with the farming organisations. By and large they were in favour of the measures proposed to deal with the avoidance of taxation of non-farming profits. They realised that, as Senator White said, to tolerate the present position any longer would be to the detriment of genuine farmers because people engaged in the kind of activity we are now trying to stop have been competing against genuine farmers for very scarce land. They have also been generating a great deal of frustration and annoyance in the remainder of the community who have seen people enjoying very comfortable incomes without paying their fair share of tax.

I will be very brief. I just want to put a couple of specific questions to the Minister. All of us are in agreement that the veterinary surgeon, big business man and so on should not be allowed to set-off so-called farming profits against his genuine income from other sources. We all agree with that. Our worry is that a great many other people will be affected unnecessarily. The Minister cited the case of a man who received £5 for helping out his neighbour with silage and so on, and he said that anybody who knew anything about rural life would not expect him to report it to the Revenue Commissioners; of course, one would not. But that is not the point. If a man helps out a neighbour in silage, drainage or anything else and is given a payment of £5 for that work he is liable—he may not report this to the Revenue Commissioners and one certainly hopes he will not—but let us be clear on it, under section 16 of this Bill he is immediately liable to income tax on the whole of his farming profits. That is the position. It may well be—as the Minister says—that the Revenue Commissioners will not know about it. But he is liable; he is made liable by this section.

It is an intolerable situation where a Minister for Finance can come in here and say: "Well, after all, it does not really matter because they will not know." The fact of the matter is that in this section, in the case the Minister mentioned himself, of the man who does a turn for his neighbour and gets paid £5—which he spends on rounds in the pub that night—he immediately becomes liable on his entire farming profits. That is what the Minister is doing. The fact that one hopes the Revenue Commissioners will never find out about it is utterly irrelevant. To be passing a law which the Minister says will be tolerable simply because it will never be carried out is no way to legislate. The man will be liable. Indeed, even if he has no income at all—as pointed out by Senator FitzGerald—but is holding himself out as practising a trade or profession, he would be liable.

There is one point which has puzzled me all along about this and I would like to have a definite, straight forward answer from the Minister. The Minister says that if a person is earning a salary he is taxed on that salary. Therefore there is no need to bring the farmer into section 16 because the tax has been paid. But it is not being paid on farming profits. It has been paid only on the employment concerned, of the wife, or indeed of the farmer himself. Take two simple cases: there is the farmer whose wife at present is employed as a nurse and who gets, say £2,000 a year. On the one hand, she may be self-employed but on the other hand, she may be employed in the local hospital at a salary. In each case she is liable for the same amount of tax on her £2,000 income. The situation is identical there. But in the case where she is self-employed, under this section the farmer also will be liable for full tax on his entire farming profits. But if his wife is employed in the local hospital at £2,000, he would not be liable for tax.

How does the Minister justify this situation? It is a situation which could very well arise and which will arise frequently. There is no reason in principle for differentiation of this kind in two identical economic and social situations. Would the Minister give us some clear, coherent statement of principle why there is this difference under the section?

In the case of the person who is employed in the local hospital, the exact salary is known; the income is certain and cannot be attributed to farming activities. In the case of the woman who is a nurse in her own right, hiring out her own services, the income is not known; it is not certain and is not easily identifiable. In practice, we know that in a large number of cases a great deal of such income has been attributed to farming activities. That is the reality of the situation. Although some Senators will say I am making accusations against the whole nursing profession or against all independent traders, I am not. I am talking facts.

We either move now to correct this situation or we allow it to continue indefinitely. How can any Senator justify a situation where a person in employment is caught for tax on the wage from that employment while another person who is working independently can avoid tax? We are determined to correct that situation. The only criticism that has been offered is that we are not introducing a perfect alternative. We are at least introducing a more equitable system than the present system.

Regarding the suggestion that the man who works a day for another farmer and accepts £5 for his work will as a consequence be brought within this liability if his valution is more than £50, I want to say that a person in order to be considered to be carrying on a trade or profession must in fact be holding himself forth as being a contractor or a professional person.

On one day in the year?

I would obviously not regard somebody who works for another on one day in the year as a person who is holding himself out to be a contractor or a professional man. Carrying on a trade is not just working for another. It is a matter of presenting oneself to the world at large as being a trader. If a person does not hold himself out to be a trader, then he is not carrying on a trade or profession. There are questions of degree here, but what we are being faulted on are hypothetical cases which are being offered here as tests as to whether a person is carrying on a trade or profession. In law such a case would not be interpreted as conducting a trade or profession. That principle applies to tax law as much as it does to any other law.

The Minister has not answered Senator Yeats' point. It is the same point that I have been making, that is, that the advantage is distinctly with the private person as opposed to the person working for a salary. In the case of the nurse who is on a salary of £2,000 a year and whose husband has a farm with a valuation of between £20 and £50, that nurse has to pay tax on the £2,000 and only half the allowances are charged against it, whereas if she were in private practice, free lancing and earning £2,000, and if her husband had a farm of, say, £40 valuation, under section 16 that farm is not taken into account. Therefore the nurse can claim full family allowances against the £2,000. There is a big difference in equity there and I cannot understand it. I should like the Minister to give some explanation. Does the Minister not accept that the nurse who is working for a salary and whose husband has a farm of £40 valuation will pay more in taxation than the nurse who is in private practice?

If they have an equivalent income they should be paying the same amount of tax.

But they are not, under sections 16 and 28.

They should be paying the same amount.

In one case the husband will be included for an allowance; in the other case, the husband will not—only half the family allowance is included.

That is section 28.

Surely we want equity between the two?

Section 16 deals with taxation on farming profits where the farm has a valuation of more than £50, not on a valuation of £40 to which the Senator is referring.

But he is not, under section 28. You pay less tax if you are employed as a freelance than if you are working for somebody else, provided the rateable valuation of the farm lies between £20 and £50. It is a considerable range.

It is not included in section 16.

Does the Minister accept there is inequality of treatment between the two?

Excellent cases are being made here to avoid these variations by bringing small farmers into the tax net.

Under section 28 we will be claiming that the level of £20 valuation is too low. The Minister quoted two examples from cloud cuckoo land or somewhere but there must be examples where he has some data. He mentioned the merchant who has a relatively small farm. Is that a particular example of a farm with a valuation of less than £50. If so, this section will be unable to deal with it. We have to take some figure.

No. The figure is one which will bring into liability any cases that have come to notice of profits from an independent trade or business being set off against farming activities.

We all agree on what you are trying to do but it is the method that we question. Some glaring examples have been mentioned of certain profits being set off against farming—in one case a merchant claimed he made some extraordinary amount, £16,000, out of his farming activities. To force the inspector of taxes legally to accept that fiction he had to produce accounts to the inspector. Producing accounts has been part and parcel of this evasion. If the evasion could not be achieved without producing accounts the only thing was that the farm side of the accounts produced was by law free from tax. Would it not seem that the only adjustment required under this section was that he was just simply liable and therefore it did not matter whether he produced it from the farm account or from the other account, that there was the advantage of one or the other?

Mr. Ryan

That is what the section is proposing.

It appears that what is required is a figure variation; in other words, where more than, say, £1,000 was attributed to farming the section had to apply. You cannot do it now, but to me it would seem that this would get over some of the objections that have been made. I think the message going out to the contractor is that provided he is not advertising extensively in the local papers and so on he is not going to be caught for many years.

The contractor is an essential part of farming and he just cannot be done without. He is indispensable at the present time. He is already meeting more than his share of increased costs.

I am not satisfied with the Minister's remarks in regard to the position of the small agricultural contractor. Take the case of the individual who comes under this section. He is a businessman or a professional man of some type, and naturally he has to submit accounts to the Revenue Commissioners in regard to his farming activities. It could be the case that Mr. X, a small agricultural contractor, received something in the region of £100 from this individual for agricultural work carried out during the year. Straightaway the Revenue Commissioners know that the smallholder who actually did that contracting work is classified as an agricultural contractor and they get on to him in regard to his income from this source of work during the year. While the Minister says that no one knows of the small agricultural contractor, I feel that the Revenue Commissioners will know of him when the accounts are submitted to them.

I should like to support Senator Cowen on this matter. As we know, methods of farming have changed drastically over the last 20 or 30 years and because of that spades and shovels and so on have gone out of existence and tractors and heavy machinery have taken their place. The small farmer was never in a position to equip himself in that respect because a tractor can cost over £2,000 and a JCB or a big bulldozer costs over £10,000, £12,000, and often up to £15,000. These machines are used by some contractor who goes out and makes the silage for the farmer, cuts his hay, drains his land for him and does various other jobs. An enormous amount of land has still to be drained and the modern method of doing it is to use a JCB, a bulldozer or drainage machine. These machines are not in every farmhouse. They are very few and far between and we in the County Cavan Committee of Agriculture had to subsidise the purchase of one machine in the north-west Cavan area. All the farmers together there would not have been able to purchase one of them.

For that reason I think that a special case should be made for the man who is in this contracting business. I would ask the Minister to consider him. I feel that in doing so the Minister will be doing something to ensure that the ordinary farmers, that is the small farmers, will be kept in existence.

I can assure the House that I will have the operation of this section very carefully monitored and if some of the difficulties that Senators visualise appear to be emerging in fact corrective action will be taken. Personally I doubt very much if these fears will be well founded in practice.

An Leas-Chathaoirleach

Is the section agreed.

We are prepared to accept it on the basis of the Minister's assurance.

I hope the Minister will remember that assurance.

Question put and agreed to.
SECTION 17.
Question proposed: "That section 17 stand part of the Bill."

If I am correct, subsection (3) of section 17 may require a subsequent amendment to put the matter right. In subsection (3) of section 17 if a person is beneficially interested in land jointly with another and if one of them is not in actual occupation he is, under the subsection, deemed to be in occupation. In such a case the valuation of the land can be apportioned to the beneficial ownership of the two. Subsection (4) of the section deals with a case where a person owns the land jointly with another and both are in occupation and in partnership and again there is provision for apportionment in proportion to the beneficial ownership.

A case which is not dealt with and one that arises quite frequently is where a person owns land jointly or as a tenant in common with another and they are both in actual occupation but not in partnership and here there would seem to be no provision for apportionment. Let us take the case of a man who dies intestate and leaves a farm with a valuation of £150; he has two sons, one of them in America and one of them at home working the farm. Under this section the valuation of that farm can be apportioned each having one-half interest; each is apportioned £75 and they are outside the provisions of section 15 by virtue of that apportionment.

Another man dies with a valuation of £150 and he has two sons at home working with him. They are both in actual occupation. They are working the farm but they are not partners. There seems to me to be no provision for the apportionment of the valuation in that case. They are both in occupation of the entire farm of £150 and they are both liable to taxation under section 15, a liability which would similarly arise if there was not an intestacy but a gift by will to the two of them. There is no way under this Bill that I can see to deal with this. I have looked at section 18 to see whether this can be used but section 18 is, in fact, one which only applies where there are distinct occupations which do not arise in this particular case because each is in occupation of the entire, in law and in fact. I think this is what lawyers call acasus omissus. If my analysis of it is correct it should be cured soon and, I would suggest, cured retrospectively to take in the year to which this Bill, when enacted applies. That is my view of the section.

It would also arise, of course, where people acquire land as joint tenants, tenants in common. There are cases of this kind. Perhaps no one wants particularly to come to the aid of people who acquire land and do not have a partnership for the farming of it. Joint acquisition is not necessarily a partnership. They have an arrangement which is other than a partnership for the actual farming. In such cases also there would be no provision for apportionment. That is not a case which would stir sympathy. It is the other case which does more often arise where you have intestacy or even a joint thing.

Of course, somebody may say to me they can go about this business of dividing the line between the wet field and the dry field and so on but it will be appearing to do something which will not, in fact, be done. There will not be an actual division between them. They will not be distinct occupations. There would be justification for apportionment which would be trying to fit the scheme in the Bill into reality.

Tenancies in common are an undesirable form of land or property holding but the facts are that they are there in a very large way throughout rural Ireland. They have grown up on the basis that Senator FitzGerald described. It is a reality and certainly where there is an intestacy quite often two members of the family just remain on the land and nothing is done in regard to administration. That is quite a widespread situation throughout rural Ireland. I would certainly support Senator FitzGerald as to the desirability of having this clarified. Indeed, though I spoke against retrospection last night, I would favour making it retrospective if necessary. It may be just an unforeseen omission but if it is I think it should be rectified because it is a very widespread form of land holding in Ireland. That is the reality. If in that situation the total holding comes into the over £100 net whereas if an apportionment had been made or they would not be over £100 valuation there is a manifest injustice there. No apportionment has been made in the case of quite a substantial number of holdings in this country. People just do not organise their affairs as they should. You cannot put all this question of family holdings into a logical form very easily. If that situation is not covered, then very urgent action should be taken on it. If we cannot amend it in this Bill something should certainly be done about it.

I should like clarification on section 17. Does that refer to conarce or the 11-months' system? In rural Ireland you take land on a conacre basis or on the 11-months' system. The conacre might be a shorter term than the 11-months' system. I want clarification from the Minister regarding those categories of leasing, subleasing or subletting. It says here "land occupied or deemed to be occupied". I would like clarification on those two points in section 17.

I should also like some explanation regarding this apportionment of valuation and what it actually means. Does it mean that a farmer could, if he so wished, if he had a valuation of £60, divide it in such way that he would have it in two separate holdings of £30 valuation each or in four portions of under £20 and so not pay any rates at all? I am wondering what way this apportionment works.

An Leas-Chathaoirleach

I do not think this arises on the section.

If that is the case, I will wait.

Some interesting points have been made. What, I think, in practice, the Revenue Commissioners must look at is who enjoys the benefit of ownership or use. We are not concerned with the legal ownership. We think it would be quite wrong to base liability to tax on legal ownership because people could deliberately avoid tax by using land for long periods without registering the title to the land in their own name. It is not unknown for land to pass from generation to generation without people taking out grants of probate or administration. Were we to be concerned about the legal niceties of title in such cases then tax liability might never arise.

Senator FitzGerald said that there are several cases where land could be owned or occupied without a partnership agreement. That is true but somebody will be enjoying the benefit and the use of that ownership. The Revenue Commissioners will look to see whoever is, in practice, enjoying the benefit and that person will become liable according to whatever share he is having of the benefit which accrues from the occupation of the land.

On the point of the 11-months' system, an 11-months' agreement will not be regarded as occupation of land. An 11-months' agreement is usually related to grazing and the person is merely getting the right to graze under such an agreement. For longer periods there is actual use; there is freedom in relation to ploughing and so forth and that would be regarded as being occupation of the land. In relation to land let on the 11-months' system the owner of such land would be liable, according to the rateable valuation, for the appropriate figure.

Under the farm modernisation scheme it would appear that more farmers will be caught in the tax net. Under that scheme they can lease land on a five-year basis, a three-year basis or an eight-year basis. When the farm modernisation scheme becomes operative, more farmers will be in the tax net and the 11-months' system will probably be finished.

I have to press the Minister on this because it is a matter which needs to be put right. The position will be affected by the provisions of this Bill. As I understand the position, all farming will be principal, subject to the exemptions which arise under certain sections of the Bill.

Under section 15, if the land is occupied by an individual, forgetting about legal or beneficial ownership, who is carrying on farming, and the valuation is less than £100, he is not subject to taxation on his profits. There is then section 16 governing the position where he has other interests, which have other consequences for him, and his valuation is over £50 and there is provision in section 28, which affects the allowances, if there are other activities and the valuation is over £20.

To come within the provisions of section 15, to get the benefit from it and to have his profits from farming exempt from taxation, he must be able to establish that he is in occupation of land the valuation of which is not in excess of £100. It is recognised by the draftsman that there will be people in partnership and there will be situations where one person is in occupation, and there is provision for the person not in occupation but who will be deemed to be in occupation. There is provision for the appointment of valuation between these so that the valuation of each of several people can then be established as being less than £100 and each of several people will get the benefit of the exemption resulting from that apportionment.

There is no provision for the case where there is no partnership and where there is an occupation by each of two or more people in respect of lands which total more than £100 rateable valuation and which will be deemed to be in the occupation of the entire. There is no provision for apportionment between them so as to bring all of them below the £100. There is no question of Revenue discretion giving them a right to get the apportionment. Under the Valuation Acts the valuation will be invalid unless the valuation is raised in the names of the two or more persons who are in actual occupation. This will cast each of them in the category of persons who are in occupation of lands over £100 valuation and put both of them beyond the point where they can claim the relief provided in section 15.

If the Minister agrees with my analysis, if he agrees that this is not what was intended by the draftsman, that this is acasus omissus, then I ask him to have it put right as soon as possible so that those in actual occupation will get the same benefits as will those who are deemed to be in occupation. He will not have the ludicrous situation of a man whose brother is living in New York getting his land apportioned so that his valuation is less than £100 so that he can be exempt, while two brothers, neither of whom is in New York and both of whom are in occupation in Ireland, cannot either of them get exemption.

This is a real problem. It is one which casts no reflection on the draftsman, the Minister or anybody else. If we can get an assurance that, if it is acasus omissus, it will be rectified and made retrospective, that would meet our wishes. This form of land holding, called tenancies in common, is widespread throughout the country. It arises, as the Minister is well aware from experience in his professional practice, from the fact that Irish people are traditionally not good at administering estates or settling family businesses connected with land.

This practice of intestacies grew up as a result of people remaining on as tenants in common and not making any legal arrangements after the intestacy. As stated by Senator FitzGerald, each of them was deemed to own all and yet each of them, if they had made an apportionment and gone into partnership, would be in the two separate holding categories. To take as an example a £150 valuation farm with three brothers living on it, one or two of them with families or it could be a single woman and a married relative. Each in that case would be liable, as I see it, for income tax. Each would be under that £150 level if they made an apportionment. A neighbour who held as a joint tenant, as Senator FitzGerald stated, with someone away from Ireland, would be in a different situation. He would be apportioned by law. If a partnership agreement was entered into—a very unusual happening, unfortunately, in these cases—or if an apportionment was made between the two families living on the farm, they too would be under the £150 level. These tenancies in common are undesirable socially and they are diminishing in number though they still exist in rural areas. If the Minister gives an assurance that this omission will be rectified and the provision made retrospective, that will meet our requirements. We do not wish to see a manifest injustice done because people who have remained on the land have not mended affairs legally will now be caught in this tax net, while others, because they have mended their affairs, apportioned their land, are in partnership or holders of joint tenancy with somebody who is out of the country, are exempt.

There would be manifest injustice in that case of two similar farms of £100 valuation—one holding under a tenant in common and the other holding under any of the other forms of holding that I have mentioned—one would be exempted as being under £100 valuation and the other would be fully caught in income tax.

I want to obtain some further clarification of the position in regard to 11-months' lettings. The view as given by the Minister here is that an 11-months' letting is not occupation of farm land. The farm land is occupied by the actual legal owner of the farm. That is the statement made by the Minister. That is the pre-1970 position being restored, when lettings were treated on a profit and loss basis. In the 1970 Finance Bill, which exempted farm lands from taxation, there was a special provision which reversed the previous view of lettings and actually specified that a letting was to be regarded as occupation. Has the Minister in this Bill repealed that provision of 1970?

In regard to the point raised by Senator Alexis FitzGerald and referred to again by Senator Lenihan, perhaps one aspect of this is overlooked. Suppose two brothers are in possession of a valuation exeeding £100, which is approximately 100 acres—I am speaking of the land I am familiar with in my own county which is approximately £1 per statute acre valuation, which would mean he would have 100 to 120 statute acres—and decide that they are going to defeat this taxation and divide the farm. First of all they must get the permission of the Land Commission to subdivide it. I am sure Senators here realise that this is not the easiest thing to achieve, in as much as the Land Commission are against what they call the fragmentation of farms or bringing farms down to what they feel is an uneconomic level which is regarded at the moment as a farm of 50 acres.

If a man is selling a site which would be only one-third of an acre to a half acre, before the solicitor acting for the purchaser can register title there, they must get the permission of the Land Commission to take off that small portion from the farm. I can see many difficulties for people if they are the registered owner of an estate of £100 valuation because they will find it difficult to get that estate subdivided even among the family. I am not saying it is impossible; perhaps it is quite possible. I think there will be difficulties in that case because the Land Commission will not take too kindly to that type of thing.

In reply to a question raised by Senator Keegan as to whether the land owner or the person taking the land was liable for the 11-months' land, I think the Minister mentioned that if you had taken the land for a number of years you would be regarded as the occupier of that land. There is an organisation in this country that takes over vast estates and sets them out year after year. I am referring to the Land Commission. They can have an estate for a minimum of four years. They can let it run year after year and get a very big rent from local farmers. As Senator Keegan mentioned, they may have it for ten years. Will the Land Commission be liable for tax under this, because most of their estates will be over £100 valuation?

If the Land Commission is liable for tax it will go back to the Land Commission again. It might be to the relief of the Exchequer so that everybody would benefit in the long run. The liability in relation to the 11-months' system is not being changed by this Act. I am is not able to follow Senator Quinlan's remark about 1970. The 1969 Act exempted farming profits from tax. Perhaps that is what Senator Quinlan has in mind. There was no special treatment or reference in that Act to the 11-months' system. The occupation of land does not include taking land for 11-months' grazing. That is the legal position and it is not being changed.

I think too much emphasis and strict legal interpretation has been put on the word "partnership" in this section. Though we are not concerned here with a strict legal partnership, perhaps the word "partnership" has a specific legal meaning. But in general language, partnership is understood by people to mean something that is done jointly or in association with or in co-operation with other people. That is the interpretation which it would have in this context. If any difficulty arises—and I can see that on a very strict interpretation it could arise—I would certainly visualise that the matter should be rectified. The principle of non-retrospection applies only in relation to imposing a liability, whereas this would be in the nature of a relief and is one case that I would be only too happy to apply retrospection knowing that I would have the support of Senator Lenihan.

Prior to 1969 was not letting chargeable on a profit and loss basis by the person taking the letting? Then in 1969, when all farm land occupied was exempted, there was special provision to exempt the person taking a letting from his previous commitment on a profit and loss basis.

Prior to 1969 the person taking the land would not have been liable to tax. Of course there was a liability on the owner of the land.

The person taking it was not liable.

No. He would not have been liable. He would have been liable if he was in there for a longer term.

But the position at present is that the person taking land on the 11-months' system is not liable?

What we are dealing with here is whether or not the rateable valuation of the land taken for 11 months will be taken into account in measuring whether or not a person was involved with £100 or £50 valuation. That would not be taken into account in assessment of the person taking the land. If you took it for a longer period than 11 months, it would be taken into account. The person owning the land will have that land taken into account when assessing his liability.

Then if you take the national system of valuation as applied, does that include conacre addition?

The national system is applied only if a person is in excess of £100 rateable valuation.

If they have valuations of £80 and they have conacre, or have an 11-month letting to the extent of £40, does that mean notionally £120?

If they take it for 11 months it will not be £120; if they take it for a longer period, it would be £120. I am sorry, I misinformed the Senator and the House, and I want to apologise. Before 1969 a person who had grazing land could be liable for profits earned from such grazings.

But that was changed in the 1969 Act.

Surely they could not have been released from liability without the corresponding section in the Finance Act.

It seems strange to distinguish between grazing and farming activities. Grazing simply as an activity has not been deemed to be a farming activity and it is liable to taxation at present.

On what basis?

Because it is a grazing activity: it is not a pure farming activity. For instance, woodland cultivation is not regarded as a farming activity for tax purposes, nor is simple grazing regarded as a farming activity.

Let us return to my point that grazing is a profit and loss activity.

Yes, in so far as any trade or business is.

This year the Minister will have a great number of losses on grazing, taking account of the very exorbitant panic prices that were paid for grazing solely because people had young stock they could not dispose of and they had no alternative but to pay prices on which they could not possibly return a profit in the year. Grazing is a profit and loss activity, and there will be some shocking losses.

It will dampen the buoyancy of revenue.

There is more clarification necessary here. From what Senator Quinlan has been told, there is a difference between 11-months' letting and grazing: the fact that a farmer takes an 11-months' letting does not necessarily mean he is going to graze it. He can take an 11-months' letting and he can utilise it for tillage or something else. Some clarification is necessary regarding the 11-months' letting and grazing.

In different parts of the country there are different practices. It is very difficult to say what exactly will be the interpretation in different parts of the country. Most 11-months' arrangements are for grazing and the person taking the land has the full use of it. Then it might well be deemed to be occupation for the purposes of this Act. Perhaps the practice in Senator Cowen's area is different from what applies elsewhere. What we are primarily concerned with here is the degree of use which the taker of the land enjoys.

I referred to the way in which the law distinguishes between grazing and farming. It is because grazing is regarded as being no more than taking the growth of the land, whereas farming is using the land more intensively. Similarly there could be a difference in the treatment of an 11-months' letting, depending on the precise nature of the letting. If it is for no more than grazing, the liability will not arise. If it becomes a very substantial use, then it becomes occupational.

The point raised by Senator Cowen is a very valid one. What he mentioned does not happen only in his neck of the woods—it is something that happens all over the country. Land is set either for tillage or for grazing. If it is set for meadow, it is set at a certain time of the year— perhaps in the month of April—and the aftergrass is set later. The Minister must come down on the side of the owner of the land being liable and not the person who takes the land. If a man has £100 valuation, he has approximately 60 Irish acres which he gives to an auctioneer to let on the 11-months' system. At present, that land is making—I am speaking about land in my own county which is not the worst land in the country— about £40 to £50 an Irish acre. That figure is merely an average—it can go much higher than that. If the owner of the land gets a cheque for £3,000 from the auctioneer, who in turn gets it from the person taking the land, surely it must be the owner of the land who is liable for the tax on that and not the person who is taking the land?

For a farmer who owns a farm with £40 land valuation, who rents a farm on the 11-months' system with a £60 valuation—he is working land with a total of £100 valuation—it would appear to be more advantageous to own a small farm and rent a farm under the terms of the section.

Do not be so naïve.

The interpretation I get is that if a farmer owns a farm of £40 land valuation and rents a farm with a £60 land valuation on the 11-months' system, he is not liable for income tax despite the fact that he is using land with a total land valuation of £100.

It all depends on what he is using it for.

But "use" means, say, growth. The Minister mentioned growth—is it growth of crops or of grass? Grass could be reckoned as a crop in the same way as cereals or root crops.

There is a legal distinction that the ploughing of the land amounts to use. That is occupation as distinct from simply grazing.

I would have thought, and I would be astounded if it were otherwise, that the £100 valuation ceiling only refers to ownership of land. I should like to be assured on this as I do not think the Minister is quite clear. Senator Keegan has pointed out that this will affect anybody under £100 valuation who seeks to engage in what are known as conacre lettings, whether it be for tillage, grazing, or conacre tillage letting, or grazing letting, or any utilisation on the 11-months' system, which is quite usual throughout the country as a form of working land. Quoting Senator Keegan's point, where a man has an £80 valuation holding and takes on conacre land with £40 valuation, whether it be for tillage or grazing, on the 11-months' system, that surely will not bring him into the £100 valuation net. I would like reassurance on that.

I think the Senator must have misled himself. The Bill is very clear. It subjects the person who owns less than £100 rateable valuation and who takes land to bring him above that to tax liability.

We have a situation of double taxation. If a man has 60 acres and takes 40 acres of another man's farm and that farm is over £100 valuation—let us say it is 100 acres—and another farmer takes another 60 acres, the man with the 60 acres has taken 40 acres and is brought within the tax net. The farmer he took it from has 100 acres of land and another man takes 60 acres. Are the three people in the tax net, the owner of the 100 acres and the two farmers, the one who took 60 acres and the other who took 40 acres? Are not three people in the tax net?

It must be remembered there is no question of taxing the same profits more than once. If a person is making profit out of the occupation of land and is liable to tax, he will pay tax on those profits. If another person is making profit by letting that land he will pay tax on the rent he or she collects. The same operates in any business. If a person is occupying premises in Molesworth Street, for example, conducting a business there and paying rent to the landlord, tax will be paid on profits generated from the business and tax will also be paid on the rent the landlord collects. The situation is no different here.

This is where the Minister has misled himself in replying to a question of mine a few minutes ago. That is as I understood the position to be. If I own a farm the valuation of which is £110 and if I retain £80 valuation of that and let it out in conacre for the balance of the £30 valuation and I draw a profit from that I take it that I, as a £110 valuation farmer, am included in this. I do not see how the man who takes the £30 valuation letting from me can have this added to his £80 valuation to make him liable in respect of £110 valuation being over the £100 valuation.

This applies to anybody over £100 valuation who owns land. If he or she wishes to split up the working of that land between letting and direct working themselves, they are still liable. That is my interpretation of the section. Is the person whose valuation is under £100 and goes into conacre letting as the conacre lessor not brought into the over £100 valuation bracket by reason of his or her letting? If that occurred, as Senator Fitzgerald said, there would be a situation of double taxation. My reading of it is that it is the ownership over £100 valuation and that letting has nothing to do with this Bill. Conacre letting is a separate business altogether. It is 11-months' letting. It has nothing to do with ownership. It is a licence to work land in a certain way for profit. It can be treated on a profit and loss basis by Revenue but has nothing to do with this particular section or the previous sections. I would like reassurance that this only applies where people are in beneficial ownership of land over £100 valuation and has nothing to do with conacre lettings of any kind. They are a separate matter outside the scope of this Bill and can be treated on a profit and loss basis under ordinary taxation procedures.

If Senators would not mind I will clarify some points for Senator Lenihan. If Farmer Brown has a farm of £110 rateable valuation and lets 30 acres on conacre to Farmer Black, Farmer Brown will be liable to tax on the rent he collects from the 30 acres and he is also liable to tax on his farming profits on the 80 acres which he retains. If Farmer Black has 80 acres of his own and takes 30 acres he is then in occupation of farmland of £110 rateable valuation and will pay tax on whatever farming profits he generates for the occupation of £110 rateable valuation land. We are not taxing the same profits twice. There are different profits involved.

I raised this very point yesterday on section 15 when I referred to the word "occupied" in subsection (3) of section 15. I was given to understand that I was wrong in what I said.

I did not want to mislead the Senator. The Senator asked about an 11-months' letting. I explained to the Senator privately that the 11 months was for grazing and was not for occupation.

Yes, if it was for grazing but what if it was for anything else? In the course of my remarks I referred to land being let for grazing or for potatoes, as is very common in Donegal, for beet in the west and south. One takes it that if it is for beet and potatoes it comes into the tax net. Is that so?

So, in fact this Bill is not just taxing farmers with a valuation over £100. It taxes any farmer who is industrious enough to take land with a valuation up to that figure. There is one other question I would like to ask the Minister. Who will determine the profit from a particular acreage of land? For example, who will determine the number of cattle a farmer grazes on land that he takes or on the land that he owns? This Bill will probably not kill the marts in this country but it will weaken them. Farmers in the future will resort to the old methods of selling cattle rather than through the marts, rather than running the risk of having their sales registered through the marts and the Revenue Commissioners getting information about it. It will be a very interesting exercise for the Revenue Commissioners to succeed in taxing farmers in the manner they would like. They are not dealing with innocent, unsuspecting businessmen. They are dealing with a very shewd bunch of people.

An Leas-Chathaoirleach

Last evening on section 16 we had a rather wide ranging debate on the principle. I ask the Senator to relate his remarks to section 17.

It is on section 17 I am asking the question: how do the Revenue Commissioners hope to be in a position to assess farming profits in the way they would like?

I think that the Minister is creating serious problems for himself. Conacre letting has always been looked upon as not in any sense a tenancy of land but merely a licence to use the land for a certain purpose. Under this section the person who takes the conacre letting is in occupation. The Minister suggested the case of Farmer Brown and Farmer Black. Farmer Brown has a valuation of £100 and he gives the equivalent of £30 of that to Farmer Black on conacre, for, say, tillage. He suggests that Farmer Black's valuation is raised from £80 to £110, covered by section 15 and taxable on his farming profits, and that Farmer Brown still remains at the £110 level. That is impossible.

Section 15 states quite clearly in subsection (3) that the general taxing of farm profits does not apply in the case of an individual who shows that the rateable valuation of all farmland occupied by him did not, at any time of the year of assesment, amount to £100 or more. The Minister has got me on that. I see it is an 11-month letting and it says "at any time of the year of assessment"—even one month in the year—and he is covered on that. So, the Minister will not be troubled with tax evasion. It is the farmer who is troubled on the question of conacre. Again, in principle, there should be some consistency on this. Conacre should either be in or be out. If a farmer takes conacre for grazing, it does not change his valuation. If he grows beet or potatoes or wheat on it, it does change his valuation for the purposes of this Bill. This seems to be very unreasonable and contrary to all principle and contrary to the general pattern of the law which has always been that conacre letting is not in any sense a tenancy or occupation but merely a licence to use the land for certain purposes. If the Minister is going to include conacre for certain purposes in the provisions of section 21, he is going to get himself into terrible trouble with the farming community.

He will have serious tax evasion troubles if he tries to add conacre.

I find some confusion here. Suppose a man has a farm of 110 acres with a valuation of roughly £110. Farmer B has a farm of about 20 acres and £20 valuation, but he supplements his farm income by an agricultural contract business such as land project drainage and so on. Suppose Farmer A makes an agreement with him for three years. A has 30 acres of that 110 acres with scrub growing on it and he wants to have it cleaned up. He makes an agreement with Farmer B that he will give him the 30 acres for three years provided he cleans up the land and leaves it in good, arable condition. That brings his valuation down to £80 for those three years and it still does not affect the agricultural contractor's valuation of £20. Do they both evade tax over the three-year period.

They do.

Yes. If the Minister's interpretation is right it is wide open to tax evasion.

As far as I am aware, in the case of a man with a farm of 110 acres, it is on his rates demand note, on the valuation and the rates he pays, that he is liable for tax and there is nothing to stop that farmer saying: "My son is working 40 acres of that farm over there and I would like you to make him liable for the rates on it. Please have my name removed for rateable purposes and insert my son's name instead." You have not to go through any legal procedure to have that done.

The only practical way this can work, and I presume this is how it is going to work, is that the people in ownership, beneficial occupation of the land, where the land is in excess of £100 valuation, are liable for tax. If the Minister is dealing with conacre lettings and the type of lease Senator Garrett spoke of every farmer in the country would embark on arrangements of that kind very quickly. Unless there is a system of double taxation as Senator Jack Fitzgerald says—which is possible—a wide avenue of evasion will be opened. The only way this can be made to work is if every farmer who is the owner and in beneficial occupation of land over £100 valuation pays tax. What they do in regard to conacre letting or leasehold arrangements should not come within the ambit of this Bill at all, if it is going to work. If the other arrangements of leasing and 11-months' lettings are going to come within the ambit of this Bill so as to raise the farmer with rateable valuation of £70 or £80 to a valuation of over £100, it can very easily act in reverse also. The farmers with valuations of £110, £120 or £130 will gaily give away his land on leasing or on 11-month letting arrangements.

I want to give the Minister an example of possible tax evasion. Farmer Yeats lets 20 acres of land to Farmer Lenihan. Farmer Lenihan, being an industrious farmer, does not use the land for grazing so he sets 20 acres with potatoes. Potatoes can be quite a costly proposition in one year and can be quite remunerative in another. Farmer Lenihan and Farmer Yeats decide among themselves that as far as the Revenue Commissioners are concerned the 20 acres have been let for grazing and by the time the Revenue Commissioners arrive on the scene the potatoes have been eaten and the land has been reploughed. Who will prove that the land was not used for grazing? I would like the Revenue Commissioners to put that in their pipe and smoke it.

I would approach this problem, as I am sure the Revenue Commissioners would too on the basis that Senator Yeats and Senator Lenihan are both honourable men. So the situation the Senator envisages would not arise.

I would appear to me at this stage that we have reached deadlock so far as the interpretation of conacre versus 11-months' letting is concerned. The Minister told Senator Lenihan that the man with a valuation of £80 who takes a further £30 of valuation on the 11-months' system is liable for income tax. Earlier, the Minister said that a farmer with a lesser valuation than £100 who takes other farmland on the 11-months' system is not liable for tax on the land which he rents on this system. There is need for clarification on those two points.

Business suspended at 1 p.m. and resumed at 2.15 p.m.

Before the lunch break I was trying to get some clarification of the difference between conacre, 11-month grazing land and tillage land. The Minister said that a farmer with a £80 valuation who took land on the 11-month system would be liable for income tax. Earlier on he said that the owner of land let on the 11-month system would be liable for the tax. How can you have this double taxation system?

This section is very confusing. I am sure the Minister will be anxious to clarify the whole position with regard to the meaning of grazing land, letting land for tillage, letting land for beet, for wheat or any other type of root crop or for that matter for horticulture. The section should be dropped altogether, or the difference between crops should be clarified. I look on grass as a crop. It is very important in so far as the production of beef and milk is concerned. I find it difficult to understand the Minister stating that grasslands will be excluded but that crops cannot be excluded for taxation purposes. It is confusing for us here. It will be more confusing for the thousands of farmers who will be liable to be caught. There is an obligation on the Minister to clarify the entire situation or else to drop this section dealing with conacre as against the 11-months' system and so on.

The issue is a neat one. Attention has been drawn to what is regarded as the anomaly that grazing is treated differently from other farming activities, but that is the position as the law now stands. The Seanad will have to decide whether it wants that exception left as it is or else bring somebody within tax liability simply because he takes land for grazing purposes. They will not be brought into the liability by taking the land for grazing purposes as the law stands at the moment. We are told then that this is treating people differently. If you want them to get the same treatment they will have to be brought in. You cannot have it both ways.

It is not as simple as that. The Minister is trying to put an alternative which does not exist at all. We all take the view that, under any common-sense interpretation of the word "occupation", conacre for grazing purposes could not possibly be counted as occupation for the purpose of section 17. There is no dispute on that at all. Where the problem arises is that the Minister has suddenly produced this suggestion that he agreed that a conacre for grazing purposes is not occupation, that if you set beet, wheat or potatoes this may become occupation within the meaning of this section.

That is the problem we are up against. There is no question of there being any suggestion that grazing should be included in the requirements for occupation. We are all agreed that the sensible interpretation of conacre is that it is not occupation. The problem arises because the Minister insists on making a distinction in this matter. He instances the case of the man who takes conacre perhaps for three years and, as I understand is usual, in the first year he leaves it in grass, the second year maybe he uses it for beet, the third year perhaps for potatoes. The first year his valuation is not increased under this Bill and the second and the third year it is increased. Thereby he might, under section 28, if he is a small farmer, come under the provision where he begins losing half his allowances because he or his wife is working off the land. Under section 16 he might suddenly find that he is liable for his entire farming profits because he is over the £50 level; or under section 15 he could suddenly find that he is over the £100 level and is liable to income tax simply because he takes conacre.

We have had a lot of comments from Senators opposite about ranches and so on in the midlands. The Minister is effectively encouraging ranching because he is saying that, if you take conacre and use it only for grazing, the valuation is not increased in accordance with the provisions of this Bill. But, if you set potatoes, beet or grain crops, your valuation is increased. This makes no sense. Indeed the Minister talks about the law being this and that. I would be interested to know from the Minister what law? Where? What Act? What piece of legislation suggests to him that the taking of conacre could be described as occupation?

I do not know whether these words "occupation", "deemed to be occupied" and so on are defined. If there is any law on the subject I would be very interested to know what it is. It seems to me far more likely that there is no legal definition at all of occupation. The Minister is saying that the Revenue Commissioners may look upon it as occupation. I think the Revenue Commissioners should be told very severely that they should use in this respect the ordinary plain meaning of the word.

I would remind the Minister, that for example, during the war, when we had compulsory tillage that over large parts of the country particularly in the midlands, it was the custom for the larger farmers to set their land on conacre so that all the local small farmers who had very little land were delighted to get the work and were able to grow the grain crops for the farmers. When it came to assessing the tillage quota allotted to each farmer, it was his quota that was being done. In other words, if a 100 acre farmer had to put down 40 acres grain crops, he let that 40 out in conacre to other people who grew the wheat. He sold it and got whatever profit there was. It was counted as part of his own tillage quota. In other words, as far as the compulsory tillage was concerned, the sensible common-sense view of the term was used and he was regarded as still being the owner in occupation of the land from the point of view of assessing his tillage quota.

I am suggesting that in this case the sensible use of the term should be continued and that all conacre, for whatever purpose, should be disregarded from the point of view of increasing the valuation of the individual who takes it. It should merely be looked upon as land occupied by the owner who has let it out on conacre.

I should like to repeat what I said before lunch. What Senator Yeats has just said is the only way that this can work. I am warning the Minister and the Revenue people behind him that otherwise there is an enormous area of escape over this whole letting area. You do not have just the ordinary 11 months in one year; you often have a conacre letting for three years. That is, three years of 11-month lettings. That is the usual form of letting throughout the country. The lessee can engage in different forms of farming over that three-year period in regard to the 11-month letting. He can engage in tillage in one year and grazing in another year.

The leasing arrangements that Senator Garrett referred to constitute another area which offers an avenue of escape. I will not go into the merits or demerits of this area of taxation. The section has not been drafted with any great though for the reality of the position as it exists throughout the country. Senator Alexis FitzGerald drew attention to anomalies that arise out of this situation. Senator Jack Fitzgerald referred to the double taxation situation arising out of different interpretations in regard to where the ultimate taxation responsibility lay.

Senator Alexis FitzGerald drew attention to the basic social problem running right across the board throughout the country. The Minister gave us an assurance that the problem was looked at. It refers to tenancies in common. All over Ireland people living together, the same family, are pursuing different businesses and different farming operations on the same farm in terms of rate liability and in terms of legal title.

I feel the Minister should explain this point. It is clear apparently that as far as the ordinary 11-months' grazing letting is concerned—one 11-month grazing letting—the Minister says that will not be occupation. The next point is in regard to all the other areas of occupation I am talking about—the conacre letting for tillage, the conacre letting for two or three, four or five year periods, or the leasing arrangement over that period of years. The Minister says that they will be included. Yet, as Senator McGlinchey pointed out, in the two, three, four or five year conacre arrangements based on the 11-months' system but continuing over two, three, four, five years you are going to have a system of mixed farming operation. In one year it would be grazing; in another year it would be tillage. How is that going to be ascertained by the Revenue Commissioners?

It comes back to a point I made earlier, that the only way in which this can be satisfactorily dealt with is to confine the Revenue Commissioners, for the purposes of this section, to occupation in the sense of excluding lettings of any conacre type, excluding leases of any type or formation, and concentrating quite clearly on a definition of the occupation of farmland that would exclude any form of letting, be it an 11-months' grazing letting, an 11-months' conacre letting for tillage, or a two-, three- or four-year conacre letting for tillage, or for mixed tillage and grazing and excluding a lease arrangement such as Senator Garrett spoke about, a permanent lease arrangement without the 11-months' provision. It should be quite clear that all lettings and leases are excluded and that what is being talked about in the basic section 15 and elaborated upon in section 17 and what is being concentrated upon and dealt with specifically is what we might term "occupation ownership of land".

This does not settle everything unless we deal with the point raised by Senator Alexis FitzGerald, that even with that, there is the further problem of tenancies in common. But at least from the point of view of the Revenue, you are on much safer ground if you concentrate on that area of ownership occupation, full stop, in regard to the £100 valuation ceiling and over. But if you start to come back into the area of grazing lettings and lettings generally, such as conacre lettings, mixed tillage, grazing lettings and leases all of which are common throughout the country —all over Ireland it is a common feature of Irish farming life and the economy—the Revenue Commissioners are going to get bogged down in a morass. The Revenue Commissioners know by now, although they have not met them yet, the indigenous shrewdness of the Irish farmers in many matters. The Revenue Commissioners have not dealt with them yet; they may have dealt with the businessman and the ordinary taxpayer but they are meeting a far tougher gentleman in regard to this particular area. If they think it will be easy to bring this gentleman into a tax net full of loop-holes and evasions, they have another think coming.

The Minister for Finance mentioned an army of income tax inspectors. And this applies to our own Government at the time. During the war period referred to by Senator Yeats, between 1939 and 1945, we had the same experience in regard to enforcing a basic tillage quota. An army of inspectors sought to enforce that. If you are going to try to enforce any form of measure here that will include various lettings and leases, and try to draw them into the tax net along with the basic valuation in relation to ownership, I can tell the Minister and the Revenue Commissioners they are in for very serious trouble because the facts of life are that there will be massive evasion and the whole thing will be a nugatory exercise, like a lot of other exercises, such as the wealth tax, produced recently. The sooner we have precise legislation in regard to taxation and financial matter before this House the better and not legislation of this kind which is totally impractical and unenforceable unless we get a clear enunciation from the Minister as to what he is about in clear and lucid terms.

When I raised this matter yesterday on section 15 the Minister believed that I was wrong with regard to root crops, with the exception of grazing. I think I am right in saying that possibly the Minister's advisers and many Members in this House thought I was wrong. It now appears that I was correct. In my view it is serious in that it appears to me to be badly drafted legislation. As a Dublin city Deputy, the Minister is naturally at a disadvantage and he is at a greater disadvantage when one considers that most of his colleagues in the Cabinet are city based also and they may not be in a position to know the situation as it obtains in rural Ireland.

Many farmers in my county plough over 100 acres of land per year, who graze as much more and who themselves do not own a square foot of land. They are highly industrious men who, for historical reasons dating back to the Plantation of Ulster, are living in an area where they did not get the opportunity of acquiring land. But year by year, on a conacre system, they go to the auctions and rent this land. I am not suggesting that these people—if it can be established that they make a profit—should not pay tax on it. As I said yesterday I agree with the principle of taxing farmers. What I am suggesting is that section 17 and, indeed, the other sections on farming in this Chapter, are too loose; sufficient thought has not been put into them. Indeed, it is typical of a lot of the legislation emanating from the Government, from inexperienced Government in legislation, and I feel it will create many problems in the future.

At this stage the Minister should withdraw section 17, indeed all of the other sections in this Chapter, and submit them at a later stage when he and his city-based Cabinet have had an opportunity of learning something about the farming population in this county and rural Ireland in particular.

This is a very difficult section to understand. I am a farmer with £70 valuation. I am married, I have three or four children, from two to ten years of age. I have a bachelor brother who owns land of £50 valuation. He favours one of my children who is a five-year-old. If he decides to leave this holding of land to that child, of £50 valuation, it is transferred into the child's name. But I, being his father, work that land, and I am the beneficial owner of any crops which come off that land. Am I caught in the tax net as being a farmer with a taxable valuation of £120 just because my son who is a minor has land of £50 valuation in his name? I can prove this in court. But I am the beneficial owner. My demand note states I have £70 valuation only. I do not think there is any other method of taxing a farmer, on a valuation basis, unless one accepts what is on his demand note. I have asked the Minister two other questions which he has not answered so far. I would like to get clarification on the three questions I have asked.

I should like to point out to the Minister the unjust and unfair cases that can arise because of this section. I hope that he will take into consideration, for instance, the farmer who has £90 valuation and who is not taxable. Under this section he can take land to the value of a further £90 valuation for grazing purposes, which brings him to a total of £180 valuation, but he is not liable for any tax. Against that take the case of the farmer with a valuation of £50 or more who takes conacre and tills it for the purpose of growing root crops. If what he takes in an 11-months letting is in the region of £50, he is taxable. There is a blatant example of how this section will operate—where a farmer with a £50 valuation is taxable while a farmer with a total of £180 valuation is not taxable. Even at this stage the Minister should take into consideration such cases. Is that just or fair? What developments are going to take place from such a law?

We have now had an an opportunity to look up the legal definition of the word "occupation" which in section 13 of this present Bill is defined as having the same meaning as in section 18 (1) of the Finance Act, 1969. Looking at the Finance Act, 1969, we find that occupation in relation to any land means having the use thereof. If the English language means anything it would suggest therefore that "occupation" in the Minister's Bill includes conacre—all kinds of conacre, including grazing. What on earth are you doing with land when you take it on conacre and use it for grazing livestock except having the use thereof? It seems to me that, if the Revenue Commissioners were to come down and say to a person who took conacre for grazing purposes that he was having the use thereof and therefore was brought beyond the £100, the £50, or the £20 valuation as the case may be, and was liable to the various forms of taxation or remissions of allowances and so on set out in this Bill, there is not a court anywhere in the land that would say they were wrong.

It is all very well for the Revenue Commissioners or the Minister to say that a particular policy will be adopted—that conacre will be included for assessment purposes if it is in tillage but excluded if it is used for grazing purposes. The meaning of this section, if interpreted in accordance with section 18 (1) of the 1969 Act, is quite clear. If you take land on conacre you have the use of that land and therefore you are in occupation of it. A farmer, regardless of the extent of his holding, who takes a conacre letting has the use of that land and is in occupation of it. Therefore, in accordance with the legislation we are now passing, that land must be added to his valuation. That seems to be the fact of the matter and I will be interested to hear the Minister's comment on it. I do not think there is any way out of it.

I also should like to comment on section 17. It seems to me that there is a clear inconsistency between the definition in section 18 (1) of the Finance Act, 1969, and section 17 of this Bill. Section 17 of the Bill says that:

For the purposes of this Chapter, farm land shall be deemed to be occupied by an individual where it is occupied by his wife or it is farm land of which he or his wife is the beneficial owner or of which they are the beneficial owners and which is occupied by any other person or persons.

On the one hand you have this section, which seems to stress beneficial ownership as being the important thing, while the Finance Act, 1969, stresses the use of the land. There seems to me to be an inconsistency between the two.

This section is a section which provides the basis for the assessment of a person's liability and lays down the conditions which have to be fulfilled before a person is deemed to occupy the land. Unless we adopt this formula we could have avoidance. I have dealt already with the complaint, and I do not think there is any point in my repeating it, that conacre is exempt but that other forms are not. The cure to that is that you remove the exemption in respect of conacre. I gather from what the Senator said——

Where it is exempted in this Bill?

The grazing is exempt at the moment.

In the legal interpretation, use has been interpreted as meaning "full use". Senator Lenihan this morning referred to some lettings being only for a specific purpose and did not confer full use on the tenant. The grazing does not confer full use on the tenant, in other words, there is a limitation of the manner in which the land can be used by the tenant.

Is there a legal case on that?

If a person, for instance, takes land for grazing purposes, that is treated differently from farming and is an activity which itself under the law as it now stands is subject to tax. The tax may not be paid but in fact such an activity is at present subject to tax. It is not something which enjoyed the exemption granted by the 1969 Act. When I said that there could be avoidance what I had in mind is this: to take the case that Senator Lenihan has in mind of the two farmers with £120 valuation each—if we were to grant the exemption Senator Lenihan suggested for all lettings they could easily arrange that a man would hold on to 60 of his own acres and let 60 to his neighbour and his neighbour would dovice versa. In that way they would be able to get some exemption for one another by dividing the land, part to be operated by themselves and part to be operated by the neighbour.

Senator McGlinchey suggested that we, withdraw from the Bill the provision to bring farming profits within the tax net at a certain level. That is too ludicrous to merit comment at this stage. Senator Garrett mentioned the question of a man having a farm of £70 valuation and whose child has had a farm of £50 valuation bequeathed to him. He wants to know whether that farmer, if he farms the two farms, would come within the tax net. He would because such a man would be enjoying the fruits of land, the rateable valuation of which is in excess of £100. Therefore, he would become liable to tax.

What is the position of the man who is lodging the profits for the benefit of his child?

He would be leaving aside all enjoyment and all the benefit from the income. I must think about that one.

It relieves him of the duty of putting aside the profits he makes on his own farm of £70 valuation to the benefit of his child. Where does he stand?

He would still be in occupation of the land.

No. He cannot go in and take the property or sell it.

He is in occupation of the land. What he does with the proceeds is his own business. He is in occupation of it while he is working it.

What is the position if he proves to the Revenue Commissioners that he is not making money on that £50 valuation property, that he is lodging it for the benefit of his son? He does not put even one penny of that into his own pocket.

I think that we have many cases here that need further examination. This afternoon, I am being asked to play the role of a personal tax adviser to Senators who, in turn, produce new sets of possibilities.

We are asking the Minister to explain the measure, not to act as an adviser, consultant or tax collector. Some very good questions have been put here and we need explanations.

I sympathise with the Minister in trying to prevent tax avoidance. He has gone so far in this instance that a case could be argued that two different people would be liable to tax, one of whom has the beneficial ownership of the land and one of whom has the use of the land.

On the definition in section 18 (1) of the Finance Act, 1969, use is the relevant point; in section 17, beneficial ownership is what is relevant. Although the Revenue Commissioners might not go so far as to look for tax for the same land from two different people —I would not put it past them in certain circumstances—the law as it will stand might entitle them to do that.

As I said this morning, this is simply laying down the qualifying condition. That is all that we are doing in this section. Land can be used for two purposes at the one time: one, to earn an income for the owner of the land who has let it to somebody else, and it can also be used by the tenant in order to generate profits for himself.

Is this what the Minister intends to do?

That is the same position that operates in relation to any property. If the owner of a factory lets it out to someone else, the user of the factory comes within the tax net in respect of profits generated from whatever activity is carried on within the factory. The owner of the factory becomes liable for tax on the rent.

I wish to refer to Senator Garrett's case of a farmer with a £70 valuation and his son with a £50 land valuation. The former would be in occupation of those two farms. That is agreed?

No, it is not.

He has to be in occupation of the son's farm in order to generate profits from it.

He is working for the son.

All right, he is working for the son. The Senator says he lodges the profits of the son's farm to the credit of the son and never enjoys them himself. In that situation the farmer is within the net because he is occupying farms of £120 valuation, but he himself would pay tax only on the profits from his own farm. This refers to the farm with £70 valuation: he would not pay tax on the son's farm. If he does not enjoy the profits, he will not pay any tax on the son's share.

Then he becomes a part-time employer, because that man will not work land with a valuation of £50, unless he derives some benefit from it. He will deduct his own costs and his own wages for the work he does on that farm. He becomes a part-time farmer plus a worker. Does he lose half his personal allowance?

The Senator has put the man into a different category from the one he mentioned a few moments ago.

He is deducting money for all the work he performs on that farm, and he becomes a part-time farmer and a part-time employee. Is he caught in the tax net if he loses half his personal allowance?

He has more than £50 valuation, he is at £70 valuation. Marvellous arguments are being made here for bringing all farmers into the tax net. The more problems are identified the stronger is the case for bringing all farmers into the tax net. It is not a question of excluding them all, because you could generate the same kind of difficulties in relation to any other activity if you tried to apply them for the purpose of giving relief, and for the purpose of not drawing in everybody together.

What criterion do you have to get before you tax a farmer with a £100 valuation? How do you find out if he is a taxable farmer?

On this side we are trying to be helpful to the Minister. It is important that whatever legislation is passed works properly. As I see it, this whole area is going to be unworkable and this raises the wisdom of bringing in legislation of this kind. Part of the problem is the legal separation by court decision between grazing lettings and other forms of letting. Grazing lettings do not pass the occupation on to the lessee; they remain with the occupier-owner, so that the lessor will be taxed—if he is more than £100 valuation—in respect of such a grazing letting. Is that agreed?

Why not? I want to get this clear in stages. We start with grazing lettings. Who is going to be liable for grazing lettings? Will it be the lessor or the lessee of 11-months' grazing lettings?

The owner will pay tax on the rent.

The owner—the lessor of the 11-month grazing letting?

I am talking of the valuation aspect and the owner who makes a grazing letting of part of his land, if he is a £90 valuation farmer and he graze-lets £20 valuation of his land for 11 months. Is he going to be brought into the net on the basis of £110 valuation? He is? It is a very simple point. I shall give an example of the £110 valuation owner who lets grazing on the 11-months' system. What is the position in regard to the £90 valuation person beside him who takes from him for 11 months the £20 valuation grazing portion?

For grazing only? He is not in.

He is exempt?

He is clear?

So there is no question of double taxation in the case of grazing lettings? Is that quite clear? Is it clear that in regard to grazing lettings the obligation to pay tax under this legislation, provided the lessor is in excess of £100 valuation, resides with the lessor of the 11-months' grazing letting?

So the lessee under £100 valuation who may lift himself over that in regard to a grazing letting is exempted? He is taxable on the basis of his £90 basic valuation. Is that clear?

The next step is the point raised by a number of Senators in regard to conacre letting for tillage. In exactly the same position, what happens to the £110 valuation farmer who lets 20 acres of his land for tillage on a conacre 11-month basis? What is his position under this Bill? The £110 valuation farmer is eligible for tax under this Bill.

Both are in.

This is precisely the point that was raised before. In that case the £110 valuation farmer who is the lessor of the conacre tillage letting and the £90 valuation farmer who is the lessee of the conacre tillage letting are both included.

That means you are taxing two people in respect of the same area of land.

Two different sets of profits. One is rent and the other profits generated from the use of the land.

No. The Minister's argument in regard to the £90 valuation lessee is applicable if the conacre letting that he takes for tillage is taxed in the ordinary way on a profit and loss basis. If that man is lifted into the tax net included here, over £100 valuation, while at the same time you are already, in respect of the same property, including a farmer for the same purpose, surely there is a rank injustice being done to the farmer whose valuation is under £100 and takes a tillage letting.

There is an important social point here. The tillage conacre lessee tends to be the best farmer. Senator McGlinchey dealt with this aspect earlier. The farmer who takes conacre over a period of years is one of the best farmers in the country. The situation then arises, if one follows the Minister's logic, where the 11-months' grazing farmer, who is not in the same category as the man who takes conacre for tillage, is benefiting. The Minister says he is not being drawn into the tax net at all because he is taking 11-months' grazing. It is well known that 11-months' grazing is far and away the laziest form of farming. He is being allowed to escape scot-free. The hard-working, intelligent farmer of application who takes out a conacre tillage letting, on a one-year basis or for three, four or five years or on a lease basis, is being penalised. Not alone is he being penalised but the farmer who lets the land to him is being penalised as well. Consequently the best farmers are being taxed. The lazy, easy-going farmer who takes conacre for 11 months for grazing just to put a few head of stock on the land because he needs a few acres and does not bother to fertilise the land, is a beneficiary under the system. This is the basic reality on the social and economic side apart from the fact that the whole matter is full of scope for evasion. Lease lettings are becoming very popular and under EEC rules will become even more popular. A situation arises where the really good farmers who are under £100 valuation will be penalised. The lazy farmers who take 11-months' lettings for grazing will not be brought into the net at all. It is a further anomaly and I can see enormous scope for evasion on the basis of conacre tillage lettings of all kinds.

The Minister says farmers whose valuation are in excess of £100 are liable both ways, which may close the evasion I am talking about. If so, I would like to know at what level it will be closed, what type of leasing arrangement will be excluded or included. If the evasion is to be closed it must involve a system of double taxation, a system of taxing A and B in respect of operating the same property. The Minister should be straight about it. If that is it, it is a very new introduction to tax legislation, that two people will be taxed in respect of the same property. That in effect is the only way the Minister can prevent the evasion.

Could I reply to points as they are made? If I do not deal with them individually it is likely we shall get confused. Let me take the question posed by Senator Garrett first. Where the son employs the father and the father receives a wage from his infant son looking after the——

He becomes an agricultural contractor and therefore he becomes exempt from the assurance given by the Minister before lunch.

If he was getting a wage he would have this limitation on his personal allowances. He would not then be caught by section 15 which brings him into charge on his farm because it is over £50 rateable valuation.

He can be an agricultural contractor working for his son.

If he is looking after a farm from one end of the year to the other he is a strange sort of agricultural contractor. Nobody this morning suggested that it was on his behalf we were crying. It is very hard to know which case is being fought at any particular moment in this very interesting debate. If a man is looking after a farm of a rateable valuation of £50 it is a full-time occupation. Either he does it as an occupier of that land or as a full-time employee of another. There cannot be a mixture of the two disciplines. Perhaps he can decide for himself which category suits him better and present his accounts on that basis. Not everyone can do that.

On Senator Lenihan's argument I cannot advance the position any further than I have already put it. If this obstacle is there and some people think it should not be there, then the way to remove it is by treating the conacre farmer in exactly the same way as you treat the others. Which way do Senators want it to be treated? Do they want these people to be taxed? Some Senators have argued that they are, in principle, in favour of taxing farmers, but find it very difficult to translate the principle into practice. If the principle is to be translated into practice, then they must all be treated in the same way.

Senators Yeats, Cowen and J. Fitzgerald rose.

The Chair is very glad to see Senators rising promptly. The Chair often has difficulty over the reluctance of Members to rise to speak.

The Minister keeps on bringing in this question of taxing conacre. I do not think that is the point at all. If a farmer is paying tax under any of the sections in the Bill on his farming operations, then clearly profits from land taken on conacre would be included. Nobody could object to that. Nobody could say that is wrong, once one accepts the principle of taxing farmers at all.

The point at issue here is quite simple. It is whether, in computing a farmer's valuation, land taken by him on conacre should be included. That is a simple point. We find now that in the 1969 Act the word "occupation" is defined as "having the use of land". I would like the Minister to enlighten us on this. The Minister has told us that since the 1969 Act, which is comparatively recent, there has been some court decision which adjudicated on this phrase "having the use of" as meaning "having the full use of" and defined that as more than grazing, as involving some form of tillage. I would be very much obliged if the Minister would refer to the phrase and the specific point made by the court because it is basic in relation to the whole meaning of the word "occupation". Senator Lenihan says it is an old decision. If it is an old decision then it is even more extraordinary that the words "having the use of" should be included again in this Bill without any further——

It is pre-1969.

One would certainly prefer in drafting legislation, if a Minister is accepting the view of the courts, that he would put in a definition section which actually says what it means instead of relying on an earlier court decision defining the phrase and apparently giving it a meaning which would not be expected from just looking at it. A definition section loses all meaning if it is to be disregarded altogether when interpretations are made in court. I would be very much obliged if the Minister would explain something about this to us so that we can have some idea as to what precisely they have interpreted this word to mean. One must make the point to the Minister. He does not seem to appreciate it at all. There is no question of suggesting that all farmers taking land on conacre should be included in the provisions of section 17. What we would like would be that no farmer taking land on conacre for whatever purpose should have his valuation changed as a result.

That would promote avoidance—fragmentation.

No. We should be clear about what we are looking for. If a farmer has a valuation of £110 and he lets the equivalent of £20 of his land in conacre, as the Minister rightly said, he remains a £110 valuation farmer. Therefore, he cannot avoid the taxation imposed upon him by section 15 by letting land on conacre. There is no avoidance involved at all. The small farmer who takes land on conacre, for whatever purpose, is not avoiding tax. If a farmer with a valuation of £90 takes a further £20 valuation of land on conacre, the Minister may say he did not do it in order to avoid a valuation of £100—he took it on conacre to keep below that figure. That is a fair point. But, on the other side of the coin, if the farmer with a valuation of £110 sold the land, he himself would then be below the level. The Minister cannot have it both ways.

If there were large-scale avoidance by means of taking land on conacre instead of buying it or leasing it, while certain farmers might avoid going over these various boundaries set out in the Bill, at the same time other farmers would be left as they were, still above the level, instead of being brought down, as they would be if they sold the land outright. I do not see how this could be used for avoidance. Certainly the Minister's interpretation would have consistency if he included all conacre in the section. As the Minister knows, conacre is fairly common for tillage purposes though a considerable portion of it is for grazing. Whatever avoidance the Minister may be afraid of can continue uninterrupted if it is for grazing. I do not know how the avoidance can arise. If any avoidance arises it will arise only if a farmer puts in beet, or wheat, or potatoes or some other crop. So long as he grazes, the Minister's fear of avoidance must remain because that does not affect the valuation at all.

Except he is liable on grazing activities.

Of course, he is. He is also liable if he puts beet in. Whatever he does with his conacre, if the farmer is liable to tax at all, he is liable on whatever profit he makes out of taking conacre. But his valuation will not be changed. If the Minister says his valuation must be changed if he takes land on conacre then my answer to him is that, if there is going to be avoidance, it will continue so long as he only grazes the conacre. Why should the avoidance problem be worse where he put in beet instead of grazing livestock? It is senseless. There is either avoidance or there is not avoidance. The avoidance does not become less because of the use to which he puts the land.

The problem with this Bill is the more one looks into it the wider its ramifications. This whole thing started as an innocent little suggestion the Minister made in his budget that farmers with a rateable valuation of over £100 were to be taxed. Later on, he found that farmers with a valuation of £50 could be taxed. Later on again, in section 28, he found that farmers with a valuation of £20 could have their allowance cut in half. Now we find that the small farmer—the man with a valuation of £10, or the man with no land at all— can be brought into the income tax net in some way or another because he takes land on conacre and tills it. It is a most dangerous suggestion and one that could have very wide ramifications. It could affect all kinds of people who quite clearly are not intended to be affected by these sections. It makes nonsense of the various limits set—£20, £50, £100— because farmers with small valuations, if land taken on conacre is to be added on, will be brought in for tax.

I do not like to describe any avoidance practice in case it should generate some new avoidance arrangement in somebody else's mind, but I must do it in this case to show why all lettings cannot be exempted. If you have two farmers with valuations of £120 each, under this proposal they would be liable to pay income tax on their farming profits. They could arrange to let, say, 60 acres apiece to each other. Farmer A lets 60 acres of his land to farmer B andvice versa.

Is this on conacre?

Yes. There are parts of the country where conacre is on the 11-months' system and includes grazing and there are other parts of the country where it is arranged differently.

If you let conacre your own valuation remains the same. You cannot change your own valuation by letting land on conacre. Do we agree on that?

What you do change may be the base. If you are £120 you are liable, but you will pay tax only on your farming profits in respect of the piece which you yourself are keeping for farming. You will not be paying it on the base that you let off at a nominal rent. You will pay on a different basis for the rent.

If you are paying——

What is happening is that the Minister is providing for two farmers whose total is less than £200, that both of them should be in the £100 category, and this is the example which the Minister was going to give. It does not hold water because each of them of course would be liable for the full amount. In this case you have a situation where two farmers who between them have less than £200 valuation are both going to be put in the category of £100.

And if they graze livestock the whole thing is unaffected. So long as they graze, then there is no effect at all from this avoidance.

The purpose of introducing any new tax is to collect extra revenue for the State, and there is no point in bringing in new taxation measures if it is going to cost more to collect that tax. It is an exercise in futility. I cannot be accused of trying to embarrass the Minister, but I cannot go along with the argument that he should differentiate between grass as a crop and wheat, barley, beet, potatoes or any other crop that might be sown. Why not differentiate then, between the man setting 30 or 40 acres of meadow and the man taking 30 or 40 acres of meadow? Meadow, like grass, is a crop. The land would be auctioned on at the end of April, May or early June. It would be auctioned on different terms in different parts of the country, on the basis that the meadow would be cut, the hay would be baled and taken away and the after-grass would be set until the end of November or the end of December. Would that person not be in a similar situation to the man taking grass on the 11-months' system?

Now we come to the man who takes land on conacre. Suppose I am a farmer with a £70 or £80 valuation and I find on the local paper that there are 30 or 40 acres of land a couple of miles away from me to be let for conacre for wheat or barley, perhaps over a period of one year or two years. If I find that I have an £80 valuation and if I take 20 or 30 acres of land down the road that can bring me into the tax net because there is a £25 valuation there, so what do I do? I give a bundle of notes to my son and I send him into the auctioneer to take it in his name, and I remain at my £70 or £80 valuation and my son has no valuation. Therefore do we spend tax that we are going to collect in employing people to go around and investigate cases like that? I would very respectfully suggest to the Minister that he treat land that has been set, whether it is for grass or for meadow or for conacre, on the one basis. By doing that I honestly believe that he will collect more revenue, that he will ease the position for the farming community in general and he certainly will not have to employ as many tax collectors or inspectors to go around investigating what is happening.

The Minister made a remark, related to some questions posed by Senator Lenihan and Senator Garrett, that we on this side of the House were making good cases for all the farmers to be taxed. I pose this question to him: is it right or fair that a farmer of £50 valuation who takes conacre to the value of £50 and utilises it for root crops should have his total valuation brought to £100. Against that you have the case of the farmer of £95 valuation. This does not cover this section at all now. A farmer with £95 valuation is not taxable and under this section that individual can take a letting of land for grazing to the tune of a further £95. You arrive at the situation where a farmer with a total of £190 valuation is not taxable against a farmer of, say, £50 plus £50, who is taxable. Is it just or fair that it should be the case?

I am being asked to treat just——

I am asking the Minister is it fair that a farmer of £95 valuation should pay no tax as against the position of a farmer of £50 valuation who is taxable.

I am being asked is it fair that we are excluding certain farmers from liability to tax while bringing in others. That is the question I am being asked and I say to that in present circumstances "yes".

I think there is more talk about this than it is seriously worth. Senator Fitzgerald's question is the very valid one whether the game is worth the candle, but I do not think that is the point that is being put by the Opposition. The Opposition make a distinction between the grazing and the buying of land on the 11-months' system for grazing and, on the other hand, for tillage.

That is our point.

The Minister makes a distinction.

I do not think that is the point. Senator Fitzgerald said why take tax from any of them because you will not get it anyway, but that is a separate matter. That is not the argument that is being put forward by the Opposition.

Of course it is.

It is being put forward for a different reason. Your argument is that because a man takes it for grazing it is unfair to allow him out of the net because the other man is in the net. I make a point that no matter where the limits of this taxation are, on the edges of that you will find situations which you can point out are unfair. For instance, you take a farmer who has a valuation of £99 and his profits may be £5,000 a year, and you take another farmer in a more difficult situation with a valuation of £100 whose land is worth far less money than the man whose valuation is £99, and he has to pay tax but the other man has not.

It is unfair but the Minister made up his mind to start at a particular level and I think no matter where the case begins or ends, you will find these inconsistencies and these difficulties, and I think far too much is being made of this. As regards the question of double taxation, I do not think that that is a valid argument at all, because in industry, let him buy a £1,000 worth of materials or clothing or any other thing and he makes a profit on it and he sells it again, the next man is taxed on the profit he makes on the very same article, and there is nothing inconsistent at all and nothing wrong with this principle. I could not go along with Senator Lenihan's argument that the lazy farmer is getting out of the net. I do not agree at all because agricultural experts working in the European Parliament will tell you that anywhere land can be tilled that is what people will do with it, simply because it is the easiest thing to do with land. I believe this, having had experience of both stock and tillage farming.

It is the greatest gamble.

Yes, it may be a gamble but you have a guaranteed price in tillage farming. You have no such thing in stock farming. I would dispute that and I think Senator Lenihan has offered a great insult to the vast majority of the people in his former constituency of Roscommon-Leitrim who have made their living all their lives on the system of buying land and grazing it.

I think there is far too much time being wasted on irrelevant arguments and conundrums like those produced by Senator Garrett. There are endless numbers of those that we could conjure up in our imagination which nobody could solve. I do not think it is the Minister's job to do that. We cannot expect him to be so powerful and far-sighted and infallible that there will not be any loophole in the legislation. I think the legislation is reasonable enough. There may be a slight inconsistency between tillage and grazing but on the other hand it is no greater an inconsistency than the one between the £99 and the £101 valuations.

First of all, naturally peripheral cases were raised here and rightly so because they pointed out anomalies in the Bill. Our central point was that made by Senator Jack Fitzgerald. I want to assure Senator McCartin that there is no attempt being made to create any trouble between the Fine Gael and the Labour Parties. It is simply a point of view on a technical matter of some importance as far as rural Ireland is concerned.

It is also important from the revenue point of view. He may not have been here before lunch when I made the same point as Senator Fitzgerald. This is central to the whole argument. The heart of this argument is that of the three points of view—the point of view of the proper social development in farming, that of the minimum amount of tax evasion, and the point of view of the Revenue authorities of avoiding the administrative expense of having bureaucrats in every parish drawing differentiations between the various forms of lettings.

I come back to the point I raised on several occasions and which Senator Jack Fitzgerald referred to, and that is the central point. The Minister would be very well advised to regard occupation as being the rateable occupation and not in any way to attempt to draw lettings of any kind into the tax net. It would make it far simpler, far more easily administered and would be broadly acceptable. This is the way it is understood throughout the country. The letting complication has been opened up here. I do not think the people throughout rural Ireland are fully aware of this. The Minister, and the Revenue Commissioners in particular, who will have to administer it, will get bogged down in a morass of complexity if they decide to bring one form of letting into this and to exclude another form of letting. This was what I understood the Bill to mean before the debate started.

I would have regarded it as being very very foolish on the part of the Revenue Commissioners to try to enforce a system of tax collection that would draw in one form of letting and exclude other forms of letting. You are going into a terrible area of trouble that will give the ingenuity of the Irish farming mind massive scope for evasion. The simple and straightforward thing to do, irrespective of the legal decision which the Minister mentioned, would be to define "occupation" properly here— that is, official occupation in regard to rateable valuation. If this is done on this straightforward basis the Minister will find that it will be far more easily administered. You will get the revenue anticipated. You will have far less annoyance, evasion and disruption throughout the whole agricultural economy, and everybody will know where he or she stands.

If you start to draw differentiations between forms of letting, including one form and excluding another, you will be in terrible trouble. I am speaking as much in the interests of the Revenue authorities as I am in the interests of the general good of the farming community. It is just a cautionary word. The Minister and the Revenue authorities will be able to look at this in the next year and see how it operates.

I would agree with Senator Jack Fitzgerald that the scope here for evasion as it now stands in seeking to differentiate between forms of letting is enormous. This is a warning I would issue to the Minister and I should like it to be accepted on that basis, and I should like if Senator McCartin avoided any political recrimination in this. This is not the place for that sort of thing. We are concerned here with the Bill and, though we disagree with the Minister in principle on this matter, we want to see a Bill coming into statute form that can be worked with the minimum of administration and with the maximum benefit to the revenue and to the people concerned who would have to pay tax.

I will certainly review the matter throughout the year. I will not let the grass grow under my feet.

Question put and declared carried.
Sections 18 and 19 agreed to.
SECTION 20.
Recommendation No. 6 not moved.
Section 20 agreed to.
SECTION 21.

I move recommendation No. 7:

In subsection (1), page 11, line 36, to delete ", other than an individual to whom section 16 applies,".

An Leas-Chathaoirleach

It has been agreed that this recommendation be discussed with recommendation No. 8.

I will not spend a great deal of time on recommendation No. 7 because it covers the same ground which we covered in some detail on section 16. Essentially, the point at issue is that section 21 provides for the notional basis of assessment for 1974-75. The Minister has given an undertaking that for some years to come this transitional arrangement will continue.

It is provided, for example, that a farmer with a valuation of more than £100 who is liable for tax can elect not to be taxed on his actual profits but on a notional basis of 40 times his valuation. In other words, if he has a valuation of £100 he is taxed as if his income was £4,000. If he thinks he can prove his income was less, he is entitled to try to do so, and in the case of some progressive farmers in a good year it could be of very considerable benefit to them. They are entitled to opt for this notional basis of assessment. However, for reasons which are by no means clear to me, the second line of this section explicitly excludes those who are brought into the income tax net by section 16. In section 16 a farmer of, say, £50 valuation could, either himself or his wife, have some income as a freelance worker, which could be a very small income or conceivably no income at all if he or she was not carrying on a trade or profession. As a result of this they are brought within the income tax net and the farmer has to pay income tax on his entire farming profits.

Under section 21 that farmer is specifically discriminated against as compared with the more wealthy farmers of over £100 valuation. Under section 21 if your valuation is £300 you can adopt this notional basis which in many cases will be far below your actual profits. You are given this concession, which is reasonable under the circumstances when you have the situation where farmers are not used to being taxed or keeping accounts. The whole thing is a sudden shock for them an it is reasonable to feed them to the income tax collector in a gradual, gentle way. This is being done in this section.

This section specifically goes on to say that the smaller farmer, the less well-off farmer, who in a fortuitous way is brought into the income tax net by section 16 because either he or his wife works freelance and have some income, is excluded from this concession. He is, therefore, worse off than the farmer with £100, £200 or £300 valuation. I do not understand the purpose of this. That is the reason for my putting down this recommendation.

I have agreed to take both recommendations together for the purpose of saving time but they are really two different points. In a sense these recommendations are alternatives. I would prefer if recommendation No. 7 were accepted, but if it is not accepted then recommendation No. 8 is an alternative. An alternative would be to state that an individual to whom section 16 applies —this is the one where the farmer and his wife works and therefore they are liable to tax—should only be excluded from section 21 and the notional basis if the total profits or gains from farming are less than one-half of the total income from all sources.

That would be a reasonable concession as you could have a situation where the income of the man or his wife is very small and yet all these unfortunate consequences flow from that. Recommendation No. 8 suggests that if these people are to be excluded from the operation of section 21 at least the farmer and his wife should have an income from non-farming sources of more than one-half their total sources.

The House will recall that I emphasised that section 16 is a measure to combat tax avoidance. These two recommendations if accepted would defeat the whole object of section 16. Perhaps the case can best be stated by an example. You could have a person with a business other than farming, that person having a farm of rateable valuation of, say, £80. That person could attribute, as frequently happens at present, no more than £2,000 to the non-farming activity and claim £7,000 attributable to the farming activity. That would gross to £9,000 and of that income of £9,000 only £2,000 would be brought within the tax net.

The suggestion is that we should apply the notional concession here. Taking £80 valuation you will find yourself in the situation where the person would claim that the gross farming profits are £3,200 and the profits from business are £2,000, making £5,200 on which there would be certain deductions in respect of the farming income. You would probably end up in a situation where the total on the notional assessment would probably be no more than £3,000 whereas in fact the total profit is £9,000. At present, by attributing profit from non-farming activity to farming activity, people get this natural tax-avoidance opportunity. We are anxious to close that but if we were to apply the notional element here we would not be closing it. Likewise, if you said that the notional assessment was applied to any case where the income from farming exceeds one-half the total income, that would be attributing it to the kind of case we are trying to stop, because in many cases, such as the one I am talking about here, the income from the farm might be £2,000 and the income from the business might be £7,000, but the figures are reversed when presenting accounts.

If they were reversed you would get the £7,000 situation and that would mean that a person applying a false figure of £7,000 from farming profits would get the benefit of the national assessment, as suggested in recommendation No. 8. If one accepts the validity of the objective in section 16, and I think most Senators accepted it—they drew attention to what they regarded as hardship cases but they accepted the desirability of ensuring that people were not facilitated in setting off non-farming profits against farming activity—the recommendations in themselves are unacceptable as they conflict with the objective of section 16.

I can see the purpose it is intended to serve by this provision in section 21. It brings us back to the problem of section 16 which I will not go into again in detail, that in attempting to deal with a few individuals who have been evading tax, the Minister is bringing in a large number of other people. He is trying to slaughter a gnat with a sledgehammer. As a result of this provision in section 21, while the Minister has been worrying up to now as to the possibility of the £100 farmer being aided by some means to get himself down to £90 to save tax, under the combination of sections 16 and 21—you could easily have the situation where the £90 farmer is straining to get to £100 in order that he might save tax.

I understand, if these recommendations were accepted, there would be the possibility of income tax evasion by people that we do not want to see evading income tax, as opposed to the unfortunate smaller farmers who are dragged into this thing on the heels of the speculators. Therefore, I am prepared to withdraw the recommendation.

Recommendation, by leave, withdrawn.
Recommendation No. 8 not moved.
Question proposed: "That section 21 stand part of the Bill."

I think that one ought to make the point that the six months' notice to be given in writing to the tax inspector by farmers in this section is very short. Six months after the commencement of the year of assessment in this instance means October 6th. This Bill presumably will be enacted some time today. This is the last day of July and it leaves very little time for farmers to make up their minds as to which particular form of taxation they should opt for. In this year where farming profits exist at all they are likely to be very small and it may well be that not many farmers will opt for the notional assessment. There will be cases where a farmer has done better than most and would find it very difficult to work out his profit. The harvest will hardly be over by 6th October. How a farmer is to deduce before the end of the harvest what his profits for the year are going to be is more than I can imagine. It seems a very short period. One would have thought that the Minister, without doing the Revenue or anybody else any harm, could have made it nine months rather than six. Certainly, I hope that in future Finance Bills he will extend this somewhat because, to expect a farmer, who has to face so many complications, intangible things of wind and weather and so on, to be able as early as that in the year to have any idea as to what his profits will be, is unreasonable. He should be given more time.

The only other point I would like to make on the section is that while the Minister, I suspect, is very successful in involving all kinds of small farmers with relatively small incomes with the income tax authorities, it seems quite clear from the provisions of section 21 that if farmers over £100 valuation pay any tax at all, it will be very little. When you consider that the farmer of £100 valuation can opt for the notional assessment that would be £4,000. A man with a wife and six children, which is a common situation among farmers straight away has £2,000 allowances. Out of that he can take his rates, any wages he pays.

Of course the more progressive farmers will pay more wages. He can make deductions for machinery and plant and so on. The better the farmer, the higher his income, the more progressive he is and the more intensively he farms the less tax he is going to pay under this section. I want to make that point. The Minister has all along said that he is trying to get after the really wealthy farmers who, on occasions in a good year, make really big profits. Certainly, under this section these people are not going to pay more than a nominal amount of income tax.

I would like to support Senator Yeats in his plea that six months is very short notice especially in this year. I know we cannot do anything about it at this stage. Dry stock farmers especially would need a fortune teller to advise them which system would be likely to be more advantageous to them because nobody could foretell now what the cattle situation is likely to be in the fall of this year: it could be disastrous or there could be a pick-up. Even in September, it will be very hard to forecast that. In fact, many stock farmers will probably face a loss this year. Therefore, the notional system would have very little attraction for them.

I cannot see why there was such a rush. When does the tax become due on this? I take it that we will probably be into 1975 before the collection starts. If it is to be based on the year 1974-75 the accounts would start on the 1st April, 1975. I cannot see why there was not more consideration shown or why the six months was rushed in and not even a 12-month period. I think the notional basis is an excellent one for good farmers because these are very much the people who are actually trying to invest and expand. Indeed, while they may show profits on paper you will find at the end of the year that many of them have made so many investment commitments that what they have left is very little. So, I think the notional system is one of those incentives to good farming. It can encourage good farming. I hope to see it retained for a number of years or, if it is ever replaced, that there will be a proper investment incentive included—that is what it is in effect. I do not want to go over the ground covered last evening on the necessity for promoting investment and for giving allowances for them.

I venture to claim that there is no farmer in Ireland who does not know that farming profits above a certain level will be subject to tax this year. So, no farmer will be taken by surprise. At this stage, because it has been so well canvassed, they are well aware of their potential liability to tax above a certain level. Furthermore, in so far as the Revenue Commissioners are able to identify farmers who have the necessary rateable valuation, they will be contacting such people and drawing their attention to their potential liability. Forms will be issued to them inviting them to give the necessary details in order that assessments may be prepared.

I would remind the House, as I reminded it on the Mining Taxation Bill recently, that the purpose of giving this option is not to allow people to select whichever is more favourable for themselves from a tax point of view but, rather, it is an option that is being afforded to them in order to meet transitional difficulties which may arise out of their not having kept accounts. If they have not kept accounts in the past and are not now keeping accounts there is no difficulty whatsoever in coming to a decision to go for the notional figure. That should be done as soon as possible. The date upon which the first instalment would become payable, in the ordinary way, would be 1st January next. Any farmers who opt for the notional assessment or for assessment on the basis of the 1973-74 accounts will be in a position to be duly assessed before January next. Accordingly, I consider that it is necessary that such people should receive their assessments as early as possible. From the revenue point of view—revenue collection is an important obligation which lies on the Minister for Finance —I must ensure that the revenue which is payable is collected at the earliest possible date, which would be January. Two of the options would make it possible to pay up to January next. It is necessary that we stick to this date of six months from the commencement of the financial year. This allows farmers up to 6th October next to exercise their choice.

If they decide to go on the basis of accounts for this year it is quite clear they will have to wait for the completion of the year before making an assessment. Many farmers, of course, will not operate their accounts on the basis of the tax year. I doubt if many farmers will go for such a ludicrous anachronism as a year commencing on 6th April and ending on 5th April of the following year. The accounts which farmers or any other business men operate frequently relate to other periods. The accounts will probably be coming in at different times and be available at different times to the inspector of taxes.

We want to ensure that the whole system begins to operate as soon as possible. If we do not have a date which obliges people to start moving within six months from the commencement of this new liability naturally enough people will postpone indefinitely making a decision. One should never put off till tomorrow what can be done today. Similarly, we should never put off for nine months what can be done in six months.

This notion of assessment is a once-and-for-all option: it is only for the year 1974-75, and not for any subsequent year.

This Bill provides this only in relation to 1974-75. At this stage I am not so certain what necessity there will be for this in future. It may be some time before farmers are in a position to keep accounts. Ultimately the objective is to have taxation on the basis of actual accounts and not on a notional basis. I am not in a position at the moment to forecast how long this period may last. Quite frankly I would expect it to be more than a year.

Question put and agreed to.
SECTION 22.

I move recommendation No. 9:

In page 12, subsection (2), lines 39 and 40 to delete "one-tenth" and substitute "one-fifth".

I do not wish to take up too much of the time of the House. It would be hard to find words to describe the allowance given here of one-tenth off capital each year at a stage when capital itself is costing 14 per cent or more. What we want to encourage is the farmer who ploughs some of his profits into capital buildings. He does so with a view to improving his farming operation and, therefore, improving the farming profits in subsequent years. It is time enough for the Minister and the tax collector to look for their share in the subsequent years when this improvement has been realised.

We can contrast this with the case of a factory or industry that has been extended. We then see the very much more favourable treatment that is given to industry at that stage. Its capital expansion is very highly grant-aided. The grant aids for new buildings run between 25 per cent and 50 per cent and are provided by the IDA. There is no such corresponding liberal grants available for farming activities. Therefore it is of the utmost importance that this figure should be made realistic in the next Finance Bill. I am not expecting it to be done here: the Minister will not accede to that. Surely asking for one-fifth is not unreasonable. If the farmer has money, he will pay for the capital investment. The capital investment should be written off as fast as the farmer wishes to write it off, provided the Minister is satisfied it has been abona fide investment from the man concerned. If the Minister waits he will get his share when that asset pays off.

If all farm buildings had a life span of only five years, I would not hesitate to accept the recommendation. Many of these buildings and other works which qualify for this allowance will have a life span of ten, 20, 30, 40, 50 years and more. That is one reason why it would be quite wrong to allow the expenditure to be written off at the rate suggested by Senator Quinlan.

This allowance will be available in respect of one-third the expenditure on the farm dwellinghouse itself. It will also be available for all expenditure on farm buildings, cottages, fences, drainage, sewerage works, water and electricity installations, walls, shelter-belts, glasshouses on farm lands and the reclamation of former agricultural land. There is a wide range of activities. Many of these works, if constructed today, would have a life span far in excess of five years and ten years. Rather than produce a complicated code which would have to vary from time to time, I consider that the ten-year period is reasonable. Incidentally, it is the same period and the same rate as applies in Northern Ireland and in Britain, where there is a ten-year write-off of such expenditure. Bearing in mind the variations I mentioned, it is not unreasonable.

Surely the write-off is conditioned very much by the inflation rates at present? Previously, when a 10 per cent write-off was allowed, in the days of reasonable interest rates, there was an element of write-off in the allowance as well as some return on the capital involved. Now the allowance does not cover the interest, much less make any provision for the write-off of the capital. Yet the Minister accepts the fact that the capital is going to disappear ultimately in the process. Capital is supposed to produce something in addition to yearly output, which in turn is subject to taxation, so that there is a double taxation scheme there.

This is also totally at variance with farming practice as it is today. If farmers can find the money from their own resources or from yearly working they do not borrow, even though it might mean denying themselves comforts that they would be entitled to, such as holidays. Farmers do not budget on paying off the buildings in ten years. They budget on paying off the bill as soon as possible. Why bring in all this needless complication? If there was a continuing programme of building expansion, where a farmer envisaged spending so much of his income each year on all those improvements, the 10 per cents would add up after seven or eight years and probably the amount of relief received would be equal to the capital being spent at that stage. That is so in a very long continuing theoretical process.

Our problem today is that we are now in the Common Market. We have had all this flag waving about the prospects for agriculture, if only the farmers would prepare themselves for the Common Market. They would need to incur massive capital expenditure on buildings, roadways and everything that is needed to streamline and make the farm more efficient and enable it to carry greater stock. This is not recognised in this type of a write-off which is a write-off that applies in a situation of continuing planned steady State expenditure in capital year after year.

The net amount of write-off given over a 50-year span would not be too different under a much more accelerated system than under this 10 per cent system, but it would be much more effective. Developments which have taken place in the past few years should be extended as an earnest of our confidence in the future of agriculture and the contribution it has to make to this State. When the balance of payments is assessed in the autumn it will be seen that it is only the earnings of agriculture which will provide any hope of riding out that storm.

I think the Minister has a totally unsympathetic approach to the development problems of the farming community. He fails to realise that taxation of agriculture should have a double function. It should be designed to force the people to become more efficient and expand their farming activities, and force the inefficient out of agriculture. Land is too valuable to be occupied by people who do not realise its potential. It should be a first commitment of the Government in the transition period into the Common Market to ensure the full development of agriculture. Nothing could be more effective than a proper tax code with proper built-in incentives in that period. The present tax code does nothing to achieve that. I am very dissatisfied with the Government's poor approach. I cannot believe that the Minister for Agriculture and Fisheries is happy with the failure to assist the farming community to gear themselves for the Common Market.

I wish to support this recommendation. It is a reasonable one which would induce the farming community to respond to the call for increased production. No section of the community responded more to the call for increased production than did the farming community. This recommendation is one way of assisting them in achieving that goal. I see no reason why the Minister would not substitute one-fifth on all farm buildings as against one-tenth. The case has been well made by Senator Quinlan. I feel it is fair and reasonable. No other sector of the community would respond more fully to any inducements than the farming community.

Question put: "That the words proposed to be deleted stand."
The Committee divided: Tá, 22; Níl, 13.

  • Blennerhassett, John.
  • Burton, Philip.
  • Butler, Pierce.
  • Deasy, Austin.
  • Farrelly, Denis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Iveagh, The Earl of.
  • Kerrigan, Patrick.
  • Kilbride, Thomas.
  • Lyons, Michael Dalgan.
  • McAuliffe, Timothy.
  • McGrath, Patrick W.
  • Markey, Bernard.
  • Moynihan, Michael.
  • Mullen, Michael.
  • O'Brien, Andy.
  • O'Brien, William.
  • O'Toole, Patrick.
  • Owens, Evelyn.
  • Sanfey, James W.
  • Whyte, Liam.

Níl

  • Brennan, John J.
  • Brosnan, Seán.
  • Cowen, Bernard.
  • Dolan, Séamus.
  • Eachthéirn, Cáit Uí.
  • Garrett, Jack.
  • Hanafin, Des.
  • Keegan, Seán.
  • Lenihan, Brian.
  • McGlinchey, Bernard.
  • Quinlan, Patrick Michael.
  • Ryan, Eoin.
  • Yeats, Michael B.
Tellers: Tá, Senators Sanfey and Halligan; Níl, Senators Quinlan and Garrett.
Question declared carried.
Recommendation declared lost.

I move recommendation No. 10:

In page 12, subsection (2), line 45 to delete "1974" and substitute "1971".

Again, I do not want to take up the time of the House very much on this recommendation because it is one of those obvious recommendations which tests the sincerity of every Member of either party in the House and the Independents, all of whom joined in persuading the people of this country to vote for entry to the EEC and who went out on all the band wagons advising the farmers of the opportunities which lay in the EEC if only they would gear themselves to the great challenge ahead. That meant they had to repair years of lack of investment because of poor returns from agriculture. Farmers had to invest in equipment, buildings and in extra stock, all to avail of the opportunities of the Common Market. It must be said to their credit that the banks made capital available in ever-increasing amounts to agriculture. They actually persuaded farmers to borrow more and more money.

Unfortunately we have reached a dangerous situation where farmers who contracted large debts over the past couple of years now suddenly find that the promised opportunities in the EEC are not materialising. Although they were urged to engage in beef farming 16 months ago, and today we have a beef mountain. Therefore the ability of farmers to pay back the money they borrowed is very much in doubt, so much so, that they are now in a worse position than after the First World War. In the mid-twenties—again, when prospects looked very good—the more progressive farmers of that period committed themselves to debts to improve their farming possibilities. They lived to rue it in the thirties. I hope, and I am still confident that a similar situation will not prevail in the Common Market despite the mismanagement of the Eurocrats, who have made some shocking blunders in the past year in their estimation of the amount of beef allowed in; they thought they were letting in 800,000 tons and it turns out that they were 25 per cent in error. They let in 1,000,000 tons and completely crashed the market, despite everything we were led to expect from the Common Market itself.

In that situation it is incredible that any Irish Government should tax the farmer. They make the paltry allowance of 10 per cent on capital expenditure on buildings, which I tried to improve in the previous recommendation. But the capital expenditure over the last two years they refuse to recognise and afford even that paltry allowance over the next ten years. It baffles me how anyone could justify the provisions in this Bill to restrict this to expenditure on buildings, and so on, incurred after 1st April, 1974. The very minimum that should be done is to backdate it to the time of the referendum on our entry to the EEC. That is my proposal. I appeal to the Minister to accept it. Surely I am not asking much in this, even as a gesture of the days when we stood together on the platform urging the people to join the Common Market.

Those were the days.

This again is a very rational proposal in regard to the farming community. We have talked about the principle of introducing taxation over the £100 valuation level for farmers. That has been decided. What we are now talking about is how best the State can, in a fair and sensible way, get its appropriate revenue from this source. The realities of the situation are, as pointed out by Senator Quinlan, that you adopt a reasonable attitude initially here, and a reasonable attitude means making allowance for the very substantial capital investment that is being engaged in by the farming community and which has been supported by the lending institutions during the past three years. Regard must be had to this investment. If one does not have regard to it—already we have refused in the House to support a recommendation to allow for a one-fifth allowance in respect of such capital expenditure—one is into a situation where, and we had this out in the previous section this morning and this afternoon when both Senators Alexis FitzGerald and Jack Fitzgerald emphasised the fact that there was massive scope for evasion implicit in this Bill, one will accentuate and accelerate such evasion. Therefore, it is very important to start off on the right foot with a measure of this kind.

It is generally accepted that farmers with more than £100 valuation, although from the discussion this morning we are not quite certain whether that includes various forms of lettings, are being taxed for the first time. If we do not start off on the right basis there is a direct incentive written into legislation towards evasion, towards manipulation. The ingenuity of the farmers is such that if they are put to the wall and if they see a tax situation that is blatantly unfair they will use that ingenuity. This recommendation in particular is a very fair one in that it takes account of the realities of the situation and if the Minister, the Department or the Revenue Commissioners wish to check with the lending institutions they will ascertain that if the only allowance is to be in respect of capital expenditure dating back to 6th April this year, they are talking in a vacuum situation because in effect at present there is no such capital expenditure in regard to Irish farming nor has there been any such expenditure since the 6th April, 1974. All the real capital expenditure that has been incurred by the farming community arose in the anticipation of our membership of the European Economic Community which was supported in an overwhelming way by the people and particularly by the farming community. That decision was reached in May, 1972. The very real expenditure that the farming community incurred in a capital sense was incurred with direct Government encouragement, in the years immediately preceding our entry, to engage in sufficient capital expenditure to effect improvements and expansion in regard to premises, and in regard to plant and equipment, particularly in the milk area. All of this expenditure was incurred basically in the pre-referendum period, the pre-May, 1972 period. What this amendment proposes to do is to bring us back to 6th April, 1971 which was a year before our entry into the EEC and it is precisely about that time that the massive capital investment that the farming community engaged in took place. This continued through 1971, 1972 and 1973. It is totally unreal to have written in here, as being anything of any importance, that provision is being made only for capital expenditure incurred since 6th April of this year—a period of depression so far as the farming community are concerned.

There is no capital expenditure at present in farming and it appears that there will not be any such expenditure for some time. If the Minister wishes to make a real contribution in this area—and this is not a hand-out situation or anything like that—it is merely recognising the facts in regard to capital expenditure incurred by the very best farmers, those who acknowledged the exhortation of the Government, of the Minister for Agriculture and Fisheries, and of the various farming organisations and decided to gear and equip themselves for the maximum benefit from EEC membership—he should, from the point of view of tax allowances amend the 6th day of April, 1974, to read 6th April, 1971. In that way he would be showing good faith with the best farmers and would be ensuring that a tax proposal of this kind would get off the ground in the right way. In this way, too, he would ensure the maximum benefit to the revenue and would not antagonise the farmers. This course would emphasise the fact that the Government are acknowledging that these farmers are in a category which incurred very heavy expenditure and that that would be taken into account in making a tax assessment. Therefore, the recommendation is a reasonable one.

I, too, would like to support this recommendation. I agree with what previous speakers have said regarding the way the farmers responded to the encouragement given by various Ministers for Agriculture and Fisheries down through the years to expand agriculture in preparation for our entry into the EEC. The cattle population has increased and in general farmers have invested an enormous amount of money in the industry. They have also availed of the various grants to gear themselves for this great challenge.

It would be wrong now if farmers who did this should be penalised in any way. I agree with Senator Lenihan and Senator Quinlan that the date should be fixed as 6th April, 1971. I wonder whether the Minister realises that for a good part of this year there was a strike of agricultural officers and because of that many farmers were in the position of not being able to avail of any of the grants or incentives that were being offered. That alone should be used as a reason for making the date retrospective to 6th April, 1971. The adoption of this recommendation would be a good gesture so far as the farming community in general are concerned.

I, too, support this recommendation. The Minister should take into consideration the indebtedness of the farming community. It must be borne in mind that since 1971 farmers have been encouraged to borrow for increased production and for agricultural purposes generally. They availed of the borrowing facilities which were thrown at them I would say by the banks and by the Agricultural Credit Corporation and various other organisations, I would like to know—I do not know whether the Minister knows—the total indebtedness of the farming community and that indebtedness came about because of their efforts to plough back investments in order to increase production. Not to accept this just and reasonable recommendation would be to destroy incentives.

I am unable to accept the recommendation because it conflicts with principle and practice in relating to the introduction of allowances of a similar nature, their extension, increase or improvement. On any occasion in the past when commercial or business activity became entitled to new allowances the commencement date coincided with the introduction of the allowances. On no occasion have I been able to find where the allowances were made retrospective. I would remind the House that recently, on the Mining Taxation Bill, the same argument was advanced: that we should introduce the allowances for a date earlier than April of this year. I made a similar case there that we were being asked to do something which was unprecedented and which could not be warranted for very good reasons. The reason is precisely the same in respect of mining and farming. Both hitherto had enjoyed exemption. They have not been liable to pay tax and therefore it can be argued that they have already received the full allowances in respect of their capital expenditure.

If one had accepted Senator Quinlan's recommendation asking for a 20 per cent allowance for each of five years, anybody who engaged in capital expenditure in 1969 would by now have exhausted his allowances if there had been taxation applicable at that time. The truth is there was no taxation, so the people who incurred any capital expenditure during the period of no taxation were in a very privileged position. It would be against the decision that has now very properly been taken to tax farming profits if we were to provide this unique relief in respect of a period during which the farmers were not taxed at all. We would be introducing expenditure incurred during that very happy period into the current and future periods so as to give the farming community a concession which nobody else has enjoyed. I cannot accept there is no capital expenditure at the present time in agriculture. There is very considerable expenditure. It can be seen with the naked eye. I travelled 500 miles through rural Ireland over the last couple of days and it could be seen on all sides.

The pressure for credit from the Agricultural Credit Corporation is a matter which has been hitting the headlines in all journals for several months past. Members of Dáil Éireann have not been slow to suggest that credit was not available for urgent capital works which are necessary. What is the truth?

It is not available.

Is there a demand for credit for capital works or is there not? The truth is that there is. The capital works programme is going ahead at present so that farmers who now engage in it will have this allowance made available to them. If they do not engage in it they will not have the allowance. The allowance is in the nature of an incentive to current and future capital expenditure. If the allowance were not there at all it could be said that I was penalising farmers who had been given a concession here. It is a concession which is on terms similar to any other commercial or productive activity in the community. There is no reason why we should breach the very good principle that these allowances should operate from a current date and not from the past.

The Minister has suggested that, because the farmers were not taxed last year, any capital expenditure that year could be absorbed from their tax-free profits last year. The very way in which this section is worded acknowledges the fact that capital expenditure cannot be written off or cannot be paid for by a farmer in any one year. This section recognises the fact that capital expenditure of this kind should be written off over a period of about ten years, that a farmer could pay for it out of profits over ten years. Consequently there is no logic in what the Minister has said, whatever may be the obscure income tax principle to which he has referred. There is no logical reason why a farmer who had capital expenditure last year, which will in the normal course of events take him about ten years to pay, should have no allowance for it, whereas if he has this capital expenditure in the present year he is going to have an allowance for the next ten years. Surely the logical way to approach it is to say that in the past two or three years, going back to 1971 as Senator Quinlan suggested, that he gets no allowance for these three years because he has had tax-free profits but that he should get it for the next seven years on the written-down value of the capital goods.

I would be one of the first to accept the Minister's reply if all things were equal, but they are not equal and I am sure the Minister for Agriculture and Fisheries would accept that this is so. What is the position of a person who borrows heavily from the Agricultural Credit Corporation? I must admit that I have encouraged people to borrow from the Agricultural Credit Corporation if they could not get money from the commercial banks, which they very often could not obtain. With regard to cattle that they bought 12 months ago, they cannot get the price for them today that they paid last year. Therefore, the Minister's reply does not satisfy me. I am quite satisfied that Senator Quinlan's request is a reasonable one.

I have not spoken on this Finance Bill up to the present and I have no intention of delaying the House for very long. The Minister must be aware of the position of the farmers at the present time. I said last week that the greatest worry that the farmer has at the moment is how he will feed his stock and also the milk stock he has to carry. I have some idea of farming because I come from a farming community. I listened this morning to Senators talk about the farmers with £100 valuation. I am not very worried about them because I have not many of them in my area. The facts are that we have 11,000 rural ratepayers in County Monaghan, 8,000 of whom have a valuation of £20 and less. What Senator Quinlan is proposing to my mind is reasonable in every sense of the word. Therefore, I have pleasure in supporting the recommendation.

I should like to support the recommendation. As some speakers have said, both sides of the House voted yes to our entry to the EEC. The agricultural community in Ireland at the present time is indebted to the Agricultural Credit Corporation to the tune of £83½ million, as was mentioned by the retiring chairman last night in his address. It was not incurred over the last year; it was incurred over the period that we advised him to invest. I think they should be allowed the benefit of the recommendation Senator Quinlan has suggested and that we should backdate it to 1st April, 1971.

I am disappointed with the Minister's approach to this matter. Perhaps he might agree to reconsider his attitude between now and the Report Stage. In addition to the points I made, Senator E. Ryan made the valid point that we have here two different principles being applied. On the one hand, the Minister has insisted that capital expenditure can only be written off over ten years and yet, on the other hand, he is stating that the capital expenditure of the last two years, which was a period of unprecedented capital expenditure, should already be written off. The Minister cannot have it both ways. Even if we forget, for the moment, the farmers who are in the position to meet the capital expansion which took place over the last two years from their own resources—and they are very few—what about the many who are committed to loans from the Agricultural Credit Corporation or term loans from the banks for three or five years at most and the amount, between interest and sinking fund, would be between 20 per cent and 25 per cent? They will get allowance for the interest part but there is no allowance for the actual capital being paid back over those years.

This type of expenditure was incurred by those people under our urgings. The Minister was foremost in urging them, as I and others were, in the prospect of theEl Dorado of the Common Market that we saw. Not that for one moment I had too many illusions about some of the principles behind that but I held, and still hold, we had no option at that stage but to go in. This debt is now hanging around the necks of those people. Would the Minister not realise that if a farmer this year has to pay so much of his income to the Agricultural Credit Corporation or to a bank he has not got that money to use on his own accord? Therefore, it is wrong and unfair to tax that money which is not available for use.

As for making exceptions, any Irish Government should realise that after going into the Common Market and the effort by agriculture to suddenly make up for years of neglect of our main industry, due to the types of market situation abroad over which we had no control, was not a normal situation. This was a period where we broke with precedent. I am not impressed by any resort to precedent. Any allowance given in that would be only a recognition that we had entered something new, just as in the case when the tax-free allowance was given for business development for export. Surely that was new? That was a strange principle where certain parts of industry were exempt from taxation due to the fact that they were exporting. We needed their help. We knew that industry needed that boost. We gave it and it has paid off. We refuse to give even a minor boost to agriculture. I repeat, in sorrow rather than in anger, that the Government have not lived up to their commitment to agriculture, they have not lived up to the glorious dreams and hopes we placed in the future of agriculture when we campaigned to get the people to put their X's in the column for entry to Europe. They have not lived up to that. The future is one of failure to boost agriculture.

We are asking for something simple. Would the Minister give us an assurance that between now and the Report Stage he would go some distance to meet our request at least to make provision for those people who borrowed on term loans and to whom the pay back of capital is a reality, not a book transaction, if he would at least recognise that and give us some hope that he will come back with something to satisfy us on Report Stage even if it means including it in an amended Finance Bill in the coming months? The Minister should give in on this.

For the reasons I have clearly given, I am unable to accept the recommendation.

In that case I would be failing in my duty if I did not press the recommendation. In pressing it, I should like to ask the Minister and the Government to let us have a free vote on this. It is something we can show as a free vote.

A very dangerous precedent.

I know most of the supporters of the Government Party agree with my stand on this and they should be free to express their agreement by a free vote.

That will be very difficult for the Whips.

Will the Opposition have a free vote too?

Senators

Yes.

Question put: "That the words proposed to be deleted stand."
The Committee divided: Tá, 24; Níl, 13.

  • Blennerhasset, John.
  • Burton, Philip.
  • Deasy, Austin.
  • Farrelly, Denis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Iveagh, The Earl of.
  • Kennedy, Fintan.
  • Kerrigan, Patrick.
  • Kilbride, Thomas.
  • Lyons, Michael Dalgan.
  • McAuliffe, Timothy.
  • McCartin, John Joseph.
  • McGrath, Patrick W.
  • Markey, Bernard.
  • Moynihan, Michael.
  • Mullen, Michael.
  • O'Brien, Andy.
  • O'Brien, William.
  • O'Higgins, Michael J.
  • O'Toole, Patrick.
  • Owens, Evelyn.
  • Sanfey, James W.
  • Whyte, Liam.

Níl

  • Brennan, John J.
  • Brosnan, Seán.
  • Cowen, Bernard.
  • Dolan, Séamus.
  • Eachthéirn, Cáit Uí.
  • Garrett, Jack.
  • Hanafin, Des.
  • Keegan, Seán.
  • Lenihan, Brian.
  • McGlinchey, Bernard.
  • Quinlan, Patrick Michael.
  • Ryan, Eoin.
  • Yeats, Michael B.
Tellers: Tá, Senators Sanfey and Halligan; Níl, Senators Quinlan and Garrett.
Question declared carried.
Recommendation declared lost.
Section 22 put and agreed to.
Sections 23 to 25, inclusive, agreed to.
NEW SECTION.

I move recommendation No. 11:

In page 14, between lines 35 and 36, to insert a new section as follows:—

"(1) This section applies to any person carrying on farming, the profits or gains of which are chargeable to tax in accordance with the provisions of section 15 other than a person who elects as provided for in section 21 (1).

(2) In any year of assessment in charging profits or gains of any person to whom this section applies no deduction shall be allowed in respect of rates payable for that year of assessment in respect of farm land occupied by that person for the said year of assessment but, instead, there shall be deducted from the tax which would, otherwise, be chargeable the full amount of such rates."

I will be very brief on this recommendation. What the recommendation really sets out to do is to make provision for the payment of rates in lieu of income tax. Earlier today we talked about the system of double taxation. I contend that we have this system of double taxation at the moment and we will continue it in existence if we do not accept this recommendation.

First of all, a farmer uses land because, in order to farm, he needs the land in the same way as a worker uses his skills to earn his income in his trade or profession. It is, therefore, inequitable to have this system of double taxation whereby a farmer pays income tax and also pays rates on his farm land as well. They are both methods of taxation.

I would ask the House to accept this recommendation. I believe the existing system is unfair and unjust. We talk about the implementation of a just society: one way of implementing that just society would be to accept this recommendation.

I would like, very briefly, to support the recommendation. There is no need to elaborate on the reason for it. It was advocated by Senator Deasy in his Second Reading speech. Very briefly, we have passed the principle of taxation on farmers now and it is going to be law, there will be income tax in respect of farmers over a certain range of valuations. This is the principle. It follows logically from that that rates which, in a farmer's case, amount to a tax on a productive enterprise are different from rates in other areas. Here, the Minister is taxing the farmer on an income tax basis. It follows from that that, instead of having a system of double taxation, if he is being taxed for income tax, there should, at the same time, be a deduction from the tax of the full amount of rates for which he would otherwise be chargeable.

I think this makes sense if, in effect, it applies, as Senator Deasy suggested on the Second Stage, to progressive farmers. It will be the progressive farmers who will be caught in the income tax net. Farmers who are less progressive will not be deriving an income that can be chargeable to income tax. What we are seeking is an incentive, not just a hand-out operation. If progressive farmers want to so increase their output and so increase their income that they will be charged income tax at a rising rate, hopefully from a more productive enterprise, these are precisely the people who should be helped by a derating process.

It is not clear at all to the non-productive farmer who will not be paying tax at all. The farmer with over 100 acres, who is doing very little, or over 50 acres, or 20 acres, over £20, £50 or £100 valuation—the three categories mentioned in the Bill—any of these categories who are not utilising their productive assets, that is, the farm, will be able to show quite easily to the Revenue Commissioners that they have a zero, or a near-zero, income. The progressive farmers will be caught at each of the levels—over £20 valuation, over £50 valuation or over £100—and will be brought into the tax net. If that is going to be the decision in this Bill, what this recommendation proposes is that the progressive farmer who is being charged with a sum for income tax, should have his rates deducted from that chargeable tax.

This is one of the most repeated arguments about the introduction of income tax liability on farming profits. It is certainly an argument which holds little weight.

For the simple reason that rates as a percentage of farming profits are less than rates as a percentage of other business profits. That is a real fact. In 1973 rates as a percentage of income for farmers worked out at 3.9 per cent; rates as a percentage of other income in the State worked out at 4.8 per cent.

The Minister excludes farm dwellings and so on. It is farm land over £20 valuation only.

I am dealing with the rates liability on the business element in farming, which is farm land. It is a lesser liability. It has been said that it is otherwise, but that is not so. People are taking figures from 1960 and using that as a base, but the latest figures, because of the very considerable relief given to the agricultural community over the years in respect of rates, now show a situation in which rates are a lesser liability on the farming community than they are on other sectors. It is 3.9 per cent in the farming community; it is 4.8 per cent for the remainder of the community.

Some farmers are included in both categories. Would the Minister not include farmers in both categories? He mentioned industry as against farming.

It is 3.9 per cent income from farming: 4.8 per cent non-agricultural income. Seventy-seven per cent of farmers pay no rates on their holdings.

That would mean that the remaining 23 per cent would be paying huge rates.

No, it does not mean that at all. Of the total bill of rates on lands, which is £40 million, £27 million is now paid for by the Exchequer.

Does the Minister not advert to the fact that if a farmer has a family of ten, there is no relief given as far as rates are concerned?

Nor is there relief given to any other worker in respect of his rates liability if he has a number of children.

There is in income tax.

Yes, there are income tax allowances, but there is no rates relief because of the size of one's family.

The relief for farmers with land valuations of, for example, £100, £150, £200 amount to 40 per cent, 37 per cent and 35 per cent, respectively. That is the effect of the Exchequer relief given to farmers in respect of their rates liability. There is an employment allowance which is not very great; nevertheless, it is £17 for every full-time male worker.

Account, too, has to be taken of the admissibility under this Bill of rates as a deduction against income. The aggregate relief which farmers will get—I am now dealing with the farmers who will be brought within the tax net—is, in the case of a farmer with £100 valuation, 56 per cent relief of his rates; a man with a rateable valuation of £150 will get 53 per cent relief; a man with £200 rateable valuation will get 52 per cent relief. Those are very considerable reductions and greater than any other people get. When one enters into high valuation figures in business other than farming, you find that the rates liability is far in excess of the 4.8 per cent of profits which I quoted. If we are to have a discussion on this matter it would be very desirable and useful if the discussion was based more on fact, and less on emotion. There has been a great deal of emotion and a host of inaccurate allegations. When the facts emerge you will see that, far from being put at any disadvantage in respect of rates and income tax, the farming community will be more favourably treated than the remainder of the community.

The Minister should bear in mind that rates remission has been granted over the years because of the inability of the farming community to meet the demand. It was granted in various stages: first the primary valuation allowance, then a supplementary one; another primary and another supplementary one again. They were all granted because of the inability of the farming community to meet the rates levied upon them. That should be ample evidence to induce the Minister to abolish rates altogether from all farm land. In the past it was done piecemeal. The bold step should be taken now to abolish rates completely from all farm land. Then there will be no grumble whatsoever with regard to income tax.

The Minister urges us to avoid emotion and produce facts. The problem is that the facts available to us are not always the same as those produced by the Minister. He quoted, with some irrelevance, the 70 per cent the farmers had to pay on their rates. They are not the people we are dealing with in this Bill. Primarily the people we are dealing with in this Bill are those with £100 valuation or over, who obviously do pay rates. Of course, there are various other sections of the farming community, as we know from what we have been discussing today, who may be dragged into this Bill in one way or another. Primarily it deals with farmers of £100 or over. The figures I have for them are rates payable as to proportion of income and they do not appear to match those produced by the Minister. I understand that they stem from a survey made by An Foras Talúntais and circulated by the Irish Farmers' Association. It relates to 1972. These rates are for farms of various sizes. I am only dealing with the two larger sizes because these are covered by the Bill.

First of all, there is the average size farm of 133 acres which is above the £100 valuation mark. According to this list, the average farmer income in pounds in 1972 for farms of this general size was £2,757; the average rates paid was £221; proportion of income paid in rates, 8 per cent. When you get to bigger farms of 352 acres, the average farmer income was £4,199; average rates paid—not making allowances for subventions of various kinds—£547; proportion of total income paid in rates, 13 per cent. According to this list these figures of 8 per cent and 13 per cent paid in rates as a proportion of income match 5.7 per cent paid by business in the same year as a proportion of income. These are figures produced by An Foras Talúntais and they do not match the Minister's figures. They seem to make a fairly good case for the derating of farmers who will be asked to pay income tax. In asking for derating we are merely asking for the position to be established here as it has been for many years in Britain and Northern Ireland.

The Minister asked for facts on this. Fact No. 1 is that this position prevails in Northern Ireland and in England. Does the Minister contend there is something wrong in that? Fact No. 2 is that the returns given for payments of rates to the agricultural community are necessarily far less than the returns given to business. Business located in built-up areas has all the laid-on services such as lighting, sewerage, water and roads, whereas the amount of service given by the local authority to the agricultural community is necessarily very limited. Consequently, if they were taxed on a benefit basis there would be no justification whatever for taxing agricultural output at the same rate as business output.

Farmers within the tax range at present are paying far more than the average taxpayer. Tax figures available from the Agricultural Institute show that farms of 70 acres are paying 5.4 per cent in rates at present, whereas farms of 133 acres are paying 8 per cent. These are higher than the corresponding industry figures. That should not be the criterion. The criterion is that tax should not be paid twice. Rates are a tax on means of production. There is no quarrel about having them on a house or a building. The whole argument has been in regard to the derating of agricultural land. This is something the Minister should have considered in approaching this. The organised farmers are very dissatisfied with the consultations that have taken place. Those of us who look forward to more consultation and greater involvement of the community in Government policy are perturbed at the way the reasoned representations of the farming community have been brushed aside. That does not augur well and I would ask for a change in Government policy and Government thinking in this regard because future relationships between the farming community and the Government do not appear very bright.

This provision in the Bill for the moment applies only to market valuations of more than £100, but under certain other sections a farmer with an outside income whose valuation ranges from £20 upwards is brought in. In the years ahead this £100 valuation will come down progressively and small farmers whose valuation is £50 or less will be crippled with the burden of both rates and income tax.

If the Minister is not prepared to accede to representations at present, due to the time element of the Finance Bill, I would hope that he would give us an assurance that the principle of this issue will not be decided by the passage of this Finance Bill. I hope he will regard this as an open issue —that he is open to reconsider it in the period ahead.

The farm survey to which Senator Yeats referred was based on 1972 incomes. The figures which I have given are the figures when one updates the 1972 survey to what was relevant in 1973. This shows that the farming community are not at a disadvantage compared with anybody else. The principle that we are endeavouring to apply in this section is equal treatment for all, subject to giving such concessions as are desirable and considered necessary for particular activities. Concessions have been given to the farming community in this Bill which have not been given to others. I do not accept the charge that the Government have been unsympathetic and have not responded to the representations made. Nobody could possibly expect us to give in to all representations made when in essence they ask: "Do not tax us at all."

There is a marked contrast between the representations made by the trade unions on the one hand and the farming community on the other.

If there is an advantage it is quite clearly to be found in favour of the farming community.

Absolutely.

The ordinary worker is not enjoying the concessions and exemptions which are being afforded to the overwhelming mass of the agricultural community. I do not say that with any sense of hostility towards them but it is important that we face facts and that we would not be swayed by the considerable amount of emotion which exists in the air. Only one-third of all the holdings whose valuation is more than £100 are in the 200-acre category. The survey to which reference has been made shows that farms in the 100 to 200 acre category will pay 5 per cent of their profits in rates. Above that, the figure is 8 per cent. So, even if you take those figures as weighted for the new tax liable category you find that they are not dissimilar to the overall figures which are available for non-agricultural income, which is at about 5 per cent.

I want to emphasise that the overall figure for non-agricultural income does not disclose what we know about the percentage of profits paid in respect of rates on farms of over £100 valuation. On the basis of some studies which have been done on it the indications are that in the higher rated non-agricultural and non-residential properties a higher percentage of profits is paid in rates than is paid on a farm with a rateable valuation of above £100. If there is any advantage it exists in relation to the agricultural community. At worst it can be said that the agricultural community are doing no better than anybody else as far as rates are concerned. The truth is that they are doing very much better.

The transfer of the rates liability in respect of housing and health subsidies from rates to the Central Exchequer will operate to the further relief of the larger farmers who have the higher rate of valuation because if their burden today is greater than that of others, the relief which they will get will also be greater.

When all these things are looked at coolly and calmly interested and objective people will see that we are not being unjust. It is because we looked at them coolly and calmly that we came to the decision that, while rates last across the board, we would not be justified in giving relief to any particular sector. If the happy day comes when rates as a means of taxation, can be removed, they will be removed across the board; but until that day comes we must endeavour to treat everyone fairly and equally.

I understand it is the wish of the House to suspend the sitting from 5.30 p.m. to 6.30 p.m. Unless there is a prospect of disposing of this particular recommendation in the next few minutes. I take it the House will now suspend.

We should try to dispose of this recommendation.

If the Minister was quoting the 1972 figures in his farm survey and if he updated them to 1973 it would be logical to update them to 1974, in view of the fact that in the previous section he fixed the operative date as 6th April, 1974, I can assure him that as far as the farming community are concerned, the 6th April, 1974, would present a completely different picture than that of 6th April, 1973.

I will not detain the House too long.

I do not want to interrupt the Senator, but the Minister has to be away five minutes to receive an important phone call at 5.45 p.m. Therefore if it is not likely that we will conclude this discussion within the next five or six minutes, it might be better to continue it afterwards.

We will continue it afterwards.

Business suspended at 5.35 p.m. and resumed at 6.30 p.m.

There are only two more sections involving taxing the farming community. I sincerely ask the Minister to consider in principle the recommendation put forward in the name of Senator Keegan. Basically, I am totally against taxation of farmers at this time. It is very inopportune to bring in such a Bill but, since this Finance Bill, as regards taxation of farmers, is almost through both Houses of the Oireachtas, I request the Minister to accept the principle—that is all he can do at this stage I suppose—of the recommendation put forward in the name of Senator Keegan.

We are well aware that the position in Great Britain and Northern Ireland in regard to rates and the farming community is that rates were completely abolished. Taxation of farmers was introduced on very similar lines to what has been introduced here but eventually rates were abolished completely. If the Minister does not accept the recommendation the farmer of £100 valuation will be doubly taxed. We know the rates a farmer of this particular valuation has to pay. The Minister has pointed out that there is a remission, something in the region of 40 per cent in the case of a farmer of £100 valuation. As has been pointed out by previous speakers on this side of the House that remission is there because of the inability of the farming community to meet the demands. I imagine that a farmer with a £100 valuation would be paying at present in the region of at least £350 to £400 per year rates— even allowing for the remission. This in itself is a fair sum of money for any farmer to meet. It is on that basis that I ask the Minister to accept in principle the recommendation in regard to this section.

I am unable to do as much as I would love to. We have to ensure that there is sufficient revenue to run the State services and until such times as some system is devised to replace local rates everybody will have to carry a small share of the burden. I have pointed out that the present position is that farmers are carrying no greater share of the burden than anybody else.

I meant to point out, when Senator Yeats was speaking, that the figures he quoted from the Farm Survey of An Foras Talúntais includes rates on farm dwellings and buildings. If this element was removed you would find that the farm valuation on which the figures are based would be reduced by about one-tenth and this would reduce the percentage compared with the actual percentage based on what you see there. By and large the farming community are no worse off than anybody else and in some respects they are a great deal better off.

Does the Minister feel that the farming community are a lot better off than the farming community in the North of Ireland and in Britain? If what the Minister says truly reflects his feelings this must be the case. We are involved with the EEC and we are going through a transitional period before we become fully involved and I feel that the farmer is no better off than his counterparts in either Britain or Northern Ireland. By acceding to this request he would be aligning the Irish farmer with the farming community in the North of Ireland and Great Britain.

Would the Minister tell us the position in regard to other countries within the EEC so far as rates on agricultural land are concerned? Was it at one time the policy of the Government to advocate complete derating on all agricultural land? I thought it was.

What we must look at is not what the tax position is in any other country but what the tax position is here in the Republic of Ireland. If we want to give equal treatment to our own citizens we have to look at the situation here and not anywhere else. That is what we are doing and that is why we are applying an equal tax code to everybody as far as it is possible to do it.

As people have looked outside I want to draw attention to a couple of points. In Northern Ireland industrial buildings are largely relieved from rates. If the farmland here was to be relieved from rates simply because it is so relieved in Northern Ireland then the same argument would apply to industrial buildings. All of that is fine, but the revenue has to be obtained somewhere else. The cost would be quite enormous if this benefit were to apply across the board in relation to all means of production.

In relation to Senator Dolan's point, in several EEC countries they have property tax and land tax which operate at levels which are comparable to the rates level here. It has never been argued there that farmers should be exempt from some local land tax or local property tax or any local tax simply because they are making a contribution to national income tax. Britain is the only country in the EEC that I am aware of that has not got some form of taxation on land other than income tax. I did not hear anyone argue in years past that the farmers of Ireland were in a specially privileged position because they were not subject to income tax although the farmers in Northern Ireland were subject to income tax.

Recommendation put and declared lost.
Section 26 agreed to.
Section 27 agreed to.
NEW SECTION.

I move recommendation No.12:

In page 16, between lines 36 and 37, to insert a new section as follows:

"(1) This section applies to any person carrying on farming, the profits or gains of which are chargeable to tax in accordance with the provisions of section 15 other than a person who elects as provided for in section 21 (1).

(2) Where a person to whom this section applies would, for any year of assessment, be charged to tax in accordance with the provisions of section 58 (1) of the Income Tax Act, 1967, under Case 1 of Schedule D on the full amount of the profits or gains of the year preceding the year of assessment, he may, by notice in writing in accordance with the provisions of subsection (3), elect to be charged to tax for that year of assessment and for each of the immediately succeeding four years of assessment on the yearly average of the full amount of the profits or gains of the year of assessment immediately preceding the year in which such notice is given and of the full amount of the profits or gains of the immediately succeeding four years of assessment.

(3) Notice of election under subsection (2) shall be given, by the person exercising such right of election, in writing to the Inspector within six months after the commencement of the year of assessment in which it is given and shall be irrevocable."

This deals with the problem which arises out of the extreme uncertainty of the farming profession. As the Minister knows, as compared with the results of the years 1974 and 1973, there is simply no comparison. This is one of the facts of life that the farming community must live with. There will be years inevitably when they do very well and equally there will be years such as the present year when, by general acceptance, they will do very badly.

As the Minister no doubt will point out with truth, once our larger farmers are exposed to the operation of the income tax code they will, of course, be able, to a limited extent, to set off losses against profits. That is not much help. The problem is not what the farmer may lose in one year, though quite a few farmers will probably lose this year; the basic point is that a farmer's profits are likely to be very much greater in one year than in another. In a very good year like, say, 1973, this would mean that a considerable number of our larger farmers, once we have moved on from this temporary notional concept of assessing income tax, will be taxed on the actual profits they make. Of course, the farmers in the £50 to £100 valuation bracket have no choice. They must be taxed as soon as they come under section 16 but they must be taxed on their profits and not on any notional basis.

This means that a farmer in a good year might be charged at a very high rate—35 or even 50 per cent or, in some cases, even more, on larger property. The following year his income might be only a few hundred pounds. Even if he had a loss it would not be much help to him because the loss obviously would not be very large. He is basically in the position that his income fluctuates and will always fluctuate and yet there is no provision in the Bill as it stands for that situation.

I am suggesting in this amendment that a five-year basis should be taken so that the profits or gains can be averaged over a period of years in order that a fair rate of taxation based on the average income of a farmer can be assessed by the Revenue Commissioners. The Minister must concede that as things stand it is no help for the farmer to be able to say that in the year before or the year after the year of assessment his income was very much smaller. Nonetheless, he will have to pay in the actual year of assessment on the basis of actual income which may be very high and which may expose him to unduly high rates.

I am not opposed to anything Senator Yeats said. I am sure he will agree that as an average is the mean of a number of units, we must have that number of units before we can work out the average. There is, therefore, no necessity at this stage to have the necessary statutory provision for applying an average. We will have to have some years' experience before the average can be worked out. I have undertaken to consider this matter. I will then have further consultations with the farming organisations I have already met. We will look at the averaging provisions in a number of other countries and, after consultations, I am hopeful that a suitable formula can be devised.

I am glad to hear the Minister make this statement. I am not going to press this recommendation. I presume it will be generally agreed that very few farmers in 1974 would wish this year averaged with any other year. They would do much better by having it taken as a single year. The averaging problem arises when things are looking better. I am glad the Minister will consider this question. I withdraw my recommendation.

Recommendation, by leave, withdrawn.
SECTION 28.

I move recommendation No. 13:

In page 16, subsection (1), line 41 to delete "£20" and substitute "£50".

The Minister has already substantially conceded my point when he said that there is a substantial discrepancy between the treatment accorded under section 16 to somebody working with a trade or a profession with that accorded in section 28 to a person working for somebody else.

On a point of order, perhaps in order to save time and unnecessary repetition recommendations Nos. 13 and 14 could be taken together because they relate to much the same subject.

That is a matter for the House. Senator Quinlan and Senator Yeats are the proposers. Is the Minister agreeable?

Is is agreed to take recommendations Nos. 13 and 14 together for debating purposes with separate decisions, if necessary.

Under section 16 if the rateable valuation is less than £50 the person with a trade or profession in addition to the farm is exempt on the farming side and pays taxes with full allowances on the trade or profession. This section abets him. The farm does not count if the valuation is under £50. In section 28 the same person having the same trade or profession but in this case working for somebody else, has the farm counted against his total earnings once the valuation is over £20. That is very unfair. It makes an unenviable distinction between a person working freelance as an electrician or working for somebody else as an electrician, or having a wife working freelance as a nurse as against a wife working as a nurse for some local authority and coming under PAYE. The figure of £20 should be changed to £50, the figure agreed under section 16.

Does Senator Yeats wish to speak?

I would remind the House of what I said in my budget speech. I made reference to an incidental and unjustifiable effect of the exemption of farming profits. This had attracted adverse criticism. A married farmer might set the full personal allowances appropriate to a non-farming married couple, both of whom were at work, against any income his wife might earn. Thus, not only would the farmer be free of income tax but his wife would pay little, if any, tax on her earnings.

The same issue arises where a farmer has a non-farming income of his own. It was to meet this situation that we introduced the restriction of allowances so as to ensure that tax appropriate to the non-farming income would be collectable and not excluded from the tax charge because of the off-set of the total of the allowances against the farming profits.

There may be some anomaly, some lack of similarity in treatment, between the person with a £20 rateable valuation and the person with a valuation of £50 and upwards who both have other incomes. I would like to emphasise that we chose the £20 valuation figure which carried marginal relief. The full consequences of the section do not come in at the £20 valuationsimpliciter. We have marginal relief on this element in the same way as we have on the £50 rateable valuation. We are also providing that where the profits from the farm are less than the restriction in the allowances, the restriction will be abated accordingly. There will not be any sudden change in a person's taxable position. The position is that there will be a gradual movement into the liability.

It would be wrong to allow the situation to continue any longer where two people with similar jobs and remuneration pay unequal amounts of taxes because one is very fortunate to have a husband who has a farm with a considerable rateable valuation. There must be a break-off point. We have chosen the figure of £20, which we consider to be reasonable, with marginal relief which can apply up to about £30 rateable valuation. In all the circumstances I think we have struck a fair bargain.

The difference between these two recommendations is basically that in both cases we seek to have this provision extended upwards to the £50 valuation level from £20, as is contained in section 28. We, in Fianna Fáil, are prepared to concede that a case can be made for this provision in so far as it relates to the income of the wife. We do not believe it can be justified in any shape or form when it relates to the income of the farmer himself.

The Minister has spoken of gently easing the farmers in by having this marginal relief system from £20 upwards. We should be clear that for a certain number of people with valuations of £30 and upwards, this will be a drastic provision. If one takes a farmer with a wife and six children, his personal allowances would be £2,000 and half that is £1,000. Assuming that the non-farm income is high enough that £1,000 is added to the family income for tax purposes. There is a considerable amount of tax involved. This is not a small step we are taking; it is one which will leave some people considerably worse off than they were before. However, we do in general feel that while there are arguments on both sides, the Minister's argument in favour of taking half the allowances in cases where the wife is employed, on the whole, are stronger than the arguments on the other side. We do feel that nothing good could be said about this proposal in the case of small farmers— and essentially small and medium farmers are the ones involved—where the husband is engaged in non-farm labour. As we all know, in a great majority of cases of the smaller farmers at certain times of the year the man of the house must engage in work off the farm. He simply must if the family are to survive at all in any reasonable comfort. We feel it is simply not justified, in the interest of some sort of regular evasion of the income tax code, that small people of this kind should be affected in this way.

While we would not be willing to go as far as recommendation No. 13 of Senator Quinlan, we feel that the Minister should accept No. 14 which relates to the farmers themselves.

I would like to emphasise that these two recommendations must be viewed in the context of the section as a whole which purports to halve the allowance reliefs to which a person in employment is entitled— in the case of any farmer of his spouse earning a livelihood in excess of £20 valuation. This is what the section as a whole means. Senator Quinlan's recommendation seeks to delete £20 and substitute £50. We have, as Senator Yeats has just said, gone further to meet the Minister's point of view. The point of view that is held, rather fairly to some extent, is that it is wrong to have a wife's income and a husband's income from a farm equally coming into the same area without any reasonable tax payment on the part of either husband or wife. The Minister proposes, in that case, in excess of £20 valuation— whether it is husband or wife—that the allowances will be halved. Senator Quinlan says simply delete £20 and substitute £50.

We grant that in respect of a spouse, whether it be husband or wife who is off the land and earning an income, there is a case for doing what the Minister suggested in regard to the allowances in that particular instance.

What we feel very strongly about —and here we are back on to basic social policy—is that the halving of the allowances should not apply to a farmer who is in off-farm employment. We have had enough of lip service given to this idea of off-farm employment over the years. In my view it is basic to the whole survival and development of rural Ireland generally. It is not just our experience. They have had the same experience in Bavaria, a rather similar area of Europe, that it is essential in a small and medium-sized farm economy to develop off-farm employment based on the farm. This type of employment is good economically and socially. It is good socially in that it preserves the fabric of society in the area concerned; it is good economically in that the man who is enabled to get a job in his own locality—be it with Bord na Móna, the ESB, a factory in a development area or anywhere one can think of—is better equipped to go back to his farm and develop it with the finance he has earned from his job. This type of development is particularly suited to Ireland outside the main industrial poles of development—Ireland, if you like, outside Dublin and to some degree Cork and Waterford. Indeed, it applies even in the case of Dublin, Cork and Waterford where because from a region of 30 to 40 miles, you have small and medium-sized farmers coming into those centres as well.

Therefore, generally throughout Ireland—with a high proportion of our people living on the land—it is essential to develop this philosophy of off-farm employment. Every person in public life, in the trade unions and in various social organisations would say that this is the right thing and should be pursued to the end. I grant the Minister that there may be a case where, and this is where we disagree slightly with Senator Quinlan, you have a wife living with her husband, on land; the spouse is earning an income and he or she is on the land. There may be a case there for doing what the Minister suggests, halving the personal allowances. We are not thinking of that type of case at all. We are thinking of the case of the farmer who is engaging in this off-farm employment. The man who, in order to rear a family on his farm, has to seek employment in the local town in either a State-sponsored or private enterprise, industrial activity. This is a growing area of employment in this country of ours, one that we should welcome; one that will prevent an over-concentration in industrial centres and which enables people to remain in their homes on the land. With modern transportation they can easily reach their sources of employment. Then they can use the fruits of their income from the industrial administrative or non-farm employment in investing in the improvement of their own farm. I have seen thousands of examples of this all over Ireland. It has been one of the most productive things that has happened in Ireland both from the social and economic points of view in recent years—the development of this philosophy of combined work and farming.

As I said, in Bavaria they also found this to be highly successful. This should not be discouraged. It should be encouraged as a matter of social and public policy. It is precisely from this type of part-time farmer that you have the best and most productive investment going into small farms. What bedevilled small and medium-sized farms heretofore was the fact that the lack of capital factor was predominant. Now this man, in a job, is in a position to get the necessary finance from the job, put it back into his farm at home, drain it properly, fence it properly, fertilise it properly, provide proper outbuildings, buy and renew stock and sell them at the right time.

There is a very strong case, on every ground, for raising this limit to £50 in the case of that man. It is something of an anachronism now to talk about £20 valuation. While I agree with it in the case of the spouse who is also in employment—I agree with the halving of the allowance; I would go half way to meeting the Minister on that—it is a very drastic step in the case of a man who is working in the manner I have just outlined. He may be on a £25 valuation farm or a £30 valuation farm. If he lives in Meath, Kildare or Wicklow he is coming to Dublin for off-farm work. If he is in Kilkenny or Waterford he is coming into Waterford city. In Limerick or Clare he is coming into Limerick city or Shannon. If he is in County Cork he is coming into Cork city. If he is in Roscommon or West-meath he is coming into Athlone. If he is in north Leitrim or Sligo he is coming into the new Snia factory in Sligo. If he is in any part of north Mayo he is coming into the new factories being generated in Killala and Ballina. Go right around the country and you see this happening. This is the sort of development that IDA and Government policies over the years have been seeking to encourage.

It is a very drastic step to provide for a situation where a man whose valuation is in excess of £20 will be penalised to the degree that is mentioned—that his personal allowances, his children's allowances and all his income tax allowances and reliefs will be cut in half. Our recommendation quite clearly wants a reality imported into the situation. The notion of the £20 valuation farm as being the small farm on which nothing can be done and nothing can be worked is old-fashioned. It does not take cognisance of the new developments that have taken place in regard to part-time employment. If we are to be up-to-date and recognise the facts of industrial development—the result of Government policy down through a number of years—we must realise that we are talking in terms of areas of country around industrial poles of development, areas in which a very substantial number of farmers will be in the £20-£50 category, but who will be working in factories and in various non-farm outlets in the centres I have mentioned.

While I appreciate the Minister's point in regard to the spouse, we would press our recommendation very strongly. This asks that this section shall not apply if the rateable valuation of the farm land occupied by a farmer does not exceed £50 and if his spouse is not in receipt of income from a source other than that farm land. We are against having both parties getting reliefs when the valuation is less than £50. If either the husband or the wife is working in non-farm employment, the figure should be £50 but in a case where the two are working, or one is on the farm and the other is working elsewhere, the Minister's view should hold in regard to £20.

I would point out that more than 50 per cent of our farmers have holdings of £20 or less in rateable valuation. Therefore, a very large proportion are automatically excluded by reason of this Bill as presented.

So long as they do not take conacre.

Above that, they will continue to get considerable marginal relief until they are around the £30 rateable valuation. Senator Lenihan referred to the position in Bavaria, where large numbers of small farmers go into employment outside farming. He said this was a desirable trend and he would like to see it happening in Ireland. I would point out that in Bavaria they have income taxation of farming profits. That has not acted as a disincentive. In fact it has acted in the reverse direction. People wanting to increase their net incomes were encouraged to have more than one employment. The same may well happen here eventually. I do not consider that we would be justified in giving further relief because to do so would negative what we want to end, unequal treatment of people in similar employment, unequal treatment which gave the lesser advantage to the wife of the labourer and greater advantage to the wife of the farmer. That could not be justified any longer.

We go along with that.

But you say that the figure may rise to a £50 valuation.

That is the purpose of our recommendation. We agree with the Minister in so far as the spouse is concerned, but we are talking about the man who is himself employed.

Why should there be any distinction? I do not see any difference in principle. I have met several small farmers who are employed in industry—both before and after the Bill was published. They recognised how unfair it was that their colleagues, doing the same hard day's work in the factory should be taxed at a higher rate than themselves. They saw that that was an anomaly.

But part-time farmers are to be taxed on a lower rate; their allowances are to be cut by half.

The position until now has been that they were able to set off their allowances against their non-farming incomein toto. This gave them an advantage that was not enjoyed by others because they had other income which was totally exempt.

These part-time farmers were paying the full income tax on their worker incomes.

But they had other incomes as well.

If the Minister would describe those——

They had a much higher net income than their colleagues doing the same job of work and they paid a smaller fraction of their total income in income tax.

And the Minister is now cutting by half their allowances on their industrial employment.

The spouse of the farmer will not pay any more tax as a result of this provision than will the spouse of any other worker.

That could be several hundred pounds more in tax this year than last year.

It would be comparable to what has been paid by the spouse of the non-farmer for several years past.

I want to make quite clear again the distinction between our recommendation and Senator Quinlan's. Perhaps we should not have taken them together. Senator Quinlan's recommendation seeks to delete "£20" and substitute "£50". That means that the spouse the Minister is talking about comes in up to £50 valuation and is allowed to proceed as at present. We recognise that there is a wrong here that needs to be rectified in regard to a spouse earning an income along with the husband earning another income, or working a farm.

Therefore, in recommendation No. 14 we seek to agree along with the Minister in regard to the spouse situation. However, in regard to the worker-farmer situation, the farmer who is in employment outside the farm, up to now it may be said that with regard to his fellow-workers he was in a more advantageous position in having land. However, that does not take into account the social policy which is consistently advocated and pushed, of encouraging the small farmer who, candidly, cannot make a living from a small farm, to take up industrial and administrative employment in his local town. That has been the whole basis of policy under all Governments for a great number of years past.

Now we are in a situation where there is a positive disincentive in respect of the farmer of more than £20 valuation. In today's terms a farm of up to £50 valuation is a very small farm. Now we are discouraging that desirable social development that fits in with the whole European trend in regard to agriculture. The whole European trend is towards encouraging this development and here we are flying in the face of that by cutting this man's allowances and reliefs by half. This is a very serious matter. The Minister may say that cutting the allowances in half corresponds with a credit on the other side in terms of his farm income but in this country and in Europe policy is geared towards encouraging that man into gainful employment and here we are introducing a positive disincentive. That man will get half the income tax reliefs that the man working on the same shop floor in the same industry is getting. His take-home pay will be reduced by a certain amount. This is what the Minister is proposing in blunt terms.

The point at issue here is that £20 valuation in today's terms is unrealistic in a situation where there is a positive encouragement to farmers to go into off-farm employment. They are encouraged at the same time to preserve the social values of living on the land by devoting their earnings from this off-farm employment to improving their farms. The most efficient small and medium-sized farms are owned by people like this. They have used their income from their off-farm employment to put it back into the farm thus making the farm more efficient. It is no encouragement to that development to see a £50 or £20 valuation farmer who is not in the small farm category working on a shop floor beside a fellow-worker and discovering his take-home pay is £5 less than his fellow-worker.

I support very strongly the case made by Senator Lenihan. My recommendation was put down to get some clarification. I may have been misreading the section. In section 28 (b) he is chargeable for tax in that year of assessment in respect of income other than income from farming. That could arise from a trade or profession or from employment by somebody else. Is that correct? I was under a misapprehension. I thought this was arising from employment by somebody else. Consequently I withdraw my recommendation. The principles enunciated by Senator Lenihan are very valid ones. I would ask the Minister to pay special attention to this in the months ahead. Perhaps he would consider making some further reliefs in the next budget. The £20 valuation is a rather unrealistic lower limit. Most farms with a valuation of less than £20 would be regarded as being sub-standard and requiring enlargement and more capitalisation to make them viable in the European sense.

I should like to deal with the man in the off-farm job, whose holding has a valuation of £20 or less and who is exempt from both rates and taxes. He is slightly more privileged than his colleague who may have a £23, £24 or £25 land valuation. The Minister would be well advised to raise the limits to £50.

The Government's farm modernisation scheme has not yet been fully implemented. It will have a bearing on the developing farmer. Those developing farmers are the men who sought work with Bord na Móna, the ESB, the Forestry Division, the county council or in the local factories, to earn a wage to supplement their low farm income. Their intention was to purchase another parcel of land to add to their holdings to bring them up to economic standards. I would tell the Minister that he is penalising the ambitious man and the man who is trying to be independent.

This section has been introduced at a time when we do not know how we stand with the farm modernisation scheme. It should have been considered in conjunction with that particular section. The thrifty will be punished as a result—the man who went out to work to pay off bank debts, to re-stock his farm, to educate his children further or to improve his holding. These things should be taken into consideration because of our uncertainty with regard to the entire working of the farm modernisation scheme and because of the misunderstanding existing with regard to the developing farmer. We know what a commercial farmer is. He is in the higher acreage bracket but we are still in some doubt with regard to the size of the holding of the developing farmer. Many of the developing farmers would have land valuations from £50 down to £30 and they will be caught in this tax net. It will impede progress with regard to the farm modernisation scheme. The Minister would be wise to consult with his colleague the Minister for Agriculture and Fisheries with regard to the effects this section will have on the entire future of the smaller farmers. It appears that this Government want to get rid of the small farmers.

There is one question I would ask the Minister in relation to this. The Bill states: "the amount arrived at by multiplying by 80 the amount by which the rateable valuation exceeds £20". Does that mean that a man with a £23 valuation would be assessed as having an income from farming of £240? If we carry that to its logical conclusion up to £50, a man whose valuation was £49.50 would be assessed on an income of £2,400. Perhaps my arithmetic is wrong, but why multiply the figure in excess of £20 by £80 when in the taxation of farmers on £100 valuation it is only multiplied by 40?

I wish to support recommendation No. 14. Senator Lenihan emphasised the plight of the off-farm worker. I felt quite certain that all political parties were totally against the concept of taxing the off-farm worker. I am surprised that any Government, irrespective of what political parties are involved, would bring in a measure to provide that the tax allowance of the off-farm worker would be halved. Senator Lenihan emphasised that he could take home £4 or £5 less than a fellow worker in the same employment. In Offaly we have many small farmers who have off-farm employment. In west Offaly we have small farmers with very low valuations who are employed by Bord na Móna and the ESB. I can vouch for the work they have done on their small holdings in the area concerned. The £4 or £5 per week that is to be taken from a small farmer's take-home pay was going towards developing his holding and bringing it up to a progressive state. The halving of his tax allowance will mean that his farm will remain static. This deduction would amount to about £250 a year. That money could do a lot to develop any small farm in any county, I am not confining it to Offaly. I did not think I would see the day when any political party would bring in legislation to the detriment of the small farmer who had off-farm employment. This employment was an incentive to the small farmer. The £250 per year which the small farmer will pay in tax could be used for developing his holding. The money would be ploughed back into his land and perhaps at a later stage, through this development, one of his sons would be able to earn a living on that land.

There is one small point. Again it concerns the definition of small farmer. The Minister has one answer when he says the small farmer is covered by the £20 valuation ceiling. Everybody agrees with farmers having off-farm employment, at least I hope he does. It is blatantly obvious in our circumstances that it should be so. Under EEC definitions and particularly in their category of non-farms, developing farms and commercial farms, a man with a rateable valuation of under £20 is not regarded as a farmer at all. In many ways, our society is moving in that way also. If the Minister is serious about where we are at the moment in regard to our social conditions and having regard to what is being implemented by his own Government in regard to the farm development scheme, a valuation of £50 is about right to cover a small farmer in the modern context. A growing number of farmers in the £30, £40 and £50 valuation area are all seeking off-farm employment. This is a common aspect of development. The trade unions will be very interested in these cases. It is highly undesirable, from the point of view of amity and comradeship, to have men working on the same floor going home with different wage packets. Just because a farmer has a valuation of between £20 and £50 why should he be satisfied with smaller take-home pay than his comrades on the same shop floor? This certainly is not going to lead to industrial peace. This is a very serious problem and it will very soon come up before the trade unions. I am sure they are well aware of it. The £20 valuation level is totally out-of-date in seeking to define a small farmer in 1974. It is going to be more out-of-date in 1975, in 1976, in 1977. Let us be realistic about what constitutes a small farmer, and define him properly in accordance with the farm development scheme which is sought to be implemented by the Minister, or the Minister's colleague.

The reality of that is that developing farmers will be in the area of £50 and upwards valuation. If we are going to be positive about having an off-farm employment policy, it will have to include farmers of up to £50 valuation. That is all our recommendation seeks to achieve.

In reply to Senator Jack Fitzgerald I would point out that subsection (2) means that the income tax personal allowances which may be set off against non-farming income will be reduced by the lowest of the three items listed—one-half the personal allowances, 80 times the excess of the rateable valuation over £20 or the actual farming profits. For instance, in the case of a married man with two children and a rateable valuation of £22 and a job off the farm, his tax allowances would amount to £1,200. If he was restricted to half the allowances that would be £600. But instead we go to the lower rate which is 80 times two—£160. The restriction on his allowance is, therefore, £160 and he is taxable on 26 per cent of that £160, or £41.

I want the Minister to answer my point about the £50 valuation being the limit of the small farmer today. The £22 valuation is obviously going to be the minimum of the scale. I am talking in terms of a valuation of £30, £40 or £50.

There has to be some cut-off point or else the injustice we are seeking to cure will not be cured. Perhaps we should not have any limit but we are anxious to avoid unjustifiable administrative complexities. Applying thede minimis rule, we can take it that £20 is an appropriate figure. When you go above that you get into an area where people, in the Irish context, are certainly capable of making a little larger contribution towards revenue than they are making at the present time.

Not in 1974.

Even in 1974. Dairy farming is not all that bad in 1974.

Dairy farmers are different. They are almost entirely professional farmers because they have to be on their farms morning and evening. They are not industrial workers. It is usually a dry stock farmer or a farmer engaged in pig rearing who is engaged in other employment. Dairy farmers are whole time farmers.

I agree that there is a smaller proportion of dairy farmers engaged in outside employment than any other kind but nevertheless there are quite a number of them engaged in outside employment. I am sorry, but I cannot see my way to move any further away from the £20 valuation. The reason I say this is because, if we did, we would be frustrating what we set out to do. The £20 valuation totally excludes automatically over half the farmers. That is the reality of the situation because over 50 per cent of them are £20 valuation or less.

Why bring in 50 per cent? The Minister started off by saying that 9,000 were covered and now it is 50 per cent.

I say the £20 rateable valuation knocks out 50 per cent.

So, equally, this section takes in all the rest.

All the rest are not engaged in other employment, or anything like it; but, if you take the marginal relief, you get to a situation where the very most that could be affected by this provision would be some 35 per cent, or so, of all farmers and only a very, very small fraction of those are engaged in other employment and have other incomes.

The Government would want to consider very seriously whether they want to keep the maximum number that can be kept on small farms without too much consolidation of holdings. To do that we will have to encourage off-farm employment. The Minister is making no effort to encourage off-farm employment for the smaller farmers in this section. It may be argued that, in the farms under £20, the fact that they are exempt, and the farm is worth something and makes some contribution to the family income, is giving a certain allowance to that type of farm. I think the Minister should continue that principle and have some type of allowance that tapers off on the farms above the £20 valuation, £20 to £50, tapering off to zero.

It is a question to be considered carefully over the next six months. What is the Government's real answer to the necessity for larger farms to make a reasonable and acceptable livelihood in this context? We want to try, on the one hand, to reconcile that with the natural desire expressed by all political parties to maintain as many families as possible on the land, recognising that in doing that we are really preserving the roots of our society and the stability of the nation. We will not do that by letting Mansholt loose on the countryside simply to consolidate more and more so that we become the ranch of Europe. We must maintain the strong rural traditions and the rural roots of our society encouraging small farms, on which the owner makes a valuable contribution to both agriculture and to seasonal employment opportunities in other fields, thereby improving his own income. It is a social problem, a social matter. It goes very deep in our society. I would ask the Minister and, indeed, the Government to pay very special attention to this. The provision here is totally devoid of soul and shows no concern whatsoever for the soul or wellbeing of rural Ireland.

What the Minister should be doing in this section is trying to make more farmers independent in order to make more jobs available to other workers and thereby relieve emigration. This Bill will have the opposite effect. The Bill should create a situation whereby more of those farmers already in off-farm employment would be able to get out of the labour pool and become really independent farmers. That is what the Bill should be doing. That is what the Minister and the Government should be trying to do but, instead of that, they are doing the opposite. They are saying to the farmer that he must either give up his job and live in poverty on his small farm, or sell his small farm and remain permanently in the labour pool. In this day and age it is wrong for the Minister to be forging ahead with this particular section. A party colleague of the Minister said we were by and large a peasant society; if this recommendation is not accepted we will not even be a peasant society, we will be a slave society.

Recommendation put.
The Committee divided: Tá, 12; Níl, 22.

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

Níl

  • Burton, Philip.
  • Deasy, Austin.
  • Farrelly, Denis.
  • FitzGerald, Alexis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Iveagh, The Earl of.
  • Kennedy, Fintan.
  • Kerrigan, Patrick.
  • Kilbride, Thomas.
  • Lyons, Michael Dalgan.
  • McAuliffe, Timothy.
  • McCartin, John Joseph.
  • Markey, Bernard.
  • Moynihan, Michael.
  • Mullen, Michael.
  • O'Higgins, Michael J.
  • O'Toole, Patrick.
  • Owens, Evelyn.
  • Russell, George Edward.
  • Sanfey, James W.
  • Whyte, Liam.
Tellers: Tá: Senators Garret and Hanafin; Níl: Senators Sanfey and Halligan.
Recommendation declared lost.
Recommendation No. 14 not moved.
Question proposed: "That section 28 stand part of the Bill."

I think there is a good deal of confusion—and I hope I do not add to the confusion—on the question of personal reliefs. The section says:

"personal reliefs" has the meaning as in section 193 of the Income Tax Act, 1967.

I went through section 193 and it includes all the allowances that are here under section 6 together with any reliefs on insurance policies and others that are granted to a person. It is very unfair that insurance policies should be included in this way. I would have thought that personal reliefs could have been defined in this section as the reliefs set out and claimed under section 6 of this Bill. I think it is self-evident, so I will leave it at that.

Let me just answer Senator Quinlan by pointing out that you are still in a position to choose 80 times the excess over £20 valuation. If it is less than——

I know, but I am dealing with the definition of "personal reliefs" and I want to know what is covered by it. I tried to read the Act of 1967 and I found that it includes not merely what we regard as personal reliefs, that is, the reliefs for wives, children and so on as set out in section 6, but also insurance policies.

But I was just answering that if half of those allowances is in excess of £80 the excess of the rateable valuation over £20, you take the lesser figure.

I am not concerned with that. I want to know what is meant by "personal reliefs". Are insurance policies and such reliefs to be included in personal reliefs?

Yes, they would be.

The Minister keeps on talking about the £80 and so on. Let us forget about that and take the man who has £30 or more. We are in a clear, simple position then that, if he or his wife earn a figure of £1,000 a year, then half the entire allowances will be taken from them. The Minister has made a case—and certainly I have no intention at all of going over the general principle of this section; we had it all in the recommendation and I am going to leave it at that—that where a wife had a husband who had an agricultural income, which even up to now is not taxed; she was therefore better off than other women working alongside her.

We will accept the Minister's proposition so far as it goes. I should like to know what justification in principle can the Minister give for taking away half of the wife's allowance as a working wife. Every wife who works is entitled as a result of this Finance Bill to deduct £200 from her income as earned income, but if she is married to a farmer who comes under section 28 of this Bill, she loses half of that. This has nothing to do with the fact that her husband has an income from farming—this is her own earned income allowance and as I understand it she is to lose half of it. That is outrageous.

While it is called the working wife's allowance, it is still part of the family allowance. In the case of a married couple, where there is a working wife who has a £1,000 income, the husband and wife are not taxed separately unless they elect to be so taxed. The allowances are cumulative —you bring them together in order to make the appropriate calculation of liability to tax of a married couple.

I appreciate that. I have a working wife myself. I know the way it works. However, the fact remains that under this section there will be a situation where there are two women working side by side, each earning the same salary. One has a husband who is a bank clerk, for instance. She still gets her £200, or if you prefer it, the family still get the £200 taken off her total income. The other wife, with the same salary, has a husband who is a farmer coming under this section. She will lose £100, or the family will lose £100, out of her £200 allowance. This is totally unjustifiable, and though I accept that there is not much we can do about it now, I would urge the Minister before the next Finance Bill is introduced to have a look at this. Whatever justification he may raise for the halving of the other allowances, he cannot raise any for the halving of this one.

The principle is all wrong in regard to a bachelor farmer. If he has a job elsewhere he will lose half of his £500. If he has ten children and a wife he loses £1,500 of his allowances.

He would not be a bachelor.

This is an iniquitous manner of assessing the part the farm plays in his income.

I should like to know to what extent a farmer's indebtedness will qualify for tax relief, for instance, loan charges to the ACC, to the banks or hire purchase companies, and so on. Will these forms of indebtedness qualify for tax relief in the same way as the ordinary PAYE?

That is not a relief, that is a charge. It is not taken into account for this purpose.

So the farmer will get the allowances which an ordinary worker enjoys under PAYE.

He will get them all. There will be no limitation on the availability of that if it is charged against profits.

There will be a limitation.

We are talking about an entirely different matter now—the limitation on interest which can be set off. We can discuss that under the relevant section.

As defined in the 1967 Act, that does not include a working wife's allowance. The personal reliefs set out in that Act certainly would not include a working wife's allowance.

There was no working wife in the tax law of 1967.

And, therefore, the working wife's allowance is not in the personal reliefs as outlined in the 1967 Act. Therefore, that would not be part of the personal reliefs that would have been included in this section. That is my reading of it.

There is section 193, as amended.

It does not say "as amended". We are dealing with section 193 of the 1967 Income Tax Act not the Income Tax Act as amended.

The wife's earned income relief in 1967. We are arguing about a change in nomenclature. The same kind of relief is there.

So the Minister can assure us he is being outrageous.

I can assure the Senator I have taken care of this. This is a personal tax relief.

The wife's allowances is being halved.

That is another way of putting it.

In section 28 you arrived at the amount by multiplying by 80 the amount by which rateable valuation exceeds £20 or the total amount of the profits or gains. Why is it £80 in this case with the smaller farmer and £40 in the case of the bigger farmer? There is a £40 gap, or 100 per cent.

There were some very inadequate calculations, the details of which I cannot quite recall at this stage of our long debate. The 80 multiplier here is a phasing out operation. I have already pointed out the very substantial reduction it gives to people. It is substantially less in the lower reaches, say, between 20 and 25, than having a reduction of half the allowances. If we had another multiplier it would take longer to phase out. That would not be justified.

Question put and agreed to.
SECTION 29.

I move recommendation No. 15 :

In page 18, line 40, after "death duties" to add "nor shall they apply to interest paid in respect of any period beginning prior to the 6th day of April, 1975, where such interest is payable on money borrowed to pay for shares or options on shares in limited liability companies."

During the last few years many people have invested in shares, and in the majority of cases they were prudent people who were doing something to provide for their future. Few of them would come within the category of financial barons. Consequently, they are entitled to some consideration. In many cases the investment, to be viable, would depend on the condition that the interest on some of the money borrowed to buy these shares would be free of tax. This position will not apply in the future where the amount is in excess of £2,000.

The purpose of this recommendation is to give a breathing spell to people in that category. If they found themselves no longer able to bear the strain of paying interest which was not allowable for tax, they would have to sell at least some of the shares. For reasons which are not entirely due to the Government and of which the Minister is well aware, this would be the worst time to sell shares. It would be a great hardship on people to have to sell shares at the present time. Consequently what is proposed in this recommendation is that a breathing spell should be allowed to people in that category, that they should be given until next April to pick a reasonable time to sell their shares and that they should not be caught by the £2,000 limit during that time.

Would the Senator say if there is any difference in principle between a man who borrows money for the purpose of buying shares and a man who borrows money for the purpose of buying other property, for example, a house? Would it not seem much more logical to say if there is to be any easing it should be in favour of the person who does not borrow for the sake of speculating in shares but who borrows for the purpose of buying some solid non-speculative property?

Of course "speculative" is an emotive term. I am suggesting that in many cases this would have been a prudence on the part of the person buying the shares. I do not disagree with Senator O'Higgins. As a matter of fact, I think there is a lot in what he says. I think the proper thing for him to have done in the circumstances was to put down another recommendation to deal with the situation he is concerned about.

He would have if he was not satisfied with the situation as it exists.

I would like to support Senator Ryan's recommendation. I realise that the object of the section is to get at people who have been able to borrow large sums of money for speculation of one kind or another, whether it is in shares, property, land or whatever particular aspect of speculation. Under the previous regulation they were able to set off the interest on the money they borrowed against their tax payment. I agree that this should be stopped and I, therefore, agree with the fundamental aim of section 29 but I feel that there are certain problems in putting this into effect. For one thing I feel that the limit of £2,000 is too low. Ten years ago the figure of £2,000 would have been a realistic one but given the modern rate of inflation this figure is too low. I would like to have seen a figure of something like £4,000 or £3,500 as the proper limit. I urge the Minister to reconsider the figure. He has got to set a figure. He has got to make up his mind.

In the present circumstances £2,000, which would correspond to interest on an overdraft of about £1,400, is rather low. People should be given a little more leeway because, of course, the Minister has got to balance, in drawing up legislation of this nature, the prob lem of distributing income fairly and yet of not stifling enterprise. There can be a genuine enterprise. This is one of the things that one has continually to encourage and not to stifle provided one cuts out the large speculator. This is what this section is aimed at. I urge the Minister to reconsider the limit of £2,000. I would like to see it made higher.

I would like to urge him to think about the specific case that Senator Ryan has made in which someone who has borrowed money before this Bill came into force and had a large overdraft, particularly someone who had bought shares—it is not always a bad idea to borrow money to buy shares if conditions are favoured—a year or 18 months ago when prices were high in the stock market and then is faced with a drastic change in the situation, not being able to lay off more than £2,000 in interest against tax, and who is faced with the situation of having to sell shares when they are something like one-third of the value they were when he bought them. A number of people will be caught in this position. The situation would not be critical if the stock market position was not so desperate as it is at the moment. I think that these people will be—I am not talking about the big investor, I am talking about the small man who has borrowed for something like this, not very big sums of money—really stuck. I would not like to see small speculators going to the wall. The people we are trying to get at in this section are the big men, who have really got away with it in laying off large sums of interest and overdrafts against their tax. I would like to see the limit changed and also something being done to help the person who is caught at the moment with an overdraft and with stock which, if he sells them, will be about one-third of the value at which he bought them a year or 18 months ago. Someone like this faces. ruin. Senator Ryan's recommendation has a lot of merit, and this situation should be taken into account by the Minister.

Acceptance of Senator Ryan's recommendation would mean giving unrestricted relief, not only now but in the future, to any person who has already borrowed or who borrows between now and 6th April next. I could not think of a greater stimulus to borrowing for speculative purposes than the recommendation as presented. Perhaps that was not Senator Ryan's intention in putting down the recommendation. I am prepared to accept that he had not the intention that it should operate on any borrowings made now or at any time up to 6th April next. But that in fact is what it would provide. This, of course, would mean that borrowings of the type which we are trying to discourage would become rampant over the next year and would be totally contrary to the Government's intention to stop borrowing for speculative purposes.

Quite clearly I could not accept the recommendation in its present form. Suppose it was to be limited to borrowings already made, should it be accepted? I would say "no". I cannot justify to myself people borrowing money at the expense of the taxpayer. Any person who borrows money, and who gets relief in respect of interest paid on it, is getting that relief at the expense of the Revenue —that means at the expense of the taxpayer. There are certain borrowings which are necessary for most people, such as borrowing in order to purchase a home or some other necessary item for which they have not got sufficient capital at the time. On the other hand, I cannot see that there is any obligation on the State to provide cheap money for people who want to borrow to make personal gains or to build up capital for themselves. That, of course, is the area that we have tolerated for far too long in this country. People have made massive borrowings simply because a large share of the cost of the interest would be paid for by the Exchequer. The decline in the return from sur-tax, or the non-growth in the sur-tax returns, points to the substantial growth in borrowings made for this purpose.

After all, a person liable to income tax at the rate of 80 per cent or 65 per cent could set off his interest liability against his tax liability and that took care of a large hunk of the interest which otherwise he would have to pay. If he had to pay a certain sum in tax, unless he borowed, it was obviously better to borrow and pay the same amount, because in the end he would have a capital asset which would appreciate. I accept that people might have bought on the Stock Exchange last year not anticipating the fall in the value of their shares in the meantime. As in the case of many other provisions in this or in any Finance Bill, there is never one perfect time for coming to all decisions but if we continue postponing them because there appear to be some problems or difficulties, the right decisions will never be taken at all.

We are not doing something that is unique. Several other countries have limitations far more severe than those we are applying. For instance, in France, I think the ceiling is the equivalent of £500 interest. In Australia you do not get relief if your income exceeds £9,000. This ceiling of £2,000, as Senator West says, allows for borrowings for personal purposes of between £13,000 and £14,000 today. That is quite a substantial borrowing for people to be able to make and get tax relief on it. When they go beyond that, they are going into a level of borrowings which do not deserve to be subsidised by the State.

I do not say that if people want to borrow, they should not do so, if it is for a good and productive purpose or even for the purpose of speculation, but they ought to pay the going rate for the money they borrow and they should not expect society to indemnify them against part of the cost. If one of the consequences of our change in the law is to dampen down the amount of borrowing for speculation, that is very good for the economy at this time. As to whether now is an appropriate time for the introduction of this restriction, from the economic and social point of view, I think it was never more necessary.

The Minister speaks as though I were inventing a new sin. I am merely talking about a situation which existed up to now and which nobody considered to be very wrong. I shall not argue about whether or not the Minister is right in bringing in this restriction: there is probably a lot to be said for it. But, many people will find themselves in a position of hardship because this has been brought in. I am merely suggesting that they should be given a breathing space to allow them to get out of the hardship in which they find themselves.

The Minister has said that perhaps if I had worded the recommendation in a different way to include only people who already had these loans it would be more acceptable. There is a lot to be said for that, and if I had any encouragement from the Minister, I would bring in a recommendation on Report Stage on these lines. I doubt if the Minister would encourage me to do so.

It takes one Ryan to read the mind of another.

I would agree substantially with what the Minister has said. I agree with the substantive aim of this section, but I am worried about people who are caught in the transitional year. The Minister condemns speculative borrowing, but it was perfectly legal. It may have been a moral crime, but it was not legally a crime to borrow and set off your interest against tax until the date stipulated in this Bill when it comes into force. Whether it was immoral or not, it was legal and it was done quite widely. A considerable number of people will be very severely caught because of the low prices on the Stock Exchange at the moment. Would the Minister not consider a transitional ceiling of £4,000 for one year and £2,000 from then on? This would get over the difficulty in which a large number of people will find themselves, and as a result of which I fear a considerable number may go to the wall, because of their outstanding overdrafts and the low stock prices.

Obviously, I would not wish anybody to be distressed in the way Senator West has described. I doubt if people will be so distressed. I should like to point out that even if they have borrowings carrying an interest liability in excess of £2,000, they still will have the full benefit of the tax concession on interest up to £2,000. At the top rate of liability to tax it would mean a saving of £1,600 to such people which is a generous contribution by the State. We are not dealing here with borrowings for business purposes, for they continue to be exempt. I am certainly not chastising any person who borrowed under the existing system: it was perfectly legitimate to do so. Any person who avails of the benefit of some legal provision which he should see is too good to last has little cause for genuine complaint when the inevitable ultimately happens. That is the reality of the situation here.

People who were making borrowings of the size visualised by Senator Ryan and Senator West should have been aware of the limitation in Britain, for instance, several years ago on borrowings of this kind. Such people must have assumed that at some time there would be an end to the very exceptional situation which existed in Ireland. I did think of the desirability, perhaps, of having a transitional relief, but I felt that, on balance, it could not be justified and that the ceiling I have chosen was such as to ensure that there would be some relief still available for any people who had borrowed in excess of that figure.

When Fianna Fáil were in office, many hoteliers borrowed considerable sums of money to expand their premises at a time when the tourist industry was thriving. I suppose they did think that Fianna Fáil would remain in office. As the Minister has just said, they did not think it was too good to last.

Could I interrupt? Perhaps the Senator did not understand. Any borrowing for business purposes continues to be exempt.

No wonder Fianna Fáil are out of office.

I am sorry; I misinterpreted the situation. One could get the impression that hoteliers and such people would suffer as a result of this section. I agree that in the case of anyone who borrowed for private spending, and it can be proven that is so, the facilities available are quite sufficient. But if hoteliers or people in business would suffer, then it would be an entirely different matter.

Recommendation, by leave, withdrawn.
Question proposed: "That section 29 stand part of the Bill."

May I ask the Minister, getting back to tax relief, whether a person extending his farm would be exempt? Would that be covered?

Question put and agreed to.
Sections 30 to 32, inclusive, agreed to.
SECTION 33.

Recommendations Nos. 16 and 19 are relevant and I have no objection to taking them together if the House is agreeable.

I move recommendation No. 16:

In subsection (1) (a), page 20, line 1, after "means" to insert "working full time in the employment of the company or of a connected company or".

This section deals with the relief to individuals on loans applied in acquiring interest in companies. Subsection (3) sets out that relief shall be given in respect of any payment of the interest by the individual on the loan if when the interest is paid he has a material interest in the company or in a connected company.

Section 33 contains certain definitions which apply to sections 34 and 35. There is a definition of "material interest". Material interest in the definition only relates to companies. The purpose of my recommendation is to define what material interest would mean in the case of an individual. It is to extend to an individual working full-time in the employment of the company or of a connected company. In the case of an individual it would be not merely the person who, during the period taken as a whole from the application of the proceeds of the loan until the interest is paid, has worked for a greater part of his time on the actual management or conduct of the business of the company or of a connected company. The purpose is quite simply to extend the meaning of "material interest" to a person working full-time in the employment of the company and not merely a person who has some material interest of another kind.

Recommendation 19 deals with the person who was a director of the company in the circumstances. My purpose is to extend the relief to individuals working full-time in the employment of the company. This would be in line with the modern thinking in industrial democracy which would give a greater interest to people in companies who are working in a company and not merely shareholders. I suggest that this extension of the definition of "material interest" would be in line with modern thinking and would be desirable in the circumstances of this section.

I would point out that section 33 refers to relief to companies and not to individuals. The Senator's recommendation assumes that we are dealing with individuals.

Section 33 starts by saying: "In this section and sections 34 and 35" the following definition shall apply.

Consequently, the definition clearly may apply to section 34 if warranted. I am suggesting that the definition "material interest" should apply to section 34 in the manner I have suggested.

The Senator will see in section 33 (a) the definition is one of material interest in relation to a company.

It starts by saying: "In this section and sections 34 and 35" and the following deals with definitions. Consequently, I submit that I can enlarge the definition of "material interest" to deal with a situation which I suggest should apply in section 34.

Is the Senator suggesting that the subsection should read: "Material interest in relation to a company means working full-time"——

Actually, I think the way in which that is phrased, if the Minister was disposed to accept it, should be slightly re-worded to say that: "material interest' in the case of an individual would be a person working full-time in the employment of the company and in relation to a company" and go on from there. The wording of the recommendation is not quite accurate.

Perhaps the Senator is withdrawing it?

If I got any encouragement I am sure the House would allow me to amend my recommendation.

The Senator knows my difficulty about giving encouragement at this late stage.

Recommendation, by leave, withdrawn.

Section 33, recommendation No. 17 and section 34, recommendation No. 18 are cognate and accordingly recommendations Nos. 17 and 18 will be taken together.

I move recommendation No. 17:

In subsection (2), page 20, paragraph (a) (i), line 18, to delete "trade or trades" and to substitute "trade, trades or profession."

Both the sections deal with a company which exists wholly or mainly for the purpose of carrying on a trade or trades. They do not include a profession. It seems to me that many companies nowadays carry on professions. I am suggesting that professions should be included. The Minister has not set his face against companies carrying on professions.

In section 16 (1) (c) and (d) the Minister excludes certain people who might be getting benefit under section 15 and where it is to the benefit of the Revenue Commissioners he includes the director of a company carrying on a trade or profession. Consequently, in the circumstances of section 33 I can see no reason why it should not be "trades or profession".

The Senator will probably agree with me that as things stand there are very few companies conducting a profession. I visualise that this could develop but most statutory bodies and professional organisations and societies here who license professional people issue the licences to individuals and not to companies. This is an Irish practice following, perhaps, the British practice. It does not operate in all countries. We might have a look at this when the pattern of professions changes somewhat. I would be willing to consider it in future but it would not be appropriate at present to provide for it in this Bill.

May I add my voice to that of Senator Ryan to ask the Minister to move speedily in the direction of the recommendation? The actual circumstances on examination might be found more justified than his statement would suggest.

Recommendation, by leave, withdrawn.
Section 33 agreed to.
SECTION 34.
Recommendations Nos. 18 and 19 not moved.
Section 34 agreed to.
Section 35 agreed to.
SECTION 36.
Question proposed: "That section 36 stand part of the Bill."

Perhaps what I have to say would be more appropriate to the next section. We are in a situation now where up to the Minister's announcement in January, people did not have to make distinctions when they were making their financial arrangements about what they did with the money they were borrowing. They did not have to say, "we are borrowing for such-and-such a purpose". There is a restriction limit on what is allowable and if it is borrowed for another purpose there is no restriction. In the case of many professional people, this would extend beyond the section to situations other than those contemplated by the section. I am speaking primarily of professional people, though this would apply also to trading partnerships, although they do not occur very often. When people building up their positions in their profession need money for their families, for house purchase, or for furnishings they borrowed money and were allowed the interest, whatever that sum might be.

In the new situation, there is a limitation on the interest which cannot be attributed to a sum specifically set aside to invest in their professional or trading firm. If a person got a bank overdraft which had been financing a personal situation, which may include a house, he may have to satisfy a bank. There has also been a situation building up in the professional firm where, if the new law had existed, there would have been a borrowing to invest in the professional firm, specifically identified. This would have given rise to an income cost which would be clearly allowable under the section, irrespective of the amount. Now there is a situation where many people have overdrafts and if the borrowing was specifically for the purpose of establishing their profession, this would be all right. This will be all right for the future, for people coming in, for many people at present there does not seem to be provision in this or the next section to deal with their situation. The problem could be corrected easily enough if there was some recognition of the distinction in the rather generalised term "withdrawal of capital of any kind".

Money needed in a professional firm will be made up of what was shoved in originally, if there was anything shoved in, or the contribution to capital which the partners agreed should be there. There is also a large sum of money which, in fact, represents undrawn profits. Under the proposed code, it seems dubious. It is clear that if there is money being borrowed to invest in the capital and the capital is withdrawn, that has to be applied to reduce the overdraft. That seems quite right and just. It is not at all clear that when undrawn profits are drawn, particularly if they have been accumulating over a few years, they have not been serving the function of capital in the economic sense —they may get an entirely different description in the legal agreement between the partners. These undrawn profits do not have to be applied to reducing the overdraft if this treatment, other than the restricted £2,000 a year treatment, is not to apply I do not know if I have made myself at all clear, but there is a real problem here.

I think I comprehend the problem outlined by Senator Alexis FitzGerald. This seems to be a problem which can only be assessed in each particular case. Let us take the first problem mentioned, that of mixed borrowing as I call it—borrowing for a variety of purposes, to purchase a home, or personal borrowings for one reason or another, or borrowing in relation to one's profession. It will now be necessary to allocate a certain portion of that borrowing to the profession. We cannot lay down any statutory rules of measurement here, but I would not imagine there would be any very great problem in assessing the appropriate allocation. There is clearly difficulty of identification between the distribution of profits and the refund of capital. It would not be possible to devise a statutory formula for dealing with this. It would have to be done on the basis of actual accounts. Accounts might have been drawn up in a different way if the law had always been as it is now proposed, but I do not anticipate that the Revenue Commissioners will be unreasonable in their assessment of these situations. If any problems arise they will be well disposed to have a look at them, and if necessary, provide for such statutory relief as the circumstances might justify.

I am satisfied with that.

Question put and agreed to.
Sections 37 to 49, inclusive, agreed to.
SECTION 50.

I move recommendation No. 19a:

In subsection (2) page 28, before "under" in line 54 to insert the following:—

"or to any credit sale agreement, (within the meaning of Section 1 of the Hire Purchase Act (No. 16) 1946) entered into before the 6th day of April, 1974."

The right of individuals to deduct tax at source on payment of annual interest is being withdrawn from the 6th April, 1974 except for promissory note agreements entered into before the 6th April, 1974 on a net tax basis payable by instalments. Income tax law is interpreted as the written word without reference to the intention of the law. Credit sale agreements are similar in nature to agreements secured by instalment promissory notes except that they are not promissory notes. It appears that the position on credit sale agreements was omitted from the Bill in error. Therefore, to ensure that the holders of credit sale agreements are treated in law in an equal manner with holders of promissory note agreements, this amendment, I feel, should be included in the Bill.

Section 50 of the Bill deals with cases in which interest arises and interest does not arise under credit sale agreements. They are defined in section 1 of the Hire Purchase Act, 1946 as an agreement for the sale of goods under which the purchase price is paid by five or more instalments. The purchase price, as such, does not include interest from which income tax could be deducted under section 433 or 434 of the Income Tax Act, 1967. If the agreement provides that after a stipulated number of periodical payments the subject of the hire will become the property of the hirer, the periodical payments are regarded for tax purposes as made up of consideration for hire which is allowed as a business expense and payments on account of the purchase which is treated as capital outlay. Where the agreement has the effect of at once transferring ownership of the subject, the transaction is one of purchase by instalments and the question of deduction for hire does not arise. Again, I want to emphasise there is no interest, as such, included in either case and, accordingly, the recommendation is not necessary.

Recommendation, by leave, withdrawn.
Section 50 agreed to.
Sections 51 to 53, inclusive, agreed to.
SECTION 54.

Recommendation No. 22 is consequential on recommendation No. 20. Accordingly, it is suggested that both be debated together.

I move recommendation No. 20:

In subsection (3), page 30, lines 31 and 32, to delete "in the opinion of the Revenue Commissioners."

My purpose in putting down this recommendation is to delete the words "in the opinion of the Revenue Commissioners" because it seems to me that, on the one hand, it is not necessary and, on the other, it will create difficulties both for the taxpayer and, I think possibly, for the Revenue Commissioners. It seems to me that there is no reason at all why the words should not be left out. If dividends are received instead of salary or emoluments, then the taxpayer can be assessed and, if he does not accept the assessment, he can appeal and the matter can be decided then as a matter of fact, as a matter of where evidence would be given, the circumstances will be considered and it will be decided as a matter of fact. Introducing "the opinion of the Revenue Commissioners", in the first place, gives the Revenue Commissioners, I think, an initial position of strength because all they have to say to the taxpayer is that "in their opinion" the taxpayer has not received emoluments in respect of such services which are not adequate as a consideration for the services so rendered.

If, in fact, the Revenue Commissioners do press this matter and rely on the fact, rely on their opinion then, of course, in the long run—if they have reference to quite a number of cases in recent years decided by the Supreme Court-they will have to exercise their power under the position where they are acting on their opinion. They will have to exercise that power with great circumspection and really in a much more complicated way than if they merely suggested that the person was not really receiving adequate consideration and argue that possibly on appeal. My suggestion is that it is a complication. It introduces difficulties, initially, for the taxpayer but, ultimately, for the Revenue Commissioners themselves because they are being circumscribed more and more. Any State body, any Minister is being circumscribed more and more by Supreme Court decisions on the circumstances in which an opinion of this kind can be formed. For that reason I suggest that it would be much better to leave out the words in question altogether.

I would support Senator Ryan very strongly on this because I think it is a superfluous insertion in the section. First of all, the subsection stands on its own without the words "in the opinion of the Revenue Commissioners". I take it we are discussing also the other recommendation linked with this, that is recommendation No. 22, which refers to the manner in which they exercise this opinion. From the point of view of the Revenue Commissioners themselves, I think they are entering a very dangerous area here because, both in regard to "the opinion of the Revenue Commissioners" as incorporated in subsection (3) and the manner in which they exercise this opinion, as incorporated in subsection (5), the scope here for legal interpretation as to what way or manner the Revenue Commissioners exercise their opinion—particularly in regard to the way, as Senator Ryan has just stated, the Supreme Court is going in recent years —appears to me to be enormous. What I am saying, in effect, is in ease of the Revenue Comisioners. I think they are very foolish from their own point of view. I am just as concerned as anybody in this House that revenue be collected in a proper form in the interests of the community as a whole. I do not see why the Revenue Commissioners should be arrogating to themselves, first of all, an opinion in the matter at all and, secondly, why they should be setting out in a section here the various matters to which they must have regard.

I should like to hear from the Minister why what I would regard as redundant or superfluous provisions should be incorporated in two subsections of this section. The Minister spoke earlier on about the need to avoid this phraseology especially in a Finance Bill. I would agree with him. I should like to hear the reasons why these particular sections are incorporated here at all, first of all, the reasons for the wording "in the opinion of the Revenue Commissioners" and, secondly, the section explaining why and how they should exercise their opinion.

I can find some area of agreement with the Senators when they speak of the phrase "in the opinion of the Revenue Commissioners" being superfluous. From a purely literary point of view I suppose it could be left out but I do not think that its inclusion creates any legal complications because the reality of the operation would be that when the return of income would be made the inspector of taxes would have to make an assessment based on what he considered to be dividends which were issued in lieu of income. That in practice would be the opinion of the Revenue Commissioners. The right of appeal to the Appeal Commissioners exists under subsection (8) with respect to any opinion of the Revenue Commissioners. The final opinion in this will not be that of the Revenue Commissioners in the case of a taxpayer being aggrieved by the original decision. I do not think the amendment strengthens the operation in any way nor do I think it relieves the Revenue Commissioners of the need to form an opinion in the first place. I would be prepared to accept, perhaps, that the phrase is superfluous but it is the language much admired and used by draftsmen. Down through the decades there have been several cases in which the phrase "in the opinion of the Revenue Commissioners" has been used. I would draw the attention of the draftsmen to the wise remarks of the Senators and of the Minister on this and, perhaps, consideration would be given to whether it is necessary to use such a phrase in the future.

Unnecessary phraseology of that kind will only give rise to trouble.

I am glad that Senator Lenihan appreciated the worth of my remarks this morning or was it last night? So far as subsection (5) is concerned, it is wise to list the number of considerations which should be borne in mind. There is always the danger that if these tests are not set out, the view may be held elsewhere that these are not relevant. I would suggest that each of these considerations here is a relevant one. Senator Ryan says that some learned judges might take another view so it is well that legislators should spell out what they consider to be relevant.

This Bill is full of flat statements that the Revenue Commissioners are to act in circumstances which are set out and where no reference is made to their opinion. My point is that if they are to rely on an opinion then they are letting themselves in for a lot of trouble. Consequently, they should merely rely on the facts that come before them and say, for instance, that the emoluments are not adequate as consideration for the services rendered and they should merely assert that. If the taxpayer is not satisfied let him appeal.

I do not think Senator Ryan would dispute that somebody somewhere along the line has to come to an opinion on the facts.

Why put it in there?

Somebody must come to an opinion on the facts. What subsection (5) saysinter alia is that any evidence tendered by or on behalf of the person must be considered. There is another merit in spelling out what the Legislature considers to be relevant considerations. It helps uniformity of interpretation. If the legislators do not set out what they consider to be appropriate considerations, there is a danger of different inspectors of taxes applying their own valuations and their own considerations which might vary quite considerably. On the ground that tax law should be certain, there is a great deal to be said for saying what are the relevant considerations.

It is moving a little into judicial function and anything of that nature should be queried, to say the least.

Recommendation, by leave, withdrawn.

I move recommendation No. 21.

In page 30, between lines 43 and 44, to add the following proviso:

"Provided that the amount of any dividends which are deemed to be emoluments of any person when added to the other emoluments paid to that person by the company and by any person connected with that company shall not exceed an amount equal to the amount of the remuneration which is deductable for corporation profits tax purposes under the provisions of section 53 (2) (c), of the Finance Act, 1920 (as amended) as at the date of commencement of this section and as increased on 5th April, 1975 and on each subsequent 5th April by the percentage increase in the Consumer Price Index in the period since the date of commencement of this section".

This is merely to deal with the situation where a man is being paid an emolument of, let us say, £1,000 a year and the Revenue Commissioners form the opinion that is is not adequate for the services which he is rendering. I am suggesting that as the Revenue Commissioners have decided that a reasonable emolument for a director for CPT purposes is £4,000, he should certainly opt for another £3,000, that he should be allowed to take that tax free in these circumstances.

Perhaps Senator Ryan would accept that a figure of £4,000 is not realistic in 1974 for limitation purposes, considering that the remuneration paid to top executives in many companies including export companies is very much higher than £4,000.

I am merely relying on the figure which, apparently, has been accepted.

I agree that it has been accepted for corporation profits tax purposes. I do not think it is an appropriate figure today for the purposes Senator Ryan has in mind. If we were to accept it, it would leave open to abuse the very operation that we are trying to stop at present. Four thousand pounds can hardly be a sufficient limitation considering that some remunerations can be in five figures.

Recommendation, by leave, withdrawn.
Recommendation No. 22 not moved.

I move recommendation No. 23:

In page 31, between lines 35 and 36, to insert a new subsection as follows:

"(8) Any dividend deemed to be emoluments under the foregoing provisions of this section shall be:—

(a) allowable as a deduction in computing for the purposes of Schedule D profits or gains or losses of the trade of the person to whom the services have been rendered; and

(b) deemed to be emoluments of the person for all the purposes of Part XII of the Income Tax Act, 1967 and Chapter 2 of Part I of the Finance Act, 1972".

This is merely to ensure, and I am not sure what the position is, that, where the Revenue Commissioners do not accept that the emoluments are sufficient and where they insist on regarding dividends paid as emoluments and taxing them where that is appropriate, the company should be allowed that for Schedule D purposes, in other words, that the Revenue Commissioners do not have it both ways, that if the individual is taxed on the emoluments, then the company should be allowed it free of tax.

Our object here is to discourage the tax-avoidance device. We want to stop it. I think we will stop it because people will not bother to engage in the complication of issuing dividends in lieu of salary if there is no advantage flowing from the operation of that device. But if people decide to continue to operate that device, well they have to carry whatever disadvantages go with it. This will be a further encouragement to them to stop it. It would be quite wrong to legislate in such a way as to give tax concessions which are intended for legitimate operations to what are, in fact, tax-avoidance operations. If a person wants to benefit, then let him behave in an orthodox way.

The Revenue Commissioners get it both ways.

They would stop operating the avoidance machinery.

Recommendation, by leave, withdrawn.
Section 54 agreed to.
Sections 55 and 56 agreed to.
SECTION 57.

I move recommendation No. 24:

In page 33, line 13, after "individuals" to insert "domiciled and".

This is merely to ask the Minister why "domiciled" is not included for the purpose of preventing the wording "by individuals domiciled and ordinarily resident in the State". "Domiciled" is not in the section as it stands. It is conceivable that there might be people ordinarily resident in the State for a long period who would not regard it as their domicile. Executives of multinational firms who would be stationed in this country for a three-year period could argue that they were "ordinarily resident" but they would not regard it is their "domicile".

Further down in this section the word "domicile" is used. It states:

... either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the State, it is hereby enacted as follows:

It is difficult to understand why the word is used in that part of the section but not in the earlier part. Although the Minister may have good reason to regard it as not necessary, on the surface at any rate it would appear necessary to include "domiciled" as well as "ordinarily resident" to make a distinction between people who are living here for a long time but who would not regard it as their domicile.

Senator Ryan's recommendation refers to the words "domiciled and". It would seem there might be some greater force in his argument if he had worded the recommendation "ordinarily resident or domiciled" rather than "domiciled and". We all know that a person may be resident abroad for 20 years but is still of Irish domicile. The wording of the recommendation would defeat the argument which Senator Ryan has made in favour of it.

Persons who are resident but not domiciled in the State are chargeable to Irish tax in respect of income arising outside Ireland or Britain only on the income which is actually remitted to or received in the Republic of Ireland. It is likely, therefore, that it could be shown that the purpose of avoiding liability to taxation was not one of the purposes for which the transfer of assets giving rise to such income was effected by subsection (3) (a). A person resident but not domiciled in the State might have substantial assets in the State or in Britain from investments in industries and Government loans, thus having an income far in excess of the person's requirements for spending in the State. It would be illogical and unfair to the general body of taxpayers, and in particular to Irish domiciled taxpayers affected by these provisions, if a foreigner were left with an advantage over them in relation to his Irish and British assets.

Except we might not have a foreigner here and it might not be desirable to have him.

Possibly, possibly not.

There is the type of person I mentioned who would have transferred some of his assets here on coming to live here and might then at a certain stage wish to transfer them back to the country of his origin which would seem a perfectly legitimate thing to do and he could be caught in a way which would not be intended by the Minister in the circumstances set out in this section.

I will take a look at it. We do not wish to be unfair and if it operates unfairly I would be willing to correct it.

Recommendation, by leave, withdrawn.

I move recommendation No. 25:

In subsection (9), page 35, lines 14 and 15, to delete "whether carried out before or after the commencement of this Act" and to substitute "carried out on or after the 4th day of April, 1974."

We know the purpose of this section and this part of the Bill. The part of the Bill deals entirely with tax avoidance. The section is concerned with tax avoidance in the case of transfer of assets abroad by persons ordinarily resident in the State who benefit by way of income increases from assets which are transferred abroad. This is a broad outline of what is contained in section 57. We all go along with that. In principle this is an undesirable form of transfer of assets, particularly when such a transfer benefits by way of income people resident abroad. In order to benefit such people, those resident in this State are doing harm to the community as a whole.

There is no argument about the principle of the section. My recommendation is designed to deal with the very draconian provision which is imported into subsection (9) which, if established as a precedent for other areas of tax dealings with the Revenue Commissioners, could establish a dangerous precedent. For this reason I put down the recommendation.

As subsection (9) now reads, it relates to the provisions of the section in the earlier part and then it states "and shall apply in relation to the transfer of assets...". Then we have the draconian words "whether carried out before or after the commencement of this Act". This means that in regard to these particular transfers it applies at any stage or at any time in the past. There is no limitation in regard to months or years; there is no other form of limitation involved in that phraseology.

If somebody is ascertained to transfer his assets in the manner that section 57 is seeking to prevent, that person, company or group can come under the ordinances and the penalties of this section whether they carried out the particular operation at any stage in the past without any limitation as to time.

This phraseology is highly undesirable having regard to the tenor of tax legislation. In substitution for the words "whether carried out before or after the commencement of this Act" I suggest the substitution for that very draconian phraseology the phrase "carried out on or after the 4th day of April, 1974". That fits in much better with the whole tenor of what tax and finance legislation should be. Indeed, it goes back to the point I was talking about yesterday "retrospection". We may argue about what is retrospective and what is not retrospective. This is blatantly retrospection without any limitation whatever. People who engaged in this particular procedure, which it is now proposed to try to prevent—with which I agree— at any stage before the commencement of the Act can, as the phraseology now stands, be caught. That is retrospection with a vengeance.

I am only on principle in this matter. I am not making any case whatever for the people concerned in section 57. I do think in the interest of keeping the tax legislation in a normal manner and, above all else, not letting any element of retrospection be introduced, we should have a specific date in the current year, either budget date or the date of the passing this Act. I am suggesting budget date in my amendment to substitute "carried out on or after the 4th day of April, 1974". I think that is a reasonable approach and I would like to hear the Minister's views on the matter.

I think Senator Lenihan raised this point of retrospection before. I found myself driven to disagree with him and I find myself driven to disagree with him again because I really do not see that there is anything retrospective about a section which provides that in relation to the year in which it is enacted the particular yardstick is to measure the income to be assessed. If people did things before that date, they did them wisely or unwisely, virtuously or viciously. They formed a view of what was likely to happen. They did not correctly or wisely assess or even know that when a like section was introduced in Britain it too caught, without anyone charging retrospection, income arising from assets that were transferred abroad. I should have thought of all the tax avoidance operations that people have been engaged in and of all the persons least entitled to engage in these tax operations, being for the large part, entirely comfortable gentlemen, this particular type of tax avoidance is the least meritorious.

I agree fully.

I have a couple of observations to make on the section, but that is another matter. I certainly would like to say that I disagree with this recommendation.

I hold no brief, and I think I made it clear, for the type of operation that this section is seeking to cure. As Senator FitzGerald has just said, it is certainly not a meritorious type of operation. It should be sought to be cured as is sought to be done in the section. I am only talking about the danger of importing this type of phraseology into tax avoidance measures. It may be all right because of the extreme nature of the undesirable operation that it is seeking to cure here but as everybody knows, you do not make good law in bad cases. It is a very dangerous thing to import into any legislation phraseology of this kind, which is unnecessary in this case. There is a danger of it being used again in regard to far less serious and less harmful types of tax avoidance. It is a very dangerous tax power to start giving to the Revenue Commissioners that they can deal with an operation of this kind irrespective of when the operation was carried out by the people concerned at any stage before the commencement of the Act—that is the wording, "whether carried out before ...the commencement of the Act".

That is a very global sort of provision to import into a section of a Finance Act. I agree with Senator FitzGerald that if anybody merits draconian treatment it is the people that the Revenue Commissioners are trying to get to. I am not pressing my recommendation. I just want to draw the attention of the House to the fact that it is dangerous phraseology to import into tax legislation.

Recommendation, by leave, withdrawn.
Question proposed: "That section 57 stand part of the Bill."

I just want to put two questions to the Minister. The section we have—I have not the UK section before me—is modelled on section 470 of the British Taxes Act, 1970. Subsection (1) of this section is applied to a resident individual who has "power to enjoy" the income of a non-resident person. In a case on this language, Lord Green MR in Howard de Walden v IRC (1942 I KB 389 at p. 395) said that the section does not limit the income of a non-resident in respect of which the taxpayer is charged to the actual benefit which the taxpayer draws from the non-resident.

In another case, Congreve v IRC (1947 30 TC 192) Cohen L.J. rejected the view that tax was only chargeable on the income from the assets transferred. This point was left open in the House of Lords. There are, therefore, two possibilities with regard to the meaning of this section. I desire to know what the Minister's view is as to what is the correct possibility. The two possibilities are: First, that the resident individual is chargeable on the whole of the non-resident's income, or secondly, that tax is chargeable only on the income arising from the assets transferred. If the Minister does not have a view with which he wishes to burden the future administration of the revenue code by expressing it would be desirable to discharge the obscurity from the section, an obscurity which has survived the attention of the House of Lords.

The second point is that there is no guidance in the section as to how the income of the non-resident is to be computed. Is it to be computed in accordance with the rules of Irish tax legislation or in accordance with the rules of the tax legislation of the country of residence of the non-resident person and, if it be the latter of the two, what interesting possibilities remain for the tax avoiders?

I can speak in the comfortable knowledge that any opinion I express will not be quotable in court. No doubt it will be learned judges who will ultimately adjudicate on this. It seems to me that the proper income to take into account is the whole income from the assets. Otherwise the element of avoidance could continue. You could have a situation where a person would decide to build up a considerable asset abroad by leaving income abroad for a large number of years. Ultimately he would himself leave this country and then enjoy the untaxed income accumulation which he has built up outside the State or leave the income there and annually enjoy it by going to the south of France or somewhere else. I think you must take the whole income into account.

On the question of whether it is the tax law of the country in which the asset lies or Irish tax which should apply, as it is an Irish asset then the appropriate law to apply would be the Irish law. As it originated as an Irish asset and is only exported for tax avoidance purposes, then Irish tax law would apply.

We seem to be taking the safer of the two years.

Question put and agreed to.
Section 58 agreed to.
SECTION 59.

Recommendation No. 27 is cognate to recommendation No. 26 and it is suggested that they be debated together.

I move recommendation No. 26:

In subsection (1), page 35, line 40, to delete "they think" and substitute "facts known to them indicate clearly to be".

Subsection (1)—indeed the whole section—is objectionable to us on this side and, I am sure, to many Senators on the other side. It proposes to give powers to the Revenue Commissioners to pry and to spy into the private affairs and personal lives of citizens and, in doing so, it constitutes a serious threat to the liberty of the individual and to his right to privacy.

The aim of my recommendation is to limit and restrict the powers it is proposed to invest in the Revenue Commissioners and in their officials. These are extensive powers enabling them to interrogate and to investigate a large number of people, both lay and professional, and this could eventually lead to a massive campaign of interrogation of citizens. Anybody about whom, in the view of the Revenue Commissioners, they think they may have evidence of a transaction carried out by that individual, they may interrogate and investigate. This section could be open to abuse in the wrong hands and citizens could be victimised. Inquiries could be made into their entire background, into details of their personal lives; skeletons in cupboards could be unearthed and other matters, which had nothing at all to do with the officers of the Revenue Commissioners, could be disclosed.

The proposed recommendation would do much to cut down abuses which, we fear, are bound to arise if this section is enacted in its present form. If the recommendation is accepted, it will put a curb on the curiosity of the officers of the Revenue Commissioners. It will compel them to proceed on reasonable facts, rather than on fancy, pertinent to the purposes of section 57, 58 and 60, because they will have to establish on reasonable facts aprima facie case before they can embark on their interrogations or investigations. The words I want deleted are “if they”—that is, the Revenue Commissioners—“think”. There was a discussion earlier on a recommendation of Senator Lenihan's about the phraseology used. He objected to the phrase “in the opinion of the Revenue Commissioners”. I have never before come across this kind of phraseology in a legal document. Who are the Revenue Commissioners to “think”? Do they “dream” or “divine”? The phraseology is most unparliamentary and unlegalistic. The words I suggest are infinitely superior. These existing words are particularly obnoxious having regard to the context in which they are used. The Revenue Commissioners may “think” certain things under subsection (1) and then, under subsection (2), there is a wide range of transactions which they may investigate. Again, the wording in that subsection is:

The particulars which a person must furnish under this section, if he is required by such a notice so to do, include...

and a list of particulars which may be investigated by the Revenue Commissioners is set out. These are included. There is no exclusion of the kind of particulars which, I believe, would inevitably be investigated by officers of the Revenue Commissioners, officers who might be too conscientious and who might be tempted to deal with matters which had nothing at all to do with the purpose of this section.

The remarks I have made about subsection (1) are equally applicable to the second recommendation in my name. Again, if that is accepted, it will curtail and limit the activities of the Revenue Commssioners and their officers. It will limit their activities to reasonable matters and to facts. It will, at least, compel them to establish some kind ofprima facie case before they proceed any further.

I shall be very brief. I simply want to record that I detest this kind of section. I know that Senator Brosnan feels the same way as I do about it and, in his recommendations, he has approached this in much the same way as what might be called an "unadministration" practising lawyer would approach it. At the same time, we must look at the position as it is. This is a section designed to give the back-up support necessary to the Revenue Commssioners to clamp down on tax avoidance.

Once it is accepted that the back-up powers and service must be available to the Revenue Commissioners to clamp down on tax avoidance we will have to be very careful about going too far in hamstringing the Revenue Commissioners in their work. The only possible result of acceptance of the recommendations proposed by Senator Brosnan would be that it would leave the operation of the Revenue Commissioners in this field open to challenge in the courts. The aim of the recommendation is to take away discretion from the Revenue Commissioners, to force them to act on the basis of ascertainable facts and then leave them open to challenge as to whether or not they are operating in that way. I am doubtful about the result of such a recommendation.

Subsection (1) as it stands refers to such particulars as they—"they" being the Revenue Commissioners— think necessary. It is suggested that "facts known to them indicate clearly to be necessary" be inserted instead. How is that indication to be arrived at? What is the indication to be given? To whom is the indication given? Is it given to the Revenue Commissioners? Effectively the position, as I see it, is that we are depending on what the Revenue Commissioners think of the situation. What they think of the situation will ultimately determine whether or not they seek the information required in this section. Senator Brosnan suggests they should have an indication, which I think is the same thing, as they are thinking of it by reason of facts known to them. What other way can they form an opinion except on facts known to them? I am not sure that it would effectively achieve any difference in actual operation or result. It might hamstring the whole operation by allowing that a kind of challenge could be undertaken by a person who has indulged in tax avoidance and is in a position to fight this kind of issue through the courts, which the ordinary person could not do.

The same remarks apply to the second recommendation. When tax avoidance machinery is being set up with the intention of making it effective so far as this operation is concerned, the necessary back-up service in the legislation has to be provided. As a practising lawyer—never being in the position as far as litigation is concerned of acting on behalf of the Administration in any sense and possibly regarded as a defendant lawyer rather than an Administration lawyer —my natural reaction is against this kind of section.

Senator O'Higgins in that professional capacity will find himself in trouble when we are debating the subsequent sections, for example, subsection (3), in regard to his professional capacity and the privileges he obtains in regard to advice to his clients. However, we will be debating that later.

There has been some effort in the wording of the section to mitigate the position from a solicitor's point of view.

I would like to look at this from another angle. I endorse what has been said by Senator Brosnan. Senator O'Higgins believes in his heart of hearts—although ostensibly he supports the Minister and the Revenue Commissioners—that this sort of section is all wrong and that these recommendations are designed to cure some of the very serious ills incorporated in this section. The phraseology imported into this Bill could well be dangerous in regard to its future operation by the public generally. You do not throw out the baby with the bath water. If I may generalise, Government policy in this area of finance and economic management——

You might lose a bit of potential support if you do that.

——has been leading in this direction in recent months. There is no point in sacrificing everything for a ha'port of tar. Tax avoidance measures, a general clamp-down on control of the economy attitude-of-mind can be taken too far. This has been clear from what we have seen in recent months. We have had a massive outflow of funds from this country by reason of a lack of confidence on the part of the business community.

That is rubbish.

An Leas-Chathaoirleach

Let us come to the section.

I am coming to the section itself. If we write into a subsection of an Act which contains a Gestapo-like marginal note: "power to obtain information"——

The "Gestapo" being the British Labour Party.

That is why the British economy is in precisely the same situation as we are. A similar type of operation has been carried on there. It is the height of lunacy for an Irish Government to imitate a British Government, particularly when there is no confidence in the British economy. Why should we put ourselves in the same situation by pursuing financial policies which are designed to plug loopholes but which are running money out of the country?

Section 59 states:

The Revenue Commissioners or such officer as the Revenue Commissioners may appoint may by notice in writing require any person to furnish them within such time as they may direct (not being less than twenty-eight days) with such particulars as they think necessary for the purposes of sections 57, 58 and 60.

"As they think necessary"—legislation of that kind could well be found in some of the new African states. We have always had in the Oireachtas— and it is a point of view which has been consistently advocated by Senator O'Higgins—an attitude whereby there is a basic legal protection in every section dealing with the public in regard to tax matters. What we propose is that instead of the draconian "they think" phraseology the words "facts known to them indicate clearly to be" should be used. All that is required is that we put in here a legal directive that the Revenue Commissioners cannot proceed except on the basis of facts that clearly indicate to them that there is avoidance of the nature envisaged to be prevented.

That would appear to me to be an eminently reasonable safeguard. This amendment, taken in conjunction with the second amendment, which is on the same principle and in which Senator Brosnan seeks to delete phraseology which enables the Revenue Commissioners to appoint somebody to investigate on their opinion and instead to have "with respect to which the Revenue Commissioners or such officer as the Revenue Commissioners may appoint may reasonably require information."

The phraseology which we incorporate there means that the Revenue Commissioners can only proceed on the basis of facts that reasonably indicate to them that the particular tax avoidance they envisage is involved. If we use phraseology such as "they think" and if we give them power to order by notice in writing to furnish such particulars as they think necessary, this must be considered in conjunction with other phraseology to which I referred earlier and indeed to the other provisions in this section which are very pertinent—in particular the provision in Senator Brosnan's amendment which we shall be discussing shortly— the provision where the privilege which exists between a solicitor and client is sought to be destroyed, so that a solicitor may be directed to reveal particulars to any investigator appointed by the Revenue Commissioners in cases involving clients of his. This is a very dangerous area. It is like the situation in George Orwell's "1984"—it is all for nothing. I would not mind this if there was massive avoidance going on in this country where millions of pounds were involved. All this is eroding confidence on the part of investors in this country and helps to drive money out of here. With that type of legislation we are going to kill any incentive to investment.

I suggest that we maintain the civilised phraseology that has always been part of finance legislation and that we respect the basic rights of citizens in their liability to the State to pay tax. As a minimum effort in this direction, Senator Brosnan's recommendations do not go very far; they merely civilise highly draconian language. The Revenue Commissioners have the responsibility of checking tax avoidance and they must investigate. I am not denying this. All I am saying is that they should proceed to investigate on the basis of facts which indicate clearly to them that there is tax avoidance by certain people. We should insert words to show that there is basic legal protection for the citizen, and to indicate that they cannot just proceed on a total widespread draconian basis without any regard to facts and that they cannot trample on people's rights.

The picture of this being a provision invented by a radical Government is ludicrous in the light of historical facts. The first time a section of this kind was written into the laws of these islands was by a cautious. considerate, procrastinating Conservative British Government under Mr. Neville Chamberlain, in the 1939 Finance Bill, and it provided exactly what the Republic of Ireland is daring to provide in 1974. That takes care of the highly emotional speech we heard from Senator Lenihan and of much of the criticism that has been voiced elsewhere since this provision was first announced.

Neville Chamberlain was the man who, in the name of England, declared war against Nazism. Britain fought successfully a war against Nazism. In England they hold very strong views about the rights of the individual; these are much stronger than they are here. We have the shame of being the only Parliament in Europe which introduced compulsory, statutory medication, so much did we respect the rights of the individual. At least Britain and other European countries have not done this; I do not think any country in the world has done it. Lo and behold, suddenly there has been a great emotional outburst because we have provided in this legislation the absolute minimum back-up service which must be given to the Revenue Commissioners if they are to take steps to stop tax avoidance.

Senator Brosnan's recommendations would completely defeat the purpose of the section. If the Revenue Commissioners may only put questions when they know the facts there is no need for further investigation. The purpose of giving them the investigatory powers is to establish the facts. If they know the facts, if they know the wrongdoers, they can go after them. Remember we are dealing here not only with tax avoiders but tax evaders as well—people who deliberately set out to avoid paying their proper share of tax. Nobody has the right or privilege to avoid answering the lawful questions of the Revenue Commissioners if those questions are for the purpose of ascertaining a person's income. Nobody has the right to refuse that information and if any person does refuse they do so at their peril. That is as it should be, because if a person can get immunity from tax by refusing to answer there would be no point in having taxation at all.

No profession or banking institution enjoys a privilege in its own right. Any privilege it has is because its clients have a privilege, but privilege does not extend to the right to avoid and evade tax. We must ensure that we do not bring in a provision here which says that assets which are transferred abroad are to be brought into the tax net and at the same time take no steps to enforce it. Quite clearly people who would be transferring assets abroad would have many occasions to go to their bankers and accountants and legal advisers in order to get advice in order to use their services. It would be ludicrous to allow such people to get professional advice for the purpose of avoiding answering questions.

The references to solicitors and banks here are limitations on the rights of the Revenue Commissioners to seek information. One would assume from the comments that have been made here and elsewhere that solicitors would be obliged to answer everything. That is not so. They are primarily required to declare the name and address of the person on whose behalf they have been acting and to declare the name and address of associated companies and operations. Of course all that is absolutely necessary because one of the easiest ways to operate tax avoidance is to do it by means of associated operations and, when they are identified, then the Revenue Commissioners can pursue the individual or the operation which has been identified through it.

An Leas-Chathaoirleach

If I might interrupt, it is just past 10 o'clock. Is it intended to sit later than the normal hour?

I think we should sit on to see how we get on.

It should finish by 11 o'clock, hopefully.

If we sit on to 11 o'clock and we do not finish at 11 o'clock and perhaps have not even finished this section or these recommendations at 11, what do we do then?

We should make up our minds now. We sat here from 10.30 this morning and it is now 10 o'clock and there is nothing going on tomorrow so we could sit at 10 o'clock or 10.30 tomorrow morning or else let us have a specific time—that we will agree to sit and finish this at 11 o'clock.

I agree with Senator Fitzgerald that we should finish at a certain hour. Senator Lenihan has more or less agreed on that and I think we should agree that we finish at 11 o'clock.

We should aim to finish at 11. I do not think it is fair to regard Senator Lenihan's indication as a commitment; I accept it as a genuine desire on both sides to try to finish by 11 o'clock. Let us operate on that basis. If it cannot be done obviously we will have to sit tomorrow but we will try to finish by 11 o'clock.

If we do not finish at 11 let us adjourn at 11.

I think if the Opposition agree that we finish at 11 o'clock then we will sit until 11 o'clock. If it is agreed that we sit tomorrow we should adjourn now.

It would be better to sit on if we can finish inside an hour.

There is very little left of section 59. I suggest we carry on with this section and see how we get on. We will probably carry on quite rapidly after this.

An Leas-Chathaoirleach

Is it agreed that we carry on until 11 o'clock?

I object to continuing until 11 o'clock unless the Bill is finished tonight or else we adjourn now and come back in the morning. I think it would be much better. This happened in the Dáil where they sat until 9.15 a.m. the following morning. We do not want that.

That will not happen here.

Only the Opposition are holding the Bill up.

The only problem is that we have two recommendations down for Report Stage. We are wasting time now.

Would it not be much better to adjourn now and come back in the morning?

We are in agreement to sit until 11 o'clock and we can see. Perhaps at 11 o'clock it will be obvious that five minutes will see the end of it. Then, is it worthwhile coming back in the morning?

All right.

An Leas-Chathaoirleach

We agree then to review the situation at 11 o'clock. Sorry, Minister, to have interrupted you.

In view of the time constraint, which I am glad to hear, I want to say that the courts will be there to adjudicate upon the reasonableness of the Revenue Commissioners. If they use this power unreasonably anybody may challenge the exercise of the power by the Revenue Commissioners and one can be confident that the courts will not allow the Revenue Commissioners to use this power in an unreasonable way nor may they use it for any purpose other than that of combating tax avoidance. that is what the language of the section says; and, with respect to Senator Brosnan, I think that the language of the section is stronger than the language of the recommendation for the protection of the taxpayer, because it speaks of necessity. Necessity is a much stricter word than the wording of the recommendation.

It is difficult to reconcile what the Minister has said about Neville Chamberlain with the sentiments expressed by the Leader of the House. In regard to having recourse to the courts, there is no provision at all for an appeal.

I want to ask the Minister three or four questions. First of all, is there any time limit at all on how far back the Revenue Commissioners can go in investigating situations like this? Secondly, is there any appeal from the decisions of the Revenue Commissioners, the decision in relation to whether or not they should investigate facts or the decision in a case where a person refuses to give the information? I want to know if there is any appeal against that refusal on the part of an individual? Thirdly, I should like to know how the Minister proposes to enforce this subsection and the other subsections in the case of refusal on the part of an individual or a solicitor or others to furnish the information sought by the Revenue Commissioners?

First of all, if a person is of the view that the Revenue Commissioners are acting unreasonably they may challenge the Revenue Commissioner's decision in court. This is the ordinary right.

On the question of being unconstitutional.

Unconstitutional or being unreasonable in the exercise of it or being unnecessary for the purposes of the section.

Does the Minister agree that the whole section is certainly bordering on being unconstitutional?

Certainly not.

It would appear to be the opinion of the Leader of the House here.

I can speak as a lawyer as well as a Minister and if this were repugnant on legal grounds I would not be recommending it to the House. I am satisfied that the protections here are the proper protections to have. I am also satisfied that the law, which we must ensure is respected, cannot be enforced unless we have these provisions. Regarding the sanctions. They are the ordinary sanctions for non-compliance and there would be a fine up to £500 and a continuing fine of £10 per day until compliance with the requirement. There again it will be a matter for the courts to adjudicate if refusal occurs so that the individual's rights are fully protected. There is no question, therefore, of an infringement of the rights of the individual.

The law in Britain has been challenged. The reasonableness of notices has been challenged. One such notice was what one might call a "fishing" notice. In the full sense it was like casting a net on the waters to see what the net would bring in but the courts expressed the view that the Revenue Commissioners were entitled to investigate and that they had to investigate in order to ascertain the facts.

Question: "That the words proposed to be deleted stand" put and declared carried.
Recommendation declared lost.
Recommendation No. 27 not moved.

I move recommendation No. 28:

In page 36, to delete subsection (3).

There are two recommendations here. The first is important and has been referred to already by a number of Senators. The purpose of the recommendation is to preserve and protect the legal principle which this section seeks to erode and to undermine. The Minister, as a lawyer himself, is well aware that all transactions between a solicitor and his client are absolutely privileged and that the solicitor may not, except on very, very rare occasions, disclose any information received from his client in the course of his professional business without the expressed consent of the client. This also extends to members of a solicitor's staff, to his clerk, to his partner, and I presume, also to typists, secretaries and other members of the staff. It also extends to barristers. This relationship between solicitor and client has been long established and it is time honoured. It has been accepted, respected and practised by members of the Minister's profession over the centuries. It is a secret and sacred relationship and is enshrined in the law of this country. This basic change in the fundamental principle of our law came as a shock and as a surprise to all members of the legal profession and, of course, to the general public who depend so much on solicitors for advice and assistance in their private affairs, including their financial transactions.

As the Minister is aware, there is strong opposition from the Incorporated Law Society. I have here a copy of a letter which was written to the Press by the president of the Incorporated Law Society—I am sure the Minister has a copy—in which it is stated:

The Incorporated Law Society of Ireland views with great seriousness the effect of Section 57 of the Finance Bill 1974 at present before the Dáil if this Section is enacted in its present form.

The Section is designed to give powers to the Revenue Commissioners to require any person to furnish them with particulars relating to any transaction concerning the transfer of assets abroad and the possible avoidance of taxation thereby and purports to require that Solicitors among others shall be compelled to disclose information relating to their clients and their affairs.

The Society does not in any way condone concealment which avoids taxation properly payable and further appreciates that the information proposed to be required of solicitors is less than that which may be required of others.

Nevertheless the Society feels that the proposals are in direct conflict with the rule of absolute privilege of transactions between a solicitor and his client, a rule which is for the protection of the client to enable him to confide unreservedly in his legal adviser.

This proposed legislation attacks one of the fundamental rights of the citizen and to the extent that the Society feels it must call public attention to it, and is making representation to the Minister for Finance to alter the Section and preserve the privilege.

This expresses the fears and objections of the legal profession to this section. I am sure the Minister is also well aware of their determination, as far as possible, to resist this section.

I read an article in the magazine,Business and Finance which refers once again to the proposed change. It refers to the solicitor here as the confidential agent. I am sure the Minister has read this article and I will not waste the time of the House by reading it out but speaking of the clients, it says:

Without trust, absolute trust, who does he go to? In Sicily they go to the Mafia.

The Minister is aware that in the Dáil one of his legal colleagues, a member of our party, stated that he will absolutely refuse to comply with this regulation. I wonder how the Minister or the Revenue Commissioners propose to deal with this. How will the Minister deal with these solicitors, some on his side of the House, if they refuse to comply with this as I am sure many of them will do? They have already challenged the Minister and intimated that they have no doubt at all that they will refuse to do this. I think this subsection will become unenforceable and will lead to confusion. I think that the amount of money which the Minister would hope to collect or the amount of tax avoidance which he would hope to be able to prevent would not be worth the candle, taking into account the cost of the administration of this section. I think the Minister would be well advised to think very seriously again about this whole section.

The remarks I made about the other two subsections in this recommendations also apply to the next recommendation. Because of the nature of the relationship between a client and a barrister, an accountant and a banker I think that this special privileged relationship should be preserved.

I do not want to delay the House but acceptance of recommendation 28 would, in fact, leave solicitors completely unprotected. It seems to me that acceptance of recommendation 29 would not give solicitors any greater protection than there is under the section. All they have to do is supply names and addresses.

I appreciate Senator O'Higgins' point. However, it is only relevant in the context of having section 59 in the Bill. The whole thinking in this area is crazy in our circumstances. We are in a period of recession where we are experiencing serious difficulties and we are concerned about chasing halfpennies and destroying basic legal principles in order to chase halfpennies.

There is a sense of unreality surrounding this debate. We are seeking to erode a confidentiality which has existed over centuries between a solicitor and a client, between banks and their clients and between a client and an accountant or a barrister. This concerns the private affairs of individuals. Is not enough for the Minister to state in a glib manner that all the solicitor has to do is to give the name and address? "In the case of anything done by the solicitor in connection with the transfer of the asset" is the phraseology used. In the case of anything done by the solicitor in connection with the formation of management of the company——

The names and addresses of the people involved—no more than that.

I am referring to (a), (b), and (c) of subsection (3).

It is the names and addresses that are involved and no more.

And also (a) in the case of anything done by the solicitor in connection with the transfer of any asset and (b) in the case of anything done by the solicitor in connection with the formation or management of any such body corporate——

The name and address of the body corporate——

——and (c) in the case of anything done by the solicitor in connection with the creation or with the execution of the trusts——

The name and address. That is all that is asked.

There is a lot more than that. With that type of ascertainment of information if you link (a), (b) and (c) together the whole operation in effect which has been discussed between solicitor and client is revealed to the Revenue Commissioners. I agree with Senator Seán Brosnan's view that this is unenforceable. If professional persons in the category mentioned decide not to give the information that will be the end of that. There is no clause written into this section. If a thing is undesirable but is in the interests of the community, that is acceptable. The amount of information and the amount of revenue this will yield eventually will be negligible. We will just have added a further tarnishing to the good name we spent many years building up.

Ourbona fides and our good name has been tarnished in the past 12 months in many areas of finance, economic management and tax affairs. This type of section brings us close to the banana republic type of definition. We have sought for over 50 years to get rid of that—we have never had it in our State. There is a high regard abroad for our institutions and for the way we carry on business and behave ourselves. If we are to have a section such as this written into the principal piece of legislation enacted, which is the Finance Act, there can be no confidentiality in regard to particular transactions between solicitor, client, accountant, barrister, banker and so on.

This sort of damage is punitive when linked to a number of other proposals that the Government have adumbrated, many of which they have withdrawn. It is the total add-up that counts and this is causing the present lack of confidence on the part of financial affairs and business in the development of our community. It behoves all of us concerned with the financial management of the community to remember that. Basically, the whole financial structure depends on the single element of confidence. If, by reason of sections like this, one further erosion is added to our confidence, we are on a dangerous, slippery slope.

I appreciate that the Minister is adamant in this matter. I gave a warning on the Second Stage in regard to the management of the economy as a whole. I give it again on various actions here which are written into this Bill. It all adds up to a picture where, due to the policy of pursuing halfpennies, we are losing not just millions, but hundreds of millions of pounds.

Senator Brosnan quoted the letter which the president of the Incorporated Law Society sent to the Press. I am not aware that the solicitors' profession or the society were consulted before the letter was issued. Secondly, I am disappointed that the president of my own professional society should have written a letter to the Press which was, to say the least of it, misleading in that it did not fully tell the public the true position under the section.

The letter from the President of the Incorporated Law Society to the Press stated, as Senator Brosnan quoted, that solicitors would be required to give particulars relating to any transaction concerning the transfer of assets abroad and the possible avoidance of taxation thereby and that this section shall require that solicitors among others should be compelled to disclose information relating to their clients and their affairs. I am disappointed that the president of the Incorporated Law Society did not display the type of caution which I think a solicitor should.

He must have thought it a very serious matter.

He should have stated that the only information that solicitors are being asked to supply is the names and addresses of persons who transferred assets abroad for the purpose of avoiding tax.

He said that.

No, he did not say that. He deliberately conveyed the impression that this was a witch-hunt by the Revenue Commissioners to get a lot of information about advice given, to require the solicitors to disclose what information they received from the clients who consulted them and to state precisely what they did. That is not required. They are required to give the names and addresses of the people who have engaged in the transfer of assets abroad for the purpose of avoiding tax.

It is all very well for the Opposition to state that they share with us a desire to stop people transferring assets abroad for the purpose of avoiding tax and in the same breath stating: "We do not propose to enable the Revenue Commissioners to take the necessary steps to stop the transfer of assets abroad for the purpose of avoiding tax." It is like stating we are against sin but we are in favour of the occasions of it.

That is too simple an argument.

It is the kind of argument which drives home the point I am making in language which can be readily understood. The Opposition are against sin but want to increase the opportunities for engaging in it. I deplore the remarks to which Senator Brosnan has just now referred—the remarks of Deputy O'Malley in the Dáil when he asserted that he proposes to disobey the law. For any Member of Oireachtas Éireann to make such an assertion is——

Is it not a fact? Did he not make that statement?

He did say that, but it is deplorable that he did. It is unforgivable that a man should do it in such a way as might entice people to consult him for the purpose of engaging in the transfer of assets abroad for tax avoidance purposes.

This is a typical example—as I mentioned on the Second Stage—of the way in which the Revenue Commissioners over the years virtually are allowed to get away with murder. The Minister appears to envisage what is almost a 1984 situation. He says in his simplistic way that if we in the Opposition were really against tax avoidance then we could give him the powers he wants. We all know there are things going on that ought not to go on. People break the law and attempt to evade taxes. It is simply because we know this, and in the interests of the civil rights, that one has to ensure that authorities do not try to take upon themselves powers which are unjustified.

If one was to base future actions on the kind of simplistic theory set out a few minutes ago by the Minister, one could visualise in some future year a Minister for Justice coming into this House and saying that if the Opposition are against murder, fraud, or crime of all kinds, they will give him these powers. Power is being sought to require every solicitor to give the names to the Garda of all those who they know have been employed in certain named offences. Would the Minister accept that that was a correct thing to do? If not, why not? The principle is precisely the same in each case. We are against sin, crime and wrongdoing of all kinds. That does not mean that we are bound to accept a 1984 situation in which the authorities are in a position to cross all the boundaries of confidentiality that have been set against them over the generations.

I will give the Minister credit in assuming that he would not be prepared to accept a situation where solicitors were instructed by the Garda to report to them the names of all clients who have been known to them to have been involved in breaking the law. After all, one must be able to go to a solicitor when one gets into trouble. Whether one is guilty or not, one must be able to go to a solicitor and seek his advice without feeling he will rush off to the Garda to report that one has been engaged in illegal activities.

As much as we object to and resent the activities of people who are attempting to evade tax, we must have regard to the requirements of confidentiality. This is of great importance for the public good. The preservation of confidentiality between solicitor and client is more important than the immediate interests of the Revenue Commissioners. This is not just a proposal to say that from now on transactions of this kind may be reported in effect by a solicitor having to give the names and addresses of his clients. The words used are "he must state that he is or was acting on behalf of a client". The Revenue Commissioners can go back 15 years if they want to. They can go on a fishing expedition back through the generations. There is no limit. They can go back as far as they like. They can call upon a solicitor to get the name of a client who was involved in transferring funds in 1952. That is the problem with which we are faced. It is in the interests of the Revenue Commissioners and all taxpayers that as much tax as possible should be collected and that there be as little fraud as possible. Nonetheless, there are other more important interests. We feel in this instance that the Minister is violating them.

It seems extraordinary that the Minister should use this House to make an attack on the president of his own society. It is very significant that not one legal colleague of the Minister, either in this or in the other House, with one exception, got up and spoke in favour of this measure. These are people who studied the section and who knew what it was about. They all refused to come to his assistance. This was noted by many people, including the public. The only person who made a contribution in relation to this section was the Leader of the House and he made an apology.

Incidentally, there is some provision in the Finance Acts whereby solicitors are required to send certain returns to the Revenue Commissioners every year. I do not know how long this provision has been in force. I do know that solicitors have repeatedly refused to make these returns. What has the Minister or anybody else done about it? The same will happen in this case. Could the Minister tell the House whether it is a fact that they have refused to make these returns.

I do not know.

Dose the Minister know about these returns or about the provision?

I know about the provision.

Would the Minister explain the provision to the House? I only know of its existence.

There is a provision in law that any person who receives money for and on behalf of another may be required to disclose information about such money to the Revenue Commissioners.

Is it a fact that the solicitors' profession have refused repeatedly year after year to make these returns to the Commissioners? Does the Minister not know that they will do the same in the case of this section?

Even the bank managers had to do it.

They refused to do it.

This is not a 1984 situation. As I pointed out already it is a 1939 situation.

Are we going back that far?

It is a George Orwell situation.

It has existed in the UK since 1939. I would remind members that it was not so long ago since one of the moral leaders of this country—one of the Hierarchy— spoke about the obligation that lay on tax dodgers to mend their ways, and this is one way of ensuring that.

For 35 years Ministers for Finance have resisted the impulse to go on the disreputable road followed in England. It has taken 35 years for the Minister to come round to it.

Will the Minister reply to my simple question about the provision? Could he get the information from his advisers as to what the terms of the provision are and whether the provision was ever carried out by the solicitors? Is it not a fact that they have repeatedly refused to make these returns?

I cannot give the Senator that information. I do not know how many people have furnished information. I know some have refused.

Does the provision exist? If it does, is it not ignored by the profession?

It is in the 1967 Act.

In practice it has been ignored.

A return has never been made.

I think there is evidence to the contrary.

I have made very positive inquiries and neither the Minister nor his predecessor could do anything about it.

This is why all this is utter nonsense. It is unnecessary, superfluous. It will never be enforced. All it is doing is putting undesirable and unenforceable legislation on the Statute Book.

An Leas-Chathaoirleach

Is the recommendation being pressed?

Question: "That the words proposed to be deleted stand", put and declared carried.
Recommendation declared lost.
Recommendation No. 29 not moved.
Section 59 agreed to.
Sections 60 to 80, inclusive, agreed to.
NEW SECTION.

I move recommendation No. 30:

In page 50, after line 44, before section 81, to insert a new section in Part II as follows:

"Section I of the Value-Added Tax Act, 1972 is hereby amended by the substitution for the definition of ‘taxable period' of the following definition, that is to say: ‘"taxable period" means a period of three months beginning on the first day of January, April, July or October"'.

This has a simple purpose. The present position is that there are six two-month taxable periods for the purpose of value-added tax. This means that all those thousands of people throughout the country who have to remit value-added tax to the Revenue Commissioners must do it six times a year. This recommendation suggests that, instead of six times, there should be a three-month period, which would mean that all the accounting process would have to be gone through four times only instead of six. This is the position in Britain and Northern Ireland and it seems much more in keeping with common-sense and with the requirements of business life. If the Minister cannot see his way to accept the recommendation now, I would suggest that in his next Finance Bill he should consider putting in the three-month period which is in line with the position in Britain and Northern Ireland and certainly would be very much more suitable from the point of view of those who have to pay VAT.

One very good reason why I would be unable to see my way to concede this recommendation is that it would cost in the current nine-month fiscal period, £14 million to the Exchequer, because of the delay that would arise in receipt of the tax by the Exchequer. Obviously, it would have a similar effect in future years. The liquidity would not be as great. It will be recalled that the turnover and the wholesale tax systems required returns within a month; when VAT was introduced it was made two months. That was a considerable improvement and I do not think the time has come yet to extend it further.

The mind never ceases to boggle at the strange results that apparently quite simple changes in tax laws appear to bring about. Much as one would like to see life made simpler for the business community, I do not feel like spending £14 million of the taxpayers' money on achieving that end. Therefore, I am withdrawing the recommendation.

Recommendation, by leave, withdrawn.
Recommendation No. 31 not moved.
Section 81 agreed to.
Sections 82 and 83 agreed to.
NEW SECTION.

I move recommendation No. 32:

In page 51, between lines 40 and 41, before section 84, to insert a new section in Part IV as follows:

"(1) Section 26 (1) of the Finance Act, 1961 is hereby amended by the substitution of ‘fifteen thousand pounds' for ‘ten thousand pounds' (inserted by the Finance Act, 1973).

(2) Section 29 of the Finance Act, 1931, is hereby amended by the substitution of ‘fifteen thousand pounds' for ‘ten thousand pounds' (inserted by the Finance Act, 1973).

(3) Subsection (3) of section 54 of the Finance Act, 1973 is hereby amended by the substitution of ‘fifteen thousand pounds' for ‘ten thousand pounds' where the latter occurs in the subsection.

(4) This section shall have effect only in relation to persons dying on or after the 1st day of April, 1974 and appropriate repayments shall be made accordingly."

I have no doubt that the Minister will tell us that this proposal will cost him some uncounted number of millions, though I think hardly as many as £14 million. In this case at least it would be in a good cause because the general gist of these two recommendations is to raise the exemption limit for estate duty purposes from £10,000 to £15,000 and in addition, to substitute for the present figures of £4,000 for a widow and £2,000 for children, £6,000 and £3,000 respectively.

I accept that the Minister has promised to abolish estate duty for practical purposes next year. He may say, therefore, that it is hardly necessary to make changes now. However, even this year there will be people who will die, leaving estates between now and next April. It would be desirable in view of general inflation, that this step be taken.

We have already given an indication that death duties will be terminated when we introduce the wealth tax, so I believe in making that happy day more attractive to people——

That will be the day.

——by disposing of that which they do not like. Therefore, I think it would be unreasonable at this stage to make any further change. By next April they will be glad to have the new capital taxes replace the old iniquitous system of death duties.

Capital taxes, plural.

Recommendation, by leave, withdrawn.
Recommendation No. 33 not moved.
Sections 84 and 85 agreed to.
NEW SECTION.

I move recommendation No. 34:

Before section 86 to insert a new section as follows:—

"Where any provision of this Act involves the Revenue Commissioners in the forming of an opinion in regard to, or in being satisfied about, any particular matter they shall in the formation of such opinion or in so satisfying themselves, have due regard to all relevant facts known to them and shall take all reasonable steps open to them to ascertain such facts."

My efforts to import civilised language into this Bill having failed so far, I shall not repeat the arguments I have already used and which have proved fruitless. On that basis, I am withdrawing the recommendation.

Recommendation, by leave, withdrawn.
Sections 86 and 87 agreed to.
SECTION 88.

I move recommendation No. 35:

In subsection (5), page 54, line 17, before "Part" to insert "Chapers I, III, IV, V and VI of".

These two recommendations cover ground that we discussed at considerable length earlier today, so I shall certainly not go over it again.

The new taxation of farmers should not commence until April 6th next. In view of the extremely unfortunate economic circumstances of Irish farming this year, it would be a generous step on the part of the Government, economically and psychologically, to refrain from bringing in this new taxation this year. It is hardly likely that they will get more than a very, very small amount of revenue out of it this year and I would recommend its being left in abeyance until 6th April, 1975.

If the profit position of farmers is as poor this year as the Opposition say it is, then this is the very best year from the farmers' point of view to introduce liability to income tax because if they are making losses, they can set off those losses against profits in future years. If the profit is small this year, that small profit should help them in any averaging provisions which may be introduced later on. Therefore, if Senator Yeats has it in mind to benefit the farmers, he should join with me in supporting the introduction of income taxation this year.

I do not think the farmers will look on it as a benefit somehow.

No, but often people do not see things that operate to their own benefit very clearly. I am trying to help them.

Recommendation, by leave, withdrawn.
Recommendation No. 36 not moved.
Question proposed: "That section 88 stand part of the Bill".

I have a query on section 88. I am a little puzzled by a mild revolution that has taken place in subsection (5) of section 88 since the first drafted Bill. The first draft of the Bill added, at the end of subsection (5), after the date 1974, the words:

"and the provisions of section 55...

——that is the one about sending money abroad and so on.

...should apply in relation to transfers of assets and associated operations where they are carried out before or after that date.

That is before or after 6th April last. For some reason, which I cannot follow, this was taken out by the Minister in the Dáil and no longer appears in the Bill. We are told merely that "Part I of this Act shall save where otherwise expressly provided," come into force on the 6th day of April, 1974.

I am puzzled about this, because looking at the amendment which the Minister brought in just by itself one would feel that the retrospective element, which many people found objectionable had disappeared. However, when one reads the section one finds that retrospection is still there. Could I ask the Minister what is the meaning of that amendment he brought into the Dáil?

It was in pursuit of the approach which the Senator favours of not having any unnecessary language. The words were duplication of material already included in section 55 (9) and, were, therefore, unnecessary.

It raised hopes falsely.

Question put and agreed to.
First and Second Schedules agreed to.
Title agreed to.
Bill reported without recommendation.
Agreed to take remaining Stages today.