This section applies to thalidomide children. Of course we welcome this provision. At the same time one wonders if it is wise to make this single exception, although it is a particularly tragic case. I am not for a moment suggesting that we should not do this. But there are many other cases where people, both children and adults, suffer from various disasters, particularly car accidents and other forms of accident are paid damages in various forms, yet this provision does not apply to them. In principle therefore it seems wrong that only in one case should such a provision be applied.
Finance Bill, 1975 (Certified Money Bill) : Committee and Final Stages.
Sections 1 to 8, inclusive, agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
I can sympathise with the remarks of Senator Yeats, but if one entertained that too seriously the consequence would be that the Exchequer would have to refuse all cases. Once the State in its wisdom and generosity makes a concession for any specific group, it immediately opens the door wide to people who are similarly affected. The cost of meeting all cases would be enormous. The administrative difficulties would be immense, too. Ultimately there would be areas of uncertainty. It would be a question of whether a disabled person must be sufficiently disabled to qualify for the particular relief.
The circumstances of thalidomide victims are very easily identified. The persons who would be in receipt of the benefit are limited. There can be no doubt or dispute about that. Of course, like every other Finance Minister, I should love to give concessions of this kind to all people who have been unfortunate enough to be physically or mentally handicapped. Because of the difficulties of identification, it would be impossible to do so. However if money comes pouring in in a fashion to which we have not been previously accustomed, and if there can be more precision in identifying the areas of appropriate relief, the matter could perhaps be looked at again.
When the Minister says the cost of something would be "enormous" one often wonders what he means by "enormous". The enormity, I suppose, depends on its relationship with other forms of expenditure. If it is just to do it in this case, it is equally just to do it in other cases. Indeed it is equally unjust not to do it in other cases. I should have thought it would be possible to establish some relatively simple rule of thumb. After all, damages are paid generally as a result of court decisions. A court will consider the degree of disablement. I agree that if some relatively small sum is given to somebody who has been injured and has wholly recovered, but at the same time had suffered a good deal of pain and suffering, there would be no point in providing for a relief of income tax. Where a person has to actually live on the income from such payments for damages, because they are unable to work or do more than a small amount of work, it seems only fair that this provision should be applied to them also. In regard to the enormity of the amount involved I cannot imagine that it would be such a heavy burden on the Exchequer.
If I may return to the thalidomide cases as distinct from the others, the payments made in respect of the thalidomide victims by the West German authorities are tax free. It would be invidious to proceed to tax the payments certified to be made by the Irish authorities. The Irish Government are making payments and it would be quite ludicrous to subject these payments to income tax. I am anticipating an argument that pensions from the State, like contributory old age pensions, may in certain circumstances be subjected to tax if the recipient's income rises above a certain level. In such cases the recipients have had exemption from tax in respect of the contributions they made towards the pension funds. So, they have already received relief and further relief does not arise unless they happen to be below a certain level.
There is another aspect to the question of compensation for people who are handicapped where it is a case of an award by the courts. The courts take into account the liability to income tax which may lie on a recipient and the award is adjusted accordingly. If the payments in the case of thalidomide children were to be subject to tax, the State would in conscience have had to give a larger amount. What we have done is to give an appropriate amount and left it free of liability to tax.
I have indicated my sympathy in respect of other handicapped cases. There are many areas where the Legislature and the Executive would like to grant relief but it has not been possible to do so. To relieve anybody's burden is to transfer the burden to somebody else. It can be argued that the handicapped deserve to have their burden lighter because they are not in as strong a position to bear the burden as people who may be less handicapped. That is true. There are all kinds of problems of degree which cannot be very nicely refined in tax laws. But I will bear in mind what Senator Yeats said for some future occasion.
Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
This is the section which, because of the potential coming into force of the Wealth Bill provisions, reduces the amount of sur-tax required to be paid. This is an example of the rather haphazard hit or miss effect of this wealth tax legislation. Not all those who pay sur-tax will be liable for wealth tax. The definition of wealth is extremely artificial. As I understand it, wealth is actual physical possessions, stocks and shares, house property and so on. A man earning say, £50,000 a year, who lives in a hotel has no wealth, according to the artificial definition under which these things are worked. Yet he saves a very large sum under the provisions of this section. I am not saying the saving would be as dramatic in all cases. But there is no doubt—I know a few people who were affected in this way—that quite a number of sur-tax payers will save a considerable amount under this section and will not pay a corresponding amount or indeed, in many cases, any amount in wealth tax. It seems to be contrary to the principle that the Minister should be saving quite a number of people income tax who can well afford to pay it.
We are introducing this adjustment this year on a date which coincides with the liability to wealth tax. There is a good reason for reducing the top rate of tax independently of the introduction of wealth tax. The high rate of income tax and sur-tax which we had for several years past acted as an incentive to people to engage in avoidance practices, which many people think to be a perfectly legitimate activity. I do not want to open that argument at this stage, having won it last night.
I will reopen it later in the day.
There is a very good argument. If you look at what happened between 1957 and 1973, you see how the highest rate of income tax operated as an incentive to people to engage in avoidance practices. In 1957, the number of sur-tax payers was 9,000. Sixteen years later the number had fallen to 6,600. In the meantime thousands of people moved from the lower standard rates of tax into sur-tax rates.
The simple question must be asked: Why were fewer people paying the top rate of tax? It was because the tax operated at such a rate that there was a strong incentive to them to find ways of avoiding payment of the tax. They engaged in several ways of avoiding this impact. One of the most frequent devices was to borrow substantial sums of money and set off the interest rate on the borrowed money against the tax liability. This meant that the well-to-do had up to four-fifths of their interest liability on borrowings paid at the expense of the general taxpayer. In such a situation people were able to borrow vast sums of money, charge most of the cost to the Exchequer—that meant the general body of taxpayers—and by reinvesting the money they borrowed in many cases abroad, in ways to avoid tax they were able to make vast accumulations of wealth and pay no tax. A point comes when the sensible thing to do is to reduce tax rates in order to provide less incentive to avoidance and evasion and to leave the liability so that people will accept that the liability is fair.
It is interesting to look at the situation in other countries. Until we decided to reduce the rates of income tax this year, any higher executive here with an income above £7,000 or £8,000 was paying a much higher rate of tax here than in England. The result is that our executives had to be paid a higher gross wage in order to have the same take-home salary. It was often quite a problem to keep Irish executives and senior management at home because of the high rates of tax, so they went to England and elsewhere. Having gone there they would not come home unless they received a gross rate which would leave them with at least the same net income as they would have in Britain.
The situation now is that, as a result of the adjustments we have made in income tax rates, with the exception of a very small band of people around £15,000, taxpayers generally will be paying less income tax in the Republic than they would be paying if they were in Northern Ireland or in Britain. That means that the gross salaries in Ireland need not be pegged as they were at the rates necessary in order to give people here the same take-home pay. It would be the hope this would have a cooling effect on wage demands. It is perfectly natural that people who are below the highest will always relate their expectations to the nominal gross income they see earned by the person above them. Very few people look at, attempt to calculate, or bother to calculate—even when they know the facts—what the take-home pay is in any particular circumstance. Members of the Oireachtas know that. When adjustments are made in the allowances paid to Members of the Oireachtas public comment is invariably silent about the rates of tax to which those increases will be subject.
The following rates of tax operate throughout the rest of the EEC. In Britain there is now a rate of 83 per cent in certain circumstances. The 83 per cent is charged on a higher figure than the figures at which we charge the highest rate. In Italy the rate is 82 per cent; Ireland, 80 per cent—as a consequence of this section it will be 70 per cent here in future; Belgium, 72 per cent; Netherlands, 71 per cent; Luxembourg, 57 per cent; Germany, 56 per cent; France, 48.6 per cent and Denmark 39.6 per cent. It is often said that in Denmark they have the highest rate of tax in Europe.
Perhaps I should have given the levels at which those top rates came into operation, because that is what is particularly important. In the United Kingdom 83 per cent is charged when income is £21,346. In Italy, 82 per cent is charged only when the income is £327,900. In Ireland, we were charging 80 per cent when the income was £9,550. In Belgium, the 72 per cent is not charged until the income is £49,000; and in the Netherlands 71 per cent is charged at £26,530. We will be charging 70 per cent when the income is £11,730. Other figures are: Luxembourg, 57 per cent at £17,130; Germany, 56 per cent at £47,100; France, 48.6 per cent at £41,400. While people accept with some approval, that the rate of 39.6 in Denmark is the highest, it is interesting to note that that operates at £7,020.
While we are reducing the rate we still have a threshold which is unfavourable to the taxpayer compared with thresholds elsewhere in Europe, with the exception of Denmark. I am satisfied that when we saw the rates were too high the correct thing to do was to reduce it. Since we have closed off many of the avoidance loopholes which were available to people in the top rates of income tax, we have brought within the top rate net a considerable number of extra people. I think the figure now has increased in two years from about 6,600 to 26,000. This is primarily due to getting rid of the avoidance loopholes of charging interest on excessive borrowings and so forth. In other words, we are bringing in a system of taxation which will be seen to be fairer, which will not encourage people in anti-social avoidance and evasive practices, and will not kill incentive.
The person who works is as deserving of incentive and encouragement from the State as people who accumulate capital. We have heard a great deal in recent times about the need to encourage capital investment and not to provide any disincentive. The Government are entirely of the same viewpoint. They have the same attitude towards income earners. The adjustments we are making in the tax liability rates and in reducing the top rate will, I believe, work to the advantage of our community as a whole.
I agree fully with the thinking behind this section, which is in accordance with what I was saying yesterday on the Second Stage debate. We must emphasise incentive and enterprise in the present economic situation in which we find ourselves. This applies in particular to management expertise at the level of salary indicated by the Minister, where we require brains and resourcefulness at the present time. I was very interested, listening to the Minister's table in relation to continental countries, to note the position Denmark occupies. My colleague, Senator Yeats, and I have recently been in Denmark. Because of the outrageous way in which they have gone vis-a-vis doctrinaire socialism and taxation, a party has been created which got 25 per cent of the seats in Parliament purely on a policy of abolition of taxation and nothing more than that. It is very important that we preserve in our taxation system the balance that will at all stages give the incentive to enterprise and initiative.
I do not see Senator Halligan here at the moment. He was giving vent to some doctrinaire nonsense here last night, because if you push the sentiments Senator Halligan or some Labour Party spokesman was uttering, then you arrive at the situation where nobody wants to work, as is happening in Denmark, because there is no incentive at any level to work. The thinking embodied in section 10 has not been translated into section 11, which deals with personal reliefs. In my view the incentives offered there are grossly inadequate, totally out of keeping with the inflationary situation in which we live. I agree with the thinking behind section 10.
Like Senator Lenihan, I agree with the principle expressed in section 10. However, I make a special plea to the Minister, in these days of such rapid inflation, to adjust the slices here in accordance with inflation. In other words, if we have a 20 per cent inflation or more, do not let the slices be £2,000 but adjust them in the coming budget to 20 per cent more than that. I make this plea mainly on behalf of the self-employed. People on salaries generally try to fight for certain increases that take into account the tax structure. There is no automatic increase to be got by the self-employed person. We all recognise that whether it is in the small business, on the farm or any other way, that the self-employed person is the backbone of the community. The self-employed person has to work harder to fight inflation. He is not cushioned against increases. This round figure of £2,000 is so nice that there might be a tendency to leave it, whether or not we have inflation over the next few years. We all know that income tax computations are largely handled by the computer today. Therefore you can work to a couple of decimal places; you do not have to round off to the nearest thousand. Consequently, there is no reason why the Minister should not give justice to the self-employed.
I am not suggesting that this should be a concealed increase to those who are better off. Obviously any income tax adjustments made can be taken care of. In this case I advert to a point made by the Minister when he spoke about how the newspaper publicity generally ignores the tax take. We had the revolting headlines recently about the £1,400 a year increase to the Taoiseach. The article carefully suppressed the fact that that was subject to 80 per cent tax and the net effect was only £200 or £300.
While we appreciate that here, it is very bad for public morale that the newspapers can give those very misleading headlines about the big increases given to people whom the general public regard as well off, without any advertence to the tax yield. In trying to combat inflation and get every sector to make an effort without engaging in the politics of envy, whatever increase is given on higher salaries it should, if possible, be given in a way that did not present a distorted picture to the public. By keeping the tax rates at more or less constant values, it would be easier to get the ordinary workers to understand that those in better off positions were not being more favourably treated than the majority of wage earners. It is general policy, accepted by all, that in times of hardship and inflation, the lower-paid workers should be cushioned much better than higher-paid workers. Not alone should that of which we all approve be done but it should be seen to be done. We should do everything possible to prevent this grossly irresponsible approach by newspapers in carrying misleading and inflammatory headlines which can badly damage the whole labour position.
The Minister has given us some interesting figures for the various tax rates in Europe. I would just like to ask him if he could possibly elaborate on the Danish figure, because it is notorious that the Danes are very highly taxed. The figure he has given is 39 per cent on £7,000. I am reliably informed, for instance, that a typist in Denmark, who would certainly not be getting more than £2,000 or £3,000 pays something like 50 per cent of her salary to the State. Some of that may well be in the nature of social welfare contributions, or something of that kind. But, nevertheless, for the ordinary, quite low-paid worker in Denmark, the "take" by the State goes as high as 50 per cent. I wonder if the Minister can throw any light on the fact that so far as income tax is concerned it is only 39.6 per cent at £7,000 but nevertheless, the State takes a very much higher percentage than that from very much lower-paid workers.
I, too, would be interested to hear what the Minister has to say in regard to Senator Ryan's questions. I understood that the direct tax position in Denmark was a maximum of 39 per cent, but that it did impinge at a much lower rate than even our 35 per cent one. I do not know whether that is correct or not, but it would be interesting to know what is the explanation for the existence of this anti-tax party in Denmark.
With regard to what Senator Quinlan said, I must say that if Dante's "Inferno" were written since newspapers came into existence, I feel a specially low place in that "Inferno" would be kept for some headline-writers in newspapers, including the headline writer on the Irish Independent this morning. It seems to be utterly malicious, mischievous and damaging. Already, today, I have evidence of the damage it can do.
I agree with much of what the Minister has said. I completely approve of the policy which he has generally outlined. It is worth repeating that when taxation is felt by the taxpayer to be unfair, to be unjust, if he is a particular kind of man he will get his affairs so ordered that legitimately he does not have to pay out. It makes sense for people in these days to borrow money and to get interest charged against their incomes. These people are usually working very hard to generate these incomes. People without any wealth whose only hope of accumulating something that might provide for their families is through their exertions are forced, because of the high rates and the early impact of these top rates of tax, to adopt devices to take advantage of corporate structures and so on.
I approve of the move towards lowering the rate because people will see that it is not unjust, that if they are up in the £12,000 or £13,000 a year bracket they are then paying 70 per cent. They will retain an extra 10 per cent after that. It is a very considerable contribution and an encouragement to them to work. It is also an encouragement not to waste their money.
Another of the measures the Minister introduced in the first Bill he brought into Parliament was to place a curb on expenses incurred, often carelessly incurred, because they saved a good deal of tax on them. Possibly some business came out of them and some capital gain could emerge as a result of it.
The attitude of the taxpayer to the tax is very important. This was kept in mind by the Minister in the case of death duties. It was felt by people who had to provide for families and who had not a great deal of money but who had something accumulated, that it was unjust to have to pay death duties. People were forced to behave in a manner which may have added to the general cost to the taxpayer.
I would not wish to offer myself as an expert on the Danish tax position. I can say that I, too, have heard the same views expressed about Denmark being the most heavily-taxed country in Europe and that certainly seems to be the view of the electorate in Denmark, if one is to judge by the support which they have given to parties which promised to abolish all tax. That is a dream. It is what we all hope to see fulfilled in our time.
Not all; only income tax, unfortunately.
I am speaking now from memory, and my recollection is that the wealth tax operates in Denmark around about £20,000 and it does not exempt private homes or include several of the exemptions which we propose. If that is to be blended with the income tax rate which bites at the top rate at £7,000 it could easily amount to quite a large sum. That is why the income tax rate seems, on the face of it, to be lower, because the rate of tax charged on possessions is so significantly higher.
We have struck a fair balance. We still have a rate of tax here where we operate the highest rate of tax at one of the lowest levels in Europe with the exception of Denmark. It is the "second lowest" and that in itself means that we are still eating significantly into incomes.
Some figures are very interesting. As I mentioned earlier, the present position is that the net take-home pay in Ireland will, in most cases, be significantly better than in Britain. Take a married couple, for instance, with an income of £2,000. The net take-home pay here will be £84.95 greater than in Britain; at £4,000 the net take-home pay will be £127.25 greater; at £6,000 the net take home pay will be £83.75 greater. It has small variations up and down because there is a difference in the bands at which different rates of income are charged. But altogether it will be apparent that we have eased the tax burdens as far as people's incomes are concerned.
If I could anticipate, without being disorderly, some comments on the next section, I should like to say that it is very easy to adjust the personal allowances and to increase personal allowances, but if the consequence is to reduce significantly the revenue which the Exchequer receives then the Exchequer has to take counter action and the only counter action which can then be taken is to increase the rates. I wonder whether or not it is the sensible thing to increase personal allowances by a greater amount if the consequence of doing so is to increase the rates to which people have become accustomed. There is something to be said for trying to strike a balance and that is what we have been endeavouring to do.
I thank the Minister for the full reply he has given to this point and in particular for his list of income taxation systems in other countries. I think it is correct to say that this is the first time the Minister has made this particular case for this change in the rates. Until now, as I understand it, the Minister has said all along that he is doing it simply because of the wealth tax proposals. One agrees in principle completely that he is doing the right thing. One leaves the wealth tax out of account. Obviously the rates were far too high and they led to avoidance and, more especially, they led to hardship on the taxpayers. The problem is—and I am not proposing to discuss the wealth tax proposals, which will reach us one of these days or months—that the fact remains that once wealth tax is imposed on certain people they will be back in the position that the Minister rightly pointed out led to hardship and to tax evasion. For some of the taxpayers these reliefs will not apply.
Leaving that out of account, it is as well that we should be clear on this. While, as the Minister pointed out, after the enactment of section 10 we will be slightly better off or slightly less badly off than the English are, our higher rates of taxes will remain the highest in Europe, leaving Britain out of account. On the figures that the Minister has given all the other countries of the EEC have considerably lower sur-tax rates than we do. Only Britain, as in many other things including the general state of its economy, is in our league. We are only slightly ahead of Britain. The Minister should constantly bear in mind that leaving Britain out of account our rates are very high by European standards. If we wish to get European industrialists and such people to come here we should do a good deal more than has so far been done to bring our levels down to something nearer the European norm.
Surely it does not matter what the other countries are doing. You cannot take yourself into another country and draw the very same comparisons. That is an argument or analogy which is incomplete. The real question is whether, having regard to the situation and the circumstances of the people in Ireland, it is equitable or not. Is that not the real criterion?
Of course, I agree completely that one of the factors—unfortunately, it is not the only factor —that the Revenue Commissioners have to think about is whether taxation is equitable. Indeed if we were going to go the whole hog and decide that no taxation should be imposed which was not equitable, I do not think there would be very much left.
I agree that one ought to consider the question of equity. The problem is what is equitable? How is one to say that a rate of 60 per cent is equitable and a rate of 70 per cent is not? You must have regard to some basis of comparison. The only sensible basis of comparison for taxation would appear to be what other countries do. Unfortunately, we had traditionally taken as the basis for comparison our near neighbours in Britain and what they do we do. Even now, the Minister's main comparison is with the United Kingdom. He says we are now slightly better off than they are. We must have some basis of comparison.
It would seem to me that at least as good a comparison could be made on the grounds of what is equitable with the continental countries than is normally made with England. One should have regard to the fact that incomes, generally speaking, are vastly higher on the Continent than they are here. People earn far more; they are far better off and yet they pay much less tax. We are, when one takes the nine countries of the European Economic Communities, the least well-off with the lowest income per head and yet, except for Britain where they are marginally ahead of us, we have the highest rates of taxation. We are paying more taxes on lower incomes than they are in Europe. If equity comes into it at all, on a basis of reasonable comparison, our taxes are inequitable.
I think Senator Harte is probably right in saying that in any particular year if the Minister requires a certain amount of money and finds that he has to impose a certain rate of taxation, that is what he must do. We should not be unduly concerned about comparisons for a particular year. On the other hand, if we find ourselves constantly paying tax that is higher than other countries in Europe then I think we must examine the position and see why is it that we have to pay higher taxation continually—there must be something wrong with our taxation system; there must be something wrong with our economy. There must be something wrong if we are continually paying higher taxation than other countries in Europe. To that extent Senator Harte is wrong in thinking that we should not make comparisons. I think it is fair enough to say that in a particular year we must do what seems to be necessary. An example of what I am saying is what happened in Denmark recently. They "blew up" and said: "There is something wrong with Denmark because we are the highest-taxed country in Europe and we must do something about it."
I take the point, but it is still a question of whether the individuals hit by this section who work under the protection of the State should not contribute in proportion to their ability to pay. It seems to me, dealing with a particular year, that there was no other way of dealing with it except on that basis.
I do not blame Senator Yeats for thinking that I had not developed previously the argument I advanced here today. I have in fact done so on a number of occasions. I have also said that we are introducing this change this year to coincide with the introduction of wealth tax. That is true. In July, 1974, I spoke about this matter when addressing a dinner in connection with the third Irish national management prize. On that occasion I pointed out that at that time, a year ago, an executive in Ireland earning £10,000 a year would have take-home pay of £5,600. A British executive on the same salary would have had a take-home pay of £6,586. That is a very considerable difference. The same person just by taking a ship over to Liverpool would have a take-home pay of £1,000 higher. The present position, as a result of the adjustments we are making, is that a person with £10,000 income here, the same executive would have an addition of £44.50 here. They have lost this drawback that they had of over £1,000. They will now be £44.50 better off. It may not seem to be an enormous sum, but I am sure it is a move in the right direction and will help to reduce the number of demands made for increases in the top brackets which have been a great cause of envy and annoyance to people who see themselves sometimes earning less per annum than the increase given to others. When the increase is whittled away to four-fifths by the tax man it can be apparent that for every increase of £10 only £2 is received. When the labouring man is asked to accept £2 he must feel a great sense of fury if somebody else is getting £10. In fact, the person at the top end of the scale is receiving only £2; it is concealed because of the tax arrangement.
The reason Ireland appears to be more heavily taxed is because we have such a very high dependency ratio. We have more elderly people and more younger people not earning per head of the working population than any other European country. This means that those of us who are earning an income are obliged to support a larger proportion of the population than other working populations are called upon to support. Until such time as we can remedy that situation I fear we will continue to carry this comparatively high amount of income tax. We are fortunately moving into a situation in which our growing young population are not inclined to emigrate. They propose to work here and we intend to take steps to see that they will be able to work here.
That is the kernel of the whole situation.
This should lead to the situation in which we have a significantly higher proportion of our population engaged in employment and by reason of that we will be reducing the dependency ratio.
I wish Senator Halligan was here for that.
I accept of course the Minister's point of which I am fully aware, that any reliefs given reduce the tax yield and therefore have to be compensated for some other way. Again, I want to take the question of the slices concerned here and the impact of inflation on those slices. I think the fairest way to look at that is not to suggest that you are losing money by increasing the slice. In other words, if you change £2,000 to £2,400 and leave the rate at 45 per cent, I would not like to say you were losing a ten per cent rate on the added £400, or £40; I would prefer to think what you were concerned with was the contribution made by this slice. Taking into account the contribution made by a £2,000 slice in 1975 if the expanded slice in 1976 made the same contribution, then we would be happy with it. I would like a statement from the Minister showing the Government's concern for justice to the less organised section of our community, the self-employed. In a time of rapid inflation they are the people who have nobody to speak for them and who take the brunt. When we look at productive units within the community we must give a very high mark to the self-employed sector.
I can assure Senator Quinlan that I understand the justification for his remarks. I would remind him of what I said earlier. Sometimes we may have to adjust the rates in order to make up for loss of income. It certainly would be the right thing to do if you want to let people out at the lower end of the income scale from payment of tax altogether. There are far more people in at the bottom of the scale than there are at the top. The cost of giving relief at the bottom far exceeds any gain that you would hope to make even by increasing the rates of tax at the top. It is not an easy thing to do but the Seanad may be assured of my will to do it. I can only hope that the nation's resources will match my wish.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
I should like to refer to the levels of the allowances set out in the table in section 11. I will not read all the arguments and statistics presented to the Minister by deputations from the Irish Congress of Trade Unions and the Irish Conference of Professional Service Associations. He has heard them year after year. In the opinion of the persons in the middle income groups particularly, many of whom are in the public services and whose incomes are well known to the State, they are captive taxpayers. There is no possibility for them of evasion and they are carrying a very heavy burden of the total taxation. Speaking on behalf of the people in the public services generally—teachers at all levels, civil servants, Garda, Army and so on— the levels of allowances for them are totally unrealistic and have not kept pace at all with the increase in the cost of living and with the depreciation in the value of money.
I know the Minister did listen very carefully to the deputations when they made the case on behalf of an increase in allowances and he has given some increase. Taking the economic situation into account and the level of taxation on this middle income group these allowances are totally unrealistic. I would press on behalf of those people that in the future a more realistic approach would be made in the scaling of those allowances.
On the face of it, these allowances would seem to be generous but when one considers that they amount to something like an increase of 15 per cent and that the cost of living increased by approximately 24 per cent between last year and this year, it is quite clear that they are anything but generous. The Minister for Finance is in the happy position nowadays—and the public are in the unhappy position—that by merely doing nothing he can increase taxation. If he makes some increase in allowances, but not a sufficient one, he is increasing taxation in so far as the taxpayer is concerned. In this case there is, in effect, a net loss to the taxpayer of 10 per cent as compared with last year.
This is evident in this instance but in various other financial Bills which are coming before us the Minister is going to be in the position—and is already in the position—that by not altering allowances or by not altering them enough or by not changing thresholds in fact there will be increased taxation on the taxpayer.
I know the Minister will say, and has said, that he has no alternative. If he increases personal reliefs to the full extent of the cost of living increase it would cost him £16 million —that was the figure he gave in the other House—to make up for the loss which this would entail to him. I agree he has this problem to face. I think he should make it quite clear when he is introducing reliefs of this kind that he is getting extra taxation by not increasing the reliefs in line with the cost of living. If it is going to cost £16 million to give the reliefs in line with the cost of living, then he is taking £16 million from the taxpayer by not giving him the relief which he should get.
The Minister should acknowledge the fact that these reliefs are not sufficient to compensate the taxpayer for the rise in the cost of living. The Minister is taking £16 million from the taxpayers to which they would be properly entitled.
Provided the Minister argues a case that this is a better way of raising £16 million than by increasing the rate of income taxation and other taxation, then he has an arguable case. Certainly, it should not be put forward on the basis that this was a general relief to the taxpayer which, in the circumstances, it is not.
I support what Senator Brosnahan and Senator E. Ryan have said. I would ask the Minister to be candid with Senators on this matter. There is no point in making any play, as the Minister made in the Dáil and on the Second Stage in the Seanad, on this matter. The allowances are inadequate vis-a-vis the cost of living situation in which we find ourselves. A 15 per cent increase in personal allowances in an inflationary situation, which in the coming year will be at a rate of 24 to 25 per cent, is not on.
I would ask the Minister if serious thought has been given to applying the principle of indexation, which is an "in" term now, with regard to all kinds of increases. A principle of indexation across-the-board in our present situation would be equitable. If we had an across-the-board approach which would relate to social welfare allowances, pay increases and cost of living increases, it would meet the point about complete equity raised by Senator Harte.
I emphasise the application of this principle across the board, whether to claims for social welfare pay or tax allowances of the kind being discussed under this section. If we could organise society in such a way as to have uniform agreement on a direct link between the cost of living index and such increases, we would be achieving something. Public policy should be directed towards that end. If that is considered to be the equitable approach, then what is given under this section is inadequate, having regard to an 8 per cent increase in the last three months and an increase of 24 per cent to 25 per cent over the current year.
I appreciate that the Minister has Exchequer problems but, adopting the principles of equity and incentive and trying to link the two—I agree that £16 million must come from some other area—surely there can be some in-built mechanism of automatic adjustment of rates, allowances, reliefs and pay across-the-board relating to cost-of-living index increases or decreases, which is probably an utopian outlook.
In the interests of equity and enterprise that approach would demand that a clause be inserted in this section. I appreciate that Senators may only make a recommendation: it would be impossible, obviously, in the current Finance Bill. But I should like to see a Minister for Finance inserting such an automatic adjustment, subsection or section in a Finance Bill which would be permanetly enshrined in our statute law.
I want to be guided, if I am wrong, on these figures. I do not think we can look at the allowances given under this year's Finance Bill and compare them merely with the allowances given last year. If these figures are incorrect I should like to know why. I shall just give a few examples.
The personal allowances for 1973-74, in the case of a single person is £299. This year that amount is raised to £575. A widow or widower in 1973-74 had a personal allowance of £324; that is now raised to £635. In 1973-74 the working wife had an allowance of £104; that is now raised to £230. The married person had an allowance of £494; that is now raised to £920. These are the realities which should be compared. Have these percentage increases not vastly increased and exceeded the wildest estimate of the increase in the cost-of-living in the period of two years?
If I understand what is a more or less agreed figure as to what the percentage increase has been in these two years of the cost of living, it is of the order of 40 per cent. If 40 per cent is added to the 1973-74 allowances, in all cases a lower figure than the allowances for the year 1975-76 will be reached. This seems to be relevant, though I do not wish to distract the Minister from attending to the very fundamental question raised by Senator Lenihan with regard to indexation.
I also feel these allowances are out of step, irrespective of what Senator Alexis FitzGerald says. Perhaps they were too low in 1973. In view of the fact that prices are rising so rapidly and money is decreasing in value so quickly, I suppose it is difficult for a Minister for Finance to judge exactly what should be increased. It must be admitted that the Minister needs to collect tax. The people mentioned in this section are those on fixed salaries and—I do not say they would try to avoid paying tax—if they wanted to they would have no hope of avoiding paying their full share of taxation. They would prefer, as Senator Brosnahan and Senator Lenihan mentioned, to have the allowances adjusted to the cost of living and that inflation would not affect their take home pay. Some of these people find that during their first year of retirement their income tax for the previous year is added on. I know that this tax has not been paid but I think some method should be found whereby the person would pay this tax before he retires.
If the PAYE system were spread further that situation would not arise. Presumably the Senator is speaking of people who are not involved in the PAYE system and as a result have, at the end of a tax period, a substantial amount to pay.
It is interesting that today several groups which were not subjected to PAYE when it was first introduced, at their own request would now prefer to have the PAYE system operated in respect of their incomes. I am thinking of people particularly in the public sector. This is a matter on which we should naturally like to have the co-operation and understanding of the staff associations and trade unions involved. A number of these have already expressed their desire for a change and as soon as we have a general acceptance of this the necessarry arrangements will be made.
It would be desirable to note that the least increase in allowances this year is 15 per cent. Some people have received increases substantially greater than this. We recognise that a sufficient allowance is not being given to our senior citizens. This is a particularly difficult position. During their working lives they contributed a great deal of revenue to the State and now, in their days of retirement, they find themselves battling against the odds with inflation. The allowance for a married couple over 65 years of age has been increased by 190 per cent. For a single person of that age it has been increased by 80 per cent.
I should certainly like to be giving similar increases to all, but it is not possible this year. I would put forward this view. At a time when society is menaced by unemployment, when 100,000 have not got the good fortune to have any jobs at all, it is not inappropriate that those of us who are fortunate enough to have incomes should forego for the time being the full increase that we might like to get if times were easier. If those of us who are working have to pay a little extra tax to spread the burden that others who are not working at all have to carry, that is fair. If it should be put to the vote of reasonable people in employment I am sure they would endorse that view.
I should like to return to the position of Denmark, as I have some further figures which help to put Ireland's tax position into proper perspective. I gave one possible explanation for the Danish position. Another one which I ought to have adverted to is the fact that the personal allowances under the income tax code there are very small indeed. This means that although the rate of tax is 39.6 per cent with certain negligible allowances—I do not wish to rule any of them out altogether but I have a notion in my mind about the allowances in respect of children—it means that the percentage of income taken in tax is much higher, notwithstanding that the rate appears to be lower.
I have some OECD figures for 1972, which was the last year for which they were published. Members of the House may find them interesting. The average rate of income tax paid by a taxpayer with average earnings of production workers in manufacturing industries in 1972 were as follows, and I take the case of a married couple with two children. In Denmark, 28 per cent of the income is taken in tax, in Sweden it is 27 per cent, in Finland it is 20 per cent, in Norway it is 19 per cent, in New Zealand it is 16 per cent, in Australia it is 15 per cent, in Canada it is 13 per cent, in the Netherlands and Britain it is 11 per cent, in the United States it is 10 per cent—we are just half way through the list now before we reach Ireland—in Ireland it is 9 per cent, in Belgium it is 8 per cent, in Germany, Italy and Switzerland it is 7 per cent, in Japan it is 5 per cent, in Luxembourg it is 4 per cent, in Austria it is 3 per cent, in Greece and Spain it is 1 per cent, in France and Portugal apparently none.
What about the Federal German Republic?
Germany 7 per cent. Germany is in thirteenth place.
What is the wage rate?
The only information I am giving is the average rate of income tax for a taxpayer with average earnings. We take the average earnings in different countries. I accept that in some countries the average wage is higher. In other countries the average is certainly very much lower. What Senator Harte says is one of the important things and we certainly have to bear it in mind. We must take each society and each community within itself and try to distribute the tax load as equitably as possible within that community. It is significant that out of those 22 countries Ireland is half way down the list and the percentage of income taken in tax in Ireland is less than a third of the countries at the top—Denmark has 28, Sweden has 27. Of course, they can provide more benefits if the State takes a higher percentage of income in tax.
That is very unreal when it is not related to income.
We take the average earnings in each country. I know that this is subject to several criticisms but it illustrates something. I am not putting it any stronger than the tables themselves indicate. It is a useful indicator of the position in Ireland, whose income is probably somewhat average, between the top and the lowest there. Maybe it is because the income is average that we are in the middle of the list but we are certainly a great deal better off than the worst. I would expect that income per capita in Ireland is higher than it is in countries like——
It is higher than very few.
It is not that far removed from countries like Italy and so on.
As the Minister has said, we can accept that it is a matter of arranging the balance within our own country, but there is one figure here—the single person has £500 and the married person has £800 —which I know has not been improved in recent years but still there is a certain reduction there from that of the single rate. The figure for a working wife is £200. Is there anybody here who will say seriously that the housewife, caring for her family at home, is not a working wife and should not get exactly the same treatment and the same concessions as a wife going out to work?
The origin of the wife going out to work was in times of full employment, in other countries where the effort was to try to encourage the housewife to go out to work. I submit, as I did in the Second Reading yesterday in more general terms, that in our present crisis, with so many unemployed, we do not want to encourage married women to hold down their positions. It would be a national service as long as this situation continues to use the tax system to try to discourage them. As a step in that direction I suggest that the working wife allowance should be abolished and should be added to the married allowance. We would have reached the equitable stage then where the allowance for a married man would be twice the allowance of a single person. I accept that that will cost a bit more money but we must be realistic in accepting the fact that the wife at home, working for the family, rearing the children and so on, is in every sense as much a working wife, and is doing a more valuable service to our community, as the wife who goes out to work, maybe in full time employment as many working wives are.
As long as we are not using the tax as an incentive to try to get additional people into our labour force by encouraging married women to take up positions, in future the Minister should not give any recognition for it and we should simply add it to the married allowance and thereby achieve the situation we have long called for, that the married allowance should be twice the single allowance.
All I can suggest in regard to the eccentric list of figures the Minister has just read is that I would advise him not to pay any attention to them. They fly in the face of reason in certain instances. The Minister, only a few minutes ago, told us with some pride that now at all levels of income we were paying less income tax here than in England. Yet these figures show that the average wage earner in Ireland pays 9 per cent when in England he pays 11 per cent. I am sorry, that does fit in with this. If one takes the United States the average wage earner pays 10 per cent of his income in tax but in Ireland it is 9 per cent. Over the years I have made comparisons in America with a variety of people and have come to the hard and fast conclusion that on every conceivable rate of income they pay a great deal less tax than we do here. These figures from OECD do not make any sense at all. They make one feel more and more that there are indeed damn lies in statistics.
With regard to the basic point of the 15 per cent increase since last year in the income tax allowances, as I understood the Minister in his various budget speeches last year, he gave a categorical undertaking that from now on he proposed to maintain the level of allowances in accordance with regular increases in the cost of living. In other words, if there was a 20 per cent increase in the cost of living there would be a 20 per cent increase in the allowances. This has not happened. Not only should there be at least a 20 per cent increase in allowances this year but next year in his budget, which I know the Minister can hardly be expected to anticipate, one would hope for a further 25 per cent increase in allowances. I do not think we will get it. In fact, we will return to the more normal situation where the allowances fall more and more behind the cost of living increases. The Minister has not in this section honoured his promise of last year that he would ensure that in future these income tax allowances would keep up with cost of living increases.
I should like to raise the small issue of a letter from the Office of the Inspector of Taxes which was sent to a friend of mine who sent it to me. I think the inspector of taxes expects the taxpayer to waste a considerable amount of time providing information which they themselves have or ought to have. This letter was addressed to a married woman and it says:
A Chara,
To enable me to bring my records up to date I should be obliged if you will reply to the questions below.
(1) Please state your income tax district and reference No.
This is the kind of query that can cause endless trouble to the ordinary taxpayer. Where to find one's reference number and district number is always a problem for those of us who do not keep accurate filing systems. Why it should be asked for I cannot imagine. The whole thing is completely illogical because either he has her number, in which case he does not need this, or else he has not, in which case he has no records to keep up to date. It does not make sense. He also wants to know the name and address of her employer or if she is on pension—
Please state the sort of pension. Please state your business address and the nature of your business or profession. Or if the answer to the above four questions is "none", please state the main source of your income.
This is very interesting and one wonders why he wants it. In this "women's year", the mind boggles at the further statement on this form——
That seems to be treating women exactly equally as men when they get that kind of form.
There is a sentence which is underlined, which states:
In the case of a married woman the form should be completed by the husband and the particulars given should be those relating to him.
So, as soon as she has a husband the income tax inspector ceases to be interested in her income tax district and her reference number, the address of her employer or any of the other things: it is over to the husband to provide his. The purpose and meaning of this escapes me altogether.
It strikes me in relation to the last point made by Senator Yeats that it shows the Revenue Commissioners consider that the age of chivalry is not dead and that the terrible onerous and difficult task of filling in tax forms should be completed by the male and not the female. I think that is very commendable.
It also occurs to me that the reason why the information is sought in the first place, for instance the tax number and district of the addressee, is to alleviate the addressee, because it may well be that the person in question, who has for some reason or other come under the notice of the Revenue Commissioners, may already be a taxpayer and it might avoid any further pursuit of the person by the inspector who sent out the notice if the affairs of the person in question were already on record elsewhere.
I can readily accept that the taxpayer might not know his or her number. I certainly do not know mine and I should not like to be put to the trouble of looking for it. I sympathise completely with Senator Yeats in that regard. I can certainly see the reason why it might in fact reduce the amount of bureaucratic time and taxpayers' time which could result if the information was readily available. People are not penalised for not furnishing their tax number other than to the extent that it might involve a delay in furnishing a reply which the taxpayers in some cases might want to receive and in others might not.
Would the Minister like very briefly to comment on the remarks I made about indexation? I appreciate the problems in the current year and so on but, looking ahead, would the Minister not agree that some kind of automatic regulator related to the cost of living in regard to allowances of this kind should be built into not alone the tax system but into increases right across the board, be they pay increases, social welfare or whatever? We are not in a normal situation at the moment having regard to the rate of inflation but, in a normal situation, would the Minister not agree that that should be the aim or objective?
It would be desirable that we should be able to attain that, but we have on many occasions recently explained the difficulty in finding a satisfactory index. I personally could not justify using as an index for tax adjustment purposes the existing consumer price index which includes elements of indirect taxation on items which are non-essential.
I grant that.
The Central Statistics Office has made an assessment of what the fluctuations would be if indirect taxation was to be eliminated. It would produce a somewhat different pattern than that which emerges from the consumer price index. I recently spoke of indexation as being similar to the practice in which some of us engaged when we were young, to use a Dublin phrase, scutting on the back of a lorry. If the lorry is going too fast for the safety of the person scutting or if it accelerates or halts or does not halt it may bring the person to a destination he does not want.
Inflation is running at a dangerously high level. If we proceeded to index all things to what is already a menace we would be only spreading the risks and the danger. Hopefully we will be able to cool the situation and maybe the world will return to the day when there will be no such thing as inflation.
I would certainly accept that the desirable thing would be to have a system of payments for people and the use of money and measurement of money which would take account of the changes in the value of money, but it is not a very easy thing to do. That is the reason the Government have said they would from time to time look at the need to make adjustments in tax allowances. I think we have shown our good faith by the adjustments which we have made two years running. I would accept that some people are disappointed we have not done more, but in a year of considerable unemployment those of us who are lucky enough to be in employment have little reason to grumble if the adjustment has not been as good as we would wish it to be.
The alternative which we could have gone for was to make the total adjustment, but to make the adjustment as suggested by the Opposition in the Dáil and recommended today by their colleagues in this House would mean that if we were to get the same revenue from income tax all rates would have to go up by another 2p; and if we were to adopt the suggestion which I understand Senator Quinlan to have made, there would be a further 2p. So, to make the adjustment in the married women's allowance and the adjustment in the personal allowances sought by the Opposition would mean that we would have to add 4p to all rates of income tax. I do not think that anybody would thank us if we gave the allowances at one end and increased the rate by 4p at the other.
Question put and agreed to.
Business suspended at 1 p.m. and resumed at 2 p.m.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."
Am I right in thinking that the effect of this section is that conacre is treated in the same way whether it is for grazing or for tillage purposes? I should like to get that settled before we go any further. I am not quite clear what the position is.
Referring to what Senator Yeats has said, might I ask if there is any difference between land let for an 11-month period and land let for a longer period? Under the present system a man who takes land is not inclined to improve it in any way and, consequently, the land deteriorates. Would the long-term effect of this be that it would mitigate against the Land Commission or people who let land over a fairly long period? The man who takes land on conacre is an excellent type of farmer and to tax him would kill his incentive completely. Because of the lack of floor price for cattle or sheep it is very hard for a man taking conacre to make any profit. There are no set hours for farming. Many of our principal industries are based on farming and it would be highly detrimental to workers——
I am afraid the Senator is going into great detail on a section which is amending a previous section. We are concerned here with the amendment of section 13 of the Finance Act of 1974, not with the whole operation of it.
I appreciate that, but I do not see why my point should not be put before the Minister.
I am not altogether happy with this section because it is enlarging the net to include farmers who were not liable for tax last year. As a farmer I was never in favour of taxing a category of persons whose sole income came from farming, even though their valuation might be more than £100. Last year we were told there were only about 9,000 farmers in that bracket and that not many would be affected by the measure. We felt then that this was only the tip of the iceberg and that in subsequent years the net would be widened to bring in more people. That is exactly what is happening here now.
Last year farmers taking conacre were being taxed on the conacre that they took but farmers taking grazing on the 11-month system were not. Let us take a farmer with £80 valuation. If he buys 20 acres for grazing that will put him in the £100 bracket for income tax purposes. I do not think that is fair. Farmers have such a fear of this income tax that they just will not buy the grazing. Some other farmer who is depending on grazing for a livelihood is going to suffer as a result of that. If a farmer with a valuation of £100 or less buys grazing in a farm that has a valuation of over £100 the man who owns the farm has to pay income tax because he is over £100 valuation and the man who buys the grazing will have to pay income tax on it also. The Government are going to get tax from some farmers twice.
Recently the Department of Lands brought in a new scheme for the letting of lands. Farmers are now encouraged to let land for a 12-year period. If this tax on grazing is followed through it is going to be against that scheme. The farmer who is letting that land will not be inclined to let it and neither will the man that would be entitled to it. He would not be the £100 man, so I suppose he would not have to pay income tax on that because the amount of land he would get would not bring him up to the £100 valuation.
I am not in favour of this section compelling farmers to pay tax on grazing land which they have taken. I do not know whether there are other forms of letting land and I hope that they are not going to be included now or at a future date. A lot of farmers let their land for meadowing purposes. It is only let for a month or two of the year. I hope the Minister will not consider bringing them in. The same would apply to farmers who let their land later on in the year for spare grass for a three-month period.
I wish to clarify my own mind on this by once again asking a question of the Minister which I hope will clarify matters. Senator Ryan seemed to speak on the basis that merely because a farmer took grazing he was going to be taxed on it, or that if his valuation was over £100 he was going to be taxed. As I understand the situation no farmer is going to be taxed as much as one penny unless he makes sufficient profit out of farming to put himself into the category of income tax payers. If that is the position it seems to me to be perfectly fair and equitable and treating the farmer the same as everyone else. I have great sympathy with the farmers. I have particular sympathy because my wife is a farmer and if she is taxed I will probably be paying tax.
I think Senator O'Higgins has put his finger on the nub of the question. Nobody, be he a farmer or a non-farmer, is taxed in this country unless he has an income which comes within the tax bracket. I would like somebody to justify why anybody should be exempt from payment of their due share of tax because of the nature of the occupation in which they are engaged. That seems to be an indefensible principle. Yet it was one that was maintained here for many years, but we broke it last year and I would hope that there will be no effort to return to it.
Income is usually the result of labour. If it is not as a result of labour it is due to foregoing of current consumption by saving. If society decides that, in order to obtain tax, capacity to pay should be taxed, then it should be paid and there should be no differential whatsoever. If there is anything wrong with the taxation code in this country it is that there are still a number of areas of activity which are not yet taxed while people who are caught in the tax net—this has been argued on earlier sections today—are taxed at a level which is inordinately high. Apart from the fact that farm income has in the past and is still in the main exempt from tax, we are in a situation in this country which is unique, and for a good purpose. We have gained advantage and I am not saying that there is any proposal to change it. Nevertheless, it remains a fact of life that profits made on exports from manufacturing industry are exempt from tax. That means that the remainder of profits and incomes here are charged at a level which is higher than would have to be charged if such profits were subject to tax. That is a reality of life. I am not arguing at all in favour of any change in the present system, which has brought immense benefit to Ireland and has given us an industrial base which we would not have unless that concession was provided. There is no proposal or even contemplation to interfere with it. It is one of the aspects which contributes to the level of taxation which we have in this country.
To return to this specific section, the purpose of the section is to secure that the taking of land for grazing livestock will be treated as occupation of land for the purpose of farming as we know it or, to use the tax definition, "husbandry".
Last year it was in this House that attention was drawn to the anomaly under which profits from grazing were subject to tax under the ordinary tax law, and that the person could in the future still be obtaining an income from grazing and not on that account be entitled to the very few exemptions which were granted under the farm taxation system. As I recall it, it was a magnificent sunny day in July and we spent the better part of five or six hours arguing about the difference between conacre, the 11-month system, grazing, farming generally and so forth. I undertook to consider all the arguments advanced.
What we have done now, as a result of a very useful debate in this House and our consideration of it, is to do what I think no reasonable person can object to, and that is to treat the activity of grazing as similar to any other activity on the farm. This has the advantage that a person who is engaged in grazing and who is not a genuine farmer will in the ordinary course of events have his activity treated as an ordinary business activity. A person who is a farmer and who in addition to his own farming takes some grazing as well will be entitled on that account to the various exemptions and privileges which genuine farmers enjoy.
What we are really dealing with here is an anomaly which was created by virtue of the number of court decisions which regarded as different for tax purposes the profits made from grazing, which was supposed to be no more than the use of land without an interference with it; whereas any profits generated from an interference with the land were to be treated in a different way. Quite clearly these distinctions have no justification today. What we are doing is treating genuine farming activities, no matter what their description may have been, as farming activities within the meaning of the Act. This will in many cases operate to the advantage of people who are engaged in farming, if they are genuine farmers. It will not operate to the advantage of people who are not genuine farmers, who are engaged in grazing as a sideline. That is a situation which no person concerned with the equity of the law can attack.
I will not go into the merit or demerits of the section except to say something that is slightly extraneous to the section but relative to the function of this House in that what we sought in the debate last year on the Finance Bill was clarification of this matter. Senator Yeats sought that. It was Senator Garrett who raised the precise point as to what was meant by the section that is now amended—section 13 of the Finance Act, 1974—where undoubtedly there appeared to be a misconception in the thinking and drafting regarding conacre and grazing letting. At least everybody knows where they stand now. The 11-month grazing lessee is now deemed to be, for the purpose of the valuation assessment, the owner in so far as bringing him within the farm tax umbrella is concerned. We are grateful to the Minister and the Revenue Commissioners for seeing the reality of what appeared at the time and was reported in the media the following day to be a fruitless debate. It has now proved to be a fruitful one as clarification of the law has emerged.
It was obvious from the debate last year that the situation in regard to lettings would have to be rationalised. I want to inquire why it is—this applies to all Governments and to all experiences I have had in this House—that when a good case is put up in the Seanad, put up by the organisations concerned and by the Press, as was put up in regard to certain of those matters, all Governments show such a reluctance to concede and accept that we are capable of making a case here that carries conviction, that is just and which must be acceded to. We often find the next year that the Government come back and quietly concede the case. It would be much better for the morale of the Seanad and of the organisations concerned as well as for the public relations of the Government that they be seen to be open to rational argument.
I do not disagree with the sentence uttered by Senator Quinlan but this is the first year for many a year that there was an opportunity open to the Seanad to make a recommendation which the Dáil could have accepted without being recalled from vacation. I trust that those days are gone in so far as financial business is concerned. The important point is that this issue, which was identified last year in a most interesting debate, is now being rectified by section 12.
We are glad that the Minister has now accepted the point that it was quite unreasonable and inconsistent to discriminate between one form of conacre and another which in principle were the same and are now the same for tax purposes. We still have this rather curious inconsistency which has been referred to by Senator Dolan, that the Minister is in some cases getting tax twice on the same piece of land.
In other fields of taxation there is what can be described as double taxation. It is not good in principal but it happens. In this case it is more than double taxation. It is a case of double occupation for the purposes of this legislation. The farmer whose valuation is £100 or more is liable to tax. A farmer who has £70 valuation and takes enough land on conacre to bring him up to £100 valuation will become liable to tax under this Bill. One would have thought that in all conscience the farmer who is now gone down from £100 to £70 in valuation for practical purposes should no longer be liable to tax but, in fact he will be.
The Minister said that he could see no reason in principle why farmers should not be taxed the same as everybody else. The point is that the Minister by his own legislation has provided that subject to certain exceptions, farmers will not be taxed unless their valuation is £100 or over. In the case of two neighbouring farmers who let land to each other on conacre, in the absence of the conacre, only one of them would be liable for tax; but the Minister is arranging matters so that they would both be liable to tax now.
If a farmer has £50 or more valuation and either the man or his wife works then they become liable to tax on the farming profits also. These limits can again be affected by this question of conacre. It seems quite unreasonable that where the man who lets his land on conacre—thereby for his own practical use he no longer has £100 valuation—he is still liable to tax. It is inconsistent. I should be interested to hear the Minister's explanation why he maintained this when he did away with the other inconsistencies.
Clearly it would be wrong that a person could avoid tax by transferring part of his farm to another. If A was to rent part of his farm to B and B was able to rent part of his farm to A, obviously any liability to tax could be very easily avoided by both. I am sure Senator Yeats would not wish that to happen. I thought we had dealt sufficiently last year with the argument of double taxation, a huge emotive phrase that has no basis. I should like to give a couple of examples which will show that it has no basis.
Last year I recall pointing out to Molesworth Street, which can be seen from my position in the Seanad Chamber, to the owner of a premises who rented the premises to another person for use. That man would be liable to tax on the rent charged to the other person. That is one liability to tax. The person who used the premises and generated a profit out of its use would also be liable to tax. I have never heard anybody engage in the emotive address to the effect that that was a sample of unjustifiable double taxation. If anybody thinks that is an example of unjustifiable double taxation and would want to amend that code, I invite them to justify that argument here in this House today.
There are two separate elements involved. One person is generating a profit out of renting a premises to another and another person is generating a profit out of the use of the premises. That is all we are dealing with here under the taxation proposals in the ordinary income tax system.
Let us take an example. Supposing a farmer farms land of rateable valuation of £120, owned by him, and generates from that land a profit of £7,000. Let us assume he has rates of about £500 and depreciation of £300; he is married, his profits are £7,000. He has deducted from his profits the rates of £500 and the depreciation of £300, a total deduction of £800. Therefore he has profits, which are chargeable to tax, of £6,200.
If the same farmer, instead of working the land himself, decided to let his farm to another at a rent of £2,400 —the owner paying the rates—there would be a situation such as follows: Farmer A—let us call him—would have a rent of £2,400 from which rates of £500 would be deductible. He would have an income of £1,900. On the other hand, Farmer B, who took the land from Farmer A, would be able to generate the same profit out of the use of the land as Farmer A, £7,000, but from those profits he would deduct the rent which he paid to Farmer A of £2,400. Farmer B would be entitled to the depreciation and he would deduct from his profit of £7,000 his rent of £2,400 and the depreciation. Therefore he would be left with a net profit of £4,300. In each case the profit element which would become liable to tax would work out at exactly the same, £6,200.
There is no question of any double taxation on the same profit. There are two distinct elements of profit generated by different people for different purposes. As I have illustrated, the net amount left for taxation happens to be precisely the same. In fact, there might be less profit, or there might be less tax paid, because of personal allowances in which two people might be involved, both landlord and tenant, than there would be in the case of the person who was operating the profit himself. To come back to what I said originally, there are two distinct origins of profit being taxed so there is no element of double taxation whatsoever.
The Minister has given an example. In the case of the second farmer, if he opted for the notional system of taxation—that is £40 in the £ valuation—he is allowed to deduct certain expenses from that amount. Would the actual rental be an expense?
Only the rates and depreciation would be deductible by a person entitled to the notional basis.
Not the rent he would pay to the other person?
No.
That would seem to be wrong.
No, this question of a notional allowance is a concession. If that concession is not as attractive as paying actual accounts, then the person will pay on actual accounts provided it is better. What is wrong with it? If there is anything wrong with it, it is giving a section of the community a notional allowance which they can opt for if it is in their favour. No other section of the community is allowed a notional assessment as to what their income may be.
Surely the notional scheme is only a means of reckoning an income, because in general most farmers are not used to keeping accounts. Therefore, it would seem that when a man has a 100 acres on rental, compared with a man who owns 100 acres, any notional estimate of the profits which would be arrived at in the first case would obviously be less than those earned in the second case because there will be the difference of the rental between the two people. Therefore the rental should be included in the calculation.
The notional basis is one that a person may use if it works to his advantage. There are very few people who, if they found some other system that worked to their advantage, would not keep the accounts in order to show that their type of liability would, as a consequence of keeping accounts, be reduced.
Yes, but in general the farmer who takes grazing is far more industrious and anxious to increase his acreage than the man who has the land already. There are many cases where people with £40 or £50 valuation take adjoining holdings but now they will be over the £100 limit and they will be put into a tax net where the national figure is to their disadvantage compared with the man who owns a large amount of land.
There is nothing unfair. If the man does not want the notional figure, because it is to his disadvantage, he can produce actual accounts. I cannot accept as defensible that a person should be given three or four different options. The ordinary taxpayer is screwed for whatever the law says he must pay and he is not given the advantage, given to people in the farming community, of operating a national allowance.
Surely the notional allowance was given on the basis that the people concerned are not used to keeping accounts and that it would take some years for them to become used to the system.
I am afraid this is a detailed discussion.
Previously, the taxpayer who had to show account on the basis of profit and loss on that grazing element alone was in a much better tax position. In other words, if he were under the 100 acres of what he had originally, he was tax exempt. Now, he is tax exempt on his actual holding and he is liable for tax on whatever profits arise from the rental.
This argument about the notional allowance is an unending one because it can be argued that the taxpayer who is engaged in industry, who works hard and takes on overtime to earn extra money and usually spends quite an amount of money on beer is being doubly taxed. All sorts of cases could be argued in that way. It is not relevant to the general context of the section we are discussing.
I was pleased that there were no arguments about the principle, as we discussed that before. In 1971-72, £210 million was earned in farm incomes. There was no tax levied on that amount. We spoke earlier of getting an equitable distribution of tax if we are to deal with the redistribution of incomes.
On the other hand, workers in industry, in the same period, between wages and salaries, earned £930 million and they paid over £100 million in taxes. These are people who went out to work, took on extra work and had to pay taxes in every other respect. It is an unending argument, and it cannot be accepted that because a person is enterprising he should escape. There are obligations.
Perhaps the Senator will allow the unending argument to end at this point and agree the section.
We all appreciate that we should pay taxes but there is no comparison between the person in sheltered employment, with an industrial job, and the person farming as regards hours, overtime and so on. Certainly, those who are working on the land and own farms have to pay rates, too.
Question put and agreed to.
Sections 13 and 14 agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."
Every Senator should note the performance by the Minister of the undertaking he gave to this House last year with regard to the point which was raised here on this matter when the 1974 Bill was being debated. He has fulfilled that undertaking. It is not something which ought to be let pass.
I should not let pass the occasion of paying tribute to Seanad Éireann in general and Senator Alex FitzGerald in particular for drawing the attention of the Houses of the Oireachtas to the necessity of making this amendment. There are those who had doubts—I do not mean any disrespect—about the usefulness of the Seánad. This is a case which proves how necessary it is to ensure that our laws are good laws.
Question put and agreed to.
Sections 16 to 20, inclusive, agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."
This is as good a section for me to speak on as any other section in relation to the point I wish to make. The Irish Times should wake up. Considerations of space obliged them to report nine sentences in what I am sure was otherwise a very correct editorial of my observations in a speech that lasted 65 minutes at least. But in the course of it somebody slipped up— I do not give a hoot who it was; that is their business—and I am reported as having said that there was nothing wrong with any tax evasion scheme. I did not say that there was nothing wrong with any tax evasion scheme. In fact I devoted about 25 minutes to what Senator Killilea if present would say was a lecture to the House on the distinction between tax evasion and tax avoidance.
I must say on behalf of this side of the House that I feel——
As almost always I must make a small reservation helpful in relation to this. I do not know whom I am dealing with in The Irish Times, whether it be the reporter of my observations here, the editor or sub-editor who puts “Political courage” at the heading of my observations and then follows with the Ryan replies to political courage presumably, dissenting no doubt, and then going on to deal with other sectors, but I know that this report is outrageously incorrect and I am abandoning all efforts to inform The Irish Times and, through The Irish Times, its readers as to the distinction between tax evasion and tax avoidance.
Something like this divided eastern and western Europe in the 11th century the filioque clause. It is a theological distinction that it is impossible to communicate. I want to be recorded as saying that there is a distinction between tax evasion and tax avoidance. I am not in favour of anything; I am merely making the distinction. One involves telling lies. Perhaps we could get that down. Tax evasion equals telling lies, cheating— have you got that? Tax avoidance involves establishing the truth.
The Senator should address the Chair.
The Chair is always a concern of mine, which I hope I show respect for and which I certainly thought I was addressing because through the Chair, and only through the Chair, can we be orderly in addressing anybody else. Unfortunately the Chair, in doing its duty so magnificently, intervened at a moment when I was making a distinction between tax evasion and tax avoidance. Tax evasion equals telling lies—right? Tax evasion, the Chair will agree, is deceit. The Chair, though it cannot form an opinion on any of these matters, will arrange to have me recorded as saying that tax avoidance discovers the truth about laws that are formulated by us, presented to us on instructions, advices, from people very well informed about everything and having established the truth and the exact form of the laws, proceeds to advise people concerned with the impact of the laws on their circumstances as to what they ought to do.
We could have a very long and interesting debate on whether people who are, for example, involved in public life ought to be concerned with tax avoidance. It would be a very interesting question and one I think about, but that people who are not involved in public life are, or should be, entitled to do their duty, which is to give the best advice to their clients, is a matter of great importance. It is also of great importance that the Minister should have other advices than the advices of the Revenue on such matters, because it affects the whole credibility of the institutions of the State and of the attitude of Ministers as to the manner in which they, the Revenue Commissioners, are obliged by the laws we enact.
I want to take two examples of this. The Minister has recently referred to the abolition of death duties. I do not intend to go into that terminological discussion as regards whether the death duties have been abolished or not. The Minister has said, and there is a degree of truth about his observations, that these were iniquitous duties. Were we, and those professional persons who are concerned with advising their clients, in circumstances of enormous variety, doing something that was in the grey area if we looked at our clients' situations and said: "Look, you can do this, that and the other and if you do, you will avoid the imposition of these iniquitous duties?" Were we doing anything wrong in anticipating the Minister's view as to the iniquity of the duties?
The view of the Minister on this matter is a good explanation of the attitude of the taxpayer with regard to these duties. The taxpayer felt them to be iniquitous. Perhaps I should not use quite that word, but he felt he was entitled to do what he could to slip out of the awful embrace of the Revenue in regard to this. I accept all that has been said, that Revenue has to collect enough money to pay for the State services. That is all agreed without dissent of any kind from me. However, Revenue recognises in a lot of their laws, our laws—how one slips in the words one uses—the fact that there are different modes of doing things. For example, a chap who has been working hard in a company for years and is about to go out and so on. They are all very keen to recognise his services, because they know perfectly well this chap has been the one who looked after the firm for years: "We will give him £20,000. If we give it to him now he will suffer 80 per cent tax on it. No, we will not do that. We will take time off to discover what we can do to really give him the largest part of that £20,000. We will not give it to him now. We will say, ‘Would you mind retiring on Monday and on Tuesday we will give you a post-employment gratuity'." Is that not tax avoidance? Is it grey? Is there anything morally dubious about seeing he gets the maximum, discovering what the Revenue, via the provisions it has advised various Ministers to introduce into our code, would regard as just in these circumstances? Is the person who discovers this in some way not contributing to society less in his civic spirit than somebody who cannot read the bloody thing anyhow or was damned if he would? I do not find this so.
Take, for example, the acquisition of a company with a great big load of reserves. Revenue have not bothered to advise the Minister that he ought to introduce a system whereby they can collect 1 per cent, or whatever the current applicable rate might be, on the transfer of the shares in all circumstances irrespective of the mode used. They recognise the realities in that situation, that there is a means whereby the value of that company can be transferred without incurring anything like the full 1 per cent of the value being transferred. They recognise that you use—I do not want to bore anybody who has to listen to this—a renounceable letter of allotment in such a situation and transfer the larger part of the value to the renounceable letter of allotment. Here is tax avoidance, like the girls in Amsterdam, set up for our attraction by the Revenue and the Minister. I do not think the discovery of the facts with regard to this is an ethical defect.
I am only using the rather gross examples. You look at the thing more closely under the microscope and you see that all sorts of other things are possible. People who are concerned to discover what is possible and to give advice are doing an important duty to those engaged in enterprise and in the creation of wealth, employment and the progress of this community. Any view coming from the top which throws any doubt on the validity of their operation is extremely dangerous.
In an effort to clarify the position for The Irish Times, could I suggest that tax evasion is the unlawful avoidance of tax but that tax avoidance is the lawful evasion of tax?
Perhaps I could add a footnote to this problem of avoidance and evasion, and the danger that one may be misinterpreted as advocating one rather than the other. I was present one day when a well-known tax consultant was thanked by his client for advising him how he could evade tax. The tax consultant was outraged and he said I would not dream of advising you on how to evade tax. It would be quite immoral. He said that even to avoid tax, was not quite respectable. He said: "I merely pointed out a method by which you could step outside the Act."
Lest people be carried away by suggestions of happiness which Senator FitzGerald might have made by the attraction of the ladies of Amsterdam, let me say it has been known, for some people who resort to those activities, to suffer consequences which they had not originally either intended or expected. There are certain tax avoidance measures which run so close to evasion as not to merit the defence which legitimate tax avoidance measures deserve. The simple case which operated under the estate duty laws was that one avoided imposing a liability to payment of estate duty on one's family by wisely anticipating debts sufficiently far in advance of death that the family did not have to pay them. Nobody could dispute that that was one of the intentions of the Legislature. It was so expressed in 1894, and endorsed on several occasions since then, that one of the purposes of estate duty was not merely to collect tax but to encourage people not to accumulate wealth in too few hands but to distribute it in such a way as to avoid payment of tax. That is legitimate tax avoidance.
There have been some measures, and I do not think anybody could say to the contrary, that have bent the law into such strange shapes as to be clearly indentifiable as measures which were intended to frustrate the intention of Parliament. That is not peculiar to this country. It has happened in other countries. There is hardly a Finance Bill in any country that does not take some steps to close off loop holes of marvellous ingenuity that people have found. The Revenue Commissioners never cease to marvel at the ingenuity of some of the tax avoiders who come in with schemes which no reasonable person would ever have contemplated. If the Legislature was ever to contemplate all possible avenues of avoidance, then the laws we would need to pass would be a lot more complex than at present, and because of their complexity they might be unworkable.
People often complain about the complexity of the law, and tax laws in particular. The complexity is, in most cases, not attributable to any sophistication on the part of the legislators or to any intrigue on the part of the advisers to the Executive, it is usually attributable to the unlimited ingenuity of people who sit down and study the laws to discover their weaknesses.
The avoider is the person who takes advantage of those weaknesses. It is a fair sport. I do not say that it is unfair, but people who play with fire have no right to complain even if the Legislature on a subsequent occasion take steps to put out the fire. If people stretch their imaginations so far as to bend the law or frustrate the will of the Parliament which they know to be crystal clear, they have no cause for complaint if Parliament subsequently takes action to close off those weaknesses.
In case Senator FitgGerald feels aggrieved that he is the only person misquoted in todays excellent report in The Irish Times I should like to say that it has also attributed some remarks to me which I doubt very much if I uttered, because I did not have the opportunity of checking with the Official Report. It suggests that I said the budgets of 1973-74 and 1975 were not expansionary, when in fact I believed them to be expansionary and I so designed them as expansionary and I hope I so recognised them last night. When I said that our difficulties today would be much worse than they are if we had not had those budgets, I argued that they would be much worse today than they are if we had not expanded industrial and economic activity over the last three years.
I accept that that was said at the conclusion of a long session last night and that our friends of the Fourth Estate were also at the end of a long day. While we were able to conclude our proceedings at 9.45 they had to carry our remarks to another place, have them printed and, possibly, in that short time available to them some of the remarks got misreported. But these things happen. I suppose we would be all the more upset if we were certain that every person to whom we were addressing our remarks last night read them. Fortunately for them and for us, they probably have not read everything that we are reported as having said.
I do not want to delay or bore the House, but I just wanted to make shortly two points on this. The second, I think, might be a more positive contribution to the debate than I had made earlier. First, the Minister must recognise that, granted the existing state of the law and the arrangements we have got here for its interpretation, it is the duty of people who have a professional involvement to tell their clients what their rights are. Far from their being or thought to be in anything like an immoral position, they would be in an immoral position if they did not point out these duties.
The second point—and this is really a serious contribution to the debate —concerns a very unfortunate thing that has developed over the years and precedes the Minister's occupation of his high office. A fellow has discovered and evolved a scheme which is dubious only in so far as it is more contrived and more ingenious to get through and thwart, to adopt the Minister's word, the will of Parliament. Under our system the will of Parliament is discovered by the courts reading the documents and the duty of the practitioner is to point out this fact to his client.
I understand the reluctance of the Revenue with regard to this. We will only solve this problem if we have some system whereby schemes can get cleared with the Revenue. I know that the Revenue have great reluctance to take on the burden of extra duties. But there are all sorts of things that are arising where situations can get captured because people have been able lawfully to contrive to come in to avoid these situations. If these genuine situations, which is in a way what we are talking about, could go to the Revenue and we could say: "Could I get this cleared? Is that agreed," now I know time would be involved and staff would be involved and so on, but we get away from this present position. Then professional people who wanted to do their job honestly would know that they could do their job honestly without anybody having the nerve to say that they were not, which is very important from the point of view of the reputation of the State. I think I am correct, but I am speaking through the Chair to many people far better informed than I am on this.
I believe such a situation exists in America, where an awful lot of the schemes that the Minister correctly describes as "thwarting the will of Parliament" would be knocked on the head straight away under the American code. But, on the other hand, if you were in doubt, as a person engaged in enterprises, whether or not your thing was going to be right, you could go through and get a clearance and then you would be all right. They will recognise that in particular situations there should be an allowance of freedom given to go off and earn your income free of tax or mitigated by a particular provision or whatever on the basis that, complying with other sections of the code, you are going to come back in again with your earned wealth and they are going to take their return for the American community in a capital gains provision or whatever.
That is an American solution; and for goodness sake do not suggest that Washington should get transferred to Dublin. There is this human reluctance of the Revenue to take on extra discretions. Personally I would feel from my own experience—it is an odd thing for me now to be saying this because I criticise them a lot in various ways—that I would trust their exercise of discretion completely. But I think that is quite clear out of pension funds and so on.
I mentioned earlier on the Second Reading that such things as covenants in favour of charities could get given at the discretion of the Revenue. I know they do not like discretions. But it is our business to legislate for them as well as for everybody else and give them discretions to exercise. In relation to things like this there ought to be some system whereby you get a clearance which would be your guarantee. That is a positive and serious contribution.
Question put and agreed to.
Sections 22 to 27, inclusive, agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."
The rate of interest proposed in this section on taxes which are in arrears is a really savage rate of interest. I know the Minister will justify it, or attempt to justify it, on a number of grounds. He has said on previous occasions that the State is not a lender of money, that it is not a bank and that this is not a rate of interest being charged in the ordinary way as a bank or some other institution would do so—that this is a penal rate of interest to force people to pay their arrears of taxes. The fact of course is that he seems to be suggesting that anybody who is not paying taxes on time is doing so deliberately. He has suggested that there are many people who are withholding tax, investing the money somewhere else and making a profit on it. Even at the rate of interest normally payable up to now—in most cases, 12 per cent and some cases a little less—it was not very likely that a person could make much money in that way. The real problem that presents itself—the Minister appears to be overlooking or is not paying much attention to it—is the fact that the vast majority of people who do not pay their taxes on time, do not pay because they are unable to pay on time.
It is not a deliberate witholding on their part. It is not that they are investing the money elsewhere; it is simply that they are not able to pay for one reason or another. This of course applies, in particular at the present time when there are economic problems, and individuals and firms are going out of business because of the difficulty of finding money for any purpose, and that includes paying taxes. It is quite wrong that this rate of interest should be imposed on the basis that it will prevent people who could pay not doing so and, on the other hand, ignoring those who would very much like to pay but are unable to do so.
The Minister has seen many other examples very often in the past on other Bills going through the House dealing with such things as landlord and tenant and hire purchase legislation. Again and again we have legislation going through the House in ease of people who should be paying certain money at a certain time. Where the public feel it would be a hardship on them to impose the strict letter of the law, there are all kinds of benefits and provisions in the law to help these people. It is regarded as only proper that this should be done. But where a person is genuinly unable to pay tax on time they may find themselves having to pay an interest rate of 1.5 per cent per month, which is an outrageous rate of tax.
It is one thing to say that it would be appropriate in certain circumstances but it is quite wrong to regard it as the norm. Whereas nothing can be done in regard to this Bill the Minister has in the past shown that when he has time to gestate the good advice he gets from the Seanad he may do something about it. In this case the idea of charging such a savage rate of interest, particularly at the present time when interest rates are tending to go down, should be modified in some way. Certainly it should be modified to prevent it being used in a universal way against all those who are refusing or unable to pay tax, which I would say is the case in 99 per cent of the cases.
I am very impressed by Senator Eoin Ryan's argument. While I appreciate the difficulty of the Minister in reconsidering the matter in relation to this Bill, I would support Senator Ryan's appeal to have a look at it again before the next Finance Bill is brought in. I agree almost 100 per cent with the argument made by Senator Ryan. If I were Minister for Finance I would have no mercy on the income taxpayer who is in a position to pay tax but who does not. But I have every sympathy with the person who is subject to tax, has received his assessment, but who finds himself not in a position to pay that tax.
It may very well be bad housekeeping or bad budgeting on the part of the taxpayer. In a number of cases the taxpayer, if he were prudent enough, would make provision at the time he is earning his profits and set aside sufficient to cover the tax. Very often, because of one demand or another which may crop up, he does not do that when he should. Then he finds himself in a situation where he gets a large income tax plus, possibly, a sur-tax bill, and he has not the money to pay it. He does not want to avoid paying it; he does not want to evade paying it; he is simply not in a position to do so. In that situation, he should be treated no more harshly than any other debtor to any other creditor in the same position.
This must be looked at against the background of the actual situation. The amount of arrears at the end of 1974 was thirty times greater than the arrears of tax in 1964, although the total value of tax in the same period increased by no more than five times. I am taking inflation into account when I say that the quantity of tax over a ten-year period increased by a multiple of five, but the arrears increased by a multiple of 30. The State is not interested in collecting interest on overdue tax. The State is interested in getting all tax promptly paid. Therefore the rate of interest must be such as to act as a disincentive to people to withhold payment of their tax.
I have the greatest sympathy for the cases mentioned by Senator E. Ryan and Senator M.J. O'Higgins, but it is no function of the State to be a banker. In fact, the State has no statutory power to be a banker in the circumstances to which the Senators refer. Very properly, a Minister for Finance is not given information which allows him to identify the confidential circumstances of individual taxpayers. None of us would want that situation to change. But some cases have been brought to my notice, without any attribution of names or any information that would give me power to identify the people involved, where tax payable was deliberately withheld from the Revenue Commissioners for the purposes of using the taxes withheld to the advantage of the person withholding it. In one case a sum running into five figures, which did not belong to the person who had the obligation to pay over the tax, because he was an employer who had taken the employees' liability to income tax away from the employees and who was under an immediate obligation to remit that money which did not belong to him to the Revenue Commissioners, used that money to extend his own private premises. Why? Because under the rate of interest of 12 per cent he, no doubt, could borrow the money at a rate cheaper than he could get it on the open market. Admittedly interest paid on overdue tax does not qualify for tax relief, but when you bear in mind that some finance houses have been offering money at 18 per cent, 20 per cent and 25 per cent, it is quite clear that it would be advantageous for some people to use the tax system to get for themselves comparatively cheap money.
Some of the worst offenders under this system were finance houses themselves who were able to place the money at a rate of interest far in excess of what it cost them were they to have paid the tax on time or paid interest on the money if they had borrowed it elsewhere. I do not like to be associated with an increased charge of interest on overdue tax in cases where hardship arises. Even where such hardship arises, it is open to people to avail of the ordinary financial institutions to borrow the money to pay tax but we have to ensure some system under which people are not encouraged to use the Exchequer as a bank. In all cases where people borrow money they ought to be able to convince the lender that the circumstances warrant the borrowing.
Such option is not left open to the Exchequer. They are not in a position to assess or even given the opportunity to assess. We are concerned with prompt payment, not with collection of interest. Even with the arrears running at such a high level, the amount of interest collected is neither here nor there in relation to the annual budget. What is important is some disincentive other than interest, I would be willing to consider it. However, I cannot think of anything which will encourage people to pay money more expeditiously than charging them more if they fail to meet their obligations.
The Minister concedes that, on the one hand, he has made a very good case for certain people who are deliberately using the money to their own advantage. He also concedes that there are unfortunate people who are not in a position to pay. The objectionable thing is that there seems to be no discretion on the part of the Revenue Commissioners not to do this in all cases, but to do it in suitable cases where it is clear that an attempt is being made to deprive the State of money at the proper time. The relatively innocent will suffer because of this section. There should be some discretion to deal with that kind of case. This will cause administrative difficulties but nevertheless, if it is found necessary to take this extreme measure to deal with people who are acting in an extreme way something should be done for those who are relatively innocent.
Question put and agreed to.
Section 29 agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."
I welcome what the Minister has just said. Under the provisions of section 34 of the 1973 Act, is it possible to say if we have had response for value to the community in terms of the incentive involved?
To the best of my knowledge, information and belief, some of which is personal and not administrative, I know that advantage has accrued to the community as a consequence of this measure. If I may say without disrespect to any other relief given, I think we have received more immediate physical benefit to our community as a result of the operation of this relief than might have come after some of the reliefs offered in respect of cultural activities, which is not to suggest that cultural activity is not deserving of relief. There has been some real benefit accruing to our community as a result of this. I hope this is only the beginning of the benefit because we have too little research and development, too little invention. When we have invented in the past we have in many cases tended to sell off the invention to others. I hope this will operate to the greater benefit of our community.
Question put and agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill."
A quick observation on section 31. It is limited to companies. There are individuals who are not allowed to become companies. I relate that observation to what the Minister has just said about the deplorable and awful position of the State, which is like a trading concern in some of its experiences in so far as it cannot collect. There are individuals who cannot collect and who yet are subject to various rates of tax as previously passed. I do not know if the Minister's thinking on this will ever deal with the situation of individuals caught by the obligations of keeping their show on the road, to plough money back, and in maintaining the inevitably increased capital involved in debts. This is in part caused by inflation, which not merely inflates the amount of debt owing but increases the temptation of the debtor not to pay. I should not end without saying—I did say so on the Second Reading—that I thought this section a very remarkable tribute to the Minister and his advisers in the speedy response which it represents to rather a new case made just a month or so before.
I thank the Senator for his kind remarks. I want to give him this assurance, which I also gave in the Dáil on the 15th January last, that the benefit conferred on companies under this section will in next year's Finance Act be conferred on individuals. There were technical reasons why I could not do it in this year's Finance Bill. It is our intention to pass this on to non-incorporated concerns next year.
Question put and agreed to.
Sections 32 to 37, inclusive, agreed to.
SECTION 38.
Question proposed: "That section 38 stand part of the Bill."
I should like to make an unpopular statement on this section purely in a personal capacity, because I doubt very much if my party would stand over me on this. It is so universally accepted that tobacco is a dangerous poison that it should be incumbent on any Minister for Finance to arrange duties on tobacco year by year in such a way that there is no increase in the consumption of tobacco. The Minister has done his bit this year. I doubt very much if there will be an increase in the consumption of cigarette tobacco this year.
I agree with what Senator Yeats said. I abandoned the weed because the level of duty on tobacco in the North of Ireland was 5p a packet dearer than it was in the South. That was enough to put me off. However, it is worthwhile remarking, while I do not disagree with any remarks about the dangers of tobacco that it is also considered to be a sedative, and maybe for some people it would be a safer form of sedative than some of the pills they might be otherwise tempted to use if they had not got the nicotine to calm them.
Question put and agreed to.
Sections 39 to 46, inclusive, agreed to.
SECTION 47.
Question proposed: "That section 47 stand part of the Bill."
It does seem that death duties have been abolished with a remarkable flourish. The fact of the matter is that inheritance tax has taken their place. When death duties were introduced there was a great furrore and great publicity among many organisations and even among banks. They held symposia and seminars to explain as best they could the details of these death duties and how they would operate for the public in general. I suggest, seeing that we have the inheritance tax in the place of death duties, that the Minister would encourage the holding of some of these symposia again so that the people would have some idea what their rights are and what the real position is now in so far as inheritance tax is concerned.
I want to make this point and to reiterate what Senator Dolan has just stated. We must be clear and candid about it. We are not abolishing death duties in this legislation. There is no such thing as death duties in so far as the section we are talking about is concerned because death duties do not appear in the section.
In section 47 (6) it states:
In this section—
"the appointed day" means the 1st day of April, 1975;
"death duties" has the meaning assigned to it by section 30 of the Finance Act, 1971;
If one reads the section right through carefully one sees a heading "Death Duties" and a side note, "Abolition of death duties". As the Minister is well aware, what will be interpreted in the courts and by the Revenue Commissioners in their application of the legislation is what is in section 47. Section 47 refers to estate duty, legacy duty and succession duty in subsections (1), (2) and (3). It refers in subsection (4) to the consequential taxation results of the events postulated in the various parts of subsection (4)— (a), (b), (c), (d) and (e). In subsection (5) it refers again to legacy duty and in subsection (6) I repeat it says "death duties" has the meaning assigned to it by section 30 of the Finance Act, 1971, prefaced by "In this section."
The section, as drafted, should certainly be remedied between now and the next Finance Bill. Forgive me for going into the political arena here to some extent. "Death duties" is a term that has been used in an emotive way by the present Government in the last election campaign and as part of the 14-point programme. That is all right: It is part of the political exercise that death duties will be abolished—full stop.
In fact, death duties are not being abolished when one links section 47 with what was proposed in the Capital Acquisition Tax Bill or the inheritance Tax Bill. It may be called the Gift Tax Bill—it is getting a number of names at the moment. Coming back to this emotive phrase that death duties will be abolished this was the commitment in the 14-point programme. Now, we are importing this emotive phrase in regard to death duties into a very serious measure.
In fact, we are not abolishing death duties. We are replacing a system of estate duty, of legacy duty and succession duty as has obtained heretofore by a new system, which we will be debating further in the Seanad of inheritance tax—for want of a better word—under the Capital Acquisitions Tax Bill. They are the facts of the matter and we must be candid and clear about it. The famous emotive commitment by the present Government to the abolition of death duties is just not being fulfilled. We are having a redistribution of the form of taxation that will accrue on the death of a person but we are not abolishing death duties.
In order to remove any misconception that Death "Duties" is put in here in a side note and inserted in section 6 for political motives in a serious finance measure—the most serious annual piece of legislation passed by any democratic Parliament in the world—I suggest to the Minister that he has time, between now and next Thursday, 15th May, when we must pass this measure, to go back to the Dáil and remove this anomaly. He must remove the anomaly of having the abolition of death duties written in the side note to section 47, which is not true.
I would ask the Seanad to address itself to section 47 and see where in that section is there any reference to death duties. The phrase does not arise until one comes to subsection (6) where it says "Death Duties" has the meaning assigned to it by section 30 of the Finance Act, 1971. This is totally faulty draftsmanship, unless it is political pamphleteering. I would hesitate to accuse the Minister for Finance of engaging in political pamphleteering. It may be just a mistake and should be remedied between now and the next Dáil sitting.
The facts are that on a reading of that section there is no reference to death duties until one comes to subsection (6). That subsection implies that death duties are mentioned somewhere in section 47. They are not mentioned in section 47. All there is is a side note, which as I mentioned earlier on is false, referring to the abolition of death duties. That side note is blatantly false if one studies the composition of the Capital Acquisitions Tax Bill. One can go through section 47 line by line and see no mention of death duties until subsection (6). This is a matter which must be remedied by the abolition of the side note, "Abolition of death duties", because that is simply not true.
What the Minister, in effect, is doing is abolishing estate duty, legacy duty and succession duty. He is abolishing these three forms of duty. Therefore he is not abolishing death duties because in a simultaneous piece of legislation he is introducing an inheritance tax which is another form of death duty; it is a redistribution of wealth.
It would make for better legislation to have what is incorporated in the Acquisitions Tax Bill related directly to what is in section 47 or vice versa. It is highly unreal to suggest in a side note that we are abolishing death duties when in a few weeks' time the Seanad will have the Capital Acquisitions Tax Bill which will include another form of death duties. At that stage, we can argue on the rights or wrongs, merits or demerits of the redistribution of death duty involved in the new Capital Acquisitions Tax Bill. That is not relevant now; we can argue it at a later stage. The emotive phrase used in the famous—or infamous—14-point programme, “the abolition of death duties” is now being incorporated in a serious piece of legislation.
I do not mind politicians—I am guilty myself at times—using simplistic phrases. But here we are talking about a serious piece of legislation. In this legislation the Minister is suggesting, on the one hand, that under section 47 death duties are being abolished and, side-by-side with that, there is this other legislation where another form of death duty is being introduced. That is the first point. Secondly, all that section 47 deals with is estate duty, legacy duty, succession duty and——
What are the words immediately under Part III?
Again, it is a heading, "Death Duties".
It is a heading on the section.
No, it is not in the section as such.
It is in the section. Part III consists of one section only, headed "Death Duties".
I do not want to get too legalistic; the "plain meaning of the section" was, I think, a favourite phrase of the late Justice Lavery. If one considers section 47, I suggest that we overlook the global emotive, politically-orientated heading, "Death Duties". It is not part of the section. The equally emotive, politically-orientated suggestion in the side note, "Abolition of death duties", is also not part of the section. The section consists only of the plain meaning which deals with the abolition, as of 1st April, 1975, of estate duty, legacy duty, succession duty and the consequences thereof. In subsection (6) we have "death duties" in inverted commas but it is not referred to in this section.
Finance legislation does not lend itself to emotive political purposes. There is another arena for that purpose. This is serious legislation in which we must be precise both in phraseology and draftsmanship. I would ask the Minister if he can, between now and next Thursday, to accept a recommendation—I have not drafted it formally—to remove the phrase "death duties" from the heading, the side note and from subsection (6) of section 47. Apart from the total falsity of the matter, when one considers the Capital Acquisitions Tax Bill, we are not removing death duties, we are changing in another form of legislation the type of death duty which the State will exact, it is totally imprecise in any form of legal interpretation.
May I agree with Senator Lenihan in his expressed desire to exclude emotion from legislation or, I am sure he would agree, from the debate on that legislation? He has made a good deal of the fact that the heading of this part of this Bill is "Death Duties". He has suggested that these words should be occluded. He has suggested this because we will debate in due course the Capital Acquisitions Tax Bill. He suggests that there is something peculiarly sinister here, derived from the 14-point programme. What heading does he think this part of this Bill should be given to deal with this problem? I shall complete my question to enable the Senator to answer. It cannot be a surprise to the Senator to have noted through his perusal of the Finance Act for many years that this heading to this part of this Bill merely repeats the same heading which has been introduced and given to similar parts of previous Acts long before the 14-point programme. There is nothing emotional about it. There would be something disorientated about it if that heading was not given. If the Senator looks back to the last amendment we had to the code we are now referring to, he will find Part III of the Finance Act, 1973 is headed "Death Duties". There is no reference in Part III of the Finance Act, 1973, to what are "death duties". The Seanad is helped by an actual reference in this Bill to what death duties are being abolished because of the careful draftsmanship in the section. It is in fact those duties which are referred to and specified in subsection (6) of section 47 which we are discussing.
It would be desirable to nail the idea that the draftsman has got involved in a political, emotional operation. There is no other course open to him if the Government decide to abolish death duties but to say: Part III, "Death Duties", side note, "Abolition of death duties". If anybody doubts where I stand in this, let us say what we are abolishing. We find this in subsection (6) and we will say that "death duties" has the meaning assigned to it by section 30 of the Finance Act, 1971, where the meaning will be found at which there will be no surprise.
Death duties are not referred to in the section.
Much ado about nothing possibly would be the best way of describing this debate to anybody. The strange question which deserves to be put because it was put by a very distinguished parliamentarian in 1971 who is now Chief Justice, Mr. Tom F. O'Higgins, who asked in the Dáil why this sinister definition of death duties was inserted in the 1971 Act. He said at that time that he thought a number of some unsuspecting persons might be affected by it. With all his great attributes and gifts I do not think he had the gift of prophesy. I do not think he foresaw that a Member of the Opposition might be amongst the unsuspecting people who might be concerned by the reference. I would not presume to know why the parliamentary draftsman thought in 1971 that it was necessary to define what, in fact, was defined in the 1894 Act as being estate duty, legacy duty and succession duty. There have been several Acts in between which have referred to death duties. The 1931 Act, which gave exemption in respect of works of art from liability to death duties did not define it. For some reason, in 1971, it was thought fit and proper—I suppose it was a tidying-up operation —to express what death duties were then deemed to be. So, in 1975 far removed from the heat of the parliamentary area, the parliamentary draftsman in his own cloister decided to insert this definition. When I saw the result of his labours I saw no reason, at that time, to disagree with him if he very appropriately sought to refer back to section 30 which seemed to put the matter beyond all doubt.
Now, his best efforts to remove the definition of death duties from the arena of contest seem to have the very opposite effect. Perhaps we could just leave aside the marginal note and consider what is the position from now on. Any person who is fully alive today knows that he or she can die happy tomorrow without leaving any obligation on his or her next-of-kin to pay death duties.
What about the other Bill?
They can die happy without having to pay any death duties—death duties as being estate duties, legacy or succession duties. If they have a house with its normal contents and £150,000 per dependant, widow and each child——
I refrained from going into detail on that position.
An Leas-Chathaoirleach
I thought the Minister might refrain from doing so.
I will show the same restraint as was shown by others. I shall conclude by saying that they can die happy in the knowledge that their next-of-kin will not have to pay or bear any duty arising out of their death.
So long as they have children.
Even if they do not have children they will not have to pay anything themselves whatever may happen to their——
The Minister knows that simply is not true.
The marginal note is no more than a guide to people as to what the section is referring to because we have had other marginal notes from time to time, like in the Amendment of the Income Tax Act or something like that. It does not pretend to be a comprehensive explanation but it is in the clearest possible language, in unusually clear language—and here I pass a compliment to the draftsmen and to the Revenue Commissioners for the clarity and precision of their language in this part of the Bill, which is almost unique because of its brevity, tidiness and explicitness—and they say that:
Estate duty shall not be levied or paid in respect of any property passing or deemed to pass on the death of any person dying on or after the appointed day.
There is a similar provision in respect of legacy and succession duty and these are the three duties which are known to be death duties, which are defined as being death duties and the appointed day is that day of great and merciful deliverance—but, thanks be to God, we have all survived—the 1st April, 1975. The reason why the Opposition are blowing so much about it is because they hoped it would never happen. It has happened and people can now live happy in the knowledge that their next-of-kin do not have to meet this terribly onerous duty when they die.
We must in one sense be grateful to the draftsman for putting in the definition of death duties in this section because it helps us to distinguish the real meaning of death duties and the meaning which the Minister has attempted to put on death duties.
I am not going to maintain this discussion but I would like to inquire if one were to abolish the definition of death duties contained in subsection (6) which reads:
"death duties" has the meaning assigned to it by section 30 of the Finance Act, 1971,
would it make any difference to the meaning of the Bill? There is no reference in the section to death duties. The "Abolition of death duties" note at the side is not part of the section. I do not know if one could say the heading is part of the section but it certainly does not convey any particular meaning in itself. Since there is no reference in the section to death duties, could one not just abolish this reference in subsection (6) as an unnecessary piece of verbiage? It does not appear to add, in any way, to the meaning of this Bill. If one were to abolish it the meaning would be precisely as clear or as unclear as it is now. It would not make any difference at all. It seems bad parliamentary practice to be putting in unnecessary verbiage of this kind.
I bet the Minister will have it removed in the next Finance Bill. On mature advice and consideration, it will not be in the next Finance Bill. I have a small bet on the side.
We do not need to refer to death duties any more. They are gone now.
Question put and agreed to.
Section 48 and 49 agreed to.
SECTION 50.
Question proposed: "That section 50 stand part of the Bill."
The Minister has very kindly on several occasions in the course of this discussion provided us with some very valuable information about the tax situation in certain other countries. It has always seemed to me that the top rate of VAT which is dealt with in this section is very high in Ireland at 36.5 per cent. Has the Minister got figures with regard to rates of VAT in other countries, particularly in Europe and the EEC?
As everybody knows the motor industry is going through a rather critical period largely due to the cut-back in demand as a result of the general economic difficulties. There are over 30,000 persons engaged in all branches of the industry and the industry collects, on behalf of the Exchequer, over £150 million annually in customs and excise duties, value-added tax and so on. I would appeal to the Minister to help the motor and electrical industries by discontinuing the classification of car radios for import duty purposes as "car parts", thereby entailing duty at the rate of 37.5 per cent and place them in the same category as other radios which attract duty at 4 per cent.
In the case of EEC countries there is no distinction between car radios and radios for home use in relation to value-added tax, as both types attract VAT at 36.75 per cent. There should be no distinction from the point of view of import duty. It is virtually impossible for motor traders and electrical dealers to sell car radios which are available in the North and the UK at roughly half the retail price of the prices wholesale in the Republic. To add insult to injury, with the allowance of £52 anybody can go to the North and buy a £50 car radio and bring it across the Border without paying any duty if it is for his own use. The situation today is that people are going to the North and buying their car radios and they have destroyed the car radio business here. The result is that the motor trade are fitting car radios in the Republic for people who bought them at half the price in the North or the UK.
There is a general misunderstanding regarding the 36.75 rate charged here. Thirty per cent is charged as the wholesale, manufacturing or import level, which means that is a tax which does not include the distribution costs and the retail profit. The 6.75 per cent is charged only on the added-value at the retail level. The effective rate if interest is, depending on the article, nearer to 20 per cent. It is probably more in the range of 20-25 per cent than 36.75 per cent such as is suggested.
What Senator Daly said might have been true, and I would accept it as being true, until the most recent budget in Britain. Now the effective rate of value-added tax on radios, car radios included, in Northern Ireland and Britain and the Republic is virtually the same. Possibly, if there is a margin of advantage, it may be in favour of radios here rather than in the neighbouring territories. I am not at this stage speaking ex cathedra but I think there is also a duty on radios which is imposed for protective purposes to assist Irish manufacturers and assemblers of radios which is a fixed rate of duty and is in addition to the value-added tax. That may put the sellers of radios in this jurisdiction at some disadvantage.
I should not like to express a view as to whether that duty is necessary today or whether it is appropriate to continue it. Again, subject to correction, there is a possibility that these units are not being manufactured here at present. That is a matter which is outside the scope of the Finance Bill and I do not wish to deal with it. As far as value-added tax is concerned, there is no significant difference in the rates of duty as between Britain, Northern Ireland and ourselves. As regards the rate of duty in other countries and the EEC, bearing in mind what I said earlier about the net effect of the 36.75 rate of duty, the rate of duty here is in many cases less than elsewhere and is, in most other cases, comparable. When you bear in mind the different natures of charging the 36.75 rate and if you accept this is the truth, the real effect is about 20-25 per cent of the ultimate price. Then you find the rates are not dissimiliar.
I have a note which indicates the following. In relation to these higher rates which I will quote, they do not have it operating at the two levels we have here of 30 per cent at the import or manufacture level and 6.75 at the retail level. Australia has a 27.5 per cent rate on radios, TV sets, cameras, automobiles, jewellery, furs. Belgium has a 25 per cent rate on somewhat similar items. France has a 33.3 per cent rate on jewellery, furs, radios and motor vehicles. I have already mentioned our own rates. Italy has a 30 per cent rate on jewellery, perfumes, furs, alcoholic beverages and motor vehicles. New Zealand has a 30 per cent rate on photographic equipment, lighters, watches, a 40 per cent rate on motor vehicles. Britain has a 25 per cent rate on a large number of items as a consequence of the recent budget. There is no great difference in the rates in respect of these items. We can of course reduce all our tax rates if we find alternative sources of revenue.
It has been argued that the Government could reduce the cost of living and confer great benefit in our community by a reduction of 3 per cent in the rates of value-added tax. The loss in revenue works out at about £51 million and the reduction in the rate of inflation would be only 1.5 per cent. If we were to expend £51 million less from the Exchequer, I fear what the consequences would be. They would inevitably lead to unemployment and would increase the number of people unemployed. The net gain on the Exchequer side would not be very significant when you bear in mind the additional outgoings there would be in payment of unemployment benefit and the reduction there would be in income on the other hand from income tax and VAT which would otherwise accrue. There is no simple juggling in the art of value-added tax adjustments which would be a remedy to our difficulties. But, taking one thing with another, our VAT rates do not differ very significantly from what is in operation elsewhere.
I thank the Minister for the information he has given us. It comes as a surprise to me that in the EEC countries there are different ways of assessing VAT. I thought that though we are a long way from harmonising the rates of VAT and the actual items on which VAT is levied, the method of computing it was the same in each country. It seems we are further from any kind of European unity on this matter than I had imagined.
As regards the 36.75 per cent—the Minister says it is nearer 25 than 36 —I take it that on imported goods it is 30 at the port of entry plus 6.75. Therefore, on imported goods one is paying the full 36.75 per cent. It is less rate on Irish goods. Is that the position?
I should have said on the importation it is 36.75 but on manufacture internally 30.
It is 30 on the wholesale rate but on imported items, including motor cars, people are paying the full amount. If there is a discrimination in favour of Irish products, obviously one has to welcome that. On a great many items which cannot be manufactured in this country but are brought from abroad, we may take it that we are paying the full amount of 36.75 per cent.
It is very difficult in the course of a Parliamentary debate to explain all the details and ramifications of value-added tax and the system of administration, but while there is within the EEC an intention to proceed towards a similar regime of value-added tax, we are a long way yet from having similar rates and I think a clear indication of that is, for instance, a very significant factor: we have not had since 1973 value-added tax on foodstuffs and we considered that was the proper thing to do. Until we did that there was a rate of 5.6 per cent on foodstuffs. That has gone, but within the EEC at present Belgium has a 6 per cent rate on most foodstuffs.
And lower inflation.
That is a different field—we are dealing at the moment with value-added tax. Germany has a 5½ per cent rate on foodstuffs. We exempt all foodstuffs. Italy has 1 per cent or 3 per cent rate on foodstuffs; Luxembourg has a 2 per cent rate on bread, milk, pharmaceutical products and 5 per cent on certain other foodstuffs; the Netherlands has 5 per cent on foodstuffs; Britain has, like ourselves, exemption on foodstuffs. You would want to bear these things in mind when comparing the rates that may operate on luxury goods and it is very difficult to compare like with like because we do not have like at all.
This is only a comment on what the Minister has said. It does seem rather significant. The loss to the Exchequer the present Government brought on themselves in regard to the abolition of VAT on foodstuffs does not appear in any way to have diminished our top place in the inflation league in Europe in that the countries that the Minister just mentioned which tried to harmonise value-added tax across the board, such as the Netherlands and West Germany, are countries that have the lowest rates of inflation within the EEC. Therefore the Government's efforts in that direction would appear from the Minister's figures to have been largely nugatory, to put it mildly, and not to have achieved the desired effect.
The adjustments we made in VAT rates effected a reduction in the cost of living of at least 1/2 per cent.
I do not think so.
They did. This has been established by that terribly unemotional institution called the Central Statistics Office, whose only function is to establish the facts as distinct from the argument. On both sides of the House, with the exception of one section on this side of the House, it was argued that EEC membership would not add significantly to the rate of inflation. We have to accept that the improvement in our food prices, which were an improvement for the producers of the food, are adding quite significantly to our rate of inflation because the price of food here is advancing towards the EEC level and away from the British levels which were nevertheless related to subsidised prices and to buying in the world market which suited the British Exchequer and the British consumer.
Our prices are now related to the EEC market which has meant that we have had an injection of inflation here which is associated here with an improvement in our living standard because the living standard of the whole community is being advanced by the very dramatic improvement that has been made in the living standards of the agricultural community. This is something that we have to live with for a while, but bad and all as the present situation is it is worth while observing that food prices would be 6 per cent worse than they are today if we had not removed value-added tax from food and that is something which, like eaten bread, may be soon forgotten. But it is still our intention on this side of the House to remind people of that happier position.
All I can say about this is that the Minister claims his changes in VAT, in lifting VAT on food and adding larger amounts to other items, led to an overall reduction in the cost of living of half of 1 per cent. One may doubt this but we will accept for the sake of the argument that the Minister's calculation about this is accurate. All one can say is that a half of 1 per cent in a situation where the cost of living since the general election has gone up by 46 per cent is not really a perceptible amount. What has happened, though, as a result of this is that we are odd men out with the English in not taxing food and thereby making it much more difficult to reach any kind of harmonisation of VAT in the European Economic Community.
I will not go into the whole philosophical discussion in principle as to whether food should be taxed, but I think one should make the point that nowadays people do not just sit in the middle of a desert island eating food and buying nothing else. Clothes and many other items are just as necessary to an ordinary family in 1975 as food and it is no great advantage to have taken VAT off one item and put it on another. As far as the public are concerned according to the Minister's figures the only saving they had is one half of 1 per cent, which is negligible.
As a result we have the situation where it is quite clear that for the foreseeable future there is to be no harmonisation of VAT in the EEC because for political reasons neither an Irish Government nor a British Government are going to agree to put VAT back on food once it has been taken off. Therefore we have the situation that the EEC, which is supposed to be a Common Market where you can run goods from one end to the other without any bother about frontier blocks, cannot attain this because rates are different in all countries, not only the VAT rates but the actual items they are levied on. We have the deplorable and rather curious situation that some 17 or 18 years after the foundation of the Common Market the number of customs officers employed in the various countries is higher than it was in 1938.
Question put and agreed to.
Sections 51 to 54, inclusive, agreed to.
SECTION 55.
Question proposed: "That section 55 stand part of the Bill."
I do not want to delay the House but would it be possible for the Minister to tell me why it is that we have to enact the Finance Bill within a particular time of its introduction in the Dáil? I would just like to know that I am right in thinking that it is related to The Provisional Collection of Taxes Act and the expiry of the legal support given to the Financial Resolutions passed at the time of the budget which delimits our time of operation. It is rather hard on the House to just to have to get a measure through within a particular time. First of all I should like to know what is the basis of it and, secondly, is it necessary to have it so, constitutionally, or otherwise.
The Provisional Collection of Taxes Act, 1927, provides that Financial Resolutions will lapse unless they are approved by legislation within four months of the date on which they were enacted, and as the relevant Financial Resolutions were passed on 15th January last, the Bill has to be through both Houses within four months. The House will appreciate that every Minister for Finance is anxious to get the legislation as rapidly as possible.
If I recall the dates correctly, the Bill was circulated on 11th February last and Second Stage in the Dáil was taken on 25th and 26th February. But the Committee Stage was not reached until April, for a multitude of good reasons most of which had to do with the pressure of business in the Dáil. We had the longest debate in memory, in my memory anyway, on Committee Stage ranging over six days and some 36 to 37 hours. Ultimately we had Report Stage.
I should have been much happier if we could have had Committee Stage in March and perhaps the Report Stage in early April, so as to allow the Seanad four or five or six weeks to deal with it. But that is the statutory situation as it stands and clearly there is a good democratic reason for not allowing Financial Resolutions to remain the law of the country until they have been given the imprimatur of an Act after appropriate debate. That is the position as it stands.
I am very grateful to the Minister for that, though I do think the democratic reason given is a bit of a cod; the Dáil has passed the Bill and that is that. From the point of view of our perfecting legislation, it makes a bit of a farce of this House. I remember times—I could not say whether my party were in Government or in Opposition—when one was debating and one saw sections coming up on which one had things to say about them but there was no point to it at all because they all had to be passed.
There should be some sort of amending provision in an Act whereby we could be authorised to pass some sort of resolution which would pass all sections except those which we held up until the Bill got back to the Dáil, when we are coming up to a long vacation or summer recess situation. I do not know what Members opposite feel, but it is a burden to feel that you are at a certain stage—and it only arises in relation to a Finance Bill—debating for next year. That may not be the relevant thing. There may be something important to be covered this year. I think the Provisional Collection of Taxes Act could be amended to give finality to the discussions here in particular situations.
On Senator FitzGerald's point, I think it is a matter that merits consideration because the 1927 Provisional Collection of Taxes Act was drafted and enacted in the context of the April to April financial year and in the context of the Dáil and Seanad adjourning, as they have heretofore, in July and going into a summer recess of August-September. The situation has changed with the very welcome adjustment to the calendar year in regard to financial business. In that context, with both Houses of the Oireachtas sitting for the next two months, which will be through June and July, it seems that the four months provision, which in my view was related to the April to April financial year, is no longer relevant in the calender year situation. Perhaps there could be an amendment to extend that period in regard to a January budget to six months. There would thereby be a situation whereby from January to June both Houses of the Oireachtas could debate the provisions. It would seem to make sense.
I was going to suggest that.
I do not argue at all with what has been said but I would like to offer another view which must be borne in mind. At present the Revenue Commissioners cannot assume legally that Parliament is going to pass a particular law. If you take the multitude of income tax certificates which are issued, they administratively in certain cases will issue certificates on the assumption that certain changes may take place in personal allowances, and so forth. But it is undesirable that one should stretch that administrative practice too far because to accept that this House has a function necessarily, I think, carries the corollary that the Revenue Commissioners should not assume that this House is simply going to rubber stamp what was decided elsewhere.
Perhaps the best way of doing it would be to ensure more co-operation between the two Houses and, if I may say so with respect to my own Assembly, to urge them to pass the legislation in sufficient time to allow the Seanad a month in which to deal with the different Stages. I can see that it is less than fair to the Seanad and to the skills and experience they can bring to bear on a Bill, to allow Senators only a few days to consider it.
I remember when we were discussing the last budget introduced by the present Minister under the old regime, if one may use the term, this type of point was raised, not by any means, for the first time, and the Minister with his usual optimism said he would be coming in with the Bill in the spring and there would be lots of time to deal with it. To this we replied sadly that all that would happen would be that we would come up against the same deadline as always, but that it would be three months earlier. This, indeed, has happened.
I hesitate to make any contradictory remarks at this stage when both the Leader of the House and the Leader of the Opposition appear to be in agreement on something, but I am very doubtful whether adding a couple of more months to the time would make any difference. I do not believe for a moment—and I do not wish to criticise the other House— that this Bill would have reached us today if it were not for the fact that the deadline was against us. If you add two months, it merely means we will get the Bill two months later. That is my personal view, based on some experience as to what happens to this Bill when it reaches this House.
The only advantage to the present proceedings is that at least while we are discussing this Bill the Dáil is still in session and if we had the Bill in time to deal with it adequately— I think we have had time on this occasion—if one were to pass recommendations, at least the Dáil would be here to deal with them. Until now we had the long vacation, the summer recess, and the Dáil was not there and Ministers were unwilling, to say the least of it, to accept recommendations. There is that advantage but I doubt if playing around with dates would make any practical difference. I am afraid we are always likely to get this type of Bill at the last minute.
Question put and agreed to.
Sections 56 and 57 agreed to.
First and Second Schedules agreed to.
THIRD SCHEDULE.
Question proposed: "That the Third Schedule be the Third Schedule to the Bill."
I simply want to pass a word of compliment to the parliamentary draftsmen for their exploration in the field of verbose draftsmanship.
I endorse that entirely.
Question put and agreed to.
Fourth Schedule agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."
I was not here when section 40 was being taken. I was asked to request the Minister to reconsider taxing gaming machines. I know very little about this. I am not living near a seaside but I understand that at small seaside resorts those machines are owned and run by individuals. They are really only to provide an amenity and amusement for children. I am not referring to the bigger places where you have perhaps 50, 60 or 100 of those machines, but at the small seaside resorts it is rather unfair that those people should have to pay this high tax of £50 a machine. I would ask the Minister to take that into account.
We have received deputations from the organisation concerned with the operation of gaming machines. Having heard their representations we have acceded as far as is feasible to the representations of the people who operate these machines for only a limited period of the year. They may take out a licence for a limited period and pay a correspondingly reduced licence fee. There is a fee of £50 for 12 months, £25 for six months or it can be taken out for a quarter, a half year, three quarters of the year or a full year. If that does not meet the requirements of people in, for instance, seaside resorts, who tend to have a three-or six-month peak period and little activity thereafter, save possibly on Sundays or Bank Holidays, they may take out a licence for that period of the year when they are not open every day of the week except for the Sunday or Bank Holiday. This means that the licence has, with great refinement, been trimmed to the period of operation.
To reduce the rate of duty for weekend operations would be a very substantial concession to make to people who do maximum business on Sundays or public holidays. Furthermore, we have provided by way of amendment which has now been incorporated in the Bill other refinements. If the owner of a machine which is out of order takes the machine into a part of the premises which is not accessible to the public or if he leaves it on a part of the premises which is accessible to the public but renders it inoperable in a way which is satisfactory to the Revenue Commissioners—and that might mean the imposition on the machine of a seal which could not be broken except with the consent of the Revenue Commissioners or by some other method—then such a person would not be asked to pay tax on that machine. The licence will be a licence for a number of machines. If the operator does not operate more machines than are permitted by the licence there is nothing to stop the operator having a larger number of machines so long as the machines which are inoperable are kept away from the public and therefore not capable of being operated by them.
Since we received the deputation, officers of the Revenue Commissioners have visited a large number of gaming halls and have played on the several types of machines which are on offer —with stakes, I should emphasise which were offered to them by the owners of the machines so that there was no net loss or gain to the Revenue or to their agents. The types of machines available have, I think, been identified and machines which are not gaming machines but which are simply machines for playing a game as distinct from involving an element of gambling have been satisfactorily dealt with so far as the trade is concerned. No doubt, like any other law, some anomalies or difficulties may arise. But unless this is the end of the world or the end of the Republic of Ireland, this is not the last Finance Bill. If any difficulties arise in the course of the year we will endeavour to rectify them in legislation, if that is necessary, but I expect that most problems will be capable of being overcome in the ordinary process of administration.
Question put and agreed to.
The Seanad adjourned at 4.35 p.m. until 3 p.m. on Tuesday, 13th May, 1975.