Seanad Éireann debate -
Thursday, 10 Jul 1975

Vol. 82 No. 3

Capital Gains Tax Bill, 1974 (Certified Money Bill): Second Stage.

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

Minister for Finance (Mr. R. Ryan)

This Bill is the first of the three new capital taxation measures to replace estate duties included in the Government's programme of capital taxation reform as set out in their statement of intent published in February, 1973, before the last general election and detailed in the White Paper on Capital Taxation published on 28th February, 1974.

In accordance with that programme the old system of estate, legacy and succession duties was abolished by the Finance Act, 1975, in respect of deaths occurring on or after 1st April, 1975. It now remains to give legislative effect to the provisions for replacing these duties, namely, to the Capital Gains Tax Bill, now before the House, and to its companions, the Wealth Tax and Capital Acquisitions Tax Bills. Under these Bills capital will now be subject to tax in times of liquidity, in small annual amounts and, in the case of transfers, in relation to the amount received. This contrasts with the system it is replacing whereby estates were either burdened once in a generation with a heavy estate duty which could and did impair the efficiency of the medium-sized farm or business and, in some cases, could threaten their very survival; or escaped all or most liability to capital taxes by reason of avoidance practices which the law allowed.

The Bill now before you provides for a tax equivalent to the lowest rate of income tax, namely, 26 per cent on realised gains arising on or after 6th April, 1974. It is intended to remedy the inequitable and anomalous situation which heretofore existed whereby those who could afford to take their income at irregular intervals in the form of capital gains were allowed to take it tax free as compared with those who, with little or no notice as to the form in which they might take their rewards, bore the full burden of income taxation.

In response to the invitation to consultation set out in the Government's White Paper on Capital Taxation, comments and suggestions were received from a great many individuals and organisations on the outline proposals for the new taxes. In addition to these representations I received deputations from many of the organisations concerned and discussed with them the implications of the proposals for the various sectors of the economy. Everywhere it seemed there was general acceptance of the desirability of introducing a capital gains tax.

Views naturally varied in relation to a number of important aspects, principally the rate of tax and the exemptions. The views received were carefully evaluated and the Bill as initiated reflected many of these views. Each of the other eight member states of the European Economic Community have taxes on capital gains, all of them chargeable at rates either in excess of the rate of 26 per cent proposed for Ireland or at normal income tax rates. Capital gains taxes are also a general feature of most taxation systems, including those of the United States of America, all Scandinavian countries, Spain, Portugal and Austria.

The wide range of exemptions and the threshold levels which are provided in the Bill will ensure that Ireland will continue to have an advantage for investors compared with other countries. At the same time, the introduction of a capital gains tax in Ireland will contribute to the equity of our taxation system, particularly in view of the fact that capital gains are normally made only by those fortunate enough to own assets from which gains can be realised. Subjecting capital gains in Ireland to taxation is a long overdue tax reform which recognises that gains which may arise in a variety of ways should be treated as analogous to income and therefore should be taxed.

Section 2 is concerned with the various definitions used in the Bill.

Section 3 is the main charging section and levies a tax of 26 per cent on all chargeable gains accruing in 1974-75 and subsequent years of assessment. However, an alternative basis of charge for individuals is provided for in section 6.

Section 4 applies the tax to all persons, including companies, unincorporated bodies and trusts as well as individuals. Persons resident in the State will be liable to capital gains tax on all gains realised on the disposal of chargeable assets, wherever those assets are situated. Non-residents will be liable only in respect of gains on the disposal of real estate, mineral rights, or business assets within the State or of exploration or exploitation rights on our continental shelf. Non-residents will also be liable when disposing of unquoted shares which derive their value from such assets.

Under section 5 the due date for payment of the tax is either three months after the end of the tax year in which the gain accrued or two months after the date of assessment, whichever is later.

Section 6, as I have already mentioned, deals with an alternative basis of charge which will in certain circumstances be applied to an individual whereby capital gains tax would be charged in an amount equal to the additional income tax which would be payable if half of the first £5,000 of his capital gains and the whole of any excess over £5,000 were treated as income for income tax purposes. In response to suggestions made in the Dáil I moved an amendment there on Committee Stage to change the terms of this provision so that it will not be necessary for a taxpayer to make a claim to have this alternative basis applied to him. It will be applied automatically by the Revenue Commissioners in any case where it would result in a lower amount of tax being payable.

Section 7 provides that in general all forms of property shall be assets for the purposes of the tax, whether the property is situated inside the State or outside it, including incorporeal property generally.

Section 8 deals with disposals of assets. Disposals will include all changes of ownership of assets whether by sale, exchange, transfer or gift.

Section 9 provides that the acquisition and disposal of an asset will be deemed to be for a consideration equal to its market value. Where assets are transferred otherwise than by a sale on the open market, for instance, by way of gift, the market value of the asset must be substituted for the consideration, if any, given or received. It was found necessary to treat gifts as disposals as otherwise gift arrangements could be fabricated to avoid capital gains tax. It is provided, however, that disposals of assets by way of gift prior to the date of publication of the Bill, namely 20th December, 1974, will not give rise to chargeable gains or allowable losses.

Section 10 indicates the time at which a disposal and acquisition are deemed to be made and provides specifically for such transactions as conditional contracts, compulsory acquisition of lands and hire-purchase contracts, compensation and insurance receipts.

Section 11 deals with the computation of chargeable gains and applies the rules embodied in Schedules 1 to 3 of the Bill.

Section 12 deals with capital losses which will be computed on the same basis as chargeable gains and which will be allowed for set-off against such gains. As a general principle a loss will not be allowable if a gain on the same transaction would not be a chargeable gain. Allowable losses to the extent that they have not already been allowed may be carried forward for set-off against subsequent capital gains.

Under section 13 disposals of assets between a husband and wife will not give rise to a chargeable gain or to an allowable loss. The gains and losses of a married couple will be aggregated and the husband will be liable for the tax on the total gains. A husband and wife may, on application, be assessed separately on their individual gains but this will not have the effect of reducing the total tax liability.

Section 14 deals with situations arising out of deaths. The passing of assets on death shall not constitute a disposal for a capital gains tax charge. The legatee will be deemed to acquire the assets at their cost to the deceased and any gain on a later disposal will be calculated by reference to that cost. An allowable loss made by an individual in the year of assessment in which he dies may be carried back, for offset against capital gains for up to three years of assessment before death.

Section 15 deals with the treatment of trusts and trustees. The trustees of a settlement will be treated as a single and continuing body of persons and will be chargeable on the disposal of any trust assets on this basis. Detailed rules are given for the charge to tax on termination of interests.

Section 16 provides in the case of an individual, including a married couple, for the exemption of the first £500 capital gains in any year.

Section 17 exempts from tax sales of chattels by an individual, including a married couple, where the proceeds do not exceed £2,000. Chattels would include such items as paintings, jewellery, silverware.

Section 18 exempts from tax tangible moveable property which is a wasting asset such as a motor car. Generally a wasting asset is one with an expected life of less than 50 years. Special treatment, however, applies to plant and machinery used in a business.

Sections 19 to 21 and section 24 indicate the types of assets which will be exempt. Examples are Government, local authority and State-sponsored body securities, land bonds, prize bonds and sweepstake winnings, life assurance policies, superannuation funds, and compensation for personal injury.

Sections 22 and 23 indicate the bodies which will be exempt, namely, charities, local authorities, health boards, vocational education committees, committees of agriculture, trade unions, friendly societies and the Central Bank of Ireland.

Section 25 exempts gains accruing to an individual on the disposal of his principal private residence including grounds of up to one acre.

Section 26 grants relief from tax in the case of disposals of farms or businesses by persons of 55 years and over for a consideration of up to £50,000.

Section 27 grants similar relief in the case of a disposal of a farm or business by an individual of 55 years and over to one or more of his children or to a nephew or niece who stands in the shoes of a child for a value or consideration of up to £150,000. In the case of both sections where the consideration exceeds the limits indicated marginal relief will be given.

To prevent abuse these reliefs can be availed of only once in the lifetime of the owner and, in the case of the relief for the sale to the immediate family, this will be withdrawn if the farm or business is subsequently sold outside the family within the following ten years. I may add that provision is being made under section 30 to exempt from the consideration received for disposal of a farm payments made to a farmer under the European Communities (Retirement of Farmers) Regulations, 1974.

I should mention that in response to suggestions made in the Dáil I have on the Report Stage in the Dáil amended the definition of qualifying assets for the purposes of these two sections so that the period of ownership of such assets and the period of full-time working directorship of a deceased spouse would be added to that of the surviving spouse in applying the ten-year test. Other amendments ensure full continuity in relation to the replacement of assets, the incorporation of a business and the disposal of a family farm or business through shares in a family company.

Under section 28 it will be possible to claim deferment of tax in respect of gains made on the disposal of certain specified business assets provided the proceeds of sale are spent on new business assets for use exclusively in the business. In addition to trades, professions and farming, this relief will also be available to public authorities, woodlands managed on a commercial basis, non-profit making bodies, trade associations, and athletic and amateur sports bodies. The period within which the new assets may be acquired for the purposes of relief under this section will extend from 12 months before to three years after the date of disposal of the old assets. Discretion is being left to the Revenue Commissioners to lengthen these periods in individual circumstances.

Arising out of suggestions made in the Dáil during the Second and Committee Stages of the debate I have extended the roll-over relief provided in this section to cover the case where there is a change of business. To qualify for relief the taxpayer must have carried on the old business for a minimum of ten years before he disposes of it and he must have commenced the new business within two years of disposing of the old.

Section 29 allows deferment of the charge on compensation money received in respect of the damage or destruction of an asset where the money is used in restoring or replacing the asset. The charge is not imposed until the asset or the asset replacing it has been disposed of.

Section 31 sets out the general rules for applying the tax to unit trusts. Distributions of capital from the unit trust assets will be treated as part disposal of units by the receiver and taxed accordingly. Where the gains made by a unit trust are gains which would not be chargeable in the hands of the unit holders or where assets of a unit trust are all non-chargeable assets, such as Government securities, then the gains made by the unit trust will not be regarded as chargeable gains.

Section 32 goes on to provide special arrangements whereby a unit trust registered in this country with large public participation and provided certain conditions as set out in the section are satisfied may enter into arrangements with the Revenue Commissioners so that the effective charge to tax on the trustees is confined to the chargeable gains not distributed to unit holders. In this way the unit holder will get the benefit of reliefs applicable to individuals.

Sections 33 to 37 of the Bill contain certain measures to deal with tax avoidance, such as transactions between connected persons at artificially low prices, transactions involving disposal of assets in separate lots, transfer at under-value by controlled companies or by the transfer of assets to companies and trusts abroad.

Section 38 empowers the Government to enter into arrangements with the Governments of other states to provide relief from double taxation on capital gains similar to reliefs now applicable in the case of income tax.

Section 39 provides that in the case of disposals to the State, to a charity, or to certain other national institutions and public bodies such as the National Gallery, the section 9 provision whereby in certain circumstances the acquisition and disposal of an asset will be deemed to be for a consideration equal to its market value will not apply and the tax will be charged by reference to the unadjusted gain. Losses, however, will not be allowed.

The remaining sections of the Bill— sections 40 to 51—contain miscellaneous provisions dealing with the assets of insolvent persons, the position of company liquidations, the treatment of funds in court, the position where gains accrue abroad but cannot be repatriated and also where consideration money is paid by instalments over a period exceeding 18 months and where assets are switched or extinguished. Another of these miscellaneous provisions is that debts, apart from loan stocks, will not be a chargeable asset in the hands of the original creditor. Section 47 deals with options. This section was partly redrafted by an amendment introduced at Report Stage in the Dáil in order to meet criticism during the Committee Stage debate that it was somewhat obscure. Section 48 deals with the rules for determining the location of assets which might otherwise be difficult to determine, while section 49 deals with the determination of market value with particular reference to shares and securities. Section 50 brings capital gains tax within the ambit of the Provisional Collection of Taxes Act, 1927, which would enable a change in the rate of the tax to be made by a Financial Resolution of the Dáil. It also places on the Revenue Commissioners the same responsibilities to account for capital gains tax as are imposed on them in relation to other taxes.

The final section of the Bill, section 51, applies the Schedules and enables their provisions fixing the amount of consideration in a transaction to have effect before 6th April, 1974, where it is necessary to compute a chargeable gain by reference to circumstances before that date. Schedules 1, 2 and 3 contain detailed rules for the computation of capital gains and Schedule 4 sets out the rules and procedures governing the administration of the new tax. Arising out of a suggestion made in the course of the Committee Stage debate on Schedule 1 in the Dáil I introduced an amendment on Report Stage providing for relief in respect of interest charged to capital in the case of companies. In Schedule 4—Administration—I have, in response to representations received, deleted the reference to section 176 of the Income Tax Act, 1967, which, on reconsideration, was felt not to be necessary in view of the many other provisions relating to the supply of information for the purposes of the tax.

As I indicated in the Dáil, I am satisfied that the draft Bill now before the House contains a fair and reasonable scheme of capital gains taxation, and I intend to maintain its fairness and reasonableness by appropriate adjustments to the thresholds from time to time which would cater for inflation. These will be in addition to the built-in allowance which has been made for it by the application of the lowest rate of income taxation to capital gains.

We have deliberately made this scheme of capital gains tax as simple as possible in the initial stages having regard to the inherent complexities in the area in which it must operate. I do not expect it to be the very last provision on capital gains to come defore the Oireachtas. Time and experience and changing circumstances will no doubt call for modification, and I assure the House that for my part I will try to ensure that such modifications as are necessary to improve the efficiency or to increase the equity of the scheme will be put forward.

I commend the Bill to the House.

Mr. E. Ryan

The Bill which is before us is, in principle, acceptable to this side of the House. It is recognised that the abolition of death duties applying to the immediate family of the deceased would deprive the Minister and the State of a certain amount of taxes, and it was necessary to introduce legislation to replace those taxes. This is probably the most acceptable way to raise the money involved.

Quite apart from the practical problem of raising taxes, I think the principle of taxing gains is not unreasonable, and as the Minister pointed out in his speech, this kind of capital gains tax is now applicable in most of the other EEC countries. I think it is acceptable that, if those who earn money by their labour, by their services, by their expertise, are assessable to income tax, in the same way those who gain money, gain profits by the disposal of assets, should be assessable to some sort of tax. It would be indefensible to say that in no circumstances should a person who gains money by the disposal of assets be susceptible to tax. If we look at certain businesses which consist of buying and selling goods, to a certain extent we have had in these businesses a capital gains tax for many years in the past, because they would be subject to income tax on the profit they made by disposing of assets at a gain. Therefore the principle is not an entirely new one.

In looking at any new method of raising taxation, we must realise that it will have certain adverse effects. It will, to some extent, diminish the enterprise, initiative and energy, of at least some people whose activities, not only from their own point of view but from the point of view of the development of industry and agriculture, play an important part in the economic development of the country. It may also have some effect in slowing up the disposal of property, the disposal of industrial plant and farms, which, again from the national point of view, it would be better to dispose of and put in the hands of younger and more active people. People who are faced with the fact that if they dispose of their property they will be subject to capital gains tax will, in some cases at least, be reluctant to dispose of it.

As I said, this to some extent will have an adverse effect on the national economy. It may have that effect on firms, farmers and so on, who contemplate disposing of their property in the near future, in five years ahead or some such time. It may have the effect of discouraging them from keeping their property in good condition because to keep it in first-class condition would mean that when they sell the property, it will fetch a higher price and, consequently, they would have to pay more capital gains. It would be more advantageous to them in that situation to put the money that they might spend on improvements into their pocket and get slightly less for the property when they sell it.

Therefore, there are certain adverse effects of a tax of this kind. I mention them not because I believe that these adverse effects in this case are so serious as to make one doubt whether this Bill should be introduced, but because I think that where Bills are introduced which involve taxes one must look at all aspects of the Bill. We must analyse the various effects of the Bill and if there are adverse effects they must be taken into account and noted. It must be realised that a Bill of this kind could go so far as to have such adverse effects that it would do more harm than good.

We must realise that anything that ttifles enterprise or initiative is someshing to which serious consideration must be given. We are living in a capitalist society whether we like it or not. There are some people in this House who do not approve of the fact that we are living in a capitalist society. For the moment we are in that society and we must consider any Bill of this kind for the effect it will have on the society in which we are living. We are depending very largely on the entrepreneur, on the person whose enterprise, initiative and activity makes the kind of society we are living in work. We must examine and measure the effect on that kind of person of any Bill of this kind and analyse the adverse effects as well as giving credit for the useful effect of the Bill.

When I mention these matters I do so to make the point that nobody should approach this Bill on the basis that it is a great Bill, that it will raise taxation, and that it will give the Minister for Finance extra revenue with which to do good. It will have some adverse effects. It will stifle initiative. To that extent one must realise that there are adverse features of this Bill as well as good features.

However, the Bill is, in general terms, acceptable and the criticisms of it are mainly criticisms of detail. They are mostly matters which can be dealt with more adequately on Committee Stage. I should like to make a few comments on certain aspects of the Bill on this Stage.

The first point I should like to make is to regret the fact that no distinction has been made between the various kinds of capital gains. No distinction has been made between short-term gains and long-term gains. No distinction has been made between gains made in respect of which the holder of the assets has contributed little or nothing to the improvement of the assets—the kind of person who is very often a short-term speculator—and the holder of the assets who has contributed a great deal of hard work and sacrifice over the years. Such a person would have contributed in the course of these years a great deal of income tax to the State as a result of the income he has received from providing the improvement in the asset. Very few people would object to a capital gains tax, even at a higher rate than 26 per cent, on quick gains to which the owner of the asset contributed little in the way of effort. He should not be equated with the person who has made a gain which has accumulated over many years, a gain created by very hard work, by enterprise, by sacrifices and so on.

These are four different kinds of gains—short-term, long-term, a gain in which a great deal of effort has been contributed and a gain in which little or no effort has been contributed. It is a great pity that some effort was not made by the Minister and his Department to distinguish between these different kinds of gains and to have different rates of taxation or in some way to recognise that they are very different and should be treated differently.

The Minister said in the Dáil that there are difficulties in this respect but these difficulties should have been faced up to. Even if it would be difficult to administer the Bill an effort should have been made, although it may not have been successful—I understand it was decided that it was not successful in the UK—to have some distinction between these different gains in this country. The Bill is, from that point of view, lacking in discrimination and sophistication. It is a heavy-handed Bill. The reason why it is lacking in discrimination is apparently that it would be easier to administer it as it is at the moment. This is an argument that is put up for so many things but ease of administration, in this Bill, in particular, is not justified.

The biggest danger in the Bill and the one which we are all conscious of is the effect of inflation. In present circumstances inflation here is running at the rate of 25 per cent per year. Therefore, we must realise that any gain made at present is partly, if not entirely, due to the effect of inflation. It would be manifestly unjust to charge capital gains on illusory gains, on gains which are only nominal and gains which are only due to the effect of inflation. Every effort must be made in the administration of this Bill and in the way in which the Bill is finally passed to ensure that capital gains tax is only charged on real capital gains.

We do not know how inflation will progress during the next few years. Many people are of the opinion that it will worsen. The optimists hope the situation will improve but I do not think anybody takes the view that inflation will disappear entirely. Most of those, even of an optimistic nature, are talking in terms of bringing inflation down to single figures and they would be happy if inflation could be held at something in the region of 8 or 9 or even 10 per cent. But no matter what way we look into the future, no matter how optimistic we are, we are faced with some inflation and the general view would be that something around 8 or 9 or 10 per cent would be quite acceptable. In the next few years inflation will be very much higher than that figure, but even into the future we will have inflation and inflation will have a very serious effect on the way in which this Bill is administered. Unless it is framed in such a way that inflation will be provided for, great injustice will be done to the taxpayers and the people who come within the ambit of this Bill. At the present rate of inflation, to give an example, property worth £10,000 at present will be worth about £20,000 in something approaching five years, possibly even less. If you take that as an example it means that a property of that kind in five years will apparently have increased by £10,000 and the tax on that will be £2,600 so that there will be no real gain. If that kind of situation is to happen, this Bill will be manifestly unjust and those who accept it now as being a reasonable Bill in all the circumstances will certainly regard it as anything but reasonable in the future.

The Minister said that he will provide allowances or that the Bill will be modified, at least from the administrative point of view, to provide for inflation. But there is nothing in the Bill to deal with this. What the Minister is saying is that the Minister for Finance of the time each year will make an ad hoc decision and will provide some relief for the fact that the tax would be increased unjustly because of the effect of inflation. From a practical point of view, we all recognise that this will not work because the Minister each year will have to make a decision as to what allowance he will make. Some years he would probably plead that in the particular circumstances of the year, because of a difficult financial and economic situation, he should not make any allowance. Every Minister at every budget time has problems. He needs extra money and the temptation not to do anything about increasing the allowance so as to allow for inflation will be very strong. He will be faced with a situation that if he needs more money he can put an extra penny on income tax or on the pint or he can do nothing about the inflationary effect on capital gains or he can do something quite inadequate.

Most Ministers in such situations will not put the penny on the income tax or on the pint but will turn a blind eye on the inflationary effect on capital gains and the person who is subject to capital gains will be paying more. More people will be coming within the net unjustifiably because the gains upon which they will be taxed will be illusory gains, will be due to inflation. Unless something is put in the Bill which will be used as a yardstick, which will ensure that each year the Minister will take full cognisance of the effect of inflation— he may merely make a gesture which would be in many cases quite worthless but merely giving the undertaking, although given in good faith, is not enough. I am quite confident that as years go on that will not be enough, that it will have the effect on this Bill that something which is reasonably acceptable now will become quite unjust.

I want to mention the kind of situation that arises in these cases. To take two examples within the last year of measures in which the Minister could have and should have done something to allow for inflation and did not do so—we had the Finance Bill here a short time ago in which we were dealing with the personal reliefs for those subject to income tax. The personal reliefs were undoubtedly improved as compared with the previous year. But they were not improved anything like enough to allow for the effect of inflation. That is the kind of situation that will almost certainly develop in relation to this Bill. Again, we had the situation where, a year or two ago, the Minister restricted the extent to which money earning interest would be allowable for income tax. He fixed a figure of £2,000 at that time. No increase has been made in that figure since that time. If inflation has taken place since then, everything else in relation to the taxpayer's position is going up because of inflation and some increase in that should have been allowed.

These are just two examples and I am sure there are many examples of the kind of situation which will develop where the Minister, although having given an undertaking to make allowances for inflation, will either not give a sufficient allowance or will give no allowance and will plead, with some justification, that in the circumstances in which he finds himself he is unable to do so and that other sections of the community or other situations deserve to be considered first. He has to put aside the question of allowing for inflation in this or that situation. My point is that unless it is built into the Bill in some way, unless there is some yardstick inevitably allowed for inflation, it will not be given as years go on. It should not be beyond the ingenuity of the Revenue Commissioners or the draftsmen of this Bill to devise such a method. Many people are apathetic towards this Bill because they are convinced that its provisions will never affect them but many of these people will find themselves, in a comparatively short time, coming within the ambit of the Bill not because their real wealth has increased, not because their financial circumstances have increased, but because inflation will bring them within the net.

There are certain other aspects of the Bill which are not as important as the question of inflation but on which I should like to comment briefly. It is regrettable that gifts should have been included in the Bill. The Minister has said that this was necessary because otherwise the situation could be abused. I gather from what he said that he regretted having to do it but considered it necessary because of the possibility of abuse.

Again, something is being done for administrative convenience, although it is acknowledged that it is regrettable that it should have to be done. Many things are done in this Bill and other Bills because of administrative convenience. Whoever coined the phrase, "Patriotism, what sins are committed in thy name!" could have said also, "Administrative convenience, what sins are committed in thy name".

The provision in the Bill which provides that a person selling a business and investing the money in the same business would not be assessable to capital gains tax is a good one. In the original Bill it was rather restrictive but I gather from what the Minister has said today that an amendment has been made so as to allow a person to change from one business to another. This is a welcome amendment. It would be entirely undesirable that a person who sold a declining business and wanted to move into some worth-while area should have been restricted to the same business, which may not have been a competitive one or one of any great benefit to the community. I take it that the Minister has amended it so as, in bona fide circumstances, to allow a person to change from one business to another.

Perhaps the Minister would clarify whether it would be possible when this Bill is in operation for a person to be assessable for capital gains tax and income tax on the same transaction. For instance, if a small firm sells some assets and as a result is assessable for capital gains, and if the shareholders get increased dividends from the profits made from the sale of the assets, will they be assessed on those as well? It seems unjust that a person should be assessable to income tax under two different headings in respect of the same transaction.

This Bill is generally acceptable but I would not go so far as to welcome it. It is hard to welcome anything that will impose more taxes. If the precautions which I have mentioned, particularly in regard to inflation, are included, the Bill will be a worth-while contribution to our taxation system.

Mr. Alexis FitzGerald

Some of the things I have to say in relation to this Bill are rather painful for me to say. My nature is to rally to the support of my friends and my friends are in Government. My particular concern arises from the position we are in in the Seanad in dealing with a Money Bill. This difficulty with regard to Money Bills does not arise generally and it has never arisen in such an acute form before. This Bill is part of a package which, according to my computation, consists of 156 sections, six Schedules and 155 pages. It is a code which will affect, for good or ill, the life of everybody in the country.

The Constitution entitles us to make our recommendations in regard to a Money Bill within 21 days of receiving it. I take it that today is the day we have received this Capital Gains Tax Bill. Therefore, we have until 31st July to go through a Bill which, even taken on its own, is infinitely complex. Its parallel in the United Kingdom was described as the most complex piece of fiscal legislation ever introduced there. We have 21 days to consider this. Every cat that purrs in the corridors of power knows that the Government propose that the Dáil will dissolve at the end of this month. Therefore, I labour here today under a sense of very considerable discouragement as to the enthusiasm with which any points I may be capable of making can be received in this situation by the Minister, if he has to bring this Bill back to the Dáil, where it has been for nearly seven months.

Those who contributed to that debate performed very valuable public work and helped in improving the Bill. I do not criticise those who participated in the debate for their contributions. There was some filibustering on other elements of the code which has been counter-productive in every possible sense. If the Government have guillotined business in the Dáil by the resolution which was passed yesterday and if they persist with their intention, as expressed, of completing the second element in this code by 30th July, they will not merely have guillotined the business of Dáil Éireann but will have castrated the Seanad.

What will be the function of Senators on the day when we receive the Wealth Tax Bill? Is it to be thought, if anyone is bright enough, viewing from any point of view, to discover some grave defect in it, to discover that it is tainted by some awful malignancy, that the Government will reconvene Dáil Éireann to listen to the recommendations of the Seanad? This happens in relation to the Finance Bill almost every year. But that is an annual measure; it is not a radical transformation of a whole capital code, which is what we are talking about.

I urge the Minister, who has—it is about time I paid him a compliment— been extraordinary receptive since the publication of the White Paper on Capital Taxation to suggestions from all sorts of informed people and whose initial Bills reflected considerable reception of these points, most strongly to invite the Government to reconsider their proposal with regard to the second leg of this double. I urge them to adopt the procedure which has been adopted with regard to the third, that is to say, to have a resolution imposing the wealth tax in accordance with the terms of the Bill when enacted. There may be more difficulty in framing that resolution, but it is capable of being framed.

This is directly related to this Bill for a reason which I will later develop. I share the view expressed by Senator E. Ryan with regard to the effect of inflation on the gains. I would not have put it quite as he put it in describing this as unjust, because that begs the question as to whether there should be a tax of the nature of a taxation of wealth. If one does not allow for inflation one is enacting a selective wealth tax, varying in its rate according to the rate of inflation. This can be demonstrated.

There is one obvious cost to the Revenue, but I am unable to estimate what it would be. It would involve a postponement of the collection date of the 5th October, which is the date under that Bill on which one will not be subject to interest if one does not pay wealth tax for the year. Obviously, that date would have to be a date, depending on the resumption of the Dáil, 5th December or something like that, that would give us the possibility then of having consideration given in this Bill to the kind of appropriate adjustments which should be made to cope with that element here which amounts to a wealth tax.

In making this comment from this place I am encouraged to think that there is in the tradition of my party a liberal element, that there have been members of this Government, not excluding the Minister present, who did not feel shy about expressing their own minds from time to time. I am not excluding the Taoiseach, nor am I excluding the present President of the High Court, who when a Dáil Deputy practically obstructed the business of the House opposing a measure introduced by his own Minister for Justice. The late Deputy Sweetman was another.

I seriously urge the Minister to give consideration to this and, as early as he is able to, on this measure where we have a fair run—we can in 21 days do our work—give us encouragement. If we do our work and if he sees any validity in the points we make, that he will make efforts, despite all the other burdens he carries, because of the enormous importance of what is involved here, to meet these points with appropriate recommendations, drafted, no doubt, by his parliamentary draftsman.

As to the Bill in its general terms, it is useful for me to make a point with regard to this. One thing that can be said about capital gains tax is that it in no way disturbs a climate favourable to capital. In no way can it be so represented, nor should it be so represented. One of the earliest countries to introduce capital gains taxation was the United States of America. I do not know whether everyone in this Assembly knows it, but the first capital gains taxation introduced in Britain was introduced not by the socialist Government, not by the Labour Government— it was introduced in 1962 by the Conservative Government, accepting a recommendation of the Royal Commission made in 1955. They took some time to accept it but they did accept it. It did come in. At that stage it was only short-term gains. The only unfortunate element surrounding the White Paper was that there were some phrases in it which were fastened on by interested or anxious people to build up a view that there was some hostility by this Government to capital.

I should like to express my view that that is absolutely untrue. In relation to capital gains tax, I think it is justified. One writer put it rather well. He said that the justification for a capital gains tax is simply that the inequities of having one are less than the inequities of not having one. It is, if one likes, a type of social solace. It is justifiable from the point of view of equity. Capital gains constitute economic power; they cost one spending power and they represent a taxable capacity. Such a tax does affect efficiency, insouciance. It tends to correct the distortion that we all experienced whereby the intelligence of the man with any money and enterprise was always directed towards so exploiting his money that it resulted in a nontaxable capital gain rather than an income generating taxable income asset. Therefore a capital gains tax tends to correct that distorting effect. Without it that distortion would continue. It therefore provides a useful function of that technical nature, apart from the equitable sense it generates. If one is satisfied that a more equal distribution of property is desirable it tends to achieve this, the more it seems to be an acceptable proposition that the more wealth a man has the bigger proportion he can afford to hold in the form of a capital gain yielding type, whereas the man with a little has got to make it work to produce him an income because he needs it. This tends to equalise this— to take from the man with that much more the proportion of the gain he makes from his realisations.

The trouble about the capital gains tax code everywhere is the administrative cost. The fact is that there have to be, as there are in this Bill appropriate for our circumstances, somewhat arbitrary decisions on different matters. It is very hard to justify, in principle, a lot of the distinctions, a lot of points, at which lines are drawn and the very considerable compliance cost from the point of view of getting valuations made where one does not have actual transactions and two valuations made where one has people employed to make computations to determine that one is not liable for capital gains tax. That is a compliance cost which has got to be borne by the taxpayer who is not even liable for the capital gains tax. The balance of my judgment would be that the terms of equity, efficiency and equality make this tax one which should be adopted.

With regard to my first main point about the Bill, I accept the concept of capital gains tax. I am very concerned at the absence of a correction for inflation and I completely agree with what Senator Ryan has said on this. I agree that, if this correction is not made now, it will not be possible to make it in the future. It will give rise to social and political difficulties. It would never be a popular thing to do. It would never be possible to justify this without, at the same time, making some alteration in relation to personal allowances which might be infinitely costly to concede compared to the cost of conceding this. One might ask what is worrying me. Why not if £10,000 becomes about £20,000 let them pay the £2,600? But we are talking about a wealth tax then. That wealth tax code has in its terms provisions for exemption, provisions of thresholds. There are no such thresholds in this. The small man would not be subject to the wealth tax at all because he has not got £100,000 and his children's wealth aggregated with his and his wife's leave him outside the wealth tax. But he is subject to this gains tax, no matter how little he has. I know, for example, of a man who was given £3,000 and during his period of retirement, by careful investment, he made it into £20,000 to provide for his handicapped child. It is difficult to maintain that child on the income of that £20,000. Would it have been proper to have treated that person as wealthy because the £3,000 grew to £20,000, largely because of inflation? There is a certain amount of wisdom in investment but the point is that it is not even thought of under the wealth tax code. Let us face it, we are doing it under this capital gains tax code.

The matter has been referred to in a book, which I found very useful reading, by a man who favours the wealth tax. It is called Taxing Personal Wealth, by C.T. Sanford. I will take one sentence out of it:

Yet the argument for taxing monetary gains as a form of wealth tax is fundamentally unsound. If we want to tax wealth let us have a wealth tax.

It is a selective wealth tax because the person who has wealth in this form can elect and may be able to elect not to pay it by not realising. The more wealthy the man is, the more replete with funds he is likely to be, the less need he will have to realise his gain. That particular form of wealth tax will, perhaps, never impact on him or not impact on him for a generation.

It is well to remind ourselves what we are talking about in terms of inflation. If one had £100 in July, 1914, according to the latest figure I have, it would have bought what one would require in January this year up to £1,316 to purchase. If I am correct, and if we have a 25 per cent inflational rate and a 26 per cent tax, that seems to work out at 6½ per cent wealth tax. That 6½ per cent wealth tax is imposed on the 1 per cent wealth tax which is under the Wealth Tax Bill. The same writer has said with regard to this that there may be difficulty in solving the problem. His suggestion is that it ought to be done on the basis of a revaluation of the costs of acquisition indexed to the retail price level.

That may be in certain circumstances embarrassing for the tax collector. One could see a revaluation in a situation where there was a greater rise over a period of time in question in the retail price level than there was, for example, in the property cost level. For example, I do not think that the inflation for the last 12 months can be discovered in the prices of houses at this moment. There may be difficulties in determining how to do it. The Swedes have done that, I think, in relation to properties and it seems to work there. They have a different system with securities; if I am correct in my recollections, it is according to the length of time they are held. One pays a very high rate if one sells quickly and then it tapers off down. I do not see why you just simply increase the cost of acquisition.

Agreed it is difficult but with regard to this kind of tax one has to be arbitrary about it. If one recognises that it is unfair to impose without a threshold a wealth tax of 6½ per cent, assuming that is the continued rate of inflation or 2½ per cent, if it is cut down to ten one is forced to an arbitrary solution if one does not introduce into this, which would seem to be inconceivably difficult, thresholds to provide at least in relation to gains as distinct from gifts. There should be some threshold provision there. Another disadvantage is that one has got this hanging over one's head as a possible liability. The tendency will be that one will stay locked in to what one is in. The economic disadvantages of that, generally, may be considerable. Of course, what people do in a free society with their resources affects not really themselves but affects everybody else.

The point I have made is accentuated in this Bill by one provision contained in it, which I think is not right. I refer to the provision in section 14 in which the matter of death is dealt with. There must have been a decision with regard to this. There is a clear departure here from the UK code. As I understand the position at present, and I do not think they changed it in the last Finance Act, the provision in the UK code is that death does not involve nowadays— it did up to 1971—a realisation. Neither does it involve realisation here. Under the UK code the heir gets it at the market value as of the date of death. This does not matter, looking backwards to situations where the relevant date for a host of transactions is going to be the 6th April, 1974, but in the future it is going to be the date on which one's father bought the thing, say 1975. He passes on to his heir in the year 2000, and that heir is forced to sell it in 2001. God knows what capital gain he would have made in that time. Under the UK code it would be revalued on the date of one's father's death in 2000 and it would only be the gain that the heir made after his death which would be taxable. I do not think, particularly in an inflationary period, and as acutely inflationary as this period alas is, that we should have the carry forward principle.

On the question of trying to save compliance costs I should like the Minister to consider carefully—he has had to consider all this very carefully— whether, having regard to the nature of our property code the fact that leases of more than three years and three months are not even short leases under our property code because of the rights attendant on the lessee and the tenant in question. The Schedule sets about eroding the cost at which one acquired this so-called wasting asset. We will have a situation in which artificially a man may sell at a loss and find he is paying capital gains tax, because he is not allowed charge in the cost of acquisition at its full figure. The figure has had to be recalculated in accordance with the most gorgeous formula, which is similar to that in the UK, and in the table, accepted mercifully, the second decimal point has disappeared. This will involve us all in getting Japanese equipment in our offices. It will be very difficult. I raise the question as to its usefulness in terms of the revenue it will bring in if the cost of complying with it will be awful.

There are two points on that, firstly the short lease. I have had the experience where the accountant was reducing the value of the lease annually as the value of the lease was increasing— naturally, because inflation was increasing the value of the lease even though its time was running out. Inflation is inflating upwards the price and at the same time we have the actual legal situation here somewhat different from what I understand it to be in the UK making inappropriate that Schedule. On this question of compliance, the Bill contains provisions for giving exemptions of release for gains of £500 or under, and chattels of £2,000 or less. Why not any assets of £2,000 or less? Why not make that figure somewhat more? Think of all the transactions that would not have to be looked at by either the Revenue or the taxpayer and where the compliance and administrative costs would surely outweigh when taken together whatever tax benefits will come from the 26 per cent figure.

Rather late in the day the Minister introduced an amendment to paragraph 11 of the Fourth Schedule. I may be missing the point. I thought I might have been from some words the Minister used when opening the debate this morning. There has been an extension of the obligation where one is obliged to retain, if the transaction is £50,000 or more, the capital gains tax on one half of the consideration. This seems to have been extended beyond land, minerals and exploration rights to include now shares in a company deriving the greater part of their value directly or indirectly from land, mineral exploration or exploitation rights.

I have two points really to make about that. Firstly, does this apply to a publicly quoted company? Are we expected to know whether or not the shares derive the greater part of their value directly or indirectly from land, mines or minerals? What is the position of a purchaser, a stockbroker, if it does apply to quoted transactions? I can see the situation the Minister is trying to cope with where there is a property-owning company, where the shares are transferred and the property passes by virtue of a share transfer. It should be limited to a non-quoted company to get rid of that particular difficulty. Secondly—I do not want to get into drafting points at this stage—there is provision here that one can get a certificate in certain circumstances and let us hope the certificate will come as quickly as one would want it. Certificates under section 6 of the Finance Act used come quickly; they did not hold things up. Let us hope that this will be equally speedy.

There does not seem to be provision for the case where the person is exempt under the Double Taxation Relief Agreement. He is not ordinarily resident in the State but he is exempt because he is resident in the United Kingdom, for example, with which we have the Double Taxation Relief Agreement. Surely in that case too he should be entitled to get a certificate. The other thing that worried me is if this affects the legal rights of the purchaser and vendor? What if the chap who retains the 26 per cent sits on it? What happens to the interest on the money? Say, it is £26,000, whose money is that? Is there a claim by the vendor against the purchaser? I do not know. I ask the question and it seems to be worth mentioning it.

On the exemptions, it struck me that there did not seem to be provision for exempting bodies corporate under the Health Bodies Corporate Act we passed here when the late Mr. Childers was Minister for Health. Certainly, a number of bodies corporate have been incorporated under that. Presumably it would be intended that they should get like exemptions as the other bodies mentioned, local authorities, and so on. Another one is the Voluntary Health Insurance Board. Any relief and assistance that body could now get would be useful to them and useful for the State to give it.

There is another development I favour very much. There are more people involved in enterprise on the employment side who are concerned to get their employees interested in their business than is realised. I know of one quite substantial business where the man who built it up has already given certain significant amounts to executives and intends to give to all permanent employees a substantial block of shares. Under this code these gifts make him liable to capital gains tax. There ought not to be any discouragement of such a person; in fact he should be encouraged.

There is provision for gifts from husband to wife. Why is there no exemption, even such as there is, for example, in the Wealth Tax Bill, for a discretionary trust for the benefit of an incapacitated child? Surely there should be a similar exemption of gifts to a permanently disabled child in need of completion of education.

I could not find in the Bill any provision for the making of rules, but here I may be just missing some section of the Income Tax Act that has been adopted for dividing of liability for capital gains between partners. I have some interest in this to see that there are appropriate rules in existence for determining who is to pay and in what circumstances.

With regard to sections 26 and 27, both admirable sections, I would have only one criticism. Is there no way of encouraging a man who is what they call a "burnt-out case" before he is 55 years to dispose of the business or farm? Is there something sacrosanct about this? Is this one of the things that must be arbitrary in practice—or have I handed the Minister his reply to me already in that phrase I have used? There should be some system under which it could be established to somebody's satisfaction that the chap was physically disabled, which would affect also this question of the full-time working director, because he was not able to work full-time. I wonder if there is a necessity for that. I presume it is to prevent tax avoidance being operated.

The Minister and I must not get involved in tax avoidance any more, if we can avoid it. I thought I would give him the text from Hindu Sacred Law to comfort him. The Hindu Sacred Law is very strong on the necessity of telling the truth in all circumstances but one text says that, if a man speaks an untruth at the time of marriage, in sexual intercourse, when his life is in danger, or when he is likely to lose his property, these untruths are not sins. So do not be too severe on the tax avoider or the tax evader, because he is a little bit like the Chinaman on his pillow. I brought my daughters up never to believe what the Chinaman would say to them on his pillow. The taxman should not expect the taxpayer to tell him too much of the truth either.

Mr. Yeats

I think it is not unfair to suggest that the salient feature of this legislation is irrelevant to the real problem that faces our country at the present time. We all know that we are at the moment faced with an unprecedented and grave situation of inflation in which month by month, week by week, the value of the currency is being reduced, in which, week by week, the prices we have to pay for all commodities are going up. We face a situation in which the number unemployed is unprecedented in the past 30 or 40 years, with over 100,000 out of work, with every prospect of this number increasing still further in the autumn and very little prospect of any substantial reduction in this number until well into next year, if even then. There is also an enormous deficit in the current budget, even according to the Minister's figures, of over £240 million. Some £300 million is to be borrowed abroad this year by State and other bodies. The whole financial administration of the country is in complete disarray. There is a situation, in other words, of very grave national crisis with no real prospect of any improvement in the next 12 months or so.

There is considerable prospect of even further disasters facing us. Now, under these circumstances, the entire time of the House and a great deal of the time of the Minister for Finance, who is responsible for the entire financial administration of this country, has been taken up with this Bill and the other capital taxation Bills, which, as I say are, whatever their intrinsic merit, utterly irrelevant to the needs of the country. This piece of legislation will not put one man to work. It will not reduce in the slightest the rate of inflation. It will not help to the slightest degree in the next year or so in solving the exceedingly severe budgetary problems that the Minister faces.

On the contrary, these capital taxation Bills, if they have any effect at all, can only have the effect—whether the effect be great or small one cannot yet say—of reducing the possibilities of getting the necessary private investments on which we rely so heavily in trying to reduce unemployment, increase national income and increase the well-being of our people. In present circumstances these Bills are useless and irrelevant and to some extent positively dangerous.

This matter, as has been touched on already in this debate, has effectively ended the legislative work of the other House. It cannot end the legislative work of this House because, as Senator Alexis FitzGerald has pointed out, the constitutional position is such that we cannot spend more than a very limited and quite inadequate amount of time in considering these Bills. Nonetheless for months past the work of the other House has effectively been centred around these Bills to considerable effect. Some 30 or 40 amendments have been made to this Bill in the Dáil. The length of time taken on this Bill was necessary. Nonetheless it was essentially a waste of time in the sense that the Dáil and the Minister could have been far better employed in dealing with what are the real needs of this country.

The result of this completely ludicrous legislative situation in the other House has been this draconian guillotine that was introduced there yesterday. There are five Bills, some of which have not yet been seen, and the Government have decreed that only two hours will be allotted for the discussion of each Bill, including the Second Stage and all the other Stages. This is complete abuse of the legislative process, and it would be much better if the Minister did these things by regulation and forgot about the Oireachtas altogether.

However, I do not propose to continue any further on this point. I am merely referring to this in passing because I feel it is an aspect which one must consider when proposals like these come at the wrong time. The Minister may say that for those who pay taxes there is never a right time to pay them. Nonetheless, proposals such as this could have a positive value if they came at a time when things were going well in the country, when employment was going ahead, when the cost of living was relatively stable and when the national budgetary situation was on some reasonable kind of even keel. When they come at a time of grave national economic and monetary crisis nobody could describe these Bills as anything but irrelevant.

This type of irrelevance is typical of this Government's approach. They have consistently ignored the matters that needed to be dealt with and have consistently chased after various legislative hares which have nothing to do with the real needs. While the other House has been engaging in these complicated financial discussions of a nature which are of no help at all to the country, we in this House have been engaged in ridiculous legislation like the Criminal Law (Jurisdiction) Bill. It is also farcical for the Minister for Posts and Telegraphs to try to impose outside television on our people. Neither of these has any real relation to the needs of the country.

Acting Chairman (Mr. McCartin)

I should like to remind the Senator that he is moving from the subject under discussion at the moment.

Mr. Yeats

I appreciate that point, but I refer to this merely in passing. I think these passing references are necessary in order to advertise the fact that this Government's approach to legislation is such that the real matters that need to be dealt with are not in fact dealt with.

As Senator Eoin Ryan has said, we are not against the principle of the Bill. We agree with the general principle of a capital gains tax, even though we feel that the Government would be far better employed in doing something more useful. The Minister accepts there is effectively no revenue to be had from this Bill in this year, but we agree with this legislation in principle, so long as one does not accept any suggestion that has been made by the Minister and his allies on occasion that this is in some way a transfer of resources from the rich to the poor or a redistribution of national wealth. It is nothing of the kind. The amount of money that will be available for some years to come will be very small indeed.

I am glad that in introducing the Bill in this House the Minister did not indulge in some of the rather high-flown hyperbole in which he indulged when he introduced it in the Dáil. At column 1100, Volume 277, of the Dáil Official Report of the 28th January, 1975 the Minister said:

In the Government's view the existing tax system is inequitable and indefensible in that huge tax-free capital gains can be made by people of means while less fortunate people are inescapably obliged to pay significant slices of their regular income in tax.

This whole concept that people are making huge capital gains is, to put it mildly, exaggerated. Certainly in present circumstances one cannot imagine anyone making capital gains, huge or otherwise. I was also rather puzzled at the suggestion that less fortunate people pay income tax, whereas the wealthy do not. That is not a true picture of the situation.

In so far as capital gains are made by speculators, there could be no possible objection to them being taxed. They ought to be taxed. The problem is, as has already been said, that this Bill taxes all concerned on the same basis. However, the Minister also in his introduction of the Bill in the Dáil stressed the need for business motivation and economic efficiency. That is one of the problems that we face with this legislation—whether business motivation and economic efficiency will be helped. I think it is very doubtful. One must accept the need for capital gains tax on speculative transactions, but in its present form I think it is likely to reduce business incentive and thereby reduce economic efficiency. There will, as the Minister said, be very little yield in the early years. Certainly it is unrealistic in the extreme to talk in terms of capital gains at this present moment.

The greatest single problem is that we are running the danger of inhibiting genuine enterprise as opposed to speculation. The man who has built up a family business over 20 or 25 years by his own efforts and those of his family, because he finds it necessary or wishes in old age to retire and sell his business, has to pay 26 per cent capital gains on this in the same fashion as the speculative gentleman who buys a piece of land and sells it again a year or so later—in normal times not in present times—for an inflated price and makes a rapid capital gain on the transaction. It seems wrong and contrary to principle that these two men should both be treated equally.

I accept that from the Minister's point of view and from the point of view of the tax gatherers it is much easier to deal with it in this way. It is much simpler to say that all taxable gains should be taxed at the same rate. It causes less problem for those raising the money. But more interest should be taken in the result on those who pay. It was suggested by Fianna Fáil speakers in the Dáil that a relatively simple method of dealing with that would be to have a sliding scale, a maximum for gains after a few months or a year, gradually lowering until after 15 years this would disappear altogether. The answer was given, if answer is the word, that a speculator could evade tax altogether by waiting 15 years. I do not think the type of speculator we are after is likely to do this. The old lady who has a field that she might sell for building could well wait, but one doubts very much if the sort of fly-by-night speculator the Minister has in mind would be prepared to wait such a long, long period in order to avoid tax. Even if a few fish got away from the net, it would seem to be worth it in order to avoid long-standing family businesses built up over the years being mulcted to this excessive extent.

The problem with the overall imposition of a 26 per cent rate is that, in searching for some sort of principle of redistribution of wealth and so on, you are running the risk of still further damping the forces of private enterprise. You are running the risk that energetic people who wish to build up or increase the value of their businesses by their own hard work will have no incentive to do this because of the existence of taxes such as this. The most serious single problem presented by this Bill is the built-in problem of inflation. I know the Minister has said that this will be dealt with, and he repeated this again in his introductory speech today when he said in relation to the draft Bill:

I intend to maintain its fairness and reasonableness by appropriate adjustments to the thresholds from time to time which would cater for inflation. These will be in addition to the built-in allowance which has been made for it by the application of the lowest rate of income taxation to capital gains.

That is a point I simply do not understand. I cannot see how you can possibly cater for the effect of inflation by imposing a single rate of 26 per cent. If you were to say: "All right, 26 per cent this year, 20 per cent next year and 15 the year after", I could understand it, but for the Minister to say he is catering for inflation by imposing any particular rate on these transactions does not make sense. However, the problem with promises such as the Minister's are that only too often Ministers who, no doubt, have excellent intentions at the start, find themselves unable to carry them out. For example, the Minister said in his budget of May, 1973, that he proposed from then on to keep income tax allowances in line with the cost of living. I have no doubt he wished to do this and I have no doubt he would still wish to do this, but he has not done it. In the budget of January last and the Finance Bill which we passed through the House last May, the increase in allowances for this present financial year was approximately 15 per cent as against a cost-of-living increase of 25 per cent. In the budget of next January or whenever it comes, allowing for likely movements in the cost of living in order to bring back the allowances to the equivalent level in money terms of May, 1973, the Minister would require to give improvements in income tax allowances of some 30 per cent or more. We all know he will not be in a position to do this. It would be enormously expensive and I am absolutely certain the Minister even now realises he will not be able to bring back income tax allowances ever again to the level of May, 1973. So much for such promises.

On the introduction of the Capital Gains Tax Bill in the Dáil he said at column 1265, Volume 277, of the Official Report of 29th January last, on this problem of inflation:

I have said on numerous occasions and I repeated it in introducing the Second Stage of the Bill, and I am now saying it again, that it is my intention to adjust the various thresholds in the capital gains tax system so as to take account of inflation.

I gave very earnest consideration to the possibility of building a regulator or indicator into the Bill itself which would be automatic. The great difficulty is that various assets which come to be taxed here have different rates of inflation. Their values vary for a multitude of different reasons. Some can vary in value because of the customary over-emotional reaction of the stock exchanges. Other can vary in value at rates quite different from the rate of inflation.

Taking the second point first, this of course is correct, but you cannot deal with that situation by not making any effort at all to deal with the problem of the fall in the value of money. I would have thought that one simple index the Minister could use is the price index. Over the years it would mean that some people would gain because their particular assets would have increased more rapidly than the price index. On the other hand, others would lose because their assets had increased less than the price index. But overall it would probably work out evenly enough and would be reasonably representative of falls in the value of money.

However, that apart, the Minister did, as I said, give a very definite promise: "I have said it on numerous occasions and I repeat again that it is my intention...." This sounds fine if only one does not remember that in this Bill the Minister has already broken this promise. The base date for the assessment of capital gains is 6th April, 1974. By the middle of this month some 15 months will have passed since then. The fall in the value of money in that period will have been very nearly 30 per cent and no allowance is made for this in the Bill. Already you have had a fall in the value of money of 30 per cent not in any way considered by the Minister or allowed for by the Minister in spite of this most categorical statement of his in the introduction of the Bill in the Dáil.

I am afraid we would be innocent in the extreme to assume that inflation will be provided for to any adequate extent in future years. There has been a rise since 1950 of some 350 per cent in prices. It is highly probable that in the next 25 years the price rises will be very considerably more than this. One suspects with some horror that it is more likely to be in the region of 1,000 per cent than 350 per cent. It is clear that as a result of this type of inflation, even though one hopes the rate will fall onsiderably in future years belo w what it is at present, over a period of ten or 15 years the value of assets increases enormously in money terms while the value to the owner of the asset may increase relatively little. Yet this blanket 26 per cent, or whatever the figure may be in future years, is levied on all this. An asset that was worth, say, £10,000 on 6th April, 1974, is now worth, on average, around £13,000, so that under this Bill £780 falls to be paid in a case of this kind by the taxpayer.

Debate adjourned.

Business suspended at 12.30 p.m. and resumed at 2.15 p.m.