Seanad Éireann debate -
Thursday, 10 Jul 1975

Vol. 82 No. 3

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

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

Mr. Yeats

Before we adjourned I was speaking about the built-in problem in this Bill of the process of inflation. This is particularly important when one remembers that if one has an inflation rate of, say, 20 per cent, in four years the price is doubled. This means that on average everything that is sold and is liable therefore to capital gains tax has doubled in price and that, automatically, people become liable to very large elements of capital gains tax.

The Minister has promised to deal with this to keep abreast of the rate of inflation in the provisions of this legislation but already he has failed to live up to this promise in that this Bill makes no allowance for the fact that since April of last year, when the valuing of assets begins for the purpose of this legislation, although the fall in the value of money has been around 30 per cent there is no allowance of any kind made for this. Already the promises made have not been kept. One can only assume, both from this experience and past experience with income tax allowances, that Ministers will as a matter of practice not find it possible to keep abreast of the inflationary process. Therefore it seems unfair to the taxpayer that he should be taxed on notional profits on sales of assets which in many cases are not real profits at all. There could be a situation where an asset was sold for a real amount which was less than was spent on buying it and yet there could be a considerable amount of tax at 26 per cent payable to the Revenue Commissioners.

I should like to comment briefly on the problem of compulsory acquisition. The Bill provides that where property is acquired compulsorily the owner is liable to pay tax at 26 per cent. It seems outrageous that where one has a fixed property, be it a house or land but does not wish to sell it, the local authority are enabled to buy it against one's wishes. It seems unfair that, when it has been bought under these circumstances, tax has to be paid at 26 per cent.

This is a matter which ought to be dealt with in the Bill. I can see that to exclude compulsory acquisition from the Bill could lead to other problems. Obviously those negotiating with local authorities or with public authorities of any kind would be inclined to refuse to sell land and would be determined to wait until the process of compulsory acquisition was carried through if they were to pay tax in the one case and not in the other. But some kind of an adjustment could and ought to be made to provide for the case where an unwilling owner was forced to sell his land. The fact that there are difficulties involved in a matter such as this is not sufficient to prevent the Minister from taking any action in the matter.

It is all right to say at this stage that we are in favour of the general principle in this Bill, whatever problems we may have with regard to certain details. The difficulty is that there are many other far more important matters which we should be discussing. There are far more important problems facing the Government and we can only wish that it was legislation dealing with these matters we were discussing and not this Bill, which is quite irrelevant to the present needs of the country.

Mr. Markey

We accept that this Bill is one of a package of three capital taxation Bills which are on the stocks to replace death duties and we must look at the question of some legislative taxation measures being necessary to replace the revenue which came from death duties. The figure that accrued annually from death duties was in the region of £12 million to £15 million and it behoves us to look for some source from which to replace that amount. This Bill will prove less contentious than the Wealth Tax Bill. To that extent it is gratifying to see that it is being welcomed on the opposite side of the House, as indeed it has been welcomed outside this House by various bodies. Both the IFA and the Confederation of Irish Industries have accepted it in principle, although disagreeing with certain details of it.

There is no doubt that, to replace the revenue which accrued from death duties, something in addition to the wealth tax is necessary. The wealth tax provisions are applicable at assessment dates each year. As there can be a certain change in capital between assessment dates in the buying and selling of properties and so on, it is necessary to have some legislative measures which would take account of the revenues accruing from such buying and selling transactions.

There has been comment from the opposite side of the House that the Bill might stifle enterprise. I find that a bit difficult to imagine, especially when we see that the biggest capitalist country in the world, the USA, has for long had capital gains tax. We know also that the great majority, if not all, of the EEC countries have capital gains tax. As long as Ireland keeps its rate of tax at par with or below—which I think is the case in certain instances—the rate of capital tax in those other countries, I do not think it will harm in any sense free enterprise and the activities of entrepreneurs.

There is an inflationary element which must be taken into consideration in this wealth tax legislation. The Minister has intimated that this inflationary element will be considered every two to three years. He has indicated that the thresholds would be subject to review in 1977 and that that review would take into account inflation in the meantime. An indication on those lines would be welcome in regard to capital gains tax because the effect of inflation on property values, making its real value a different matter from its nominal money value even over a short term because of the present inflationary tendencies in the world, is something which has caused reservations. I would look forward to the Minister perhaps giving us some indication that he would at least review the thresholds and so on in the capital gains tax legislation within the same period of time as in the case of the wealth tax.

Apart from the necessity to bring revenues into the Exchequer as a result of the abolition of death duties, we must look at capital gains tax from the viewpoint of its being equitable and being a social measure which has been long warranted. Taxation has as one of its principles that a person shall pay to the best of his ability towards the running of the country. Unfortunately, it is income tax which has very largely borne the burden in this regard. Wealth creates wealth, they say. For a long time in this country we have seen people accumulating wealth through speculative ventures, perhaps by buying and selling properties over a short term or a long term and being able to evade taxation. There is a call under the heading of equity to put a tax on capital accumulation and capital wealth. From that point of view this legislation is warranted.

There is no doubt that the ordinary income taxpayer has for long seen evidence of people making considerable fortunes almost overnight. There is no question but that such speculative ventures should be subject to taxation. The point has been made—and I accept that there is some justification for it—that a different rate should apply that there should be a distinction between short-term and long-term capital undertakings. But, by and large, the legislation has been warranted in the light of experience and I cannot see it impeding in any way any entrepreneur undertaking investment in this country.

These three taxation measures coming before us at the one time have created a certain confusion in the minds of the public, particularly in the minds of the people who consider that they might be affected by them. My own experience of spelling out the details of the Wealth Tax Bill has been that people are not fully aware of its details, and in regard to the Capital Gains Tax Bill they may not be fully aware of the exemptions included in the legislation. If this Bill goes through this House as quickly as the Second Stage debate today it would seem to indicate that it will be in operation within a very short period and then we can move ahead to the more contentious Wealth Tax Bill.

It is difficult to attempt to discuss each of these Bills in isolation from the other. As the Minister has said, they are all part of the same package replacing the revenues that accrued from death duties. When the unease in regard to these Bills has been allayed, I think it will be found they are not as fearsome as they may seem at this stage. It is impossible to indicate what revenue will accrue from them but that question is only secondary to the equitable and the social aspects of the legislation. All Governments have accepted commitment to have a more even and equitable distribution of wealth. This is a demand which has come from the public and from practically every democratic country. These legislative measures are part and parcel of the effort by this Government to bring that about.

Certainly anybody who expects to be taxed, when up to now he was able to avoid taxation or was exempt from taxation, will be dissatisfied with these measures. But when fully explained and when fully read into I think any such dissatisfaction should disappear. The year 1975 will be a very notable year in the history of legislation here, the year in which there was a very commendable bid to bring about that more equitable distribution of wealth I referred to.

Mr. Horgan

I should like to welcome this Bill and the principle behind it and commend the Minister for Finance and the Government for bringing it in. There are probably some problems of detail about the Bill, but in broad principle I support it. I have supported for as long as I have been in this House, any measure of this kind. In the debate on the Finance Bill in 1970 this whole question was brought up by me, as reported at column 1197 of the Official Report for July 28th, where I said that:

The whole question of capital gains should be examined. As long ago as 1962 a proposal in favour of a capital gains tax was put forward by a Minister of the Fianna Fáil Party who was not then Minister for Finance, to the then Minister for Finance. There may have been some reasons, political as well as economic, for crushing the proposal. The fact remains that there are very few people in this country who would now object to at least a limited capital gains tax.

We have come a considerable distance in the five years since 1970, both in terms of the general acceptability of the idea of a capital gains tax and indeed of the scope to which a capital gains tax should be applied. There has always been one objection to a capital gains tax and it is often one which tends to be made by Government Ministers in a tight corner, that is, that the vast majority of people would object to it.

I think that the vast majority of the people here would not object to a capital gains tax because the vast majority of them have nothing to fear from a capital gains tax but have everything to gain from a capital gains tax, maybe not as much as I would like them to gain but at least they would have something to gain. If I were lucky enough to be in a category caught by the provisions of this Bill, in terms of liability to pay capital taxation, I would count myself a very privileged person and would be glad to pay my tax, subject to whatever avoidance measures might be sanctioned by Senator FitzGerald and his colleagues with a heart and a half.

One of the features of a capital gains tax outlined by the Minister in his early statement was its relationship to income tax avoidance generally and to evasion. I do not believe the Minister specifically mentioned evasion but to my mind it is even more relevant than the question of avoidance. The Minister in his statement suggested that capital gains tax was a good and valuable way of dealing with the problem of tax avoidance. Tax avoidance, as we all know and as Senator FitzGerald has never ceased to remind us, is perfectly legal. It is a legislative and fiscal oddity in a way, and we should be attempting to devise a number of legal instruments which, if they do not catch people in one direction, will catch them in another. Part of the experience of the Revenue Commissioners, I imagine, is that people who are extremely wealthy and who make enormous capital gains, and their advisers, are usually one to two jumps ahead of the Revenue Commissioners in terms of finding loopholes in the laws that are drafted by them, discussed in Parliament and passed very often after a lengthy delay and long after their initial provisions were first known.

I should be inclined to put the problem of tax avoidance on one level but the problem of tax evasion on another because if there is one thing, hopefully, that a capital gains tax will do, it will catch some of the considerable amount of tax evasion which goes on here today. I can do no more than point to the speech made by another member of this House, Senator Mullen, in Cork yesterday about tax evasion. The strictures he made on that occasion about the extent and the degree of that practice were justified. They represent a trend of which nobody, least of all its practitioners, can be proud.

The other main matter to which I would like to address myself at this stage of the debate is the argument that a capital gains tax will in some way lead to a lessening of public confidence, to a lessening in the amount of resources available for productive investment. Superficially, this is true. It is quite possible that, if this Bill is passed and if the tax begins to operate even at the very low rate at which it is set at the moment, certain people may be discouraged from coming here and that certain other people who are here may be encouraged to leave because they feel that their personal wealth or their capital gains stand in some danger of being milked by this very modest tax.

I would suspect that quite a few of these people are those whose real contribution to the economy of the country is marginal. I would suspect that, in so far as capital gains and more especially the grosser type of capital gains tend to come from speculative investment, they tend also to return to speculative investment. In other words, money which is made by speculation will go back into speculation. It is a source of investment which adds very little if anything to the real wealth of the country. It adds very little if anything to the employment potential in the country. It adds very little if anything to the sort of resources we need if we are to protect and develop the position of a country which is in a singularly vulnerable economic position.

It is almost extraordinary, when one thinks of some of the objections to the capital gains tax, to remember that we already have a value-added tax. A value-added, tax is a tax on value which has been added to items by productive work. If there is a justification for a tax which is added to material, the value of which has been increased by productive work, how much more justification is there for a tax which addresses itself to an increase in value which may not have been due to any productive work, may not have been due to any work at all, but simply may be related to inflation, to speculation or to undesirable practices of that kind.

I maintain strongly that there is no need for any serious lack of confidence, any serious flight of capital from the country, after the passing of legislation such as this. It may be true that it will happen to a certain extent, but it will be much more superficial than is generally supposed. It will be, at least in some cases, in respect of persons and institutions whom the country can do as well without as with.

I should like to make the counter argument that there is a much deeper and more fundamental relationship between resources and confidence to which this Bill addresses itself. It is not the general one that has been described in the terms I referred to. The fundamental relationship between confidence and resources in the kind of society in which we and many others live is that nobody who has resources has any trust or any confidence in anybody who has not. In other words, we tend to run society very much on the principle that, "To him that hath shall be given and from him that hath not even the little which he hath shall be taken away". It is as plain as the nose on our collective face that anybody who wants to go looking for money for investment, for capital, his prime qualification must be, certainly where most of the financial and lending institutions are concerned, that he must already have capital. The system is loaded enormously against people who do not come in on the first or second floor. The people on the ground floor are completely cut out. They have no access to capital, and the more their situation disimproves the less chance they have of any access to capital, irrespective of their personal merit, their sense of initiative, their sense of involvement or their willingness to work for their community.

I am all in favour of a piece of legislation like this and of a tax like this, which will cream off the capital gains made by people who, generally speaking, in order to have made these gains, were already fairly wealthy and hopefully to put the money created by that taxation to more productive use than these people themselves would ever have been prepared to put it. I am not saying that all people who make capital gains are sharpers and speculators, of course, this is not true.

There is a tendency for money to seek safe havens and when one gets the combination of a safe haven and a high growth rate one will find an investment system which discriminates enormously against the smaller business, the person who has less capital to start off with, the person who has, perhaps, the greatest possibility of growth. That is the kind of climate in which one also finds the greatest recourse to easy capital gains. I am thoroughly in favour of this tax. I believe that the rate, unfortunately, is low. I hope that, if it is going to be revised, it will be revised upwards rather than downwards and I commend the Minister for bringing it before us.

Mr. Whyte

I support this Bill. It is necessary because the Government removed death duties, as they had promised to do. They made this promise to the people because it was generally accepted that death duties were unfair, particularly at a time when people were least able to bear this type of tax. Now that death duties have been removed it is only fair, as has been pointed out, that some other sort of tax should be imposed in place of this in order to keep necessary finances flowing to the State.

This capital gains tax has been accepted by the people as a fair tax. When people make a capital gain over a short period it is only right and proper that they should pay a fair share of this tax to the State. Considering that workers at all levels have to pay taxes on their work and on their business, it is only right that people who make gains in this way should have to pay tax.

At the same time it is no harm to point out that wealth tax in general, whether it be capital gains tax or under any other heading, ought not to be any higher here than in other countries. We are an undeveloped nation. We need many more jobs, not alone jobs for the people who are becoming redundant in industry. The unfortunate conditions that obtained over the years were that in order to solve our unemployment problem people only had to get on the boats and seek employment elsewhere. It is fortunate for us that those conditions no longer apply because employment is not readily available outside this country. If we are to live up to our responsibilities and provide work for our own people in the long run it will be for the betterment of this country. The more people employed here, the better for everybody. It is unfortunate, in a sense, that we had such an easy way out over the years. We need huge amounts of capital injected into our economy in order to provide the employment that will be necessary in the future, not alone for the redundant but for the increased population that we will, hopefully, have working here.

In order to do that we ought to have a favourable rate of tax that will induce people to invest capital here. There is no use in being sentimental and saying people will invest money in Ireland just because they happen to be third, fourth or tenth generation Irishmen or because they like the country or because they like the colour of our hair or the brightness of our eyes. They will not do that. People will invest if they believe they will get a fair return or a better return than they might get elsewhere.

Those are the facts of life we have to face. I have no particular interest in making the tax rate favourable for the people who own the capital. But I have an interest in making the rate of tax favourable in order that capital will be induced into the country to provide work for the betterment of our people.

We have had in many places criticism of privately-run industry, and I am sure there is plenty of room for criticism. But, by and large, private industry tends to be run more efficiently than State-run industry. It is necessary to have State participation in many of our industries, particularly in the service industries, but it is debatable whether it would be to the benefit of this country or of the workers that there should be large-scale State participation in ordinary industry here.

It would be more acceptable if it were possible to have worker participation and worker ownership in industry. It is one thing to be earning a certain wage, or salary, and spending all of this upon the ordinary necessities of life or the little luxuries of life we believe we are entitled to. There should be a more favourable attitude taken towards workers if they were in a position to reinvest some of their earnings in industry in the firms in which they are working. It would have the advantage of general ownership and private ownership. It would mean that their participation in industry would become greater year by year. This would be a healthy arrangement if we could bring it about. If it could be managed that money earned by people in industry be reinvested in industry in order to maintain and increase employment, and could be treated in a more favourable way in regard to tax, it would be good for the country in general. This is the situation that would be more acceptable to the people. It would be better than State ownership or private ownership in the sense that the latter is often referred to as capitalist industry and has its disadvantages. We ought to gear our taxation to encouraging people to invest in industry and to encourage capital from outside to be invested here to everybody's advantage.

We will need a greater amount of capital in the future. If the opportunities were made favourable people would be prepared to take a greater interest in the ownership and in the running of those industries.

This measure is to be welcomed. It is a step in the right direction provided we, and the Government, consider the need to allow that there be an incentive to people to invest in industry here so that we may continue to have growing employment.

Mr. Brennan

I thought the real juicy piece occurred when Senator Markey, my neighbour, was speaking but there was better to come when my learned friend, Senator Horgan, spoke. I listened with great interest to Senator Whyte, who was more rational and better balanced if I were to judge. I am a pretender to be a judge and pretenders in recent history have gone places. I was amused when I heard Senator Markey speaking about workers and the inducement to creating wealth while everything around is falling down around their feet. He knows better than I because he comes from an industrial county. He knows that quite often people of his age group, who are physically fit and capable of work, are idle. They find it much more remunerative to be idle or on a three-day week.

Senator Horgan quoted from a speech that was made some time ago but I do not think that will convince anybody. He went on to say that he would welcome the tax collector. This is the guy with no manners, modesty, scruples or discretion. It is a pity Senator Horgan has because he is a very intelligent fellow and very enlightened, I am sure. Notwithstanding his ability to put his speech over in a dignified way, much more than I could ever hope to do, he has not convinced me that his philosophy and his way of thinking are the best for the Irish people.

It has failed in the past and nobody is better equipped than the Parliamentary Secretary and the Minister to say so, if they had the courage, which I doubt. They find themselves in the unhappy position that they cannot say what they really think.

Parliamentary Secretary to the Minister for Finance (Mr. Kenny)

I doubt that.

Mr. Brennan

The Parliamentary Secretary is entitled to his opinion but, be that as it may, it is a far cry from his election manifesto when he promised, in good faith, I am sure—far be it from me to accuse him—

Mr. Kenny

To get rid of death duties?

Mr. Brennan

Yes. Far be it from me to accuse the Parliamentary Secretary of being anything but an honest man but he fell far short of his promises. Retain your composure Parliamentary Secretary.

Mr. Kenny

I am not losing my composure.

Mr. Brennan

The pointers for the foreseeable future are pretty grim and dim and I hope the Parliamentary Secretary will have the courage—I do not want him to go out of his way to embarrass his party—to admit that they blundered and blundered to such an extent that they find themselves in a chaotic position.

Mr. Kenny

To err is human and to forgive divine.

Mr. Brennan

There is such a thing as a jamb wall in a cottage and surely all the humour was not sent out through one side of the jamb wall, was it?

Mr. Kenny

I doubt it.

Mr. Brennan

That is not the only doubt the Parliamentary Secretary has to his cost. However, the Parliamentary Secretary is alone in his glory, and long may he live so. The people, and the workers Senator Markey referred to, will get an opportunity of seeing what they know now to be falsehoods. They will get an opportunity when they are the jurors, and I do not think that will be to far off.

The Government, the Parliamentary Secretary and his Minister, know as well as I that this Bill will send people scurrying for shelter. Can anybody guess where they will find the shelter? It will not be behind the backs of the inter-Party Government. I pray for you, and I will help you. May you live long and die happy.

Mr. Harte

The question of the introduction of a capital gains tax as part of the total packet to bring about an equitable taxation system is a great source of joy to the people who were burdened by direct taxation, PAYE and the system that obtained before it. Whether we like it or not they were the people who were carrying the load. It is a great day for those people. As a worker I am one of those people and I am speaking for the bulk of the working-class people who were carrying a tremendous burden of taxation through this direct means.

Most workers would agree that it is a source of joy to think that there is a Minister who has the courage to introduce a package of this nature. This is merely one aspect of the package which will see that the term "equitable" is properly applied to the community as a whole.

We have a Minister who listened to the pleadings of the various organised groups and who came to terms with regard to who was paying tax and who was avoiding tax. As a result of that exercise the Minister found it possible, and desirable, to introduce a package of taxation that demonstrates to the nation that this Government are prepared to stand up and be counted on the question of treating all the people equally.

It would be wrong to say that this was the beginning and end of all of our ills with regard to taxation. It would also be incorrect for me to say that all of the answers have been provided in this Bill, or even in the package. This is our first venture into taxes of this nature even though they have been working in many of the highly-industrialised societies of the world for some years, particularly the United States. Even though it is not going to solve all the problems—it may make some of the problems less acute—it is the beginning of a process that will inevitably lead to a more equitable application of the system of taxation. It does not matter whether one calls it acquisition tax, wealth tax, turnover tax or direct tax, it is an endeavour to demonstrate to the public that at last we have a Minister who has the courage to produce a package which will help the people who for years have been burdened with taxation on an inequitable basis.

Going back to the time when it was necessary for the then Government to consider the introduction of the turnover tax, one can see the inequities in that tax. It was only 2½ per cent in the initial stages. In regard to a person earning £10 a week, in addition to paying his ordinary taxes, turnover tax took about 5s. out of that person's £10. If one took 5s. out of a person's earnings of £10 a week and took 50s. out of a person's earnings of £100 a week, the person who lost the 5s. was not being treated equitably; he was being discriminated against. Everyone will agree that we are now heading in the right direction with this taxation.

A great feature is—I must give credit to the Opposition in this case—is that they have acknowledged by their contributions that there is no reason why people who are earning the kind of money mentioned in the Bill should not be assessable for tax. I share their criticisms to an extent. While I would prefer a socialist society eventually to evolve—I do not say that in a doctrinair way—inevitably we will probably finish up with a mixed economy. This would be the end of the road and we are heading in that direction. I agree with the Opposition that so far we are living in a capitalist society and we must live up to the realities of that society. We must face up to the problems that present and deal with the circumstances in which we find ourselves in that society.

I agree with the Opposition that when we are looking at taxation systems we should see what effect it would have on the initiative and energy of many people who are involved in trying to help society develop and grow. While I might be in conflict with many of the systems of our society, I realise that one can live in conflict and, at the same time, co-operate with the systems necessary to take society along the correct road until sufficient people have decided that society should be changed.

I agree with the Opposition that the problems in our society, the run down of promises and so on, must be taken into consideration when thinking about taxation. There has been a fair measure of consideration in respect of those things in the Bill. Senator Eoin Ryan said, it is an argument of detail rather than an argument of principle. In that respect I agree that there is probably room for argument in the sense of bringing in some detail.

The question of long-and short-term taxation was mentioned. This is our first venture into this type of taxation. It has had a hard time in the other House and rightly so because of the nature of the new tax and the type of society we live in. People are entitled to make their points of view known and to be given ample opportunity to express them. In the final analysis nobody has claimed that this is the most sophisticated way of collecting taxes. The Minister has admitted that it may be necessary to have a look at some aspects not only of this Bill but of all the Bills that go to make up the package. As a consequence it may be necessary, and desirable to introduce some changes in the future.

The bulk of the workers can say they have moved away from the position where they themselves, even though they were the biggest group of organised people in society, were the people who were mostly burdened, not only because of the amounts they pay but because of the circumstances in which they had to pay it and the means by which they paid it such as turnover tax and so on. This type of Bill brings us away from that kind of thing. This is a welcome development. As I said earlier on, it is not the end of all of our problems but it gives satisfaction to the people who for years have been shouldering the weight of the nation's taxation problem. This is a clear indication to them that the Government of the day are prepared to see not only that people get rights but that they also live up to their obligations. I welcome the Bill and admire the Minister for his courage in bringing it in, and I look forward to seeing the other two parts of this package being implemented.

Mr. Russell

I just want to make a few brief remarks. Most of the points I wanted to make have already been made, some of them by the Senators in the opposite benches. In the great welter of discussion that has taken place in the other House the original purpose of this Bill and of the two concomitant Bills, the Wealth Tax Bill and the Capital Acquisitions Tax Bill, tends to be forgotten. When the National Coalition went before the country some two-and-a-half years ago on the 14-point programme, they stated categorically that it was their intention to remove estate duties, legacy duties and succession duties. In order to do that alternative tax would have to be found.

This is probably the most acceptable of the three Bills which the Minister is slowly but surely piloting through the Oireachtas. Judging from the remarks made on all sides, it is fair to say that the Bill is generally acceptable in principle. In fact I think these are the words with which Senator Eoin Ryan opened his remarks this morning. Apart from detailed criticisms, some of which I will advert to myself in a moment or two, Senators generally accept the fact that profits made from capital gains, whether fortuitous profits, because perhaps of inflation or because somebody was lucky enough to buy a parcel of land on the outskirts of a growing urban area or because—and this is the most likely—a man or men have worked hard all their lives and have added value to their assets, whether a farm or business, and in the latter end of their days have decided to dispose of this, if not to a member of their own family possibly to a nephew or niece or perhaps even a friend's son or daughter.

It is only right and proper that we should bring our taxation system into conformity with those of our partners in the EEC. In this case we are not only doing that, but we are also putting ourselves on a par with what might be described as the last bastion of capitalism; the United States, in introducing capital gains tax.

Some criticism has been made of the percentage of tax, that 26 per cent is too low. This is a criticism that has been made both in this and the other House and outside both Houses. It would be a grave mistake if the Minister were to increase the rate of 26 per cent, for several reasons, reasons which I hope will be regarded as practical and sensible. We require in this country and will require for many years to come outside capital to provide industrial and commercial employment and to help in the expansion of our country's assets. That is a fact of life. It would be nice to think that we could generate inside this country sufficient punts to develop the country economically and to provide all the required employment for people at present unemployed and for school-leavers coming out each year. We cannot do that. That has been accepted on all sides of the House and all sides of the other House.

Therefore we must continue to be an attractive country for the investment of outside capital. I am not suggesting that we should welcome all capital. There are undesirable capital developments which I think we should eschew. But, generally speaking, industrial and commercial employment, development of agriculture and ancillary industries, is something that should be welcomed. To do that I think for many years to come it would be wise and sensible of us to have the edge in regard to our capital and other taxes. I believe the Minister had this very much in mind. After all, we are only a few points below the British rate of capital gains tax at 30 per cent. We should try to maintain, certainly for some years to come, that differential. We should be seen to encourage outside capital by indications, we are not going to take action that will result in endangering their capital investment, that we are a country that welcomes outside capital and gives it a fair deal.

The Bill should have certain objectives. Reading through the Bill, I believe it has succeeded in so doing. The first is to bring the capital gains within the general taxation system. This has been a bone of contention for many years. Senator Harte has referred to the fact that the workers have carried more than a fair burden. More than the workers have carried more than a fair burden. The farmer, the small shopkeeper, the tradesman, the men working in offices, have all had to pay their share of taxation down through the years. It has been a point of irritation, to say the least of it, that people who have been accused of making substantial profits more or less overnight have up to now escaped their fair share of taxation. This state of affairs will now be eliminated in this Bill.

Secondly, and a point I want to dwell on for a few moments, there is the intention in the Bill to encourage owners of assets getting on in years to dispose of those primarily and desirably to members of their own family, if possible, if not to dispose of them to others, younger men or women with the necessary drive and initiative and ambition to get on in life and make better use of these assets. I would suggest that the figure of £50,000 which the Minister has included in the Bill is too low. Early consideration should be given to increasing that figure. It might be better also, instead of naming a figure, to base the capital taxation on the profit actually accruing, the capital gain, with an exemption of £10,000 or £15,000 as the case may be. A man selling his property would know beforehand that at least it would be free of a certain measure of capital taxation. It may not commend itself to the Minister but at least it has the merit of encouraging ageing owners to part with viable assets of which younger men with more drive and initiative could make better use.

Some play has been made about a differential capital gains tax. It has been suggested that the man who makes what might be called a swift buck should be taxed at a higher rate than the man who holds on to an asset for five, ten or 15 years. In theory that has a lot to commend it. In practice, I am wondering how it would work out. It has been suggested that if an asset is sold within, say, 12 months it will carry a higher rate of capital gains tax like, 40 per cent or 45 per cent, gradually reducing over a period of years. I do not think that can stand up to close examination. Why should time be the sole judge of whether a profit is a speculative profit or a profit taken because the man is prepared to take a risk, which is successful, perhaps, and gains him a generous reward, and at the same time brings benefit to the community in which he is resident?

It is possible that over a period of longer than one year a person could make far greater speculative profit. For instance, if a man buys land on the outskirts of a growing urban area, holds on to it for five years and sells it at a very substantial profit. In fact, by the mere length of time he would have qualified for getting a lower rate of capital gains tax, where in principle his type of profit would be the one which proposals for a graduated or differential tax would try to get at. However, a flat rate of tax is probably the best one, and when this Bill becomes an Act and has been in operation for some years and the Minister has had an opportunity of looking at the outturn of the capital gains tax, there may be a case for introducing a differential or graduated system of taxation.

There is not sufficient evidence to indicate what is a grossly speculative profit and what is a genuine profit. The man who by his own endeavour and hard work and by denying himself some of the joys of life, by reinvesting his income, is entitled to get the best possible price for his asset. He has added to his assets. Every encouragement should be given to owners to hand over their property, be it a farm or a business or a factory, in the best possible condition. They should not be discouraged from spending money by any penal clause in this Bill.

I would like to ensure that productive assets are exempted from penal or any taxation. We must rely to an increasing extent on the investment of capital in new machinery and the replacement of out-of-date machinery. It is even more necessary that we remain competitive and are efficient and enterprising now that we are members of the EEC. These three desirable objectives would add up to wealth. Whatever criticism may be levied at the accummulation of wealth I know no method by which a fair distribution of wealth can be brought about unless the wealth is there to be distributed. It should be a simple equation to say that the bigger the cake the better. We should do everything possible in our taxation system to ensure that the enterprising section of our community, whether farmers or businessmen, workers or tradesmen, are given the best possible incentive to get on with the job, to earn a good profit and to pay a fair degree of taxation. That is the ideal to be aimed at. If this Bill and the other Bills do that, they will achieve their objective.

Mr. Kilbride

I, like other Senators, welcome this Bill. If we look on the circumstances of the people as a whole, their general application to the production of wealth either by the work of their hands or return on investment, I think we will come to the conclusion that for the promotion of the betterment of the people we must have a method of taxation which will bear evenly on everybody. It is not just that the man or woman who invests in the skill or work of their hands should pay tax on their income, while people who, because they have vast financial resources, have control of the means of investment, are acquainted with the goings on in various parts of the world, and can manipulate certain investments to enhance their income by hundreds and thousands of pounds, escape the income tax net.

We know that the transfer of investments from this country to other countries is not always in the best interest of the nation, but if there was not that freedom for the citizens and for the investor here, we might regret that people would be debarred from investing here. For that reason it is only right that people should be allowed to invest their money abroad or at home as the opportunity presents itself to them, but it is only right that they should pay tax on the profits they make. It would be an injustice to the workers, the farmers, the professional or business people who are compelled to pay tax on what they earn if a foreign investor were to go scot-free. That has been the situation for a long number of years. For that reason this Bill is welcome.

Industrial production depends on the ability of the Government and of the Minister of Finance to infuse wealth into various industrial efforts. It is to the advantage of the nation if taxation that should have been collected and has not heretofore been collected should now be put at the disposal of the Department of Finance and at the disposal of the Government to enable grants and industrial support to be given to enterprises throughout the country.

Several people have complained that this will impose a very serious injustice on a great section of the people. Whether that section is big or small, to my mind the tax imposed is fair relative to the tax imposed on other sections. But the fact remains that the only people who are complaining are those who believe they should either get off with everything, without paying the same as their neighbour, or those who are expanding in an inordinate way and investing extensive capital in lands, stocks, shares or other investments. They are not worthy of any pity because they are not prepared to meet the just obligation that the extensive property of which they are possessed imposes on them.

The people of the country generally, in common with their representatives in this House, welcome this Bill. They see in it an opportunity of providing a source of income which is much more acceptable, broadly speaking, than the extortion of death duties, which was one of the very serious burdens very often imposed on the widow and the orphan. As a consequence of the death of a breadwinner or a parent the livelihood and future of a family were often threatened. Thank God that day has gone. We now have in its place a system of tax collection which will replace the amount raised under that objectionable system and which will not bear heavily on any family or individual. This is the principal reason why we should welcome this Bill. I wish the Minister every success with it and commend him on its presentation and drafting.

Professor Quinlan

Like the other speakers, I welcome the principle of the Bill which is a principle in equity of taxation and also it is a step in replacing the death duties which had become an intolerable burden in recent years due to the impact of inflation. Death duties are a type of taxation that were unable to cope with inflation. They have no built-in regulators to adjust for it and the exemption limits were not adjusted in accordance with decreasing values. From that point of view anything that would remove the grave threat that death duties posed to so many people is welcome. What is really being introduced is some type of pay-as-you-live type of procedure which recoups some if not all of the contribution that death duties had made in the past to our taxation yields.

The Bill as it stands is a rather complex one. We welcome the principle and I think nobody can quarrel too seriously with the base used, that the taxation would be at the minimum rate of income tax, that is at 26 per cent, and, indeed, there is an alternative way of computation as well by treating it as income. However, while we cannot quarrel with that, there are many facets of the Bill that we would like to tease out and debate very closely on Committee Stage. Unfortunately it looks at present as though we will be presented with our usual yearly dilemma in the Seanad of discussing Bills at a time when the Dáil has risen when there is no possibility of making real amendments or changes. That is to be deplored. That is something which has happened at all times. I do not think it should debar us from making a thorough analysis of the Bill on Committee Stage. If we are in the dilemma that the Dáil has risen by the time we get to the Committee Stage of this Bill or some other Bills that may be coming, and if the Minister gives us certain assurances that in some amending Bills later our views will be incorporated or if Ministers would commit themselves to the desirability of certain changes arising out of Seanad discussions, then our discussions might be a little less unreal than they are likely to be in the present circumstances.

Mr. Yeats

For the benefit of the Senator I might point out that the Dáil will be in session until after we finish with this Bill.

Professor Quinlan

It depends on how long we take in discussing this and how long we——

Mr. Yeats

We can take only three weeks under the Constitution, so the Minister can accept a recommendation.

Professor Quinlan

That will give us more scope for investigating the present Bill, because for one thing it does seem that the United States approach of distinguishing between long-term gains and short-term speculation is a valuable one, that in the US where an asset has been held for a number of years there is a consequential reduction in the assessed capital gains on it. That is worth while because it encourages the putting of capital to long-term productive projects. I do not think any of us would like to encourage the quick-kill, playing the stock exchange and selling shares within six months or a year or two years. That is of little use to the economy. It is a type of practice that always leads to instability. It should be discouraged and penalised under capital gains whereas on the other hand gains that are realised after five or ten years as a result of the natural operation of business and development should be encouraged by every means possible. I hope that on Committee Stage we may be able to get down to that in detail.

I am not satisfied that there is any real recognition of the inflation situation. How are capital gains calculated? There does not seem to be any commitment at present that the inflated cost of an article will be used as a base. As an example, let us take a house bought, say, four years ago at £6,000. The same house today would sell at at least £12,000. Surely no one reckons that the person who bought a house for £6,000 12 years ago and sold it today for £12,000 had made a capital gain of £6,000. It is merely the same asset so there should be provision for that type of adjustment. Otherwise, it is getting perilously near to confiscation of capital assets.

We all realise how much as a nation we are dependent on initiative, on investment, on development and so on. As the Taoiseach rightly pointed out in the Dáil recently, we are in a very competitive market for investment and if we cannot provide competitive conditions, then other countries will attract the investors. We need these people. Our development depends on them. Therefore, that should be a first priority. In all this package of capital taxation I would like to be assured that the Government are fully satisfied that any of the measures proposed are not likely to have adverse effects on our efforts to attract capital into our industry. That goes for the private investor, too, because we are in a situation where we are anxious to encourage thrift. We are anxious to encourage people, rather than spending all their salaries on expensive holidays or on other such luxuries, to save and that those savings be put to some productive work within the country.

We must ensure attractive conditions for such investment and the main incentive we have for this is either that the person saving and investing in that way is working within a plan for his retirement. We would need to make it worthwhile for him to deny himself at his productive stage so as to set up capital assets or income from capital assets that will be of value to him in his retirement. That is one reason, but perhaps the greater incentive is that the person saving wishes to be in a position to leave something to his family. Therefore, again we have to make that sort of saving more attractive than either lavishing it on the family at an earlier stage or squandering on day-to-day living.

Unfortunately, with the competition of inflation, we have reached the stage where each of us has to ask ourselves: "What is the use in saving £500 or a £1,000 over any period of time because with the way inflation is going, how much will that be worth in ten years time in terms of money today?" That is a very dangerous philosophy. It is a philosophy that undermines totally any appeal to savings. At present when we, like many other countries, are forced to resort to such a dangerous level of foreign borrowing, borrowing that will have to be paid for eventually, the only way we can cut that down or keep it within some proportion, is to encourage our own people to save as much as possible. Savings are at least as effective as borrowing, in fact more so, in providing the capital assets we need for our development.

I ask if the Government have given any thought, any leadership, or any exhortation to our people to save. I do not think they have. In all the crisis that has been the one note that has not been struck. Yet, to my mind, it is the keynote. It is the one that can give us some cushion against the peril of the level of foreign borrowings we are forced to indulge in. Appeals to save carry no weight today. In the past one could see what money meant when a Post Office certificate would be worth £1.50 six years after its purchase. That made some sense. But anybody told that a £1 invested today will be worth £1.50 in six years would ask what the £1.50 will be worth in today's money. One would have to tell them that it will brobably be worth 60p or 70p by then. In other words, there is the prospect of a loss on savings. This leads to the philosophy where one asks what is the point in saving? with inflation rates as they are. Consequently, we reach a stage of squandermania.

I would ask the Minister to give us leadership in this regard, to try to think of some imaginative programme that will encourage savings. Savings are intimately involved with the right of the individual to pass on property, big or small, to his family. What else are savings for? You cannot take the money beyond the grave and all one can do is try to provide something for the family. It may be only being able to give them some help to acquire homes of their own but whatever it is, it is the incentive that is required. Therefore, the present package of capital taxation has to be vetted very carefully. One must ask whether it is encouraging savings or whether it will undermine the whole philosophy of savings. I do not wish to pursue this much further, but to my mind it is the key issue and it is the one on which I cannot recall a speech from any Minister for the last two or three years. I cannot recall any appeal for more savings. There has been no imaginative savings campaign, no scheme or bonds being issued in the past two years. Surely such a scheme is absolutely essential today when we are faced with a budget deficit of £240 million.

Let us not be penny wise and pound foolish. Let us not at this critical juncture in our history with inflation at such a dangerous level make the mistake, simply for the purpose of being doctrinaire and for tax equalisation of chasing after the doctrinaire and accepting the few pounds that those taxes will bring in while losing the millions that our people could be encouraged to save if they were given the proper incentives. When I speak about people being encouraged to save, I am not speaking of millionaires. I am speaking of the ordinary rank and file of our people at every level. There should be room for savings. Those are the savings that would close that budget gap, that would decrease our dependence on foreign borrowing and would keep the interest involved circulating within our community rather than having to pay it to the Arabs, the Europeans or to any other group.

Most of the other comments I wish to make on this I would prefer to leave until Committee Stage, when we will have the benefit of being able to concentrate on the various sections of the Bill and have the benefit of an effective discussion with the Minister as the sections proceed.

In principle I accept what is being offered in the package of Bills, especially in the Capital Gains Tax Bill. For many years I have wondered why this had not come about. It was in every other country. I cannot understand why we delayed so long in bringing it in. Now I am afraid that the fact we have not made a distinction between long-term gains as a result of activity, enterprise, and planned development over years, and short-term speculation is a great defect in the Bill.

Minister for Finance (Mr. R. Ryan)

I am grateful to the Seanad for the manner in which they have received this Bill. I hope I will not be faulted in another place if I say with conviction that, if they had handled the Bill with similar dispatch and relevance, the Capital Gains Tax would have reached the Seanad weeks ago. Nobody would have been more happy about that than the Minister. I can well understand the sense of frustration that Senators experience about receiving the Bill at this comparatively late hour with scarcely three weeks before the Dáil goes into the Summer recess.

I said yesterday in the Dáil that the debate had been a useful one, that many improvements had been made in the Capital Gains Tax Bill in the course of discussion in the Dáil and that, as a Member of the Dáil for some 16 years, I was proud of the part which the Dáil, as a legislative organ, had played in the improvement of the Bill. However, that did not take away from the validity of my criticism, which was to the effect that up to two-thirds of the time had been wasted in the Dáil on emotive, irrelevant, partisan and political contributions which did not touch the merits of the Capital Gains Tax Bill and which were not related to the principle of taxing capital gains.

The Government were reluctant to bring in a time limit on discussions of the Wealth Tax Bill but we were concerned to bring to an end the long agony through which this country has been going because of the unnecessarily protracted discussion to which the Bills have been subjected. If the debates in both Houses in future are relevant and on the merits of a particular section or amendment, I am certain that we will get through the legislation without untold difficulty, without any serious inconvenience and that the legislation will be discussed adequately. Therefore, I am exhilarated by the manner in which the Seanad approached the Bill today because, apart from a few political comments for which I forgive the contributors, the debate has touched most of the time on the merits of taxing capital gains and on the particular merits or suspected limitations of the Bill.

For the record, so that Senators may know, I should like to point out that the Bill was circulated first on the 20th December, 1974, following the White Paper published on 28th February, 1974. The only reason for the lapse of ten months between the publication of the White Paper and the publication of the Bill was because people and organisations were anxious to see me. I have met innumerable deputations. Then we had long consultations with technical experts, people who were qualified to speak in this field. These consultations went on from the beginning of March to September and immediately after that the Department of Finance, the Revenue Commissioners and the parliamentary draftsman got down to preparation of the detailed particulars of the Bill. We should congratulate the backroom boys, who are often criticised, for the speed at which they worked in a very complex area.

Every country that has introduced capital gains tax legislation has acknowledged that capital gains legislation is probably the most complex of all legislation, because you are not dealing with established facts like income or the value of an asset on a particular date— you have to look at more than that. It is a volatile field. Values can change for a variety of different reasons and there are so many different business and human arrangements that have to be looked at in order to ensure an equitable tax and an ability to pay the tax.

The very length of the Bill here is a reflection of the complexity of the code on the one hand and also of our desire to trim the capital gains code in this country to Irish circumstances, to Irish requirements, to meet the very kind of problems Senator Quinlan was worried about. He, Senator Russell and others were anxious to ensure that the encouragement of investment would not be stifled and to ensure that reward, just reward, was not made to carry an unfair burden or sacrifice. There are many provisions in this Bill which you will not find in any other capital gains code in the world. This is because we went out of our way to trim it as best as we could to the circumstances of Ireland in 1975 and, as far as we could foresee it, towards the end of this century.

We do not think for one moment that this Bill is the last word in capital gains legislation. We expect that in the light of experience some hardships may come to light, some difficulties may be exposed, some new arrangements may be devised which are outside the contemplation of even the most brilliant tax consultant at present and these may have to be adjusted in the light of experience, and no doubt they will be adjusted.

There has been a very full discussion on this Bill. It was circulated on 20th December last and debate in the Dáil was initiated on 14th January. The Second Stage took two days in the Dáil, the Committee Stage took 12 days and the Report Stage three days. There was a total of 17 days spent on it in the Dáil, or 98 hours. That is as long a time as has been given to legislation I can think of. There was no effort by the Government to curtail discussion. We pleaded time and time again for the elimination of irrelevancies, because we do not believe that it helps to have tempers frayed by irrelevant and petulant political comment. But perhaps all that now is behind us and I do not want to say any more about it.

Senator Eoin Ryan asked whether there was a possibility that any activity or transaction could be subjected to both income tax and capital gains tax. The answer is "No". We have specifically provided that there would not be any instance of double taxation. There are a number of transactions carried on by people which constitute business and which at present are subject to income tax. A person whose activity is that of a property dealer ought under the existing code to be paying income tax. Such a person if engaged as a property dealer would not be subjected to capital gains tax on such dealings which were liable to income tax. But a person who is not engaged in the business of a property dealer can nevertheless make profits, sometimes substantial profits, on capital transactions which would not under the existing code be caught for income tax but which under the capital gains code will be subject to the capital gains tax.

Senator Ryan and a number of other Senators complained that there was no distinction drawn between short- and long-term gains. The suggestion was put forward that a gain made in a short period was necessarily a speculative one and to some extent of less moral standing then one made over a long period and that a long-term gain was not at all of a speculative nature. The truth is that the greater the wealth of a person, the longer the period that that person can afford to wait to make the gain. Some very substantial gains have been made free of tax in the past by people of considerable means, who, having ample current income, were able to postpone the making of a substantial gain for a long period, thereby increasing the amount of gain made. It is very difficult to draw the line between what would be the appropriate break-off between short- and long-term gains. Some countries have done it by exposing short-term gains to the full whack of income tax by providing that over two-, three- or five-year periods, gains on property acquired or disposed of within such a period would be subject to the full whack of income tax.

There is one drawback in having a varying rate of capital gains tax. If you vary the rate so that it declines with the passage of years, of ownership of the asset, people may remain locked into assets in order to realise greater gains and that may have undesirable social and economic consequences. Of course one can in certain circumstances bring compulsory powers to operate where a purchase is required for housing or road-widening purposes, but those occasions are quite limited. We think it is better to go for a low rate which because it is a low rate imposes hardship at no particular point and leaves people free to make their decisions regarding acquisition and disposal of assets without looking over their shoulders to make complicated tax calculations.

Rather unique exemptions are those to exempt a principal private residence, no matter what its size; to exempt capital gains of up to £500 per annum; to exempt chattels worth up to £2,000; and to exempt assets which are wasting assets, those which have not got a lifespan of more than 50 years. All these will eliminate many transactions and indeed many gains, although I would acknowledge that one of the reasons we removed them was because if we had brought them in we would also have had to allow losses as well; and you can image the complicated business of trying to calculate whether a loss or a gain was made from the sale of a motor car or its replacement by another.

Mr. Yeats

You also save the administration.

Mr. R. Ryan

Yes, not merely on the public side, which is desirable, but also in the private interest because the private interest pays the total cost of the public administration. This is something which people tend to forget. They think that there is some strange enemy of the people out there which carriers on in its own sweet way and looks after its own interest. Anything I can do to save the work load of the public administration means that I am saving the taxpayer.

Mr. Yeats

The Minister is not losing any income.

Mr. R. Ryan

No. The reality is the work on the small transaction. If you have a multitude of small transactions the cost of administration would probably equal and, maybe in some cases be greater than, the cost of recovery. Therefore, it is not worth it. But we have recognised these things in the legislation and that is one of its merits.

We have been faulted because we have no built-in regulation about inflation. It was my personal anxiety, which I spoke of in public, that, before the legislation got through the detailed drafting stage, to build in a regulator for inflation. The truth is that there is no measure for inflation in Ireland. First, so far as property is concerned, its value may vary for a multitude of reasons which have nothing whatsoever to do with inflation. It can vary because of new economic or social demands or merely because of fashion. There are some items in antique shops today that were thrown out in the not-so-distant past because they were regarded as worthless but which now are fetching a very high price indeed, a price which is related to fashion or to some passing whim rather than to intrinsic value. Therefore, it is very difficult to find a suitable index to assess property value and we have not even got a suitable index for income.

I have spoken on a number of occasions—most recently during your luncheon break when I was speaking in the Dáil—and drawn attention to the imperfection of bringing in taxation on luxuries like alcohol and tobacco for the purpose of calculating income increases when society generally accepts that, if taxation is necessary in order to compensate the poorer people in our midst, that taxation should go on the luxuries of life. Yet we have pretended in this country that the CPI and every aspect of it was essential to the maintenance of living standards when in fact it is not. However, I do not want to get too much into that particular field because I have spoken about the importance of being all the time relevant to the issue of capital gains.

We have been faulted because we have not exempted gifts from capital gains tax. As we acknowledged in our White Paper, we had hoped it would be possible not to subject gifts to capital gains tax and capital acquisition tax but our examination of the matter, in relation to our own situation and observing capital gains and gift legislation in other countries, led us to the conclusion that it would not be possible to grant this exemption without opening the avenue to very easy avoidance and evasion of tax.

It is no harm, as I have closed off this loophole, to explain how it could so easily be done. Instead of selling property any person could make a gift of that property to a relation at its market value. The day after, the relation could sell that property at the same value and make a gift of the proceeds of sale back to the person who made the original gift. It is so simple as to be laughable. Every effort we made to devise some means of closing it off seemed to generate further possibilities of avoidance and evasion. There could also be arrangements made to exchange assets. You give me what you have and I give you what I have, and we both make a gift to one another and in such a situation there could be no liability to tax. It could also be arranged that the property could be held for some time by another person who could then give it to a third, or even a fourth, party before it went back to the original party. Every time one tried to devise some way of closing off loopholes it was found that we were inviting the tax consultants to devise some scheme, for which they would be very well paid, in order to help the wealthier people to avoid the impact of taxation.

Senator Alexis FitzGerald asked if the Government would consider amending the Wealth Tax Bill so as to postpone the date for the collection of wealth tax. We have already extended by three months the date for payment of wealth tax and we do not consider that any further postponement could be justified in any circumstances. Estate duties have been abolished since April of this year and that is a gigantic relief for a vast number of people. Even people of very small means, the owner of even a semi-detached house in the Dublin suburbs, a motor car and a bit of furniture, would find himself subject to the payment of estate duties. These estate duties have been abolished. We said that wealth tax would be introduced simultaneously with the elimination of estate duty and the wealth tax will, therefore, be payable by next October.

In those circumstances it is necessary to complete the wealth tax legislation before the Summer Recess. That is on another Bill; it is not dealing with the Capital Gains Bill but as it was mentioned in this debate I wanted to make reference to it. Nobody regrets more than the Minister for Finance that the Wealth Tax Bill is not already before the Seanad. It has been debated now for over 60 hours in the Dáil and this will be the thirteenth day. It is clear that it has been examined in great detail. If the debate there can be kept relevant in the days ahead it will be possible, I am sure, for it to reach the Seanad before the end of July. For many reasons, including my ministerial responsibilities and the problems of administration which face the Revenue Commissioners and the ordinary taxpayer, the sooner the Bill is got through the better.

Senator FitzGerald said that this tax would not disturb investment. I may use his remarks in reply to Senator Ryan, and, I think, Senator Yeats, on the possibility of capital gains tax disturbing the climate of capital investment. Senator Quinlan had certain worries also that capital taxation might disturb capital investment. But we have the advantage of being able to speak with hindsight. We have seen that in other countries which have these taxes such disturbances have not taken place. Some of the principal bastions of capitalism in the world, like the United States of America and Western Germany, have capital gains tax for years. In fact, they have it in Germany since the beginning of this century and it has not disturbed capitalism. It has not led to people getting out of investment. If one was to translate the healthy atmosphere towards capitalism in those countries to the tax position then it would appear that capital gains tax can actually promote a healthy capitalistic climate, although I know everybody would not share the view of some people as to the wisdom of that particular climate. Nevertheless, it exists in those countries that have capital gains tax.

Probably one of the reasons it helps to stabilise societies is because where there is capital gains tax it removes the great sense of frustration and anger which an ordinary income tax payer must surely have if he or she has to pay income tax on regular income while other people with greater income and massive capital can avoid payment of tax on both capital and income. Let nobody think that wealthier people pay as much income tax as people who have smaller incomes; they do not. There are various ways and means by which they can devise their affairs to set off their tax liability. One of those ways we closed off in January, 1974. Senator Ryan referred to it today. I see no reason for going back on what the Government did, but it was open to people to borrow vast sums of money in Ireland and to set off the cost of the interest on money borrowed here against their income tax liability.

The greater a person's wealth the greater was the inclination to engage in such borrowing. A great deal of such money was borrowed here from the Irish banking system and invested abroad to earn tax-free profits abroad. That also was possible until we got into power. People were able to set off up to 80 per cent of the interest on money borrowed in Ireland against their tax liability here and use that money taken out of the Irish economy to generate for themselves tax-free profits abroad. Of course, that is a scandal. The sense of frustration which ordinary taxpayers feel would be a great deal more if they really knew the extent to which tax avoidance was carried on by people of comparatively substantial means until many of these avenues were closed off. It is because these avenues have been closed that we have so many vehement attacks upon this Government because of their taxation reforms.

The accusations that have been levied about the flight of capital from Ireland are all without foundation. The movement of capital here since we published our Capital Taxation White Paper is very substantially inwards, not outwards. This gives the lie to the accusation that has been made about upsetting the atmosphere for investment and the confidence of capitalists in the Irish economy and the Irish society. Senator FitzGerald was right when he said that capital gains tax is totally justified in equity and not to have a capital gains tax is more inequitable than to have one.

There was some criticism that the thresholds in the Bill are the same thresholds as were announced in February, 1974. That is not true because we made several revisions as of May, 1974. But the same criticism would be made if we had not increased them since then. We have dropped the rate of capital gains tax from 35 per cent to 26 per cent, a significant reduction. Our rate is now lower than in any European country. Therefore, there is a net attraction so far as investing in the Irish economy is concerned.

Senator FitzGerald raised the question of the difference in treatment of deaths in Ireland and Britain. He pointed out that in Britain the value of an asset acquired by a legatee is taken at its market value on the day of acquisition, whereas we propose that the value would be traced from the original acquisition value by the donor. In Britain, originally, death was an occasion for the calculation of capital gain. There are some in Britain who would restore this. That will not arise in Ireland. The only occasion on which capital gains will be paid in respect of property which passes on death would be when the legatee would eventually dispose of it. If the legatee did not dispose of it outside the family but passed it on within the family to the next generation, capital gains tax would not be payable. That is because in Irish society we recognise that when so many businesses and farms stay within the family, we consider it appropriate that such businesses and farms should not be subjected in future, as they have in the past, to the payment of substantial penal capital taxation at a time of no liquidity. In future, capital taxation will be paid only when liquidity arises, when it is a disposal of property and when the gain can therefore be paid out of the liquidity, or else it will be paid by the comparatively wealthy in small instalments annually.

Senator FitzGerald was in some doubt about our treatment of leases in the Bill. We have good precedent to go by. We have had regard to the code which applies under the Income Tax Acts. There may be some anomalies but as we introduced the capital gains code we fitted it in, where it was practicable to do so, with the existing and understood code of income tax. The problem is complex enough without introducing a whole lot of new concepts into taxation legislation and practice generally.

There were some queries about paragraphs 11 of Schedule 4 which deals with the disposal of assets by non-residents. We have had to take steps in relation to the disposal of assets by non-residents to ensure that, when a capital gain on Irish assets is made by a non-resident, the proceeds of sale would not go outside this jurisdiction so as to avoid payment of the tax. Therefore, paragraph 11 contains a proviso which would require the purchaser to deduct a certain amount of tax from the purchase money before handing over the purchase money to the vendor.

Paragraph 11 (1) (d) says that the paragraph should apply to assets which are shares in a company deriving their value from land in the State, minerals and exploration or exploitation rights. I have been asked if this applies to publicly quoted companies. The answer is, yes, it does; but it is open to any vendor to apply to the Revenue Commissioners for a certificate of non-liability to tax. If a non-resident vendor applies in respect of shares in a publicly quoted company then, by virtue of section 4, he is not liable and a certificate would be given and there would be no deduction for the tax. It should not cause any difficulty at all.

Senator FitzGerald wondered if certificates of exemption would be quickly issued. He may be assured that the experience which he and his colleagues in the legal profession enjoyed in relation to section 6 certificates under the old Schedule A system on the sale of land will not exist in relation to certificates under the capital gains tax. Any person who applies for a certificate of exemption under paragraph 11 of the Fourth Schedule of the Capital Gains Tax Bill will get certificates without delay. It is proposed to give priority to the issue of such certificates.

The Senator also asked whether the Voluntary Health Insurance Board and bodies corporate under the Health Act would be exempt from capital gains tax. The Voluntary Health Insurance Board would not be exempt from capital gains tax but the Voluntary Health Insurance Board on reinvesting the proceeds of sale of its property in its business of conducting an insurance company for voluntary health would, of course, get roll-over relief. In other words, it is a way of ensuring that there is no disposal of the property outside the authority of the Voluntary Health Insurance Act. It is a theoretical point that they are liable but as there would be roll-over the relief would be given.

Senator FitzGerald also suggested that the various exemptions which we have given—for instance, as to gift between husband and wife—should also apply on transactions between other relations. There has to be a stop point in all taxation. There has to be a stop to the generosity of the Exchequer in granting exemptions. We think the various thresholds—for instance, on the Capital Acquisitions Bill in relation to gifts—are so generous by any standard that we would not be justified in making further exemptions and extensions in this Bill.

There was reference by Senators to the qualifying age of 55 years for the concessions in sections 26 and 27. They queried whether that was young enough. Senator FitzGerald referred to the problem of the burnt-out person who was unable to continue in business or continue the running of a farm and suggested there should be some special provisions which would take account of such problems. Once again one runs up against the problem that one has to draw a line and anything on the wrong side of that line or near it is regarded as hardship. I would prefer to regard it as hard luck rather than hardship. Hard luck is not quite the same thing as hardship. The age of 55 is a comparatively low age for retirement in Ireland, and we are looking at Irish circumstances. It is younger than any other statutory provisions here, other than the regulations made in relation to the retirement of farmers under the EEC scheme. We think it is a generous age to take. We would want to have some years experience of its operation before we would feel justified in bringing the age any lower.

On the question of people who are incapacitated from holding on to or from continuing in business younger than that age I point out that there would obviously be very great difficulties in determining from a tax point of view whether or not the person was or was not medically fit to continue in a particular business. It would open the door to an awful lot of uncertainty and difficulty if we were to allow assessments as to fitness to remain in business to be a determining factor in whether or not liability to tax would or would not arise. What is the reality? If some person is unable to continue in business they can probably so arrange their affairs that a manager can take it over and they would so arrange their affairs so that in many cases a manager would manage the business for them.

There would be no rigid enforcement to the full-time attention to a business by the Revenue Commissioners. The test in regard to full-time attention to a business will be whether or not the taxpayer in question is devoting time, substantial time, to another business. Somebody may become invalided or seriously ill for a long period and may be only able to watch the business from the bed. That is not necessarily going to disqualify that person as long as the person is not carrying on some more lucrative business elsewhere in using a claimed illness as the cause for not attending to a particular business which might be affected by capital gains tax. Notwithstanding their reputation the Revenue Commissioners are not inhuman. They are not lacking in human compassion and understanding of human situations and that is the way they apply the income tax law and other laws. I think we have no reason to suspect that they could be unreasonable in the application of the capital gains law.

Senator Yeats said that the Bill was irrelevant at present times. We might be a bit outside the scope of the debate if we were to chase him too far down the road on that issue, but I will put this point to him. Do you think there will be much prospect of getting moderation in income demand, do you think there will be much patience on the part of the ordinary income man who has no other assets if the Government of Ireland were not seen to be asking people of substantial wealth to pay a fair share of taxation? I think it would be futile to ask for moderation in income expectations if the Government at the same time were not proceeding in their determination to ask people of substantial means to pay a larger share of tax in future than they paid in the past. I think it is very relevant to our present difficulties and to the response which the Government are seeking from our community. The Government should proceed with all due speed to complete the implementation of their package of new capital taxes, which are fair to the people who will be affected by them, but at the same time the Government will have the benefit of convincing other people that everybody who is in a position to pay will in future pay a fair share of tax.

I do not accept that the Bill is a dis-incentive to save. Senator Quinlan mentioned this point. Senator Yeats mentioned this as well. Consider the various exemptions which are granted. A person can have capital gains of up to £500 a year free of tax. That is a fair gain on a fair amount of savings. Various other assets are exempt. The home is exempt. The home is in fact the principal and only form of capital for many people. They spend their lives paying off the mortgage and the house becomes the family's savings box. That is in no way discouraged by the provisions of this Bill. There is positive encouragement to invest in Government savings which of course are used for the benefit of the community because Government investments are completely outside the scope of the capital gains tax. Of course the family business, the family farm is also given very generous exemptions so that people who invest their savings and their efforts in building up such assets will have exemption up to £150,000 which is passed on to one family and up to £50,000 if it is being disposed of outside the family. Of course there will be adjustments above those figures so that there may be only small liability to tax where the consideration does not greatly exceed those amounts.

Senator Russell queried the use of consideration instead of gain where exemptions have been granted in sections 26 and 27. We had a very long debate on this in the Dáil and the reasons which I gave were and are still valid. I give them here:

If an asset has been held for a long time before it is disposed of under sections 26 and 27 the chances are that the consideration would reflect a very substantial amount of gain. The longer the period of holding probably the greater the amount of gain and therefore the consideration would reflect in fact the quite substantial gains which would be made over a lifetime holding of an asset. It will be recalled that the asset must be held for ten years before being disposed of. There would be quite an amount of gain represented in the consideration at that time. But the consideration also has the advantage that the Revenue Commissioners would not have to look at every transaction which they would have to look at if they had to measure the gain on every transaction. They would have to look not merely at the price the assets obtained at the time of disposal, they would also have to look at the price at which the asset was previously acquired, maybe not by the donor but by somebody who pre-deceased him.

I have already dealt with the question of multi-rate, such as Senator Yeats suggested. We had an amendment in the Dáil which would have involved up to 20 different rates of capital gains tax. One can imagine the complexities of trying to operate such a system. Theoretically it is convenient, as Senator FitzGerald said, but in practice I believe it would drive even reasonable people mad. Even the tax experts might not consider any fees they collected to be worth the amount of suffering they would have in trying to administer such a very complex scheme.

Senator Yeats raised the issue of compulsory acquisition and he thought it was wrong that capital gains tax, if I understood him rightly, should be imposed where the proceeds of a sale were no more than compensation for what was compulsorily acquired, because he obviously had in mind that the vendor in many such situations is an unwilling vendor. But if we were to exempt such transactions from capital gains tax we would no longer have any voluntary sales by people to public authority. Every person who might be affected by a sale by a public authority would refuse to agree a price even though the price would be acceptable because such a price would be subject to capital gains or they would agree a price only if the local authority or the State were to pay 26 per cent on top of the price which had been agreed. Every case would then be pushed to arbitration. We know how long it takes us at the moment to acquire in the public interest some properties, even where there is voluntary agreement. We certainly know how long it takes if there is compulsory acquisition, with inquiries and so on. In truth it would muck up the whole process of acquiring property which is urgently needed for public use for many purposes, including necessary housing.

But I should like to point out that the hardship is probably not as great as might at first appear. First of all, if the compulsory acquisition is of the principal private residence, there would be no liability to tax. If the property being acquired was a business asset and the proceeds of sale were to be reinvested in a business, which is what most people in a compulsory purchase situation would do, though this is affected by the compulsory purchase they would be reinvesting in another business. The roll-over provisions will then apply; or if the vendor was over 55 years of age and not going to start in business he will still have exemption up to £50,000.

I can assure Senator Markey once again, as I have on so many other occasions, that the Government will review the thresholds from time to time. The Senator suggested that the review should take place, together with the wealth tax review, over a three-yearly interval. I would think that something of that nature might be appropriate, but we will look at it in the light of experience. When we have time we must start thinking of a lesser inflation rate than inflation rate of 25 per cent, which is the one which seems to preoccupy people at the present time. We are going to get back to a much lower inflation rate because if we do not we will not survive at all. Therefore we are going to get back to a lower rate so that many of the fears that people at present have following a period of rapidly increasing inflation will not, I think, be justified in the years that are immediately ahead of us.

I hope, a Chathaoirleach, that I have dealt with most of the points which have been raised. I have explained the difficulties in relation to not being able to meet several of the points. I should like to be able to meet them, but I think we must keep our tax as simple, as understandable and as workable as possible. In the light of experience, when people are able to appreciate the system that has been introduced now, we may all be wiser and we may be able to improve it. But as of now a simple and fairly direct code is obviously the one which is going to operate to the greatest advantage.

I am satisfied that the Bill will not discourage investment. I believe we will have a much healthier economy and healthier society when the whole package is in. I recall what a leading banker said to me some time ago. He said: "Do not worry about criticism. You will get hell when it is going through and some of your greatest critics will be your greatest supporters when they get experience of the new system, because the Irish tax situation was unhealthy and it was doing damage to the whole climate of investment in Ireland." I am sure he is right. That has been the experience in other countries and I am sure it will be the experience here, too. At the end of the day people will appreciate the wisdom of it all.

I accept that the Opposition in the Seanad have accepted the principle of capital gains tax. I know there was some doubts on their part originally. Indeed, as recently as last week one of the Deputies in Dáil said that they were still opposed to it. I suppose like any political party which crosses class and property boundaries it is bound to have people who agree and disagree with the principle of capital gains. But I think our society by and large has accepted the principle of capital gains. In the representations I have received nobody said that gains taxation was wrong, even those people who sought amelioration of the rates or changes or exemptions. My successors can check out the truth of what I am saying. No representations received by the Department of Finance asked for cancellation of capital gains taxation. That, I think, is something which speaks for itself. I look forward to a useful discussion in the Seanad on the Committee and Report Stages.

Question put and agreed to.

Committee Stage ordered for Wednesday, 16th July, 1975.