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

I move recommendation No. 1:

In page 6, between lines 34 and 35, to add to section 2 the following subsections:

"(9) In this Act, a reference to a gain shall be construed as meaning the relevant gain appropriately reduced in accordance with the calculations of the Central Statistics Office relating to any changes in prices and values during a period commencing on the date of acquisition of the asset in respect of which the gain accrued and ending on the date of disposal of the asset.

(10) In this Act, a reference to a loss shall be construed as meaning the relevant loss appropriately reduced in accordance with the calculations of the Central Statistics Office relating to any changes in prices and values during a period commencing on the date of acquisition of the asset in respect of which the loss accrued and ending on the date of disposal of the asset."

This recommendation is another effort to persuade the Minister to make some allowance for the effect of inflation in relation to the application of this Bill. It is slightly varied from the recommendation which was made on the Committee Stage because the Minister indicated that he was not satisfied that the method suggested was a valid one, that it would work. This is another way of approaching the same problem. I said on the Committee Stage that I had no rigid views as to how this matter should be approached. I would welcome an amendment by the Minister on the lines I suggested, or any lines which would meet this problem. The Minister has not suggested any recommendation.

I want to stress again how important I think this matter is and how dangerous and inequitable this Bill will be in practice if no allowance is made for the effect of inflation. The Minister, of course, has said that he will have regard to inflation and will make some allowances for it. In the course of the discussion here during the Committee Stage the Minister admitted that it would not be possible to make adequate allowance for inflation. Consequently, in the future we will have the situation where capital gains tax will be charged on nominal gains, on gains created by the effect of inflation, on gains which are not in fact real gains at all. That means that a person will be taxed on something artificial.

This Bill is not in operation yet, and yet within the period that we have been discussing it we have had inflation of something in the region of 25 per cent. Consequently already before the Bill is through this House, we have a situation where a person who bought something a year ago for £4,000, sells it for £5,000—in fact there is no real increase in the value of the goods—with a gain of £1,000, finds that £260 will be paid on that capital gain. In fact there will be no increase in value at all.

That is an indication of the inequity of this Bill as it stands and as it will operate because no procedure will be written into it to deal with inflation. I and many other speakers have stressed the necessity of having something in the Bill, in the Act when it goes into operation, which will be a guideline, something that the Minister will not only take account of, but must take account of. I stressed that I thought it would be in the interests of the Minister and the Revenue Commissioners that they should be able to say that the Bill obliged them to make certain allowances for inflation so that it would not be a matter which they would be able to do or not to do each year. They would not be in the position of being subject to political pressures, subject to the temptation to do nothing about inflation, when they realise that in fact something should be done. It would be much better not only from the taxpayers' point of view, the citizens' point of view, but the Minister and the Revenue Commissioners to have a guideline built into the Bill so that they are obliged to take certain measures and to have regard, in a specified way, for the effect of inflation.

The position is that already before this Bill is in operation we have a situation where there has been inflation, and in the kind of example which I have given, a person has to pay £260 on the apparent capital gain, but in fact there is no gain at all. It is purely an illusory gain. Nevertheless, the £260 that he will have to pay is not illusory. It is money he will have to pay. This recommendation was put down in the hope that the Minister would have put down an alternative way of meeting this very serious situation, this very real problem and something that will adversely affect the taxpayer in the future and affect him in a very inequitable way. I ask the Minister to accept this recommendation.

I would remind Senators that we are on Report Stage and only single contributions are allowed from each Member.

The Minister is not concluding, is he?

It is for Senator Ryan to conclude.

I do not get the advantage this time.

Does Senator Yeats wish to speak now in seconding the recommendation?

Can one speak after the Minister?

Senator Yeats will have all the advantages. When people press for detailed amendments to this Capital Gains Tax Bill I think they overlook the logic of what they are recommending. It is that if all the refinements they seek are to be built into the code then, logically, capital gains would have to be treated as income. If treated as income they would have to be subject to the full whack of income tax rates. I wonder if people would prefer detailed income taxation, such as the Opposition press for, with rates running up to 77 per cent, or the code, as proposed, which proposes a flat rate of 26 per cent no matter what is the wealth of the individual or the income of the individual concerned.

I would like to give some examples of the effective rate of capital gains tax and compare those rates with income tax rates if the sums in question were to be subject to income tax. Remember in the figures that I quote, the income tax rate that I will quote assumes that the taxpayer would have no other income other than capital gains, which is an improbable situation in most cases. Gains up to £500 in a year will be free of any capital gains tax but it could be liable to income tax at 26 per cent. A £750 gain would be liable to an effective capital gains tax charge of 8.7 per cent and income tax would be 26 per cent. A £1,000 gain would be liable to 13 per cent capital gains tax and 26 per cent income tax. A £2,000 capital gain would be liable to 19.5 per cent capital gains tax and 28.8 per cent if it were charged to income tax. A £3,000 capital gain would carry a 21.7 per cent capital gains tax rate and 32 per cent effective income tax rate. A gain up to £4,000 would be charged at an effective capital gains tax rate of 22.7 per cent and if it were treated as income it would be at 33.6 per cent. On a capital gain of £5,000 the effective rate of charge would be 23.4 per cent but if it were income it would be at 36 per cent.

I should explain, of course, that when I spoke about a taxpayer not having any other income I was omitting taxpayers with small incomes who will, of course, enjoy exemption in any event; but the figures clearly indicate that the rates being charged for capital gains tax are comparatively low when compared with income tax.

I accept that the aim of the recommendation is to provide an adjustment for inflation, but the Bill already does that by the very generous thresholds and exemptions already provided and the very low rate which is provided in the Bill. The question of making provision in tax law for inflation is a very big one. It goes far beyond capital gains tax, and it would be inequitable to introduce it in one tax without introducing it in the others. As I emphasised at the Committee Stage it is a nice exercise for the theorist to engage in.

Government and Opposition, Senators and Deputies, have an obligation to ensure that the State has sufficient revenue to operate on. If thresholds are to be adjusted, as so many people recommended today, then people will also have to accept that rates will have to be increased or else there will have to be a popular will to forego many State expenditures which confer economic and social benefits. That will to forego expenditures does not exist. Except in the rather reckless calls made from time to time for a cut in Government expenditure. A cut in Government expenditure at a time when the private sector is not spending sufficiently would only make our present economic malaise more severe.

We have recognised many of the problems in drafting the capital gains legislation. We have provided for them in considerable detail in the Bill. The fact that they are done in detail and in different ways may conceal from a casual observer the fact that the benefits are nonetheless there. In addition to exempting the first £500 of gains there is also exemption for all chattels with a value of up to £2,000. Then there are roll-over provisions for businesses assets, and there are exemptions also in relation to family farms and businesses disposed of within the family and outside the family if people have spent a number of years in the business. These exemptions, certainly in the short run, and it is the short run that we are now dealing with, provide adequate safeguards against any real erosion of people's holdings by a capital gains tax imposed on increases in value which result from inflation.

These thresholds and exemptions will be looked at from time to time. The Government have committed themselves to doing this. I have no doubt that there will be ample critics around if the Government fail to honour their undertaking. To insert the suggested recommendation would not, in fact, improve upon the undertaking which the Government have already given. I am not speaking impartially when I say that to impose an obligation to make an appropriate adjustment leaves it open to as many uncertainties and as much argument as the Government's assurance that they will appropriately review the thresholds and the exemptions from time to time. I do not think that it would be any stronger if it were in the Bill because in a democracy the ultimate will of the people is stronger than anything which is written into a Bill. If the Government fail to honour their undertakings I have no doubt the full whip-lash of public indignation will operate.

I wish to second the recommendation. It goes more fundamentally to the real economic, financial, monetary and taxation issues of today. I feel that the reply that the Minister has just given, if I may say so, was full of non sequiturs and red herrings not related to the fundamental principle that is enshrined in the recommendation. It is no analogy to draw comparison between capital gains tax and income tax rates. We are talking about the principle of relating any form of increased taxation to a criterion, either a series of calculations from the Central Statistics Office relating to changes in prices, or whatever criterion concerning inflation that the Minister for Finance, in all his wisdom, can devise. I agree that there are certain flaws in the present system of computing the consumer price index. However, surely it is not beyond the wit of the Department of Finance to devise what should be an acceptable method or criterion, for calculating inflation rates. On any criterion our inflation, since the 6th April, 1974, from which date this Bill will operate, has been in the region of 25, 26, 30 per cent. Certainly it is now running at a rate of 25 to 26 per cent increase. Since the 6th April last year it must be in that order. When it becomes law capital gain, that notionally is of that order between 25 per cent and 30 per cent, is now brought within the ambit of this measure. In fact the net financial gain in real terms, as far as the taxpayer is concerned, has been zero. That is putting it in simplistic terms.

That is the principle which we oppose with I think a very real degree of logic. The Minister may say that indexation, as he calls it, which is a name for what we are proposing to do here, must be introduced right across the board. Surely the experience of inflation which we now have is one very good reason why this elementary principle of social justice, in regard to the tax paying public is one that should be introduced now in regard to the various taxation Bills before us.

It is no excuse for the Minister to say that he has not devised the appropriate measuring rods, for this I feel that it could be devised. He has the Central Statistics Office available. He may not agree with the way the consumer price index number is gauged. Surely it is not beyond the wit of his Department to devise some other measuring rod, involved, on which we could write into permanent finance legislation a clause catering for inflation as far as the taxpayer is concerned. It is no answer for the Minister to say that there are exemptions and threshold arrangements made in this legislation and in other legislation before us that will guarantee some equity as far as the taxpayer is concerned. That is no answer because there is no guarantee in futuro, as far as the taxpayer is concerned, in that type of arrangement. Thresholds and exemptions can be changed from year to year in finance legislation. The Minister is well aware of that.

I am talking about writing in as a permanent principle what is enshrined here in Senator Ryan's recommendation. I feel that he has a very great opportunity to do that in the two new measures before us. I can appreciate, to some degree, the enormity of the task that would be involved in having a system of indexation in the whole income tax code. I do not think it is impossible by any means and some Minister for Finance some day will have to face up to it.

Here we have two new measures, the Capital Gains Tax Bill and the Wealth Tax Bill. In each of these two, instead of tinkering around with exemptions and thresholds, the Minister has a real chance to write into both of these two new measures setting up two new schemes of legislation an indexation clause that will relate any capital gain, as is proposed in this instance, to the criterion of however gauged inflation has arisen since the acquisition of the particular piece of capital and its disposal.

That is the purpose of the recommendation, and it is a very basic one. The Minister does not seem disposed to agree with it. I would have liked if he had treated with the matter on its merits. It is not enough to talk about the income tax code. It is not enough to talk about thresholds and exemptions. It is not enough to talk about cutting back on capital expenditure.

These are all unrelated matters to the fundamental equity that is involved here of incorporating for the first time what will have to be done by some Minister for Finance fairly soon, an across the board scheme of indexation as far as all tax payment is concerned. It is only by giving the lead in finance legislation that one can get down to an acceptance of that principle in regard to pay demands, prices, the whole economic activity of the community.

The acceptance of a system of indexation and of tying pay increases and reducing tax payments all in accordance with the across the board scheme of indexation is what we should be aiming for. If not immediately, not next year, certainly we should be aiming towards it. It would be appropriate for the Minister for Finance, particularly as the guide and mentor of our whole economic process, to take the lead in this respect and particularly take the lead in new and fundamental tax legislation, such as he is introducing here in the Capital Gains Tax Bill. It is what we should be targeting towards, that system of indexation across the board in every area.

While I appreciate it will be difficult to get voluntary acceptance in some areas, particularly in the pay area, surely in new and innovative legislation of this kind it is the job of the Minister for Finance to set a lead and indicate to the public generally that he is in favour of this principle. I gather that he has indicated on one or two occasions that, in principle, he sees the logic of it and is in favour of it. While appreciating his difficulty in getting it enforced across the board, in regard to State expenditure, social welfare payments, and prices, it would surely be an indication that he is dropping the old ad hoc methods in regard to finance legislation, jiggering around with thresholds and exemptions year in year out, that he was adopting a more fundamental approach to the problem by adopting here Senator Ryan's recommendation, which seeks in this new piece of legislation to have the gain construed in the context of being measured in accordance with basic calculations of Central Statistics Office figures that the Minister may decide give a true indication of inflation.

This recommendation is, of course, one of the most important that one could put down to this Bill, because the greatest problem presented by this whole Capital Gains Tax Bill is this question of inflation. The Minister has maintained—with this principle we are on this side of the House in entire agreement—that he wishes to catch the real gains made by people in selling capital items. We are in agreement with this but we are not in agreement with the certainty that, as the years go by, by far the greatest part of the so-called capital gains that will be caught by this Bill and on which tax will be payable will not be gains in any real sense of the word. They will be merely notional increases in the money value of property, which will be caught by the Minister's tax but which will not in any sense of the word be a gain.

I appreciate that the tax does not go back beyond last year but an obvious instance shows the kind of thing that can happen. Since 1950 there has been a 350 per cent increase in the cost of living, a fall in the value of money. Over a period such as that it is perfectly obvious that so-called capital gains that people make are largely perhaps 90 per cent inflation and only perhaps 10 or 20 per cent actual real gains. This is the kind of situation that we will be faced with in the future to an even more drastic extent, because the likelihood is, even though one may hope that there will be a considerable improvement on the present rate of inflation, that in the next 25 years or so the average rate of inflation will be considerably greater than in the last 25 years. Those certainly are all the indications. One can argue about it but all one can say is that it is, to say the least of it, likely.

The Minister has expressed the hope, and we must all hope with him, that the present 20 to 25 per cent rate of inflation will not continue. I would remind the Minister that even if it were cut to 10 per cent in seven years, the value of money has halved. The certainty is that as the years go by more and more of these so-called capital gains will not be gains at all. The Minister constantly harps on these completely fallacious comparisons of income tax. In certain instances these comparisons are valid, say in the case of professional speculators, people who buy and sell land, because they are dealing in property with a view to making a profit. We asked the Minister on Committee Stage to tax such people at a higher rate. We asked him to have a higher rate of tax for short-term gains, which are undoubtedly in the nature of income, and a much smaller rate for long-term gains. He would not agree to this. This type of gain made by speculators is the only one that can be legitimately described as being in any way related to income tax.

The people we are protecting against the ravages of inflation are, for example, the widow who on her husband's death wishes to sell a field for building purposes and once it is sold it is gone; or perhaps the family who, to meet a temporary financial problem, may sell some of the jewellery that has been collected over the years or a valuable painting, to meet such difficulties. These transactions are not in the nature of income or the kind of transaction one imposes income tax on. Once the field is gone and the painting is gone and the jewellery is gone there is no more of it, whilst income is recurring year after year. It is a totally different matter. It is not relevant for the Minister to make these constant comparisons between capital gains tax and income tax.

It has been pointed out by the Minister and by Senators opposite that in the past 20 years or so, because of the fall in the value of money, a very much larger number of people are liable to income tax. If one takes that particular comparison that is precisely what will happen with the capital gains tax. More and more people will be affected. A higher proportion of supposed capital gains will be treated as gains for the purpose of this Bill. In 20 or 30 years almost any transaction is likely to be met with capital gains tax.

The Minister suggests that what he describes as the generous thresholds have been inserted in the Bill with a view to dealing with inflation. They have not been inserted for that purpose at all. The generous thresholds in the Bill, particularly the £500 capital gains and the £2,000 for the size of an item which need not be considered by the Minister, were in the original White Paper in February, 1974. Since then there has been a 30 per cent rise in the cost of living. They were not inserted to deal with inflation, and they have not been changed.

Senator Alexis FitzGerald made the point on Committee Stage in respect of a similar recommendation to this Bill. He said that the Minister had changed the original 35 per cent in the White Paper to 26 per cent. This was, after all, dealing with inflation. I do not think it was. It was dealing with the many representations received by the Minister from people all over the country who thought that 35 per cent was far too high, because of the rise in living costs which has already taken place since 6th April, 1974. The real rate of capital gains tax is already back to between 32 and 35 per cent, for practical purposes on real gains as opposed to the gains, including the 25 or 30 per cent inflation, that have taken place since last year. We are already back to the original 35 per cent. By this time next year, it will be over 40 per cent, the real capital gains tax on real gains, as opposed to notional money gains, and by 1978 when the Minister says the Government will reconsider all these matters, it is likely that the effective rate of capital gains tax will be 70 or 80 per cent. The Minister is quite wrong when he says that the undertaking given by the Government will be better than this recommendation.

It is vital that this question of inflation should be dealt with in the Bill. Governments are not always able to change thresholds in an equitable manner. They may not have the money or public opinion may not be in favour of it. The Minister is as well aware as I am, that if the public were asked, for example, if they approved of the reduction of surtax rates in income tax, the vast majority of the population who do not pay surtax would be likely to say: "No, why should these people have their surtax reduced?" Does the Minister really think that the vast bulk of the population, who probably never made capital gains, would express their opinion in favour of improving the thresholds? The Minister will have to decide for himself in accordance with equity what is the best thing to do. By the time 1978 comes the erosion in money values will have continued to such an extent that any really effective changes in the capital gains tax to allow for inflation will be very drastic indeed. It is all right to do them year by year as suggested in this recommendation. To do them at one blow, as it were, in 1978 would mean very considerable changes which, politically speaking, might be difficult for the Minister.

On Committee Stage the Minister produced as one of his main reasons for not agreeing to a similar recommendation we put down that the price index was not a satisfactory vehicle for operating adjustments in capital gains tax. Senator Ryan has changed this recommendation to delete the reference to the price index, and it says merely that the relevant gains should be appropriately reduced in accordance with the calculations of the Central Statistics Office relating to any changes in prices and values in the period.

It is open, therefore, to the Central Statistics Office in accordance with the information available to them, to allow for changes in prices and values during the period in relation to any type of property. That is more flexible than a mere reference to the price index, and I suggest the Minister ought accept the recommendation in this form, which completely omits the main objection he had to it before, namely, that the price index was not suitable. The Minister has been assuring us, both here and in the other House, that this is what he is going to do. He said that he will, as the years go by, keep abreast of inflation. We are, for practical purposes, endeavouring to insert in the Bill the thing he says himself he is going to do. In his own interest he would be very wise to accept this recommendation, because once it is in the Bill it is done automatically year by year and therefore the possible political difficulties that the Minister for Finance might face in doing it himself in his annual budget would be considerably relieved. I urge the Minister to accept the recommendation.

The Minister has said that this recommendation, if accepted, would not really add to the position because the Minister and the Government have already given an assurance that some allowance will be made for inflation. This is not quite true because if this recommendation were accepted it would oblige the Minister every year that inflation occurred to make at least some allowance in accordance with the rate of inflation. It might not be a full allowance but nevertheless if this section was in the Bill, then the Minister would be obliged to do something about inflation each year. As it is, he is merely giving a general assurance that he will have regard to inflation, which might mean that he will look at the position every third year or something of that nature.

The importance of the recommendation is that it would oblige the Minister every year to look at the position, to assess it, and have regard to inflation, the accurate figure for which he would have very little trouble in finding out, and then allow for that in the operation of the Bill. It is not true to say that this would not improve the position. It would, to the extent at any rate that the Minister would have to do something each year.

The Minister has, in replying on this recommendation, avoided the issue. He has talked about the low rate of tax; he talked about the thresholds. It is true that the low rate of taxation and the thresholds and the various exemptions and so on have gone a considerable way to make this Bill acceptable. Without these thresholds, without the rate of taxation that is proposed, the Bill probably would be entirely unacceptable. From that point of view, the Bill is acceptable, but this is not really dealing with the point I am making, which is, if there is no real gain, then there should not be any tax. It is not whether the rate is 26 per cent or 10 per cent or 50 per cent. It is inappropriate and inequitable that somebody should have to pay a tax on something that is not a real gain at all. It is a different matter if there is a real gain. Then there is room for argument as to what the rate should be.

The point has been made by many speakers in the course of the debate on this Bill that if there is a real gain then it is acceptable that there should be a capital gains tax. If there is no real gain there should be no tax. It may be difficult; it may be impossible to implement that recommendation or to implement that point of view to the full extent, but certainly something should be done to implement it as far as possible. That is why it is important that something on the lines of this recommendation should be in the Bill, on the one hand, to ensure that the Minister will do something about inflation and, on the other hand, to help him in doing something about inflation by having it to say that he is obliged to do so under the Act.

The postion, on the basis of the attitude which seems to be taken by the Minister, is that in the future, I am afraid to an increasing extent, people are going to be taxed on gains which are not gains at all. They are going to sell something for a price which will show an apparent gain but, in fact, having regard to inflation, there will be no gain at all. He is merely getting the same adjusted price for the article or the property that he paid for it. Nevertheless, he is going to have to pay a sum, large or small, in capital gains tax on something that is not a real gain at all. On the other hand, which I suppose would be more often the case, he will have to pay on a gain that is perhaps half represented by inflation and half by real gain. In that situation, it must be recognised, if the gain is half real and half inflation, that what is happening is that the rate of capital gains tax is going up from 26 per cent to 52 per cent.

In almost all cases it will be very unusual in the future if some, at least, of the gain on the sale of property or on the disposition of property, is not due to inflation. Before this Bill is passed at all, one can say that there will be virtually no case in the future— if one might go so far as to make that sweeping statement—of a person disposing of property and being assessed on capital gains on which he will, in fact, be charged 26 per cent tax. It will always be higher than 26 per cent. If the gain is half inflation, it will immediately be 52 per cent, and so on

One of the bases on which the Minister rejected this recommendation or appears to be rejecting it is that the rate of taxation is only 26 per cent but, in fact, there is going to be no situation, no example in the future where inflation will not affect the sale price to some extent and if there is going to be no situation in which there is going to be a real capital gain. The rate will always be higher than that 26 per cent. Sometimes it will be twice that. There is not much use talking about 26 per cent being a low rate of tax and that this consequently takes the harm out of the situation when it is always going to be higher than that and sometimes very much higher.

Sometimes the gain will be entirely due to inflation. In that case, of course, the rate of tax is 100 per cent. I accept that, as the Minister said it is a very difficult situation, that one cannot make full allowance for inflation and while that is an arguable point, not to put something into the Bill which will, at least, ensure that something is done each year about inflation is indefensible.

We started this discussion on the Bill with the feeling that there were very firm assurances from the Minister and the Government about inflation, and on the basis that, perhaps, we could persuade the Minister to accept a recommendation of this kind. We are not tied to the recommendations we put down. We would more than welcome any suggestion from the Minister as to how it should be done. Something should be put in the Bill. We are now in the position that no recommendation is being accepted. The Minister is stressing the difficulties, the comparisons with income tax, mentioning all kinds of what I would regard as side issues, to some extent matters which are not really relevant to the point I am making. We are getting less firm assurances as to how this is going to be dealt with in the future.

I think I am right in saying that our worst fears about the effect of inflation on this Bill are being realised. I think I am not exaggerating in saying that because inflation will always affect every sale in the future, there is never going to be a case of 26 per cent tax. It is always going to be 26 per cent plus the effect of inflation which will bring it up to 50 per cent or 75 per cent and so on. The situation is going to deteriorate very rapidly. It is going to be a very serious matter for anyone who comes within the ambit of this Bill in the future and has to pay capital gains tax, which will certainly be more than 26 per cent and may be 50 per cent or 100 per cent. The low rate of tax in the Bill is really no help at all, because it will never apply.

Recommendation put.
The Seanad divided: Tá, 11; Níl, 26.

  • Brennan, John J.
  • Browne, Patrick (Fad).
  • Dolan, Séamus.
  • Eachthéirn, Cáit Uí.
  • Garrett, Jack.
  • Keegan, Seán.
  • Lenihan, Brian.
  • McGlinchey, Bernard.
  • Ryan, Eoin.
  • Ryan, William.
  • Yeats, Michael B.


  • Boland, John.
  • Burton, Philip.
  • Butler, Pierce.
  • Codd, Patrick.
  • Connolly, Roderic.
  • Daly, Jack.
  • Deasy, Austin.
  • Ferris, Michael.
  • FitzGerald, Alexis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Harte, John.
  • Higgins, Michael D.
  • Kerrigan, Patrick.
  • McAuliffe, Timothy.
  • McCartin, John Joseph.
  • Mannion, John M.
  • Moynihan, Michael.
  • O'Brien, Andy.
  • O'Brien, William.
  • O'Toole, Patrick.
  • Prendergast, Micheál A.
  • Russell, George Edward.
  • Sanfey, James W.
  • Walsh, Mary.
  • Whyte, Liam.
Tellers: Tá, Senators W. Ryan and Garrett; Níl, Senators Sanfey and Halligan.
Recommendation declared lost.

I move recommendation No. 2:

In page 12, after line 3, to add the following:

"and provided also that whenever a disposal inter vivos results in a liability both to Capital Gains Tax and to Gift Tax, only such one of those taxes as imposes the higher amount of tax shall be chargeable.”

The purpose of this recommendation is to urge the Minister to implement the promise of the policy statement in the white paper that tax would not be charged twice on the same transaction. This has been debated but no satisfactory reason has been given why the two taxes should apply in certain cases on the same transaction.

Quite apart from the undertaking given in the white paper, it seems equitable that two taxes should not apply to the one transaction, the one disposal, and what is proposed here is very much in favour of the Revenue Commissioners, that whichever is the higher shall be operative but that if one is operative the other would then not be operated. This is not only something which appeared in the white paper and which to that extent made the proposed capital gains tax more acceptable than it would otherwise be, but the arguments for it and the equity for it are very strong indeed, and I would ask the Minister to reconsider his position on this point and to accept this recommendation.

I dealt with this at some length at Committee Stage here and in the other House. I can add little to what I have already said. The recommendation seeks to provide exemption for the few exceptionally wealthy people—it is only exceptionally wealth people who would be involved in gifts where there could be liability to capital gains tax on the donor and liability to capital acquisitions tax, when it is enacted, on the donee.

I should like to give an example. Suppose you have a farmer of 55 years of age or over transferring a farm to his son. No capital gains tax would arise in the following circumstances: a farm with a value of £150,000; a house and contents worth £20,000; money on deposit, say, £10,000; Land Bonds and Government securities worth, say, £20,000; a motor car, £1,000; other articles and chattels of different kinds each worth up to £2,000, total, say, £12,000. Thus there could be total assets of £213,000 and no liability to capital gains tax would arise in those circumstances, nor would any capital acquisitions tax liability arise because the farm would be taken at half its value, £75,000 and the remainder of the assets would be valued at £63,000. The value for capital acquisitions tax purposes would be £138,000 and that would be below the threshold of £150,000. So, blessed and lucky is he who may be involved in a transaction where there is an occasion for a charge to capital gains tax and capital acquisitions tax as well.

If the person is outside the immediate family, he is very lucky to be getting a gift from a stranger. These occasions can arise, but such donees are surely more fortunate than the person who receives no gift at all. The person who receives a gift is surely in a better position to pay than a person who receives nothing at all. The donor is liable for the capital gains tax, not the donee. The donee is liable for the capital acquisitions tax if he is fortunate enough to be above the thresholds of exemption. I deliberately say fortunate because when you are above the thresholds you are receiving quite a substantial gift.

If the donee assumes responsibility for payment of the capital gains tax of the donor, the value of the gift will be diminished accordingly. The whole code ensures that the vast majority of cases will give rise to no more than one tax, and if there is occasion for payment of both taxes then only exceptionally wealthy people will be involved.

Senator Ryan has suggested that there is something sacrosanct about the white paper. If what was written in the white paper is sacrosanct why did he not table a recommendation asking for a 35 per cent rate of capital gains tax for a start? There has been too much readiness on the part of the representatives of the extremely wealthy to take without one word of thanks all the concessions that were made in the white paper, and a kind of moral stance has been taken that everything that was in the white paper should now be fully implemented by the Government without any variation.

I have told this House, and I have told the other House and I have told the country, the reason why we cannot accept the suggestion that the due liability to tax should not exist, that there would be a massive avoidance by the exceptionally wealthy who could easily arrange their affairs in such a way as to avoid any liability to tax whatsoever. I was frank enough to tell the House the last day how it could be done. Instead of selling a property a person could simply make a gift of it to a relation and the relation could sell it the following day and have no capital gains tax liability. That could be repeated to the nth degree so as to make a mockery of the whole system.

We have provided massive relief from capital taxation by the abolition of death duties. We are not going to tolerate the introduction of a system of death duties which could be avoided by the exceptionally wealthy. That would be making a mockery of everything that we are striving to do and it would be contrary to social justice or good fiscal discipline. On that count I am unable to accept the recommendation.

All I can say is that I am sorry the Minister is not going to accept this. We are not treating his white paper as a sort of taxation bible and that we would expect him to stick to every word in it, but one is entitled to suggest that the violations of principle that he now raises as to why he could not possibly accept this recommendation hardly seem to have occurred to him when he drafted the white paper. What clearly has happened is not that he has changed his mind: I would suggest that he still thinks that in equity his recommendation ought to be accepted but he is afraid, as he has been afraid in so many cases throughout this Bill, that to accept what would otherwise be an equitable recommendation could lead to evasion.

I am not at all clear as to how it could lead to the evasion that he has suggested. It would hardly be beyond the wits of the Revenue Commissioners to solve this problem. I suggested at an earlier stage that there should be a period of years during which the property concerned could not be resold, or that the Minister and the Revenue Commissioners could adopt the practice which I gather exists in the United States in the capital gains tax code where if a gift is made to anyone it is valued for the purpose of that gift at the same value as on its original acquisition and only then when it is sold by the person who has acquired the gift or by some successor in title that the capital gain arises. It would be perfectly practicable to do this here. It would mean that if someone gives some property, a farm or whatever it happened to be, to another person there would be no capital gain on that transaction because if it is not sold there is no consideration and the capital gain could arise only when ultimately it was sold for valuable consideration. It would be perfectly practicable. These things can be solved. The Minister is not convincing anyone when he raises this status of a principle—that you cannot allow gifts to be taken without tax because it is what is totally different to the principle he himself established in his white paper.

As he has on many occasions already in these discussion, he raises the question of the man over 55 who leaves his farm or business or whatever it is to his children and so on. He says that they would have to be enormously rich before they had to pay both taxes. He could take a very much simpler case. Nobody is suggesting that in the case he has referred to any great harm will be done, because certainly by the time both taxes came to be paid the amount involved in the property would be very large indeed. One does not feel that these people really need to be protected.

Take the case where a farm, for example, is handed on to a brother. There may well be no children or spouse, only a brother, who is going to take the family farm. In that case there is no £150,000 or figure of that kind. The tax becomes payable after £10,000. Everything over £10,000 is taxable. In these circumstances, say you had a farm of £100,000 or so— that is not such a very big farm these days—then the capital acquisitions tax would be about 25 per cent. You would in addition have 26 per cent on the capital gain which as the years go by would be the greater part of the value, so that the total tax payable begins to get very near the old death duty rate of around 50 per cent. Indeed there are not enormous sums involved: this is a relatively moderate sized family farm.

So it is no use the Minister talking in terms of people who have enormous amounts of money. The people who will be affected in many cases by both these taxes are not people of great means but people of relatively moderate means. Transactions inside the family dealing with family businesses, family farms, other than those the Minister has mentioned where on the one hand the owner has to be over 55 and on the other hand he has to hand it on to his wife or his children, are the cases which constantly arise. You would certainly have both taxes paid at far lower levels. It is very difficult to see why the Minister should not accept this. If the cases were to be as rate as he suggested, obviously the revenue loss would be negligible, but in fact they would not be at all so rare and the revenue loss would be somewhat less negligible but would still be very very small. I do not know whether it would amount to more than £50,000 a year or so. There is almost nothing involved in money terms. Yet it would mean in certain cases that very great hardship could result by the payment of both these taxes. If the Minister were to go back to his first, and I think much better, thoughts in his white paper he would be able to save these people this unexpected and unfair impost.

Recommendation declared lost.

I move recommendation No.3:

In page 14, to delete lines 48 to 50 and substitute:—

"(i) Where the beneficiary is the spouse of the deceased, for a consideration equal to their market value at the date of death;

(ii) in all other cases as if the deceased person's acquisition of the assets had been the acquisition of those assets by the personal representatives of such other person; but".

This recommendation arises out of one that I put down on the Committee Stage. It covers the case where a farmer, for example, buys a farm or perhaps a small family business, he keeps it for 30 or 40 years and then hands it over to his children, or nephew or spouse or whoever it happens to be. In these circumstances the capital gains tax may be postponed, but on the sale by the nephew or the child, perhaps 30 years later when he has been in occupation all this time, the notional capital gain on which he will be charged tax is not the 30 years going back to the transfer, which must be on the death of the owner. It does not go back to the market value on the death of the owner: it goes back the full 70 years or whenever the property was originally acquired. That would mean that as the years went by people will be faced with sudden enormous capital gains charges, these notional gains going back perhaps generations. They would be quite unexpected and those concerned may well be unable to pay them.

I would stress that essentially what the Bill provides is that you can have a chain of transactions inside the family, a chain of transfers by will, from one generation to another. It is only after perhaps a very long period has elapsed and ultimately a sale is made that the capital gains tax becomes payable. It goes way back to the original value at the acquisition of the property which may have been generations earlier.

We on the Committee Stage proposed that in such a case the increase in capital gain on sale should only go back to the acquisition on the death of the previous owner. The Minister rejected this, so we have come back now with this recommendation which for the vast majority of cases leaves the Bill as it stands, and as apparently-the Minister wishes to have it, but makes the exception that where the benificiary is a spouse of the deceased the market value will be assessed as of today, the date of death. This covers the point where a widow, for example, who is left a farm or a small business, that for whatever reason, she is quite unable—and these things happen—to run herself. She wishes to sell it. She has to sell it in order to acquire enough money on which she can get an income and live. Under the Bill she would have to pay capital gains tax on the notional increase in value way back 30 or 40 years to when her husband originally acquired it. Under the terms of this recommendation in the case of the widow or widower, and only in that case, he or she can sell the property, if unable to administer it after the death, without having to pay capital gains tax. In this relatively limited case it would be an injustice to the people concerned. It is relatively limited in scope and I ask the Minister to accept it.

The change proposed by this recommendation is that in the case of a surviving spouse any assets passing are to be treated as taken at market value at the date of death. In all other cases, because of the effect of the second paragraph what I might call the "look-through" provision of section 14 will continue to apply. It would be relatively easy for a surviving spouse to transfer assets acquired on the death to other persons immediately she receives them with no charge at all to capital gains tax.

Thus, the acquisition at market value would not be confined, as the Senator is recommending, to the surviving spouse but could be extended by her to whomsoever she desires. She, by receiving from the testator, could carry out the testator's wishes. A testator could use his surviving spouse as a vehicle to give a tax-free gift to a total stranger. That is not the intention of the legislation. It is providing very generous exemptions so as to encourage property-holding for productive purposes within a family, easing also the passing on of family businesses from one generation to another, because these items are exempt. It would be totally contrary to the intention in the Bill to allow the passing of substantial properties to people free of capital gains tax. As regards voluntary disposals, a gift is as much a disposal as a sale because the person who makes the gift elects not to take cash in return. It is a voluntary decision and is very properly, a taxable occasion.

There is another consequence of the recommendation which I am sure was not intended and in the light of this consequence I respectfully suggest that Senator Yeats might withdraw it. The treatment at death would differ from the treatment of gifts between spouses. In the case of gifts the "look-through" principle applies and the husband or wife takes at the other's cost: for a subsequent disposal, therefore, the tax would be greater where a gift was given during life than where it was conferred on death. This would be an anomalous position and would be antisocial. It would discourage of gifts during life. It would be contrary to the intention of the whole package of legislation.

The philosophy behind the death provisions in the Bill is to encourage the maintenance of assets within the family, particularly farms and family businesses. This is a significant difference from the approach under the estate duty code where in many cases the family property unit was put in peril in order to provide means to pay tax charged on death. As long as the person who inherits the farm or the business keeps this within the family and passes it on, there will be no charge to capital gains tax. There is a degree of discouragement to the disposal of family farms or business assets and we consider this to be the right thing to do. It would operate in the case of a widow and children for the protection of the children. It is something we should not lightly interfere with. For these reasons I respectfully suggest that the recommendation, though well-intended, is not one we could accept.

I think the Minister is looking at this entirely from the point of view of the Revenue Commissioners, from the point of view that it could lead to tax evasion and could represent a loophole. He looks at it entirely from that point of view. He seems to pay insufficient attention to the possible hardships which exist under the Bill as it is at the present. Perhaps there are possibilities of evasion. If that is the case the Minister could have accepted this recommendation in another form so as to eliminate the possibility of the evasion he mentions.

There are situations in which this could represent a definite hardship. There is the case of a spouse whose husband has died or a widower whose wife has died leaving a business or a farm which the surviving spouse is completely incapable of running. In the case of a widow, she cannot run it herself; she has no children capable of running it and consequently she has no alternative but to sell in order to provide an income for herself. The Minister said this was a voluntary disposition and consequently a person had the choice of selling or not selling. In that case it would not be voluntary. There would be no alternative for the widow but to sell the business. She would be forced to sell and to pay capital gains tax on the property in question.

The limited abolition of estate duty was introduced by the Minister to avoid hardship within the family. That was a laudable change in the law, but the Minister is refusing to face the situation that in this kind of case the widow is brought back into the situation that existed when estate duty applied. Her husband has died and she has to take certain action to provide herself with an income. The action she has to take, which is not a voluntary one, entails the payment of capital gains tax. Instead of having to pay estate duty as she would have before, she is now having to pay capital gains tax. Even though the capital gains tax may not be quite as high, certainly she is in the position because of the death of her husband, because of the circumstances, that she is obliged to pay tax which brings her back into much the same position as existed before the abolition of estate duty within the family.

This recommendation is merely an effort to complete the action which was taken by the Minister in abolishing estate duty within the family. It is to close one loophole that is left, not a loophole in the sense of evasion of tax but a loophole from the point of view of the taxpayer or the citizen who through force of circumstances resulting from the death of her husband is going to have to pay tax as a result of his death. If the Minister wanted to complete the good work that he did in abolishing estate duty he should have accepted this recommendation and dealt with this anomaly as to liability to tax arising from the death of a spouse.

In considering this recommendation we must remind ourselves that this is one of the taxes which were introduced to replace a capital tax contained in the death duty code. It would be accepted by everyone in this House that the Government must get revenue from taxation of capital or income to provide the services for this community. But there is never a justification for an unjust tax.

It is very right that we should remember that under the late existing death duty code there was an exemption from all duty where the capital did not exceed £10,000, even if the entire of that £10,000 or £9,900 of it represented a capital gain from a lucky speculation or investment, added to which there was an exemption in the case of a widow of £4,000 for herself, an exemption not of £4,000 worth of assets but a credit of £4,000 against the death duty leviable on the estate if the estate did not exceed £100,000.

I am thinking of the estates which do not exceed £100,000. I am thinking of the small estates where the very small size of them forces a realisation. I do not think that the tax will be a just one if it fails to take account of the circumstances of somebody dying leaving a small estate and leaving a widow and dependent children because under the late estate duty code there was not merely a credit against the assessed estate duty of £4,000 for the widow, there was a credit of £2,000 for each of the dependent children, which meant that in the case of somebody dying worth £50,000 there was no estate duty payable if that person left a widow and six children.

There were three different ways, at least, of treating the occasion of death. You could have treated it, as the United Kingdom did treat it initially under the 1965 Act, as a disposal. If you so treated it you would then only apply the capital gains tax where the gain exceeded a specified figure or the realisation—I have forgotten whether it was the realisation exceeded a specified figure or the gain—but there was an exemption limit which meant that you could have gains which did not give rise to taxation in the case of death where you had small estates being realised. Or, you could have treated it as the United Kingdom at present treats it, as an acquisition by the personal representatives at the market value ruling at the date of death giving rise to no charge to tax but determining the base on which future taxation was to be levied. In that case if you had realisations, which generally take place pretty quickly after the death, on the whole this meant that there would not be very much capital gains tax. All the problems that have been referred to in the debate on the earlier recommendation with regard to indexation and inflation were wrapped up in the acceptance of a market value figure. Or, you could have done as we are proposing to do, treat it not as a disposal but as an acquisition of the cost of the deceased who in his lifetime had acquired it.

That particular treatment in my judgment is the worst of the three. It is bad for two reasons. It is going to introduce a great deal of difficulty into the matter of the administration of the estate. It will burden the personal representative with discovering what the deceased paid for everything that he has to sell, where he has to sell them and where he cannot take advantage of the arrangement provision of subsection (6) as proposed to be amended by the Minister. In addition to which, there will be a tax levied within effective thresholds which will amount to a selective and unavoidable wealth tax, unavoidable by people in difficult illiquid circumstances—an unjust burden in these circumstances, a harsh treatment of people who were properly provided for under amendments to the code which was later repealed, improved by the Minister himself.

I wonder whether the people who in general regard this as a tax on the rich speculator are aware that in many cases it will not be a tax on the rich speculator, who will be able to avoid that tax by retaining his accumulation because he is not forced to realise it. When I first became interested in politics the great cry of wage-earners, people with modest incomes, on the occasion of every budget was "why do you not raise the income tax?" We do not hear that cry any longer. That cry does not arise now because of the very large number of people who are within the income tax code. If this country, recovering from its present difficulties—I certainly believe it will—continues to make the progress which it has all the ability to make in its circumstances, I see the day coming when there will be as anxious a scrutiny of the capital gains tax code as there now is of the income tax code by people who at the moment think this is only a rich man's problem.

Somebody remarked to me, arising out of observations I made on the Committee Stage: "You do not mind about capital gains tax provided capital gains tax does not have to be paid." Untrue, unjust, wrong. I must accept, not merely because of my political position, the Minister's decision with regard to his treatment of this recommendation at this juncture, but I must record that I accept this decision with the greatest of unhappiness and considerable unease and only in the belief that a case for a proper provision of thresholds and exemptions will be borne in on the Minister and the Revenue Commissioners by the cases they will have to consider in the coming years.

It may be that it will take time before the injustice of this is felt, because of the base date given here, April, 1974. There is a reason for my not getting as excited about it as I might otherwise be. It is the acceptance of that base date, April 1974, and my realisation that although the cost of living has increased by whatever is the percentage since that date, the value of assets has not increased in general. Therefore in general over that time period it is unlikely that there have been many cases of hardship thrown up, if any. Yet I know of one security quoted on the Dublin Stock Exchange which has multiplied its value three or four times since that date which might have been one of the very few assets of a surprised deceased person, surprised by his own death and one of the very few assets which his widow might be forced to realise and pay 26 per cent of the accretion to value over the date of his acquisition, when she may need every penny she can lay her hands on for her own comfort and for the education and proper upbringing of her children.

I am also concerned because of the structure of the Bill in relation to this because while there are considerable possibilities now opening up to us to save these cases from harsh treatment by virtue of the proposed amendment of subsection (6) through making arrangements, the structure of the Bill must be looked at. There will be cases where arrangements will be difficult to make without giving rise to dispositions, where realisations will be vital to provide cash to clear debt and where among the things that may have to be realised by the personal representative may be the principal residence and in the case of such a sale the threshold in respect of that principal residence disappears. The threshold is only enjoyed by an individual. That exemption from tax could only have been enjoyed by the individual if he could have sold it during his lifetime, or if the circumstances are such that it can go to the legatee, being his surviving spouse, or whatever. But there are circumstances where this is not and cannot be the situation.

I do not understand why it is necessary to follow so very closely the income tax code in regard to the treatment of personal representatives as a body. It is an explanation but not a justification. It tells us why they are treated as a body, but there are special reasons why the allowances available prior to death disappear under the income tax code during the course of administration. There are justifications for that may be. There are certainly historical explanations for it. These justifications do not, in my judgment, innure to justify the treatment of the personal representatives on the same basis for capital gains taxation. If it is deemed proper that the realisation by an individual of his principal residence should not be subject to tax, if the situation is worse than it may be for the individual, because it is a forced realisation in the course of administration, that treatment should innure to the personal representative also. This has a bearing on this matter because if market value is taken, then the realisable gain after death, if made, will be modest and the impact of taxation more justifiable.

Whatever may be the difficulties about indexation, there are difficulties of communication, difficulties of explaining to people the distinction between capital gains tax and the economic disadvantages of identifying the two in terms of saving and the disposition of saving in risk-bearing situation—whatever the difficulties there may be about that, I would strongly urge the Minister that between now and next year's Finance Bill, in the light of the information to be garnered between now and then in respect of all cases of deaths which have occurred since 5th April, 1974, to reconsider the decisions embodied in the form of this section. I would prefer a graduated capital gains tax with a just provision for the modest situation, a graduation which should relate to the capital possessed, to a flat rate which, because of its modest impact on the very well-off cannot be adjusted to deal with the situation of those who are not well-off.

The distinction between income tax and capital gains tax economically is recognised in most countries and should be recognised here. I would invite the Minister to give me the encouragement of saying that he will look at the actual cases which occur. I know the Revenue Commissioners have this practice, the nature of which I never fully and completely understood, of making extra-statutory concessions. Perhaps I should address the Revenue Commissioners rather than the Minister in relation to that matter. In the care and management of this tax, while this section, unamended, stands, they should make extra-statutory concessions in all cases where benefits would have flowed to the survivors in the cases of widows and dependent children under the late estate duty code, even if they are up to £50,000. The sum of £50,000 is not all that much if you are the surviving spouse, and you are committed by the circumstances of the children to being in the house—this is your judgment as to what is best for them; you make this judgment and you do it—to manage, bring up in accordance with expectations, which is a point that ought not to be overlooked.

" A sorrow's crown of sorrows

Is remembering happier things."

This is something that a surviving spouse has very much to be conscious of. The children will have expectations based on the kind of experiences they had when their father was alive and well. The sum of £50,000, however well invested, will not produce in these inflationary days much of a surplus. Indeed, the general run of these cases discloses a situation of erosion of capital.

I would like to repeat the two points I hope the Minister will give encouragement to me by saying that he will look at the harsh cases that come to notice and will identify as harsh any case in particular of widow and children dependency; and that the Revenue Commissioners may make extra-statutory concessions prior to a revision of the decision embodied in the terms of this section.

In deference to what Senator FitzGerald has said I can assure him that the Revenue Commissioners and I will watch the situation very carefully and if cases of hardship should arise then remedial action will be considered. We would prefer to act with the value of hindsight rather than at this stage try to legislate on what might be purely speculative situations. I am not saying it could not arise, but we would prefer to act with the value of experience behind us.

The Minister has suggested that practical difficulties would arise if he were to accept this recommendation. The only comment that I could make on that is that the practical difficulties arise essentially out of his decision to tax gifts. Once that has been done then you have the whole chain of circumstances arising which we are trying to deal with by this recommendation.

If I might suggest one type of situation which can arise, where a widow has inherited, say, a family business from her husband, he had acquired it and had built it up over a period of, let us say, 25 years, and let us say that the cost of living has gone up by 350 per cent in that period. If he acquired the business for £20,000, in the hands of the widow it is worth £100,000. On that there would be capital gains tax of some £20,000 to be paid. The notional gain on which this tax is levied is £80,000. Owing to the erosion of the value of money the real gain—and of course, the greater part of that is a gain which her late husband acquired through his own hard work in the family business—is £30,000. The tax, in fact, on that real gain that the widow has to pay is around 70 per cent, two-thirds anyway. This is a heavy impost in the circumstances that faces a widow, perhaps on the sudden death of her husband.

The whole problem arises, not in this particular case but, all over, due to the Minister's insistence that gifts must be taxed. I cannot understand why he could not have preserved his original decision in the white paper, treated gifts as essentially the Minister does treat them between spouses inter vivos, that the tax is not immedately payable but is postponed so that on gifts by anyone to anyone there would be no tax payable because the gift would be taken at the original value and the gain would arise and the tax would only become payable on the ultimate sale by someone of the property concerned. I would have thought that that was a relatively easy situation to administer. It is what exists in the United States.

By the Minister's insistance on taxing all gifts except for limited cases, such as between spouses during their lifetimes, the Minister has raised all these problems which will undoubtedly cause injustices in certain cases. However, I accept that the recommendation as it stands does not adequately deal with the matter. I would have much preferred the Minister to accept the all-embracing recommendation that we put down on Committee Stage. The Minister did not. I can see that this particular recommendation while it would cover the spouse could cause possibilities for evasion. I can only urge the Minister, as indeed Senator FitzGerald has done, to have another. look at the whole question of gifts.

Recommendation, by leave, withdrawn.

It is suggested that recommendations Nos. 4 and 5 be taken together.


The Minister has put down a recommendation which substantially we have made in recommendation No.4. I would be glad not to move our recommendation in deference to the Minister's recommendation.

Recommendation No.4 not moved.
Government recommendation No. 5:
In page 15, line 28, after "years" to insert "or such longer period as the Revenue Commissioners may, by notice in writing, allow,".

In the generous spirit in which Senator Lenihan has met my recommendation, I would like to respond by saying that the reason why I decided to leave it to the Revenue Commissioners to decide the matter is that we realise that in practice it may take longer that two or three years to complete a satisfactory arrangement. It is better to allow the Revenue Commissioners when the facts of the case are brought to their notice to make an appropriate determination as to what is the proper period.

Recommendation agreed to.
Business suspended at 12.30 p.m. and resumed at 2 p.m.

I move recommendation No.6:

In page 27, between lines 4 and 5, to insert the following new section:—

"27.—Where a widow disposes of a farm or business which she acquired on the death of her husband, such disposal shall be free of capital gains tax in respect of so much of the consideration as does not exceed £100,000."

This recommendation speaks for itself. It seeks, in page 27 of the Bill, to insert a new section between lines four and five of that page, in effect a new section 27 before the section 27 as envisaged in the Bill. The purpose of the recommendation is one that is consistent with the sort of view expressed here before lunch by Senator Alexis FitzGerald and expressed on previous recommendations by Senators Eoin Ryan and Michael Yeats. It is designed to ensure equity as far as the widow is concerned. Indeed, if there is a flaw in the recommendation, it is that I do not include the widower, because there are cases in which a widower would also be similarly prejudiced by reason of the terms of the Bill and section 27 as it is now operated.

The recommendation relates to the position of a widow who, because of the death of her husband, is forced in practical terms to dispose of the farm or business. We are seeking here that such disposal should be free of capital gains tax where the threshold, to use a new "in" word, is at £100,000. In other words, the event of such a disposal, if that is the consideration, whatever capital gain is involved in disposing of the property at £100,000 or under should be free of capital gains tax. The justice of that is elementary. If one looks at section 27, as it stands in the Bill as a whole, there is a threshold there in regard to consideration in respect of disposal within the family of a business or farm. Subject to the provisions of the section if an individual has attained 55 years of age and he disposes of the whole of his qualifying assets to one or more of his children, then it goes on to bring in, in accordance with amendments moved in the Dáil, nephews and nieces as well, where the value of the disposal does not exceed £150,000.

The Minister acknowledges there that there is an equity in regard to this sort of family disposal. He recognises that in the Bill which will be before us after the vacation, the Capital Acquisitions Tax Bill, when, in the case of a donee or successor, who is the spouse, child or minor child of the deceased child of the disponer, in other words again a family disposition, he fixes the threshold or limit in respect of such a disposition of £150,000. In the Wealth Tax Bill there is a figure of £100,000 fixed as the threshold. Here we have a situation where in the Capital Acquisitions Tax Bill, in regard to a family disposal, £150,000 is fixed as the threshold and under section 27 of this Bill £150,000 is fixed as the minimum or threshold in regard to disposal within the family of a business or a farm and in the Wealth Tax Bill itself—I know that is a different area of tax being an annual tax on the value of the asset or property— again there is a minimum figure or threshold of £100,000 fixed.

In my view the recommendation which I have put down here carries that logic to the very same degree as the logic involved in the three pieces of legislation, the section of the present Bill, the Wealth Tax Bill and the Capital Acquisitions Tax Bill. It carries the same logic through to a logical fulfilment in that equally there is a strong case in merit and in equity where a widow on the death of her husband is put into a situation where she has to sell the family farm or business. Indeed in most cases when that is done, where she is selling it, it is done in the interest of children. Quite obviously a widow in this type of case is selling the farm or business in order to ensure that she has sufficient finance available to deal with the problems of her children.

Although I realise that it is an extension of the principle set out in the three pieces of legislation which the Minister is carrying at the present time it is essentially in the same area. It is within the family area where it is important to ensure that incentive and enterprise is protected and enhanced. It is in accordance with the principle which we have advocated here in regard to various sections of the present Bill, in seeking to ensure that there should be a graded system of capital gains in respect of the period for which a person has the particular capital asset that is being taxed. It is quite obvious in the case of the family farm or business that the asset will have been held for a period of time. However no distinction has been made by the Minister between that case and the case of the quick speculative overnight kill. That is another section and I will not dwell on it. It is in accordance with the same principle of ensuring that we do not in any way build into this legislation any inequity of disincentive as far as the family farm and business is concerned.

As I am talking on this area again I am taking the Revenue point of view going away from the point of view of equity and justice vis-á-vis the family. From the Revenue point of view I doubt if much would be lost by the Minister in revenue terms by introducing a recommendation of this kind. It would surely, therefore, be logical to have incorporated a recommendation of this kind which is not alone just from the point of view of the widow concerned, who is forced into the situation that I mentioned of disposing of the farm or business for family purposes, but it is good, socially, in the sense that family enterprise is something that should be encouraged and developed. It is also from the Revenue point of view no serious disadvantage. I would like to hear on the latter aspect from the Minister because he has been concerned about quoting Revenue exigencies. That is understandable from a Minister for Finance.

On each of these three grounds there would appear to be no reason why this recommendation should not be looked at in a favourable light. That is putting it on the negative basis. On the positive basis it would appear to be in line with the various pieces of legislation already proposed by the Minister, who has recognised in them that there is a distinction between the husband/wife disposition and other forms of disposition. We are saying here in this recommendation that where a widow disposes of her farm or business after her husband's death, where she has to in 99 per cent of the cases I envisaged, by reason of the exigencies of the situation in which she finds herself after her husband's death and that primarily means the obligation to look after her family because she may not be a business woman or a farmer or equipped in any management sense to run the business or farm she feels that in her new situation caused by her husband's death the sensible thing for her to do would be dispose of the farm or business, get some capital together, buy a modest house and look after her children and educate them properly.

This is the situation that we envisage. It is quite likely that there will be a capital gain in that situation, under £100,000. I am talking about the consideration being £100,000, the capital gain, of course, being much less depending on the gain involved. The capital gain in that situation would (a) be very small, (b), would not arise in a large number of cases and, (c), under £100,000 would amount to very little money. So, on each of these three criteria I suggest that the Minister might look favourably on this recommendation. I would be very glad to hear his views upon it.

I have already indicated, in reply to the remarks of Senator Alexis FitzGerald, that the Revenue Commissioners will be very carefully monitoring the operation of the capital gains tax legislation for some time to come and if any cases of genuine hardship arise we can then consider taking remedial action and, if necessary, making relief retrospective. I am sure there would be no objection to that. The exemptions granted in the Bill are so extensive in the Irish environment and are so unique in the international environment, because of their wide scope, that it is unlikely that there will be cases of hardship arising. Certainly there will be no hardship compared with what occurred under the estate duty code.

Senator FitzGerald referred this morning to the concessions given under the estate duty code whereby a widow was allowed a certain deduction from the amount of estate duty payable and he suggested widows could be taxed in the future, who would not have been taxed in the past. With respect, he overlooked the fact that under the estate duty code the house and all its contents, the bank accounts, Government stock, chattels under £2,000, motor cars, the lot, all were brought in and assessed for estate duty. None of those items are assessable under the capital gains tax code.

Senator Lenihan has suggested that the purpose of the recommendation is to protect the family situation. I would respectfully disagree with him. He wants to give the exemption where a family asset, which is essential to earning the livelihood of a family, is disposed of outside the family to strangers. The legislation is built in such a way——

To help the family in most cases as the Minister will appreciate it.

I accept that it could happen that circumstances could arise where a widow might desire, and in the family interest be required, to move to a different location, say, off a farm into a town nearer to schools or other relatives and so on. Such situations can arise. The exemptions that are granted, and the likely family circumstances that would exist were such a necessity to arise are I believe such as to ensure that there will be no heavy burden of tax. The situation that Senator Lenihan has in mind is more likely to arise if there are young children but if there are young children then the amount of capital gains will be correspondingly less because the assets will have been held for a shorter time than in the case of, say, an older widow. In the case of an older widow, say 55 years of age or upwards, if she has children there is a possibility and, indeed in Irish circumstances a probability that she will wish to pass on the assets to the family, and then sections 26 and 27 will operate. If the widow is getting out of a particular line of business because it is inconvenient or because she has not got skills and she decides to turn over the assets into some other kind of business there will also be relief under the Bill, so most probable situations are dealt with. I would not, at this stage, consider that the Government would be justified in receiving this amendment.

As I said, we will watch the situation carefully. I would not wish hardship to be caused. We have abolished the estate duty code because it caused hardship and was inequitable. We have no wish to be parties to any legislation which would repeat the mistakes which arose under the estate duty code primarily due to failure to adapt it. If it had been modified, if the rates had been modified, if the thresholds had been modified over the years and if the avoidance aspect of it had also been remedied, then it might not have led to the great sense of public annoyance which it certainly provoked. We must deal with the situation as we find it today, and that is why we are getting rid of the system and producing a system which we consider is immeasurably better and will contain fewer cases of injustice. Having regard to these facts, I must reluctantly inform the House that I am unable to accept the recommendation.

One of the great problems with this whole Bill is that the Minister's attitude to it is a kind of upside down one. He keeps on saying that while the question of hardship may indeed arise—both from this side of the House and the other side of the House a large number of cases have been pointed out under which hardship could well arise—his answer is always; "well we cannot allow for these cases which, admittedly, could arise because of the possibility of avoidance". I should have thought that really what he ought to have done from the start was, while allowing for absolutely obvious patent cases of avoidance, in general have tried to draft this legislation in such a way that avoidable hardship would not take place and then see from experience if the Bill as drafted led to excessive avoidance. He is saying; "We cannot allow for cases of hardship because of the possibility of avoidance". I should have thought that he should allow for such cases and see if excess avoidance could take place. He is trying to allow in some cases rather esoteric possibilites of avoidance while, in doing so, disposing of efforts, which have been made from both sides here and in the other House, to try and avoid the kind of difficulty arising that Senator Lenihan has been talking about.

There are clearly many cases where a widow who has inherited a farm or a business would not be in a position to carry on the farm or business. The Minister cheerfully says: "If she sells the business she can always put the money into another business and run it". There are people who are not trained for this kind of activity. It could be that a family solicitor would give strong advice to a widow that she would be very foolish to try to put the money she got for these assets into a business that she might lose her money and end up worse off than when she started, that the only thing she could do with her background was to invest it so as to derive an income from it. There are both widows and widowers who are not, by training and inclination in a position to carry on businesses or farms.

There are many such cases, In such cases the provisions of this Bill could be a hardship particularly in view of the Minister's provision that the date for the assessment of the value for gains purposes may go back even generations. It is quite clear that in the early years of this Bill the amount of gains that can arise will be very limited. I do not know what income the Minister expects to get this year. It will probably be none or £100,000 or so. It will be negligible but I should have thought this might be a good time to start off with a relatively equitable and generous Bill, at a time when quite clearly very large gains will not arise. In most cases it will tend to be losses rather than gains, even allowing for the effect of inflation.

He could start on this basis under present circumstances with a relatively generous Bill and not lose money. He has an excellent opportunity in the next year or two to assess how the thing is working. This is something new. He could keep an eye on the avoidance aspect and make such provision as is required, but he is doing it entirely the other way around. He is trying to stitch in to every section of the Bill all kinds of obscure and complicated provisions to deal with possible avoidance. In doing so he will undoubtedly cause considerable hardship to a variety of people.

The Minister says that they will keep an eye on the hardship aspect. What will the definition of hardship be? I am not suggesting that a person would be thrown into the bankruptcy court by this kind of provision. Widows will suffer. The money they could usefully spend for their own living purposes or for the education of their children will go to the State. Whether that in a particular case is hardship or not I do not know. I have a feeling that the Minister and the Revenue Commissioners in assessing hardship might have a higher standard than the ordinary man in the street.

A widow will suffer loss under this that she ought not to suffer. She may not suffer hardship in some cases in the Minister's or the Revenue Commissioners' sense of the term, but nonetheless she suffers a loss in that assets which she might well have felt would be inherited by her free of capital gains tax will become liable to, in some cases, considerable sums of tax. I suggest to the Minister that he ought to accept this recommendations and, in particular, that he ought to look upon this legislation from the point of view of the taxpayer rather than the tax gatherer on the basis that all these problems of possible avoidance could easily be assessed and considered in the years to come.

In conclusion, there is very little more I can say. I accept that the Minister is making his argument in good faith. In this area involving a widow, involving what we suggest should be done for her in this recommendation before section 27 and also as she is involved in inheritance under section 14 of the Bill, the Minister says that he and the Revenue Commissioners will look at it in a pragmatic way over the next few years and come in with amendments if any inequities or series of inequities reveal themselves.

I do not think that is good enough. Surely, as Senator Yeats has just said, in a Bill of this kind the better way to approach it would be to incorporate in the initial legislation what is seen to be fair and just both from the Revenue Commissioners' point of view and the taxpayers', and then if there are any loopholes manifesting themselves then it would be the Minister's duty to remedy the matter.

That applies particularly in the area with which this recommendation is concerned. This is an area where, in my view, there will be no great revenue loss. The money involved in my recommendation is infinitesimal as far as the Revenue Commissioners are concerned. We are talking about a widow, it could be a widower, who has inherited an estate which involves a farm or a family business of a small kind, to which her husband has given his time and skill over a long period of years. The widow in 90 per cent of cases has not devoted any time to the running of that farm or business. She now finds herself in a situation where she has inherited a farm or a business about which she knows nothing. We are suggesting in that case that the threshold in regard to capital gains tax should be at £100,000 in the event of her disposing of the property with a view to securing some money whereby she can go elsewhere, restart her life with her children and educate them to the best of her ability. It is that kind of human situation which is so obviously designed to be met by this recommendation that I feel could be met by the Minister at this stage. There is no point in waiting for three, four, five or six years to remedy that kind of situation. It is a practical day to day occurrence. All I am saying is that if the widow disposes of the property for a consideration of under £100,000 there will be no capital gains tax element in it as far as she is concerned.

As I said in introducing the recommendation, it is totally in line with the thresholds the Minister himself has brought in in the Capital Acquisitions Tax Bill and in the Wealth Tax Bill, although that is rather a separate area, but I will concentrate on the Capital Acquisitions Tax Bill where the threshold for that sort of internal transfer between husband, wife and children is set at £150,000. In that type of situation and as that thinking is there already with the Minister and is enshrined in his own Bill which we will have after the vacation, it occurred to us that we were just being logical in proposing that we should push the principle a degree further to cover all cases where the wife, after the death of the husband, decides to dispose of the property for the reasons I have mentioned. That is the most valid threshold of all, because she is obviously again, in 90 per cent of such cases, disposing of the property for the benefit primarily of her children. It is the type of case where a woman unable to cope with business or farm decides to dispose of either one or both in the interests of her children for education purposes.

The recommendation does not refer to children. What would you do in the case of a widow who remarried? Would you let the relief stand?

Again this is a matter for the Minister to incorporate in an amendment of the recommendation we suggest, because obviously when an amendment of this kind is put down what we are talking about is a matter of principle. I would have thought there would have been a response from the Minister along the lines he mentioned where there would be obvious exclusions written into it, but fundamentally what I am talking about is a widow who has to dispose of farm or business and who does so for her own reasons but more particularly in the interests of her children. That is not just a hypothetical case. It is a case that arises month in, month out. It is the Minister's job, I would say respectfully, and that of his officials to devise exemptions from that principle such as the one he has just mentioned, which is an obvious one, if there is a remarriage. Of course there is basis for an exemption in that case, although again that would be an arguable matter.

The basic principle is the hardship involved. It is not good enough to wait four, five or six years for this to manifest itself. It is the practical case that I just mentioned which will constitute 90 per cent of the cases where a widow will be disposing of farm or business in the circumstances I have just mentioned. It would surely be logical to exclude any transaction where the consideration was under £100,000 from capital gains tax. With inflation running as it is, it is not an extraordinary figure. It is the figure that is being taken as the norm under wealth tax. A figure ahead of that again, £150,000, is accepted as the norm in the inheritance tax Bill, the Capital Acquisitions Tax Bill. We are talking about a very reasonable proposition. I would certainly suggest to the Minister, if he is not willing to take it on now, which he has stated, that he should not wait for experience over the years to manifest itself. We all know how that sort of experience percolates through the bureaucratic machine and will eventually arrive on the Minister's desk for incorporation in a Finance Bill about five years after the hardship has manifested itself. That is the way the machine operates.

That used to be the way. It has improved.

What I would suggest to the Minister is that, having heard what has been advocated here in the Seanad, he might grasp the nettle himself before the actual injustice manifests itself. We will probably have a Finance Bill in October and another one in December or January, but, at any rate, there will be plenty of Finance Bills in which the Minister will be enabled to incorporate an amendment in accordance with the recommendation here. I appreciate that the Minister has set his mind against adopting this recommendation but he will have ample scope in Finance Bills in the immediate future to incorporate a recommendation in amendment form along these lines and not just wait on the inequity to manifest itself.

The inequity, as I have just mentioned, is going to manfest itself over a period of five or six years, and eventually it will be incorporated in either a Finance Bill or a Capital Gains Bill in six or eight years' time. That is the sort of thing we do not want to happen. We suggest in all friendship and fairness that the Minister might have a hard look at it himself between now and his next finance measure and introduce an amendment or incorporate it in a section of a Bill something along the lines of this recommendation, which I feel has arguments in its favour.

If I do not do it within the six years I will certainly do it within the eight years.

Recommendation, by leave, withdrawn.
Government Recommendation No. 7:
In page 74, paragraph 11 (1) (d), after "clause (a), (b) or (c), to insert "other than shares quoted on a stock exchange".

The House will recall that a number of Senators, including Senators FitzGerald and Russell, raised the question on paragraph 11 of Schedule 4 as to why there is a difference between that and a paragraph of subsection (8) of section 4 of the Bill. I explained, as I will explain again, that we were anxious in Schedule 4 to relieve the purchaser from the obligation of having to make inquiries regarding whether or not shares were quoted. The shares with which we were concerned here were shares in mining interests. The reality is of course that people who have interests in those shares are well-up or their advisers are or, as some prudent person said to me, if they are not well-up they should not be dabbling in such shares. I think this is a case where the burden can be shared between the vendor and the purchaser. On that account in response to the representations which were made here I have tabled this recommendation which I trust will be acceptable to the Seanad.

Recommendation agreed to.
Question, "That the Bill be received for final consideration", agreed to.
Question proposed: "That the Bill be returned to the Dáil."

What I will say briefly on this matter may involve a certain amount of repetition of what I have said already on the various Report and Committee Stage amendments and what has been said by Senators Ryan and Yeats. In principle, we agree with the capital gains tax. There is no question of that. It is a form of taxation—and we have said this—that exists in every European country. Apart from that, some form of capital gains tax is obviously necessary in our community. However, where our strong criticism arises in regard to a measure of this kind involving a new form of tax is that sufficient imagination was not displayed in regard to various matters. A proper balance should have been struck, in our view, between the Revenue necessities and justice being done to the taxpayer. It is important to ensure that in the fundamental document, enshrining a new form of taxation, which is a document that will subsist and will be amended from time to time, but will be the basic taxation document, there should also be enshrined the basic principles that should exist in any good piece of legislation, the balance between the exigencies of the Revenue Commissioners and the equity as far as the taxpayer is concerned.

The Minister has refused on a number of occasions in the Dáil and in this House to accept amendments which might have proved difficult for his officials to work out, but fundamentally they were amendments which no reasonable person could controvert as being amendments of principle and amendments that were in accordance with striking this balance.

First of all we had the various amendments in which we sought to enshrine in the Bill some principle of indexation that would guarantee that the real capital gain would be the gain on which the tax would be paid.

The Senator is not in order in discussing amendments or possible amendments on the Fifth Stage. We are concerned now with the Bill as reported from Committee.

The Bill as reported from Committee does not incorporate the principle of indexation, and it is perfectly valid to discuss a fundamental matter of justice between taxpayer and tax gatherer that should be incorporated in this Bill, and it is on that basis that I presented it, not on the basis of its incorporation.

Perhaps I might clarify my ruling by saying that the Senator is perfectly entitled to discuss the implications of the Bill without indexation, which is, in fact, what is now before us. On the other hand, he is not entitled to discuss how this situation might be met, what other sort of Bill might have emerged under other conditions.

I appreciate the nuance, a Chathaoirleach, but this is a Bill without indexation, which pays no respect to a fundamental fact of our time and one which will be a continuing fact of our time, that is, the existence of inflation. Inflation has reached enormous proportions in the period to which this Bill now relates, the period between 6th April and now. Hopefully, it will diminish, but it will always be with us. I suggest to the Minister that the whole experience of monetary systems and economic situations of the whole world in our time lead one to believe the fundamental fact that inflation of one kind or another will always be with us. It may not be of the mammoth proportions of the present time but it will always be there as a fact of life.

In recognition of that, surely it would be appropriate that in this measure a provision to ensure that elementary justice would be done to the taxpayer should be included, recognising that the tax that he or she or the firm would pay should be on a real gain rather than an illusory gain. It is not incorporated in this measure. It would have been most appropriate at this particular time and would have been a recognition of the realities of our present situation and a recognition of the injustice involved in taxing people on a capital gain that in some cases could be non-existent, and in other cases would be only a portion of what the gain was alleged to be. All of this adds up to a situation which is totally inequitable and out of tune with the circumstances of today and of future circumstances.

It is wrong to bring in here a measure that provides for a flat 26 per cent tax without recognition of the situation I am talking about when it could reach a figure of 100 per cent in real terms in the event of inflation. The gain could be non-existent but the 26 per cent rate of tax would have to be paid. This is wrong; it is inequitable and indefensible. I am being realistic about this; we are going to be in that situation for a number of years to come. It may not be so bad from the percentage point of view, but it could be from 6 to 8 per cent and upwards. There will always be inflation in any economy that is expanding.

We have entered a period of economic disadvantage because of our high inflation rate. Some inflation rate will always be an endemic part of economic expansion. Now is the time to do something about it. The Minister has not done so in this Bill and in that sense it is a negative, backward-looking measure. All we have here is a flat capital gains tax percentage increase. There is no attempt to accommodate the Bill to the real requirements and fair play in regard to capital tax needs that will arise in the years ahead.

Similarly, there has been no attempt to deal with another problem which, again, in justice, should have been attempted, that is, the whole question of drawing a distinction between the quick capital gain by a speculator from a quick transaction and the capital gain that arises out of years of input by a man or a woman or a firm. The quick once-on, once-off type of investment, involving a substantial capital gain, should be taxed to the hilt. There has been no attempt to provide some graduated, equitable system of tax on a gain resulting over a long period of years and coming down to one single year. There should be some form of scaled tax that would place the highest tax on the capital gain over the shortest period, diminishing to a lower tax on an asset held over a long period of years.

The Senator is now tending to speak of alternative Bills. He should keep to what this Bill says and does.

This Bill basically proposes a flat rate of capital gains taxation. I am critical of the Bill because it is faulty in imposing a flat rate of capital gains tax, and ignoring the various manifold variations that exist in regard to tax-paying capacity and the equity in regard to tax paying within the whole area of capital gains. It imposes a single, across-the-board, rate of tax on every capital gain transaction, irrespective of its merits and irrespective, in particular, of the period of years for which the asset was held. It should be an easy matter to improve this. I can appreciate the Minister's difficulty in separating the wheat from the chaff, as it were, for separating the reasonable capital gain from the unreasonable capital gain. The criterion of the number of years in possession was suggested. That again was ignored by the Minister and he has stuck with this crude criterion of one percentage exemption of tax across the board irrespective of the particular section involved.

The third main point on which I will be very critical of the Bill—and this is one that has already been referred to in the course of the recommendations here on Report Stage so I will not elaborate on it—is the lack of concern for the family situation. There has been a lack of concern for family dealings, for the question of the inheritance under section 14 by the widow, for the question of the widow disposing of property for the needs of her family after death. There has been a lack of concern for these two areas. Senator FitzGerald, on the Minister's side, and my colleagues, on this side, have spoken on the lack of concern there is for this area, particularly in view of the fact, as Senator FitzGerald rightly pointed out this morning, that in certain cases the widow was better off under the old estate duty provisions now abolished.

Here again there should be—the Minister has guaranteed that he will look at the matter carefully, and I appreciate that—a very close monitor put on this area. The amount of revenue involved in this area is infinitesimal. We are dealing here with a widow within a limit of £100,000 acquiring assets and disposing of them for the benefit of her children, particularly for educational purposes. There is no concern in the Bill for that type of widow, or for the widow taking on inheritance under section 14 of the Bill. This is an important area. Can the Minister advance to me substantial revenue reasons why he should have insisted on the Bill as against the recommendation in this respect? In my view, the revenue return in this area is infinitesimal. I cannot see why the Minister has to wait for X number of years before the various injustices show themselves.

On the general economic situation this Bill must be viewed in the pattern of the other Bill and the Finance Bill, Capital Acquisitions Tax Bill and the Wealth Tax Bill, and future Finance Bills that we are going to get in the autumn and in the winter. The whole economic situation is bedevilled by pressure of Finance Bills and finance legislation. This Bill, while a Capital Gains Tax Bill, if modified by equitable provisions, proper safeguards, in the areas I have mentioned, would be a welcome Bill in the ordinary course of events. This Bill is not welcome (a) because it does not accord with the very criteria I have mentioned that would make the Bill human, fair or equitable and conform to the principles I have suggested in that respect and (b) because it does not accord with the whole financial climate in which we find ourselves when in fact the managers of our economy and in particular the managing director—the Minister for Finance —should be concerned about bringing in tax relief measures to stimulate and encourage economic activity, to draw and stimulate investment.

The problem of 1975 is not the problem of getting greater redistribution of income. That is an admirable principle if the cake is large enough, to effect a reasonable distribution of income, but in a year when the overall national cake is shrinking, when the gross national products will be down, what we should be doing is adopting measures in both Houses to make the cake bigger, to stimulate the economy rather than put it further into retreat. Without taking from the fact that some capital taxation and financial measures are required properly hedged in by equitable provisions, I believe the timing of this package of Bills is wrong. This Government's timing on so many matters has been so politically economically and socially crazy that it defies description when one tots up the mistakes that have been made. In a year when there should be expansion, when the economy should be stimulated, when incentives should be adopted to generate further economic activity, when all hands should be aboard to get the ship moving again, all they propose is this Bill as part of a number of taxation measures that are going to drive this economy into further depression. The Government are creating a situation where investment will be deterred, where money coming in will be stopped, moneys already here will be encouraged to depart, where nobody is going to take industrial decisions that are required to provide the expansion to give the employment which is needed.

As Senator Lenihan has said, indeed as we have been saying all through the discussions on this Bill, we are in agreement with the principle behind this Bill. We agree that it is wrong that very wealthy people, speculators, should be in a position to make a large capital gain without paying tax. At that point which the Minister, when he introduced the Bill, made for it, we are in agreement.

Where we case to be in agreement is in the numerous instances under this Bill where people who are neither very wealthy nor speculators find themselves liable to capital gains tax. Leaving these details aside for the moment, one has to say about this Bill that it is to a considerable extent irrelevant to the needs of the present day, and has been, to a large extent, a waste of time. At a time when all the attention of the Minister and his Department and of members of the Oireachtas also should be directed to the very serious problems facing the economy, this Bill does nothing to help that.

In its present form, in so far as it has any effect on the economy, it is a negative effect in that it is likely in certain respects to hinder the development of business activities. One could understand to some extent the amount of time that has been devoted to this Bill, the amount of time and effort that the Minister and his Department have had to put into it, if at least one felt that at the end of it some practical result would accrue in helping to relieve the enormous budgetary deficit the Minister has loaded upon the country. However it is quite clear that the revenue from this Bill this year will be negligible, perhaps non-existent, and that for a considerable time to come it will do little or nothing to assist the budgetary problems, so it does not need to have that to commend it.

Leaving these general comments aside and coming to the details of the Bill, the greatest single deficiency in this Bill without any doubt is that it makes no provision for dealing with problems of continuing inflation. We have had various undertakings from the Minister—and I think Senator Lenihan was quite right a short time ago when he pointed out that these undertakings have grown gradually less enthusiastic as the months wear on—to deal with it.

The Minister started off in the other House full of enthusiasm. He was certain that it would be dealt with: he could assure members of the House that it would be dealt with; no one need have any worries at all. But, as time has worn on, undertakings have been more and more watered down. We have had rather sinister comparisons with income tax and suggestions that, after all, since you do not have indexing with income tax why should you have it with capital gains tax? I do not think, on the Minister's present attitude, we need expect that whatever changes are made in the future by him they will do more than cover a small proportion of the mounting inflation which undoubtedly will continue, at whatever rate it may be.

The second grave defect in this Bill is that in spite of efforts by our party to remedy the matter there is no difference at all between the rate of tax imposed on speculators, those wealthy speculators about whom the Minister was so eloquent when introducing the Bill, and on people who are selling their hard-won family possessions in order to meet some temporary financial problem. There is no distinction at all between a person who has to sell his family business and the speculator, leaving out of account the proposals made for retiring at the age of 55 and so on. These are special occasions: as a general rule there is no difference made at all between the taxation on a person who has acquired a business that has been built up by the family, himself and his father, perhaps his grandfather, over a period of 50 years or more, where the first sale takes place, maybe generations after the original acquisition on which the capital gain is assessed, and the wealthy speculator, about whom the Minister was so eloquent, who makes a very rapid capital gain because he happens to buy the right kind of shares on the Dublin Stock Exchange and three months later was able to sell at perhaps three times their value.

We think this is wrong and inequitable because it means that people are being taxed who ought not to be taxed, or at least ought not to be taxed at the full level provided for in this Bill. We feel that the wealthy speculators will continue to get away with murder, that they should be taxed more heavily than the Minister has provided, whereas on the other hand these people who in no possible definition of the term could be described as speculators are being taxed at the same rate.

We also think that this Bill is wrong and inequitable because of the abandonment by the Minister of his original and perfectly correct decision in the white paper that gifts would not be taxable. The explanation of capital gains to the ordinary man in the street is a simple one. In years to come it will come as a great shock to many people all over the country who have been thinking of a capital gain as a sort of a profit that you make on selling an item, to find that a simple straightforward gift, where no money passes in most cases, will be liable to capital gains tax. This is not what is known as a capital gain to the ordinary man in the street. It is wrong that gifts of this kind, normally within the family, should be taxed and it will come as a great shock to many people when they find out the full implications of this Bill.

Lastly, we feel that this Bill is wrong because of the element of double taxation. I know that in many spheres, import duties, VAT and so on, there is double taxation but there is no double taxation of quite this nature, where in many cases, on the making of a gift, for example, the donor will have to pay capital gains tax and the donee will have to pay capital acquisitions tax. The two combined will in many instances come very near or even in certain cases surpass the death duties which were formerly levied and to which there was rightly objection taken by many people.

These are very serious defects in the Bill. While we agree to this Bill in principle, we feel the principle has been badly handled by the Minister. It has been considerably mauled, and what in its initiation contained a principle with which we could all agree, as it turns out from the Minister, with this extraordinary dedication he has shown to the closing of every conceivable loophole that might possibly arise, even though the closing of these loopholes has meant that many innocent people will suffer, is a bad Bill and one that will undoubtedly need to be very heavily amended in future.

It is often said in legal circles—the exact phrase the Minister would know better than I—that it is better that ten guilty men should be wrongly found to be innocent rather than one innocent man should be found guilty. The Minister adverts to this when he comes to tax gathering—he would rather have ten innocent people taxed wrongly than that one guilty person should escape the tax who ought to be paying. That is a wrong attitude. The Minister should take it the other way round. If there is any chance at all that people will suffer, that people would be taxed in an inequitable fashion, he should take the risk, at least in the early stages, that the occasional avoidance may take place. So while we agree with the principles of this Bill we cannot agree with many of the details in it.

I should like sincerely to thank Senators from all sides for their contribution towards the improvement of this Bill. It is now well over two years since work began on the preparation of a new package of capital taxation. It commenced immediately after the National Coalition Government issued their first budget in May, 1973, and, once the budget was out of the way, only nine weeks after assuming office work commenced on the preparation of a new capital gains code.

Since then we had a hard-working two years in producing a Bill which objective and unbiased observers regard as a good Bill. Even with a very good beginning, with all humility, we accept that in the light of experience it may be necessary to adjust it, to refine it. But remember every time you proceed to refine any tax measure to deal with a particular situation you necessarily make the code more complex. There has been some criticism about the complexity of the Bill but this is necessarily so because the concept of capital gains is a difficult one and even more difficult to legislate for.

Necessarily, a great deal of work in relation to these Bills is unrecorded publicly but I should like to take this occasion to express my appreciation —and in expressing my own appreciation, the appreciation of my fellow legislators—of the officials of the Department of Finance, the Revenue Commissioners and the parliamentary draftsmen for the preparation of a piece of legislation which is uniquely difficult. Every country has had this experience when initiating capital gains tax: of all forms of taxations it is probably one of the most complex because you are not dealing with a static, historically measurable element. It is forever fluctuating at either end. The different ways in which property can be held and the different human problems with which we have to try to deal means that the code has to be extremely complex.

In these circumstances we have been very fortunate indeed to produce a good Bill in such a comparatively short period. Of course we had the advantage of being able to study capital gains legislation and practice in many other countries, because as I have pointed out, all our fellow members of the European Community and literally every other progressive country in the world have had capital gains taxation for many years, some indeed since the beginning of the century, so that we had all that useful experience and we studied this very carefully.

I appreciate the patient and painstaking contribution which the Seanad has made to the debate. It might well be thought that at the end of more than two years' hard work in the preparation of the legislation it could not have been capable of improvement when it went to the Seanad. Nevertheless, without doing violence to any of the principles of the Bill or the Government's approach to it, I am happy that we have been able to improve it and to send it back to the Dáil before the Dáil goes into recess so that the Bill can be passed as amended by Seanad Éireann. I only wish that that would be possible in respect of other Bills which are to follow: perhaps it will, but that will depend on getting co-operation in another place. I will not make any odius comparisons, but may I say that I thought the debate in the Seanad was excellent in all respects, and I did not pay that compliment elsewhere.

I have been accused of having a pet aversion about avoidance. Of course I have not, but in Government we have been concerned to eliminate the more scandalous forms of tax avoidance and evasion. It is significant that today when this great debate is about to conclude we have the benefit of a report on the economy which has been commissioned by the European Economic Community. This report recalls the facts that Ireland had many inequities in the taxation code, the most glaring of which was the absence of a proper code of capital taxation. The report recognises that the taxation of capital gains as proposed by the Government will contribute to the equity of the code, and it also says that the other taxes which we will be discussing on another occasion, wealth tax and capital acquisitions tax, will make significant contributions.

I am satisfied, and I am sure all Senators are satisfied that the ingenuity of man will always exceed the speed of the legislator. As in the past, so in the future: avoidance practices will probably be well ahead of the capacity of the legislator to prevent them. So that must be some consolation to those who think that I am unduly unfair on the avoiders and evaders of taxation. My great human desire is naturally to abolish taxation of all kinds. Perhaps if we have oil flowing in a quantity similar to some fortunate nations in the Arabian Gulf we may some day be able to do that, to remove tax on incomes and on capital, but that situation does not exist and we must deal with realities. In any event, in a society which attempts to be just, there must be some distribution of the burdens of contributing to the national revenue.

It has been suggested that speculators are not affected by this Bill or that they are not sufficiently dealt with. I would remind the House that speculators, people who engage in buying and selling of property for the purposes of their trade, are in fact taxable under the income tax code. They always have been. Perhaps some have engaged in avoidance practices in the past and have not been paying their due share of income tax on profits from speculation, and perhaps their criticism of the Government's taxation measures is related naturally to their disappointment that the paradise they enjoyed in the past will not exist in the future, but the truth is that they will be caught under either the income tax code or the capital taxes code—in the future.

The debate has been well worth while over the last two years, if only because it converted the Fianna Fáil Party. It will be recalled that at the commencement of this debate, at their Ard Fheis they overwhelmingly supported a resolution which deplored the introduction of a capital gains tax. They have since then tried to overcome the mistake which they made on that occasion. I would think that they were less than thoroughly convinced at times that they were right to change their minds, because some of their amendments would in fact have negatived the whole concept of taxing capital gains. It is a good thing to see democracy at work and to see those who were originally unconvinced at long last becoming convinced that capital taxation is fair and necessary if the taxation code is to be at all equitable and——

At all Stages in Dáil and Seanad we expressed our opinions.

Apparently the grass-roots were not consulted, because the grass-roots of Fianna Fáil, when consulted, gave a different answer. However, I should not like to spoil the good atmosphere that this debate has generated in the Seanad. I would therefore record my appreciation of the contribution made by the Seanad and say that I look forward to discussing with my fellow legislators in the Seanad the Government's other Bills on wealth tax and capital acquisitions tax.

Question put and agreed to.