Vol. 82 No. 13
Before we take up consideration on the Committee Stage of this Bill I should like to indicate that I have ruled that recommendations Nos. 2, 9, 10 39 and 40, standing in the names of Senators Yeats and Eoin Ryan, are out of order. Each of recommendations Nos. 2, 9 and 10 involves a potential charge on the people; each of recommendations Nos. 39 and 40 involves a potential charge on State funds. The Senators have been notified accordingly.
SECTION 1.
I move recommendation No. 1:
In page 3, line 19, to delete "21" and substitute "18".
This deals with the age of minor children. The Minister in the definition section of this Bill has repeated the somewhat outmoded figure of 21 for children to reach their majority. Most people in this day and age would agree that the traditional age of 21 for a child to have gained majority is a relic of a former age. In recent years young people have developed much more rapidly. They are more sophisticated, better educated and better able to make their way in the world. It is quite clear that nowadays a child is an independent adult in practical terms quite a few years before reaching this traditional age of 21.
We should remember that by the time a child reaches 18 he or she can marry, vote, serve in the Army and drive a car. By the age of 18, some 95 per cent of all young people will have left school. Nowadays, fortunately, a high proportion stay on to do the leaving certificate but they accomplish that task at or before the age of 18. They can then go to work. The proportion who stay on in higher education is comparatively small. I do not imagine it is much more than 5 per cent. The vast majority of children have finished their educational process and are out working by the time they reach 18. The Minister will accept that the prevailing view in other countries in recent years has tended to be that the age of majority begins not at 21 but at 18.
In the Minister's own income tax code, a so-called child working at the age of 18 will pay his or her own income tax under PAYE. A parent can no longer claim a child allowance in the income tax code except in the limited and not very frequent cases where a child is still in full time education. A Bill still before this House, the Protection of Young Persons (Employment) Bill, dealing with the safeguarding of working conditions of young people, stops at the age of 18. At this age they are excluded from the Bill on the grounds that 18-year-olds can look after themselves. They are adults. They are independent entities. They are no longer in practice under the control of their parents. One cannot tell them any longer to come or to go.
In these circumstances it seems unfair and unrealistic for the Minister to define a minor child in this way, so that in the wealth tax code under this Bill the wealth of a young person between the ages of 18 and 21 is aggregated in this way with the wealth of the parents. The Minister, now that he is starting a totally new code of taxation, should deal with this matter in a commonsense way by providing that a child at 18 is no longer a minor and therefore for wealth tax purposes his wealth should be his own independent wealth and should not be aggregated with his parents.
This is not a matter which could possibly cost the Minister much money, if anything at all. The possibilities of evasion obviously do not exist. I suppose they could exist to the extent that parents could hand over wealth to their children at the age of 18 instead of 21. It is a marginal matter whether you have to wait three years or not. At the age of 21 if you want to get rid of your wealth to your children, you can. I do not think the Minister would be faced with a massive expensive evasion simply because this process could be done three years earlier. From every practical point of view the Minister ought to make this change.
The principal opposition to wealth tax is that the introduction of wealth tax would force parents to transfer property to their immature children at 21 years of age. The view was that people of 21 years of age were not mature enough to handle property and that as a consequence of the introduction of wealth tax we would oblige parents who were anxious to avoid the impact of wealth tax to transfer their property when their children became 21 years of age. I am just mentioning that in fairness to Senator Yeats. It would seem that objectors to the Bill regarded 21 as too early an age for the handling of property so how much more fearful would they become if 18 years was to be the age of majority in this country?
As I mentioned in the other House, I am in favour of the age of majority being 18 rather than 21. As I said to the Council of Europe in Strasbourg seven years ago, the attainment of majority involves a great deal more obligation than it involves a surrender of immunity. It is important to remember that there are advantages flowing from minority, they include immunity to civil claims in respect of many contractual relationships, because the law assumes that a person under 21 years of age has not got full control of his own contractual relationships. The result is to confer upon minors certain immunities which would not be available to them when they attain their majority.
Therefore, if there is pressure—and there will be social pressure—for conferring majority on people at 18 years of age rather than 21 years of age, it is important to remember also that that social pressure to confer majority rights also confers obligations. It removes certain immunities and, therefore, is a matter which extends for beyond tax law. It would be quite improper that a financial Bill, such as a Wealth Tax Bill, should be used for the purpose of changing an important aspect of social law, of civil law and of property law. If our society, in its wisdom or otherwise, decides that the age of majority must be changed from 21 down to some other age, it ought to take that decision, having regard to all the social, personal and civil responsibilities which that change will entail. It is wrong to use a financial Bill, which is supposed to reflect existing social standards rather than to enforce new social standards, as an instrument to bring about this change.
In the law of property, 21 years is the material age. Under 21 years of age, the domicile of parents decides the domicile of their children. I am not saying whether this is a good or bad thing. There may be need now, according to the changes in social patterns, to change all this. So be it. Let this change occur in our society and let society bring about this change in the ordinary civil law, and in the property laws and you may be assured the taxation laws will reflect whatever social thinking there may be on this front.
It would be wrong to use a taxation statute to anticipate the general law of the land. I would expect the most vigorous political opposition if a financial Bill were to be used for the purpose of effecting a radical change in social laws and general attitudes. On that account, while I am not unsympathetic to the principle behind the recommendation, I urge upon those who propose it this view : even if their views are worthy ones, a financial Bill is not the instrument by which to bring about this change. It would not suffice for them to say: "Well, better move a little than not move at all." If we were to move under a taxation statute and still leave the property laws, the domicile laws, and the ordinary civil laws at 21 years of age, the end result would be to create a hornet's nest of anomalies which would do a great disservice to the young people, as well as to their elders who might or might not be people of property.
The question of hardship cannot seriously be argued. Where the parent has no wealth, the Revenue Commissioners will look to the members of the family who have wealth or, as in the case which might be visualised in the recommendation, this might be the people of between 18 and 21 years of age. In case somebody argues that people acquire property now at an earlier age, I would point out that the kind of case which has been produced to illustrate the validity of this argument has usually been in relation to, as Deputy Colley said in the Dáil, the Shirley Temples. The Shirley Temples made their money long before they were 18 years of age. If one were to look to the child "pop stars" and so on, we should not have any age of majority; we should not have any age of immunity to prosecution in respect of failure to fulfil one's contractual rights. There is a beautiful theory behind the proposal of this recommendation, but in practice it comes up against a certain number of practical, fundamental family difficulties which have not been adequately researched and have not yet been sufficiently recognised in our social attitudes. The day we consider that children may hold property independent of their parents, and at which they may have income totally independent of their parents or their obligation to contribute towards the family expenses, will be the day we can start reflecting these attitudes in our financial Bills.
I am considerably surprised to hear the Minister say that the principal argument against this tax was that people said parents would be forced to hand on their wealth to children at the age of 21 and that they were too immature to look after it and so on. I have not heard any such argument being made. I do not remember it being made in the other House. It is news to me that anyone made the argument and if he did it is a damn bad one. I did not make it and I do not propose to make it. There are a great many strong arguments directed against this tax, but I would not recognise that as one of them.
I am not suggesting that the Minister should embark on a complicated and large-scale operation of winding down the age of majority from 21 to 18. I am merely suggesting that the Minister should make the same provisions in this Bill as he has already done in his income tax code. A person aged 18 is faced in the income tax code with the problems an adult faces. They have tax deducted under PAYE. They are liable to the Revenue Commissioners for tax. They are treated as independent persons. Their parents do not get any child allowances for them. The amounts of money that a child, aged 18 or 19, earns is of no importance to the parents from a tax point of view. A child could be earning thousands of pounds at the age of 18 but it is not added to the parents' income. It is a matter for the child. The child will have to pay and the parents are not involved in any way. I am merely suggesting that the Minister should introduce this sensible provision into this Bill also.
The problem is, as is often the case in tax legislation, that the Minister—I am speaking in general terms because all Ministers tend to be the same when it comes to collecting taxes—wants to have it both ways. Where income tax can conveniently be deducted from the salary of a person of 18 that is the way it is done. It is likely, though not certain, that whatever wealth a young person of 18 has will not be liable to wealth tax whereas it might become liable for wealth tax if it is aggregated with that of the parents. The Government can get their pound of flesh in this way under the income tax code but not under the wealth tax and, consequently, the system is being changed.
The Minister has referred to Shirley Temples and so on. The problem there seems to be a relatively simple one. Obviously, if a child of, say, six, seven or eight goes in for the kind of activities that Shirley Temple went in for and earns unduly large sums of money, you cannot expect a child of that age to look after his or her financial affairs. The parents would have to be responsible and of course for tax purposes one would expect the parents to be involved also. But the time comes when the Shirley Temples, the pop stars or whatever they are grow up. Whether they cease earning is immaterial: they will have acquired wealth. By the age of 18 I would maintain that they are capable of acting for themselves and indeed will act for themselves and will be going about the world without much regard to the parental nest. I would put it again to the Minister that I am not suggesting in any way that he should become involved in the property law or other complications which could ensue if we advanced to the 20th century and changed the age of minority from 21 to 18. I am merely suggesting in this limited case of the wealth tax that he should follow his own already well-known example in relation to income tax.
Briefly, I should point out in relation to income tax and property holdings that the law provides that if a child has an income that is a settled property, that income shall be deemed to be the income of the parent. Under the wealth tax we are dealing with property and not merely with income which is the reward of labour. We are regarding wealth—I do not like to use the term "stagnant wealth"— as something which is less active than the income which arises out of labour. The interesting thing is that under the income tax code an income out of certain settled property is regarded for income tax purposes as the income of the parent. That is the true comparison here and it is the difficulty we have in trying to make the point which is posed by the recommendation.
I can see that point, but whatever the Minister does there will be a difficulty somewhere. Take a child, for example, who has an elderly aunt who leaves him a considerable sum of money or a sum invested in shares that he is to acquire at the age of 18. I take it that under these circumstances these are his absolute property and would be aggregated for wealth tax purposes. They are his and his parents cannot touch them. The case of a settlement of property is a special one, and I think the Minister will find that while in that case it fits in with the age of 21, in other cases such as the one I have mentioned, it would not. It would fit in better with the age of 18. I shall not press this recommendation, but the Minister would have done better to have left an 18-year-old in essentially the same situation for this tax as he is for income tax.
Recommendation No. 2 has already been ruled out of order. It is suggested that we might discuss recommendations Nos. 3, 5 and 28 together.
I move recommendation No. 3:
In page 3, lines 48 to 50, and in page 4, lines 1 to 4, to delete subsection (2).
The two recommendations, Nos. 3 and 28, and indeed Senator Lenihan's also, deal with the position of parents. The Minister, in this Bill as he did in the Capital Gains Tax Bill, has linked the parents. For the purpose of this Bill the husband and wife, we are told, should be treated as living with each other on the valuation date unless on that date they had separated. Later on it is provided that whereas one single individual is allowed a threshold of £70,000, in the case of a married couple the figure is only £100,000. A number of issues arise here. First, it is the usual business of providing that the wife is a sort of appendage to her husband. It is an outmoded concept which makes the wife a sort of chattel. In this regard it is not, contrary to the old cliché, cheaper for two to live than for one. In many ways there can be more expenses where two are concerned because a married couple would frequently have a variety of expenses in relation to the family and so on which one single individual would not have.
The argument against this is principally that were these recommendations to be accepted, particularly the one providing that the amount per parent would be £70,000 instead of £100,000 for the two, in this case wealth would always be split between married couples, to which I say "what of it?" After all in the case of death duties which the Minister frequently quotes as being the sort of antecedent to this Bill and in many ways obviously even more undesirable, an obvious way of avoiding the full burden of death duties was to split the family wealth between man and wife. There is no legal objection to this obvious sensible precaution. It took place all over the country constantly in the death duty code. It is not easy to see why in the case of the wealth tax there should be this objection to this practice. It is in justice a reasonable suggestion that the burden on a married couple should not be increased merely because they are married. One of the few things that one can congratulate the Minister on for the past year or so is that he has provided that in the case of the income tax code, for the first time the income tax allowance for a married couple will be double the single allowance. Here again I am asking him to be consistent and take the line that this form of taxation should follow the income tax code, and that if the income tax allowance of a married couple is now double the single allowance, the wealth tax threshold for a married couple should be double that for a single person.
The proposals in the Bill are relics of a 19th century attitude to taxation matters. This business of including the wife as a sort of appendage to her husband is wrong. It is wrong as is provided in effect in section 1 that a couple who have separated or who are living together while not married should do better under this legislation than a couple who are living together and married. The Minister ought to accept these recommendations and bring this whole field of taxation of families up to date.
The recommendation that is being taken as cognate with the two in the name of Senator Yeats stands in my name. It relates to the same basic problem of having legislation incorporated here that does not introduce concepts related to reality. That applies especially to section 4. It provides for investigation into the relationship between husband and wife, something divorced from reality today in the light of the growing independence of women today.
I suggest the meaning of my recommendation is quite clear, because the drafting is more straightforward. I am seeking to delete subsection (1) and incorporate in the section:
For the purposes of this Act, the property to which an individual is beneficially entitled in possession on a valuation date shall be deemed to include all the property to which the minor children, if any, of the individual is or are beneficially entitled in possession on the valuation date:
The following paragraph I regard as very important:
Provided that, where both parents of such minor children are living, all the property to which such minor children is or are beneficially entitled in possession shall be deemed to be included in the property to which the male parent is beneficially entitled in possession unless, prior to the valuation date, the Commissioners are notified to the contrary, in writing signed by both parents of such minor children.
I suggest that the proposition embodied in recommendation 5 does not avoid going into the investigation required under section 4 of the Bill dealing with the aggregation of taxable wealth. Under subsection (a) one has to ascertain, in regard to the wife of the individual, if she is living with him on the valuation date. Beneficially entitled shall include all the property to which the wife, if she is living with him, and the minor children, is or are beneficially entitled. This introduces the concept of an investigation as to whether or not the wife is living with a particular individual on the valuation date.
The property to which either of them is the survivor for tax purposes shall include the property to which minor children of those parents is or are beneficially entitled in possession but only if that parent has custody of the child on that date.
Again there is an investigation into the custody of the child. There are two investigations involved which cut across the proper thinking that should be in a Finance Bill. A Finance Bill should not be involved in investigations as to whether the wife of an individual is living with him or which parent has custody of the child on the valuation date. We avoid all this in our proposed recommendation to section 4 by deleting these references to whether the wife is living with her husband on the relevant date and any investigation as to who has custody of the children. This recommendation aggregates the minor's property and the parent's property in the male parent, who is deemed to be the parent beneficially entitled unless prior to the valuation date the Commissioners have been notified to the contrary in writing by both parents of the minor children. That eliminates any investigation. This appears to be a far more straightforward way of dealing with the problem and avoids any anti-social investigation which should not be included in a finance measure. One is running into completely non-finance areas of investigation here. They are areas which should not be relevant to a finance measure. The recommendation proposed is less likely to get the Revenue Commissioners or anybody else into trouble, and avoids court proceedings as to custody and separation. The male parent shall be deemed to be the person entitled unless there is notification to the contrary lodged with the Commissioners prior to the valuation date.
I find it difficult to accept the argument behind these recommendations. Basically what the recommendations are suggesting is that most married people in Ireland do not live together——
Ah, no.
Ah, yes—and that they do not share their property. The recommendations suggest that married life in Ireland is a strange separated entity in which there is no simpatico, no understanding, no communication of thought, no sharing of the family burden. With all due respect, it is a bit unreal. We speak in our Bill not only with an understanding of Irish married life as it is but also with an appreciation of married life as it is in western European society. There is no European country which regards the wealth-holding of the spouses as divided. There is only one European country which gives a double allowance to individuals simply because they are married and which gives an equal amount to husband and wife. There is a lot to be said for the wisdom and experience of other countries many of which have had wealth taxes for more than three-quarters of a century. This is not extraordinary, because what is the reality of married life? People share not merely their human, emotional burdens and problems but also their property holdings and not merely in relation to themselves but also in relation to their family's future and family fortune.
The worst possible thing to do would be to dictate to parents how they should divide their wealth primarily for fiscal reasons. In fact, what they ought to be doing as prudent parents is dividing their wealth out of regard for the individual needs of their children. We want to have the least possible interference with the parents' understanding of the needs of the children. We want to leave parents the greatest possible freedom in relation to the disposal of their wealth in regard to children. They may wish to give one child an education because such a child might have a brilliance beyond the average capacity of the remainder of the children and might, as a result of that brilliance, be able to carve out a niche in life for himself and for his own children far beyond the capacity of another, who might need a certain built-in substance out of a wealth-holding in order to get an equal degree of comfort and opportunity for his children. It is much better to leave things to the ordinary experience of mankind than to try to dictate to them through a fiscal law.
It seems to me that the recommendations are wrongly inspired because, if we were to give effect to them, it would have this meaning. Instead of having a threshold of £100,000 for each family because of husband and wife living together, and £2,500 for each child, we develop a situation in which the family threshold would be £70,000. In most cases in Irish circumstances the wealth is held in one name. Perhaps that is wrong, and I am one of those who believe that property should be jointly held. If we are to have a threshold of £70,000 for a single person —and it is inherent in the amendment that that should be the view—it would limit the threshold of the family to £70,000 unless, in a rather unusual Irish circumstance, the wife had £70,000 worth of wealth in addition to the £70,000 held by the husband. Of course, it could be argued that the husband could well divide his fortune, if he had £140,000, so as to give half to his wife and it might be good to promote that. I believe it would and I believe that is happening in Irish circumstances anyway.
We have to develop our tax laws, our financial legislation, to reflect society as it is and, unless there is some very cogent reason for changing the pattern of society, we should not use financial legislation to bring about a change in the social attitudes. There is a certain amount of social involvement and social approach in the Governnment's capital taxation proposals. We said so in the White Paper and we said so ever since. I still think our social code ought to reflect social attitudes and not try to impose change, particularly when the change is against the pattern of society.
Another argument in favour of leaving the utmost freedom to families is that often the requirements of individual members of the family can vary. If you force people, because of a fiscal code, to distribute property in a certain way you may, in fact, be doing an injustice to individual members of the family. It is much better to leave that freedom than to try to enforce it through a taxation code. I entirely repudiate the idea that there is any built-in disadvantage in this Bill to the female sex. There is not. Many a man has gone into the house of a wealthy woman and hung up his hat. The assumption behind the amendment is that the man has all the wealth and the woman is only a chattel of the husband. There is no basis for that, in fact, in the Bill.
If I may say so without disrespect to the amendment, there seems to be a certain amount of confused thinking in relation to the promotion of these amendments. We are dealing with the spouses in a neutral way. That is the proper way in which to do it.
If the proposers of the recommendation feel strongly enough about having complete equality between the married and unmarried persons, I suggest they might meet it by tabling a recommendation to bring down the threshold for single people to £50,000 instead of £70,000. That would remove all sense of grievance which many people, according to their suggestion, might feel because the threshold for married persons is £100,000 instead of £70,000 for single people.
Finally, in case my argument has not appealed to anybody, I want to give some factual information to the Seanad on the actual thresholds for husband and wife in Ireland compared with the rest of Europe. Our threshold will be £100,000 exempt plus the home and its contents. In Denmark, the threshold for a married couple is the same as the threshold for a single person. It is £31,500 and the home and its contents are not exempt. In Sweden, the threshold for a married couple is the same as it is for a single person. It is £19,000 and, again, the home and its contents are not exempt. In Germany, the threshold for a married couple is £23,000 and the home and its contents are not exempt. In the Netherlands, the threshold for a husband and wife is £9,300 and the home and its contents are not exempt. In Norway, the threshold for husband and wife is £7,700 and the home and its contents are not exempt. In Finland, the threshold for husband and wife is £3,600 and the home and its contents are not exempt. In Luxembourg, the threshold for husband and wife is £1,100 and, again, the home and its contents are not exempt.
That is an indication of our capital taxation for the family in Ireland. We are giving exemptions far above any other country in Europe. The nearest is Denmark. We are three times higher in exemptions than the exemptions given in Denmark and we are 100 times higher than the exemptions given in Luxembourg. That is the reality of the situation, showing that we have recognised that wealth holdings in Ireland are, invariably, in family situations and the exemptions we have given will exempt the overwhelming majority of Irish families, in fact, I would say without any fear of contradiction, well over 95 per cent of Irish family situations.
The Minister said he wanted to make it clear that in this Bill he was not in any way discriminating against women. I would point out to him that in a later section, one we will come to in due course, he deals with the very possibility he raised, where it is the woman who has all the wealth and not the husband. So what does he provide? He provides that in such a case, although all the wealth belongs to the wife, it is the husband who is primarily responsible for making the returns, and not the wife. That is what the Minister means by equality in this year of 1975: when a woman has all the money it is still the penniless husband, the man of the house, who has to make the returns. That is equality according to the Minister for Finance.
The Minister suggested that, if we wanted to equalise the position of married people and single people, all we had to do was to put down a recommendation on Report Stage to reduce the threshold for a single person to £50,000. I do not see the point of that. Obviously, we will not do anything of the kind. We do not think that £50,000 would be an adequate threshold for a single person. The point we are making is a very simple one. A married couple have very considerable expenses, well beyond those of single people and well beyond those, in many cases, of two single people. The Minister in his reply raised the problem that married people very often have with children —the cost of raising them, educating them, and so on, that may arise. On his own basis it is quite clear that a married couple can have very considerable expenses of a nature which single people never have to face. Therefore, at the very least, a married couple living together ought to have the equivalent to single thresholds. Whether they are aggregated or split separately between them is not of great importance. The basic point is that the family threshold ought to be at least double that of single people.
The only other point the Minister raised was one he is very fond of raising with regard to the rates of tax in other countries and, in particular, the rates of wealth tax, the implication being that because the thresholds are much higher here, and so on, the taxpayer will be much better off in this country than in other European countries.
The Minister will agree that it is reasonable to look upon this wealth tax, which is essentially a profits tax, as a new and additional form of income tax. It is to be paid annually. The thresholds and so on have been fixed so that, in the Minister's view— and I do not think I am here misrepresenting him—it ought to be possible for people to pay these sums out of income. It is therefore an additional tax to be paid by the taxpayer out of income. The comparison the Minister should be making is not with wealth tax per se and its thresholds in Ireland and other countries but in the whole field of direct taxation, between income tax and wealth tax.
I put it to the Minister that it has been reasonably stated in the newspapers—not denied by the Minister or anyone else as far as I am aware— that our rates of direct taxation are the highest in Europe. Certainly, if one takes the case of Germany, where the Minister announced with triumph that their threshold was much lower, the reality of the situation becomes different when examined. For one thing wealth tax there is imposed on a much more restricted basis. It is officially on the valuation, not of 1975 but of the year 1955—we know how prices have changed since then—or, at the latest, 1965 values. In addition, part of wealth tax can be set off against income tax so that wealth tax can be at as low a rate as 0.4 per cent. The real difference is seen when one examines income tax in Germany. Here, since the Minister's very recent budget, the maximum rate is 77 per cent, which is reached around an income level of approximately £12,000 annually. In Germany, the maximum rate is 59 per cent, which is not reached until a person has an income of £38,900 per annum. It is patently obvious that the German wealth taxpayer—of course, he is also an income taxpayer—is incomparably better off than his Irish counterpart. There are similar figures for other European countries which the Minister has quoted. I shall not refer to them now. They would arise more directly on other parts of the Bill. It is no use the Minister quoting thresholds for wealth tax, as such, without adverting also to their very different income tax laws, which results in the Irish taxpayer— whether subject to wealth tax or not —paying far greater direct taxation on his income than his counterpart in any other country.
I should like to deal with recommendation No. 2 which was ruled out of order by the Chair. This recommendation relates to the first valuation date. Section 1, at line 46 page 3 says:
"Valuation date", in relation to any year, means the 5th day of April in that year.
In other words, 5th April last, the last day of the income tax year 1974-75, is the date to which all valuations for wealth tax must be backdated, which is a matter with which we will be dealing in some detail later. Those people who will be liable to wealth tax, however many they may be, have incurred already a legal liability to forward their returns to the Revenue Commissioners for wealth tax purposes. We have not yet passed this Bill. But from the day the President signs this Bill wealth tax will become due retrospectively from 5th April last. There are provisions about interest and so on which we shall come to later. The legal position is that, as soon as this Bill is passed, wealth tax will become due.
The White Paper on capital taxation produced by the Minister on 28th February, 1974 stated, in relation to all these taxation proposals, the dates from which they would become law. In the case of the annual wealth tax it says:
The date of commencement will be 6th April, 1975.
In other words for income tax purposes, the first day of the present financial year, 1975-76. To stress this point the Minister goes on to say:
The new system of capital taxation will, therefore, be fully operative from the tax year 1975-76.
At page 45, paragraph 93, of the White Paper it says:
The wealth of the taxpayer would be valued on, say, the last day of the tax year, at present the 5th April.
This is the situation this Bill envisages henceforth—that the date for valuing these various forms of property and wealth will be the last day of the financial year, except that, in this particular instance, it is to be the last day of the last financial year and not, as one would have thought and certainly expected from the wording of the White Paper, the last date of the current financial year.
The Minister has pointed out on various occasions that death duties ended on 6th April last and, therefore, it is only fair that this particular tax should come into force to replace them. I would point out to him that wealth tax is not the real substitute for death duties. The provisions of the other two Bills, the Capital Acquisitions Tax Bill—yet to come to the Seanad—and the Capital Gains Tax Bill started before the 6th April and indeed for a while, ran simultaneously with death duties. This Bill, however, commences the imposition of wealth tax on the 6th April in spite of the statement in the White Paper that the first valuation date would be the 5th April in a different financial year. Of course, the effect of this, once this Bill has been passed will be that wealth tax will have been due four months, although the Bill will become law only in August.
The Minister amended the Bill in the Dáil to say that no interest was due until 5th October. Originally, not only was the tax due from 5th April last but interest would have been due also. That does not affect the legal position, which is quite clear, that the valuations of the people concerned are to be made and originated from 5th April last and, as soon as the Bill becomes law, the money will be due. It is fair to say that this insistence of the Minister on commencing the imposition of the tax last April is misplaced completely in view of the economic state of the country. It does not seem sane or sensible that in present economic conditions the tax should be raised in this sort of retrospective way as from last April, particularly in view of the fact that the White Paper stated quite clearly that it was not to be raised until the last day of the financial year and that the commencement date for operation of the tax would be 6th April last.
In these days of gloom and despondency one of the most exhilarating aspects of life here is that the expectation of life has increased immensely since the Government announced the introduction of wealth tax to replace death duties. Before the Government made this announcement the expectation was of an early death and the payment of crucifixion rates of estate duty. Now the expectation of life has risen so immensely that people of substantial substance are convinced that they are going to live for another half century and as a consequence pay more in wealth tax than they or the next of kin would ever have had to pay in estate duty. It is all a wee bit unreal.
On the point that Senator Yeats makes about the calendar date let us be perfectly blunt. The Government said to the people of Ireland that they favoured the abolition of estate duty and the replacement of estate duty by a system of taxation payment by instalments during the life of the owner of the wealth. They said that that tax would be paid by annual instalments and that it would be introduced at the same time—I repeat those words for the third time—as estate duty was disposed of. Estate duty was disposed of in April, 1975, and the appropriate date for the replacement of estate duty by the alternative package of capital taxes was and is obviously April, 1975. That was the date that was spelt out in the White Paper. The White Paper was published on the 28th February, 1974, and it was not until May, 1975 that some genius, displaying ingenuity of extraordinary hindsight, proceeded to interpret some words in the capital taxation White Paper as meaning April, 1976, instead of April, 1975.
The interesting thing is that of the many organisations that made representations to me and to the Government, who came and saw me and spoke to me, who wrote in voluminous memoranda to me, they all pleaded for the early introduction of the Wealth Tax Bill, the main emphasis of the representations being: "For goodness sake, get the Bill in and passed through both Houses of the Oireachtas before April, so that people will know where they stand on the date of the commencement of the wealth tax."
Due to no fault of the Government, the legislation was not through both Houses by the 5th April, 1975, and then some genius working in a backroom, construing the English language in a way different to that in which it had been generally previously understood decided that a combination of the English language and some arithmetical calculation might, by some extraordinary stroke, postpone this tax until 1976 instead of 1975. It cuts no ice with the Government. It is completely in contradiction to all the representations made, which were on the assumption and on the understanding arising out of the White Paper that the wealth tax would commence as and from April, 1975. As far as the date of calculation is concerned, I think that Senator Yeats, who intends to be relieving potential taxpayers, might, in fact, be doing a disservice to people. I am no valuer. I do not have any pretensions to be a valuer, nor am I a soothsayer or a prophet, but I would think it not unlikely that valuations as of April, 1975, might operate more to the advantage of the taxpayer than valuations as of October, 1975. Bearing all these factors in mind, what people understood the White Paper to mean, the representations which they made to me following their understanding of the White Paper, their own pattern of behaviour following the White Paper, and the likely valuations in April and October, I would suggest to Senator Yeats that his view of the commencement date is not a valid one. Even if it were valid it would not operate, as he would intend it to operate, to the advantage of the taxpayer.
It is not a case of my view of the White Paper. It is a case of what the White Paper says. The White Paper says clearly, I think, that the wealth of the taxpayer would be valued on the last day of the tax year, that is 5th April. The date of commencement will be the 6th April the following financial year. If the tax begins on the 6th April and the valuations are to be done at the end of the financial year, that end of the financial year is quite obviously the 5th April, 1976. This is not an interpretation; it is a statement of fact in the White Paper. Maybe the Minister did not intend it this way, but it is what he said in this White Paper. Perhaps it would not help the taxpayer; I do not know, but that is not really the issue. The issue is that quite clearly the Minister laid it down in his White Paper that the first valuation will be in April next rather than April last.
Leaving the White Paper out of account, we have the extraordinary situation that, when this Bill passes sometime during August, 1975, the wealth tax will be due from the previous 6th April, about four months earlier. The Minister himself has appreciated this problem by his amendment to a later section that interest will not run until after October 5th. We shall come to that in due course. Therefore the Minister himself accepts that nobody will be forced to pay anything until October, because interest will not run until after that. Yet he wants to have the first valuation back to last April 5th. It is difficult to see the point of this. Indeed it is difficult to see why he resists this recommendation. It is not going to cost him any money because, as he suggests himself, it might even make him some money, because the valuation might be higher in October. I am putting it to him that if he is proposing important legislation he ought to try and exercise common sense in the wording of it and realise that it is wrong to pass a tax law of this kind retrospectively, that people should be given some chance of getting their valuations done and so on. At the very least therefore, October 5th next should be the date from which not merely interest is payable but also the valuations are to start. I do not understand the advantage from the Minister's point of view, or from anyone's point of view, of having this retrospective 5th April date.
I should like to ask a question on the meaning of "ordinarily resident". In the course of this Bill, particularly section 3, we have a lot of provisions about people who are "domiciled", "ordinarily resident" and so on. I am not an expert on these questions of nationality and so on, but I think I am right in saying that "domiciled" means that a person has taken the decision to become a permanent resident of the country. The Minister has provided in section 3 that under certain circumstances, he is assumed to have taken that decision. But besides this question of being domiciled, we have this concept "ordinarily resident". It is stated in this section 1 that it has the same meaning as in the Income Tax Acts. It does not seem to me to be a particularly clear definition. It is not, as far as I know, actually stated in the Income Tax Acts, what "ordinarily resident" means. I presume that the reference here means that over the years the definition has been gradually established of what "ordinarily resident" means but, as we will be having this phrase several times in the course of the Bill, perhaps the Minister could give some enlightenment as to what his concept of "ordinarily resident" is.
"Ordinarily resident" is one of those terms which it is difficult to define. Broadly speaking, it is the same as the understanding of "habitual residence". It is a matter for the court to determine, for income tax purposes, whether a person is or is not ordinarily resident. It is impossible to define. There are various permutations and combinations of human behaviour and location which would be adequate to determine tax liability. Quite clearly, in relation to wealth tax ordinary residence has to be determined.
A similar determination has to be made in respect of income tax. We consider that it is the best of all courses open to us to use the ordinary disciplines which operate in relation to income tax. I know it has an element of imprecision, but it is probably as much to the advantage of the taxpayers as it is to the Revenue Commissioners to have this element of imprecision, and it is a matter of looking at the merits of each case to determine whether a person is habitually resident in a particular territory or not. That amounts to so many elements of human behaviour and location that, as I said earlier, it would not be possible to determine all these in a statute.
I take it that he may have a residence here, a house, as opposed to living in hotels. This is a factor in suggesting to the Revenue Commissioners that he is ordinarily resident here. Would that come into it?
Yes, it certainly would. But then if a person was, over a long period, habitually in a hotel here, it might constitute sufficient residence here. It is because of these variations that it is necessary and best to leave it open so that the courts can look at the facts of each case to determine whether a person is or is not ordinarily resident here. The case law is volumes wide and I do not think they would help the Seanad to understand all that is meant. There have been several legal cases argued on this matter.
Had my recommendation No. 2 survived the activities of the Chair I would have suggested that we take recommendation No.4 with it. However, it did not. We have already discussed the effect of recommendation 2 on section 1, so there is no point in going through it all over again.
This is the basic section in the Bill. It brings the whole question of wealth tax, with which the Bill is concerned, under scrutiny by the Seanad. The Bill provides that as and from 5th April, 1976, a wealth tax shall be charged.
1975.
Yes, of course. A tax, to be called a wealth tax, shall be charged, levied and paid annually upon the net market value of the taxable wealth.
Senator Yeats's argument has convinced the Senator.
That is right. The whole case for having this panoply of taxation is argued in the White Paper on Capital Taxation which was laid by the Minister for Finance before the Oireachtas on 28th February, 1974. In discussing wealth tax, as envisaged here, I must refer, even in a sideways manner, to the other taxation which the Minister is introducing at the same time, all of which are designed to effect very serious changes in our whole system of capital taxation.
Basically, I am suggesting that it is a matter which could have been remedied very easily were it not for the fact that the Government got themselves into a straitjacket over a general election statement regarding the abolition of estate duty. It could have been settled by raising the thresholds in regard to estate duty, which, indeed, required to be done and which was not done, in 1972 or in 1973 on the occasion of the last general election. That would have met the situation in equity and in revenue capacity and would have met the requirements from the point of view of the equity of the taxpayer and from the point of view of the Exchequer needs. A simple raising of the threshold limits of existing duty was all that was needed.
The Minister, in the panoply of taxation has introduced high thresholds—£100,000 in the case of wealth tax, £250,000 in the case of capital acquisitions tax and various forms of that going down to £70,000 in the case of a single person under wealth tax and varying in the case of capital acquisitions tax between dispositions within a family and outside a family. I would like to hear from him in his reply on the section, what will the net gain to revenue be, having regard to the fact that he has made much play that he has raised thresholds both for wealth tax and for capital acquisitions tax. In relation to capital gains tax, which is now law, he made the point that a very high threshold was incorporated in that legislation. I would like to hear from the Minister what exactly will be the revenue gain from the three forms of taxation having regard to the thresholds, which he says are on a liberal basis taking due account of allowances within the various threshold limits.
The gain is the important thing as far as the Minister is concerned. I fear that the introduction of these three new tax measures has helped to stultify and frustrate investment, both here and from abroad, without at the same time bringing in any positive revenue gain that could not have been obtained by a sensible adjustment of the thresholds in regard to estate duty. The Government, due to a preelection promise to abolish death duties, felt constrained to do just that, instead of raising the threshold levels, which were too low.
They were down to a level of £25,000 in 1973. Obviously there was a strong case for raising those threshold limits substantially to somewhere in the region of £100,000 or £150,000. These are the thresholds that exist now in capital gains tax legislation, in the wealth tax legislation and in the capital acquisitions tax legislation. In this way equity would have been done to the taxpayer and sufficient revenue would have been provided by raising the threshold limits in regard to estate duty.
I should like to hear from the Minister the amounts of money involved in this matter. They are important, having regard to the very small amounts that will be obtained from wealth tax. Varying estimations have been given as to what will be secured in a full year. Some have said £3 million, others £4 million, others £2½ million. What exactly does the Minister expect to get from wealth tax in the first full year of its operation? It will be a nine months operation for the present year, and a figure of £2½ million was mentioned for this period. This appears to be very small in relation to the hubbub that is being caused and the general frustration that is being created in regard to capital by the introduction of the whole panoply of capital taxes which is unnecessary having regard to our present economic situation and will not help the exigencies and the difficulties of the Revenue. That is the balance that has to be preserved by any Minister for Finance.
Business suspended at 5.30 p.m. and resumed at 6.45 p.m.
On section 2 I was making the point that we have had remarkably little precise information in either House, in this tremendously long, tedious debate we have had on the whole package of taxation proposals at a time when these particular proposals are singularly ill-timed and wrongly thought out, having regard to our present economic circumstances, about the yield from these measures. The three Bills under discussion and particularly section 2 of this Wealth Tax Bill, linked with the Capital Acquisitions Tax Bill and the Capital Gains Tax Bill and other financial measures that we have had over the past 12 months, when considered as a whole amount to new forms of taxation that on the Minister's own admission are yielding remarkably little revenue. I would like precise information from the Minister on this section as to what exactly is the anticipated revenue both in the current financial year and in the first full year which will be the financial year of 1976. This is very relevant in that, leaving aside the Capital Gains Tax Bill which is a separate one, it is not strictly related to the wealth tax or the gift or inheritance tax —which I will call it for want of a better name to cover the Capital Acquisitions Tax Bill—the main purpose of this wealth tax measure and the measure called the Capital Acquisitions Tax Bill is to recoup the Exchequer for moneys lost by the abolition of death duties. The Minister will agree that that is the claim made in the proposals embodied in the report on capital taxation. Leaving aside the other taxation measures we will concentrate on section 2 of this Bill in conjunction with the other Bill which incorporates the inheritance and the gift tax measures, that is the Capital Acquisitions Tax Bill. These two Bills were designed to replace death duties that were yielding in the region of £13 million to £14 million in 1973. I would like confirmation of that; it is in that area that the revenue yield lay. I would like to know to what extent the Minister proposes to recoup the revenue by the two measures we are now discussing and what precise revenue the Minister proposes to get by the operation of section 2 of this Wealth Tax Bill. Will it be £1 million to £2 million; £2 million to £3 million or what will it be? Has any sort of guesstimation been made by the Revenue Commissioners as to what will be the sum of money for this year and next year? I would like to know, if the Minister has any estimate as to what the total yield from the combined gift and inheritance tax incorporated in the Capital Acquisitions Tax Bill will be and how will that total relate to the revenue that existed in the last full year in which death duties operated. What net gain is there to the Exchequer in the replacement of one system of property taxation by another system?
Allowing for that, in what way is the basic incentive engine within our society and economy that must be fuelled, lubricated and motivated if the economy is going to succeed, improved by a simple gimmicky replacement of the estate duty legislation embodying the various forms of death duty by another form of tax on property involved in a combination of wealth tax and inheritance tax?
I would like answers to those questions. On the estimates that emerge now in rough and ready form—I am not in a position to estimate accurately here—with the thresholds the Minister envisages for the wealth tax and capital acquisitions tax I doubt whether he has got sufficient there to yield the compensatory revenue for the abolition of the various duties under the estate duty code. On top of that, he is not abolishing death duties as such. Death duties are a form of collecting revenue from people who pass on property. What is embodied in this Bill is another form of collecting tax from property holders. Various forms of death duty are brought in through the back door in regard to the Capital Acquisitions Tax Bill by a form of taxation on inheritance and on gifts given inter vivos.
What one has here is really the replacement of one system of property tax legislation by another system of property tax legislation. I would suggest there is no gain to the Revenue and no great additional incentive to people within the community who want to build up the economy. In fact it is a positive built-in disincentive by introducing new forms of property taxation instead of old and accepted forms and formulae that were there over a long number of years. I was suggesting before the adjournment that any injustices or inequities that lay under the old estate duty legislation could have been easily remedied by the Government by simply lifting the threshold. I know they lifted the threshold in the immediate finance legislation subsequent to being in government. I would say that was the direction in which to proceed—a simple lifting of the threshold in regard to estate duties. From the point of view of what is an encouragement to investment and what is not, this Bill and particularly section 2 is potentially a form of disincentive taxation which could be very dangerous in the future if there is any tampering with the thresholds and the allowances.
One must look at a taxation Bill in principle because taxation legislation never stays static. It moves and tends to increase, as we all know. When income tax was first introduced it was regarded as a very novel measure, indeed regarded as an emergency measure. The Minister is well aware of that. The Minister may state that the thresholds and the allowances are reasonable—I think the yield for the Revenue will be infinitesimal—but the fact is this form of taxation is being introduced for the first time. One must look at it in the sense that if the thresholds are reduced, if the allowances are diminished, what sort of permanent legislation do we have in hand. There is no problem about changing the allowances or the thresholds. The Minister knows well that once the basic legislation has been made into law there is no difficulty about adjusting the thresholds in the annual finance legislation. That is done each year in every finance legislation. On that account, I would like to discuss the principle of the Bill as set out in section 2 and its relevance to the question of incentive.
Let us look at it from the point of view of incentive and economics, leaving aside the financial and revenue aspects. This Bill is going to draw an annual sum of money. The rate of taxation now stands at 1 per cent and the Minister may argue that with the threshold level mainly at £100,000, sometimes at £70,000, and with allowances over that the amount will not be great. I agree that revenue will be very slight this year but this is going to be permanent legislation. The threshold can be halved by a simple line in next year's Finance Bill. The threshold can be £50,000 or £20,000. The allowances can be diminished. The Minister is well aware of that. That can be done in any budget by any Minister for Finance.
Are we then writing into our permanent taxation code a type of tax that is totally disincentive? It is like rates because rates are an annual charge and a bad form of taxation. They are a permanent annual charge. We are now writing in another overhead. Let us not draw any distinction between forms of taxation. Labels and names mean nothing. This has been called a wealth tax. It can, by one line in a Finance Bill, be reduced from being a wealth tax to being everybody's tax. It can by inflation become everybody's tax. It amounts to a permanent form of fixed taxation over a person's property irrespective of the yield from that property. That is one aspect that is important from the social point of view. That amounts to what is called a regressive form of tax. It is not regressive in the context of the Minister's present thresholds but it can be highly regressive and unsocial if either inflation or a Government proceed to adjust the thresholds and the allowances.
There is another aspect. In a subsequent recommendation we seek to have some relationship between yield and tax. In another recommendation we seek to exclude productive enterprises that are contributing to the economy from the umbrella of wealth tax. The way it operates within Europe at the moment is that there is a constant adjustment always operating between wealth tax and income tax. In other words, the two go hand-in-hand so that revenue, productivity, wealth tax and income tax are all viewed as part of the same package. This Bill as it now stands is a crude form of collecting revenue. It is an overhead form of collecting revenue which is not in any way adjusted in a sensitive or refined manner to the sort of developing economy we will have, hopefully, in the years ahead. Hopefully, we will not be permanently in the state of depression in which we now find ourselves. What we want in this legislation is a wealth tax that is attuned not just to the simple sum of a percentage of wealth at a certain level but is also attuned to the yield from the particular property, to the productivity of that property and to the level of income tax that property is paying. If a property is productive then it will pay higher rates of income tax. There is no provision made in the Bill for that particular operation.
We have a number of recommendations which will deal with all these aspects which, in my view, add a greater degree of refinement to section 2 of the Bill which quite simply makes provision for a wealth tax to be charged annually on the net market value of the taxable wealth, and the value on valuation date in every year of every assessable person. The rate of tax shall be 1 per cent of that net market value.
This is a very crude tax instrument. It is a tax instrument by which the 1 per cent can be changed, by a simple variation in any subsequent Finance Bill, at the rate of 2 per cent or 3 per cent or 4 per cent. That is no difficulty. It is a tax instrument within that section which can be charged on the net market value of the taxable wealth on the valuation date in every year, so that what we have here is a provision whereby every year there will be an assessment made and a tax charged on the market value of the property as assessed every year.
I do not have to go into the details of what that means. It means, on the administration side, a constant revisiting and reassessment of properties. It is based purely on the valuation principle. It is even worse than rates. I drew some comparison between it and rates, but rates in regard to agricultural land are based on a permanent valuation. Rates, of course, on business properties are varied upwards on the valuation system. This same valuation principle that exists now in regard to business premises only, will apply that system to premises and properties and companies and wealth generally right across the board.
This section means, and let nobody be under any misapprehension about it, that a permanent overhead is being written into the tax code that can be varied upwards. We can take it it would be varied upwards, because 95 per cent of such business properties at the moment for rates purposes are already varied upwards. The property will be varied every year as far as assessment is concerned and this will be a permanent charge or a permanent overhead as far as the owner of that property is concerned.
I wonder if that system of taxation is better from the social and economic point of view, leaving aside the principle of the 1 per cent and the thresholds and the allowances. The Minister may answer me on that. I am putting to the Minister whether that type of taxation in principle is a better one than the sort of taxation the Minister is doing away with due to the operation of these Bills: is not the system of having a year-in-year-out regressive tax overhead with no progressive element written into it, an overhead that goes up in accordance with valuation as rates on business premises do now, almost an exact analogy of the type of tax this is? It is a tax analogous to rates on business premises that are causing such very rightful unrest throughout the country. That is the sort of tax this is, at a higher level, agreed, but a level that can be reduced by any subsequent Minister for Finance, a level that can with inflation be brought more and more into the same sort of net as rateable business premises are brought at the moment.
From the point of view of getting the economy going, is that any improvement as a form of tax on the form of tax that is being removed in the form of death duties or estate duty. I refuse to say death duties are gone because death duties are being brought in again in the inheritance tax under the subsequent legislation of the Capital Acquisitions Tax Bill. In the form of the estate duty code that has been abolished, is this any better from the point of view of tax principle than that form of taxation? I would argue with the Minister that it is not. If you have day-in-day-out, year-in-year-out during your working life, and your company have as well, to cope with a similar situation, or any form of trust, whether discretionary or otherwise, any non-trading companies and individuals enshrined here in the individual's share in a company, who is subject to this form of taxation, or part of a non-trading company, and presumably a discretionary trust—these are three areas covered by the Bill for wealth tax purposes—in any of these areas does the Minister think that this is a more progressive form of tax than the form of tax which has been abolished? As least the form of tax that has been abolished, provided the thresholds were reasonable, was a form of tax which did not hurt the particular individual or trust or non-trading company during the period of life of the individual. A death duty was a duty that arose subsequent to death and was not a factor year-in-year-out as this form of taxation is.
On that analysis, this form of taxation contains a permanent annual overhead subject to annual revision, mostly upwards, on market value, and makes potentially for a far more regressive form of taxation written into our tax code than the form of taxation with which it and the other legislation running with it, the Capital Acquisitions Tax Bill, are supposed to remove.
I am making no case for the retention of the estate duties at the level at which they were, but I think the Government could have dealt with the problem without bringing in this panoply of taxation. They could have dealt with it by raising substantially the thresholds that existed in a code that was well known to lawyers and accountants who fully understood all its highways and byways and its ins and outs. The only inequity that arose in the estate duty legislation was the fact that the thresholds were far too low, and they could have been raised by the Government. That was all that needed to be done.
The Government circumscribed themselves by reason of their preelection promises to abolish death duties and have now decided to bring in another form of taxation, a wealth tax, at the worst time possible when no indication should be given of any form of disincentive vis-á-vis investment. That, in conjunction with the Capital Gains Tax Bill and the gift and inheritance tax incorporated in the Capital Acquisitions Tax Bill, gives rise to a whole umbrella of taxation which at the end of the day, in the context of the yield that can be secured in the immediate future, this year and next year, will not make any great gain for the Exchequer. When the Exchequer is now in the process of contemplating a budget deficit of £240 million, the sort of money that is involved by way of revenue in these pieces of legislation as far as 1975 is concerned, having regard to the thresholds and the allowances they are giving is so infinitesimal that it comes nowhere near to dealing with the serious budgetary problem facing the Minister and the serious financial, monetary and economic problems facing the community as a whole.
The Bills are irrelevant in that context. In the future, unfortunately, they will have been established and they can be used or abused. That is unfortunately the situation once legislation of this kind is established. It is now past history, but the Minister could have avoided all the opprobrium that has occurred in regard to the death duty aspect at any rate, by simply upping the thresholds of the old estate duty code. He is now faced with a very serious budgetary problem to which this legislation has contributed because of the timing of the legislation, the period at which the legislation was brought in, a period of economic recession, when finance had to be encouraged, when investment had to be encouraged. In this period he brings in legslation that acts as a disincentive to finance and investment without any immediate yield to the Revenue from the low percentage of the wealth tax and the low thresholds and the liberal allowances that the Minister claims are in it, and which I dispute are in it.
Basically, section 2 brings in a crude taxation mechanism designed to impose an overhead charge which can be revised annually on the basis of valuation irrespective of any of the other criteria of productivity, of yield from the investment or any of the other natural criteria that should be taken into account in regard to tax of this kind and without any reference to income tax which every European country also takes into account when assessing wealth tax.
I suggest to the Minister that this section represents a crude attempt to bring in legislation which is unnecessary and which will not yield any revenue in practical terms and which is fundamentally wrong in that without the other criteria written in with it, it will result in taxation being exacted on a crude annual market valuation and on a percentage formula. This is not the progressive type of taxation which is badly needed today. In introducing legislation it is enough for the Minister to say: "The threshold is high, the percentage is low, the allowances are reasonable". That all adds up to very little yield. It is much ado about nothing. What does the mountain labour so much for and produce? Surely it is only making it worth while for the mountain to labour if it will produce something more than a mouse in revenue terms. If the labouring of the mountain has frightened other people from working near the shadow of that mountain that in itself would be sufficient argument for not having the Bill at all. It is all caused by an ill-advised proposal to blanket out death duties. On the basis of that the whole estate duty code was dismantled at a cost of £14 million and other forms of taxation were introduced. It is all rather circular, like the dog chasing his tail, in ever-decreasing circles. The various pieces of legislation are in that category. Unless some substantial amendments are made in the legislation the actual yield will be infinitesimal. The Minister has introduced taxation that is highly regressive at a time when every country in the world is trying to get rid of that type of taxation and introduce more progressive taxation related to actual income as a result of investment.
Section 2 is the kernel of the whole Bill. It lays down the formula under which this tax will be assessed and collected. By introducing this Bill the Government are acting in a manner which will be detrimental to our economic situation. The reason for the imposition of this tax is that the Government were committed to removing death duties. They have been pressed by their Labour colleagues to get on with the job so that when election time comes again they will be able to say that they fulfilled their promises.
While we may decry people who have vast amounts of wealth and property the fundamental issue is that it is on these people we are depending so as to ensure the setting up of factories. No Government are able, through their own taxation methods to establish sufficient industries and factories to keep people at work. Consequently we are depending on these people who have wealth, on those people who came here and invested their money in developments such as SFADCO and who subsidised other factories while being assisted by the Government in a small way. It is well for us to remember that industrialists coming here risk their own capital and we are not acting in the best interest of the country by imposing a tax on them.
There are three types of taxes incorporated in this package. They are all a replacement for estate duty tax. Unless we were able to have some idea of the return from such taxation it would not be possible to assess what amount it would yeld and what benefit it would be. Election promises are often not expected to be fulfilled, especially when they are examined closely. This type of taxation should not have been introduced at this time. It is taxation that will be on our statute books in the future but it seems to be designed in such a way that it resembles rates and we all know that the Government when they were in Opposition were clamouring for the abolition of rates. Now that they are in office they are modelling this taxation on rates. It will not make much difference what the person's position is—1 per cent can be raised to 2 per cent, to 3 per cent or to 10 per cent at the whim of the Government.
We have had experience of Governments who borrowed money ad lib. The taxation that is imposed in Bills such as this is used to pay the interest on borrowed money. We have a deficit now of almost £300 million. This happened before when the first Coalition Government took office when the Marshall Aid money came into the country but was squandered. The facts were never made known to the people in those days until it was realised that it was necessary to pay back the capital fund itself and pay the interest. This has been a heavy burden on our taxation system ever since. The same applies to all the other loans raised by the Government. In the past 12 months they have made various attempts all over the capitals of Europe to try to bring home as much money as possible. I do not know how successful they were or if they are still hoping they will be able to get it somewhere but if they succeed in getting it, more power to them. It is badly needed to try to put some of the 103,000 unemployed back into employment. Anything the Government could do to reduce the growing queue of unemployed would be very important.
My opinion of the exercise that went on in the other House for two or three months and which is now being repeated here is that we are wasting a great deal of time in discussing a measure like this. The real reason for it, of course, seems to be to divert the attention of the people from what the real issues are, as it was the reason for the Broadcasting Bill and the Criminal Law (Jurisdiction) Bill. What the Government should have been spending their time doing, instead of wasting hours trying to put together this Wealth Tax Bill, was sitting around the table with their Labour colleagues trying to find a cure for the hundred ills besetting the country. Somebody on the other side said today I was talking gloom. It is the duty of the Opposition to point out to the Government what they think is wrong. On every occasion that I can—and I make no apologies for it—I keep repeating the figure of 103,000 unemployed and that figure, in the middle of August, has not abated. As a matter of fact, only last week, unfortunately, it grew. I have also been pointing out on every occasion the predicament in which the farmers find themselves.
I am sorry to interrupt the Senator, but he is straying very far from section 2. This is a Committee Stage debate.
I was trying to analyse what the money lifted in taxation is used for.
Section 2 deals with one particular tax.
Money raised by taxation is handed out by the Minister for Finance to the various Departments and it should be used to help those engaged in agriculture, industry and elsewhere. I was adverting to the fact that, so far as the farming community is concerned, they are in a deplorable state and have been during the last 12 months. They have not been given any confidence. Neither do they seem to have any confidence in the leadership given to them to try to recover from the disastrous situation in which they find themselves. That situation arose by virtue of what happened in the EEC and what happened through the selling of cattle and beef into intervention. When the farming community are not doing well all other sections are in danger.
In relation to section 2, Senator Dolan, please.
I am sorry. I thought I was relating this to section 2 because the farmers will find themselves caught caught up in this net so far as wealth tax is concerned. That, coupled with the various taxes that have been levied on them this year, will ensure that they will be ground down completely by December in view of the increased burdens that have been placed on them, additional taxes and this thrown in for good measure. Apart from the chaotic state of the market and the price of cattle there seems to have been a hoodoo over agriculture because of the incompetency of the Government who have been making a hames of agricultural policy since they came into office.
The Senator is not up to date.
I think I am fairly well up to date because I was at a fair down in my own constituency yesterday and it is a great pity the Senator was not there.
Senator Dolan, I take it the fair was very interesting, but it is really outside section 2.
I am sorry and, with the permission of an Leas-Chathaoirleach, I shall move on from the Department of Agriculture and Fisheries to make some reference——
If you will just stay with section 2, Senator Dolan.
——regarding the provision of money to make roads and build houses and so on in County Cavan. Money will certainly be needed. I appreciate that in one sense that is what the Minister for Finance is doing here; he is introducing a measure to collect some money into the kitty so that when I am looking for a small grant to make a bog road into a little mountainy bog to produce turf, which would help conserve energy—incidentally there was a Bill here last week which I voted for——
I am sorry to have to interrupt the Senator once more, but State expenditure is not involved in section 2. It is related to the levying of the wealth tax.
I was relating my argument to the money being collected and, with all due respect, to what the Minister would do with this money.
On section 2, that is not relevant.
I do not want to go against the wishes of the Chair.
I appreciate that.
I always respect the Chair and the rulings of the Chair. At the same time, I had to use this opportunity to advert to how bad things are and how badly money is needed. If the Minister for Health could get a little of this money——
That is not good enough. That is repeating, which is what the Senator said he was not going to do. It is an old trick.
I am not trying to pull a fast one. I thought I was in order in referring to what would be done with this money. Perhaps the Minister might make some reference to how much he expects to get from this. If I had some idea of what he would get I might be able to put in a plea for some of the very many——
On another occasion.
Another point is the change that can take place so far as the £100,000 is concerned and how quickly that kind of money can change in value in present circumstances. Making due allowance for the fact that last year——
In what possible way is a reference to the threshold relevant to section 2? I submit that this debate is going to be rendered otiose and grossly irrelevant if this type of speech is to continue. There are a series of propositions involved in this section which can be dealt with quite simply but to go wandering on about agricultural property and thresholds seems to be an abuse of the time of the House.
Senator FitzGerald will agree that I have interrupted Senator Dolan on several occasions in relation to being out of order. I appreciate that section 2 is the kernel of the Bill and, to that extent, must allow some discussion on the general application.
It is a Second Reading debate.
I appreciate Senator FitzGerald does not like to hear these things because they are not very palatable.
This is Committee Stage debate. We have had a Second Stage debate.
I may have succeeded in ruffling the Senator and, if I did, I do not make any apologies for it. With all due respect, I am entitled to say tax should not be introduced under present economic circumstances. I do not think the Chair could fault me in any way for making a statement like that.
The Chair did not fault the Senator for that.
I am grateful to the Chair. In introducing this section we will not solve the worst problem we have at present and that is unemployment. I am very concerned about it.
That would be relevant on Second Stage but not Committee Stage.
It is relevant at every Stage.
I will do the best I can. Since I came into this House I have always obeyed the ruling of the Chair. If I have difficulty in keeping to the straight and narrow so far as this measure is concerned, all I can say is I am doing my very best to stay fairly close and, if I get under some people's skin, I cannot do anything about that. We are scaring off from the shores of this country people who have money, people we need to invest their money to provide employment for our people, to establish factories, to establish a development like the Shannon industrial estate in my own constituency and in other parts of the west. Senator Alexis FitzGerald and others said years ago that the rabbits would be running round there, but there are thousands of people working there now.
I never said that.
Some of the Senator's colleagues said it. That is the type of development I should like to see. I should like to entice the little Arabs to invest here and all the other little fellows. The Minister has been trudging around the capitals of Europe hoping to meet them and get some money from them. When they come he should not tax them to such an extent that they would go to America, Germany, France, or some other country. We are a young nation. No matter what Government were in power, we had an honourable name in regard to paying our debts. Even though the Coalition incurred debts on three occasions, we remedied the situation. The name of the country is good in Europe and America. People were anxious to invest here. They were fond of our workers. They liked our climate and thought we had a fair standard of education and could compete favourably with other workers throughout Europe.
What we should be aiming at in this tax measure and in section 2, in particular, is to ensure that money will not be driven out of the country. People have money lying in banks and other unproductive places, money which could be used to put people back into employment. I should like to see these people investing their money in an industry in some backward part of the country with a reasonable chance of success. I should like to see some people from abroad being encouraged to do likewise. That is the way to tackle this problem, instead of trying to pretend to the electorate that Fianna Fáil were doing something terrible about estate duties and that, since the Coalition have introduced this new measure, nobody will have to pay taxes except one or two millionaires, whoever they may be. Some of them may sit on the far side of the House but they do not sit here.
We are told that only a few people will be liable for tax under this Bill, but we will be driving out of the country money which is badly needed. I should like the Minister to find out —I am sure he has ways and means of finding out—how much money has left the country over the past two or three years and been invested elsewhere. If we have any money we have a duty to invest it in our own country. The Fianna Fáil Government tried to encourage this. Their loans were fully subscribed. The Coalition were not so lucky. We want to instil confidence into people, both at home and abroad, who have money to invest. There is no real confidence in this Coalition outfit. That is why they get so ruffled when an ordinary person from the country like myself tells them there are thousands unemployed. They do not like it. I do not mind whether they like it or not. It is my duty to say it. Money should be invested so that the unemployed could be re-employed. We have 50,000 leaving school this year and not a job for them. What a shame.
I look forward to hearing my old friend Senator Alexis FitzGerald telling me what remedy his party have for the 103,000 unfortunate people who are unemployed and for the 50,000 school leavers who cannot get a job in their own country in 1975.
On the section, there is no doubt, as Senator Dolan said that our credit worthiness has reached a peculiar state. The labours of people over the past 50 years to build up this credit worthiness seem to be coming to a halt. Our creditability as a nation was never in doubt. As Senator Dolan said, people who up to now did not have second thoughts about investing money appear to have vanished with the money whether it be under the table into Northern Ireland or by aeroplane abroad. Firms of repute who have met hard times find it impossible to get money by way of shortterm or long-term loans to get themselves out of the rut. This section prevents investment in such firms.
Something like £600 million has been borrowed by the Government or their agencies over the past two years. If in 1972 the Fianna Fáil Government had announced that they were about to borrow £600 million they would not have been returned as the largest single party. There is no doubt about that. If Fianna Fáil had stated that they would grab profits and tax them, as a party we would have disintegrated into nothingness. The Government seem to think they are getting away with this, but the ordinary people know quite well that investment is not forthcoming. This was illustrated in a cartoon shown in The Irish Independent. The Minister for Finance trailed across Arabia and, as the west Cork man described it, he shook every shaky sheik to try to come back with a few pounds for investment. The Irish Independent published a cartoon of the Minister for Finance—he looked like a little leprechaun—being tipped off: “Put on your hat. You are home.” This typifies the situation the Government found themselves in going round the world in an effort to beg, borrow or steal, or by whatsoever means above board, it was possible so to do, and have a sum of £600 million collected, so astronomical in itself that our people cannot and will not digest the situation created by the Government through continuously frightening away people who already had that money to invest here and perhaps as much again if the terms and conditions of their investment were allowed develop in the manner Fianna Fáil had done. The progress of this nation was never equalled even by previous Fianna Fáil Governments to the one which went out of office to hand over to this Coalition Government three years ago. They left a country known by everybody to be absolutely ticking over with investment coming from every possible quarter from people anxious to invest here. As is quite clearly admitted by the Government we left a surplus of £30 million in the kitty. Where on earth, how on earth, or what bungling have this Government done to——
I am sorry to have to interrupt the Senator but he is not relating his remarks to section 2. I have been lenient awaiting him to do so. Would he relate his remarks to section 2? I must remind Senators on all sides that this is not a Second Stage debate.
I always try not to repeat myself. One of the first things the Government claimed for themselves—whether it was by the supreme socialists on the left or the other socialists on the right—was the creation of this situation by their statement two years ago that they would introduce a wealth tax. The wording of section 2 is what people expected from the Government and hence there is no investment here. The Government, through the Minister for Finance—again quoting the west Cork man—shook every shaky sheik all over Arabia to try and borrow a few bob. They returned with £600 million.
One could make the same case in regard to agriculture but there is no point; the case is made here and the farmers themselves know. Let us look at this fairly and squarely. I suppose the Government will have the greatest deficiency in any budget next April again created by section 2, by the so-called foresight of this Government of geniuses. Section 2 dictates to the general public that they will not invest here under this Government. Whether the Government know it or not what they are saying now is: "Let us finish with this Government and get back to reality." They can add glorious words to it but section 2 is so broad, it will affect prospective investors and all the other aspects appertaining to investment. One could not over-emphasise the depreciation of our creditability caused by section 2 of this Bill.
Perhaps I may put it this way. If I went into my bank manager, who is quite a decent fellow, and presented the case that this Government presented, and I asked for a massive loan, and presented my books similar to the way the Government presented theirs, my bank manager would tell me, and rightly so, that he could not possibly do it; he could not give me credit in the circumstances under which the Government expect to get credit, be it from our own people or those abroad. People abroad may be caught once but I am sure they will not be caught twice. We could see the end of the creditability into which so much work was put by our people during 16 good years of Fianna Fáil government, whether the people on the Government side today are aware of it that creditability is now being wiped away. There is no doubt—similar to the provisions of death duties, if one likes to take them that way——
Chit-chat across the chamber is not in order.
Senator Ferris told the electorate at the last general election that the National Coalition Government would wipe out death duties. He did not tell them that the National Coalition Government would bring in a heap of rubbish like this. Not at all. Senator Ferris was a juvenile in Tipperary at that time and his box was not very big. I heard all of them, including the Minister, in my town. shouting about what they would do with death duties. They have done away with death duties but look at what they have created, something worse, much worse; along with death duties goes the creditability of this nation. We were a people who were able to command respect from all over the world and get what we needed provided we put up their case but that situation has vanished. It was proved by the Minister when he went all over Europe, South Arabia, North Arabia and everywhere else to beg and borrow and he got some £600 million. The creditability of this nation is at such a low ebb now that that is the last bob this Government will ever borrow. It is woebetide us as a nation, next February, March or April, when the next budget is introduced. It will be delayed. There will be other little items pushed forward and the budget will be expanded somewhat. It may even happen that we might not have a budget next April at all.
I must ask the Senator——
They could go to the country, run away as they did before on two occasions.
I have been trying to interrupt the Senator to say he really must confine his remarks to section 2.
I was confining my remarks to section 2.
In the opinion of the Chair the Senator was straying very far from section 2. I might remind Senators on all sides of the House that chit-chat across the floor of the House is not in order.
I was minding my business and doing my best, under the normal conditions that apply; when I stand up to speak I talk about what 90 per cent of our people talk about.
I am sure the Senator understands the rules of procedure in the House. On Committee Stage, speakers relate their remarks to the section before the House.
I think it is fair to say that section 2 of this Bill, despite what Senator Alexis FitzGerald said, because it is so broad in itself affects every aspect of Irish life, from the big industrialist down to the smallest worker. Senator Alexis FitzGerald's party and his friends of the left in the Labour party who, together form the Coalition Government, are responsible for this. I do not wish to take issue with the Leas-Chathaoirleach, but section 2 of this Bill affects in a serious way every aspect of Irish life. A situation has been created where the credibility of the creditworthiness of our nation are at risk.
Some members of the Labour Party thought they had found the answer when they told the people before the last general election that they would abolish death duties. They got away with that trick, and there are no better people than the members of the Labour Party for pulling tricks out of the bag. But by about next April they will have used sufficient rope to hang themselves with this Bill. The amount of money that will be collected under its provisions will be insignificant. Section 2 is concerned with the principle of the Bill. It states clearly that a portion of everybody's hard-earned money belongs to the State, whether we like it or not. The Government and the Minister for Finance are telling a man who has earned money through his own hard work that he is not entitled to keep that money, that a portion of it must be handed over to the State. But that man knows that his money does not belong to the Government, that is the result of his own hard work and the work of his employees. That man will leave this country and take his money with him.
Help is constantly being sought by firms in financial trouble and the Minister and his Department are under pressure to provide such aid. Many firms, including some in my own constituency, are in serious difficulties at present because they cannot obtain credit and they have to apply to the Minister for assistance. Many firms who gave good safe employment never expected to find themselves in this situation. They never dreamt that they would not be considered worthy of credit. The only way open to many of these firms is to declare their workers redundant.
This is not a general debate. The Senator's remarks are not relevant to section 2.
I do not agree with the unemployment figure of 103,000 people. There are about 140,000 or 150,000 persons unemployed——
This is not a general debate on the economic situation. The debate must be relevant to section 2. The Senator is straying very far from section 2 of the Wealth Tax Bill. He must confine his remarks to the section before the House.
The old hat is very tight, and if it does not fit it will have to be made to fit. A serious unemployment situation has arisen because of the lack of investment due to the provisions of section 2 of this Bill. The situation has been created as a result of this wealth tax. Senator Alexis FitzGerald told this House that our unemployment situation had not been created by the imposition of wealth tax. I submit to this House that it has been so created, or at least a major portion of it is due to wealth tax. Fear was instilled into investors by the provisions of this Bill. No matter what Senator FitzGerald says, I submit that section 2 of this Bill played a major part in creating redundancies and unemployment. The full truth about the number of people unemployed is being withheld by the Government. There must be about 140,000 or 150,000 unemployed at the present time. No account has been taken of the number of people who have emigrated. Because of the grave situation existing in Britain they cannot go there but they are going to Australia and many other places. They are leaving because the credibility of the Government has dropped to zero. I know I am correct in saying this.
Our numbers are very small in the Seanad, but we must make valid points. I do not think we should be led by what Senator Alexis FitzGerald tried to insinuate. It was not fair of him to make submissions to try to interrupt Senator Dolan on a point——
Senator Killilea.
He kept very quiet while I was speaking.
I want to keep this House in order. There should be no interruption from any Senator.
He would not get away with that if he tried it on me. It was the glorious belief of the Labour Party that they had saved the day and had gone into Government at all cost. They used the poor misfortunate widows they scraped up all over the country on the death duties issue, aided and abetted by the extreme left socialists of the Fine Gael Party, including the Minister for Finance, the Minister for Foreign Affairs and a few others. They never told the people that they had a little tune to play called the wealth tax, but they are caught in their own trap today. I submit that anytime they feel like asking the people to judge them the wealth tax will be the issue. I am sure that section 2 will not be one of the things that Senator Ferris and others of the Labour Party will shout about from their little butter-boxes during the next general election. We will leave them in the little rut they are in. I would like to see the Minister—I am sure he has the capability—taking the credibility of this land to a new rising graph, so that the future will hold something for us, if he has the firmness and strength to say and do what is necessary and not play the political fiddle. The sound of the tune seems to get dimmer and dimmer.
Section 2 of the Bill is another clear indication that John Bull wags the Fine Gael and Labour tails in this country. It appears that whatever England does today Fine Gael and Labour must do tomorrow. I cannot understand the logic of section 2, when one considers that the maximum proportion of income taken in income tax is higher than the maximum proportion of income and wealth tax combined in almost all the European countries where wealth tax is in force. With the one exception of Norway that is the situation. Without a wealth tax we pay more in proportion in income tax than what is paid in proportion in income tax and wealth tax, where wealth tax is in operation. On the ground that it is in operation in a number of European countries I suggest that my argument is sufficient answer to those people who justify section 2.
Section 2 is a gambler's attempt by a bankrupt Government to extract more revenue from the hardest hit section of our community. I see no difference between section 2 and the present out-dated and iniquitous rating system. The same principle applies. If property valuations come within the ambit of the wealth tax the owners will pay a percentage of wealth tax in a given year whether or not that business made a profit in that year. In the same way, the owner of a property pays the same amount of rates, whether his business is a viable proposition or not.
I was given to understand that the vast majority of politicians in this country believed that the rating system should be changed. This Government, by removing health and housing charges from the rates, indicate their opposition to it. In the famous 14-point plan, many promises were made to the Irish people. We were told that death duties would be abolished. We were told that health charges and housing subsidies would become a national charge, but we were not told that as soon as they spent 12 or 18 months gerrymandering for the constituencies their next priority would be to introduce a section in the wealth tax which would replace, and possibly doubly replace, the relief they gave in the health charges and the housing subsidy and in the death duties. I am convinced that when the Revenue Commissioners get their teeth in section 2, the privacy of the individual will be gone forever. Provision has already been made to turn solicitors——
The Senator is now departing outside section 2. Section 2 is concerned with the principle of charge.
In order to collect money under section 2, professional men——
The Senator has been told by the Chair that he was departing outside the scope of section 2. Section 2 is concerned with the question of whether there shall or shall not be a wealth tax. It mentions a date and it mentions a rate. Other questions—in regard to its collection and with regard to the provision of information—are dealt with under other sections and may not be debated under section 2.
The main idea behind section 2 of this Bill is to give credence to the claim made by Members of the Coalition Government that they would redistribute the wealth of this country. Many people throughout Ireland who did not give careful thought to this claim believed that the aim of the Government was an admirable one and that only good could come from it. I would submit that section 2 of this Bill is, in fact, a tax on the savings of the Irish people. I suggest that many businessmen in this country as a result of section 2 of this Bill will be discouraged from saving and investing their money and from taking the many risks necessary in order to enhance their businesses. They will now realise that by saving, investing and taking these risks they could place themselves within the snare of the Minister for Finance and be caught under the wealth tax. Many of them given the choice between saving and spending will opt to spend.
This is where the Government are going wrong. Inequality is judged or should be judged not by the wealth of an individual but by the amount of money that he or she spends. Inequality of spending is much more unjust than inequality of wealth, but by section 2 of the Wealth Tax Bill this Government are in fact increasing the inequality of spending by a far larger scale than the reduction of the inequality of wealth. By doing this they are slowing down the economy at the very time when stimulation should be the top priority. By section 2 of this Bill they are increasing inflation, already galloping at an alarming rate and at a time when the savings of the people could be utilised to slow down inflation the Minister for Finance, in introducing section 2 of this Bill, is introducing a measure which must have an adverse effect on savings. It must have an adverse effect on the economic growth of this country and the standard of living of this country.
The claim that the wealth tax will slow down inflation and reduce inequality is not acceptable to anyone who gives this proper thought. This is a gambler's attempt by a Government who have bled every section of this community dry at a time when the business people of this country have lost confidence completely in the Government and in developing the economy. When business morale is at the lowest ebb possible the Minister for Finance deals a knock-out blow. The message of section 2 of this Bill is clear; it is a message to the business people, big and small, that they will not be allowed to gather wealth in the future, that in no way will the result of their initiative and hard work be rewarded by any financial benefit to them. The message that must be taken from section 2 is that this Government believe that the business people must give practically their entire profits to the State in one form of taxation or another. As a result of section 2, we will find that business people in the future will cut down drastically on the numbers employed by them. Indeed, there is clear evidence they are already doing this.
The first priority of the Government should be to encourage people to work rather than to encourage them to be unemployed. While I accept that the unfortunate people who have become unemployed, as a result of the mismanagement of the Government, need sufficient money to live. I also think that sections such as the one we are now dealing with will do more to keep people unemployed in the future than any provision before this House during the last 12 months. This Government cannot blame the Arabs or the Suez Canal for section 2. I sincerely trust they will not have the audacity to blame inflation for section 2. This is a responsibility which they alone must accept.
If we are serious about providing more employment and about stimulating the economy, the Government should encourage people who have money to invest it in ways that will help this country. What section 2 will do could be described in one sense as a redistribution of wealth but not in a way that the Government would like. Section 2 will make the poor poorer, the presently employed unemployed and the rich poorer as well. Wealth is not the dirty word that some of the more radical elements of the Labour Party would have us believe. Were it not for those men and women, particularly in rural Ireland who accumulated a certain amount of wealth and put it to very good use by providing employment in areas where there was nothing else, the plight of rural Ireland would be much worse than what it is today.
Fianna Fáil are proud that during their years in Government many people who had little chance in life availed of the opportunities presented by the economic programmes and became reasonably wealthy. By doing so they helped many people whose homes would have been broken by emigration and unemployment. Now it would appear that to appease the hostility of the more radical elements of the Labour Party the Minister for Finance introduced section 2 of his Bill to ensure that nobody can become wealthy in the future. It is bad economic planning that will have a disastrous effect on the lives not only of those who come within the ambit of this tax but also on those who are depending for their livelihoods on the people caught in this tax net. These are people we should be really concerned about.
It is not enough for this or any other Government to increase unemployment benefits in every budget. That will not solve the problem. It is easier to solve the problem by taking steps to ensure that as many people as possible are given employment. Section 2 will prove to be counter-productive; it will fail to increase prosperity, fail to reduce inflation, fail to improve our economic growth and it will certainly fail to increase the average standard of living in this country.
Once again the Government have proved that they are in no way qualified to govern this country. They have proved once again that the genius the members of this Cabinet were supposed to have two-and-a-half years ago had mysteriously vanished in a very short space of time. This measure will take a few years to show its disastrous effects. The Government will use the money they will collect under section 2 in the meantime to pay the civil servants, social welfare benefits, knowing full well that by the time the disastrous results of section 2 will have shown themselves they will be long forgotten in their oblivion in Opposition.
Nílim ach chun cupla focail a rá, ach mar sin féin ba mhaith liom mo thuairimí a chur in iúl. Senator Killilea rightly said that section 2 of the Bill will have an indirect effect on every person in the community and indeed will spread its tentacles into every nook and cranny in the country. I am not an economist but I am very worried about the effect this section will have on the country. It has been proved that the Government are not capable of producing solid legislation for a small and poor country such as this.
What worries me about it mostly is, as Senators have said, that it will really have a detrimental effect in many areas. Firstly, it will be a disincentive to save. Secondly, it will be a disincentive to people to risk their hard-won savings in creating further wealth. It will be a disincentive to expand business. It will be a disincentive to people within the country, but more especially to people outside the country, to invest here. It has been a real experience in the field of tax legislation that a system is being set up which can be changed from year to year. Every year, more and more will be expected to pay.
Death duties, as Senator Lenihan said, bad as they were, constituted a tax that had to be paid once in a lifetime, but this is to be an annual tax. If a person lives long enough he will have paid far more than his successors would have to pay in death duties. The death duty system was something that could be greatly improved, instead of this very harmful taxation that is now being introduced. Most people have said that even if it had any good points it is the wrong time to introduce it.
The Minister has told us that only a handful will have to pay. He has also told us, on the other hand, that the amount to be collected will be very limited. I am wondering then, why is he so persistent, in spite of all the damaging effects Fianna Fáil have pointed out, in going ahead with this wealth tax. Is it just the thin end of the wedge and will it lead up to a period when eventually all wealth and all property here will be nationalised?
Senator McGlinchey made the point that what is wrong with this country is that we have far too few wealthy people—if we had more wealthy people here we would entice more investment, there would be more employment, more spending and more purchasing of goods and services. All this would help in some way to reduce the great unemployment problem that we have. It is most unfortunate for the people of Ireland that we now have a Government of shifting policies. Most of what they put before us is very badly researched. The whole set-up of the Government seems to be just like a rudderless ship, drifting along and limping from day to day. We need only take the decision that was made at the weekend when it was decided to reduce the Garda——
The Senator will certainly have difficulty in relating that to section 2.
I am just trying to point out how untimely this Bill is even if it had some good points. It will shake credibility in the country. It will stop people from saving. It will stop people from investing. I would appeal to the Minister to think again about section 2 which is the kernel of the whole Bill.
I will endeavour to keep within the relevant ditches which Senator Dolan adverted to when he was talking as being relevant to section 2, and avoid the temptation to chase after some of the more provocative but irrelevant remarks which some Senators made. I might in passing give this observation, that nobody from this side of the House ever observed that nobody was worth more than £2,000 a year. On this side of the House people spent many years trying to stop people who are now defenders of wealth from burning down the houses of people whom they envied.
There is no element of confiscation as far as this Bill is concerned. The Bill, and our approach to wealth tax, is based on a very simple principle that the taxation system should be equitable, that it should require payment of tax according to capacity to pay, and that taxation on capital is better paid by small annual instalments rather than in confiscatory amounts once in a generation or thereabouts. It is also based on the very practical approach that it is better to obtain payment of a capital taxation at a time of liquidity rather than at a time of family distress.
That is the essence of the Government's approach to capital taxation. That was the thinking behind our proposal to replace death duties by a system of capital taxation which would require payment of the tax during the lifetime of the owner of the property, no more and no less—a very simple principle and a very fair approach.
Senator Lenihan and others have once again asked me to give particulars about the income which we expect from this taxation, and I say now as I said before that it is not possible to say what the income from this tax will be. The only information available to the State about the holdings of wealth in this country is that which can be obtained in the records of the Estate Duty Office, which records only such estates as were caught for death duties but contains no information about the estates which avoided death duties. It is as simple as that. Let nobody fault the Government for not being precise about the income from this tax. We just do not know what the accumulations of wealth are, but we say that the tax system was inequitable if it operated to confiscate property at rates of 30, 40, 45, 50 and 55 per cent of some families if they were unlucky enough to be caught and let other families off taxation entirely. That is an utterly inequitable system, and Parliament would be failing in its duty if it sought that people of a certain property level should pay tax but did not amend the law to ensure that tax be paid at that level without opportunities of avoidance being created.
Senator Dolan and Senator Killilea made the fallacious argument that wealth tax would discourage foreign investment. How can it discourage foreign investment when virtually all foreign investment which generated industrial employment here in the last 15 years is owned by foreign companies which are not taxed? Although the Opposition may try to travel up and down this country and delude the innocent Irish electorate there is no sophisticated investor from abroad of the view that he will be taxed more heavily. If he came in as an individual in the past and had property in excess of the levels involved in the capital taxation code he would have been caught for estate duty at rates not lower than 45 per cent and up to 55 per cent or more if the property became subject to legacy or succession duty.
I cannot accept that there is a comparison between the system of rates and the system of wealth tax proposed. Rates are levied on all property, including private dwellings. Fianna Fáil's proposal on the eve of the General Election was a two-phased proposal, one to abolish local rates and the second phase was to introduce a new national property tax which if operated today would be charged on all private residences at a rate of £10 per £1 of rateable valuation. What would the people think of a system of national property taxation of a rate of £10 per £1 of rateable valuation on private houses? That was Fianna Fáil's solution to the property problems of this country. We are not proposing any wealth tax on private residences.
Senator Dolan suggested that the rate of wealth tax could be changed at any time by Government order. That is not so. The Bill provides that the rate may be changed by resolution of the Dáil.
Could the Minister tell us what he is referring to in relation to the £10?
That would be the national property tax required to replace income loss from rates—£10 per £1 of rateable valuation. The wealth tax can only be changed by a Dáil resolution. If any Government at any time want to change either the rate or the exemptions, the thresholds or any other item of wealth tax it will have to come before the Dáil for a free vote of Parliament and be justified to the people.
I was sorry that this debate was used once again by some Senators to talk in a condescending way about the Arabs. It is very sad for Ireland that we have a colonial attitude on the part of some public representatives who talk in a condescending manner about any other nation. It is particularly reprehensible to talk about a nation that has not enjoyed its fair share of the wealth of the world for many decades past. It is deplorable to suggest that any contacts between a Minister of a sovereign Irish Government and Ministers in any Arab country would be on the basis of an Irishman seeking charity. No such approach has been made or will be made. We consider it our duty in Government to draw the attention of men of property in this world, from whatever race they may come, to the opportunities for productive investment in Ireland which will confer benefit both on the investor and on the Irish people.
Senator McGlinchey suggested that we were following Britain. I dealt with this on the Second Stage when I pointed out that contrary to the spleen that has been poured over the newspapers for the last two years and to some utterances in this House the National Coalition Government made their pronouncement about capital taxation long before the last British Conservative Government declared a General Election and therefore long before there was any prospect of the present Labour Government going into office in Britain. Our White Paper was published long before the British White Paper. We said our date for the introduction of the tax, as provided in section 2, would be 5th April, 1975. The British proposal is to bring it in at the earliest on 31st December, 1976 and possibly 1977. Therefore, it is a question of the Irish showing the way on this occasion but we are showing the way in an inspired manner which takes account of our special problems and also of the special needs to promote investment in Ireland.
I wish to point out to Senator Lenihan, Senator McGlinchey, Senator Ahern and others that there is no proposal to tax companies, that the taxation is a personal tax to be levied only on the holders of wealth and not on companies and businesses as such.
I know that I did not suggest anything else.
The argument was to the effect that businesses would be harmed by the imposition of the wealth tax in Ireland. There is no justification for that argument. It is a personal tax. If any person has too much wealth or has wealth in excess of the levels of exemption such a person, if it is anathema to him or her to pay a modest tax to the Irish Government, he can avoid paying it by distributing some of the property to another. It is an objective of all capital taxation not merely to collect revenue but to effect a more equitable distribution of property. This is not a revolutionary concept. It is not something that has only been thought of by radicals in the latter quarter of the twentieth century. It is an approach which has been pointed out ever since the 18th century where the need for a property tax was argued and argued not merely for its return to the Exchequer but also because it would more effectively distribute property.
The Fianna Fáil party are like a hen on a hot griddle. They do not know which leg to stand on. They find if they chose one leg it begins to burn after a while. On the one hand they say we will drive capital out of Ireland, we are stopping capital from coming in, that the Wealth Tax Bill will have a disastrous effect on investment in this country because it will be confiscated. And in the next breath they argue that it is derisory in its effects, that the income will be negligible. Senator Lenihan asked: "Why should the mountain labour and bring forth only a mouse". I wish they would make up their mind as to which argument they favour. Do they believe the wealth tax is to operate at a rate which will act as a disincentive, as a discouragement, and will drive out capital?
Yes.
But others consider that the tax is derisory, that it will bring in no income and that it will not be commensurate with the loss of £14 million from estate duty. I point out that people who have levels of wealth such as would be caught in the wealth tax net are not fools. And if they are fools there will be committees appointed to look after their affairs. They will know that the wealth tax in Ireland is, by comparison with taxes operated elsewhere, a benign tax which will not operate as a disincentive. Where will all the wealth go to? There are not that many tax havens left. Even the tax havens that are there are getting fed up of people running in and are imposing their own quotas and their own rationing systems. International organisations are also a bit weary of the tax avoiders of the world, and there are several international conventions now in preparation which will bring to an end the dance of the tax evaders and tax avoiders who in all societies are not prepared to pay their fair share.
The whole tax system in this and other countries would be a great deal fairer if those who have the capacity to pay accepted their obligation to pay and did not engage in expensive tax-avoidance schemes. I suppose, human nature being what it is, some people prefer to pay these professional advisers in excess of what they would pay in tax. That has happened more than once. If people would look at the reality of the situation and not allow their vision to be clouded by the emotive political remarks of our critics they would see that income tax and wealth tax in Ireland will operate at levels which will not act as a disincentive. In case my word will not convince people I will give some figures which, as far as I have been able to calculate, are accurate, certainly accurate within a degree or so.
Combined income tax and wealth tax in Ireland on, say, £100,000 worth of property even at only 2 per cent return, and it has been argued that the wealth tax could be confiscatory at that level, would be £690. In Denmark it would be £968. In Germany it would be £951. In the Netherlands it would be £1,087. In Sweden it would be £1,257. These figures do not suggest that our level will be such as to discourage people in Ireland. At the other end of the scale, a 10 per cent return wealth tax and income tax combined could in Ireland amount to £4,431. In Denmark it would be £6,182. In Germany it would be £4,340. In the Netherlands it would be £5,017 and, in Sweden, £6,979. These are factual figures.
Is there any difference between the Irish and the German rate in the last figures quoted by the Minister? Look again at the figures quoted for Germany and Ireland.
Yes, £4,340 on a 10 per cent return in Germany and £4,431 in Ireland. There is a slight edge of advantage in Germany but, at the lower rate, you will find, as I pointed out, that on a 2 per cent return the tax in Ireland is £690 and it is £951 in Germany.
When the Minister considers the relative wealth of the two economies?
If it were a 5 per cent rate you would find that in Ireland the tax would be £1,751 and in Germany it would be £1,971. What is the difference?
In regard to the relative wealth of Germany the differential should be far in excess of what the Minister has just quoted. That is precisely my point. There is very little differential between Germany and Ireland.
Not at all. These figures are based upon the taxable wealth in either country. Bear in mind that in Ireland you can have far more property before you enter into the taxable wealth bracket at all because our exemptions are £70,000 for a single person and £100,000 for a married couple and, in Germany, it is only £30,000 and there is no exemption for the private residence in Germany and no special treatment of productive assets. I know that, when one gets down to particularise, one can find many details over which to argue, but the overall impact is reflected in the figures I am giving. The edge of advantage, if a person wants to choose between Ireland and any other European country, would be strongly in favour of investment in Ireland. Do not let anybody point out to me countries without wealth taxes, because many of those which have not got a wealth tax in name have more severe taxes on property than countries which have. Belgium is a case in point where the taxation of capital is much more severe than it is in Germany although there is no wealth tax in Belgium. The realities of the situation are that we are bringing in a tax which, by international comparison, is a soft tax, a tax which will not operate except on a very few estates in Ireland and, when it does operate, will operate in a way which certainly will make it a great deal easier to pay the tax than it was to pay estate duty. If it catches people who did not pay estate duty and who had no intention of paying estate duty that is what the Bill intends to do. I make no apology for doing that because that is the equitable thing to do and the efficient thing to do.
The other taxes referred to, together with the wealth tax, will ensure that there will be a monitoring of property accumulations and distributions in the future, not for the purposes of hounding individuals but for the purpose of ensuring that our community has an adequate record of the types of wealth accumulations which exist in our society and, by reason of having this information, we will have a fairer tax system. Everybody slates our taxation system because of the high rates of tax we have. Is it not about time they started slating the narrow base upon which our tax system has been erected? We are broadening that base now and it is only by broadening that base in the way in which we are doing it that we can get to a situation where the height of the apex of taxation in this country can be brought down. If we try to keep it on a narrow base, then the apex must keep going higher and higher and that means a stiffer tax for the few who are caught in the net.
I listened with interest to the Minister, but as tends to happen with this Minister we have acquired a good many words but remarkably little information as to why it is necessary to have this Bill and, in particular, section 2 of the Bill in the form before us today. I find the Minister's last reference most puzzling. He said in the one breath that everyone complains, and he does not deny the justice of the complaint, that taxation is so high in this country. He means, of course, direct taxation. In this section he is raising direct taxation still higher but he says we must broaden the base and reduce the apex. What is he doing? He is not broadening the base. Is he suggesting that the vast bulk of the population will pay this wealth tax? On the contrary, surely this wealth tax will be paid by people who are already heavily affected by direct taxation. The Minister is, if anything, narrowing the base, raising the apex and raising still further what he admits to be the unduly high rate of direct taxation.
The Minister has said that the people on this side of the House say that very little money will be raised by this, so why worry? The answer is that, first, because the revenue from this tax is clearly going to be very small it makes it all the more ludicrous that the Minister, his officials, both Houses of the Oireachtas, should be wasting all this time dealing with a Bill which has nothing whatever to do with the real needs of the country. The Minister's remarks show only too clearly that he himself has absolutely no conception of what he is doing in this tax. It is not the money that will be raised that matters. It is not the money that the people will have to pay the Minister in tax that matters. What matters is the further destruction of confidence because of this type of taxation operation by the Minister. It will not raise much money but it will do an enormous amount of harm. Indeed, already it has done an enormous amount of harm because of the alarm, which is the only word one can use, that has spread among people, particularly among those involved in trying to invest in this country and create employment. The Minister must understand that with any legislation, particularly taxation legislation, it is not necessarily the actual result that matters so much as the effect the legislation will have on the public at large. The effect of this legislation has already undoubtedly been catastrophic and the Minister must know that as well as everybody else. I shall come back to this again.
I do not propose to follow the Minister down all the paths he trod. There was a reference at the beginning which I did not quite understand but, in so far as I did understand it, I do not propose to follow him on it. He made some strange reference to people on this side of the House burning other people's houses for envy, and so on. I do not understand it and, perhaps, it is better to leave this rather unworthy observation aside.
The Minister talked about what he described as the two-faced proposal by Fianna Fáil to abolish the rates and to put on a £10 per £ property tax. Of course, it was only when there was an intervention by Senator Lenihan that the Minister admitted Fianna Fáil had never proposed anything of the kind. It was his gloss on what they said they would do, a gloss which involved, according to the Minister, per £ property tax far above what has ever been imposed on rates. Since Fianna Fáil only proposed to abolish half rates, those on private dwellings, and leave half the revenue still to be collected from business firms, shops, factories, office blocks, and so on, the Minister's definition of what was required to make up the money was simply ludicrous.
The Minister referred to what he described as "condescending remarks" about the Arabs and about the Minister chasing from sheikdom to sheikdom looking for money. It is not a question of being condescending towards Arabs or any nationality. The fact remains that the Minister has made a number of visits to the Near and Middle East in the past few months, apparently, according to the newspapers—and it has not been denied—in a desperate hunt for money to fill the ever emptying coffers of the State. We know the Minister has this enormous Budget deficit, one which will be £300 million rather than £240 million. We have huge sums being spent on capital development, not always wisely. In other words, we have an appalling budget deficit. It is a legitimate point for us to make from this side of the House that the Minister has been travelling round among the sheikdoms of the Middle East apparently looking for money. If he is not looking for money there, it must be the only place in the entire world in which he is not trying to scrape the bottom of the barrel.
The Minister produced the point, which he produces at frequent intervals, that this section aims at the equitable redistribution of property. I can only refer him again to his own White Paper which, conclusively, at page 28 gave the show away. This is the Minister's White Paper, written by him or sanctioned by him. We are told:
An annual wealth tax, charged at rates sufficiently low to enable it normally to be paid out of total income ... will do little to redistribute existing accumulations of wealth and, therefore, cannot be regarded as capable of making a worth-while contribution to the greater diffusion of wealth.
We can leave it at that. In the Minister's own excellent words, section 2 of the Bill will do nothing at all to redistribute national wealth.
This section, which is the basic section of the entire Bill, could be described as the section nobody wants in a Bill nobody wants. Since the Minister's proposal first appeared in this famous White Paper, it has been opposed by everyone who considered it on economic rather than on ideological grounds. It is opposed by the Federated Union of Employers and by the Confederation of Irish Industry. I suppose some of our colleagues opposite might look upon these people as suspect sources. Indeed, members of the Federated Union of Employers and the Confederation of Irish Industry might be said to have, at least in some cases, a personal interest in a taxation Bill of this kind. I would remind Senators opposite who might be thinking along these lines that these are the very people who are and have been providing work for our people at home. It is largely due to their efforts, helped considerably by successive Governments, that we have ended emigration at least for the moment and created an industrial arm which the country never had before. Therefore, what such people say about a Bill of this kind is of importance. On 29th July, the Newsletter of the Confederation of Irish Industry returned to this problem. They had an article on the wealth tax in which they said:
Ireland depends primarily on the growth of manufacturing industry for the creation of employment. Investment in manufacturing industry has always been and will remain far below requirement in the foreseeable future.
Private investment is an important source of funds for the development of industry. The Confederation has therefore consistently sought exemption for investment in manufacturing assets from the application of the Wealth Tax.
The introduction of a Wealth Tax on productive assets at this time is damaging because it reduces the attractiveness of industry for private investment; it forces the withdrawal of private funds from the manufacturing sector; and it discriminates against private Irish investment in favour of foreign company ownership.
The Confederation therefore remains strongly opposed to the application of a Wealth Tax to private investment in manufacturing assets which are essential for the creation of employment.
Besides these bodies, the Irish Farmers' Association and the ICMSA both opposed the introduction of this Bill and of this section. The Irish Farmers' Association, for example, in a statement issued last April, said:
The Association wishes to reiterate its objections to the principle of an annual wealth tax on the grounds—
(1) The rate of return from farming is low relative to the market value of agricultural land.
The present level of 2 per cent average return on capital in agriculture leaves very little room for reinvestment and development, which are necessary prerequisites if the industry is to keep pace with present day requirements and at the same time make a worth-while contribution to the development of the economy.
Later on they said:
The Irish Farmers' Association is opposed to the principle of an annual wealth tax. Due to the cyclical nature of farm incomes, nil income or loss situations can and do arise on farms and within certain systems of farming for example, because of disease occurring naturally or due to statutory disease eradication programmes or adverse weather conditions or unfavourable marketing conditions.... The requirements to pay at least 50 per cent of wealth tax assessed during years when losses occur, means not alone paying tax out of capital but would also seriously delay recovery from recessions in subsequent years.
They raised other matters but I do no wish to refer to them now. I just refer to this in passing.
Chambers of commerce at annual meetings throughout the country have been uniformly and unanimously against this Bill on the grounds that it would be damaging to the economy. Leaving economists and financial experts have opposed it almost universally.
It has also had short shrift from the newspapers. Last Saturday, a well-known political commentator, writing in The Irish Independent had some remarks to make about the Minister, the Government, the Bill and this section. He said:
Ireland at this time cries out for leadership. The people want to know what the shape and pattern of their lives will be next year, and over the next ten years. The country as a whole seeks definition, and direction, and a measure of certainty about where we are going, and why we are going there.
Later on he said:
Th Government does not know where we go now. It is waiting for something to turn up. Of the 31 Bills introduced since the longest session in the history of the Dáil began in January, and passed, not one can be said to have made any fundamental contribution to a new direction in national policy, except the two Capital Taxation Bills, one which, if it works seriously at all will also work to the economic disadvantage of the country.
In face of this universal opposition— when I describe the opposition as universal I refer to those who have treated this on economic lines, as opposed to the ethological fraternity who hailed it as some kind of weird socialist advance. In face of this universal opposition the Minister presses ahead. Why? I would ask the Minister at this stage of the Bill can he give one single coherent, economic reason for proceeding with this section? Can any Senator opposite produce one? The real reason for this section in other words is purely etological. It is the politics of envy. It is the old catch cry of soaking the rich. Indeed one regrets that the Minister himself has descended to this type of thing from time to time. I suppose when all arguments fail there is nothing to do except indulge in this type of catch cry.
For example in Dáil Éireann, on 5th June, 1975, at column 1964, the Minister, referring to a Fianna Fáil Deputy who had just spoken said:
.... he knows well that the only people who are being stung are those who have ill-gotten gains and have not paid their fair share of taxation over the years.
That is a good one from a Minister for Finance in charge of the economy of the country, trying to get investment into this country, trying to get people to work, trying to co-operate with the forces here who provide employment and investment—the people who will be stung are those who have made ill-gotten gains and have not paid their fair share of taxation over the years. In the light of this kind of statement and rip-roaring 19th century socialist speech that we had last week from Senator Halligan—I will come back to that later on on some relevant occasion when Senator Halligan is present—does the Minister still wonder that people fear this Bill?
These three capital taxation Bills the two before us and the one that will come before us at Christmas, or whenever it comes, arises out of a reckless and rather disreputable election promise to end death duties. As Senator Lenihan has already said, the sensible thing to do with death duties would have been to raise the thresholds so that only those who could afford to pay them had to pay them; that the ordinary man or woman in the street, the widow and so on, would not be hit unduly by death duty taxation. The Minister is constantly quoting other countries who have wealth taxes and so on, of course not mentioning the ones that do not. It is worthwhile calling to his attention—though he knows it as well as we do—that all other countries have death duties. We are the only one that has abolished them. The reason why all other countries have it is that, if well run, if run in such a way that the poor people, the people of middle incomes, the people who cannot afford this imposition, are excluded from estate duties, it is a type of tax that other countries have felt they cannot do without.
The Minister says that, along with this election promise to abolish death duties, the famous or notorious 14 points, there was going to be a wealth tax. Of course, they did not say there was going to be a wealth tax. They said vaguely there was going to be a tax payable by the wealthy and so on. Certainly, no conception was given that the enormous paraphernalia laid out in this Bill was going to be imposed on Irish people. It is very doubtful if the public understood it in anything like the present sense. It is legitimate to point out that, whatever about the published 14 points, the present Taoiseach, then Deputy Liam Cosgrave, gave a solemn written undertaking, on the 24th February, 1973, that, whatever the 14 points might say, there would be no wealth tax under the National Coalition.
The Wealth Tax Bill and indeed the other two Bills together do nothing to fill the Minister's enormous and alarming budget deficit. The Minister says he aims, in these three Bills together, to fill the gap left by £13 million lost on the abolition of estate duties. If one takes these three massive packages together, it would need 20 times these packages; he would need to perform the operation 20 times over in order to offset the budget deficit he will have this year. That is the measure of their importance to the Minister as a budgetary effort.
Section 2 of the Bill will not put one single man to work here. If anything, it will make it more difficult. We know the difficulties there have been in industrialisation in Ireland; there have been many reasons for this. Particularly there are its regional aspects; the fact that we are on the fringe of Europe; there are difficulties of communications, of providing ample supplies of trained labour, of capital, managerial skills and so on. The effects of this section will be to raise still further difficulties. Other countries that have a wealth tax have a much more highly developed economy than we have. In normal times—leaving aside the temporary problems we all face at present—they tend to have a state of over-employment rather than under-employment, over-capitalisation rather than under-capitalisation. Our situation is quite different. Wealth tax will do nothing to cut the rate of inflation which at approximately 25 per cent a year afflicts us at present. In fact, in so far as it bites at all, wealth tax will add to the rate of inflation because the Minister knows perfectly well that as with all other taxes, it will be passed on to the public. One just cannot take £1,000 or £2,000 off some individual or other assessable person and expect him to take it out of his own pocket; he will pass it on. Like other taxes it will go to raise still further the rate of inflation.
The Minister's sole economic justification that I have ever heard him give for this section is that it will encourage firms to make high profits and discriminate against those making low profits. That is an excellent argument in the conditions of the prosperous highly-developed Continental countries that have a wealth tax. In the conditions, shall we say of Germany, I imagine it is a very desirable economic result of a wealth tax that the poorer firms making smaller profits, might be weeded out, sent into bankruptcy, to be replaced by more efficient concerns. That is not the position in our circumstances. We all know that any tax of this kind bites much more deeply on a firm with low profits. The Minister must appreciate that, in the present state of our economy—where in the first half of the year some 127 firms went bankrupt, factories closing down every week, many, many more are keeping going but are either facing losses or minimal profits, trying desperately to keep going until times improve—there is no point in imposing a further tax, such as this, which bites more deeply, and is intended to bite more deeply, firms that make low profits, and which affects much less deeply firms making high profits. At the moment we ought to be doing everything we possibly can to encourage firms which are not doing well to keep going until times improve. We should not be imposing taxes on mythical wealth.
The Minister quoted the taxation position in various other countries. I did not understand the point he was making. It did not seem to me to have much relevance to reality. I could not follow what he meant by 10 per cent. Ten per cent of what? A more realistic comparison lies with the position of direct taxes on incomes in various countries. The Minister persists in quoting the wealth tax in other countries and he keeps on pointing out that the thresholds here are much higher than they are in other countries. But surely the important thing to remember is that the wealth tax, not merely here but in other countries, is not intended to be a tax which is paid out of capital but a tax on capital that can be paid out of income. Therefore, the only reliable comparison is between the position of people at various income levels here and in other countries, taking that position as being the amount of direct taxation that they pay, both in income tax and in wealth tax. The point is the percentage of varying incomes on which indirect taxation has to be paid, whether it be by wealth tax or income tax or a combination of the two.
The Minister keeps telling us how better off we are than people in other countries. I put it to him earlier today that the position is that we have the highest rates of direct taxation of any European country. If one takes Germany, where the Minister said with pride that the threshold, for wealth tax is far lower than here, one finds that the income tax maximum rate there is only 59 per cent, and that at £38,900 a year income, whereas here the maximum is now 77 per cent at £12,000. Wealth tax can be set off in part against income tax in Germany. This cannot be done here and in addition the valuations are artificially low. They date back either to 1955 or in some cases to 1965, and we know how inflation has gone since then. Because it can be set off against income tax, wealth tax can be as low as 4 per cent and it is on valuations which are far below what they would be on a realistic basis today.
Luxembourg was another place quoted by the Minister. Here the maximum rate of income tax is 57 per cent at £14,320. In Ireland, once again, it is 77 per cent at £12,000. In Denmark the maximum rate starts even lower than here, at £6,670 but the maximum rate is 61 per cent, not 77 per cent. In the Netherlands the maximum rate is 71 per cent at £22,620. In Britain—although she is not an economic example which anyone ought to follow—the maximum rate is a ridiculous 98 per cent but it is not reached until an income level of £20,865. In Belgium the maximum rate is 70 per cent which is reached at £44,710.
The Minister should try to avoid further laudatory references to how well off we are compared with other countries. He must concede that on these figures the Irish taxpayer who is faced with direct taxation is incomparably worse off than people in these other countries.
In all these matters it would appear the Minister is following what is essentially an ideological path, based originally on an election promise which should never have been made: as most people recognise now that it was extraordinarily unwise in the economic sense, although politically speaking it was highly effective. In pursuing this path the Minister has shown that he has no conception of the effect this tax is likely to have on the economy. Indeed, it has already had serious effects. Again, I ask the Minister to tell us in plain and concrete terms what is the practical economic justification for this Bill.
I do not think I can add any more. God knows, ever since this debate began over two years ago, we have given plenty of argument why Ireland should start moving like other progressive countries in the world and introduce a wealth tax which will stimulate more useful investment of wealth than many of the holdings we have in this country at present.
I have asked the Minister a simple question. Let us abandon all the related and unrelated issues, the complications of this Bill, of the section and so on, and get down to brass tacks, the economic justification for this section and for this Bill. The Minister says now that he told us over and over again, and so he has, that we ought to keep up with the progressive Joneses of the other countries who have one of these toys and, therefore, we should follow them. That does not seem to me to make sense as a method of administering the finances of our country.
The Minister says we want to improve the investment of capital. Is the Minister seriously telling us that this section is going to increase investment in Irish industry? Is investment in the provision of employment in Ireland over the next years going to be actively assisted and encouraged by this Bill. Is that what the Minister is saying?
Is the section agreed?
I do not think the Minister is saying this. Is that the point?
I suggest the Senator read the rest of the Dáil debates from which he made one selective quotation, and he will see the case is argued extensively, and there is no need for me to repeat myself tonight.
One of the advantages of trying to study the Dáil debates is to enable one to try to find out whether the Minister, at any stage, has given some kind of coherent reason for this Bill. He may well have. A considerable number of Dáil debates have not yet appeared and the Minister may be giving us the reasons for the Bill in some of them. I have not, as yet, seen or heard them. The Minister said now that, apart from keeping up with the Joneses—we can ignore that aspect of it—we want to have a Bill such as this and a section like this which will improve investment in this country. In the absence of any kind of denial from the Minister one must construe that the Minister for Finance in an Irish Government under the present conditions seriously says he is putting this Bill forward in order to improve and further encourage the investment of money for providing employment in Ireland. This, apparently, is what he wants the money for. All I can say is God help Ireland.
The purpose of this section is to tax wealth which is in possession. Even though we may disagree with that—it refers to people domiciled here and not domiciled here—there is one serious matter in this section relating to the reversion of the capital to which the person in limited possession for his or her life may be entitled. Am I correct in saying that in addition to being taxed on the limited interest, it is now proposed under this section to tax the reversion also, which is only an expectant interest on the part of the person rather than an interest in possession?
The property which underpins a life interest or annuity is the property to which the life tenant or annuitant is entitled in possession. That will be taxed. There are certain circumstances, in which, as Senator Lenihan said, the reversionary interest could be involved. Is the Senator concerned with any particular subsection now?
It particularly related to subsection (3) which states:
(3) Where the property to which an individual is beneficially entitled in possession includes an interest which is a limited interest, the whole or the appropriate part of the property in which the limited interest subsists or on which it is charged or secured or on which the individual is entitled to have it so charged or secured shall be property to which the individual is beneficially entitled in possession; and, if the limited interest of an individual who is domiciled and ordinarily resident in the State is an annuity or other periodic payment which is not charged or secured on any property, such sum, as would, if invested on the valuation date in the security of the Government which was issued last before that date for subscription in the State and is redeemable not less than ten years after the date of issue, yield, on the basis of the current yield on the security, an annual income equivalent to the amount of the annuity or of the other periodic payment received in the 12 months prior to the valuation date shall be taxable wealth of the individual:
It goes on in subsection (4):
(4) For the purposes of this Act, where the property to which an individual is beneficially entitled in possession includes a reversion expectant on the determination of a limited interest, the individual shall himself be deemed to be entitled in possession to that limited interest and the provisions of this section shall apply accordingly.
Does that mean that the reversion as well as the limited interest is subject to wealth tax? Is there an assessment made on the reversion as well as on the limited interest to which the person is entitled?
Normally, future interests are not liable to tax, but there are two exceptions. One is where a person is entitled to a reversion expectant on the termination of a limited interest which is created by himself. What subsection (4) does is to show how such a reversion is to be treated for the purposes of the tax. If A settles property on B for any period of time with the remainder to himself A, he, A, is deemed to be entitled in possession of the remainder or the reversion. Under the subsection, A is deemed to be entitled in possession to the limited interest. The result is that being entitled to the limited interest he is, for the purpose of the tax, treated as owner of the underlying assets. As a result it can therefore happen that the same property would be liable to tax in the hands of A and B, B having in fact a limited interest and A being deemed to have a limited interest because he will be entitled to the reversion which he himself created. If such cases arise the provisions of section 21 subsection (2) are available to afford relief. Tax will, of course, be payable once only.
That is the point I was making.
I understood from the Minister that as far as subsection (4) is concerned it is intended to deal with the case where a person creates a limited interest in favour of another person and reserves the reversion to himself. I admit I am not familiar with the full contents of the section. Is there any place in the section where it is made clear that subsection 4 only deals with that case, because it would seem that on reading subsection (4) as it stands it could apply to any case of a limited interest followed by a reversion, not necessarily a limited interest created by the person who reserved the reversion to himself.
Might I refer the Senator to section 1 line 12 on page 3 which states:
... for the purposes of this definition "interest in expectancy" includes an estate in remainder or reversion but does not include—
(ii) a reversion expectant on the determination of a limited interest created by the person;
Subsection (4) of section 3 deals with the exception in paragraph (ii).
That is right. That is clear enough.
A problem would appear to arise because of this possibility of a double assessment for the same property. As I understand from the Minister, where A has created a limited interest for the benefit of B with a reversion to himself as A, both A and B may well be assessed. In each case the property concerned will be listed as part of their total net wealth. Therefore, the Revenue Commissioners will presumably have to repay the tax to one of these. I do not know how it will be decided to which but this need not concern us at the moment. Here we come across one of these strange provisions which we will be discussing in more detail later on whereby in section 22 it is specifically provided that while as a general rule where tax is repaid interest at 1.5 per cent per month will be payable to the Revenue Commissioners, a repayment of this kind under section 21 is specifically excluded. It would appear therefore that the same property is taxed twice; one of the people concerned will get his money back but it is specifically provided, for reasons which I am not able to comprehend, in section 22 subsection (3) that there would be no interest paid.
If any case like this arises the Revenue Commissioners will in practice look at the facts of the case. If it is one where the evidence points to the principal benefit flowing to the remainder man then that will be the person who will be liable to pay the tax. If, on the other hand, the person with the limited interest gets the main benefit that is the person who will have to pay the tax; but in no case will tax be payable twice. Section 21 subsection (2) so provides:
Tax shall not be paid more than once on the same property on the relevant valuation date and the same property shall not be included more than once in taxable wealth on that date.
There cannot be any question of a double charge.
I quite understand that point, that ultimately only one person will fall to pay tax, but I did understand the Minister to suggest that assessments could be raised twice on the same piece of property. This means that two people could pay—of course one of them gets his money back and therefore, in the technical sense of the words taxes are only paid once. But two will have paid at this stage. After all, an assessment, I understood the Minister to suggest, would be raised twice in respect of the same property. One must assume that the taxpayers, being frightened at the prospect of having to pay interest, would in fact pay on the foot of the assessment and one of them will get his money back but without interest.
In order to make an assessment at all the Revenue Commissioners would have to have the facts of the case. A and B would have disclosed the facts to the Revenue Commissioners. They would then make one assessment against only one taxpayer. There would not be a question of two assessments—if we understand by an assessment the issue of a notice of assessment: you would assess the situation of the two individuals involved but there would be the one of assessment and that is the assessment which would have legal force.
I am relieved to hear this, though one wonders if it will always work out that way. We will come to this section later on, but certainly, should a mistake be made, it would appear that the person who suffers from the mistake will not get any interest on his unnecessary payment. I would like to return to the general question of the taxation of the life interest or limited interest in subsection (3) of this section. I am not clear as to the equity or, indeed, as to the reason behind this. If a person has a life interest, under this subsection, he has to pay wealth tax, assuming he comes within the thresholds, on the entire capital sum or such proportion of the capital sum as his income bears to the total income of the capital sum involved. One would have thought that a more just, and indeed more sensible, rule would be that the owner of the limited interest would pay on such sum as that limited interest would fetch if sold on the open market, having due regard to the age and health of the individual concerned. Let us consider a situation which can arise under this section.
Take a man aged 80 years of age whose life expectancy in accordance with insurance statistics would be about five years. He has a life annuity of £500 charged on a fund of £10,000. The total fund yields about £1,000 a year. He will be taxed on half of the total figure of £10,000, that is on £5,000. In fact the real value, on an actuarial basis, of his income will be about £2,500 but he is charged wealth tax on the whole £5,000. This seems unfair and the whole situation becomes a particular problem in any case where the annuity or limited interest whatever it may be is charged on property which is perhaps high in value but may well be very low in income. For example, it could be some old large estate with a family mansion which has a small income, if any, and the owner of the life interest would have to pay wealth tax assuming he came in on the thresholds on the entire capital value. It is a system which could be unfair in particular instances and I cannot understand why it is not possible to find in each case the value on the open market which is the normal rule in this Bill.
I should like to make a few points. The first may have been dealt with and perhaps I missed it. It is the situation of somebody who has a limited interest. Let us be clear about this. While we are thinking of justice between persons in equal degree and are talking about someone who will not be in the range of this tax unless he passes the threshold of £100,000 after all other exemptions, we are not really talking about particular hardship situations.
Forgetting about that, is it possible under this section, read in the context of the proviso in subsection (1) to section 21, that anybody would have to pay more tax in respect of a limited interest than the gross amount of the value of the limited interest in any case? If there is a limitation on the return of wealth tax to 50 per cent, is it possible that anyone would be put in the position that, in effect, the life tenant or the limited interest in question would be better off through giving up the limited interest than through retaining it? If this is correct, is it a confiscation of property interest which might not be justifiable?
This is a point that occurred to me to make when the Bill was initiated. Unfortunately I have not been as assiduous as other Senators in following the progress of the debate in the Dáil. I thought this had been dealt with but, on re-reading the section, I do not find where it is so dealt with. For example, is there any provision, as I thought there was, of some kind of right of recourse to the corpus of the fund to provide relief to the limited interest in question? If there were such right of recourse given by this Bill when enacted as a statute, I cannot see that it would ever effect or give a right of recourse in the case where the limited interest is under a foreign trust. Obviously our laws cannot affect the rights of people entitled to limited interest to have recourse to that corpus.
The second point is really a development of something Senator Yeats said. Having had a second re-reading of this Wealth Tax Bill on section 2 we finally reached Committee Stage and we can, in fact, discuss the points that arise on the section and endeavour to be serious about them. We are talking in relation to what the political commentators dismiss as technical matters. This means you need not worry whether there is enough petrol in your engine, whether the battery has got any water or whether it matters a damn what is in any Bill because it is technical matter that nobody is required to listen to. Is it possible that we are introducing a tax which will get heavier on the recipient of the benefit from the trust as he ages? The age factor affects the valuation of the interest. There is a policy element involved in this which we ought to be conscious about particularly if there is no recourse to the capital involved.
The market value falls as he gets older.
The impact will, therefore, be reduced. His actuarial share of the corpus will decline as he gets older.
No. It should, but it will not.
The saleable value will decline.
By taking his actual income per year as a proportion of the total income of the fund, that will be where he will pay.
Obviously we can do nothing about this Bill now but we are talking about next year and the year after. We ought to look at the kind of policy involved in this. This kind of thing is really a carry forward from the estate duty principle. I am not convinced that on an annual wealth tax this is an acceptable principle.
Senator Yeats may have mentioned the situation where the life tenant has no ability at all to affect the investment policy of the trustees. He is given no additional statutory right to require the trustees to shift from something that produces a small income to something which produces a higher income. Yet he will be taxed on the capital value of something the investment of which is totally outside his control. There seems to be some absence of equity in a provision which does not take care of that situation. You can have the thing so locked up with the trustees. I am not aware of any principle of trust law that requires the trustees to have such regard for the life tenant as to get out of a property that at the end of the day is going to be valuable for the remainder man, simply to produce a bigger fund for the life tenant to enable him to pay his wealth tax. This is the sort of difficulty that arises under the common law with regard to applying a wealth tax. Yet one cannot leave out of consideration limited interests in these situations.
The right to receive periodic payments essentially under pension schemes that are referred to in section 7 (1) (e), particularly at (i), (ii) and (iv). I do not see in the situation where, somebody's father or himself accumulated money and happened to put it into this particular, form and generated a limited interest why the recipient should be taxed in a different way for the wealth tax code from somebody who has been favoured by the provisions of the income tax code to get into the other schemes. In relation to many self-employed persons the tax provisions have been very discouraging until recently. It was difficult for self-employed people to provide themselves with pensions. Very often they had to provide the premiums after taxed income whereas the schemes for general executives and employees are highly favoured in relation to the tax treatment they receive.
There could be quite an important social policy here and we ought to be conscious of the direction in which we are going and the choices we are making in relation to this. Take the normal self-employed person. On the whole in the past we did not have self-providing pension schemes operating. The way the man in that situation provided for his widow and children was by saving out of his money. We are not talking about hardship cases because of the £100,000 threshold but we are trying to get some sort of equality between people in like degree. I cannot see why somebody who saved because this was the only way he could look after his widow and children should find his widow subject to wealth tax while another person was able to get in under a top hat pension scheme and whose widow is free of taxation in relation to what may perhaps be a larger sum than the widow of the self-employed person.
