Seanad Éireann debate -
Wednesday, 6 Aug 1975

Vol. 82 No. 14

Wealth Tax Bill, 1975 (Certified Money Bill): Committee Stage (Resumed).

Question again proposed: "That section 3 stand part of the Bill."

Mr. Alexis FitzGerald

Last evening I was expressing some concern I have about this section. It seems to me, recognising all the difficulties that the Minister and his advisers have had with regard to the enactment of an annual wealth tax in a common law country, that throughout the Bill the provisions are over-influenced by what was part of the old estate duty code. If I understand it correctly, this section deems somebody to have property that he does not have and to tax him annually as if he had it. If a person has a limited interest in a property he has not anything other than the value of the limited interest in that property, that is, the value which is his property, what he could get for that limited interest in the market place.

Under this section he is deemed to be entitled in possession to the whole fund, to which he is not entitled. He is to be taxed annually as if he were entitled to the whole fund. I have the gravest doubts about the constitutionality of taxing a man as if he had property which he has not got. I know there are provisions limiting the amount of tax he can pay and he cannot be made to pay more under section 14 than the gross income that he is entitled to. That is to say, that having only perhaps a limited interest, having all his income from one source only, his only protection may be that all of that income will be taken, but no more than all of that income.

I have the gravest doubt about the constitutionality of that provision. The reason why we have the section in this form is that under the old estate duty code if one had a life interest and the life interest terminated the whole fund was deemed to pass and estate duty was then paid.

I was always unhappy about that provision but it had a certain rationale. It was the corpus of the fund on the death of the life tenant or at the extinction of the life interest which bore the estate duty. In this case the life tenant will be paying the tax even with right of recourse during lifetime. I am not satisfied that the State can start playing around with the interests of life tenants and remainder interests. I cannot see how it is proper for this Legislature to deem somebody to have something he has not got. If he has a limited interest it is limited to the extent that he has it. This Oireachtas has no power to expand it for the purposes of taxation to something beyond its limit and to say that a person is deemed to have more than the limited nature of the interest he has and to tax him accordingly.

I wish to repeat something I said last night because it is necessary if my reasonable colleagues sitting opposite will allow me to distinguish them from some of the contributions we had on section 2 yesterday. Of course we are not talking here about dire cases of injustice. We are talking about people who will be in the range of this taxation if the valuation is £100,000 in excess and there are exemptions available too but I could see situations where remainder interest could become affected by charges to tax arising as against the corpus of a fund in which they had a remainder interest because somebody was beyond the threshold but who would not be taxed if the threshold was not absorbed. I cannot see why the remainder interest should in that case suffer taxation.

The value of the limited interest should be determined actuarilly according to the age of the person in relation to the property and to the income which he gets or is capable of getting under the terms of the section. If he is in a position that he can do nothing to influence the trustees on investment and if the capital value is expanding all for the benefit of the remainder interest and if that is to be the impact of taxation in his case it is entirely unjust and should not be enacted by this Legislature.

Take the situation of a person aged 30 who has a long expectation of say £10,000 a year. A man aged 80 who has £10,000 a year will be paying the same taxation as the man of 30. Who will pay money to acquire an interest from a man aged 80 which will be equivalent to the money that will be paid to acquire the same limited interest enjoyed by somebody aged 30? Nobody will do it. The market place will not value the two on the same basis. But the two persons will be taxed on the same basis irrespective of the limited nature of their interests. The Minister has my full sympathy and understanding in relation to all these problems. We all know that the Dáil will not be re-called to satisfy my whims or anybody else's. This Bill will be enacted in its present form but I hope my words will be taken note of in appropriate amendments to this Bill next year.

I am unhappy that we have de-parted from the well-recognised principles of private international law with regard to the treatment of persons domiciled. I do not think we ought to follow the British legislature within its provisions of the Finance Act, 1975 and deem people to be domiciled who are not domiciled and to tax them on that basis. It is unwise of us to do that. We ought to change this. A great deal of the hardship has been removed by the amendments that were introduced on Committee Stage in the Dáil to subsection (5). Nonetheless I do not know of any full and accurate assessment of all the people who may be caught by this "deeming" provision. Of course they will not be caught because they will not stay caught if that is their situation.

I know of one case where the life tenant is the life tenant of an enormous foreign trust and that life tenant cannot afford to stay. There would not be any money to spend on anything. That is departure in that case. I wish to know what is the object of this. What benefit can be derived from it? If it does not generate benefit for us why do we do it?

The Minister ought to look not merely at this section but at certain other sections the very language of which is derived from the Finance Act, 1894, which is an entirely different type of duty and one that we have abolished. We should not have our mentalities drenched by language appropriate to one tax when we are drafting the provisions of another. We will not have a tax which will be satisfying or beneficial if we do not step sharply away from it. In this case the treatment of somebody for the purposes of an annual tax as if he had a property he has not got is wrong.

Mr. Lenihan

Very briefly I wish to emphasise several aspects that have been mentioned by Senator FitzGerald. The first one is the basic distinction between this tax and estate duty tax. Estate duty was imposed on death whereas this is an annual over-head tax. It incorporates the same principles that apply to post-death tax, to a year-in-year-out tax such as this and it is entirely fallacious.

The next point is the one that worries me. As Senator FitzGerald said, at the present time it is largely academic because of the high threshold and exemptions that exist. We are talking about large properties in regard to the annual overheads in the wealth tax. We are talking here about the permanent legislation that would be the foundation of a new form of tax, a form of tax in which the thresholds can be radically reduced by a single line amendment or insertion in financial legislation. It is very important that we talk about the principles of what would be the permanent legislation now. On that aspect I take strong exception to section 3 (4) where the individual is deemed, who is beneficially entitled to possession, in other words the holder of the limited interest, is also deemed to be in possession of the reversion or the remainder of the basic estate. There is a double tax situation in existence both in regard to the reversion, the estate that exists after life or after the limited period, and tax in respect of the limited period.

The explanatory memorandum states that:

Subsection (4) deems a person who is entitled to a reversion expectant on the determination of a limited interest which was created by himself as being entitled to that limited interest...

Now it may be somewhere else but subsection (4) does not say anything about the limited interest being created by the individual himself. I quote subsection (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...

That language is global enough to cover any form of reversion or any form of limited interest. The explanatory memorandum does talk about subsection (4) dealing only with a limited interest created by the particular individual. Subsection (4) does not contain such a limitation as to the limited interest. Anyway, one way or the other, whether it is or is not created by himself or herself, I am against the principle. It is entirely wrong to have double taxation in respect of the same estate—taxation of the limited interest and taxation of the reversion.

There is an obvious anomaly in the case of the person mentioned by Senator Yeats last night and mentioned by Senator FitzGerald today. The person who is advanced in age is surely entitled to some sort of actuarial assessment as to the value of the limited interest possessed by that elderly person and it is not to be put in the same position of equality as a similar property held by a person 30 or 40 years younger. In the latter case, obviously any actuarial assessment would be vastly higher than would be the actuarial assessment in regard to an elderly person.

There are anomalies here and they spring basically from taking the sections and subsections which are not really relevant to this new code holusbolus from the estate duty code. I would make an appeal to the Minister. Nothing can be done at this stage with the Dáil adjourned but we have had sensible responses from the Minister on previous occasions in finance legilation when dealing with sugestions made here. I would like him to look very closely at this particular section as a whole and not have an individual in any way jeopardised in the manner we have suggested by reason of the double taxing effect on both the limited interest and the remainder.

Minister for Finance (Mr. R. Ryan)

I explained last night that there can be no question of double tax. Section 3 deals with the property which is taxable. Section 14 says who is to pay the tax. They are two distinct things. One must tax the property which underpins a limited interest. If one failed to tax the property which underpins a limited interest one would have the ridiculous situation where property which was held absolutely would pay more tax than property which was held subject to several limited interests.

Does anybody seriously suggest that there is any real difference in the family situation if A holds the property absolutely and B being a good father holds it and manages it for the good of the family, where the pater familias B would hold the property to himself for life, then to his widow and then to his children? Is it seriously argued—I will call the property family property because we are approaching property holdings in this Bill—that B should pay less tax than A simply because he has set up an artificial arrangement that may suit his purposes? There are situations where that might be the prudent thing to do but it is difficult to see why he should be treated differently as far as tax liability is concerned. If one were to carry out an actuarial assessment, as has been suggested, for each limited interest, the probability is that no matter how carefully calculated the actuarial assessment would be, one would arrive at a situation where the sum of the limited interests would be less than the value of the underlying property. Each limited interest could be qualified by limitations and the sum of the parts would not add up to the value of the property if it was held absolutely. So, whatever be the theory, in practice the suggestions would not be administratively feasible and I do not believe that in operation it would be equitable. It would be giving benefit to those who arrange their property holdings in a particular way which would result in less tax being charged on the whole property as against those who have held their property absolutely.

The Bill proposes to tax property which is in possession, to tax current interests, not future interests. The only future interest which is charged is the artificially created future interest where a person, for tax avoidance purposes, may seek to create a limited interest with the remainder back to himself. That is what it is and that is what we are dealing with in subsection (4) of section 3. As I mentioned last night, that has to be read together with the definition of "entitled in possession" in section 1. We are clearly dealing with an avoidance measure in that situation. We are taxing property to which an individual is beneficially "entitled in possession" on a particular valuation date which annually will occur on the 5th April. We are ignoring any future interest and "entitled in possession" is defined as "having a present right to the enjoyment of property as opposed to having a future such right". It goes on to say that a person shall not be deemed to be entitled to an interest in expectancy. Now, if the definition were to stop there, there would be a very obvious avoidance device available. A valuation date is a fixed date each year and all a taxpayer would need to do would be to see that he was not possessed of a particular property on the annual valuation date. This could be achieved by settling it for a certain time, say a week or a month, covering the valuation date, with the remainder back to the owner of the property. The result would be that he would not be liable in respect of his reversionary interest because it would not fall in the definition of property to which he was "entitled in possession" and the limited interest would be made liable to tax in the hands of him, who might be beyond the tax net because his wealth might be under the threshold.

I do not need to outline the several other schemes of avoidance which any reasonably competent tax consultant could prepare. Clearly, it would be inequitable that we should allow such a dodge to be available and that is, in fact, what it would be. One of the most inequitable aspects of the estate duty code was that some people were able to avoid it while others were brutally affected by it. It is much better to bring in a form of taxation which would do harm to none and which will involve everybody as far as they hold property within the limits which are intended to be taxed. That is exactly what we are doing. We are combating the forms of avoidance which would otherwise be left open. The definition goes on to say that a reversion expectant on the determination of a limited interest created by the person is not included in the term "interest in expectancy". It is, therefore, within the property to which a person is entitled in possession. That leaves the position that the reversion created by the settlor himself is liable to tax.

Section 3, subsection (4) then shows how that reversion is to be treated for the purposes of the tax. The subsection deems the individual to be entitled in possession to that limited interest which supports the reversion. That being so, the settler is treated under section 3, subsection (3) as being entitled to the underlying property. He, therefore, achieves nothing by entering into the kind of transaction I have described, since he still continues by virtue of section 3, subsection (4), and the definition in section 1, to be regarded as the owner of the property which he settled. I want to emphasise again that section 3 is dealing with a tax on property, with a tax on capital. It says that it must be charged on the capital. Capital should, as far as possible, be taxed on the same basis whether it is held absolutely or in trust. If that were not done, property held in strict settlement would, as I have indicated, have an advantage over property which was held absolutely.

It is interesting to note that other countries which have considered the same problem have found it necessary to approach it in the same way as we are approaching it, that is, they have been obliged to tax the underlying property. If somebody can suggest to me how the objective they have in mind can be met and, at the same time, subject the property involved to the same tax, I would be prepared to have a look at it. I do not think it is possible to devise any scheme which would ensure that the capital, whether held absolutely or in trust, would carry the same amount of taxation liability.

Mr. Alexis FitzGerald

The Minister is mellifluous as usual and it is hard to disagree with him, but I am afraid I must. First of all, section 14 comes in aid of the owner of the limited interest under subsection (4), if the trust in question is capable of being managed in this country. But if there is an Irish citizen with an interest in a foreign trust, there is nothing we can enact here which will give the owner of the limited interest any right to have recourse to the capital of that foreign trust. The proviso with regard to the limitation of 80 per cent means that the total income of that person from the trust is wholly absorbed in paying wealth tax. That person will be in the position that he or she will have to surrender the interest. As an Irish citizen he or she will be entitled to regard this as not a proper regulation of property.

With regard to the Minister's observations about actuarial interest, it does not arise very much nowadays under our code as a result of various changes that were made, but it is a very well-known actuarial job to divide up the capital of the fund according to the actuarial value of the limited interest and, if they are all adult and sane, to get them to agree to divide up the capital and release it. The position may well be that we insufficiently provide for an adjustment of the limited interest of the life tenant and the remainder man. What is the Minister saying here? Is he saying that the owner of the limited interest will be wealth taxable according to whatever the threshold provision will be and, according to these thresholds, the remainder man will pay that wealth tax because of the right of recourse of the limited interest to a family? Is he therefore saying that the tax position of the remainder man is to be affected by the availability of thresholds to the limited interest? If somebody has £100,000, which means that there is no threshold available in relation to the value, where is there provision for apportionment of this threshold between the valuation of a limited interest and other wealth? I do not find any provision for that.

Assuming for a moment that you can put the whole £100,000 against the fund which is free—the free estate as we used to call it—is the position then that the fund in settlement will be taxed at a higher rate than would be the position if the threshold was not absorbed by other assets? In other words, the interests to follow after the limited interest are to suffer a tax which bears no relationship to their own circumstances but depends entirely on the circumstances of somebody who, according to the Minister's theory, will not be taxed at all, if I understand it correctly, because the tax will be recoverable from the fund.

Say you have a free estate of £100,000 and you have a fund in which there is a limited interest of £100,000, if there is a right of recourse to the capital, where does the £100,000 get apportioned between the two? What is the amount the trustees will have to pay? I am not talking about foreign trusts, but about Irish trusts. There is an over-concern, with great respect, with avoidance. We are talking about a relatively small sum of money and we should be more concerned to get the system right. If we have moved away from the general theory of wealth tax in response to Irish political and economic realities by the exemptions we have provided, it is a canister full of holes.

Any tax system which provides exemptions provides avenues for escape from tax. These avenues will get blocked by characters running down into the exempt assets. There will be a redistribution of money into the types of assets which get this exemption. We ought to be concerned with the reality of a person who has £X thousand per year from a fund. He or she is not worth the sum which generates that income and he or she ought not to be taxed on it. If it is necessary to get some tax charged after that charge is made of the proper valuation of the limited interest on which the tax ought to be declining as the person gets older, then there should be a provision for charging the fund with the balance so that the property does not get free.

In the Capital Gains Tax Bill we had a Schedule from here to the other side of the Seanad with actuarial tables, A's and B's and so on, which the devil himself could not understand, unless inspired like some of us. Why can we not have a similar effort to deal with this situation? The fact of the matter is that there are not all that number of trusts. One person executed for a murder he did not commit is a crime crying to Heaven for vengeance. If there is anybody treated unjustly, by virtue of this provision, it is an injustice to him; if the true interest that man has got is such that, according to the scale of life he has or whatever it may be, he can just about manage, he ought not to be taxed as if he owned the full fund. Let him be taxed according to the value of his interest. If that value leaves a residue against which there is no threshold available, on a proper apportionment of thresholds, let the fund get taxed on the balance. There is no actuary who will waste any time working out how to divide a capital sum and to tell one, whether one is aged 30 or 80, what is the true value of one's interest. If one is expectant on the life of somebody aged 30 or 80, what is the true value of that interest? Of course, if it is a reversionary interest, the person who has the reversionary interest should not be required to pay tax on it but the fund could pay tax on it.

I am very concerned about this matter. The mistake is that we have transferred the estate duty notion that interest is passing on the death, it does not matter what was the nature of the interest of the person dying. If the fund passes, then the fund ought to get charged.

Mr. Lenihan

On Senator FitzGerald's analysis, that is less equitable than death duty.

Mr. Alexis FitzGerald

I am merely concerned to make it better than it is.

Mr. R. Ryan

With respect, Senator FitzGerald's approach is always very good. Even when the argument is not a good one, he presents it so well one feels convinced. Section 14, subsection (4), provides that any accountable person who is authorised or required to pay tax in respect of an interest, which is a limited interest, shall be entitled to reimbursement from the property in which the limited interest subsists. In practice, that will achieve what Senator FitzGerald suggests. His argument is that the person with a limited interest should be taxed only in respect of the actuarial value of his interest: that and no more; then, that the Revenue Commissioners would be obliged to look to the underlying assets and to those who are holding it for the time being to pay the tax. Section 14 (4) will see to it that the burden of the life tenant will not be any greater than Senator FitzGerald suggests it should be, because of this right of reimbursement. He makes a point about the difficulty a person might have in obtaining a refund from trust property if the property is outside this country. The same applies to many aspects of foreign law vis-á-vis our law. These are situations which people study when they are creating trusts or accepting the benefits under them. It is not possible for us to tailor our legislation to the individual laws of over 143 nations. But the people who are concerned in the kinds of situations dealt with under this Bill are not naïve, simple people, with no knowledge or without advisers available to them. It is up to them to make their own arrangements as best they can.

Senator FitzGerald, in one of those lovely phrases he uses—I am sure I have written it down incorrectly— thought it wrong to colour one tax with the language of another. When one is talking about taxation, it is well to speak the one language. It is a difficult enough problem to understand without speaking on taxation problems with diverse tongues. If the tax is not dovetailed into other taxes, certainly there will be many avenues of avoidance left open on the one hand and, on the other, many anomalies, hardships and conflicts will be created which it would be wrong to permit.

Mr. Yeats

I should like to say a few words on the parts of this section relating to domicile and residence. As Senator FitzGerald has already mentioned, in this section there is what one might describe as artificial domicile. I asked the Minister yesterday, not being very clear on the question myself, being a layman, was I correct in thinking that generally speaking, a man becomes domiciled when he takes a definite decision to become a permanent resident. The Minister said "Yes", that I was right in thinking that. Therefore, one must assume that that is the general principle.

There is in subsection (5) of this section a kind of artificial domicile introduced, that an individual who is not domiciled in the State on a valuation date and who has resided in the State for not less than 183 days in the year ending on that date, and 183 days in each of the six or more than nine years immediately prior to that, shall be deemed to be domiciled and ordinarily resident in the State on that valuation date. Paragraph (a) of subsection (5) commences by saying that an individual who is not domiciled in the State on a valuation date, if he complies with certain rules laid down, then he shall be deemed to be domiciled. He is not domiciled, but for the purpose of getting him taxed he is deemed to be domiciled.

I am very dubious indeed about the economic desirability, apart from the justice involved, of doing this. We are trying to encourage foreigners to set up industries here; we have given them very considerable benefits, tax benefits, loans, grants and so on in order that they come here—whether they come in person or not—with their money and provide jobs. Indeed, the efforts of successive Governments and the IDA have achieved a very considerable success with the result that our entire industrial scene in 1975 is very different from what it was, say, 20 years ago. I am not suggesting that a larger number of foreigners will be liable to tax under this subsection. But, in view of the fact that the amount of money collected will be small, I suggest it is an undesirable step to take and departs from the general pattern of our behaviour to these investors in previous years. It exposes them to liability to tax whereas, up to now, they were not liable. Economically and psychologically it is an undesirable step to take.

I know the Minister has pointed out that if a foreigner came and lived here, at least up to last April, and died here he would be liable to death duties. I do not think that is an answer. An industrialist in the prime of life, who comes to a country like Ireland to set up industries and so on, does not expect to die. This will happen to us all at some stage. Nonetheless, an industrialist in the prime of life who comes here and sets up an industry is not thinking in these terms. If he taxed year by year under the provisions of this wealth tax it strikes home and could well have a deterrent effect. Considering the very small amount of money the Minister is likely to collect, it would appear sensible to drop it.

One of the problems the Minister faces, including subsection (5) of this section, is that it is very difficult in fact to see who he will catch. In order to be deemed to be domiciled, a person must be resident in six out of nine years for 183 days in a year. How would one prove, in relation to any individual that, say, in the year 1969 he was here 183 days and not 182? I cannot conceive how it will be done. It is all right if a person comes here, sets up house, lives here all the year round and everybody is so aware. In that case, there will be no real problem. Indeed, in such a case the person really would be domiciled; one would not need to deem him domiciled. Where you are going to deem a person domiciled it means he is coming and going. Sometimes he is here and sometimes he is not. It simply escapes me as to how the Revenue Commissioners could ever prove this. Of course if you had a man of such superlative honesty that he filled up the form and said: "Yes, I really was here in six successive years or six years out of nine for 183 days in the year", you will catch him, but I wonder how many of us are quite that honest. I simply cannot follow who is going to be caught by this. I suspect the number will be very small indeed.

The next point I want to make relates to Irish nationals. This subsection provides in effect that if an Irish resident, someone domiciled in Ireland, is domiciled in Ireland on the valuation date, shall we say, April 5th, 1975, and he goes abroad—he could be transferred by his employer or perhaps get a job in the EEC as so many of our people have—then for the next three valuation dates he is deemed still to be here and liable to wealth tax. In other words, he has to be absent for a total of four years before he finally escapes from this burden, assuming he left shortly after the valuation date.

This is difficult to justify. It will obviously add to the difficulties of transferring Irish nationals for training or for other projects or indeed for taking up jobs in many cases to the advantage of this country in the various institutions of the EEC. Also there could be a problem that after somebody had been resident in some country, shall we say, in Europe for perhaps three years, he could well start coming into the local wealth tax net and while of course there will be double wealth tax arrangements as there are double income tax arrangements, one wonders which would get at him first, whether it would be the country in which he was resident or the country which was still claiming him as domiciled years after he had left. I put it to the Minister that both these provisions may well be undesirable and certainly will lead to considerable problems.

Mr. R. Ryan

Senator Yeats puts his finger on one of the great problems in this area, that is, that domicile is a matter of intent. It is a very difficult thing to prove. We know how difficult it is to prove in criminal law. It is even more difficult to prove sometimes in relation to behaviour of human beings in tax situations. The test for global liability of property to tax in Ireland is going to be domicile and "ordinary residence". Therefore ordinary residence alone is not sufficient. That being the case, a person from abroad could take up residence here indefinitely and maintain that he had not acquired an Irish domicile, although in fact he could have had that intention. Senator Yeats used the phrase "superlative honesty". It might indeed require "superlative honesty" for a person to make an admission of Irish domicile to the Revenue Commissioners if the consequence of doing so was to cost him a considerable sum of money. Quite clearly it could be to the advantage of a person to deny Irish domicile.

In order to meet this situation paragraph (a) of subsection (5) makes the person who has resided in the State for not less than 183 days in the year prior to the valuation date and for 183 days in six out of the nine years prior to that year domiciled and ordinarily resident in the State. That might seem a wee bit harsh at first glance but this is not so. I suggest that a reasonable person will accept, that it is not so when it is realised that the normal criterion in most countries for liability to wealth tax is residence only. For example, in Germany, the Netherlands, Scandinavian countries, Sweden, Norway, Denmark, residence only is sufficient to create liability.

Mr. Yeats

For how long?

Mr. R. Ryan

I am not certain of the periods, but I am talking about residence only as sufficient without any element of domicile. However, I might be able to get my hands on the period later. In effect, therefore, by contrast, liability does not arise here for a foreigner until he is at least seven years in residence. That is rather a long period. I think it is not unreasonable to assume that if a person is in residence for seven years of a man's comparative short lifespan, that is a fair indication of intention to be domiciled here. At the other end of the scale, a person who is domiciled and ordinarily resident here on a valuation date, other than an individual deemed to be domiciled here on that date under paragraph (a) shall be deemed to be domiciled here for the next three valuation dates notwithstanding that he ceased to be domiciled here after that date. This provision is designed to forestall fictious claims of change of domicile. It has been known for such claims to be made in the past. We must therefore provide against them.

We are producing rules which are reasonable having regard to the normal pattern of human behaviour. If domicile is to a large extent, as it is now, recognised on both sides as a matter of intent, it would be very difficult for the Revenue Commissioners to rebut the statement by a living individual that his intention was to leave this country permanently. At the same time we must discourage the making of unrealistic claims. The provision will not hit a genuine change of domicile and residence, because in such circumstances it would be unlikely that the person cutting final links with this country would subsequently spend sufficient time here to be ordinarily resident here. The paragraph deems only domiciled, because liability on global wealth requires both domicile and ordinary residence.

The provision in the UK Finance Act, 1974, is that a person is deemed to be domiciled in the United Kingdom if he is resident there for 17 out of the previous 20 years or for three years after leaving the United Kingdom. In the Netherlands for the purpose of gift and inheritance tax the citizen who leaves the country is deemed to be resident there if he dies or makes a gift within ten years of departure. Rules vary of course, from country to country, but the underlying principle is the same and requires that there must be some deeming provisions in order that the intention can be recognised. I think without that it would be open to anybody simply by a declaration which was to his advantage, but contrary in fact to his real intention, to avoid tax liability.

Mr. Yeats

Take, first of all, the question of the three years after a person has left here. I can see that there would be considerable possibilities of avoidance if one was to retreat temporarily to some country, shall we say, that did not have a wealth tax, but I hope there will be no question of double taxation in a case like this. The Minister mentioned—that is why I asked him did he know how long a period was needed—that in certain countries you are liable to wealth tax on residence, not on domicile. I would be a bit afraid that somebody who had left here, and gone to some country like Germany, lived there for three years, become a resident, whether he might be liable for wealth tax there and, in the absence of a double tax arrangement—I take it it would take some time to frame that—he would be liable twice over.

To go back for a moment to the question of domicile, the Minister mentioned that in Britain to acquire domicile one needs to be resident for 17 out of 20 years. The Minister's deeming in this section is a great deal less rigid than that. In the most recent year for valuation purposes a person has to be resident for half a year in seven out of the previous ten years. Thus the minimum required is three and a half years out of ten, about one-third of that period. It is unlikely that anyone would have the minimum for each year but he could, in fact, be deemed to be domiciled on a residence over a ten-year period of only three and a half years, whereas, as the Minister said, in the United Kingdom a person would need to be resident for considerably more than half, for 17 years out of 20 years. This is a very big difference.

If the Minister is to breach the ordinary rule and deem people to be domiciled who are not, the requirements are not sufficiently rigid in this case. A person who has been here for three and a half years out of ten years has spent six and a half years somewhere else and under the laws of his own country, or wherever he was living, he has been domiciled there and will continue to be domiciled there. This could lead to considerable difficulties. If the Minister wants to extend this over as short a period as ten years much more than the minimum of 183 days a year ought to be required. It should be at least 200 or 250 days. It is a bit unreasonable, in the case of a person who has been here for less than half his time over the previous ten years, to declare that he is deemed to be domiciled.

Question put and agreed to.

SECTION 4.

An Leas-Chathaoirleach

Recommendation No. 5 has already been debated. We debated it yesterday with section 3.

Recommendation No. 5 not moved.

Question proposed: "That section 4 stand part of the Bill."

Mr. Yeats

I will not go over what we have already discussed on yesterday's amendment but I would like to put it to the Minister that the last four lines of this section are extremely objectionable. He told us with some pride yesterday about how he was dealing evenly with husband and wife and he mentioned that there could be cases where the wife had all the money, which, indeed, happens but under the last four lines of this section an extraordinary situation arises. The wife has all the family wealth. Secondly, perhaps being a woman of spirit, she wishes to be separately accountable and under subsection (2) the amount of tax can be apportioned. The wife could be liable for all the tax and the husband would not be liable for any tax, because all the wealth is held by the wife but we find in the last four lines of this section

...provided that the individual— That is the husband. The wife is not anyone. He is the individual.

—shall remain primarily accountable under section 14 for the payment of tax on the taxable wealth aggregated under this section notwithstanding any apportionment made under this subsection.

Under this section, normally speaking, the wealth of the family is aggregated and the husband is primarily liable to pay the tax. We are told that husband and wife can, if they wish, have the tax apportioned between them in proportion to the amount of property each of them holds. We are told also that even where the wife has all the property, that it is the husband, known as the "individual," who is primarily accountable under section 14 for payment of the tax. I am unable to understand the purpose of this. It seems quite outrageous. I cannot see why it could not be provided that where an apportionment has been made under this section, each party would be primarily accountable for his or her portion of the tax. I should like to inquire from the Minister why this curious rule is inserted.

Mr. R. Ryan

We could get caught up in a battle of semantics. The Revenue Commissioners will, in practice, ask the person holding the property to pay the tax. There would be no point in proceeding against one of the partners who did not own the property or who did not own a sufficient portion of the property. In a family situation one person is primarily liable but if some other person has the bulk of the property the Revenue Commissioners will, in practice, make the demand on the person who is the owner of the greater portion of the property. They will ask for payment of tax from the person who is in the position to pay it.

Let me draw the Senator's attention to section 14 (5) which provides that the tax assessed on any part shall be recoverable for any one or more of the persons accountable for the payment of the tax. This gives the Revenue Commissioners the discretion which, as sensible people, they will use in the way in which I have described, whatever is the terminology or the title of status conferred on the individuals.

Mr. Yeats

I am glad to hear the Revenue Commissioners will demand the tax from the person who has the property but this does not answer my point. The person primarily accountable is the husband. I am speaking of the situation in which all the property belongs to the wife. She owns a hotel or a public house. The husband owns nothing yet he is still primarily accountable.

On the other hand, in the much more common case, where all the property belongs to the husband and the wife has none at all, he is primarily accountable but she is not accountable at all. In other words, it is all the one way. The husband remains primarily accountable, whether he has property or not. The wife will be accountable for any property she may own but not primarily accountable. The first person who is liable is the husband even though he may not have any property at all. This gets to the old situation where the husband is regarded as the only person of importance and the wife is looked upon as a vague accessory of her husband. She may be running a considerable business. She may be a person of some ability and the owner of considerable property. It seems outrageous that in these circumstances her husband, who has no property at all, is the person primarily liable for payment of tax. I am glad to hear that the Revenue Commissioners will go after her rather than him for the tax. Under this section the husband is specifically stated to be primarily accountable, even where there has been an apportionment as between the two of them. I find it difficult to understand this.

Mr. Lenihan

I support what Senator Yeats has said. I said this on the recommendation. This section, on the aggregation, discriminates against the married woman. This is why we inserted the wording in the recommendation which sought to delete all references to the wife of the individual, or whether or not she was living with him on the valuation date or whether or not the parent had custody of the child on that particular date or who was or was not entitled to custody. These are all relics from an old tax code. Basically what we sought to do was to eliminate this section, which does discriminate against the wife, and delete references to the wife and provide clearly that for the purposes of this Act, the individual beneficially entitled to possession on the valuation date shall be deemed to own, in regard to the property, all the property of the minor children and that that be the estate. The only exemption from that would be a situation where both parties had notified the Commissioners to the contrary in writing in regard to their children. If they wanted any change from the aggregated minor children's property, the husband and wife would agree, otherwise the wife's property would be separate.

That was the thinking behind the amendment. It is a fairer system as far as the wife is concerned. The Minister may say that this is unreal; it is not in accordance with Irish family tradition and so on. I know as well as anybody else does that in 90 per cent of cases married people will pool their resources and pool their interest in this respect. But there may be cases—and Senator Yeats has just mentioned some—where the wife may wish to preserve her own independence in this matter and may wish to be separately assessed, and on the equity of the particular situation it may be right to do so where she is the entire holder of property involved. On any basis, making an inquiry into whether the wife is living with the husband or not, whether the question of the custody of the children should be a matter for investigation—all these areas can be eliminated by the wording we suggested in the amendment so that for practical purposes the husband, prima facie, would be deemed to be the holder of his property and the aggregated property of the minors, and the aggregated property of the minors may only be apportioned to the mother by agreement between husband and wife; otherwise, the wife will carry a separate estate.

It seems to me to be a much more straight-forward provision and would show a much more proper appreciation of what we all like to pay lip-service to, the independence of women. Much lip-service is being paid to the whole question of women's liberty, and this is Women's Year. Here we have a section that is continuing the disservice of the prejudicial approach that has heretofore been adopted towards women, not just in the tax code but in every code over the centuries. We still have these feudal relics. A far simpler approach would be to start on the basis that the properties were separate and the minor children, prima facie, would be regarded as having their particular properties aggregated with the husband's property, unless husband and wife signed a declaration or notice to the Commissioners that they wished it to be otherwise. That gets rid of all sorts of inquiries which, I am sure, the Revenue Commissioners do not want to be engaged in—inquiries as to whether the wife is living with her husband or not or who has custody of the children and so on. That area of investigation will be removed if my suggestion could be followed and one would have a straight-forward issue as to husband's property, wife's property, and the children's property to be aggregated with the husband's property unless husband and wife decide that it is not to be so.

I would suggest that the Revenue Commissioners and the Minister would have a look at this to see how it operates over the next 12 months with a view to bringing in a section that is clearer and more in keeping with reasonable independence on the part of women, in regard to what they have and what they own and more in keeping with the proper approach of the Revenue Commissioners, that they should not be inclined to interfere or intervene in areas of family law such as the custody of children, and whether a husband is living with his wife or not. This is an area which the Revenue Commissioners should not be asked to investigate. It is not in keeping with the rights and dignity which we are to accord to women in 1975.

Mr. Yeats

The more I read this section the more I think it is extraordinarily insulting to half the population. In subsection (1) we talk about "the property to which an individual is beneficially entitled in possession on a valuation date"; Then we find a reference in paragraph (a) to the wife of the individual; subsection (2) we find: "Where property of another person is included in the taxable wealth of an individual...". Who is this other person? It can only be the minor children or the wife but, since the minor children cannot, under the Minister's Bill, pay wealth tax, the "other person" is a polite reference to the wife. In this day and age to describe a wife as that other person is outrageously insulting to half the population. I would put it to the Minister that as soon as he can get round to amending the Bill— obviously amendments will be required fairly rapidly, as experience shows—without in any way changing the situation envisaged by the Minister, it could be dealt with in a way which would be less insulting to half the population.

I cannot understand why it could not be done as a straight-forward basis in this instance. First of all in a normal case—I can see that it would be the normal case that people would want to have it that way—that the husband, "the individual" as he is called in the Bill, should be liable for the tax on his own property and his wife's property. But where they agree —particularly where the wife is a business woman with large property— that they want to have an apportionment, each side should be treated equally; each should be treated as the individual who is primarily liable for the tax. To go around talking, first of all, about the individual and then talking about the individual and that "other person" who is the wife is an extraordinary way of doing it. If this Bill had been in existence at the time of the sitting of the Commission on the status of women they would have had a great deal to say about it. If some of our women's organisations saw this section and if the Minister was near them, they would tear him in shreds. It is written in the most insulting way.

Mr. R. Ryan

It is very hard to please some people. We call the wife a person and we are chastised; if we do not call her a chattel we are accused of treating her as a chattel; when we use the word "person" in the Bill, we are told that it is wrong; we are also told that we are doing a disservice to the married woman because we are making her husband primarily liable to the payment of her tax. The Senators should be thanking us for the consideration which we are giving to wives. The Revenue Commissioners will not be making investigations, as Senator Lenihan suggested, as to whether or not a husband and wife are living together. The Revenue Commissioners are perfectly normal, healthy people and they will assume that in an Irish society the norm will operate, that the husband and wife will be living together. If parties wish to disprove that reasonable assumption, it is up to them, but the Revenue Commissioners have more than enough to do without searching in family cupboards that are not opened by other people. Other people have the key to their family cupboards and they can keep all these little indiscretions locked up as far as the Revenue Commissioners are concerned. The Revenue Commissioners will not presume anything until the parties concerned wish to plead against what is the normal practice. The reason why subsection (2) uses the words "another person"—it does not use the phrase Senator Yeats used, "that other person"—is that those words refer either to minor children or to the wife of the individual. Short of spelling out (a) and (b) of subsection (1) which would be rather an untidy way of doing it the words, "another person" had to be used.

Mr. Yeats

I am not going to go on about this except to mention that the phrase "that other person" is used three times in this subsection. I do not think the Minister can get away with it so simply by saying that anybody should be happy to have someone else paying her tax. He has already pointed out that, in fact, the husband will not pay the wife's tax, that the Revenue Commissioners will chase her in any event for the tax. She not only has to pay the tax but she has the indignity of having her husband treated as primarily liable for tax on her business.

Mr. R. Ryan

If anybody wants to do that indignity to me they are welcome.

Mr. Yeats

I do not think many women, particularly women with property, business women, would go for that one. It is a typical taxing section. It is a strange thing, I suppose it is the same in other countries, that the tax authorities who frame these Bills seem to live in the 19th century.

Question put and agreed to.

SECTION 5.

Mr. Lenihan

I move recommendation No. 6:

In page 6, subsection (1) (a), line 23, after "date" to add "other than property to which an individual or a company is beneficially entitled in possession on that date".

We are now into the area of taxing discretionary trusts. We have left the area of taxing individuals and we are going on to the area of taxing private non-trading companies. In this section we are dealing with the taxable wealth of discretionary trusts. The recommendation is designed to ensure—as far as this taxable wealth is concerned it is clear that the taxable wealth of a discretionary trust does not refer to property to which an individual or a company is beneficially entitled in possession on that date—in drafting form that there can be no element of double taxation. I appreciate that practice will not arise, but we are dealing with legislation and we want to make it clear in legislation that the three areas subject to wealth tax here are kept separate and that we do not have a situation where an individual beneficially entitled is subject to tax and that in some way he can come within the discretionary trust to be taxed—he may come in within a private non-trading company and be taxed.

We want it made clear on the face of the legislation that the wealth tax as applied applies separately to each of these three categories. That is not clear on the face of section 5 dealing with discretionary trusts. I am seeking in this recommendation to put in after valuation date in subsection (1) (a) the insertion which makes it clear that the taxable wealth of a discretionary trust on the valuation date will not apply to an individual or companies beneficially entitled to possession on that date. By adding, "other than property to which an individual or a company is beneficially entitled in possession on that date", it would make is clear that the taxable wealth subject in section 5 in regard to discretionary trusts does not relate to and is apart from such taxation on individuals and non-trading companies envisaged under the Bill.

Mr. R. Ryan

I regret that I am at a loss to follow the argument—if I am wrong no doubt the Senator will put me right—that if somebody is entitled to property in possession such property cannot form the taxable wealth of a discretionary trust. I cannot see the need for the insertion of the words suggested.

Mr. Lenihan

It is non-trading companies I am talking about. Perhaps the drafting could be better in that respect. I am referring to the three categories involved, the individual, the discretionary trust and the private non-trading company. I want to separate the individual and private non-trading company from the discretionary trust. That is the purpose. I agree with the Minister that the drafting in my recommendation could be improved by having private non-trading before company and that is the intention.

Mr. R. Ryan

I do not think there is a need for it. I am prepared to examine it. This is only a beginning and we will no doubt, in the light of experience, have to refine the law. As the Bill is drafted I cannot see a need for the insertion of the words suggested. I am somewhat at a loss to understand the anxiety which I presume exists on the part of those who have proposed the recommendation.

Mr. Lenihan

I agree with the Minister that it is refined but it would improve the Bill. The Minister knows that section 3 deals with taxable wealth of an individual, section 4 deals with taxable wealth of a discretionary trust, and section 6 with the taxable wealth of a private non-trading company. The recommendation seeks to ensure that the taxable wealth of a discretionary trust on a valuation date other than property to which an individual or a private non-trading company is beneficially entitled in possession on that date ... I agree that the drafting could be improved, but the recommendation makes it quite plain that the three compartments are separate from the point of view of wealth taxation. It is a refinement of definition. I suggest that the insertion of that makes it clear, as far as this section is concerned, that where the individual and the private non-trading company are concerned they are not included as far as the discretionary trust taxation is concerned.

Mr. R. Ryan

It seems that to include the words would generate doubts which should not exist. Quite frankly, I cannot understand why doubt or anxiety exists. I will watch this and I am sure the Revenue Commissioners will bear in mind the warning that has been issued and if the fears are justified corrections can be made.

Mr. Lenihan

The recommendation is designed to avoid any suggestion of any form of double taxation. I appreciate that the Revenue Commissioners will not engage in that but if it comes up during the year the Revenue Commissioners and the Minister should have a look at it.

Recommendation, by leave, withdrawn.

An Leas-Cathaoirleach

Recommendations 7 and 8 may be taken together.

Mr. Lenihan

I move recommendation No. 7:

In page 7, subsection (2) (c), line 13, to delete "in equal shares".

These recommendations were put down primarily to ascertain from the Minister the precise reason for the section. It seems on reading the section that it is superfluous to insert "in equal shares", that the Minister has all he wants in regard to the wording "parties or individuals beneficially entitled in possession". Why "equal shares?" It is a query and no more than that. I do not like redundant phraseology in legislation. It would be quite adequate without the words "in equal shares".

Mr. R. Ryan

I have some difficulty in understanding the reason for the recommendation. The purpose of the subsection as drafted is to provide a measure of relief in the case of certain discretionary trusts by treating certain objects of such trusts as being beneficially entitled in possession to the trust funds rather than treating the trusts themselves as entities. To exclude the words "in equal shares" as suggested in the recommendation would render it impossible to pinpoint the beneficial entitlement in possession to the trust property. Legally, neither the individual objects as such nor the class of objects as a whole have any beneficial interest in the property comprising a discretionary trust. I am sure that is accepted.

The subsections as drafted meet this difficulty by deeming the trust funds to be taxable wealth of the relevant objects of the trust in equal shares. The result is that a share of the trust funds is related to each individual. He then gets the benefit of the appropriate thresholds to which, as an individual, he is entitled. It is arguable that the recommendation would have the effect of treating each individual as being entitled to the entire trust fund. Presumably that is not what is intended but it would certainly be the consequence of removing the words "in equal shares".

We all know the maximum equity, that equality is equity. The subsections drafted meet this equitable concept in that it should in the majority of cases have the effect of mitigating the tax by dividing the taxable property between the individuals thus lessening the possibility of any individual reaching the taxable thresholds. If we had not got the words "in equal shares" the situation could arise in which it might be deemed that one person would be entitled to all the property and the consequences of that might be that a person might be paying wealth tax by dividing the property between a number of objects. The amount of wealth allocated to any particular individual is as a consequence diminished. It is better for the sake of the objects of the trust to leave in the words "in equal shares".

Mr. Lenihan

I suppose there is no other way it could be done than to have it done on the basis of equal shares. Occasions could arise where beneficiaries under a trust may not, in fact, be benefiting equally or at all, indeed. That may be the situation. I can see there would be enormous difficulty in the case of a discretionary trust inquiry into how the trustees over a period of years had disbursed funds in various manners depending on the exigencies of the situation, while theoretically you could have a situation where a person who had not benefited at all could be deemed to be on an equal position here as a person who perhaps had benefited very substantially. They would both be treated equally. My point is more the deletion of "in equal shares". While theoretically it is right, I can see in practice it would cause some difficulty. Probably the only way in practice the Revenue can deal with this situation is deemed to be in equal shares. It has the anomaly that I mentioned—a person who may not have benefited at all from the trust can be deemed to be in the same position as the person who may have benefited substantially.

Mr. R. Ryan

The Senator recognises that until such time as discretion is exercised it is not possible to say what way it is going to be.

Recommendation, by leave, withdrawn.

Recommendation No. 8 not moved.

An Leas-Chathaoirleach

Recommendation No. 9 has been ruled out of order.

Section 5 agreed to.

SECTION 6.

An Leas-Chathaoirleach

Recommendation No. 10 has been ruled out of order.

Mr. Lenihan

I move recommendation No. 11:

In page 10, between lines 26 and 27, to add to the section the following subsection:

"(6) This section shall not apply to a private non-trading company where all the property, wheresoever situate, to which the company is beneficially entitled in possession consists of stock or shares in a body or bodies corporate other than a body corporate which is a private non-trading company."

Section 6 deals with the category of the private non-trading company. We are seeking to ensure that the section as it applies to a non-trading company will not apply where the property:

to which the company is beneficially entitled in possession consists of stock or shares in a body or bodies corporate other than a body corporate which is a private non-trading company.

In other words, the section shall not apply to stock or shares held by the non-trading company in a body corporate which is not a private non-trading company. We want to confine this section strictly to wealth arising from the holdings of a private non-trading company which—subject to what the Minister says—I take it is the purpose of the section.

Mr. R. Ryan

The practical effect of the recommendation would be that any non-trading company whose assets consisted exclusively of stocks or shares would not be liable as a taxable entity. This would occur irrespective of whether the shares were Irish or foreign. It would be in conflict with the principles of the Bill which, when applied, will tax private non-trading companies as taxable entities in themselves. The recommendation is not acceptable for a number of reasons, including the following.

Clearly it is necessary to make private non-trading companies and discretionary trusts liable as entities in order to prevent avoidance and to ensure effective administration of the tax. If that is accepted, and it must be, there are no grounds for the global exemption of property such as stocks and shares alone from the tax while in the hands of a private non-trading company. Shares which are held by such companies in other private non-trading companies are exempted to avoid an element of double taxation since the latter are themselves liable to tax.

The proposal which is confined to cases where all the assets are shares in companies while all non-private trading companies would be inequitable in cases where, say, 80 per cent consisted of such shares. The proposal would have to be extended to meet such cases. If it were so extended it would give rise to difficult problems of apportionment. I cannot see why it would be appropriate, as suggested in the recommendation, to give the exemption if all the assets were shares in companies but not to give the same treatment if a substantial part of the assets were stocks and shares.

Acceptance of the recommendation would involve the valuing of shares in private non-trading companies. As a consequence it would revive precisely all those tax mitigation problems and administrative difficulties which we sought to eliminate by making the private non-trading company an entity. Clearly it is a difficult field which would be made more complex by the acceptance of the recommendation. No doubt the Senator's recommendation is well intentioned but the consequence would be to generate immense problems for both the taxpayer and the Revenue.

Mr. Lenihan

It is meant to cover the case where in effect this is not a private non-trading company in the sense of the sort of entity the Minister is seeking to catch by this section. All the property to which the company are beneficially entitled consists of stocks or shares in a body other than a private non-trading company. In effect, what I am seeking to exempt is an entity that is not in practice or in effect a private non-trading company having regard to the holdings which they possess in the form of stocks or shares in one ordinary company. The Minister will have a look at this, I am sure.

Mr. R. Ryan

We will certainly want to in this situation.

Mr. Lenihan

In that spirit I withdraw the recommendation.

Recommendation, by leave, withdrawn.

Mr. Lenihan

I move recommendation No. 12:

In page 10, between lines 26 and 27, to add to the section the following subsection:

"(7) This section shall not apply to a private non-trading company nor to a private non-trading company which has control of another private non-trading company (in this subsection referred to as the first private non-trading company) and, for the purposes of this subsection, where a second private non-trading company has control of the first private non-trading company and is, itself, controlled by a third private non-trading company the third private non-trading company shall be deemed to have control of the first private non-trading company, and so on provided that the shares in that private non-trading company or the shares in the private non-trading company deemed to have control of that private non-trading company are—

(a) held solely by a child or children of a marriage either with his or their parent or parents or without his or their parents, or

(b) are shown to the satisfaction of the Commissioners to be held for the exclusive benefit of:

(i) one or both parties to a marriage, or

(ii) one or more named individuals, for the reason that such individual, or all such individuals, is or are, because of age incapacity or improvidence, incapable of managing his or their affairs or for any other analogous reason which, in the opinion of the Commissioners is sufficient to justify the benefits conferred by this subsection."

This relates to an exemption in regard to private non-trading companies which should appeal to the Minister on charitable and social grounds. It relates in effect to a private non-trading company which holds property or assets for the purposes set out in (a) and (b) of the proposed recommendation where the shares in the company are held solely by a child or children of a marriage with parents, or without the parents in one case, or where it is shown to the satisfaction of the Commissioners to be held for the exclusive benefit of one or both parties to a marriage, or in the second case, one or more named individuals, for the reason that such individual or individuals are, because of age, incapacity or improvidence, incapable of managing his or their affairs or for any analogous reason which, in the opinion of the Commissioners, is sufficient to justify the benefits conferred by this subsection.

In other words, this is to deal with not an evasion situation, which is the main purpose of the Minister specifying a private non-trading company. He is dealing with it in order to ensure that in any evasion environment wealth tax applies. This, I suggest, would not come into that category of evasion, a type which should be subject to wealth tax. It instead relates to internal family or charitable situations where held for the benefit of the children in the first case, in the other case where property is held either for the benefit of more parties to a marriage, or in the case of the charitable instance, where by reason of age, incapacity or improvidence, the Revenue Commissioners are satisfied that they are people who are in receipt of the benefits of the non-trading company.

There is the social aspect of the family, and the charitable aspect of particular individuals who the Revenue Commissioners are satisfied are the sole beneficiaries and in sole control of the particular private non-trading company.

They are instances based on the social principle of the family where there is catering for a family internally, either at husband-wife level or child level; and also in the case of the purely provident or charitable level providing for people who are incapacitated or incapable of managing their affairs. These would appear to be cases that do not come into the avoidance or evasion area that the Minister is seeking to catch in the section. They are related to the social family objectives and to very laudable charitable objectives.

Mr. R. Ryan

It must be remembered that a private non-trading company can be very easily unscrambled, unlike many a discretionary trust, or there might be difficulty in unscrambling a trust. If the parties interested in getting the various exemptions and thresholds of the Bill wish to do so, they can unscramble the private non-trading company and vest the assets in the shareholders or in the trustees on their behalf. In that way they can get all the benefits of the Bill. It is not necessary, therefore, to have provisions in relation to a private non-trading company similar to those which operate in the case of discretionary trusts. For that reason the analogy of the special provisions and the special situations which arise in relation to discretionary trusts is not a valid one.

It is almost impossible to visualise a situation where a company would be set up or would be in existence solely for the purposes for which we are giving special treatment in relation to discretionary trusts. A situation where all the shares of a company will be owned or held on behalf of such a person or where the dividend policy of the company would be dictated by the circumstances of those persons would be most unusual. If a company were controlled by such persons, the shares would be vested in them or in nominees and trustees for them. There would be no situation analogous to the discretionary trust. I accept the good intentions behind the recommendation but I would respectfully suggest to the Senator that, having regard to the ease with which people may unscramble companies if they want to in order to get benefits for the people he has in mind, there is no need for the recommendation.

Mr. Yeats

I would suggest to the Minister that while he would have been perfectly correct two weeks ago in saying that it was very easy to unscramble companies, I do not think it is at all too easy now since the enactment of the capital gains legislation. In the case of one of these long standing companies that might have been in the family for 20 or 30 years, if you try to unscramble it now you would find in many instances an enormous notional capital gains tax would have to be paid where investment property had been held for 20 or 30 years. Whether money passed or not is irrelevant. Various members of the family would find themselves with huge bills of capital gains tax to pay. The situation is likely to occur increasingly from now on that people will be stuck with these companies. Short of paying the Minister huge sums in capital gains tax, they may well have to leave them the way they are.

Mr. R. Ryan

There was never a better time to unscramble these arrangements than now having regard to the fact that capital gains tax is only operating for just over a year and also having regard to the fact that, unfortunately, due to world economic circumstances, many values have declined in the interval. There are many arrangements in different countries which reflect the tax laws of the country, and tax laws change; people re-arrange their affairs. I have no doubt that anybody who might be interested in unscrambling private non-trading companies as a result of these Bills will do so. I am reasonably happy that they would be able to do so now without rendering themselves liable to any significant capital gains tax liability.

Recommendation, by leave, withdrawn.

Question proposed: "That section 6 stand part of the Bill."

Mr. Yeats

I have a question on the section. In subsection (4), paragraph (a) of section 6 there is the following definition of "relative":

(i) a husband or wife, or

(ii) lineal ancestor, lineal descendant, uncle, aunt, brother, sister, descendant of a brother or sister, or the wife or husband of any of those persons;

But subsection (2), paragraph (c), subparagraph (ii) of section 9 states:

For the purposes of subparagraph (i) references in this section and in section 6 to a relative shall be construed as references to a person who is the spouse or a minor child of the person in relation to whom the expression is used.

As I understand it in section 9 it is necessary to have a different definition of relative than in section 6 but it puzzles me that there are two separate definitions in section 6. There is the one contained in section 6 and the one that is pushed over into section 6 by this subparagraph of section 9. I am sure the Parliamentary Draftsman had a reason for this.

Mr. R. Ryan

I am not too clear as to what the Senator's difficulty is. In section 9 we are dealing with a certain category of relative, those who are presumed to create a controlled situation. That is obviously more likely where the relatives are close. But in section 6 we have, for the purposes only of section 6, a more extensive definition of relative to include husband, wife, lineal ancestor, descendant, uncle, aunt, brother, sister, descendant of brother or sister, or the wife or husband of any of those persons. It is not unreasonable to assume that it might be difficult to avoid a control situation over all those distant relationships. That is why we are not presuming, for the purposes of section 9, that a controlled situation could be exercised with such a very wide family tree as we have in section 6. The Senator will probably see that there are different situations.

Question put and agreed to.

SECTION 7.

Mr. Yeats

I move recommendation No. 13:

In page 10, subsection (1), line 39, after "used" to insert "solely".

I should point out that this recommendation is not worded correctly. During the course of the debates in the other House the Minister brought in an amendment to add the words "mainly" after used. So what I am seeking to do is to delete the word "mainly" and put in "solely". Perhaps we might discuss this recommendation on that basis. At the moment the paragraph concerned reads:

... part of which is used mainly for the purposes of a trade, business, profession or vocation....

The Minister's amendment which he introduced in the Dáil is clearly a very considerable improvement on the original which would have said that where a dwellinghouse or part of a dwellinghouse was used at all for trade, profession and so on, the exemption in this paragraph would not apply. Obviously the insertion of the word "mainly" is a considerable improvement but I put it to the Minister that were he to accept the word "solely" instead of "mainly" it would save him a lot of administrative trouble. Even as it stands with "mainly" there will be many problems involved in trying to assess the extent to which a house is used for trade, business, profession and so on. A dwellinghouse under this section is totally exempt from wealth tax. The part concerned ceases to be exempt in so far as it may be used for purposes of trade, business, profession or is let for the purposes of trade, business, profession and so on.

In some cases, obviously, there is no difficulty. For example take the case of a doctor's surgery. It could not be used for anything else. I cannot see any problem arising in that case. But take a lawyer's study—this might well be a room filled with books and in practice not used by anybody else. But equally it could be used partly by the lawyer concerned and partly by the members of his family. It could be a question of an academic library which could be the normal contents of a house or an elaborate library of a university professor. The question is whether such a room was used mainly for professional purposes or whether it was used by members of the family.

Another case where no problem would arise would be an artist's studio. It is difficult to see an artist's studio being used for anything except the profession of an artist. There are various forms of professional activity at home. Somebody could be running a créche for babies. In normal circumstances such a room would be the sitting-room of a house. As to whether it was used mainly as a créche or mainly as a sittingroom would cause problems in regard to determination. A music room would be in the same type of category, or a room used for professional dressmaking, or a room used for private teaching. All these examples could cause considerable problems of interpretation. Since in most of those cases only one or two rooms at most would be involved the proportion of the value of a house concerned would be relatively small when the amount of possible wealth tax collected would be minute, perhaps a few pounds in the year. In view of the small amount of money involved and the endless complications, negotiations, administrative expense that would be involved, and indeed the considerable difficulty of enforcing the payment of the tax by householders who merely carried on activities of this kind at home, of proving that they did and persuading them to admit that they did, one wonders why the Minister is insisting on dealing with this matter.

One does not want large-scale evasion. The Minister has been pointing out all along that he is trying to reach a situation where there will not be evasion and avoidance. But in this case where parts of a private house are being used for professional activity I would have thought that the type of cases which could lead to large-scale evasion would be easy to track down. Obviously, if somebody has a shop downstairs, it would be easy to see quite clearly if it was used solely for business purposes. The same with a doctor's surgery. It is difficult to see how questions of evasion of more than about 150 pence a year could really arise. I would put it to the Minister that he ought to think in terms of a total exemption of the principal dwellinghouse, and the only parts of it which would cease to be exempt because of professional activities would be those which would be used solely for these activities.

Mr. R. Ryan

We did have a discussion on this matter as a result of which the word "mainly" was inserted. I do not feel that we would have any less difficulty in administration if we were to use the word "solely" instead of the word "mainly". I think the exemption which is given in relation to the private dwelling is a very generous one. It is exceptional, as I have pointed out on a number of occasions. Other countries' wealth taxes do not exclude the private residence. In Britain they do not propose to exclude the private residence. They argue very strongly there that it would be wrong to exclude the private residence as a taxable entity having regard to the element of voluntary expenditure which arises in relation to private residences in the case of people who are in the wealth tax bracket. People could invest in very substantial dwellings in order to avoid liability to tax whereas, were they to invest in other forms of property, they might become liable to tax.

I would agree that the amount of revenue lost by fiddling around with the wording of this particular subsection would not be very great. But we must apply the brake somewhere. Having regard to the very generous exemption which is being provided by exempting the dwellinghouse we must ensure that the exemption is not then applied to property which is used for the purpose of a trade, business, profession or vocation. We do not want to have to make inquiries as to the number of hours for which a place is used and so on. We do not want to put taxpayers in the position that they could find themselves liable to tax if they allowed somebody to sleep in the study or to sleep in the studio or use it temporarily for private purposes. The word "mainly" covers most normal situations. It is a brake on the exemption. It ensures that the exemption applies only to private residences or to such properties as are used as private residences and not to those portions of those properties which may be used mainly for some other purpose. I would respectfully suggest that the objective is achieved by the use of the word "mainly" and we should not make the proviso more restrictive by putting in the word "solely".

Mr. Yeats

I was not really thinking of any hardship on the taxpayer. I do not think it comes into this. I was putting it to the Minister on the basis that it seems likely to cause considerable administrative complications. It is of no purpose. The sums are so small that it would certainly not be worth following up, and I would agree with the Minister that one cannot imagine the Revenue Commissioners starting to chase through people's houses to see whether they went in for dressmaking and so on. For that very reason, one wonders why the Minister does not use the word "solely", which would certainly cover the kind of cases he wants to check on—the man who has a shop in the front garden, the auctioneer who has an office in the house, the doctor who has a surgery. All these people quite obviously could be caught under the word "solely" and I do not think that they would be able to dodge tax by saying the family put a bed in there and slept the odd night. It would appear to be fairly clear.

This whole question of people's houses and the use they make of the different rooms in them and so on, one feels somehow that tax legislation ought not to get involved in that kind of thing except on a strict professional basis where you quite clearly have a surgery, office, shop or something like that in the house. It is not a point I wish to press. Obviously the Minister's amendment in the Dáil is a considerable improvement, but it seems to me that, by adopting this proposal, he would save himself a good deal of expense and the Exchequer would certainly not lose any money.

Mr. Lenihan

Very briefly, on a view of the matter the recommendation is actually in ease of the Administration and the Revenue in that, as the word "mainly" now stands, an investigation of some sort has to be made, whereas if the word "solely" is there, no such investigation takes place. It is an recommendation which eases the position of the Administration and the Revenue. The Minister should take a view of it.

Mr. R. Ryan

I went half way by adopting the word "mainly".

Recommendation, by leave, withdrawn.

Mr. Yeats

I move recommendation No. 14:

In page 10, subsection (1), to delete lines 48 to 50 inclusive and substitute:

"(b) furniture, household effects and personal chattels being the normal contents of a dwelling-house, or part of a dwelling-house, to which paragraph (a) applies having regard to the type and size of such dwelling-house, or part of a dwelling-house;".

This is a more substantial point. I am worried about the whole problem of the normal contents of a house because one can see that a very great deal of trouble will be caused. A great deal of trouble will be caused to the Revenue authorities and the Administration, and a great deal of worry will be caused by individual taxpayers also. It is not a situation where you can simply say to the Revenue people that your house is exempt with normal contents and then forget about it. This Bill provides, as I understand it, that, in making the return of your taxable wealth, you have to make a return also of exempt items. If you have livestock you have to list their value. In the case of a dwelling house, you have to return it with its contents, value it and so on. That is provided in the Bill. Therefore this is a matter which is going to exercise a good many people even where, in fact, ultimately it may be held that the contents of the house are normal contents and therefore they may be exempt. The whole field of the normal contents of a house appears to be an extraordinarily big one. One wonders what criteria the Minister will adopt. I am not sure that this recommendation is the answer. Possibly it is not but at least it is some kind of answer rather than the bald reference in clause (b) to furniture and household effects being the normal contents of a dwelling house or part of a dwelling to which clause (a) applies. Obviously the size of a house in itself is not necessarily a guide to its contents. You could have a man who was not particularly interested in houses living in a small semi-detached house who all his life had been collecting valuable paintings, jewellery, antique furniture and so on. You could have extremely valuable contents in such a house, whereas other people who are interested in houses could have a very large house in which the contents were relatively lacking in value.

What is normal? Obviously a certain number of pictures, for example, hanging on your wall would be normal contents. Is the man who has a Renoir in possession of normal contents of a house? If he has bought a Renoir as an investment and keeps it in the house, particularly if he has bought it and is keeping it in the house with a view to dodging tax, one could probably say it is not a normal content. If he is a man who likes pictures and buys pictures from time to time because he likes sitting in his drawing-room and looking at them, and he has a Renoir hanging on the wall, it seems to me that it ought to be counted as a normal content. I would be interested to know what the Minister's view would be in this case. Indeed, he could have a whole collection of paintings.

I am not talking here about the type of collection which is referred to later on in this section, which is of national interest, and so on, and if the public are allowed in to see it, it has a special exemption of its own. I am talking about a type of painting collection which appeals to the owner of the house because he likes paintings. It is valuable. As far as he is concerned it is part of the normal contents of the house because he has not bought it with a view to dodging tax or investing or anything like that. He just likes having pictures hanging in his house. The pictures could be cheap framed prints bought in a department store, or they could be very valuable paintings. This is one type of problem.

Then there is the man who likes valuable antique furniture. Here again, his dining-room table could be quite a cheap thing, bought from some department store, or it could be a valuable 18th century piece which he bought because he likes good furniture. I take it this would be a simpler case. It probably is normal antique furniture unless the Revenue Commissioners are in the happy position of being able to prove he has been buying this antique furniture with some tax avoidance aim in mind.

There is also the question of jewellery. Everyone has some jewellery. It may not be worth much but everyone has some and it is a normal content of a house. At what stage does the jewellery become so extensive or so valuable that under this paragraph of this section it would be counted as not being part of the normal contents of a house?

There are books. Everyone has some books. Some have more than others. Some people have whole libraries. They could be libraries of paperbacks or libraries of extremely valuable books which a person had been collecting all his life. At what stage do these cease to be the normal contents of a house?

The whole field is bristling with problems. Some people like silver or valuable Persian carpets. Everyone has some carpets, and whether these are cheap or valuable carpets they could still be counted as the normal contents of a house. I suppose one can say that the measure of the test would be that, if they had been bought genuinely for the house because that is the way the owner of the house likes to have it furnished, they ought to be counted as the normal contents. How does one distinguish between a man who has bought Persian carpets because he likes to have them on the floor, and the man who has bought Persian carpets because they are an investment and this is what he does with his money rather than buying shares? I suppose conceivably they could be both. A man could buy valuable furnishings for his house because he likes good furniture and at the same time have in the back of his mind the feeling that if a rainy day comes he can always sell them at a profit.

Will every householder who might be affected have to make a return of the normal contents of his house? If he does not make a return of the normal contents of his house, how are the Revenue Commissioners to decide whether they are normal contents or not? A considerable number of people may be involved. The Minister tends to talk as if only the very wealthy with £100,000 or more are involved in this Bill. There are considerably more people than the Minister has suggested. A single person, for example, is liable to wealth tax at a threshold of £70,000. A section of this Bill provides that all those whose taxable wealth is 75 per cent of that threshold must make a return. That brings the single man or woman down from £70,000 to £49,000. How are you to find out whether you are at this £49,000 level at which you have to make a return? You cannot tell whether you are until you have made a valuation. Therefore, for safety's sake, anyone around the £40,000 mark would really have to get a valuation of his possessions and make a return.

I will not go into this in detail because obviously it is a matter we will be discussing later on. As inflation develops, very large numbers of people—whether they are liable for tax or not is not my immediate point —will find themselves liable to make returns and get valuations. The question of the normal contents of the house will affect a considerable number of people. It is important, therefore, that we should have some idea as to the principles under which the Revenue Commissioners will operate. The recommendation I am putting before the House at the moment does not completely fill the bill, but no recommendation could. It makes the basic point that the type and sizes of the dwelling house should be taken into account. That will not cover all issues. It will not cover a situation where a man happens to like living in a small house with very valuable contents. Nonetheless you could have some idea as to the type of contents which might be considered to be normal depending on the size of the house. The basic point is that it is important that the Minister should be in a position to tell us the kind of attitude which the Revenue Commissioners will adopt on this question of what are the normal contents of a house.

Mr. R. Ryan

Measuring the contents by the value of the house might be unfair to the taxpayer. The formula we have adopted is one which leaves the widest possible discretion to individuals as to the manner in which they hold their property. It might be unfair, for instance, to a person of considerable means who decided to acquire a small dwelling rather than a large one if, because he furnished that particularly well and much better than people who normally occupy property of that size, he had to pay tax merely because he was housing his possessions in a small dwelling. He might be living on his own.

An elderly widow or widower might sell a substantial mansion and go and live in a small house and bring quite valuable things with them. It would be rather harsh in such circumstances to impose wealth tax upon the possessions which people might, in the autumn of their days, keep for comfort and for happy memories. The effect of Senator Yeats's recommendation would possibly be to tax some portion of such property which a person might retain and, knowing Senator Yeats's generous and humane disposition, I am sure he would be revolted by such a possibility and he would not wish such possessions retained by a person on leaving a big house to be subject to tax.

We must leave some matters to the discretion of the Revenue Commissioners. We cannot legislate for all possible situations. In practice, what will happen under this section is that, if the Revenue Commissioners have reason to believe some items are very valuable and beyond what is normally retained in a private dwelling, they will assess such property for tax purposes. Of course, it will be open to any person potentially liable for tax to dispute any such assessment if it is made and, if agreement is not reached between the parties, then the matter can go to appeal.

Other countries have dealt with this in a variety of ways. Some, for instance, have provided that the contents should not exceed in value more than a fixed percentage of the value of the house itself. That would lead to the kind of disadvantageous situation I have just illustrated of the person selling off a large house and going into a smaller one. Other countries exclude such items as are retained for current use and are not acquired for the purpose of resale. The adoption of such a formula would also call for the exercise of discretion on the part of the Revenue Commissioners.

The normal contents clause would not arise in respect of most taxpayers. For estate duty purposes, the Estate Duty Office has applied a rough and ready rule of thumb over the years. They have not made a practice of requiring a detailed inventory and valuation of all items in private dwellings. But where they had reason to believe that contents might be valuable, they have, in practice, called for valuations. They will operate this section in the same way.

Clearly, the amount of tax to be collected on the contents of a house, will be quite marginal in the vast majority of cases. It will be neither here nor there. It would not be worth the Revenue Commissioners' time to make an assessment as to what was normality in relation to contents. We consider it desirable that they should have a discretion to look to the valuation of the contents of a house in cases where they might have reason to believe there could be items of very considerable value. Clearly, if the contents of a house far exceeded the remainder of a person's wealth, it would be reasonable to assume that such contents would not be normal. I am talking about people who would be in the wealth tax bracket. If they have some individual items in the house which far exceed their other wealth holdings, then it might be reasonable to form the opinion that the contents were more than normal. The final decision will not lie with the Revenue Commissioners themselves. If matters are not settled between the Revenue Commissioners and the taxpayers then they will go for adjudication on appeal. No doubt this will build up a certain amount of case law. In the course of time, it might be easier to say what these particular words mean. At this stage it is desirable to leave the discretion there to see how the system operates. If we find that it is not operating satisfactorily, giving rise to anomalies or injustices, of course we would be ready to consider the possibility of amending legislation, or possibly provide some fixed percentage, such as Senator Yeats might have in mind or relate it specifically, as he suggested, to the value of a house. It seems to me that no matter what particular method is selected difficulties will be involved. The one that will cause the least difficulty is leaving it to the discretion of the Revenue Commissioners to consider the merits of the very few cases where this will be a relevant issue in determining a person's tax liability.

Mr. Yeats

As I have said already, I do not stand over the wording of this recommendation as the answer to the problem. It is clearly a problem to which there is no simple answer. I really put down the recommendation to get some idea from the Minister as to what will be done. I think I can interpret the Minister's thinking this way. In practice, except in rare cases, the Revenue Commissioners will not investigate the normal contents of a house. I am glad to hear that, and it ought to be so. The Minister referred to the valuations which take place on a death. It is one thing when somebody has died, the family arrangements are being transformed, houses sold and so on; anyway, everything has to be done for the purpose of administration of the estate. This is a gruelling and expensive process. But to ask a taxpayer, except in an extremity, to go to the expense of getting a valuation of everything in his house is something which should not be done, even if it was patently obvious that somebody was trying to fiddle the books.

I can see the Minister's suggestion, that is not the way he put it, that if one had a Renoir hanging on the wall among many prints, one might well be suspicious. But there might be other cases where somebody just liked collecting paintings, furniture or whatever it happened to be. These could be very valuable indeed. Yet in such a person's circumstances, they could be normal contents. I hope that the Revenue Commissioners will look at the motive in such a case rather than at the actual contents.

I also gather from the Minister, and am happy to hear it, that normal contents would be normal to the individual concerned, his lifestyle, inclinations, whatever wealth he possessed and so on rather than normal to a house which would constitute a totally different situation. I should not like to see this being interpreted in that way.

I am happy to withdraw this recommendation. We have received a good deal of information from the Minister and I am reasonably satisfied with the results.

Recommendation, by leave, withdrawn.

Acting Chairman (Mr. Brosnahan)

Recommendations Nos. 15 and 16 are related and may be taken together.

Mr. Lenihan

I move recommendation No. 15:

In subsection (1), page 11, between lines 19 and 20, to insert the following:—

"(g) the right to receive any benefit or any annuity or periodic payment which, when added to any such right, if any, under any of the schemes, provisions or arrangements referred to in any of the subparagraphs of paragraph (e), other than subparagraph (iii), would yield an entitlement equivalent to the superannuation entitlement of a civil servant having a similar income and contribution record;

(h) the property of any scheme or arrangement assuring or supporting the right to receive any benefit, annuity or periodic payment referred to in paragraph (g)."

These two recommendations are cognate and are designed to ensure that no prejudice is shown a person in receipt of an annuity under the various schemes envisaged by the Minister in subsection (e) and enumerated in recommendations Nos. 1, 2, 3 is excluded, 4 and 5. This recommendation seeks to ensure that, in any case where there is a right to receive, under the various schemes outlined by the Minister—excepting the one I have referred to—where, in addition, there is a right on the part of the recipient, to an entitlement equivalent to the superannuation element of a civil servant having a similar income and contribution record, the addition of the two, the entitlement and the benefit—provided it did not exceed the civil service category—should not prejudice the recipient of the annuity. Paragraph (h) of recommendation No. 15 also fits into the same principle.

The aggregation of the two annuity rights, provided it does not exceed the entitlement equivalent to the superannuation entitlement of a civil servant, should be included in the exemptions category listed here by the Minister.

Business suspended at 1 p.m. and resumed at 2 p.m.

Mr. Lenihan

The recommendations being discussed together, Nos. 15 and 16, are related to the exemptions section, section 7. I was emphasising before we adjourned that the Minister has very rightly set out appropriate exemptions under what one might call the annuity part of the section where the right to receive any benefit or any annuity or periodic payment under various headings is excluded for the purpose of computation of property liable to tax.

I was making the point under recommendation 15 that, leaving aside the Social Welfare Act payment, the right to receive any of these other payments added to any other annuity or periodic payment should be regarded as being within the exemption category, so that the aggregation of any one of the schemes envisaged by the Minister, together with the right to receive any other benefit not included under the Minister's headings, should, as long as it did not exceed a yield of entitlement equivalent to the superannuation entitlement of a civil servant, be regarded as an additional exemption.

Recommendation No. 16 is on the same line of country but it relates to the capital value of such entitlement, as is envisaged by the Minister under (f), in particular, and (g), to some extent, of the list of exemptions starting with subsection (1) (a). In other words, recommendation No. 16 seeks in regard to the actual annuity, that the same principle should apply to the proportion of the net market value of the property comprising the taxable wealth of an assessable person as is equivalent, on the relevant valuation date, to the capital value of the superannuation entitlement of a civil servant.

I think it is quite clear what is intended by both these two recommendations. It is in my view a very practical improvement seeking to ensure that, if the principle of these benefits, both in the annuity sense and in the capital sense being exempt from wealth tax is admitted and indeed, agreed by the Minister, as witness the particular paragraphs of section 7, it would seem equitable, provided these exemptions do not exceed the limits I have suggested, which should be the limits of equivalent civil service annuity entitlement either in payment or in capital, additional exemption should be included. The only distinction between the two recommendations is that of income or annuity as against capital. But whether it be on a current or capital basis the exemption proposed would appear to be reasonable in all the circumstances and in accordance with the broad principle envisaged by the Minister himself in setting out these exemptions under the section.

Mr. Yeats

I should like to support these recommendations. The problem, I suppose one could say, is essentially one of inflation. The problem arises in this way. Take, for example, a secretary of a Department or that type of grade, who is earning at the moment £11,000 per year. When such a person retires he has built into his terms and conditions a pension for the rest of his life of half his present salary. That is all very well in this year of 1975 but by the time such a person retires in, say, 1985, that is, after, perhaps, ten years' inflation at the present rate, it is likely that the going salary for that grade under present arrangements would be around £44,500 per year. He will not be any better off than now but that is the salary on which he will retire ten years from now. Therefore, the pension would be some £22,000 a year, with a built-in arrangement—of which one must wholly approve—for increases in accordance with living costs. A person in the public service has this arrangement as part of his conditions of service. For a private individual, a self-employed man, to get this type of pension it is impossible. It is difficult to provide for this situation with a tax of this kind. It is a built-in problem with the whole concept of a wealth tax that the concept of wealth is so artificial. The concept of wealth, particularly large property, is an artificial one that is not related to the realities of life. A person who is on a secure salary of, say, £11,000 per year, increasing automatically with the cost of living, with a pension of half his salary and that pension, in turn, raised year by year in accordance with the rise in living costs, is a man of wealth compared with a person who is trying to make his own way in the world and trying to secure some kind of pension or ease for his last years. If that person collects together property, money, investments with a view to acquiring a pension for himself in his old age he is considered to have wealth although, in fact, his actual income will be considerably less than that of the person of whom I have spoken. These recommendations are an effort to deal with this problem, to do something to equate the position of a private individual in this category with that of a public servant who has a built-in provision which is of benefit to him but which does not bring him within this artificial ambit of production of wealth.

Mr. R. Ryan

Superannuation benefits, in common with analogous benefits provided by private individuals for themselves, are amongst the several forms of property which are exempted by section 7. Amongst the other items which are exempted are private dwelling houses and their contents, livestock, bloodstock, certain Government securities and so forth. To understand what is involved in exempting superannuation benefits we must understand one of the underlying principles of the Bill. Only present rights for the enjoyment of property, as opposed to having future rights, are liable to tax. Only present rights are liable; future rights are not liable. Therefore, the right to enjoy a superannuation benefit in the future is not within the scope of the tax any more than is the right to enjoy in the future any other benefit, life interest, or annuity of any kind.

To put it another way, property to which a person is entitled in possession is the only property which is liable to tax. The definition section of the Bill makes that perfectly clear. One exception to the rule is contained in section 4 and is the one we discussed earlier where a person creates a reversion to himself. The result is that future interests in property do not come within the scope of this tax. The tax is not concerned with future interest, with remainders, or reversions, except for this one exception. What superannuation schemes are all about is this: they provide a future right to an income but that is a right which is not taxable. We can narrow down the individuals to whom section 7 applies to persons over retiring age, normally 60 or 65 years of age, or persons who have been retired for ill health at an earlier age and who are in the wealth tax bracket.

The next point to consider is, what is involved in this exemption tax-wise? What is the value for tax of the benefit or annuity? The House will recall that section 3, subsection (3) provides the method of valuing all annuities which are not charged under specific property, and this valuation applies to pensions payable under superannuation schemes. Bearing in mind that we are talking only about pensioners in actual receipt of pensions in these recommendations, I should like to make a few points. As I understand these recommendations, the object would be to treat all wealth taxpayers in the pensioner age group as if they had been in the civil service all their lives and made all the contributions and fulfilled all the obligations necessary to qualify for civil service pensions, including, of course, giving many years of service in the public interest. The recommendations appear to be cumulative, and they also appear to leave themselves open to many questions. I could not go into all the questions today, but there are some points I should like to mention specifically.

It is, perhaps, significant that there is no provision similar to that suggested in these recommendations to be found in any other country in relation to wealth tax and, as far as can be ascertained, writers on the subject have not advanced the idea.

Mr. Lenihan

We can do better sometimes.

Mr. R. Ryan

I accept that. I accept that Seanad Éireann can sometimes come forward with brilliant ideas, and I would not like it to be assumed that because others had not thought of the right thing the Seanad would not.

One of the latest works on wealth tax was written by Messrs. Sandford, Willis and Ironside and published this year, entitled An Annual Wealth Tax. They say, at page 139:

The conclusion is that pensions and pension rights should be exempt, as the British Green Paper proposes whether they arise under the national scheme, a statutory scheme, or an approved private scheme. Similar exemptions should be given in respect of the retirement annuities provided for themselves by self-employed persons and non-pensionable employees where the conditions for income tax relief are satisfied.

That is exactly what we are doing in the Bill. The effect of the recommendation, however, is to provide a special additional threshold for certain people.

Mr. Lenihan

Within a ceiling.

Mr. R. Ryan

Such people can arrange a private pension scheme analogous to that which a civil servant enjoys. They can arrange it and pay for it during their lives. Civil servants are deemed to be contributing towards their own pensions. Their salaries are adjusted to take account of the fact that they are receiving pensions. If they did not receive their pensions their salaries would be higher. This matter has been well established by arbitration tribunals, Labour Court hearings and in other tribunals which have looked at civil service pay down through the years.

The recommendation is asking for a benefit outside of the public service which would not be available to the civil servant whose discipline and activities would not have permitted him to build up a capital fund such as would enjoy this additional threshold as proposed in the recommendation. Unlike the case of the person in the civil service, who is taken as the prototype, no account could be taken of factors which affect the amount of the benefit, such as the length of service and the contribution. The additional threshold could be available irrespective of many factors, the least of which might be the fact that the wealth accrued to the individual because he or she was not prepared to enter into any employee relationship and possibly because the person was unwilling to enter the civil service.

Once the principle of special thresholds was admitted, it would lead to demands for further extensions. There should be, on the same principle, differentiations between people of similar wealth, to take account of such factors as state of health, family circumstances and whether the individual had a salary in addition to his wealth. To ensure equity, it might be argued that there should be progressive rates of wealth tax, increasing with the amount of the wealth instead of the proposed flat rate which ignores differentiation in amounts of wealth.

There might be some justification for considering the suggestion if the thresholds for liability were much lower and if there were no exemptions such as those for a private dwelling house and contents. The thresholds, exemptions and reliefs in the Bill, combined with a very low effective rate of tax on all the assets of taxpayers, are such as to render any further refinements based on individual circumstances unnecessary. The more one would attempt to refine the more one would be prone to multiply inequalities and inequities.

In one way or another all exemptions bring about some element of discrimination—discrimination in favour of those who enjoy the exemption and a sense of discrimination against other people. It seems to me that the recommendations are based upon the assumption that because some benefits are exempt from tax unfair treatment is being bestowed upon others. The more I hear complaints about inequitable treatment the more I begin to see that perhaps one is wrong to have any exemptions. If we had accrued wealth tax without any exemptions it seems there would be fewer complaints than we seem to generate by endeavouring to tailor the wealth tax in such a way as to take account of special problems.

The fundamental issue here is whether or not we are taxing present or future possessions. We are not taxing future ones; we are taxing present ones. The right which a civil servant has to a superannuation benefit at some date in the future is not a right which he can transfer, not a right he can dispose of here and now, but the recommendation seeks to get special treatment for possessors of wealth which can be disposed of, for property which may well give a person an income. It has the advantage not merely of producing an income but it also has the advantage that it can be realised. A civil servant cannot realise his pension either before or after his retirement. How are we going to get complete equity? If we accepted the recommendation we would have to produce some other formula to ensure complete equity, because you cannot treat the right to a pension and an accumulation of property which gives an income in precisely the same way, and still have complete equity.

Mr. Lenihan

In framing these two recommendations we did not wish to draw a tax distinction, as the Minister appears to be trying to draw, between a civil service annuity and an annuity from some other source. We are trying to achieve some degree of equity as far as the person in receipt of a benefit or annuity from some source not covered by the Minister in his exemption provisions is concerned. We are merely incorporating the civil service entitlement as a yardstick to ensure that this equity was achieved. There was no attempt to draw any distinction between the civil service annuity and the non-civil service annuity. The Minister is drawing a red herring across it. It is not a question of the civil service superannuation scheme versus some other form of income. That is not the issue. We are seeking to incorporate some yardstick into the recommendations which would yield some equity to the people in receipt of an income from annuity categories not covered in the Minister's list as set out under section 7, subsection (1) and by seeking to aggregate such an income with the exemptions set out by the Minister, provided the aggregate did not exceed civil service superannuation level— that was merely chosen as a yardstick level—with no attempt to draw comparisons between the two categories. I do not like comparisons of that kind. They are irrelevant to what we are talking about. What we are talking about here is an attempt to ensure that if a person does have an annuity or income outside the exempted categories, as set out by the Minister, that is added to the exempted category and if the aggregate or total is below the level of the equivalent to which a civil servant is entitled, that that should be an exempted category. It is no more and no less than that.

Mr. Yeats

The problem is, as I mentioned, essentially one of inflation. For a person without superannuation entitlement that a civil servant has to get himself an equivalent pension to that of a secretary of a Department, allowing for inflation, will cost over £300,000—£326,000 is the figure that has been suggested. This is an enormous sum. It is not possible to get a pension of this kind in which allowances will be made for increases in living costs and so on, through an insurance society. If somebody lives for, say, 15 or 20 years after retiring, in this period, with the kind of inflation we are likely to have in the foreseeable future, even if it does fall very considerably below the present level, it will mean that a pension in the private sector, while it might be adequate at the start of retirement, will become practically of no importance by the time he dies. This is the problem we face. If one is in a position outside the public service, to acquire enough property to give himself some reasonable pension when he retires, the sum involved is so considerable that he would also be liable to a relatively heavy impost from this wealth tax. That is the problem that we seek to meet in these recommendations.

Mr. R. Ryan

I want to refute entirely the suggestion that £300,000 is the capital value of a civil service pension, even of a pension payable to a senior official. The figure which Senator Yeats quoted was one which was offered by Deputy Colley in the Dáil. I pointed out there that the appropriate figure for a pension of £5.500 would be in the region of £40,000 and not £300,000. The value of an annuity is arrived at, as I mentioned when I was speaking earlier under subsection (3) of section 3, by taking the current yield on 11 per cent national loan, 1993-1998. The appropriate yield there would be 14 per cent. That gives a valuation of £40,000 and not the figure of £300,000 that has been suggested.

I have seen this figure suggested in some correspondence in the public newspapers, which I think was rather spiteful and envious. I hope that people will not make their judgement on the basis of envy or spite. I am not suggesting that the Opposition are for one minute, and I hope nobody will take umbrage, but there have been some rather nasty remarks about public servants in respect of the superannuation provisions in this Bill which were rather unfortunate. I will not describe them in any more severe language than that. If the pension is taken at a capital value of £40,000 the pensioner would have to have taxable assets over £60,000 in addition before there would be any question of tax liability.

There has been a great deal of unfortunate misunderstanding of the situation, I hope that my clarification here today and in the Dáil on the principle underlying the Bill will help remove some of this. We are dealing with the current possession of rights, not with entitlement to future rights. That is the basic principle. The Opposition have not offered any answer to that particular aspect. If we were to breach that principle we would have to rewrite the whole wealth tax code and tax not merely the present possession of a benefit but also entitlement to future benefits. That might create a great deal more hardship than people would bargain for.

Mr. Yeats

First of all, I would like to assure the Minister that I do not feel any sense of envy of public servants in their pensions. It seems to me that a man who retires on a pension which is just half his former salary is not doing unduly well. It is the least one can do for people who have spend their lives in the public service. I do not feel any sense of envy that they are doing better than they ought to. I do not know what letters the Minister has been referring to. I did not see them.

The Minister in his reference to the cost of a pension of £5,500 as £40,000 misunderstands the point I was making. The basic point is if you retire on a pension of £5,000 ten years from now the likelihood is that in real terms that will be worth £1,250. In 20 years from now who knows—£200 or £300. That problem is rightly solved in the public service by the concession won from governments comparatively recently after a long period of effort, that public service pensions will rise in accordance with rises in the cost of living. On that basis, even at the £5,000 level, the Minister will find that the capital value put on the market will be far higher than £40,000, if one allows for a constant series of automatic rises to meet rises in living costs during the rest of the lifetime of that public servant. As I understand it his £40,000 figure is merely a flat rate of £5,000 falling in real value year by year.

That is not the point we are making at all. The figure of something over £300,000 is for the pension of a person at the grade of secretary of a Department ten years from now when, to keep real standards as they are this year, he would need something over £40,000 of a salary, retiring, therefore, on something like £20,000 or £22,000 a year and that retirement pension rising year by year as living costs go up. It is in that situation that the calculation is made. His is a much simpler calculation which is much more suited to the normal situation of a private individual trying to look after his old age that he has to get himself some sort of a flat rate pension which falls year by year in real value.

We are not pressing these recommendations. We wish to make the point that while the Minister's aim in this wealth tax is to achieve equality between all sections of the population it does not really, because it hits in such an artificial way that this concept of wealth, so called, is a very artificial one, whereas to the ordinary man in the street who hears there is to be a wealth tax he thinks of this as hitting somebody who earns a great deal of money. That is quite irrelevant. It is not a matter of the man's salary or his pension. It is a matter of the property that he happens to own. In this case it means that a person in one section of the community who retires on a pension moving steadily upwards with the cost of living has no wealth in accordance with the terminology of the Bill whereas a person without this advantage who tries to secure the same thing for himself in his old age involves himself in acquiring wealth and, therefore, involves himself in being taxed under this Bill.

Recommendation, by leave, withdrawn.

Recommendation No. 16 not moved.

Mr. Yeats

I move recommendation No. 17:

In page 11, subsection (1) (j), line 56, before "gardens" to insert "houses or".

This recommendation deals with an amendment, of which we wholly approve, that was brought into the Bill by the Minister during the course of the discussions in the other House. Amongst the exemptions from wealth tax listed in this section 7 are gardens situate in the State, which, on a claim being made to the Commissioners, appear to them to be of national, scientific, historic or artistic interest and in respect of which reasonable facilities for viewing are allowed to members of the public, recognised bodies or associations of persons. The Minister said on previous occasions—one can sympathise with him—that it is hard when a Minister has brought in additional concessions in a Bill that people immediately leap in and say he has not gone far enough, why not go that little bit further? One can see his point, and I sympathise with him.

In this case the additional concession one asks is a small one likely to cost very little. It is more consistent than the step which he has taken. Let us consider what he has exempted in this kind of category. He has exempted pictures, prints, books, manuscripts, works of art, jewellery, scientific collections or other things not held for the purpose of trading which on a claim being made to the Commissioners appear to them to be of scientific, national, historic and artistic interest and in which reasonable facilities for viewing are available to the public. All these are listed, and now gardens as well. One would have thought, to be consistent, that along with these things houses could be added. After all there are houses, mansions and castles of considerable historic, national or artistic interest. Some of these places would be the principal private dwelling and, therefore, exempt from this tax.

Nonetheless, I think there are some which could be benefited by this. We should do everything possible in these days when labour is so expensive, to encourage the preservation of these large, rambling, inconvenient, uncomfortable, cold places which are difficult to keep up and which are liable to be torn down by their anguished owners who simply cannot afford to keep them. I can visualise a situation where some mansion or castle which, though useless to the owner, is of considerable market value. Many an American would buy such an ancient castle or mansion simply to be able to say he owns it and could come for a summer holiday. Therefore, they have a value. People will not be willing to sell them and one would not want them to do so. On top of the inconvenience, discomfort and expense the owners suffer, to make them pay wealth tax as well seems hard. One can think of one or two places which would appear to be potential qualifiers under this recommendation.

The Minister ought to accept this proposition. The amount of wealth tax lost would be very small. He has suggested that there would be possibilities of evasion but I cannot see this. There are other occasions on which the Minister suggested there could be evasion and which, however unwilling one might be to admit it, one is compelled to concede that perhaps there is scope for evasion but in this case I cannot see it. After all, it says "gardens", and I would like to add "houses":

...situate in the State which, on a claim being made to the Commissioners appear to them to be of national, historic, scientific or artistic interest,

If somebody had an office block and claimed that some celebrated patriot had been born on the top left office, and that this ought to be exempt under the wealth tax, it is open to the commissioners to say: "No, we do not believe a word of this, this is not in our view of national, scientific, historic or artistic interest". There is also the safeguard that under subparagraph (2) the public must be anxious to come to look at the place. If nobody wants to see it, no question of exemption arises under this section. In other words, it must be of such interest that the public would like to come to look at it and do come to look at it. I doubt if it would be enough to say that it is open every Sunday and nobody ever comes. In any event, there is the safeguard that the commissioners have complete, unfettered discretion to say in their view whether or not it should qualify. This in itself would appear to exclude altogether the possibility of evasion.

Mr. R. Ryan

I am not unsympathetic to the objective Senator Yeats has in mind. I would prefer to have the advantage of experience before coming to a decision as to the proper way to approach the problem because to adopt the recommendation would create many problems.

The exemption now proposed would be academic in the vast majority of cases where the houses are inhabited, because the principal private residence is exempt, no matter what type of principal private residence it might be. Of those that are not inhabited, the majority would be vacant because they are not habitable—they are as miserable as Senator Yeats has described them, cold and uncomfortable. If they are of that type they will not have a high market value. Therefore in themselves they will be unlikely to bring the owners within the tax net. Even if the owner is not in the tax net, the amount of tax charged when they are not habitable will be very small. Many of them might have immense historical value or might be of tremendous national or international interest but that in itself would not give them a high market value.

Senator Yeats makes the points— and it is a valid point—that there are people who may be regarded as being very sane, who buy some of these places simply because they are unusual and extraordinary. They are not very much in demand and the real market value is quite small. The exemption would also be difficult to administer. For example, a house could be of historic interest merely because somebody was born in it or somebody lived there. In Merrion Square there are many houses with plaques commemorating a period of residence by some person of historic, literary or dramatic interest. Those houses today they are used as offices in the main. Will they be exempt from wealth tax simply because they had some historic association? Senator Yeats said to leave it to the Revenue Commissioners to make the determination. That might be difficult. They would be unwilling to take unto themselves the right to adjudicate whether a house had a historic interest. If they were to find in favour of one particular residence because Mr. X was born there and against another because Mr. Y was born there, there might then be accusations of political partisanship on the part of the Revenue Commissioners. In practice, where they are given discretion in artistic areas, they invariably rely upon the advice of others. It is not in fact the objective assessment of the Revenue Commissioners which operates, but rather the advice of others.

We will have experience of the operation of the wealth tax. If we come up against specific problems these can be dealt with when we know the facts. It is interesting to note that since the publication of the Bill, as distinct from the White Paper, to my knowledge no representations whatsoever have been made urging an amendment to the Bill on the lines suggested in the recommendation. That does not mean the recommendation is without merit but it indicates that the owners of properties which have historical, artistic or national interest must by and large be satisfied with the exemptions already given in the Bill, or, if they do not, the market value of the house is so small as not to be significant in the context of a wealth tax.

I promise the Seanad and Senator Yeats that this is one of the matters that will be very carefully monitored by the Revenue Commissioners. If a fund of information grows which would warrant a new treatment of houses in the way suggested by the recommendation, we would be prepared to look at it again.

Mr. Yeats

I thank the Minister for giving this assurance. He, unusually perhaps, minimises the efficiency of the Revenue Commissioners in dealing with this kind of matter. Leaving aside the question of houses or gardens, they already have a much more difficult and sometimes onerous task of deciding whether prints, pictures, books, manuscripts, works of art, jewellery, scientific collections and so on, are of national, scientific, historic or artistic interest. They have been doing this for a long time. Under estate duty laws one could get exemption for such things from estate duty on these grounds under certain conditions. As the Minister says on these occasions, the Revenue Commissioners rely on advice from, perhaps, the Arts Council or bodies of this kind. They had to do this already in a considerable number of cases. The number of cases involved in this should be quite small and presumably they would get the same type of advice on these.

However, I am not going to press this and I am glad to get the assurance of the Minister. I do not know who has been writing to the Minister about this matter but I suspect they are mainly chambers of commerce and other bodies dealing with matters which arise relatively frequently. The number of houses involved obviously is very small. I suspect that the owners are oblivious to the details of the Bill and that the first shrieks will come through the Minister's postbox when somebody who owns one of these places suddenly finds himself assessed to tax on it. I suspect it is then that the complaints will begin and that it is not the kind of thing that people who will be making representations really advert to. I am glad to get this Ministerial assurance. I hope that if he finds himself getting anguished complaints from people who have these mausoleums that he will think kindly of them when that comes.

Recommendation, by leave, withdrawn.

Mr. Lenihan

I move recommendation No. 18:

In page 12, subsection (1), after line 8, to add the following paragraph:

"(k) property in the State which is agricultural property or is used directly in the provision of employment in the State and stocks and shares of a trading company trading in the State."

This is a recommendation that goes to the heart of the Bill in the sense that as a recommendation it is not in the technical category but rather in one that is concerned with the position of the Bill in the general economic, investment and employment climate at which we find ourselves. For that reason we are seeking here to add as an exemption property in the State which is economic in the investment sense and of a category that gives stimulus to the economy. We are seeking to exempt agricultural property or property that is used directly in the provision of employment in the State and stocks and shares of a trading company trading in the State. In other words, we are seeking to exclude from wealth tax the economic areas within the State on the fundamental principle which is part of the thread of opposition to this Bill, that a measure of this kind at this time is very unhelpful in regard to the objective which all of us must have, to stimulate the economy to a higher degree, to add to investment, to expand industry and agriculture and to provide more employment. It impinges on incentive in the very area where the Minister requires greater economic activity so as to lead to more employment.

I do not think the Minister would disagree with the objectives I have adumbrated, which must be that in our state at present every effort must be made to ensure that the incentives remain and are expended to ensure greater output and productivity over the whole economic sector, including agriculture and industry. We are seeking to ensure that areas that are contributing positively to economic generation and indeed re-generation where agricultural property is involved, where there is direct employment or where there is a trading company involved—that any such properties will be properties coming within the exemption categories set out in section 7.

I appreciate that this goes very much to the kernel of the whole Bill. It raises the question of why we have the Bill at all. I appreciate that the acceptance of this would involve the deletion of the subsequent section 10. It comes to the question of timing and whether we should have a Bill of this kind despite its relatively insignificant contribution to the Exchequer in the overall context of the Exchequer requirements of the current year—requirements that involve meeting a deficit that is somewhere between £240 million as stated by the Minister and probably £300 million as is anticipated by many expert forecasters. In this context a measure of this kind is designed to yield somewhere around £1½ to £2 million. I asked the Minister for an estimate at an earlier stage and he has not given me one yet. There will be an estimate for the present nine months and then an estimate for the subsequent 12 months. Whatever estimate there is it will be relatively infinitesimal to the real budgetary needs of the community.

Therefore, the real weakness and danger in the Bill is not so much what is contained in it, having regard to the thresholds and the exemptions that exist; the real danger in the Bill has been the scare that it has raised by reason of introducing a basic tax measure of this kind at this time. The various thresholds the Minister has introduced and the exemptions that are in the measure are all matters that can be rapidly dealt with by the Minister or by a subsequent Minister for Finance in a budget in October, in January, next April or in a particular financial measure over the next few months. He can simply eliminate the threshold. He has got the corpus of the measure here, the thresholds and the exemptions are merely matters of changing a figure, of deleting a figure and adding a new figure, all of which is within the compass of the Minister for Finance in any of the budgets that may arise in the coming few months.

It is not so much the actuality of what is in this measure that has frightened people who wish to invest and expand; it is the potential danger in the measure where we have this corpus of wealth tax now in the course of being passed by the Oireachtas. As of now there are excellent thresholds and exemptions, which can be changed by a mere deletion and addition, which is the simplest form of amendment of all in any financial measure introduced by any Minister consequent upon the decision of the Government to introduce a budget or change in the financial framework of taxation from revenue.

This is a very real fear. After all we are dealing here, when talking about investment and expansion, in an area of psychology. We are dealing in an area where investors and people who are going to expand assess the climate in which they are going to make their decisions. The climate is not helped by the introduction of a measure of this kind which initially, by reason of the exemptions and thresholds, will yield an infinitesimal amount of revenue but potentially can be highly dangerous. That is precisely the way business people, industrialists, people giving employment, look at it. They see for themselves that this new form of taxation is not going to rest continually on the thresholds and exemptions that exist, because as they exist now the revenue is infinitesimal. Once the Revenue have the apparatus established and the legislative authority to put that apparatus on the road it will be revved up to yield more revenue. That is the way the system works. It will be a substantial diminution of the thresholds and the exemptions.

We want to have exempted the areas of economic activity that are the engine-room of the State and the engine-room in regard to giving employment and expanding the economy. They are areas related to agriculture, related to the provision of employment and related to trading companies within the State who give employment and who contribute generally to the growth of the economy and to the expansion of exports. Having regard to future developments which I fear this Bill will lead us towards, and in order to reassure people who are engaged in planning for productive employment and productive economic growth, I would suggest that this recommendation should be adopted.

Mr. R. Ryan

Those who believe the Wealth Tax Bill is bad because of the fear it generates should not themselves be fermenting fear. The only people who have engaged in the generation of fear in this country in relation to wealth tax over the last two-and-a-half years have been the Fianna Fáil Party, and yet they have the audacity to stand up in Seanad Éireann and say that it is bad for the country to have people fearful about wealth tax.

Mr. Lenihan

It is basic psychology that the Government should generate confidence.

Mr. R. Ryan

Maybe it is basic political strategy knowingly to cause harm to the country. Fianna Fáil say they are convinced that the Wealth Tax Bill is bad because it is making people fearful of acquiring property or generating wealth, and yet they have gone out of their way, time and time again, relatively and irrelevantly, to generate fear. Senator Lenihan gave us a perfect example of it in his contributions today.

Anybody with wealth invested in this country would be well advised to keep it here and not to send it abroad. If it goes abroad it will not enjoy the exemptions and the thresholds which it will enjoy if left here. If wealth is applied for productive purposes in Ireland, in agriculture, in the fishing industry or in hotels, it will be subject to a rate equivalent to half of what it will bear if it is not applied to productive purposes. If it is applied to any other productive purpose here other than agriculture, the fishing industry or hotels, it will enjoy a 20 per cent reduction, that is, after the enjoyment of the thresholds of exemption. The effective operation of the thresholds of exemption in Ireland are such that agricultural assets will not be liable to wealth tax unless a farmer has wealth of £250,000 or more. How many farmers in Ireland are worth £250,000? They could all fit into the Seanad and there would still be room for the Senators as well. The Fianna Fáil Members know that, and it is high time they stopped trying to generate fear among the innocent farmers of this country who are being badly serviced by the scare-mongering that the Fianna Fáil Party are engaged in.

What will be the tax position of somebody who has his assets applied to productive purposes? He will pay no tax if his assets are in the region of £140,000. If his assets are in the region of £150,000, the effective rate of tax on all his assets would be 0.17 per cent. He will not come next or near the effective rate of 1 per cent until he has well over £1 million. There is no other country in the world with a wealth tax which gives any favourable treatment to productive assets except Ireland. We have done it to encourage people to invest in productive assets. If they decide to leave their assets in non-productive forms, that is, in forms which do not generate employment in Ireland—that is our test of productive assets—they will bear wealth tax at a rate of 1 per cent. If they decide to put them into the other productive form they will get special consideration.

Under the estate duty code there was benefit for people who invested in Irish stocks and shares rather than in foreign stocks and shares. Of the property which came within the estate duty net, there were twice as many British or foreign shares held for every Irish share held. That is a fair indication of how some people in property applied their wealth. In future, if such people leave their wealth outside the country they will not enjoy the special favourable rate which we are giving to productive assets in Ireland. If they decide to sell off their foreign shareholdings and invest the money in Ireland in productive assets, they will enjoy the favourable treatment which is conferred by the Bill. Therefore, it is clear that we are introducing a wealth tax which is tailored to Irish requirements and which will be a positive incentive to people to invest their money in Ireland in productive assets.

We are not taxing companies. We are taxing individuals. The vast majority of stocks and shares in Irish companies and the vast majority of ownership of productive assets in Ireland are of such small quantities that the owners of them will not be liable to wealth tax at all. Individually, people have not possessions in excess of the thresholds being granted in the Bill. The rare person who has property in excess of these thresholds probably accounts for no more than a couple of percentage points of the total holding of productive assets in the country.

Mr. Lenihan

Present thresholds.

Mr. R. Ryan

We are dealing with present thresholds. These thresholds will come up for revision from time to time. The Fianna Fáil Party seem to visualise that the wealth tax will stay in its present form for the next ten years.

Mr. Lenihan

It could be changed in October.

Mr. R. Ryan

It could be eased then. We are concerned with introducing a form of taxation of capital which will not operate, as estate duty did, to crucify people and to confiscate property. We are producing three forms of capital taxation which will ensure that people will not be struck in the same damaging way as they were under the estate duty code. That is the purpose for introducing these Bills. We will not fiddle with them in such a way as to impose a system of taxation which would be as unfair as the one we got rid of. People may be assured that the Fianna Fáil Party will not hold the reins of Government for a long time to come. They therefore need have no fears about capital taxation getting into the same state as it was when Fianna Fáil were in office when they had a system which crucified the innocent and allowed the extremely clever and wealthy off the hook altogether. That will not happen while we are in office. We will adjust the thresholds and exemptions from time to time to ensure that they will not press any more severely on people than the Bill as designed in 1975.

Mr. Yeats

I shall not follow the Minister along his somewhat irrelevant course as to what is to happen to the political life of this country in the future. All I can say is that if he is right, God help the country. Whatever about our methods of taxation at least we left the finances of the country in a relatively balanced condition and we were considerably further from general national bankruptcy than we are at present. However, leaving the Minister's own well-worn path and getting back to his Bill, it is not, as he well knows, Fianna Fáil who are arousing fears about this Bill. We are pointing out the many very serious defects of the Bill. We are pointing out the dangers of the Bill but, basically, it is not from Fianna Fáil that the Minister has been hearing since his notorious White Paper first came out. He has been getting all kinds of representations, memoranda, documentary materials of all kinds, having interviews with people, farming organisations, factory organisations, employers organisations, chambers of commerce all over the country, economists and experts of all kinds.

I suppose he would hardly seek to deny it if I suggest that in all this time not one person of substance, speaking on strictly economic lines, has approved this Bill. The vast majority of the representations that the Minister has been having have not been from Fianna Fáil but from independent people who have the interests of the country at heart and who have rejected not merely this Bill but this whole paraphernalia of irrelevant and dangerous capital legislation. It is not Fianna Fáil who are raising fears but the Minister and in particular some of the cohorts behind the Minister—some of the members of the Minister's own Coalition Government who have been making riproaring socialist speeches about soaking the rich in the interest of the socalled workers.

Mr. M.J. O'Higgins

What is a socalled worker?

Mr. Yeats

I remove the word "so-called" and have "worker" in inverted commas as used by Senator Halligan and people like him. The country is full of workers not merely those who support the Senator Halligans of this world.

I quoted yesterday some references by the Irish Farmers Association to their fears about this Bill. I do not suppose you would be happy to hear them quoted again so I will merely refer to them. On the specific point as raised by this recommendation we had a newsletter of the Confederation of Irish Industry on the 4th March last in which they said that:

The Confederation finds it difficult to understand the introduction of these proposals at a time when unemployment is at almost record levels historically, and investment growth needs to be greatly accelerated. The proposed legislation would have three major undesirable effects. It would dissipate the amount of money invested in assets which are used in the provision of employment; it would directly discriminate against Irish family ownership of such assets in favour of foreign company ownership; and it would discourage private foreign investment in Ireland. The Government had said that it would give particular consideration to reliefs for productive investment. The reliefs proposed in the Bill are completely inadequate.

Priority should be given to the maintenance of employment through investment in productive assets. The Confederation, therefore, repeats its earlier recommendation that all assets used in the provision of employment be exempted from the application of the proposed Wealth Tax.

That is not Fianna Fáil speaking. That is not Fianna Fáil, for their own, no doubt subversive and political purposes, speaking. This is The Confederation of Irish Industry who are interested in employment for Irish workers in Ireland, telling the Minister that he should take this tax off all assets used in the provision of employment.

The Minister said, as he so often says, that after all nobody but the very rich will be affected by this Bill, and he spoke of no farmers being involved until they had £250,000. He asks how many farmers are worth that. I put it to him that there are other farmers who may be involved. We will have this in greater detail in a later section but I will refer to it in passing now. Take for example the farmer whose farm is worth £75,000, perhaps an 80 acre farm, which is not a very big holding. If his wife happens to own a small hotel or pub worth perhaps £25,000, not a great deal of money, which might be bringing in very little income but is worth £25,000, this brings him to £100,000 but his farm is not 75 per cent of his total wealth. Therefore, he does not qualify for the 50 per cent deduction under this Bill, nor can he even have his livestock exempt under these circumstances. He becomes taxable because his wife owns a small pub.

Alternatively, if he was single with a farm worth £50,000, maybe 55 acres and has £20,000 in some other kind of assets, he is taxable. These are the kinds of situations that can arise under this Bill. For the Minister to talk in these terms, that nobody who has a farm of less than £250,000 will be affected, is not correct. There are all kinds of little sections in this Bill that bring people in who may well not expect to be in and who will be extremely surprised to be in.

The basic point is this: at this stage in our history, this stage of our economic life when we have over 100,000 unemployed with strong likelihood that this number will rise still further during the coming winter and spring, it is madness to be bringing in taxes such as this directed at productive enterprise. I know that there are various provisions of 50 per cent for agriculture, fishing, hotels and so on. We will come to these later but the all-around concession particularly for manufacturing industry is only 20 per cent. In other words, instead of being taxed at the rate of 1 per cent, it is 0.8 per cent.

We do not know to what extent this tax will bite. The Minister does not appear to have the remotest idea of how much it will bring in. Nonetheless it will be there and it will bite to some extent. Without any assistance from Fianna Fáil it is arousing excessive fears among people as to the extent to which it will hit them. Clearly it will not do anything to provide employment. The extent to which it will harm the provision of employment we do not yet know. I suspect it has already done some harm and that it will do more but we cannot be sure. The one thing that is absolutely certain is that this Bill and these capital taxes in general will do nothing to help our economic development. It will do nothing to put one man to work or to set up one factory.

Our position is totally different from that of the other countries to which the Minister refers constantly. There are, of course, a number of other countries, Belgium and France among them, who do not have wealth taxes. The Minister referred to those who would take their money away and would find even worse thresholds of wealth tax in other countries but they could take their property to countries where there is no wealth tax. Leaving that out of account can the Minister not appreciate the distinction between the highly developed, highly industrialised, very rich countries which, in general, are those who have wealth taxes and our position in Ireland? There is every difference in the world. These other countries find it actively desirable economically to have wealth taxes simply in order to eliminate the less efficient industries in order to force people to make large profits by taxing them. Clearly the lower the profits, the higher the effective rate of this tax.

In our condition that is simply not practical. At the moment, as we know only too well, a high proportion of Irish industry and Irish Productive enterprise in general is either making no profits or very small profits and will, therefore, be severely hit in so far as they are affected by this tax. It will not, in practice, direct capital from the weaker to the stronger sections of the economy. The only result will be, in so far as it does bite, that yet further employment-giving activities will disappear. We have already had more than 100 companies going bankrupt this year and closing down. There will certainly be many more. We know that week by week, long-established concerns that in some cases have been providing good employment for Irish people for generations are simply going out of business. Under these conditions to impose a tax such as this which will bring in a minute amount of money seems crazy. The Minister does not know how much this will bring in but one can make a reasonable guess that it will be, perhaps, 1/1000th or 1/500th part of the total annual revenue in the budget. It is a minute part of the total revenue. It will go nowhere even towards covering a small portion of the Minister's budget deficit. Under these circumstances to bring in a tax such as this, which is harming productive enterprise and doing no economic good, seems crazy.

The Minister should at the moment be totally devoted to the task of developing Irish investment so far as he can. He should be thinking every minute of every day about the management of the economy of the country: "How best can I put people to work? How best can I see that new industry is provided and new avenues of employment are opened? How best can I secure the maintenance of existing activities to try to prevent firms going out of business and putting people out of work? Every moment of his working day should be spent in this task. Instead of this, what has happened? He has been filling months with this totally irrelevant legislation, imposing various forms of capital taxation and, in particular, this wealth tax on a country which has nothing like the economic development to which he refers, on a country which is steadily lowering its living standards with inflation at an appalling rate, over 100,000 unemployed, factories closing day by day, with the IDA, who have been our mainstay in providing employment in Irish industry, already in the last couple of weeks saying that their target for this year has had to be cut by about 30 per cent. I am not suggesting that this has anything to do with——

Mr. Harte

Did they command a wealth tax?

Mr. Yeats

No, the point I am making is that owing not only to world conditions but also to excessive cost in Ireland which makes it more difficult to export against the competition from other countries that have kept their costs lower, the fact remains that the IDA have had to cut their target this year by some 30 per cent and we do not know what their success rate will be next year. The point of relevance to this tax and to this recommendation is that even the IDA which has been so successful in bringing industry to Ireland are finding the going tough. It is not easy at the moment to get new investment in Ireland either from abroad or internally. It is getting more difficult to provide new jobs for people. It is proving more difficult to keep people in old jobs. Therefore, under these circumstances, any Minister for Finance in any Government ought first of all to be doing everything he possibly can to maintain investment, to maintain people in employment and, secondly, he ought to be avoiding idiotic Bills such as this which, so far as they have any effect at all, can only have the effect of discouraging investment and making it more difficult for people to hold their jobs.

I would put it to Senator Harte that the theoretical concept of soaking the rich, of taxing people of wealth, of making employers, businessmen, industrialists, manufacturers pay more taxes is all very well but what Senators and the Government should be thinking is not about that kind of thing but about how best we can arrange the taxation system of the country and its economic management generally so as to maintain the greatest possible number of people in employment. That is the only factor that should interest us. When we get back on the path on which we were a few years ago with steadily increasing employment, steadily increasing living standards, then, perhaps we can indulge in the luxury of looking around to see who is getting away with money that we ought to be taxing. We, on this side of the House are not interested in defending wealthy people, industrialists or manufacturers. We are interested in the effects of this legislation on the economy of the country. We should look upon this legislation not from any ideological point of view, not from the point of view of the haves and have nots, the rich, the poor, the wealthy and those of less wealth, but from the point of view of what effect it will have on the only thing that matters at the moment, namely, the provision of as much employment as possible. That is the only point we should consider. That being so, this recommendation, in effect, would provide that there should be no wealth tax on employment-giving property and that seems to be the only sensible step for us to take under present conditions.

Mr. Harte

No one is thinking in terms of a wealth tax in the sense that you want to confiscate everything somebody creates as a result of his own endeavours. What we are really after in the context of the wealth tax is, and it is a generally held view, the people who create wealth have found many ways of evading their obligations and yet they take advantage of all the benefits the State affords them to help them to create this wealth. This is the nub of the problem.

Senator Yeats has a valid point if he is making the argument in the context of the present. But the wealth tax was not introduced today. It was introduced at another time. The idea of the wealth tax was something that was agreed to in a programme, not a plan, in a declaration of intent on the part of those who were seeking to be elected to Government. Consequently, in order to justify his arguments, Senator Yeats would have had to be able to make the same arguments at that point of time but he would not have been able to justify them. Quite frankly, it is fallacious to argue that you should sit on your hands for two or three years when, in fact, other people who have tax liabilities have the question of how they make their money and how they use it inquired into. They have been policed for many years.

There should be some method of policing how the wealthy get their wealth and how they use it. Having regard to all the changes which have taken place in the Bill, the exemptions, the amendments accepted by the Minister in the other House, and the undertakings given here that the Bill will be looked at again next year, the Bill has become a watered down version of the original intention of the Coalition Government. It was not on the basis of confiscating something——

Acting Chairman (Mr. Brosnahan)

This recommendation is very specific and does not involve a general discussion on the principles of taxation.

Mr. Harte

I take the Chair's point.

Mr. Dolan

I support the recommendation. Senator Harte mentioned the timing of the introduction of the wealth tax——

Acting Chairman

The recommendation is very specific and we cannot indulge in a general discussion.

Mr. Dolan

In 1973, the country was in a very sound financial position. Consequently, there was some justification in introducing such a tax. To pursue it in the present political climate and in the disastrous economic situation in which the country finds itself is nonsensical. What we should be aiming at is to encourage people who have property or wealth to remain here and to create employment.

If they are creating employment they should be taxed lightly because of the fact that there are 103,000 people unemployed.

Acting Chairman

This statement has been made over and over again.

Mr. Dolan

I know it has.

Acting Chairman

Would the Senator relate his remarks to the specific recommendation?

Mr. Dolan

Recommendation No. 18 provides:

(k) property in the State which is agricultural property or is used directly in the provision of employment in the State and stocks and shares of a trading company trading in the State.

These are the things which affect employment. Because of that, we are concerned about this recommendation. It was in this context that I adverted to the number unemployed. Irrespective of what has happened in the past, everybody would like to get these people off the unemployment register. That is the important matter. We might make capital out of smaller issues but the principal issue now is that so many people are unemployed. Consequently, people who have property in the State should not be squeezed out of existence. They provide employment.

The only people who can create employment are the people with wealth. There is no use in a small farmer hiring his neighbour until his farm is in debt. That situation has existed for too long.

Mr. Yeats

This recommendation is the core of our whole objection to the wealth tax legislation. We have made it clear right through the debates on these Bills that we have no objection—in fact, we approve of it— to the taxation of people of wealth who, as the Minister pointed out, have been able to avoid taxation. We have tried, unsuccessfully, in the discussion on the Capital Gains Tax Bill, to persuade the Minister to tax short-term, professional speculators at a much higher rate than the kind of people covered in this recommendation. He would not do it. He insisted on taxing the short-term speculators at the same rate as the person who had built up a family business over, perhaps, generations, and made what was a notional capital gain according to the Bill. We are in favour of taxing speculators, millionaires, people of wealth, and so on. What we are against is taxation such as this which, in the absence of this recommendation, hits equally those who are essentially parasites—people of wealth who do nothing for the country, who do nothing to put Irish people into employment—and those who are using their property in order to provide employment. That is our basic objection to the Bill. If our recommendations were accepted, it would, to a very large extent, remove our objections and other people's objections to the Bill.

The basic problem with this Bill is that it will do harm to our economic development. It will put people out of work and, at the very least, it will do nothing to solve the budgetary problem, the inflationary problem, or the great problem of unemployment. We have, as has been said so often, over 100,000 unemployed. We have been hoping that as the industries brought to the country by the IDA developed and came to full production more and more those out of work would find employment for themselves. The IDA have already cut their target this year by 30 per cent. Their target for next year may be reduced still further. The existing sources of employment are likely to continue to diminish as the winter wears on. All the indications are that, because of the highly deflationary policies now being adopted by the British Government, exports will become more difficult. The purchasing power of the British market will be extremely low for the next 18 months or two years. Costs are decreasing rapidly in Continental countries and in America. They will decrease pretty rapidly even in Britain. As other people's costs decrease while ours are maintained, it will be more and more difficult to sell abroad and to keep people at work.

On the one hand we have reached such a state of unemployment crisis that the Government are actually paying people £12 a week, under the new scheme to bring people back into work, and on the other hand, they are loading this wealth tax on to people whose profits are either non-existent or minimal. It is the kind of tax which in prosperous times could be much less dangerous because it would be far less of a burden on people who are making good profits. But at a time when even people who are normally regarded as wealthy have very greatly reduced incomes, even businesses and factories that normally are considered to be among the strongest in the country are making losses or very very small profits, under these kinds of circumstances, to load on them a tax, which has no relation at all to income but is imposed on the property they hold even though they may have no income, seems simply to be madness. Even at this late stage, perhaps, one could urge the Minister to adopt the principle of this recommendation and take this idiotic tax off the backs of the people who are trying to provide work here.

Mr. Keegan

I support this recommendation. The situation in which we find ourselves is not a normal one. Our economy is subject to stresses and strains at present. We fully realise also that every positive and worth-while effort should be made to create jobs here. One way of creating jobs it to allow capital to be made available for that purpose which is what this recommendation sets out to do. I would ask the Minister to consider seriously this recommendation because there is so much at stake at present, because we have such a high rate of unemployment and because of the gloomy outlook for job prospects in the future.

Therefore, all that has a bearing on this section. If one wants to place a man or woman into worth-while employment one's first requirement is money. Money helps to create jobs. If money is freely available for job creation, then somebody will enjoy further family security from the additional jobs so created. We all fully realise that in recent weeks, as Senator Yeats pointed out, a Bill was introduced providing an employment premium for the maintenance of employment both in agriculture and industry. If one induces people to put their money into worth-while, productive enterprises, then one is helping to maintain and create new jobs in the difficult economic situation in which we find ourselves.

Mr. M.J. O'Higgins

Effectively this recommendation seems to say: "Let us have a wealth tax but do not charge it on anything". The choice which faces us in the context of this question of employment is whether or not we are to continue a system of death duties which may, and the case made for its abolition was that it did, lead to the break-up of farms, the necessity to sell off stock, to close businesses and so on because of the imposition of death duty. That case was made firmly, convincingly and in a manner which was accepted as justified by all political parties. Even though Fianna Fáil did nothing about the abolition of death duties, they, as well as the Members of the present Government, were convinced by the case made. Of course, all that must be seen in the context of employment. If one has to sell off farms, break up farms, dispose of businesses and so on, people are being put out of employment. What is suggested as an alternative is that a tax collection system which will be applicable only to the really wealthy will replace it. Fianna Fáil by means of this recommendation are saying: "Let us have none of that. Let us not tax any property which in any shape or form can be regarded as containing an employment content or is used for productive purposes". What does that leave us with? It means that the taxation could then fall only on what might be regarded as dead wealth—nothing more. The person who has money stashed away in the bank, who has a dividend income where the capital is sufficient to cross the threshold, that kind of dead wealth only could be used—nothing else. That is not a realistic approach when one considers that the whole purpose of this capital taxation packet is to replace a system of taxation which everyone wanted to abolish.

The argument was made, and I think it was urged fairly strongly by Senator Lenihan in moving this recommendation, that he wanted to provide for this in the Bill because he was afraid or there were fears, I do not know whether he entertained them, that there might be an amendment later on of the Wealth Tax Bill, that a simple amendment as he thought could be introduced which would increase the present thresholds. It did not appear to occur to him that any amendment could be introduced. If this recommendation were accepted, it would be equally open to the Minister or any other Minister, to amend the Wealth Tax Bill in a year or 18 months' time and omit this provision. The fact that it might be put into a Bill certainly would not provide the kind of safeguards against other amendments Senator Lenihan seemed to think. The basic point here is that we have got to remember what this Bill is replacing. It is pointless considering the Bill on the basis of: "Yes, let us have a wealth tax but do not tax anything."

Mr. E. Ryan

I cannot quite follow the gist of what Senator O'Higgins said in relation to this recommendation because I suppose any recommendation that is made, or any section of a Bill that is passed may be altered subsequently. It does not seem to take from the validity of the section or the recommendation for the time being. All one can do, in dealing with a Bill like this, is try to amend it, or bring it into line with what one believes is the proper course of action. It is quite true that, even if this recommendation were passed, it could be altered again in a year's time. It is an important recommendation. It is important because it attempts to make the distinction between productive assets and ones which are not productive. It is difficult to understand why at least some exemption or allowance has not been made on the lines of this recommendation. There are exemptions in regard to hotels and fishing. It seems to me that in this case also there should be a very considerable exemption and, if not an exemption, certainly an allowance very much in excess of what exists in the case of productive agricultural property used directly in the provision of employment. The extent of the allowance or exemption is, of course, open to discussion. The extent of the exemption, as Senator O'Higgins has said, could, in the future, well be varied one way or the other, but the principle that agricultural property used directly in the provision of employment should have a special allowance made for it, that it should be exempt, as is suggested in this recommendation, or, certainly, that far greater allowance should be made for it should be accepted.

There must be some distinction, some difference, from the point of view of public policy, between property or shares or something of that kind, where the owner merely draws dividends or interest every year and where the capital is doing little or no good to anybody and the kind of situation envisaged in this recommendation where the property is used directly in the provision of employment. We have on many occasions here, and in the other House, made efforts to persuade the Minister to recognise this distinction, to recognise that from the point of view of public policy this distinction would be a worth-while one that would contribute to the economy and employment and have a bearing on the kind of asset in which a person would be likely to invest his money. From every point of view this approach to the kind of property in which a person should invest and the effect of this Bill having regard to the assets of the person it is important that this distinction should be made.

It can be argued that this goes too far, or that in some ways it does not go far enough but certainly the principle is right. The purpose of this recommendation is to persuade the Minister to make some gesture, to make some allowance, if not to go the whole way by accepting this recommendation.

Mr. Lenihan

When moving this recommendation I said it was a fundamental one that went to the heart of the Bill which runs counter to any attempts which the Government are making to revive the economy. The Minister made the point that there would be very few farms involved with the present levels of thresholds and exemptions and very few stocks and shares would be involved in respect of companies trading in the State. Therefore, he went on, the recommendation as regards exemptions was not really germane to the Bill in the effective sense, having regard to the thresholds and exemptions set out in the Bill.

That is all right as far as the present levels and thresholds in the Bill are concerned. I am concerned about the psychological climate in which investment and expansion must take place if we are to get the economy to recover. It is in the area of apprehension and anticipation on the part of people who are genuinely concerned with investment and expansion of the economy that this Wealth Tax Bill must be seen in context. People have legitimate fears that there may be a budget in October or in January in which by a single line amendment the thresholds and exemptions can be radically changed. Wealth tax legislation can be changed regularly by a single line in a Finance Bill to include a whole range of economic activity. If this activity is subject to the annual regressive form of overhead tax, which the wealth tax is, basically, it will have a very deleterious effect on any form of economic expansion. It is to guard against that that we have tabled this recommendation. We want to reassure people who are concerned about economic expansion. People in agriculture and in industry who have got stocks and shares in trading companies trading in the State, people who have agricultural property or property used directly in the provision of employment need to be reassured. These people need to be doubly and trebly reassured at present.

It is no answer for the Minister to say that the thresholds are so high now and the exemptions are so fair that people in these categories have no need to worry. That is not the point. People in the categories we are trying to protect are genuinely afraid of the direction the economy is taking at present. They are the people who have to make the investment decisions, the business decisions and the planning decisions, on which the expansion of the economy depends. If we wish to stimulate the economy we must depend on the people making these enterprise decisions. No matter what the Minister says about the liberalisation of thresholds and exemptions the people feel that once there is a wealth tax imposed it can become a regressive form of tax by lowering the thresholds radically or by lessening or eliminating the exemptions. We are providing an umbrella under which we can have a permanent regressive form of overhead taxation that will bear heaviest on the people on whom we now depend to regenerate economic activity.

We wish to have written into this legislation that the people who are contributing to economic expansion and employment will be exempt from any form of regressive taxation. I do not object to a wealth tax that catches genuinely unproductive wealth. There are arguments for getting at that type of wealth and wealth invested outside this country which is making no contribution towards the economy. But the Minister is including with that wealth the type of wealth that is basic to our economy and progress. He is including property in the agricultural and industrial sectors that is designed to give employment and provide for economic expansion. It is dealing with stocks and shares on the industrial side of trading companies trading in the State, the provision of employment in the State and agricultural property within the State. He is covering these three types of property held in the State, properties which are making a real contribution towards our economic expansion. If the Minister wants to tax shares held outside the State or dormant capital held in the State he has a valid reason for doing so.

We are seeking to have exempted from wealth tax wealth that is making an economic contribution and providing employment here, wealth that is held here in agriculture and giving employment or in an Irish trading company. The point is so basic that I am astounded that the Minister has not given other than flippant attention to it. I was here for his reply to what I said and I can only describe his speech as being flippant in the extreme.

There is no point in making this into a political argy-bargy and saying that there is no concern among the investment community, employers or among people who wish to expand or plough money into their farms or factories. There is concern. It is not just a Fianna Fail invention, as the Minister sought to say, reducing it to an argy-bargy to the effect that the only concern about the country's future is as a result of a Fianna Fáil scare.

That is not the story. If the Minister speaks again that is not the vein in which a sensible Seanad will accept him speaking. The issue is far more important and fundamental than that. There is concern. There is concern that at a time of world-wide recession —I am not pretending that there is no recession in other countries as well—the Minister should seek to introduce a panoply of Bills of the capital taxation kind which he has introduced and, in particular, this Bill, and that precisely at the nadir of the recession this particular disincentive Bill finds the light of day. It is no answer for the Minister to say that he has put the thresholds at a reasonable level. The answer is that he has introduced a Bill and within its framework, when it becomes law, he can, in subsequent financial legislation, amend and adjust the figures leading to the thresholds and exemptions.

We have incorporated in this recommendation a very real sign to the investing community within our State that this Oireachtas are concerned about and have regard to the position in which they find themselves in the existing world-wide recession, that the Government are not just screwing them in a time of recession, that in a time of recession it is a Government's duty to help the people who are contributing to investment in the community. The basic thing that should be done in this context is to provide that such investment and such shares or interest in property contributing to economic development and expansion should be exempted from the wealth tax umbrella. That would do more than all the employment premiums and all the other noises that the Government have been making.

Something dramatic is needed to restore confidence in that sector of the community, on whom we all depend, to get the economy moving again. What we are suggesting in this recommendation would be a very practical step in reassuring them that this State is serious about stimulating economic recovery and that the Government in charge of the affairs of the State are serious about stimulating economic recovery. If this Bill passes in the form in which it is now, without a recommendation of this kind exempting such people engaged in such economic activity from its provisions, the investing community will regard it as just another of the taxation and budgetary measures that have been taken, all in an umbrella attempt to depress an already depressed situation. In a time of depression or recession every Government energy should be geared towards getting us out of the slide, getting us into a situation of advance and getting the motor revved up. This Bill will put the motor into an accelerated reverse. That will be the effect of this Wealth Tax Bill when passed in toto, and taken in conjunction with the other tax measures. We are seeking to exempt the people, whom the Minister should be seeking to encourage and to drive along the right direction, from the penal provisions of the Bill, which are admirable in so far as they deal with capital invested abroad, so far as they deal with dead capital here, but are of a highly disincentive kind and are deleterious and damaging as far as investment in this country is concerned, as long as they incorporate the people whom we are seeking to be exempted under this recommendation.

Dr. Martin

Very briefly, I would like to urge the Minister to consider this recommendation which has been urged with considerable force and cogency by Senator Lenihan. Within the structure of the Bill, which is an admirable one in most of its provisions, a balance has to be struck, as the Minister knows, between encouraging people to apply their money and invest it in a manner that is productive for the community, and the necessary action against the money, which Senator Lenihan has described as being dead or sluggish, invested abroad, the kind of money which comes from the selfishness of people, the exploitative instinct in people. This exploitative and selfish instinct in people has been evinced in the papers in dramatic and frightening ways lately in response to this Bill. We have seen people threaten to leave and take their money out of the country. Apparently, there is a great flow of money out of the country. The balance has to be struck.

The spirit of the Bill is admirable and long overdue. Side by side with taxing the selfishness, the exploitative and sluggish use of money for personal aggrandisement and for the accumulation of personal wealth, it is of the greatest importance that those who were still unselfish enough to want to invest their money in the country, should be encouraged to do so or we will end up with the worst of both worlds.

I would like to see the recommendation which says: "property in the State which is agricultural property or is used directly in the provision of employment" changed to "property in the State which is agricultural and which is used directly in the provision of employment" because a great deal of agricultural property is lying sluggish and sufficient force is not put on people to use it properly. Apart from that reservation I am in agreement with the spirit of the recommendation. I ask the Minister to look at it more closely before passing on to Report Stage.

Mr. Halligan

I am, of course, faced with the assembled expertise in the Opposition benches, a rather naïve Senator. I do not pretend to have their expertise in these matters, not being a man of finance, and therefore not having the interests of such people at heart I am not able to muster in their defence the eloquence which I have enjoyed listening to from Senator Lenihan. I would like to put a question to the Minister. There is a long list of exemptions which seems to cover many forms of wealth which I would describe as dead, sluggish, inert perhaps, such as paintings, furniture, all forms of wealth. Am I to understand that the impact of this recommendation would mean that a gentleman who had invested vast sums of money in inert and sluggish forms of property to such an extent that he was able to acquire a 350-acre estate would then be exempted from paying wealth tax under this recommendation while at the same time an old age pensioner who is also in receipt of pension from a company which he had served throughout the duration of his working life is to be taxed on the income of his combined pension, that of the state and of the company? Is that the effect of this particular amendment?

Mr. R. Ryan

The answer to Senator Halligan's question is: Yes, that is the effect. Let us put aside all the verbiage, Fianna Fáil are against a wealth tax. They have said they are against a wealth tax. They have proposed amendment after amendment to make a nonsense out of the Wealth Tax Bill. This is another of their attempts to make a nonsense out of the wealth tax: they do not want it so they want to dress it up in various forms which will ensure exemption for people with very considerable wealth. I pointed out that the Bill is in such a form at the moment that unless a married farmer has assets in excess of £250,000 he will pay no wealth tax. If he has assets in excess of that he will only pay on the excess over £250,000. If he is an industrialist he would want to have about £140,000 of assets. There is one way and one way only to stop the mischief and to restore confidence even amongst the foolish people who have listened to Fianna Fáil, and that is to get this Bill passed and enforced. In 12 months time people will say: "Why on earth were Fianna Fáil holding up the whole legislative machine of this country for approximately seven months? Why did they prevent other business going through the Houses of the Oireachtas? Why were they trying to generate fears? Why, at a time when business confidence across the world is at its lowest level because of the international climate, did Fianna Fáil try to make matters worse in Ireland by pleading that a large number of people holding productive assets in Ireland were going to be fleeced by the wealth tax?" They might think today that they have won the debate but it is a pyrrhic victory. I do not think they have won it in any event, but even if they feel that way it will be a short-term victory and the people will see within a year just how insincere have been their comments. They will appreciate, even those who are affected by it, just how benign the Irish wealth tax system will be because they will get more favourable treatment, particularly if they have productive assets in Ireland, than they would under any other wealth tax system in the world.

If they want to follow the Fianna Fáil advice of exporting their productive assets from Ireland elsewhere they will pay more savage taxes in any country to which they export it. Even if the export is to countries that have not got a wealth tax by name they will, in many countries, pay much heavier capital taxation in various forms. Let them beware and be well advised before they start even contemplating exporting their property. Suppose they do decide to sell out there will be great bargains for the rest of us who are more patriotically inclined. Can it seriously be said that business is going to collapse simply because of a change of ownership? If a person gets out because he is not prepared to pay his fair share of tax in Ireland it is probably as well that he goes and that the asset passes into the hands of somebody who making profit in Ireland is prepared to reinvest the profit made in Ireland for the Irish people. We could pursue this debate at great length and in considerable depth in a way which might embarrass the critics of this tax.

Mr. Lenihan

That is very startling language.

Mr. R. Ryan

It is a free society. People will be free in the future as in the past to do whatever they want with their wealth, but before they are misled they should carefully compare the capital taxation system in Ireland with that which will operate in any country to which they might be tempted to go. Of what advantage will it be to them to go? If they distribute their property across the world and decide to remain here they will still be caught for wealth tax.

Mr. Lenihan

The Minister just told them to go.

Mr. Ryan

No. I have not. Fianna Fáil have been encouraging them to go. They have been suggesting that if they stayed here and kept their assets in a productive form they were going to have to pay some cruel tax. The Fianna Fáil exhortation to people has been to leave the country. They have been preaching for over two years that this tax would have damaging effect upon business confidence. The interesting thing is that all statistics and evidence is against them.

Mr. Yeats

Like what?

Mr. R. Ryan

Like the flow of money into the country.

Mr. Lenihan

That is Government borrowing.

Mr. R. Ryan

No, no. I was just waiting for you to say that because there has never been such a vast anonymous inflow of money into Ireland.

Mr. Dolan

Or so many unemployed.

Mr. R. Ryan

Perhaps the Opposition feel that these are people who are liable to wealth tax in other countries exporting their money over here. There are many of them who will be well advised to do it because they would pay a smaller tax here than they would in their home countries. The argument can end now because in a year's time everybody will see that the truth has been on our side, that the tax is not one that will discourage investment. In fact it will encourage investment.

Senator Martin was not here when I pointed out earlier that we are the only country with a wealth tax that is providing more favourable rates for productive assets than for other assets. No other country distinguishes between productive investments and non-productive investments. We have done it.

Mr. Lenihan

That is the least we might do in our circumstances.

Mr. R. Ryan

We have done it in a very effective way which will encourage people to transfer their investments from non-productive, non-income-yielding assets into income-generating assets and productive assets. Productive assets under the definition in the Bill are assets which generate employment in Ireland. That incentive is in the Bill. It is a very positive one. We are the one country in the world that provides it.

Mr. E. Ryan

I do not know why the Minister is getting so worked up about this because on the one hand apparently he is against this recommendation and on the other hand, he says the Bill already provides a distinction between productive and non-productive assets. After all, all this recommendation is doing is to suggest that he go a little bit further. Either the principle of distinguishing between the two is right or it is not. The Minister has it in the Bill himself, so why should he get so annoyed at a recommendation which merely adopts his own principle and suggests that he go a little bit further than he is going already?

The Minister has been a little bit casual about people selling out and getting out of the country. Certainly, Fianna Fáil has never urged people to do that. Fianna Fáil has merely said that in the context of this Bill and, as a result of this Bill, not so much because of what the Bill actually does, but because it is a Bill which is really unnecessary and inappropriate at the present time—whatever may be the position in a few years' time if and when we get back to a prosperous situation—the position is that at the moment it has frightened away many people who, perhaps, if they examine their position fully and, perhaps, if they assessed what was going to happen in the future might not have been frightened away. The fact is that they have been frightened away and capital has left the country. The Minister has been a little casual about that: what harm will it do if people sell out and go abroad; the property is still there, and so on. It is rather peculiar that, on the one hand, the Minister should be shrugging his shoulders and saying that it does not matter very much if capital leaves the country and on the other hand that he should be raising very large amounts of money by taxation to induce people to come from abroad and invest their money here to try to develop industry and agriculture here, by inviting people to come in here and start industries. On the one hand he does that at great cost to the Exchequer and on the other hand he seems to think that it does not really matter if people, as a result of the wealth tax, leave the country and bring their capital abroad.

Mr. Yeats

Senator Halligan has, in his usual style, said modestly that he has not the financial expertise the people on these benches have, nor has he their ability to defend their friends. All I can say is that I have not any expertise and the same applies to all on this front bench. We have, unlike a number of Senators opposite, read this Bill and, therefore, were able to give the dangers inherent in it.

Senator Halligan quoted the question of the old age pensioner. I said on the Second Stage that one of the great problems presented by this Bill, and one of the great injustices of this Bill, is that it distinguishes in a curious way between the wealthy man who has an income of perhaps £50,000 and spends it all, has not invested it and so has not acquired what the Minister would call wealth. On the other hand, there is the widow who is living not particularly well on investments left to her by her husband. She is not in the same category as the wealthy man with £50,000 a year but has investments on which she has to live so long as she is alive. But according to the Bill and the Minister, she has wealth. The wealthy man—wealthy in the normal sense of the term as Senator Halligan and I understand it— who has £50,000 a year but spends it all enjoying himself, he has no wealth.

Mr. M.J. O'Higgins

How would this recommendation help her?

Mr. Yeats

I confess to Senator O'Higgins that I was led a little astray by Senator Halligan from this recommendation.

Mr. M.J. O'Higgins

I apologise to Senator Yeats. I assumed he was dealing with the recommendation.

Mr. Yeats

I will now come with reasonable rapidity to the recommendation, and make this point about my widowed lady friend on some other more relevant occasion.

One of the Minister's great problems is that he has not been able, even at this late stage, to gauge the real state of affairs in this country. When this Bill originated in the notorious White Paper, way back in February, 1974, things were different. There still was, even after almost a year of Coalition, a relatively stable economic condition. The country as a whole was on the even keel the Coalition had inherited from Fianna Fáil. While even under these conditions some of the statements in the White Paper were rather silly, in present conditions they make no sense at all.

For example, we have the reference in the White Paper, at paragraph 52, that "continued economic growth in this country will increase its wealth". That sounds funny now.

In the absence of a comprehensive system of capital taxation, the bulk of this increase in wealth will accrue to those who are already wealthy.

This, of course, is an extremely dubious statement at any time. In present circumstances, one marvels that it should ever have been possible to make such remarks at a time when wealth is steadily declining and the poor are becoming poorer.

The White Paper continued at paragraph 60:

A further consideration which may affect the charge of an annual wealth tax as a form of capital taxation is that it would encourage the more efficient use of scarce capital resources. A wealth tax would lean more heavily on assets which produced little or no income and would, therefore, encourage wealth owners to invest in more productive outlets.

What a concept in August, 1975. We are putting through, with Senator Halligan's valuable assistance, a wealth tax which "will lean more heavily on assets which produce little or no income and encourage wealth owners to invest in more productive outlets". Do the Minister and Senator Halligan know what this involves? It will lean on industries, factories, employment-giving projects of all kinds which are already on the brink of bankruptcy, which, if they have not already let workers off, are week by week desperately trying to find ways of avoiding doing this. This is the tax the White Paper so encouragingly says is going to lean more heavily on assets, industries, factories, companies of all kinds that produce little or no income. This is what we seek to do in this Bill.

One of the salient characteristics of the Minister, as Minister for Finance, has been that he seems incapable of assessing with any degree of correctness the financial condition of the country. He seems incapable of recognising realities, or facts as facts. He keeps saying that in other countries the level of taxation on productive assets is far lower than here. We keep telling him that at every level of income direct taxation in this country is far higher than in any other country in Europe.

This wealth tax on productive assets is a tax on property. One of the few things the Minister and all of us can agree on is that the aim is that this tax will be paid out of income. It is at a level which enables it to be paid out of income; it is not intended to be paid out of capital. Therefore, it joins the income tax, for practical purposes, as a form of direct taxation on people's incomes. It adds to this. On this basis, it does not matter what the thresholds of wealth tax in other countries are, what the exemptions may be, what the provisions of this Bill may be or the corresponding legislation in such other countries as have it, the fact remains that there is no country anywhere in Europe which is as heavily burdened with direct taxation as we are—a burden of heavy taxation on those who administer productive assets.

The Minister constantly tries to gloss over this situation by irrelevant statements about thresholds and so on. This kind of situation inevitably makes it more difficult to develop an industrial arm. It makes it more difficult for the people to work. It makes it more difficult to persuade people they want to work. After all, the level of direct taxation does not merely affect wealthy people—millionaires, industrialists. It affects us all. The ordinary Irish worker in Irish industry is taxed far more heavily than his comrade who works in industries in Dusseldorf, Paris or wherever it happens to be. The level of taxation here, whether on the manufacturer, the millionaire or the worker, is far higher than in other countries. The Minister would do far better to recognise this fact than to try and gloss over the matter by talking gleefully about levels of thresholds and so on which are totally irrelevant once one has regard to the total level of direct taxation and does not treat the wealth tax separately.

The position, in other words, is this. We start off with a higher level of direct taxation than any other country on workers and productive assets of all kinds. In this Bill, as far as it relates to productive assets, the Minister is increasing still further the level of direct taxation. He may call it a wealth tax. He may say it is on property, not on income, but by his own admission wealth tax is to be paid out of income. Therefore he is adding to what is already the highest rate of taxation of productive assets that exists anywhere this further burden of wealth tax which has to be paid out of whatever profits they may have. It is a unique form of taxation in the sense that whether it is a farmer or industrialist it makes no difference. An individual or shareholder although making no profit or suffering a loss in a particular year will still continue to pay wealth tax on his assets which are euphemistically described in this Bill as wealth. It is a unique form of taxation in that sense that a person continues to pay even if he is not making any money. That is our objection to this Bill. At a time of great national crisis, when probably more than at any time since we achieved our independence we are facing a very grave national economic emergency particularly with regard to the provision of employment, the Minister chooses to impose a tax on us called an annual wealth tax.

Recommendation put.

The Committee divided: Tá, 12; Níl, 24.

Tá

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

Níl

• Burton, Philip.
• Butler, Pierce.
• Codd, Patrick.
• Deasy, Austin.
• Ferris, Michael.
• FitzGerald, Alexis.
• Halligan, Brendan.
• Harte, John.
• Kerrigan, Patrick.
• Kilbride, Thomas.
• Lyons, Michael Dalgan.
• McAuliffe, Timothy.
• McCartin, John Joseph.
• Mannion, John M.
• O'Brien, Andy.
• O'Brien, William.
• O'Higgins, Michael J.
• O'Toole, Patrick.
• Owens, Evelyn.
• Prendergast, Micheáel A.
• Russell, George Edward.
• Sanfey, James W.
• Walsh, Mary.
• Whyte, Liam.

Tellers: Tá, Senators W. Ryan and Garrett; Níl, Senators Sanfey and Halligan.

Recommendation declared lost.

Question proposed: "That section 7 stand part of the Bill."

Mr. Yeats

Various issues arise from this section. First of all there is the question of livestock which is exempt in the case of a farmer who, within the meaning of section 10 is beneficially entitled to in possession. That is paragraph (c), subsection (1). On the other hand, we have paragraph (d) which exempts bloodstock without any such qualification.

I appreciate that the bloodstock industry is an important one for which all Irish people have a particular affection. Nonetheless, it is not easy to see why this particular industry should be singled out of all the other industries for this kind of exemption. We have just had our recommendation in this respect turned down by the Minister. It was a blanket recommendation providing for the exemption of productive assets. That has been decided, but I think it is clear that there are many other productive assets that give more employment than bloodstock. They are more valuable to the nation than bloodstock taking into account that the only test one ought to make in present conditions is the amount of employment that is given.

There are many valuable industries, factories throughout the country, giving very good employment and that have given good employment for generations, which are in a much more difficult position than the livestock industry which, perhaps with greater national benefit, could have been exempted. I am not objecting to bloodstock being exempted, but if bloodstock are added in this rather mysterious way to the list of exemptions, one feels there are other types of economic activity which employ more people, and to that extent, in present conditions, they are more worthy of support.

It is difficult to see the relationship between the blanket exemption of the bloodstock industry, without any requirement that the people involved should be full-time stud owners or anything of that kind. On the other hand, the previous paragraph states that livestock shall only be exempted in the case of a person who is a farmer within the meaning of section 10—we will come to that later on.

Bloodstock are in many cases, of course, in the ownership of people who are full-time involved in that industry. In many cases bloodstock are the plaything of very wealthy people, millionaires and that sort of people. All of us would agree that this Bill should be directed against such people. In these circumstances, while naturally one approves of bloodstock being included in the exemptions, one wonders why there is not provision that the only people who could benefit in this are those who are engaged full-time in that industry.

Mr. Ferris

I am rather disappointed with Senator Yeats's contribution on this section, because in sections where we do not have exemptions he looked for them and in sections where we have he questions the validity of them. What he may not know about bloodstock is that it is the value of the bloodstock, primarily that we should be worried about. Here is an area of the highest capital risk input, and it is recognised by anybody who knows anything about the bloodstock industry that this is a most valuable exemption in the wealth tax code. If bloodstock were not exempt, all the high class thoroughbred stallions, which are priceless and are standing at stud here, could overnight, unlike capital, be taken out of the country and be put standing at stud in France, America, or elsewhere. The fact that we are progressive enough and that the Government have their ear to the ground and understand the importance of this industry is why such a valuable industry such as bloodstock, is exempt under this section.

Capital could have been easily moved, but cannot now because of wealth tax applied elsewhere, but bloodstock is welcomed. Senator Yeats does not seem to realise the importance of the bloodstock industry in its employment stimulus. Let there be no doubt that in the agricultural community bloodstock is the single most important employer of agricultural workers, and at a very good standard. I have said that before and I am pleased that this industry is exempt.

Reference has been made in relation to this section to the exemption of the farming community and I should like to point out that the Chairman of the General Council of County Committees of Agriculture, who is a Fianna Fáil Deputy, said publicly today at a meeting of the General Council that it is time people stopped degrading the agricultural industry and frightening them with wealth tax. He, as a Deputy in the other House, sat through this legislation. He, as a Fianna Fáil Deputy, could not see anything in the legislation which would frighten farmers or do harm to the industry. When a Deputy of the courage of John Callanan could say today publicly that it is time legislators stopped frightening away people on this subject, I think it is time the Opposition realised how important it is that the thresholds and exemptions are considered and credit is given where it is due. This is only a very meagre wealth tax as wealth taxes all over Europe go.

Mr. Dolan

The principle we were concerned about on this section is the employment content and what it would do to relieve the situation in which we find ourselves. In so far as my area is concerned, there are not many people in that area, if any at all, who find employment in the bloodstock industry. We would be far more concerned about the number of people who might lose their jobs in the bacon factories and other factories that we have in our constituencies because of this situation. I remind Senator Ferris and others that this sudden interest in the bloodstock industry is something that more or less amuses me. I remember some years ago when they actually fought an election here on a racehorse called Tulyar. They were loud in their criticism of the Fianna Fáil Government then because the State invested money in the purchase of that stallion and put him at stud, and in that way laid the foundations of the thriving bloodstock industry to which Senator Ferris refers. I am glad to see that he is converted, and if the bloodstock industry is thriving in his area, in all fairness he must give reasonable credit to the Fianna Fáil Government who were far-seeing enough to do that.

Mr. Yeats

Senator Ferris, to a considerable extent, made the case we have been making about the general effects of this Bill. He said that if the people found that their bloodstock was being attacked by wealth tax they would shift them elsewhere. This is precisely what we have been saying about the danger to capital. Senator Ferris perhaps saw the pit into which he was falling and said "After all it is easier to move bloodstock than capital". I find that difficult to follow. I should have thought that the physical problem in moving bloodstock would be quite easily soluble but nonetheless would be considerably greater than that of shifting capital which, in many cases, can be done by a bookkeeping transaction. It is quite easy to shift capital from one place to another, far easier than shifting bloodstock. If the effect on men of means—and many men of great means are involved in this industry at present—of this tax is to lead them to shift their bloodstock elsewhere, how much more is it likely to be on men of means to shift their capital elsewhere? The situations are analogous and Senator Ferris, to a considerable extent, has made the point we have made about this Bill and the fears that we have for this Bill.

The bloodstock industry gives good employment. There are many other industries that give good employment and, in total, they can give a great deal more employment than bloodstock which, however nationally important it may be, is restricted to certain limited areas. It is, of course, very important for those areas and one would hate to do anything that might in any way damage it but, nonetheless, there are other industries in other areas that give good local employment which are likely to suffer damage from this Bill. I put it to Senator Ferris that the people concerned, the Senators and Deputies in those areas, may well have the same kind of worries about their local industries that he has about his.

Another point I should like to raise on this section relates particularly to this exemption of livestock which appears next door to the exemption of bloodstock and yet is very much more restrictive in its nature because there is no exemption for livestock except in the case of what one might describe as genuine farmers within the meaning of section 10. In section 10, a farmer, for the purpose of this Bill and, in particular, for the purpose of dealing with the exemption of livestock, is:

an individual who is domiciled and ordinarily resident in the State and as respects whose taxable wealth not less than 75 per cent of the market value of the property comprised therein at the valuation date consists of agricultural property, farm machinery, livestock and bloodstock...

and so on. In other words, if a farmer with a wife and children has any property outside the farm, other than agricultural, which amounts to as much as 25 per cent of his total taxable wealth he is no longer a farmer. In other words, a relatively small farmer whose wife owns a pub, a small hotel, who has been left a couple of houses by her father, who has a certain amount of property in her own right, would find himself by virtue of this definition no longer a farmer in the meaning of this Bill. He, therefore, would not be entitled to the exemption for livestock in section 7. So this exemption, which seems attractive on the face of it, and certainly is to those who benefit, can lead to a situation where a man with perhaps 80 acres or, in the case of a single man, as little as 50 or 55 acres would find that his livestock were taxed along with the rest of his farm. There is a very surprising difference between the provision there for livestock in this section and the all-embracing, very generous exemption given to this particular industry, bloodstock.

Under subsection (2) of this section there is a further point I should like to raise which has rather farreaching implications. This subsection says:

Notwithstanding anything contained in subsection (1), such particulars and information in relation to the property referred to in that subsection shall be furnished to the Commissioners as would be required if such property formed part of the taxable wealth of the assessable person.

In other words, if you are making a return to the Revenue Commissioners of your property of various kinds, even though there may be an exemption under the section, you still have to list the property and, it seems to me, produce a valuation just as if it was part of your taxable wealth.

I am not now talking about the manner in which it will be administered, but the plain meaning of this subsection is that, even though your principal dwelling house is exempt, you ought to get it valued and submit this with your returns. Even though the normal contents of your house are exempt, you should get them valued and submit that to the Revenue Commissioners as part of your return. It says quite clearly that particulars and information in relation to the property should be furnished, the same ones that would be required if the property did form part of the taxable wealth of the assessable person concerned. The same applies to the farmer with his livestock, bloodstock and various other matters which are exempt in this section. The Minister may well say that the Revenue Commissioners will not insist on the production of these, but that is not very much help, because the subsection is quite clear, as is the rest of the Bill. Within a certain time after 5th April each year you must produce a return of all your assets assuming you are within the various thresholds under which this is required of you. You can be fined a very considerable sum if you omit anything or produce an inaccurate return under section 27. For example, where an accountable person fraudulently or negligently delivers any incorrect return he is liable to a penalty of £2,000. Negligence is given a definition further on as "being in error", in other words, that he leaves things out. I am not sure how this is going to be administered and I should like to hear from the Minister why this subsection is here and what type of interpretation he proposes to put on it because, on the face of it, it seems quite clear it will cause great inconvenience and expense to people who will be required to get valuations of all these various items, which cannot be taxed if they are quite clearly exempt under this section, and I should have thought it would be more sensible to put it in a more elaborate way so that, in most cases, one could exempt these. The way one would have expected it to be put would be that you would not be required to make any return of these assets unless called upon to do so by the Commissioners, which I should have thought would have covered the situation adequately.

Mr. M.J. O'Higgins

First of all, the general provisions of the section are the provisions which vindicate what the Minister has stated so often in the course of this debate that the exemptions here make this, as wealth tax goes, a soft wealth tax Bill. There are some matters on which I should like to have clarification. With regard to the question of dwelling house, the exemption which is provided for the principal private dwelling house and land up to one acre in extent, what is the situation where a dwelling house is in joint ownership? Is the test there as to whether both the joint owners use the dwelling house as their principal place of business? What is the situation if only one lives there and uses it as his or her principal place of residence?

Secondly, with regard to paragraph (b), subsection (1), reading that with subparagraph (i), I should like to know from the Minister is it the situation that in the ordinary way pictures, prints, books, manuscripts, and so on, are not regarded as the normal contents of a house. Is there a distinction between furniture and household effects as such, on the one hand, and pictures, prints, books, manuscripts, works of art, and so on, on the other?

Paragraph (i) seems to presuppose that we are dealing here with pictures and books which are of particular historical or national value. The mere fact that pictures, prints, books, are referred to in paragraph (i) and are not referred to in paragraph (b) at least raises the query as to whether or not there will be any suggestion that ordinary books, or reasonably good pictures which may not be Old Masters, will be queried as being part of the normal contents of a dwelling-house.

Paragraph (e) (i) refers to the right to receive any benefit or any annuity or periodic payment. Subparagraph (i) reads:

under any scheme for the provision of superannuation benefits on retirement established by or under any enactment or instrument made under any enactment.

What is the position in regard to United Kingdom pensions or funds? Paragraph (g) refers to discretionary trusts and a company which was established or incorporated exclusively for charitable purposes. What is the position as regards compensation funds, for example, for the Incorporated Law Society, or any other body of that sort, where a fund is built up for a specific purpose and may, from time to time, be very substantial? Is there anything in this section, or in the Bill generally, which provides an exemption? There is, of course, no question of individuals making profit out of funds of that description. Are they exempt under the provisions of this section or elsewhere in the Bill?

Mr. R. Ryan

Some interesting points have been raised. I suppose the longer the debate goes on the more interesting the points will be. I am in favour of introducing the tax as soon as possible so that we can get down to dealing with specific cases rather than generalities.

Senator Yeats seemed to take exception to the penalties provided in respect of non-disclosure. Well, if he takes, as he apparently does, capital taxation as the gospel in this matter, he will recall that it is provided in the White Paper that fairly heavy penalties will be necessary to prevent non-disclosure of assets or of essential information or other evasion of the tax. Serious under-valuation would also call for penalties but these penalties would be imposed only for fraudulent behaviour. Clearly it is necessary to have substantial penalties, but they will not be imposed in respect of accidental non-disclosure or accidental under-valuation. Understandably, in a taxation system where self-assessment is the first rule, it is necessary to encourage people to be honest. We do not want to provide punishments for people who are honest but inefficient, or inaccurate, so we are not doing that. We are simply providing penalties where people, knowingly, mislead the Revenue Commissioners. No penalty will attach, therefore, to any person who acts in good faith.

With regard to the livestock exemption being confined to the genuine farmer, it is worthy of note that the farming associations have not made any complaint about the exemption being available only to the genuine farmer. Indeed, in my meetings with them, they have expressed the view that they preferred to see the exemption conferred only on the genuine farmer in order to discourage the part-time or hobby farmer from competing in the market against the genuine farmer and, as a consequence, driving up the price of land for the genuine farmer. Confining the exemption to the genuine farmer achieves a good social and economic objective.

Senator O'Higgins asked about joint ownership of a dwelling-house. I would refer him to section 7 (1) (a) (i) which reads:

... a dwelling-house, or part of a dwelling-house, to which, on the relevant valuation date, an individual is beneficially entitled in possession and which is occupied by him as his only or principal residence...

If a house is owned jointly and one person only is in residence, that person would enjoy exemption in respect of his part of the dwelling-house because he is in occupation. If both are in occupation—I am assuming for the purposes of the question that the house is jointly owned by two people —then the exemption would be enjoyed by both and, therefore, the whole dwelling-house would be covered.

Senator Yeats complained that the last paragraph of the section requires disclosure even where the property disclosed would be exempt. This is not unusual. Companies which enjoy exemption from income tax on their profits on manufactured goods for export must make a full disclosure to the Revenue Commissioners of the profits thus earned, even though the profits are not liable to tax. That is a very specific area where, in most cases, there would be no doubt as to whether or not liability to tax arose. Certainly, there could not be any doubt in relation to, say, a company which received an IDA grant with Government approval only on condition that it exported all its manufactured goods.

Many of the exemptions in section 7 require an assessment to be made as to whether or not they qualify for the exemption. It would be inappropriate that only the owner of the beneficial interest in the property should make that assessment. It is proper and desirable that the Revenue Commissioners should also be furnished with the full facts in order that a determination could be made as to whether or not the property enjoyed the exemption.

To return to Senator O'Higgins' point—I hope I dealt with the question of joint ownership of a dwelling house adequately and clearly. I will come back to it of course. As far as the contents of the house are concerned, as I mentioned this morning the Revenue Commissioners will operate the contents clause in a very pragmatic way. Paragraph (i) deals with pictures, prints, books, manuscripts, works of art, jewellery, scientific collections which have a national, scientific, historic or artistic interest. If a taxpayer pleads that particular interest and is able to establish it, that puts beyond any further argument whether the item in question forms part of the normal contents of a house. In determining whether the contents of a house are normal the Revenue Commissioners would look at a number of things, including the value of the net contents, how that relates to the value of the house, the life-style of the owner, the other wealth of the owner, the income of the owner, what proportion of the person's total wealth holding it represents and so on. It is not possible to be specific. If one tried to be specific and spell out the matter with tremendous precision in legislation one would probably generate more anomalies and difficulties. It is better to leave it in the way we have it, that the Revenue Commissioners would simply look to what would be expected to be normal contents.

If a disclosure is made, in the case, for instance, of the owner of a house having a very valuable diamond which was many times in excess of the total value of the house, it might not be unreasonable for the Revenue Commissioners to form the view that that was not "normal contents" of the house and consider that such items should not be exempted. If the owner of the asset in question did not agree with the Revenue Commissioners of course he could appeal against the determination of the Revenue Commissioners. Then it would be for somebody else to determine whether the item in question was "normal contents".

I am not certain what worry Senator O'Higgins may have in relation to superannuation schemes and United Kingdom superannuation schemes. There is no confining of the exemption to Irish superannuation benefits or to Irish assets except, of course, where the property must necessarily be in the country. But the fact that a superannuation scheme was based in the United Kingdom or elsewhere would not exclude the exemption conferred by section 7 because what is conferred is the right to receive any benefit, annuity or periodic payment. Then, under superannuation benefits:

... on retirement established by or under any enactment or instrument made under any enactment;

The question of the compensation fund of the Incorporated Law Society, or some such similar fund, raises an interesting question. The question which has to be posed is: who has the beneficial interest in the compensation fund? I wonder whether members of the Incorporated Law Society have in fact any basis for official interest at all? I would want to look at the statute to see, I suspect that the sole beneficiaries are those who may be defrauded by solicitors——

Mr. Alexis FitzGerald

Who are unascertained persons.

Mr. R. Ryan

Yes. So there is an element of discretionary trust involved in it. But, offhand, I would not like to say ex cathedra that the Bill provides for that matter. But if it did create any difficulty and it was found that the fund became liable to wealth tax, I can assure the House that the necessary amendment in the law would be made to avoid such a charge because of course the fund was created under statute of the Oireachtas for the purpose of protecting clients of the legal profession.

Mr. Yeats

I am more than disconcerted at the Minister's remarks on subsection (2). I had thought, reading it, that no matter how outrageous it might sound, probably when it came to the pinch the Revenue Commissioners would agree more or less tacitly to ignore it so far as exempted properties are concerned. It seems now from what the Minister has said that we need to take this subsection very seriously indeed. I put it to the Minister that this is the implication of what this subsection appears to mean: take one example out of many that one could take: if a man and his wife had two houses—perhaps the wife had a house somewhere—obviously the principal dwelling house is exempt; the second one is not. Take the position of the second one, which clearly is taxable within the threshold: they must make a return; they must get a valuation of the house, a valuation of the contents naturally with the expense involved. I accept that that is inevitable —of a valuer going right through the house, room to room, to value everything in it, value the house itself, the grounds and so on.

Mr. R. Ryan

If I may intrude— that does not necessarily arise. The Revenue Commissioners have not insisted upon such detailed valuations and inventories in respect of estate duty, except in such circumstances as they felt merited production of such a valuation. But that would not be the norm.

Mr. Yeats

Whatever about the room-to-room business, I take it that since the normal contents do not apply to the second house, there must be at least a statement: "I have a house worth so much, with contents worth so much," which means some kind of valuation has to be done. That is all right in respect of a property on which one may be liable to pay tax. It is one of those things sent to try the ordinary citizen. One has to accept that this is so. Now we find, because of the operation of subsection (2), that in respect of the family dwelling, your own house, the one which everybody agrees is not taxable, it and its normal contents, one has to do the same thing just as if it was included in the Bill as a taxable form of wealth.

I suppose I have an innocent approach to these things, but I had thought that when it came to those who had to fill out wealth tax returns, they would merely put down their property: one principal dwelling house and normal contents, end of story. And, unless there was some reason to believe there was something fishy going on, the Revenue Commissioners would accept that. It seems now that this is not so, that, in accordance with subsection (2), all those will be involved. And a fair number of people will be involved in making returns though fewer will actually be taxed. All of these people will have to get some kind of valuations of their houses, their principal dwelling house and its contents. These items in no way affect the question of the threshold. Obviously when it comes to deciding whether a person has enough wealth within the meaning of this Bill to bring them above the threshold, valuations are important. In the case of the second house to which I referred it would not be enough to say vaguely: "Take out the back of an envelope and decide that the house is worth £10,000, £12,000 or £15,000". Clearly, some kind of valuation would be necessary when there is a sort of marginal aspect relating to the thresholds. According to this subsection one has to go through precisely the same operation with regard to one's principal dwelling house. This seems an extraordinary provision, involving a whole lot of people in totally unnecessary complications. One would have thought that, once an item was clearly and specifically exempted by this section it ought to be possible to say: "I have a principal dwelling house with normal contents". Mind you, if one said the house has "normal contents" and it turned out that it was full of valuable paintings one had been collecting for one's old age, then one would be in trouble under section 27. However, that is the problem of the taxpayer and he has to try to reconcile it with his conscience and with the Revenue Commissioners. The sensible thing to say in such a case would be: "I have a principal dwelling-house in which my wife and I live. It has the normal contents provided for here". If he is a farmer he says: "I have livestock" or "I own bloodstock", "I own woodlands", and that would be that. Unfortunately, none of this seems to be possible under this subsection. It says quite clearly that, even though these items are not taxable, the return has to be made in the same form as for taxable items. It is difficult to see the advantage to anyone in this complicated process. It will be a nuisance to the taxpayers concerned. Whether or not they are liable for tax is immaterial; they have to go through the same procedure anyway and it will be of considerable expense and a nuisance to the Revenue Commissioners because they will have to go through all these forms, valuations and so forth for items which are not subject to any tax.

I would suggest to the Minister that, first of all, he should try to ensure in so far as anybody can ensure, that the Revenue Commissioners do not observe this subsection and that they accept the bare statement that a person has a principal private dwelling-house, that he has livestock, bloodstock, woodland and so on. Secondly, on the next available opportunity which I suppose will be in January, if not earlier, he might insert a section modifying this somewhat to allow for a much simpler form of statement in the case of non-taxable items.

Mr. R. Ryan

I would think that it is very much to the advantage of the taxpayer to have a determination made that certain property is exempt. At least he is free from any worry that somebody sometime in the future may make an assessment that it is not exempted property. There is an advantage to the taxpayer in making a full disclosure so that exempted property may be listed and there will be no cause for worry. In case I gave the impression that penalties related only to fraud, I should like to mention that section 27 also mentions negligence; I referred to fraud. "Fraud" is the word that is used in the White Paper. A mere innocent mistake is not to be regarded as negligence as long as a person responsibly makes a return, that will be acceptable and does not expose the person to penalty.

Mr. Alexis FitzGerald

There is one point which occurs to me and it is not unimportant, that is, the exemption of the dwelling-house to which the individual is beneficially entitled in possession. The Minister in the Dáil greatly improved the Bill by the amendments he carried there in regard to the treatment of discretionary trusts. In subsection (3) of section 5, which has already been debated, in the case of the particular discretionary trust there described and specified in language which is apt for many situations, the section does not apply to such a discretionary trust and it is then treated as a section 3 individual operation under the scheme provided.

It seems to me logically to follow from that that the benefits of the exemption of the dwelling-house and contents should go at least to such a discretionary trust, and as we have it in this subsection I do not think it does, in fact, follow. It may follow from the language used and I shall be delighted if it does because I think it should. What is an individual under this Bill? It seems to me that the Minister may have made an extraordinary gesture in women's year and introduced a tax which may not have any impact on spinsters. If I construe section 4 correctly, an individual is a person capable of having a wife, which no spinster lady is capable of having. If this be correct, no spinster lady would be an individual and be taxable or be entitled to exemption under the code.

Another point arises from "beneficially entitled in possession". I would have thought that certainly joint tenants were beneficially entitled in possession, in that a joint tenant by the legal nature of his interest, occupies it in its entirety as well as in part. Do partners cease to be individuals if they are in partnership so as to lose those exemptions or benefits or special treatments which are reserved to an individual? Partnership, in one section of the Bill, is deemed to be a body of persons but, admittedly, it is for the purposes of a particular definition in section 5. It says "any body politic, corporate or collegiate and any company, partnership..." What about two men farming together? Are they individuals entitled to the treatment of individuals and not treated as a separate body of persons?

On the point that Senator O'Higgins made, the worry here is that in regard to UK pension funds the word "enactment" in (e) (i) might have to be construed as meaning an enactment of this Parliament and not an enactment of any other Parliament. From time to time there are substantial sums being invested here from pension funds established in the United Kingdom. If the word "enactment" here meant only enactment of the Oireachtas, then these pension funds would be subject to wealth tax here in relation to their investment, which at 1 per cent would amount to quite a sum of money.

The other point I wanted to make relates to whether the Revenue Commissioners will be able to deal with the situation of discretionary trusts. I know of a number of discretionary trusts established by people who are now dead—substantial ones at that— and discretionary trusts established for named persons who were past employers or old friends who were getting this type of provision from the rich men concerned. I do not know whether the language in subsection (7) (g) is apt for this. Perhaps we could look at it on another day to see if the words "charitable purposes" are wide enough to deal with the situation, because, as I mentioned on another Bill, it seems desirable from a fiscal point of view to encourage people who have shareholdings in companies that they establish and build up to give them away to their employees, and the usual way of doing that is to create a discretionary trust for the employees, their widows and so on. It seems to be that type of discretionary trust which ought to get the benefits which are to be given in the case of a charitable trust.

One final point, and it relates to the extreme importance of our getting a Variation of Trusts Bill enacted. I would nearly threaten the Minister to draft it myself if he will not encourage his colleagues to do it. For the Minister's reference, there is a new book on it which gives an account of the variations of trusts code and how it started by a decision of the House of Lords of 1954. Defects in the administration of trusts were discovered by that decision. What was introduced then is being copied now in a number of countries. Admittedly, it is being used to improve the tax position of particular people but there has been a hardening of decisions against that kind of operation at the British end. Here I see people caught for tax who are underneath the threshold, people who will have much less than £100,000 because their interest will be a hope of getting something from a discretionary trust. When that hope is realised they will find that after the trust has had its thing taken away there may be inadequate provisions in these documents.

I would like to give a simple illustration of what I mean. Say there is no power to pay remuneration to the trustee; say it is a substantial trust and the trustees were good friends of the deceased and were prepared to do it for him. It is now getting frightfully complex, it is continuing through time and they want to get a bank or somebody to take over but there is no power to pay the bank. That will require a variation of the trust. There is nobody to agree to it. There is nobody in the position to terminate it all. There should be a residual power, that the court does not have at the moment, to go to the court to get that type of clause put in.

Mr. Yeats

The Minister said it is in the interest of the taxpayer—again harping back to my point on subsection (2) which will startle a considerable number of people when they find out its implications—to know how he stands with regard to his principal dwelling and so on. After all, he knows. The Bill says it is exempt. All he needs to do is say: "My principal dwelling-house is in such-and-such a place and has normal contents." Once it is accepted by the Revenue Commissioners that is the position. Valuing it and so on will not help. It will just cause further confusion to the taxpayer and unnecessary expense and costs of administration. The only problem that needs to be established as between the taxpayer and the Revenue Commissioners is that there is an exempt dwelling which has exempt normal contents. That is all that should be needed.

Mr. R. Ryan

I believe two heads are better than one. It is as well for the Revenue Commissioners and the taxpayer to get together and talk things over. That usually ensures the truth. The discretionary trusts that Senator FitzGerald mentioned and his anxiety that the dwelling-house would enjoy the exemption even if it was involved in a discretionary trust is provided for in section 5, subsection (2) (a) and (b). I think he will find that that deals with most situations. The word "individual" is used in the Bill to distinguish between an individual and a legal person. A legal person covers not merely human individuals as we know them, but also different legal entities which are legal persons, including companies. Where the word "individual" is used it is for the purpose of identifying a human person.

Senator FitzGerald raised the question of discretionary trusts in favour of elderly people, former employees and so on. I suggest to him that section 5, subsection 3 (b), has the necessary exemption. It states:

Where it is shown to the satisfaction of the Commissioners that a discretionary trust exists on a valuation date for the exclusive benefit of—

(b) one or more named individuals, for the reason that such individual, or all such individuals, is or are, because of age, incapacity or improvidence, incapable of managing his or their affairs, or for any other analogous reason which, in the opinion of the Commissioners, is sufficient to justify the benefits conferred by this subsection.

That would provide for the very genuine case that Senator FitzGerald properly brought to our attention. As far as the possibility of a Variation of Trusts Bill is concerned, I will convey to the Minister for Justice the very serious threat of Senator FitzGerald.

Question put and agreed to.

Business suspended at 5.30 p.m. and resumed at 6.45 p.m.

SECTION 8.

Mr. Yeats

I move recommendation No. 19:

In page 12, after line 25, to insert a new subsection as follows: "(3) In estimating the market value of shares in a company part of the assets of which do not constitute taxable wealth the total value of the shares shall be reduced by the same proportion as such assets bear to the total assets of the company."

The problem attempted to be dealt with by this recommendation is that which arises where you have a company, all or part of whose assets are exempt from this tax, but which, nonetheless, is taxed on all its assets. The effect of section 8 is that it is as if subsection (1), the very first two lines of the previous section we discussed, section 7, were to say not just that tax shall not be payable in respect of the following property and that such property should not be taxed for wealth but as if it read that tax shall not be payable in respect of the following property and such property shall not be taxed for wealth provided that it does not form part of the wealth of a company.

For example, bloodstock or woodland or superannuation funds could be in the ownership of a company. It might not even be all the assets that the company had and yet the company would be taxed as if all this property was, in fact, liable in its own right to wealth tax. It is difficult to see the reason for or the justice of having a situation in which a private individual who owned a large amount of bloodstock or woodland would be totally exempt, supposing this is all his assets, from wealth tax but if a company owned the same property they would be liable for wealth tax on this otherwise exempt property. I would be glad to hear the Minister's views.

Mr. R. Ryan

The recommendation deals with the valuation of shares in all companies which do not come within the category of private non-trading companies in the meaning of section 6. The reason for this is that, as we have seen, when we were discussing section 6, a private non-trading company is itself an assessable person and its assets are taxable wealth. In any case, therefore, where assets are not taxable wealth—for instance, where assets are exempt— they are not liable in the hands of a non-trading company. Trading companies as such, whether public or private, are not liable to wealth tax. It is only the shares in such companies which are liable where they are in the ownership of persons who are themselves liable to wealth tax. It is only a minority of owners of shares in trading companies in Ireland who would themselves be liable for wealth tax. The recommendation seeks to reduce the value of such shares in cases where the assets of a trading company include assets which would be exempt if they were in the hands of an individual.

There are a number of reasons why the recommendation cannot be accepted. First, it proposes that the value of the shares be reduced by the same proportion as the exempted assets bear to the total assets of the company. This seems to assume that shares are valued only on an asset basis. Of course, they are not. The basis for valuing shares involves not merely the asset value but the company's current performance, its past history, future prospects, dividend record, the nature of the product, the demand in the market, liquidity gearing and so forth. If we were to accept the recommendation, we could introduce an element of artificiality in relation to shares. To isolate the whole or part of the underlying assets of a company from all the other constituents which go to make up the value of a share, and then to apply the exemption to certain assets and have the exemption reflected in the value of the shares would be virtually impossible. It would be particularly difficult, if not impossible, where the shares are quoted on the stock exchange where values can change for reasons far removed from the underlying assets.

It is thought in some quarters that the most conservative and stable elements in society are those who hold wealth. If one were to judge the performance of the stock exchange one would not form that view. They are, perhaps some of the most sensitive and emotional people in the world to judge from the way in which stocks and shares can rise and fall as the result of a rumour, for instance. The intention of the recommendation is, I am sure, a good one; I do not query the motivation. But, in practice it would be impossible to apply and would generate more difficulties than the people who drafted the recommendation ever intended. It would present enormous evaluation problems not merely for the Revenue Commissioners but for the private sector as well. It would be virtually impossible to reconcile the conflicts that would inevitably arise.

The recommendation is of little practical significance as the majority of the exemptions apply to assets which would not normally be owned by a trading company. For instance, a private dwelling-house, and its contents, would not normally be the property of a trading company, nor would artistic objects or gardens of historical, national and botanical interest, or growing timber or superannuation benefits or their funds. I am sure Senator Yeats will not fall into the trap that some of his colleagues did in the other House where they chastised me for suggesting that superannuation funds were not the property of companies. Of course, they are not; they are the property of the beneficiaries or the intended beneficiaries, but certainly not the property of a trading company as such. There are, obviously, many compelling reasons why the recommendation cannot be accepted.

Mr. Alexis FitzGerald

I understand the Minister's observations with regard to the recommendation and the difficulty of accepting the proposal but I would be interested to know how, to take one simple example—I am sure the Minister will be able to tell me because I am certain the matter has arisen before—the fact that under section 7 bloodstock is not to be taxable wealth is to be reflected so as to give a benefit to the private non-trading company which may own that bloodstock or, in the second case, to the shareholder in the trading company which may hold that bloodstock. If I understand section 8 as it is proposed it is a re-enactment of the old estate duty provision for valuation. In the text book I have before me, Greene's Death Duties, 7th Edition— if I read from pages 395 to 531 it would make me popular—there are that number of pages on this section. The Minister talked about the difficulties, not merely of the Revenue, but of the taxpayer and God knows they are there if one even looks at trying to make the adjustment for exemptions. The private non-trading company will be itself taxable and in what manner, and by what authority, do the Revenue disregard the millions of pounds, perhaps, that may be involved in the bloodstock owned by that non-trading company? If one has a trading company whose shares are being marketed on the stock exchange and happens to be—there are such companies, not here—in the business of afforestation and owning trees and underwood and so on, what is the position? The value of these shares is discovered by what people pay for them in the market place, but according to section 7, the trees and underwood in question must be exempt from wealth tax. That exemption is not relevant to the trading company because the trading company is not taxable and, therefore, how is that exemption passed on to the shareholder in the trading company without some authority for the Revenue Commissioners to make, in some fashion, a deduction to cover it?

For example, if these shares have a value which is established where they are trading in the market place today —if we had such a company on the Dublin stock exchange—and they are being traded in or if the assessable person holds such shares in a company in the UK, Canada or elsewhere, how do the Revenue Commissioners calculate the value? That would not arise because the trades must be in the State but where there are exempted assets how do the Revenue Commissioners value them? These provisions are a response to human demands and I am not at all certain that they should have been granted or that they did not involve a tremendous deviation from the whole theory of a wealth tax. They are there; people want them and we would not have wealth tax without them.

It is clearly intended that bloodstock should not be taxable. I do not know how, without some special provision, it is to be ensured that the shares in a trading company which owns these are so valued that this is disregarded or in what fashion one values. If it is a private non-trading company is the position about that entity that whatever it owns is valued on an asset-value basis and one can make a clear-cut division between the two?

Mr. R. Ryan

The private non-trading company will be valued on an asset basis. What I said earlier remains valid, that a trading company will not normally own assets exempted by section 7. If they happen to own them the exemptions are not necessarily carried through. It was never so intended. The exemptions are in the main conferred on individuals who hold particular assets. We come back now to the point we were discussing earlier— why does the Bill lay stress on an individual who is beneficially entitled? It is because the exemptions are available to an individual, not to companies.

Mr. Alexis FitzGerald

There is a distinction between bloodstock, pictures, prints, books manuscripts, works of art, jewellery, scientific collections, or other things, gardens situated in the State, trees or under-wood—these are distinguished from the dwelling-house, house furniture, household effects and livestock which are limited to individuals. These, by the very expressions used in section 7, seem to me to be enjoyable by other accountable persons, whether they be discretionary trusts or private non-trading companies. I take the Minister's point which is valid. What he is saying in effect is that if a trading company is not an assessable person, and someone has shares in that trading company, he will be assessed on the value of these shares. The fact that they invested in something which if held by accountable persons would not be taxable wealth will be disregarded. Is that the position?

Mr. R. Ryan

Yes, that is the position, and if it does not suit anybody he can unscramble the company.

Mr. Alexis FitzGerald

We are all doing a lot of unscrambling at the moment.

Mr. R. Ryan

The point has been mentioned here and in the other House that a number of companies had collapsed this year. A number of these so-called collapses are attributable to people unscrambling companies purely for fiscal purposes. The disintegration of a number of companies this year is not a reflection of the economic position, but rather that people are making a rearrangement of their property holdings.

Mr. Alexis FitzGerald

The Minister has made an extremely good point and one which it is right he should make now because the unscrambling in six months time that 2,000 comhas only begun. If he is to be told panies or so have been liquidated in the last six months, let him be ready with his answer, because that will be the reason for it. Most people have not done the unscrambling because they do not know what the final situation will be until these Bills are enacted and, indeed, perhaps may not do it until the Capital Acquisitions Tax Bill is enacted.

Mr. R. Ryan

I am delighted it is now on the record of the Seanad of the 6th August.

Mr. Yeats

There are two points I want to make on this recent interchange. First, the point made by the Minister and accepted by Senator Alexis FitzGerald, goes in part to show the amount of sheer economic dislocation that is being caused by this capital legislation. Irrespective of what the Minister's statistics say about companies closing down in order to unscramble themselves, anyone who reads the newspapers can see week by week that well-established factories that have given good employment over the years are closing down, letting off their workers and so on because they cannot get orders. To say the least of it, this is inconsistent and lacking in plain common sense. Let us take the example of two stud farms side by side, one owned by individuals and the other administered by a company. In the one case the bloodstock are exempt and in the other, reflected in the shares is the value of this otherwise exempt bloodstock. It does not make sense. The same could apply to a company indulging in saw-milling, the taking over of forest, indulging in commercial saw-milling and so on. The trees which would be exempt in private hands become liable as reflected in the shares of the company.

I cannot altogether appreciate the extreme complexity of the task the Minister says there is in unscrambling the assets to find out which are exempt and which are not. After all, one would have thought that the process of segregating profits from exports from other profits for the purpose of corporation tax would be a great deal more complicated, and apparently it has been carried out with reasonable satisfaction all round over the past few years. If that can be done I should have thought this could be done. After all these assets, whether exempt or not, in accordance with subsection (2) of section 7 will have been valued and submitted in accordance with their valuation to the Commissioners. They will know how much they are worth, and one would not have thought that it was beyond the wit of the extremely intelligent and active Revenue Commissioners to be able to work out what proportion of the property owned by the company was exempt.

I accept that the operation might become unnecessarily complicated if only a small proportion, 1 or 2 per cent, of the company's assets were exempt. Perhaps there is something to be said for the proposition that where 30 per cent of the assets of a company were exempt under the provisions of section 7, that they should be reflected in the shares. I will see what I can draft in this way for the next stage.

Recommendation, by leave, withdrawn.

Section 8 agreed to.

Section 9 agreed to.

SECTION 10.

Mr. Yeats

I move recommendation No. 20:

In page 13, subsection (1) (a) (i), line 34, to delete "lesser" and substitute "greater".

The first subsection of section 10 is important. It provides for the deduction of an amount equal to 50 per cent of the market value or a sum of £100,000 whichever is the lesser, with certain provisions for debts and incumbrances. This is in relation to agricultural property and farm machinery, fishing boats and hotel premises which are owned by an individual as opposed to hotel premises that are owned by a company. This recommendation proposes to delete the word "lesser" and insert "greater" so that the amount to be deducted would be 50 per cent of the value or £100,000 whichever is the greater. The difference would be reflected in, say, the case of a hotel valued £250,000. Under the subsection as it stands, the deduction would be £100,000 which is the lesser of the two figures mentioned. Under this recommendation it would be the greater, in other words, 50 per cent rather than £100,000. Therefore one would deduct £125,000 instead of £100,000. The point is simply to try to give a somewhat greater deduction for these highly productive assets— agricultural property, fishing boats and hotel premises—which have been singled out by the Minister—and I think rightly so. In the case of agriculture, obviously we all accept the reason that led the Minister to include them in this provision. The Irish Farmers' Association pointed out that the average return on Irish farming is only 2 per cent. In the face of this very small return on the value of the properties concerned, it is obviously highly desirable that as few farms as possible should be affected by the wealth tax.

In the case of hotels there are very few at the moment making any money at all. An hotel premises is obviously an extremely valuable asset. Even a relatively small hotel would have a considerable market value. In a situation where they are either making no money at all, perhaps even suffering losses, or in the better off cases making very small profits, it is obviously desirable that there should be as big a concession as possible given in this respect.

In the third case of fishing boats, obviously because of the very considerable value of trawlers these days, their importance to the national economy and the employment they give in parts of the country where employment is scarce, one can see also that there is a very good case to be made for the type of concession that the Minister has laid out in subsection (1).

The problem with hotels in particular is that in most cases because of the situation in the tourist trade at the moment, though this summer one does detect a certain improvement and the weather has helped, because of the almost complete absence of profits, many hotels, perhaps even the majority, would fetch little or nothing as hotels on the open market. They would certainly have a considerable value in most cases for wealth tax if they were sold off as buildings with the furnishings and so on being sold to the highest bidder. The effect of the Bill obviously, undiluted, could be to bankrupt a large number of hotels that have been waiting for conditions to improve. That being so, it is desirable that the maximum possible deductions should be made.

One feels that this provision, that the deductions should be an amount equal to 50 per cent of the market value or £100,000 whichever is the lesser, while obviously fairly substantial is nonetheless less than it might be. It would seem desirable, therefore, to say that where 50 per cent or £100,000 is greater it should be inserted. It would be a considerable help in certain cases. The larger hotels or farms would gain more. For example, in the case of one worth £400,000 at the moment the maximum deduction would be £100,000 leaving a £300,000 level, whereas if you could deduct the greater amount of 50 per cent then you could deduct £200,000.

In certain cases of large hotels and farms which have a small income but very considerable value, there is a great deal to be said for adopting this recommendation. It would not cost the Minister a great deal. It is one of these concessions that would have a considerable effect on individual cases but would not unduly alter the actual amount collected.

Mr. R. Ryan

If the position of hotels is as Senator Yeats describes, and I am not going to quarrel with him, that will be reflected in the value of the hotel. It is common knowledge that hotels are not fetching as high a price on the open market now as they did in easier days of the tourist industry. So, why quarrel about it? It is already reflected in the value of the hotels for wealth tax purposes.

The subsection makes provision for the special needs for agricultural property, fishing boats and hotel premises, as defined, up to a value of £500,000. The relief is intended for the comparatively "small man", the farmer, fisherman or hotelier whose relevant property is under that value. If it goes over the value, the owner of property will still be entitled to the 20 per cent relief for property which is used directly in the provision of employment and is, accordingly, deemed to be a productive asset. It is not a question of stopping the relief at £500,000. There is still relief above that where the asset is used to encourage employment. There is no counterpart relief in the wealth or capital taxation in any other country. I want to emphasise in the capital taxation of any other country, because wealth tax is a descriptive title and that is all it is.

There are many countries with capital taxations far in excess of the total of capital taxes which would be payable by any family within several generations in Ireland under the combination of taxes which we are proposing. If in addition to the special exemptions and the especially favourable treatment which we are giving for productive assets account is taken of the very high thresholds and other reliefs and exemptions, it would be very difficult indeed to justify any further concessions in this area.

If an asset has a very poor current performance that will be reflected in its market value. That means, therefore, that the capital value will be diminished by a sum appropriate to the current poor performance in any particular sector whether it is fishing, agriculture, tourism or whatever else. Account must be taken of that. It is quite wrong to assume that hotels today are valued at the same market value as they were in 1965 or 1967. They are not in relation to the market generally today, because the market value will reflect the current poor performance in certain areas. However, there are a number of hotels doing exceedingly well. They have not experienced the difficulties which some hotels are certainly experiencing in recent time. It is very difficult to strike a figure which will cater for the whole industry. Within a mile or so of where we are meeting tonight there are some hotels that are not experiencing difficulties or hard days. They are as full now as they ever were. Yet we are providing in this legislation special privileges, lower rates of tax, for them, as indeed for other people in the industry.

Those who have been badly affected are going to have the diminution of their trade reflected in the current market value of the property. When you take those two factors into account, the special rates we are providing for the hotel industry if it is under £500,000, the 20 per cent further reduction above £500,000 and the reflection of current performance in the market value, it would be clear that the industry is not going to be hard pressed. The overwhelming majority will be exempt, and if not the probability is that they are operating in areas of the tourist industry which has not suffered from the cool breezes of recent years.

Mr. Lenihan

We had here last week the Employment Premium Bill, now the Employment Premium Act. We sought to extend the £12 per head premium to employers to services generally, rather than limit it to manufacturing industries, with particular emphasis on the hotel industry.

If there is one area in the field of investment which has a high employment level it is the hotel industry. If there is one industry at the moment which is in serious trouble it is the hotel industry. If there is one industry that is a classic industry for priming the pump in the way of encouraging it, it is the hotel industry. Yet the Minister for Labour was reluctant to include the hotel industry in the scope of the Employment Premium Act despite amendments put down by this side of the House.

Here we have a situation where relatively minor recommendations such as this, designed to help the hotel industry—the Minister is well aware that the amount of revenue lost, if it could be calculated, would be very small in this instance—are being rejected.

The Minister for Labour last week talked about a very marginal measure of his that would stimulate 10,000 jobs. He was right about the objective, but the means adopted either by him or the Minister for Finance, do not seem very apparent. This will not be done by niggardly attitudes. If the Government have any sense of purpose they should include within the sweep of their present legislation an immediate and urgent recommendation designed to ensure a higher level of employment, where employment can be stimulated. By adopting this recommendation, by employing "greater" instead of "lesser", one gets not a very large incentive to the hotel industry but some incentive, one that will be infinitesimal in its effect on the Exchequer but which could be very helpful in the present difficult period which the hotel industry is facing.

At the end of the section we have hotel premises defined as merely consisting of nothing more than bedroom accommodation for the purpose of reliefs the Minister may see fit to give. Our recommendation seeks marginally to improve what is marginally given in the Bill on the basis that this, at least, will be an indication to a very run-down industry with basic plant that there is some encouragement to continue. What is needed is not a panoply of extra grants such as the Minister announced, which have been in existence for a considerable time, but that the existing hotel industry be given tax incentives in every available area that tax incentives can be given so that the existing hotel operators would get the assistance required.

It is an area in which there is a high percentage of individual ownership which would tend to come within the scope of this Bill. I can think of no other area in industry or services which has such a high degree of individual or personal ownership. That is the type of ownership that is not in a sufficiently liquid state financially, by reason of being owned by individuals or man and wife, to cope with the sort of crisis that is on it at the moment. They tend, in many cases, to have large assets, the market value of which can be substantial, but the liquid cash resources are not in any way substantial enough to carry on a business to the extent of fully utilising the plant or fully employing the people necessary for the plant available. I have some personal knowledge of it and that is roughly the pattern of the hotel industry right throughout this country. Improvement of the hotel industry does not consist of building more hotels or adding extensions to existing hotels but primarily in giving relief to existing hotel owners.

The overhead is a permanent charge, to a degree, on a highly unused plant when what is required is an injection into that plant and ownership to encourage them to expand employment. It can best come by way of incentive clauses of every kind, depreciation, wealth tax, capital gains tax. In every form of taxation there should be specific incentive for this important industry as far as our economy is concerned and where most immediate results can be obtained through the immediate stimulation of employment. It is a high labour content type of industry. For that reason I would commend the recommendation very strongly to the Minister.

Mr. E. Ryan

The Minister may have more information than I have about the profits of hotels in the country generally, but it is well known, and was indicated by a survey that took place about two years ago, that the vast majority of hotels were showing a very low yield in relation to the value of the premises. The number of hotels that are making a profit is very low.

The way in which this is approached, giving 50 per cent deduction on the value, or £100,000, does not seem to have much sense because if the intention is to encourage productive property, a hotel, or fishing boats for that matter, then if the hotel is bigger than the value of £200,000, it will not necessarily make any more money in relation to the value of the asset or show a higher percentage profit just because it is bigger. A bigger hotel will employ more people which, apparently, is the purpose, the consideration, in this section. It will employ more staff, buy more food, produce more activity in the way of tourists and so on, which is generally in the national interest, but to imply that because a hotel is bigger than the value of £200,000 it will be making a bigger profit as a percentage of the asset value is not necessarily so.

Consequently, I do not understand why this concession or encouragement to productive property of the kind set out here should be limited in this way. It is either a good thing to encourage productive property of this kind and if so the yardstick should be that the market value should be cut by 50 per cent and allow this up to the true value of the value of the property. There is no reason to believe that because a hotel's value is greater than £200,000 or £400,000 it will make any more profit and that this should be reduced in some way.

Whereas I agree with the basic provision of this section—it is going in the direction which we argued for— the 50 per cent should be the guiding feature, the criterion, and there should be no restriction on £100,000 or any figure of that kind. I agree with the recommendation and would ask the Minister to give it serious consideration.

Mr. Yeats

The Minister has suggested, on what information I do not know, that larger hotels would probably be in areas which are doing better and so on. That may be so in some cases, but I should have thought that a large hotel was in a worse position to withstand the kind of slump we have had in the tourist trade than a small hotel. A large hotel has large expenses. It has a very considerable staff which in most cases must be kept on the payroll even though there may be very few visitors. A small hotel is a much more flexible institution and is in a better position to cut down on expenses when there comes a slump such as we have experienced in most parts of the country during the last few years.

The Minister made the point that if a hotel is losing money or making very little money its market value will fall. That is true to some extent. It is true of its market value as an hotel. I pointed out, when I first spoke on this recommendation, that in many cases, certainly in the case of smaller hotels and perhaps some large ones, under present conditions the market value of the hotel sold as a building and perhaps having its contents sold separately could in many cases be a great deal more than that received for an establishment sold as a hotel premises.

There is one point which puzzles me on this section. The Minister said, and one can understand his point of view, that he is interested particularly in helping the smaller hotels. My reading of this section—I may be wrong but I should be glad to get an answer from the Minister—is that this concession we are discussing covers only hotel premises and not guest houses. I would be interested to know the reasoning behind that.

Mr. R. Ryan

I doubt if there are many guest houses in the wealth tax bracket. I have said already and nobody has challenged my remarks in this regard, that if the hotel industry is experiencing all the difficulties which have been described—I will not dispute whether they are or not—the difficulties will be reflected in the market value and therefore relief is automatically given. Many properties in easier times might well be above the threshold of £100,000 exemption but by virtue of the poor performance of the tourist industry, as alleged, they would now be below that threshold. So, what is the complaint? Do market values reflect the current performance of the industry or do they not? If they do, then why the complaint? Notwithstanding the fact that the difficulties of the industry might be reflected in the market value, we are providing especially favourable treatment for the industry up to £500,000. That would be 50 per cent or £100,000 off the valuation and even above that, the service industry will get the 20 per cent reduction in the asset value because it is a productive investment which is producing employment in Ireland. Nowhere in the world— Senator Yeats may laugh—will any Government be found which give such massive concessions to owners of property as the Irish Government are giving. That has some relevance. The Senators opposite think we live in cloud cuckoo-land.

Mr. Lenihan

That is the trouble, you do.

Mr. R. Ryan

Owners of wealth who shift their wealth around the world will look at what is happening elsewhere. No matter what may be said by members of the Fianna Fáil Party in the Dáil or Seanad about the wealth tax, people who fear it or who calculate that they may be affected by it will look at the hard facts of the situation and compare the position in this country with that which operates outside. That is why the Government do not have to become excited by all the inaccurate and mischievous comments which are made about the wealth tax. Those who are affected by it were probably misled at the beginning but it is very interesting to find that the volume of condemnation has been declining until now it is like a flat tyre. There is no more than a breeze in it, the whole thing is just disappearing. Given another year, when people experience the reality of it as distinct from the prognostications of Fianna Fáil, I am certain people will realise that they have got away with an especially light wealth tax, something which is much easier for them to bear and to arrange to pay than the estate duty which it is replacing.

The kind of difficulties which the Senators opposite are describing are nothing compared with having to bear estate duty operating at 40 to 55 per cent in the case of the levels about which they are concerned. There are not many people who are fortunate enough to have wealth holdings in their lifetime for 50 odd years. Most possessions of wealth of that kind do not occur until a person is at least in the mid or late twenties or even thirties. A man's lifespan has not increased so much as to give a person any presumption of life as to hold wealth of that kind which would create a greater burden on the wealth tax system than used to occur under the estate duty system. There was no consideration in the estate duty system for difficulties which could arise in any particular trade or occupation, one had to pay according to the value of the property on the date of death. Even if the market was to collapse subsequent to the date of death, there was no relief. In the wealth tax system a person pays according to an annual value.

Mr. Yeats

Fixed for three years.

Mr. R. Ryan

It is open to a taxpayer who may feel aggrieved by the value being pitched at a certain level to ask for a revision.

Mr. Yeats

We will get on to that when we reach the section. That is not my reading of the section, but it is another day's work.

Mr. R. Ryan

We can come back to that. It has never been my experience that there was any piece of tax legislation which took such detailed account of the merits of business or human problems which could arise as this particular Wealth Tax Bill takes.

Mr. Yeats

I suppose after that fairly lengthy excursion around the countries of Europe, and so on, we might now come back to my recommendation. Once more I must follow the Minister briefly along this course we have travelled so often. I smile because the Minister said once more that we were so happy and so fortunate to be so lightly taxed compared with any other country, so I had better make the ritual reply—the Minister does not deny it; he cannot deny it because it is true—that, in fact, our direct taxation, in which one can include this wealth tax designed to be paid out of income, is higher than that of any country in the world. I have said this before. I say it again. The Minister has not denied it and he will not deny it now because it is true. The people concerned in this recommendation are not companies. They are individuals who own these hotels, farms, fishing vessels. They are individuals. They are taxed as individuals and they are more highly taxed under our legislation than similar individuals in any country in the world. That is the fact of the matter. Having got that off our chest, let us now get down to the plain facts of this recommendation.

I should like to return to a point I raised, not very strongly because it seemed to me to be the interpretation of this section, and I could hardly believe it was, but the Minister has now admitted that it is, namely, that this concession with relation to hotels does not apply to guesthouses. I am unable to make out why that should be. All he said was, "Oh well, after all, there are not many guesthouses in the wealth tax bracket". If the Minister cares to look in the Bord Fáilte list he will find one guesthouse in Dublin city with 88 bedrooms. That is of very considerable value. There are a number of other guesthouses throughout the country with 25, 30 31 and more bedrooms. In fact, in many cases they are small and not so small hotels and I find it very difficult to understand why they should be excluded from this, particularly since, later on in this section, they are included in the corresponding concession given to hotels owned by companies. But they are excluded here. I find it very difficult to understand why.

The Minister says that many hotels, perhaps most hotels and, indeed, guesthouses would not be up to the threshold of the wealth tax anyway. But surely he is visualising a situation where individuals own a hotel which is their only asset in the whole wide world. That is not the way life works. People who own hotels frequently have other assets. They may have a couple of hotels. They may have a farm and yet not qualify as genuine farmers and 75 per cent of their assets might be in the farms. For all these reasons, therefore, hotels in most cases will form part of someone's assets. It is necessary for the value of the hotel in itself to reach the threshold, even if it is only £40,000 or £50,000, and that will in many cases bring someone over the threshold, make him liable for wealth tax and, therefore, this part of section 10 comes into play. But it is obvious the Minister is not going to budge on the recommendation and I would like to ask the Minister why, in fact, under subsection (1) of section 10 there is an apparently deliberate exclusion from the concession of guesthouses and, indeed, also holiday camps?

Mr. R. Ryan

Have we also to exempt caravans? This is the old, old argument that every exemption given imposes a tax upon someone else. We do not regard that as an argument against providing any exemptions at all. The Senator expressed sympathy with me today when I expressed the view that the more arguments you heard against the exemptions already given the more disinclination there was to provide any exemptions at all. People who own caravans or guesthouses are not normally in the wealth tax bracket.

Mr. Yeats

What have caravans got to do with it?

Mr. R. Ryan

What have guesthouses to do with hotels?

Mr. Yeats

Section 24 of the Tourist Traffic Act provides:

The registration of hotels, of guesthouses, of holiday camps.

The Minister has selected hotels and left out the other two from this section.

Mr. R. Ryan

What have holiday camps to do with hotels?

Mr. Yeats

They are all registered by Bord Fáilte under section 24 of the Tourist Traffic Act which is——

Mr. R. Ryan

And under the Planning Act permission is required for caravan parks. Caravans are used by people who are on holidays, so are holiday camps and so are hotels. Where does it all end? This comes back to what I said earlier: Fianna Fáil do not want a wealth tax and they will stop at nothing to get every possible exclusion so that we will have here in name a wealth tax but wealth will not be taxed in Ireland. We do not propose to be a party to a deceit of that kind. It would be a fraud upon the people to pretend that we had a wealth tax when we have so many exemptions built in that the wealth is not being taxed at all.

Mr. Yeats

The Minister's annoyance about a very simple question shows he does not know why they are excluded or else he realises that a mistake was made. It seems to me there was a mistake in the wording of the Bill and they were intended to be included. But they are not included.

I am not talking about caravans. I am talking about the annual official guide to hotels, guesthouses, holiday camps, hostels, showing the maximum prices, issued by Bord Fáilte under the provisions, which are quoted in the Minister's own section of section 24 of the Tourist Traffic Act, 1939. This is an official guide issued by Bord Fáilte under the 1939 Act quoted by the Minister in this section. For some reason—this is not a matter that anyone need get heated about; it is a simple technical point in which I am interested—hotels are included in this concession, but not guesthouses. To me, guesthouses have precisely the same problems as hotels. Indeed they are very directly concerned because the Minister limits the concession to the bedroom part of hotels. He excludes specifically public rooms, the bar, and so on. Guesthouses, generally speaking, consist of bedrooms and not much else. They would appear, therefore, to be directly in line to receive this concession. I find it very very hard to understand why in Dublin city a wide range of hotels can benefit from this yet a guesthouse which, as I say, in one case at least has 88 bedrooms does not qualify. This is not a matter that need cause any of us to lose our tempers. It seems to me to be a legitimate point and I think I am entitled to expect the Minister to give me the reasoning behind the exclusion of guesthouses from this. It has nothing to do with caravans or anything else. It is simply that I am puzzled. I originally raised this in a diffident kind of way. I was not even sure whether I was right in my interpretation of this section. I was puzzled as to why, when one type of entry in this official guide was included, another type of entry under the same section of the Bill was not.

Mr. R. Ryan

I expect the Senator to rise to ask me next to explain why brothels have been left out too. I am not suggesting that guesthouses are brothels or vice versa. There has to be an end somewhere. Fianna Fáil do not want to have a wealth tax on anything. That is perfectly clear. What guesthouse in Ireland is worth £100,000 or anything like it? What guesthouse in Ireland is giving massive employment commensurate to that given by the hotel industry? Guesthouses are mainly family operated affairs. Every exemption we are giving, having considered all the economic and social circumstances, is used by Fianna Fáil to try to get exemptions for something else. That is just not on. I have made that perfectly clear. I would say, with all due respects to Senator Yeats, that all that he and his supporters provoke is immense resentment against the people of property, who have built up an immense antagonism to any concept of capital being taxed. Capital is being relieved of an immense and cruel taxation in the form of estate duty. Guesthouses were never considered by Fianna Fáil and neither were any of the other exemptions they have demanded to be proper for exclusion from death duties. We have a huge demand for the exemption of productive assets from wealth tax. There was no exemption for productive assets under estate duty. There was no exemption for productive assets under income tax. There was no exemption for productive assets under corporation profits tax or any of the taxes the Fianna Fáil Party introduced or maintained here for decades. It is high time the hypocrisy stopped and we put through a wealth tax on property capable of bearing it.

Mr. Yeats

I find this whole performance by the Minister altogether extraordinary. I did not urge that guesthouses should be included. I do not know whether they should be included. I have no views on the matter one way or the other. There may be excellent reasons for not including guesthouses. I asked the Minister were guesthouses included and I get this diatribe in return. It seems to me that the Minister, like us all, badly needs a holiday——

Mr. R. Ryan

In a guesthouse?

Mr. Yeats

Anywhere he likes. I find his performance incomprehensible. I asked a simple question. I strongly suspect the answer is that they were supposed to be included and there is an error in the Bill——

Mr. R. Ryan

There is no error.

Mr. Yeats

——which will be remedied in a future Finance Bill. I strongly suspect that is the case. There are dozens and dozens of guesthouses the size of small hotels with 20, 30 and even up to 88 bedrooms. There are many guesthouses with four or five or six bedrooms but there are also a considerable number which are quite a bit larger. It may well be that the Minister has an excellent reason for not including guesthouses. I do not know what the reason is. I am puzzled because the corresponding concession in subsection (3) of this section which is for hotels, and so on, owned by companies, as far as I can see, includes guesthouses.

I am unable to see the rationale of this. In the case of individuals who own these premises, hotels are covered but not guesthouses. In the case of companies, one would expect to own somewhat larger premises, hotels are covered and also guesthouses so far as I can see. This I find very difficult to follow. It makes me feel there may well be a mistake in the Bill. Frequently there are mistakes in Bills and one does not attack the Minister because of them. It is one of these things that can happen. The Minister can accept that there has been one and say he will fix it up. It makes no sense to me at all that where individuals are concerned, they can get a 50 per cent concession where they own a hotel but not where they own a guesthouse, whereas a company will get a corresponding concession whether it is a guesthouse, or a hotel or, indeed, a holiday camp. It seems to me that where companies are concerned, under subsection (3) hotels, holiday camps and even hostels are covered, but in the case of subsection (1) where private individuals are involved, only hotels are covered. It makes no sense.

The Minister has offered no explanation. I raised this as a simple, technical question, not making an issue of it, because I have no particular views one way or the other as to whether they should be covered. I get this diatribe from the Minister, raising all kinds of extraneous matters which have nothing whatever to do with this. He spoke about the past history of taxation in this country, taxation in other countries, what he thinks I think, and all the rest of it, and Fianna Fáil's dreadful behaviour, and so on. We got all this nonsense from the Minister who should remember that he is now the Minister for Finance, the most important Minister in the Government, and not just a backbench Deputy yowling in Opposition. He is supposed to be a responsible Minister, I asked a simple, straightforward, non-controversial question, and I am greeted with this extraordinary behaviour.

An Leas-Chathaoirleach

Is the recommendation pressed?

Mr. Yeats

I still do not know why guesthouses are not included but I will come back to it on the section in the hope, perhaps, of getting an answer.

Recommendation, by leave, withdrawn.

An Leas-Chathaoirleach

Recommendations Nos. 21, 22 and 25 are related. I suggest that they be taken together.

Mr. Yeats

I move recommendation No. 21:

In page 13, subsection (1) (a) (ii), lines 35 and 36, to delete "a proportion of".

These recommendations are more for the purpose of trying to find out the reasoning behind the rules set out here than with any view to urging a change. I am not quite clear as to the reasons for these rules and, therefore, I am not quite clear as to whether there ought to be a change.

The position is, in simple terms, that where, say, 50 per cent is deducted under this concession from the market value of the property concerned, say a hotel, correspondingly 50 per cent of the debt is deducted in order to get the net market value. The result of this is that, the larger the premises, the larger the proportion of the debt that can be deducted. If, for example, one has a hotel worth £100,000, there is a 50 per cent deduction, leaving £50,000, and for the debts, encumbrances or whatever they may be, there can be a deduction of 50 per cent. The remaining 50 per cent do not qualify to so reduce the net value. With a hotel worth £500,000, a total of £100,000 can be deducted and then you can deduct 80 per cent of your debts. There is a deduction of 80 per cent in the case of the £500,000 hotel but only 50 per cent if the value of the hotel is £100,000 or less. Indeed, if it is £50,000, you deduct 50 per cent and 50 per cent of the debts, whereas if it is ten times as big—worth £500,000—80 per cent can be deducted. This seems to be directly contrary to the policy which the Minister, on the whole, has followed in this concession. He has said, and achieved the object, that he aims to benefit particularly the smaller premises, Now with this rule about deduction of debts he would appear to be favouring the larger premises.

Mr. R. Ryan

These recommendations deal with the same question, that is, the allowance only of a portion of debts and incumbrances against the value of property in cases where only a portion of the property is liable to tax. As I understand the recommendation, it is proposing that, although only a proportion of the property is liable in certain cases, for instance, agricultural property, fishing boats and hotel premises, the entire debts and encumbrances which were incurred in connection with such property, or in the acquisition of property, should be allowed. The recommendation, with all due respect, is illogical. If it were accepted for property for which relief is available, it would have to be extended also to property which is wholly exempt. In the same way that, allowing debts for exempt property would give rise to tax avoidance, so also would allowing full relief for other property which is only proportionately liable, in other words, partly exempt.

Perhaps I should give an example which would show how the allowance of full debts would give rise to avoidance. Supposing A owns land valued at £100,000 and has other assets of £80,000, which would give him an asset value of £180,000. If the land is valued at £100,000, the value for tax would be only half of that, which would be £50,000, because it would enjoy 50 per cent relief.

Mr. Yeats

It would not.

Mr. R. Ryan

In certain circumstances it would.

Mr. Yeats

Not in the circumstances as set out by the Minister. He would not have 75 per cent of his assets in land.

Mr. R. Ryan

If the Senator wishes, we can take different figures, to correspond with a 75 per cent and 25 per cent distribution. I was giving an illustration here to show how it could operate for tax avoidance purposes. If you take the land with a market value of £100,000, for tax purposes it would be valued at £50,000; his other assets would be £80,000. That would give a total asset value of £130,000. If the person was married the wealth tax would be £300. Let us assume that A borrows £100,000 to buy land worth £100,000, the land and borrowings would cancel each other out so that, in equity, he should still pay the same amount of tax as his net assets, unchanged at £180,000. The position would be as follows if the full debt were allowed. Value for tax, having made the purchase of £100,000 worth of land—that would be £200,000 worth of land, less 50 per cent, which would be £100,000 for tax purposes, in land; other assets £80,000—would be £180,000. If you were to deduct the entire debt from that £180,000, the entire debt of £100,000, you would be left with net assets of £80,000. Therefore, the tax would be nil. £300 tax situation in the first instance and "nil" taxation in the second. Clearly that would be a ridiculous situation.

The position under the Bill will be as follows. The value for tax land would be £100,000, other assets £80,000, a total of £180,000. We take half of the debt which was incurred for the purpose of purchasing the land, which is £50,000, leaving a net of £130,000, and the wealth tax would be £300, which is the same as in the original case before a borrowing of £100,000 was made for the purchase of land worth the same. I would respectfully suggest that is the proper way to ensure equity.

Mr. Yeats

The Minister's example, if related to an hotel, would work whereas obviously it would not work with farms. Taking it as referring to hotel property, which has not got the problem of 75 per cent, he has a case. He has, as we are all entitled to do, taken an extreme case. I can see that, in circumstances, it could lead to people unjustifiably avoiding tax. So I am prepared to withdraw these recommendations.

Recommendation, by leave, withdrawn.

Recommendation No. 22 not moved.

Mr. Yeats

I move recommendation No. 23:

In page 13, line 54, after subsection (1) (b) (iii) to add:

"Provided that, in this paragraph, references to an individual shall be deemed to include references to a trading company controlled by that individual in accordance with section 9 (2) (a) (i)."

This recommendation seeks to provide for a case where an hotel premises would be owned by a trading company, controlled by an individual in accordance with section 9 (2) (a) (i). As it stands subparagraph (iii) of paragraph (b) applies the subsection only to hotel premises which are comprised in the taxable wealth of an individual. This recommendation seeks to extend this to the case where there would be a trading company controlled by that individual. The effective position would be the same. But in the situation referred to in this recommendation, it would not benefit from this concession. Would the Minister be willing to accept this general proposition?

Mr. R. Ryan

In practice it would be very difficult to operate this recommendation. The recommendation proposes to extend the relief to such property—agricultural property, fishing boats, hotel premises—when it is in the ownership of a private trading company within the meaning of section 9, which is controlled by a husband, his wife and minor children or any one of those persons. A private trading company is not a taxable entity. Its shares are liable to tax in the hands of individual sharholders if the shareholders themselves are liable to tax by reason of the size of their wealth holding. The value for tax is the market value of the shares from which is deducted the 20 per cent relief for productive assets. In valuing shares, underlying assets are but one of the many elements which have to be taken into account, as I have already explained, in addition to current, past and future performance of a company and its future prospects, its dividend record, liquidity gearing and so on. To isolate the whole or part of the underlying assets of a company from all the other constituents which are reflected in the value of a share, then apply a relief to these assets and have it reflected in the value of the share, would be impossible. Even were it possible it would present enormous valuation problems, as I explained earlier, for both the private and public sectors.

Relief from tax can only be given for property which is itself liable to tax. Since a private trading company is not, as such, liable to tax it is not possible to give the relief to the underlying assets. For this very practical reason the recommendation would not be workable and therefore would not be acceptable.

Recommendation, by leave, withdrawn.

Mr. Yeats

I move recommendation No. 24:

In page 14, subsection 3 (a), line 25, to delete "20 per cent" and substitute "50 per cent".

Subsection (3) of this section deals with the general run of assets which are used directly in the provision of employment. We had, until now, the special cases picked out in the Bill —agricultural property, fishing boats and hotel premises—which are catered for by the 50 per cent or £100,000 concession. Now we deal with all other productive items, with a couple of exceptions, which are given a deduction of 20 per cent of market value.

The point made in this recommendation is that, in the circumstances of this country, particularly at present but also at all times in our history, our position has been such that considerably more than this relatively meagre assistance is needed for Irish industry. We have very heavy unemployment and the problem we face always of trying to attract investment here. We have the problem that we are in competition with other much wealthier, more developed and prosperous countries than ours, with far more highly-developed industrial arms. In these circumstances it is always going to be difficult—I hope not always but at any rate for many years to come—to develop our economy in order to provide employment and create an adequate amount of investment.

The Minister has rightly conceded this point by deducting from the market value of this productive property an amount equal to 20 per cent of the market value of such property. If the Minister wishes to tell me again that we are the only country that has done this, I will give him that. Other countries have their own reason for not doing it, one of them being, I suspect, that they have nothing like the same need that we have. This concession the Minister has given is one which is badly needed in our economic circumstances. Whether 20 per cent will be in any way adequate to further investment or to reduce the possible amount of damage to investment that may be done by this Bill is questionable. One would feel that at least for the moment—it could be that conditions will change in future years —50 per cent would be a better figure than the 20 per cent the Minister has suggested. I doubt very much if the difference between a tax of 1 per cent or 0.8 per cent would have any really important effects on the decisions of people who create investment and employment. It is unrealistic to expect that the Minister would accept this recommendation now and recall the other House to deal with it. However, I hope that in his next budget, whenever that may be, he will incorporate the effect of this recommendation. It is absolutely certain that the 20 per cent as it stands, while of course welcome, will not be adequate to ensure the continued provision of employment on which we all so much rely.

Mr. R. Ryan

This is just another variation of the old Fianna Fáil theme, "we are against the wealth tax, but as both Houses of the Oireachtas have voted us down on that, we will try and water down the Wealth Tax Bill to such an extent that it will be a non-event." We are providing 20 per cent reduction in the valuation of productive assets. I have said and I repeat, because it annoys the Opposition, that there is no other country in the world that gives any special treatment for productive assets. We are giving it. It will be one-fifth reduction on the market value of productive assets. That is an incentive to people to invest their wealth in productive assets and provide employment.

We are satisfied that it would be unrealistic to provide any further relief. If we were to give further relief, then we would have to narrow very severely the type of assets which would qualify for this relief. I know that that is not the intention of Fianna Fáil, who want to give relief everywhere, so that nobody will pay a wealth tax, so that we will have a wealth tax in name but not in practice. We do not intend that. We intend to have a wealth tax which will be paid by people who are in a position to pay it because of the wealth holdings which they have and because of the income which they can generate from those wealth holdings or which they ought to be generating from them.

We cannot ignore at any stage of this Bill or in any of the recommendations on it the immensely high thresholds and wide range of exemptions and reliefs which ensure that the effective rate of tax will, in the vast majority of cases, be far less than the nominal rate of 1 per cent on non-productive assets or 0.8 of 1 per cent on non-productive assets. What I have said in relation to so many other sections holds true here. On that account we are unable to accept the recommendation.

Mr. Yeats

The Minister has referred to what he describes as the general Fianna Fáil theme. I think he has got the general Fianna Fáil theme a little wrong. It is not that we want to eliminate the wealth tax altogether. We have made it clear both in this Bill and, in particular, on the Capital Gains Tax Bill, that we are willing and more than willing to impose taxation on speculators, on people of means who do not use their capital to provide employment and so on. The general Fianna Fáil theme, as the Minister puts it, could be more accurately described in this way, that we are anxious that this Bill should not harm the provision of employment. To us, though not, it would appear, to the Minister, this is the absolutely essential point we should consider in all legislation that comes before us, particularly in tax legislation which has such an effect on these matters. The general Fianna Fáil theme, in other words, is quite simply, let us put our people to work. Our worry on this subsection, as on so many other parts of this Bill, is that it will have the effect of reducing the level of investment and reducing the number of people who will be put to work. That is the simple issue in which we are interested.

I do not care whether rich men are taxed or not. If rich men are evading taxation, then they should be got at, but not at the expense of reducing the level of investment and of reducing the volume of employment. I produced the Minister's point before he had a chance to do so himself, knowing of course that this is what he would say. He spoke yet again of the wide thresholds that we have and the narrow thresholds in other countries and so on. Of course the two circumstances are not on all fours. All the other countries that have wealth tax have much greater wealth than us and their unemployment, even though it is, in most cases considerably higher now than last year is vastly smaller than ours, in most cases perhaps a quarter of our percentage or even less; the whole level of industrial relations is incomparably more extensive in those countries than with us, and by our standards, even with present employment difficulties, there is an excess of employment rather than the opposite. There is also a wide degree of active competition between different industries so that the effect of taxation such as this is to drive money out of less profitable industries, and no one is the worse off; the country, indeed, is better off because the less profitable, the less efficient, industries can close down and the workers will go to a new industry which will automatically arise in its place and the workers would still have work.

These circumstances do not exist in our country. They never have existed and least of all do they exist at the present day. We are in the position that we have by far the highest percentage of unemployment in Europe. We have, with the solitary exception of Britatin, the highest rate of inflation, a rate which is crucial in the creation of unemployment. We have the lowest proportion of our population employed in industry. Because of our lack of a really extensive industrial arm and also because of our geographical situation on the periphery of Europe, we have very great problems in attracting industry and investment. Our position is totally different from that of these other countries to which the Minister refers. He has this passionate desire apparently to keep up with the European Joneses, to be able to say: "They have a wealth tax. We have a wealth tax. We are great". Their circumstances are totally different from ours and what is right in their case is wrong in ours.

A wealth tax, avowedly, is designed to create a situation where an industry that is not making any profits and has no income because it is running down will still have to pay wealth tax. It is, avowedly, designed in such a case to put them out of business. It is not designed specifically to do that. At any rate it is imposed on such industries with the feeling that if it puts them out of business, well, what harm because there will be plenty of new and more efficient industries to take their place. That is the situation in other countries. The Minister apparently says that because the rich Germans, the even more rich Luxembourgians, the prosperous Scandinavians have a wealth tax, in some cases for a number of years, in one case since 1894, it is the right thing for us. Can the Minister not understand that in the rising fiscal or any other kind of policy it is the needs of our country that ought to be considered? It is a waste of time to list countries and say they have it, they have such and such a threshold and we have such and such a threshold. There is no comparison.

The Minister should look at this country and say: "Will this wealth tax put one man to work? Will it reduce inflation? Will it do anything practical to solve my budgetary problems"? Instead, he apparently says to himself: "In Luxembourg they have a wealth tax".

Acting Chairman (Mr. Brosnahan)

The Senator is departing from the recommendation.

Mr. Yeats

I appreciate that. I may have strayed somewhat. I had the excellent example of the Minister and I tend to stray in these cases with him. I will return to my recommendation.

To talk about thresholds in other countries is a waste of time. What the Minister should be doing is ensuring that this legislation is fitted to our needs. It is not a question of Fianna Fáil wishing to eliminate a wealth tax because we are not in favour of taxing the rich and so on. Of course we are. We made this absolutely clear during the debate on the capital gains tax. We tried to persuade the Minister to raise the tax on speculators. He would not do it. We are in favour of taxing the rich and of everyone bearing their fair share of taxation. We are in favour of eliminating tax evasion and so on. We are not in favour of a Bill which gives inadequate recognition to the overpowering national need to provide employment and because of that allows 20 per cent, which in present economic conditions is simply not sufficient. We urge the Minister, yet again, to adopt the principle of this recommendation which would give productive assets 50 per cent of the net market value, which in itself would obviously not do anything to put anyone to work but it might at least limit the damage that will be done by this Bill.

Mr. M.J. O'Higgins

I do not intend to take up much time. I am glad there has been a declaration from Senator Yeats which to me seems to amount to a declaration favouring wealth tax in principle. He says that the Minister has misinterpreted the Fianna Fáil theme, that, in fact, they are in favour of taxing the rich, of stopping tax evasion, that they have already made it clear they are more than willing to tax speculators. I am sure Senator Yeats is quite sincere in his interpretation of Fianna Fáil thinking. The Minister is entitled to take account of the fact, in the case of this recommendation and in the case of other recommendations, that the mode in which Fianna Fáil are translating their theme into action in this discussion is to suggest to him that everywhere a relief is given, the relief is not enough and more should be given.

The other point is, I think Senator Yeats is trying to do a certain amount of research in connection with this subject. It might be a good idea if he were to try and translate the Fianna Fáil theme, as outlined by him, more effectively and with less confusion. This recommendation is on the lines of trying to obtain more relief, thereby reducing the impact of wealth tax. It is only applied to the wealthy.

A short while ago, on recommendation No. 18, there was a suggestion to relieve all agricultural land from wealth tax. That would have made this Bill a speculator's haven. That is the confusion about which I am complaining. Fianna Fáil, on the one hand, say they are more than willing to tax speculators. On the other hand, they want a situation brought about— this was evidenced by their own speeches—by their recommendation, which was an open invitation to people to try to avoid wealth tax by using agricultural land as a new currency amongst the really wealthy in this country. That would have been the effect of that recommendation.

Mr. E. Ryan

Fianna Fáil have been accused of having two views on this wealth tax or property tax. I must pull up Senator O'Higgins on his publicity line about this only affecting the wealthy. It is called the wealth tax because that sounds better. In fact it is a property tax. In many cases the property involved might not be very large. Certainly the person owning it might be far from wealthy. We will go along with the Wealth Tax Bill for the moment but let the Government not push this aspect of the Bill very far. It is a property tax and sometimes a rather small property, sometimes property that is owned by a person in circumstances where he is far from wealthy.

Perhaps we have said in some cases that we believe there should be more exemptions or more allowances. That may appear to be in contradiction to what we say when we say we are in favour of the Bill in principle. The Bill is full of exemptions, allowances and special provisions. It is not just a question of this being a property tax, where everybody who has a certain amount of property pays a certain amount of tax, and it is a way of raising money and that is that. That is not that.

The Minister has reminded us on dozens of occasions that although it is taxing property, it is taxing the wealthy, there are all kinds of thresholds, exemptions and allowances. There is no basic difference in our view on this and the Government's view. Both the Minister and the Opposition agree that in principle the Bill has a lot to recommend it. Both the Minister and ourselves agree there should be certain thresholds and certain exemptions and allowances. What we are talking about is what should they be and how much should they be. It is not by any means a contradiction or a failure on our part to take a firm stand on the Bill, to suggest that in certain circumstances a greater allowance should be made. Senator O'Higgins talks about the kind of allowances we want for agriculture or circumstances where agriculture would be productive and should be providing employment and so on and he implies that this would undermine the whole Bill and would provide a tax haven for speculators.

There are other parts of this Bill on which one could make the same observation. The exemption for bloodstock is one which many people would have reservations about, not so much have reservations for exempting bloodstock —because a good case can be made for it—but just as good a case can be made for many other aspects of our economy. If you have a situation where bloodstock is completely exempt then the comment made by Senator O'Higgins about agriculture can equally apply to that.

Mr. M.J. O'Higgins

There is not the same element of risk in agricultural land as in bloodstock, surely.

Mr. E. Ryan

You must know more about it than I do.

Mr. M.J. O'Higgins

Possibly; that may be the explanation.

Mr. E. Ryan

I have seen very few people in rags connected with the bloodstock industry but I have seen many people in rags connected with the agricultural industry.

Mr. R. Ryan

You can shift one nag a lot quicker than you can shift 300 acres.

Mr. E. Ryan

When you talk about complete exemption for bloodstock and not for agriculture it does not bear very close examination. The only argument the Minister can make is that he could not afford completely to exempt agriculture and apparently he thinks he can afford——

Mr. M.J. O'Higgins

He made the argument that you can remove bloodstock very quickly.

Mr. E. Ryan

That sounds like a pragmatic rather than a philosophical or a moral judgment on the thing. We should not be getting uptight about the fact that the Opposition is suggesting that certain allowances should be made for productive assets and that what is being allowed is not enough. It is a matter of opinion. It is a matter of what, in all the circumstances, is fair to all sections of the community. We must be fair to the bloodstock industry on the one hand, but they must not be put in a more beneficial and more favoured situation than the people we are talking for here. What is suggested is that this 20 per cent should be, in these circumstances, increased to 50 per cent.

The Minister and some of the speakers on the Government side have said that this could not be done because the Bill would not raise enough money if this were done. One of the great drawbacks we have all along in debating this Bill is that we do not know how much money will be raised. If we were in the position and if the Minister had been completely frank with us and given us a real estimate of what the Bill would raise and given us some idea of how the various sections would affect the amount he hoped to raise and had given us the background of the three new Bills as against what was going to be lost on estate duty, then perhaps we could do our own sums and could say to the Minister: "We acknowledge that you need to raise £15 million or whatever the sum would be and that you will raise so much by capital gains tax and so much by capital acquisition tax and so much by this." We could then view this Bill and look at the kind of allowances that are being suggested and see whether in all the circumstances what we were asking for was too much and whether we were asking the Minister to do something which, as Minister for Finance having taxes to raise, he could say well: "I cannot do this. Perhaps there is something in what you are suggesting but it just cannot be done."

We do not know whether the package of three Bills will raise twice as much as what the estate duty brought in or half as much. We are entitled in the circumstances when we are not being taken into the confidence of the Minister, to say that whereas we agree a property should be taxed, certain exemptions or thresholds and allowances should be made. In this particular case where we are dealing with productive assets of this kind, we are entitled to suggest that 20 per cent is not enough, that 50 per cent would be more reasonable.

It is hard to make a distinction: it is hard to understand the distinction between, on the one hand, the types of property which are allowed special concessions under subsection (1) of section 10 and those we are dealing with under this subsection. There are arguments for and against. The mover of this recommendation feels— and I agree and I think there is a very strong argument to be made for it— that 50 per cent would be more reasonable and more equitable in all the circumstances than the 20 per cent which he has suggested in the Bill. That is not in any way changing our view of the Bill or acting in contradiction of our basic acceptance of the necessity for and the equity of the Bill.

Mr. Harte

First, I would like to beg the indulgence of the Leas-Chathaoirleach because the recommendations, particularly those immediately preceding this, seek further exemptions or a reduction in percentage of what is exempted. Consequently in that respect I have to deal with this recommendation in a way that may encroach upon exemptions that have already been made. I think it is necessary to draw attention to a few matters. Since the idea of the wealth tax was introduced many changes have been made. The original idea was 1½ per cent to 2½ per cent. The exemption thresholds were increased to £100,000 for a married man, £70,000 for a single person and £90,000 for a widow and £2,500 for the minor dependants. The Minister went as far as exempting the principal private residence standing on grounds of up to one acre with its normal contents. This was an improvement. He provided for livestock and bloodstock and pension rights. He brought in the domicile or ordinary residence: He brought it to the point where the test of domicile was actually included. Again, the question of productive assets in the hotel industry is provided for—all the things complained about in the previous recommendations and which are overlapping. It is hard to be specific on a recommendation when it means the same thing as a previous recommendation stated in a different way. Coupled with that in the case of the people who would be affected by the wealth tax the Minister also raised the income tax level. Where it might have been £8,500 it was increased to, I think, over £10,000.

A lot has happened since the Minister first suggested the three tax packages. It appears, and I do not blame anyone for this, that no matter what has been conceded if one has got something one presses a little more to get another little bit. It has got to the horse trading stage now and I do not think this is essential in the light of what has been conceded, the changes that have been made and, all the points that have been considered throughout the debate.

Short of allowing the Opposition to write their own Bill there is little more that could be done. I must admire Senator Yeats's stamina and fertile mind, but he has been stressing to a great extent all day the fact that Ireland is hit to a great extent by taxes. I am not sure about two points in this regard. One relates to a question I shall give later and the second is that if one takes our taxation position as compared with other European countries is it 12½ per cent that we are totally affected by or 15 per cent or what is it? What is the effect on the nation by taxation? Unless one can say the total effect of taxation on any country and be specific about it one cannot say we are the most heavily taxed. This brings me to a letter written to an editor of a newspaper——

Acting Chairman (Mr. Brosnahan)

The point is recommendation No. 24. I have been very lenient with the Senator and I have allowed him to go into the background of the various concessions already given by the Minister but, in fairness to the Minister who has had a trying day and to the speakers on the Opposition side who have also had a trying day, it would be just as well if we could concentrate on the business before the House.

Mr. Harte

I will conclude by saying that the recommendation seeks an increase to 50 per cent of the market value of such property. When one has regard to the charges that we are the most heavily taxed country, somebody should take note that all the EEC countries have more taxes now, including gift tax, death duties, wealth tax, capital gains and so on, than Ireland.

Mr. Yeats

Senator Harte has raised an interesting point. Without departing from the recommendation which after all raises the issue of——

Mr. Harte

The Senator is a little better at it than I am.

Mr. Yeats

I am always interested to hear what Senator Harte has to say. One can always rely on Senator Harte to make some good and interesting points. His point, and my answer, are related to this recommendation in that the 50 per cent deduction, or 20 per cent as the case may be, is a reflection of the extent of taxation on the people who are involved.

The percentage of Irish national income taken in taxation is probably a little less than that of other countries, but a rich man can afford to give more money to charity than a poor man. The fact that we have, on a much lower income, the same percentage taken as other people who have three or four times as much as we have does not mean that we are as well off as they are. They can afford to pay our level of percentage taxation on a much higher income. That is the answer to the point.

If one takes bare percentages we are probably slightly better off but, like a lot of statistics, we have lies in statistics.

Question: "That the figures proposed to be deleted stand," put and declared carried.

Recommendation declared lost.

Recommendation No. 25 not moved.

Mr. E. Ryan

I move recommendation No. 26:

In page 15, subsection (4), to delete lines 9 to 11 inclusive and to substitute:

"‘hotel premises' means premises registered in the register of hotels kept by Bord Fáilte under section 24 of the Tourist Traffic Act, 1939;".

This is an effort to change the rather extraordinary definition of hotel premises. In subsection (1) of section 10 certain concessions are given to hotel premises, that they are to be valued at 50 per cent of their market value or a sum of £100,000, whichever is the lesser. However, when we turn to the definition of hotel premises we find, much to the surprise of many people, that it only means so much of premises in the register of hotels kept by Bord Fáilte under section 24 of the Tourist Traffic Act, 1939, as consists of bedroom accommodation. It is difficult to understand the purpose of this definition except to reduce the actual allowance that is given. It is difficult to understand why this should be introduced for any other reason. The effort here is to deal with productive assets, to make allowance for the fact that hotels give employment, buy food and, generally, are an asset to the community. They generate economic activity of one kind or another.

To eliminate the one part of the hotel and only allow the valuation of bedroom accommodation seems surprising because in many hotels more than half the employment would be given in the non-bedroom portion. Consequently, if anything the Minister should be more enthusiastic about the portion of the hotel which is the restaurant, bars, function rooms and various other parts of the hotel which give a great deal of the employment. They produce all the purchasing power of food and drink and so on, and the part which in any test would produce more than half of the kind of activity which is beneficial to the national economy. The purpose of the recommendation is to say that:

"hotel premises" means premises registered in the register of hotels kept by Bord Fáilte under section 24 of the Tourist Traffic Act, 1939,

that is, that it includes all the hotel. I do not know to what extent this section, if left as it is, would affect the building, extension or adoption of hotels in the future. If a hotelier finds he is victimised—perhaps "victimised" may be too strong a word—or that only the bedroom accommodation will be helpful to him from the point of view of the wealth tax, and that the remainder of his hotel or any extension he is thinking of building, will not be included, it may mean that eventually hoteliers will be reluctant to expand in that way and will concentrate more and more on bedroom accommodation and less on restaurant, bar and the various other facilities which are provided in an hotel.

This would be an artificial approach to the hotel business. It would lead to a distortion of the normal pattern of hotels and would lead eventually to a decrease, rather than an increase, in the part of the hotel which is giving the most employment and producing the buying power and so on for the food and the other articles which the remainder of the community have available for sale. This recommendation should be considered by the Minister, certainly for future amendment if not on this occasion. I cannot understand why the section should be as it is for any reason other than that it will slightly decrease the concession made under section 10.

Mr. R. Ryan

I am afraid the recommendation overlooks the reality of the situation. Whatever difficulties hotels may be in they are not experiencing any loss of profits in the bar trade, the catering end of the business or the ballroom. The provision of bedroom accommodation is very costly from a capital point of view. It is very capital intensive. If the tourist business is not showing buoyancy then difficulties could arise in relation to the rewards for the capital investment in bedroom accommodation. The same argument is not applicable to the other parts of the business which, in most cases, is not doing very badly.

Supposing we were to accept the recommendation, what would the result be? Every publican in the country would be up in arms because assets in the bar business of hotels were being given special favoured treatment. Why then should it not apply to every pub? If it was to be given to pubs and hotels for the restaurants, why would it not apply to every cafe? If it is to apply to the ballroom in every hotel, why would it not apply to every ballroom in the country? When that is all done, we will have returned to the point which I have been emphasising all day—and which still remains valid—Fianna Fáil do not want a wealth tax and have employed every possible dodge and avenue to mislead people for the most specious reasons to accept various recommendations which would water it down to nothing. That is not on, particularly when the acceptance of this recommendation would mean relieving from wealth tax some of the most valuable productive forms of capital investment in the country—productive in the sense of producing a good and quick return in comparison with small investment. We have provided a special relief for a very heavy capital investment which yields a smaller return than the assets intended in this recommendation to enjoy the particularly favourable treatment given to hotel bedrooms. So far as I am aware, we have received no very significant representations for this recommendation. The hotel industry appreciated the Government's acceptance of their current difficulties related to bedroom accommodation and I am unaware of any pressure to have the facilities extended to the paying part of the hotel business.

Mr. Yeats

The Minister's eloquent remarks about how one cannot subsidise hotel bars in competition with the pub down the road and so on would be more convincing if it were not for the fact that this is what he does in this same section. I refer the Minister and Senators to the last paragraph of subsection (3) which lays down quite clearly that where a hotel is owned by a company as opposed to a hotel owned by an individual—this, of course, relates to the bigger hotels in particular and to that extent greater competition—there is a special concession of 30 per cent deduction given to that hotel and the bar. The Minister says that this is impossible, that it cannot be done. But that is what he has done in subparagraph (3). What is sauce for the goose is sauce for the gander and I cannot understand why he cannot do it in one part of this section and he can do it in another.

Mr. E. Ryan

It seems an extraordinary rigid view to separate the bar and restaurant from the bedrooms and say that the valuation will be put on the bedrooms and not on the bar or restaurant. If the Minister is right— that the bars, restaurants and functions rooms are making millions and that they do not need any help—I take it that the Revenue Commissioners will put a very low valuation on the bedrooms because they are not making any money. Then the concession which, on the face of it, seems to be rather generous will be very small indeed.

I do not presume to be an expert but I think the Minister is wrong in his assessment of what makes money in a hotel. I have been reliably informed that the only way to make money in the hotel business is in bedrooms; no hotelier expects to do more than break even on the restaurant and he may make something on the bar. But the beginning and end of making money in hotels is in the bedrooms. The problem is to fill them, but if they are filled they will make money.

This concession is miguided in the way it is drafted because it is not the restaurant and the function rooms which make money in a properly run hotel and, secondly, if the Minister is right, then the apparent concession to hotels is really a sham one because hotel bedrooms would not be making any money and they should, if equity is to be done, be valued as a very low proportion of the hotel. The concession which is to be given is really negligible.

Mr. R. Ryan

I wonder if the Senator can overcome the problem that I posed? What if exemption was given in respect of hotel bars? Does the Senator think we could resist demands by publicans that similar treatment be accorded to them?

Mr. E. Ryan

Surely the whole idea is that hotels perform a useful function in the economic activity of the country, that they provide for tourists. This is the whole purpose. It is not done for bars because bars are not used in the same way. It is not done for yachts and pleasure boats although it is done for fishing. One provides a useful function in the economy, the other does not—at least not in the full sense of the word——

Mr. R. Ryan

I would not rule out the contribution which the brewing and distilling industry make to the economy, including the agricultural economy.

Mr. Yeats

Hotels have always been treated specially. After all, the mere fact that an hotel can have a bar is a reflection of the fact that it has ten or more bedrooms. If an hotel does not have ten bedrooms the owner cannot have a bar. Because of the importance of hotels to the tourist industry special laws have been passed enabling an hotel with ten or more bedrooms to have a bar. They are taken together.

Perhaps I might be permitted to deal with the question of the other types of hotel premises. I will be dealing with them anyway under the section and I will not take them up again but they seem to arise more conveniently under this recommendation. I should like to deal with the other type of concession in the last paragraph of subsection (3). This recommendation deals directly with the 50 per cent concession to individuals who own hotels. The last paragraph of section 3 which is, of course, related in the sense that it deals with hotels, deals with hotels owned by a trading company. It states:

...whose assets on the relevant valuation date consist wholly or mainly of premises registered in the register of hotels, kept by Bord Fáilte...

This is "premises", there is no reference to "so much of premises as consist of bedroom accommodation". The Minister gave the House all the reasons why the local bars would turn up in a rage and complain and so forth if special concessions were given to hotel bars and not to them. I presume a bar is a productive premises and would get off 20 per cent; on the basis that this is the case, the bar down the road gets 20 per cent off the valuation for wealth tax purposes while a bar in an hotel owned by a company gets away with 30 per cent. The Minister, straightaway, is violating his principle that there cannot be one type of bar in competition with another. He has quite clearly provided for the whole premises to gain from this concession. I know it is only for three years but it is a period which will be very valuable and important to hotels because one hopes that by the time three years are up things will be better.

At any rate, as the Minister for Lands rightly pointed out, these three-year concessions have a habit of being extended over a much longer period. One feels that this 30 per cent deduction may well continue for years to come. At any rate, it will be there for the next three years. It appears to give this advantage to hotel bars as against local bars to which the Minister objected a few moments ago. I would be interested to hear why, in this case, the whole hotel is included whereas in the other case only the bedrooms are included.

There is another small point I should like clarified. The section speaks of:

...shares in a trading company whose assets on the relevant valuation date consist wholly or mainly of premises registered in the register...

What would "mainly" be? Is it 51 per cent or something like that?

Mr. R. Ryan

It would be "mainly" at 51 per cent.

Mr. Yeats

Has the Minister any explanation about the inclusion of bars in this case?

Mr. R. Ryan

I do not accept that violence has been done to the principle. The principle may have been breached but I would not regard it as doing violence to have a differential of 10 per cent. However, to make the differential 30 per cent is quite a different kettle of fish.

Mr. Yeats

Is there any particular reason? Is it simply that the Minister feels there is a principle involved but that it has been breached in this case and thinks he can get away with it because it is not that much of a subsidy but in the other case because it is a larger subsidy he feels he would not get away with it? I am not even sure that the Minister is right on that point. The 50 per cent is larger for small premises. As far as my calculations go, up to about a valuation of £330,000 it would give a better deal under the 50 per cent and after that the person would do better under 30 per cent. At least, in the case of fairly sizeable hotels there is a very considerable benefit, both as against the 50 per cent and as against the local bars who only get away with 20 per cent.

It seems to me that if the principle was breached at all, it should have been done in the case of individuals who normally have the smaller premises. It seems less justified in the case of these companies who would be expected to own the larger premises and ought to be able to look after themselves better.

Mr. R. Ryan

It is important to remember that 30 per cent applies only to shares in the trading company where the assets are hotels. The figure of 30 per cent was chosen as a rough and ready rule of thumb to reflect what might be the distribution of property in an hotel which was owned by an individual. If it were owned by an individual, then the 50 per cent or £100,000 rule would apply under £500,000 and 20 per cent over that figure. The 30 per cent was chosen for a trading company as roughly reflecting the 50 per cent and 20 per cent situation which would apply where an individual was the owner of an hotel. I do not offer it as a perfect arithmetical calculation because nothing is equal and the distribution of assets as between hotel bedrooms, bar, ballroom and restaurant can vary greatly. It was a rough and ready attempt to try to produce equal treatment for hoteliers. To give any further relief would certainly generate a feeling of unfair play on the part of publicans generally and other people in the catering and entertainment business because all these assets would enjoy the 50 per cent reduction if the recommendation were accepted.

It is quite clear from various recommendations which have been put down by Senators that they, and the people on whose behalf they speak, feel a sense of grievance that they do not enjoy exemptions which are being made available to others. Let us reduce the sense of grievance and not extend the exemption any further.

Mr. Yeats

Perhaps I should hasten to assure the Minister that I am not speaking on anybody's behalf. I have no idea what hoteliers think about this. Simply reading these two provisions, I am puzzled about the rationale behind them. The more I look at this the more I feel that as between what might be called company hotels and hotels owned by individuals, the company hotels do unduly well in comparison with those owned by individuals. After £330,000 the person does better under the 30 per cent than under the figure of 50 per cent or £100,000. When one makes allowance for the fact that 30 per cent covers all the premises, including the bar, the situation is rather different. The Minister makes the point that the bar and restaurant is where the money is and when it comes to the market value of the premises it would form a high proportion on the Minister's basis. That being so, and making that allowance that the private individual can only deduct the 50 per cent or £100,000, as the case may be, from the portion of the premises which is bedrooms, which is the less valuable portion according to the Minister, it would seem that since the company can deduct 50 per cent from their entire premises, they are really on a better bet than the man who gets only 50 per cent on the bedrooms. The Minister might look into this because, obviously, when concessions of this kind are being given, we would all prefer to see the small man helped more than the larger man. It seems to me in this case that the weight is a bit on the side of the big battalions and certainly the concession the Minister is giving is more generous in the case of companies than in the case of individuals.

Recommendation, by leave, withdrawn.

Question proposed: "That section 10 stand part of the Bill."

Mr. Yeats

There is a wide variety of points which can arise under this section which is a fairly extensive and an important one. There is a case to be made for including all productive assets in subsection (1). We attempted to remove productive assets altogether from this Bill and the Minister has resisted this, perhaps not surprisingly. If one takes the much more limited concession given in subsection (1) of this section, that is, deducting 50 per cent or £100,000, whichever is the lesser, one wonders whether it might not be a useful exercise to consider at some stage covering all productive assets in this way. It might be a more valuable concession than the 20 per cent and it would mean that the large businesses would gain much less but the smaller ones might gain more. Obviously one cannot on the spur of the moment work out precisely how this would develop but it is something which the Minister might consider for some future budget as to whether this might be a more equitable way of allotting the concessions for productive assets.

The second point I should like to raise is the curious provision about farmers who live near urban areas, whose market values are thereby artificially raised by 25 per cent. A farm is not any more productive because it happens to be near an urban area. It is difficult to see why the Minister cannot wait until such time as the farm is sold, when it could be followed up for wealth tax. Indeed, capital gains tax would come into it also. To say that a farmer because he has the misfortune to live near an urban area is going to sell his fields for building sites and so on seems unreasonable because in many cases the farmer has no intention of doing any such thing. The general experience in rural area is that farmers are extremely unwilling to sell the odd half acre, even when they are offered large sums for sites. There is still a great deal of land hunger. People who have no intention whatever of selling portion of their land could find themselves burdened with the addition of 25 per cent to their valuations.

What type of building does the Minister envisage? If it is house building, how many houses does he think will be built? For example, if one has a 50-acre farm near an urban area, is it the intention to raise the valuation of the entire 50 acres because it might be the intention to build on them? How is it to be reckoned? Is it a minimum number of houses that will qualify as building in the next five years? How can the Revenue Commissioners deduce that somebody is going to build on this land within the next five years? There are all kinds of people who might like to build on land but that does not mean that they will be able to do so, or, indeed, that they will get planning permission. The whole provision seems very vague. Even vaguer is paragraph (c) of subsection (2) which states:

In this subsection "urban area" means an area which is either a county or other borough, an urban district, a town or a village.

What is a town and what is a village? I suppose you could say a town is any reasonable conglomeration of houses, but what is a village? The mind boggles. A village, I take it, is more than one house but will one house do if it is at a cross roads and one of them is a pub? Or do we need three houses, or five or six? This terminology will cause serious administrative problems. They are not concepts which appear in our law.

Mr. Deasy

I wish to refer briefly to the same subsection. It states that where, in the case of agricultural property which is situated within one mile of an urban area, it is shown to the satisfaction of the Commissioners that the market value of that property is enhanced by high potential for development, the market value thereof, for the purposes of this subsection, shall be ascertained by adding 25 per cent to the agricultural value of that property on that date. Further down it defines the area as an area which is either a county or other borough, an urban district, a town or a village.

These urban areas or county boroughs were drawn up towards the latter end of the last century and in some of them development has actually spilled over outside the urban area. In other cases the development is very restricted or even lopsided. So there may be an urban area developed on one side to its limit and on the other side it may be a mile short of the urban limit. It seems to be unfair to penalise people who are only a few yards outside the urban area on one side and allow an extension of a mile on the opposite side.

Could the Minister rationalise that? The definition is outdated. I agree with Senator Yeats that the word "village" would need to be more clearly defined. In theory, there could be a village that would be a mile long. Who defines nowadays what is a village or what is a town? A place might have been a hamlet or a village 50 years ago but there could be considerable development now. It still could be known as a village. This subsection would not allow for any concession outside the limits of a fairly sizeable village.

Mr. Alexis FitzGerald

The last two contributions on this point have been extremely interesting. I wonder is the problem overcome by the terms of subsection (2). It does not matter whether the development has been to the full extent of the urban area or not unless it is shown to the satisfaction of the commissioners that it has a high potential for development. This seems to me to be the crucial point and if that is absent the fact of whether it is or is not an urban area or a village does not create a problem.

Mr. Yeats

It might have a high capacity for development and yet not be within a mile of a village.

Mr. Alexis FitzGerald

Then there is no punishment involved for the taxpayer. We are talking about the holder of agricultural land who will be taxed on the basis that his land is worth 25 per cent more than the agricultural value, but this will only arise if there are two things. One is that it is within one mile of these particular entities and the other is if it has a high potential for development. If it has not got the second one there is no problem, there is no punishment, but if the land is in the fortunate position of being more than one mile outside the limit and has a high potential it does not suffer any extra taxation. Therefore, there is no problem in terms of a taxpayer's liability. I do not know whether the Minister would like to deal with what has been said already on this section.

Mr. R. Ryan

Sometimes people do not know what is good for them. This section is intended as a relieving section, not as a punishment. It will be at the election of the taxpayer that it will apply. In other words, that the taxpayer would decide to satisfy the Commissioners that the property had been valued at an enhanced figure because of its high potential for development and that this has arisen because it is within a mile of an urban area. If the taxpayer sees that it is to his advantage to leave the valuation alone he is obviously not going to elect for agricultural use plus 25 per cent. It might be to the advantage of a taxpayer to have his property assessed for wealth tax purposes at the higher level particularly if he intended selling it, but it might be as well sometimes to leave well enough alone. It is up to the taxpayer to make his calculations here either by himself or in consultation with his advisers. Knowing the readiness of people in Ireland to advise one another I am sure that most people will operate the section to their own best advantage.

It was because of our awareness of artificiality of some of the county and county borough boundaries that we went for a very broad definition of "urban area". It is so broad that doubts have been raised as to whether there is a legal definition of a town or village. So be it. Again it is up to anybody to satisfy the Revenue Commissioners that the market value of the property is enhanced by its high potential for development because it is related to some group of houses or some development. I call it group of houses but that could be a village or a town or a county borough, depending on its size. We have left it deliberately broad so that people who think that the value of the property which they intend to use for agricultural purposes is enhanced by development pressure will be able to avail of this in order to bring down the value for wealth tax purposes.

Mr. Yeats

Perhaps I will surprise the Minister by suggesting that he is creating some kind of a speculator's charter. I had not appreciated that this was in ease of the taxpayer. I had not appreciated that the words "where it is shown to the satisfaction of the Commissioners" meant shown by the taxpayer. I took it to mean shown by some other flunkey of the Commissioners. But if it is open to the taxpayer to acquire agricultural land and say to the Commissioners, "yes, this is highly valuable building land, and now, boys, you just raise the value of this by 25 per cent", it seems to me that this raises the whole case for speculators to move in and buy land. There is no reference here that I can find to the necessity for a genuine farmer being involved. This is agricultural land near an urban area. The speculator moves in and buys it. It may be worth three times what it would be worth as agricultural land but according to this part of the Bill it would appear that he can get away with it by adding merely 25 per cent to the value. Is that right or am I wrong on it?

Mr. R. Ryan

Wrong.

Mr. Yeats

I am glad to hear that.

Mr. R. Ryan

If the Senator looks at subsection (1) paragraph (b) he will find that the subsection applies only to an individual who is a farmer. It would not be open to somebody who is not a farmer to enter into this field. Subsection (2) goes on to refer to agricultural property to which subsection (1) applies.

But even if that protection was not there—it is deliberately provided in relief of the genuine farmer—the speculator might not do so well out of it even if he were to try to avail of it because his capital gain might be so much the greater whenever he disposed of the property. Obviously if he is a speculator he would be intending to dispose of it later. In any event it is confined to the genuine owner of agricultural land, of fishing boats or hotels.

Mr. Deasy

In the case of a village would the mile be measured from the centre or from the extremity? That could be very important in so far as the size of a village was concerned, such as Kilmacthomas in County Waterford.

Mr. R. Ryan

I am not too familiar with the geography of Kilmacthomas, but the village will be the village and any part thereof. There is plenty of case law in relation to bona fides as to distances and how you measure them. Perhaps one could have regard to those.

Mr. Deasy

If, for example, development in an urban area had exceeded the boundary, would the mile be measured from the last house in the development?

Mr. R. Ryan

It might sometimes be difficult to determine which was the last house. We shall have to leave these matters to the process of determination.

Mr. Yeats

I am trying to puzzle my way through this provision which raises further problems as one goes into it. I am puzzled as to the real importance and implications of this mile to this mythical town or village, be it large or small. As I understand what the Minister says one could have a situation where in respect of land at high building potential which is worth perhaps four times what it would be worth as agricultural land the taxpayer can go along to the Commissioners and say "despite all this the most you can add to the value of my holding is 25 per cent." I take it that is the position? They may say that it may be worth four times what it was a few years before because, say, somebody has opened a big factory in the area and there is tremendous building going on. This raises the possibility that while this applies if the farmer concerned who is perfectly innocent of any effort to make money——

Mr. Lenihan

This is a non sequitur.

Mr. Yeats

I withdraw that foolish statement. He is innocent of any desire to make money out of building or speculating but like all farmers he has a high desire to make a success of his profession. Nonetheless, he does not particularly want to sell his land for building even if it will get him four times what it is worth as agricultural land. But he does not live a mile away from a town or village. He lives a mile and a half away. Does this fortuitous geographical chance mean that the Commissioners can come along to him and say "your land is of high development value; we are going to increase your valuation four times"? I put it to the Minister that on the basis that this is a defence to the taxpayer and that only genuine farmers are involved, would it not be much more sensible to forget about the mile altogether and forget about these towns and villages and say that any genuine farmer anywhere whose land fortuitously acquires a high development value should be given this concession of having a maximum increase of 25 per cent? On the basis that it is a concession to a genuine farmer I cannot see the point of it at all.

Mr. R. Ryan

I think it will be accepted that the village of Kilmacthomas must stop somewhere, and wherever that somewhere is, a mile from there is a reasonable distance within which it could be considered that there is added value by reason of its proximity to the urban area of Kilmacthomas. We could extend it over the whole country. If we did then many other considerations would arise other than added value by reason of urban pressures

What we are trying to deal with in this section is the increased value which arises by reason of urban development. Increased value could arise for other causes and wealth might have to be dealt with differently. One of the considerations we had in mind in adopting this particular formula was the Kenny Report recommendation that lands within certain distances of urban areas which have development potential should be acquired at a particular price. The price recommended in the Kenny Report was this particular one and we thought that, as the Government had decided in principle to introduce legislation to implement the Kenny Report, it would be right to apply a similar formula for wealth tax purposes. Obviously, difficulty would arise if we had different formulae for wealth tax purposes and for the purposes of acquisition of property for urban development. We have therefore, used the one code, and I think it will work out reasonably satisfactory and will cover the vast majority of cases. The further removed a place is from an urban area the smaller will be the increase in value arising out of urban pressures. As an urban area would extend, the area that is a mile-and-a-half away today would come closer and would sooner or later come within the area of exemption.

Mr. Alexis FitzGerald

To clear up a small point, does the urban area in question have to be in the State?

Mr. R. Ryan

The agricultural land would have to be within the State. First of all, it would have to be a genuine farmer pursuing that vocation in Ireland on land adjacent to the urban area. Might I direct attention to subsection (4) of section 10 which defines agricultural property as agricultural land, pasture and woodland situated in the State. I am not aware of any urban area outside the State within a mile of such land.

Mr. Alexis FitzGerald

I think there would be.

Mr. R. Ryan

I suppose there could be. That might well qualify. When I began my statement I was thinking of offshore islands and not of the mainland. We would not rule out such a place from this opportunity.

Mr. Lenihan

The sort of discussion we have been having shows the futility of over-definition in a Bill of this kind. It is quite clear what is meant in regard to agricultural property within one mile of an urban area. Is there then any need to proceed to define urban areas? Is not this precisely a matter that should be left to the Revenue Commissioners and the courts, if necessary, on a point of appeal from the Revenue Commissioners to work out what is an urban area? Defining an urban area as an area which is either a county or other borough is fair enough. They are definable entities. An urban district is a definable entity, but then in statute to write in a town, which is not a definable legal entity, and to add in a village, which is a definable legal entity is surely only adding to drafting nonsense, incorporating undefined and non-defined entities in a definition reference. This is a reference in clause (c) supposed to be defining an urban area and we are defining an urban area by including in the definition of urban area two non-defined entities as part of the definition of an urban area.

Mr. R. Ryan

Would the Senator not accept that if we had not put in these two enlargements there would be the possibility of an urban area being restricted to county borough or borough or urban district and, therefore, it would have restricted the area?

Mr. Lenihan

I think it is a matter which should be left to the good sense of the Revenue Commissioners and the courts.

Mr. R. Ryan

But we are giving that opportunity.

Mr. Lenihan

But this will add to the burden of definition. Whatever about a town, and even that would be difficult enough to define, a village is impossible of definition. Literally, every crossroads is a village. Where do you start and where do you end in regard to defining what a village is? Everybody will get into an appalling tangle about it sometime somewhere when some property escalates in value adjacent to some crossroads. In the sort of era in which we are living at the moment, with mining development and matters of that kind suddenly mushrooming, in particular localities in terms of land value you could very easily have a situation where land adjacent to some crossroads would become a village—a cross-roads with a pub and nothing more than that. Is it a village or is it not? A mine is suddenly opened up within a mile or two and land within a mile of this crossroads suddenly becomes valuable and it is into the 25 per cent escalation area because that crossroads is a village. It raises all sorts of permutations and combinations of doubt and bad definitions. The Minister might be better off not to have urban area defined.

Mr. R. Ryan

Remember, it will be open to the taxpayer to elect which particular mode suits him. Supposing his site is valued at £2,000 on the market, the taxpayer might argue that, if it were valued at its agricultural use plus 25 per cent, the figure might only be £750. Suppose it is £2,000 for an acre because it is a place which is coming under urban pressure, he would say it was not involved in this urban pressure and it would be £600 agricultural use plus £150-£750. If that person satisfies the Revenue Commissioners that he is under urban pressure, as it were, he would have his property taxed at £750 instead of £2,000. We have extended the net very widely so that the cross-roads can come in. This operates to the advantage of the taxpayer. He need not avail of it if he does not want to. Nobody is obliging him to pay a greater tax.

Mr. Yeats

I think we all agree with what the Minister is doing. It is simply a question of whether this is the most convenient way of doing it. These days, particularly with mines being opened—I am not talking about the advantages to a property owner of having minerals discovered on his land; it is totally different pragmatic argument and it does not come under this—scores of houses are built in the middle of the country and I would have thought, from the Minister's point of view and from the Revenue Commissioners' point of view, it would be a simpler way of dealing with it to say that, if it were shown to the satisfaction of the Revenue Commissioners that there was urban pressure anywhere, the owner of the land should be given the power to opt for the 25 per cent rather than whatever valuation the Commissioners might put on the land. I am not saying that the Commissioners would do this, but they should have the power. Unless the landowner could prove he was within a mile of an urban area they would have the power to add maybe 300 or 400 per cent to the value of his land. What the Minister wants to do is give an option to a landowner under these circumstances where land is exposed to urban pressure. This could happen anywhere. It could happen with the normal spread of Dublin city or Kilmacthomas, or wherever the town or city happens to be, but it could also arise in isolated patches due to sudden developments, the setting up of a factory, mining and so on. I put it to the Minister that he might do well to consider this matter as to whether it would, at a later date, not be simpler to deal with it on the basis that anyone who showed to the satisfaction of the Commissioners that he was exposed to this urban pressure could have this option.

Mr. R. Ryan

We will certainly be watching developments around Kilmacthomas.

Mr. E. Ryan

If the disputation about urban areas is finished, I should like to raise another point. My point is a drafting one. It is merely an effort to get some conformity in drafting practice about definitions. There is a necessity for a lot of definitions in this Bill. We start on the right basis by having section 1, which is the interpretation section and goes on for two pages. The draftsman seems to have become exhausted at the end of the second page. He introduces definitions pretty regularly throughout the Bill. Instead of being able to go back to section 1 to see whether a word or phrase is defined, one finds that there are definitions interspersed in many sections. There are certain sections where there are definitions purely for the purpose of the sections, which complicates matters. It should be possible to put in all the definitions at the beginning, even if the note says that this particular definition is only for section 6.

To take what I would regard as an inconsistency, in section 1 we see: "private non-trading company" has the meaning assigned to it by section 6 (3). Instead of defining it there, you are referred to section 6 (3) suggesting that it is personal to section 6 (3). In any event, you know that the words "private non-trading company" are defined further on in the Bill. When you come to section 10, for instance, you find that a "trading company" means a company which is incorporated under the laws of the State, or a company which maintains a register of members in the State and which is not a private non-trading company. It does not appear to me that that is specifically for section 10 only. A trading company is not defined in section 1. I can see no reason why a private non-trading company should be mentioned in section 1 and you should be referred to section 6 (3) so that you can see exactly what it is, and you should not have a trading company dealt with in the same way. I am just drawing attention, as I have done on a number of occasions, to the fact that definitions should, if at all possible, be all grouped at the beginning of the Bill so that one can see under section 1 or 2 all the words or phrases in the Bill which are specifically defined.

Mr. Alexis FitzGerald

Senator Ryan has made a very useful point. If I have been following the various references to a private non-trading company, there is nothing irreconcilable in any of the sections, which really reinforces the point that we could have had this definition at the beginning which would, in fact, have covered all the sections. This would make it easier for people to work out what it all means when they are trying to operate it.

Mr. Lenihan

It is not the purpose of the exercise to make it easier.

Mr. Alexis FitzGerald

I would not share the view that there is any conscious attempt to make it difficult.

Mr. Lenihan

I was being facetious.

Mr. Alexis FitzGerald

It is a very valuable point. I was checking as Senator Ryan was speaking, and it seemed to me that the definition in section 6 which is incorporated by section 1 carries through throughout. There are no contradictions.

Mr. R. Ryan

I have a certain sympathy for the views expressed but the same issues arose on more than one occasion in the other House on different sections. Perhaps the time has arrived when they should have a committee of the two Houses of the Oireachtas sitting down with the parliamentary draftsman to consider whether the draftsmanship of Bills could be improved from time to time. As legislators whether we held ministerial responsibility or ordinary membership, we have felt that the legislation was a bit confusing. I am not sure that it could be drafted in a better way. Perhaps it could. I remember hearing tributes paid to our parliamentary draftsmen in another jurisdiction. It rather surprised me at the time, but I was told that, when other draftsmen wanted clarity of expression, they looked to the legislation of the Irish Parliament where they found legislation had the clarity of the Ten Commandments. We know how much argument has continued for centuries about the meaning and application of the Ten Commandments. They are not written as extensively as modern legislation, but they certainly have caused as much difficulty. They have been observed in varying degrees as well.

Perhaps we ought seriously now to consider having a committee to look at this. It is not something that can be readily solved on any Bill. On the specific issue raised by Senator Ryan, the interpretation section, section 1, has definitions which are applicable throughout the whole Bill save where the context otherwise requires. It has that qualification. There are certain qualifications. When there are definitions in specific sections they are related to those specific sections only. Subsection (4) of section 10 says that the trading company definition is in relation to section 10 only. Look at page 14. The commencement of subsection (4) says in this section a trading company has this particular meaning. I can see the value of having all definitions in alphabetical sequence in the interpretation clause, if only to refer one to the meaning and the application of it, even if it is only confined to a particular section. Perhaps when we look at the alternatives, we might decide the existing system is better.

Mr. Alexis FitzGerald

At the risk of driving everyone insane, a risk which may not come off, I have a few rather more clarifying questions rather than points to put on the section. I had some idea when this draft legislation was circulated that there was an option open to you. If you were a farmer within the section, you either took 50 per cent off the value, or £100,000 whichever was the lesser, or if you did not do that, you took the 20 per cent off under subsection (3). Take a figure like £800,000. If you had £800,000 worth of farming assets or agricultural property, you cannot take £400,000 because £100,000 is lesser. If you chose to do so you could take 20 per cent off the £800,000 which would give you £160,000. When I look at subsection (3), and see that the net market value of property in the State which is used directly in the provision of employment in the State, other than property to which subsection (1) applies, that would seem to suggest that that option is not open. Perhaps I am missing something. It is a clarification for myself: my first impression was you could take off one-fifth of £800,000 which in this particular case would be £160,000, if you were cut down to your £100,000 and not able to use your £400,000.

While the Minister is thinking about that observation—as I said it would be useful for me to know—I wonder whether, at some stage, we would not want to get the closer definition in this code that we had in the estate duty code as to when property is in the State. When is property in the State? We had no reference to these curious documents that circulate all over Europe called bearer shares, for example; insurance policies under seal. They do not give employment directly. One can envisage situations where that question arises.

I take it property here means interests and rights of any description. How extensive is this? For example, say a professional man with goodwill attached to his practice, assuming for one unthinkable moment the goodwill is valued for wealth tax purposes, is he allowed to take off 20 per cent on the ground that goodwill is used directly in the provision of employment in the State? That is quite important.

I find it difficult to understand why in the definition of "agricultural property" one excludes the residence which is itself non-taxable in the determination of what we call a farmer here, an individual as is said in section 4. We need not go over that again; it has been said a number of times. I am back on to this business of women's lib. and International Women's Year. Is an individual necessarily a male under this whole code? What is the position of a woman who farms and who happens to have a husband? Whose wealth determines what is to be aggregated in determining whether there is a whole-time farmer there or not?

Mr. Lenihan

We had a lot on that line of country this morning.

Mr. Alexis FitzGerald

I am sure there is a good theoretical reason for the exclusion of debts or encumbrances from the determination of what is the agricultural property of the particular person who is being tested as whether he is to get these benefits or not. I should like to understand the reasoning behind it.

Mr. Yeats

Is it not in ease of the taxpayer?

Mr. Alexis FitzGerald

It seemed to be in ease of the taxpayer but I should like to understand why it is so.

Penultimately, why are discretionary trustees not included in the provisions with regard to farmers? Let us face it; it is a rather important point and one I must make at the risk of irritating the Minister. There is a conviction which is I think wrong that all discretionary trusts are tax avoidance. This conviction is incorrect in my judgment. Discretionary trusts, in a less elaborate form, go back for hundreds of years and arise out of ordinary marriage settlements. There are many people who, notwithstanding wealth tax, will be making wills providing for discretionary trusts because they will not responsibly decide that one little creature is going to turn out right and the other is not, or that they could be all treated equally and given their sums when they reach 21 or whatever is the statutory age. They will choose deliberately, for the sake of their family, a course which may involve them in taxation. I am not ignoring the reliefs provided in the section with regard to discretionary trusts. I am going on to deal with this particular thing. In certain cases, farms and "agricultural property" have traditionally in this country—I had it in my own family, so I know what I am talking about—where uncles have had to come in and manage the affairs of the family until the children came of age. In the particular case I am thinking of we had an intestacy and so one did not have anything of that kind. Had it been elaborated, that man who died suddenly would in fact have been well advised to have made a discretionary trust. In fact the property was disposed of in a manner that would have surprised everybody in the light of what was found to be the truth about the characters involved. If a farmer, as an individual, is to get certain reliefs these reliefs ought to be extended to discretionary trusts, at least to discretionary trusts that are given the special treatment of being transferred to section 3 by the provision of section 5.

This is my ultimate ultimate—I thought the Minister had introduced an amendment in the Dáil at some stage which took care of a company which accidentally ran into a loss. I am not satisfied that this is so. In a case I know of the company is kept going by having substantial property which produces a rent. But it is absolutely and genuinely a trading company. It cannot help it but occasionaly, in years, its rental income is in excess of its trading income. I do not find in this Bill a provision which is entirely satisfactory to deal with that situation, though I believe absolutely it is genuinely intended to relieve this situation and what the Minister is concerned to catch is the private non-trading company which is dolled up to look as if it were not.

Mr. R. Ryan

Ever since the day I sat at the feet of Mr. Alexis FitzGerald learning the history of economics he has never irritated me nor has he done so this evening. I find him as stimulating today as he was then. That means I find him stimulating, not perverted in any manner.

The amendment in the Dáil which provides relief for a company which might experience temporary trading difficulties is contained in section 6 at the foot of page 9. I mention that because that is the last point that was made.

Senator FitzGerald asked whether a professional person who engaged employees would enjoy the 20 per cent reduction in the market value of his practice. The answer is "Yes". A person who satisfies the Revenue Commissioners that a particular asset is being worked in a way which directly generates employment in the State, then it would be entitled to the "productive asset" advantage.

In determining whether a farmer is entitled to the relief for "agricultural property" it is proposed to aggregate the property of husband and wife. You will recall that the Bill provides that, to assess the holding of an individual, the wife's wealth will be aggregated with his for that determination. Once the aggregation takes place, then the assessment will be made as to whether or not 75 per cent of his taxable wealth was in agricultural property. If more than 75 per cent of the wife's taxable wealth and his own was in agricultural property, then the exemption would be enjoyed. Discretionary trusts such as Senator FitzGerald is very properly agitated about are, I think, covered by section 5. Certainly that was our intention in section 5, subsections (2) and (3). Subsection (2), paragraph (a) provides that:

if the valuation date occurs during the joint lives of the parties to the marriage, be deemed to be the property to which the husband is beneficially entitled in possession:

Senator FitzGerald's argument may be that you could have several generations afterwards a continuation of a discretionary trust, but I think paragraph 5 as drafted would cover most situations, if not all. If, in the light of experience, we find that there are cases which at the moment are beyond our ken and where hardship would occur, we will certainly be disposed to look at the need for amending legislation. Senator FitzGerald also asked whether the 20 per cent reduction would be available to a person who would get less relief by the application of the £100,000 or 50 per cent concession. The answer is yes. It is contained in the proviso to subsection (3) of section 10 which applies to property covered in subsection (1).

Mr. E. Ryan

But he could get greater relief.

Mr. Alexis FitzGerald

Yes, I thought that was the position, but on rereading the thing in its present state, I could not find it.

Progress reported; Committee to sit again.

The Seanad adjourned at 10 p.m. until 10.30 a.m. on Thursday, 7th August, 1975.