Seanad Éireann debate -
Thursday, 7 Aug 1975

Vol. 82 No. 15

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

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

Mr. Yeats

I would like to deal with the question of the definition of a farmer. We agree with the Minister that the special concession of 50 per cent or £100,000 given to a farmer ought to be restricted to genuine farmers. There is no reason why wealthy people should be able to invest their money in land and get this concession. It is not intended for such people at all. It is intended for those who are engaged full time in farming. One ought to concede the point that this concession given to the farming community is the minimum that one ought to agree to. It is fair to say that a farmer is in an unique position in that being a farmer and having an income from the land he also possesses a considerable amount of wealth. A farmer with £100,000 worth of land might seem to be a rich man but in reality he is a comparatively small farmer. His income is considerably less than that of a wide section of the population living in cities whose theoretical wealth may be a great deal less. Assuming a farmer has an income at all from land he is by definition a wealthy man in terms of this form of tax. Obviously it is only fair that there should be a concession of this kind granted to farmers. Equally one accepts that it ought to be restricted to those who are genuine farmers employed full time in farming.

The definition contained in section 10 may cause problems, inequalities and in some cases injustices. I would have preferred to see a form of definition which would bring out the element of full-time work. A farmer working full time at farming, however that might be defined, could be counted as a genuine farmer. This form of valuation, saying he must have 75 per cent of his assets in farming, is liable to lead to problems in such areas. This is especially true because of the system of aggregating the family wealth. For example, if the farmer's wife has a certain amount of property —she may own a small hotel, a public house, she might have been left a couple of houses by her family, and because of this in the case of a relatively small farmer he could find himself drawn into the wealth tax net. I am sure the Minister does not envisage or wish this to happen.

If a full-time farmer has a farm worth £75,000 he may have about 80 acres of land, allowing for outbuildings, machinery and livestock. If his wife has a public house worth £25,000, this brings the family wealth up to £100,000, the wealth tax limit. Because he has not got £74,000 and £26,000 to bring him over the limit he has not got 75 per cent of his assets in land and he therefore qualifies for the wealth tax. At that level he would have to pay only a marginal amount. It is relatively easy in such a case to reach the threshold. In accordance with the provisions of this section, in that case, not only could a relatively small farmer find himself liable for wealth tax but he would not have the benefit of exemption for livestock. For example, in order to gain the exemption given to livestock, he must be a genuine farmer in terms of this section. In this case if a farmer or his wife has assets amounting to more than 25 per cent of his total assets outside the land he is liable to be caught within the net without the concession of 50 per cent or £100,000 and without the special exemption given to livestock.

This would bring a married man, a farmer with £75,000 or more with, say, 80 acres and the case of the single man who has a property of his own it could bring him into the net at around £55,000, say around 55 acres. This is obviously not the intention of the Minister. It is undesirable and unjust. Quite obviously there are vast numbers of people in the country in other areas making far more money than this particular farmer but whose wealth, in the sense used in the Bill, is less. The farmer's wealth is, to some extent, mythical because his income from that wealth is small, an average of about 2 per cent. He is getting a small return from his wealth because he is a farmer and wishes to remain one. He has no intention of selling his land and, therefore, realising this purely notional wealth which is of no value to him apart from giving him an income. Because of the fluctuating nature of the value of investments, the problems attached to sales of livestock, the value of the farm could go up or down between one year and the next. Somebody could be in the net one year and not in it the next, because of the relatively low threshold created by the Bill.

The Minister ought to consider seriously whether this is the correct definition for a full-time farmer within the meaning of this section, and whether he might not change this definition to preserve the intention that only genuine full-time farmers are included and that speculators are excluded. While preserving this intention the Minister might think of a different definition which would not have the possible effects I mentioned.

Minister for Finance (Mr. R. Ryan)

I appreciate what Senator Yeats has said. We are all anxious to ensure that the genuine farmer enjoys the special treatment which we intend he should have. The difficulty is to define the genuine farmer satisfactorily. In the relevant subsection, "agricultural property" is defined as "agricultural land... in the State"—it must be in the State—with the farm buildings, farmhouses thereon, which are appropriate to the property, excluding in principle the private residence. The private residence is exempt anyway. It seems to be treated differently now. The exempt residence must not be submitted precisely, because it is exempt. It would not be taken into account in calculating taxable wealth. The "farmer" is defined as "an individual who"—we come back to this word, individual, again—"is domiciled and ordinarily resident in the State" and that although his qualifications all fit the general layman's understanding of a genuine farmer. He must not have less than 75 per cent of his gross wealth in agricultural property, farm machinery, livestock and bloodstock. Wealth as opposed to income is taken as the appropriate criteria in the context of a wealth tax. It lessens the problem involved; his valuation is confined to capital property, which must be valued for the other purposes of the wealth tax. As an alternative, income is very unsatisfactory, because of its uncertainty, the difficulty of ascertainment in the farming area of income, the fluctuations from year to year, with the result that a person's status as a farmer or non-farmer might change from year to year, according to his income. That would be regarded as a rather ridiculous position.

The fluctuations are not likely to occur as frequently if you take the capital value of his assets.

A company engaged in farming is not regarded as a farmer, and will not get this relief. The shares, however, in such a company will be eligible for the 20 per cent relief conferred on productive assets. If a company were eligible for a 50 per cent reduction, any farm, however large, could be converted into a sufficient number of companies to ensure that the entire lands would be reduced by 50 per cent. It would be necessary to look through the company to ascertain who were genuine farmers amongst the shareholders. This would be very difficult. In any event it is not necessary to form a company to carry on farming. In most cases where farming is conducted by companies, the arrangement was made for reasons other than farming alone.

The farmer must be domiciled and ordinarily resident in the State. The land must also be situated in the State. This 75 per cent qualification relates to the market value of these items. The market value of agricultural property which has a high development potential, will for the purposes of a definition of a genuine farmer be the open market value, rather than the agricultural value, plus the 25 per cent provided for in subsection (2). This is so because one must determine in the first instance whether an individual is a farmer. The only realistic market criterion which can apply in determining this question is the open market value.

Obviously, this approach favours the farmer because the market value would be greater than agricultural use plus 25 per cent. Having determined that he is a farmer, the reliefs in subsections (1) and (2) are then, of course, available to him. No allowance is made for debts in deciding whether an individual is or is not a farmer for the purposes of the section. Thus, debts in respect of agricultural assets or in respect of non-agricultural property are not taken into account. Gross agricultural property is looked at vis-á-vis gross non-agricultural property. In other words, we compare like with like. This approach has the virtue of simplicity, and should, in the vast majority of cases, produce realistic results, with the minimum of delay.

The alternative is to segregate the debts and encumbrances of the individual as between the two types of property. This would involve considerable investigation and, inevitably, disagreement. It would be a situation where there would be scope for manipulation by arranging that the debts and encumbrances would be, as far as possible, charged against the non-agricultural property, to reduce its value and thus its proportion of the net overall wealth of the individual. Moreover, the security for a debt is not necessarily the fund out of which it will be repaid and, accordingly, need not represent the factual position. Therefore, conclusions based on gross value are arguably more valid than those based on net values, which are arrived at having regard to temporary arrangements to meet future liabilities.

Livestock and bloodstock, although exempt, are treated as taxable wealth for the purpose of this definition because they are essentially agricultural assets. Their inclusion as taxable wealth is obviously in favour of the farmer, as it adds to the property which is regarded as agricultural in ascertaining whether 75 per cent of the total property is agricultural property. We will know, when we have had some years' experience of the working of this definition, whether it is satisfactory or whether it is adequate to identify the genuine farmer. If we find there are people genuinely pursuing agricultural activity who are doing so as the major part of their activity, who are excluded by this particular definition, we would certainly be prepared to look at the definition and the section again to see whether it should be adjusted to cater for them and to confer upon them in relation to their agricultural activity the kind of exemptions which are intended.

As I mentioned previously, the farming associations have indicated, in so far as they have accepted the principle of the wealth tax, that our definition of a genuine farmer is a valid one. They welcome the exclusion of the benefits being conferred on genuine farmers from being available to a person who is simply a casual or a part-time or hobby farmer.

Mr. Yeats

Much of what the Minister has said I could agree with, but I think a good deal of what he said was answering points which I might have made but had not made, and, in fact, do not intend to make. I accept completely that you cannot decide these matters in accordance with the income of the farmers. I do not think it would be appropriate to the necessities of farming, and as the Minister points out, would be appropriate to his Bill. I can reiterate that I am completely in ageement that speculators and non-farmers or people who are not full-time in farming certainly should not be included in these concessions.

It seems to me to be a situation which could lead to problems where you have a perfectly genuine farmer, a single man, a farmer of 80 acres or so, who has been working all his adult life in farming, in every sense of the word a genuine farmer, married to a wife who happens to have a pub. Overnight he finds himself dethroned from the ranks of the genuine farmers and excluded from the 50 per cent concession given in this section, excluded even from the exemption for his livestock for wealth tax purposes. I do not know how often this situation could arise. The fact that it could happen seems to me to be a flaw in the definition that the Minister has adopted. It could really bring comparatively small farmers, if not within the wealth tax net, at the very least within the net of the unfortunates who have to make returns of all their valuation for this purpose.

A single man who had a little property, whether it was a pub or a couple of houses if he had 25 per cent or 26 per cent of his property outside the land, could come within the threshold for a single man, at about £52,000 as the value of his farm. Allowing for the fact that the Bill provides that those who are within 75 per cent, within three-quarters of the threshold, must make a return even though they may not ultimately be liable, you find that a farmer with around £39,000 to £40,000 worth of a farm could have to make returns. That is a farm of not much over 40 acres.

Obviously, nobody wants to involve farmers such as this in the wealth tax net, even if it is only a matter of getting valuations and making returns. I should imagine that the alarm created in the farming community under these circumstances would be considerable. I accept that it is unlikely to happen in the sense that the Revenue Commissioners are not likely to go chasing farmers with holdings of this size.

But a definition which makes this kind of thing possible is a faulty definition and I urge the Minister to have a good think about this. Irrespective of representations that have been made it is unwise to wait until problems arise in a matter of this kind. If problems start arising we will find considerable concern amongst farmers. We would have almost a repetition of the death duty situation, where people who would never have been affected feared that they might be. I urge the Minister to think in terms of a definition which would stress the aspect of full-time operation of a farm. After all if a farmer is working full-time on his farm, if it is his only profession, it does not seem to be relevant what property he or his wife might happen to have. If he had fairly considerable investments left by an uncle or his father he would still be a full-time genuine farmer in every sense of the word if he works all his time at it.

I will leave this point and come to the last point I wish to make on this section, this seemingly acrimonious topic of guesthouses. I am not asking for an additional concession beyond what the Minister has given in this section but it seems that the concession he has given with regard to guesthouses is in the wrong part of the section. The Minister has provided that where individuals are concerned hotels are included and guesthouses excluded, but where companies are concerned guesthouses are included with hotels. He has done it the wrong way round. After all the type of hotel premises owned by companies are likely to be bigger than those owned by individuals. It would seem more sensible to give a concession with regard to guesthouses to individuals rather than to the companies. It has been done the other way round and I am not at all clear why.

I can see that many guesthouses are relatively small, three to six bedrooms and they could even be, perhaps, the principal residence of the owners.

I can see that there would be problems and, indeed, possibilities of evasion in cases in bringing these small guesthouses in, but where a guesthouse has say ten bedrooms or more it becomes a small hotel. As I mentioned there is at least one guest-house in Dublin with 88 bedrooms listed in the Bord Fáilte register. There are a considerable number more with ten, 15, 20 or 25 bedrooms in different parts of the country, and these are, in every sense of the word, hotels. The fact that they are listed by Bord Fáilte in a different section of their register as guesthouses is a matter of the tourist industry relating to the actual facilities they provide and so on. Nonetheless, they are small hotels in every sense of the word.

The Minister, when he reconsiders this section, should exclude guesthouses from the concession given to companies—I cannot imagine why a company should be involved in this at all—and he ought to include guesthouses in the concession given to individuals though I would be in favour of including only guesthouses with ten bedrooms or more.

Mr. R. Ryan

We will look at all these things and if adjustments are necessary in the light of experience we will not be slow to make them.

Mr. Yeats

This question of property in the State which is used in the provision of employment, must this be in the employment of other people or can a self-employed man, or, indeed, a farmer who does not employ labour outside his family, qualify for the 20 per cent concession?

Mr. R. Ryan

Yes, as long as he can show that it results in somebody being gainfully employed, even the person applying the capital.

Mr. Yeats

Even if it is himself?

Mr. R. Ryan

Yes.

Question put and agreed to.

SECTION 11.

Recommendation No. 27 not moved.

Question proposed: "That section 11 stand part of the Bill."

Mr. Yeats

I am a little puzzled about the meaning of subsection (4) and, perhaps, the Minister would enlighten me on it.

Mr. R. Ryan

Subsection (4) provides that where part of a debt has been allowed under section 10 allowance for the debt shall not be made under section 11. Under section 10, subsection (1), a proportion of debts is deductible against certain agricultural property, fishing boats and hotel premises. Under section 10, subsection (3), 80 per cent of debts are deductible in the case of productive property. The net effect of subsection (4) of section 11 is that the balance of these debts is not deductible against any other property.

Question put and agreed to.

SECTION 12.

Question proposed: "That section 12 stand part of the Bill."

Mr. Yeats

I had been under the impression that this was one of these one-sided affairs that one often sees in tax legislation, that once the market value had been agreed whereas the taxpayer was bound for three years the Commissioners could adjust immediately if they felt they had reason to do so. From something the Minister said yesterday it seems I am wrong in my definition of this situation. Am I right in thinking that under this section either side can change the agreed valuation, or is it only the Revenue Commissioners?

Mr. R. Ryan

May I direct the Senator's attention to the proviso in subsection (1) of section 12:

Provided that the market value so agreed shall not be binding in any case where there is failure to disclose material facts in relation to any part of the taxable wealth of the assessable person or where at any time before the third of the valuation dates—

(a) in the case of real property, there is any change in the tenure under which the property is held, or let, or any change whatever, whether affecting that or any other property, which would materially increase or decrease the market value over and above any increase or decrease which might normally be expected if such change had not occurred, or

(b) in the case of such shares, there is any alteration in the capital or the ownership of the capital of the company concerned or of the rights of the shareholders inter se or there has been a material change in the assets of the company or in their market value over and above any such change which might normally be expected,

and, in such cases the market value of the property or of such shares may be ascertained again by the Revenue Commissioners for each of the relevant valuation dates.

The question of whether there would be any change materially over and above any increase which might normally be expected to take place if the valuation changes were only the normal ones, would stand. If, however, there is a significant change which would be above the normal pattern the values could be looked at again.

Mr. Yeats

Does this apply to both sides, either the Commissioners or the taxpayer?

Mr. R. Ryan

Yes.

Mr. Yeats

They stand for two years in effect. It is before the third valuation date that this can be done?

Mr. R. Ryan

At any time before the third.

Mr. Yeats

In other words the valuation date was fixed last April; next April that will stand. It is only April, 1977, that it could——

Mr. R. Ryan

No, it could be next year again if by April, 1976, there is a material change over and above normal changes.

Mr. Yeats

All right.

Question put and agreed to.

SECTION 13.

Recommendation No. 28 not moved.

Mr. Yeats

I move recommendation No. 29:

In page 17, after line 8, to insert a new subsection as follows:

"(2) Each of the sums mentioned in subparagraphs (a), (b) and (c) and in the proviso to subparagraph (c) of subsection (1) shall be appropriately increased on the 5th day of April, 1976 and on every subsequent valuation date in accordance with the calculations of the Central Statistics Office relating to the reduction, if any, in the value of one Irish Pound, during the period of one year commencing on the next preceding valuation date and such increased sums, if any, shall be deemed to be inserted in place of the corresponding sums in subsection (1) on the appropriate valuation date."

This is a very important recommendation. It raises the whole issue of the effect of inflation on taxation of this kind. We know the thresholds in the Bill are relatively high. The Minister has told us, at fairly frequent intervals, how high they are compared with other countries and we have discussed it many times already. Even though they are relatively high, because of continuing inflation they will very rapidly be eroded.

For example, since 1970 the cost of living has doubled. Therefore the value of money has doubled, and £100,000 today in real terms is equivalent to £50,000 in 1970 or the threshold for a single person of £70,000, today in real terms five years ago was equivalent to £35,000. In five years from now it is likely that the difference will be even more dramatic. In ten years from now, even at an average rate of 15 per cent inflation, which is considerably less than our present rate, between now and 1985, would result in £100,000 being worth about £25,000, or £70,000 being worth £17,000 or £18,000. Under these circumstances, what seems considerable wealth now would be eroded to such a degree that a very large number of people would be brought into the net.

This has been the effect on the income tax code. It is well known that 15 or 20 years ago only about one-quarter of the proportion of the population were involved in PAYE, or in the income tax code when there was not PAYE. This is in part a reflection of rising living standards, and incomes are higher. For 80 per cent or 90 per cent, it reflects the onset of inflation. All types of people whose standard of living has perhaps not risen substantially now pay considerable amounts of income tax. Twenty years ago, they would have been below the base level and would not have been liable for income tax. This is an inevitable consequence of inflation.

The Minister said that he would alter the thresholds from time to time to deal with this problem. This promise has been made on previous occasions with regard to income tax allowances and so on but, with the best will in the world, it has not been possible to do so. The Minister has been involved in such undertakings with regard to income tax and has not been able to carry them out in full.

Particularly with a wealth tax which is a tax that most people feel will never concern them—it is a popular tax in the sense that most of us are not involved and cannot see why other people who have sufficient wealth should not be taxed—it will be very difficult, perhaps in a budget year when the tax on tobacco or alcohol will be raised to raise the thresholds for wealth tax in accordance with the onset of inflation. It will be a politically difficult thing for a Minister to do. The number of people involved is small. Votes do not come into it at all. In spite of any undertakings the Minister may have given there will undoubtedly, as the years go by, be a steady reduction in real terms in the level of these thresholds.

The Minister could deal with this matter by including in the Bill a provision such as is stated in this recommendation. It would then, in a sense, be out of the Minister's hands. An automatic process would take place year by year so that the real impact of this wealth tax would remain the same. The effect of not having a provision like this is that year by year it is quite obvious that inflation will continue—the level at which it will continue may be disputed—but at best, it will be considerably higher in the next ten years than in the last ten years. The result of that will be that a very high proportion of the population will be drawn into the net. It will not be easy for any Minister to keep the thresholds constantly up to date. Some of those who argue in favour of a wealth tax actually appear to welcome this concept.

I refer the Minister to paragraph 53 of his White Paper on Capital Taxation of 28th February, 1974, in which there is a rather remarkable statement. It states:

Allied to the development in income and expenditure taxation is the fact that inflation in recent years has brought more people within the scope of these taxes. At the same time, those factors which either bring more people for the first time within the tax net or, alternatively, increase their existing tax burden bring about an increase in the value of capital assets. The object of an effective system of capital taxation would be to ensure that this increase is also brought within the tax net.

In other words, the notional increase in people's capital assets brought about by inflation ought to be brought within the tax net. This is the type of argument that people present and the Minister presented in the White Paper in favour of taxation of this kind. It is no wonder that people have some suspicions about the reality of undertakings to reconsider thresholds from time to time. The practical reality is that no matter how the threshold may from time to time be adjusted, the general tendency will be that this year the absolute minimum number will be brought into the wealth tax net. From now on the number will increase year by year. The speed at which it will increase will depend largely on the onset of inflation and on the assiduity with which this and other Ministers bestir themselves to change the level of thresholds. That is a dubious proposition. Not only this Minister but his successors may find it very difficult to keep thresholds marching in step with inflation.

It is absolutely vital—the most vital point in this Bill—that it should be stated solemnly in this legislation that the thresholds laid down, which the Minister had decided are suitable to conditions in this country and which have been fixed in this regard, should remain the same in real terms and should not be eroded to an extent where maybe a fifth of the entire population could be brought in in quite a short time.

Mr. Lenihan

I strongly support the point made by Senator Yeats. His views influenced me to put down this amendment. Thresholds, the figures of entry into wealth tax—to put it in phraseology which the public will understand—will be reduced by the Minister for Finance. It is not sufficient for him to say that they will remain at the levels of £100,000 in regard to a married couple, £90,000 in the case of a widow, £70,000 for an individual other than those in the other categories and £2,500 for a minor. That is nomenclature which can be changed by a single-line amendment in any finance measure at some future date. That point emphasises still more the importance of the recommendation. The recommendation is designed to deal with any such changes which the present Minister for Finance or any future Minister may make in regard to the various thresholds which may be set in this Bill or in a future measure to deal with people's liability to pay wealth tax.

Fiánna Fáil put down similar recommendations on the Capital Gains Bill and on the Finance Bill. This is a principle to which the Minister avidly subscribed during his term in Opposition—I see the Minister is nodding his agreement. This will be the foundation legislation for wealth tax in the future. I made a similar plea in regard to the Capital Gains Tax Bill, again a foundation piece of legislation for a new type of measure. Whether we agree or disagree with the Minister, these aspects of legislation are important, the Capital Gains Tax Bill, the Wealth Tax Bill and the Capital Acquisitions Tax Bill which will come to the Seanad after the Recess.

If the Minister had any feeling for the views he adumbrated over a long period of years he will accept that now is the time to introduce a regulator of this kind. The Minister may phrase it differently, but a regulator of this kind is designed to ensure in the event of a fall in the value of the currency that compensation will be written in accordingly to whatever levels are fixed in legislation. This section deals with the net market value. This is the section which fixes this month's level. I was going to say "this year's level" but in the context of today all we can say is this month's level. There may be a Finance Bill in autumn or January which could change the situation.

In this recommendation we are seeking to have a built-in revision of the calculation in accordance with the reduction of the value of the £ on the basis of whatever calculation the Minister may choose arising out of Central Statistics Office figures. I will not pin the Minister to the consumer price index. There is no point in going back on that matter. I happen to agree with the Minister on the total inadequacy of the consumer price index and the total inadequacy of a national wage agreement and its variations which was entered into on the basis of the index. I sympathise with the Minister, even though I would tend to fault him and the Government for having entered into an agreement in April on the basis of a computation which is now heavily criticised by the Minister and the Government.

What Fianna Fáil are saying in this recommendation is that the calculation of the Central Statistics Office— we use a wider phrase so as not to tie the Minister with the much reviled CPI—should be used. Fianna Fáil also state in the recommendation that the reduction should be in relation to the value of the Irish £. Again we use a global phraseology which will enable the Minister for Finance to use whatever calculations he may think fit in relation to the Central Statistics Office and any reduction in regard to the value of the Irish £ during the one-year period commencing on the next preceding valuation date. This gives the Minister the necessary flexibility to deal with the precise situation mentioned by Senator Yeats, the situation caused by undoubted hardship by reason of the depreciation in the value of currency and the unprecedent inflation we have at present.

There is no point in the Minister telling me that the present rate of inflation is an exceptional one. We will have to live with inflation of one kind or another. That has been the pattern for 200 years since the industrial revolution and it will not change. While the rate of inflation at present is unprecedented—caused by all kinds of incompetencies, both on the part of the present Government and sources elsewhere; it is particularly high in Britain and Ireland where it is running at 25 per cent— there will always be a rate of inflation.

I believe there must be some small degree of inflation to have expansion. One cannot have expansion and development of an economy without some degree of controlled or moderate inflation. The question is— this is a serious preoccupation with all monetary and economic authorities at present—to get it under control. The present rate is totally uncontrolled and, apparently, in some areas—that of the Government—it is nearly uncontrollable unless the Government wake up to the situation. Other Governments at least are controlling the rate of inflation but our Government do not appear to be getting into the jockey seat of controlling the situation.

Be that as it may, while we may not have to live forever with the 25 per cent rate of inflation which we have at present, even with a diminished rate there is a fundamental necessity for a recommendation of this kind to be incorporated in permanent legislation.

I referred earlier on to the Capital Gains Tax Bill and the Finance Act. I do not think the recommendations were as necessary in any of those areas as in this particular measure. In the case of income tax the Government are dealing with incomes which tend to inflate; in the case of capital gains they are dealing with capital which also tends to inflate; but in this area the Government are dealing with an area which remains static. This is on the Minister's own admission in regard to taxation of this kind. In many cases, wealth tax will be charged on assets which are not inflating as far or as fast as income or capital gains.

The Minister can say that there are other areas, but in many cases the Minister is dealing with assets or property that would be dormant or stagnant and tend to remain at relatively the same value. In that situation, what does the Minister do? He is bringing in here a measure where he can adjust the thresholds, which he can do by a single line of amendment. At the same time he is not having any regard for inflation that may affect the possessor of property which he is subjecting to this wealth tax.

The thresholds are reasonable. As of now, I am thinking in terms of the permanent aspect of this legislation. This legislation will be there permanently, to be revised by a future Minister for Finance. What we are saying here in this recommendation is that the valuation in regard to this type of property, which will be the majority type of property to be dealt with by the Minister or some subsequent Minister, should have some regulator related to the Central Statistics Office calculation or related to the reduction in the value of the £. There can be a situation where persons having a property of this kind will be subjected to inflationary pressures in regard to their ordinary incomes. They are in possession of an asset which is on a flat valuation.

That flat valuation is fixed in regard to a dormant or stagnant asset. Such a person's income may be from other sources. It may be drastically reduced or eroded by reason of inflationary pressures, yet the calculation in regard to the valuation of the dormant asset possessed by the person is not subjected to any regulator such as we suggest in this recommendation. That dormant asset is hung around that person's neck like an albatross and you are straight away into a disincentive area, what I suggested earlier was the worst form of regressive taxation. It is an extension and an escalation of the rates type of taxation which in my view cannot be defended.

The Minister need not come back to me talking about the fact that the thresholds are high, the exemptions are liberal and so on. That is not the point. We are writing in permanent legislation here. Surely the essence of equity here would demand that there would be built into this a calculator or regulator in accordance with the Central Statistics Office figures that will ensure that the valuation should not just automatically increase on the person when in fact everything else is increasing at a far greater rate. In that type of economic situation there should be built in a situation that would acknowledge the fact that here is a dormant or a dead asset lying in the hands of a person and there should be a compensation, as proposed in the recommendation, that will enable that holder of that asset to be recompensed in regard to the increase in the cost of living, or whatever regulator is devised by the Minister for Finance of the day. This recommendation, or something of this type, is so self-evidently right that I am not going to argue the case any more.

Mr. Deasy

I think the thresholds for the market value of property should be reviewed more frequently. The Minister has said there will be a three-yearly review. In view of the rate of inflation, it would be proper to have a regulator attached to these figures to compensate for inflation every year, not just every three years. The sums of £100,000 for a man and his wife and £90,000 for a widow or widower and £70,000 for others may be generous at the moment, but with the high rate of inflation these figures may not be generous in three years' time. I should also like to see the figure of £2,500 for a dependant increased. First of all I would ask the Minister if he could at all possibly review the situation and have an annual review of the figures included in this section.

Mr. R. Ryan

I would point out that section 12 which we were discussing this morning, has provided that values fixed in April, 1975, will stand for three years unless there is some exceptional change in their value, and it would be open to a taxpayer to plead for a revaluation, which he would no doubt do if there was a decrease, though he might not do it if there was an increase.

If we were to have an annual revaluation or if one was to have an annual indexation there would have to be an annual revaluation too. I do not think people would thank the Senators who are pressing for an automatic index. If the logic of that was put into effect, and it would have to be put into effect, it would mean that instead of having a revaluation every three years there would be a revaluation every year. The reason why the people would not welcome it is that as Senators have forecast the likelihood would be that many property values would increase annually. Therefore, people who might not be caught for wealth tax if their property remained valued at 1975 valuations might well be caught before 1978 if their properties were to be revalued annually. That is one aspect of it.

The other one is that revaluation will inevitably oblige people to have revaluations and recalculations done. It will multiply the amount of work that has to be done. The introduction of any new tax, no matter what type of tax it is, involves a certain amount of anxiety, a certain element of uncertainty because the work is unfamiliar. We believe it is to the advantage of the individual taxpayer, as well as to the State machine, to have some stability in the operation of the tax for a three-year period. It is therefore preferable not to complicate it by the innumerable valuations which would require to be made if we were to have shiftings of the thresholds in accordance with various indices, some of which would not be known until well after the appropriate valuation dates.

There is no such calculation made by the Central Statistics Office as a calculation of the value of the Irish £. The Central Statistics Office compiles the consumer price index which is now known by everybody, including the Central Statistics Office, to be grossly out of date because it is based on the pattern of purchases here in the 1950s. An example of how unsuitable it is is the fact that six weeks of drought here raised the possibility of the consumer price index jumping by 2 percentage points. This was based on the amount of potatoes consumed in the 1950s. It is now known, as a result of the latest household budget inquiry, that the consumption of potatoes is now only half what it then was.

What relevance has a consumer price index which is out of date to the value of assets which have to be looked at for the purpose of a wealth tax. The truth is that there is little relationship between the gyrations of the consumer price index and the valuation of property. There is little relationship between the values of property in Ireland, the prices which have to be paid for property in Ireland and the behaviour of the £ sterling, with which the Irish £ is linked. The Irish £ has not got a separate value of its own. It is linked automatically with the £ sterling, the valuation of which is changing for a multiplicity of reasons, varying from the difficulties of the British economy to the fears of international financiers who shift their money from London to Zurich, to New York, to Tokyo or to Singapore. I cannot see the relevance of any of these movements to the prices which may have to be paid for assets, or, for assets elsewhere. The wealth will apply to assets owned by people who are domiciled and resident in Ireland irrespective of where those assets are located, and the value of an Irish £ might not determine what would be the value of property in Tasmania, Malaya or the United States of America or Germany. Where does one go for the perfect index? One cannot find an appropriate index. I have been searching for one for years, and all the best efforts of those best in a position to advise have not yet turned up an index which could be acceptable as a statutory regulator.

The suggestion is put forward that there should be a regulator in the Bill. Of what value is that, any more than any other provision in the Bill, if the Oireachtas, at any time can, as it can, change it? We are not writing a Constitution. We are not imposing an unavoidable obligation on Government or Parliament by writing any provision into a Bill. It may be varied at any time. It seems to me that the appropriate authority to consider in any year what the then thresholds should be or the then rates of taxation should be, is Parliament—the Dáil and the Seanad. These are the people who have the obligation to determine the rates, not a Minister.

It is unfortunate that I have to suffer the embarrassment of the bad example of all my predecessors and the assumption that the Opposition make that I will be as bad as all my predecessors. I shall try to do better. I do not guarantee that I will succeed but I shall try. We have given some evidence of our readiness to adjust thresholds more rapidly than they have been adjusted in the past. I am not claiming any great credit for that because it would be quickly pointed out that I did not go all the way to meet all the changes that had taken place but I went pretty well near it. This is an indication of the Government's matching their actions with their commitments. People may be assured that by 1978 the Government will take into account all the appropriate changes that have taken place in the valuation of property, in the consumer price index, in the £ sterling and in other currencies as well as in all other matters which might be relevant in arriving at a proper assessment of changes.

Mr. Yeats

Taking the Minister's last statement first, I ask the Minister, speaking as a politician and, of course, the Minister is very much a politician—although the brief he was reading does not sound as if it had been written by a politician—if he can imagine himself, as Minister for Finance in 1978, saying in a budget speech: "We start off with a budget deficit of £X; therefore I will have to impose taxes on beer, tobacco, an extra percentage on income tax and, at the same time, in order to deal with the onset of inflation since 1975, I am raising the wealth tax levels from £100,000 to £170,000." No Minister would be able to do that kind of thing. It is not practical in political terms.

The Minister says that if something is put into the Bill it can always be changed. It can, but, as in life generally, there is the force of inertia. Once a section of this kind is in a Bill it is much more likely to remain unchanged than it is to be changed. It needs a positive, active effort on various people's part to take a section of this kind and say "There is now a regulator in it. Let us eliminate the regulator and allow inflation to reign unchecked". I do not think that would happen. If it was once put in the Bill it would stay there. With new legislation such as this, with a completely new tax such as this, to put it in later would be much more difficult and, certainly in political terms, almost impossible for a Minister in some future year to make the drastic changes in thresholds that would be needed. By 1978 the extreme likelihood is that the figure of £100,000 fixed now would have to be raised to about £170,000 in order to keep abreast with inflation, without making any change at all in real terms in the thresholds.

The Minister has made considerable play about the problems of the Central Statistics Office in deciding on the value of the £. There is nothing in this recommendation, nor was there intended to be, relating to the international value of the £. It refers to the value of the £, meaning the buying power in Ireland of one Irish £. That is the intention and we are not interested in the relationship of the £ to the Deutschemark or even to the British £. It is the actual buying power here that is relevant.

I accept, of course, that the consumer price index has many faults and that is why Senator Lenihan did not mention it in this recommendation. The Minister has pointed out that the consumer price index is out of date. Obviously it is. It relates to a pattern of consumption dating from an earlier period when living standards were much lower and when, for example, a higher proportion of household food consumption was bread than is the case now, when the cost of motor cars, which were a luxury in the 1950s and are regarded as normal now, are weighted too lightly in the index. The Minister should not complain too much about the consumer price index. Because of its exaggerated nature in certain directions it means that the Minister has been able to achieve a 4 per cent cut in inflation relatively cheaply by loading his subsidies onto individual sectors of the consumer price index which have an undue weight in the ultimate result. But the actual saving to the consumer in practical terms is nothing like 4 per cent so that the Minister has been able to make effective use of the peculiarity of the index.

In our recommendation we have left it to the Central Statistics Office to work out the problem for themselves. The Minister says there would be difficulties. Of course there will be difficulties, but it is for the Central Statistics Office to solve the problems. That is what they are there for. I am certain it would be possible, if the Minister issued an instruction to them, or if he had done so a year ago when he was drafting this legislation, to come up with some regulator which, while not perfect, perhaps, would be accurate to within 2 to 3 per cent. That should be more than enough. We are not suggesting that there should be absolute accuracy. All that is needed is some sort of rule of thumb which the Central Statistics Office could produce which would be sufficient to enable automatic regulation of these thresholds year by year or every three years, if the Minister preferred, although year by year would be better. This can be dealt with since an exact figure is not needed. I am certain that if the Central Statistics Office were asked to do this job they could do it in a way which would be suitable for the purposes of this legislation. It is an issue which arose in respect of the Capital Gains Tax Bill. It is of even more importance here.

The basic point is that the wealth tax caused a great deal of alarm, and not alarm generated by the Opposition Party, over wide sections of the community, not so much because of the impact of the Bill now, though that has had a considerable effect, but more particularly because of the impact of the Bill in future years. Ten years from now, even 15 per cent inflation will be a considerable improvement on present conditions but this £100,000 will be worth £25,000 and £70,000 for a single man or woman will be worth £16,000 and if adequate adjustments are not made in the thresholds, a high proportion of the population will be brought into this net. I can hear the Minister, or some other Minister, saying in 1978 or 1981: "After all, who is complaining? Look at the thresholds in Luxembourg, or Germany, or somewhere else? We are still no worse off than they are."

I can hear this point being made and I can see civil servants preparing briefs for Ministers pointing out these useful statistics. This is what will happen. We need have no doubt, as I have mentioned, that the smallest number ever will be affected by the tax this year and, year by year after that, the number will increase. There will, at least in the early years, be adjustments in the thresholds, if only because the Minister's undertaking will be fresh in people's minds. If it is another Minister he can say: "It was not I who did it. I did not give any undertaking." There will be efforts in earlier years at least to adjust but I will bet the Minister any sum he cares to name that, even if he is involved, which God forbid, in the year 1978, he will be in no position to do more than make a minor adjustment in thresholds. He will not change the thresholds from, say £100,000 to £170,000. It is politically impossible.

We will see an ever-larger proportion of the population involved in this. It is possible at the moment, in defence of this legislation, to say that the only people involved are the elderly wealthy. I do not go all the way with the Minister when he suggests that people ought to be happy in being so fortunate as to have the wealth with which to pay the tax, but a great many people are brought in who are not really wealthy by any normal definition of the term. Nonetheless, the people who will pay tax are at least comfortable. By 1978 or 1981 or 1984, all kinds of people will be paying this tax who will not be comfortable. That is the problem with this legislation.

Mr. Kerrigan

In my opinion the thresholds are generous and the Minister in making his commitment for three years time is doing something which will probably meet the case mentioned. The case is there for all tax codes. No inflationary clause has ever appeared in any of the tax codes we have had up to now and there was as good a case for such a clause as there is now. I concede inflation was not so high but it was not something new. It has always been there. But there was never an inflationary clause in PAYE or in other tax codes. The wealth tax can be varied by changing other elements of the tax. If you have an inflationary clause it will be imperative to have an annual valuation. Possibly some people would not be happy with an annual valuation and, with an inflationary clause, one would probably cancel out the other.

Mr. Yeats

Senator Kerrigan has made a good point. It is a good point from his point of view and an even better one from my point of view. He is right in saying that there has never been an inflationary clause in income tax. It is as a result of this that you have the situation in the past 15 or 20 years of the number involved in income tax being quadrupled. At least four times as many people are paying income tax as were paying 15 or 20 years ago. In the vast majority of cases these are people who are paying, not because they are that much better off than 15 years ago, but simply because of the onset of inflation. That is the problem we are faced with in this legislation. In justice, Senator Kerrigan will admit, there ought to be an inflationary clause in income tax. We must be realistic in these matters. The plain fact is that no Minister could afford to do this because he would lose so much income that it is not possible to do it in our conditions.

This is a new tax. It is not income taxation. It is taxation on property. Since it is a new tax and since we have the example before us of income tax, it behoves us to allow for the problems that have arisen. The point that Senator Kerrigan has made, because it is a plausible point, makes the situation all the more dangerous because, apart from the political problem of giving concessions to people suffering from wealth tax, the Minister may be either refusing concessions in other directions or actually increasing taxation in other directions.

You have the insidious people like Senator Kerrigan who ask: "After all, there is no such provision in income tax so why should there be in this legislation?" All these arguments convince me all the more that there will be no real change in thresholds. I appreciate, as I said, that there will be in the early years, particularly with this Minister who is bound by his personal undertaking but, in later years, with different circumstances, there will be no real adequate change in thresholds and we will have the income tax pattern repeated and more and more people will be brought into the net. This is the kind of reason why we have been, in both Houses, dealing so carefully with this legislation because it is put before us as legislation which will affect only a few wealthy people who, as the Minister puts it, should be glad to be in a position to be taxed. There is no doubt that in future years it will not be the people who are fortunate enough to be taxed under it but all kinds of people, who are not in any possible definition of the word "wealthy", who will be paying wealth tax in addition to income tax. Bear in mind that people have always paid income tax on their incomes and will continue to do so and, as inflation goes on, more people will be paying income tax. People pay income tax anyway. This is an additional tax on property, but out of income. The man is paying under one head or another head. As far as the man in the street is concerned, who has to pay this, it is a tax out of income in precisely the same way as income tax is a tax out of income.

Obviously the Minister is not going to change his mind on this. He would be wise to change his mind. I think he is in favour of the principle. I think he would genuinely wish to be in a position to move the thresholds up in accordance with inflation or even to lower the thresholds in the happy but extremely unlikely event that prices ever went down. That will be the day. I think the Minister is genuinely anxious to carry out the type of procedure suggested in this recommendation. He wants to keep these thresholds at their present real value. He knows perfectly well, as a practical politician, that he will not be able to do it.

Mr. Kerrigan

It would not strike Senator Yeats that, in the varying of a wealth tax, it could be varied by reliefs, and exemptions, and so on.

Mr. Yeats

One could change the exemptions but once you give a farmer say 50 per cent, what are you going to do? Will you give 60 per cent, 70 per cent, when you gave 20 per cent to productive assets? Will that be raised to 30 per cent? It is not really a satisfactory way of doing it. The exemptions as set out in the Bill do not really lend themselves to alteration in that kind of way. The only practical way you can do it is by changing the thresholds, the level at which people are affected.

Incidentally, I forgot to mention that Senator Kerrigan in his first intervention referred to the problem of the taxpayer having to make valuations at intervals. That is not in issue. If you change the thresholds, the actual value of the taxpayer's assets does not necessarily have to be reviewed but, of course, as inflation increases every couple of years, inevitably valuations will be needed. This is one of the problems. You agree on a valuation say last April, or some time this year, and two or three years from now, if you do not do it yourself, the Revenue Commissioners will certainly demand a new valuation because there will be such an increase in living costs that the market value will change.

That is not what we are proposing to deal with in this recommendation. That is one of the facts of life you cannot help once you have this legislation at all. The procedure of changing the thresholds is relatively simple. It only involves saying £125,000 instead of £100,000, £90,000 instead of £70,000, and so on. It does not involve the taxpayer in any activity. It is merely a figure that will be fixed by legislation or, in this case we would hope, by regulation of some kind. There is no additional burden on the taxpayer of making valuations, and so on.

Mr. Dolan

I am in agreement with this recommendation. The Minister has not come clean as far as the whole wealth tax is concerned and, in particular, on this issue. It is self-evident that the thresholds are not being changed and nothing is being written into the Bill which would ensure that they would be changed at least annually. With inflation running at around 26 per cent per annum this appears in a different light.

This will mean that, before very long, most people, including small farmers, will be caught in this net. Because of the way money is depreciating in value, the price of land is bound to increase. The Minister knows this well and so do the Revenue Commissioners. They know that in a couple of years farmers will be in a much worse position than they were under the estate duties system.

Mr. R. Ryan

I do not think the farmers of Ireland will pay much attention to Fianna Fáil, no matter what they say. It is over a year since they told the farmers that, as 5 per cent of them were being introduced into the income tax net, the rest of them would be in it in 1975. That has not happened. It having been proved that the false scare-mongering of Fianna Fáil has not materialised, they will not pay much attention to the suggestions that every farmer will be caught for wealth tax. Wealth tax will not be paid by that legendary person referred to by Senator Yeats as the man in the street. The man who will be paying wealth tax is not walking in the street, and the Senator knows that. He is a man of substance who gets driven, or is driving himself, in comparative luxury. He is certainly not an ordinary person in the Irish context.

Mr. Yeats

He will be ten years from now.

Mr. R. Ryan

Ordinary people in Ireland do not have £100,000 in addition to a home and its contents and other exempted property. If they had, this would be a very happy and blessed country. That kind of money is not around.

Senator Yeats said that he accepted that it would be impossible for a Minister for Finance to provide indexation of income tax. That is probably why Fianna Fáil did not do it, and why they went for over 11 years without any modification of personal allowances at all. Yet as he brushes aside the possibility of providing income indexation for income tax purposes, he demands it for wealth tax purposes. He says that if we do not do it, in ten years' time there will be several people in the network who are not now in it. Who said we are going to wait for ten years before we change the thresholds? We did not. It is on the record that we have made a commitment to adjust the thresholds in three years' time. That is not waiting for ten years.

It is almost indecent to hear Senators talk about the impossibility of indexing income tax but demanding that it be provided for wealth tax purposes. The ideal would be to provide it for everybody. There is a recognition that there are difficulties in doing it for income tax purposes. Would there be some little recognition now that there would be difficulties also in doing it for wealth tax purposes, and that the proper way of approaching the problem is to look at these difficulties annually when the whole taxation code is being revised so that, in the light of latest experience, the right decisions can be taken? Even if in our wisdom we provided an indexation in this Bill, it might be the very wrong regulator. Those proposing it might be the first to recognise it and then, no doubt, there would be pressure to change it. That is the way democracy works. The accumulated wisdom of the years is supposed to produce better law and we hopefully believe that it does. That is the best way in which to do it, and that is what we are proposing.

I could easily have provided a regulator in this Bill, but it might have created more anomalies and difficulties. I have already dealt with the situation where values will be fixed for three years. That is an automatic protection for three years for people who have their values fixed for three years from 1975 onwards. They will not be involved in wealth tax even if the thresholds never changed in the next three years. They will not be involved over the next three years if they are not involved in April, 1975. If they are involved in April, 1975, they will be involved at that level even if their properties increase in value in line with any other changes in value which may occur in the meantime.

Supposing you try to build in a regulator, what do you do about shares quoted on the Stock Exchange? The Stock Exchange index can go up and down like a yo-yo for reasons not unrelated to the value of the £, or the consumer price index. It goes up and down more frequently in response to unreliable rumours than any other force. Are we to try to bring that regulator into operation? If the Stock Exchange index is falling, the thresholds ought to fall, not go up.

Mr. Yeats

Why?

Mr. R. Ryan

Because if they are falling it is an indication that values are falling. Therefore why on earth should you double the thresholds so that a person could have twice the amount of stocks and shares? There is a multiplicity of problems here and I am sure Senator Yeats knows that. He knows there are difficulties in providing a regulator. I would urge upon him that the proper thing is for parliamentarians to discharge their responsibilities in the future as in the past and to look at the situation annually. I emphasise that it is not the Government who make these decisions. The Government cannot impose tax. It is that Parliament who impose tax. Senator Yeats smiles. He assumes that a Government may do anything they wish without parliamentary endorsement. They may try. They may not get the parliamentary endorsement or, having got it once, they may never get it again because the people may withdraw their support. Parliamentarians are very sensitive to public will and Governments are very sensitive to public will too. When they fail to respond to the public will and take it into account, they fall. So we may be assured that governments and parliamentarians in Ireland will be sensitive to public wishes in taxation matters. It is best left, therefore, to annual assessment of the appropriate rates rather than be building in a regulator which, as I pointed out earlier, could be varied anyway. Senator Lenihan spoke about the possibility of varying it four times a year if there were four budgets. That is true. Why are we arguing over this? We are simply arguing over something which could be changed overnight if a Government have the will to do it.

Mr. Yeats

The Minister must think we are very innocent. The concept of the Minister for Finance approaching his Deputies, or even Deputies in Opposition, before a budget and saying: "Now, boys, what do you think of this? Would you like to make this or that change"? The Minister knows perfectly well that is not the way things are done. The Government decide on financial legislation. Those on the Government side are expected to support it and those on the Opposition side can, in varying degrees oppose it as they see fit. The concept that individual Members of the Oireachtas can decide these matters is a very innocent one. Neither the Minister nor anyone else believes it; it simply is not on.

The problem with which we are faced is that public opinion, in respect of this tax, is obviously not a factor which is very important. I am well aware of the fact that at present, and I said—though the Minister does not seem to have been listening to me— that people affected by this tax at present are relatively comfortable. There is no doubt about that. They drive around in motorcars, they may even have chauffeurs, though not in all cases. For that reason, public opinion obviously is not particularly interested in people who will be affected by this tax. For that reason also public opinion will not work in favour of any kind of a change in thresholds.

The Minister throws up an Aunt Sally and shoots it down—again, one that I did not raise at all. I pointed out that in ten years from now the cost of living would probably have quadrupled at a rate of 15 per cent. I am aware of that, and said so—I mentioned the year 1978 specifically— that the thresholds were promised to be changed. I said again in 1981 and 1984. I mentioned those years specifically. I am well aware of the fact that the Minister said he would do this. The point I am making is that, in the next ten years, assuming that the cost of living quadrupled, which seems a relatively moderate assumption, political realities would suggest that the thresholds are not going to be increased four times. The threshold of £100,000 now will not be raised to £400,000. A threshold of £70,000 will not be raised to £280,000. Nor indeed, by the next three years will they be raised to, say, £170,000 and £120,000 for a single man, which would be about what would be needed. It will not be possible to do this.

The Minister does not need to remind us that people affected by this at present are relatively comfortable. The point we are making is that, in future years, it will be the man in the street who will be affected by this. It is the man in the street, who may not even have a motorcar, who will be affected by this with the onset of inflation and the extreme probability that these thresholds will not be revised adequately to cater for rises in the cost of living.

The Minister claims that I am inconsistent with regard to my attitude to income tax and my attitude to this. I am not. I have made the point, and I think the Minister would probably agree with me, in private at any rate, that it is unjust and perhaps even immoral that income tax goes on year by year by year being affected by inflation without any adequate effort to deal with it. More and more people are being affected by income tax who would not have been affected by it a few years ago. While that is immoral and unjust, one must be realistic. It would cost any Minister for Finance millions and millions of pounds to bring back the income tax code to where it was, say, ten years ago. It is simply financially not possible. In this tax, it is not a case of the Minister losing millions of pounds that he is getting in already; he is getting no money in at present. The money he will get in on this tax will be very small. He does not know how much it will be. The figures of £1½ million and £2½ million have been suggested—that kind of range; it is small. It affects a very limited number of people, in some cases quite severely. The Minister can avoid the immorality, which is the only word one can use for the income tax system looking at it in those terms, at very little expense to himself by building in an index of this kind, some kind of calculation.

The Minister raised the red herring of stock exchange transactions. Certainly I would never suggest that any kind of index related to living costs, to the value of money, ought to have any regard to stock exchange transactions. The basic point is that if an individual, covered by this Bill, owns £100,000 worth of investments on the stock exchange, say they are worth £100,000 this year and by next year they have gone down to £50,000. It is not the relative change between £100,000 and £50,000 that matters. This year the man has £100,000. Next year he has whatever figure it happens to be, which is worth more or less in accordance with the general fall or rise in prices. Certainly, one would not include stock exchange transactions in any kind of index related to the cost of living. The investments a man has, whether they have gone up or down in money terms, have a certain real value. The question is what can he buy with them? How much are they worth to him? That is the basic point. The Minister's suggestion that because you have these wild and eccentric fluctuations in the value of shares on the stock exchange, that that should be taken into account by the Central Statistics Office in regard to what it costs people to live, is simply not on. The behaviour of the stock exchange has absolutely no connection with what it costs people to live, with what they can buy for one Irish £. That is an irrelevant Aunt Sally the Minister has set up and then shot down.

Mr. E. Ryan

The reason that we are particularly concerned about inflation in this Bill is that the Minister has emphasised again and again that so few people will be affected. The Minister says that at present with the present value of money, thresholds and so on, very few people will be affected and those in a small way only. We must accept that whatever is done in the Bill at present—we are accepting that it is not unreasonable—is fair enough. But in two or three years time when the Minister for Finance is having difficulty in balancing his budget, having to make options between various taxes, one of the decisions he will have to make is whether he will raise the threshold or to what extent he will do so. For understandable reasons, that will be very low on his priority list.

He will have political and all kinds of pressures to look after income tax allowances and 101 different things, where there will be very powerful political pressure, public pressure and so on. For that reason, people concerned in the wealth tax are going to be very low indeed. It will be understandable—if not entirely forgiveable —if the Minister decides to do little or nothing about the thresholds in this Bill. Inflation will very severely affect the provisions of this Bill as time goes on and because the Minister will more than likely do little or nothing about it, because of the other pressures that will be on him, it would be very important and perhaps useful to the Minister that he should have some yardstick to go by as time goes on.

I accept the Minister is speaking in good faith when he says the thresholds will be reviewed every few years, that they will be altered and amended in accordance with the influence of inflation. But in practice that will not be done so as to make any realistic change having regard to the effect of inflation. The Minister says it is possible to have indexing for all taxes but that it would be almost impossible to have it for income tax, consequently it should not operate for this Bill.

There are considerations in regard to this Bill which make it important not to write in anything which would force the Minister to give, with mathematical accuracy, a change in threshold to allow for inflation, but at least it should be a realistic increase as time goes on. The Minister has stressed that very few people will be affected, initially at any rate, and because they will be so few in number they will have no voice at all. From a political point of view the Minister would be influenced far more powerfully by a bigger pressure group. Consequently the taxpayers involved here will be very low in the priority list. That is why it is important to have something in the Bill whereby the Minister would have to make certain allowances. If there is no provision of that kind he will not make any realistic allowance.

It is probably true that eventually so many people will be affected by the Bill that there will be a sufficiently large section of public opinion to force the Minister to do something about it. In the meantime, the thresholds will have slipped to an extent that they will bear no relation to their real value as they appear in the Bill. In his own interest the Minister should accept this recommendation and put some yardstick in the Bill upon which he could rely as time goes by to ensure that some justice is done to the taxpayers affected.

Recommendation put and declared lost.

Question proposed: "That section 13 stand part of the Bill."

Mr. Yeats

I shall not go over the arguments we had on various recommendations. It seems entirely inconsistent that, where a single individual is allowed a threshold of £70,000, a husband and wife have only £100,000, which is the equivalent of £50,000 each. A very good case has been made that the threshold or allowance for a married couple should be double that of a single person.

While the Minister is right in saying that this year a small number of people will be affected by this Bill, nonetheless the number is not as small as all that. A single person is liable to tax if he goes over the threshold of £70,000. The Bill provides that a return of all possessions must be made if a person reaches 75 per cent of the threshold appropriate to the person. Therefore, a single person whose wealth is £49,000 has to make a return. How can it be assessed that a person's wealth is £49,000? It may be £55,000 or £45,000. People with very little above £40,000 valuation of all their assets are likely to have to make a return. I am not suggesting that the return for wealth tax is necessarily a very severe imposition, but it is a considerable inconvenience and involves expense in getting valuations and so on. A considerably larger number of people than is suggested by the Minister may well find themselves with the task of having to make returns to the Revenue Commissioners.

Mr. R. Ryan

The Senator will accept that there is an obligation on taxpayers to make a return of their income even if they are not liable to income tax. It is not an unduly harsh imposition that people of property should be asked to make a return of their income. The reason why they are asked to make a return of their income when they approach the threshold is so that they will avoid the pitfall of failing to make a disclosure in adequate time and putting themselves in peril as a consequence, the peril being that of having to pay tax plus substantial interest on arrears of tax. Once a person makes a return, the Revenue Commissioners, if they are satisfied that the person is not liable to tax, indicate that by issuing an assessment of nil tax payable. Obviously the closer a person comes to the point of liability the greater the need to take care in furnishing an accurate valuation. There are no penalties for genuine mistakes which are not attributable to negligence, but where negligence or fraud occurs then penalties will arise. Even if negligence and fraud did not occur, there would be a possibility of a person putting himself or herself in peril by failure to make an adequate disclosure in good time. It is in order to prevent this happening that it is provided that people who are coming near the point of liability should make a disclosure.

Companies which are totally exempt from payment of income tax on profits earned on manufactured goods which are exported, even if the companies engage in no other activity, are obliged to furnish full details of their accounts to the Revenue Commissioners even though there is no possibility of their having to pay income tax before the year 1990. Again, it is important that the Revenue Commissioners should have adequate records of income and of capital holdings in the country. That is what discharge of the obligation to make a return will ensure. Even that will not be exhaustive. It could well be provided that everybody should make a return of his net property, but we are not so providing. We are trying to produce a taxation which has a blend of what is fair and what is administratively desirable. We have produced a fairly balanced package. I say that with all due humility.

Mr. Yeats

I will not go into great detail because really the question of return arises under section 15. I raised it here simply because I was making the point that a rather larger number of people are likely to be involved in this tax than would appear from looking at the bare thresholds. I accept the Minister's point that in the income tax code there may be cases where people have to make returns who are not in fact liable for tax. The difficulty that one faces, in the case of people affected by this tax is that while people have a good idea as to what they earn, and it is relatively simple for somebody at the lower fringes of the income tax code to put down on a form "my earnings are so much a year" and leave it at that, very few people would be able to sit down and say: "I am worth so much." It is a new field for people. It is much more difficult to assess what, in fact, your total family possessions are worth. It is quite a complicated task, in the case of the companies, as the Minister mentions. It seems emminently reasonable that where you are being given a concession you should take steps to provide the information. In the case of the income tax relief on exports, that is a concession given by the State and it is fair enough that they should have to work for that concession. In any event, the companies concerned already have accountants, cashiers, all kinds of people to deal with these things and it is no particular incubus on them but for a private individual, who may well be an elderly widow living on her husband's investments, or even the more active businessman, to have to sit down and give valuations of all their family possessions is not very easy. It is a much more difficult task than filling up an income tax form.

I will raise this more relevantly on a later section. I hope that the Revenue Commissioners will not require too much miscellaneous information from people in this position, particularly those below the threshold. It will be quite a task, particularly in the earlier years when people are not used to it.

Question put and agreed to.

SECTION 14.

Mr. E. Ryan

I move recommendation No. 30:

In page 17, line 60 and 61, after "received by him," to insert "and, before he has been notified of any claim for tax by the Commissioners, disposed of by him to the person or persons beneficially entitled thereto".

The purpose of this amendment is to protect the person who has disposed of property to the person beneficially entitled before receiving any notification from the Commissioners that there is a wealth tax due on the property. This is a case of a person bona fide not realising that there is any question of wealth tax, having the property in his possession for a limited period, and then disposing of it to the person or persons beneficially entitled, without realising that any question of wealth tax arises. In such circumstances, perhaps, the Commissioners would not in any way be unfair to him, would go after the person beneficially entitled, but as the section stands, it appears that such a person could be accountable for the tax, could be forced to pay it and could in certain circumstances be put in a position which would be most unjust and would be a hardship as far as he is concerned.

The Minister will probably say that the Revenue Commissioners would understand the situation and would not, in fact, lean on him for the money. I believe the recommendation, if inserted, would make sure that that kind of a situation could not arise.

Mr. R. Ryan

Senator Ryan is right to assume that the Revenue Commissioners, being sensible people, would go, in the first instance, after the person with the money, not after the person who might not have the money. The person who is primarily liable and other accountable persons are all equally liable to pay the tax.

The only difference is that the accountable person who might be described as the person secondarily liable, is liable only to the extent of property held by him, whereas the person primarily liable is absolutely and totally liable. However, there is little difference in practice to the Revenue Commissioners, who can call on either to discharge the tax. There is one vital difference that is the matter just mentioned, that the person who is primarily liable has an unlimited liability, and the other person has a liability only to the extent of the property actually received by him.

The recommendation obviously intends that the accountable person is only to be responsible after notification to him of a claim by the Revenue Commissioners. It is intended to limit the liability of a person to property or income disposed of by him to persons beneficially entitled. This would be unacceptable. All an accountable person would need to do to escape liability would be to transfer the property or income to a third party. As for limiting liability to persons who have been notified of liability, this is not possible in a capital tax, in the interests of the efficiency of the collection of the tax. It may be feasible in the collection of taxes such as income tax and VAT, where there are ample opportunities for cross checking by the Revenue Commissioners, between employers, employees, wholesalers, retailers, manufacturers, dividend warrants and a multitude of other returns.

In addition, there is no hardship or inconvenience in the proviso as it is drafted. All those secondarily liable are in a fiduciary or quasi-fiduciary relationship to the taxpayer in question, apart from those who are alienees or beneficiaries. It should, therefore, not be necessary to inform such persons of their liability to tax. Obviously, acceptance of or undertaking duties as trustee, guardian, personal representative, manager or agent and so on carries responsibilities. The person should not accept the duties of those offices without being aware of the responsibilities which attach to those offices.

There are other responsibilities resting on people holding such offices and it is not an answer if they fail to fulfil their responsibilities for them to say that they were not aware of them. It is their duty, if they accept responsibilities, to search out what liabilities or risks may attach to the discharge of their functions and to take steps to discharge those responsibilities clearly. I trust, therefore, that the Senator will see that, irrespective of the good intentions behind the amendment, it would not be proper to accept it.

Mr. E. Ryan

I am conscious that there is no possibility of the Minister accepting it now, but I would ask him to bear it in mind. It seems that the subsection as it stands is admirable in the sense that it provides that none of these persons shall be liable to tax to an amount in excess of the market value of the property or in excess of the income, as the case may be, vested in, collected or received by him. To that extent, he may never be put in the position or having to pay more tax than he has assets to provide the tax. He will never have to put his hand in his own pocket as it were.

The one omission it seems, is the case where a person is in that situation and is not aware that there is a question of wealth tax. That could easily occur. It could occur in the situation where the person beneficially entitled could have other assets and if there is a situation where a person bona fide disposes of the property to somebody, has no assets then to pay the tax, but nevertheless can be found liable and can be forced to pay the tax himself. It seems that the admirable provisions of the section to save a person of that kind leave one very serious loophole. I do not expect the Minister to accept the recommendation now but I would ask him to consider, whenever amendments are being made in this Bill, amending this in some way.

Recommendation, by leave, withdrawn.

Mr. E. Ryan

I move recommendation No. 31:

In page 18, line 39, after "accountable person", to insert "other than the spouse or minor child of the assessable person concerned".

This recommendation is to make an exclusion where it says in subsection (6) that an "accountable person" in possession of information relevant to the taxable wealth of an assessable person shall disclose to the Commissioners such information as may be within his possession.

It is to exclude from this provision the spouse or minor child of the assessable person. I think it is certainly well recognised from the public policy point of view and in many branches of the law that the wife or children of a person should not be obliged to give evidence against him or provide information affecting him. To force the wife or children of a person to do this smacks of the Gestapo period in Germany and I think, from every point of view, is undesirable.

The purpose is to make the exception. Whereas an accountable person is obliged to give information to the Commissioners, if the accountable person is the spouse or minor child an exception should be made in that case. It does appear from subsection (2) paragraph (a) that an accountable person could be a spouse or minor child. For that reason I think it is necessary that this exception should be included in the subsection.

Mr. R. Ryan

The Senator has made a good emotive point. I would say without disrespect, that is about the best that can be said for it. It is interesting to note that Senator Lenihan and Senator Ryan have not tabled an amendment to provide that a wife or minor child should not be an accountable person, because they accept that situations could arise where they could be accountable persons and would certainly be obliged to pay the tax on their own wealth holdings if they have any. The view is obviously based on the dislike which exists in Ireland of the informer and it is thought inappropriate that a wife or child should be furnishing information about their own wealth or that of the head of the household.

They can only furnish such information if they have it. If they have it it is because they are part and parcel of the arrangements made by the owner of the wealth. They are in a family wealth situation and if one person is withholding information and another in that situation has it, he or she can clearly furnish that information. To suggest that there is some breach of confidence here or that the provision is unseemly may be very good stuff for the political market place but it has little basis and little worth to argue so far as taxation matters are concerned.

They will be asked to furnish information if they have it, and the information will be such information as relates to the taxable wealth of the person primarily liable. It will be information which might be in their possession because they have wealth on their own account, documents or records in their possession, or power in relation to the wealth of an individual or the aggregated wealth of a number of individuals liable to wealth tax. Nobody who is innocent has anything to fear from the operation of this section, but people who are wilfully withholding information or who create arrangements to dissipate information might certainly prefer if this provision were not in the Bill.

The effect of the amendment would be to water down the necessary powers which the Revenue Commissioners must have to ensure that tax is paid by the people who have an obligation to pay it and that information is furnished by people who have an obligation to furnish it. There is no justification for excluding from the provision any person who has relevant information no matter what the relationship might be between that person and the person primarily liable.

The Revenue Commissioners would, of course, go against the people who are in a position to pay the tax. There is no reason why they should not be liable for payment of the tax on their own wealth; if they are called on to pay tax in respect of the wealth of the husband or father as the case may be, they would have a right of reimbursement against him and against the property in question. Bearing all these issues in mind I must respectfully reject the recommendation.

Mr. E. Ryan

The Minister accuses me of being emotive about this matter, and he must be very hard boiled if he can avoid being emotive or having some sympathy with an emotive approach to this question. If you are going to have a situation where minors can be forced to give information about their father's affairs no matter how young or innocent they may be, they are at the mercy of the person who is asking them for this information. I wonder if the Minister is merely looking at this section, just looking at the words here, or whether he is really thinking of the kind of situation which could conceivably occur if this section were put into operation by somebody with no sensibility about the matter at all.

Again, the fact that a wife is not a compellable witness in other branches of the law—perhaps it is an emotive approach—has a very long history and it is very much approved by public opinion and by authorities for many years. The Minister is saying that while these emotive approaches are widespread and accepted for many years the only authority which can afford to disregard them and regard them as merely emotive are the Revenue Commissioners and the Minister. There seems to be no law, no matter how cherished by tradition, and no approach to matters such as this, which the Minister for Finance thinks should be applicable to tax law. It is outside every other law and every other tradition of this kind.

This section will probably never be applied in a way which will cause any serious objection, but this is merely saying that whereas the power is being given to do things which are contrary to the traditions enshrined in the law and in public opinion, and although the Revenue Commissioners are entitled to do these things, in practice they will not. This is not a satisfactory approach to the situation.

Mr. R. Ryan

Could I briefly point out that we are not talking here about innocent people of no property? We are talking about a spouse or a minor child who has wealth which is included with that of the husband and——

every trustee, guardian, committee, personal representative, agent or other person in whom any property comprised in the taxable wealth of the individual on the relevant valuation date stands.

We are dealing here with sophisticated families of substantial wealth which would be involved in a wealth tax situation. All we ask is that people who have that wealth which is aggregated with that of another, be obliged to furnish the information. The Revenue Commissioners will not seek the information if they are satisfied that they are getting the true account from the person who is primarily accountable. It is only if that person, who is supposed to be the pater familias, the person looking after the welfare of the family, fails to discharge his obligation that the wife or the children may be asked to make good for his default and only to the extent of furnishing information which is relevant. People who feel sensitive about this—perhaps I should choose that word rather than the word “emotive”—should be concerned to ensure that the people primarily liable have regard for the sensibilities of the spouses and the minor children. I am touched by the concern for the minor children having regard to the pressure which, was on me to make the age of minority 18 years instead of 21 years. I assume the Senator would not be pressing me to have regard to the sensibilities of anybody over 18 years of age.

Mr. E. Ryan

I am thinking of children of five or six years of age.

Mr. Yeats

I find it curious that the Minister should appear to suggest that one need have less regard to the sensibilities of families who have property than to those who have not. I would have thought that family sensibilities had very little relation to the amount of property that family owned.

The Minister points out that the only people brought in under this subsection are those who, in fact, have property. In other words, if a wife has no property she is not included. I accept that. But if she has property she is, and the property she has may be £1,000 in investments which she was left by an uncle, or could be even smaller, but at the moment if she has even £1 worth of property in her own right she is brought in under this. All we are asking in this recommendation is that wife or, indeed, a child who is brought in under this subsection and asked to give information should be asked to give information about their own property. If a wife is a businesswoman is she to be asked about that business? If she has investments is she to be asked about the extent of those investments. The concept that a wife who, as one would hope as in a normal family, would know all about her husband's affairs, the kind of investments and business activities, could be brought in by the Revenue Commissioners and instructed, under penalty of £1,000 for failure to do so, to tell the Revenue Commissioners the private financial affairs of her husband that she knows simply because she is his wife, is wrong.

We will be discussing this matter when we come to the section. It is a question which can, obviously, cause problems. At least there is a good theoretical case to be made by saying that a person who is professionally involved with an individual should be asked to give information about his professional involvement. It will raise problems which we will discuss but at least, in theory, one can understand the situation there. This is a case where in an ordinary united family, the intimate relationships in such a family, a wife who has no professional involvement with her husband should be, under penalty of £1,000, brought in by the Revenue Commissioners and told: "Tell us about your husband's investments, his business and tell us if he is making a correct return of his affairs." The same applies to a child although one might be more worried from a personal point of view about the sensibilities of a wife than a child because a wife is peculiarly close to her husband.

This can only work in reverse if the wife is the person with the property. The same would apply to a wife who is a businesswoman running, perhaps, a small hotel and who confides her business affairs to her husband and who may seek his advice. He can be dragged in under this subsection and under penalty of £1,000 and have a demand made to tell all he knows about his wife's affairs. That is our point.

The suggestion in this recommendation is an eminently reasonable one. I am not interested in those who say that the Commissioners will not use this. If it is here there is a reason for it. Obviously, it is intended that on some occasions it will have to be used. Even by the standards of tax legislation this seems an outrageous imposition on members of a family who are artificially aggregated for the purposes of section 4. Not alone are they artificially aggregated so that all their property is linked together for the purposes of the wealth tax but they are all under this obligation to come in and talk not about their own affairs for which they are liable to give information anyway but about the affairs of all the other members of the family. This is an outrageous proposition.

Mr. R. Ryan

It may be an outrage but the outrage is at least 79 years old because it operates under the estate duty code. It is even more outrageous because it can operate for many years after death whereas in this case the obligation lies for within one year of the appropriate valuation date. It is not a power, in my experience, which the Revenue Commissioners abused under the estate duty code. I had over 20 years experience as a practising solicitor and in all my experience of administering estates I can recall only two cases where information was sought in relation to property from relations, other than the ordinary return of the schedule of assets. As I said, a penetrating inquiry regarding salaries, disposals and so on, only occurred in two cases out of many hundreds of cases I administered.

The power is necessary because of the abuses which could arise unless the power is there. The Revenue Commissioners will certainly not abuse the power because most people will make correct returns, or if they make incorrect returns the matter can be adjusted between them and the Revenue Commissioners without pursuing other people. Cases could arise where the members of a family might not be making full disclosures to the person primarily accountable to the Revenue Commissioners. It would be open to a person of property to make his wife a trustee of certain property held in another country. Unless this power existed the Revenue Commissioners would have no weapon available to force the trustee to furnish information. Having regard to the fact that, as has been acknowledged in this House, the age of majority in certain other countries is already 18, a person of property could then vest property in a son in another jurisdiction because the son was over 18 years of age. Therefore, it is necessary that if such a case should arise, the Revenue Commissioners would have the power to collect the required information.

I am satisfied they will not make unreasonable use of this power. In the public interest, they must be given this power in order to ensure that the tax is levied as intended.

Mr. E. Ryan

I cannot say I am reassured by the Minister's reply. One of the most objectionable aspects—I hate to have to say this again—of the Nazi régime in Germany was the fact that children were obliged to give information about their parents—information which was used, admittedly, for far more serious consequences than could occur in this Bill. Nevertheless, the concept of a child being forced to give information about his parents is something which revolted everybody who heard about it at the time and has read about it since.

Of course, the situation we are dealing with now is not as serious as that, the circumstances are not as serious, the effects are not as serious, but the concept is the same. I accept that it may never be exercised and probably if it was exercised, it would not be done in any objectionable way. Nevertheless, the Minister ends by saying: we must get the power, although it will probably never be used. That is saying, in effect, that we have the power to do that and the circumstances may arise where we will have to do it.

We end on the note that the Revenue Commissioners will probably never exercise the right but the power must be there because circumstances may arise in which they would have to force and frighten a minor, perhaps a very young child, into giving information about his parents.

This is a very objectionable situation. The recommendation was made to enable the Minister to make a change in the Bill. He could have said that it was through inadvertence that the Bill was as drafted but the Minister is standing over it. I hope, on reflection, he will decide not to abide by this provision.

Mr. Yeats

I am not clear about the Minister's suggestion that someone who wished to salt his wealth away where it would not be got at could give it to his wife as a trustee. It would be just as easy for him to lodge it in a bank in Switzerland and forget to tell the Revenue Commissioners. I cannot see any point, from a tax defaulter's point of view, in handing it over to the wife as trustee. In any event, if this were a problem it would be very easy for the Minister to amend this subsection so that anyone who had any part of the aggregated wealth of the family under his control, whether as a trustee or in any other way, should be called upon to give evidence. I do not consider that is a serious point.

The Minister raises the question of estate duty and points out that for 79 years this has been the rule, but there is no comparison. Estate duty arises on a death. The man or woman who owns the house has died and the complete estate, while it is being administered, goes into a legal limbo until such time as it has been wound up and administered. Everything has to be valued and the whole family have to come together and sort out the estate with the administrators. They are two different situations.

This is—to use that horrible term— an ongoing situation. No one has died and the process of administration is not under way. It is the case of an ordinary family going about their business. Year after year, there is this essential obligation, under this subsection, in which the Revenue Commissioners can call upon members of a family, the husband to tell what he knows about his wife's affairs, the wife to tell what she knows about her husband's affairs, children, of whatever age, to tell what they know about either of their parent's affairs.

This is not the case of a death occurring in the family, a new generation coming along and a new situation developing as a result of the administration of an estate. This is a case where a family is going about its normal everyday business and where this obligation under penalty of £1,000 is placed upon the various members of the family to tell all they know about the financial affairs of the rest of the family. That is what makes it so objectionable. It is of no value to compare it with a totally different set of circumstances in relation to estate duty.

Recommendation put and declared lost.

Mr. E. Ryan

I move recommendation No. 32:

In page 18, line 40, to delete "the taxable wealth of an assessable person" and substitute "the property in respect of which he is accountable comprised in the taxable wealth of the assessable person concerned".

This is merely a drafting matter. It is suggested that in line 40 the reference should not be to the taxable wealth of an assessable person but to the property in respect of which he is accountable, comprised in the taxable wealth of the assessable person concerned. The accountable person can only be obliged to give information about the property in respect of which he is accountable. It appears that if the recommendation were accepted the subsection would be better drafted and say more accurately what was intended.

Mr. R. Ryan

The Government are in agreement with the intention of the subsection. They are satisfied that the section, as drafted, achieves the intention and that the words which it is sought to substitute are unnecessary, that an accountable person can only be required to furnish the information in respect of the person for whom he is accountable and not for some stranger, that there must be the relationship of accountability between A and B before B could be asked to furnish any information about A.

Mr. E. Ryan

Is it not possible that he will be accountable for certain property of that individual and not for other property? Why should he have to give information with which he is not really concerned?

Acting Chairman (Mr. McCartin)

Is it proposed to adjourn for lunch?

Comdt. Sanfey

Yes. Is the House anxious to dispose of this recommendation?

Mr. E. Ryan

As far as this recommendation is concerned I am merely making a suggestion.

Mr. Yeats

I would like to say a few words on this recommendation. I am not quite clear about the situation about these accountable persons and the information they are liable to produce. Take for example an estate agent collecting rents for an assessable person. Obviously under this subsection in that case the estate agent has to give information about the rents he collects. That is a simple situation. But if the estate agent is very friendly with the assessable person and he knows about his financial affairs, is he in fact liable to give that information if he happens to have it as opposed to the information that he gets in what one might describe as a professional capacity?

Mr. R. Ryan

No, it would be only the information which comes to him in a particular relationship and the responsibilities which he has.

Mr. Yeats

Where is that stated in the subsection?

Mr. R. Ryan

It would be in the nature of the role which he is performing as trustee or agent or whatever else it might be. That is the information which he would have arising out of that role. That is the information he would be asked to supply.

Mr. Yeats

I will have a look at the section over lunch.

Recommendation, by leave, withdrawn.

Question proposed: "That section 14 stand part of the Bill."

Mr. Yeats

I will have a number of points to make on this section.

Business suspended at 1.05 p.m. and resumed at 2 p.m.

Mr. Yeats

I asked the Minister before we adjourned about an accountable person who is in possession of information. Under subsection (6), an agent who is collecting rents, though he would be liable to provide information about the rents he collects, it would also seem that he would be also liable to give any other information about the assessable person that he might have in his possession. He might have information about the assessable person's financial affairs that he had gained on a golf course or somewhere like that, outside his functions in a professional capacity. The Minister said that was not so. I cannot follow the Minister's interpretation. On a straightforward interpretation of the subsection, such accountable person would be liable for any information that was in his possession.

Mr. R. Ryan

There is a legal presumption that the Executive will act reasonably and that, therefore, any legislative power will be used only in a reasonable way. If the Executive or any arm of it were to use a legislative power in an unreasonable way or endeavour to use it so as to obtain from persons information beyond that person's responsibility, the courts would condemn such a use of a legislative power. The information the Revenue Commissioners would seek would be information from an agent, say, who is collecting rents, related to the rents collected and information about the property from which the rent revenue would be collected. The Revenue Commissioners would not seek from such a person any information outside the area of responsibility of the agency because they could not presume that such person might have other information about the capital possessions of the client on whose behalf he was collecting rents.

It is not unusual in parliamentary debates for people to set up the most horrifying hypothetical possibilities. I have done it myself as a parliamentarian. It is part of the practice of Opposition parliamentarians to set up such horrific possibilities, but they do not occur, and even if the Executive were to contemplate performing in that way the courts would soon put them back on the rails.

Mr. Yeats

The Minister is right in saying that parliamentarians in Opposition raise these possibilities. It is one of their functions to raise the full implications in any legislation, of the wording of Bills as they are before us. As the Minister says, he himself was quite an expert in this operation when he was in Opposition. It is a necessary occupation for Members in Opposition. One of the big problems we have faced over the years with tax legislation is that some really horrific provisions get written into Acts and we are always told by the Minister of the time that the Revenue Commissioners, as everyone knows, will act reasonably. But it is wrong that powers of this kind should be given in an Act even though they may not be used and even though the Minister might suggest that if they were used they would be shot down in court. The fact remains that the powers are given. The Minister says that in the case of an estate agent the Revenue Commissioners would ask for such information as he would be likely to have in his possession. I can see that.

Let us now turn to a case where the Revenue Commissioners, by whatever means, come to know—they have ways of coming to know about things —that a particular estate agent is a particular friend of the assessable person and is likely to have access to a great many forms of information about his affairs. In such a case it would certainly be open to the Revenue Commissioners, under this subsection, to demand that information.

Far worse than this is the issue raised under subsection (6) which we discussed on the last recommendation. Whatever about an estate agent, a husband, a wife or a child can be called on to give information about each other. This is not information which they acquired in their professional capacities or that they might normally be expected to have in relation to their business or anything of that kind. This is information they obtained at the breakfast table with their father or mother or wife or husband, as the case may be. They acquired this information in the normal interplay of family life and the Revenue Commissioners undoubtedly have power to demand this information.

If I have judged correctly from the various replies of the Minister to that recommendation, that is not only what is written into the section but it is what is intended to happen. In suitable cases, the Revenue Commissioners propose to use their powers under this subsection to demand intimate information from inside the family about the financial affairs of the family. There is very little doubt that if the full terms of the section were carried out in the case of the family—the Minister may be right in the case of an estate agent—in a court the Revenue Commissioners would be told that they were exceeding their powers. If they tried to do this in the case of a husband, wife or child, the courts would say that this Bill which authorised such procedure is clearly unconstitutional. I strongly suspect that a husband or a wife or a child who is brought before the Revenue Commissioners and who has information of this nature demanded from them, would do best, having consulted with their solicitor, to say to the Revenue Commissioners "I refuse positively to say a word about this" and defy them to establish the constitutionality of this section in court. I think the Revenue Commissioners would shy off rapidly at that stage.

It seems undesirable that we should be enacting a subsection of this kind which, in so far as it refers to the family, is contrary to all concepts of natural justice and is almost certainly unconstitutional.

Mr. Alexis FitzGerald

There are two points on the section. How is it contemplated that, in the case of the limited interest where there is a right to recourse to the fund, the availability of thresholds would be distributed where you have a person with an aggregate wealth, part of which is a limited interest and part of which is not? What amount of tax is the person entitled to recover? This may not be a matter to be left to the judgment and discretion of the Revenue Commissioners because it will be a question of the balance of interest between remainder men and life tenants. I would have thought that at some point there would have to be provision for some type of proportionate distribution of the threshold between the limited interest as valued under the Act and the other wealth the person in question may have.

The second point is that this does not give any right of recourse in the case of a limited interest to funds that are under foreign trusts. In that case you could have, by virtue of the operation of the rate of tax, a limited interest enjoyed by an Irish citizen giving rise to wealth tax in excess of the total income of the person concerned. I wonder about that situation.

Mr. R. Ryan

It is important to remember that the limited interest is not itself taxed. What is being taxed is the property which underpins the limited interest. Senator FitzGerald is concerned about the distribution of that burden between the person having the limited interest and the remainder man. I can see that people might wish to distribute the burden of the tax as between those parties but I would say that it is a matter for them to decide. The tax liability attaches to the property, and the person for the time being getting the benefit out of that property is liable, with the right of recourse.

I dealt yesterday with the question of a foreign trust where the beneficiary was in Ireland. Senator FitzGerald raised the question about the difficulty that such a person might have in enforcing the right of recovery against the trust property outside the jurisdiction. I accepted that that could happen and I pointed out that not dissimilar difficulties can arise also in endeavouring to enforce Irish law in other jurisdictions. It is something that settlors would look to. I anticipate that Senator FitzGerald will say that is all very well in relation to trusts yet to be created but problems can arise in relation to trusts already in existence, and that is an argument in favour of what he has already advanced about the need for legislation to allow for the variation of trusts. I have already told him that I will convey his threat in this regard to the Minister for Justice.

Mr. Yeats

We cannot agree to a section which has a subsection such as (6).

Question put and declared carried.

SECTION 15.

Question proposed: "That section 15 stand part of the Bill."

Mr. Yeats

This is the section that deals with the making of returns by the people concerned. In this section and in this Bill, in general, sufficient allowance is not made for the very considerable trouble that people may face in making their first valuations this year. Once this process has been gone through once and a valuation is obtained and people have some idea of what is involved, in future years the problem will be easier but there will be serious problems this year. First, despite the relatively small number of people involved and the fact that there has been a great deal of talk about wealth tax and so on, it is likely that there are still a considerable number of people who are not aware of the fact that there is such a thing as a wealth tax in the offing and that they may be affected. There will be people who think they are not affected but who find that they are. There will be people who will not be liable to pay any wealth tax but who, under this section, are liable to make returns because they are within 25 per cent of the amount of their particular thresholds. There will be a great deal of difficulty in making these returns. It is not as straightforward an operation as filling up an income tax form—though that is not always a simple task. Compared with an income tax form, the problem of assessing the entire wealth of a family will not be easy. It involves getting the valuation of all the various assets; it involves finding out, listing and calculating the various encumbrances, mortgages, debts of all kinds and setting them off against assets. There will be very considerable competition for the small number of valuers and accountants available. These matters are bound to cause delays. Besides the considerable number of individuals who will have to have all their property valued and make returns, all private non-trading companies and virtually all discretionary trustees, because of the absence of thresholds, will also be involved in this activity. This is a novel task. In the first year, at least, a considerable amount of time would seem to be necessary.

This Bill is only now becoming law —well into August. Less than two months will have elapsed before all these valuations, returns and so on are due, on 5th October next. Unless payment is made—not returns sent in—by 5th December next, interest will begin running. I strongly suspect that 90 per cent of the people who are to be assessable to tax this year will have interest running against them as from 5th October next and will not have paid by 5th December. Therefore, many, including a lot of people who do not know at that stage that they are involved in this, will find themselves owing 18 per cent interest, month by month, as from 5th October next. It is impossible to conceive of this complicated machinery being adequately put in train and maybe one fixing up his personal affairs in the short time available. I do not know what can be done about it, but it would have been wise of the Minister to start this whole operation next April rather than next October 5th. While the operation starts last April, from the point of view of the incentive to the taxpayer to do something about it one could say that 5th October is the salient date, because from then on interest will begin to run, unless they can succeed in paying by 5th December, something which would be very difficult.

I would put it to the Minister that it will be very difficult to get these things in on time. I suspect that so far as this year's budget which ends on 31st December is concerned, the Minister does not really expect to get any money in from this legislation. The amount of money that will actually come in by 31st December next would be very small. Whatever the annual revenue from this tax is to be, it will come in next year rather than this year. That will mean that all the people concerned will be paying a penal rate of interest at 18 per cent, sometimes admittedly through their own fault but, in many cases, I suspect negligence would not be involved. It simply will be that people will be unable to get their property valued, to make all the arrangements necessary for doing this and for deciding exactly what is needed and, in some cases, even finding out there is such a tax and they are involved in it. I do not see now what can be done but that is, I am afraid, going to be the effect of this section and the Bill in general.

Mr. Alexis FitzGerald

Very shortly, I should like to lend some support to what Senator Yeats said, though I do see the ministerial dilemma in this. Obviously, unless there is a date and unless there is an interest running, there is no leverage on the taxpayers to do what they will have to do under the Bill when it is enacted. Do not put it on the computer. "The quality of mercy is not strained, it droppeth as a gentle rain from heaven", and this must be the attribute to be applied in this first year. This is the 7th August and how are the people to get in their valuations? A great many people have not worked out the situation as yet. They will, of course, have to and this is only proper if this is the law of the land. I am just thinking of this first year of operation. I referred to the computer because I got a bill for £68 interest recently from the computer though I paid the tax according to the derived date. Somebody may have given me bad advice —I do not know—but, if people are going to get bills of that kind in this year in relation to a new tax it would, I think, be rather disturbing.

Mr. R. Ryan

The Minister for Finance received three wrong assessments of his personal tax position but the monster of a computer is to blame. The House and public may be assured that the Revenue Commissioners will be sympathetic to the difficulties taxpayers may experience on the introduction of a new tax. The date by which returns have to be made is, of course, the 5th October but the crucial date, the one of greatest interest to people, is probably 5th December because, if the tax is paid before that date, no interest will be charged. The interest will begin to run only from that time.

While the legislation is not yet passed and is, therefore, not yet the law of the land, its general impact has been known since February, 1974. The thresholds were fixed with greater clarity on 5th May, 1974, so people have had fair warning of the Government's general intention and no doubt, if they contemplated themselves as being in the region of wealth tax liability, they ought to have been getting their own affairs into such order as to make it possible to make a return for tax purposes.

The period is not quite as short as it might seem. It is not a question of trying to clear up all matters between the 7th August and 5th October. People have had plenty of time to think about it and start making preparations. They knew the wealth tax was going to come in as long as democracy continued to operate in Ireland and there was no reason to anticipate that the State was going to collapse in the meantime.

The Revenue Commissioners will, as I said at the outset, be understanding of the additional burden which will lie on many people and on their professional advisers in getting themselves to make the necessary returns. If there is goodwill on everybody's part at the outset, I am sure that the difficulties can be overcome and taxpayers will find that the Revenue Commissioners will be as hard pressed as they will be in endeavouring to complete all arrangements within the appropriate time and those who themselves have difficulties will be certain to be merciful towards others.

Mr. Alexis FitzGerald

I am grateful for what the Minister has said and I understand the position quite well. But really, valuing property at the moment is an exercise of the imagination. It is very difficult for a taxpayer, even though he has had all this warning, to know what is the right course for him to follow. If he puts in too low a figure for wealth tax purposes and then sells at a higher price, he will presumably be caught for capital gains. If he puts in too high a figure, he will be paying unnecessary capital gains tax and wealth tax and not have a capital loss availability when he comes to realise it. There are difficulties in the path of everybody. We are in a new situation now and the only possible thing to do is to tell the truth to the best of your knowledge and belief. This is the only safe course to follow. What is the truth is the problem?

Mr. R. Ryan

Telling the truth should not be a new situation.

Mr. Yeats

I have no doubt the Revenue Commissioners will try to be as kind as Revenue Commissioners are capable of being but, without going into the details of section 18 which we will reach in due course, it does seem to me that under section 18 interest automatically flows. It says "interest shall be payable." Most Acts of the Oireachtas say a Minister "may" do this and "may" do that when really they mean "shall" so, when they do say "shall", it seems to me that there is an even greater degree of certainty than there is normally with the word "may". It says quite clearly "interest shall be payable" from 5th December. I am somewhat doubtful whether even with well-known kindness of heart the Revenue Commissioners will be in a position to do much about this either, feeling that the computers will start spewing out the demands for interest more or less automatically. The Minister says this tax has been in the air for a considerable time. That is true and, in theory at least, all potential taxpayers should have been keeping an eye on the proceedings, reading the White Paper, following the debates and be ready with their money when the time comes. There was a Minister for Finance a considerable number of years ago who was tackled in the Dáil by the then Opposition about deductions—this was before PAYE and the Government were short of money —which began to flow rapidly from people's pay packets on foot of tax not paid. The then Opposition were complaining about this and the Minister gave the memorable reply that it is the duty of a taxpayer to have his money ready for the tax gatherer which, of course, it is in theory but not in practice. Whatever people should have been doing on the onset of the White Paper they obviously have not been doing it. Apart from anything else, there is always the possibilty that the Bill will be amended. There have been a considerable number of amendments made to this Bill on its way through the Oireachtas, certain exemptions have been added and other changes made and no taxpayer would really be in a position to make a return until such time as the Bill became law.

We have to recognise the practical aspect of this. I should think that only very few exceedingly assiduous assessable persons have, in fact, got round to making returns or having their property valued. It is all going to start with a bang now. It is less than two months to October 5th. The Minister is right in saying that the Revenue Commissioners are going to be as badly off as anybody else. The trouble is that they are on a sure wicket. They cannot go wrong because, as the returns trickle in or flow in to the Revenue Commissioners, they will as best they may start working through these, solving all the problems that they face and issue assessments and, of course, the taxpayer is not in a position to start paying anything until he has received an assessment. Under the terms of the Bill, the fact that you may have to wait for an assessment does not hold up the onset of interest except for 30 days after you receive the assessment. The interest starts on October 5th. If you pay by December 5th you save it. If you receive an assessment on the 1st of January, and many assessments will come in much later than that, then you have 30 days in which to meet the demand. For January no interest would flow but, between October 5th and 1st January—that is three months —you are liable for the interest for that period.

Even though there will be delays in issuing assessments from the Revenue Commissioners, the unfortunate taxpayer has to pay for the problems of the Revenue Commissioners. There will be tremendous clogging up in the inner workings of the Revenue Commissioners. That is not their worry. They have a technical problem to get through to solve all these problems, but they know that, from a financial point of view, the delay will not cost the State anything. The State may make a profit because the taxpayer will be liable for interest from October 5th at 18 per cent per year. That is the problem people who come under this Bill will have.

Mr. R. Ryan

It might be useful for me to explain the convention which operates in relation to charging interest. The convention which is operated in relation to estate duty will apply also to wealth tax. Where delay arises due to the processing of a case in the hands of the Revenue Commissioners, that period is not charged against the taxpayer. No interest will be paid during any period when an account is under examination in the hands of the Revenue Commissioners. The situation which Senator Yeats visualises would not necessarily arise. The only point at which interest would be charged against a taxpayer would be where delay arose at the hands of the taxpayer, but not at any time at the hands of the Revenue Commissioners.

Mr. Yeats

I am somewhat relieved to hear this because it is not what the Bill says. One of the problems with taxation Bills is that they produce these horrifying sections. They are so horrifying that Ministers have to say that they do not really mean what they say. Do I understand the position to be that if, on the last day of what one might describe as the interest free period, that is December 5th, somebody makes a return in proper order, in practice, whatever the Bill may say, no interest will be charged between October 5th and the arrival of the assessment?

Mr. Alexis FitzGerald

I should like to confirm what the Minister said from long personal experience of the practice of the Estate Duty Office. There is nothing to worry about if we are being told that the practice of the Estate Duty Office in regard to death duties is to be applied to wealth tax. That removes any serious worry anybody could have. I would just like to make that personal comment.

Mr. Yeats

I am glad to hear that. I suppose it comes from having too literal a mind in reading legislation. One tends to read the sections and take them seriously which, apparently, one ought not do in this case. Anyone who gets his return in by December 5th is clear. I take it the fairly high proportion who will not, but who get it in some time in January, will be faced with interest back to October 5th, but from the time they get their return in they will be free of interest until such time as the assessment arrives. I take it that is the practical position.

Mr. R. Ryan

There is a clear obligation to lodge the accounts before 5th October. It would be wrong for people to assume that they can all voluntarily extend the period of return of accounts up to 5th December. If they have not lodged their accounts before 5th December and they lodge them afterwards, they will be liable for payment of tax at least from 5th December. As they would not have complied with the requirement to make their return before 5th October, they would be rendering themselves liable to payment of tax from the valuation date which is 5th April last.

The extensions which have been given are quite liberal. I will not say at this stage that the Revenue Commissioners will give everybody carte blanche up to 5th December. The dates are perfectly clear, and there should be no assumption on people's part that they can stretch these to suit their own convenience without running the risk of having to pay interest.

Mr. Alexis FitzGerald

I presume special considerations will be given to gentlemen of the bar who have departed on the long vacation from the first day of August and will not be required to return until the first day of October. They will only have four days in which to make an estimate of their wealth and make their return. They are down in Bornio Boola-Cha, or Tobruk, or the south of Spain, or some place. They cannot be expected to follow the proceedings of this or the other House and be faced with this shocking responsibility in the four days of October.

Mr. R. Ryan

They might see the advantage of an Irish holiday.

Mr. Yeats

It sounds as if the gentlemen of whom Senator FitzGerald speaks are excellent marks for this legislation. However, we will not go any further into that topic. I am a bit alarmed about what the Minister said. I had not appreciated the full horrors of this legislation. Do I understand that someone who is late with their return, and does not produce it until the end of December, is not merely due to pay three months interest back to October 5th, but has to pay nine months' interest back to last April? Is that the position?

With some horror I understood the Minister to say that if a person sends in his return in proper form with the necessary information at the end of December, he is obviously liable for three months interest back to October 5th. Is the Minister now saying he is liable for nine months' interest back to April 5th last? Is this true?

Mr. R. Ryan

Section 18, subsection (3) provides that interest shall not be payable upon tax which is paid before the 5th day of December, 1975. Section 15 provides that the three months from the date of valuation within which a person should deliver returns for the year 1975 is extended or shall be construed as a reference to the period ending on the 5th day of October, 1975. That is all the extension to 5th October means. It is no more than an extension of the time within which to make returns. If tax is paid before 5th December, 1975, there will be no charge to interest. If, having made the return, there is delay on the part of the Revenue Commissioners—I use that word not involving any moral turpitude or negligence on the part of the Revenue Commissioners—if they are unable to process the case before 5th December, the taxpayer will not be liable for any delay after that date which arises out of the Revenue Commissioners' delay. Indeed, the practice is to allow a period of days after notification of assessment before requiring payment of interest.

Mr. Yeats

It is 30 days in the Bill after assessment. It would appear that in the first year when——

An Cathaoirleach

Before the Senator goes on, there is some difficulty here. The discussion on this section is tending to go into the matter of section 18. Accordingly, I think either the subject should be divided, or else there should be an agreement to discuss the whole question at this point. The section is concerned with the matter of making returns, and the main principle of the payment of interest does not arise until section 18.

Mr. Yeats

It would be difficult to discuss this matter without adverting to interest. I am happy to give an undertaking not to raise the same thing all over again on section 18.

An Cathaoirleach

Is the House agreeable to a substantial debate on the making of returns and the liability to interest taking place now and that there would not be a major discussion on these points on section 18?

Mr. Yeats

Maybe.

Mr. Alexis FitzGerald

Yes, and get rid of two sections.

Mr. Yeats

In this year, which is the first year of a totally new form of taxation—no one has ever dealt with this type of tax before in this country —the people who either would have to pay tax or else produce returns in order to prove to the Revenue Commissioners that they did not need to pay tax are faced with the position that, in many cases, they do not even appreciate that they are liable to this tax or for the making of these returns. In so far as they do realise, they know very little about the details involved. People who are on holiday in August and come back in September have until October 5th to deal with all this. It is a situation where valuations have to be made, debts calculated, mortgages assessed, forms obtained, returns sorted out and sent in. If, in the majority of cases, that is delayed until the end of the year, they are then faced, in accordance with this section and section 18, say, with the prospect of having to pay nine months' interest at 18 per cent. This can only be described as a penal imposition because obviously a high proportion of whatever number of people are involved in this taxation will be faced with this problem. These returns simply will not be made by October 5th next. It cannot be done.

Even if one assumes that all taxpayers are assiduous in looking after their interests, in paying their taxes, collecting forms, making returns, keeping an eye on the relevant legislation and so on; even if they were all on the qui vive, passionately anxious to fulfil their public duties, it could not be done because of the competition for the available valuers, accountants and so on. There are bound to be delays. In so far as people do endeavour to meet their obligations under this Bill there will be tremendous bottlenecks in the firms of valuers, accountants and so on. It will not be possible to put in these returns. Even in cases where people are in no way negligent but simply doing their best it will not be possible. Apart from these assiduous individuals, there will be also a great many people who are not that assiduous but who are not in any sense fraudulent, not trying to evade their obligations but who are not that passionately addicted to following the course of tax legislation. One must have regard to human nature. Everyone is not alike. There will be people, apart from the assiduous ones, who themselves will not be able to get their returns in by October. There are all sorts of people, a lot less assiduous but with whom one ought to have some sympathy, and I appreciate that the Revenue Commissioners probably will do their best.

Under section 18—the Minister says income tax would run since 5th April last—if they are late sending in their returns they are liable to have to pay interest back to April and in some cases, it will go on much longer. If people do delay their returns well into next year—though it may be hard on them—they have only themselves to blame. The people about whom I speak, who do not get their returns in until the end of this year, or early next year, are not in any way blameworthy, in view of the fact that this is a totally new field. I would be relatively happy if I could feel that the Revenue Commissioners would say: "Well, all things being considered, this being the first year, with all the problems entailed, the absence of valuers and so on, we will not charge you interest." But it seems to me from the wording of section 18 they have no alternative.

Subsection (2) of section 18 states:

Simple interest at the rate of 1.5 per cent per month or part of a month, without any deduction of income tax, shall be payable upon tax from the valuation date upon which it becomes due...

The operative words are "shall be payable". That would appear to be automatic. No matter how kind are the hearts of the commissioners, no matter how anxious they may be—as I am certain they are—to help non-blameworthy taxpayers, they are not in any position to do so. The various dates and months laid down in these sections apply automatically. The computer will have to start its useful work and spew out demands for interest which, unlike the ones about which we have been hearing today, will in fact be legally due.

Mr. Alexis FitzGerald

I should like to express the view, that in relation to this year I am sure there will be no practice of charging interest from the 5th April last. I am of the view that if an attempt was made to charge interest from 5th April it would be unsuccessful. Interest under this shall be payable on tax from the valuation date upon which it becomes due. On 5th April last there was no wealth tax payable by anybody. This cannot give rise to a charge for interest. I have had a doubt as to whether the relevant date for the assessment of wealth tax in this year is not the 5th April, 1976 rather than 1975. I am of the view that no attempt can be made to charge interest for any period prior to the enactment of this legislation.

Mr. Yeats

I would refer Senator FitzGerald to section 2 which states:

Subject to the provisions of this Act and any regulations thereunder, with effect on and from 5th day of April, 1975, a tax, to be called wealth tax, shall be charged, levied and paid annually upon the net market value of the taxable wealth on the valuation date in every year of every assessable person and the rate of tax shall be one per cent of that net market value.

There is no doubt at all about the meaning, purpose and legal validity of this Bill. Wealth tax is due as from April 5th, 1975. The concession made by the Minister, in answer to points made by the Opposition in Dáil Éireann, was to insert this wording in section 15, that interest would not be charged until after October 5th. The October 5th date is merely a matter of interest. The valuation date, the day on which this Bill comes into force, the date from which this tax is due is April 5th last. Whether it is just is another matter but that is the legal effect of this Bill.

Mr. Alexis FitzGerald

I should like to dissent from the view expressed by Senator Yeats in regard to this. I understand section 2 as providing for a wealth tax to be assessed on the net market value of the taxable wealth held by a person on 5th April, 1975, but not necessarily to become due for payment on a date which has preceded the enactment of this Bill. I would draw Senator Yeats' attention to the fact that the valuation date is defined in section 1 (1) in relation to any year, which means the 5th day of April in that year. What year are we talking about? The only year that is contemplated in this Bill is the year which commences on the 5th April, 1975. What is the 5th April which is the valuation date in relation to that year? Is it necessarily the 5th April, 1975, or is it not possibly the 5th April, 1976? The year in question does not start until the day——

Mr. Yeats

The Senator is making good Fianna Fáil points, that we made and have been made earlier on in Dáil Éireann.

Mr. Alexis FitzGerald

I do not think the Senator should complain about that.

Mr. Yeats

I do not. I am delighted, but the Minister can interpret the Bill as between Senator FitzGerald and myself and I think he will come down on the Fianna Fáil side.

Mr. R. Ryan

We are dealing with the delivery of returns under section 15.

An Cathaoirleach

But the debate has been broadened to include the substance of section 18 by permission.

Mr. R. Ryan

It has, but we are dealing with the delivery of returns, that returns should be made before the 5th October, 1975. I am not going to comment on the various actions the Revenue Commissioners may take in respect of people who delay in making returns or payment of tax, other than to say this: some people might find it cheaper to pay any interest charged than to start arguing about the legal interpretation of certain sections or the legality of the actions of the Revenue Commissioners. If people really want to avoid arguing over the law or paying interest, they may always avail of the opportunity afforded by section 18 (3) which allows people to pay tax on account. We are dealing with people who are at least numerate when we are talking about people who might be liable to wealth tax. The people who have an obligation to consider whether they are going to be liable to wealth tax are people who have property in or about £100,000 or more, or who are within 25 per cent of £100,000. Allowing for a margin of error of 25 per cent on either side of £100,000 allows people to make a reasonable self-assessment without having to go into very protracted deliberations with their accountants, lawyers, advisers, both at home and abroad. If people make even an honest first shot at what their wealth may be before the 5th October 1975, as required by section 15, and if any time they get a query from the Revenue Commissioners, they show reasonable despatch in answering the queries, they will not have to worry about payment of interest.

If, on the basis of a first assessment, people see they are going to be liable to payment of some sum of wealth tax, they may iodge that sum and thereby escape any risk of payment of interest. There are so many outlets available to people to ensure against paying interest that I think we are arguing here on a number of peripheral issues which will have little practical effect.

Mr. Yeats

I should like to come back to what is definitely not a peripheral issue, the one raised by Senator FitzGerald. Section 18 (1) says:

Tax shall be due and payable on the valuation date.

The question we are facing is, what is the valuation date? The valuation date in any year is April 5th, but the——

Mr. Alexis FitzGerald

When does the year commence?

Mr. Yeats

Which April 5th is another day's work. I would refer Senator FitzGerald further to the third paragraph, that is the end of subsection (1) of section 15:

provided also that the reference in this subsection to three months after every valuation date shall, in relation to the valuation date in the year 1975, be construed as a reference to the period ending on the 5th day of October, 1975.

The position, in fact, is quite clear and the Minister should make a definitive pronouncement on this, which after all arises directly out of subsection (1) of section 18. We are dealing with section 18 along with section 15. The first subsection says:

Tax shall be due and payable on the valuation date.

Therefore it is important there should not be any doubt in this matter. The Minister should say categorically that tax is due under this Bill as from April 5th, 1975.

Mr. R. Ryan

Yes.

Mr. Yeats

It is in other words, that is the position. We may regret it, but it is the position in August, 1975, under this Bill, which is not as yet law, we are discussing a situation under section 18 where tax has been due and payable since April 5th last.

Mr. Alexis FitzGerald

The law is an ass, but it is not that much of an ass,

Mr. Yeats

We may take it that it is unconstitutional, but we have to take it as we find it. As we find it in this Bill, it is payable from April 5th last. Therefore anyone who is late——

Mr. R. Ryan

No interest is charged on any tax paid before the 5th of next December.

Mr. Yeats

But the tax is due as from April 5th last. The Minister referred to payment on account. If somebody on April 6th last was so foolish as to offer the Revenue Commissioners a payment on wealth tax, they would have been legally authorised to take it because it would be tax due under this Bill, which had of course not even reached the Seanad by then. Therefore anyone who is late with returns this year, will be faced apparently with interest back to April 5th.

Mr. R. Ryan

The Senator will be surprised to know that the Revenue Commissioners have not been embarrassed by an offer of any such payment.

Mr. Yeats

I am shocked to find that out. That is the problem, they have not been unduly embarrassed as yet. What worries me is that they may not be embarrassed much into the end of this year or the beginning of next year. When the embarrassment begins, there will be the further embarrassment from the point of view of the taxpayers who will find themselves getting these little white bills month after month, demands for interest on a tax which in some cases they do not even know they are supposed to be paying.

Question put and agreed to.

SECTION 16.

Mr. Yeats

I move recommendation No. 33:

In page 19, subsection (2), line 29, after "Commissioners" to add "within 6 years from the date of delivery to them of the return on which the assessment is based or".

An Cathaoirleach

Recommendations 33 and 34 are related and it is suggested that they be taken together.

Mr. Yeats

This relates to the power of the Commissioners to review an assessment in cases where, for whatever reason, they feel that new information has come to hand. In income tax legislation they also have this power, a power one would not want to withhold from them. In income tax there is a limit of six years, except in cases of fraud. If there has been a fraudulent return made, so that a wealth tax payer deliberately withholds information about assets, with a view to reducing his tax burden, obviously the Revenue Commissioners should have the power to review an assessment no matter how many years might have passed. One can see the force of that and would not wish to object to it.

It seems unreasonable that, where there is no element of fraud, 20 years later the Revenue Commissioners can reopen the whole matter and bring an additional assessment. This is quite wrong. It is not, so far as I know, in income tax code where some kind of fraud or material nondisclosure is required. It seems to me, this being a new tax, that this is a rather sly way of giving further powers to the Revenue Commissioners on a kind of side wind and I do not think that we should accept this proposition. There must be some kind of certainty in these matters.

An honest taxpayer, who has done his best to fill up his return, and, in so far as he san see, has listed everything that he ought to list, should have some kind of certainty that this is the end of it, that he will not have further assessments coming in maybe years later. I am perfectly in favour, if he has been fraudulent or he has, even through some kind of negligence, omitted vital matters he should have put in, omitted to list certain assets, of the reopening of this, but, where he is in no sense at fault but some material thing has come up that the Commissioners hear about, where the taxpayer is not at fault I do not think they should have the power, after six years, to reopen the matter.

Mr. R. Ryan

I am not unsympathetic to the idea that there should be a time limit on the power of the Revenue Commissioners to reopen assessments but we are dealing with a new tax and there will be settling in problems for everybody. If the Revenue Commissioners were to be limited in the time available for reviewing cases they would have to take more time in making assessments in the earlier years. I am not saying that they will be careless or inefficient in making their assessments. They will certainly operate to the very best of their ability on the very best of information supplied to them, which, for a variety of reasons, may or may not be accurate.

It is better to leave the matter open at present. To some extent it could be said that the point is academic for the next six years. Even if we do not put six years into the Bill now it is possible that within the next six years we could build in a time limit found to be warranted by our experience in the early years. I urge that the recommendation be withdrawn, I having indicated my readiness to watch the situation and see just how efficient the system of operating tax is. If it works out satisfactorily then I think we might certainly give careful consideration to putting in a limit on the time in which the Commissioners could reopen a case.

Mr. Yeats

I think the Minister is right in saying that this is not an urgent matter because obviously it will take six years. It is an obvious fact. It is certainly a time limit that ought ultimately to be in it. I can see the Minister's point about this being a very new tax and mistakes might be made and so on. After all, even if they were made when the Commissioners find out that after all they could have done better they can always put in a larger assessment the following year and they just lose whatever they lost the first year.

It does not seem that the walls of State will fall down because some taxpayer may have got off a little lightly one particular year. It is always open to them to reopen the matter, to change the valuation—they have the power to do that—and the following year to impose what they consider to be a realistic level of tax. That is all that is involved in this.

As the Minister said, however, it will be six years before this thing will become urgent and it seems to me that it certainly ought to be ultimately in the legislation. It would be outrageous to have a situation where maybe a generation later they could start reopening the thing. Perhaps if someone died and they delved into the thing and found out there were little bits of property here and there that had inadvertently been omitted, then they go back years and years and say: "Now, let the estate pay so much extra per year." This kind of thing would lead to great uncertainty, particularly with the problem about land being charged with this tax and so on. It could be carried on and cause considerable confusion, apart from any hardship that might be involved. Certainly there should be ultimately a time limit for this. I can see the Minister's point that it is not, at this stage, urgent so I withdraw the recommendation.

Recommendation, by leave, withdrawn.

An Leas-Chathaoirleach

Recommendation No. 34 has already been debated.

Recommendation No. 34 not moved.

Question proposed: "That section 16 stand part of the Bill."

Mr. Yeats

In paragraph (b) of section 2 we have the statement that the Commissioners may—

require any accountable person to deliver to them, within such time, not being less than 30 days, as may be specified in the requirement, an additional...of all the property comprised in the taxable wealth of the assessable person,

I appreciate, of course, that the Revenue Commissioners will not take an unreasonable line in all this but nonetheless it would appear to mean that an accountable person, who could be some relatively minor functionary, such as a collector of rents, in theory would be liable to put in a return of the entire taxable wealth of a millionaire. It is obvious that this will not be required of him but we are framing this paragraph in an unduly wide way and one cannot see why it ought not to be possible to put in a provision that the accountable person should be required to deliver a return of all the property over which he had some kind of control or in connection with which he had some legal or professional function to perform.

Mr. R. Ryan

The circumstances in which the Revenue ought to require particulars from the accountable party would be where they fail to receive sufficient particulars from the person primarily liable. The particulars which they would seek would generally relate only to particulars of property which would be within the ken of the accountable person. They do not have to require the accountable person to furnish particulars of all the property. The words in brackets "or any part thereof" are to cover the situation. I visualise where the Revenue Commissioners could simply ask the person who had the management, trusteeship, or personal ownership of a particular property to furnish details of it. I know the powers, condemned earlier today, appear to be very sweeping and would be if they were used further than was necessary for the purpose of administering the tax.

There are stated cases where the courts have held that the powers given to the Revenue Commissioners may be used by them only for the purpose of administering the particular law in respect of which the powers are given. Even though the powers might appear to be capable of being used for some other purpose, if the Revenue Commissioners seek to use them for some strange purpose that is not visualised in the original enactment which conferred the powers they may get into difficulties. One must assume that the Revenue Commissioners will act reasonably. The courts will assume that they will act reasonably. If they act unreasonably and abuse the powers which are given to them the courts will lean in favour of the taxpayer against the Revenue in such circumstances.

Mr. Yeats

What would the position be if one had say a business associate who, in some capacity, such as being involved with rents, became an accountable person? He is a business associate of the assessable person and knows a great deal about his business, is bound up with his business to a considerable extent, though not in the sense of being an accountable person, except in relation to one single aspect such as collecting rents. In such a case it would seem that under this paragraph the Revenue Commissioners are perfectly entitled to ask him to tell all. One feels that while election might be unreasonable, it would not be illegal because it would be, to a considerable extent, in accordance with what the paragraph requires. It is not a case of using the man's knowledge for some completely different purpose. I would like to feel that a court would shoot them down in that case, but I am not at all sure that it would.

Question put and agreed to.

Sections 17 and 18 agreed to.

SECTION 19.

Recommendations Nos. 35 and 36 not moved.

Question proposed: "That section 19 stand part of the Bill."

Mr. E. Ryan

On this section, what is the significance of the figure of £50,000 in subsection (3)?

Mr. R. Ryan

That figure was taken because it was larger than any smaller sum.

Mr. E. Ryan

It is not related to any other particular sum?

Mr. R. Ryan

No, we simply wanted to avoid interfering in too many transactions but we had to ensure that where there would be a substantial amount of money involved the necessary controls would be there.

Question put and agreed to.

Section 20 agreed to.

SECTION 21.

Mr. Yeats

I move recommendation No. 37:

In page 22, subsection (1), to delete lines 34 to 37 inclusive.

This is a rather curious provision which first says that the total taxation on any individual should not exceed 80 per cent of his income and then says that should the effects of the wealth tax be that it does exceed 80 per cent you would only get half the excess back. This could clearly be a hardship in cases where income was small, for example, a life tenant whose income was charged against his very large estate with a very low income would have to pay wealth tax on the whole of the capital assets.

There could be the case of an hotel keeper or a large farmer who is covered by this Bill who, in a bad year, had no income at all or even had a loss and because this wealth tax is not a tax on income but on property he will still be liable for wealth tax. In this situation the taxpayer finds that he can be repaid not the whole of his wealth tax, but only half. The purpose of this is difficult to understand. It is a situation which will arise more often since the Minister's most recent budget because at the time this provision was first inserted in the Bill the intention was—and it was achieved in the budget of last January—that the maximum rate of income tax would be 70 per cent. The maximum rate of income tax now is 77 per cent and this means that for anyone who is on the 77 per cent level it would take very little wealth tax to bring them over 80 per cent. A larger number of people would be covered by this provision than would have seemed likely when it was first inserted in the Bill.

I find it difficult to understand the purpose of saying that only 50 per cent can be returned. First, the general proposition is stated in the first paragraph of subsection (1) that the amount levied on the taxpayer should not exceed 80 per cent. Then we say that if it does exceed 80 per cent you will get half the excess back. Perhaps the Minister could explain the purpose of this.

Mr. Alexis FitzGerald

I should like to ask the Minister to give serious consideration between now and next year to the recommendation put forward here today. I should like to quote from the book on taxing personal wealth—I think the name is Sanderson—of which I have a photostat, and of which no doubt he has a copy. I quote the very words:

If the tax were so heavy as of necessity to be paid from capital, that is, if income tax and wealth tax combined exceeded 100 per cent of aggregate income, then private saving would necessarily be reduced. The effect of community saving would depend on how the Government used the revenue.

We know that the effect of this proviso can be, in certain circumstances, to render some people liable to pay more combined wealth and income tax than their total aggregate income.

This book was written in 1969 and I am sure the Minister has more up-to-date figures than I am able to give but in another page of the book it says— basing this on "Taxation of Net Wealth" by Norborno Tenabe, The International Monetary Fund Staff Papers—it found that 14 countries have a net wealth tax; five impose the tax on companies as well as individuals. In all cases, the wealth taxes are regarded as the supplement to income tax and rates are low enough for income tax and wealth tax combined to be payable out of income. It may be that since 1969 some countries have changed this position. We ought to consider the position of these countries and the effect of that change before we depart from what was then found to be the universal practice with regard to wealth taxes in a very comprehensive analysis made in 1967 which still stood, according to the writer of this book when he wrote his book, in 1969.

I have already made the Constitutional point which I think is there. If there is a position where there is a limited interest it may well be that the tax payable in relation to the limited interest would exceed the income which is derived by that person and the person may have to surrender. I do not believe that tax is a good tax or that it is an enforceable tax in that situation at least. I know, as everyone knows, the difficulty of limiting it simply to income. It would have to be dealt with by other provisions which are not in the code; otherwise, a man with substantial capital will, obviously, try to reduce the income which therefore would put a ceiling on the wealth tax he was paying. There ought to be machinery equivalent to the surtax type of system which would enable the Revenue Commissioners to look at the overall situation and see if there was an attempt being made to reduce a wealth tax liability by artificial contrivances with regard to reducing the income.

My view—very strongly held and as firmly expressed as possible—is that some alternative to this proviso is required in this legislation. It is obviously not possible to have it now. It would be difficult to work it out— I recognise that—because there must be a safeguard to prevent somebody organising his income just to cut off his wealth tax liability, but it is capable of being worked out and it should be worked out between now and next year. I do not see the advantage of frightening the community by this type of thing. The real equity of wealth tax is to adjust the position of income tax payers who get income either from work or from their property, and the real benefit of wealth tax is what the Minister has in mind, to make it possible to adjust the higher rates of income tax—what we called surtax. That was intended. It is still there to some little degree but the 10 per cent surcharge has reduced that—presumably that is only for this year. We must get rid of the idea that it will be humanly tolerable for people to be paying to this community more than their total income every year. No man is going to spend his life paying his death duties; no man is going to do that unless he is a saint or cracked.

Mr. E. Ryan

This raises the point which has arisen a few times during the discussion, whether this Bill is merely an attempt to supplement the money collected by way of income tax, if it is regarded, basically, as a tax which can be paid out of income or whether it is more far-reaching than that, in other words, a Bill to attempt to redistribute property. Certainly, if there is a situation, which is possible under this section—unless this recommendation is agreed—where a person can pay more than his income and in these circumstances he may be in a position where he must sell some of his property to pay the tax it is reaching a stage where it is redistributing his property. That is doing what the Minister thought undesirable and which occurred in estate duty cases, where a family had to sell land or property in order to pay estate duty. The estate duty for families was abolished so as to avoid that unfortunate consequence.

Here we have the position where, as a result of having a low income, a person may have to sell some of his property. A person's property may be assessed as having a high market value but it might be debatable whether it would reach that price or if it would be possible to sell it at all. It might be the kind of property where, if he had to raise money, it would be necessary to sell the entire property merely to raise a comparatively small sum. There is a basic problem involved as to whether this is regarded as a tax which is expected to be paid out of income or whether it is going to the very root of property ownership and, in certain cases, will force people to sell property in order to pay tax.

This recommendation should be accepted. The Minister should consider seriously the extent which this Bill will go. On the way the Minister has described the Bill, and the manner in which he feels it will operate, the Minister does not seem to envisage that a person would have to sell property to pay tax. Nevertheless, as the section stands, that may be necessary and might often be necessary. Therefore, some modification of this section is necessary. It may not be an urgent matter but the Minister should see if it can be modified in the way this recommendation suggests.

Mr. R. Ryan

We are being very fair to people in providing that income tax and wealth tax shall not exceed more than 80 per cent of income, subject to a proviso that wealth tax will not be reduced by more than 50 per cent. One of the objectives the Government have in relation to wealth tax is to encourage owners of wealth to put their wealth to more productive and remunerative uses than many of them now do. We talked yesterday at great length about the need to encourage productive investment in Ireland, to encourage people to plough money into businesses to secure employment and make Ireland a country in which it would be attractive to invest money to make profit. That is what the Government want to do. I do not think owners of wealth will be encouraged to use their money productively, of best advantage to the community as well as to themselves, by providing that they need not pay any wealth tax at all if they have no income from their substantial wealth holdings.

Let us look at a few specific cases. The recommendation proposes that the floor of 50 per cent would be abolished. The result would be that there would be no wealth tax payable in a case where the owner of property, even immense property, had no income and it would be greatly reduced where the income was small relative to the value of total wealth. Let us take the case of a married man who has taxable wealth. We must remember that taxable wealth is wealth in excess of all the exemptions, be they private residence with contents and various other properties. A married man with taxable wealth of £1 million and no income would, under the recommendation, pay no tax. If a person has £1 million worth of assets and is getting no income from them he is cracked. I cannot even confer the sanctity upon him which Senator FitzGerald was suggesting would apply to anyone who wants to pay death duties during his life. That person would be plain cracked, stupid. There is something wrong with an economy and a society which does not provide some stimulus to encourage such a person to put his £1 million worth of assets into productive, income-earning purposes.

If a married person had £1 million worth of taxable income and only £1,000 income he would pay £748 in wealth tax. If a person had £1 million of taxable wealth and an income of £5,000 he would pay £2,670 in wealth tax. The wealth tax on taxable wealth of £1 million at 1 per cent is £10,000. As the Bill stands, £5,000 wealth tax would be payable in any of those three cases I mentioned, that is, £1 million with no income, £5,000 tax payable—I do not think that is an atrocious imposition on a wealth holding of £1 million—£1 million with £1,000 income, £5,000 would be paid in wealth tax, instead of £748 if the recommendation was accepted, and £5,000 would be paid in wealth tax where £1 million worth of property was held which is taxable and an income of £5,000 against £2,670 which I mentioned.

The examples may be rather extreme but they illustrate what the problem is. They underline the validity of charging wealth tax at all levels. The acceptance of a 50 per cent brake is a recognition by the Government that a person can have wealth holdings which may not yield a very high income. The special treatment of a farmer is recognition of the fact that there is a low rate of return on investment in the agricultural industry, but when the Government are taxing wealth they must ensure that all substantial wealth holdings pay a wealth tax of some sort. The Government have modified it if the return is small but it would be wrong to modify it to such an extent that they would remove all encouragement to invest in productive income-earning assets.

It is clear that tax could be avoided or mitigated by keeping income to a minimum. This can be done by minimising income as such and it can also be done by investing in property which provides little or no income. Therefore, the floor is necessary to prevent avoidance of tax. I cannot see that it would be right to say that the same tax liability would lie on a millionnaire and a pauper. That, in effect, is what the recommendation suggests.

If the millionaire has no current income, he is not to pay any wealth tax, any more than a pauper is required to pay wealth tax. That is a very wrong approach and undermines the whole concept of the Bill, which is based on this principle: ownership of property confers a taxable capacity and ownership of considerable property certainly confers upon a person a capacity to pay tax even though he has no income.

We have no desire to force people to realise their assets in order to pay wealth tax. We do not think that will happen. People who find that their income was not commensurate to their tax liability would soon adjust their wealth holdings to make sure that they get an adequate return from their wealth. That will operate to their own advantage as well as to the advantage of the whole community. For these reasons, I am unable to accept the recommendation.

Mr. Yeats

The Minister keeps talking about people with £1 million who deliberately or for some other reason have no income and do not appear to be particularly interested in having an income. He describes such people as cracked and, of course, they would be. I put it to him that there are no such people. There is not anyone here who has £1 million and no income on it, for choice. These things do not happen. That kind of an example does not help much. The examples I gave, though, are much more opposite to present circumstances. Large farmers can be fairly well off but last year the income of such farmers was very small if they had any income at all.

Some hotel keepers are doing very well but the income of some others has been minimal. At the moment certain factory owners' income is very very small or they are making a loss. The Minister of course is right in what one might describe as the Continental sense of the term, in saying that all these people can get out, realise their assets and put them in something more profitable. In Irish conditions one cannot. Indeed, in Irish conditions we do not want them to. We do not want the hotel keeper to sell out so that when things improve in the tourist trade in that area, the hotel is gone, the employment it gave is gone and the valuable foreign assets that can be acquired through tourism are no longer available. We want him to stay in business.

The large farmer will not sell. He will grit his teeth and stick it out until times improve. In the meantime, under the Minister's proposal he will go on paying 50 per cent of his wealth tax. These are the kind of people who are involved, not mysterious and nonexistent individuals who have £1 million in the bank and have no interest in making an income out of it. They just do not exist. If they did they should be locked away and their money put in the charge of a guardian. They are not the kind of people we are dealing with.

This section provides that the maximum impost on anyone's annual income will be 80 per cent—it will be more because of the 50 per cent rule. Even if the Minister accepted our recommendation the maximum impost in tax on anyone's income is 80 per cent. That figure is high enough I should have thought for anyone. It is a great deal higher than the continental countries the Minister is constantly quoting. In Luxembourg, for example, the maximum rate of income tax is 57 per cent; in Denmark 61 per cent; in Germany, 59 per cent; in the Netherlands, 71 per cent, and in Belgium 70 per cent. Over the range of countries that is the general pattern the total amount of direct taxation on the individual is much less than here.

Profits here are in general lower at the moment. Wealth is much less. Average incomes are much less. We are on the whole much less developed, not nearly as rich as other countries. Nonetheless our direct taxation rates —increasing to 80 per cent or higher under this section—are far above anybody else's, except for the English who are certainly no example to follow. A person on a low income is much less able to bear taxation than somebody on a high income. In other words, 30 per cent of a low income is a great deal more than 30 per cent of a high income, because the man on the higher income has much more left. It is the same old principle—the rich man can afford to give to charity: the poor man cannot, because he needs the money to maintain his family.

The reality of the situation is that the difference is much greater than appears on the surface because we have these very high rates of direct taxation. In circumstances where the average income of Irish taxpayers is far less than elsewhere, where they are much more able to bear taxation because they have much higher incomes, they have a much lower rate of direct taxation. In spite of this, this section provides, first, that one can pay up to 80 per cent, and secondly, if 80 per cent is exceeded in our circumstances, and these are hotel keepers, farmers, industrialists who for whatever reason are doing very badly, the Minister says, "very well, we will give them back half the amount of the excess". Not only that but when the money is ultimately paid back they do not even get any interest on it. In general the Revenue Commissioners pay interest on repayments of money, but not in this case. So they are had both ways.

This kind of situation would be justifiable if there were such people as the Minister refers to, the man with £1 million who puts it under the bed or something and just does not get any income on it, but there are not such people. The people here are in a very different position. If the Minister were Minister for Finance in Germany or Luxembourg or Holland, I would be inclined to say that he was speaking good economic sense, if he said that people who are making no profits should just get into something more profitable. He cannot say that to a man here who is employing 50, 100 or 200 people in a factory, to a farmer or to a hotel keeper. They have to grin and bear it, stick it out, for their own good and in the interests of the country and, apparently, pay half their wealth tax.

Recommendation put and declared lost.

Mr. Yeats

I move recommendation No. 38:

In page 22, between lines 37 and 38, to insert the following:

"(2) Where an individual who is carrying on a trade or a body corporate which is not a private non-trading company shows to the satisfaction of the Commissioners that

(i) in the trading year next preceding a valuation date the trade was carried on at a loss, or

(ii) two full years of trading had not elapsed on a valuation date,

the assets used in the carrying on of the trade shall not be included in the taxable wealth of such individual nor in the value of the stock or shares in such body corporate on that valuation date."

This is similar to the previous recommendation, except that it is wider in scope. The basis of this recommendation is that where an individual is carrying on a trade or a body corporate, which does not apply with a non-trading company, shows to the satisfaction of the Commissioners that in the trading year next preceding a valuation date if the trade was carried on at a loss, or if two full years of trading had not elapsed on a valuation date, then in this case the assets concerned should not be included in the taxable wealth of the individual or in the shares and so on of the body corporate.

There are two parts to this recommendation. First, the basic point that if a firm has shown a loss the previous year they should not be asked to pay a wealth tax. That goes much further than the previous recommendation which was to eliminate the provision that only half will be repaid. We provided that where one shows a loss one should not pay a wealth tax. I will not go over the arguments again they are identical to the arguments I used on the previous recommendation, that under our present economic circumstances where we want to maintain as many people in employment and where we certainly want to maintain farmers, large and small, on the land, and not forcing them to sell their holdings to pay this tax, where there has been a loss and where there has been no income at all that wealth tax should not be imposed.

The second part is to provide a moratorium period for new firms where there had not been two full years of trading. The early years of a firm are always rather tricky. It takes time to get into full production and to develop adequately. There is always a period, particularly in our conditions, where a man does not know whether his business is going to succeed or fail and this recommendation suggests that there should be two years allowed before property is subject to wealth tax. In the early years there may well be a loss and if there are any profits they would be nothing like the full profits which are likely to arise with the full development of a company. This second part would be very much in aid of new business, which is what we want here, new factories, new employment-giving concerns being set up; it would be an advantage if they felt there was a moratorium and that for two years after they set up trade there would be no wealth tax involved. It is a bit unrealistic to suggest the Minister will accept the recommendation now but I urge the Minister to consider this type of concession before his next budget.

Mr. R. Ryan

Of course I will continue to watch all situations as they develop in relation to capital taxation but I cannot say at this stage what difficulties may unfold. I can see some problems in relation to this recommendation. Losses could be contrived. The Senator may argue that the Revenue Commissioners could be given discretion to deal with such cases and not to regard them as bona fide cases qualifying for the exemption but that would be throwing too big an onus onto the Revenue Commissioners.

The second difficulty is why should exemption be given to a business which operated at a loss when no exemption is given to a similar business which operated with only a very small profit. The Senator may argue that the amount of tax to be paid in that situation could be scaled down. It would, of course, be scaled by the provision that wealth tax should not exceed more than 80 per cent of income subject to the proviso that the reduction of wealth tax should be no more than 50 per cent. That is some concession to the loss-making situation and a small profit-making situation.

The value of a business which has not been conducted for more than two years would reflect the fact that the business was not established for a longer period so there is, to some extent, recognition already being given to the true value of a new trade. There are other difficulties which I need not go into now because I have said sufficient to show that the problems are not easy ones to solve.

A great deal of the wealth holdings and accumulations and the means of making wealth here are strange to the Revenue Commissioners because there has not been a need before now to watch certain of these situations. The information upon which to make the best decisions is simply not available. Certainly there is information about the making of profits because companies have to furnish accounts but for a variety of reasons the capital values of those properties may not have been adequately reflected in many accounts furnished. They were irrelevant in many cases to the ascertainment of income tax liability or any other tax liability. That situation has changed now.

Over the next few years there will be a fund of information which will enable the Revenue Commissioners to assist the Minister for Finance in coming to decisions as to how capital taxation should be adjusted. We may be lucky. We may be making the right decisions already in a vacuum but it might be a bit presumptuous to assume that and I certainly would not assume it. I will watch the situation carefully and if relief is required in any of these areas, particularly those of trade, commerce and the manufacturing industry, anything that contributes to the wealth and the welfare of the country will obviously get our first attention.

Mr. Yeats

The Minister refers to the problems of margins, the difference between a £1 loss and a £1 profit. I can see how this would be a problem, although it would be very easy to devise a system which would have marginal reliefs. This problem arises a good deal under this Bill. If a married man's assets are £99,999 he pays no tax; if they are £1 more he pays £1,000 tax.

Mr. R. Ryan

No. He will pay only 1 per cent over £100,000. He will still get his exemption. The threshold exemption is £100,000.

Mr. Yeats

Yes, the Minister is correct. The first part of this would raise problems. It would raise fewer problems if the Minister had accepted our previous recommendation, eliminating the 50 per cent that the Revenue Commissioners keep.

The second part would be easy to administer and it would be an incentive to people who were starting new companies. It could make a difference to the viability of a company which was a bit shaky in its early days. I urge the Minister to think about it. It would be easy to administer and there would be no serious possibility of evasion. If people were to start up companies throughout the country in order to get two years' exemption from wealth, I would say "more power to them." It would be in the interests of the country that they should. It would hardly pay them to close down after two years. I do not see how evasion could arise.

Recommendation, by leave, withdrawn.

Section 21 agreed to.

SECTION 22.

An Leas-Chathaoirleach

Recommendations Nos. 39 and 40 have been ruled out of order.

Question proposed: "That section 22 stand part of the Bill."

Mr. Yeats

This section provides that where too much wealth tax or too much interest has been paid the commissioners will repay the excess. The section provides that interest will only be paid on these repayments by the Revenue Commissioners from the date of payment or three months after the valuation date, whichever is the later. It is difficult to understand the justice of this. It means that if a taxpayer pays the amount due on the valuation date, if he is an assiduous taxpayer and if he wants to keep his affairs in order, and if he finds he has overpaid the Revenue Commissioners will return to him the sum overpaid. But he will get no interest until three months have passed. There is no incentive at all to pay on time. It seems to me that the fair way of dealing with this would be to say that in all cases interest on excess payments of this kind should be payable from the date of payment by the taxpayer. It is very difficult to understand the distinction between the situation where the taxpayer owes interest and the Revenue Commissioners owe interest on repayments.

There is another point in subsection (3). It states that in cases where there has been over-payment of tax under section 21, arising out of the 50 per cent interest rate we have been discussing, a person's income in such a case is so low that the tax payable in that year would be more than 80 per cent of his income. The Minister in his generosity has provided that he is to get back half of it. But he still has to pay half of it. When he gets that half back, no interest will be payable on it. It is very difficult to understand the purpose of that subsection. It seems almost punitive in its meaning and intent. In every other case there may be delays in paying the interest, but at some stage interest becomes payable on money being returned by the Revenue Commissioners. Not in this particular case, however, to the unfortunate taxpayer whose income is so low that his wealth tax and income tax together add up to more than 80 per cent of his income. He gets some, but not much, of it back. Then we are told by this subsection, which is inserted specifically for this purpose, that he is to get no interest.

Mr. R. Ryan

I might have avoided some of this problem if I had not been so generous with the rate of interest which the Revenue will pay on overpaid tax. I think some countries provide a lower rate of interest payable by the Exchequer where refunds take place than is charged by the Exchequer on arrears. There is a lot to be said for that because arrears after all involve some kind of delay on the part of the taxpayers and there is some fault attaching. The purpose of charging interest on arrears is to encourage people to pay their tax when it is due and payable. The State is not interested in being an unwilling lender of money to people in order to collect interest from them. The purpose of having an interest charge on tax due is to encourage people to pay.

Therefore, the interest on arrears should involve some penalty. It should be more than mere payment for the use of money. Otherwise, people would be able to use the Exchequer as their banker. Perhaps we ought to have provided a rate of interest of, say, 0.75 or 1 per cent on refunds rather than 1.5. The 1.5 could operate in such a way as to entice people to deposit money with the Revenue Commissioners in order to collect 18 per cent on such deposits. It is not intended that such encouragement would be provided, and that is why we are not proposing payments of interest on tax in respect of a period during which the interest is not charged on tax.

As drafted, the subsection will ensure that payments on account made within three months of the valuation date will be based on a realistic estimation of a taxpayer's liability to tax. That is what we clearly require. We do not want people to be making wild estimations for the purpose of making profit at the expense of the Exchequer.

Mr. Yeats

The other point is on the third subsection which says there is to be no interest under 50 per cent returned under the previous section.

Mr. R. Ryan

Section 21 gives relief where a person:

shows, to the satisfaction of the Commissioners, that the combined total of the amount of tax paid in respect of his taxable wealth on a valuation date and the amount paid in respect of his income tax liability for the year ending on that valuation date exceeds 80 per cent of his total income for that year, the Commissioners shall repay to that individual, his nominee or personal representative the amount by which the combined total exceeds that percentage:

We are providing that the interest payment is not to apply in that case. There also a person has a clear obligation to assess his own position as quickly a possible and to advise the Revenue Commissioners as to what his position is. If very generous interest could be obtained on money already paid, there would be less incentive to him to regularise and to identify what his position really was. We must provide some encouragement if it is only by way of a disincentive to people. That is the reason why it is not proposed to provide payment of interest in cases of that kind.

Mr. Yeats

To take the first matter first, the position would seem to be that the Minister has now fixed the rate of interest at such a high and excessively punitive rate that he is afraid people will start deliberately overpaying to the Exchequer in order to get that interest at the Exchequer's expense. The answer possibly is that he has gone too far in raising the level to 18 per cent. I would be inclined to think that if he wants to have a punitive rate on, say, defaulting taxpayers, the fairer way of dealing with the other side of the coin might be to fix a realistic economic rate for cases where the Exchequer is repaying money and to allow it in all cases. It would mean that some people would make less interest—there is no reason why they should get it—but that other people who are not getting any would get a realistic economic rate. Perhaps the Minister might consider that. I can see the argument—whether he is gone too far is another day's work— for having a punitive rate of interest. Whether it should be so high that it almost becomes a fine, I do not know, but one can see that there ought to be some discouragement of people who do not pay their taxes. In the case where the Exchequer is repaying money to people, there seems no great point in giving people 18 per cent on that. The Minister should consider it in his next budget, in terms of fixing a more realistic economic rate and paying it all round.

As regards the second point on subsection (3), I could not follow the point the Minister made. As I understand him, he is saying that if somebody has a very low income and finds himself paying wealth tax and income tax combined of more than 80 per cent of his income, that the provision of not giving him interest is to encourage him to "regularise his affairs". I am not saying it is always possible to do so. Assessment of income tax tends to be held up for long periods—there may be arguments and wranglings about it and so on.

It may well be that the person is in no position to regularise his position as quickly as that. He may not realise until some time later that when he tots up all his tax payments they amount to more than 80 per cent of his income and he settles down to do something about it. I am not sure that he should do anything about it. It is a matter for the Revenue Commissioners essentially. They have all the statistics. One lot of them are dealing with income tax and the other lot will be dealing with wealth tax. Between the two, and with the aid of a computer, they should very easily be able to assess whether a person has been assessed between the two for more than 80 per cent of his income. I am not sure, therefore, that an individual as affected by section 21 should be asked to write in and say, "You paid me too much". In many cases he might not know. If the Revenue Commissioners have received an excess payment I would think that they had a duty and the capability to right themselves.

Question put and agreed to.

SECTION 23.

Question proposed: "That section 23 stand part of the Bill."

Mr. Yeats

It is a question of semantics here. If a person is aggrieved by the Revenue Commissioners—lots of people are aggrieved by a great many things—does this mean that he may appeal or does it mean that he should have a genuine grievance?

Mr. R. Ryan

It means he must have a grievance.

Mr. Yeats

If a person feels aggrieved and can appeal then I am happy.

Mr. R. Ryan

The Senator will note that in the last five years only 44 persons have felt aggrieved.

Question put and agreed to.

SECTION 24.

Mr. Yeats

I move recommendation No. 41:

In page 23, to delete subsection (4).

This provides that if an appeal by one of these people who is aggrieved is made against an assessment it shall not be proceeded with or entertained by the appeal commissioners unless an amount equal to 75 per cent of the amount of the assessment is paid to the Commissioners by or on behalf of the appellant. If one feels aggrieved one can appeal but has to pay 75 per cent of the tax. This rule does not apply in the income tax code. If one has an appeal against an assessment it is usual that that appeal is allowed if a certain amount of money is lodged but if the appeal is lodged in good time the person does not have to lodge any sum.

Under this Bill a person must lodge 75 per cent before he can appeal at all. How does the Minister justify this? This is new legislation and, obviously considerable problems will be presented. There are likely to be more appeals in relation to the number of people involved than there are under the income tax code which is well settled. At the same time we are providing in a situation where there may well be more appeals on a more serious ground that one must lodge 75 per cent. We have followed the income tax code in this Bill to a great extent. This is a case in which we could very usefully follow it the same way and not provide for this kind of logic.

Mr. Lenihan

I should like to support Senator Yeats very strongly. It would appear to be elementary equity that we should follow here in the wealth tax in regard to the appellant the same procedure as exists in the income tax code, and to put in here a provision of 75 per cent of the amount to be lodged before an appeal can be launched appears to be rather penal and against any sense of equity. I would like to hear the Minister's views on this. Perhaps he would give consideration to at least reducing the 75 per cent to some reasonable figure like 50 per cent. The appellant prejudging against himself to the extent of a 75 per cent lodgment of demand appears to be excessive.

Mr. R. Ryan

There will be no discouragement to the genuine appellant, the person who has reasonable cause to be aggrieved. Why do I say there will be no discouragement? Because they will receive a dividend of 18 per cent on any money deposited if they succeed in their appeal. That is a very good investment. I do not think there is any other investment one can get with such little effort. Why do we require lodgment of the money? We require lodgment of the money in order to discourage frivolous appeals. We are not dealing with people who are in financial difficulties. We are dealing with people of some substance when we are talking about wealth tax. The effective rate of the tax is low and those concerned tend to be people in a class who can afford to pay for expert advice. The appeal procedure are very simple and are very inexpensive but unfortunately are exceedingly slow. Therefore, if a taxpayer could lodge an appeal and through that process obtain delay in payment of the tax, quite clearly there would be a great encouragement to engage in the appeal procedure because it will postpone payment of the tax and therefore allow the taxpayer to hold the money to yield other income to him pending payment of the tax and it would clog up the whole administrative and appeal machinery. We want the appeal machinery to be there for the person who has a genuine case to take to appeal. I am sure that Senators opposite will agree with me that it is desirable that a genuine appellant should have a case disposed of quickly and not be held up by machinery which is clogged with frivolous cases. By requiring a deposit of 75 per cent of the tax we ensure that the machine will not be clogged with frivolous appeals.

We are men of the world. We know that some people do not like this wealth tax, and some have indicated in public as well as in private their ambition to make the system unworkable, to delay it as much as they can. That is unfair to the general body of taxpayers. It is unfair to the community as a whole. We have an obligation to ensure that the machine will work efficiently so that the honest taxpayer who is prepared to pay his taxes will be dealt with courteously and efficiently. We can do that by preventing abuses. When we can do it through a system which will impose no hardship on the person who succeeds in his appeal but rather confer a considerable profit on such a person we have a clear obligation to introduce such a system.

Mr. Hanafin

Far from discouraging people to make frivolous appeals the Minister is encouraging people to make an appeal by offering 18 per cent tax free on the 75 per cent that would be required as a deposit while the appeal was going through.

Mr. R. Ryan

But you will only get it if you proceed in your appeal. If you lodge a frivolous one you will not succeed and will not get your interest.

Mr. Hanafin

I am not a gambling man but nevertheless I would feel anybody who is accustomed to gambling would consider himself to be on a good bet because he could not lose. He certainly could not lose his first bet of the deposit and he would stand to gain 18 per cent tax free. The Minister is not doing what he set out to do but is encouraging people to appeal in the hope that they would succeed and that if they did not succeed, they lost their original stake but stood to gain 18 per cent of their deposit.

What the Minister is doing will have the opposite effect to what he believes it will have. In the course of his reply the Minister said that many people do not like the wealth tax and will do everything possible, to use his own words, to clog up the machinery. There are, of course, many people who do not like the wealth tax. There are many of us who think the principle is all right, but not at this time and it is at this time that people will clog up the machinery because they feel the tax is unjust and unnecessary and can only do more harm than good.

Mr. Yeats

The Minister referred to clogging up the works, and so on. I wonder has he in the second paragraph of subsection (4) inadvertently produced an excellent means of doing just that for anyone who feels like using it. This paragraph in regard to the 75 per cent deposit reads:

Provided that this subsection shall not apply where the appellant is aggrieved by the assessment on the ground that he is not an accountable person in respect of tax to which the assessment relates.

I inquired on section 23 about a person being aggrieved. If I were someone liable to this tax and I wanted to appeal against it, could I not say I felt aggrieved on the ground that I was not an accountable person? I could then go ahead and have an appeal without any lodgment. It would be difficult for the Revenue Commissioners in such a case to say: "You say you feel aggrieved but you are not really aggrieved at all." I strongly suspect this is a paragraph the Minister will need to amend at some future date.

Mr. R. Ryan

If time proves me wrong, I shall be only too happy to put it right.

Mr. Yeats

I would nearly bet anything, if I were a betting man, which I am not, that in a future Finance Bill we will see a little clause doing away with this paragraph.

Recommendation, by leave, withdrawn.

Mr. Yeats

I move recommendation No. 42:

In page 24, to delete lines 40 to 45.

This is something about which I am worried. It provides for the first time that there should be an appeal by either the Revenue Commissioners or a taxpayer to have the appeal from the Appeal Commissioners reheard by judges of the Circuit Court. Up to now, as I understand it, an income-tax payer, for example, has been able to appeal to the Circuit Court if he felt aggrieved, but the Commissioners could not. From the point of view of the taxpayer, once the matter had gone as far as the Appeal Commissioners, that was the end of it. Now you have the situation where an appeal lies on behalf of the Revenue Commissioners to the Circuit Court.

I can see the reason for this. I can see that, with a new system of taxation, all kinds of unforeseen problems may arise and legal interpretations may be required. One can see the advantage from the point of view of the Exchequer and the Revenue Commissioners of having a procedure whereby the circuit court can from time to time decide legal problems which almost certainly will arise. What worries me is that this could well be at the expense of the taxpayer. I am all for having certainly in the law and for there being an adequate method of assessing the exact legal meaning of Acts such as this but I am not at all sure that it should be at the taxpayer's expense. If the Revenue Commissioners want to go to law to find out precisely how they stand, by all means let them, but they should pay the costs themselves.

The Minister pointed out that the kind of appeal we were dealing with from the taxpayer under this Bill was quite cheap. There was no real problem involved. The only problem was that there was considerable delay. Here we have a new procedure whereby the same taxpayer can be brought into the Circuit Court. This could be an expensive process. This kind of law is expensive. You would have high-powered senior and junior counsel engaged since the Revenue Commissioners would have a very considerable interest in securing a definite judgment. I would put it to the Minister, therefore, that in such a case the commissioners should foot the taxpayer's costs.

Mr. R. Ryan

The section deals with appeals against assessment of wealth tax in all cases other than cases of appeal against the value of real property. An appeal under this section is somewhat similar to an appeal under the Income Tax Act and the Value-Added Tax Act, 1972.

The recommendation seeks to delete subsection 5 (b). That subsection gives to the Revenue Commissioners the same right of appeal from a decision of the Appeal Commissioners as the taxpayer has. In the 1972 Finance Act it was provided for the first time that a person who was aggrieved by a valuation of shares in a private company for the purposes of estate duty would be given the right of appeal to the Appeal Commissioners against the valuation. That was done by section 33 of the 1972 Act. Section 24 of this Bill follows very closely that section of the 1972 Finance Act.

The subsection sought to be deleted is identical with subsection (4) (b) of that section. There is, therefore, nothing new in the subsection. It merely confers on the Revenue Commissioners a right which they have under the existing code of capital taxation. In those circumstances, I am sure the Senator is not surprised that I find myself unable to accept the recommendation.

Mr. Yeats

I am not sure I follow the Minister. As I understand the position, under the income tax code, while the taxpayer can bring the matter as far as the Circuit Court if he wants to, with of course the consequent risk of involving himself in expensive litigation, the Revenue Commissioners cannot. The matter ends with the Appeal Commissioners and that is the end of the whole affair. The taxpayer when the appeal is originally against an assessment at least knows that unless he wishes it to go further it will not go further than the Appeal Commissioners. Therefore, he will not be involved in considerable legal costs. Now the position will be that, if a taxpayer lodges an appeal against an assessment, he may find himself willy-nilly dragged as far as the Circuit Court and faced with very considerable legal costs in the event of his losing. Everyone knows that even successful litigation can be quite expensive.

Paragraph (b) of subsection (5) is a very far-reaching one and I think the Minister should consider the situation in the light of the fact that it exposes a taxpayer, making an appeal against an assessment, to being dragged into the Circuit Court against his wishes, an operation which would eventually be to the benefit of the Revenue Commissioners. I can quite understand that the Revenue Commissioners would be anxious to use this procedure in order to establish legal principles which will inevitably arise under this new taxation. If they bring the taxpayer, against his wishes, into the Circuit Court they should foot the expenses of having the law elucidated, which is what they will be trying to do.

Mr. R. Ryan

The Minister is aware that it is for the courts to decide who should pay the cost of a legal action. We are repeating what is in the existing tax code. It is not a question of introducing something new. It is in the existing tax code by virtue of the Finance Act, 1972. The paragraph complained of here is identical in all respects, except that the word "revenue" is left out in the Wealth Tax Bill because the Commissioners are defined in section 1 as the Revenue Commissioners. In all other respects it is precisely the same. We are simply applying the income tax law to the wealth tax.

Mr. Yeats

I was not aware of this. I was under the impression that under the income tax code the Revenue Commissioners could not bring an appeal to the Circuit Court but that the taxpayer could. Do I understand from the Minister that since 1972 under the income tax code it has been open to either the Revenue Commissioners or the taxpayer to bring an appeal to the Circuit Court?

Mr. Lenihan

I thought that was the situation since 1972.

Mr. R. Ryan

There are similar provisions in the Income Tax Act. I am sorry. I misled the House. The provision I am quoting from in the Finance Act, 1972, applies to estate duty.

Mr. Yeats

I was not aware that the law had been changed since 1972. I can only regret it. It seems to me to be wrong but, if it is in the income tax code since 1972, while one may regret it it would be inconsistent not to have it in this also. The earlier system was better. As far as the taxpayer was concerned, once he appealed, the appeal stopped at the Appeal Commissioners, except by his own voluntary decision.

Mr. R. Ryan

The Senator will appreciate that the ordinary opportunity for settlement arises at any stage of these processes and I am sure that reason will prevail in many cases.

Mr. Yeats

I appreciate these things do not go that far very often. Lawyers tend to forget that, for the ordinary citizen, litigation is a strain. For the ordinary taxpayer the prospect of being plunged into the maelstrom of the Circuit Court is rather an ordeal. I am sorry that the position since 1972 is that this can happen against the taxpayer's wishes. Obviously if that is so in the income tax code, one cannot object to it being in this.

Mr. R. Ryan

I want to emphasise that the 1972 provision is specifically in relation to estate duties.

Mr. Yeats

Not income tax? My understanding of the situation was that in the income tax code there was no appeal except by the taxpayer to the Circuit Court. I am not interested in estate duty or VAT. I am speaking specifically in terms of income tax.

Mr. R. Ryan

We are not changing the law.

Mr. Yeats

Let us forget about VAT. In regard to income tax is it the position that the Revenue Commissioners can appeal to the Circuit Court from a decision by the Appeal Commissioners?

Mr. R. Ryan

I am not certain. I think possibly not. It is possible under the estate duty code.

Mr. Yeats

The estate duty code is a totally different field. It arises only on a death. There is the winding up of an estate going on. This is a different matter. It is much more akin to income tax. It is an annual payment out of income. My understanding was that there was no appeal on the part of the Revenue Commissioners from the Appeal Commissioners. I suspect that the change, which is a change in relation to income tax, seems to be that the Commissioners feel that there may well be a necessity to get a definite statement of the law on certain matters from the law courts. If that is what they want, they should do it at their expense.

Recommendation, by leave, withdrawn.

Section 24 agreed to.

Sections 25 and 26 agreed to.

SECTION 27.

Mr. Yeats

I move recommendation No. 43:

In page 26, to insert "a sum not exceeding" before "£1,000" in line 3, before "£50" in line 8, before "£1,000" in line 18, before "£2,000" in line 34, and in page 27 before "£500" in line 4.

This recommendation deals with the various fines. These fines are very high. There is no insertion of the usual phraseology not exceeding £1,000, £2,000, and so on. The courts have no jurisdiction in the matter. They must automatically impose these fines whether they wish to or not. This recommendation seeks to insert in each case the words "a sum not exceeding" in order to leave some kind of discretion to the court. We should bear in mind what these fines are for.

You can be fined £2,000 plus the amount which, as a result of your negligence, was not paid in tax. You pay the tax as well but, in addition, you pay a fine of that amount and a fine of £2,000. The court has no jurisdiction in the matter. It can be a case where there is neither fraud nor negligence in the normal sense of the words. Where a taxpayer discovers that, in making a return, he made an honest error which did not involve fraud or negligence, but he does not remedy the error by informing the Revenue Commissioners, that is counted as negligence. For this offence he is fined £2,000. There seems to be every difference between a case such as this and a case of outright fraud or ordinary negligence.

The Commissioners can remit fines, and do in some cases. It seems quite wrong that the courts should be forced in this way to impose what in certain issues would be excessive fines with the prospect that the Commissioners would remit them in total or in part. These are very heavy fines. It is wrong to load this type of thing on to the court. I admit the court has the function of finding out whether the person is guilty. That is quite true but once it finds that the taxpayer is guilty of fraud or negligence, there is absolutely no discretion left and the court has to impose these very heavy fines.

Mr. R. Ryan

On several occasions throughout this discussion Senators opposite have assumed that the Minister would follow the example of his predecessors. They are right on this occasion. I feel obliged to follow the example of my predecessors who have, in other legislation where penalties were imposed for tax offences, used the words which are used here. The words "not exceeding" are not found in the Income Tax Acts or in the Value-Added Tax Act and I just checked this.

Mr. Yeats

The Minister is right; all Ministers are the same.

Mr. R. Ryan

The same bad habits for the best of reasons. There is, of course, the power of the Revenue Commissioners to mitigate fines so imposed. They are disposed to exercise those powers where cases of genuine hardship arises or where a mistake arises. The practice is that they do not prosecute in genuine cases of mistake. Because there is in mankind a stronger inclination to avoid tax than there is to do evil, the laws have to contain very severe sanctions. The system as operated, including the exercise of the power of mitigation, is such as not to justify any sense of alarm. I consider the penalties are not at all severe considering the slice of wealth involved in our wealth tax situation. It is very important that the sanctions should be severe, that they should be related to capacity to pay. If an offender has to realise some of his wealth in order to pay the fine, then so be it. He might be inclined to take a chance if the fines were not too heavy, but, knowing they might be heavy he might decide that honesty was the best policy.

Senator A. FitzGerald spoke of the new regime which will probably operate when the Bill becomes law. There will be a greater inclination on the part of some people to be more honest in the future than they might have been in the past. That inclination might not be very strong if the penalties were light.

Of course, there is no comparison between penalties under the Income Tax code and the Wealth Tax code because penalties can arise under the Income Tax code for many people of small means, whereas one must have significant means before one would be involved in any obligations under the wealth tax situation. If you were to apply to the penalties under the Income Tax Act of 1967 the regulator that the Opposition has pressed upon me to apply to other figures in this Bill, the gap between the income tax penalties and those in this Bill might not be very substantial. There is a strong tendency on the part of legislators in many matters to delay bringing about reform legislation. This is particularly applicable to penalties. We might, indeed, have a great deal less petty crime here if the fines imposed by old statutes were brought up to date. Where you have a situation in which many serious offences today against society and man carry a penalty of only £2 maximum there is, of course, at least a readiness on the part of some people to run the risk where the penalty is no more severe than that.

The well-meaning person has nothing to fear from the penalties in this Bill. We said in the White Paper that we would propose very severe penalties. If the White Paper is the gospel that Senator Yeats believes, it should not be amended at all. I am sure he will find the White Paper's intention in this respect to be a valid reason for our fulfilling our promise.

Mr. Yeats

I completely agree with the Minister about the necessity in many fields to raise ancient penalties. I remember when I could bring a railway train to a halt by pulling the emergency chain for £5. I always felt as a boy, it would be very cheap entertainment but fortunately my public spirit restrained me. Nonetheless, while I can see the advantage of having high penalties, it is fair to say also that the people concerned in this, the man, say, who is paying £1,000 wealth tax is going to pay £10,000 to £15,000 in income tax. If they can get away with that for £100, one suspects they will evade income tax rather than evade wealth tax. I would not worry about the penalties. Indeed, I would not worry even if they were £5,000 or £10,000, if the words "not exceeding" were inserted. It seems quite wrong to have a situation in which the courts are by-passed in this way.

I accept completely that the Revenue Commissioners, in general, will not come down on a man for a heavy fine unless he really deserves it. I do not think that individuals, who have nothing whatever to do with the administration of the law, should be given these kinds of powers. The courts themselves should be brought into it. They should take the decision as to whether the nature of the offence is such that a heavy fine is justified or whether it was some mere inadvertence which did not justify more than a nominal fine or even perhaps the Probation Act.

Here we have a situation in which the full panoply of the law is used. When it comes to the penalty they have absolutely no control over the matter at all. The Revenue Commissioners, who are not concerned with the administration of the law, have the right to decide what the penalty will be.

I accept completely that the Minister is only following the glorious example left to him by lines of Ministers for Finance for generations past. It is a curiosity of tax legislation that they do in so many respects detract from the functions of the law. I can see that one is tilting at windmills to try to change it at this late stage.

Recommendation, by leave, withdrawn.

Section 27 agreed to.

Sections 28 and 29 agreed to.

SECTION 30.

Question proposed: "That section 30 stand part of the Bill."

Mr. Yeats

There is one last point I should like to make on Committee Stage. As I understand it, the effect of this section is that changes in rates of wealth tax can be made by resolution of the Dáil. Is that all that need be done or will it appear also in the annual Finance Act?

Mr. R. Ryan

The Provisional Collection of Taxes Act, 1927, enables the tax to be imposed, renewed, varied or abolished by financial resolution of the Dáil but that is subject to confirmation by an Act of the Oireachtas. Therefore, the financial resolution would have a temporary lifespan only but I cannot say with certainty whether it would be the annual Finance Act or some other Act which would be the Act by which we would vary this.

Question put and agreed to.

Sections 31 to 33, inclusive, agreed to.

Title agreed to.

Bill reported without recommendation.

Report Stage ordered for Friday, 8th August, 1975.

The Seanad adjourned at 4.40 p.m. until 10.30 a.m. on Friday, 8th August, 1975.