Is the total amount of tax payable by a married couple unchanged?
Finance Bill, 1976 ( Certified Money Bill ) : Committee and Final Stages.
Sections 1 to 3, inclusive, agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
Yes. The amount of tax remains the same. We are relieving people of the necessity of applying each year to be separately assessed, which was unnecessarily burdensome. Once they apply, they remain separately assessed until notice to the contrary is furnished by them.
Question put and agreed to.
Section 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
This raises an important issue. Basically, what this provides is that in the coming two years, the present year of 1976 and the year of 1977, or, if the Minister would prefer accuracy, these two years plus one day, that is, up to 1st January, 1979, the 100,000 self-employed will be required to pay income tax on the income of three years. The principle being established by the Minister of trying to bring the taxable incomes of the self-employed more up to date than they have been is one with which we agree. It is wrong that one section of the population should be paying tax on current income and that others should have the advantage in an inflationary situation of pay ing tax on income which is older and generally smaller.
Having accepted that this is a principle over which one can stand, one cannot under any circumstances agree with the method which the Minister's using in achieving it. The position is that in this year, tax for the self-employed is payable in this way: 1st January, 1976, a half-year's tax; 1st July, 1976, another half-year's tax That is the normal situation. But on 1st October, 1976, a further half-year's tax will be required from the self-employed; then on 1st April, 1977, a further half-year's tax. A year from now, 1st July, 1977, a further half-year's tax and again on 1st January, 1978. So that between 1st January, 1976, and 1st January, 1978, that is, two years and one day, the self-employed will be required to pay three years' tax; although the 100,000 people concerned will, during that period have had the benefit of only two years' income. The State stands to gain some £10 million in this year. The Minister is considering the similar situation that has arisen as a result of the transition to PAYE of the 225,000 people in the public service. He has given them a concession. Explaining the reasoning behind this concession in his opening speech yesterday to the House he said:
There is also the point that, as the change——
this is the change to PAYE in the public service
——will involve a considerable increase in tax liabilities, there could be hard ship, in the absence of any remission, in cases where heavy financial commitments had already been taken on.
The 100,000 self-employed also, perhaps to a greater extent than public servants, take on heavy financial commitments. Hardship is surely far greater in their case than it is in the case of the public service. According to the Minister's calculations, the problem in the public service was that in an inflationary situation they were liable to tax on an income of approximately 23 per cent higher than otherwise would be the case. In this instance the Minister is effectively increasing the amount of tax payable by some 50 per cent in the case of self-employed but no concession is given to them.
The Minister makes the specious case, that there is no increase in the amount of tax payable on the income concerned. That is technically true. There are three tax years involved. In each one of them the amount of income tax liable to be charged on the income concerned remains the same. But the fact remains, which unfortunately cannot be denied, that the self-employed under Schedule D in this State are liable to pay tax in two years on three years' income, although obviously only two years' income will be received in that period. How they will do it I do not know. What effect will it have in a situation where already many small businesses are in a serious financial position? What effect will it have on employment in these businesses? What effect will it have on many people in small businesses who will not be able to raise the money to pay the extra tax and who will be charged 18 per cent interest on any arrears there may be, apart from any other unfortunate consequence of their non-payment? How many will be put into bankruptcy? How many more times will Seán P. Bedford's name appear over notices in the newspapers?
That is a very urban-biased view.
I am not in a position to quote the names over the whole country. There will be many other similar notices under different names. This situation is totally unjustified. It is impossible to conceive the reasoning behind it. The Minister's point that the amount of tax payable in each particular year remains the same is not valid. The plain, tragic fact remains that all these people will be liable to pay 50 per cent more tax than they otherwise would. I mentioned yesterday in the Minister's absence—and I think it should edify him by mentioning it again today on this point—that there was a somewhat similar situation in Sweden. Under the Swedish Socialist Government this well-known woman writer of children's fables was told by the officials that her income, which I presume was pretty large, would be liable to 102 per cent taxation. She wrote a fable which she sent in to the leading Swedish newspaper.
In the fable the big bad monster, representing the officials, tells the heroine that she is going to have to pay tax on her income at 102 per cent. The heroine plaintively says that there are not that many percentages and the officials pointed out that there are. The Minister has exceeded this. Not only are there 102 per cents in the Minister's life but a person concerned in this section, assuming that his income remained the same over the three years will be paying tax at 115.5 per cent on the income he receives. Of course, he is paying it at 77 per cent on each year's taxable income, but that person is paying at the rate of 115.5 per cent on the income which he actually receives.
In the Minister's life there are that many per cents. It is not only wrong but it will not get in the revenue. All that will happen will be that a great many people will go bankrupt and there will be further unemployment. The Minister ought to reconsider this section.
The argument about the tax to be paid under the new system is based on a false comparison. What is being argued is that under the existing system everybody is required to pay one-and-a-half years' tax in one year and that people will have to pay two years' tax in one year under the new system. The system is unchanged. It is a half year's tax on 1st July, 1976, and a half year's tax on 1st July, 1977. That is not admitted in the argument. Everyone wants to stop short of 1st July, 1977, and suggest that only one year's tax is paid. But one-and-a-half years' tax is paid in a year and a day under the existing system and that is the burden with which to compare the new system. We are not increasing the level of tax, we are not increasing the rate of tax, and we are not increasing the tax base. On the other hand, people who are being brought into PAYE this year will pay tax on their incomes in 1976 whereas last year they paid tax on their incomes of 1974. There is a very big difference in the tax burden of people who are being shifted forward by two years.
People under Schedule D, who are being asked to pay their tax in advance of the date upon which they previously paid it will still pay their tax in arrear. They will pay it 15 months in arrear instead of 18 months in arrear, as they did under the old system. They will still, as it were, enjoy 15 months' credit rather than 18 months' credit. And to get that type of credit at this time of inflation is a valuable use of money which such people would not have if they were in the PAYE system. If we had not advanced Schedule D payers in the way in which we did a greater inequity than previously existed between PAYE payers and those under Schedule D would be created.
I have every sympathy for Schedule D payers or anybody else whose tax position is being changed in such a way that they may be called upon to make payment of tax earlier than they previously were required to pay it. That happened in 1960 when the majority of taxpayers were brought within the PAYE system and that is happening in respect of all the public service taxpayers who have been brought within the PAYE system this year. They will not have the use of Exchequer money. They are required to pay promptly at the time they receive the balance of their pay whereas the Schedule D payers would fail to enjoy a very significant advantage over those who have been brought within the PAYE system.
It has been suggested that the Schedule D payers who are having their tax credit period abbreviated should get a concession similar to that being given to PAYE payers. That overlooks the fact that the base, rate and burden of the tax has not been changed. It will be time enough to consider whether Schedule D payers should receive a tax remission or concession if and when somebody proposes that they pay instalments of tax in advance of actual calculation of their profit for a given period. I do not want to talk too personally or offensively. If my tone earlier was not civil I apologise, but Senator Yeats is doubtless aware that there are many countries, including many European countries, where what we would call Schedule D payers pay tax in advance. They pay it by instalments currently and they are not allowed a period of tax credit of 15 or 18 months, or anything like that. If and when we arrive at that period a case could be made for giving such people a remission related to the remission given to people in the PAYE system who are going to have a very significant increase in their burden of taxation. The actual increase was roughly between 23 per cent and 25 per cent for the PAYE payers. That is the additional effect of being drawn within the PAYE system compared with the old system. That will not apply to people under the Schedule D system.
The basis for the taxation of corporations has been shifted on to the corporation tax code. Is there any conceiveable effect on employment involved in the acceleration of payment by self-employed persons, except in the very limited number of cases where people were forced to remain in partnership and not enabled to incorporate? The vast employer is always incorporated. Is he affected? Is there a parallel acceleration for payment in the case of corporations? I did not think the employment argument was there from my own reading of the section, as amended. Does the 18 per cent interest rate only arise in the case of fraud and negligence?
Plain ordinary arrears.
God forgive the lot of you.
People can avoid this by paying the tax assessed, or 80 per cent of the tax which is ultimately found to be due.
The last remark reminds me of a certain Fianna Fáil Minister for Finance who, many years ago, made what to me was an immortal remark when there were complaints about employers deducting tax from employees in the days before PAYE. He said: "It is the duty of every taxpayer to have the money ready for the tax gatherer." It is as unreal now as it was then. In practice, one does not have the tax ready for the tax man. One collects it at the last minute and hopes for the best.
Senator FitzGerald is correct in saying that large companies are not affected at all. It is the small shopkeeper or traders who are affected by this. I accept that the amount of unemployment would not be great. The amount of distress and injustice involved in this measure will be great. The Minister made the point that it is necessary to give this concession to the public service because it was given in 1960. The more he says it the more I feel that the concession given by the then Fianna Fáil Minister for Finance in 1960 has impelled him to do it now. One feels that if it had not been for this concession in 1960 the public service would not have got away with it now. They would have been told: "It is too bad, we cannot afford to give a concession." I strongly suspected the Minister was going by precedent.
As a result of the Minister's concession to the public service, the total profit gained by the State this year under the changes in PAYE will be £8 million, taken from 225,000 people. The profits, on the other hand, in respect of the self-employed of whom there are 100,000—less than half the number of public servants—will be £10 million. This would appear to mean that the amount of extra tax per head is very much greater in the case of the self-employed than in the case of the public service. Therefore, if there were a case for making a concession in the public service there should be a much better case for making a concession in regard to the self-employed, particularly in view of the fact that the public service employees have safe jobs. They have a certain salary which is indexed to the cost of living and which rises faster than the cost of living in some years. The self-employed, on the other hand, do not have these advantages. In present-day economic conditions one strongly suspects that many of the self-employed are not doing well at all.
The Minister speaks as if, year by year, along with the pattern of inflation, the incomes of the self-employed are rising accordingly. The Minister has chosen a very bad time to make this change. The likelihood is that a high proportion of the self-employed have had lower rather than larger incomes. Therefore, the point made by the Minister about paying in arrears at a time when salaries are rising year by year does not apply in many cases. In many cases if incomes have risen at all they have done so very slowly. In other cases incomes have fallen quite rapidly. The 100,000 self-employed are being asked to face this large impost of £10 million, that is, £100 on average per head. They are being asked to face it at a time when, because of economic conditions, many of them are doing very badly. The Minister has chosen the worst possible time to do this.
I should like to inquire about the relative liability of the self-employed and the public service, £10 million from 100,000 self-employed as against £8,225,000 from the public service. The Minister stated that the tax payable by the public service this year was 25 per cent higher than in previous years. That does not seem to fit in with what he told us yesterday when he said that:
The effect of the change is to increase the gross 1976-77 tax liability of the groups affected by about £14 million—or some 23 per cent— over and above what it would be in 1976-1977 if the old basis of assessment on preceding-year's income had been allowed to continue.
That is on the basis that the State makes £14 million but, in fact, £6 million of that has been remitted. So the State only makes £8 million, which suggests that the increase is possibly nearer 13 per cent than 25 per cent. I should like to know what the exact figure is, allowing for the concession the Minister has made. I would be interested to know what percentage increase in tax payable under Schedule D the Minister hopes to achieve by this?
The number of public service people who are being brought within the net is about 130,000. Quite a number were, for a variety of reasons, within the net already. The 130,000 involve a net figure of £8 million whereas there are about 80,000 Schedule D payers involving £10 million. But the 130,000 will be paying the greater sums from the beginning of the year whereas the 80,000 will not pay any greater sums at all by way of net tax but they will have the period of credit shortened by three months. They will pay their January, 1977 instalment or moiety of tax three months earlier than they otherwise would. They will still enjoy 15 months' credit from the time they made the profit whereas others will be paying the greater amounts from the beginning of the year.
These 100,000 people will have to pay £10 million extra this year, and I presume £10 million extra next year as well? What is the Minister's profit from this in 1976 and 1977?
It could rightly be said that there is no profit in it at all. There is no additional income. As far as this year is concerned, the £10 million extra is simply because the date of payment is advanced. As far as PAYE income is concerned, there will, of course, be greater revenue in future and on a continuing basis.
How about 1977 for Schedule D?
Schedule D will be the same but by 1978 there will be no further gain.
This group of 100,000 people are being asked to produce £20 million in this year and next year. That is an average of £200 each. The Minister may convince himself that there is no hardship, that they are not being asked to pay more than they should pay, that the tax remains the same, but he will have difficulty in persuading the people concerned when, next October, to their amazement and astonishment, they find they have an unexpected half year's tax to pay.
There will be only two moieties received next year. There will be only two payments received next year. The January, 1977, payment is being advanced to October, 1976, and the next payment will be in March of 1977 and then there will be a payment in July, 1977. The next payment will be in January, 1978. So, in fact, there will only be two moieties next year.
The Minister will be getting anguished letters from 100,000-odd people from the 1st October next and I wish him luck.
Question put.
The Committee divided: Tá, 25; Níl, 8.
Tá
- Barrett, Jack.
- Blennerhassett, John.
- Butler, Pierce.
- Codd, Patrick.
- Connolly, Roderic.
- Daly, Jack.
- Deasy, Austin.
- FitzGerald, Alexis.
- Horgan, John S.
- Iveagh, The Earl of
- Kerrigan, Patrick.
- Kilbride, Thomas.
- McAuliffe, Timothy.
- McCartan, John Joseph.
- Mannion, John M.
- Markey, Bernard.
- Moynihan, Michael.
- O'Brien, Andy.
- O'Brien, William.
- O'Higgins, Michael J.
- O'Toole, Patrick.
- Owens, Evelyn.
- Sanfey, James W.
- Walsh, Mary.
- Whyte, Liam.
Níl
- Brennan, John J.
- Cowen, Bernard.
- Dolan, Séamus.
- Eachthéirn, Cáit Uí
- Hanafin, Des.
- Keegan, Seán.
- Lenihan, Brian.
- Yeats, Michael B.
Tellers: Tá, Senators Sanfey and Kerrigan; Níl, Senators Hanafin and Cowen.
Question declared carried.
Business suspended at 5.15 p.m. and resumed at 6.15 p.m.
Sections 7 and 8 agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
This rather innocent-looking section is the one which reenacts for this year the so-called temporary surcharge of 10 per cent which was imposed last year on all rates of income tax except for the lowest one—that was from 35 per cent upwards. This was originally introduced last year as a temporary measure. It was allied to the very temporary cut that was made last year of 4 per cent in the cost-of-living index due to the various subsidies on clothing, transport and so on that were introduced last year and which brought about the very temporary easement in the constant onset of inflation—a process which has been reversed in this recent budget that we have before us today. In order to help pay for the subsidies that were introduced last year we had this temporary 10 per cent surcharge. This is now enacted again in this Finance Bill.
As the Minister himself admits—I am quoting from his Budget speech—we now have the second highest marginal rate of personal income tax in the EEC. It applies at a far lower point than any other member state. The position is that in Ireland 50 per cent of total earnings become payable in income tax at an income of £13,000, whereas in the United Kingdom, which is looked upon as having a very high rate of taxation— almost as high as ours and in some cases perhaps even higher—50 per cent of total earnings are not swept up by the tax gatherers until the payer has an income of £16,000 as against £13,000 here. In the Netherlands the figure is £25,000. In Italy it is £100,000 and in France, no matter what your income is, you never reach the stage that 50 per cent is taken up in income tax.
Therefore we have very high rates of income tax. No matter what way you assess them they remain very high. At the lower levels they are higher than in the vast majority of other countries. On top of this we have this 10 per cent surcharge which brings the top rate up to 77 per cent, which is a very severe imposition on those few people whose income is at that kind of level. It is also a very severe imposition on a great many people whose income is a good deal less than that who have to pay at the very least 38.5 per cent at the marginal level instead of 35 per cent. The Minister will agree with me that, in the interests of encouraging people to increase their incomes, develop businesses and go in for enterprise, obviously if one is to encourage enterprise these levels of income tax are far too high and ought to be reduced as soon as possible.
What worries me and I think many other people is that a temporary surcharge can become like the original temporary income tax and remain year after year. In view of the budgetary position of the next three years which faces us in face of the Minister's promise—or should I say threat?—to eliminate the £327 million current deficit over these three years, it is very difficult to envisage this temporary surcharge being removed this side of 1980. Certainly one would like some indication from the Minister whether he could envisage removing this surcharge at any time in the immediate future.
I would like to point out that this surcharge is only temporary. The surcharge will automatically come to an end at the end of the tax year 1976-77. The provision in the Bill simply extends it for another year.
While at the upper rate of income our tax levels are higher than they are in some other countries, of immediate interest to most Irish people is the fact that in the income range up to £5,000 per annum, which of course covers the overwhelming mass of our people, the impact of income tax is less in the Republic of Ireland than in Britain, so that for comparable incomes people here will pay less tax in the income range up to £5,000 than across the water. What the Exchequer can do by way of tax relief or by way of any revenue collection mechanisms will depend upon the demands made upon the Exchequer. It can simply be said that the fewer demands that are made on the Exchequer, particularly in respect of current incomes and so on, the smaller will be the demand the Exchequer will have to make to remunerate whatever expenses the Exchequer is called upon to incur.
It may be said, and said accurately, that if the Minister for Finance and the Government refuse to increase expenditure taxes will not rise. That is true, but it will be noted that day in and day out, on every day of the year except on budget day, the Minister for Finance in particular and the Government in general will be abused and accused and attacked because they will not give ready consent to increases in expenditure. There was a number of such items in today's paper, for instance, where criticism has been levelled at Ministers for not giving immediate acquiescence to demands for additional expenditure. There have been parades, marches, protests and banner headlines in the last fortnight or three weeks because Ministers are resisting demands to increase expenditure. This resistence to increase expenditure arises from two factors. One of them is that the demands for additional expenditure were not justified, and secondly, even if they were, they could not be granted without further increasing the burden of taxes which the Government considers to be at a level which will not be further increased.
We, as a community, are fighting with ourselves. We are fighting because we complain about the level of taxation and we are fighting because we regard expenditure as being insufficient. But until such time as we bring our resources and our expenditure expectations into line we will continue to be a very dissatisfied people. I can only hope that the common objective of both Opposition and Government will help to bring about a greater contentment of our people so that their demands for Government expenditure will correspond with the revenue to contribute towards expenditure which such demands make necessary.
I am not in the least impressed by the Minister's first comments that this surcharge is temporary because it will die at the expiry of this section of the Finance Bill. We all know that unless the Minister and the Government take a positive decision next year to remit whatever amount of taxation is involved in this—indeed I would be glad if he could give me an estimate as to how much this extra 10 per cent will bring in—it will appear automatically in next year's Finance Bill. I do not think that that makes it any less permanent than it seems likely to be.
The Minister rightly says that people spend a good part of their time urging him and the Government in general to spend more money. That is a perfectly normal and natural part of the democratic process. Indeed, the Minister in his long period in Opposition—soon, one hopes, to be renewed—was extremely effective at that same occupation. But, after all, that is not the way Governments work. The Minister knows that better than I do. The Minister does not, in fact, increase expenditure in his budget on the basis of somebody who writes in a letter saying, "Please, Mr. Minister, spend so many millions on such and such", or on the basis of a demonstration out on the street. At least one would hope that this Government would deal with things the way other Governments do. The Minister for Finance increases expenditure on the basis of demands made upon him by his fellow Ministers in the Government. They are the people who have their pet schemes they want to put through. Indeed, one of our legitimate complaints on this Finance Bill and previous Finance Bills has been that the Minister has not sufficiently resisted, as a Minister for Finance is expected to do, many of the claims made upon him by his fellow Ministers. It is they who are responsible. Admittedly, it can reflect to some extent the wishes of public opinion on this; but one expects Ministers to do this, that is what they are for. It is they who have pressed these claims upon him and it is the Minister who has accepted them, therefore, from his own colleagues. But one accepts that a Minister for Finance ought, if he is to do his job properly, to resist claims which he feels are excessive in relation to the resources of the country.
Nonetheless, within this strait-jacket that any Minister ought to have—this Minister has unfortunately refrained from wearing it sufficiently often, with a result in the enormous expenditure we see contained in this Bill—he does, of course, have a certain choice as to the forms of taxation that he will bring in, or indeed the extent of expenditure he will allow. The point I am making is that where you have a surcharge such as this which imposes a rate of taxation which is unduly high in relation to the resources of the country and which is calculated to weaken initiative, to reduce the possibility of enterprise, to increase unemployment and generally to help to run down the economy of the country, then he should think on those lines and do his utmost at the earliest possible moment to eliminate this surcharge and bring down direct taxation rates in general. One suspects that were he to do so the beneficial results in developing the economy might well mean that the net loss in revenue could be quite small.
In making the comparison that I have made—and one could make many more with other countries—one has to bear in mind that our very high marginal rates of tax are, in general, imposed on much smaller incomes than exist in the other countries. The Minister says that in certain respects the British tax system is even worse than ours. I accept that, and of course one has to bear in mind that recent British Governments have tended to have socialistic, almost Marxist policies with regard to private enterprise. There is a definite bias there which I would hope that the Irish Government would not share, but even in England—and the differences between us and England are not great in the degree of taxation—the income per head is around 50 per cent higher than here. On the Continent average incomes are twice what they are here and in some cases even more, maybe three times more. It is patently obvious that say 30 per cent of a small income is a much greater imposition on the person concerned than 30 per cent of an income two or three times as big. The marginal rates of tax which we have are on average incomes far lower than elsewhere. To that extent therefore they are far more difficult to pay, far more burdensome on the individual and on the community and far more damaging to the whole concept of enterprise and initiative. That is a problem. I accept that any Minister must also face the fact that simply because our incomes are lower—and the kind of expenses which the State must meet are not necessarily correspondingly lower—it is more difficult to raise the money. One has to accept that. At the same time, this surcharge is peculiarly damaging in its effects on the community as a whole. The Minister should, therefore, consider abolishing it as soon as possible. I would like to hear from the Minister how much money it brings in.
It brings in £19 million.
Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."
Section 10 is the one dealing with personal reliefs. The Minister has shown some degree of satisfaction at bringing in these so-called improvements in personal reliefs. Under this section we have the relief for a married man brought from £920 to £1,010. If my calculations are right that is an increase of 10 per cent. The increase for a single person is from £575 to £620, an increase of some 8 per cent. The increase for a widowed person goes from £635 to £685 which is, again, around 8 per cent. Then the child allowance is up from £230 to £240 which is an increase of around 4 per cent.
All these figures, including even the highest one of 10 per cent for the married man, are well below any reasonable estimate of the increase in living expenses, the rise in prices this year and the consequent fall in the value of money. Therefore, by the end of the year, the income-tax payers so far as the personal reliefs are concerned will be worse off than they were a year ago. So, the Minister has very little to boast about with regard to these. There is a theoretical improvement in that the actual figure in pounds is improved but in practice, from the point of view of genuine benefit in real terms there is no advantage for the taxpayer. It is likely that the average of around 8 per cent will, perhaps, be less than half the increase in the cost of living and the fall in the value of money this year.
The average increase last year was around 15 per cent and the cost of living increase was something around 21 per cent. So, while the taxpayer last year was again worse off as a result of these arrangements, he was not quite as much worse off as he is likely to be this year. The 8 per cent improvement this year can be laid beside the 7.3 per cent increase in prices in the first three months ending February 15th with a likelihood of another 5 per cent or so when the May 15th figure becomes available. It may be 12 per cent in the first six months as against the average 8 per cent increase in allowances given. Quite clearly where the taxpayer allowance is concerned he is worse off compared with last year's budget because of the surcharge.
One must set this matter against the very definite undertaking given by the Minister for Finance in 1974 when he said that as a definite statement of fact there would, from now on, be indexing of these allowances, that year by year they would be assessed on the basis of the increase in the cost of living and the fall in the value of money. One appreciates that this was a dangerous undertaking to give but nonetheless it was given and, quite clearly, is not being carried out. The Minister, apparently, has not found himself able to carry it out. At any rate it has not been carried out and the taxpayer is steadily worse off as a result of this.
The Minister only a short time ago said that Fianna Fáil had left the position as it was for so many years. Shortly before Fianna Fáil left office, in 1972, a very considerable improvement was given all around in these allowances. The basic point was that the cost-of-living increase and rate of inflation at that time were so much less than now that the position of the taxpayer was correspondingly better off. I have absolutely no doubt that every taxpayer would vastly prefer to have been given no reliefs of this kind in this budget and would prefer to be facing price increases of 4, 5 or 6 per cent instead of the present likelihood of 18 to 20 per cent. It is absolutely no use giving personal reliefs of this kind and boasting about them and saying: "Am I not a good Minister for Finance to be able to give all this money away?" if, at the same time, inflation is allowed to run at a rate which means that in the heel of the hunt the taxpayer is a great deal worse off. That is what is happening as a result of this section.
I want to ask the Minister one question on this. Would it be possible at any stage in dealing with Finance Bills to break away from the particular form and framework of this section? Would it be possible to introduce a section regarding personal reliefs something on the lines of saying that personal reliefs for the year 1976-77 "shall be as follows"? Everybody would understand that then but when one reads this, and I quote from section 10;
(1) Where a deduction falls to be made from the total income of an individual for the year 1976-77 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).
One does not know whether the Minister is taking one's life or giving relief. I think I know the reason for this because it is all referring back to the Income Tax Act, 1967. At some stage this is a section which appears in every Finance Bill. It might be well worth the Minister's while trying to simplify it by saying: "Personal reliefs for the year 1976-77 shall be as follows" and then list them.
I will take Senator O'Higgins's point first—no discourtesy to Senator Yeats—and point out that the Table on the next page explains it all.
Yes, but by the time one gets to it one is exhausted.
I can understand the point. The parliamentary draftsman considers it necessary to express it in that way. One might consider a more simple form such as saying that the Table in such a section be deleted and replaced by the following Table. It seems a much simpler way. There may be very good reasons from the draftsman's point of view why it should be put that way, but the introduction of Tables in the Finance Bill is itself a great improvement because one can see at first sight what is meant.
Let me also draw attention to another improvement in this year's Finance Bill which I sanctioned last year when it was introduced for the first time, and that is that in the "contents" section of the index to the Bill, the marginal notes, we explained the purpose of the section which is being amended. For instance, take section 1 of this Bill which says: "Amendment of section 128 (penalties) of Income Tax Act, 1967." Hitherto, the word "penalties" would not have appeared nor would "dependent relatives" have appeared in the second one, or "power to require production of accounts and books", and so on. We would simply have referred to the original section of some other Act which was being amended without any guidance to persons reading the Bill as to what was in the original section which meant you would want to have a library to understand what the impact of the various sections was.
With regard to what Senator Yeats said, I should like to remind him that at no stage did I or the Government say that personal income tax allowances would be indexed. I have always spoken against indexation. I do not believe in indexation. I believe indexation to rates of inflation is simply a way of perpetuating that which you want to get rid of. It is like indexing your conduct to a bad habit. It is unlikely that your conduct will improve, or that you will break your bad habit. What we did say—and I quote from the budget speech of 3rd April, 1974—was:
The Government are committed to a policy of reviewing the personal allowances at frequent intervals.
We have reviewed them each year and we have improved them each year. It is a simple choice. You grant certain reliefs and if you decide to grant more relief you have to replace it by revenue, and that revenue can only be obtained by an increase in the rates about which Senator Yeats understandably and correctly complained when he was discussing section 9. I would prefer to be modest in the amount of improvement in the personal allowances rather than further to increase the rates of tax. It is a choice as to which you do. I think we have taken the right choice.
With regard to the Minister's promise to review income tax, I gained the impression at the time, foolishly I suppose, but I think a great many other people gained the same impression, that what the Minister had in mind was that, in reviewing the tax, the allowances would be modified year by year in accordance with increases in prices. That was the impression conveyed. Reviewing in itself obviously means nothing. Any Minister for Finance reviews every aspect of budgetary operations in each year, including allowances. A promise to review, as such, would be utterly meaningless unless it went further. All these matters are reviewed as a matter of course at least once a year. A definite promise to review could only mean, if it meant anything, that at least some reasonable effort would be made to bring these allowances up to the rate of inflation. This year that has not been done and the seepage will be very considerable and the real value of these allowances will fall very considerably during the year.
With regard to the point made by Senator O'Higgins about the phraseology, I must confess I turned to the table first, and it was only when he started to read the section that I read it myself. I had paid no attention to it until then. There is something rather curious about Finance Bills. It is almost as if there was a different parliamentary draftsman responsible—maybe there is —because it always seems to me that the style or the method of writing a Finance Bill is quite different from that of any other legislation. The whole phraseology is different. It is more complicated and esoteric. Indeed, this Bill, section after section, to the ordinary intelligent reader is simply meaningless. I do not know why these Bills are written in such a way. I agree with Senator O'Higgins that, in a relatively simple operation such as is performed by section 10, it ought to be possible to draft it, if not in plain English, in some faint approximation to it. One wonders why it is necessary to have nine complicated lines to do this very simple operation.
Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
I have a small query on this. I am puzzled about the relationship between this section and section 4. As the Minister said, on section 4, if a separate assessment has been asked for, for a man and wife, they do not have to ask every year. It carries on from year to year until they stop the process. I am not quite clear what this section does that the other section does not do or, alternatively, what new law is made by this section?
As the law stands, under section 192 of the Income Tax Act, 1967, the wife's income is deemed to be the income of the husband and it is he who is required under section 169 to make the return of the income. One result of this is that we have had cases where husbands having no income themselves have been required to make a return of the income of the wife. A not uncommon experience nowadays is for a married woman to be working and having an income, while her husband is pursuing studies and not having an income. Even in such cases, the law as it stands would require the husband to make a return of the income and prevent the wife making the return although she was in receipt of it.
The section provides for the furnishing of a separate return of income by a married woman in respect of her own income. The provision has been made in response to requests by married women who wish to make returns of their own income rather than being required to have that income included in their husband's return. The opportunity is also being taken of correcting a drafting flaw in the relevant section. There is a reference to "period" in two places in the section which, in one place, means the period within which the return is to be made and, in the other, means the period for which the profits or gains are to be returned. This will now enable the wife to make her own separate return of income. If the wife fails to do it, the husband may, nonetheless, be required to do it in the future, but if the wife makes her own return the husband will not be required to make a return of her income.
I take it the husband is still liable for his wife's income tax in the event of her failing to satisfy the Revenue Commissioners that she is paying it all. Is the husband still primarily liable?
Yes, unless there is a separate assessment.
In the case of a separate assessment, the husband is in no way liable?
No.
I am happy to hear it. As the Minister may remember, I raised piteous complaints on the Wealth Tax Bill when it was going through the House. As far as I remember, the position with the welath tax was that where, for example, the husband had no wealth and the wife had, the wife could fill up the forms but, nonetheless, the husband was still primarily liable for paying the tax. I thought and still think this is outrageous. I am happy that at last these kinds of complaints are getting through in certain circles and that, at least in regard to income tax, this rather lunatic proceeding has been stopped. Perhaps the next time the Minister is amending the Wealth Tax Act he will think of doing the same there.
It is not quite the same. The Wealth Tax Act is based on a family holding of wealth or wealth held by married couples. What we are dealing with here is where a married woman has income of her own and makes a return.
The Minister should not deprive me of all hope.
No. I should not like to do that.
Question put and agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."
The Minister should be congratulated on introducing this totally incomprehensible section if all copies of the Finance Act, 1975, have disappeared. Were it not for the information given in the memorandum accompanying the text of the Bill as to what was meant, it would be incomprehensible. Without pursuing the matter any further, the provisions do not seem to take in all the subsections or subparagraphs. Why have we not a table to this one which would enable us to understand it?
When I started lite I was educated by a lady who was convinced—and who went to her grave with the conviction— that the Revenue did this deliberately so that you could not understand it. Who could understand that without going around with this volume under his arm? Why could we not have a table when we are applying to new sets of people provisions which previously applied to others? Is there a reason for that?
I feel complimented to know that Senator Alexis FitzGerald asked precisely the same question as I asked when I saw the original draft even before the Government saw it. We had consultations, as a result, with the parliamentary draftsman, who of course is the expert who puts these brilliant thoughts into the form in which it ultimately reaches the Government and the House.
The introduction of tables is in itself a fairly novel development and a very welcome one. The approach generally is that where mere amendments, rather than substantially new sections, are being made, tables are not resorted to. Sometimes when the amendments are rather comprehensive, or of a consolidating nature, a table is produced. What we are doing in this section, as I know Senator Alexis FitzGerald understands if nobody else does, is giving relief for unincorporated bodies in respect of increase in stock values. What we are doing is fulfilling an undertaking given in January of last year which arose out of the difficulty in giving this relief to unincorporated traders in the financial year 1975-76. I said we would do it in this year's Finance Bill and carry the benefit back to last year.
The important thing is that this section is operating to relieve people. It will provide ordinary traders who were not incorporated with relief of about £3 million; and, for companies who have enjoyed relief to date of about £24 million, it will give them relief of about another £10 million, making the total relief now in respect of stock £37 million.
Actually you are driven back to section 31 of the Finance Act, 1975, by this section. When you get to section 31 of the Finance Act, 1975, you are driven back to section 62 of the 1967 Act which was introduced from the old income tax code. Is the definition of "trading stock" such as to include rights in action? It means property of any description whether real or personal in the original. Are we entitled to relief for debts, or work in progress? What is the purpose of "trader" as distinct from the professional man who is rendering services? It is defined in section 62 as property of any kind real or personal.
Yes. It is property of any kind whether real or personal, but it adds "which is either property such as is sold in the ordinary course of the trade in relation to which the expression is used, or would be so sold if it were mature, or if its manufacture, preparation or construction were complete, or materials such as are used in the manufacture, preparation or construction of property such as is sold in the ordinary course of the said trade". I would not like to express an obiter dictum, but I would have certain doubts about the items referred to by Senator FitzGerald.
Question put and agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."
I understand the principle of what is intended here. I should just like to renew a protest I have made on many occasions. It is an assumption of the Revenue authorities that the only purpose of discretionary trusts is taxation avoidances by rich people. The Minister in his opening statement used the word "rich" person. I can tell the Revenue Commissioners— and they ought to know—that there are discretionary trusts in existence created by people who are not rich, and can live a long life without becoming rich. They are trying in some way to provide for somebody who is handicapped in some fashion, to make some provision for them which will at the end of the day come in relief of the taxpayers who might otherwise be required to provide the less than adequate kind of attention the loving parent or person involved might be concerned to give. The beneficiary may be handicapped by the kind of problem we are all aware of, a tendency to spend his money rather more than he knows he should if he had proper regard for his own needs through a period of time. Discretionary trusts did not come into existence—and this is something I will repeat until everyone is bored to death—to defeat taxation. The discretionary trust arose as the normal provision in a marriage settlement where it was given to the wife, in one case, and the husband in the other, with the right to appoint, at her or his complete discretion, among the children.
One child may be all right about money. Another may not. The entire fund may have to be given to one child. It may be that during the lifetime of that trust it is proper and wise and sensible and prudent to maintain it intact and make no distribution. There may be no power to make a distribution except to the beneficiary who should not receive it. Many of these trusts are in existence and were created long ago. The powers of appointment have to be strictly exercised only in favour of the beneficiaries, unless you have somebody prepared to condone a breach of trust to give it to somebody else. You may have the fellow on the bottle and the one thing you do not want to do is give him his full entitlement, but to retain it for his wife and children. If you gave it to his children that might be the very worst thing to do. Maybe his wife is on the bottle, too, which is a frequent situation.
I should like the Minister to have another look at the idea of treating discretionary trusts as if they were simple devices for tax avoidance. They certainly were widely used as such, of that there is no doubt. Here I agree with the Minister. As there is in the wealth tax, provision for a different treatment for wealth tax purposes of a particular type of discretionary trust, I suggest to the Minister that he might, at some future date, consider giving at least the like treatment the wealth tax gives in relation to discretionary trusts to surcharges to be made under this section.
I have an amount of sympathy for what Senator FitzGerald has said. Whether he is historically correct I do not know, but I accept he is when he says discretionary trusts were first established for very good humanitarian and social reasons so that property could be managed in a prudent way and to prevent improvidence. The truth is that discretionary trusts have been used in ways which have made tax avoidance very easy. We would like to find some simple solution which would enable the genuine discretionary trust which is set up for good social and humanitarian reasons to operate. Our difficulty is to find an instrument to enable that to happen and, at the same time, stop tax avoidance.
This provision is linked with the Corporation Tax Act, 1976, in particular sections 101 and 162 which have been matters of debate here and elsewhere in relation to which I have given certain undertakings. I am open to receive people's views on these sections this year—I am talking about the Corporation Tax Act—and to consider whether amendments should be made in the Corporation Tax Act provisions in next year's Finance Bill. Perhaps when we are looking at that we can also look at the possibility of adjustment in the discretionary trust field. But, while we have sections 101 and 162 in being, it is essential that we close the very obvious avenue of escape from the restrictions of those sections by controlling discretionary trusts for the time being.
I take the Minister's point. I suggest in relation to the wealth tax that obviously you cannot have a rich chap creating 70 different discretionary trusts. In any case where it could be shown that somebody's threshold was not being used up in the wealth tax, it could be left over to be used up according to his option. Something similar could be done with discretionary trusts if somebody was in a position to exercise an option and say: "Treat this as my income". There could be a situation where somebody was only at the 35 per cent rate and there was a 55 per cent rate arising under a discretionary trust.
Question put and agreed to.
SECTION 14.
Question proposed: "That section 14 stand part of the Bill."
I welcome the section on behalf of the taxpayers.
Question put and agreed to.
Section 15 agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."
The Minister will recall that I was a member of an ad hoc group representing people in the public services generally negotiating with him on the introduction of PAYE in the public service. I should like to pay tribute to the Minister. He met us very sympathetically and promised to consider all cases presented to him. There was total opposition by those affected by it to the idea of the introduction of the principle of PAYE in the public services. Following a series of meetings, it was decided to accept the idea in principle, provided that the remission given to people in the 1959-60 period was also given to those affected. The Minister promised this remission would be given and, in consideration of the budgetary situation, the public service group suggested that the idea of spreading the remission over a three-year period would be acceptable to them.
Since then, there has been considerable disquiet among members of the ad hoc group because of the restrictive nature of section 16. It is felt that people in certain circumstances, maybe following a bereavement, may not receive the full remission over the three-year period. It could happen that the person concerned, the widow, would receive only one or two portions of the remission, but that she would not receive the three portions.
Section 5, in the opinion of those involved in the negotiations, seemed to have discriminatory implications with particular reference to dependants in receipt of pensions on which tax is not payable, teachers whose widows would not be in receipt of pensions, single persons who may have dependants, and dependants of civil servants who did not join the voluntary widows and orphans scheme in 1969. There is a feeling among those involved in the negotiations on the introduction of PAYE in the public service, that there may be discrimination against them in certain sections, in particular, subsection (2) and subsection (5) of section 16 of the Bill. We would like a comment from the Minister on this matter.
I want to join with Senator Brosnahan in the remarks he has made and to acknowledge the excellent performance he, as an individual, has given on the committee in discussing these matters relating to pay in the civil service. It has come to my notice in the past—that is why I am in agreement with PAYE being applied right across the Board—that very often when people retired they were allotted a lump sum but found that from that lump sum the previous year's income tax was deducted. It will be more acceptable and beneficial to a person facing retirement to be able to get his full lump sum knowing that he does not owe money to the Revenue Commissioners.
Senator Brosnahan raises a number of points about which he knows I have received correspondance. We are looking at the particular areas of difficulty which have been identified. I have already given an undertaking that, if any particular area of hardship arose in the transitional period, we would consider what steps should be taken to relieve those hardships. It is a very difficult matter to debate in public. Each case can generate a different set of problems, or require separate remedies because the time of payment, the service or action in respect of which the payment is made and so on, can vary.
I can assure the Senator that the points that have been raised by himself and his colleagues are receiving our earnest consideration and I hope we will be able to find solutions to them. We have already had to find solutions to some other particular problems which were not apparent when we considered the changes in the first instance. I agree with Senator Dolan that once we overcome the difficulties of transition everyone will be glad to have the system operating smoothly and be saved a lot of the anxieties and vexations which were attendant on the old system.
I should like to thank the Minister on behalf of all concerned and on my own behalf.
In considering the provisions of the section I should make it clear that, leaving aside special interests which may be involved, on the general principle we on this side of the House are in favour of PAYE being introduced into the public service. We are in agreement with the arrangements made with regard to easing the introduction of this new system in order that an undue amount of extra tax will not fall on any individual. I would not like it to be thought that we feel in any way that there should not be PAYE in the public sector, or alternatively, that they should not have been given the benefit of this arrangement that was come to between the Minister and the public service unions.
I think one has to highlight again the great difference between the arrangements made by the Minister in respect of the introduction of PAYE under this section and the complete lack of arrangement with regard to the self-employed under section 9. The remarks of Senator Brosnahan justifies completely the point I made on section 9. The two basic reasons the Minister agreed to this remission or easement of the transition into PAYE, were, first, that public service unions were able to point to a precedent in 1960, and we all know that public servants are very strong on precedents.
Secondly, there were strong and active unions involved representing the taxpayers concerned. The problem with the self-employed is that, although there are 100,000 of them, they have no strong organisation to fight their case. We know from what the Minister has said that the initial increase in tax payable this year in respect of the public servants would be around 23 per cent. As a result of the concession given by the Minister that it is to be reduced to somewhere around 12 or 13 per cent, which is considerable but manageable. Under section 9, the self-employed, all 100,000 of them, are asked to pay in effect 50 per cent more tax this year.
The Minister says in respect of each particular income tax year involved there will be no extra tax payable, but the fact remains that in this calender year—it is calendar years that ordinary people live in and not tax years—all the self-employed will be asked in effect to pay 50 per cent extra in tax in relation to the income they will actually receive this year. Therefore there is a very substantial difference in the Minister's attitude in that respect and his attitude in respect of public servants. It makes one realise yet again, as one so often does, that while sometimes people may criticise trade unions they definitely have their uses in protecting the interests of their members. In this case they have been successful, and rightly so, in persuading the Minister to ease the harshness which otherwise would have existed in the introduction of PAYE. Therefore, while they will have to pay more tax, the burden is eased to some extent.
I do not wish to compare the muscle power or influence of different interested groups in the community, but it would be wrong to say that those who are on Schedule D are people without power or influence or muscle. They can certainly articulate their requirements. This position is not as Senator Yeats has said. I do not wish to repeat what I said on the earlier section, where I pointed out that the burden of tax on Schedule D groups would not be increased when the burden of tax on others was being increased. All that is happening is that the Schedule D people will be asked to pay in a period of nine months and one day the amount of tax usually paid in a period of 12 months and one day which is not quite the same as saying they are paying 50 per cent more tax in the year.
Question put and agreed to.
SECTION 17.
Question proposed: "That section 17 stand part of the Bill."
What is the case that is contemplated? Is there somebody here who has a job and does not get paid and by not getting paid avoids his employer the obligation to deduct tax from him? He just leaves the money with the employer. It is a very strange case. Of course he could be employing himself in a company form, but is it tax avoidance we are after here? The Minister refers to the Income Tax Acts, and looking at one of them I see that interest, is payable at 18 per cent. Does that mean that you have a marvellous calculation on a day-to-day basis of liability for PAYE which carried 18 per cent? I know the last subsection avoids all this if you pay within six months, but where you do not is the interest liability running from day-to-day, too, at 18 per cent?
The purpose of this section is to combat an avoidance device which, I am sorry to say, is becoming increasingly adopted whereby payment of tax on remuneration, particularly that of directors of close companies, may be deferred for lengthy periods without disadvantage to the taxpayer but with serious disadvantage to Revenue both because of deferment of payment of tax and immunity from interest on non-paid tax. Under existing PAYE legislation tax is deductible on payment of any remuneration including directors' fees. Where an employer fails to pay over to the Revenue the tax deductible from remuneration there is a liability to interest charged. These provisions are now being circumvented in the case of private companies. Amounts which purport to be remuneration are shown as expenses in the accounts of the business and are allowed as a deduction in computing the company's tax liabilities. It is only when the remuneration is actually voted, which may be a considerable time afterwards, that tax is deductible and liable to be remitted under the PAYE legislation. In the meantime the directors have been able to enjoy the use of the money which will have been withdrawn in one guise or another without generating any liability to tax or interest. In the provisions of the section aimed at securing the amounts which are shown in accounts as remuneration the amounts would be deemed to have been paid at a relevant date so that PAYE legislation would apply as if the remuneration had been paid at that time.
Question put and agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."
I have a few comments to make regarding the taxation of farming profits. By now it is accepted that farmers will have to pay tax. If a big farmer has an enormous amount of land and has workmen who are paying their share of income tax, it is hard to argue against his paying his fair share, too. But there are a few matters that may be annoying to farmers. One is the question of rates. Farmers consider that they are taxed on the double in that they are taxed on the profits of their farms and, at the same time, have to pay rates which are increasing every year. It is a well-known fact that there are not any rates on agricultural land in the Six Counties. We are all in the Common Market now and the farmers are more or less in the front-line trenches so far as the expansion of the economy is concerned; because if they are able to increase production, the economy expands.
Very often the type of encouragement they get from the top is of a dual nature. For instance, I have recently seen where the Agriculture Commissioner in the EEC has told people to cut back on milk powder and milk production of all kinds and our own Minister has told us to go full steam ahead. So the farmer must always find himself in a quandry as to what would be the best course for him in the interests of himself and his family. The Government should be interested—as I think they are—in seeing what would be the best policy, not alone for the farmers but for the nation as a whole. We realise that a huge number of people in this country are indirectly in employment, in factories, in offices, and so on by virtue of our agricultural industry. Agricultural occupations are a hazard. It has not been ironed out in what way farmers, especially small farmers—and almost 80 per cent of the farmers in this country would fit into that category—are going to develop. There have been various comments on the Mansholt Plan and about dividing farmers into categories from transitional to development to commercial.
In the time since we have entered the EEC a great deal of progress has not been made in that field. The Minister and his colleagues and the EEC should, before there is any intensification or any extension of this taxation code on farmers, try and ensure that as far as possible small farmers as well as transitional, commercial, and development farmers would have an idea of what grants they are entitled to. I have noticed in my own area that unless people are able to keep about 25 sows, for instance, they will not get a grant. That is a very wrong way to start off because an enormous amount of capital is involved. There is probably not anything allowed for ploughing profits back into the development of an industry but if there is not a certain amount of money is allowed for depreciation. I do not know what the Minister allows for depreciation of the very expensive machinery that is now needed on modern farms. We should be encouraging our present-day farmers to try to modernise to the best of their ability.
There may be a few farmers who have got a bad name—for instance, farmers who frequently go to races—although they are as entitled as anybody else to enjoy themselves. But I am talking about farmers with very big farms who may not create a lot of employment or are the owners of underproductive farms. We should be aiming at trying to get the maximum production from our farms. Therefore, the Minister should encourage the farmer in every way and not load him down with taxation.
I know that the notional method of assessment is being employed here. This is a good thing because farmers have not been used to keeping accounts. They are being given the option now. There may be a deadline announced as to when they should have submitted their application to get exemption or remission from income tax. Even farmers who are under the £100 valuation could be caught. Rather than aggravate these farmers it should be somebody's duty to let them know that if they have other jobs, in a local factory perhaps, they are liable for income tax.
We have been trying to sponsor the idea that the sons of small farmers would if at all possible find employment in their adjacent town rather than emigrate to foreign countries. We have been trying to develop a system which would create employment locally so that the farmer's son could build a house on his father's farm, live in the locality and not be rushing up to the cities. There is a very wide field here for development.
The Minister and the Government will have to go very slowly in this matter of imposing tax on farms. Very often there is not sufficient credit given to the good farmer in an area who is a tremendous example to his neighbours and who can give better advice than the farmers' journals or any Minister.
If a farmer is using modern methods, has gone to the expense of providing forage harvesters, rotary mowers and so on and if he is willing to help his neighbour, there should be some concessions for him. These people are doing excellent work. They are providing the raw material. They are encouraging people to keep extra animals on the land, which will eventually mean extra jobs in the meat factories, extra milk at the creamery and extra milk in the milk powder factories and the food processing industries. In that way we would be building up a greater rural population and helping the economy immensely. Unfortunately, some farmers are frustrated at present. They do not know into which of the three categories they can go. They find that on top of the taxation being imposed on them that there is a section later on in this Bill to impose tax on co-ops. It is the local co-op that has been supplying the small farmer.
I should like to remind the Senator that this section deals only with the notional system of assessment of farming profits.
I will keep to the national assessment because the other matter will be coming up later. I was adverting to the fact that in relation to taxing the farmer under this system the Minister should remember that when he is taxing the co-ops he is imposing that tax, not on co-ops, but on the individual farmer.
Let us not fool ourselves. Those with incomes have to pay tax on them if they are to get the services they are demanding, and that includes the farmers as well as city people. Let us face facts.
I think this notional basis was recommended by the committee that reported on taxation. We all know that the actual valuation of land was carried out as a result of the Griffith Valuation of 1854. It has had the most curious results in modern circumstances. As a permanent basis for taxation it must lead to great injustices in leaving some people free and others not free. That is a general comment. The Minister can obviously do nothing about that until a fuller evaluation of the land of Ireland is made, if that can be tolerated by anybody. The basis of taxation will be changed before that is changed.
I do not understand what subsection (2) is saying. I thought, when I first read the amended subsection (4), that it meant that you could only wipe out your liability if the deductions that are limited to you to make scored up to the £40 valuation and that the purpose of it was not to create an artificial loss. Then I find that there is an ability to elect for relief under sections, all of which provide for the provision of losses and the carrying forward of losses. I should like to know what meaning this has. Subsection (4) limits the deductions to 40 times the rateable valuation, but subsection (4) (a) goes on to say that, having done that, you are entitled to opt for relief under sections which when you refer to them you find all provide for losses and so on.
It might be inappropriate for me to go into great detail on the several observations of Senator Dolan for the very good reason that the National Economic and Social Council, in response to requests of the farming associations and the consent of the Government, investigated the question of the taxation of farming profits and produced a report on the night before I presented my budget. I said that the report would be examined by all the Departments concerned. This examination is proceeding at present. I am shortly to have a meeting with the farming organisations to discuss their views. It will be recalled that the Council produced a minority report disagreeing with everybody else in relation to what the report recommended. I suppose we will not find entire agreement on what the ultimate solution should be. The interesting thing is that there is now agreement within the farming community that farm profits must bear their fair share of tax. The trouble is that we all have a different view as to what the fair share of tax to be paid should be. The notional basis was recommended for continuation for a period of four years after any group of farmers were brought in to tax. Extending it for another year complies with that suggestion and it meets with everybody's approval.
We are limiting the deduction which can be made for the reason that the claim has been made recently that persons adopting the notional system may make the deductions that are appropriate—that is, rates and wages and payments on agricultural machinery —and that if those deductions exceed 40 per cent of the rateable valuation, they may treat that as a loss to be carried forward against profits which might be generated in a further year. Of course, that was never intended and that would be a nonsense of a concession which was provided as an ease for farmers in relation to farming profits. I think there can be no serious disagreement about imposing that limitation. In case there is any question of an allegation of retrospection, we are providing that this prohibition will apply only to any claims of this nature which are made subsequent to the 13th March, 1976, which was the date on which the Bill was released for circulation.
Question put and agreed to.
Sections 19 and 20 agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."
One matter on section 21: this is designed to deal with the question of subcontractors in the building industry. I appreciate that what the Minister is trying to do here between sections 20 and 21 is to bring some form of rationality into tax collection in this area. As a transitory measure he provides in section 20 that 35 per cent of the payments from principals to subcontractors be retained until a certificate clearing the tax situation emerges from the subcontractor. In section 21, which will operate, I think, from December, he has the further provision designed to tighten the collection situation.
What I would like to say to the Minister here—and professional people have come to me on this matter—is that it is a very confused area in which to advise clients. That is putting it mildly. I know that there was a "lumper" abuse which in 1970 we tried to beat. But the new section 21, as it is now drafted, which comes to seven pages, is certainly the most complex, involved and difficult section in the whole Bill. A large part of it is already contained in the 1970 Act. I do not intend to go into any analysis of it.
I have had a number of representations from accountants and also builders and subcontractors operating under the scheme who are quite willing to participate in paying their taxes and so on. There is no question of tax evasion but where both the speed in dealing with the matter of their tax situation in the sub-contractor/contractor relationship and the complexity of the tax laws and regulations as they now apply are rather too much, it would be very useful if, in some simplified form, precisely what is involved here in this area was made available from the Revenue Commissioners to the building industry.
There should be some way of reducing the complex of six pages of subsections that we have here in section 21 to a formula where the principal contractor or the sub-contractor can see their rights and where an accountant can give fairly basic advice to such people. What is happening at the moment is that there are considerable delays in dealing with this and small contractors and sub-contractors in particular can be prejudiced by delays, certificates can be withheld and they are not in a position to proceed by reason of certification being withheld from the Revenue Commissioners.
I should like if the Minister would enlighten the House about this general area. I appreciate what he is trying to do in an area of very substantial evasion. But, in order to get work going in a certain section of industry, he should not clog that section with undue paper work but should expedite matters on their behalf and have made available to them some A, B, C, D, E primer as to how they should operate so that their tax problems can be dealt with expeditiously and by quick clearance of certificates.
I appreciate what Senator Lenihan has said. I want to assure him that we have anticipated this and we intend to issue a booklet which will help both contractors and sub-contractors in the operation of the new system. It seems intimidating when one reads the six pages but I think most of them are too busy to read them and they will be relying on others to guide them. The system will be comparatively simple. A contractor will apply for a card to the Revenue Commissioners and in turn will get an authorisation from the Revenue Commissioners saying whether the payment may be made free of tax or otherwise. The sub-contractor will also have to apply to the Revenue Commissioners and these applications will relate to individual jobs, which is very distinct from being on a yearly basis which has been operated in the past.
The Revenue Commissioners intend to have a section which will work with speed so that the necessary authorities will be issued by return of post. Even the best organised operations are liable to have delays from time to time. Even if delays do occur a sub-contractor will receive 65 per cent of payments due to him on the due date. He will not be entirely deprived of his money but I would not wish, nor does anybody wish, that he be deprived of 35 per cent of it if the income began at the appointed time. We intend the system to work very smoothly. It is unfortunate that we have to bring it in at all because it is a bit of an irritant to the smooth working of business. However, the amount of avoidance under the lumping system is something that we could not, in terms of the general body of taxpayers, tolerate any longer.
Unfortunately a great deal of the malpractices in this field have been imported from experiences that some of our kith and kin have seen abroad. Rather than allow this cancer to spread any further we considered it necessary at this stage to bring in these corrective systems. If they need to be adjusted we will do all we can to improve them, but I would say that people will find the system working fairly smoothly. We have deliberately postponed the introduction of the new system until the 6th of December next so as to allow us time to advise people as to what their rights and obligations are. Therefore we hope it will be possible to have the new system in operation smoothly by the commencement of the next financial year.
I am grateful for what the Minister has said because, whatever our kith and kin in the construction industry may have done by way of tax evasion in the United Kingdom in the past, these are in many cases the sort of people we want to encourage in the present economic situation. Many of them are people who want to get up and go—give employment, do business and get building projects going. While I appreciate fully the Revenue have qualms in this matter, it is particularly and peculiarly an area where there should be no deterrent aspect in regard to the Revenue Commissioners' administration. I am glad the Minister said what he has said because I think this section within the Revenue Commissioners should be fully staffed and full information made available to ensure that there is immediate clearance given. It is an area where rapid changes, rapid decisions, have to be made and, provided the contractor and sub-contractors involved know the score, and there is no delay in issuing authorisation or certification in regard to the tax position between them, it is terribly important in this industry and particularly in the present economic climate. I am sure the Minister fully appreciates this.
Question put and agreed to.
Section 21 agreed to.
SECTION 23
Question proposed: "That section 23 stand part of the Bill."
This is the section which assesses the value of company cars at £300. In other words, where a taxpayer has the use of a car provided by his employer, in future, the value in terms of taxable income will be looked upon as at least £300 or 15 per cent of the cost of the vehicle in certain cases. But there is a basic minimum of £300. The position is, therefore, as far as the taxpayer is concerned, that he cannot claim it is worth less than £300 although, in many cases, it may be. On the other hand, of course, if the Revenue Commissioners can claim that it is worth more than that sum they are entitled to raise this figure. As usual, they have it both ways—they can increase the figure of £300 but he cannot decrease it.
In some cases, obviously, £300 will be a reasonable figure for the value to a taxpayer of the private use he has of the car of his employer. In other cases one feels that it is not. If one considers the case of a commercial traveller who would be travelling around the country from Monday to Friday and might not even come home until Saturday, effectively the only use the car will be would be to bring his family to Mass. In such a case it seems unreasonable that he should be assessed at the high figure of £300 as being the value of the use of the car. One wonders why the Minister should bring in this. One can see that always, in every Finance Bill, there are numerous sections which are simply designed to deal with ingenious practices of evasion which have been thought up by people. In this particular case the only purpose would appear to be to avoid the Revenue Commissioners having to write letters. It does not seem that any great amount of money will be gained by it. Some taxpayers may gain, more are likely to lose. When taxpayers are gaining the Revenue Commissioners are likely to find out soon and to increase the figure of £300 to some more realistic level. It certainly seems that a set number of taxpayers, particularly fulltime commercial travellers, may well find themselves with a notional increase in their income for tax purposes of £300 and the use of the car, in terms of real value, comes nowhere near that.
As the law stands, an employee's private use of a car supplied by an employer is chargeable to tax under the Income Tax Act, 1967, section 117, so we are not introducing a new principle. All we are doing is providing a minimum figure because of the immense difficulties that have arisen in relation to the application of the existing position. When the total cost and value of a car is taken, its capital cost, running cost, cost of insurance, taxation, repair and maintenance, the figure is very high indeed. The Automobile Association and other organisations interested in providing information for motorists show that the average cost of even the smallest car runs to, I think, about four to five times the minimum figure which is mentioned in this section. In most cases the cars provided by employers for their employees are not cars of the smallest and cheapest kind. They tend to be in the middle range of cars and some, of course, are of a very much higher value. An immense amount of the taxpayers' time and the time of the Revenue staff is wasted on arguing every year about the value to be attached to the private use of a car. When it is considered that most people in this category will have the private use of the car for at least two days out of seven days of the week —and that is not making any provision for possible use in the eveningtime or its use going to and from work, which itself is not an item upon which taxpayers may receive tax remission—it will be seen that the figure of £300 is indeed very small.
The contrast which must be made is the contrast between a person who has a car supplied by an employer and that of the majority who have not a car supplied by an employer and have to meet the total cost of ownership in operation out of after-tax income. Such people are clearly disadvantaged against those who have the use of the car for private use because their employers are carrying the cost of it.
Earlier, Senator Daly made a suggestion that any payment made by an employee in respect of private use of a company car should be deducted from the minimum benefit in kind of £300. There is a very practical difficulty there, so great, indeed, that were this suggestion to be acceded to the provision in the Bill would become worthless because an arrangement could easily be made whereby a payment of £300 would be made by an employee to an employer in respect of private use of a car in return for which, in a manner which could not be detected by the Revenue Commissioners, certain benefits could be obtained in relation to the private use of the car such as, for instance, free petrol and so forth. If it were possible to provide a foolproof system which would ensure that there would be no abuse of the suggestion by Senator Daly then, perhaps, the matter could be entertained. But it seems to me—and I have a very innocent mind compared with that of others who might be inclined to adjust any concession to their own advantage—that the opportunities for avoidance, if we were to allow that, are so great as to render probable the uselessness of the provision which we are trying to make here. On reflection, if people count the real cost of operating a car they will see that the minimum of £300, or 15 per cent, in relation to private use is not unreasonable.
It is interesting to note that since our budget, in the April budget in Britain and in their recently published Finance Bill, there are provisions which in respect of many cars put the benefit-in-kind figure at a much higher level than ours. They have brought in a most complicated system related to the power of some cars and where that cannot be easily ascertained then the original purchase price of the cars. It is better to have the comparatively simple system which we have here and which, on balance, is not unfair.
There is a general tendency for us all to overlook the cost of running our cars. Just in case people feel jealous of Ministers who may have cars assigned to them, I assure them that I, too, know all about the cost of running a family car, because I have one. Once one purchases a car one quickly forgets about the cost of depreciation which is a continuing factor. We forget about the cost of maintenance because we probably do not maintain them as well as we should, we forget about the cost of repair because we feel that accidents are things that only happen to other people and if we have one the insurance will pay up. Except for the moment of displeasure we have when we are paying our motor tax and our insurance premium, we forget about them as well. These are quite sizeable amounts, so the limitation of the benefit-in-kind to £300 for the private use of the car which will be available to the person for a large amount of time any week is not unreasonable.
I would suggest another measurement for anyone who wants to try it. What would be the cost of hiring a car for a weekend? If a person did not have a free car from an employer, even to go to church, if one did not take it to golf or shopping or anything else, one would not get far in a car these days, even the smallest car, hiring it for £6 per week. That is another way of looking at whether the £300 minimum charge is a fair one.
We agree with the Minister about the cost of running a family car, although he was perhaps a little ingenuous in quoting the rather high figures which the motoring bodies tend to give for the cost of running— maybe they are accurate or maybe they are special pleading. One thing we can be certain of is that figures of this kind would not be accepted by the Revenue Commissioners were they allowing an employer, say, the expenses against his income of running a company car—I do not think the Commissioners would accept so high a figure. Nonetheless, we must accept that they are high. While it is not reasonable to talk in terms of an ordinary family man hiring a car to go to church or to bring his family up the mountains—I do not think many people do that—it is expensive running a car. I have already said that with regard to the majority of taxpayers who are affected by this section, £300 may be a fair figure.
I would feel much happier about this section if it contained some provision allowing the taxpayer to prove, if he can, that his use of the car is so small for private use that he should not be assessed at £300. The trouble is that £300 is the minimum. If he is a commercial traveller who staggers home on a Saturday and so fed up with driving all week that beyond going to Mass with the family in the car, he does not use it, in such a case it seems unreasonable to add a notional £300 to his income. I would be happier with the section if there was a provision that if a taxpayer could prove that he did not use the car at all or barely used the car and that therefore the figure ought to be something less, he would be charged a lesser figure. The section as it stands is completely inflexible—£300 or nothing— which in certain cases may be an injustice.
When you add in the annual holidays, bank holiday weekends and so on, it will be found that the figure is not that unreasonable.
Question put and agreed to.
Section 24 agreed to.
SECTION 25.
Question proposed: "That section 25 stand part of the Bill."
This is a very straightforward section relating to the payments which we authorise the Minister for Labour to make under the Employment Premium Act, 1975, to employers in respect of additional employees taken on by the firm after June, 1975. While I agree that such a premium should be disregarded for the purpose of the Tax Acts, it is only in accordance with the spirit not the letter of the actual legislation.
On a point of information, a number of my colleagues and I were of the opinion during the passing of the Employment Premium Bill that the scheme would not be anything as effective in its operation as the Minister for Labour thought it would be last June. The burden of his theory—any theory is excellent in its own way—was that it would produce 10,000 new jobs between June, 1975, and June, 1976. To what extent has the jobs target envisaged by the Minister in introducing the Bill been achieved? We have not heard anything from the Minister for Labour on this aspect and it is very important. I do not agree that that is the proper way to create further employment; it is not as effective a method as the Minister has at his disposal under the instrument we are discussing, the Finance Bill. I strongly hold that tax reliefs and incentives geared to employment— across-the-board, at all levels of industry, retained profits for investment, management involved in productivity arrangements—are the area in which we should be involved in order to provide a stimulus for the creation of employment. I am not knocking the employment premium scheme, but the Minister has in this instrument a far more effective way to stimulate the economy rather than the premium system. I should like to hear the Minister's comments on the effectiveness or otherwise of the premium scheme.
This section is directly related to the employment premium scheme. It is not in itself a tax incentive. When the employment premium scheme was introduced we said that employment premia were not to be treated as income of the employers. We could have made the employment premium of £24 per employee and made it subject to tax, which would have left a net sum of £12 in the employer's hands. Maybe that would have looked more attractive and that more employers would have opted for the £24, overlooking the fact that they would be giving £12 back. Anyway, we gave the £12 and the undertaking that it would not be taken into account as profits or income.
The actual number who have benefited so far, the number of employees, is more than 4,400 and the number of employers more than 260. I have no doubt, and the Government never had any doubt, that the most important ingredient in generating employment would be increased demand, improved demand and pick-up in our markets both at home and abroad. The main value of the employment premium scheme is to encourage employers to advance their thinking, to start up their production sooner than they otherwise might, because if they feel this contribution will help to cover the initial period when they might have losses, they would obviously be prepared to start earlier than they would without such an employment scheme. I think it is important to have the employment premium schemes there to generate activity sooner than it would otherwise occur. That is the number today, more than 4,400.
The scheme continues in operation and, with the gathering momentum of the economy which is there and of our markets which are there, I foresee a greater likelihood of a greater use of the scheme. Admittedly, the scheme will not cost the Exchequer an immense amount of money. Taking people off the unemployment register will constitute a saving on welfare benefit, and in employment it will generate contributions towards the welfare fund and contributions also to revenue. The scheme can be described as a modest success, certainly a move in the right direction. The fact that it has engaged 4,400 and more indicates that it has the capacity to generate employment, and I would see that improving now.
"Modest" is the right word.
An Leas-Chathaoirleach
I am a bit concerned that the debate on section 25 is going a bit too wide into the merits and demerits of the employment premium scheme. The section deals specifically with the taxation situation and I think both sides might take that into account.
In the case I will not comment on the number who have attained employment. I am a bit puzzled by the Minister's remark that the scheme continued with the developing economy, that it may continue to be useful, and so on, and that it has a direct relation to the cost of the section. My memory of the Bill concerned—The Employment Premium Act—when it was going through this House, is that from March 31st this year, the premium went down from £12 to £6 and the whole thing would be phased out from next month, or maybe early July. After that no further premiums could be paid. That is my memory of it and I think that is in fact the position. The future of the premium scheme would appear to be slightly less rosy than the Minister suggested.
Yes, that is so, but the number of new applications to the scheme are increasing which would indicate continuing interest.
Yes, but it will stop next month. The fact that it is not being renewed by the Government would appear to show that its use was very marginal.
Question put and agreed to.
Sections 26 and 27 agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."
I merely want to inquire about this as I understand it is designed to put the banks on the same basis for tax purposes as the other lending agencies. Can the Minister give us any figures of the extent to which housing loans have been paid to house purchasers by the banks under this scheme, which was inaugurated last year?
I have not got up-to-date figures but I know that up to 31st March, a total of £20.6 million had been advanced to 2,328 applicants by the banks under this approved scheme. This scheme operates in such a way that it enables the bank to advance the money on housing at rates comparable to those advanced by other housing agencies like building societies, which has been done by subjecting their profits from these operations to the standard rate of income tax at 35 per cent rather than to a rate of 50 per cent which otherwise would apply to their profits, being the corporate rate of tax.
Question put and agreed to.
Section 29 agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."
This brings in a rather strange change in the position about appeals against assessments. Up to the present if a taxpayer is assessed for tax and wishes to appeal against it, then the inspector could insist on his depositing what he considered to be a reasonable amount to cover part at least of the tax that would ultimately be payable. This is a reasonable provision because otherwise obviously anyone could make an appeal against an assessment simply in order to avoid paying any money for an unknown period of time.
This changes the position which has worked satisfactorily for the Revenue Commissioners, if not always for the taxpayer, up to now. Now, if a taxpayer wishes to appeal he has to make his own assessment—he has to say what he thinks he owes. Whatever figure he arrives at, he has to pay that sum there and then. If the figure he settles on is less than 80 per cent of the final figure as agreed on appeal from the assessment, then he has to pay the difference at the interest rate of 18 per cent. If on the other hand, in an excess of honesty or enthusiasm or merely through inability at that stage to state precisely what his income will be, he overstates his income and thereby pays an unduly large amount, it will be paid back to him, but without interest.
The Revenue Commissioners will have to guard against a situation where a person could pay ten times what he considered might be due and then would demand from the Revenue Commissioners that they should repay the large excess to him at the rate of 18 per cent interest. No administration would like to be faced with that situation. There ought to be some way that the parliamentary draftsman could devise for dealing with that, avoiding the evasion that would ensue while at the same time safeguarding the honest or reasonably honest taxpayer. It should be possible to provide for a lower rate of interest, perhaps 9 per cent, on repayments. Under these conditions a taxpayer could probably gain at least as much interest on his money elsewhere and there would not, therefore, be any incentive to overstate his income deliberately.
It seems unreasonable in the form it is in this section, because particularly with the earlier assessment of tax under the new system the Minister is introducing in the Bill, in many cases it would be impossible for the taxpayer to know at that stage precisely what his income will be. Taxpayers in that situation will normally have accountants who will be faced with a large number of assessments at the same time. Although the Minister has given an extra nine days, from 21 days to 30 days, for appealing against an assessment, in many cases it will be impossible to appeal against an assessment with any knowledge of the precise income involved.
This is particularly so where the burden of the issue between the taxpayer and the Revenue Commissioners is not the precise level of income in a particular year but whether certain types of income should be taxable at all. Very large sums can be involved. You can have an argument as to whether a certain type of income is liable for tax purposes or not. The difference, depending on which side wins an appeal, could be very considerable.
What is the unfortunate taxpayer supposed to do? Is he supposed to pay what his advisers tell him he should be paying and face the danger of paying this penal rate of interest—18 per cent— or is he to pay the very much larger sum which he may have great difficulty in raising and which his advisers tell him he should not be paying? Is he to pay this sum and lose the benefit of it in his business in the meantime and then find, when his side has won, that the Revenue Commissioners will pay back perhaps thousands of pounds without any interest at all?
It so often seems to apply in these tax statutes that all the odds seem to be on the side of the Revenue Commissioners and none on the side of the taxpayer. I can quite see that one does not want to have a situation where the taxpayer could make large sums of money in interest at the expense of the Revenue Commissioners. Nevertheless, I feel it could have been framed in a different way. I admit it has been improved. This business of saying the taxpayers has to make his own assessment, or his advisers make his assessment, on information which may not be available at that time is like having a ticket in a lottery. It is not really a fair lottery. The taxpayer can lose on interest. He cannot gain anything. He has quite a lot to lose. It is most unfair.
The situation is not as bad as the Senator fears. If a taxpayer finds the assessment unacceptable and pays the amount in the assessment notice, he will in the event of the success of his appeal get a refund of the excess with interest at 18 per cent free of tax. This is a handsome rate of interest. I do not know of any other gilt-edged security of that kind today where one can get such a handsome return free of tax. It is obviously a very attractive investment to the taxpayer. The taxpayer may if he wishes set aside the amount of tax for which he considers himself liable. In the normal course of events, unless there is some legal point involved in it which might give rise to doubts as to whether there is any tax payable or not, he should be within striking distance of what his tax liability should be. If he is within 18 per cent of it he will be all right. He will be allowed a margin of error of one-fifth, which is not a bad arrangement. It is a very generous concession. Obviously, if he decides to make a minimum payment which turns out to be less than 18 per cent of the tax chargeable he will have to pay interest on his error. But if there was not a penalty attaching to that there would be a temptation to underestimate. Part of the encouragement we have for people to estimate accurately is that they will be penalised if they do not. If an excessive assessment is made against them, and they appeal against that, they can get a refund of the excess with a very handsome rate of interest. On balance, it cannot be said that the taxpayer is being harshly treated.
The problem the taxpayer faces is that the 18 per cent interest is of such a penal nature that provisions which would otherwise seem to be fair do become penal in their nature. I do not think there is any other country that has a rate of interest anywhere near this 18 per cent. I would be very surprised to find that any of them had a rate of interest of over half the 18 per cent. It is a very high and penal rate. It is that rate which causes the trouble in a provision of this kind. If the rate were more reasonable—something nearer to what the taxpayer could expect to get by investing his money in some other way—then the position would be less objectionable.
With regard to the Minister's point about paying this estimate of tax, if the final amount payable is less than the assessment they would get 18 per cent on the difference, that is very nice if the taxpayer happens to have that amount of money to invest at that particular moment. But the basis on which all assessments appear to be made—usually in the absence of adequate returns from the taxpayer—is upped a considerable amount beyond anything that a person thinks he will have to pay as an incentive to him to do something about it. If a taxpayer happens to have enough in his stocking to produce at the drop of a hat on an assessment, that is all right. But the likelihood is that in most cases the taxpayer will be so appalled by the assessment that he will dash off to his accountant and say: "For heaven's sake do something about this", and will certainly not be in a position to produce the cash.
It would be worth considering this whole question of interest. Quite clearly the situation cannot be allowed to develop whereby it would be an investment for the taxpayer not to pay his tax. If a situation arose where a person was able to hold onto his money and, by doing that, pay less interest on overdue income tax, that would be bad business. It would be an encouragement for a person to be late in paying his tax. On the other hand —and I have expressed this view previously—there is something abhorrent in the idea of heavily penalising a person who for one reason or another, be the reasons good or bad, is not in a position to pay his tax. It may be that he was a spendthrift or, for one reason or another, that he has not made proper provision.
I would regard as a fair provision a tax rate which would be linked to bank lending rates. It would be a fair provision to provide that a taxpayer who is overdue in payment of his tax should suffer interest at X per cent, whether it be 1, 2, 3, 4 or 5 per cent above the normal bank rates. In that way there is no danger that a taxpayer will take advantage of the position by delaying payment. He will pay more than he would if he borrowed money from the bank. It would be a more equitable provision than a high fixed rate of interest which can only be regarded as penal on people who genuinely find themselves unable to pay what they should.
I accept the point made by Senator O'Higgins and I would hope to look at this 18 per cent figure. It is high but not extraordinarily high. When we introduced it, it was related to the interest rates of 1974 and 1975 which were at a historically high level. You cannot make a true comparison between say, the appropriate rate here for arrears of tax and the rate which would apply in Germany, because Germany tends to have interest rates on ordinary bank lending at 5 per cent and 6 per cent lower than ours. Our rate is related in most cases to the London rate because we operate the open money market between the two countries. We often have to apply rates here which are not specific to Irish circumstances, but we gain more by this open relationship with the British market than we lose. I do not want to enter into a discussion on this subject, a Leas-Chathaoirleach. Your face can be as expressive as your tongue by times. I gather that I have strayed but the point I am making is that the figure when we introduced it was not inappropriate. Revenue is not interested in getting money from interest. All it is doing is providing a discouragement to people to postpone payment of tax because it is the cheapest form of lending you can get. That is what was happening. Therefore the rate must be a penal rate. I usually object to people using the word "penal" in relation to revenue matters because they are using an emotional term to describe something that is not there. But this rate is intended to be penal; it is a penalty for failure to pay tax promptly. Delays can arise, I will accept, due to circumstances which do not involve any moral turpitude or blame. Nevertheless, one one must have the deterrent. Perhaps there is something to be said for what Senator O'Higgins suggested, that is, to provide, if we can, a suitable formula in legislation for an interest rate in respect of arrears which would be a number of points above, say, the bank lending rate, or something else of that kind. We would have to be satisfied that, whatever rate we took, the base rate itself was recognised in law.
I am glad to hear the Minister is looking into this. This penal rate does seem unfair in cases where there is no delinquence on the part of the taxpayer. A taxpayer who has not bothered to make a return or appeal his assessment is fair game, but it is not fair to a taxpayer who genuinely has not been able to raise the money. At the 18 per cent rate the amount of tax due is almost doubled after five months. It is too severe. The Minister should consider it very carefully. A taxpayer who has allowed his tax to run for a number of months could find himself in very serious trouble.
Question put and agreed to.
Sections 31 and 32 agreed to.
SECTION 33
Question proposed: "That section 33 stand part of the Bill."
The general feeling throughout rural Ireland is that the members of the present Government, being mostly domiciled in our cities, have developed a bias against rural wealth. I believe that to be a fact. The Government have sponsored the idea that farming is a type of luxury employment and that most farmers are wallowing in wealth. When farm produce increases in price farmers are blamed immediately. People forget about the middle men, the amount of labour, the farmer has put into producing these goods. Since they were founded by the late Horace Plunkett and Father Finlay, who was a Cavan man, co-operatives have given an excellent service to the rural people. The co-operative movement has helped to unite people. We are encouraged in our efforts when we see people uniting in any rural community to do something for the benefit of themselves, their families and, indeed, for the country.
In the past co-ops have supplied the farmer with many amenities and articles at a lesser price than he would normally have to pay. For that reason, they help to keep the farmers in business. Do people ever reflect on the number of people who are directly and indirectly employed by virtue of the fact that we have efficient farmers in the country? There are hundreds of people employed in food processing, in meat factories, milk powder factories, creameries, tanneries, and many other places where farming by-products of one kind or another are processed for home consumption or export. In this way co-operatives are providing many people with constant employment.
Business suspended at 8.30 p.m. and resumed at 8.45 p.m.
We are now short 560,000 cattle, most of our young calves having been exported to Italy. These are the raw materials that would be needed to supply the co-ops who manufacture in the meat industry and in its by-products. We are very concerned about that because we in our time in office had built up the cattle population and had it disease-free. The co-ops during their time in existence have provided a wonderful service for the rural people. They paid their workers well. There was a certain dedication amongst the workers and a built-in co-operation and desire to ensure that their particular co-op would do its work well. In my own constituency the Killeshandra Co-operative Society did their work so well that they won the Reid Cup on six occasions for producing the best and cleanest butter in Ireland.
If you travel to Bailieboro' or Lough Egish, or even travel around to the Cork marts and various other co-ops, you will see that these co-ops have given a great service to their areas. These are all very important developments. Were it not for the Killeshandra Co-op being in existence we would never have got the food processing plant that we now have in existence there which employs over 300 people. Neither would we have the new cheese factory that we have there. These are developments that have taken place in a rural community by virtue of the fact that we had a co-op in existence. We should never forget the part that the founders of that co-op and their managers and workers down the years have played in developing and improving the standard of living of the farming community and of the people in general in the area.
Many of us forget that these co-ops need an enormous amount of money to expand. The type of machinery that it is necessary to instal in a modern creamery is tremendously expensive. Unless a creamery is operating in a modern way at present and able to observe the general rules of hygiene it is impossible for it to compete on the home market or on the export market. If the Minister could get someone to produce the figures of the amount of agricultural orientated or agricultural processed food and raw materials that goes up in Killeshandra or Cavan town and compare it with any other part of Ireland it would compare very favourably indeed. Confidence in the area, improvement in the standard of living and the extra employment that is being created there are all due to the fact that there is a co-op in the area.
If there was a new factory coming from Japan, Germany or England there would be a great song and dance about it. The new manager and his team would be greeted with applause. There would be a substantial State grant and an official opening and the manager and his staff would be put on a special elite panel because they would be bringing in capital and about to start a new industry. Let us not forget the people who have been there for over 100 years who have founded the permanent nurseries. They are making and processing food, milk, butter and cheese, things that the human race needs every day of their lives. In other words there is a market for them. Thanks to Mr. Lawless we succeeded in getting this food processing factory there. Along with that we succeeded in getting markets abroad. That is very important and entails a lot of cost on behalf of the co-ops and the food processing people themselves who do not wait for the customer to come to them but who actually go out to Spain, Italy and all foreign countries where they dispose of these manufactured goods. In doing this a new industry would get exemption from rates.
On my own local county council I proposed a motion some years ago that any new factory should get ten years exemption, an extra three to what is usually allowed. I do not think the co-ops enjoy this, although they are a very important part of our employment machinery. Let us also remember that it is the co-ops who more or less set the trend and improve the standard and modernisation of the farms in the area. They are the people who are able to buy the machinery, exhibit it and often give demonstrations of how the machinery is worked. The creameries and co-ops in general have pioneered and improved the standard and quality of our animals —our cattle and pigs in particular—by the introduction of the AI schemes and the use of the dearest, most fertile and best suited semen so as to ensure that we would have a very superior cattle herd. They make efforts to ensure that vets are available and that brucellosis and so on is exterminated. These are all very laudable things that have helped to keep our agricultural industry to the fore.
As I said on previous occasions, when we entered the EEC there was great hopes for the development of industry and in particular for the development of co-ops and factories based on agricultural material. It is the policy of the Fianna Fáil Party when they return to power that they are committed to removing this tax that the Minister is now imposing on co-ops. We are not the type of party who act like the Minister who is often slipping and sliding like a gander on ice so far as decisions are concerned. The Minister one day says he is going to tax co-ops and the next day, because he has an interview with two or three farmers, he panics and says, "We will remove this part but we will not remove the other". We are totally committed and crystal clear in what we intend to do. We are doing it because we feel it is necessary in the interest of the survival of rural Ireland and necessary so far as the economy is concerned. It will boost and back up the co-ops who down the years have been doing an excellent job. It will further incorporate and encourage that type of co-operative get together movement which we are trying to foster.
The Minister is wrong in doing this. It certainly will bring many hardships in so far as the farming community are concerned. Many of these hardships will be passed on, because the co-op itself will not carry the extra taxation that the Minister is imposing on it. All the extra taxation will have to be passed on to the farmers who actually own the co-ops. There is nothing that will shake me in my firmly held conviction that this Government have stumbled into this and blundered so far as the rural community are concerned.
The rural community have been suspicious from the beginning in so far as the composition of the Cabinet is concerned, which has been a matter for the Taoiseach. We have trade unions of all descriptions in our party. The propaganda is being levelled against the ordinary farmer and co-op or the person who works in agriculture that he is a type of inferior being who should be loaded down with taxation. He is paying his fair share so far as other commitments are concerned. Without him there would be very few people working in the motor industry, very few in the tractor industry. Indeed in anything he buys, whether it be a plough, a forage harvester or whatever it is, by virtue of the fact that he is buying it in his own country he is paying far more than he would pay for it in the Six Counties or in Europe. He has also to carry that extra load to keep those workers in existence and reasonable frugal comfort.
I see nothing in the trail of this disastrous provision except that there will be fewer people employed in rural Ireland, that the co-ops will find it much harder to give the services which the people expect of them, and that the farmers are being beaten down to earth. This happened particularly in 1974 when they had to accept rock-bottom prices because of the incompetence of our Minister for Agriculture and Fisheries in not being able to ensure that the payments that were justifiably coming to them from the EEC got back to the producer instead of being absorbed by many of the private meat packers. The farmer, therefore, cannot have any confidence in this outfit. I feel that the Minister would be wise if he were again to indulge in that gander-sliding exercise and again get on the ice and perhaps skate off to the corner that would be most beneficial as far as the co-ops and the rural people are concerned.
As far as I can judge from the general climate in rural Ireland it just seems to be a matter of not alone this Minister but all the Ministers whistling past the graveyard and trying to pretend that everything in the garden is rosy, grasping at a straw like a drowning man and indiscriminately putting on extra taxation in a vain attempt to retrieve what they have lost over the last three years. I think the only way that the thousands of people engaged in the co-operative movement will get their grievances cured is to ensure that at the next election they will make sure to get rid of this Government and in particular those who, during the last three years have been more or less sneering at the farmer and accusing him of not pulling his full weight as far as the community is concerned and who have been trying all the time to grind him back down to the earth from which he sprung.
Regarding section 33 which deals mainly with the taxation of co-ops, I regret all the acrimony that has developed in recent months between farming organisations and the Government regarding taxation of co-ops. I am sure that when the Minister gets the feed-back from his colleagues he will regret the decision to tax the co-ops. Possibly it was another sop to the Labour Party in order to enjoy continued participation in Government.
What is a co-op society? A co-op society is an organisation which was brought about by people who were willing to give their time and to make sacrifices in order to put a project into existence for their own benefit and for the benefit of those who would be engaged in that co-op. Co-ops initially were formed on a non-profit-making basis. They were formed as creamery outlets, separating stations, purchasing centres and so on. They were formed in the first instance to benefit the people who required the services most, the people who were unable to pay high prices for farm commodities, namely the small farmers.
My only regret about co-ops is that we have not more of them branching out into other spheres of our day-to-day activities. I regret that we have not more housing co-ops, more social services co-ops and so on, because all those things, if they were properly organised and encouraged, would take the load off the general taxpayer and they would be giving a wonderful service to the country and would allow people greater participation in the say and running of the affairs of the country.
The members of a co-op have a say in its policy making, they have a say in its non-profit-making or its profit-making but by and large co-ops were not established as profit-making concerns. They were meant to give a service to the members who were mainly small farmers, people who found it difficult to obtain credit, and who had to avail of the credit facilities of co-ops whereby they purchased their seeds, manures, fertilisers, dairy requisites and so on. In return the co-op stopped an agreed figure from each monthly cheque by way of payment. That was the real function of the co-ops. That was how the co-ops were successful, because the people depended on the co-ops for their credit, they depended on them for the supply of their materials, their household goods and so on.
In recent years the co-ops became involved in bigger business, in farm machinery, forage harvesters, combine harvesters and so on. The reason that they became involved was because the members felt that there was need for their involvement, there was need to give better direct service to the farmers themselves, there was need to secure commodities for farmers at reduced prices because, as I said, co-ops sold on a non-profit-making basis and, therefore, the farmer stood to benefit most. We have been told in recent months that if co-ops are asked to bear a further measure of taxation the farmer will have to bear something like 1.5p per gallon on milk. There is no doubt that the majority of small farmers who are not already caught in the tax net and who are not likely to be caught in it will have to bear this burden. The bigger farmer with the higher turnover will be more comfortable and in a better position to bear this impact.
Another consideration that we seem to lose sight of is that co-operatives are engaged in food manufacturing and food processing. Therefore, they are producing a commodity for export and, like any other industry, they should enjoy the facilities afforded to industry at present. An industry which sets out to export goods enjoys, tax-free remission for those items exported. Therefore, co-ops must be treated similarly. They must be treated as equals in the export drive. That is what we want. We want more and more participation in export. The agricultural co-ops are geared to participate in that export. What they need is encouragement and inducement and if they get those things they will play their role in building up the economy. Look at what agriculture did for our balance of payments exports last year. If they were encouraged and exploited along the proper lines they would play an even greater role in the export area. That is what we need badly. The Minister and the Government know that, but I can see their difficulty. They have to contend with the Labour Party who have some false idea that farming has become some sort of a haven and that every effort must be made to extract the maximum amount of taxation from those people.
I know that the Minister's colleagues down the country have heard a great deal of noises recently regarding those co-ops. This is a step which will be regretted because it will increase costs and lessen our chances on the export market. It is very important that we must always be in a position to produce food and sell it at a competitive price on the European market. What the co-ops and the farmers need is an inducement and every encouragement to play a much greater role in the building up of the economy and in earning for us more and more capital which this country needs so badly. Therefore, I would appeal to the Minister, even at this late stage, to make some overtures to the members of the co-ops and the agricultural community in general and that he will make some efforts to protect this great industry.
I totally agree with the last two speakers, that this section will be a great deterrent towards the setting up of any further fishing, agricultural or craft co-operatives. In an age when we have so many of our concerns, industries and services being taken over by foreign monopolies, instead of discouraging the co-operative movement we should do everything in our power to encourage our rural people to get together and to stand on their own feet.
I have a very special interest in the co-operative movement because, first of all, it was set up by Sir Horace Plunkett and Father Finlay in the early decades of this century and because it was from the co-operative movement that the Irish Countrywomen's Association grew. Sir Horace Plunkett and Father Finlay were the first ever to admit that this great movement would never get off its feet without the help of the women of Ireland. It was as a result of this appeal by those two great Irishmen that the Irish Countrywomen's Association was founded. The idea behind it— an idea which should still be to the fore in rural Ireland—was that the association was founded to foster more self-help and mutual help and in that way to improve the standards of rural Ireland.
Since their foundation, the Irish Countrywomen's Association have played their part and have taken a very special interest in the movement. They have been very prominent in setting up country markets. I do not think these markets would be in the million pounds bracket but, at the same time, their aggregate takings would run into a fair amount of money. Their latest venture was in the craft co-operative section and there is a shining example of a craft co-operative in Sliabh Bán that has done us proud both at home and abroad.
It grieves me that these co-operatives, craft, fishing or agricultural co-operatives, must now come under the taxman's axe. Instead of being taxed they should be encouraged because they will now have no incentive to expand. Many of the bigger co-ops, as Senators Keegan and Dolan have said, have had to borrow substantially—even £1 million—to modernise their affairs and machinery. It will be a great disincentive to farmers in future to invest any of their hardearned money if their is not a change of mind about this taxation.
One of the great results of the co-operative movement is the spirit of community involvement which it engenders in an area. Any industry that gives heart to the people of rural Ireland should be encouraged rather than discouraged which is going to happen if this section goes through. With the other Senators, I have no intention of supporting it.
Let me put on the record a few remarks which I think are important. I am sorry that Senator Dolan is not here because I would like to say how much I appreciate his description of the descendent of a Cavan man who has wandered like a gander slipping on ice while he whistles passing a graveyard, gripping at a straw like a drowning man. It is not a bad mixture of metaphors. Whatever else I am, I am not as confused as all that. I suspect that Senator Dolan, from much of what he has said, is confused, as indeed others are, about the taxation of farming co-ops.
Senator Uí Eachthéirn made reference to a craft co-op. I am not absolutely certain of the crafts in which that co-op is engaged. It is quite possible that that co-op is liable to tax because industrial co-ops are liable to tax and there are several industrial co-ops made up of operatives in industry who rescued their industries from collapse and who put in their own money and effort and they have not enjoyed exemption from taxation. There are many activities now engaged in by fishing and farming co-ops which bear no relation whatsoever to the type of activity in which these co-ops were engaged or which it was conceived they might engage in when the concession was first granted before the foundation of the State. Indeed, in Senator Dolan's own area there is a co-op which is manufacturing massive equipment which is more of an industrial than an agricultural nature. It is supplying not merely the agricultural industry with such equipment but it is exporting and is in direct competition with a number of private enterprise operations which are manufacturing precisely the same kind of equipment. It is fair to ask should one group be free of tax and the other not? They are both servicing similar markets, they are both involved in the same kind of trade, both manufacturing the same product—a product only remotely connected with agriculture in that it manufactures containers, tankers and silos but can just as easily be used in industry as in agriculture. That is just one illustration of the anomaly that would continue to exist unless there was a very radical change in the whole approach to the exemption to co-ops.
Certain suggestions have been made that the Government do not understand the difference between profit—which is the pursuit of private enterprise—and the generation of benefits for members —which is the pursuit of co-operatives. This is said as though profit was something unseemly and something unworthy and something which deserved to be taxed while conferring of benefits on members is not. What is profit but the conferring of benefit on the owners of the capital in an enterprise and the operators in the enterprise? There is, in fact, no fundamental difference. What is totally unacceptable and is now admitted to be ridiculous is the suggestion that taxation which should amount to about £2 million on a turnover which now is known to be in excess of £800 million is going to ruin the co-operative system, is going to bring it to an end, is going to cause farmers to wind up their own operations. We are told that co-ops are farmers and that because they are to be asked to pay tax they are going to commit hari-kari.
Nobody on this side of the House or in either of the Government parties has, at any time, jeered or sneered at any farmer. This accusation has often been levied but I heard nothing as contemptuous as the talk of the leading member of the Fianna Fáil Party in the other House in the last few weeks who referred to the city slickers with curtains on their windows and so on. I thought that talk was most offensive. I have never heard, nor would I tolerate it even if I did hear it, anybody engaging in criticism of rural dwellers in Ireland.
This tax is a very mild tax indeed. The adjustment which has been made since the original budget proposal was one which I announced at the time of introduction of the Finance Bill. The only reason it did not appear in the Finance Bill was due to a technical difficulty in devising the precise form of words to meet the situation. The situation which exists in the co-operative movement today which causes problems is that a large number of them have over-borrowed and quite a number of them have been in financial difficulties in recent times, long before there was any mention of the proposed tax. I am not going to enter into any criticism of their decisions to borrow, or of the activities in which they engage, but whatever difficulties they had, they were certainly in no way connected with the proposal to introduce this tax which is absolutely necessary if there is to be equity in the tax system.
What we have done is to allow co-operatives to write off against future profits the investments they made in previous years, of the balance of those investments. That means they will be able to repay the money which they have already borrowed. It allows them sufficient time to adjust to the new system. The farming community in general, and co-operatives in particular, would be well advised to be led by a very loyal, worth-while and level-headed leader of the farming community, Mr. James O'Keeffe of the ICMSA, who said the other night that farmers should accept that the taxation of co-operatives is the law of the land and adjust themselves to it.
I commend that approach. I believe it should be the approach of all right-thinking people. A disservice has been done, not merely this year in relation to the proposal to tax farming co-operatives, which is a nugatory tax in relation to the turnover of profits of co-operatives, but to the whole farming community by those who have been whinging, crying, complaining and talking about the disincentive effect of tax over the past few years. The same can be said about all taxation and, therefore, the way to generate greatest wealth should be to abolish all taxation. That might well lead to a social and political revolution which might hurt most those who at first sight might think that would benefit if all taxation were abolished. The truth is that man, because he is level-headed and sensible, when he counts the cost, decides if he has to pay so much tax he does not want to be any poorer, so he tends to work harder to make up the same net income. That has always been the trend.
On top of that, farmers now know, what they did not appreciate at the beginning, that by borrowing and investing they can set off against their tax liability interest which they pay on those borrowings. Far from taxation being a disincentive to investment, all other countries in which farmers are taxed—and I do not know any progressive country where farming profits are not taxed—have shown that the existence of farm taxation has encouraged investment. Now that farmers have had experience of farm taxation since 1974, they are beginning to realise that. The result is that there is a very rapid growth in the taking up of credit by farmers.
I realise that if you are in the political kitchen you cannot complain if people try to stick your head in the oven. People have tried to create a considerable amount of heat on this issue. They seem to have misled a number of people into misunderstanding what the whole thing is about, but the country at large now knows that what is now proposed is fair. I will conclude on this note. While we have heard the critics complain, we have not heard the very large number of small traders who had a grave sense of injustice for a long time past, because they saw trade drifting away from them, who were taxed, to enterprises which were not taxed. I have received in my office several private letters expressing congratulations on the introduction of this tax which introduces some element of fair play. I also received letters criticising me because I modified the original proposals and it was felt that I should not have modified them. When I find myself being criticised from both extremes I feel I must be right, and be somewhere in the middle. That is the right place to be.
Question put.
The Committee divided: Tá, 22; Níl, 9.
Tá
- Blennerhassett, John.
- Butler, Pierce.
- Codd, Patrick.
- Daly, Jack.
- Deasy, Austin.
- Iveagh, The Earl of
- Kerrigan, Patrick.
- Kilbride, Thomas.
- McAuliffe, Timothy.
- McCartin, John Joseph.
- Mannion, John M.
- Markey, Bernard.
- Moynihan, Michael.
- O'Brien, Andy.
- O'Brien, William.
- O'Higgins, Michael J.
- O'Toole, Patrick.
- Owens, Evelyn.
- Prendergast, Micheál A.
- Sanfey, James W.
- Walsh, Mary.
- Whyte, Liam.
Níl
- Brennan, John J.
- Cowen, Bérnard.
- Dolan, Seamus.
- Eachthéirn, Cáit Uí
- Hanafin, Des.
- Keegan, Seán.
- Lenihan, Brian.
- Ryan, Eoin.
- Yeats, Michael B.
Tellers: Tá, Senators Sanfey and Kerrigan; Níl, Senators Hanafin and Cowen.
Question declared carried.
Sections 34 and 35 agreed to.
SECTION 36.
Question proposed: "That section 36 stand part of the Bill."
We all know the effect of the section in regard to the new duty on beer in particular, but the extra tax situation is involved. Now that it has been in operation for some three months, has the Minister any figures he can give in regard to whether or not these measures have been counter-productive, which I feel they have been, particularly in regard to beer and stout in terms of reduced consumption? Has the exercise been worth while from a Revenue point of view leaving aside the merits or demerits of the particular duty? The Minister may not be able to answer that yet, but I should like him to make some comment on it. Apart from that aspect, in my view there is very little net gain in Revenue terms and, therefore, consumption remaining fairly static or reducing will create a situation where the increased rate of duty may be counter-productive.
Leaving aside the variance that exists in regard to types of beer and stout in Britain and in Ireland, and even taking comparable beers such as Bass, there is a difference of 10p in the price per pint. Have any sums been done by the Revenue Commissioners or by anybody in the economic section of the Minister's Department on the deterrent aspect involved in this, vis-a-vis, visitors coming here from Britain?
There are two valid questions which relate to an essential point I believe has run right through the whole policy and philosophy of the Minister since becoming Minister for Finance. He has tended to be over-orientated to the tax gathering aspect of his Department. The Revenue Commissioners have tended to have too free a rein, and sufficient cognisance has not been taken of the overall economic maleffects arising from taxation pursued for the sake of taxation. This instance is a classic example of it. Beer duties have now risen to a level where, subject to what the Minister has to say, they will be counter-productive from the Revenue point of view, and certainly from the point of view of tourism with the price of a pint 10p dearer than the price of a comparable British beverage. As the Minister is well aware in view of current events, this duty is a very important ingredient in the cost-of-living index and a cause of severe problem in reaching any wage agreement.
I want to advert to what Senator Lenihan has said regarding the tourist industry and the effect this can have, not alone on the industry in general, but on the industry in particular in the Border counties. As a member of the Lakeland Tourism Organisation I feel it will have a very adverse effect on the number of people coming to our area. The price of the pint has increased by 20p since 1973, when this Government took office. For the first time in the sale of drink, a pint now costs more than a half glass of whiskey. This is wrong thinking. The people who manufacture whiskey give an excellent service and export quite a ot of their products, and so forth. The potency of different drinks should be taken into account. In view of the number of accidents on our roads it is wrong to encourage people to take strong drink such as whiskey in small quantities instead of long drinks such as pints.
The evidence points to the correctness of the tax imposition because the consumption in February, post tax, fell by a smaller amount than had been anticipated, which showed in fact that the tax imposition was correctly calculated as being that which was tolerable. For other reasons the price of beer rose two days before the commencement of Lent and that had a significant impact upon beer consumption which fell considerably in March, not as a result of the tax, but rather due to the fact that on 1st March an addition of about 4p was put on the price of beer.
One of these increases had been legitimately processed through the National Prices Commission which recommended it. That was for the brewers. The other price increase was not processed through the National Prices Commission. Indeed, a number of other increases were imposed by the vintners in recent times without seeking the approval of the National Prices Commission or of the Minister for Industry and Commerce.
As I explained to the Dáil, the Government's effort to control these prices is frustrated by the fact that there is at present a case before the courts known as the Dundalk publicans' case, where the validity of the orders is being challenged. While several other publicans have been prosecuted in respect of what are considered to be illegal increases in prices the issue cannot be determined or controlled until such time as the law case is over. It is a very frustrating position but one with which we have to live.
The price of beer has increased since 1973 but, of the increase in price, the Exchequer has received only 40 per cent, and 60 per cent has gone to other interests, some of it legitimately sanctioned by the National Prices Commission, a very significant proportion o it not sanctioned by the National Prices Commission or by the Minister for Industry and Commerce. It is something over which, unfortunately, we have no effective control until such time as the litigation is decided upon.
What the Exchequer receives it returns. I know more than one person consuming a pint of "that which is best" has probably resented money going into Richie's pockets in recent months, but it must be some consolation to them to know that there are holes in all of Richie's pockets and that the money never stays there. It simply pours out. It does not remain in the Exchequer. Whatever the Exchequer has received it has handed out, and it has even been said by the Opposition that we hand out too much, that we hand out not merely what we collect in tax but also that which we borrow. The other increases which I am satisfied cannot be fully justified are unfortunate, and it may be possible, as soon as the litigation is resolved, to correct that position. In the meantime unfortunately we have to live with it. Finally may I say in relation to what Senator Lenihan said, I am not prepared to accept that British beer is comparable to Irish beer.
I quoted a comparable one, Bass—a particular brew comparable in each jurisdiction, and 10p is the difference per pint at the moment. There is very bad British beer and the differential is in the order of 20p, if I wanted to be extreme in my argument.
The best is brewed in Ireland.
Yes, but there is 10p of a difference.
We would share with everybody else the desire that it should be at a price which is reasonable and that unauthorised impositions which cannot be justified by appropriate costings should not be imposed. The buoyancy—if that is the appropriate word to use in relation to liquid consumption—is rising again and we expect to be back on target very soon.
The Minister has no positive figures?
No, but they are encouraging.
Is the Minister aware there is a difference of £1 per bottle of spirits between County Monaghan and County Armagh? There is a difference of 10p a gallon on petrol.
The Minister is a little ingenuous in talking about the rise in price at the beginning of March as being a matter entirely for brewers, and so on. The Minister himself directly or indirectly added 4p to the price at the beginning of March in increases in VAT. One of the problems in relation to consumption has been that the Minister had two bites at the cherry. He put 6p on in the budget and then——
Five pence in the budget. The VAT element works out at about 1p but would not have worked out at about 1p if 4p had not been added to it.
The Minister put on 5p in the budget and another 5p VAT in March. These two bites at the cherry caused a lot of the trouble during Lent. Not content with taking 5p in the budget, the Minister then postponed the increases in VAT until March and put on another 5p, leaving aside the question of the brewers altogether. If there was a falling off the Minister has only himself to blame.
There are administrative difficulties in relation to VAT. You cannot impose a VAT increase in the middle of a VAT period. The VAT increase could only be imposed from the commencement of the VAT period which happened to be 1st March. The VAT increase would have worked out at only 1p, had it not been for the other increases which made the VAT increase in toto 1.36p. The addition was attached to the vintners' and brewers' increase. That was not intended, I doubt very much if an increase of 1p two days before Lent would have been sufficient to strengthen the resolve of people to abstain during the Holy Season. The imposition of 5p two days before the commencement of the penitential season helped to strengthen some people's will to stay off it for a while.
I do not think I am clear about the situation. The 1p on the VAT originally envisaged was obviously on top of the 5p. Surely the increase of VAT from 6.75 per cent to 10 per cent added a considerable amount at the beginning of March. That had nothing to do with brewers increasing prices. This was envisaged by the Minister. It is a 50 per cent increase in the VAT rate. That is altogether different from the 1p. The 1p was merely on the increased price. In addition to that, even if he never increased the price, there would have been a considerable increase in VAT because of the 50 per cent increase.
The increase was from 6.75 per cent to 10 per cent but a slight addition then arose because the underlying price was increased. But 6.36p was the total increase and not 10p as has been suggested, arising out of taxation.
The price of the pint is up 20p since 1973——
Of which the Exchequer collected 8p.
——partly due to the Exchequer and partly due to the Minister's inflationary programme.
The other is not my inflation rate at all.
Question put and agreed to.
SECTION 37.
Question proposed: "That section 37 stand part of the Bill."
I gather the position is that the price of half a glass of spirits has gone up by 31p since 1973. Is that correct?
Yes. That is correct, of which the Exchequer has received only 16p and has given it all back.
The rest is due to causes we all know.
Question put and agreed to.
Section 38 agreed to.
SECTION 39.
Question proposed: "That section 39 stand part of the Bill."
There is a problem about the precise effect of the budget impositions. As I understand, it varies according to the price of wine and, indeed, it is a good change instead of having a blanket sum on the bottle, whether it was champagne or plonk. The Minister added 9.36p, or alternatively 18.73p, to various bottles. Allowing for VAT, what does it work out as in terms of increased tax per bottle including VAT?
Is the Senator talking about tobacco?
No. We are on section 39. There are two rates on wine.
There are a number of rates between 9.36p and 18.73p. There are four rates. Those are the top and bottom rates. That is the excise duty. Including VAT, the rates are ranging between 10p and 20p.
Question put and agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."
Of this series of taxing sections, if one can use that phrase, this is the most serious. It does not just impinge on the ordinary individual which, of course it does. As with the other sections it raises to varying degrees the cost of living on the ordinary man in the street and one can include nearly everybody in the list of people being affected by this section. Apart from the effects on the individual, a 13p increase per gallon in the cost of petrol between tax and VAT as a result of the Finance Bill is a very serious imposition, not merely on the ordinary individual but also by the time it has worked itself right down to the commercial, industrial and agricultural life it will mean a further lessening of the possibility of economic recovery. In addition it is likely to cause further increases in the cost of living. The cost of petrol is now up 52p and the Minister will no doubt say the tax is a proportion of the total price less than it was in some year that he picks to suit himself and so on, but the fact remains that the Minister has increased petrol prices on several occasions by large sums, his first effort was 15p, now it is 13p.
At a time when the price of petrol is rising very rapidly for other reasons it would seem to be desirable to tax less rather than more. This must have a very serious effect on the economy and obviously, as Senator Brennan has already pointed out, it has a very serious effect on certain businessmen along the Border because the difference now is very large in the cost of petrol as between both sides of the Border so that no one in his senses would buy petrol on this side of the Border if he could go across and buy it much cheaper at the other side.
Leaving aside this matter which affects seriously a limited area, the entire country is suffering as a result of this tax and I do not think the Minister can congratulate himself in any way in regard to it. It is clear that it has had and will continue to have very bad effects. The trouble with taxes on petrol, or indeed on anything, is that they go up but never come down and with the cost of petrol now at nearly a £1 a gallon it is quite clear that the price will never come down but will remain a burden on the community. We will know that the oil crisis in general has had an effect on prices in all countries but the difficulty is that the internal effects of raising costs in Ireland have been greatly aggravated by the advantages being taken by the Minister of this rise to add very large increases of his own to it, thinking apparently that they can be included in the general rises and perhaps not noticed quite so much. But I suppose that motorists having got over the first anguished reaction will probably get used to the price of petrol. Nonetheless it will be a burden on them and particularly it will remain a burden on the economy. It was a very bad decision.
I can say "fair comment" but, of course, there are two sides to every argument. If we had not had increases in the price of hydrocarbon oil since 1973 it is probable that our consumption of oil would now be in the region of 280 to 290 million gallons as against 235 million gallons. The effect of the increases in both the imported price and the fiscal increases has been to keep our consumption in or about the same. It was 233 million gallons in 1973 and 235 million gallons in 1975, which is a very small increase considering that prior to 1973 we were increasing our consumption at the rate of 8 to 10 per cent per annum. If we had continued at this rate of expansion our balance of payment position would become utterly intolerable. Last year we had an extraordinarily temporary relief from a difficulty in balance of payments. That was due to the recession and de-stocking and so forth, but now that recovery is coming about we are likely to move back again into that very difficult balance of payments position which arose in 1974 as a consequence of the massive increase in the price of imported oil.
Apart from everything else there is urgent reason for us to reduce, and certainly not to increase, our consumption of imported oil. Therefore, apart from the need for revenue which is one of the major reasons why we have imposed the tax in this year's budget—I do not want to conceal that or camouflage it—I also want to say that there are very good economic reasons why we should depress the use of imported oils. So far we have been successful in that policy. We wish particularly to do it in the area where, for some people, there is an element of choice. Of course we must import oil for essential industry and this importation will increase as industry picks up from the recession and industry returns to full capacity but one must consider both of these things in relation to the question of the use of oil and the cost of it. Criticism was made of some of the other taxes in that we may have pitched the taxes at a level which could reduce revenue and that it was unwise to do it. Experience has shown that taxation related to this particular item, because it has not shown the same sensitivity as has for instance, tobacco. Of the old reliables tobacco is the most sensitive to tax increases and in fact within the last six years we had three occasions during which tobacco consumption fell but there was no reduction in consumption of any of the other items or in the consumption of oil. I am always willing to hear suggestions as to where revenue might be collected and if somebody has a better one I will be only too happy to implement it and to give full credit to the genius who is courageous enough to make the proposition.
I am not venturing in on that. That is a matter for the Government and indeed they are dab hands at inventing ingenious methods of extracting the last penny from the taxpayer. The Minister seems to imply that the real thinking behind this is not so much to get revenue as to cut down the amount of oil we import. I do not know whether he wants the people, the workers in particular, to walk to their jobs. He must admit and concede that the motor car has become an essential part of rural and family life, especially in areas where there are no services provided by CIE. I wonder has he adverted to the fact that we in the north-eastern area—Donegal, Cavan, Monaghan and Leitrim—get very little use out of CIE, that we have no railways. Not alone have we been allowed to suffer this loss but our roads have been allowed to deteriorate despite the increased price we are paying for petrol. We have great difficulty in getting our manufactured goods to the ports. Further, the recipients of social welfare benefits, particularly old age pensioners and people such as those for whom Deputy Haughey, when Minister, introduced special concessions to allow them to travel free on public transport, now find that they cannot avail of that concession. I wonder has the Minister given any consideration as to a way in which he could recompense those old people who have given a tremendous service to this country and now find that they cannot avail of this service which is supposed to be there for their benefit.
The Minister was almost making a virtue out of his enormous series of taxes on petrol by suggesting in effect that he had been performing a public and indeed a national service by cutting down on imports of oil and thereby saving our balance of payments. He gave the show away completely towards the end of his last intervention when he said that one of the great advantages of taxing petrol was that unlike beer, tobacco and so on, it was in fact relatively elastic—no matter what increase you put on it it did not change the consumption. In that the Minister is correct. The facts show over the years that you can put almost any tax on petrol, whatever effect it has on the economy is another thing, but in regard to consumption it will have no effect.
If the consumption of energy is cut down it is not by reason of the Minister's taxes. It is because of the extreme state of economic depression that we are suffering from. This has caused grave financial problems for the ESB because people are simply not using electricity. It is not that people are no longer using lights in their houses but that industry is at such a low ebb that the former heavy users of electricity are not using it any longer.
In the same way consumption of oil has gone down because the economy has been in such a state that the people cannot affort to use it. As the Minister rightly says, taxation on petrol has very little effect in changing the pattern of consumption.
Question put and declared carried.
Section 41 agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill.
Section 42 is a new measure and takes on a new dimension. For the first time we learn that the Garda are about to be employed to search vehicles to see if they contain special equipment dealing with the running of the vehicle on liquid gas. What form of interrogation will this new exercise comprise? Are we to have more squad cars on the road and more policemen employed together with Revenue Commissioners searching the insides of cars to see where this special equipment is installed? What rights has the individual in regard to his property? This is a long and detailed section. It is a new section in our Finance Bill. Therefore, there is reason for a certain amount of apprehension dealing with the whole matter.
What we have done is to copy the provisions of the 1935 Act. Sometimes I do imitate Fianna Fáil. They introduced similar provisions when diesel was taxed for the first time. There is a very good case for taxing gaseous hydrocarbon in liquid form which can now be used to drive motor vehicles, but it is appropriate that we should use powers similar to those which exist in relation to diesel. Diesel and gaseous hydrocarbons in liquid form will be taxed at a similar rate which is a rate lower than applies to petrol. The lower rate is justified on the grounds that they are forms which tend to be used mostly in commercial vehicles. Accordingly, in order to ease the cost distribution to industry one taxes them at a lower rate. It would be inappropriate to give this concession and then not allow adequate policing power to make sure the concession is not abused. I am sure on reflection that Senator Keegan will see the necessity for the measure.
But the Minister did not clarify whether he intends to employ the Garda in a new capacity which did not happen heretofore. The section states that an officer of the Revenue Commissioners or a member of the Garda Síochána may examine and take samples of any gaseous hydrocarbons in liquid form kept in any tank. That is a new dimension in my opinion.
Normally the Garda are not used in this work at all. It is customs officers who deal with it. Some people have an inclination not to cooperate perhaps as much as they ought to with customs officers particularly if they have a guilty complex. In such a situation it may be necessary for a member of the Garda Síochána to assist an officer of the Revenue Commissioners in the course of the examination. We have in this Bill and in other measures relieved some of the police work involved in enforcing taxation laws. I do not expect this is going to involve any significant additional burden on the Garda. If we are going to tax liquid petroleum gas we clearly have to provide measures to enable the law to be enforced and not abused.
I should like to be clear as to how to segregate the different vehicles. Will every vehicle be searched? How do you decide on a particular vehicle? If there are 100 vehicles travelling along a highway, do you stop and search 100 vehicles or how do you segregate them? A car that has been converted may not have been reported to the taxation authorities. I am at a loss to know how you are going to catch the man who is using gas as against petrol.
The Senator wishes to tighten up the law?
No, but I am not satisfied that you do not need additional staff and it is going to cost more money in order to try to determine which car is being driven on gas and which car is being driven on petrol.
I understood that the Senator was in favour of 100 per cent enforcement. I am shocked to discover that he is not. He is a party to the passing of laws here which I am sure he would want people to respect once they are passed by the House whether he voted for or against them. The position will be no different from that which now exists in relation to red diesel and so on. I would love to think there was a 100 per cent detection of wrongdoers but there is not. You should see some of the letters I get. Incidently, I have no power to remit fines. Some people think I have. It is not uncommon for me to get a letter from somebody or on behalf of somebody saying that he was caught by the gardaí with red diesel in his car and was prosecuted for the offence and for having a hidden tank. Because it is his first offence he asks me to let him off. What is usually the case is that it was the first time that person was caught but it does not advance any particular reason why it should be remitted. That is a matter for the Revenue Commissioners. This will be no different from that which already exists. The Revenue Commissioners and the Garda from time to time through the use of their own intelligence and information services have occasion to inspect cars. We would not visualise that there would be a sudden descent on every motorist to see whether he has a particular form of fuel fuelling the car. The authorities will use their powers and I am sure the rate of detection will not be unfavourable.
Question put and agreed to.
Sections 43 to 52, inclusive, agreed to.
SECTION 53.
Question proposed: "That section 53 stand part of the Bill."
This is basically the section which fixes the new rates of VAT as imposed in the budget and made into law by this Finance Bill. The basic change has been the conversion of all the low rates of VAT at 6.75 per cent into 10 per cent. Basically the general rate of VAT on the ordinary necessities of life on which VAT is charged has been increased by 50 per cent. That is another example of two aspects of Government policy that we have had to criticise very frequently in the past— the extraordinary way in which the Government, and the Minister in particular, appear to be able at a drop of a hat to take steps which have a direct and drastic effect in raising the cost of living, at the same time as they are looking for a pay pause, wage restraints and so on.
That is one aspect of their policy which we have criticised frequently in the past. The other aspect is their apparent complete inability to make up their minds what attitude they should take with regard to such matters. It was only last June that in this House we accepted the Finance (No. 2) Bill, otherwise known as the mini-budget, in which the Minister zero-rated certain items and in particular clothing in order to cut the cost of living. For example, in the earlier years of this Government, in the autumn of 1973, food was eliminated from VAT. At the same time as he did that he increased VAT on a variety of other things and made an overall profit on the deal. The Government, on the one hand, tend to take these steps, whether justified or not, in eliminating certain items from VAT and zero-rating them and within months of doing so, to increase VAT on a wide range of goods. I cannot see any point in that policy from the point of the finances of the country or the inflationary position we are in.
I do not know whether the Minister thinks the people in 1976 are doing nothing except eating food and wearing clothing. The kind of things which are being increased by this 10 per cent are things which ordinary people buy— things like building materials—which add directly to the cost of housing. These are ordinary things which are by no means luxuries. So-called luxuries are taxed at a different rate. These are all things we have to buy. We do not live primitively. Every household in the country buys, as a matter of course, large quantities each week of the items now rated at 10 per cent. As I say, the tax rate on those have gone up by 50 per cent. That has had a very direct effect on living costs. It has not yet appeared in the cost-of-living index. It will appear in the cost-of-living index which was assessed and completed within the last week or so, and when those figures are published we will see the results. In the absence of accurate statistics it has already had its psychological effect in making it impossible to obtain agreement on the pay pause to the end of this year, which the Minister has rightly sought to achieve.
One cannot understand the attitude of the Government in taking these inflationary steps at the same moment as they are calling for restraint. One cannot understand the attitude of the Government in taking decisions such as this within months of taking decisions which are contrary to this in eliminating items such as clothing from the effect of VAT.
We have not reversed the actions of last June when the reductions in VAT and so forth brought down the consumer price index by 4.5 per cent. The increases in VAT do not increase the cost of living by the same amount. It comes to about 1½ per cent, but it does increase it. As I said this morning, it is a simple direct choice which was put to the country las October, November and December and which has been put since. It is a choice which a Fianna Fáil Government would have to make, too, particularly a Government which say that if they got into power they would reduce the size of the deficit, that they would reduce borrowing but that they would increase expenditure on a multitude of schemes.
They would have to decide where they would collect the taxation. Would they collect it by way of increased direct taxes, which they say are too high, or would they do it by indirect taxes? If they do it by indirect taxes, then they would increase the consumer price index. That is the choice which this country has to make. Which form of taxation does it want? If they want decreased taxation, that is fine as long as they take the logical consequence that they will have to do without many of the services and benefits which they now demand. They will have to accept that democratically, or else there will be a revolution.
There is a very big difference between the pattern of value-added tax now and what we inherited. We inherited a system in which value-added tax was applied to food, clothing, footwear, oral medicines—items which are far more essential than the items to which value-added tax now attaches. As far as the poor person is concerned food and clothing represent the much greater percentage of their budget and also the budget of better-off people. We believe that we were right to bring in zero-rating for what are the more essential commodities of life and to increase the rates on the less essentials. I would not dispute what Senator Yeats said about many of the items carrying value-added tax being regarded as necessary in our community with regard to our standard of living. I am not saying that they are not necessary. I am not calling them luxuries but there is nothing which is more important than food, clothing, fuel and so on and these are items which have been very significantly reduced.
I would have preferred if the increase was not necessary. I agree that there is a certain contradiction in part of what we did last year, but we are faced with the inevitable choice of increased direct taxes or increases in other forms. We went unapologetically for indirect taxes rather than direct taxes.
First, the 4.5 per cent fall in the cost of living as a result of the mini-budget last year was not due entirely to VAT. There were other factors. Only part of it was VAT and, therefore, I think there is a more accurate comparison between VAT now and the increase which the Minister has suggested. The basic point is that the Minister is constantly veering. The first budget last year with increases in taxes increased the cost of living by 4 per cent. The second budget last year with a decrease in taxes decreased the cost of living by 4 per cent. The first budget this year brought about an increase of 5 or 6 per cent in the cost of living.
I do not think anybody has been told by the Minister precisely what the total increase as a result of his budget activities was—the direct increases imposed in the budget and the VAT coming after. It must be at least 4 per cent. There is this complete change from moment to moment—up 4 per cent, down 4 per cent or whatever the figure is. One just wonders what the purpose of this kind of policy is. Obviously we cannot agree to the impositions in this section because they are totally inconsistent with previous Government policy, totally inconsistent with what is needed in this country and, certainly, totally inconsistent with any kind of wage restraint, which is quite clearly one of the things we need in this country at the moment.
Question put and declared carried.
Sections 54 to 59, inclusive, agreed to.
SECTION 60.
Question proposed: "That section 60 stand part of the Bill."
I should like to ask some questions on the various Schedules giving the various rates of VAT. First of all, I should like to ask the Minister why he is so unwilling to give way to what appears to be the very general demand by the interests concerned that there should be a zero-rating of VAT in respect of newspapers and periodicals. I know, of course, that newspapers and periodicals concerned are putting up a fairly active propaganda campaign. I suppose they count as a sort of pressure group in the same way as in any democratic State—there are pressure groups of all kinds—but it seems to me as an outsider in this matter, with no particular axe to grind one way or another, that with present day conditions, the extremely high cost of printing and paper, of all the activities relating to the production of newspapers and periodicals, there is a great deal to be said for the concept of relieving them of VAT altogether or simply zero-rating them.
There are some things which are exempted from VAT which would appear to be somewhat less worthy than the production of newspapers and periodicals. One finds, looking through this list, that there are 26 different items which are exempt altogether from VAT. Among them are such things as betting, lottery tickets, live horses, live greyhounds. One wonders what the reasons are for these being exempt from VAT. Newspapers and periodicals are clearly of great importance to the wellbeing of any democratic society, much more important to the community than the sale of greyhounds or live horses or even lottery tickets.
I would be interested to know, therefore, why the Minister is so unyielding in this respect and why he is not willing to take this step which would appear to be reasonable, on the face of it, and certainly would not be revolutionary. When we first started VAT the Government of the day—reasonably, all things considered—took the line that this type of taxation was most easily administered and, on the whole, fairest all round if there were as few as possible exemptions and zero-ratings. We now find there are 26 total exemptions and there are 20 items or groups of items which are zero-rated. In these circumstances one wonders what the problem is about adding one more which would be beneficial to the community.
I should love to say "Yes" to the request to abolish value-added tax on newspapers. The cost of doing so would be £2.8 million. I have not yet received any suggestions as to where the alternative £2.8 million should be found, and found it would have to be. Among the critics who are asking for the removal of the £2.8 million are many who are asking for increases in Government expenditure, critics of the size of the deficit and so on. Of course, it is a very popular cause to espouse, a very unpopular one not to yield to. What is particularly unpleasant is the threat that has recently been issued that the voices of those who will not agree to the removal will be silenced. This is wrong and I have seen observations from several responsible newspaper persons saying that the freedom of the Press should not be used to suppress views, that it would be wrong if it were used in that way.
The difficulties of the newspaper industry in this country are not attributable to value-added tax and everybody knows that. The difficulties of several enterprises and business in this and other counties are not attributable to taxation, but there is always a tendency to call upon taxation to provide the remedy. That would be very nice if there was not a shortage of resources to meet the necessary Government expenditure. Everybody in this country knows there is that critical shortage of resources.
There is one essential in value-added tax which must not be overlooked. Value-added tax is a tax on the consumer; it is not a tax on the manufacturer or the distributor but a tax on the end consumer. If value-added tax is to be taken off any item, the Government would have to ensure that, as a consequence of the removal of the value-added tax, the benefit would pass on to the consumer. That, in relation to newspapers, would mean the purchaser of newspapers. It would be quite wrong and quite contrary to the whole tax code to tolerate a situation in which value-added tax would be removed from certain commodities and that the benefit would accrue to persons other than those who were previously paying tax, and that is the consumer.
That is very honestly and maybe unpopularly answering the request but we cannot run away from that essential element of the whole situation—that VAT is a tax paid by the consumer and its removal, therefore, would have to mean a reduction in the price of the service or commodity to consumers.
Senator Yeats lists a number of items which are not subject to value-added tax. One of them is betting. Betting, of course, is subject to an excise tax of 20 per cent. One of the reasons some of the other items are not subject to value-added tax is because there is an import-export element in them which when they were subjected to tax led to a multiplicity of complications—when dogs and so on were exported from this country for races and they were reimported it led to a frightful amount of paper work and complexities. I could give a variety of reasons for the exemptions of some other ones but they would not be related to this problem.
Nobody is more anxious than I am or the Government are to see newspapers in this country overcome their present difficulties and, as far as the Government are concerned, they will give any help which is in their power in this direction; but the suggestion that value-added tax is the cause and the cure does not hold water. Even if we were to remove it, the benefit would have to go to the consumer. We did not impose value-added tax on newspapers; we inherited value-added tax on newspapers when we went into power. While it is exhilarating in one way to see the change of heart on the part of Fianna Fáil, it is an awful pity that they began the value-added tax system by not exempting these papers. They built into the tax system this £2.8 million which I cannot now release from the system until I have an assured and acceptable alternative form of tax which will not be regarded by the people as doing all the terrible things that every other form of tax I have mentioned in this Finance Bill is doing in the eyes of Senator Yeats.
The previous Government did not build in £2.8 million because VAT at that time was 5 per cent; now it is 10 per cent, so the impact has doubled. Apart from that, in the years since VAT was first introduced, as the Minister knows, newspapers and the entire printing world, including books, have gone through a very serious inflationary problem. The cost now of producing any kind of printing material is enormously greater than it was, say, five years ago. There have been vast increases in costs. Not only that, but as a result of the economic depression of the past few years, the amount of advertising available to newspapers and periodicals has gone down.
The Minister speaks about handing on the proceeds of any reduction in VAT to the consumer. I did not think that was the problem at all. If newspapers and periodicals were relieved of VAT and were to hand back the proceeds to the consumer they would be no better off. I understood the basis of their case was that they were either losing money or risk-inglosingmoney, and in many cases threatened with outright bankruptcy.
The whole basis of VAT was that it was a consumer tax and it was introduced and accepted on that basis.
It is a burden in this instance on the industry concerned, the newspapers and periodicals. The whole basis of their claim is that it is a burden on them and they need some kind of leeway to enable them either to make a profit where they are now having a loss or to make a reasonable profit where they are now just about breaking even. There has been a very big change in the past few years which justifies their being given consideration which was not perhaps so vital a few years ago.
The Minister spoke about £2.8 million. Of course, when we think of £2.8 million it sounds like a lot of money but if it is thought of in relation to some £1,300 million or £1,400 million being taken in taxation this year, the £2.8 million is quite small. I suspect that if the Minister were to add to the betting tax which, for some reason he ignored in the recent budget, or included lottery tickets or made some effort to include live animals or live greyhounds—after all, all other live animals are included in VAT, but for some reason, greyhounds and live horses are exempted— one would imagine that without doing anyone any harm, the Minister would be able to get some of the £2.8 million back. However, I will leave that point, as the Minister does not appear to want to yield to the campaign that has been mounted. I agree fully that the suggestion that politicians could be discriminated against on the basis that they support or oppose the case is quite outrageous, and I hope that no effort will be made to carry it out. I agree with the Minister that it would be completely undemocratic.
I am puzzled why the top rate of VAT, 40 per cent, is included in a rather curious way. The only items which appear to be covered by this are radio receiving sets, television sets and so on, gramophones, radiograms and records. I do not know why these should be regarded as much more luxurious than anything else. I find that yachts are taxed at the rate of 10 per cent. The man-in-the-street always thinks of the real luxury of the man who owns a yacht. Yet he pays VAT at 10 per cent whereas the unfortunate man who buys a gramophone record or the young teenager who buys a record pays 40 per cent. Perhaps the Minister could explain the reasoning behind this highly luxurious category given to people who like their music.
The Senator spoke about items which are essential and items which are not. I am sure he will not seriously disagree with me when I say that the items at 40 per cent are not as essential as food and clothing. They are only an optional item and as such it is not inappropriate that they carry a higher duty than items which are more essential.
In case anyone is in doubt about figures, I gave a figure of £2.8 million as the value-added tax on newspapers. By that I mean what everybody understands as newspapers, the traditional Irish newspaper, but if value-added tax were removed from newspapers the exemption would apply to imported newspapers as well. The £2.8 million would be the loss. Senator Yeats mentioned magazines in his statement and I should like to say if it were removed from magazines it would cost an additional £1 million. Once we enter into the area of magazines we have the difficulty of distinguishing between magazines and books—when does a book cease to be a book and become a magazine and when does a magazine cease to be a magazine and become a newspaper? This area would cause many problems. The whole amount on those three items is £5 million.
The Senators asked why yachts were at a lower rate of VAT. The Senator might like to address the question to my predecessor because it was he who did it—in 1972 he reduced the rate on yachts. However, I know the answer. The reason was that the very high rate on yachts here led to a situation in which a number of boatyards building yachts were placed in an uncompetitive position. It also led to a situation whereby people imported yachts from abroad without paying tax on them. Yachts are items which are easily imported to an island and they need not be brought on to land. A situation might then arise where yachts would be brought in and used around our shores which did not carry VAT. That was the reason for the low rate—it was primarily in order to protect employment in Irish boatyards.
With regard to the £2.8 million, I referred to newspapers and periodicals because they are set out in the Schedule, but obviously newspapers was the category I was interested in. I would not be particularly worried about the provision of periodicals. A man who starts a periodical may gain or lose on a periodical and the world will not suffer unduly either way. Newspapers are an important part of our democratic fabric.
The Senator would agree that there are newspapers and newspapers?
There are, but for tax purposes they have to be lumped together. Anything different would cause problems. I was not suggesting that radio sets, television sets, records and so on were in the same category as food, but because something is charged at the rate of 20 per cent I was wondering why a special high rate was imposed. When I studied this Bill I thought I would find many items covered under the 40 per cent rate but one finds that it is exclusively for television sets, radio sets, gramophones and records, which is odd. One would have thought that there were other items which were more luxurious than those, even apart from yachts. One would have thought that 20 per cent would have been sufficient for them. When the Minister speaks about importing yachts from England, a much more realistic fact is that there are many people importing gramophone records. In this connection the Minister has had representations from Irish record shops, that their trade is decreasing. Anyone who can will get a record from England where they are much cheaper. Presumably, they will continue to do this.
I am not impressed by the Minister's point that his predecessor originally brought in this provision. After all, this is the Minister's fifth budget and he should be able to stand on his own budgetary feet without referring all the time to his predecessor. He has had five budgets in which to make up for any defects he may have found in his predecessor's activities. I can understand why the Minister is concerned over this himself. I was not criticising, just merely puzzled why those who are interested in music and television should be looked upon as luxurious types.
Question put and agreed to.
Sections 61 to 67, inclusive, agreed to.
SECTION 68.
Question proposed: "That section 68 stand part of the Bill."
I am not clear about the meaning of section 68. Does it mean that if a person lays up a car for a year and has no intention of using it he is nevertheless liable for excise duty?
That is a possibility. The Act is framed in such a way that it requires the Minister for Local Government to make regulations which will provide for continuous liability. Those regulations will then have to come before the Dáil and Seanad for approval, so an opportunity will arise for Members of both Houses to look at the details. What we have in mind is to have continuous liability, but it would be possible to stay within certain provisions where if a car is genuinely off the road and this can be established beyond all doubt, relief could be given. Obviously this would need to be very tight. There is reason to believe that in respect of between 16 and 20 per cent of cars on the road current duty is not being paid. The established motorist would like to see that terminated without punishing those who, legitimately and for good reason, have their cars off the road.
Did I hear the Minister right? Did he say that these regulations will come before the Dáil and Seanad for approval? I hope he does not mean for disapproval. Do I take it they will not come into force until they have been approved?
They have to be absolutely approved.
Question put and agreed to.
Sections 69 to 83, inclusive, agreed to.
First to Fifth Schedules, inclusive, agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."
I do not want to say very much about this Bill. We have examined it in reasonable detail, allowing for the circumstances. Its provisions, with their variety of forms of taxation, are not the kind of remedy the country needed in the present economic circumstances. Apart from their effect in directly raising the cost of living, they also make wage restraints impossible. They must have the effect of reducing demand, of making the likelihood still more remote of economic recovery in the near future. The effect of this Bill will clearly not be to the benefit of this country. We have done our best to criticise it. In the circumstances it would be impossible to amend it in any way. It is a reflection of the faulty economic outlook of the Government. Even after all the taxes contained in this Bill, we still find that the borrowing, the current deficit and the other inflationary aspects of the budget are even worse than they were before. It has imposed very serious burdens on the community and on the future economic development of the community without in any way solving the financial problems that the Minister faced before he began framing it. This is a budget which should not have been brought in. It is one that will do the country no good.
Question put and declared carried.