Seanad Éireann debate -
Thursday, 19 Nov 1981

Vol. 96 No. 9

Finance (No. 2) Bill, 1981 [ Certified Money Bill ]: Committee and Final Stages.

Section 1 agreed to.

SECTION 2.

Question proposed: "That section 2 stand part of the Bill."

Mr. J. Harte

It would be crazy for a recently elected Government to introduce tough measures. I can understand that, but I know it was essential to do so. I am a little concerned about this section because it affects the excise duty imposed on beers and spirits.

There have been difficulties in the brewing industry. In fact, one major brewery reduced its labour force by almost 1,000 between 1972 and 1976. There are proposals now from the same company to reduce that labour force by another 1,100 people. We are talking about 2,100 people in the space of a decade losing jobs that will never be replaced. While money is needed I do not think we can keep relying for tax on the old reliables. They may have been buoyant for a long time but the effects of increased taxation have been felt and many people are suffering as a result of the way the taxes are imposed. There is an old saying that the price of beer does not matter so long as it does not become scarce. Nowadays people do not arrive in the pubs until the last hour or so, whereas previously they might have been there for two hours. The reason for this is the increase in prices.

I accept the necessity for tough measures. I understand it and I am not knocking it because I know what happened. There was a very serious short-fall in the January budget estimate, and naturally something had to be done about it. We often heard about the straw that broke the camel's back. I wonder if our policy of using the old reliables to get in tax will last much longer in view of what I said about the employment situation and the fact that the buoyancy may not exist to the same extent as before. Consequently the Government may not get in the expected revenue because the items have been hit too hard and too often. Has the Minister any other plans for getting revenue in the January budget other than from the old reliables, particularly the beer industry where we are talking about the loss of 2,100 jobs in a decade which will not be replaced?

Dr. Whitaker

I must preface my remarks on this section and later on section 16 by declaring an interest. I am a director of a brewery and a bank.

Mr. S. O'Leary

A good combination.

Dr. Whitaker

Liquidity.

Mr. S. O'Leary

Touché.

Dr. Whitaker

We heard the Minister of State last night bemoan the narrowness of the tax base. He expressed some worries about the precariousness of dependence on a few heads of taxation such as beer. I, like Senator Harte, am not opposing this section in any way — I recognise the need for higher taxes. But I should like to ask the Minister two questions. Is he aware of any country where the taxation on beer is higher than it is here? My information is that the duties on beer in Ireland are five to ten times as high as they are in many other countries, including most of the EEC countries. My second question, which lines up with the one Senator Harte has just put, is whether the Minister is aware of how serious has been the combined effect since 1 September last of the extra taxes then imposed and the recession which has prevailed? The information I have is that the consumption of beer in the whole period since 1 September has dropped by between 15 and 20 per cent. While not opposing this section, I would like to think the Minister would have regard to these considerations in the future.

Mr. Lanigan

On the Second Stage of this Bill I expressed the point of view that the law of diminishing returns is now beginning to operate very forcibly right throughout Ireland. The pub may not be the best place for people to go at night, but in rural areas it was a social centre. One could buy a pint of beer and talk and do various things over it. At least the pub was some place to go for people who had no other outlet. On a social basis they could sit in a pub and somebody would come up to talk to them, but escalating taxes on the pint of beer have diminished the desire to go into a public house. People will not go in unless they have the price of at least the first drink.

Throughout the country we see properties for sale. I suppose the Minister would say that the biggest number of properties for sale at present are farms but If you read the property sections of the newspapers you will see that public houses, the social centres of Ireland, are up for sale because of the tax element involved. I am not making a case for the publicans, or the breweries, or the banks, but a large number of people have dire problems because of the continuing imposition of excessive taxes on beer.

Minister for Finance (Mr. J. Bruton)

It has to be said in response to Senator Whitaker and others that the Government did not have many options in the matter of new taxation in the budget in July. As is evident to everyone present, it is not possible to raise new revenue through direct taxation in mid-year, particularly in regard to income tax. Income tax is assessed on income which is assessed under our system on an annual basis. Changes can only be made on an annual basis. There may be some exceptions to that but, in general, the principle is valid. Therefore the Government were faced with the inevitable choice of turning to a range of indirect taxes. We chose to try to cover as wide a range as possible of indirect taxes, rather than to rely on one or two.

In making the decision we recognised that there are problems with diminishing returns, as referred to by other Senators, in regard in particular to whiskey and, to a lesser extent, to beer. One could argue that in the year 1978 consumption of alcohol generally in our community had reached a very high level indeed and that good sense, as distinct from levels of taxation, indicated that perhaps some reduction was desirable in the interests of national sobriety. It may well have happened that independent of any duty increases this would have occurred.

Senator Whitaker also inquired about the level of duty charged on beer as compared with other countries. The latest figures available to me come from the Official Journal of the European Communities of 1979 in respect of the situation in regard to duty in the period October—November 1978. This is not, therefore, up-to-date information, but it is the latest available to me. I will give the House that information in terms of percentages. At that time Ireland had the second highest level of duty on beer. Denmark had the highest. Since then Denmark has been adopting a very restrictive national policy, perhaps the most restrictive financial policy in Europe and they have succeeded in righting their economy substantially from a very bad situation in 1978 to a relatively healthy situation at present. I am not certain whether imposing excise duties on beer was among the methods that they used to bring about this rectification in their finances. There is not necessarily a presumption that the situation between Denmark and Ireland is any different now from what it was then.

However, Denmark levied 50.52 per cent at that time, as against 41.46 per cent in Ireland, going down as low as 15.86 per cent in France, and 15.57 per cent in Italy. The level of the percentage of tax taken on beer in this country has risen in the meantime. As I said, it was 41.46 in the figures published on that occasion. It has now risen to a figure of 48.2 per cent. It may well be that in Denmark it has also risen, so one cannot answer the Senator's question with any certainty.

I have not got accurate information on the latest trend in consumption since the full effect of the July budget which did not of course occur until after the increase in the value-added tax on 1 September. In fact, there was a very large increase in deliveries of beer to publichouses in the period between July and the end of August. Whether this was due to a certain upsurge of optimism as a result of the new direction the country was taking in those months, or whether it was due to people wishing to get in before the increase in value-added tax would take effect, I cannot say. I would concede to the Senator that, if I were to give him the latest available statistics indicating as they do quite substantial buoyancy in consumption, they might not necessarily give the whole picture. Implicitly there was an increase in consumption in that there was an increase in deliveries of beer to the publichouses. I am not drawing any great inferences from that.

I would say the effect of the duties on beer has been somewhat less than the effect of the duties on whiskey. At the moment the duty on beer is 48.2 per cent of the retail price. In fact, it reached a higher percentage rate in previous years. It was 52.7 per cent in January 1976, and after the January 1981 budget it was 48.6 per cent. It is now down, if you like, to 48.2 because, of course, other components in the price have increased in the meantime. That is the information I can give to the Seanad on the situation. It does not give us any great joy to increase these duties, but I am afraid we had not got any choice.

Mr. J. Harte

The Minister said that when you are bringing in a budget in the middle of the year it is not possible to look around for other sources of revenue, and I accept that point. He was not present when I made the point that I hoped we would not need to call on that source again in the January budget.

Mr. J. Bruton

I cannot give the Senator the assurance that I am sure both he and I would like me to give in this matter. It is something that will have to be borne in mind. However, I will take account of the point made by him and by other Senators that a tax which is imposed on a product which is diminishing in consumption levels can often be counter-productive. We will have to bear that in mind in deciding whether or not to introduce any further tax on beer or, if we do, at what level it should be.

Mr. S. O'Leary

I hope the Minister in making that judgement and in assessing the information which will be available to him from 1 September to the end of the year will bear in mind the extra deliveries which took place, quite mistakenly of course, because people pay their VAT when it is actually sold over the counter rather than when it is bought from the breweries. People who took early delivery only saved themselves the marginal embarrassment of getting a lower VAT input for the September-October period. So really there should have been no increase. There was no incentive for anybody to buy his stuff early before the 1 September VAT increase. People did not realise that, and I am quite aware that what the Minister says is correct. People did in fact purchase in advance of the VAT increase. When the Minister is taking into account the question of buoyancy, he might like to look at it over a slightly longer term than just the September to December period to see what the trend is. Obviously if the law of diminishing returns has come into effect, he will have to take that into account. It is a bit simplistic to think we have reached the stage when the law of diminishing returns has arrived with regard to beer.

Mr. J. Bruton

I would draw the attention of the Senator to a table in a document on drinking in Ireland published in September 1980 by the Economic and Social Research Institute, Broadsheet No. 20. It shows that consumption of beer in this country in 1979 — I should say it has diminished slightly since then — was about twice what it had been in 1965.

Mr. Lanigan

Is that consumption per person?

Mr. J. Bruton

Per head of population it is 15 or more litres of 100 per cent alcohol equivalent.

Mr. Lanigan

Does that take into account an increased population?

Mr. J. Bruton

It is per head of the population, so it does. The figure in 1962 was 3.75 and in 1965 4.02. In 1979 it was 6.05. It is substantially greater. I quoted figures in the Dáil. Consumption in September 1980 was 135,000 barrels of beer as against 142,000 barrels in September 1981. So consumption in September 1981 was greater than in 1980. Although there has been a dip, it is beginning to even out.

Mr. D. Kiely

The taxes on beers at the moment are ludicrous. In most other countries drinking beer seems to be a form of pleasure. In this country it seems to be a form of taxation on the consumers. The hotel industry is in very bad straits, and this is one of the reasons. The turnover of publicans in the rural parts of Ireland in particular has gone down drastically. It will lead to a great deal more illegal spirits being manufactured here if the Minister keeps to his present policy of putting extra taxation to beer and spirits. Rather than letting the industry go completely, I ask him to take a very deep look at it in future before putting any further taxation on beer and spirits.

Mr. J. Bruton

It would be incorrect if the Senator was trying to create the impression that taxation on beer was started by this Government. If that is the suggestion he is trying to make, it is wholly erroneous. The tax introduced in this current budget relates to 6p. In the budget introduced by the previous Government in January there was also an increase of 6p and 6p also in the budget of February 1980. Indeed, it was in that budget of February 1980 — when 6p was worth a good deal more than it is now — that the largest ever increase in any budget increase on the price of beer was introduced. I do not claim that we in the Government of which I am a member are necessarily to be praised for having to introduce this taxation. I certainly do not think that any distinctions can be drawn between the present Government and the previous one in this matter.

Mr. D. Kiely

Of course Fianna Fáil were not responsible for increasing VAT by 50 per cent.

Question put and agreed to.

SECTION 3.

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

Mr. S. O'Leary

Is there any way in which a differentiation could be made between the various classes of spirits? Spirits in general appear to be levied at the rate set out in the First Schedule of the Bill. Let us leave aside for the moment mixtures and preparations containing spirits, perfumed spirits and liqueurs. From my observation of the business of licensed vintners, it appears that there is a considerable difference between the rate of gross profit which a licensed vintner feels he can charge for a clear spirit, something like vodka, and the rate of gross profit that he gets on a more traditional drink like whiskey. I would like the Minister to tell us, (a), if it is possible to differentiate between them and, (b), if he would give the matter any consideration. There is a element of excess profit and therefore the capacity to tax to a greater extent than at present the sale of spirits like vodka while the margins are quite tight in regard to whiskey and some other drinks. Is it possible to differentiate between those two things?

Mr. J. Bruton

The question of margins is not, strictly speaking, a question for the Minister for Finance. It is a question for the Minister for Trade, Commerce and Tourism.

Mr. S. O'Leary

In case I am not making myself clear, the point I was making is that I am using the margin only as an indicator of the capacity within that subgroup to carry a greater share of taxation because I think the margin is excessive. I am not talking about the margin as such. I am saying that there is a very fat margin in the area of these white spirits. That indicates that there is a certain buoyancy there and a certain capacity which could be taken up and could be used either to increase the general level of taxation or to give some relief to the more traditional drinks like whiskey.

Mr. Lanigan

On the question of spirits, one of the anomalies that I see within the system at present is in the area of perfumes. It might seem that this has nothing to do with this section but if my wife buys a perfume in Ireland it is, generally speaking, manufactured in France or Germany or wherever. It is imported and there is a huge rate of taxation on it. Within the system here, it should be said that if one brings in the essence and adds the alcohol here the duty would be done away with. In this section it mentions that "alcohol" means pure ethyl alcohol. Every perfume sold in this country has a base of pure ethyl alcohol and the amount of money that is spent in this country on perfumes would pay for all the provisions in this Bill. I would suggest to the Minister that he take a look at the situation regarding the importation of perfumes; it might seem outside the scope of the Bill but it is an area which should be looked at because it is an area of very high consumer spending.

Mr. J. Bruton

Senator Lanigan's point is certainly not outside the scope of national legislation. The taxation of spirits is on the alcohol content and not the sale price; that is as far as excise duties are concerned. The reason there is a higher tax on perfumes is that their alcohol content is at a higher proof. If we did what the Senator is suggesting it could be construed as being contrary to EEC rules, as discriminatory in that one would apply a different duty to something manufactured here as against something imported. I am prepared to look at this aspect in view of what the Senator has said.

I will come now to Senator O'Leary's point on the distinction between white spirits and whiskey. The reason that there is a slightly higher duty content on whiskey is that there is more alcohol in whiskey. A half glass of whiskey contains more alcohol than a half glass of vodka or gin. Incidentally, although pints have been traditionally taxed the same as a half glass of whiskey, there is much more alcohol in a pint than there is in a half glass of whiskey — a ratio of about three to two. That is why on this occasion we broke the previous relationship which was a one-to-one relationship in increases in beer as against whiskey because the consumption of whiskey was less buoyant and showed greater diminishing returns than the consumption of beer. We were returning to a more logical system which reflects the real alcohol content in increasing the half glass of whiskey by slightly less than the pint of beer.

To come back to the Senator's point, the reason that there may be a distinction in the margins charged in the public houses is that there has been a shift in public taste from whiskey to white spirits. The House can speculate at length as to why this might happen. There are obviously different patterns of drinking. Previously drinking, in public houses certainly, was done by men only. Now it is being done by all members of the community and this is probably partly the explanation for this change in the demand for different types of spirits. But it would be totally beyond my province to speculate as to why that is happening. The duty system, however, is completely non-discriminatory as between different types of spirits. We charge on the alcohol content and nothing else. If we were to do as the Senator might be suggesting and, because brandy is perceived as being a luxury drink, charge a higher duty on it, regardless of its alcohol content, we would be getting into an area where we would be making value judgments that would rapidly become out of date as public tastes in the matter of drink were to change. So I do not think we would be doing ourselves or the community any particular favour because it could well all change back again. There could be a shift back to whiskey away from white spirits next year for reasons that have nothing whatever to do with duty or taxation or Government.

Question put and agreed to.

SECTION 4.

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

Mr. Lanigan

In this section it is stated that cigarettes, cigars, cavendish or negrohead, pipe tobacco and so on have the same meaning as in the Excise Duty Act, 1977. It is a little bit disturbing to fine "negrohead" as a description of something in our legislation. I am totally in agreement with the imposition of taxation on tobacco products. It is a very minor point but it is disturbing to see a word like that included in our legislation.

Mr. J. Bruton

This has been the term used to describe a particular type of cigar for years.

Mr. Lanigan

By the Americans.

Mr. J. Bruton

Perhaps we could get away with knocking out "negrohead" and just calling it cavendish in our legislation. I am sure the Senator appreciates that there is no racial slur implied in the use of this term. It is apparently a commonly utilised term in the trade. But the Senator has made a genuine point and between now and the next Finance Bill in which levies may have to be considered for this particular product, I will ensure that the possibility of simply using the term cavendish and dropping the alternative will be considered.

Mr. S. O'Leary

I am disappointed with the volume of increase in section 4. The Minister was kind enough to give the information to the Dáil that basically it amounted to an excise increase of 3.6p per packet of cigarettes and a VAT increase of .4p, making a total increase of 4p on a packet. My general perception of the views by people who smoke — I am particularly unsuited to the discussion of sections 2, 3 and 4, neither smoking cigarettes nor drinking alcohol — is that they have been lightly taxed over the last few years. What, therefore, is the general trend in the consumption of tobacco in general? If it is downwards, is it in response to price mechanism or in response to changing social values? There are changing social values which would have a dampening effect on the consumption of tobacco products.

Mr. J. Bruton

The figures I have are not as comprehensive as I would like them to be. The Senator has suggested that perhaps this increase was insufficient. This is an unusual comment for a Minister for Finance to have to deal with. However, the duty content of cigarettes is 70.2 per cent and therefore substantially higher already than the duty content of beer or spirits. It has been higher in the past. It was 75 per cent in March 1976. Consumption has tended to fall off somewhat. The quantities retained for home consumption of home made cigarettes fell from 7,499,000 in 1978 to 7,325,000 in 1980, a slight decline. The decline in other tobacco products, including plug tobacco and cigars and so on fell to a greater degree so far as home made products are concerned from 443,000 kilos to 372,000 kilos. I note what the Senator has said about the possibility of further duties here. However, from a strictly revenue point of view, one does not wish to lead to a situation where, as a result of duty increases of a very large size, one ends up getting less revenue than one would have got if one had imposed a lesser level of duty. I suppose one could say that we should be concerned, as Ministers, with matters other than simple revenue considerations but that is an argument which one could conduct at some length.

Mr. R. Bruton

I would like to ask the Minister a question regarding the structure of the duty. I see that the ad valorem portion and the specific proportion are being changed. It is a change in the right direction for the Irish industry because there is a problem with low cost producers such as the State producer in France which can dump cigarettes on the Irish market at low cost and if the duty has a high ad valorem content, that significantly favours them competitively compared to the Irish producer. So I would like the Minister to bear that in mind when he is looking at tobacco duties in general. Perhaps he would tell us if that was the consideration in this change.

Mr. J. Bruton

The duty on cigarettes is different, as the Senator indicated, from that on other products. In respect of beer and whiskey the duty is entirely a specific duty, it is a certain amount of money and it does not matter what price the goods are sold at. That amount of money is collected on each pint. But in the case of cigarettes, oddly enough, there is a combination of ad valorem duty which varies with the price, and a specific duty which is the same as the duty on other types of exciseable commodities. There is a section in the Bill which avoids an anomaly being created by this unusual combination situation in the case of cigarettes. The new rate is £17.09 per 1,000 cigarettes plus 18.75 per cent of the retail selling price. The combination of specific and ad valorem elements in the duty is laid down by the EEC directive which applies to all member states and under the EEC directive the maximum permissible level of specific component in the total tax content in the most-popular priced category of cigarettes is now 55 per cent. The current level in Ireland is now 54.8 per cent which is not very far off that maximum. The point being made about cigarettes from France is something which ought perhaps to be looked at. The governing consideration is compliance with the EEC rules which were designed to ensure fair competition and to avoid the situation that the Senator referred to.

Question put and agreed to.

SECTION 5.

Question proposed: "That section 5 stand part of the Bill."

Mr. S. O'Leary

The Minister will now see why I was seeking to make a distinction between what I now know to be white spirits and the other spirits under section 3, when I talk about section 5. I am aware of some controversy between the institutions of the European Economic Community and the British revenue authorities concerning the way in which they are levying duties on wine. There is a case at present pending. If it has not been referred to the European Court, the threat is that it will be referred to the European Court. The purpose of it appears to be to ensure that the rate of duty charged in respect of wines is the same percentage of its alcohol content as the percentage charged in respect of beers in the United Kingdom.

Do we have any such difficulty or the possibility of such difficulty in the way in which we are levying excise duties on wine in Ireland? Second, if we have the possibility of that problem, have representations been made by the EEC to us concerning the matter? Third, would the Minister consider the making of alternative arrangements which would change the rules whereby alcohol content is the sole method by which excise duties are levied in respect of beer, spirits and wine so as to preserve the very real distinction that exists in this country between the wine drinker and the spirit drinker and the beer drinker? The concept of the European Community that we should be one homogeneous unit and that we should adopt the excise policies which are appropriate to a wine-drinking country like France and as a result of adopting those policies make wine relatively cheap here, would result in harm to both the indigenous spirit and beer manufacturing industries here and change the social habits of the country, something which is not a relevant consideration with regard to the EEC but which will come about if the view of the EEC concerning the way in which we levy excise duties prevails. Knowing that there is a problem with regard to the United Kingdom, how do we stand in this matter? Even if we stand well at the moment in regard to it, in view of the potential problem in the future, would the Minister consider changing the system so that, bluntly speaking, we could discriminate in favour of sprits and beer and discriminate against wine which is not an indigenous drink? We should do for our indigenous industry what the winemakers of France and Italy are not slow in doing for themselves.

Mr. J. Bruton

The position is not as fearful as Senator O'Leary seems to think. The position at the moment is that the alcoholic content of beer is 3.8 and the alcoholic content of wine is 12.8. The EEC has a proposal at the moment to bring about a consistency across the Community in the levels of duty imposed on wine and that imposed on beer. The ratio being suggested at the moment 1:3.5 which would broadly correspond to the alcoholic contents of the two products but is slightly to the disadvantage of wine. Our ratio of duty at the moment as between beer and wine is about 1:3. So rather than forcing us to reduce the duty on wine it would allow us to increase our ratio ever so slightly to the disadvantage of wine. Although it is a valid concern to raise here the problem is not as the Senator seemed to think.

Mr. S. O'Leary

It is more serious in Britain because of the low level of duty which they have on beer in Britain. But if we continue to accept the level of alcoholic content as being the correct method of raising money, while it might be to our short term advantage, in the long term we are tying ourselves into a straitjacket. We have got to give consideration first of all to denying that it is a legitimate area of concern for the EEC at all, and having so denied, if we were unsuccessful in that, changing our own rules so that we raise the same amount of revenue by different rates of value added tax or something else and leave the whole question of excise duties out of the consideration altogether.

Mr. J. Bruton

I ought to tell the Senator that we are seeking the maximum degree of flexibility in this matter for the reasons indicated although the particular fear that the Senator expressed is not likely to be realised. In a sense there is an argument for consistency in duty in the interests of free movement of goods and so on which is the ultimate ideal of the Community. But we are seeking the maximum flexibility.

Question put and agreed to.

SECTION 6.

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

Mr. Lanigan

The imposition of this increase in duty on hydrocarbon light oil is one which must have serious implications for everybody within this House and for everybody in the country at present. It has been said by the Minister that we are an open economy. We are subject to market conditions. One of the problems that we have here is that everything that we manufacture has to be transported and there is nothing in this Bill that differentiates between the private motorist and a commercial vehicle owner. If there is an imposition of an increased charge allied to an increase in VAT of 50 per cent, it means that the cost of every item manufactured here is increased and that makes it most uncompetitive on the European scene.

It can be said that the Minister is only one of a long line of Ministers who have imposed increased taxes on hydrocarbon oils. We accept that. But, at this stage the cost of transportation of manufactured goods is becoming extremely critical when it comes to our competitive situations. We are a small country and our transport costs are higher than those of any other country in Europe. They are totally out of line with those of any other country in Europe. The imposition of this extra duty at this stage means that we become much less competitive and anybody who is in manufacturing industry must see this. I feel that this imposition at this stage is totally wrong, allied as it is to an increase of 50 per cent in the VAT rate.

Mr. J. Bruton

The Senator will no doubt appreciate that, as I have said in the Dáil, this was a measure about which I was particularly reluctant because I realise from my own experience in my own part of the country how many people have to use the car to get to work; they have no choice or else they will not work at all. We sought to spread the load as widely as possible on other forms of excise duty so as to minimise the necessary increase on petrol. However, I would point out to the Seanad that the Government had no choice whatever but to raise very substantial revenue in the budget. One of the ways that this had to be done was through a tax on petrol. I would draw to the House's attention the fact that in percentage terms the price of the charge taken by the revenue on the total price of petrol is less now than it has been on a number of previous occasions. For instance in March 1976 it was 58.3 per cent; in February 1980 it was 50 per cent; in January 1981 it was 51.1 per cent and the current position, as a result of the budget——

Mr. Lanigan

What is the percentage figure for 1974-75?

Mr. J. Bruton

In 1974 it was 58.8, even higher. The position now is 47 per cent.

Mr. Lanigan

What was the figure for 1975?

Mr. J. Bruton

I have already given the figure for 1975. It was 57 per cent. It is now only 47.9 per cent so, in fact, the Revenue Commissioners are taking a lesser share of the retail price of petrol than they did in the past.

Mr. Lanigan

Not in 1974.

Mr. J. Bruton

If this duty was an ad valorem duty as Senator Bruton was referring to in respect of part of the duty on cigarettes, this would have risen automatically and the tax take, if it was fixed on petrol at 50 per cent, would not have been increased at all on petrol in any of the budgets since 1974 because there would have been no need; it would have gone up automatically as the price went up. In my view that would be a more reasonable method in which to proceed rather than having specific duty.

Mr. Leonard

Would the Minister not agree that in examining this he should also have examined the increase in motoring costs generally, the price of new cars, increased excise duty on cars, on parts, VAT and petrol prices? If one looks at those as a package it will be found that we must be very far in front of any other country as far as motoring costs are concerned. The Minister knows the number of people who are travelling 50 miles to get to work and the totality of these increases is practically putting them out of their jobs because it just does not pay them to travel.

An Leas-Chathaoirleach

I will allow the Minister to speak to this before we adjourn.

Mr. Lanigan

On this section, the Minister has mentioned petrol. But he has not mentioned the fact that diesel oil is included in this particular section. It is grand to get up and talk about petrol which, to a lot of people, might be considered as a luxury item. But diesel oil is included in this section, and that means that transport costs here have been increased again. The imposition of this particular duty at the same level on petrol and diesel oil has meant that industry here is put at a bigger disadvantage than it was at in the past. We have a situation at present where a haulier or manufacturer who is trying to export his goods from this country has to compete against EEC green card licences from the North. He has to compete against an EMS surcharge, a 37½ per cent import duty on spare parts and a 50 per cent increase in VAT and also an increase in duty on motor spirit. This has put manufacturing industry at a greater disadvantage than in the past. We talk about petrol. Unfortunately petrol is not a luxury any more, but diesel oil is certainly not a luxury. I would suggest that this particular section of the Bill discriminates against Irish industry more than it discriminates against anybody else in the country.

An Leas-Chathaoirleach

The House agreed to adjourn at 1 o'clock. Will the House let the Minister in now and let him finish? If the House so wishes, we can hear the Minister. Is that agreed?

Mr. J. Bruton

To answer Senator Leonard, one must take social motoring costs into account. From my own point of view I have greater sympathy for the petrol user, including the new car buyer, because one has to use petrol. In fact the older one's car may be the more petrol one has to use to get a certain distance because the car is deteriorating. Generally speaking, the less well-off one is, the older the car, and the less likely one is to buy a new car. It was for that reason, in order to balance the thing up, that I increased the excise duty on new cars and also to reduce what would be a more socially regressive position if the total tax take were to be taken in the form of duty on petrol. There is already a lesser rate of duty on diesel, 53.1p as against 78.74p per gallon for petrol, which recognises all the considerations. Let me say this——

Mr. Lanigan

The percentage increase is very significant.

Mr. J. Bruton

There is no doubt that this increase will have the effect Senator Lanigan has mentioned. We would not have done it if our finances had been properly managed. We would not have had to do it if public expenditure had been kept under control, because all of this is going to pay for public expenditure. If public expenditure was controlled there would be no need for increases of this magnitude on petrol. In fact, the most uncompetitive element in the Irish economy is the Government. It is the Government that are responsible for making our country uncompetitive. It is not industry.

Mr. Lanigan

What the Minister is saying is, "Do not answer the question; let us get on to irrelevancies."

Question put and agreed to.

Sitting suspended at 1.06 p.m. and resumed at 2.30 p.m.

SECTION 7.

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

Mr. Lanigan

To get back to a point I made before lunch about the relevance of the wording of this Bill, I mentioned the fact that negrohead might be a name to be withdrawn from our legislation. During lunch I was talking to a sister-in-law of mine who is from Virginia and the House might be interested to know that a cavendish is the measure of tobacco that a negro could take in a relevant period of time. So, cavendish and negrohead are words that should be removed from our legislation.

An Leas-Chathaoirleach

Sorry, Senator, but I should like to point out that we are now on section 7.

Mr. Lanigan

On the question of the imposition of excise duties on motor vehicles, televisions and gramophone records, there is a certain irrelevance in a motor vehicle, a television set and a gramophone record being lumped together under order S.I. No. 57 of 1979. Who is buying gramophone records now? Kids who have money to spend. Who buys a motor vehicle? A person who needs to get to work. We have an increase in duty from 40 to 50 per cent in this section. To the motor trade, this imposition has meant an artificial boom just as the Bill was announced and a total lack of sales since. People do not realise that the motor industry is possibly our second biggest industry, after agriculture. Here, we have a huge increase in excise duty and a 50 per cent increase in VAT at the same time. This makes us uncompetitive, vis-à-vis our partners in Europe, and we keep talking about the relevance of the EEC to the Irish situation.

Anybody in the motor trade will realise the amount of money that comes into the Exchequer through that trade in all its aspects, whether it be on hydrocarbons, spare parts or the importation of completely knocked down cars or of new cars. The return to the Exchequer is enormous but, again, we are getting to the point where, as the Minister said this morning, people are driving old cars. They cannot afford to buy new cars. The cars they are driving are unsafe to be on the road and they cannot afford to buy, through legitimate channels, the spare parts necessary to maintain these cars. I recommend to the Minister that he check out on the main road between here and his own home base and see how many one-eyed monsters he meets with no headlamp bulb, which costs £1.50, no tail-light bulb, no side marker. The reason is that it is too costly. The number of unsafe vehicles on the road is enormous. The imposition of this extra taxation on the motorist will create further hazards for the people who drive. Again, it hinders the development of industry, because it is an imposition of an indirect tax which is not imposed in any other country in Europe. The person who would put motor vehicles, televisions and gramaphone records together——

Mr. J. Bruton

There is no duty on televisions or gramophone records in this section. That refers to the order which is being amended. The part of the order which is being amended only relates to motor vehicles.

Mr. Lanigan

Again, I would get back to simplifying the parliamentarian's job. Whoever writes the orders——

Mr. J. Bruton

If the Senator were to look up paragraph 4 (1) of the relevant order, he would see that that paragraph only relates to motor vehicles. I do not think that is an unreasonable request to make.

Mr. Lanigan

If gramophone records and television sets are put in the Bill, there is a suggestion that they are put together with motor vehicles. Why not just delete them altogether? The basic fact is that the duty has been increased to 50 per cent. This creates problems with transport costs and with industrial basic costs.

Mr. S. O'Leary

I notice that section 6 is to amend paragraph 4 (1) of an order which is exotically called "Excise Duties on Motor Vehicles, Television and Gramophone Records Order, 1979, Statutory Instrument No. 57 of 1979". I will say a word later on regarding such definitions. I change my hat and ask for a reduction of taxation, even though I was asking about an increase earlier. There is no reduction envisaged under section 7 for any relief in respect of taxis. There is under section 8, with which we will deal later, a relief in respect of taxis from the newly reintroduced vehicle excise duties — that is, the ordinary road tax. A lot of the problem stems from our not having a standard taxi. What is a taxi today could be a private vehicle tomorrow. We could encourage the use of a standard taxi, with the efficient use of resources. Some concession which would only be possible in the context of having a standard type taxi should be considered in the future by the Minister as being a worthwhile development.

Motor vehicles are necessary, I accept, but there is no benefit to the country in their purchase. They contribute nothing to the wealth of the country, except in so far as there would be a relatively small amount of assembly of vehicles here. They are highly capital intensive and highly adverse——

Mr. Lanigan

Would the Senator write off the employment potential in Cork of the motor industry?

Mr. S. O'Leary

If we could develop the situation in Cork to a stage where they were making motor vehicles instead of assembling them, that would be a much more preferable state of affairs, certainly.

Mr. Lanigan

Is the Senator suggesting that Dunlops and Fords in Cork should be closed down?

Mr. S. O'Leary

I am not suggesting any such thing. If Senator Lanigan wants to get involved in a political haranguing match about this I am certainly willing to do it, through the Chair, of course.

An Leas-Chathaoirleach

Senator O'Leary now, without interruptions.

Mr. S. O'Leary

Thank you. There is no benefit to this country in having a greater number of motor vehicles on the road than is necessary. They do not make economic sense. Having said that, we are not going to eliminate motor vehicles. I am not in favour of eliminating motor vehicles, but I am in favour of the efficient use of the existing motor vehicle fleet. One of the ways in which that can be done is by the creation of a special category of taxis, which could be then relieved of the duties which are referred to in section 7. Of course, if these taxis were manufactured in Cork, I would be more than happy with that situation. What are the Minister's views on that matter?

Mr. J. Bruton

I will deal firstly with the points made by Senator Lanigan. The section with which we are dealing does not impose any charge on spare parts. As far as the contribution of the taxes may be questioned——

Mr. Lanigan

Could I just ask a question? The section does not impose any extra tax, but if it is taken in conjunction with another section of the Bill which raises VAT by 50 per cent, it has a very big bearing on section 7.

Mr. J. Bruton

That may be, but that does not invalidate what I am saying, which is that this section does not impose any tax on spare parts. Therefore, by virtue of the fact that it does not, it does not in any sense make it more difficult for people to purchase spare parts, or prejudice the situation of the secondhand car owner as against the potential purchaser of a new car.

The Senator seemed to suggest that there had been a dramatic decline in the purchase of new cars as a result of the provision in the budget. It might interest him to look at the figures which were circulated by the Central Statistics Office yesterday, which he probably had in the post this morning, in common with all other Members of the Oireachtas. They show that, in terms of imports of road vehicles, the imports were very substantially larger, in terms of value, in October 1981 than they were in either September 1981 or October 1980.

Mr. Lanigan

With due respect, the Minister did mention——

Mr. J. Bruton

Perhaps, the Senator would let me say what I have to say before he expresses his respect for me.

The position is that imports were £38 million in October, as against £28.6 million in September this year, as against £21.5 million in October 1980. One could say——

Mr. Lanigan

As a result of the imposition——

An Leas-Chathaoirleach

The Minister, without interruption.

Mr. J. Bruton

One could say that imports of motor vehicles have come within £4 million of doubling, in the space of 12 months on a monthly basis, the level of imports as against the same time last year. That is hardly a situation which would give ground to the fears expressed by the Senator about the situation in the motor car market.

I turn now to the points made by Senator O'Leary. There is a case to be made and answered in regard to the possibility of introducing some differential in favour of taxis, in view of the potential saving in the use of national resources. I understand that this matter has, in fact, already been considered in the Department of Finance and by the Revenue Commissioners on at least one occasion. It was found that there were difficulties of definition to avoid evasion. However, it is a matter that, in the light of what the Senator has said, I am prepared to undertake to examine between now and the next occasion when these matters fall to be considered in a statutory form.

Mr. O'Connell

I would like some clarification of a point. I understood from an exchange earlier on that this section does not immediately affect televisions and gramophone records, that these are, in fact, excluded from this provision. Is that the case?

Mr. J. Bruton

I will clarify that.

Mr. O'Connell

I have a point to make on this subject.

Mr. J. Bruton

I attempted to clarify that by means of interjection in the course of Senator Lanigan's contribution. The position is that the categories of motor vehicles, televisions and gramophone records were dealt with together in the Imposition of Duties Order of 1979. That order arose from the fact that it was not possible for us to continue charging the exceptionally high rate of VAT which was then being charged under the value-added tax code on these three categories of commodity, because that ran contrary to EEC rules. In order, therefore, that we should not suffer a major loss of revenue, the Government of the day decided that they would convert what had previously been a high rate of value-added tax for these three commodities into a new excise duty which was imposed by means of this particular order. It was purely an accident of history that these three commodities happened to be dealt with in the one order. It is no more a suggestion that they are to be linked in public discussion than it is a suggestion that all the various matters dealt with in this Finance Bill are dealt with together in one Bill.

Mr. O'Connell

The point I wanted to make was not that I was worried about the semantic or philosophical difficulties of linking these categories together. I was more concerned with certain aspects of televisions and gramophone records. Am I clear in thinking that this measure does, in fact, deal with duties and taxes on televisions? In particular, I am thinking of video recorders.

Mr. J. Bruton

I am afraid that the Senator does not seem to have grasped what I have said. This Bill does not impose any additional charge on televisions or gramophone records in section 7. It is purely an accident that they happen to be mentioned in the order which is referred to, which is being amended in respect of motor vehicles only.

Mr. O'Connell

On existing levels of taxes and of the possibility of reducing those, the point I would like to make here is in relation to the use of video recorders and gramophone records for educational purposes.

An Leas-Chathaoirleach

I want to remind the Senator that the taxation on television sets and so on would not arise on this section.

Mr. Lanigan

Could I have a clarification from the Minister as to what he actually did say regarding the increase in cost of the importation of vehicles into this country? Did he suggest that there are less vehicles imported, more vehicles imported, or that there has been a doubling of the cost of the vehicles imported? If he clarifies that it is importation he is talking about, he must then have figures as to the sale of vehicles since 22 July — the date on which the Order became valid, because the relevance of the date has to be considered here.

Mr. J. Bruton

The figures I quoted were, as I said, in respect of the value of imports. The value of imports of motor vehicles in October, 1981 was almost twice, in value terms, that of October, 1980. I did not refer to the number of vehicles. The figure related to value, but the Senator, from his undoubted experience in this market, will be able to determine for himself whether the imported value, net of tax, has, in fact, doubled in the last 12 months. If it has, then it is clear that there has been a significant increase in volume terms as well. The Senator would be in a better position, with his experience in this area, to make that calculation than I am. However, I can give him some information as to new registrations, month by month, in this year as against last year. In August 1981, which is the latest date for which figures for new registrations are available to me, there were 16, 161 new vehicles registered as against 6,083 new vehicles registered in August 1980. That is an increase of almost three-fold.

The Senator will, no doubt, rejoin that that is to be explained by the fact that people bought vehicles in a hurry before 1 September. That may be, but one cannot say yet whether it is the case or not. The fact, however, is that taking the whole of 1981 up to August, as against the equivalent period in 1980, there has been a 25.8 per cent, or almost 26 per cent, increase in the number of motor vehicles registered for the first time. No matter what way you look at it that indicates a buoyant market for cars, and when one bears in mind the existence of such a market and compares it with the dire straits of the Government's finances, no one can complain that the Government is being unreasonable in trying to seek some additional revenue in respect of such an item, given that a substantial portion of such a global figure is represented by imports.

Mr. Lanigan

The Minister, again, falls into the trap of talking about cars every time he gets up. The fact is that cars are not totally relevant. We have a range of motor vehicles, including light commercial vehicles. As the Minister said, up to 1 September 1981, our registrations were substantially greater than they had been in the last year, but now we see the downturn in the motor industry economy. We see lay-offs, people on short-time, and motor vehicle importers closing down.

Mr. Byrne

On a point of order, could Senator Lanigan explain to me how he can come to the conclusion that there are more old cars on the road today than there were last May, how there are more young people in this country and old people, too, who cannot afford to buy a bulb when the back tail-light gets broken? He has made statements and has not substantiated them. Bold statements, like bald tyres——

Mr. Lanigan

It was not I who suggested that there were more old cars. It was the Minister who suggested it.

Mr. J. Bruton

I hate to get myself in between two Senators, like the sardine in the sandwich, but I do not think that I suggested that there were more old cars. I was just using an illustration as to the distributive effect of a certain tax regime as between putting an additional charge on old cars as against new cars. I suggested that, obviously, if you put the tax on new cars that would mean that more old cars would continue to be used. It was purely a hypothetical illustration of what might happen. It was not stated as a fact, whereas Senator Lanigan's contribution regarding bad back-tail lights not being replaced and so on, I think purported on his part to be a statement based on his undoubtedly wide experience.

Question put and agreed to.

SECTION 8.

Question proposed: "That section 8 stand part of the Bill."

Dr. Whitaker

It is obvious, from what I said yesterday, that I have no objection to the restoration of the vehicle excise duties, but I would like to put a point to the Minister. I am sure he is aware — as anybody who travels frequently across Ireland is aware — that quite a high proportion of cars on the road are not registered at all. There used to be a certain sensitivity about this. People would put ‘For reg.' on the back. Now they do not even bother to do that. I would hope that the Minister is taking steps to ensure that the collection of these increased duties will be carried out efficiently.

Mr. Lanigan

Again, this is a re-imposition of tax which is a bit like what rates were. It militates against everybody in society. It does not militate alone against those who can pay, but it militates against those who can afford to drive their cars to work and those who have to drive their cars to work. The re-imposition of this taxation figure means that it is a levy on employment in a lot of instances, especially in the countryside. It is a levy on those who have to drive to work. Senator Whitaker mentioned yesterday the fact that we had so many semi-State bodies who are losing a lot of money, but at least in the Dublin, Limerick and Galway city areas, the workers are able to use public transport. Once you get outside the cities, they have to use their own cars to get to work.

Mr. S. O'Leary

The Senator should not be talking about transport, he should talk more of motor vehicles.

Mr. Lanigan

The section specifically suggests motor vehicles, 16 h.p. motor vehicles.

Mr. S. O'Leary

Not cars.

Mr. Lanigan

I had a hangup about non-cars a minute ago. Now Senator O'Leary has the hangup. What I am suggesting is that this is a levy on work in the countryside. The imposition of £8 on cars is a hell of a levy. It is suggested that the levy on vehicles under 16 horse power should remain the same as it was in 1977 but that for vehicles over 16 horse power the rate per horse power should be increased from £6 to £8. I would agree that there should be a lessening of the horse power capacity of cars because the lower the horse power rating the more miles per gallon you get and the less energy you consume. There should be a differentiation in rates for cars under 16 horse power and those over 16 horse power. This Bill proposes to increase savagely the rate of taxation.

If this money were going into the road system there might be benefit in it, but nobody knows where this motor tax revenue goes. The roads are getting worse and people are being charged more for using them. Like rates, this is an imposition on people who, in the country areas especially, cannot afford it.

Mr. O'Connell

Senator Lanigan suggested that the Minister was savagely increasing the level of taxation to the 1977 position. Most of us would be very glad if taxation and prices could savagely be brought back to the 1977 position, especially in view of the efforts of the Minister's predecessors in the previous administration to increase inflation, prices and taxation to a level far beyond the capacity of this country to carry.

I must disagree somewhat with my colleague Senator O'Leary in his vicious attack upon motor vehicles and their owners in that we must differentiate very much between the urban and the rural situation. Senator O'Leary with his predominantly urban background possibly does not appreciate this.

Mr. S. O'Leary

How does the Senator know that?

Mr. O'Connell

I am, suggesting that Senator O'Leary, in view of the limited dimensions in which he attacked the situation, must come from an urban background. I do not want to have a discourteous or an unseemly disagreement here in the public eye with so many people present.

There is an important differentiation here between the urban and the rural situations. Senator O'Leary, who for the purpose of this argument I will assume lives in the centre or near the centre of a suburban part of the southern capital, has available to him public transport and he and his neighbours have the opportunity either of proceeding to their workplace by means of that public transport or possibly by the healthy use of bicycles or of their own two feet. In the case of people living in countryside, particularly farmers living in isolated areas, the family car is a vital part of their way of life and means of livelihood. When conditions ameliorate somewhat under the Minister's being influence he might consider some kind of differentiation, not necessarily by means of different rates of this tax but possibly by granting some kind of allowance to people in rural areas for whom the motor vehicle is an important part of their way of life and livelihood. People living some distance from a town in circumstances where there have been cuts in public transport find themselves increasingly isolated, with the result that there is this tendency to move from the countryside into urban areas, a result that is not necessarily very good for all of us. I would ask the Minister to consider that at some future date when it is more appropriate.

Mr. S. O'Leary

I am being attacked both from the front and the rear on the basis of my views on motor vehicles. This is a section which deals specifically with the rates of vehicles excise duty. It is well that we should understand that these excise duties which are being re-imposed now were eliminated as a result of the disastrous decision of the party that won the 1977 general election to implement their promises, contrary to the advice of every sensible economist. The existence of this kind of taxation, far from having the effect which Senators O'Connell and Lanigan seem to ascribe to it, has precisely the opposite effect. Taking it that a certain amount of capital must be raised to keep the State going and that one of the options available is excise duty and the other is an increase in the price of petrol, a person who is living in a rural area will be proportionately better off as a result of the imposition of an excise duty, the ordinary road tax, and proportionately worse off if the option of increasing the price of petrol even further is exercised. Far from being non-supportive of those who live in the country, this is a transfer of resources from the people who live in the urban areas to people who live in the rural areas. It would be of considerable benefit if Members would think out these matters to their logical conclusion before ascribing to me motives which I do not have. If they do not want this transfer of resources from the urban community to the rural community that is, of course, perfectly in order and they are entitled to get up and say so. They should not get up and misrepresent the situation and misrepresent my position.

I am in favour of this section and I certainly stand by what I said. Motor vehicles do not have a positively beneficial effect on all the community. They are, of course, useful and vital in certain areas but they impose tremendous strains on our balance of payments, both with regard to their importation in a completed fashion or in a knock-down fashion. One way or the other they add considerably to our balance of payments problem. The energy they use also adds to this problem. That is not an argument for getting rid of the motor vehicle bit it is an argument for limiting its use sensibly and for reducing to a reasonable level the numbers of motor vehicles which we need on the road.

For that reason I welcome section 8 (5) (b) (ii) in which he exempts taximeters from the duties imposed under this section. He exempts vehicles fitted with taximeters which are lawfully used as street service vehicles within the meaning of the Road Traffic Act, 1961 and for purposes incidental to such user and for no other purpose. That is very sensible and I congratulate the Minister on that exemption. I congratulate him in general on the very considerable transfer of resources from the relatively prosperous urban areas to the relatively poorer rural areas. I congratulate the Minister on having the commitment, courage and good sense to do that.

Mr. Lanigan

I am not really getting at Senator O'Leary. I presume that he was talking about the gentleman who was behind him and who is no longer here.

Mr. S. O'Leary

Both.

Mr. Lanigan

I would ask the Minister why this exise duty should not be imposed after the imposition of VAT. What Senator O'Leary has said is quite true but there has been a savage increase in VAT which is imposed after excise duty. Not alone is excise duty increased but VAT is increased by 50 per cent. Certain vehicles are exempt, as Senator O'Leary has mentioned. What about a handicapped person bringing into this country a vehicle which is of use only to a handicapped person? The increased imposition on that vehicle is the same as on the vehicle which able-bodied people can use. A handicapped person cannot bring in a special vehicle to this country without the imposition of an increase from 40 to 50 per cent plus a 50 per cent increase in VAT.

Mr. J. Bruton

It is important to recognise the background to the Government's decision to re-introduce car tax. This tax was abolished as a result of what I would regard as a promise made in 1977, made not out of any social or economic conviction as to the good of the country but simply and solely to enable the party then in Opposition successfully to obtain power. It succeeded in that purpose together with other blandishments which were offered at the time and that party attained office. They proceeded to engage in a policy of spending money that they did not have on things that we did not need. The result is that we are in difficulties that we never should have been in. It is in order to mark a distinct end to that era as well as to bring in some much needed revenue from what is in many cases, not in all, a discretionary purchase that we decided to introduce motor tax.

A question was raised in regard to those who are disabled. The position here is that there are special provisions for cars, petrol and road tax for disabled drivers. They do not suffer the full brunt of any increases which may be introduced under any of the headings herein.

Mr. Lanigan

Perhaps the Minister would clarify what happens if a disabled person brings in a motor vehicles solely for his own use.

Mr. S. O'Leary

On a point of order, we are discussing section 8 of the Bill which deals with what is commonly known as road tax. It does not deal with what we have dealt with previously under section 7 or any other section. I think that question is out of order and it is as well that we get matters clear.

An Cathaoirleach

This section deals with the imposition of motor taxation.

Mr. J. Bruton

I will confine my answer purely to that which is relevant to this section. Disabled drivers who are seeking to register cars which are specially adapted for their disability do not have to pay any road tax. There are special provisions in relation to other taxes which, in view of Senator O'Leary's point of order and the ruling of the Cathaoirleach, would not be relevant to deal with beyond saying that special provisions advantageous to the disabled do exist. Value Added Tax is not added on to the registration of a motor vehicle for car tax purposes. There is no VAT on top of that charge. It is called an excise duty but there is no 15 per cent on top.

An Cathaoirleach

There is another section dealing with VAT. This section relates to motor taxation. I assume that Senators will not raise the matter of VAT at this point.

Mr. Lanigan

An electrically propelled vehicle has a taxation of £22. Does this mean that bicycles which are now being manufactured in the west with an engine attached will be liable for a £22 tax and does it mean that children who buy a toy at Christmas will be liable for a £22 tax?

Mr. J. Bruton

There is no provision in this section in regard to bicycles.

Mr. Lanigan

A vehicle is a vehicle, and line ten suggests that electrically propelled vehicles will be liable for a charge of £22. According to this section every child's toy which is electrically propelled will be liable to that taxation. An industry which was started up in the west to put propellants on bicycles will find that these vehicles are liable for taxation of £22 per annum.

Mr. S. O'Leary

Senator Lanigan is making a complete mess of this debate. He knows very well if he reads the section fully that there is reference to a "specified vehicle" and it has to come within the definition of a "specified vehicle." If he had done his homework he would know that a toy which is not being used on a public road would not come within the definition of a "specified vehicle." If we are going to talk about these things in a serious fashion, why should we bring in these spurious matters which have nothing whatsoever to do with it? Senator Lanigan knows as well as everybody else that electrically propelled toys which are not being used on the public roads are not involved.

Mr. Lanigan

Would the Minister then give us a guarantee that the bicycles which are having propellants put on them will not be liable to a tax of £22 per annum?

Mr. J. Bruton

As I understand it the Senator is referring to "specified vehicles" in accordance with line 33 of the section. Subsections (1) to (3) of this section shall have effect in respect of specified vehicles in relation to which licences under section 1 of the Act are taken out for periods beginning on or after 1 September 1981. If the Senator will turn back to page 5 of the Bill he will see "specified vehicles" means a vehicle specified in paragraph 1 of Part I of the Schedule or a vehicle specified in paragraph 6(d) of Part 1 of the Schedule which does not exceed 16 horse power, calculated in accordance with regulations made by the Minister for the Environment under section 1(3) of the Act for the purpose of a rate of duty specified in the Schedule.

We will go back to paragraph 1 of Part I of the Schedule. This relates to the 1952 Act. I have not, unfortunately, this 1952 Act with me but I understand that the relevant passage of the 1952 Act, which is defined there as the Act in question, relates to motor vehicles, not to bicycles.

Mr. Lanigan

Would the Minister give a guarantee that a bicycle which is propelled by a motorised unit, electrically controlled, will not be taxed at £22 per year?

Mr. J. Bruton

I understand that electrically propelled bicycles will be taxed at £2.50 which is the appropriate rate for motor bicycles, but not at the rate applicable to motor cars.

Mr. Lanigan

Would it not be better to eliminate this line from the Bill because it states specifically that electrically propelled vehicles are liable to a tax of £22? The Minister will suggest that a bicycle is not a motor vehicle, so this is a totally irrelevant part of the Bill.

Mr. J. Bruton

I have some sympathy with the Senator and perhaps he has some sympathy with me in that historically all of this sort of legislation has been drafted on the basis of cross references to Acts in 1952, 1954, 1947 and so on. Unless you bring in the whole pile of them with you and read your way through them you run into the problem of having to accept a particular interpretation of an Act which is not in your hand at the time, given by somebody who is supposed to be in a position to give it. In this instance the Minister is supposed to be the person who is in a position to give the authoritative interpretation.

I am advised, and I ask the Senator to accept this on faith and if I am wrong I will take the first available opportunity to correct any misapprehension I may have created, that the relevant provisions of the 1952 Act only apply to motor vehicles as including cars but not to motor bicycles or consequently to electrically propelled bicycles. The relevance of the inclusion of "electrically propelled" here is to cover electrically propelled cars such as they may be; there are not very many of them I would imagine. In view of the desire of the Revenue Commissioners and the legal draftsman to be as comprehensive as possible he included electrically propelled vehicles as well as the conventionally propelled vehicles.

Mr. Naughton

I would like to ask the Minister whether he would continue further his policy of helping the rural dweller by allowing the vehicle excise duty as a tax deductable allowance. I have in mind people who have to commute long distances to work and the cost of travelling there reduces their incomes substantially. Would he be able to do something for this type of person in the forthcoming budget?

Mr. J. Bruton

I would wish to bear such a suggestion in mind in one context, that is, in respect of the Government's programme, which is to convert tax allowances into tax credits. As the Seanad will no doubt be aware, the present system of tax allowances is very unsatisfactory in that they are worth far more to people on high incomes. If you are paying tax of 60 pence in the £ because you have a large income any tax allowance which reduces the computable income upon which the 60 pence in the pound applies is worth 60 pence effectively to you for every pound of the allowance. For people who are paying at 35 pence in the £ because they have small incomes, the equivalent allowance of exactly the same amount is only worth 35 pence to them as against 60 pence to you. So any system of introducing new allowances against tax is essentially, to use the economic jargon, regressive in that it has a greater benefit for people at the higher income levels than it has for the people at the lower income levels and, of course, no benefit at all for people who have so low and income that they are not in the tax net. Of course many people who need motor cars for one reason or another may not be in a tax net. However, if this were to be in the form of a tax credit, and it is the purpose of the Government's overall tax reform programme to move towards tax credits, the credit would take the form of a deduction of a specified amount from the actual tax paid and that would have the same benefit to people at different rates of tax because it would be a deduction from their tax rather than from their allowances against their incomes for the purposes of determining their tax.

In that context I would be prepared to look at this, but not in the context of a new allowance. Since allowances are regressive we have more than enough allowances as it is. On that basis only I would be prepared to look at Senator Naughton's suggestion, but in all honesty I should tell the Seanad I am not optimistic, because the scope in budgetary terms for any new reliefs in the tax code is very limited indeed.

Question put and agreed to.

Section 9 agreed to.

SECTION 10.

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

Mr. Lanigan

This is a repetitive debate when we get to a section such as section 10. A 50 per cent increase in VAT rate at the lower level, with no increase in VAT rate at the higher level, militates against the under-privileged. On the motor vehicle a pair of spot lamps is at 25 per cent now and it was at 25 per cent before the imposition of the budget.

Acting Chairman (Mr. J. Harte)

This section really deals with definitions.

Mr. S. O'Leary

Is there any proposal by the Minister to consolidate the value added tax legislation? The way in which the legislation is being constantly amended now means that to arrive at some kind of a rational conclusion is becoming quite difficult. A comprehensive manual has been advertised at a rate of £42 each. A Senator could not afford £42. If it were published as a consolidated Bill we might be able to afford it. As far as the ordinary man is concerned the implications of VAT are becoming so intricate that he cannot understand it.

Mr. J. Bruton

I have here the consolidated value-added tax legislation. I am very proud to be able to peruse it as a visual prop to back up my case in answer to Senator O'Leary. It is available at the price of £42. In line with the policy of the Government making sure that all State services pay their way, the Stationery Office is going to pay its way in future. It comes under my tutelage.

Question put and agreed to.

SECTION 11.

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

Mr. Lanigan

The imposition of a 50 per cent VAT increase has totally militated against industry over the past couple of months. There is no sector of industry which is not affected by the imposition of the 50 per cent increase at the lower rate without any increase at the top rate. What it has done is to make certain that the black economy of this country is going to increase. The people who work and who are not in the tax net at all are going to benefit by this section of the Bill. We might revert to the position in the eighteenth and nineteenth centuries when the barter system operated. On the supply of labour, an increase of VAT from 10 to 15 per cent means that the supply of goods will suffer correspondingly.

Mr. R. Bruton

Are we dealing with the increase in VAT from 10 per cent to 15 per cent on this section? It seems to me that this section is dealing with reliefs for the small traders who are being given higher thresholds——

Acting Chairman

Section 12 deals with——

Mr. Lanigan

It was the Minister who suggested that it was under section 11 that I should get in on this subject. If we wanted to discuss the levels I would agree that there should be upgrading in the levels at which a person should get registered. At least if they are registered they come within the tax net, and the PAYE worker, the business people and the Government are helped. What I am talking about is if they are not in the tax net or if they evade the tax net because of an increase of 50 per cent in VAT they go into the black economy which helps nobody but the person who is doing nixers. The system within the country breaks down. We are talking about a savage increase in VAT of 50 per cent.

Mr. J. Bruton

This is one of the major relieving sections in the Bill. It is concerned with raising the turnover limit above which traders are obliged to registed for VAT. It has been brought to our notice as politicians that there is considerable disquiet among small traders at the immense amount of paper work that is imposed upon them for the purpose of complying with the tax regulations, which in effect is of little benefit to the Exchequer when one bears in mind the actual amount of tax which is collected by this method. The cost in human terms and financial terms to the small trader far outweighs the benefit to the Exchequer which derives from the paper work.

The Government in their joint programme indicated that one of the matters they would seek to assist with was the relief of such a burden of paper work on small traders. This method which I insisted on introducing in my first budget is one which is consistent with that commitment by the Government. The section raises the turnover limits above which traders are obliged to become registered for VAT. It introduces two new limits of £30,000 and £15,000 in annual taxable turnover to the present three limits which, expressed in annual terms, amount to £18,000, £9,000 and £3,000. At minimum, thresholds are being on average doubled and in some cases increased by much more. The new registration limit of £30,000 would apply to a trader whose turnover consists of 90 per cent or more on the sale of taxable goods. The £15,000 limit applies to all other categories of traders.

There is a significant point in this legislation that we are moving from the previous operation of limits on a two-monthly basis, where if people went over the turnover limit on a two-monthly basis they were obliged to register. People could find themselves going in and out and back in again of the area within which they would be obliged to register, whereas now by moving to an annual basis for the calculation of the requirement to register we will relieve some at least of the uncertainty created by the previous practice. The benefit of this will be considerable. Many hundreds of taxpayers will no longer be obliged to keep very detailed and onerous books. We estimate that between 400 and 500 persons now registered for VAT will no longer be obliged to register and will be able to forget about VAT. We also recognise that there is a greater number of people who are obliged to register but for one reason or another are not registered. They will not find that their consciences will be getting at them in the middle of the night because although they may have been obliged to register in the past they are no longer obliged to register now.

This is a small recognition by the Government of the role of the small trader in Irish social life. It is clear, whether one is talking about an urban setting or a rural setting it is the older, less mobile, less well off sections of the community who have to have greatest resort to small traders. The younger more mobile and better off sections of the community, who have the motor vehicles about which Senator Lanigan was so concerned, are able to travel to the supermarkets. They do not have to rely on the small trader. They are able to go and get value. But the old lady living in a flat in the centre of Dublin who has to walk with the aid of a stick and who can only travel to the corner shop, or the person living in rural Ireland far from a large town who goes to the shop in the local village, they are the people for whom small traders provide a very valuable and valued service. In this item of legislation and in other measures under consideration by the Minister for Trade, Commerce and Tourism, we are seeking to recognise the important social role of small traders in a very small way by relieving some of them of the obligation to register for VAT.

I would point out that these limits were first set in 1972. They were very modestly revised in 1979 and this revision which is taking place in 1981 is by far the greatest upward revision and by far the greatest relief ever given in the matter of the obligation to register for value-added tax to small traders to whom it will be of considerable benefit. The cost to the Exchequer will be in the region of three-quarters of a million pounds in a full year in terms of lost revenue. However, I would like to assure the Seanad that particular care will be taken to avoid any abuses that might occur as a result of this relieving section, particularly in regard to rapid stocking up prior to registration. I would hope that the Seanad having considered this section will be able to give this a considerable welcome as a move in the right direction.

Mr. S. O'Leary

I agree that this is the most significant piece of VAT legislation so far as it affects the small trader. The Minister has correctly pointed out that it has two important elements. The first is the increase to £30,000 the amount which one must exceed before one is liable to register. Secondly, this is on an annual basis rather than on a two-monthly basis. Previously the position was, when the limit was £18,000, that if in any two month period sales went over £30,000 you were in respect of that period under an obligation to register, and the question of getting yourself de-registered in that kind of a situation did not apply. There should be quite a number of seasonal occupations in which people will be able to de-register and as a result it will be welcomed.

There are two specific points I would like to put to the Minister and ask him to bear in mind when next he considers a Finance Bill, and that is that the £30,000 now that it has been established and is generally welcomed in the business community, should be inflation-proofed. It should either be done automatically by way of a clause being inserted in the next Finance Bill or it should be done successively on each occasion. Now that £30,000 has been seen to be a reasonable sum there is no logical reason why that cannot be changed annually. If inflation is 10 per cent in the next year, the sales figure would go to £33,000; if inflation should be a bit higher it should go higher.

Now that the excellent principle has been established by the Minister, I do not see why we should have to go through a period of diminishing returns before it will be revised again. If it makes sense now I think it should be revised every year. It would reduce the amount of paper work and bureaucracy.

The Minister will also be aware that one section of the community are very seriously inconvenienced by the existence of this legislation. They are the craft workers who operate through the Craft Council of Ireland. They have been making representations to the Minister. I would like the Minister to give some further consideration to inflation-proofing while recognising that he has met a substantial portion of their problem here. I would like him to give some further consideration to whether it would be possible to arrive at a definition of "craft work" to which definition a different rate of value added tax, a low rate one would hope, could be applied. There is a great future for people of an artistic talent for the manufacture and sale of craft material.

What has happened to craft workers, particularly those involved in precious metals, is that the £30,000 would be of little benefit to them as the £30,000 would be exceeded easily. They are selling a line which is slow moving, which they are selling to large department stores and they have to make their VAT returns at the end of each two month period and pay the VAT on their sales prior to receiving payment from their customers. This is one of the major problems of those who do not have economic muscle, who are not in a position to go to the very large supermarkets or even the large jewellers of the country and say "Pay me now or I will not supply the goods in future." They are seriously inconvenienced because while they are not in a position because of their relative economic weakness to insist on being paid within a two month period, the Revenue Commissioners demand payment.

A way to overcome that is first of all to consider the question of whether one can redefine "craft workers." or secondly to introduce in respect of a further category of small traders, maybe those with turnovers between £30,000 and £100,000, a system whereby they would remit their value added tax on the basis of cash receipts only. If they did that, which is acceptable with regard to some types of trade, those in the manufacturing side, particularly small manufacturers, would be relieved of this considerable tax problem which they have. There would be an initial and once off reduction in the amount of money being received by the Exchequer but it would resume at its normal pace.

Two points should be considered. One is the question of whether it is possible to redefine "craft workers" and put them into a special category of their own. Secondly with regard to small industry in general, is it possible that another category would be introduced between £30,000 and £100,000 and those who fall within that category would be liable to make the returns on a cash receipts basis only?

Mr. J. Bruton

There are a number of problems in regard to the suggestion made by the Senator. First of all I would point out to him that much of the craft work concerns clothing, which is already zero rated. Secondly there are problems in defining what constitutes a craft. The relevant consideration is the extent of manual as distinct from mechanical input, but there is manual input into almost every form of manufacture. It is a matter of degree. The third point I would make is that many craft products are in the luxury class, such as jewellery and high quality glassware. If one is to relieve a particular type of luxury goods not on the basis of its intrinsic value or its use to the consumer but on the basis of the way in which it was produced, we would be entering into a whole new area of interpretation. We would have two types of jewellery, one which was considered to be a luxury and the other which was not, not because of its value to the consumer but solely because of the way in which it was made. I would say you would be into big problems.

The Senator mentioned problems in regard to cash flow because of credit terms which are to be given. These of course which apply not just to craft workers but to industries of all sizes who find that in a competitive market they have to give increasingly generous credit terms in order to get the business that others might be able to get. This applies to large manufacturers dealing with even larger retail outlets just as it deals with small craft workers dealing with small retail outlets. It all depends on the relative dominance in the market place of the buyer and seller at a given time. That is not necessarily something that is constant. It would be problematic to try to write into the tax code a discrimination, bearing that inconstant factor in mind. I feel the tax code as a general rule is not the best means to use to encourage any form of economic activity. It leads to distortion and it also leads to benefits being given out in a random fashion based on a method of selection which is not necessarily rational, whereas grants, however bureaucratic they may be in some instances, are at least given to those whom the community deems they should be given to, whereas tax concessions by their nature tend to be availed of both by people whom the community would wish to give them to and also, without any control, by people whom the community would never have wished should avail of them. This has been the history of tax concessions in our community over the past number of years. For a good example of this, there are items in the tax code which have turned out to be concessions and which were not intended as tax concessions at all.

Mr. Naughton

I welcome the provision of section 11. It will be a tremendous advantage to small rural businesses and undoubtedly will be a tremendous advantage to the rural community. I congratulate the Minister on bringing in this provision. I, too, would like to see a situation whereby the Minister would be able to index this figure to inflation and I would ask him to bear that in mind.

Mr. J. Bruton

I omitted to deal with the point on indexation which was raised both by Senators Naughton and O'Leary. As a general rule I am not very happy with indexation as a principle. At one stage I was, but less so as time goes on because if you index one thing you have got to index everything. If you index tax bands you have got to index wages and if you index wages you index prices. If wages are indexed, prices will go up. It becomes a spiral because one leads to the other and I think if we have got to break the cycle at some point, the point in Ireland's case is now. If we do not break it I am afraid the prospects are not particularly good.

Therefore, I would not be keen to introduce new measures of indexation even in respect of relatively minor matters like this because they represent concessions to the principle of indexation. The trend all over Europe at the moment is to try to get away from rigid indexation procedures which have proved to be a form of perpetuation inflation. Belgium, Italy, Holland and a number of other countries have had indexation provisions in their legislation for various things and they are trying hard, with the help of the EEC, to unhitch themselves from those provisions in order to get their economies on a stable path and to make their economies more adaptable to changes in the real terms of trade.

Question put and agreed to.

Section 12 agreed to.

SECTION 13

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

Mr. R. Bruton

I welcome the provision providing relief to farmers. Senator Lanigan was complaining about the rise in rates that would affect every business in the country. As we see here, one of the major reliefs is being provided for the farming community in that the 15 per cent rate newly applied to agricultural machinery will be rebated to them through this provision. Coupled with some of the other reliefs, such as that of the buildings by freezing the rates of 3 per cent which we have just agreed and the improved rate for agricultural contracting which we have also agreed, most of the inequities which might be involved in raising the VAT at middle rate have been taken away. I would like to commend this section to the House and I am glad it has been seen fit to do this at this difficult time for the farming community.

Mr. J. Bruton

This provision in regard to increasing the level of VAT rate refund for farmers is designed to leave the farming community no worse off as a result of the provision for increases in rates of VAT which are inevitable. It is part of the provision which is contained in this Bill whereby agricultural contracting services are being substantially relieved of VAT where previously they were at the 10 per cent rate. Contracting services are now to be levied at 3 per cent and this will provide a major boost to this part of a very important industry in rural Ireland and will contribute greatly to the efficiency of agriculture.

Question put and agreed to.

Sections 14 and 15 agreed to.

SECTION 16.

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

Mr. S. O'Leary

It appears to me that section 16 was never discussed in the Dáil—they ran out of time in the other House before section 16 was discussed. It deals with stamp duty on the banking institutions and the Minister of State, in introducing the legislation yesterday, indicated that section 16 was designed to raise a sum of £5 million; in other words, it imposes a special levy of £5 million on the banking sector.

One would have to be a very clever person indeed to work out how this is to work and we just have to take the Minister's assurance that it will yield £5 million. But the £5 million it will yield has nothing to do with the £5 million which arises on the second line of section 16 (1) which appears to be something to do with a marginal relief for smaller banks. What is happening here is that the banks furnish returns to the Central Bank of Ireland in respect of assets and liabilities on 15 April 1981 and various other dates. Are those returns matters of public record, or are they matters of private record? We have been asked to agree to legislation here which uses a rather peculiar mechanism because it provides that the monthly bank returns to the Central Bank of Ireland must be made on 15 April, 15 May, 20 May and 30 June. Are they matters of public record? Can anybody find out about these? An average is used and basically the sum, for some reason or other, is divided by three and then and ad valorem rate of 0.08 per cent is assessed on the remainder. What a complicated way to arrive at something. It indicates to me that an extraordinarily high figure would be necessary at a rate of 0.08 per cent to arrive at a £5 million charge, something astronomical—£4,600 million I calculated the other day would be necessary to arrive at £5 million by applying the 0.08. That is why I am anxious to find out if it is a matter of public record. Surely there must be a simple way of doing this.

I am also anxious in respect of two other items. The rate is too small. The charge of £5 million for the banks by way of special levy is too small at a time when, because of the turmoil in the money markets, the amount of profits the banks have been able to make has been significantly increased. In this regard I must dissociate myself completely from what Senator Whitaker said yesterday when he indicated that, because the banks were in some way not making sufficient money, they should not be liable to pay tax. If that were applied to all industries—before one would pay tax one should get an adequate return on capital employed —that would be a radically new way of charging corporation tax to businesses. The point is not really whether their profits are big enough, but the fact that they have profits.

There are various ways—and the Minister has referred to them earlier — in which the banks have been able to reduce the amount of tax paid by the legitimate operation of the legislation passed by both Houses of the Oireachtas. Because they give some of their lending at a low rate of interest so that they can use the tax-free allowances, they are paying some tax in an indirect way or making some contribution by reason of that to the community. The community does not understand that, and it will never understand it.

Yesterday on Second Stage it was suggested that in the first six months the banks had made a tax provision of £20 million. That might be true, but Senator Whitaker knows as well as I know that that does not mean they will pay £20 million. It means they make a tax provision. The whole idea of making a tax provision when you have no possible future liability for profits on the basis of which you are making the provision is an abuse of the accountancy system and should not be permitted. The way in which the banks have been able to reduce the tax payable by them needs to be looked at seriously. Arising out of that, the rate of 0.08 per cent to give rise to a charge of £5 million is inadequate.

The next legislation should re-introduce the section and increase that 0.08 per cent or, more properly, change the system of taxation so as they will pay a significant proportion of the profits they actually earn into the Exchequer in tax. The banks are privately owned institutions. They are entitled to make a profit and I am in favour of them making a profit. I am not in favour of so reducing their tax liability on the basis that they are not making adequate return on their capital employed. No other firm can use that excuse to avoid paying tax.

Finally, I should like to refer to subsection (8). I do not agree that it is a good principle. It provides:

The stamp duty charged by this section shall not be allowable as a deduction for the purposes of the computation of any tax or duty payable by the bank and, in addition, the bank shall not be entitled to seek reimbursement from the duty from any other person.

It is quite right that they should not be entitled to seek reimbursement. On the other hand it should be a tax deductible expense. It should be deductible from their profits like any other expense. They are saying it is not a tax deductible expense. If you impose a charge on somebody and so reduce their profits, it is quite unreasonable to say then that they can use that reduced profit, that they have to justify their ordinary tax position on the basis of their gross profit rather than on their profit that has been reduced by reason of the new stamp duty.

Mr. J. Bruton

I should like to thank Senator O'Leary for the very considerable public service he has performed in availing of this debate for the first discussion on this important provision. As he correctly said, it was not discussed in the Dáil, and it is appropriate that it should be teased out as it is a new form of taxation which has not been implemented before.

The figure of 0.08 per cent is based on figures which are available to us through the Central Bank as to the total net amount of current and deposit accounts held by banks within the State on behalf of customers, whether Irish or foreign. I am not at liberty to disclose the sum but——

Mr. S. O'Leary

It is not a matter of public record.

Mr. J. Burton

It is not a matter of public record, but it is the appropriate percentage. As the Senator is no doubt good at sums, or he would not be here, he will be able to calculate the base figure without any further assistance from me. That is the basis upon which it was arrived at, and it is adequate to raise £5 million. With regard to the provision not allowing the banks to pass it on, the intention here is that they should not be allowed to pass it on to their customers. It is not a provision in regard to not allowing them to charge it as an expense for income tax purposes, as I understand it. Subsection (8) seems to suggest that.

Mr. S. O'Leary

The Minister might look at that.

Mr. J. Bruton

Yes, that is a point that might be looked at. It is of course a levy on the banks.

Mr. S. O'Leary

I appreciate that.

Mr. J. Bruton

There have been levies of this type before in respect of other commodities such as agricultural produce. There has also been a resource tax. Both of these were not deductible for income tax purposes. In terms of the total value of the produce of the institutions in question this levy is much smaller than either of those. In view of the provisions of subsection (8) which the Senator has drawn to my attention, I would not imagine that great problems will be caused for the banks, given the small size of the levy in question. If there were to be any question of having a levy again, or having a levy at a higher level, obviously the point made by the Senator would have to be taken into consideration very carefully.

Mr. Magner

We support this provision simply because we have to. We felt it was one of the bitterest pills in the joint programme for Government that we had to accept this derisory sum of £5 million levied on the banks. We in the Labour Party took it merely as a statement of intent of what this Government will do in the 1982 budget and thereafter. Among ordinary people there is a belief that the Bank of Ireland and Allied Irish Banks are State institutions and not the very private and profitable institutions which they are.

In this time of grave economic recession the banks remind me of the buzzards circling over the caravans going across the desert. They are waiting for their first horse to drop and then they are in with the liquidator. There is no evidence that the banks are displaying the concern for industry that apparently the Government feel. One of the reasons for that obviously is that because they are private institutions we are unable to direct where they should invest the exorbitant profits they make even during times of recession. As we know, inflation is a God send to the bankers in every way. They benefit from it. I merely want to mark the position that we take this £5 million as a very weak statement of intent which I am sure the Minister will strengthen in the months to come.

Mr. J. Bruton

I am glad to have had the opportunity to hear the Senator contribute here for the first time. The provision of £5 million was not one of the points in the joint programme as such. It was introduced as part of the budget immediately after the Government had been formed. There are obviously grounds for looking at the overall taxation position of the banks. I answered questions in the Dáil on that subject yesterday. Not necessarily because the banks themselves are always making an enormous profit but because, in conjunction with their customers they can avail of concessions in the tax code, they are able to reduce their tax liability considerably.

They claim with some justification that this benefit is in fact passed on by them to other people, mainly those engaged in manufacturing industry, and that they do not enjoy it themselves. It must be said that this is a somewhat random procedure, because the people for whom they are able to claim the allowance are effectively chosen by them in conjunction with the people who apply for it. They are not chosen by the Industrial Development Authority or by the State itself. In fact the State finds itself presented with a fait accompli of having to forego particular amounts of tax revenue because the bank and the person with whom it is dealing have come together and agreed on a scheme which complies with the legislation. It is not possible really for an outsider to say who is really benefiting because if the manufacturing enterprise would not have occurred at all had it not been for the existence of this particular scheme then of course the community is benefiting. If it would have occurred anyway then the community is losing. One can never say after the event whether that is the case.

There are problems there. I would not regard the Government's commitment to look at this area of taxation as in any sense representing hostility towards the banking community. It represents a perfectly proper desire on the Government's part to ensure that aids given by the general community, whether in the form of tax reliefs or grants, should be transparent and clearly seen to be given consciously and for a particular purpose, and not obscure and given without a conscious decision by the community at large. That is the sense in which the Government are approaching this problem.

I do not think it would be proper for me to go any further than that. The Senator will appreciate that I recognise the problem he has raised. We will, of course, have to bear in mind in any approach to this problem — and this particularly important — that we are dealing with mobile investment in the world. If any change in the taxation provisions in regard to banks, however well motivated from the point of view of Ireland, diminishes the attractiveness of Ireland for international investment by reducing the financial benefits to a particular manufacturer of investing in Ireland, he may then decide to invest in Scotland or in France, or in Papua, New Guinea, for that matter, because many of these investors are as mobile as that. It is a question of Hawaii or Papua, New Guinea or Ireland. They are quite indifferent as to where they go, and the fact that they have Irish names does not make much difference.

We may not be terribly happy to be in competition with this type of mobile industrial investment, but it is a fact that we are and we cannot avoid it. We will not succeed in getting into new technology to the extent to which we would wish unless we get that sort of investment. The Government are constrained to bear that fact very much in mind in drawing up any revisions to the present code of taxation, no matter what the history of that code of taxation. It is against that background that we must approach it. The Senator will appreciate that it is very much a balancing operation which the Government have got to do. Personally I think the balance has gone too far in the area of tax concessions at the moment. I should like to move it back somewhat to give more revenue to the Exchequer and the community in very straitened financial times. But I should not like to push it too far to the extent that it would have the effect of losing for Ireland mobile international investment, in the attraction of which we have been very successful in recent times.

Mr. Magner

It is very difficult for Peter to rob Paul if you are, in fact, Peter and Paul. The banks claim that because of the mechanisms they use in effect they take some of the tax from industry. In reality they own most of that industry. That is the reality of it. There are secure charges on most industries. All you have got to do is to read Stubbs' Gazette to understand that they have in their pockets huge amounts of the industrial capacity of Ireland, so if they are giving concessions they are giving them to exactly the same people who got the loans in the first place.

Mr. J. Bruton

The banks own practically all the land in this country under the mortgage system. When any farmer goes in to his bank to get a loan of £2,000 to buy a few cattle, even though his farm might be worth ten times that amount, the banks ask him for the deeds. Once they get the deeds, in theory at least, they own the place. That is the case. I have some familiarity with that. It is also the case with other types of business. That in itself is not a very revealing argument.

I have tried to satisfy the Senator that I recognise the point he is making, and it is something at which we will have to look.

Mr. S. O'Leary

The Minister might bear in mind, in considering whether or not it is appropriate to extend the section on the next occasion, the way in which the banks meet the very real crisis in the agricultural industry, and that levies of this kind could be offset by the way in which the banks respond to the very real need in the agricultural sector for them to make a significant contribution to solving the problems in that area.

Mr. J. Bruton

I very much take the point made by Senator O'Leary. I have said on a number of occasions publicly that I believe the banking community have a particular responsibility to the agricultural community at a time of grave difficulty for that industry, perhaps the gravest difficulty agriculture has faced in this century. We must remember that the banking system in Ireland, which dates from the early part of the nineteenth century, was substantially built for almost 100 years on large net deposits by the farming community in that system, and would not have been able to function and grow had it not been for money farmers deposited with them, money farmers took from mattresses and put into banks, and the banks were thereby able to use it to expand their businesses into other areas. The banks themselves should see their responsibility as extending beyond the profit and loss situation of a particular 12 months period. Their responsibilities extend over a much longer time frame, and in that context they should see, and I hope do see, a responsibility to a section of the community such as agriculture which is in special difficulty now.

Question put and agreed to.

SECTION 17.

Question proposed: "That section 17 stand part of the Bill."

Mr. S. O'Leary

I should like to make a brief comment on section 17. This is the stamp duty in respect of credit cards and charge cards. I should like to congratulate the Minister on introducing it, because there is no point in having substantial charges for cheques and having no charges for cheque cards. My objection is that the rate of £5 per year is not sufficient. It is a very small charge indeed. I consider it a nominal charge. Some of my friends — and Senators must understand that I have many friends who are a lot wealthier than myself — could put their hands in their pockets and take out a wallet with 20 cards of one sort or another. Nothing would suit me better than to have some of these gentlemen pay significantly more than £5 per year for the benefit of having them. I have two cards, both of which are overdrawn at the moment. But £5 is quite small. Some of them are referred to as promoters. There are two different categories of people to which this applies. Presumably American Express would not be a bank but a promoter. The Minister might consider getting simultaneously with the information he will be getting under subsection (2) (c) on the number of cards issued, the number of transactions in the year. This might be a better way of levying this type of charge. The Minister might like to bear that in mind. It is easy for us to say he should reduce taxes. This is an area for legitimate taxation. If there is a charge per cheque I do not see any reason why, unless it is administratively impossible, there should not be a charge, per transaction, on credit cards.

Mr. J. Bruton

The position in regard to this charge is that I suggested it to the previous Minister during a debate on the Finance (No. 1) Bill, 1981, in the Dáil earlier this year. Like Senator O'Leary, I was somewhat unusual in suggesting increases in taxation at a time when we were leading up to a general election. I am glad to say that my comments in the Dáil debate were taken careful note of by the officials in the Department of Finance because, within a few days of my arriving there, I was presented with a proposal for the implementation of such a charge with the apt reminder that I had suggested it myself. I am glad in one sense I was able to act on this proposal. I also avail of this very valuable service and I do not deprecate the service provided by these cards. It is appropriate that, if people are paying substantial duties on cheques, there should be some duty on these cards which are, in effect, a substitute for cheques.

We are the first country in Europe, and possibly in the world, to have introduced a charge of this type. In this respect we are pioneering and, therefore, there will be problems in administration and in determining the incidence of the tax. It is a valuable provision and one which will prove that the Government are concerned with social equity. As the Senator said, the use of these cards tends to be amongst those who are slightly better off.

Question put and agreed to.

Section 18 to 20, inclusive, agreed to.

First, Second and Third Schedules agreed to.

Title agreed to.

Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.