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Seanad Éireann debate -
Tuesday, 13 Jul 1982

Vol. 98 No. 9

Finance Bill, 1982 [Certified Money Bill]: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

I thank Senators for their welcome and for their contributions to the debate this afternoon. The Finance Bill provides the House with an opportunity to discuss the budget strategy of the Government. In its own right, the Bill is a very complex document providing for some major changes in our taxation code. There will be a better opportunity to discuss these individual changes on Committee Stage.

Senators have recognised the difficulties of the budget position and the need to take firm action. The Government are concerned that we must exercise a greater discipline in relation to our public finances. The Government's general strategy for the next few years will be set out in the plan for the economy which is now being prepared.

I referred earlier to the tendency of many commentators to demand a reduction in borrowing and, at the same time, to complain about inadequate levels of Government service or the high levels of taxation. They cannot have it both ways. Budget policy is about achieving the best possible balance between the necessity to encourage greater economic growth and higher employment and, at the same time, to adopt a prudent approach to borrowing.

In a very severe international recession such as we have had to experience over the past few years, and in the face of unprecedented high interest rates, this task has become more difficult. When we complain about the deterioration in our own situation, it is only fair to record that this is part of the pattern internationally and that we are not alone or unique in experiencing serious economic and budget difficulties. I do not want to use this as an excuse for action, but it at least helps to put the whole issue in a more proper perspective when we appreciate that high unemployment and fiscal problems are very much the order of the day throughout the western world in general. Other countries have taken tough measures to cope with these problems and we must be prepared to do likewise.

I would now like to turn to a few points raised by Senators in the course of the debate. Senator Bulbulia spoke at some length about section 4 of the Bill which deals with the benefit in kind in respect of the private use of a company car. She was highly critical of the decision to modify the budget proposal by reducing the levels of charge which were originally intended. She described this as a lamentably naked concession to political pressure. I think that the Senator will realise that she is at odds with the Fine Gael spokesman on Finance in the Dáil, who felt so strongly about the changes in the Finance Bill that he tabled an amendment to reduce the impact of these charges. He considered that they were too harsh.

I would also like to point out that the provisions in the Finance Bill will bring considerably more revenue than the proposals which were put forward by the previous Government last January. I decided to modify the budget proposals simply because on reflection I felt that they were rather too severe and that there was a genuine need for some reduction. The Senator was also critical because I would not implement in full the budget proposals on mortgage interest for technical reasons. She inferred from this that as Minister for Finance, I may not have had a proper grasp of the implications of the budget changes. I would like to remind the Senator that these changes are identical to the changes proposed by the previous Government in January. Are we, therefore, to conclude that they did not have a proper grasp of what they were doing? What happened was that the Revenue Commissioners ran up against serious technical obstacles when they set about arranging the implementation of the budget proposals. These difficulties had not been foreseen and there was no option to but modify the proposals.

I referred to the forthcoming report of the Commission on Taxation in the course of my opening statement. There has been much discussion of the report in the press in recent days and Senators have referred to it in the course of today's debate. All I can say is that I am not in a position to comment on the report before it is brought to the attention of the Government. I regret that it should be the subject of press reports before its publication, but this is something over which I have no control. As I said earlier, I will be bringing the report to the attention of the Government immediately and it is for them to decide on the question of publication. The report deals in great detail with the issue of direct taxation, and it will require lengthy examination before I can hope to express a fully informed opinion on its findings. I want to make one thing clear. Whatever changes are made in the present system of taxation, one of our priorities has got to be that we maintain an adequate revenue yield.

References have been made to the special PRSI tax allowance of £312 and to the £45 million cost of this concession. One Senator described it as a clear sign of Government weakness. The allowance was introduced because of the new PRSI charges, taking into account the youth employment levy and the new income tax provisions, were too severe in imposition for many of those on full rates. Some easement had to be provided quickly. I accept the criticism that we might have foreseen this when preparing the budget but the PRSI arrangements were adopted without change from the proposals introduced by the previous Government in January.

The present Government have indicated that they intend to make a full-scale review of the PRSI arrangements before the next budget. As I have already said, the intention is to make good the £45 million this year and I am at present examining proposals from my Department for savings on expenditure. I will be submitting proposals to the Government shortly on this matter.

Senator O'Mahony referred to the forthcoming national plan and the impact it should have on developments over the next few years. He said that he wanted serious sectoral economic targets. I want to say that it is premature to discuss the contents and scope of the plan. It is still in course of preparation and no details have yet been finalised. I have seen a report on the plan in one of today's newspapers which purports to outline the general approach being following by the Government and which also spells out some details of the plan. All I want to say at this stage in response to this is that the report is incorrect and gives a misleading picture of developments.

Senator O'Mahony believes that relief for mortgage interest should be at the standard rate of tax. I agree with him but as I have already explained, this has proved technically impossible so far. I will continue to look at this matter with a view to finding a more equitable system than we have at the moment. I also agree with him that tax relief in respect of second house mortgages should be disallowed, and the Bill provides for this. The relief in respect of second houses will be terminated in three years.

Senator Daly, understandably, turned his attention to the problems of the motor industry. I acknowledge that tax on the industry is severe, but so is the tax on many other industries. I must suggest to the Senator that it is the general recession rather than the level of taxation which is a prime cause of the present difficulties of the motor industry. I would also like to point out to the Senator that the Bill before the House provides for a reduction in the duty on spare parts for the car industry. He suggested that a national lottery would go a long way towards solving our taxation problems and perhaps enable us to reduce some taxes. Quite frankly, this is entirely unrealistic. The yield from a lottery would be quite limited, and it probably would adversely affect the income of many charities.

Senator Bulbulia commented on the capital acquisitions tax changes in the Bill and said that she was not altogether sure that these had been introduced for equity reasons and that they would force estates to be sold. There are, in fact, four capital acquisitions tax changes in the Bill. Two of these, sections 98 and 99, are of a technical nature and, respectively, simplify certain tax procedures and close an avoidance loophole. Section 100 grants relief for gifts and inheritances by farmers of agricultural property, by increasing the maximum limit for agricultural relief to £200,000. The main change is contained in sections 101 and 102 and brings in a new aggregation basis for the tax. This change was mentioned in both the January and March budgets and was introduced specifically for equity reasons.

Senator Hourigan referred to the sale of sites for development land and he argued the case for an increase in the limit of £15,000 for exemption from the development land provisions. I must suggest to him that £15,000 is a very generous limit. Let us remember what we are talking about here is not a once-for-all limit but an annual limit. If I were to go above £15,000 I would be undermining the expected yield from this tax. Above £15,000 we are no longer talking about small sites, certainly in terms of value.

The Senator queried the withdrawal of roll-over tax relief in respect of development land. Again, if we were to allow roll-over tax relief, at the end of the day our development land tax provision would be largely ineffective. The Senator also described the removal of the tapering relief in capital gains tax as a non-progressive move. No other country in the EEC had both indexation relief and tapering relief, and in this context the abolition of the latter relief is easily justifiable. In relation to farm transfers, I should point out that there is complete exemption from capital gains tax for the lifetime transfer of a farm from a parent to a child if certain conditions are met, and no liability to capital gains tax arises in the case of a transfer on death.

Senator Ryan believes that we have not yet reached saturation point on taxation. He is unusual in this. Generally the complaint is that people are over-taxed. The reality is that our overall level of taxation measured as a percentage of GNP is in line with the pattern in western Europe generally. So I think it is fair to say that as a nation we are not over-taxed. The Senator expressed the viewpoint that people are not convinced that the tax burden is being distributed equitably. I agree that individuals and pressure groups are continually complaining about the levels of taxation which they are required to bear. Many of these complaints, however, are patently unjustified. They stem from the fact that many people are reluctant in any event to pay tax in the first place and also there is a belief that the louder the complaint the greater the likelihood of a concession. I am not arguing that our tax system is ideal. After all, the whole purpose of the Commission on Taxation is to devise a more equitable tax system, but I should like to emphasise that there is no basis for many of the complaints made about taxation.

Senator Bulbulia saw a conflict between the imposition of a tax on foreign travel and the operation of an export sales relief. She is confused here. There is no immediate relationship between the two. If anything, they are complementary to each other. Both are specifically designed to improve the balance of payments. The Senator also saw the implementation date of 1 September for the new tax as an exercise in vote catching. This suggestion is preposterous. The delay to 1 September is due solely to the fact that the Revenue Commissioners could not bring it into operation any earlier. I can assure the House that I would have been most anxious to see the tax in operation for the summer season if this were at all possible. I think a Minister for Finance would always be in that position; if it can be done today he will not leave it until tomorrow.

I think I have covered a number of the points that have been raised, perhaps not all of them in the detail that might be required, but in the course of Committee Stage, which I understand will be tomorrow, with your permission a Chathaoirligh, we can go into greater detail on any section that concerns any of the Senators.

Question put and agreed to.
Committee Stage ordered for Wednesday, 14 July 1982.
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