Vol. 108 No. 7
Before the Committee Stage begins I would like to point out to the House that recommendations 19 and 20 have been ruled out of order as they involve potential charge upon the public revenue. I would also like to draw your attention to a printing error which occurs in recommendation 17 where the word "disponer" is misspelt.
SECTION 1.
I would like to ask the Minister the number of persons in each of these categories covered by the exemption for 1984 and whether there will be any increase this year. I am anxious that these exemptions would increase their scope and effect with regard to the elderly.
I am getting the figures which the Senator has asked for in relation to the number of people who will benefit from these exemption limits. The number of people exempted by the general exemption limits is 7,200 which is 5,900 married persons and 1,300 single, widowed and married persons assessed as single persons. Under the age exemption limits, the number of persons exempted by the limit 65 to 75 years is 1,800 married persons and for the exemption limit for age 75 years or over is 300 married persons and for the same two limits for single, widowed and married persons assessed as single persons the figures respectively are 700 and 500 giving a total of 3,300 people exempted by the increases in the age exemption limits. The total between the two is 10,500.
Is it estimated that by virtue of these exemptions that number will increase this year?
The figure of 10,500 is the number of people who will now be exempted because of the changes we are making in the Bill.
We naturally welcome the fact that the Minister has removed the 65 per cent band. Whether one can attribute it to a belated conversion or whatever, it is welcome. Income tax at that level creates a situation where the incentive to work has been affected. In relation to the 45 to 48 per cent band, how many people will have an increased tax bill for 1985-86 as a result of the change?
On the last question raised by the Senator, nobody will have an increased tax bill for 1985-86 because of the change in the rate from 45 per cent to 48 per cent. The combination of the increase of personal allowances and the changes in the bands reduces the tax bill for each taxpayer. The Senator also referred to his satisfaction with the abolition of the 65 per cent rate and spoke of a belated conversion. He is still probably thinking of the road to Damascus. As I said yesterday evening in the absence of Senator Smith, a number of things were made possible in our——
Bhí mé ag éisteacht.
——tax system this year because of the progress we had made on the financial front in 1983 and 1984.
Recommendations Nos. 1 to 5 are related and may be discussed together.
I move recommendation No. 1:
In page 8, subsection (1), in the Table, column (3), opposite "3,600" to delete "3,800" and substitute "4,000".
We have a number of amendments which can be taken together. They are not substantial. They merely seek a small upward adjustment in the personal and married allowances and for single and widowed persons. The Minister will argue that he does not have the financial resources to make the concessions and that the money would have to come from elsewhere. I would make the overall point that the development of the work ethic and the application of our income tax laws have virtually created the situation where vast numbers of people say to us — very regrettably — that they would be as well off on the dole or unemployment benefit, as working. Tax is not the only consideration in all that, but we should try to be as generous as possible, particularly at the lower levels of income where individual families are under a lot of stress. The majority of them spend a proportionately higher part of their income on the bare necessities of life, and it is in this area that we need to be as sensitive and as helpful as possible. In that context we are asking the Minister to consider these recommendations.
As the Senator rightly expected, I intend to refer to the cost of making these changes. I would like to emphasise the fact that what is suggested here are further increases in the increases already provided for in the Bill. The cost of the changes proposed in Nos. 1 to 4 taking them all together would be about £28.3 million in 1985 and over £47 million in a full year. It is clear that figures of that magnitude could not be accommodated within the overall budgetary targets for this year without there being some compensatory changes elsewhere either in taxation or in expenditure. These kind of changes would not seem to me to be justified, given the balance of the taxation measures we have already provided for in the Bill and the specific objectives of expenditure policies which we have provided for during the course of this year.
I want to ask the Minister about an increase in the dependant relative allowance. There was a time in my political career when I felt that it should not be necessary to provide people with any significant allowances for taking care of elderly relatives and particularly parents. In recent years the fibre of people has weakened to some degree and there are now additional considerations. For young married women in particular, with young families, taking on the additional work of trying to look after old people is a quite considerable burden and there can be a lot of pressures involved.
Over the past few years and more recently the Minister for Health has consistently referred to strengthening the community and the field services in health. One of the areas where it is considered that fairly major savings can be made in health is in keeping people at home, as far as is possible, where they are mobile and capable of being kept at home. Varying costs are given for different hospitals for maintenance. It goes without saying that the cost of institution-alisation of people is enormous. That is not the only consideration. There are many people who still have a part to play in the community and still have a contribution to make to their own family in their old age which is thwarted by long phases in institutions.
I am anxious to know from the Minister for Finance whether the statements made by the Minister for Health can be backed up in situations like this. The overall estimates for community care in health would appear to be under the same strictures as hospital care and special hospitals. Overall, the amounts being provided in terms of words convey an impression to the public of being fine, but actually to operate these on the ground in community care presents enormous difficulties. I am anxious that the Minister should see, if not in this budget in some other way, if there is something further that can be done to enable people to take care of elderly couples and individuals in their own homes.
Arising out of this recommendation and the proposed changes, it is suggested that there should be further increases in the allowances in respect of married people, widowed people and so on. Would the Minister give us an indication before deciding on these recommendations what is his long term view on the question of allowances? It is important to know where we are going in this regard. Are we in favour of increasing allowances year by year or are we going to change them all to tax credits? Of course, this would have an effect on the recommendation before us.
Similarly, I would like to ask the Minister what is his justification for the increased allowance given to a widowed person. I understand that many widows — this is covered in recommendation No. 2 — are indeed in difficult financial circumstances, and very often they have children who require considerable care in the home, and it is right and proper that allowance should be made in our tax laws for that fact. This arises because widows have children, not because they are widows. It is the child element of it, in my opinion, that should attach the increased allowance rather than the mere fact of widowhood. For example, take the position of a person who is widowed young in life at 27 or 28 years of age and has no dependants. Why should that person get the benefit of an increased allowance for the rest of their lives as compared with a single person?
It is a question we must ask ourselves. There is an emotional reaction; you cannot really attack widows. We should examine this while we are asking for increased allowances for these categories. Of course every increased allowance given to one category reduces the flexibility in other categories. It appears that what we have done over the years — and it is indicative in this Schedule that there is no change in respect of children — is that we have eliminated the child allowance effectively and attached it to the marital status of the person rather than to their being dependants in the ordinary sense.
First, I would like to ask the Minister what is the long-term intention with regard to tax credit as distinct from tax allowances? Secondly, what is the justification for a separate and increased allowance in respect of a widowed person as compared with a single person in identical circumstances?
On Senator Smith's remarks relating to the dependant relative allowance, the proposal here is that there will be a further increase in this allowance justified on the basis that this is required or desirable in order to encourage people to look after their own — usually dependant-parents. I would have to point out that the number of claimants for dependant relative allowances has been falling substantially for quite a long time. In 1980-81, it appears that there were some 56,000 claimants. This figure went down to 53,000 in 1982; 50,000 in 1983; 45,000 in 1983-84; 41,000 in 1984-85 and 39,000 in 1985-86. That is the estimated number we will have this year. The number of dependant relatives is slightly different from the number of claims. In 1985-86, for example, we expect that approximately there will be 42,000 dependant relatives.
As can be seen from the figures I have just given the number of demands for the allowances is reducing. I might add that that decline was in spite of an increase over that period in the maximum income level allowable.
I would like to draw the attention of the House also to a report issued by the National Council for the Aged for the period June 1981 to May 1984 in which it was stated on page 18 — and this was during the course of an examination of the situation of the carer in our society — as follows:
It is understood that in England only 6½ per cent of families place an aged parent in institutional care. It could be assumed that the percentage would be much the same here.
I would not intend nor indeed would I be competent, to comment on the justification for that assumption, but I would assume that the National Council for the Aged, having examined the situation, would have made that statement with some degree of authority. The difficulty to which Senator Smith adverted would not seem to be quite as big as he suggests. I would also like to make the point that this dependant relative allowance is not the only means of assistance that is available in relation to an elderly person. The income limit that applies in this case has been increased fairly substantially. There are quite a number of other budgetary and indeed tax instruments that are of assistance in the situation of elderly taxpayers.
We spoke a few moments ago about the age exemption limits. There are a number of other measures both under social welfare and in the health area which provide assistance for elderly persons and, given the facts that the number of claimants for this particular allowance has been reducing, I would not think that the case in the terms in which it has been made for an increase in this allowance is as strongely justified as Senator Smith would seem to think. The cost of that suggested change in 1985 would be about £2.6 million or £4.3 million in a full year.
Regarding Senator O'Leary's question as to my long term view of the matter of personal allowances, we have stated in the national plan that for the period 1985-87 we will adjust a tax band and allowances each year to prevent a further increase in the burden of taxation on the income taxpayer. The Senator may conclude from that that certainly in the period of the plan we will not be moving over to a tax credit system. There are a number of difficulties in moving over to a tax credit system because of the sharpening progressive nature of our tax code at present. A direct move to a tax credit system could place an even heavier burden of taxation on people at the lower end of the income scale. But perhaps that is another day's discussion. However, I am not avoiding the discussion now. Over the last two years I have looked at the implications of moving to a tax credit system. In the way it is normally thought of it would, in fact, produce that perverse effect because of the level of our taxation and because of the progressive nature of the system.
Senator O'Leary asked what was the justification for an increased allowance for a widowed person. I take his point that he is not asking about the situation of a widowed person with children, where he accepts the logic of an extra allowance. We have a situation in which a widowed person with children, by the cumulation of the ordinary single person's personal allowance, the widowed person's allowance and the single parent's personal allowance gets to the point where the total tax free allowance of a widowed parent is equal to the tax free allowances of a married couple. It is made up of those three elements; without any one of them we would not get to the same total. But there is a case for making an extra allowance to a widowed person in that very frequently the situation of a widowed person is that where before there was either a principal breadwinner or the only breadwinner, who is the deceased, the couple would normally have undertaken a number of commitments which cannot be shuffled off very easily by the surviving spouse. The widowed person, in many cases, is in a different position from that of a person who never married and who might not have taken on the commitments. It was with that in mind and partly with the other objective in view, the case of the widowed person who has children, that an extra allowance was built into our system for widowed persons.
I find the Minister's argument somewhat supportive of our amendment in that he has indicated that there has been a fairly substantial reduction over the years in the number of people qualifying under this clause.
Because that is happening and because fewer people are prepared to maintain elderly people in the home we are anxious to redress this. The cost of our health services at present is approximately £1,200 million. In spite of what the Minister said in relation to comparisons that were made in 1981 between the number of people who are institutionalised in the UK and here, the health boards are receiving letters from the Minister for Health consistently indicating that the number of beds per capita utilised by elderly people are far in excess of what they actually should be. I will admit that I am speaking mainly for the west and particularly I am referring to County Clare where the pressure for hospital beds for elderly people is generally not met, yet the argument from the Department of Health seems to be the reverse. The fact that figures have dropped is the reason that we are asking the Minister to consider some additional aid in this area.
I accept what the Minister says with regard to the question of the tax credits. There is some considerable merit in what he says. Would the Minister, because the matter has become a matter of public controversy and was the subject of very specific proposals, give consideration over the next year or two to issuing a Green Paper on the question of tax credits? This argument is going to continue. It is important that there should be an informed public discussion on the problem. The way in which the informed public discussion could be commenced is by the Minister issuing a Green Paper. Green papers were usual when I was growing up, but apparently now Governments go straight from the position of contemplating their navels to issuing a White Paper or, indeed, introducing legislation. A Green Paper is an opportunity to discuss matters. Much more use should be made of it by Governments. I would recommend it to the Minister in the case of tax credits.
I will, certainly, give consideration to Senator O'Leary's suggestion about issuing a Green Paper on the matter. In agreeing to that, I would not like it to be taken that the rest of what he says is of equal weight and specifically his apparent belief that I and my colleagues in Government spend much time contemplating our respective navels, which is not the case, individually or collectively.
Regarding Senator Smith's suggestion that the number of claimants for the dependent relative's allowance supports his case, quite the opposite is the case. I fully appreciate the points made by Senator Smith. We all agree that we should encourage or facilitate older people in our society, as far as we can, to remain in their own homes or with their relatives, to remain part of the community rather than become isolated as some unfortunately do. The drop in the number of claimants is influenced by quite a number of factors. First of all, the increase in the income limit which applies in this case over a period of years. Secondly the improvement in the income position of many elderly people in our society. Over the last couple of years we have brought about a situation where in real terms the value of social welfare payments to elderly persons has increased. Third, there is a series of types of aid available both within the tax and through our health and social welfare systems. All of those combined should facilitate elderly people to remain in their own homes or with relatives. I must point out, however, that in relation to people who claim the dependent relative allowance, a substantial proportion who claim have a different address from that relative. That would suggest that a number of people who are claiming that allowance are not looking after a dependent relative in their own homes. It would not be appropriate for me to engage in debate at this point about the adequacy of any particular provision in the Health Vote.
I move recommendation No. 6:
In page 10, subsection (6), line 42, to delete "may" and substitute "shall".
I will not say anything about section 4 other than to say than what the Minister is doing is worthwhile. This is merely an amendment to impose a more serious obligation on the Revenue Commissioners than what is proposed in subsection (6) of the section as drafted. Subsection (6) reads:
If any question arises as to whether any person is entitled to an allowance under the section in respect of a child who is over 16 years, as being a child who is receiving such full-time education as aforesaid, the Revenue Commissioners may consult the Minister for Education.
I am trying to beef up that a little bit and to impose an obligation in the circumstances outlined in subsection (6) to consult the Minister for Education. Now that does not, of course, mean that the Minister for Education would have to be consulted in every individual case. It would only be in the case where a question arises, in other words where there is a dispute. It does not happen where a person just makes an application and the application is conceded, but where there is a question in the sense of a dispute, and there is some doubt as to whether a person is in receipt of full time education, the Revenue Commissioners should be under obligation to consult the Minister for Education for a better definition of that term, if a question arises on that point and for that reason I suggest that the obligation should be put on the Revenue Commissioners rather than merely saying that the Revenue Commissioners may consult the Minister for Education. It should go further than that, and an obligation should be put on the Commissioners in that respect.
I can see the concern Senator O'Leary has, but I feel his recommendation goes too far. It could mean, for example, that on receipt of a claim a doubt might arise on the question as to whether the child is receiving full time instruction but the doubt could be of such a nature that the inspector would feel that he could get the information from the claimant himself or herself without having to go to consult the Minister for Education, and indeed that is the kind of situation that would be allowed under the text of the Bill as it is. You could, for example, have a case where the claimant had not made it clear enough that the instruction that the child was receiving was, in fact, full time instruction, or perhaps he might not have given enough information to enable the inspector to establish clearly which educational institution was involved. In those circumstances it would obviously be far more sensible for the inspector to make the inquiry of the claimant rather than to be obliged to consult the Minister for Education or indeed any other Minister. I would think that in cases like that the experience of the inspector would be a better guide as to indicating how the doubt, if one arose, could be removed or resolved.
We have a provision there in the text of the Bill as it is now where the Revenue Commissioners may consult the Minister for Education in the event that the doubt cannot be resolved by any other means, but I think it would be going too far to require the inspector to consult.
I think the Minister is to be congratulated on section 4. It would be churlish of the House if we did not extend our congratulations to the Minister in this regard. It shows a very positive attitude on the part of the Minister and indeed on the part of the Department to take such serious note of the recommendations of the Ombudsman in this matter. When I read the report of the Ombudsman for, I think, the year 1984, which we received recently, it included a reference to the fact that the single parent allowance anomaly had arisen, and I congratulate the Minister on introducing in section 4, very quickly indeed after that matter was pointed out by the Ombudsman, a device that will overcome that problem. It was ridiculous that the existence of an income of more than £100 a year disqualified a child or disqualified a parent from the single parent allowance which was worth substantially more than that. I think the Minister is to be congratulated on section 4.
In the course of his generalised response to Second Stage last night the Minister indicated that the Committee Stage would afford the opportunity to raise a number of specific issues. In that context, therefore, I want to refer to a point I raised in connection with PRSI on Second Stage yesterday. I share the view that PRSI is a tax on labour, a tax on existing jobs. This is a time when we have record unemployment, when millions of pounds are being spent in trying to create jobs as well as millions of pounds being spent on paying dole. I am not advocating the abolition of PRSI as we know it, but I want to put it to the Minister that there is a compelling case to reduce the employer's contribution to PRSI in those labour intensive industries which do not have export sales relief or the 10 per cent corporation tax. I think such a reduction would benefit highly labour intensive industries and would, in fact, make a significant contribution to improving equity and efficiency in the tax structure.
I would point out again in response to Senator Hillery, as I have before, that our rates of social insurance contribution in this country are among the lowest in Europe. Only the UK is at a level comparable to us. I do not think that the problem of either labour intensive or capital intensive industries, if it comes to that, is one that arises from the level of PRSI contributions. Senator Hillery may be moving in the direction of his colleague Deputy O'Kennedy, who seemed almost to get to the point of suggesting that we roll the whole lot up into the tax system. That seems to be a slightly different argument from the one that Senator Hillery is making. Given the fact that our rates of social insurance contribution are among the lowest in Europe, I would not go along with the general thrust of the suggestion being made by Senator Hillery.
This country exports to countries other than those in Europe. That is the first point I want to make. We are not comparing like with like in any case. Pay rates, for instance, in West Germany are very considerably ahead of what we enjoy in Ireland. Quite recently I saw reference to the fact that under the British tax structure one does not reach the marginal rate until a figure of over £40,000 is reached as opposed to getting up to the marginal rate so much quicker here. So it is one thing to use the European comparison in the case of PRSI but it is a selective comparison that is used by the Minister. I still think there is considerable merit in the argument that in the case of labour intensive industries that do not enjoy particular benefits like the export sales relief or the 10 per cent corporation tax serious consideration should be given to reducing the employer's contribution.
I am afraid I do not accept the tag "selective" that Senator Hillery has used. He accuses me of being selective because I respond to the argument that he puts forward. That is not selectivity. That is the courtesy that is due to Senator Hillery. I take the point that Senator Hillery makes, the fact that we cannot really compare our tax situation here with others. It is a point I made myself, indeed, last evening in another connection, but I will come back to the basic point I was making. I agree, as Members of the House know, that our tax levels are relatively high. There are reasons why our tax levels are relatively high which I will no go into now. There are many of them. To pick out one part of the system and identify that, as Senator Hillery is doing, as being the problem seems not to cover the whole problem and possibly runs the risk of diverting attention from where the real problem is, which is in the overall level of taxation arising from the overall level of expenditure, etc.
To conclude my observations on it, I wish to say that in the course of my professional work in UCD, and outside it, I have constant contact with employers. I constantly meet people who are in the business of creating jobs, and they constantly refer to PRSI as being a tax on employment. Of course PRSI is not the whole tax story, but I do think it is one of the factors that drives employers to invest in equipment and machinery rather than in job creation. It is a very sore bone of contention with them.
I move recommendation No. 7:
In page 11, between lines 21 and 22, to insert the following:—
"(b) Emoluments in respect of which the employer has been notified by the inspector that they are emoluments which arise from an office or employment held by a person in the course of a trade or profession and which are or will be taken into account in computing the profits or gains of that trade or profession for the purpose of income tax'."
This section deals with two matters. It deals, in the first place, with a change in the officer who can issue recommendations or certificates under section 125 of the Income Tax Act, 1969 and my amendment does not seek to change that matter. It leaves it with the inspector. At present under section 125 the actual decision on these matters is left to the Revenue Commissioners. One of the two things which is proposed in section 6 is to substitute where it occurs the words "Inspector of Taxes" for the words "Revenue Commissioners", and this has been done not only here but also in section 9 of the Bill before us. I have no objection in respect of this section to that. What I have objection to, however, is the other half of the proposal. I have an objection for two reasons. One, on the basis that I do not think it is fair generally, and the other on the basis that no transitional arrangements appear to have been made. The Minister proposes that people engaged in a trade or profession who are also in receipt of income from a job such as a director of a company or a consultant to a company or something of that category, this income was until now normally returned with their own income and formed part of their tax assessment in the same way as their professional income. What is now suggested is to bring that portion of the income within the PAYE structure. That is artificially creating a PAYE structure where one should not exist. I have no great objection to self-employed people being assessed on a current year basis, but when it happens it should happen in total. You cannot pick and choose a portion of a persons income and decide that they are going to be taxed on a PAYE basis in respect of a portion of their income and they are going to be taxed as a self-employed person of their other income. The effect of doing this can be seen, if the section as drafted by the Minister, without my amendment, is passed. In that event, in the first year in which it will in operation, the year ended 5th April 1986, the effect will be that those people who fall within this category will fall for a double charge of tax during that year because having opted the previous year for a previous year basis they will be paying tax on the 1984-85 income, the income which they got up to 5 April 1986, and as and from 5 April 1986 they will be paying on that income on a PAYE basis. They will fall to a double charge of tax in respect of that portion of their income in respect of that year.
The Minister has made no transitional arrangements, which transitional arrangements are normal in the event of a category moving from the category of a prior year assessment category to a PAYE category. The Minister does not appear to have made any transitional arrangements, and that is going to give rise to a double taxation in one year in respect of some professional people. The purpose of my amendment is to re-insert into the section which the Minister proposes the corresponding section in section 125 (c) of the Income Tax Act, 1967, changing that paragraph by the substitution of the word "Inspector" for "Revenue Commissioners" to make the law consistent throughout the new proposed section.
The two points I would like to make are, one, I do not think that it is right, practical or fair that this change should be brought about in the first place. In the second place if it is going to be brought about some transitional arrangements to avoid a double taxation should be made by the Minister just as these transitional arrangements were made in the past in respect of other categories of people who moved from a prior year payment of tax to a current year payment of tax.
I would like to support Senator O'Leary's latter point on grounds of equity. I would suggest to the Minister that in order to avoid this element of double taxation the people who are now being brought within the scope of the PAYE system for the first time would not be treated less equitably than the generality of employees who when first brought within the PAYE system in the tax year 1960-61 were given a period of six months tax free, that is the PAYE system commenced from 6 October 1960. A period of relief from what would other otherwise have been an element of double taxation was also given to civil servants when they were first brought within the scope of the PAYE system.
What is being proposed here is that with effect from 1986-87 emoluments would be excluded from the operation of PAYE only where the operation of PAYE is impracticable having regard to the circumstances of the office or indeed the amount of the emoluments and as from 1986-87 it would be the inspector who would have the statutory authority for deciding this rather than the Revenue Commissioners. This in fact gives statutory grounds for an existing practice. On the question of the double taxation fear expressed by Senator O'Leary, the fear might arise, from what Senator O'Leary has said, that in the first year of operation of PAYE for the payments in question the taxpayer would also be charged to schedule D tax on the basis of the previous year's income and suffer a double charge. That, however, will not be the case, because in such cases the schedule D assessment will be adjusted to remove the relevant schedule E element, and that is provided for by section 190, subsection 2 of the Income Tax Act, 1967 so that double taxation would would not arise on the basis that the Senator appears to fear.
The Minister said section 190, subsection 2. That reads:
If it appears to the satisfaction of the Revenue Commissioners that a person has been assessed more than once for the same cause and for the same year, they shall direct the whole, or such part of any assessment as appears to be an overcharge, to be vacated, and thereupon the same shall be vacated accordingly.
That is the section. That does not cover the point I am making at all. That only arises where the charge arises from the same cause for the same year. The point I am making is that the double charge will be legitimate. It will arise legitimately. That relief only applies where it does not legitimately arise, where there is because of some quirk in the system a double charge in respect of the same income and, of course, the Revenue Commissioners are entitled to ameliorate the taxpayers' problem in that case under section 190, subsection 2. In this case the charge will arise legitimately. It will arise because on schedule D a tax assessment for the previous year will be legitimately due. It happened to myself.
I can tell the Minister that I can speak from personal experience not with regard to the category covered here now, but as a Member of the Oireachtas. I have been charged a double tax on the basis of my primary year income not reflecting the fact that I was at that time a Member of the Oireachtas and a lower income the following year reflecting the fact that I was a Member of the Oireachtas but being charged to double taxation because it was legitimately due. In my opinion section 190 subsection 2 only covers situations where it is not legitimately due. In this case it would be legitimately due. All I am seeking is some transitional arrangements which are going to overcome that problem. If the Minister gives me an undertaking that that section 190 subsection 2 will be used for the purpose which he says I am happy with that.
I have difficulty in giving the Senator that assurance, because this is being done consistently in this way.
Is the recommendation withdrawn?
Yes.
On section 7, would the Minister give us some information on this specific scheme which was the source of considerable satisfactory comment when it was introduced? Many of us felt that it was going to have very beneficial effects in respect of people over 60 years of age. We thought it might have beneficial effects with regard to the reporting of case 5 income to the Minister as a result of people making these claims. The Minister is in a position to let us know the number of claimants who have taken advantage of this allowance which we are now proposing to reduce from 60 to 55 and the number of people who to date have taken advantage on a year by year basis of this allowance.
It would appear that in 1983 some 300 taxpayers took up this relief and in 1984 about 500 taxpayers took up the relief, so that from that point of view the response to the relief has been somewhat disappointing. I would hope there would be a bigger number of claims for what, as Senator O'Leary has said, in my view is socially a very useful measure and one which Senator O'Leary has rightly pointed out might have some other uses also, but the take up has been rather disappointing on this.
I wonder would the Minister give some consideration to publicising this very important allowance? I think the problem is that people do not realise it exists. People do not understand that they can get substantial allowances in respect of rent. I would like to ask particularly now that the Minister is proposing to ask the Oireachtas to reduce the age from 60 to 55, that on that provision being enacted the Minister would use that as an opportunity to give the matter some widespread publicity.
Recommendations 8 and 9 are related and may be discussed together.
I move recommendation No. 8:
In page 12, line 29, to delete "£50" and substitute "£120".
Recommendations 8 and 9 arise because of a difference which exists in the tax code at present. As Members will be aware the amount of interest which is exempt from tax in respect of deposits in the Trustee Savings Bank and the Post Office, is at present £120. The limit which applies in the case of interest on deposits with certain commercial banks is £50. The Minister, in the section itself, is doing the correct thing in increasing those very meagre allowances. He is doing the right thing for a number of reasons which, if we are discussing the section later, we can discuss. What I am seeking to do in these recommendations is to recommend to the Minister that he should consider getting rid of the difference which exists between the way in which the commercial banks are treated and the way in which savings banks and post office savings banks are treated. The purpose of my amendment is not so much to increase the allowances per se but just to equalise the allowances between the various kinds of financial institutions. I do not know, because it predated my arrival in the Oireachtas and, indeed, probably predated my interest in public affairs which stretches back over 25 years, but the difference between the way in which the post office was treated and the banks were treated seems at this stage to be lost in the mists of antiquity. I do not know the reason. No doubt the Minister can identify the reason from his files. I do not see why in this day and age there should be any difference in this regard. I feel the Trustee Savings Bank and the Post Office are no different from the commercial banks in so far as they are very secure and very good institutions in which people can invest their money. It is true that small savers should be encouraged to invest their money in these safe institutions. To differentiate between the institutions creates in my opinion, a false market. I recommend very strongly to the Minister that he should look at the question.
I do not find myself in agreement with Senator O'Leary on this question. I want to make the point that a very great number of very small savers are involved both with the Trustee Savings Bank and Post Office Savings Bank. It is unfair to try to put on the record that there is more or less an equal situation between the Post Office Savings Bank, the Trustee Savings Bank and the commercial banks. To be fair about it, the banks have powers and facilities which are very considerable compared with those which other institutions have. I mention just one of them, which relates to the very simple little pocket book that people carry around which is of immense value to them — or maybe perhaps in some cases otherwise — but by and large some differentiation should always be placed between the Trustee Savings Bank, the Post Office Savings Bank and the commercial banks. I am not quite sure whether the difference at present is proper and equitable, but it should always be there.
I would like to go back to the intention of the section. The section implements an announcement that I made on budget day, that in order to encourage elderly people to put their savings in safe keeping the exemptions in respect of certain deposit interest were to be doubled for taxpayers of 65 years of age and over. That is the purpose of the section. The section does not make any other change in the relationship between different institutions. The measure that I announced on budget day is one of a number of measures that have been identified as being ones that would perhaps help to avoid the situations where older people have substantial sums of money on their persons or in their houses and therefore become targets.
As Senator O'Leary pointed out, there is a difference between the Trustee Savings Bank, the Post Office Savings Bank and the other specified banks in the treatment of the taxation of deposit interest. I can only go back to the Finance Act, 1980 which was the first occasion when an increase in the exemption levels for the TSBs and the POSB was introduced and a difference emerged between those two and the other banks. In proposing the increase the then Minister for Finance had some things to say regarding his reasons. In the Dáil debate of 4 June, 1980, at column 1525, the then Minister for Finance said:
But it is important to recognise the special position of the Trustee Savings Banks and the Post Office Savings Bank. They were set up to cater for the small saver and they rely almost exclusively on the small saver. I am not saying that there are not small savers who have their deposits in the commercial banks as well but it is fairly clear that the Post Office Savings Bank and the Trustee Savings Banks rely on small savers to a great extent more than do the commercial banks. Their rates of interest are directly controlled by the Government as distinct from the commercial banks and the bulk of their funds are lodged with the Exchequer so that, considering their nature, their purpose and the limitations and restrictions under which they operate, it is at least appropriate that the Post Office Savings Bank and the trustee savings banks should have some advantage in respect of tax on deposits, as has been the case.
That was the rationale given at that time for the difference in treatment. I would consider — as I think does Senator Smith — that broadly similar reasons still exist for justifying a difference in treatment.
I am surprised that the difference only arose in 1980. I do not accept what Senator Smith says at all or, indeed, what the Minister says. Senator Smith is looking at the situation incorrectly by comparing on the one hand the Trustee Savings Banks with the banks, or the Post Office Savings Bank with the banks. It is not the Trustee Savings Banks or the commercial banks or the Post Office Savings Bank who are getting the allowance. It is the individual who walks in the door. This is not a concession to the banks. The Minister does not say that because the commercial banks are big, strong and viable people they should get a certain allowance while the Trustee Savings Banks should get a bigger allowance. The banks are getting no allowance; it is the ordinary "Joe Soap" who is walking in the door, he is the man who is getting the allowance. Why should the person who is walking in the door of the Trustee Savings Bank be treated, from a tax point of view, more beneficially than the person who is walking in the door of the commercial bank? I can see some logic in what the Minister says with regard to the fact that some of their money is sent on to the State and therefore the State acknowledges that in some way. There is some logic in that. But I do not see any logic in the relative financial strength of the financial institutions.
Take the case of a person who is living in the rural area of a small country town. A substantial number of older people live in those circumstances. It might well be that the facilities available to that person are one Post Office Savings Bank. I know, theoretically, more facilities than that might be available and that one or two commercial banks might be available. Why should we, by taxation policy, be diverting that person towards the Post Office Savings Bank when that person may not wish to invest with that financial institution? The commercial banks give a service to older people equal to that of the Post Office Savings Bank. I am no friend of the commercial savings bank or the Post Office Savings Bank. I realise that what they do they only do because they consider it good business sense. To make a differentiation like that is to create an artificial market. We should not be in the business of creating artificial markets.
We should be in the business of trying to get rid of these extraordinary, artificial differences in our taxation system which make it so complicated. They also give rise to a situation where there is a feeling within the finance institutions that they are not being treated in the same manner. That probably comes from the erroneous view that the measure is designed to facilitate the financial institutions. I think we have already shown that the purpose is to facilitate the man or woman who has money to invest. A person who invests his money in the commercial banks, directly or indirectly, contributes as substantial a sum of money to the State as the saver in the Post Office Savings Bank. Ultimately a substantial portion of the money which they are collecting, in one way or another, finds its way into long term or short term Government securities. It is true that they cannot readily identify that John Murphy's £50 or £1,000 was loaned to the Minister for Finance, but a substantial sum of the money is used for public purposes. That weakens that portion of the Minister's argument which is the only significant portion of the argument. The other point of differentiating between people on the basis of some feeling that the Post Office Savings Bank or the Trustee Savings Banks are more ideologically pure than the commercial savings banks is not something which I find attractive. I am sure my socialist friends will agree with me.
I regret the fact that Senator O'Leary might have taken umbrage, offence or exception to what he might have considered to be an ideological bias in the words I quoted from the Minister for Finance in 1980. I must say, with the greatest of respect, that I found the syntax rather difficult. The then Minister has not improved noticeably since then that I could find out. I do not think that anything he said at the time or that I said today indicates that this difference in treatment is there because one feels there is something more respectable or pure about the Post Office Savings Bank and the Trustee Savings Banks. The Minister's intention at the time was to take account of the fact that the situation of the POSB and the TSBs is different from that of the other banks in that the rates of interest are directly controlled by the Government and that the bulk of their funds is lodged directly with the Exchequer. These are two arguments which I can assure you a Minister for Finance finds rather persuasive in approaching this matter.
I certainly do not have the intention of indicating that this concession was of value to those banks. It is the depositor who gets the benefit of the concessions and not the banks. However, the depositor can be attracted one way or another by the rates that are offered and by the returns he gets on his savings. Since the then Minister and I take the view that it is desirable to a certain extent to try to channel deposits through the POSB and the TSBs because they are suitable for small savers and because of the use that is made of them and because of the way those particular banks are influenced by Government policy, I think it reasonable and proper to maintain a differential between the tax treatments of deposits in those institutions and the tax treatment of deposits in banks. Of course people may not wish to invest in the POSB and that is their privilege.
I would also point out to Senator O'Leary that in many country towns potential depositors have only one outlet, which is the Post Office Savings Bank because in many of our smaller towns — I know this applies in my constituency and in Senator Smith's own county — there is not a branch of any one of the commercial banks, and, indeed, there is not even a branch of the Trustee Savings Bank. The nearest banking institution of any kind with which many people have contact is the Post Office Savings Bank. It would be wrong to suggest that because it is the nearest one to them there should be no particular advantage, given the other considerations I have outlined.
There are one or two other points that I wanted to make on this section. First, I want to ask the Minister, linking this section to section 10 and assuming that a farmer who is leasing his land invested £2,000 in the Trustee Savings Bank or Post Office Savings or the commercial banks——
We are on the recommendation. Is it withdrawn?
Yes.
Recommendation No. 9 has been discussed with recommendation No. 8.
On the section, I want to ask the Minister to link it to section 10 for a moment and indicate to me whether the person who qualifies for the exemption in section 10 would have that exemption in addition to whatever exemptions are allowed in section 8. Secondly, this is travelling down the right road, more particularly when we consider some of the problems that affect rural people and people in isolated areas many of whom who have lived through great deprivation in their younger days and have this fear of disclosure of their full means and want to have confidentiality. Sometimes, there is not a lot of logic that one can apply to that fear. Nevertheless, it is something which we all recognise is very deeply held and difficult to manage. Coupled with this exemption, can the Minister tell us if anything else is being considered in relation to non-contributory old age pensions or qualification limits for non-contributory old age pensions in relation to additional money that may be available to an applicant? It has to be a more composite approach before we deal more comprehensively with the difficulties which have been exposed in recent times and which, unfortunately, the criminality aspects of some individuals have sought to penetrate.
The last part of Senator Smith's question is one that I should not go into here at the moment in relation to income qualification limits. It does not specifically arise in either the Bill or the section.
You have thought out loud.
I would think out loud a little more for Senator Smith if he wishes. I would strongly recommend that Senator Smith and others of us in the Oireachtas should get as many copies as we can of a very useful booklet issued by the Minister for Social Welfare a couple of months ago which sets out just how much income various categories of pensioners may have without affecting their entitlement to different categories of pension. On reading that book, many many people will be surprised to find how much income or deposit interest per capita older people may have and still qualify for pensions. There is a lot of mythology in that area that needs to be got over. I would strongly recommend that booklet. I try to make it a practice, when I meet older people, to have a copy of that available and give it to them. A lot of people have been comforted by it on finding out just what the true facts are.
On the link between section 10 and section 8 — section 10 provides for an exemption of a certain amount of income from a particular source, from income tax, in the circumstances that are set out in the section. That is added on to any other allowances, exemptions or reliefs that a person may have. To give an example, if we take an incapacitated person of 55 years — we can discuss this in more detail when we come to the relevant section — an incapacitated person of 55 who is claiming the relief in section 10 would benefit first of all from the general exemption limit of £5,200 if that person were married and then from the exemption of £2,000 provided for in section 10. That person could have a total income of £7,300 and still benefit from complete tax relief on that. One can accumulate these things. That was really the point of Senator Smith's question. If there are other exemptions to which that person is entitled, all of them would operate together.
On section 9, is the Minister happy that the granting of this power to an inspector of taxes is appropriate? I understand that the inspectors are from time to time doing this work, but they are doing it subject to the authority of the Revenue Commissioners. Of all the areas of tax estimation, the one which is notoriously most inaccurate is the additional assessments in respect of PAYE. The one which is most difficult to process through the appeal procedure is the estimation of tax referred to. I wonder would the Minister give some consideration to whether the administrative structure which is at present in operation and on which now it is proposed to confer statutory authority is operating satisfactorily? It appears that the ordinary appeal mechanism is turned on its head, more or less, with regard to the estimation of PAYE due. I am not talking about the ordinary estimation which comes from a person if a person fails to make a return, but additional assessments in respect of PAYE. The method by which they are to be determined does not appear to be quite clear. Very often the recipient of the appeal finds himself in considerable difficulty in proving his case. He is almost put in the position of having to prove that the estimate which was made was wrong. It is very, very difficult indeed when you are dealing with PAYE, which the accumulation of small amounts of money, rather than something like the profit of a business which is summarised in one figure. That is one point. The second point is that the Minister is quite right in increasing from 14 days to 30 days the period within which an appeal can be made against an estimate. I wonder would the Minister, now that he is changing the system to give greater authority to the inspector of taxes in this area, also consider having a look at the appeal procedure and try to get it operating on a more professional basis than it is operating at present in this area.
There are two things proposed in this section. First of all, let me assure Senator O'Leary that I am happy that this is the proper thing to do, otherwise I would not have proposed it. I thank him for the question.
You might change your mind.
What it does, first of all, is to transfer the statutory power for making the estimates from the Revenue Commissioners to the inspector of taxes or such other officers as may be nominated by the Revenue Commissioners for that purpose. Secondly, it increases from 14 days to 30 days the period within which an appeal against such an estimate may be made by an employer. The position at the moment is that section 8 of the 1968 Finance Act provides that the Revenue Commissioners, where they have reason to believe that the total amount of tax which an employer is liable to remit is greater than the amount that he has remitted may make an estimate to cover the amount which in their opinion was not remitted and serve notice of the estimate on the employer. The employer then becomes liable for that amount, subject to the right of appeal within 14 days.
As far as monthly estimates are concerned, section 7 (5) of the same Act allows the Commissioners to nominate any of their officers to perform any act or discharge any function authorised by section 7 or section 8.
Up to now an officer in the Office of the Collector General has been nominated to make the estimates under both section 7 and section 8 but it is the Inspector of Taxes who does the actual investigative work leading up to the making of the yearly estimates under section 8 and decides the amount to be charged. Then he has to transmit the relevant data to the Office of the Collector General where the estimates are made and appeals are made to the Collector General's Office and are then forwarded to the relevant inspector for processing.
All of that is a cumbersome and time-consuming procedure, and the provisions here are designed to remove the more cumbersome and time-consuming elements. There should be an advantage both for employers and the Revenue from the changes we are making here. I am not quite sure that I understood what Senator O'Leary meant by requesting me to have a look at the appeals procedure, because the normal appeals procedure applies to these estimates as if the estimates were assessments. The section provides for an increase from 14 days to 30 days in the period within which an appeal may be made and brings it into line with the period allowed for the making of appeals generally. Unless Senator O'Leary has some specific question in mind about the way these appeals are treated, I cannot see any reason for having a look at that any more than any other aspect of the appeals procedure.
I understand it is an administrative matter. The accuracy of these estimates and the manner in which they are dealt with, do not conform to the usual high standard which one expects. The attitude of mind of the people issuing the estimates appears to be that they have a status which is greater than any of the rest of us, that once they have said it, it almost becomes holy writ. The Minister is right in identifying it as a matter to be dealt with elsewhere as an administrative matter. PAYE estimates are very often dealt with on a basis which does not conform to the usual high standards for dealing with assessments and other taxes.
Senator Smith linked the advantages of section 10 with section 8. Section 10 is a very welcome gesture and is a stimulant for people to go into land leasing. People who are letting land for conacre on a short term basis are being treated for tax purposes as having a direct income. Suddenly there is an exclusion of the first £2,000 income from a specific land leasing arrangement of not less than seven years. All our movements in this direction are correct. This has been seen by people as a genuine incentive to go into the area of land leasing. It will be beneficial to older people and people who are unable to work their land. Now they can know confidently that by letting their land on a long term lease they can have the first £2,000 income tax free in addition to the other normal tax free allowances and allowances for investment in Post Office savings and otherwise. This is a tremendous boost and provides a definite incentive for people to make a land leasing arrangement. I welcome the idea. I have spoken to people who are interested in this arrangement. They have a double incentive to lease their land. We all hope this will happen for the benefit of young people who are competent, able and willing to go into an arrangement with people who are old and unable to work their property.
We must be prepared to give exemptions of this kind, particularly at the initial and embryonic stages of this scheme, which obviously has a lot of merit and is very badly needed in most parts of the country, if we are to increase land mobility. As well as increasing land mobility we were also able to increase the Minister for Finance's mobility. In spite of what the public think about him on occasions, the trip he took yesterday, theoretically speaking, surprised all of us. I welcome this development. I am also supportive of the seven years provision. It is vitally important that those who get involved in leasing land should have some kind of security. In farm management and development there has to be fairly substantial investment. The return is slow, and unless you have a fairly long term plan, the initial effort and investment cannot be justified. Overall this meets what we were suggesting in the Land Leasing Bill. I hope it will be successful in encouraging as many people as possible to be involved in land leasing.
The term of the lease provided for in this section is five years and not seven years. It was seven years in the Bill as originally proposed but, after discussion on Committee Stage in the Dáil and some examination of the merits of different periods, I decided on Report Stage to change the term to five years.
I move recommendation No. 10:
In page 16, lines 8 and 9, to delete "5th day of April, 1986" and substitute "1st day of July, 1985".
This is becoming a hardy annual. We had a temporary levy which looks like becoming permanent. Taking a percentage of one's income at any time for tax purposes is very unfair. People who are not in the tax net have to pay this levy. We are entitled to be told whether the Minister intends to have it phased out completely. Our party will be pressing this to a vote unless the Minister is able to give us some hope that this year will be the final year of its implementation.
Recommendation No 10 is designed to abolish the income levy with effect from the 1 July 1985. Its abolition would involve a cost of £28 million in 1985 and £63 million in a full year, and it would have to be compensated for in some other way. I said when I first introduced the levy that it would be a temporary one. Paragraph 6.8 of the national plan states clearly that our intention is to phase out the income levy as soon as resources permits. We fully intend to do so but I am not in a position today to say when that moment will be.
There is a commitment at some future date to abolish the income levy. This section deals with increasing the amount of income on which there is no levy payable. The PAYE sector have been paying this levy since its inception I welcome the exemption of £5,300. Some people have not paid the levy. I know from a member of a health board that many self-employed people, particularly farmers, have been very slow to pay the levy. They begrudgingly paid portion of their health contribution levy.
We have a financial crisis in some health boards. If everybody paid, whether on assessment or on account, many of the health boards would not have the problems they have. The moment the Minister abolishes this, people who have not paid in the past will refuse to pay as they did under the rates system. In spite of the constitutional case which was heard about the rates, many people still owe money to county councils which could repair the county roads the Opposition are worried about. I would like to see the income levy abolished but people who have not paid it up to now should do so before we abolish it.
I should like to assure Senator Ferris that steps are being taken to ensure the collection of arrears of the levy. We are taking measures in that regard which I hope will improve the collection of arrears. When the levy was introduced I said it was to be a temporary levy. I took the opportunity last year to exempt from the levy the first £5,000 or £96 a week of income. That was a clear indication of the fact that I see it as a temporary measure. We have gone further this year and are now exempting the first £5,300, or £102 a week, from the effect of the levy. That is an advantage to a further group of taxpayers who will go out of the levy net. Members of the House would be justified in drawing from those moves the conclusion that we will continue along that line. It is our intention to phase it out as soon as resources permit. I regret that I am not in a position to say when resources will permit us to do that.
I move recommendation No. 11:
In page 16, between lines 15 and 16, to insert the following:
"(2) For the purposes of income levy, farmers shall receive similar treatment to other self-employed persons.".
The argument for this has been made over and over again. In an earlier contribution Senator Ferris outlined the arrears in relation to health, youth employment and income levies on the self-employed and, in particular, farmers. As most public representatives know, the main problem in relation particularly to those farmers who do not have accounts is the assessment of income. We have tried both at health board level and at local level to facilitate the self-employed and farmers in this regard. We are coming to a stage where this scheme can get off the ground once and for all. However, if a land tax is introduced, all the work and preparation to determine farm income for the purposes of health contributions and otherwise will be put at naught. I should like the Minister to indicate to the House in what way and by what means assessments will be made.
I am not sure of the point of the recommendation which suggests that for the purposes of income levy farmers shall receive similar treatment to other self-employed. In fact, they do. Income levy is similar to the youth employment levy in that the principal provision of the youth employment levy, and the regulations made in respect of that levy, were adopted, with appropriate variations, for the purposes of income levy.
The same definitions of income were applied to both levies. In particular, the term "reckonable income" as contained in regulation 6 for the two levies is applied to income levy as well as to the youth employment levy, and is defined as follows:
"For the purposes of the Act, `reckonable income' means, in relation to an individual, for a contribution year, the aggregate of the individual's income from all sources, other than—
(a) non-pecuniary income, and
(b) payments under the Social Welfare Acts, 1981 and 1982.
There is more to the definition than that. The statutory provisions in respect of income levy are the same for farmers as for other self-employed persons. I do not consider than an amendment to these provisions is called for.
Is the Minister prepared to answer any of the questions I put? They may not relate to the amendment but create problems for people, particularly for farmers. It is my view that farmers would need to employ an accountant to help them deal with this levy. If a new tax is introduced it will not help the matter.
I apologise to the Senator for overlooking the latter part of his question. I am gratified to find that he accepts that the farm tax will be brought into operation. On the question he has raised I cannot at this time give him an answer since we have not addressed the issue of how these levels would be calculated when that tax is brought into operation. That matter will, however, have to be addressed and dealt with at a later stage.
Of all the sections in the Bill I find section 12 the most objectionable. It runs completely counter to modern thinking with regard to the way in which non-secured, ordinary creditors are dealt with in the matter of the winding up of a company. This is an attempt by the Minister to mend the hand of the Revenue Commissioners in so far as it relates to the question of the possession by the Revenue Commissioners of arrears of tax as a preferential debt. That is a long established principle which is enshrined in the Companies Act and which it is proposed to amend in one minor fashion, but one which could have a very serious effect on the rights of ordinary creditors. To understand this is to understand that the present law is that the Revenue Commissioners are in power to treat one year's arrears of any tax as being preferential. As I understand the position, it is not necessarily confined to the last year, the year before trading ceased or the year before a receiver or liquidator was appointed. Any year can be picked by the Revenue Commissioners, and naturally, in pursuance of their obligation to their own Minister, they would pick the one most favourable to them.
In addition to that problem, the general view appears to be developing in the community that ordinary creditors are being abused by those who are seeking to have themselves preferred and secured in one fashion, and the major secure creditor is, of course, the State. In recent times because of the inability of people in financial difficulty, or their unwillingness, to pay tax when it is due, very often the State finds itself the most substantial creditor, but the logic of why the State should automatically give itself preference escapes me. Generally speaking the decision not to prosecute is a deliberate act of the State, taken in the best interests of the State as it perceives at that time. When the ordinary creditors, ignorant of the fact that a substantial amount of tax is owing, continued to trade with the company, it is then quite improper for the State to seek to prefer itself as a preferential creditor. This whole area was examined by a committee who reported on bankruptcy law and who made a very simple recommendation, namely to abolish the State preference.
I hope that when we come to consider that section of the bankruptcy legislation we will be able to change the law in that regard. In the meantime the law stands as it is, and the Minister proposes to reinforce further his hold over the money which is available for distribution. He proposes to enshrine in law something which was, to say the least of it, doubtful up to now. He proposes to give the State the right to preference not only with regard to the debt itself but also to accrued interest, and there is no limit as to how much interest could accrue. As I said at the outset, it is up to the State to pick, if it wants to, a year which was not the immediately proceeding year, but a year two or three years prior to the date of the liquidation. By picking a year which is sufficiently far away on which tax is still owing, the amount which the State prefers itself can be artifically increased under the amendment of the law which is proposed by the Minister. In other words, if a company goes into liquidation and owes PAYE for, say, 1982, 1983 and 1984, under this amendment, if it goes through, the Revenue Commissioners, on the Minister's behalf, would be authorised to pick year 1982, with interest accumulating at 1½ per cent per month since that date. That means effectively that the Minister is not only giving himself interest in respect of the previous 12 months, he is also allowing himself to pick and choose which 12 months so that he can maximise the amount of interest he can collect.
The whole principle of the State being preferred is wrong, but accepting for the moment that that is the law, I do not see why we should reinforce that law further by giving it further preference in respect of interest and then reinforce the law beyond that by continuing to allow them to select a year which, together with the new provision with regard to interest, can be put together to increase dramatically the amount of money which would be denied for distribution to the ordinary creditors. This is a most extraordinary provision. It is a most anti-business, anti-ordinary creditor provision. The Minister should look at it very carefully and change his mind in this regard.
Senator O'Leary is questioning the logic of why the State should have any preference at all. I am not introducing a new principle here, as the Senator knows. Tax due and outstanding to be paid is increased by interest charges under statute, and that has been the case for very many years for tax due as long as it is not paid. At any given moment interest due on unpaid taxes is collectable in the same way as the tax itself is collectable and becomes due debt to the Revenue. Therefore, at any moment in time the total amount which the Revenue Commissioners are entitled—indeed, obliged—to collect under statute is composed of whatever the original amount of unpaid tax was and any interest that has accumulated up to then, and both are due with the same urgency and on the same statutory foundation. I must confess that I am not entirely familiar with changes in bankruptcy legislation that may be in prospect, but I assure the House and Senator O'Leary that to the extent that changes proposed in the bankruptcy legislation impinge on the revenue I will examine them very closely at the appropriate moment and in the appropriate place.
Senator O'Leary points out that the 12 month period which the Revenue Commissioners may pick is not necessarily the 12 months immediately preceding the date of the event giving rise to what he was talking about, and of course, depending on the 12 months you choose, a great deal of interest can be rolled up into it. To go back to my original remarks, that is due and payable on the same date as the tax unpaid in that year was due and payable at the moment when this event arises. Therefore, there is nothing extraordinary, sinister or anti-business in picking that year.
Why is the State, the Revenue, given a preference in this regard? Simply because there are people who do not pay their taxes whether they accumulate interest on them or not and are using for their own purposes money which properly belongs to the State, to the taxpayer. It is a little disingenuous of Senator O'Leary to present what I am proposing here as a means by which the Minister— which is an inaccuracy if I may say so — or the Revenue Commissioners which is a more accurate way of expressing it, are collecting money in an anti-business way. The Revenue Commissioners are applying a statute to collect on behalf of the taxpayer, who is behind the Exchequer, money which that taxpayer should have had at his disposal through the public purse up to then. In this measure that I am proposing I am not increasing the State's preference for itself. I am putting beyond doubt the fact that the rolled up interest due on the outstanding tax is collectable on the same head, on the same statutory justification, as the tax itself.
For the rest of the argument we must go back to the question of the principle as to whether there should be a preference. In looking at that I rely on the argument that people who for whatever reason do not pay their tax are arrogating to themselves the use of money which properly belongs to the general public through the Exchequer.
The Minister is right in saying that if you as a company or as an individual—we will use a company as a good example—do not pay their taxes, they are using the State's money for their own purpose, but of course if they do not pay their creditors they are doing precisely the same thing. They are using the creditor's money. What happens when the company goes into receivership or liquidation? I am not disagreeing that the money is payable to the State. The point at issue is what preference the State should get over other ordinary creditors. It is not a question of me saying that the money is not due. I have no objection to the money or, indeed, the interest on the money being due. What I object to is the fact that the State gets preference, that in other words the State can so organise its affairs—I am not suggesting it always does it—as to not properly collect money that is due and in spite of the fact that it badly organises its affairs can subsequently claim preference over ordinary creditors. That probably should be discussed elsewhere, but the Minister is now proposing to extend that provision, because irrespective of what he says, he is introducing this only because there is a doubt. He is saying in the proposed section, "it shall be deemed always to have had the effect." It is the type of expression that is used where somebody does not want to concede that that was not the case previously, but there is a good logical and sensible argument for reading the companies legislation and tax legislation together at present to limit the amount of interest which is payable, and the Minister would not be introducing this section unless there was a good argument. Therefore, the Minister is changing the law as it stands now or is likely to be now.
I do not see why the Minister should be in a position to opt for money which might be outstanding for four or five years and claim as a preference the accumulated interest on that. I do not mind him claiming the interest on it, but he is claiming as a preference the accumulated interest, and the effect of this will be that he can pick any individual year and claim preference in respect of all the interest. The very least that the Minister should concede is that the preference should not extend beyond a 12 month period. It is quite unfair to the ordinary creditors who do not know in the present situation how much money a company which they are dealing with owes the Revenue Commissioners, or whether there is a deal between the company and the Revenue Commissioners. They do not know whether the Revenue Commissioners are doing their job efficiently, and if in the absence of that knowledge they enter into commitment with that company they can as a result of such commitment entered into in ignorance of arrangements which might have been made by the Revenue Commissioners, find themselves owed substantial sums of money.
With regard to the question of preserving the public purse, the Minister should be more critical of his advice in this regard. Every bad debt which the Minister creates reduces his tax revenue anyway. I know it is not 100 per cent tax revenue but a certain proportion is. If he takes money which would otherwise be distributed to traders he reduces those traders' profits. He is reducing his tax take, so the amount of money he gets is greater than he would otherwise get but it is not greater by the full amount. It would be greater than the average amount of tax which people pay. It might be the marginal amount of tax, which might be 35 to 40 per cent. Therefore, if the Minister was to abolish the whole question of preference he would not lose the full amount of money. He would put greater pressure on the Revenue Commissioners to do the job more efficiently, and he certainly would not lose anything like that even if they did not do the job more efficiently or if they did the job in the same manner in which they are doing it now irrespective of whether that is considered efficient or inefficient. He would not lose that full sum of money, he would lose only portion of it. In these circumstances will the Minister consider introducing an amendment at an early date to limit the amount of interest to which preference would be given to a 12 month period?
I am not sure what Senator O'Leary is suggesting when he says that he fears that the State can so organise its affairs as, first of all, not to collect money that is due and then give itself a preference in the event that something goes wrong. If he is suggesting that there is an element of deliberate non-collection of tax because there is a feeling that if the whole thing falls apart somewhere down the line the Revenue Commissioners can pick the year in respect of which they are going to make a collection of the tax and the interest, that is a rather extraordinary allegation.
I am not saying that so there is no point in speculating on it.
I am glad I misunderstood the Senator in that regard. As far as the rest is concerned, I simply have to repeat that tax that is due and payable and not paid attracts a charge of interest. That charge of interest, whatever the amount of it, once it becomes due is in the same category and on the same footing as the tax that was originally due and is, therefore, due on collection, at whatever point you collect it. That is the principle that I want to solidify by this measure. It was long accepted practice that the Revenue Commissioners' preference extended to interest on outstanding taxes. That is now being questioned in a number of cases, and the purpose of this provision is to remove that question, because the logic of the system is that the interest due on unpaid tax is part of the tax that falls to be collected. If there is a preference there as to the collection of that tax, then it seems to be perfectly logical and straightforward, and was accepted for quite a long time as being so, that that preference should extend to the interest on the tax due.
There is a difference between the situation of the Revenue Commissioners and a trade creditor. A trade creditor gives credit. It is a voluntary act on the part of that creditor. It is the taxpayer who withholds payment of tax. It is not a voluntary act on the part of the Revenue Commissioners. From that point of view alone the Revenue Commissioners are on a different footing from the trade creditors. I do not have the history of it here, but I suspect that that is at least part of the case for providing a preference for the Revenue Commissioners which goes back, as the Senator knows, to the nineteenth century if not longer than that. The other reason that I believe it is appropriate to give a preference to the Revenue Commissioners is, as I have said before now, that somebody who owes tax and interest thereon has decided to use for his own purposes moneys which should properly have been paid to the Exchequer, which properly belong to the collectivity as represented by the Exchequer.
Those two reasons indicate a perfectly good case for distinguishing between the Revenue Commissioners and a trade creditor. I accept what Senator O'Leary says to the extent that moneys paid to the Revenue Commissioners rather than to trade creditors reduce the amount of profits made by trade creditors and that therefore there is a potential loss of tax revenue to the Revenue Commissioners compared to what otherwise the revenue would have been had those people made the higher profits that they are not now going to make. However, I do not accept that this is a sufficient argument for changing this practice here, because once you accept the point that the tax and interest thereon were due and payable, that is money that should never have been paid to another creditor anyway. That would not be a relevant consideration in my mind for changing the practice or for not taking the measure that I am proposing in the Bill.
The Minister speculates as to why the thing was done originally. It was done for local rates away back in the bankruptcy legislation before income tax was even heard of. PAYE has preference because income tax had preference and it all came back to what the position was in income tax. Income tax had preference simply because the people to whom the tax was payable are the people who are making the rules. The Revenue Commissioners together with the Minister are making the rules. If you have the power to make the rules you will obviously make the rules in a way which suits yourself. There is no mystical reason about it, there is no magical reason that they are different from any other creditors. It is just that they are in a position to make the rules. I am quite sure that if the ordinary creditors were in a position to make the rules they would make the rules that they should have preference and that the Minister or the Revenue Commissioners should get nothing. That is a fact of life.
I am trying here to expand it from the isolationism of the Revenue Commissioners to the common good. The common good as far as I am concerned always appeared to have been—and still appears to be—that there should be equality of treatment between the Revenue Commissioners and the ordinary creditor. I stand by that. Irrespective of that argument, which we can continue elsewhere, the proposal by the Minister is a mistaken one which militates against this mystical business climate in which our friends on the Opposition benches are very interested and have made constant references to, this business confidence which forms such an essential part of their ethos. On this occasion it is a matter in which business confidence can be boosted.
The Minister will of course be aware of the recommendations of the Cork Committee in the United Kingdom in this regard, which are similar to what I am saying now. It is significant enough that the Treasury in the United Kingdom are adopting the same attitude as the Revenue Commissioners here. They are making the rules and the rules will be drafted in such a way to protect them first and to leave the ordinary creditors very far down.
Senator O'Leary, contrary to his normal practice, is at the moment doing the Revenue Commissioners a little too much honour. The Revenue Commissioners do not make the rules, the legislators make the rules. We in this House and the other House are the ones who make the rules.
Not really.
Nevertheless I stick to that point, it is the legislators who make the rules which is why Senator O'Leary and I are having this very diverting discussion.
That is a facade.
That is not a facade at all. Senator O'Leary's energy in both interrupting and arguing indicates very clearly that he and other Members of this House take the legislator's role very very seriously. I congratulate Senator O'Leary on that, and it is not the first time that I have said that to him. There is a difference between the situation of the Revenue Commissioners and that of the ordinary creditor, and the rules are being made in this instance by people who are having regard to the public good. The Senator knows as well as I do some of the criticisms that are made of the Revenue Commissioners when arrears of tax with or without interest arise. The Senator also knows perfectly well that some of the people outside this House, who perhaps have more ethos than some of the people inside to whom I think the Senator also does too much honour, when they are talking about arrears of tax arising take the view that if anything there is a too relaxed attitude to the collection of taxes instantly when they are due. Having said all of that, I do not think that anything Senator O'Leary has said attacks the basic identity that exists between tax unpaid and outstanding and the interest that has accrued on that tax since the day it was outstanding. By statute that interest is treated in the same way as the tax due and should, therefore, be collected in the same way as that tax, and to the extent that there is a preference for the collection of that tax that interest must be included in the preference.
So that the Minister will get our relative roles correctly, let me say that I am sure, knowing the Minister to be such a dominant man in his Department, no doubt he has a decisive role in the drafting of the legislation. I am not, however, subject to any illusion that the purpose of our exercise here today is to seek to influence those who are making the rules. We are not making the rules, we are making representations to those who are making the rules.
I must defend the Minister on this, and I am loath to get into this argument, because I am enjoying it immensely.
You could get crushed.
I could get crushed all right. Yesterday evening Senator O'Leary referred to tax evaders as the second most popular sporting organisation after the GAA. I would like to suggest that the people who refuse to pay their taxes are probably the third most popular sporting organisation in this country, and it is time to come to grips with them. The PAYE sector will not tolerate them any longer. If people owe money let them pay and then no interest will be due on it. Whenever they pay it only the interest that has accrued up to then will be due. I am sure the State will take no action on people who pay their debts.
I welcome the venture capital scheme, the subject of section 13. I think it is a good idea and I think that everything possible must be done to facilitate its operation. However, not enough is being done to encourage the small saver to invest in equity and thereby to facilitate the small company in acquiring equity to replace borrowings. Investors in unquoted securities should be eligible for tax relief on their investment on providing documentary evidence that they have invested in a bona fide designated fund which is recognised under the Act. The granting of tax relief on investment in a designated fund is very important, because otherwise small investors will have to wait until a designated fund invests in a qualifying company. The small investor may just not be able to finance the waiting period and, therefore, might be unable or unwilling to make the investment. I put it to the Minister that in order to encourage investment by the small saver the procedures for the granting of tax allowances should be such that the allowances are given to the taxpayer by the issue of an amended certificate of tax free allowances as soon as possible after the documentary evidence of the designated fund has been produced to the inspector of taxes. There is nothing radical about this proposal. It already applies in the case of mortgage relief and, furthermore, it is the same type of relief as applies in respect of life assurance policies where small savers throughout the country invest, say,' £20 per month which is then invested in a managed property fund, for example. In the case of life assurance policies the tax free allowances are issued immediately the policies are taken out, thus adding to the attraction of that type of policy and investment.
On section 13 and the points raised by Senator Hillery, the Minister is to be congratulated on the flexible approach which he has adopted to the question of the relief for investments in certain corporate trades. His general approach has been quite constructive and helpful. I notice that through amendments introduced in the other House he has expanded greatly the categories to which these will in practice apply and he should be congratulated in that regard.
In am not in favour of what Senator Hillery said. His proposal takes the element of immediacy out of the question of the designated funds investing in something. It would just become a place where everybody with substantial amounts of money dumps £25,000 every year and gets £25,000 allowance. It is true that you could recoup the allowances if they had been granted to a designated fund that subsequently did not perform, but the mechanism of doing that would be very difficult and subject to much dispute. You would have the argument that the man who in good faith put £25,000 into a designated fund which did not perform in the requisite number of years would subsequently lose his tax free allowance and find himself in a very difficult situation through no action on his own part. For that reason the change suggested by Senator Hillery is not one which I support.
I do not know whether we should be terribly concerned about designated funds as such or whether we should encourage people to put £25,000 directly into firms. I know there is a shortage of suitable investments, but that is the kind of investment that I would like to see rather than the building up of massive designated funds which will create problems of administration of their own.
In one aspect I was a little disappointed. I had intended to put an amendment but an administrative problem arose which was my fault, not the fault of the officials of the House, and the amendment did not reach the Order Paper. I would like the Minister to consider with regard to these corporate trades and this section whether he should look again at the question of not allowing people to sell their shares for a specific period of time. What difference does it make if they sell their shares? The Minister might say that it would make a difference because they had the benefit of the allowance. If that is the case, well and good, the amount of money they are going to get for their shares would reflect the fact that they have got the allowance. The new person should not get any allowance. Give them the authority to sell their shares and repeal section 17 of the Finance Act, 1984 which in effect would bring about that situation. Let people sell their shares the next day if they want to. They will not find a ready market for their shares the next day, or if they do a £25,000 investment will be worth only £10,000, £11,000, or £12,000 because of the risk involved. Why restrict them at all? Why not just say, "If you can find somebody who is foolish enough to buy it at full value, well and good. The person who is going to buy it at full value from you is going to get no allowance"? The Minister should think of it from that point of view and just allow people to sell when they want to. They are not going to make bonanzas, because people are not going to buy. Some anti-avoidance work may need to be done on it, but the Minister should adopt a much more flexible approach to the question of selling these investments. Why should a person who can get £25,000 by investing in a firm and having it allowed against his income wait until somebody else has made the £25,000 investment and then pay the full £25,000 for that investment? That is not going to happen. The Minister would be losing nothing if he was to allow that change. In general the Minister's approach towards this whole scheme is to be commended.
Senator Hillery suggested that the tax relief provided for in this scheme should be given once moneys are invested in a designated fund and once the investor produces evidence to the effect that the money has been put into the designated fund. I do not agree with that proposal. The intention of the relief is to channel money into firms that are going to use it for the purposes set out under the 1984 Act and the idea is to get the capital into the firms. If we were to give the relief once the money was put into a designated fund, as Senator O'Leary quite rightly pointed out, it would take the pressure off the funds to find suitable qualifying investments. The last thing I want to do is to have a scheme of tax relief that simply facilitates people putting money into designated funds, which is then put on deposit or into various other strictly financial money making ventures and produces no benefit for the wealth producing sector of the economy. For that reason, I would not for a moment contemplate giving the relief at that point.
Senator O'Leary is not keen on designated funds, if I took his suggestion entirely correctly. I think that is probably a little too harsh in the sense that our experience with designated funds so far has been that they are fairly energetic in having the funds invested and will continue to be energetic about having them invested for as long as they know that the persons who have provided the funds through that channel will not get the relief until the money goes into the qualifying trades.
Senator O'Leary also asked me to reconsider the ban on the selling of shares or, more strictly, to reconsider the situation in relation to the sale of shares. Under the provisions of the 1984 Act the sale of shares in a qualifying company in respect of investments which have qualified for relief under the scheme is regarded as being an event which takes away the relief if it is done within the prescribed period in the legislation. The idea is to lock those investment funds into companies that are in a high risk situation for long enough to allow the company to get off the ground and begin to make money. I cannot see that— Senator O'Leary himself said this— there would necessarily be a market for shares of this kind, so that in that circumstance it is right to give preference— I use that word with trepidation when speaking to Senator O'Leary—to the anti-avoidance or anti-evasion element which is in that rather than to the policy aspect.
The final point I would make—Senator Hillery mentioned this in the early part of his remarks—is in relation to the sale of shares in companies on the unlisted securities market. As I pointed out last year when introducing this measure, there is a certain link between the terms of the measure in the 1984 Act and the situation in relation to the unlisted securities market, in that a firm has to be in business for at least three years before it is allowed access to the unlisted securities market. If, on the other hand, Senator Hillery's intention is that the relief should be available to people investing in a company that is already quoted on the unlisted securities market, then I would have to disagree with that straightaway because if a company is quoted there it has that channel for raising funds. The main part of my intention was to provide relief for investment in companies that, of their nature or because of the kind of business they are in, do not have access to equity funds through any other channel. Senator Hillery knows, probably better than I do, that one of the weaknesses in many Irish industries, is that it is far too reliant on borrowed funds and has too little access to equity. If a company has access to equity through the normal stock market or through the unlisted securities market, that is where it should go for its money, We are aiming, through this provision now being modified in today's Bill, to give access to equity to companies who do not have those channels to raise funds.
As I said in my earlier contribution my primary concern is that, where at all possible, the small saver should be facilitated if he wishes to re-invest in equity, and in particular to invest in equity in the small company which too often is dependent on borrowing as opposed to having an adequate equity base. I recognise that safeguards are necessary; I recognise the Minister's concern regarding the delay that might occur of investment in productive activity if there was not adequate pressure to select suitable projects quickly by the designated fund.
I have a suggestion to make in that regard. In order to guard against that type of abuse, designated funds should be required to invest moneys placed with them in qualifying companies within a specified limited period of time and should be required to place any uninvested funds in interest-free deposits with the Central Bank. These are suggestions in terms of coping with the Minister's concern. As a further safeguard, the Revenue Commissioners, with the agreement of the Department of Industry, Trade, Commerce and Tourism, might be given power to withdraw a licence for designation if they considered that a designated fund is not being operated in a bona fide manner. I recognise fully that safeguards must be built into the legislation and I am putting forward a few concrete suggestions that might facilitate that.
I am very concerned about the private sector. I was born and reared in a west Clare town where even approaching a bank was regarded by many as a somewhat remote, strange type of institution. I eagerly support the venture capital scheme. I am merely trying to make suggestions to facilitate the small saver in respect of tax free allowances. Many small savers pay their £20 a month to an insurance company and that finds its way into property development and so on. They do get the tax-free allowance immediately in the case of life policies. I would like to see the same practice transferred to this scheme if at all possible.
I recognise the Senator's concern. He made two specific suggestions, first, that we should oblige the designated funds, in the situation which he recommends—which is that the tax relief should apply immediately the money was put into the fund—to invest within a specified time limit and, to the extent that they have uninvested funds, to put them on interest-free deposit with the Central Bank. As far as the first point is concerned, the present measure does that more efficiently than the way Senator Hillery is providing. If I, as an investor put my money into the fund and want to get tax relief at the earliest possible moment, the fund has to be able to show that my money has been invested in a qualifying trade and so there is pressure on the fund by that very fact to get the investment made as quickly as it can; otherwise it is going to have a number of dissatisfied customers who have to wait until the next succeeding tax year to get their relief and the fund therefore will not get repeat business.
It would be downright contrary to the interests of investors if, having secured that pressure on the designated funds, we would say to them that uninvested funds must be put on interest-free deposit with the Central Bank. That seems to me to be a measure that would discriminate against the investor for as long as the fund is assembling enough money to put into a qualifying investment. I cannot see any reason why we should give the Central Bank or the Exchequer the benefit of interest-free use of that money when people could be making a commercial return on it. I do not see a good reason for doing that and I do not see that it would help the scheme.
I think the latter point suggested by Senator Hillery is worth looking at, the idea of getting some way of collecting the money but forcing its investment in a no-or low-coupon concern which will mean that the incentive will remain with the investment fund to invest the money. I commend that to the Minister.
I want to return to the point which the Minister made with regard to the sale of the investments or the security or shares purchased and about to be invested. I did read with some interest the discussion which took place in the other House with regard to this matter. It appeared to me that for most of the discussion both sides were suffering under a misapprehension. The Minister was the one to pick up the falseness of the argument which was developed in the other House. He has alluded to it here but has been careful enough not to depend totally on it. The sale of shares in a company does not lose the investment to the company. The money stays in the company. The suggestion in the other House was that if you sold the shares this in some way reduces the investment in the company. If I were to invest in AB Limited, and if I wanted to sell my shares later on whether for a penny, a pound or £500,000 — the amount of money being irrelevant — it does not affect the company itself. The question of wishing to keep the money in the company is very fair. I agree with the Minister on that. It is equity or it is not equity. That is very fair and proper. I am not in favour of redeemed or preference shares or anything like that in the short term, but why the owner of the shares could not transfer them to another party at a market price is something that I do not fully understand. As I already explained the market price will project the fact that it is a risky venture. I would say that the marketability of the shares would not affect either the incentive to the company itself nor would it affect the Exchequer in any way.
I would ask the Minister if in view of the developing nature of this scheme he would give the matter some consideration before the next Finance Bill, which I hope he will be introducing this time next year.
I can assure Senators that I have every intention of introducing the next Finance Bill. On the sale of the shares, I would certainly consider the matter again. I would be worried about a kind of carousel developing. If you have a relief for the high marginal rate taxpayer of 60 per cent, on £25,000, if my sums are right that would be about £15,000 worth of relief in a year. If we had a lot of shares coming by, it seems to me that we could produce the situation where people will buy shares in a qualifying company, get the 60 per cent relief and take a loss on the sale of the shares and start off all over again. The total amount of capital becoming available would not necessarily be improved by that. To my mind, if there are investors around who are willing to buy shares in the kind of companies that I have in mind, the situation I would like to see would be that all of that would be an increment to the amount of capital that is available to those companies.
There are people who are natural entrepreneurs and investors. If you have two people, one investing the money and the other buying the investment from the person who is originally making them, it may be that they are different kinds of people. One is the person who takes up another person's good idea. That does not mean to suggest that the purchaser of the shares is available for direct investment. He may not have the expertise for direct investment. I do not see anything wrong with the original investor selling his investment to a third party and going back in again. You then have a situation where you have two companies getting an investment rather than one and it is accelerating the process which the Minister is trying to encourage. In the light of that, I would like the Minister to have a look at this.
Could the Minister explain what subsection (b) (ii) means?
That is to cover the case where somebody carrying on the business concerned in this country buys a share in a stallion which is ordinarily kept outside the State in order to secure for mares within the State access to particular blood lines which it is thought desirable to import into our stock.
Does that mean that any person carrying on the business of a bloodstock owner in this State can get tax-free income as a result of investments in respect of income which derives totally abroad? In other words, if I am in the business of owning a stallion—I understand the first part of it; my own stallion is ordinarily kept in the State—any profit I make on that is tax-free. I understand that and I agree with the concept. As I understand the next portion of it, if I as a part-owner of a stallion which is resident in the United Kingdom make a profit on that, is that profit tax-free irrespective of whether that stallion is ever used to service a mare which I have in my possession?
No, because if the Senator will read the particular provision he will note that it says:
... and it is shown to the satisfaction of the inspector or, on appeal, to the satisfaction of the Appeal Commissioners, that the part-ownership of the stallion was acquired and is held primarily for the purpose of service by the stallion of mares owned or partly-owned by the part-owner of the stallion in the course of that trade....
That is to ensure that where we want to get particular bloodlines imported into our stock and they are available only by having access to stallions that are kept outside the State and a share in that stallion outside the State is purchased, the relief will be available there.
The effect of this section is to restrict the relief to that case and those dealt with previously. Up to now it had been the case that you can own a stallion which never came near the country for any purpose whatever and never serviced any mares that had anything to do with Ireland and still get the relief.
I appreciate that and I support the Minister's amendment of the Finance Act, 1969, in that regard. It is right that that should be the case. It appears that the second portion of it, which I now understand to mean what I previously thought it meant, is very, wide. There is not much statutory relationship between the use to which the stallion of the part-owner is put and the profit earned in respect of that part-ownership. I know the word "primarily" is there but it appears to be wide open for extending the tax-free status of the owner of the stallion on a worldwide basis thus recreating the conditions which the Minister is trying to close by the amendment to the 1969 Finance Act.
That is not quite the case. The particular case we are talking about, the part-ownership of the stallion which is located outside the State, has to be acquired and held primarily for the purpose of the service by the stallion of mares owned or partly-owned by the part-owner of the stallion in the course of that trade, that is the trade which he carries on in the State. Unless they are mares that are owned in the course of a trade carried on in this State, that is mares into which we want to bring a particular bloodline, you would not get the benefit of the exemption of income from the stallion fees arising from the part-ownership.
Could I ask the Minister is the 3 per cent which was designated last year continued by the operation and by the enactment of section 18? Has that the effect of continuing the 3 per cent?
Yes.
On Second Stage the Minister said that increasing the capital allowance on cars from £3,500 to £7,000 would cost £24 million and that gap is so great at present because previous Governments did not do anything about adjusting the capital allowances as prices were going up. I know the gap is too great now; I know he is not going to provide £24 million, if he goes from £3,500 to £7,000, but if you take one-third of £3,500 then you would be going up to £5,000 and in that way it would cost the State only £8 million. It would not even cost £8 million because there is one-quarter of the tax year gone already. By doing that, it would be a step in the right direction. It would show that the Minister was concerned about ensuring that this would not be the case from now on, that the gap could be closed without costing the State too much. The longer it is left unchanged the worse it is going to be. I suggest that the Minister increase that allowance to £5,000 and then he has to find only £8 million or less. That represents 1½ pence per packet of cigarettes because I understand that one penny on cigarettes yields £5 million. There may be a drop in the sale of cigarettes but that would save our health services. I find it hard to understand why otherwise intelligent people inject poison into their systems. I did it for a good many years but then I changed my ways. Could the Minister reply to that please?
I would like to support Senator Daly in so far as this portion of his submission is concerned. The Minister is losing an opportunity in not increasing somewhat capital allowances in respect of motor vehicles. I appreciate that the situation has got out of line. I know we have the Minister's goodwill in this: he has stated it on a number of occasions. We have the situation now where companies who make a loss on trading, when the add-backs are taken into account of the disallowed expenditure under one form or another — these various anomalies relating to motor vehicles — that very often you have a marginal company losing a little money on its profit and loss account which ends up paying corporation tax because of the disallowing of reasonable depreciation on its motor vehicles, on the one hand and, on the other hand, various other restrictions with regard to the expenses allowable in respect of motor vehicles. The second point does not arise on this section.
The Minister could also take into account the possibility of leaving the VAT on motor cars at the same rate as it is at present. Would the Minister consider the effect on the buoyancy of revenue of increased car sales, the amount of extra VAT and excise duty he would get as a result of an increased number of purchases by companies, by trading units, because of the better capital allowances? In addition to the increased number, there would be the going up-market in response to a more generous allowance structure. Would the Minister consider examining the cost of doing that, as suggested by Senator Daly? Would he examine the possible buoyancy in revenue as a result of the increased activity in the motor trade? That would give him a more accurate picture of the real cost to the Exchequer of making some concession along these lines.
The question here in the short term resolves itself into what the cost would be of making the kind of change that is being proposed. Broadly speaking, Senator Daly is probably right when he says that going to £5,000 would cost approximately £8 million. That would be the revenue foregone from the effect of the measure. I could not hazard a guess as to what the effect of revenue buoyancy might be of extra purchases of cars by companies. I suspect it would not be very great, particularly if the situation to which Senator O'Leary referred is a fairly common one, as I understand it to be among small companies particularly. I doubt if there would be any effect from people going up-market in terms of the kind of cars they buy. They are concerned not only with the level of the capital allowance but also with the running costs of the cars. While I would take the point that, in principle, there would be some effect on the buoyancy of revenue I doubt that if it would be big enough to make a substantial difference to the figure of £8 million.
Senator Daly suggested that if I was to move now it would cost less than £8 million because a portion of the year is already gone. I doubt if that would be a consideration because if we are to avoid excessive complications we would have to make a change in relief that would be available for the tax year. We would be talking about £8 million for this year which I could not find in the budgetary arithmetic.
I understood Senator Daly to suggest that we could find the revenue for it by imposing tax elsewhere. I can assure the House that to the extent that we have either imposed taxes elsewhere or increased taxes elsewhere this year or to the extent that we have decided, as we did in a number of cases, not to put any extra taxation on this year and this year's budget makes a smaller addition to the cost of living than any for years past. We have taken account as far as we can of the effects on consumption of those products and on revenue of those decisions. I do not have any particular margins for doing anything different at this point. I would have to go back to what I said yesterday on Second Stage in replying to Senator Daly by saying that while I recognise the strength of the case he is making I equally recognise that there are other more important calls on tax revenue and that I do not have the leeway this year to make the move that he proposes.
I hope you will not think it is out of order if I point out that none of this has anything to do with section 20.
Senator Daly and I were giving consideration to putting in a Report Stage amendment in section 20 which would cover that.
It would not be appropriate.
I should like to draw the attention of the House to the provisions of section 23 and how they affect the actual method by which corporation tax is assessed and operated on the ground. The effect of the various transition provisions in section 23 is that over a period time corporation tax is going to become payable six months after the end of an accounting period. I understand and agree with the transition arrangements. They are in order and meet the problem.
However, it is unrealistic to ask for the assessment of tax and the payment of tax within six months of the end of a tax year. The period has been tightened up to a stage where it will be impossible for a person to pay the right amount of tax on the right date. There are ways around it. There will be assessments issued, as there are assessments issued in respect of every limited liability company in the country. These assessments will be appealed or not appealed, but what we are doing by bringing the payment date so near the account date is that we are encouraging people to go into the appeal system.
One of the problems that has arisen with regard to the operation of the corporation tax system is that too many people are using the appeals system. If you make the payment date too close to the end of the year you are forcing them into the appeals procedure. Instead of the appeals procedure being used as a way of appealing against an assessment which is inaccurate or an assessment with which there is a disagreement with the inspector it will become part of the administrative process. In order to pay taxes at the end of the six months everybody will have to get an assessment within four months of the end of their tax year, at which stage the vast majority of bigger companies and medium sized companies will not be in a position to say what tax they should pay in respect of that year. They will automatically appeal their assessment. There is no question of them getting their accounts in and getting it agreed, so every company in the State is going to be involved in the appeals system. Some of them might be assessed too little and they will not appeal but later on they will catch up. Others will be affected too much and they will appeal. Once the appeals system has come into operation the tendency is for everybody to leave the settlement of it for a considerable length of time.
It is unrealistic to be looking at a situation where tax becomes due at the end of six months. I have no particular objection to the tax being due at the end of six months from the point of view of the tightening of the cash flow of the company, even though that is a very important point. The Minister by tightening up this has reduced the cash flow available to companies and has put great strain on the cash flow available to companies. My objection is that it now institutionalises the question of appeals. As a result of that instead of devising a system which would make appeals the exception we are devising a system which is going to make appeals the norm. That is not good for the tax collection system in general.
I should point out to the Senator that under the present system the fact that instalments of tax are payable in any case six months after the end of the accounting period, there is a very wide variation in the times at which taxes are payable. That can run from a very short time after the date of the first instalment to nine months or 15 months after the date of the first instalment. There is a case, recognised in two White Papers in the early seventies, for bringing this up to date. I should point out to the Senator also that in the event that an assessment is delayed there is a provision under the existing law for the payment of corporation tax at a later date than the normal date, that is within two months of the making of the assessment and, that provision would continue in force.
In this section the Minister is changing from horse power to cubic centimetres. I should like to know the reason why this is being done. The reason suggested is that it is for the EC and to have it the same as in other countries, but long before we heard of the EC when cars originally were insured they were insured on a horse power basis. The basis of calculation was 125 cc for each horse power. The insurance companies changed that for their own benefit and made it 100 cc for a horse power. This meant that people were paying for, say, a 14 horse power when they should have been paying for a 12 horse power. The companies did this for the purpose of increasing their premiums. I hope the Minister has not got the same idea. I hope that at a later date he will not decide that a horse power is 100 cc or the equivalent. In other words, I hope the road tax on vehicles will not be increased by the change over to this system.
I can assure Senator Daly that that is not the intention of this measure. We are obliged to make this change by virtue of EC regulations. The abolition of horse power as a unit of measurement is provided for by an EC directive of 1976 and another of 1979. We have already abolished the general use of horse power under the European Community's Units of Measurement Regulations, 1983. This is the last place where we use it. The substitution of cubic centimetres for horse power in the base of tax does not affect the level of tax on any vehicle. I absolutely assure Senator Daly of that. No vehicle will bear a different tax charge as a result of this change. Once the change is made it does not matter what my views would be on the equivalence between horse power and cubic centimetres because cubic centimetres will be the base of the charge after that. I can assure Senator Daly that if there is to be any increase in the future in the rate of taxation it will be proposed in an open and above board way on the basis of rate per 1,000 cubic centimetres and not disguised in any way by monkeying around with the relationship between cubic centimetres and horse power.
The Minister in his speech on Second Stage pointed out that he had reduced the excise duty from 25 per cent to 10 per cent. We were grateful for this and took it as a gesture by the Minister to compensate for the increase from 5 per cent in VAT. However, in order that motor traders would not suffer a heavy loss with with their stock of parts they asked for a phasing out of this duty. It will take 12 months before this will take full effect. I would ask the Minister to phase out the whole 25 per cent over the 12 months. In other words, get rid of the duty. The main reason I asked the Minister to do that is because of the price of parts in the North of Ireland, the UK and the Continent. If the excise duty was abolished it would not be so appealing to smuggle or import parts. There are people who can now import parts legally from the UK, the North of Ireland or any other country to the extent of roughly £200 or not more than £55 for any one part. It would help the motor trade as well as the State revenue in so far as the tendency to bring in parts illegally would not be so appealing. Therefore, in view of the fact that the Minister is prepared to give 15 per cent immediately which at our request, is being phased out would he not phase out the whole 25 per cent?
There are three phases in this operation, and the reduction in the excise duty is being brought about in those three stages. There is a reduction to 20 per cent from 1 June, 15 per cent from 1 October and 10 per cent from 1 February next year. That phasing is one which I discussed with the motor trade. Indeed, it was requested by the trade to avoid a situation where traders would find it difficult to dispose of the stocks which had borne the higher rate of duty. If the phasing were to be done in bigger amounts at those stages we would then recreate the problem for the trade with the potential difficulty of having stocks of parts on hands which had borne the higher rate of duty.
However, the more rapid phasing out which Senator Daly suggests would have additional revenue effects during the course of this year which I would find difficult to incorporate within the budgetary parameters we have now. I could not off hand indicate what the changes would be. The cost of total abolition would be about an extra £3 million over and above the cost which is associated with the present three phase operation. The most practical suggestion I could make to Senator Daly would be that in the context of drawing up the 1986 budget I will look again at the rate of 10 per cent that is to apply from 1 Febuary next year and consider whether we might not reduce that rate. Senator Daly wants me to reduce it all to zero, but I will have a look at the rate that will from 1 February 1986 and see to what extent we might have leeway to go some distance towards his concern on that point.
I cannot understand the Minister's reasoning on this. Perhaps I am a bit thick by nature. The Minister in his budget reduced the tax from 25 per cent to 10 per cent, which is 15 per cent. At that stage the Minister was quite happy to give the benefit from whatever date the Finance Bill was passed or earlier if he could do it. We requested that he change that and to phase it. We did that to avoid people suffering substantial losses in stocks. The full effect of the 15 per cent reduction will not be felt until next February. So really that £3 million was provided for already by the fact that he had reduced from 25 per cent to 10 per cent. If we had taken up the Minister's suggestion, as we would perhaps have done if we had low stocks then the 15 per cent would go at once. There would be no phasing. Perhaps the Minister would look at that and discover that I am right?
I move recommendation No. 12:
In page 38, line 20, after word "of" to insert ", under the control directly or indirectly of such person".
This is an attempt to help the Minister to redefine the powers of entry and search for documents arising out of section 26 of the Finance Act, 1926. The Minister proposes to insert an additional clause to the table which is set out in that Act. To understand my amendment I must briefly say what the Minister is proposing. The Minister is proposing that any officer of customs and excise may at any time enter any premises in which the business of bookmaking is or is believed by such officer to be carried on and may search for, inspect, and take copies of or extracts from any books, accounts, letters and other documents there found relating or believed by such officer to relate to the said business of bookmaking and may further require any person found in such premises to produce all documents in such premises, whether or not in the possession of such person, relating or believed by such officer to relate to the said business. In other words you are imposing a statutory obligation on a person to produce documents whether or not he is in possession of those documents. That is a very substantial amendment. It is imposing an obligation which in all the circumstances the Minister feels is necessary to enable the officers to carry out the duty of inspection which is a necessary part of their function. It appears to me to go a little too far, because it imposes an obligation to produce all documents whether or not in the possession of such person. I seek to restrict that by the insertion of "under the control directly or indirectly of such person". There are two different concepts. One is documents which are in a person's possession. The other is documents which are directly or indirectly under a person's control. One could imagine the situation where a person would not have possession of documents, they would be on the premises but they might not be within his control. The Minister's suggestion is that that person would be under an obligation, even though the documents were not within his control, directly or indirectly, to produce them. I understand what the Minister is getting at and I agree with it, but it should be limited to situations where, even though the documents may or may not be in the possession of the person, you should not impose an obligation on somebody to produce documents which are not in his possession unless he has some control over such documents. That is the purpose of my recommendation in this regard.
Since the 1926 Finance Act was enacted a general power has been conferred on officers of customs and excise by section 26 (1) to require any person found on premises where bookmaking is being carried on to produce to the officer all documents in such premises relating to the business of bookmaking. It would be unreasonable for a person to be required to produce documents which it was not in his capacity to produce. That section of the Act has never been interpreted in that way in practice. The only persons who are normally required by officers of customs and excise to produce documents are the bookmaker himself or a person who is an employee operating the business on the bookmaker's behalf. There is also an important safeguard for the individual contained in subsection (2) of the 1926 Act which reads:
Every person who resists, obstructs, or impedes an officer of customs and excise in the exercise of any right or power conferred on such officer by this section, or refused without lawful and sufficient excuse to produce any document which he is required by such officer under this section to produce shall be guilty of an offence under this section and shall be liable on summary conviction thereof to an excise penalty of fifty pounds.
That produces a situation where, if a person is required to produce a document under section 26 (1), he would be liable to no legal sanction if he has a lawful or sufficient excuse for not producing the document. For that reason alone the recommendation by Senator O'Leary is not necessary. If it were inserted it could create a further loophole. For example, it could suggest to or encourage bookmakers' assistants to refuse to produce documents on the grounds that the documents were not under their particular control. The officer of customs and excise would then be placed in the position where he would have to prove that the documents were under a particular persons control as a precondition to requiring the person to produce the documents. That is something which an officer of customs and excise would not be able to do, because he would be speculating in an area which had nothing to do with him. Our position would be, given the provision of subsection (2) of the original section of the Act, which provides a protection for the individual, Senator O'Leary's recommendation is unnecessary and could further complicate the application of the law in cases like this.
I do not understand section 39. In section 39 — it may be a terminology that I have not tuned into — it appears that what we are talking about is the collection from the individual of a fine or penalty which has already been imposed. The explanatory memorandum refers quite clearly to:
...the time limits within which proceedings in excise cases may be instituted in the District Court and provides that condemnation proceedings in excise cases may be taken in that Court.
Would the Minister explain whether it is the original case that is at issue here or is it only the collection of the fine or penalty that has already been imposed?
The original case.
Right. I do not agree with the extension to three years of the ability to commence proceedings in the District Court. The original, inherent and basic law for the institution of proceedings in the District Court is six months. Over the years since I came into the Oireachtas that has been extended on a case-by-case basis to 12 months. It is something that I object very strongly to, because I think there must be finality as far as the District Court is concerned. You can have a situation where people can be accused of small minor crimes many years after they allegedly happened. It is, of course, always open to the State in cases of indictment that a person can be indicted on an offence. There is no limit on indictment. In respect of the ordinary offences, if you park on a double yellow line you should know that after a certain period of time that case is dead. I think the same applies to all District Court proceedings. In this case for the first time that has come to my attention — although there may be other cases and it may already refer to duty cases — specifically we are proposing that a case should be kept alive in the District Court for three years. That is what it says.
(a) in case such fine or penalty relates to an offence connected with any of the duties imposed by paragraphs 4 and 5 of the Imposition of Duties (No. 236) (Excise Duties on Motor Vehicles, Televisions and Gramophone Records) Order, 1979 (S.I. No. 57 of 1979), within three years from the date of the commission of the offence,
Is that not what we are proposing?
In those cases, yes.
In those cases, yes, so in other words what we are suggesting is that for a certain category of offences the possibility of proceedings would remain alive in the District Court for three years. Now that lacks the degree of finality which I think is an essential part of the courts' summary jurisdiction. Their backlog must be cleared and they must get their job done. There must be a relationship between the commission of the offence and the actual conviction or acquittal. There must be as near a relationship as possible. I do not agree — unless the Minister might indicate that there is a very good reason for this — without explanation that three years for the prosecution of any offence in the District Court should be agreed to. Anything I say should not be taken as agreeing that paragraph B is in itself proper either. I do not think that we should extend that to 12 months, but certainly the one in respect of three years represents, as far as I am concerned, a new departure. There may be other cases but as far as I am concerned it is a new departure.
I am afraid that Senator O'Leary has read more into the provision than is actually in it.
I said I did not understand it.
As the Senator said that is always a reason for asking a question and also for not drawing conclusions before he could be answered. The section increases from six months to one year the time limit within which proceedings may be brought in the District Court for certain excise offences. It restates the provision under which the condemnation proceedings in excise cases will be instituted in the District Court.
Section 3 of the Excise Act of 1848 fixed a general time limit of six months within which proceedings for excise offences may be taken in the District Court.
That limit was increased to three years in respect of motor vehicles, televisions and gramophone records by virtue of the 1979 order which imposed the present excise duties on those goods and which was mentioned in subsection 1(a), but the three years applies only to those for particular reasons which were judged at the time and are still judged to be appropriate.
What I am doing now is extending the six-month limit that applies to, for example, illegal use of red diesel, evasion of betting duties, trading without an excise licence and so on. I am extending that to one year, because a number of difficulties have arisen in getting proceedings into the District Court. That is all being done subject to preserving the present three year limit for the three categories of goods that are mentioned in the 1979 order to which I have referred, where I am not making any change in the provision.
Section 3 of the Excise Act of 1848 provided for the institution of condemnation proceedings in excise cases in the District Court. That is being repealed by the present section of the Bill, so that in order to keep those proceedings I am restating the provision in relation to condemnation proceedings but without the six-month time limit which in these cases I judge to be unnecessarily restrictive.
I understand what the Minister says with regard to the three years. I was not here in 1979 but I do not agree. I think it is wrong. I do not think anything should be allowed over three years in the District Court. I deplore any decision to extend from six months to 12 months the time limit for the institution of proceedings, because it is my experience in dealing with public authorities that they will leave these matters of the institution of proceedings until the last minute. It is like planning permission. You will only get planning permission at the very end of the two-month period. If it was one month you would only get it at the end of the one-month period and if it was six months you would only get it at the end of the six-month period. It is a necessary discipline, and if you made it two years you would still have cases where the proceedings would not be instituted in time. You are actually only, Minister, creating more paperwork, because it is to the advantage not only of the general public but to the advantage of your own officials of the customs and excise that cases should be dealt with. If one or two cases are not dealt with because of an administrative mistake or because of some other mistake, so be it. That is not the end of the world. I think it is important that we should not tie up our officials in time limits which are unreasonably long, because ultimately that is against their interest just as surely as it is against ours.
It was with considerations such as those which Senator O'Leary has just expressed that I decided not to look for an extension for more than 12 months because in fact there is, as Senator O'Leary says, often a tendency to leave things until the last minute. In fact, the limit of six months in some cases can present difficulties. If you take the case of red diesel offences, for example, it takes time to get samples analysed. In the extreme case if a vehicle is unattended and is found to have marked diesel illegally in its tank, (a) it takes time to analyse the samples and (b), as Senator O'Leary knows, it can in this country, due to the particular system we use for the registration of motor vehicles, take quite a long time in some cases to find out who is the current owner of the vehicle. I would think that it would be rather unfair to the rest of the population to have people getting away with offences like that simply because the vehicle has been through two or three changes of ownership and it takes longer than the statutory period to find out who owns it in the first place.
Considerations can arise in the prosecution, for example, of betting offences which require a deal of time and the spread of incidents of illegal betting activities to produce a strong enough case to bring proceedings.
In all the circumstances I think that the extension from six months to a year, which is considerably less than the Senator thought at the beginning, is reasonable to ensure that we can apply the law in those cases and that the law does not apply simply because of the difficulty in getting evidence assembled within the period that is allowed.
Recommendations Nos. 13 and 15 may be discussed together.
I move recommendation No. 13:
In page 40, between lines 25 and 26, to insert the following:
"(d) Five per cent. of the amount on which tax is chargeable in relation to the supply of the following goods or services:
(i) services consisting of the development of immovable goods, and the maintenance and repair of immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such services does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement;
(ii) concrete ready to pour;
(iii) blocks, of concrete, of a kind which comply with the specification contained in the Standard Specification (Concrete Building Blocks) Declaration, 1974 (Irish Standard 20: 1974);
(iv) articles of personal clothing and textile handkerchiefs excluding—
(a) articles of clothing made wholly or partly of fur skin, other than garments merely trimmed with fur skin unless the trimming has an area greater than one-fifth of the area of the outside material, and
(b) articles of personal clothing of a kind specified in paragraphs (xvii) and (xviii) of the Second Schedule;
(v) (a) fabrics, yarn, thread and leather, of a kind normally used in the manufacture of clothing, including elastics, tapes and padding materials in the form supplied for the manufacture of clothing, and
(b) yarn of a kind normally used in the manufacture of clothing fabrics;
(vi) articles of personal footwear, other than articles of personal footwear of a kind specified in paragraph (xix) of the Second Schedule;
(vii) sole and upper leather of a kind normally used for the manufacture and repair of footwear, and also soles, heels and insoles of any material;".
A one time Emperor of France, Napoleon, when he was exiled to St. Helena was asked what brought about his downfall. He said it was the snows of Russia and the guerrillas of Spain. I do not know if the future Duke of Kildare sitting and perusing the results of the next general election — at that stage it will be the last general election and the defeat of the Coalition — will be looking to what contributed to that result. It is a pity that what would look like and is a genuine effort to rationalise the VAT system and to reduce from six to really three rates, with the exception of the agricultural one, should have a blot on it in relation to the increase from 5 to 10 per cent on building. It is well recognised — and I am not going to delay the House here this afternoon — that this will cause directly thousands of people to lose their jobs in the building industry. It will further boost the black economy. In an industry that is already in a depressed state it will add this additional burden despite whatever concessionary measures the Minister has introduced by way of grants, etc. and his delaying of the introduction of it. It is a retrograde step and for that reason we are strongly opposing it.
I would like to support this recommendation. There are many distressed areas in the country at the moment but none more so than the building industry. It seems to have been hit in so many ways that this is the last straw. Consequently, they have said recently that it appears to them that it is impossible not to feel that for some reason the Government have a feeling of lack of support as far as that industry is concerned. This aspect of it, which we are dealing with now, seems to bear that out. On the one hand I agree with Senator Smith that the reduction in the number of VAT percentages is a good thing, but in this area the increase in the amount is most unfortunate. The Minister should either have a special VAT rate for building or else should zero rate building. One way or the other, this has a most unfortunate effect on an industry which is suffering very, very severely. It is not only the industry which is suffering. It is the people who are employed in the industry or who used to be employed in the industry who suffer. It is an industry which could provide a lot of employment and which in present circumstances is employing fewer and fewer as every day goes by.
I, too, fail to see why new private house building as a component of the construction industry should have suffered this penalty. Yesterday, I was critical of the ad hoc approach to tax changes that have taken place. I recognise that a certain modification took place in the VAT rates and that as a consequence of that some increases had to take place somewhere, but why impose increases in the construction industry? In the past four years the output of the construction industry has fallen by over 30 per cent. The industry has incurred a haemorrhage of job losses. In a little under four years some 24,000 building workers have lost their jobs. The national plan has held out very little hope of any significant improvement in the situation. It is apparent from the details of the plan that some 45,000 building workers will still be unemployed at the end of the three year period up to 1987. Private sector housing has declined by over 25 per cent in the past four years. I know the Minister has taken certain remedial action but against the grim scenario that I have described the doubling to £2,000 of the housing grant for first-time buyers and the deferment to 1 May of the payment of the VAT are entirely inadequate given the dire straits in which the construction industry finds itself. It seems that the future prospects of the construction industry are bleak, and in present conditions under present policies it is difficult to see any growth in output or employment in the foreseeable future.
This particular recommendation reflects a fairly well orchestrated campaign throughout the country on this subject. I have gone to a little trouble to discuss it with builders and people who purchase houses as to what the consequences of this move of the Minister would have been. In fairness, in the rationalisation of the tax bands many components in the building of a house actually are reduced in price. You do not build four walls and a roof. Most contractors in the provision of a house provide a lot of other things as part of the house, such as bathroom facilities and all the other appliances that go with the provision of a house. Most of those, if not all of them, have been reduced by the Minister in this section. The cost of concrete blocks has been reduced. To balance any anomaly that might have been there, the Minister and indeed the Minister for the Environment, have doubled the new house grant from £1,000 to £2,000 to offset any imbalance that might have arisen to the purchaser of these houses. In the past the only benefit that ever derived to the building industry by way of moves within the Government when any impetus was given to the purchasers went direct to the builders and the consumer never benefited. Of course the building trade would like that kind of incentive to continue. I am concerned about the end result and the end cost to the actual purchaser of the house. In the normal average house that is constructed around the country nowadays because of the keen competition in the building trade — and indeed as my colleague Senator Magner said, the amount of machinery now being used — the amount of direct labour being used is slipping all the time because methods are improving. Employment will suffer. I do not honestly believe that this section will have any effect whatsoever on the numbers of people employed in the building industry. The people purchasing the normal three or four-bedroomed house throughout the country now pay about £23,000 or £24,000 or maybe up to the limit for something fairly special of £33,000 or £34,000. That is exceptional, and very few people in the bracket that we normally represent will suffer whatsoever under this section.
It is a well-orchestrated campaign. The building industry have been fairly successful in almost convincing people that there is a problem; I do not blame the Opposition for getting on the same bandwagon. The reality is that at the end of the day the purchaser of the house will not have suffered by way of the grants and the other reductions on the various commodities in the construction of the house.
As Senator Ferris has said, there is a certain amount of folklore — you could almost call it mythology — building up about this measure. Senator Smith said yesterday and again today that he is in favour of rationalisation of the VAT system but he does not like the 10 per cent VAT on construction. It is a very Augustinian approach. "Oh Lord, make me virtuous but not yet. Oh Lord, let us have rationalisation of the VAT system but not here". I do not think that that is a very consistent or coherent approach to take.
Senator Ryan is attempting to perpetuate this myth that this Government has a feeling of lack of support for the building industry. I do not know why the Members of the House or Members of any other House should have an interest in perpetuating mythology of that kind. Senator Ryan knows perfectly well that 70 per cent if not more of all expenditure on construction is funded through the Public Capital Programme. The difficulty that the construction sector has — and I recognise that it derives from the fact that private demand for construction has suffered inevitably from the effects of the recession — is that it has not been possible and probably, in many cases, not even desirable for the public sector to expand its input into the construction sector in order to pick up the slack. The public sector can expand its input into construction only by either more taxation or by more borrowing which gives rise immediately to more taxation. For anybody to claim that any Government has done anything other than support the construction sector to a very high degree — since it creates 70 per cent of the demand for its products — is nonsense. That has to be said, and all the protestations to the contrary by Fianna Fáil or by interests in the construction sector are beside the point and do not address the facts.
I am sorry to disagree with Senator O'Leary, but Fianna Fáil is not the same thing as the Construction Industry Federation. There are quite a number of very sensible people in the Construction Industry Federation. Senator Hillery asked why should there be a penalty on new housebuilding, and then he goes on to remind us that yesterday afternoon he criticised the ad hoc nature of tax changes in this budget. Having criticised me for what he regards as the ad hoc nature of the fundamental modifications and rationalisations that we made of the VAT system he comes along and barefacedly proposes another ad hoc method. He would like, in supporting Senator Ryan, either a special rate for building or a zero rate. What could be more ad hoc than that, I ask?
I did not say that. The Minister does not have to misinterpret what I said.
I have not chosen to misinterpret one word of what you said. I apologise to Senator Hillery in taking him at his word when he says that he supports Senator Ryan. I am doing him an injustice by assuming that the supports what Senator Ryan said, and to criticise me for "ad-hockery" when I reduced the number of VAT rates to three and then come along and support the case and say we should have another VAT rate, that seemes to me to take the biscuit. People tell me that I have a strong enough neck, but in that regard in this particular connection I am only trotting after Senator Hillery.
The Minister had not thought through the implications of it.
I will come around to the implications of it in a moment, because I want to say something about the way Senator Hillery and his colleagues evade the various consequences and implications of numbers of things that they say.
To address the specific points made by Senator Ryan — he asked "why not have a zero rate for the building industry?" Senator Ryan will be aware that the latitude that is open to a Government under EC rules to introduce new zero rates is very restrictive. It would not extend to a sector as important as the construction sector.
I am against special rates, because we got ourselves into difficulty with VAT for years because every so often somebody would come along and make a good case for saying that such-and-such a product or such-and-such a service should not be taxed as heavily in the consumer's pocket. Let us remember that VAT is a consumer tax. We must remember that. The result is that we get all kinds of different rates and anomalies coming into the system. It makes the system more complex to operate and it gives rise to all kinds of anomalies that even affect people who are involved in the production or supply of the goods or services concerned.
We are talking about recommendations 13 and 15. The cost of implementing recommendations 13 and 15 which cover building concrete blocks, clothing and footwear would be £53.75 million in 1985 and £100.5 million in a full year. There have been no suggestions as to where that revenue would be made up, but I could give a few examples as to where it would be made up. In order to recover that money elsewhere in the VAT system we would have to put, for example, a positive rate of 4 per cent on the whole of the zero rated base viz., food, oral medicine, children's clothing and footwear and electricity and such. We could conceivably do what the Senators across the way from me would want to do if we put a 4 per cent rate on everything that is zero rated. I would not like to do that not simply because I do not want to put 4 per cent on those things but because I do not want to mess up the system. Then we would have a 4 per cent rate on something and a 5 per cent rate on some other things together with all the rest of the rates that we have. Or we could put a 5 per cent rate on food only, which would be at least a little bit tidier because then we would have two groups with a 5 per cent rate. I am not quite sure that Senator Hillery, Senator Smith and Senator Ryan would be actually jumping up and down with joy in this House, applauding the Minister for Finance who applied a 5 per cent VAT rate on food. Or we could look at the 23 per cent category of goods and we could increase the rate on those to 25 per cent. There again — I may be wrong and I may misjudge the gentlemen in the question — I do not think that the three Senators who have been recommending this would actually support me if I was going to increase the 23 per cent rate to 25 per cent.
This is where I come back to the implications. Those are the undeniable choices with which we would be faced if we were to accept recommendations 13 and 15. They have not been proposed and I know that, strictly speaking, Senators cannot propose new charges on the people. I know that even if they had that ability they would not do it. Why? Because what they are doing is what they and their colleagues in Fianna Fáil have done consistently for the last two and a half years. They are refusing to make up their minds. They are refusing to follow the logic of the criticisms they make and to put something in place of the policies that they decide. They know perfectly well that the things that would be required to be done to leave room for the measures they propose, like this, are ones that they would not want to do themselves. Instead of saying: "Yes, there is a difficulty here. We have to make the change. There is a difficult thing to be done in order to arrive at a better overall VAT system. We will put up with that because the effects of it are not as bad as they are painted." They will not do that. They simply content themselves with saying: "We do not like this" and then perpetuate these fairy stories about the Government and the construction industry.
I was illuminated a couple of weeks ago to read a letter written by a gentleman in the construction industry, who shall for the moment remain nameless, of whom it has often been said that he is very well disposed to Fianna Fáil, in which he pointed out that he had criticised numbers of Governments in the past. I think it was the nearest we will ever get to a central figure in the Construction Industry Federation saying that perhaps, after all, he did not want to be all that closely identified with Fianna Fáil. He did not want the tag that seems to be put on him at the moment. I suppose when the people one is defending back-pedal away from you like that, it is time for you to think of the exact reasons why you are making the case. That is all a bit contentious, but the central point I want to come to——
It certainly is.
It is, indeed. There is no way that I will stay away from contention. The base of that contention is the inability of the Fianna Fáil Party to make up its mind on what policy it wants on taxation, what policy it wants on expenditure and what policy it wants on borrowing. I will not go on about that, because there is another little matter of a proposal of £200 million that was not made in this House and which could do with a little dissection as well. That indicates the same weakness that I have just been referring to.
For all of those reasons I would not accept these recommendations, because what we would have to put in place of this measure would, first, re-complicate the VAT system and, secondly, it would be composed of measures which I do not think this House would support at this time.
The Minister for Finance cannot be accused of being a very simple man, but he has tried to put into simplistic terms some of the problems which affect the building industry. He has chosen to ignore the fact that 40,000 people have lost their jobs in the building industry in the past four or five years. He has chosen to ignore the fact that a large number of people involved in building have been driven into the black economy. When he suggests ways in which this money could be found, I do not know if he or anybody here could quantify the amount of money lost to the Exchequer by virtue of the fact that so much of the taxation which has been introduced in recent times has boosted the black economy. Most people would accept that, if we had a proper tax system and a proper incentive based system, we would have more and more people in legitimate trading and this would obviously bring a lot more money into the Exchequer. Some of the tragic developments in the building industry were described as a fairytale. With so many people losing their jobs, I will leave it to the public to decide on that comment.
The Minister made the point that the building industry is supported up to 70 per cent by the public capital programme and that the real problems reside in the fact that the private sector has dampened down over recent years. There is no argument about that. The fact is that ordinary people are unable to improve and develop their homes. More private people are not able to get involved because of costs. Why add to the burden? Why make it more costly for that section, described as being in difficulties, to get involved? The Minister is arguing against himself.
I move recommendation No. 14:
In page 44, between lines 6 and 7, to insert the following: "and
(c) by the insertion after paragraph (xx) of `(xxi) hurleys"'.
Hurleys should be exempt from VAT. The gain to the Exchequer is minimal while the saving would be of great benefit to the GAA in promoting and preserving this great national game of ours. Hurleys can be broken easily and they cost a great deal. It is a poor man's game. This is a penal tax on the purchase of hurleys by young players. Other cultural promotions are exempt from VAT. This is a cultural promotion and it should be exempt from VAT.
May I point out to Senator Kiely that I have reduced the rate of VAT on hurleys this year from 35 per cent to 23 per cent? As I said earlier, the scope for the introduction of new zero rates is severely limited. In fact, it is not severely limited, it does not exist. What I did not point out to this House earlier on was the fact that I am already under a certain amount of pressure from the EC in relation to some of our existing zero rates. I do not want to add to that pressure because, in a number of other cases, the products involved are quite important. Any change in the zero rates on the products in question would be a matter of some concern to me. For that reason I would not want to run the risk of exacerbating the pressure.
Hurleys, being sports goods, are treated in the same way as other sports goods. Senator Kiely is making the case, if I understood him correctly, that because of the particular position of the game of hurling in our national culture he feels that hurleys should be differently treated from other sports goods. Matters are not quite as straightforward as that. VAT really applies to categories of goods rather than to particular types of goods, so that the distinction between one wooden sporting implement and another wooden sporting implement is not always necessarily an easy one to make in the context of administering tax law.
The final point I would make — and it goes back to our discussion on the previous recommendations — is that, with respect, the kind of case that Senator Kiely is making is precisely the kind of case that over the years has resulted in the introduction of more and more anomalies into our VAT system, most of which I hope I have been able to remove by the reorganisation which we have carried out this year. For all those reasons I would be unable to support this recommendation.
I do not agree with the Minister. I know there is VAT associated with most games, but there is a great difference between hurleys, hockey sticks or golf clubs. If one buys a set of golf clubs it would do one for life and one does not buy a tennis racket every other day. I reckon that the average hurler buys approximately ten hurleys every year. Sometimes with the first belt of a ball the hurley is broken, so there is no comparison between hurling and any other game. Hurling is the most expensive game of all to play. People might not believe that but that is the case. A large percentage of young people in Ireland play hurling. The number of hurleys that are purchased and broken during the year is quite large. The Department of Finance must get a lot of revenue from hurleys because the return of VAT is far higher on hurleys than from any other sport. There is no use in comparing hurling to any other sport.
The Minister mentioned that he is under pressure from the EC Commission but I was informed that the EC Commission would not put pressure on any Government to put VAT on an item that would benefit cultural promotion. Hurling is definitely promoting our culture in Ireland. The theatre is recognised as a cultural activity. The GAA are doing great work for the community in providing playing facilities and social amenities in rural parishes especially. As an appreciation and expression of goodwill, the Government should exempt VAT on hurleys. It is only a small item but it means something to the Gaelic Athletic Association who are doing so much for our youth and for the community. I think it would be a good thing.
The reduction in VAT on hurleys this year from 35 per cent to 23 per cent would allow a price reduction of 9 per cent. The rate of VAT now is lower than the level to which it was brought on the last occasion on which a Fianna Fáil Minister for Finance made any changes on VAT on hurleys. That was in 1980 when he was being asked to zero rate hurleys but instead of zero rating them he increased the rate of VAT to 25 per cent. I have brought it down below that, so we are making progress in that regard. I do not think Senator Kiely's optimism about the way the EC Commission would view a zero rate is entirely well-founded or justified. I am afraid I must still maintain my opposition to the recommendation.
While the Minister is emphasising that the rate of VAT is being reduced, it is still at the higher rate of VAT. The top rate of VAT was reduced from 35 per cent to 23 per cent. Hurleys are no exception but I would like them to be made an exception. When Fianna Fáil were in Government they made a grant of £100,000 to the GAA to help them in the purchase of hurleys.
As I had the pleasure of doing last year.
That was the centenary of the association. I think it should be an ongoing feature if the VAT cannot be removed from hurleys. I appeal to the Minister to consider doing something to alleviate this penal tax.
I move recommendation No. 16:
In page 48, lines 48 to 51, to delete subsection (8).
This refers to the levy on the banks some years ago on a temporary, and, apparently, a renewable, basis. I have no great objection to the imposition of this levy on the banks. The event during the year should have convinced everybody that banks are in a unique position, that they are not just ordinary businesses, and that they can expect special consideration from time to time from the Government not by reason of any altruistic sentiment on the part of the Government towards banks but because the Government might judge from time to time that action in support of the bank is in the national interest. Therefore, I have no problem with the rates of duty imposed by this section.
First of all, we should realise that it is a revenue raising operation and the purpose of it is to get revenue from the banks. It is not a duty of a type like stamp duty. It has no function other than to raise money. In regard to a duty raised in that way, I do not see why it should not be allowable for a bank to deduct that from their taxable profits. I am not suggesting that they should be allowed deductions in their tax, because that would defeat the whole purpose of the exercise which is to raise money. The principle has been breached here. It was first breached when Minister Bruton brought in legislation along these lines in the Finance Bill, No. 2 of 1981. At that time it was a surprise to the Minister to be told on the floor of the House that it was being introduced in such a way that it was not a deductible expense for the purpose of calculating the corporation tax payable by the financial institutions. The Minister indicated to us then that he would look at that matter. Circumstances were such that we did not get the opportunity of bringing Minister Bruton here. On the last occasion when the Minister was here we probably brought it to his attention again. I do not mind if the Minister feels he needs to raise this amount of money and he cannot forego the tax. I do not mind if he increases it so that the net revenue raised is precisely the same, but a principle should be established that when you raise a tax on something like a turnover — really it is a tax on deposits — it should be deductible from the profits of whatever institution you raise it from for the purpose of calculating corporation tax.
The Minister has already adjusted the rate this year, if my interpretation of the information is correct, to take into account certain differentiations between deposits held here from agents and deposits held here from people abroad. That is a very reasonable and rational thing for the Minister to do. In order to make up for that he has increased the rate. There is no reason why he could not further increase the rates but establish the principle that whatever duty is payable should be tax deductable. In that way we would re-establish an important principle in taxation legislation, in other words there should not be double taxation. In respect of this there is, in effect, double taxation. I suggest in my recommendation that subsection (8) which deals with that should be deleted and that the normal process which one would expect of it being tax deductible would come into play. If that was done bearing the rate it would mean a loss of revenue to the Minister. I have no objection to the rates being varied by the amount of money which would not leave the Minister in a worse situation, but the principle of avoiding double taxation should be re-established. It was breached originally in 1981 and the Oireachtas, having looked at it over time, should now re-establish the normal procedures.
The main effect of this recommendation would be on corporation taxes, but I take the Senator's point that he does not object to, although he has not proposed, the rate of the duty being increased to compensate for the loss of revenue. I have looked at a number of different ways of raising this sum from banks, most of which would give rise to greater problems than this one, and most of the changes that I have considered would give rise to more problems than they would solve.
This levy is based on bank resources. There is a great difference between resources and profits. A levy on resources is a very different thing from a tax on profits. As the levy stands at the moment the banks with the greatest resources pay the greater part of the levy. Were we to change over to a system which would link it to profits, which is what the recommendation would effectively do——
Oh, no.
Yes. If we were to allow this as a deductible expense in arriving at taxable profits the incidence of the levy as between banks would be changed of necessity because it would no longer bear a direct relationship to bank resources, since it is fair to assume that there is not a unique relationship for all banks between the level of resources and the level of profits. In any case, I take the view that for a duty of this kind a resources base is equally as meritorious as a profits base, and I see, therefore, no reason why we should unnecessarily introduce a link between the two of them.
I have made a number of changes in the definition of resources for the purpose of this levy this year in order to improve the distribution of the incidence of the levy as between the banks. I would draw attention to the fact that there is now a 12 month basis for the levy rather than the previous three months. The 12 months basis leaves less leeway for particular banks so to engineer things that their resources are rather low when the levy basis is being calculated. I do not know what the effect on the distribution of the incidence would be of giving effect to Senator O'Leary's recommendation. If only for that reason, but not only for that reason, I would not be disposed to accept it.
I do not seem to be able to explain myself properly to the Minister. I am not asking that this would be a deduction for tax.
That is not the way I interpreted it.
That is what the Minister seemed to suggest. The suggestion that it would be deducted from tax means that there would be dramatic changes. Some people might not have the tax paying capacity to pay the levy. I am suggesting that the levy should be calculated in the normal way and, having been calculated, it should be used as a deductible expense before the corporation tax is charted. The corporation tax of one of the major banks is 10 per cent, or is it 15 per cent of their profits? The Minister if he made no change in the rate would be foregoing the rate multiplied by the effective rate of tax payable in respect of each of the licensed banks. I have no objection to increasing the levy to take that into account. If the Minister does not agree with me, then I understand. We all cannot have the same views, but the principle I am trying to establish is that a charge on a financial institution whether it be a resource charge or whatever should be an allowable expense against profits. The Minister either agrees with that principle or he does not. That is what I am putting forward. It should be tax deductible. Let there be all the amendments necessary in order to give the Minister precisely the same yield.
I do not agree with Senator O'Leary about the principle. I think I have understood him perfectly in relation to the deductibility in the computation of taxable profits which he mentioned earlier. The rate of corporation tax on banks is 50 per cent, not 10 or 15 per cent. The effective rate may be different on gross profits, but we are talking here about the marginal rate.
One of the features of the levy as it is at the moment is that it is a certain sum in advance. If we were to follow the line being suggested by the Senator we would lose some of that certainty in advance.
If the Minister were to follow my line he would increase the levy and gain more money up front and he would lose certain money when the corporation tax would be paid nine or 15 months later.
Six months later.
It would be six months after the end of the year but that would not necessarily be six months after they pay the levy. Therefore it would increase the tax take rather than reduce it.
Recommendation No. 18 is consequential on recommendation No. 17. Recommendation Nos. 17 and 18 may be discussed together.
I move recommendation No. 17:
In page 49, subsection (1), line 23, after "disponer" to insert "or a gift taken from a disponer who is at the date of the gift the spouse of the donee".
The Minister is to be congratulated on changing the capital acquisitions tax in quite a fundamental way. It appears that he is adopting as a principle the rule that the tax on the inheritance of property should be postponed until that property moves from one generation to the next generation. In other words, the Minister is exempting inherited property which transfers from husband to wife, though obviously not from husband to first cousin. In the normal course of events he is only bringing into charge in respect of capital acquisitions tax property which transfers to the next generation in the family structure. In that regard the Minister is recognising that that is the appropriate time for the State to extract its due percentage. The changes which mean that a wife can take from a husband or a husband can take from a wife on inheritance the total estate and the inheritance tax will be postponed until it moves to the next generation is a good principle. The Minister is to be congratulated on that.
To understand the purpose of my recommendation it must be understood that capital acquisitions tax is made up of two parts. You have the inheritance tax and the gift tax. The general principle outlined on the introduction of the capital acquisitions tax was that it was in the public interest to encourage people to make gifts while they were alive rather than to wait and give inheritances when they died. That was a good principle. Imagine it applied to a farmer. It is right that a farmer should pass his assets on to the next generation while he is still alive rather than keep them until he dies and tie up the next generation for quite a long period. In order to give people an incentive to do that the Minister of the day gave a lower rate of tax in respect of gifts thatn in respect of inheritance. The relevant percentage is, inheritance being whatever is set out in the schedule and gifts than in respect of inheritance. The In other words, there was a discount of one-quarter for anybody who wanted to dispose of his or her assets to the next generation or to the spouse as the case may be before his or her death.
The Minister has superimposed this new idea that it should be taxed only when it goes to the next generation, but he has not brought it to its logical conclusion. If this happens now property transferring from one spouse to the other on death will be free of capital acquisitions tax but gifts made between spouses when they are alive will not be free of this tax but if they are over the limit of £150,000 tax will be payable at the original inheritance rate multiplied by 75 per cent. In other words, we are abolishing the inheritance tax that arises between husband and wife but we are confirming the gift tax between husband and wife. That seems to run quite contrary to the general principle that was established when the Capital Acquisitions Tax Act, 1976 was enacted.
The purpose of my two recommendations is to extend section 59 to include gifts as well as inheritance. The effect of it would be that husband and wife could move property between one and the other during the course of their lifetime without incurring any capital acquisitions tax or gift tax as it is called. That is a logical consequence of the principle which the Minister is establishing in section 59. This principle is well worthy of our support.
There is one distinction between inheritance and a lifetime gift which Senator O'Leary has not mentioned. That is that the incurring of a gift tax charge on a gift inter vivos is an arrangement which is incurred voluntarily whereas a liability to inheritance tax is an involuntary matter. I am providing that in the case of the involuntary transfer from one spouse to another there would be no tax liability but retaining the liability in the case where the transfer is voluntary inter vivos. I would consider that there are cases where hardship can be caused under the present rules in a transfer on death between spouses. There is not the same case for considering that hardship might arise and, therefore, for relieving hardship in the event of a voluntary transfer during a lifetime, because it is a voluntary act.
The Minister is right, hardship will not arise because gifts will not be made and the property will not be transferred. That is the option which will be taken. We will defeat what I would think would be a fairly universally held principle that husbands and wives should share their property. We are not going to insist that they share their property though some Ministers might have views in that direction, but generally that objective should be encouraged. The Minister is quite right. The gift tax is to a certain extent a voluntary tax, but instead of a farm being put in the name of the husband and wife, it will be left in the name of the husband because if it is put in the name of the husband and wife jointly then gift tax will apply whereas it can be done free when the husband dies. We should not create an entirely artificial situation. I understand the Minister's thinking and I appreciate the difference he has outlined, but it is an entirely artificial situation where gifts between husbands and wives when they die are free of tax but gifts between husbands and wives when they are alive are subject to tax. It makes no sense at all. It is not an urgent matter, because nobody is going to give a gift in the next 12 months which is going to cost him money, but I ask the Minister between this and the next Finance Bill to have a look at the matter.
The Minister is to be congratulated on this very imaginative move. Will the Minister give further consideration to the following? If an insurance company is going to get involved in the business of taking out policies of this kind, would it be possible for the State to become involved in a scheme whereby tax of this nature could in effect be prepaid by agreement with the taxpayer during the remaining years of his or her life? In other words we should be involved in the question of what are, in effect, insurance policies rather than leaving it to the insurance companies.
The measure introduced in this section will facilitate the payment of tax. As regards Senator O'Leary's suggestion in relation to prepayment of taxes, it is a very novel concept. It is difficult to provide for the prepayment of a tax because in the nature of things you would be making a guess as to the tax liability before the event giving rise to the liability takes place. I could conceive of situations where we might reach the point where the prepayment might substantially exceed the final liability, particularly if there were changes in legislation in the meantime as in the case of the last section we talked about. The very concept of paying a tax before a liability arises is one which, for all my reputed ruthlessness in tax collection, is one I cannot quite get to grips with. I would need to think over it quite some time before I would be able to give Senator O'Leary an opinion on it.
On section 61, the House will recall that a recommendation to delete subsection (4) was deemed to be out of order. I take this opportunity to quote the explanatory memorandum in regard to section 60:
Section 60 provides that the same property which is chargeable to gift tax or inheritance tax more than once on the same event shall not be included more than once in any aggregate for the purposes of computing tax. The relief relates to dealings with trust property and is retrospective to 2 June, 1982.
The result of various enactments was the property was being charged to tax more than once. The Minister is being very fair in changing that because, obviously, it was never intended to have that effect. If the Minister is in agreement that the tax should not have been payable originally, why is he not proposing to pay interest in the normal way to the people who had, in good faith, paid this tax and who are owed this repayment as a result? For example, a person liable under the normal rules to tax at £50,000 because of the operation of this rule which the Minister is now correcting, has to pay £100,000.
The Minister is recognising what his original intention was irrespective of what way it turned out and says "you need only pay £50,000. You paid us £100,000 two years ago, we are going to give you back the £50,000, but we are not going to pay you any interest". I do not understand the reason for that. It seems to be fairly petty, bearing in mind that the State had the use of the money in the meantime. Presumably those people who paid the tax did so in good faith and not with the purpose of getting interest, and I do not see why the Minister should not pay them interest in good faith also.
I take the point made by Senator O'Leary, that people who overpaid tax as a result of the change of rules and subsequently turned out to have overpaid the tax have done so in good faith and not with the intention of earning interest on it from the State. I would point out to the Senator that what I am doing here is not unprecedented in that there is already a provision in section 46 (2) of the Finance Act, 1981, which gave a retrospective relief also in relation to taxation and in respect of which interest was not included on the amounts repaid. I do not think Senator O'Leary has made a case in favour of the payment of interest on tax repaid, apart from saying that people did not overpay tax with the expectation of getting interest.
I am willing to make the case. Section 46 states if we get extra money and it is subsequently repaid, we pay interest on it. Section 46 of the Finance Act, 1971——
No, 1981.
The Finance Act, 1981. I was not here then and I am not responsible for that. We all have to accept responsibility only for what we participate in ourselves. I understand, of course, that it is the law, but it is not a very good law. It would be far better if, at this stage, we looked again at the matter and if the Minister would give further consideration to the merits of the argument. Here we have people who, because of a lacuna in the law, overpaid tax. In the normal circumstances, if subsection (4) was not there, they would be entitled to interest. Why not give them that interest? We had their money in the meantime. There are people who were assessed for tax, who did not pay it and are now in a substantially better off position. Presumably there are people who, in anticipation of the Minister changing the law, have dragged their heels on the matter. We are encouraging people to do that in the future, rather than pay and get normal interest on repayment if these lacunas arise in the future.
To correct an impression that Senator O'Leary may have, this is not a case where, because of a lacuna in the law, people would have overpaid tax. This is a case, where on further reflection, I intend to change the law to reduce the liability, including the liability of some persons who may already have paid tax under the relevant provision — although I am not aware of any cases yet to qualify that — there will be a retrospective grant of relief.
I make the same point in respect of section 62 (2).
This deals with Bord Telecom Éireann. I may have been misinformed, but it appears that a dispute has arisen between Telecom Éireann and the State. If that happens, my instinct is to be for the State because BTE have adopted a very aggressive attitude towards their independence and have not been as efficient in the manner in which they have operated their new service as, for example, An Post, who have done, relatively speaking, a tremendous job in a much less exciting area. Would the Minister like to inform the House with regard to the background to the financial arrangements relating to Bord Telecom Éireann so that we can be informed and be able to respond in an appropriate fashion to the representations which we are receiving in this matter?
I remind the House that I issued a statement on 16 May covering the main aspects of this matter. The statement deals in summary terms with the gist of the matter under discussion. Essentially, Bord Telecom Éireann have failed to attain the financial results that were envisaged when the legislation establishing the company was being debated. In mid-1983 it was projected that the company would make a small surplus for the calandar year of 1984. It seems now, however, that the company on the basis of new accounting policies, which have the effect of worsening the profit and loss account, is projecting a loss of about £60 million in the year ended March 1985. This has resulted from lower volume increases in the use of the service that had been anticipated. In the last year there has been an upturn in business in the company and that will be reflected in its turnover. That improvement, which will have a knock-on effect, of course, in future years for the company, taken together with the fact that the VAT on telecommunication equipment has been reduced resulting in a positive cash flow of £5 million per year to Bord Telecom Éireann, and the increase in charges from 1 April last, will significantly improve the cash-flow position of the company.
After 1987 the company will have no interest to pay on Exchequer debt capital. In addition to that, under the arrangement provided for here the Exchequer will purchase equity in the company up to the maximum specified in subsection 2 of this section, that is £170 million. Also, at that stage, after 1987, the company is projecting a fairly comfortable surplus, even on the basis of the new accounting standards which it has adopted. On the basis of the company's own corporate plan it will have interest costs to be serviced of approximately £120 million a year in the period 1985-86 to 1987-88. The interest on borrowings for payment of the contributions provided for in this will build up gradually from about £6½ million in the first year to about £30 million in the fourth year. In the fourth year it is expected that, it is projected rather, that revenue will come to £600 million and that the company's positive cash flow position would be £129 million. So that at that stage the company would be able to fund its capital programme entirely from cash flow, having already paid the interest charge that would arise from borrowings to pay these contributions.
While I would not underestimate the fact that the company is facing problems in the period between 1985-87 as it begins to achieve profitability, the situation is nothing like as difficult for the company as some people have represented it. The telecommunications service — and the company says this itself, indeed — is inherently a profitable one and one which can be developed and exploited by the company. The problem that faces us now, however, is the question, who pays for the telecommunications service? Is it the people who use it or is it the taxpayers? If we did not have these contributions that are provided for in this section then it would be the taxpayer who would have to bear the cost of servicing debt undertaken by the Exchequer for investment in the telecommunications service. I do not think there is a good reason for asking taxpayers to bear that burden, even on a short term basis. I would particularly take that view because of the projections as to the financial development of the company over the period to which I have referred.
The position of both the company and the Exchequer under these arrangements will be neutral over time. The reason for adopting this approach now is quite simply that the dividend payments which we expected would be coming on stream by this stage from Bord Telecom have not materialised, but of course, the costs of servicing the debts that were incurred in order to build up telecommunications capital are on stream and are being realised. The arrangement replaces, as far as the Exchequer is concerned, the dividend income that should have been coming from the company and compensates the company over a period by way of the equity participation of the Exchequer so that, as I have said, over time the arrangement is neutral as between the Exchequer and the company.
It has been alleged that this is not a commercial way of going about running Bord Telecom. Frankly, I would find it quite the opposite. It would not be commercial to go about funding or running Bord Telecom on the basis that it was not making a full contribution to the remuneration of the debt which was incurred in order to build up investment in the telephone service. Those are the reasons — fairly briefly — for making the provision set out in this section.
On section 68, I would like to ask the Minister two questions. First, does he think that the directors of Telecom Éireann can actually approve these requested contributions over the next three years and still discharge fully their responsibilities as directors? Secondly, it has been suggested publicly some days ago that section 68 (i) in the Finance Bill, is, in fact, unconstitutional. Could I have an assurance from the Minister that he believes that that section of the Bill is constitutional?
The answer to each question is "yes".
Could I ask in relation to constitutionality if the Minister has taken legal advice on it?
The answer again is "yes".
I would like to thank the Minister for the explanation he has afforded to us of the transactions between Bord Telecom Éireann and the State. It appears to me that the board of Bord Telecom Éireann are adopting an unnecessarily aggressive attitude towards their lords and masters, because after all it is the people who own Bord Telecom and it is only right and proper that the company should realise that they are not establishing a semi-State body for the purpose of keeping themselves in employment. The purpose is to provide a service and to make a profit out of that service for the benefit of the people of this country. It is important that they should realise that and realise that we are looking at them, and that the day is long gone when Members of this House — I think on all sides — and Members of the other House are going to accept a situation where semi-State bodies are going to become laws unto themselves, because that has tremendous dangers. I am all in favour of giving the maximum commercial flexibility to State-sponsored bodies, but I consider this proposal of the Minister to be part of the transitional arrangements which are necessary for the establishment of Bord Telecom. Bord Telecom must, in my opinion, expect these transitional arrangments to reflect the fact that the Exchequer must pay out money to finance borrowing, which was undertaken for this specific purpose of improving the telecommunications network prior to the establishment of Bord Telecom. For that reason I would like to support the Minister very strongly on section 68. I thank him for his careful explanation of the facts of the matter to the House.
