Vol. 283 No. 9
I move amendment No. 18:
In page 12, subsection (2) (c) (i), lines 43 and 44, to delete "within the meaning of that section".
In the definition section of the Bill "private non-trading company" has the meaning assigned to it by section 6 (3). The words being deleted are, therefore, unnecessary.
I want to draw the Minister's attention to what may be a difficulty in this matter, but if he is satisfied I am not going to push it any further. It seems to me that the definition of a "private non-trading company" is defined in section 6 only for the purposes of section 6. I do not know, therefore, what carries that definition into section 9. The Minister will note, in illustration of the point, that in subsection (2) (c) (ii) of this section, the references in both sections 6 and 9 are carried in. I cannot see how the definition of the "private non-trading company" is carried into this section in the absence of the words the Minister is proposing to delete.
Section I says instead of setting out the meaning in section 1 it is set out in subsection (3) of section 6 of the Bill but that is applicable in the whole Bill.
It says in subsection (3) of section 6 "in this section".
Yes, that is so, but section 1 says that a "private non-trading company has the meaning assigned to it in section 6 (3)".
If the Minister is happy I am not going to push it any further. I am just drawing his attention to the possibility.
I can understand the Deputy's point.
Is the Minister satisfied that the deletion does not enlarge the meaning of a private company?
I do not see how it could.
In subsection (1) there is a reference that the market value of each share shall be ascertained in a particular way. It would appear that that has the effect of determining the method by which the market value of each share in the company will be ascertained, not merely each share in the holding of the assessable person referred to earlier in the subsection. Am I interpreting that correctly? The subsection provides that:
Where there are included in the taxable wealth of an assessable person on a valuation date shares in a private trading company which is a company controlled by that assessable person on that date, the market value of each share shall be ascertained.
I take it that that means the market value of each share in the company, as distinct from the market value of each share in his holding? If it means as the Minister says, the market value of each share in the company, which I think is correct——
The market value of his shares would be related to the value of any control that he might have. So one has to look at the control he has and see how that should be reflected in the share values.
I am not questioning that part of it, but what I am saying is that it seems to me that if the conditions laid down in the subsection are fulfilled, then the subsection is saying that each share in that company is to be valued as if it formed part of a group of shares sufficient in number to give the owner of the group control of the company, and that that provision applies not just to the assessable person mentioned in the subsection but to every single share in the company. I would like to be clear that I am interpreting this correctly because certain consequences follow if I am.
I think the Deputy would agree with me that there would be a different valuation on the shares of a person who has control of the company and the shares of a minority holder.
This is what I would expect.
The shares of the person with control would have a greater value than those of the person without that control. So you have to look at the value of the shares of the person with control and not merely take an average of the value of the shares of the company. That is quite a different thing.
If there was a minority shareholder, say, a holder of 5 per cent of the shares, who was an outsider to the assessable person referred to and was not a relative of his, would that outsider's 5 per cent of the shares be valued as though they formed part of a group of shares sufficient in number to give that outsider, the owner of the shares, control of the company?
No.
If that is not so, that is the right approach. I am a little concerned because if each share referred to refers only to each share of the shares held by the assessable person, which follows from what the Minister is now saying, there does not appear to be much point in the subsection. It starts by saying "Where there are included in the taxable wealth of an assessable person on a valuation date shares in a private trading company which is a company controlled by that assessable person" then you treat the shares as if the owner of the shares had control of the company.
You are dealing with a person who has control.
If you are dealing with a person who has control, why do you have to say that you will deal with the shares as if he had control?
You have to make it clear that you would value the control and not simply take an average value of all the shares of the company.
I am not too concerned about that. I am more concerned that a minority interest would not be valued as if it formed part of a group of shares which gave the owner control. If that seems to be what the Minister wants to achieve in it, I suggest that there should be clarification in regard to that phrase "each share". It should revert to something like "each share in such holding" or some such phrase, to make it clear that it is not referring to each share in the company.
"Each share" refers to shares controlled by that assessable person.
Could the Minister make it clear, because it has been interpreted differently? One of the contributory reasons for interpreting it differently is that the meaning the Minister says it has seems to make the whole purpose of the subsection meaningless. In effect it is saying a person who has control is going to be valued as if he has control.
To put it beyond doubt, he cannot come along and argue that the shares have a different value or a value which is dependent on the control. I will certainly look at the point raised by the Deputy but I am giving notice that I do not think that there is any room for confusion.
I can assure the Minister that it would be worth while to clarify what he has in mind.
I will ask the Deputy privately who raised it with him.
I can tell him that. It might have been raised with the Minister's office. In subsection (3), line 54, the wording there again may be somewhat ambiguous. It reads:
For the purposes of this section a company shall be deemed to be a company controlled by an assessable person on a valuation date if it is a company controlled by that person on that date or if it was a company so controlled at any time in a period of 12 months prior to that date and, having ceased to be so controlled on that date, again becomes so controlled at any time in the period of 12 months subsequent to that date.
The phrase with which I am concerned is "having ceased to be so controlled on that date". It might possibly be interpreted in a restrictive way as meaning that it actually had to cease being so controlled on the valuation date and not any other date. That I am certain, is not what is intended. If so, it might be advisable to change that wording to "not being so controlled on that date". This would obviate any doubt that might arise. When the Minister gets a chance to look at it I think he will realise that if there is any danger of the interpretation as suggested a large loophole would be created.
The Deputy might be creating a loophole because the wording that he uses might be related purely to the actions taken on that date.
It would read "or if it were a company so controlled at any time in the period of 12 months prior to that date and not being so controlled on that date again becomes so controlled at any time in the period of 12 months..."
That is the Deputy's wording, but the word "ceased" is the longer term.
I am merely drawing the Minister's attention to it. I think there might be a loophole, but if he is satisfied that is all I need.
The Minister's wording might help a little bit more.
I will look at it. I can see both past and future tense problems here.
I can foresee that subsection being amended.
I move amendment No. 18a:
In page 13, subsection (1) (a) (i), line 7, to delete "lesser" and substitute "greater".
In this section we are dealing with agricultural property comprised in the taxable wealth of an individual, who is a farmer, or fishing boats comprised in the taxable wealth of an individual, or hotel premises as defined in the section as comprising taxable wealth of an individual. In subsection (1) there is a provision that in ascertaining the market value of property of this kind one of the steps in approaching it is to deduct from the market value of the property an amount equal to 50 per cent of the market value of the property or a sum of £100,000, whichever is the lesser. This amendment is designed to substitute "greater" for "lesser"; in other words, to deduct a sum of £100,000 or 50 per cent, whichever is the greater.
I want to suggest to the Minister that if he wants to put the properties of the kind dealt with in this part of the section I have outlined in a special category such as hotels, and so on, he should do the job right. The position, particularly in relation to hotels at the moment, could fairly be described as being one in which a valuation of hotel buildings and contents could very well figure in many cases much higher than their value as a hotel viewed from the point of view of a potential purchaser of the premises and contents as a hotel, if there was any such purchaser. He would have to take account of losses in the hotel industry at the moment and the considerable risk of loss, and could very well, therefore, in taking this into account in putting forward an offer for the premises as a hotel, come up with a realistic figure which would be considerably less than the valuation which would be put on the premises and contents taken in their own right.
I want to suggest to the Minister that this being the situation, the valuation arrived at under this section in the case of such hotels would turn out to be far too high in some cases and that it is not the way to go about the kind of relief that the Minister is seeking to give in this section, unless, of course, he wanted to drive hoteliers out of business altogether.
In considering this, it is important to note also that there is a restriction provided on the amount of debts which may be deducted. There are many hotels—this applies to the other properties mentioned, but particularly to hotels—which represent very heavy investment at this time at very considerable risk. That being so, I am suggesting that the effect of this amendment would be to give a more realistic relief in such cases than is given by the subsection as drafted.
The Deputy said there is a restriction on the debts which may be deducted—I take it, deducted from the capital value of a hotel. What is the restriction referred to?
It is subsection (1) (a) (ii). In fact, I have an amendment dealing with this.
First of all, let us begin where we should begin. The value of any property will reflect any current boom or current depression. If there is a depression in the hotel market, as unfortunately there is, that will be reflected in the value of hotel property. So that the value that would have been assessable for wealth tax purposes will not be that of the halcyon days of 1970 to 1973 but the value in 1975. That is point (1).
Point (2) is that no country with wealth tax is providing the generous thresholds of exemptions which are being provided here. I was talking recently to some German visitors who were disappointed that I could not attend a function at which they were hosts until after the Dáil had terminated its proceedings at 10.30 p.m.
The Minister should have thought of that before the guillotine motion was brought in.
I told them that the Opposition had held me in the House because of their resistance to the wealth tax proposals and they asked me at what level was it operated. They laughed. They thought it hilarious that we had such generous exemptions——
Does the Minister know what valuations they use in their own country?
——when in their own country, a country devoted to the capitalist system, it operates at less than £20,000.
Did they give the percentage value of wealth tax?
They did not know how we could be so generous in our wealth tax proposals.
(Dublin Central): It is appalling that the Minister would mislead foreign visitors to this country.
Subsection (1) of section 10 provides for special relief for agricultural property, hotel premises, fishing boats as defined, up to a value of £500,000. It is intended to benefit the comparatively small man, the hotelier, the farmer, the businessman who has properties under that value. There are not many in our community above that value and if they are above that value it is not unreasonable that they should pay wealth tax. The wealth tax on a hotel or some other property which is providing employment will operate at the rate of .8 per cent. Again, I take the lowest standard wealth tax rate. Once the value of the exemption is exceeded, the taxpayer is entitled to a 20 per cent relief because the property is providing employment and it permits a deduction of the lesser of 50 per cent or £100,000 in the market value of the property. By any standards this is very generous relief. It has no counterpart elsewhere. If, in addition, regard is had to the high thresholds and the other reliefs and exemptions, it would obviously be very difficult to justify any further concessions and still talk about having a wealth tax at all.
The effect of the amendment would be to exempt all such property under £100,000 and exempt 50 per cent of all property of a market value higher than that, irrespective of the total value of the property.
How does the Minister arrive at that one?
As I understand the amendment, it would operate in this way: take a market value of £150,000. Under the Bill the value of the tax would be £75,000, the value under the amendment would be £50,000. Am I right? Is the Deputy content?
Yes, I think the Minister is right.
If it is £200,000 under the Bill, its value after the £100,000 exemption would be £100,000. Indeed, as I have just noticed, the amendment works out at the same figure in that particular case. At £300,000, the value under the Bill would be £200,000 and under the amendment, £150,000. At £400,000, the value under the Bill would be £300,000; under the amendment, £200,000. It is certainly proposing to give further exemptions which are not warranted in the circumstances in which the wealth tax is going to bite in Ireland. It is unrealistic. If we intend to have a wealth tax it must begin to bite at some threshold and the threshold at which it will operate here is, by any standards, generous and in certain categories extremely generous.
I wonder did the Minister tell his hilarious German friends what the tax level at the present stage is here, that a tax rate of 77 per cent is reached at about £12,000 income whereas his German friends' maximum tax level is 59 per cent and that is not reached until an income of £38,900?
And his wealth tax is on a much more restricted basis and is officially on a valuation of 1955 or at the latest 1965 values.
(Dublin Central): And part of it is offset against income tax.
What about the deductions that Deputy Colley directed my attention to?
Let us not try to compare things that are not comparable.
With respect, Deputy Colley raised this with me when I was speaking. What about subsection (2)? Take those into consideration in the Irish context in the way hotels are built and run.
We will be doing that.
I must ask for orderly debate. The Member in possession without interruption, Deputy Brugha.
The other item is that the level of wealth tax in West Germany can come down because of allowance for income tax as low as .4 per cent. The Minister is putting arguments that can be misleading to some degree.
Of course, the private house is included in Germany. We are exempting it, which is another important factor.
That is appreciated. I do not think the Minister has answered yet the case that Deputy Colley is putting. He has answered it by giving examples that are a bit misleading from elsewhere. What he is suggesting is that in the case of the hotel premises there should be in view of the present situation a maximum allowance. The Minister has not said what the valuation would be. I admit that the Minister has indicated that it is valued as a hotel. The valuation, as he said himself, compared to the halcyon days of 1970 could be considerably lower and that could influence the situation. If it is going to be permissible to take the value of a building which at the moment is a hotel and ignore its real value but take its value as a hotel, that could influence the position.
Exactly.
Perhaps the Minister could clear up that point in the interests of the present situation regarding the hotel industry.
(Dublin Central): If there is one section of the business community today that cannot afford to pay wealth tax it must be the hotel industry. The Minister knows that perfectly well if he read a statement last week from a Mr. Burke, secretary of the Federation of Hoteliers, where he mentioned that if there was any sale today for hotels there would be 90 per cent of them up for sale. Deputy Esmonde and the Minister know perfectly well there is no return on capital today on money invested in hotels.
And if the market value is that low, you take the 1st April 1975, that is your value for wealth tax purposes for a start.
(Dublin Central): We see the market value is down to zero at the moment.
Right; no wealth tax. Let the Deputy be factual about it.
(Dublin Central): I will be factual about it but I would like to know if big hotels in Killarney which are worth a considerable amount of money are making no return on capital.
Originally, prior to 1969, but subsequent to 1969 were zero for wealth tax purposes, therefore no tax. What is the panic?
(Dublin Central): We will see whether the Revenue Commissioners will accept this argument from hoteliers throughout the country. I do not believe they will.
They are factual men.
It depends on how they value. Surely the Deputy appreciates that?
Deputy Colley knows they are reasonable men who work on market value. Quotations are enough.
(Dublin Central): You do not expect the hoteliers to give the hotels away for nothing. You cannot get a proper market value for hotels today. There is none of them going on the market. There is no hotelier today prepared to put a hotel on the market.
Not as a hotel.
(Dublin Central): Unless he is forced to do it through banks pressurising him. That is the only man who will put a hotel on the market today. As Deputy Esmonde says, that is zero profits. But that is not how the Revenue Commissioners will value them. They will say: “Put it on the market if you do not accept our valuation.” Of course the hotelier cannot put it on the market.
No. That is ruled out under the Act as a test. The Deputy knows that as well as I do.
On another section it is not but we will come to that.
(Dublin Central): I do not believe for a moment that this is going to happen, that they are going to be liable to wealth tax because the value is there. I know the market is what they would fetch if they were put on the market.
It is net.
That is after deduction of debts, et cetera and the 50 per cent.
(Dublin Central): Maximum concession should be given to this industry today, as Deputy Colley is trying to do here. I believe it should be conceded. Certain hotels will not have to pay wealth tax. The hotels of the bigger groups in this city, because they are owned by foreign shareholders, will be exempt from wealth tax.
Not necessarily.
(Dublin Central): Will the Deputy tell me the ones that will not?
Section 2 of the Bill.
I hope the Deputy is not contradicting what the Minister for Lands was saying at great length.
(Dublin Central): We have listened to this for a month now. Hotels owned by foreign companies that have a trading company in this country will be exempt from wealth tax.
Unless they are individually owned.
(Dublin Central): Very few of these hotels are individually owned. Hotels owned by Irish shareholders who have been struggling over the past ten years during the time of the expansion in the tourist industry have invested their personal wealth. They have put their time and endeavour into it and they are now subject to wealth tax. They will have to trade in a very competitive business today.
I think you will not find ten hotels in the whole country that will pay wealth tax, or even five of them.
(Dublin Central): I would ask the Deputy to go out to Ballsbridge or Donnybrook in six months' time and ask the proprietors are they subject to wealth tax and I believe that they will tell him that they are. If he goes to the top of St. Stephen's Green and asks another company are they subject to wealth tax, they will tell him they are not. That is exactly what the position will be as regards these people.
The Deputy might be surprised.
(Dublin Central): I will not be surprised. The Minister is levying wealth tax on an industry, half of which is practically closed down and only for the concessions which many of them have received from the banks over the past two years they would be forced out of business. You have only to look at some of the CIE hotels to get an indication of what business is like.
They are nearly all sold.
(Dublin Central): They have to reduce their tariffs by 50 per cent, which would be a completely unprofitable transaction. We will go into that on an Estimate, which I have every intention of doing.
Quite right. Leave that area.
(Dublin Central): Maximum concession should be given to the section of industry which we are discussing here and which Deputy Colley is trying to exempt as a small token at this time, to help them out of their difficulties. They should be entirely exempt. I would exempt them completely.
The Minister knows the trading position of the majority of these companies. The majority of hotels outside the cities, outside Dublin and Cork, are not receiving 1 per cent from capital investment. If people could put their hands on the money they invested in hotels it would be a long time before they would go back into the hotel industry.
Would the Deputy not agree that the hotels he is talking about are limited trading companies?
(Dublin Central): I am talking about people who have money invested. I am talking about shareholders in trading companies. The Government have moved so far away from the realities of life where capital taxation is concerned that they have forgotten human beings exist, that their money is invested in these hotels.
This part is confined to individuals anyway.
Is Deputy Colley hurt by something I said?
I was horrified to hear Deputy Esmonde repeating the hoary old story that the company is not liable and the shareholder is. In this case it is the individual.
One Deputy is in possession and he ought to be allowed to make his contribution.
(Dublin Central): We have been discussing capital taxation for about four months. It is quite obvious that the Minister and his colleagues are completely removed from the realities of the situation as they exist today. They certainly must not have spoken to any businessman for the past 18 months or he would have told them the condition of business throughout the country. They must not have frequented any of the hotels I have been talking about or they would know the condition of the trade.
That is poetic licence on the Deputy's part.
(Dublin Central): I am surprised at the proprietors of these hotels. If Deputy Esmonde frequented some of the hotels which are not doing all that well in the south of Ireland, he would see the disastrous condition of the hotel trade today. What help are they receiving from the Minister for Finance? In this Bill Irish people who own hotels are being levied at one per cent for wealth tax. All foreign-owned hotels operating under trading companies are exempted. That is what the Minister is doing for the hotel industry. What encouragement does that give? The few hotels that are Irish-owned will pass into the hands of foreign-owned companies. The same thing will apply to supermarkets and the bigger stores. They will be exempt from wealth tax.
The Deputy criticised us for working against foreign investment.
All productive assets are being taxed. Does the Deputy not understand that?
(Cavan): I understand the taxing of productive assets.
I never knew the definition of schizophrenia until I heard the Deputies talking on this Bill. Now I know what it means.
It is over there. This is a simple concept. Do not put wealth tax on productive assets because jobs depend on them.
We cannot have a debate like this.
Our economy was going well when I was Minister for Finance. If that were the situation now, we would be happy.
One contributor at a time.
(Dublin Central): Foreign investment is exempt. It is quite obvious that we require a considerable amount of foreign investment. At the same time, I do not think any advantage should be given to foreigners over Irish business people.
That is the BBC 1 mentality.
(Dublin Central): It possibly is. That is exactly what we are doing in this Bill. We are levying Irish hoteliers at 1 per cent and we are exempting foreigners.
What about the net assets? The net assets are taxable.
(Dublin Central): Does the Deputy not know perfectly well that hotels in this country worth £200,000 are making no profit?
Worth £1,000,000.
The Chair seems to be irrelevant in this debate. Would Deputy Fitzpatrick address the Chair? If other Deputies would allow the Deputy who is addressing the Chair to do so, perhaps we could continue the debate in an orderly fashion. We will not get very far if we do not.
This Deputy accepts the reprimand.
(Dublin Central): It is quite obvious that the Deputy——
Perhaps the Deputy would address the Chair.
(Dublin Central): Could I point out to the Minister and Deputy Esmonde that the hotels in this country are in a critical condition? This amendment is trying in a small way to exempt them from wealth tax. They should not be liable to wealth tax at all at this stage of our development. Any productive assets which generate employment should also be completely exempt from wealth tax. We have tried to impress on the Minister the appalling conditions the tourist trade and hotels in general find themselves in today. I was pointing out to the Minister that, under this section, Irish people who own hotels are at a disadvantage because they are levied with wealth tax and foreign companies owning hotels are exempt. I agree, A Leas-Cheann Comhairle, that it is a bit removed from Deputy Colley's amendment, but you will find that the substance of Deputy Colley's amendment tries to help the tourist industry. I appeal to the Minister to defer the levying of taxation on the hotel industry and give them some encouragement to get on their feet.
Can anyone visualise hoteliers receiving a notification from the Revenue Commissioners, which they will very shortly if their valuations are not submitted? The hoteliers are trying to keep the banks and the bank managers happy. They are not able to meet their commitments. For them to receive a letter from the Revenue Commissioners saying: "We have not received your valuation for your hotel", is ludicrous. It is nonsensical.
The bank manager has already done his valuation on the hotel.
(Dublin Central): The Minister should consider Deputy Colley's amendment. We are dealing with a section of an industry which is in a critical state.
The bank manager probably drinks in the hotel so he knows all about it. If he is a good bank manager he will.
Amendment No. 18c is consequential on amendment No. 18b. By agreement they can be discussed together.
And perhaps amendment No. 18d?
That was suggested to me but there is a slight problem about taking it.
Very well.
I move amendment No. 18b.
In page 13, subsection (1) (a) (ii), lines 8 and 9, to delete "a proportion of".
The object of these amendments is in regard to the proposed deductions of debts and encumbrances to place no restriction on them. In other words to allow to be deducted from the market value arrived at in accordance with (i) in this paragraph all genuine debts and encumbrances outstanding, and not to restrict the deductions in the way proposed in the Bill. Why restrict the deduction of genuine debts at all? If the debts are very heavy—and they will be in some of the cases we have been talking about —this restriction on deduction may well be the straw that breaks the camel's back. The Minister said in relation to the previous amendment, which relates to the same property, that this part of the section was designed to assist the smaller man. The formula provided here in regard to restrictions on deductions of debts favours the larger business. The highest proportion of debts may be deducted by the most wealthy individual. That is, in fact, what the restriction is doing.
My two amendments are designed to take away all restrictions and to say in the case of the properties covered in this subsection to which, according to the layout of the section, the Minister is trying to give special treatment, that if he is trying to give them special treatment, there should be allowed to be deducted all genuine debts and encumbrances incurred as indicated in the Bill, with no restrictions on those deductions. I think that is a reasonable proposition, and to restrict them in this way is, to some extent, taking back with one hand what is given with the other in the earlier part of the subsection.
What we are dealing with here is the allowance of a proportion of debts and encumbrances against the value of a property in cases where only a proportion of the property is liable to tax. The amendment proposes——
Would the Minister say that again please?
Yes. The amendments are providing the allowance only of a proportion of debts and encumbrances against the value of property in cases where only a proportion of the property is liable to tax. Am I correct?
Proportion of the property is liable to tax, meaning that the Minister has allowed for the 50 per cent deduction. Is the Minister referring to the 50 per cent deduction?
(Dublin Central): What part of the property would be affected?
That applies to the hotels. I do not think that is what the Minister means. The hotel deduction only applies to the bedrooms. Am I right in saying he is referring to the deduction of 50 per cent?
Let me give an example. If this does not correctly reflect the situation no doubt the Deputy will tell me. Suppose A owns land valued at £100,000 and other assets of £80,000, that is, a total of £180,000. The land would be taken as half the value which would mean that the value for tax purposes would be £50,000, other assets £80,000, that is, £130,000 would be its total value. Wealth tax would be £300.
We are speaking about land which is agricultural property owned by an individual who is a farmer.
Yes. Assume A borrows £100,000 to buy land of the value of £100,000. Land and borrowing would cancel out each other so that, in equity, A should still pay the same amount of tax since his net assets are unchanged at £180,000. However, if the full debt was to be allowed, the following would be the position: value for tax, land, £100,000, other assets £80,000, totalling £180,000, less the entire debt, £100,000, would leave a net value of only £80,000 and therefore no tax would be payable. Under the Bill the land would have a value for tax of £100,000, other assets £80,000, giving a total of £180,000. You would deduct half of the debt, £50,000, total £130,000, and wealth tax therefore would be £300. I would respectfully submit that that more truly reflects the position than the amendment.
To get something clear, with regard to the example given by the Minister, I understood him to say this farmer borrowed £100,000 to buy additional land. Is that correct?
Yes.
Would that be a debt which was incurred in connection with the original property and the business carried on in connection therewith?
Yes.
Unless I misunderstood the Minister, he was talking about a situation where a farmer had land worth £100,000 and other assets worth £80,000, and he then borrowed £100,000 to purchase additional land. Have I got that right?
Yes. His total assets would be £200,000. Half of that for tax purposes would be £100,000.
As I say, there might be some doubt as to whether in such a case this could be deemed to be a debt which was deductible unless he is farming out the whole lot together. And it is clear it is the one business he is engaged in. What about the situation of an hotelier who is in a business which is giving virtually no return on his investment and which may be running at a loss who, in order to keep going has to borrow very considerably? The Minister is saying: "It is too bad. You may have very heavy debts but you are not going to deduct them all, because we are already giving you a concession in regard to the valuation of the property". In cases like that, why not allow the full deduction of debts, because failure to do so is, to some extent, taking back with one hand what is being given with the other in allowances in relation to the valuation of the property?
The Minister did not deny, and I would assume, therefore, that he agrees with my contention, that the formula involved here favours the more wealthy individual and that the greater the value of the property the higher the proportion of debt one is allowed to deduct. Is that true? That is my reading of the formula in (ii).
If the property was worth £60,000 the deduction under (i) would be £30,000, 50 per cent, and the proportion of debts allowed to be deducted then would be a half. On the other hand, if the property was worth £400,000 the deduction would be £100,000 and the proportion of debt deduction allowed would be three-quarters, that is £300,000 over £400,000. In other words, the proportion of the balance remaining to the original value of the property, would seem to be the three-quarters and, therefore, the higher the value of the property the higher the proportion of debts allowed to be deducted. Is there any quarrel with that argument?
Is the Deputy intending that the greater the proportion of the total property liable to tax the greater the debt deduction can be?
I do not know if that amounts to the same thing I am saying, which is, that the higher the value of the property the higher the proportion of debt allowed to be deducted. Does the Minister agree?
I agree.
The Minister will recall that he said, in relation to the reliefs in this subsection, they were intended to benefit the smaller man involved in this kind of business. The admission he has just made shows that that is not so. It does not work that way.
It applies to the others too, but particularly in the case of hotels at present to be placing restrictions on the amount of debt which they may deduct is unrealistic. It is not recognising what their position is. If they must be subjected to wealth tax, and as Deputy Fitzpatrick indicated in our view no productive assets should be subjected to wealth tax. Hotels, particularly, should be treated as gently as possible or we will put even more of them out of business. For that reason I am urging the Minister to accept these amendments.
Could I ask the Minister a question? I understood the Minister to say that if there was a debt in the circumstance he described where somebody had purchased a property, only half that debt would be allowed? The Minister was giving an example to Deputy Colley of land worth £100,000 and other estate worth £80,000. Deputy Colley mentioned something about an additional £100,000 and land——
The Minister mentioned it.
——with a debt of £100,000. Did I understand the Minister to say that only half of that £100,000 would be allowed in arriving at wealth tax?
I took the case of a person who had £100,000 and bought another property for £100,000 with a loan of £100,000. The value of that land—because the exemption would be taken at £100,000 and not £50,000— would be taken at £100,000 for the two holdings together.
The value?
Yes.
So that the net £100,000 debt would come off it?
No, half.
Half of the total?
If a man owns £100,000 worth of land, he borrows another £100,000 and buys another holding. He has £200,000 worth of land. Land is taken at only half value so it is, therefore, £100,000. His other assets of £80,000 make £180,000. The deduction which he is allowed to make is a deduction which is related to the appropriate proportion, that is 50 per cent.
Of the £180,000?
Yes. Take £50,000 off the £180,000, leaving £130,000. The suggestion is that the £100,000 should be available as a deduction but that would result in a situation of no tax being payable at all.
Would the Minister comment on the hotel situation?
If the person had not borrowed £100,000 to buy another holding for that amount he would be paying tax. That would be a ludicrous position. His position is no worse if he borrows £100,000, gets an asset for £100,000 and retains all the assets which he previously had.
He is no better or worse in that situation.
If he would have been liable for £300,000 as he would have been for his previous assets before he made the borrowing and the new acquisition which has not added to his net liability at all, there is no justification for absolving him from tax altogether. If one were to allow that procedure to be available it would be an easy way for people to avoid.
I agree with the Minister. I misunderstood what he said.
That is the consequence of the amendment.
In Deputy Colley's amendment he is talking about the hotel business. How will the evaluation be arrived at?
Hotel businesses have their own exemptions and one can call it land or hotel buildings, but the principle is still the same.
I move amendment No. 19.
In page 13, subsection (1) (b) (i), line 21, to delete "which is" and to substitute "and farm machinery which are".
The purpose of this amendment is to give to farm machinery the same relief as is given to agricultural property under section 10 (1). Agricultural property and hotel premises are entitled to a reduction of 50 per cent or £100,000 if owned by a genuine farmer. If agricultural property is owned by an individual who is not a farmer or if valued at over £500,000, it is entitled to a reduction of 20 per cent under section 10 subsection (3). As the Bill stood, farm machinery was entitled only to the 20 per cent relief as productive property. By the inclusion of farm machinery in subsection (1) the farm machinery and agricultural property in the ownership of a genuine farmer is entitled to 50 per cent or £100,000 reduction in value. This relief will in fact apply where the value of the land or machinery is less than £500,000.
Could I ask the Minister about the £500,000 limitation?
Section 10 (3). It is a consequence, as the Deputy will appreciate once the £500,000 is exceeded. The 50 per cent or the £100,000, when it goes over the £500,000 is less than 20 per cent. It has less of a value than 20 per cent on assets above £500,000.
Yes. In other words, contrasting the relief under subsection (1) with that under subsection (3), is that what the Minister means?
Yes. You operate under subsection (3). You get greater relief by operating under——
I was just wondering. The Minister had referred to this earlier. I did not see any provision to that effect. As far as this amendment is concerned I welcome it because it is a step in the right direction. I do not think it goes far enough. Could I ask the Minister why, if he decided as he did in this amendment to include agricultural machinery or farm machinery with agricultural property, he did not also include such things as stocks of feed and fertiliser which are similarly part of a farmer's stock in trade. How does he distinguish between farm machinery on the one hand and stocks of feed and fertiliser on the other?
How would you fix stock, feed and fertilisers? Let us be practical about it. It just would not be physically possible.
It is as easy as farm machinery.
No. This is the point. Farm machinery is there but the hayshed, its size and dimensions and what is in it can change. Hay, grain or fertilisers could be out in a field.
They are purchased.
Let us be practical. In agricultural everyday terms, it is just not on. If Deputy Colley's amendment 18 (a) had been passed, this could not have had the benefit it had, so far as farm machinery is concerned. I want to put that on the record.
Why?
Just read the sections. If I had put forward the Deputy's amendment 18 (a), I could not have gone back to County Wexford.
That is very interesting. Perhaps the Deputy would like to develop those very words.
The written word.
Do tell us.
It would be very relevant to this amendment of the Minister's, if Deputy Colley's amendment had been through.
It is getting late and perhaps Deputy Esmonde is getting tired. Up to now he has shown——
He is full of energy and ready to go on and keep going.
The Deputy did not show any reluctance heretofore to talk at some length on various topics. I am rather surprised that he did not even very briefly spell out what exactly he had in mind. However, the point at issue before us on the Minister's amendment is to add to agricultural property farm machinery. As I have indicated, I consider that is a step in the right direction, but I am asking the Minister why he distinguishes between farm machinery on the one hand, and such things as stocks of feed and fertilisers on the other. I am taking them as examples of part of the stock in trade of a farmer, which seems to me to be the same as farm machinery. We did have an answer from Deputy Esmonde for which we are grateful, but I addressed the question to the Minister and I do not think the difficulties involved would be so insurmountable that the Minister would not be able to do this if he decided to do it. I have no doubt that if this amendment put down by me were not down Deputy Esmonde would be telling us it would not be possible to do this and that people could sneak in other people's farm machinery who were not liable and so on. I know there are all these possibilities.
I am not thinking of that. I am talking about the honest man.
Let us take the honest man in his case. The position in regard to stocks of feed and fertiliser are reasonably easily ascertainable and my question to the Minister is, how does he distinguish between them on the one hand, and farm machinery on the other?
Every time arguments like this come from the Opposition I say, there is another argument against giving any concession at all, because once you give one concession you are asked for another and you end up by not having any wealth tax at all. That is not the Government's intention. We have to draw the line somewhere and it is drawn now with great liberality. The machinery is obviously substantial machinery, which is what is in mind here, and is something which is easily recorded and identified. Its acquisition and disposal are easily dealt with in accounts and so on. It is traceable, but quite a different area of uncertainty arises if one wants to visualise extending it into the areas that Deputy Colley has suggested. I certainly am strengthened by the intimate knowledge of agricultural activity which Deputy Esmonde has, and his endorsement and wisdom is a great consolation to me. Deputy Colley will understand if I am unable to find the same consolation from the advice that he has proffered in this regard, because I think he has about as much intimate knowledge as I have in this field.
I would not quarrel with that statement.
That being so, we shall leave it to the expert who has spoken.
Arising out of that section, first of all I think that this amendment will be welcomed by very large numbers of the farming community. Would it be possible to explain to me later on the position in regard to agricultural property which was somewhat enlarged upon there?
What is the position in regard to buildings which are distinct from the normal residence and the normal type of buildings attached to a farm house, say, silage pits and other such buildings? Are they all exempted as well?
It depends where they are. If they are within the acre they will be exempted.
No. That is why I would like the Minister to clarify it for me. The position can arise that the dwelling house and a normal range of agricultural outhouses are in close proximity to the dwelling house but a farm may have a particular portion of land away from the dwelling house; even though it is distinct it forms part of a composite holding. A farmer for convenience may have erected a silage pit, which is expensive. A very considerable amount of money is being spent on erecting these silage pits. I wonder if they come in under this subsection?
I am sure the Deputy will appreciate that it is very difficult to produce laws which will cover every asset used and deal with the location of every asset. For the vast majority of farm buildings the exemption of property within an acre contiguous to the main building would ensure that it would be exempt. I can understand that there could be very good reasons for the location of a silage pit further removed from the house than the boundary of one acre, but when you have regard for the fact that agricultural land will enjoy 50 per cent exemption anyway, a reduction in value, there will be comparatively few cases in which the silage pit as such would be separately valued and given a specific value. The silage pit in isolation is probably a valueless article. It is something which is intrinsically part of the farm and is directly related to it——
What is the one-acre that the Minister is referring to?
Dwelling house——
No, farm buildings are not concerned with that.
The vast majority of farm buildings in Ireland are adjacent to the house.
Their exemption, their treatment, does not surely arise in that regard?
They get the exemption in that regard.
I do not think that is what the Bill says, but I would also think that what Deputy Enright inquires about is covered——
It does not have to say it for the enjoyment to be there. If the property is within an acre and that is the house, that is the family house and that is that.
That is not actually what the Bill says.
I am telling the Deputy what its effect would be, so that if the buildings to which Deputy Enright refers are within that area then they are certainly exempt. If they are further removed from the house their value is probably less on that account and I consider, having regard to the very generous exemption, the special difficulty to which he adverts would not be a real one in the overwhelming majority of cases. It could happen, but, as I say, it would be very exceptional that it should mean that a person would be paying significantly any greater tax in respect of the silage pit because it is some distance from the house rather than immediately beside it.
I agree with Deputy Enright, because you cannot have one of these silage pits within the acre. For reasons of pollution it has to be removed and it is of great importance because even a reasonably small one costs in the region of £21,000. That is a surprising figure but that is true. It will mean a big difference in the taxation. I understand now from the Minister that they are not excluded unless they are within the acre. I can assure you that none of them will be within the acre, because you cannot erect that type of a building so near a residence as that.
If they were within the acre they would not be excluded anyway.
They will not be within the acre. That is the point I am trying to make. I agree with Deputy Enright that they cannot be within the acre, and they are worth a significant sum in the overall——
