In considering this recommendation we must remind ourselves that this is one of the taxes which were introduced to replace a capital tax contained in the death duty code. It would be accepted by everyone in this House that the Government must get revenue from taxation of capital or income to provide the services for this community. But there is never a justification for an unjust tax.
It is very right that we should remember that under the late existing death duty code there was an exemption from all duty where the capital did not exceed £10,000, even if the entire of that £10,000 or £9,900 of it represented a capital gain from a lucky speculation or investment, added to which there was an exemption in the case of a widow of £4,000 for herself, an exemption not of £4,000 worth of assets but a credit of £4,000 against the death duty leviable on the estate if the estate did not exceed £100,000.
I am thinking of the estates which do not exceed £100,000. I am thinking of the small estates where the very small size of them forces a realisation. I do not think that the tax will be a just one if it fails to take account of the circumstances of somebody dying leaving a small estate and leaving a widow and dependent children because under the late estate duty code there was not merely a credit against the assessed estate duty of £4,000 for the widow, there was a credit of £2,000 for each of the dependent children, which meant that in the case of somebody dying worth £50,000 there was no estate duty payable if that person left a widow and six children.
There were three different ways, at least, of treating the occasion of death. You could have treated it, as the United Kingdom did treat it initially under the 1965 Act, as a disposal. If you so treated it you would then only apply the capital gains tax where the gain exceeded a specified figure or the realisation—I have forgotten whether it was the realisation exceeded a specified figure or the gain—but there was an exemption limit which meant that you could have gains which did not give rise to taxation in the case of death where you had small estates being realised. Or, you could have treated it as the United Kingdom at present treats it, as an acquisition by the personal representatives at the market value ruling at the date of death giving rise to no charge to tax but determining the base on which future taxation was to be levied. In that case if you had realisations, which generally take place pretty quickly after the death, on the whole this meant that there would not be very much capital gains tax. All the problems that have been referred to in the debate on the earlier recommendation with regard to indexation and inflation were wrapped up in the acceptance of a market value figure. Or, you could have done as we are proposing to do, treat it not as a disposal but as an acquisition of the cost of the deceased who in his lifetime had acquired it.
That particular treatment in my judgment is the worst of the three. It is bad for two reasons. It is going to introduce a great deal of difficulty into the matter of the administration of the estate. It will burden the personal representative with discovering what the deceased paid for everything that he has to sell, where he has to sell them and where he cannot take advantage of the arrangement provision of subsection (6) as proposed to be amended by the Minister. In addition to which, there will be a tax levied within effective thresholds which will amount to a selective and unavoidable wealth tax, unavoidable by people in difficult illiquid circumstances—an unjust burden in these circumstances, a harsh treatment of people who were properly provided for under amendments to the code which was later repealed, improved by the Minister himself.
I wonder whether the people who in general regard this as a tax on the rich speculator are aware that in many cases it will not be a tax on the rich speculator, who will be able to avoid that tax by retaining his accumulation because he is not forced to realise it. When I first became interested in politics the great cry of wage-earners, people with modest incomes, on the occasion of every budget was "why do you not raise the income tax?" We do not hear that cry any longer. That cry does not arise now because of the very large number of people who are within the income tax code. If this country, recovering from its present difficulties—I certainly believe it will—continues to make the progress which it has all the ability to make in its circumstances, I see the day coming when there will be as anxious a scrutiny of the capital gains tax code as there now is of the income tax code by people who at the moment think this is only a rich man's problem.
Somebody remarked to me, arising out of observations I made on the Committee Stage: "You do not mind about capital gains tax provided capital gains tax does not have to be paid." Untrue, unjust, wrong. I must accept, not merely because of my political position, the Minister's decision with regard to his treatment of this recommendation at this juncture, but I must record that I accept this decision with the greatest of unhappiness and considerable unease and only in the belief that a case for a proper provision of thresholds and exemptions will be borne in on the Minister and the Revenue Commissioners by the cases they will have to consider in the coming years.
It may be that it will take time before the injustice of this is felt, because of the base date given here, April, 1974. There is a reason for my not getting as excited about it as I might otherwise be. It is the acceptance of that base date, April 1974, and my realisation that although the cost of living has increased by whatever is the percentage since that date, the value of assets has not increased in general. Therefore in general over that time period it is unlikely that there have been many cases of hardship thrown up, if any. Yet I know of one security quoted on the Dublin Stock Exchange which has multiplied its value three or four times since that date which might have been one of the very few assets of a surprised deceased person, surprised by his own death and one of the very few assets which his widow might be forced to realise and pay 26 per cent of the accretion to value over the date of his acquisition, when she may need every penny she can lay her hands on for her own comfort and for the education and proper upbringing of her children.
I am also concerned because of the structure of the Bill in relation to this because while there are considerable possibilities now opening up to us to save these cases from harsh treatment by virtue of the proposed amendment of subsection (6) through making arrangements, the structure of the Bill must be looked at. There will be cases where arrangements will be difficult to make without giving rise to dispositions, where realisations will be vital to provide cash to clear debt and where among the things that may have to be realised by the personal representative may be the principal residence and in the case of such a sale the threshold in respect of that principal residence disappears. The threshold is only enjoyed by an individual. That exemption from tax could only have been enjoyed by the individual if he could have sold it during his lifetime, or if the circumstances are such that it can go to the legatee, being his surviving spouse, or whatever. But there are circumstances where this is not and cannot be the situation.
I do not understand why it is necessary to follow so very closely the income tax code in regard to the treatment of personal representatives as a body. It is an explanation but not a justification. It tells us why they are treated as a body, but there are special reasons why the allowances available prior to death disappear under the income tax code during the course of administration. There are justifications for that may be. There are certainly historical explanations for it. These justifications do not, in my judgment, innure to justify the treatment of the personal representatives on the same basis for capital gains taxation. If it is deemed proper that the realisation by an individual of his principal residence should not be subject to tax, if the situation is worse than it may be for the individual, because it is a forced realisation in the course of administration, that treatment should innure to the personal representative also. This has a bearing on this matter because if market value is taken, then the realisable gain after death, if made, will be modest and the impact of taxation more justifiable.
Whatever may be the difficulties about indexation, there are difficulties of communication, difficulties of explaining to people the distinction between capital gains tax and the economic disadvantages of identifying the two in terms of saving and the disposition of saving in risk-bearing situation—whatever the difficulties there may be about that, I would strongly urge the Minister that between now and next year's Finance Bill, in the light of the information to be garnered between now and then in respect of all cases of deaths which have occurred since 5th April, 1974, to reconsider the decisions embodied in the form of this section. I would prefer a graduated capital gains tax with a just provision for the modest situation, a graduation which should relate to the capital possessed, to a flat rate which, because of its modest impact on the very well-off cannot be adjusted to deal with the situation of those who are not well-off.
The distinction between income tax and capital gains tax economically is recognised in most countries and should be recognised here. I would invite the Minister to give me the encouragement of saying that he will look at the actual cases which occur. I know the Revenue Commissioners have this practice, the nature of which I never fully and completely understood, of making extra-statutory concessions. Perhaps I should address the Revenue Commissioners rather than the Minister in relation to that matter. In the care and management of this tax, while this section, unamended, stands, they should make extra-statutory concessions in all cases where benefits would have flowed to the survivors in the cases of widows and dependent children under the late estate duty code, even if they are up to £50,000. The sum of £50,000 is not all that much if you are the surviving spouse, and you are committed by the circumstances of the children to being in the house—this is your judgment as to what is best for them; you make this judgment and you do it—to manage, bring up in accordance with expectations, which is a point that ought not to be overlooked.
" A sorrow's crown of sorrows
Is remembering happier things."
This is something that a surviving spouse has very much to be conscious of. The children will have expectations based on the kind of experiences they had when their father was alive and well. The sum of £50,000, however well invested, will not produce in these inflationary days much of a surplus. Indeed, the general run of these cases discloses a situation of erosion of capital.
I would like to repeat the two points I hope the Minister will give encouragement to me by saying that he will look at the harsh cases that come to notice and will identify as harsh any case in particular of widow and children dependency; and that the Revenue Commissioners may make extra-statutory concessions prior to a revision of the decision embodied in the terms of this section.
