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Seanad Éireann díospóireacht -
Thursday, 29 Jun 1978

Vol. 89 No. 13

Finance Bill, 1978 (Certified Money Bill): Committee and Final Stages.

Question proposed: "That section 1 stand part of the Bill."

At the outset I should like to say something pleasant. I want to thank the Minister for the very helpful statement at the opening of the debate which has made the task of understanding what we were to debate very much easier. It goes beyond the explanatory memorandum and taken in conjunction with it makes it easier and, I hope, the debate shorter.

Now I come to the unpleasant part. First of all I want publicly to protest at the delay in the publication of the Bill. It took 10 weeks to publish it. There is nothing too extraordinary about the measure. I suggest that in future years if we have a section or so giving trouble to the Revenue Commissioners in sorting out what way they want to put it, let the Bill be published in so far as it is settled and let the troublesome matter be dealt with by subsequent amendment. This would enable people to get down to a study of the Bill much earlier and, presumably, let the Dáil process of debating it get going. There is nothing sacrosanct in the format of the parts which would necessarily administratively prevent that being done; these could always be changed around at the end.

My second protest relates partly to the first. I cannot remember when we in this House last debated a Finance measure when it mattered what we said, because of the time it reaches this House as distinct from anything else. This can be an excuse for indolence. We are always ready to take such an excuse when we get it and it may be an explanation for inadequacy. The Constitution provides that we have a role. Whichever administration it has been, it has been preventing us effectively from performing that role. If any one in this House were to disclose that persons of a certain category were to be flogged publicly every Tuesday from now until the first day of October under some misinterpretation of a section of this Bill, there is nothing that will get the Minister to bring this measure back to the Dáil.

I most sincerely press this on the Minister and on his advisers. It is unfair to the House and bad for the House to be in a position of having a debate which means that if you — I do not have anything startling to say — had any point to make that would be of any significance it could only be taken care of in a subsequent Bill, which is bad.

With regard to the first section——

I have allowed the Senator to make those two remarks but it is only fair to say that they would have been more relevant on the Second Stage of the Bill. We happen to be on section 1.

I am sure I will not be out of order in thanking you for your kindness. With regard to section 1, there is one point for clarification. The allowance of £95 contained in section 142 of the 1967 Income Tax Act still remains the same. It is not one of the allowances which has been increased, or has that been taken care of in the Table? It does not seem to have been taken care of in the Table of increased allowances in section 6. It is one of the allowances, but is it the dependent relative allowance which is not being increased? It is only the threshold at which it operates that is being changed. That is unfortunate. Would the Minister think of taking a recommendation to include that in the Table in section 6? The Dáil is not breaking up until 10.30 p.m. and I am sure we can get this through in time to make the suitable adjustment in the dependent relative allowance. The Minister might think about that.

The format of the section is changed in that it is the section which is being amended. Now we are having the text for "the contributory old age pension" substituted for "the old age contributory pension". In doing it in this way it seems that we are putting ourselves in the position that every time a Government increase the old age pension they will have to make an amendment of that section which would not be otherwise requisite if we retain it in its present form, amending only the reference to non-contributory as distinct from contributory old age pension.

First of all, with regard to the length of time taken to publish the Finance Bill, I am very conscious of the importance not only to Members of both Houses but to people outside the House that they have an adequate opportunity to study the contents of any Finance Bill. I regret that it takes as long as it does to produce the Finance Bill. That period varies, of course, from year to year. This year the interval between budget day and the date of circulation of the Finance Bill was 70 days. It may not be entirely satisfactory, but it certainly was more satisfactory than in the case of the 1974 and 1977 Finance Bills where the corresponding periods were 89 and 90 days respectively.

They all have been awful, I agree.

The Senator will appreciate that while I may not be entirely satisfied with the 70 days, I think I am entitled to point out that we are not as bad as the position has been in some previous years. I accept the point made by the Senator that the longer the period available for study of the Bill the better. On the other hand, the question of when the debate commences in Dáil Éireann to a great extent depends on the Opposition rather than the Government.

The Minister had his period in Opposition. Is there any point arising from that with regard to the earlier delays?

I was about to come to that point. The Senator will be aware that the only reason the Bill is before this House now is because a guillotine had to be applied to it in the other House after quite a lengthy debate. I accept that it is very unsatisfactory from the point of view of this House that the House finds itself regularly in the position that in practice it cannot make recommendations in relation to the Finance Bill, but the fact that Senator FitzGerald, who is a long-time Member of this House, says that he cannot remember an occasion when there was a Finance Bill when this was not the position——

I cannot remember when it was. I do not mean to say that there was not one.

The fact that the Senator cannot remember an occasion is an indication of the practical difficulties that have arisen in trying to effect an improvement in the situation. All I can say in that regard is that I would favour and welcome an improvement in the situation. If I can contribute to that I will do so, but I cannot give any firm guarantee to the House in that regard.

The Senator was correct in what he said in regard to the figure provided in section 142. There is no change in that. The change is only in the threshold. The question of providing a formula in the section which would make an automatic adjustment is one that I am considering, but it is a little more complex than it might appear on the face of it.

It seems complex, but what can be done?

In the circumstances of this year and because the decision to make this change was made at a fairly late date, it was only possible to do it in the form in which it appears in section 1. In considering the question of a different kind of provision which would make this change automatic in future, I have to give more detailed consideration to that than is possible at the moment.

Question put and agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."

I wonder could the Minister give any indication of the type of cost involved to the revenue for these insurance premiums?

It is approximately £7 million annually.

This relief was introduced in the Income Tax Act, 1920, which means that it was a consolidating Act when it was initiated. But we are having life insurance companies singled out for special treatment in relation to the accumulation of savings, and that has considerable social consequences. I wonder whether the historical circumstances under which the relief was given might not be looked at for the Minister to see if changes had taken place which would justify its continuance at all, or its limitation to insurance companies. For example, there is one type of case which is not catered for in any way, where you have a person who is turned down by an insurance company and he has to accumulate without any tax relief some provision for those who are to follow him, and there is no institution he can covenant with to maintain an annual flow of savings, that might be equivalent to an annual flow of premiums, which would mean he would get relief on what he was paying to the institution. I am talking about a case where a man could not get life cover because of his health situation.

I take the point made by the Senator. On the general principle that expenditures or the foregoing of income by the Exchequer ought to be examined periodically to see whether the original reasons for such provisions still prevail, I would certainly say that the Senator was justified in raising the point, and we will have a look at it. Nevertheless, without having examined it my initial reaction is that for various reasons I would still think that the nature of life insurance, from the social point of view as well as from an economic point of view, is such that the relief is still justified. That is an initial reaction without examining it.

On the point raised by the Senator in regard to a person who cannot, say for health reasons, get life assurance, such a person is at a disadvantage. I am not sure we can find a solution to that but I will certainly have it examined. It is a valid point.

In a sense, such a person should be accumulating more, he should be paying a higher premium, because he is a greater risk and therefore the relief ought to be greater for him.

I am sure the Senator is at least as aware as I am that there are many anomalies in tax law which, taken on their own, are unfair but cannot be cured.

Question put and agreed to.
SECTION 3
Question proposed: "That section 3 stand part of the Bill."

This is not very important but it is an improvement on the existing position.

I have a little bit of information here in regard to this which might be of some interest to the House. I have said in regard to this section that I felt many married women were not aware of their rights under the existing law to have separate assessment from their husbands, that is, married women who have incomes of their own. This section is providing that where separate assessment is sought, then the ordinary basic personal allowances are divided equally between the husband and the wife. It has been proved for quite a long time that where there is separate assessment the husband and the wife are treated quite separately for income tax purposes so that the husband is not liable for the wife's tax or vice versa, and if there is a refund due it is paid to whichever of the spouses has overpaid the tax. If it is not a separate assessment it is paid to the husband.

The information I have got relates to the form that was sent out. The House will recall that I indicated that because I felt there were quite a number of married women in this position who were not aware of their rights, I had arranged with the Revenue Commissioners to send out a circular explaining their rights and enclosing a fairly simple form to enable them to apply for separate assessment if they wanted to. The information I have is that following the issue of the forms to married women with incomes, there have been in the Dublin area 4,000 applications for separate assessment and that they are still coming in at the rate of 150 per day. If we assume a similar response throughout the country it is clear that a substantial number of married women are anxious to take advantage of this section.

It is past the time of reform: a revolution is imminent when that happens.

Question put and agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."

This relates to the self-providing pension scheme.

It alters the cash limits but retains the percentage limits.

Apropos a remark made by Senator Donnelly last evening as to the niggardly and mean approach of the Minister's predecessor to all matters of tax, I think the Minister would be the first to point out that his predecessor in fact raised this figure from £1,500 which it had stood at for a considerable period to £2,000. He had made some move. I gather that the Minister has gone further in the same direction. I think the point should be made in the context of Senator Donnelly's remark.

I can confirm that what Senator FitzGerald has said is correct. The limits were increased in the Finance Act of 1977 but the general approach I have to this is that by having only percentage limitations one is applying the same approach as applies in the case of employees. There are, of course, employees with very high salaries so that one is treating them apparently on the same basis. In practice the self-employed may be worse off because they frequently can find themselves in a position in certain years when they would not be able to pay the full premium and in other years, in order to make up, they might be able to pay more. To that extent they are somewhat worse off than employees. At least by applying the same percentage limitations we are keeping a little more equality between the employed and the self-employed.

That statement should be taken in the general context of the very much more favoured treatment that the self-employed man receives under his Schedule D assessment in regard to expenses and so on. There are self-employed and self-employed, and there are situations where this kind of provision is just only right and other situations where there is in fact the lying-behind of the self-employed as a result of his endeavours and activities to create a growing and valuable business which is there for his own pension in any case. This is to deal generally with characters like some of those here around me.

Question put and agreed to.
Section 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."

I may have made a rather fatuous statement yesterday — indeed I made a lot of fatuous statements yesterday, but the only one that I have since clearly thought about is my remark that these allowances are necessarily regressive. I would be interested to know what is the background to them, when do they come in, what is their object? Is one of the advantages that it pulls a lot of people out of the net of taxation altogether because with the increased allowance they get to a zero tax position? I take it that that is the general effect. With such a state of fuss I did not have a chance to check what the Minister had said about the cost of this operation for the year. I had made the point that I was more interested in the shifting of the bands — I thought that to be more important than anything in terms of economic effectiveness if one has to and thinks one can afford to give this kind of allowance.

As regards the cost, it is estimated this year to be £63.4 million and £97.6 million in a full year. Having regard to that very heavy cost it will be clear why I have been unable to accede to requests for additional reliefs or allowances under different heads, in this year at any rate. It is a very substantial sum and they are of course very substantial increases, as I indicated last night, far bigger than any that have ever been given before.

The purpose of giving such substantial reliefs is in the first instance because income tax was becoming such a heavy burden on many people and over the years has not been adjusted in line with inflation, so that automatically there has been an increase in the incidence of income tax where there had not been such an adjustment. In addition it had a major economic purpose in so far as the amount of the allowances, taken in conjunction with projected increases in incomes under the national pay agreement, would result in a fairly substantial increase in real incomes for workers generally.

The purpose is to raise the standard of living, and economically thereby to ensure greater activity through a greater purchasing power and ability to save. In addition, the figures envisaged here ensure that every single payer of income tax will get substantial relief, and as part of the overall economic programme it was designed to ensure that people would get increases in real terms in their incomes without adding unduly to the cost of Irish produced goods. Putting it in simple terms, this means that the Exchequer is taking part of the burden that would otherwise fall on employers in the sense that they would have had to pay higher wage increases. The Exchequer is taking on that burden, which means the taxpayer is taking it on, and ultimately it has to be discharged.

In the economic circumstances in which we found ourselves this section represents a basic part of the our economic strategy for tackling the economic situation. It would be inappropriate to elaborate unduly on the overall economic strategy involved, but there is a basic part of it involved in this section.

We should not like to go back to a Second Reading debate again, would we? On what the Minister has just said, these allowances are to be available to everybody, whether they are employees or not and enabling characters who do not have to get up in the morning at all to be in receipt of these reliefs. I do not see that as making the economy more competitive. Serious questions arise if the limited resources available to the State are to be availed of for some sort of subsidy to be given to employers. If the reality is that workers are demanding increases beyond what the economy can afford that is that, but that it should impact first on the employer, I should like to express myself as not believing it to be a wise use of our resources to have that burden put on the Treasury. That is my view.

Question put and agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."

I just use this section which, of course, is entirely welcome, to ask the Minister to have one aspect of the whole income tax code examined in the light of one observation I made on Second Stage with regard to the relief of suffering and the encouragement of valuable expenditure to see what can be done. As I said, the dumb and the deaf are excluded from the benefits available to the blind. I cannot see why. Some may think one situation is worse than the other. Generally with regard to these covenants, an old UK code encouraged charitable activities when only people with a lot of money could provide sums for charity.

We are now in a new economic situation where people may be generating large incomes. They should be encouraged to devote to charity in an unselfish way as much of those large incomes as they possibly can. The reasons why these covenants were cut down years ago may no longer apply. It would be a worth-while exercise in the State's interest to have the code looked at to see could we construct a system whereby this would not be used for avoidance purposes.

As I am sure the Senator is aware particularly from what he has just said, the reason why it was necessary to cut down very substantially on the use of covenants was precisely that they were being used for avoidance on a very large scale and a great deal of revenue was being lost for purposes which would not receive general approval. There are still objects for which covenants may be entered into and tax relief obtained. They are limited in number and scope. The difficulty about any extension of them is that any one case which may be made, and may be worth while, would always be met with quite a number of other worth-while purposes, and it is very difficult then to draw the line anywhere, unless one adopts a very strict attitude to them.

The past experience of the manner in which this provision was abused would make any Minister for Finance wary of extending it further. I am not saying that in no circumstances would any extension be contemplated. All I am saying is that there are difficulties involved in an extension and the past history of this provision would ensure that any proposals for extension have to be viewed very strictly, and with one eye all the time on the possibility of further requests, and further extension of exemption, with consequential substantial loss to the Exchequer.

With the greatest respect, I caused a question to be asked in Dáil Éireann some while ago as to what was the total loss of revenue involved when there were unrestricted charitable covenants available. My recollection is that £82,000 a year was the sum mentioned.

I hardly think that can be right.

It was so low that I was astonished at the assiduity of the Minister for Finance in relation to sums of this kind at the time. I must say that I wish the same assiduity had been maintained after that time. Even assuming it was costly, I suggest very strongly to the Minister that an old principle which was always sound, is coming back into vogue, the principle of subsidiarity: anything that can be done by a lesser body should be done by that lesser body and not by a larger body. There may be voluntary bodies who are prepared to provide services, and are working in the provision of services, who can relieve a situation. As the Minister indicated, it may not be possible to afford even desirable reforms. It may be much cheaper to have these services provided by voluntary bodies out of charitable tax relief subscriptions than out of tax collected from a reluctant and annoyed taxpayer.

This is well worth serious reconsideration by the Minister, particularly in the context of the general approach outlined to us with regard to socially desirable expenditures. Otherwise we will have an ugly society, a society in which people appear to be selfish and simply in pursuit of gain, in which the Government do not bother to provide a stimulus to make society do good with the money they are making. I would very strongly urge this on the Minister.

There is, of course, an aspect of this which should not be overlooked, that is, that there is nothing to prevent people with sufficient wealth or income at the moment donating money to various good causes. What is being sought here is to enable them to do so and get tax relief at the same time, which means that what is being sought is that the Exchequer should also contribute to these good causes. The effect is that the direction and amount of assistance is determined not by the State but by the individual concerned. Obviously the assistance from the Exchequer arises only when the individual concerned decides to make the contribution to a particular good cause, if I might call it such.

Questions arise here. If one allowed this to grow to a very large scale one would find, in effect, substantial assistance being given by the Exchequer to various causes of this kind, determined not by the Government or the Oireachtas, but by the individual taxpayer who was getting the benefit of the tax relief. This is a factor which has to be borne in mind too in considering the general question of covenants.

Yes, but it is a free society and it seems desirable that people should enjoy their freedom to the extent that they can. The State will be playing a role in providing an incentive to them to do these things which, being done in this way and cutting out the cost of collecting and the cost of redistributing what is collected, will be done more cheaply. The costs of administration of these voluntary bodies are very low in general and this is something I would have thought the Minister could try to introduce on the basis on which we have had reliefs for depreciation, stock relief, and reliefs in this Bill with regard to constructional contracts. The thing could be done within a period of operation and let us see what it is costing and let us see what is generated. For example the Government give money to the political parties on this side of the House to organise themselves to put the Government out of office in due course. This is sensible and one of the best things the Government do, perhaps inadequately, but it might be better for the country if, instead of having to collect the tax from the taxpayer which is then administered through some Department and given to the parties, people were allowed to deduct their covenanted subscriptions to political parties.

I was talking about good causes.

It could be limited to individuals who would have no difficulties about standing over their covenants. That is one example, an unserious one, but still I believe it to be true. The general one is very important, and I will be back on it again if the Minister does not improve it.

Question put and agreed.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."

I want to make two points on this. It all relates to the sections of the Finance Act, 1974, which introduced the curbs and restrictions on interest. The effect of these sections was to amend section 496 of the Income Tax Act, 1967. I think a mistake was made which needs to be repaired in so far as the restriction on the refund of interest under section 496 to the figure of £2,000 did not apply to interest on money borrowed to pay death duties. There still may be some death duties to be paid here and there, but there are other duties which arise on death which will give rise to the borrowing of money where, for example, a probate cannot be extracted because the evidence is not before the registrar. The capital acquisitions tax has to be paid and the personal representative will have to find the money from a bank. It may be a very large sum.

It seems to me that the Legislature in its original enactment of this section — this was in the 1974 Act — intended that that type of situation should not be caught by the restriction. It arises from the mere business of organising money to be given to the Revenue and therefore I think subsection (4) of section 496 should be amended to include — whatever about gift tax — inheritance tax or any tax exigible in the event of a death. That is just one short point.

I am not bothered about section 8 generally. It has been improved by ministerial amendment proposed in Dáil Éireann but, for the life of me, I cannot see why this is limited to people who are substantially involved in the company. Surely this is the kind of thing where we should be encouraging employees to borrow money for the purposes of financing the enterprise which employs them. Why should it be restricted to people having a significant interest? Is this not the type of section we need to encourage profit sharing schemes and worker participation? I should like to profess my profound conviction that this society will not solve its problems unless the two sides to industry are brought together in this kind of way by an involvement in the profit over the competitive cost. If the employee is to be asked to keep it competitive, schemes will have to be worked out under which he will be given a share in the surplus which results from his competitiveness, his hard work and his productivity. This is one of the things which do not appear in the Green Paper. At least I did not find it in my rapid perusal of the document. Something like that has to be worked out. Why should this section be limited in the way it is as I read it?

I will certainly have the first point raised by Senator FitzGerald examined in regard to subsection (4) relating in particular to inheritance tax. I am not quite sure if Senator FitzGerald and I are on the one wavelength in regard to the second point he made. Perhaps I misunderstood him. Up to now there was a restriction as regards having a material interest in the company which was defined as holding 5 per cent of the issued ordinary share capital and working for the greater part of the time in the actual management or conduct of the business of the company. That is removed certainly in some cases. We have relaxed it to provide unrestricted relief to employees and directors, whether they are full-time or parttime in private trading companies, for interest on borrowing to acquire shares in the company. We have provided additional relief of up to £2,000 interest to full-time employees and full-time directors of public companies who borrow to acquire shares in their companies. We have also covered the problem arising in regard to holding companies. I do not think I need to go into it as I am sure Senator FitzGerald is fully familiar with the problem which arises there. Maybe I missed the point Senator FitzGerald was making.

I probably did my usual thing of misreading the section. At any rate, there is a restriction in the case of interest allowances to somebody other than a full-time employee. Subsection (2) provides that no relief shall be given for any year of assessment by virtue of this section other than to a full-time employee or a full-time director of the company and no such relief shall be given to such employee or director on the excess of that payment for that year of assessment over £2,000.

This is a public company.

In the case of a private company there is no restriction?

That is right.

I did misunderstand it.

Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."

Would the Minister tell us what it means?

This section gives effect to the announcement made on 12 August 1977 that legislation would be introduced in this Finance Bill to give a remission of a half year's tax to cross-Border workers affected by the change in the system of taxing their emoluments following the coming into force of the Ireland-United Kingdom double taxation convention signed in 1976. Under the new system, these emoluments are now within the scope of British PAYE and, but for the proposed remission here, the employees concerned would have to pay one-and-a-half years' tax in one year. It will be recalled that remission of a half year's tax was given in 1960-61 when PAYE was introduced here and a similar remission was given in 1976 when public servants and certain other employees were brought within the scope of PAYE. These people who are being brought within the scope of British PAYE would have to pay one-and-a-half years' tax in one year, so we are giving a remission of a half year's tax.

Question put and agreed to.
Sections 10 to 13, inclusive, agreed to.
SECTION 14.
Question proposed: "That section 14 stand part of the Bill."

Among the things this section does is to give credit for rates. It refers to section 21 A.

It is inserting a new section.

Does it allow the rates where they are assessed to tax on an accounts basis or only where they are assessed to tax on a notional basis?

It is a credit in both cases.

Question put and agreed to.
Sections 15 to 17, inclusive, agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."

I should like to know a little about the background to this. Do I understand that they will remain taxable on profits which are derived where they are in competition with other traders or other people and only their agricultural operations are exempt so far as they create profit? I thought that was clearly what the Minister was doing. It was not clear to me on a rather speedy reading of the section how the appointment of the profit is made if the society ends up with a profit of £1 million or whatever. What is the basis? Is it the proportion of the turnover in the different transactions which determines the apportionment of the profit which is analogous to the procedure under the export tax relief?

I understand it is done in proportion to turnover on exempted and non-exempted items.

Has this concept been examined? It is quite clearly a fair and efficient method of operating a distribution of profit of a company engaged in manufacturing and selling goods on the home market and manufacturing and selling on the export market. It is the easy way of doing it and there are no particular difficulties about it, but you can have activities of an entirely different kind where the turnover may not be a fair test in determining what the profit is. What type of activities in general are these societies engaging in? Is it possible that the agricultural turnover relative to the trading turnover might mean they were paying more tax than the profit generated by the other activities because of the lower proportion the non-agricultural trading bore to the agricultural trading? I just wondered to what degree this has been examined in relation to the societies who will get the benefit of these exemptions.

The list of exempted transactions is in the Second Schedule and it is substantially as it used to be. The Senator will appreciate what this section is doing.

I looked at the Schedule. That deals with exemptions.

Effectively, subject to certain modifications in the list of exemptions, it is reverting to the position as it was prior to 1976, I think, and the method of apportioning turnover of exempted and non-exempted items is the same as it has been in the past. I accept that it is somewhat crude. It does not give an entirely accurate measure, but the method used is the one used in the past, that is to assume a uniform rate of net profit on exempted and non-exempted transactions.

Question put and agreed to.
Section 19 agreed to.
SECTION 20.
Question proposed: "That section 20 stand part of the Bill."

This is a good idea which was introduced in the Finance Act, 1977, but Revenue did their usual thing on new and good ideas. They did the same to the export tax relief when they first got at it in the Finance (Miscellaneous Provisions) Act, 1956. They put such restrictions on it as to make it a non-runner. Gradually these restrictions got torn off the relief so as to make it effective and to incite the economy to do the things it was intended to incite the economy to do. I think this is another section which the Minister amended in the Dáil. Am I wrong in that?

They were only minor amendments. I am not quite sure what the Senator has in mind. The House is aware, as Senator FitzGerald has indicated, that this special rate of corporation tax, 25 per cent, was introduced last year to be available for certain manufacturing companies if they met two tests: one, that they increased their employment by at least 3 per cent; two, that they increased their sales by at least 5 per cent. What we are doing here is removing the sales test altogether.

Is that gone? I thought is was gone until I saw it appearing here.

I understand the Senator's concern. It has to be retained for companies who would be claiming it for 1977. There has to be a formula for dealing with that. As from this year, the only test will be the employment test. There are two basic reasons for that. One is that the thing we are really concerned with is the increase in employment. It is better to concentrate the whole effort in that area. The other reason is subsidiary to that and was mentioned by Senator FitzGerald's party spokesman in the Dáil when he said, quite rightly, that if you have an increase in employment, it would be very unusual to have it without an increase in sales. In other words, it is only when you generate increased sales that you look for increased staff. So the sales test to some extent is irrelevant. I think it only makes the operation of this provision more complicated. For that reason I am taking out the sales test altogether, except for the purpose of applying it to those who would be operating under the previous legislation.

That is absolutely right. Am I correct in thinking the Minister is still retaining the restriction that the income is not less than 95 per cent of the total amount of this income from the manufacturing activity?

Yes, that is being retained.

It seems a high figure. I suggest that the Minister might well consider an extension of this beyond manufacturing companies to services. The fatality of being unemployed is so beastly that to be under-employed must be better, even if people are under-employed in running around an hotel interrupting you at every third bite of your dinner. It seems we must get a bit more away from the idea that manufacturing is all. The generation of other economic activity may be something we have been tending to neglect. This is probably why it is manufacturing companies because the whole export tax code was based on the fact that one was a company, if I remember correctly. I do not think that the export tax relief is available to any one of us if we want to export ourselves. We would have to incorporate to get the benefit of the relief. An extension to individuals and partnerships and a further range would be desirable if they take extra people into employment, pay their stamps and do all the things required to prove that it is all for real and true, that they are not their blood brother's children or something. One might have to put some restriction of that kind on it. A certain amount of looseness about that even might be no harm in our situation.

I make the point, for example, about the profession that the Minister practises when he is not Minister, in common with myself. If we took on in our several offices extra people, that would be taking people into employment every bit as much as if they were filling peas into a can and they might be learning something as well. It would take people out of the unemployed status. It would have to be costed and maybe a different type of relief would have to be given to prevent this being too costly.

Having said that, I would like to ask a question to which, indeed, I should know the answer myself but I do not. The export tax relief which a company gets it can pass on, I know, by distributions to the investors; they get the benefit of the relief in their dividend: the tax deducted or the tax credited arrangements. Does this particular relief pass on as well? It seemed to me that it did not but perhaps I was wrong.

In regard to the last point raised by the Senator, there is a tax credit based on the 30 per cent rate, although the actual rate of tax is only 25 per cent. So to that extent there is a passing on of benefit, if you like, to the shareholder.

That is under the proposed change to 30 per cent. The figure of 30 per cent is what is proposed when one comes to the distributions.

At the moment, therefore, the 35 per cent has been the credit. In other words, it is not passed on in the same way as an export tax.

No, it is not.

It is in exactly the same position as depreciation allowance or one of these things that might effectively reduce the amount of tax that a company would pay to nil or to 10 per cent. Therefore, the company get the benefit of it but not the owners of the company.

Yes, they get some benefit but not the full benefit.

Therefore, they get use of the money in the build up of the business and so on.

I fully agree with the Senator in regard to the possibilities of greater employment in service industries and in distribution. Neveretheless, the cost would be very substantial. It is estimated that the full-year cost of this provision is about £10 million. If one were to extend this to distribution and services obviously it would be very much more substantial. It is also true, at least it is generally accepted, that each new job in manufacturing creates at least one job, probably more than one, in other areas of the economy. So, if you have to limit the benefit, it is obviously best to limit it to manufacturing. You get a better return in terms of jobs than if you confine it to any other.

It would increase the linkage. It would tend to increase the number of service jobs that manufacturing jobs generate.

Yes. I think that is true. In principle I think the Senator is quite right in what he says but I have to have regard to the practicalities of cost and if I do I think we get the best return in terms of jobs in confining it to manufacturing industry.

If there were not a fairly easy way out of the difficulty I would be more sympathetic to the problem adverted to by the Senator when he talked about the 95 per cent requirement. I know there are cases where more than 5 per cent of the income may be derived, say, from the investment income or something other than manufacturing. This presents problems, but there is a relatively easy way out of this difficulty, that is, the creation of a subsidiary company through which the non-manufacturing income can be channelled in order to qualify under the section. It is a bit unfortunate, perhaps, that people have to go to that trouble, but I think for the considerably reduced rate of tax it would be worth their while and it is not an insuperable difficulty for people who find they are losing the benefit of the reduced rate of tax because of something in excess of 5 per cent of income derived from a source other than manufacturing.

One thing the Minister said is absolutely fascinating — that the estimated cost of this section is £10 million.

It will be in a full year.

Which is to say what precisely in terms of employment? Assuming we are talking in general of cutting the 45 per cent rate to 20 per cent which is equal to £10 million, we are talking about an overall profit generation of £50 million which has created employment in excess of 3 per cent. It would be very interesting to see what is the cost to the State per job of providing this relief. If it is that costly, maybe we should be doing something other than this. On the other hand, maybe we are getting jobs created at a very much cheaper rate than they are being found to cost through direct grants to industries for adaptation or extension or for new industries. It seems to me if you have an estimate of a relief of £10 million on a full year you must have before you some notion of the amount of extra employment that that relief is procuring. It seems to be a way of testing the value of the relief and then, testing it in that way, it seems worth seeing how this compares with the kind of grant you have to give to get industry established or extended. The question is of great interest to me and I feel would be of great interest to the House and people who are concerned with public affairs generally. If the Minister would like to give me the information at a later stage in the debate, I would be grateful if he could do so.

I should say that I can understand the Senator's interest in this but I am afraid I have to disappoint him, because the Revenue Commissioners are not in a position to calculate how many firms, earning how much profit, will increase their employment by 3 per cent at least. They can do no more than make a guess. The figure I gave of £10 million is based on the reduction in tax from the companies concerned based on a guess on what the increased employment would be. Until we see now this works, and it will take some time, we will not be able to judge this accurately, but I would agree fully with the Senator that if it operates effectively it certainly could provide a very useful line of approach and might well justify even a fairly fundamental change, which, I think, is the point the Senator was making, in regard to the provision of employment. We are certainly not in a position to assess that yet.

I suppose any guidance one would get from the operation of the section in the first year would not be a great help——

——because of the various impediments that there were in the section which restricted the benefits or the attractiveness of it to manufacturing companies.

I have had pointed out to me here a reply to a Parliamentary Question, a portion of which brings out the point, that the submission of accounts in respect of this will not, broadly speaking, be completed until as late as the middle of 1979 and accordingly it will not be possible until the latter part of 1979 to assemble for the financial year 1977 the comprehensive statistical material that was being sought in the question. In other words it will be considerably later than next year before we will be in any position to assess this.

We will all be hanged before we get this thing.

Question put and agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."

Of course it is a relief to everybody to be exempt from tax and delightful news it is for people who are in these ranges of profit. The Minister in these proposals is moving along the direction taken by his predecessor last year. This is one which applies to all small companies, if I understand the situation, whether they are engaging in backing horses — you could, perhaps, back a horse with a company but I do not think you could take a bet — or investment or doing anything you like. The investment companies are caught on distributed surcharge provisions, but this has been in existence a long time because it is incorporated in the Corporation Tax Act of 1976 at £5,000 and it was an earlier figure many years ago. We must have some idea of the range of companies that get this benefit. What does it cost us to give it to them?

The cost of raising the threshold for small companies to £25,000 with a marginal relief up to £35,000 is estimated at £400,000 in 1978 and £1.2 million in 1979. I should point out that the relief embodied in this section will not be available to manufacturing companies getting the benefit of the 25 per cent special rate of corporation tax. They cannot avail of both. I believe that small companies in the main are Irish-owned and controlled companies. I believe also that in general they have a very considerable potential for expansion, particularly in relation to employment. Of course, I am generalising when I say this. I would think that the kind of expansion we would hope to see from Irish companies would, in general, come from small companies who are dynamic and can be encouraged to grow. For that reason I believe that the relief proposed in this section is worth while and it should operate as an incentive to business generally, and particularly to small business, to expand their activities, which is part of our overall economic strategy.

To repeat a question already put to the Minister on an earlier section, if a dividend is being declared by one of these companies is the tax credit the 35 per cent that was or the 30 per cent that is to be or is it like the export tax?

No, it would be the new 30 per cent.

In other words, the advantages, as it were, are only there to the extent the money is being used to build up the business, which is what we want.

That is correct.

Question put and agreed to.
Section 22 agreed to.
SECTION 23.
Question proposed: "That section 23 stand part of the Bill."

The Table to this section states:

8.— (1) Section 246 of the Income Tax Act, 1967, shall not apply to any expenditure incurred on or after the 24th day of July, 1973, on the purchase of a new ship.

If we are to encourage any serious expansion of the shipping industry, particularly in the difficult time occurring at present in view of the very special effects of inflation on the shipping industry and the very nature of the industry itself, it may well be necessary at some stage to consider very specific taxation provisions in relation to shipping. This is the appropriate section on which to make such comment.

The general position in regard to the shipping investment allowance is that it had existed and was suspended when free depreciation was introduced, which on the face of it did not seem to be an unreasonable approach. Free depreciation is now available and continues to be available. If it should transpire that special additional relief would be justified in the case of shipping, then obviously I would be prepared to consider that. At the moment it seems that the free depreciation available is sufficient to meet the requirements. I am not closing the door on the situation but as of now it seems that what is available is sufficient.

Question put and agreed to.
Section 24 agreed to.
SECTION 25.
Question proposed: "That section 25 stand part of the Bill."

I know that the Minister has had representations made to him with regard to the case for extending the definition to include buildings in use by transport and storage firms and with regard to the growing importance for the economy of an improvement in these facilities. I do not know whether he is considering this for the future or what his attitude is to it, but it does seem to relate to the question of the linkages between manufacturing and improving. This is a kind of privately provided part of the infrastructure which is useful to industry.

Yes, in one sense that would be true. Basically the problem I am faced with here is that any extension beyond the existing definition of industrial buildings could be very substantial. I am not quite sure off hand how substantial the extension suggested by Senator FitzGerald would be. I would think probably not enormously substantial, but it could not stop there. Clearly, in effect it would have to apply to all of distribution and, indeed, it might not even stop there. The cost could be very substantial and that is the primary constraint — maybe not the only one. There are other points that might have to be considered but I think that would have to be the primary one to consider in relation to any extension of this. I am not closing the door completely on any possibility of extension. Certainly, for this year I do not contemplate any further extension.

I should have said that the Minister has already in this section extended it to take in hotels, which is a good move.

Tourism and hotels are generally very labour-intensive and in our context of unemployment this extension was justified.

Question put and agreed to.
SECTION 26.
Question proposed: "That section 26 stand part of the Bill."

I should like to express my enthusiastic approval of this section.

Question put and agreed to.
SECTION 27.
Question proposed: "That section 27 stand part of the Bill."

I know the Minister has received representations based on the build-up of deferred taxation involved which affects the ability to get credit. It has been suggested to him that he might consider placing some limit on the ultimate clawback that might arise, such as the United Kingdom Chancellor of the Exchequer has considered.

One of the lessons a Minister for Finance learns is that whenever he gives some kind of relief he is creating a problem for himself. This particular relief was not, as the Senator knows, given by me originally. It was given by my predecessor. It would now appear that it is said to be operating as a hindrance to firms in obtaining credit. That could be said to be true. I can see the point of the argument, but it seems very strange that to give relief in this way can operate to prevent companies getting credit. Putting it in blunt, broad terms, it seems strange. I am afraid that, certainly for this year, I do not contemplate any further change than is provided for in the section. The whole question of the continuation of stock relief obviously has to be related to the question of inflation, and not just domestic inflation but the fluctuations in costs of raw materials, particularly imported raw materials.

Hopefully, in the not too distant future, we will reach a stage where this kind of relief could be dispensed with. If we do, any outstanding matters of that kind will, of course, have to be dealth with. Obviously I am not in a position to say, at this stage, when the necessity for such relief will come to an end but the sooner the better and if it happens quickly, I would hope that at that time we could have definitive provisions to deal with outstanding claims of this kind.

Question put and agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."

This is a departure from solid practice not merely over the period of the operation of the corporation tax but a departure from the recommended structure of the corporation tax as contained in a document which was laid before each House of the Oireachtas in November 1972 entitled "Company Taxation in Ireland". In paragraph 532(b) the shareholders will be given a tax credit to put them in the same position in relation to company distributions as under the present system. Accordingly net dividends paid by companies would be grossed up. The grossed up dividend would present a shareholder's income for income tax purposes and domestic shareholders would be given credit for the tax so added back. On the basis of the standard rate, then operable, of 35 per cent, the credit to be given would be seven-thirteents of the net dividend which is the position which was incorporated in the code. The effect of this is to make the investment, particularly by exempted funds in Irish companies, less attractive. The case has been made to the Minister that the effect is to reduce the gross income of these exempt pension funds that are there to look after the provision for the future of all the employees benefiting from the funds and of charities. In so far as they are invested in Irish companies, they will be reduced by 7 per cent and the argument that the reduction in the corporation tax rate from 50 per cent to 45 per cent, effected last year, increases the dividend-paying capacity of the companies is not borne out by an examination of the published accounts of the main industrial companies where the reduction from 50 to 45 per cent does not affect them because the effective rate of tax ranged from 8 to 40 per cent.

The dividend-paying capacity of the company, which is effectively only paying 10 per cent, is not increased by the reduction of the actual rate of corporation tax from 50 to 45 per cent and therefore does not seem to justify a variation of the revised distribution taxation proposal contained in this section.

There has been a good deal of misconception about this section, some of which I hope I have dispelled in response to the various representations I have received. Although one can get into fairly esoteric arguments in relation to this section and, indeed, into some very complex mathematical computations, the principle involved is fairly straightforward. It must be conceded that where there is a reduction in the rate of corporation tax from 50 to 45 per cent there is a reduction in the amount of tax which the company is required to pay, even if the effective rate of tax is 10 per cent in some cases. There is still a reduced amount of tax payable by the company because the corporation tax is reduced from 50 to 45 per cent. What we have sought to do here in so far as it is mathematically possible, is to maintain the same proportion of tax credit in relation to the reduced corporation tax. In so far as a company is liable to pay less tax under the reduction in the rate of the corporation tax, it has more money to invest or to distribute or both if it decides to divide up the additional money available. If it maintains the same proportion in distribution as it has had in the past the shareholder will not lose. He may marginally gain. But if the company decides not to maintain that proportion but to retain for investment purposes all of the additional money available to it because of the law, the first thing to observe is that that is a decision made by the company in which the shareholder can have some say but, whoever has a say in it, it is a decision within the company and it is not a decision——

The shareholders cannot retain a dividend unless the directors recommend it to them.

That is true, but the point I am making is that it is not a matter for the Revenue. It is not the Revenue who decide how much of the additional money available is to be reinvested or distributed by way of dividends. This is a matter for the company and its internal workings. As far as the Revenue are concerned, the right thing to do is to maintain the same proportion as applied when the rate was 50 per cent. If a company decides, through its own internal machinery, to invest all the additional money available to it by reason of a reduction in the corporation tax rate, it may be that the shareholder will get a proportionately smaller dividend than he got before but normally, because of the additional money being invested, the capital value of the share is going up so that, either way, he is not losing. In any event, whatever decision is taken, it is not one that should or can be taken by the Revenue but only by the company itself. How the situation eventuates for the shareholder depends on that decision within the company. It does not depend on the Revenue.

What is in this Bill depends on the Revenue and depends on the Minister. We already have an initial rate of tax of 20 per cent, a reduced rate of tax of 25 per cent, something called the standard rate of tax of 35 per cent and the higher rates. Here we are having another rate, a 30 per cent rate. Why should we depart from the general concept of the standard rate of 35 per cent? Is it not an attempt to deprive the investor of sharing in the tax benefit which is given to the company.

At the rate of 50 per cent the tax credit was 35/65ths. The change we are making is as close mathematically as we can get it to maintaining that same ratio, having regard to the corporation tax rate now being 45 per cent instead of 50 per cent. Therefore, as far as the Revenue are concerned, subject to a very minor mathematical change that is unavoidable, in substance we are maintaining the same proportionate tax credit. Any change in the position that arises will arise because of internal decisions in companies in relation to the additional money becoming available to them because of the reduced corporation tax rate but as far as the Revenue are concerned we are maintaining the same proportion of tax credit as existed before.

It is apparent that the Minister is going to do that anyhow, no matter what I say.

Question put and agreed to.
SECTION 29.
Question proposed: "That section 29 stand part of the Bill."

Would the Minister explain this section's late arrival in the Bill?

This is primarily because there was a doubt raised as to whether its inclusion would change the character of the Bill as a money Bill, but that doubt has been resolved and when it was resolved the section was introduced. The section applies customs law to EEC levies and charges on agricultural produce, whether payable at importation or exportation, and it places such levies and charges under the care and management of the Revenue Commissioners. This provision is necessary to give effect to the transfer from the Department of Agriculture to the Revenue Commissioners of responsibility for the collection of EEC levies payable on agricultural produce at export. Up to now, the commissioners have been responsible for the collection of these levies payable on importation and the Department of Agriculture was responsible for levies on exports of agricultural produce. The decision was made to place both under the care of the Revenue Commissioners and this section does this.

Does this take care of charges in the nature of export levies? There are charges made on export which, in many cases, have been eliminated, but that concept is there in the revenue. Would the collection of any such charges as may remain as well as the levies be included in the transfer? I do not know whether the definition of "export levy" or "import levy" should take in any other charges arising on import or export.

The great bulk of the export levies are monetary compensation amounts, the MCAs. I understand that, at the moment, the only charges arising are MCAs but there could be, at some time in the future, some other EEC charges which would come within the definition in the section and this section would enable the Revenue Commissioners to collect it. I understand that, at the moment, the only charges involved in regard to exports which come within the section are the MCAs.

I see, and the Minister is satisfied that the definition does include any of the charges——

I am advised that it would.

There is one small point. In subsection (5) the word is "exportation from the State". In relation to the export tax relief, the language used is "out of the State". I wonder if there is some subtle difference.

Yes, there may be. This may arise in relation to intervention. I may have been reading a little more into it than was there. I understand that it is just a certain nuance but, in practice, if goods were placed in a warehouse for exportation, that could cause the levy or charge to be made and this definition would cover it. My reference to intervention may have been going a little further than was intended.

Question put and agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill".

I would expect, and I am sure the House will too, a very thorough and exhaustive exposition of the contents of these four statutory instruments. Why do we have to confirm them at all? Is that because of the Import Duty Act. Does that mean these are orders which require confirmation under the Act which made them? The old Import Duty Act required confirmation.

Yes, they would terminate.

Question put and agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill".

Perhaps the Minister might help me on one point. This section is designed to cut off an existing possible loophole so far as the avoidance of stamp duty on the sale of certain leasehold interests was concerned. Am I correct in saying that there was some attempt to close off that loophole within the past two years by way of statutory instrument?

What happened? Was it not successful or what was the position?

That was purely a technical revocation of the order and substituting for it in this section, making it part of the general law. There is no change in that.

Was all of that already cut off?

Yes, this section and section 32 were included in an order which was made by the Government on 1 April 1977 entitled the Imposition of Duties (No. 228 Stamp Duty on Certain Instruments) Order 1977. They are both anti-avoidance provisions. What is being done here is to revoke the order and make the content of the order the subject of this section and the following section.

Question put and agreed to.
Sections 32 and 33 agreed to.
SECTION 34.
Question proposed: "That section 34 stand part of the Bill."

This section deals with two areas of possible avoidance of stamp duties.

I cannot have any objection, as a legislator, to that.

Question put and agreed to.
SECTION 35.
Question proposed: "That section 35 stand part of the Bill."

What is the point about the 14 April 1978? Is that the budget day? Is that the date of publication of the Finance Bill?

Yes, that is correct. It is the date of publication.

I was looking at section 65 of the Finance Act of 1973 which amended section 50 (2) of the Finance Act of 1969, where there is a reference to 10 per cent. From my quick reading of it, was I wrong in thinking that there was an attempt to be retroactive in any of this?

No. Perhaps I should explain. I know what is troubling the Senator about this. Is this in relation to subsection (2)?

Subsection (2) remedies an error that was made in section 65 of the Finance Act, 1973 which increased the rate of duty on contracts for the construction, alteration or enlargement of a building intended for us as offices from 10 per cent to 15 per cent. This increased rate was in substitution for the original rate of 10 per cent which covered not alone the amount of the original contract but any variation thereof, up or down. Through an oversight, the Finance Act, 1973 applied the 15 per cent rate to subsection (2) only of section 50 of the Finance Act, 1969. That is, it applied it only to the original contract and not to the variation.

That was my very point.

It was not applied to subsection (4), that is to variations in the amount of the original contract. The purpose of this amendment is to rectify this omission and to do so with effect from the date of the passing of the Finance Act, 1973 which was 4 August 1973.

But is that not an attempt to get 5 per cent extra now by virtue of legislation——

It looks like that but——

——because somebody was rushing the Bill through the Seanad in 1973 and the Minister had no time to listen to it?

The first thing I would say about it is that clearly, when one looks at it, it was an oversight at the time. There is no logical reason why we should increase the rate on the original contract and not on the variations when in fact the rate applied to both. The difficulty that arises is that this does not just cover the question of an increased charge. There are a number of cases where there can be a refund. I gave considerable thought to this and I have discussed it at some length with the Revenue Commissioners because, like the Senator, I was unwilling to contemplate a retrospective imposition of a higher rate of tax, which is what it looks like doing, and I must admit that. Having regard to all the circumstances involved, what is being done here by correcting the original oversight is the course of least detriment to the taxpayer, not just to the Revenue Commissioners. Whatever one does in dealing with this, and obviously there are different possibilities as to how it might be approached, if one wants to correct the position, it is going to present some problems. The course provided for in subsection (2) is the one that presents the least problems.

Cases can vary. There may be situations where there have been men actually intelligent enough to observe that there was a mistake being made by the legislators and that they had not effectively covered the alterations and have organised their affairs on the basis that they will only be paying 10 per cent on alterations and 15 per cent on the original. Are these people, who acted in accordance with their skill in studying legislation, now to find that they will have to pay tax which they had not budgeted for? Five per cent on £1 million is a lot of money.

I do not know of any transactions which may be involved, but we could be talking about a considerable sum of money that nobody had budgeted for. In principle, it seems a very dangerous thing retroactively at the expense of the taxpayer, even if there be, as I understand there could be, refund situations in other cases, to penalise that particular case by exacting tax which was not applicable when he made his deal. There is a very important distinction to be drawn between an amendment of income tax where one has got one's prior year in many cases operative and people are taking their chances that things will not operate against them by way of changes made in the bases of assessment and so on. This is a very different type of thing. I do not know of any case of retroactive stamp duty being imposed. I managed to buy my house by persuading the freeholder to take a surrender of the lease. I do not want to find that the Minister is going to introduce a Bill now requiring me to pay a sum of money which, by law, I was not liable for at that time. In principle, particularly if we are talking about substantial operations where companies have let out accounts and certified them as correct and people have invested in them and so on, the thing is dangerous.

As I indicated to the Senator in what I said before, this is not the kind of provision that I would normally be happy with but it is a very unusual situation. I understand that in the nature of things, because this applies only to variations, it did not arise for a considerable time. It would not be a question of the Revenue having assessed duty and now coming back and saying "You have to pay more".

Take a poor fellow who spent a long time studying the Finance Act of 1973 and realises the variations on his way up to the Revenue. He thinks he is going to pay only 10 per cent and then finds he must pay 15 per cent — no holidays this year.

If he had so arranged his affairs that the bulk of the contract really consisted of variations, I do not think I have a great deal of sympathy with him.

He has paid for the skill he has employed to read the section carefully and why should he be penalised? The good businessman reads all documents carefully, including statutes.

Having drawn attention to the situation, I am afraid I am not prepared to leave it open now.

Question put and agreed to.
Section 36 agreed to.
SECTION 37.
Question proposed: "That section 37 stand part of the Bill."

As far as it goes, it is very welcome indeed. I do not wish to sound churlish on it, but you can have cases where no property other than investments is available to provide for the payment of the duty. You can have the house, and the house has to be sold in that situation. There may be a private company the shares of which are unrealisable. I am aware of a rather unfortunate case where the deceased had made a gift to his spouse within five years of his death, there was a liability for duty quite similar to the liability which would have arisen if he had made a will leaving it to her, which he would have done and which was the content of his will anyhow. In that case it was not to be a relief although precisely similar circumstances exist as here in that the duty was determined by the value of the investments. I think at the time of the gift, the law applicable to that and the realisation to pay the duty took place in that bleak period when you could not get very much for securities — now at this time of the day and year we will not be able to do much about that, but it is something the Minister might be able to take care of at some other time.

I do not follow the point.

In the particular case, the deceased made a gift to his spouse of securities which his spouse held and the sole reason why the spouse sold the securities, which she did within 18 months of his death, was to provide for the estate duty which arose from his gift within the five-year period to her of the securities.

Why would she not qualify under this?

It was free estate. It was not part of his estate at all. It was the duty payable arising on his death in respect of the gift made by him within five years of his death.

Is it the position in the case the Senator has in mind that the house was the only property in the free estate?

I am on a slightly different point. I was quoting an actual case that I know of where there was an actual transfer of investments or gift of money to take over the investments made within five years which gave rise to duty owing to his premature death, and this was not part of his estate on his death and therefore this section does not take care of it. Duty did arise, duty that was payable by her and the securities were sold in exactly the same circumstances as relief is being properly provided for in this section. If he had never given them to her, this section would now be coming in her relief, but because he gave them to her it does not.

The Senator knows better than most that any kind of provision one makes, particularly relieving provisions, will always produce hard cases which are just outside, and in this section I imagine the Senator knows that when in Opposition I argued very strongly that some provision ought to be made for cases of this kind where in some cases there has been considerable hardship arising. Inevitably when making that provision one has to frame it in very narrow terms or relief will be given to people who do not deserve it. So it has been very carefully and narrowly drawn. I will give consideration to the kind of case the Senator raised, but in doing so I have to approach it on the basis of a very narrow and limited relief for a very special kind of case. Subject to that I will give consideration to the kind of case the Senator raised.

I thank the Minister.

Question put and agreed to.
SECTION 38.
Question proposed: "That section 38 stand part of the Bill."

I spoke on this on Second Stage when I said that what I had said about the wealth tax at the time of its introduction I withdrew. I do not think that the actual wealth tax imposed was such as would produce the benefits which theory attaches to a wealth tax. The nature of the exemptions given, which had to be given if it was to have been borne at all, took the economic good out of the tax. Now I am faced with its repeal. In the course of the operation of the wealth tax code I formed the view that when one was professionally concerned with seeing what one could do to aid someone in his financial affairs, the wealth tax seemed to block you at every twist and turn from doing things that would otherwise have been quite open to you to do and which would have reduced other taxation.

It seems to me that measuring the fiscal benefit by looking at the £8 million, or whatever it was that came in from the wealth tax, it cannot at all be seen as a full long-term benefit in terms of the general picture which the Revenue were able to form of the taxpayer. There are two things about it. One, I should have thought there was an advantage. I could see people deriving a benefit from facing into the business of making out what they were worth and what their assets were in—that was some benefit for them and it was not too expensive an operation.

When they abolished the income and value duty that was introduced in the Finance Act of 1909 and 1910, they did not, as the Minister will know, abolish the "particulars delivered" form which was found to provide very useful information for the Valuation Office with regard to the values of transactions in the property field, and this aided the Valuation Office in making its assessment of values. The income and value duty was one of the first of the brave attempts to see if there was any way we could get a proper community share of values on land simply by population growth and growth of economic prosperity. That attempt failed, but though it failed, as the Minister may say, the wealth tax failed in its proposition. Wealth tax was on another page in the income tax code which would not apply unless you were away up in the regions of the figures that arise in relation to the code. This would be very useful information, and I cannot see how any taxpayers had any reason to complain about it—the Revenue Commissioners' confidentiality is undoubted, they administer the tax fairly, they understand the full picture and have a grasp of how they should be administering their tax policies.

Senator Donnelly yesterday was a little captious with regard to efforts that were made, and I think they were genuine efforts, to equalise conditions as between taxpayers. Maybe in some cases they went too far, maybe they were not altogether successful, but the general idea was that people in like condition should be paying like taxation. That is a good idea and I should not like to see the Minister turning his mind away too much from that as a proper ambition for him as Minister for Finance who must deal, with all the emphasis you like to place on it, with economic efficiency and wealth creation, and I agree with the priority of that emphasis. Wealth creation will not be much good to those for whom it is being created if they are not going to be able to enjoy it because of an unhappy social situation, and an unhappy social situation is in itself a danger. I think it is a proper object of public policy to be concerned about the justice of taxation as well as about its efficient operation.

Some time ago a gentleman had told me he was leaving Ireland because of the wealth tax. He could not carry his mansion on his back or his agricultural land in his pocket. He had told me that he was going to Portugal. Later he rang me up one Saturday morning and I said to him, "There are worse things than wealth tax and that, such as soldiers with red buttons and with red carnations in their button holes", because at that stage the comfortable stability of the dictatorship in Portugal had collapsed and I was suggesting to him that maybe we would have to think of things such as the wealth tax as necessary preservatives of the free society that we have. At any rate my general observation with regard to that tax is that schematically it should be maintained. I think if it was to be maintained at all it would have required to have been reformed. I do not think that it is timely, when your budget is hopelessly out of balance, to give away any revenues. It provides too great an argument against the Government in relation to negotiations of one kind or another. I think even if it is only symbolic there ought to be a contribution made by the owners of the estate greater than I believe is being made.

I thought the old estate duty code was not half bad and could itself have been reformed. It needed a gift tax to give it bite. It needed an artificially favourable system of valuing land, an artificially favourable system of valuing shares in private businesses and different treatment than it had for life policies, for people who were providing genuinely for their families. With these changes I think the old estate duty code could have been OK. The old code provided in the last year £14 million odd, and that is in 1974 money — I do not know what that is in 1978 money but it is a great deal more than that. The Minister can be asked to tell us, with his revisions in the capital gains tax which will not be effective this year as I understand it, what will be the total estimated receipts from such surviving capital taxes as we have got. I think that people who are building up the estates are simply being unwise, even if it is only in terms of selfishness, if they have no real concern in not making a proper contribution to the maintenance of society. They get a lot of services from society. Security to enjoy their possessions is one of them, and parliamentary democracy is another, a free press — there are all sorts of good things here and they should be making a contribution by virtue merely of their estates.

I would make, as the Minister is proposing to make, a worth-while change in relation to capital acquisitions tax. I would have a special treatment for historic buildings and that type of situation. That should apply in any system of capital taxation where the maintenance of the thing is of value to the public as well as to the person who has special enjoyment of it. That is my say on wealth tax, anyhow.

I would agree with the Senator that a properly reformed death duty system plus a gift tax would have been the best way to approach the problem that was faced some years ago. However, that was not done, it is water under the bridge and we cannot do anything about it now. I am faced with the situation I found when we came back into office. It is true to say that the net effect has been a reduction in revenue on capital taxation. The estimate for 1978 from capital taxation other than the old death duties is £6.3 million and from the old death duties this year £4 million.

Which year are we talking about?

Could we have a breakdown?

The capital gains tax operating this year from 6 April will be the revised form.

I did not appreciate that. I thought it would have impact on transactions for this year and therefore only produce receipts——

That is correct. As I said, the old death duties will yield £4 million, capital acquisitions tax, £3 million, wealth tax, £½ million, and capital gains tax, £3 million.

That is after the abolition of wealth tax — it is a sort of back tax situation?

Yes, money that is still outstanding to be collected. On the general issue, I might not disagree with Senator FitzGerald on his general approach to how capital taxation might have been made more effective, but that is water under the bridge. I was faced with a situation when I came back into office. Senator FitzGerald, if I am not misquoting him, used a phrase "an unhappy social situation". I believe that the most unhappy social situation we can have is one of widespread unemployment. Therefore the first priority is to tackle that problem. When we have done so I believe that will be the time to look at the desirability or otherwise of a wealth tax. In the meantime I have no doubt at all where my priority lies, not in some cosmetic exercise which is held to be creating equity in taxation, or held to be causing a redistribution of wealth when in fact neither of those two things was true in relation to the wealth tax as we had it. It was merely a cosmetic exercise. It was, on the other hand, causing, I believe, very considerable damage from the point of view of creation of employment. Given those two things to balance one against the other, I have no hesitation in coming down in favour of removing the inhibitions to the creation of employment. That is our first priority. I had no great difficulty in deciding on the right policy to be followed here, which I believe is what we have in this section, the abolition of wealth tax.

I take the point made by Senator FitzGerald with regard to the possibility of returns assisting the Revenue Commissioners. He referred to the old increment value duty. Although that was abolished he favoured the retention of the necessity to furnish the particulars on a particular delivered form. He will appreciate, of course, that there was a built-in compulsion in it: one had to do this in order to get the deeds stamped. I am not quite sure what compulsion one could build into the furnishing of returns for wealth tax, even though there would not be any wealth tax levies. I have considered that situation to see if any enforceable system could be developed which would also be worth while from the point of view of the Revenue Commissioners, but in general I feel that the important thing to be borne in mind in regard to the wealth tax as we have had it operating in this country, the important thing to weigh up, is to what extent did it help or hinder the creation of employment. On that test I have no doubt at all that we are doing the right thing in this section.

I do not want to make any subscription in this field beyond what I have said, but I should endeavour, at least, to articulate my position on the point that the Minister has made a little better than I have done. My point with regard to the abolition is that it is untimely. I did not say as clearly as I now must that it is untimely because of the financial pressures and constraints under which the Government have got to conduct the business before them in the next few years. It is untimely if it creates a feeling among people that a lot of people are getting away with things.

How can you successfully appeal for restraint in incomes, moderation in demands for efforts that are made, if at the same time certain people are being relieved of tax? I am not aware of any detached or objective study of the impact of the actual wealth tax we had, so I am quite unable to say one thing or another about its effect on the flows of capital, for example, but my own judgment was that there was a considerable amount of fear of wealth tax by people who were not paying it but who were afraid they would get into the bracket in which they would be paying it. In certain cases it impinged very severely and most unhappily, but in very few cases did it lead to steps which caused unemployment.

If unemployment is to be a test of whether you maintain a tax we should abolish all taxation because all taxation has some effect on employment. For example, the ordinary social security stamp is a direct tax on employment. It does not coercively follow that if it is capable of being defined as a tax on employment you necessarily abolish the employer's contribution. I do not see any connection anyway close between the payers of income tax and the generation of employment. Indeed if that were the problem the existing wealth tax could easily have been amended to grant widespread exemption in so far as assets were put not into unproductive resources like splendid mansions packed with Rubens's but into employing people in industry. Give all the reliefs in the world but maintain it in so far as people are engaged in other activities. That is simply on the employment point.

My general view is that I do not think it is timely. If the wealth tax itself was not satisfactory for all the reasons that have been suggested, was resented and if something that created less resentment and induced less fear was thought to have made any cloud in the investment climate, right, but a substitute for it should have been sought. It might have been some revision of the capital acquisitions tax, an extension of its provisions, some revival of the old estate duty code or whatever. I merely feel that I could not let that section go by without making these few comments.

This is one of the points that I took up on Second Stage. I do not want to speak at length on it but I feel entitled to say a few words on the implications of wealth tax for employment creation. As I see it, not being an expert on the tax side, there is a big difference between putting a tax on wealth which has been accumulated and the process of funding of that wealth, having been already taxed at earlier stages. It is a kind of double taxation. I do not think you can say that you will remove all taxation. It just means that this form of taxation in itself inhibits the entrepreneur, and we need entrepreneurs.

I do not want to pursue this unduly, but there are one or two things I think I should say. First, I referred in some detail in the other House to the evidence in regard to capital flows and I do not want to go back over it again. Neither do I want it to be allowed to pass in this House — if I do not make any reference to it it might be taken that I was acknowledging by my silence that there was not evidence of capital flows outwards arising from wealth tax. That would not be my position.

Secondly, Senator FitzGerald touched on an important aspect of this, that is, the psychological effect. I do not think it matters terribly much whether this was misguided if, in fact, the effect was to inhibit investment and the creation of jobs. Whether or not that was due to a misapprehension as to the effect of the tax, if it operated that way, then that was an important consideration to be borne in mind in considering the wealth tax.

Furthermore, I adverted last night to the fact that the wealth tax operated in a discriminitory way in favour of foreigners and against Irish people, and I do think that that can be justified. A reference by Senator FitzGerald reminds me that I should say that one of the consequences of the wealth tax was for wealthy people to stuff their houses with antiques, valuable paintings, and so on, and put their money into more and more unproductive assets. That could not be thought of as a desirable consequence.

Almost by definition it is impossible to measure the consequence of the wealth tax in contributing to the creation of jobs or in inhibiting the creation of jobs. One could measure relatively easily the number of jobs directly lost as a result of the introduction of the wealth tax. It would not be enormous but there certainly were some. A number of us have personal knowledge of some of them. It certainly would be theoretically possible to measure this. What is not possible to measure is the number of jobs which would have been created, and were not created because of people's fears in regard to wealth tax, either real or imagined, but genuine fears.

In addition, the other aspect of that is the kind of people I referred to last night who were not subject to wealth tax but who did not expand their businesses because they felt it would bring them into the wealth tax net and they were personally quite comfortable as they were and did not see why they should work day and night, and take on the trouble and worry involved, to expand their businesses in order to bring themselves into the wealth tax situation. All of these factors operated and one cannot measure scientifically what the result is. All I can say is that my own experience and the experience of many people I know who are involved directly or indirectly with the kind of people on whom we depend to a great extent for the creation of jobs, people such as bank managers, solicitors and accountants, suggest very strongly that the wealth tax operated very much to our detriment in the context of job creation. I believe the results of its abolition will show in so far as one can isolate them — and it will be impossible to isolate them fully — that the decision was justified.

I take the point made by Senator FitzGerald in regard to what could be alleged to be the apparent inequity involved, but in practice I find that you seldom if ever meet somebody unemployed who is worried about either the imposition or the abolition of the wealth tax. That is not what he is worried about. Most of the people who express strong views either way are very comfortably ensconced in employment. In so far as there is an argument about equity, it tends to be between people who have jobs, not between those who have jobs and those who have not.

I come back to my original point. Our first priority in our present circumstances has to be the creation of jobs. I suggest that any argument in regard to the equity or inequity of our taxation system must take second place to that, and is something that can be pursued when we have tackled the basic inequity of our society where so many people, particularly our young people, have no prospect of a job in the future. That to me is the greatest and basic inequity in our society which we have got to tackle. When we have got that one under control, we can afford the luxury of the more doctrinal arguments which arise in relation to wealth tax and other forms of capital taxation.

I did not want to start all this. I do not think tuppence of an entrepreneur who stops working because he is afraid he will build up such an estate that he will be paying a bit of tax on it. It is conceivable that there are such people. Is it the argument that we are abolishing wealth tax to free the way for people who will not work hard enough, will not take risks, for fear that they would make so much money they would be paying wealth tax?

They do not have to.

I do not believe that that is the position. The Minister very properly said it would be difficult to see what the effect of abolishing wealth tax would be. It is equally difficult to see what was the result of introducing it. The connections are very difficult. There are so many different factors operating at any moment in an economy that to isolate one and say this is the cause of the other is extremely difficult. I come back to the employment point. The Minister is misdirecting himself very seriously, and misdirection by somebody in his position is a serious matter. The question of justice is not dismissed by saying that those who are out of jobs do not care whether they are paying wealth tax. It is not those who are out of jobs whose decisions and co-operation we want to solve unemployment. It is those who are in jobs whose co-operation we want. We want the co-operation of the employed to moderate income demands. Their view about the justice of the matter is important, and we cannot be simply unconcerned.

I do not think cosmetics is quite the right word. There is a symbolism in this, and maybe it could be made a little more than a symbol properly operated. At a time when the Green Paper is contemplating little operations which will save £2 million, £5 million, £6 million, £8 million, or whatever number of millions, to cut out one tax which impacts, or is seen to impact, or is felt to impact on people who are well off on any count is unwise. I do not see that the response from them in terms of employment-creating decisions can equal the damage that may result from the lack of co-operation from people who will not feel this to be just at the moment. I am speaking as one who opposed the introduction of the wealth tax, who did not particularly like it as a tax, but still is of this view. It is important that I should say that.

Question put and agreed to.
SECTION 39.
Question proposed: "That section 39 stand part of the Bill."

I would like to welcome this very desirable extension. Representations by An Taisce have been met here.

Question put and agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."

One person must have misunderstood what the section is doing, because a professional body represented to me that this has the effect of abolishing the exemption afforded to non-domiciled and non-resident individuals in respect of gifts of Government securities. As far as I can understand the change — I was not able to look at it very closely — it seems to extend the period of holding from one year to three years, then adds language which is obscure to me:

...any period immediately before the date of disposition during which the securities or units were continuously in the beneficial ownership of the disponer shall be deemed ... to be a period or part of a period immediately before the date...

If they were not immediately before the date, what is the point here? Is the period they are held by the donor taken into account as well as the period of time during which the donee holds them in determining the exemption?

I think the portion to which the Senator is referring is an item we introduced to avoid an element of retrospection. In order to avoid this element of retrospection, it is provided that the holding of the securities from 14 April 1978 — that is the date of publication — to the date of the gift or inheritance suffices where the securities are held for less than three years.

In relation to both the old law and this, surely the exemption which attaches to Government securities whose prospectuses provided that persons who held them were non-domiciled and non-resident here, continues to free the holders. Surely the old section of the capital acquisitions tax, and this section, as amended, would make a holder, whether he got them by way of gift or originally by way of investment, liable for capital acquisitions tax. It is the donee who is liable. Any legislation of that kind must be in some way a departure from the terms of issue of the Government stock in question in which it would have been said that, being held by somebody non-resident and non-domiciled in this country, they will be free from all Irish taxation.

How are they free from all Irish taxation if, instead of buying them, people get a gift of them from their uncle in Dublin or Cork? They are still non-domiciled and non-resident and the condition of the original prospectus would seem still to entitle them to be free from tax. It is not as if this particular tax were levied on the donor. The capital acquisitions tax could have provided that, in a case where there was a gift of securities which, being held by a non-domiciled person or a non-resident would give rise to a liability, that liability would shift to the donor, so that we would not go back on what we said when we told the world we were issuing these Government securities on the basis that the person being non-domiciled and non-resident they would never be liable to Irish tax. It is a very important market matter if I am right.

I think the Senator would be right if his basic premise were right, but I am not quite sure we are on the same wavelength here. The position has been that where the donor — I am using broad terms now — was Irish and the donee was non-Irish, in order to get the exemption the security had to be held by the donor for at least one year. Where the donor was Irish or ordinarily resident in the State the donee, under the existing law, had to hold it for a year. What we are doing here is extending that period of one year to three years, but we are not affecting in any way the position where both the donor and the donee are non-Irish. I am using the terms non-Irish in a non-technical sense. We are not affecting that type of transaction at all. The only transaction we are affecting is where the donor is Irish and the donee is foreign. Up to now the requirement was one year and we are making that three years.

To the best of my knowledge we are not interfering with the terms of issue of the securities, because any terms in connection with those securities would relate to the securities themselves, whereas this relates to the liability to capital acquisition tax of somebody who is ordinarily resident in the State. No liability arises, as I have said, where both the donor and the donee are not ordinarily resident in the State, and we are not changing the position in regard to them. Maybe the Senator has some information in regard to the terms on which some of these securities might have been issued which would suggest that what I have said is not accurate but, at the moment, I have not got information which would suggest that we are altering the terms of issue by virtue of this section.

Despite the fact that I am surrounded by paper I am not surrounded by prospectuses of Government borrowings for the past 50 years. Any I have looked at for a long time have had this provision, which is of considerable interest to the investor, who is the person normally dealing with it. If there is any such security — and there will certainly be some securities which will lie behind any unit trust of the kind referred to here — there will be some of these securities within that description. The conditions of issue of those securities will be breached even if it be a case of a gift by a donor resident and domiciled in Ireland to someone domiciled and resident abroad. The security itself has and should have the characteristic in all circumstances that no Irish tax would be payable if the holder for the time being, however he came to hold it, was non-domiciled and non-resident in Ireland.

This is a very important matter which I am certain neither the previous Minister nor the present Minister would wish to have affected. It is the very important question of our adhering to the conditions of issue of all these Government securities. It may be that the old section will have to be scrubbed instead of extending the one year to leave the gift exempt. If you want to catch what might develop into a broad highway of avoidance you might have to transfer the liability — as the English have under their capital transfer tax — to the transferor where he was transferring what would be exempt because of the conditions of issue of the security being transferred.

In this section all we are doing is changing the one-year exemption to three years. Clearly what we are doing in this section is not, of itself, interfering with the terms of issue of these securities. If there is any interference with the terms of issue then I am afraid it must have arisen in the earlier section which we are amending.

Absolutely agreed.

I have no information which suggests that was done by the earlier section but I will have this examined. If we were interfering with it we would then have to consider what the consequences were because I think the terms of issue may well be dependent on other statutory provision and we might have a conflict between the two. The first thing that has to be established is whether, in fact, there is any breach in the terms. I will have that examined and, if it is so, I will have the consequences examined. As of now, I have no information which suggests that the original section 57 of the Capital Acquisitions Tax Act, 1976, did in fact breach those terms.

Question put and agreed to.
SECTION 41.
Question proposed: "That section 41 stand part of the Bill."

One point on this. Are we not supposed to be encouraging redistribution or at least voluntary redistribution? There might be disagreement among us as to the extent to which there should be a redistribution policy at State level. Here we have the highest rates applicable to acts of the utmost generosity where perfect strangers are concerned. That is in Table IV. I cannot see why this should necessarily be so. In particular I would have thought the relationship of service which might exist between the donor and the donee should apply. Some devil of a daughter who never gave a hoot about her father could collect £150,000 without any tax, and some poor woman who spent her life looking after him and keeping house, and so on, to whom he left a substantial legacy would be caught for duty because of his decency. I know a man who wants to actually give away shares in a substantial company and who is blocked by capital gains tax on the one hand and capital acquisitions tax on the other. It seems to be only mad that we should have actual fiscal provisions to prevent him doing this desirable thing of making partners in his venture of people who worked with him to build it up.

Question put and agreed to.
Sections 42 to 45, inclusive, agreed to.
SECTION 46.
Question proposed: "That section 46 stand part of the Bill."

I have a query. This is a recognition of the severity of the interest charged. I did not know what section 14 of the Finance Act, 1962, was, and I did not have time to look it up. In the case of some employer who has deducted tax from his employees under PAYE, has held on to the money and not given it to Revenue, are we now saying he will be in as favourable an interest position as an ordinary taxpayer who is overdue with his own tax as distinct from his employees' tax? A couple of these sections deal with fraud and neglect provisions both of individuals and corporations. They might be treated differently in relation to interest. I would not have had the same treatment for one as for the other.

In the case of fraud or neglect there are other rather stringent provisions which apply in addition to the interest rate. One could say they are distinguished in that way. In regard to the question of an employer who deducts tax from his employees and then fails to pay it over, in practice the Revenue Commissioners are much less lenient in dealing with cases of this kind, and similarly in the case of VAT——

I should have mentioned VAT as being another.

——where in effect money has been taken from the customer but it is not the property of the shopkeeper. Those two are treated somewhat differently in practice. The problem of a differential rate of tax is administrative. There is another problem. I do not say it is a major one in practice, but I would be afraid it might so develop. It is an inherent problem in setting the interest rate here too high. If a taxpayer overpays his tax, he is entitled to a refund of tax at the same level and, if the rate of interest is very high, he could be tempted to deliberately overpay it and get a refund of interest at, say, 18 per cent.

The Minister is now telling us why he is reducing the rate of interest.

That is an area that would worry me slightly. Having regard to the necessity on the one hand to have a substantial inducement, and some degree of penal rate involved, and on the other hand to have some regard to current interest rates which are changing frequently, and still to have regard to the other difficulty I mentioned, this level is probably about as good as we can get.

Question put and agreed to.
Sections 47 and 48 agreed to.
SECTION 49.
Question proposed: "That section 49 stand part of the Bill."

What other Acts are there?

Prior to 1970 I understand these were securities authorised under various Central Fund Acts and Appropriation Acts.

Question put and agreed to.
SECTION 50.
Question proposed: "That section 50 stand part of the Bill."

My political wisdom alone keeps me silent.

Question put and agreed to.
Sections 51 to 54, inclusive, agreed to.
First, Second, Third and Fourth Schedules agreed to.
Title agreed to.
Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.
The Seanad adjourned at 5.35 p.m. until 2.30 p.m. on Wednesday, 5 July 1978.
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