Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Thursday, 17 May 1984

Vol. 103 No. 14

Finance Bill, 1984 [Certified Money Bill]: Committee and Final Stages.

Before Committee Stage begins, I would like to point out that a section heading is omitted from the list of recommendations circulated. Section 109 should appear before recommendation No. 2.


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

I suppose we would all be happier if the changes made here were a little more general. Obviously we have to take into account the overall situation but we should try to ensure that the greatest number of people on low incomes are exempted from income tax——

I must ask for silence. I have difficulty in hearing the Senator.

——and that people over 65 and aged people in general have the system somewhat waived in their favour. This is heartily welcome, and our only regret is that more could not be done for these groups. I would ask the Minister, in the preparation of the Finance Bill next year, to give greater consideration to the question of index linking these provisions, and also he should try to ensure that, particularly as far as elderly people are concerned, a more simple way is devised so that they can be more fully aware of the exemptions so that they will qualify as they rightly should. Consideration should be given to allaying the anxiety and the fear that old people tend to have in relation to these matters.

I would agree with Senator Smith that we would all wish that the exemption limits could be increased even further than they are here. What we have done this year is to increase the general exemption limit but to provide for a larger increase in the age exemption limits to restore the situation to that which existed prior to last year. On the question of having a simpler system that would allow people to be more readily aware of the operation of these exemption limits this was a matter which was discussed in the Dáil during the Committee Stage and I have to make the point, and I think it might comfort Senator Smith a little to note, that at any time when on a scan of the returns in the system it appears that the exemption limit treatment would apply that is done automatically so that the taxpayer, when being informed of tax liability or tax free allowances, would automatically be treated under the exemption limit or marginal relief where that applies. There has been some discussion on possible methods of bringing this to the notice of people more generally. I have agreed that we will look at that and see if there is any appropriate way of making these things clearer to a larger number of people. The essential point I want to make is that where the income of a taxpayer is such as to bring the exemption limit and the marginal relief provision into operation that is in the vast majority of cases automatically done anyway.

Question put and agreed to.
Sections 2 to 7, inclusive, agreed to.
Question proposed: "That section 8 stand part of the Bill."

All of us would be interested in any changes that would assist handicapped people. I wonder if this provision goes far enough. Where hospitalisation and institutionalisation of these people is concerned the State costs are phenomenal. That begs the question as to how much more provision could be made where they are adequately looked after in the home or by other people. I ask the Minister to look at the situation in the most sympathetic way possible.

The section increases the income tax deduction available to a taxpayer who employs a person to take care either of himself or his spouse in the event of total incapacitation. It increases it from the previous level of £700 to £2,000, so we have nearly trebled the deduction here. We have, of course, introduced a new element in that what we are providing for now is that a tax deduction would be equal to the amount of the net cost to the taxpayer of employing the employed person subject to the maximum deduction of £2,000. That makes it a rather more rational system than we have had before. It is clearly a more generous allowance and it is estimated that some 500 taxpayers will benefit from this increase.

On a rational view of the sympathy which goes to handicapped people on the one hand, and the necessity of making sure that they are gainfully employed, on the other hand, is the Minister happy that this kind of ad hoc allowance will fit in with a more unified system of taxation as suggested by the Commission on Taxation? How does he see the future for special allowances like this which are based on the combination of sympathy and practicality?

This allowance is not concerned only with handicapped persons. It is concerned to assist the taxpayer who has to employ somebody to look after either himself or his spouse, or herself and her spouse, who is incapacitated. Obviously, in any action to simplify the tax system we would reduce the numbers of allowances and exemptions in order to broaden the base. I would think, nevertheless, there would be a case for this kind of allowance in circumstances of this kind. Senator O'Leary may feel that that is the beginning of another slippery slope to further complication in the tax system, but it is difficult to conceive of a way in which we could deal with the kind of situation that is covered by this allowance under the more generalised simplified approach that we are thinking of. I would challenge a little the allegation that this particular allowance is ad hoc. I would call it more an ad rem allowance in that it deals with a particular kind of situation. I would still see a place for this even in a simplified system.

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

My comments on section 8 would probably apply with greater force on section 9. I understand the policy behind this which is, as the memorandum which was circulated with the Bill suggests, substituting for 1984-85 and subsequent years of assessment a revised version of section 349 of the Income Tax Act 1967. It is re-defining for the purpose of clarification the exemption enjoyed by approved bodies of persons, established and existing for the sole purpose of promoting athletic or amateur games or sports. In this country, to a large extent, that means the Gaelic Athletic Association, and in that regard it would be a very brave politician who would attack the Gaelic Athletic Association.

The growth of the percentage of the leisure market being provided by the clubs of the Gaelic Athletic Association and other clubs of a similar type is a significant change in the spending pattern of the general public. That has had a serious effect on the profitability of the licensed trade. While not partaking of alcoholic beverages either from the Gaelic Athletic Association or from licensed premises, I recognise that over the years the tax paid by licensed premises has formed a very significant portion of the receipts in respect of the income of the Minister for Finance. I wonder has the time come to consider some form of equality of treatment between these approved bodies of persons and the ordinary commercial operators? I have no objection to the revision of the section, but if we continue to exempt large percentages of the commercial activity of the country the taxation burden on the remainder will correspondingly increase. The profits which are being made in ventures like that should be put on a more businesslike basis.

When the new taxation system is being considered some thought should be given to the cost of withdrawing this even if it were to be replaced by some form of ad hoc grant. The more exemptions we have from the ordinary rules which apply, the higher the taxation that is going to fall on all our citizens.

The first point I would make is that the purpose of the section is to revise or specify in greater detail the application of section 349 of the original Act. There was a problem in relation to the operation of that section, indeed, there were some cases of abuse of the provisions of that section, one fairly notorious case quite recently, and my intention was to ensure that we could deal in a proper and just manner with those abuses.

The other problem to which Senator O'Leary has referred is largely a matter of scale. What in effect happens is that if a sports club which is set up for the purpose of promoting athletic or amateur games has another activity and applies the profits of that activity to the promotion of the sport, that is legitimate within the meaning and the intent of this section. That would be the case only if the other activity is an ancillary activity. If the scale of the other activity gets to the point where it becomes clear that that is the main activity of the club then we would have to take a very different view.

Part of the problem referred to by Senator O'Leary is one which would need to be looked at in the context of the licensing laws and not only in the context of the income tax code. I would agree that there is a difficulty in that area in that we have seen in many places around the country a distortion in the normal pattern of the market which is causing grave concern to members of the Licensed Vintners Association, and quite properly so. There are two headings under which we have to deal with it, one of them covered in this Bill where the activity becomes the main activity — we would have to review the benefit given by this section to those clubs — the other, under the terms of the licensing laws which, in a number of cases, are being very liberally interpreted by a number of the clubs concerned.

Question put and agreed to.
Question proposed: That section 10 stand part of the Bill".

On this section, we have to take a more stern position. Earlier the Minister referred to sliding down the slippery slope. There is no area where the scope for sliding down that slope is greater than on the question of levies. Levies are unrelated to one's capacity to pay and they open the door to practically annual increases, as is now the case. We have a health levy of 1 per cent, a youth employment levy and now an additional income levy on top of PRSI and fairly substantial income tax payments. The fundamental argument against continuing these levies is the fact that they are in addition to fairly heavy existing taxation. They are an easy way of raising very substantial funds without relating that to the capacity of people to pay. There are other aspects to the use of this money into which perhaps, on this Committee Stage, it is not possible for us to go but I want to refer to one aspect of expenditure on the youth employment levy.

Almost 75 per cent of the people who are unemployed at the moment are over the age of 25 and most of the schemes which are being introduced, necessary as they are cater for our young population and for people who have not yet commenced work. Greater consideration should be given to the many thousands of people who are over the age of 25, many of whom are married and have mortgage repayments, who have lost their jobs.

We are fundamentally opposed to them. They should only be introduced on a temporary basis, and it is regrettable that again this year we are having a further increase which is another load on top of an already highly over-taxed population.

In the case of these levies, how temporary is "temporary"?

I would have to say, first of all, that we are providing in this section for a change in the operation of the temporary 1 per cent income levy in that from this year on it will not apply to people whose income is less than £5,000 a year if they are self-employed or £96 per week if they are in employment. So we have decided quite deliberately to relieve the charge of that levy on people with fairly low incomes. There is, of course, a great deal of criticism of the 1 per cent levy in that it is charged on gross income, but we should distinguish between the three different levies. The first of them, of course, is the health levy which is a measure introduced by statute some years ago in order to ensure a particular kind of contribution to the financing of the health services. I am not aware that there has been any great outcry about the operation of that levy, and I suspect that that is the case because people see a direct link between the service they get in return for the payment of that levy.

We could say the same of the youth employment levy. There has been a good deal of discussion about where the money goes that is collected from the youth employment levy. It is funding which is channelled basically through the Youth Employment Agency, and to the extent that it is channelled through other agencies it is used for the kind of purpose which was envisaged by the legislation in the first place. It is fair and right that we should try as far as possible to provide young people entering the labour market for the first time with the means of acquiring skills or particular kinds of training that will help them in their search for employment. Any general criticism of the youth employment levy on the ground that it seems to go a number of different types of programme is unjustified. It would be far more useful, if one feels critical about the uses of the youth employment levy, to examine each of the individual programmes which are funded by means of that levy and make an assessment of how effective the programmes are in preparing young people to take up employment in the market.

The third levy is the temporary income levy. I do not know if Senator Hillery requires me to be a walking or a standing dictionary —"temporary" is something which exists for a short period of time. "Short period" can be more or less short. The 1 per cent temporary levy has very evidently become a levy that was temporary as far as people on low incomes are concerned, because they will be relieved of the operation of the levy this year. So that is a definition of "temporary" which Senator Hillery in his haste to put the question might perhaps have overlooked.

The question of the relation of these levies to ability to pay is a fairly vexed one and was raised by Senator Smith. As I remarked on a previous occasion, a rose by any other name would smell as sweet. A 1 per cent levy on gross income for many would be the same in its effect as, for example, a 1¼ per cent levy on net income. There are different ways of collecting the same amount of money, and I am not so sure that people would feel a 1¼ per cent levy on net income any less strongly than they feel a 1 per cent levy on their gross income. The funds made available make a substantial contribution to the amount that is available for the funding of public services. In the circumstances of this year the only change that we found we could make in the operation of the levy was to exempt those at low income levels. That change is estimated to cost £5 million in 1984, some £9 million in a full year, and it will relieve some 350,000 taxpayers of the obligation to pay that 1 per cent levy.

The Minister said that there is no apparent opposition to the 1 per cent health contribution. If he keeps in contact with his colleague, the Minister for Health, he will see that he is making proposals which are to be introduced on 1 June this year with regard to admission to hospital of those people who have not as yet paid the levy. Certain immediate charges are being placed on them. Could the Minister tell me if, in that context, there have been any fruitful arrangements made with regard to the collection of this levy or indeed the health contribution from the self-employed and the farming community? I understand there was a dispute last year as to how this was to be collected. How is it proposed to put the exemption into effect when one considers that the vast majority of people in self employment and particularly in farming would not have accounts and would not be expected to keep accounts, generally speaking, on incomes as low as the exemption level?

Up to this year these levies were collected from the self-employed by the health boards. From the beginning of this tax year the three levies will be collected by the Revenue Commissioners. Senator Smith referred to the question of making a charge on people in hospital who have not paid their health contribution. That measure has already had its effect in that the rate of payment of the health contribution has improved very substantially. Many people have decided quite wisely that they would rather have the benefit of the service than continue to try to get away without paying it. From my own experience, in dealing with self-employed people in my own constituency, I have found that where a taxpayer gets a bill for an amount of these three levies, which he feels on the whole is probably exaggerated, almost in all cases I find that people say that they will pay the health levy anyway because they feel that that is a payment for a particular service.

The problems in relation to the payment of the youth employment levy and the 1 per cent levy are somewhat different because, of course, they have to do with the degree of estimation in the income base that is assessed for the levy. There is a difficulty there in the sense that not all of the self-employed have the kinds of accounts of their incomes they should have, but I would remind Senators that we have a provision for the making of statutory declarations in cases in which other information is not available.

As far as the operation of the exemption is concerned, of course for employees there is no difficulty — we will not make a deduction of the 1 per cent in any week in which the income is below £96 per week. As far as the self-employed are concerned, we have to wait until the end of the year to have evidence that income is above or below the £5,000. In the case of those who are in the income tax net and who therefore produce a return of income there is no great difficulty because we can judge the applicability of the levy on the basis of that return. For those who are in the net but do not produce these kinds of accounts, we have to resort to other methods of estimating incomes, and there again the question of the statutory declaration can be the base for making this decision.

Does the exemption apply only to the income levy? Does he consider that the exemption would apply to any of the other levies in the health contributions requirements? Would one who qualifies for a medical card be liable to pay on those income levels?

Those who have medical cards have the health levy paid on their behalf by the employers. The exemption to which I referred covers only the 1 per cent temporary income levy.

Question put and agreed to.
Question proposed: "That section 11 stand part of the Bill."

A point which was raised in the other House and on which I share the Minister's view deals with quoted and unquoted shares for the purpose of relief for investment in corporative trade. I agree with the Minister that there is a very strong case to be made for limiting the relief to unquoted companies. I am specifically talking here about the definition of unquoted companies — we can deal with the other point later if my colleague on the other side wishes to raise it, as he may well wish to do.

Assuming that it is right that it should be limited to unquoted companies is the Minister happy that the definition is capable of exact interpretation on the one hand, and that it should be defined as it is defined on the other? In other words, is the Minister happy that the portion of the definition which says, "or dealt with on an unlisted securities market" is capable of exact definition? I know what the Minister is trying to get at, but I wonder is there such a legal entity as an unlisted securities market. Is the Minister happy that firms on the unlisted securities market should be considered as quoted companies?

As I understand the Minister's line on maintaining the position that only unquoted companies should be allowed to participate in the scheme, his view was that the purpose of this incentive is to encourage people to put money into companies in which there is a certain amount of risk involved. The distinguishing characteristic which the Minister identified as being the reason for the allowance being given is to encourage people in this country, where the investment climate for many years has been to put money into the safest possible environment, to put money into a risk environment. For that reason, I agree with the Minister.

Many of the companies on the unlisted securities market at present, or many of the companies who might be anxious to come on the unlisted securities market if a market could be developed for their shares in this area, would be very risky companies — I do not mean risky in the sense of being badly run but in the sense of being embryonic and not in a fully developed state. If that is the definition, I wonder should the Minister give some consideration to permitting the companies within the three years coming on the unlisted securities market running the risk of disqualifying the people who had invested in the companies in the previous three years.

Many companies who come on the unlisted securities market are very quickly developing companies, high technology companies, who came almost from nowhere in the last three years, or in the three years prior to them coming on the unlisted securities market. Therefore, would it be a good idea to re-define the unquoted company so as to either exclude the unlisted securities market from the definition or to put a different period in respect of arrival at the unlisted securities market as compared with the quoted market? There is no justification for including firms that have quotations on the Stock Exchange. I, along with others, received representations from people trading in the Stock Exchange on this point.

Most of the companies on the Irish Stock Exchange are long established — probably one of our big problems is that they are too long established and that we have not many people seeking new quotations. I agree with the Minister that these companies on the basis of their record should be able to get people to invest on the basis that they are a good investment in any respect. However, the Minister should give some consideration to changing the rule so that the limitation of three years will not be applied to the unlisted securities market by eliminating it completely or having a different period applied in respect of the unlisted securities market section. I would also like to ask the Minister whether he is happy that there is an exact definition of unlisted securities markets available.

For a long time many of us thought that it was an absolute waste of our time to be making any suggestions to the Minister for Finance, that he had a certain way of doing things, that he was his own man and that he was not prepared to listen to any proposals from this or the other side. On this occasion we have penetrated that maze of intense difficulty——

We had enough of the other kind.

We have persuaded the Minister to give some consideration to income tax relief for people who are prepared to invest in what would be considered as a risk area. We have had some experience of what has been happening across the water and in the US in devising this scheme. One could not emphasise too strongly the necessity to try to encourage investment when we would be reasonably happy that that investment would produce fairly secure employment prospects. I would ask the Minister if food processing is covered by these regulations and whether research in the general food area would be covered.

In relation to what Senator O'Leary has said, it may well be that some of these high risk enterprises will be eligible for the tax break outlined in this chapter of the Bill. The American record shows that 95 per cent of companies going through the seed stage actually fail. This is true in the case of high technology areas. On the other hand, if you do not have incentive to support these embryonic enterprises at the seed stage you will not have further phases.

I will say to Senator O'Leary that "unquoted company", for the purpose of this section, means what I say it means in the section, so I have no doubt as to the adequacy of the definition.

Like Alice in Wonderland.

No — there are no looking glasses here, you see the genuine article the first time you look in. On the whole, the definition corresponds fairly accurately with what one might call the popular conception of an unquoted company. As to the unlisted securities market, Senator O'Leary wants to know if there is an exact definition of an unlisted securities market. There is a definition which is used by the Stock Exchange which in the final analysis is the arbiter of definitions in this area, and I would consider that definition to be clear and precise enough to use in the way it is used here.

I take the points made by Senator O'Leary in relation to the non-inclusion of companies quoted on the Stock Exchange. He questioned if we should include companies on the unlisted securities market. I would point out that in order to have its shares traded on the unlisted securities market the Stock Exchange requires a company in the normal way to have a three year trading history. It can vary that, but that is the normal requirement, so that a new company starting up looking for the benefit of the application of this system would not normally be impeded anyway from looking for a quotation on the unlisted securities market after the period which is normally laid down by the Stock Exchange, because we have a three year relevant period for companies in this legislation. If we are talking about a company newly set up, the three year period provided for here would correspond to the three year period set out in the Stock Exchange rules before it can seek a quotation on the unlisted securities market.

I would not see any great conflict in the case of companies that are newly set up. For companies that are already trading when this comes into operation, obviously a different set of considerations apply. For a company considering how it might raise money, the choice to be made would be on the one hand between recourse to the unlisted securities market for funds in the normal way — those funds would not carry the benefit of the tax break here — or the seeking of funds under this scheme with a fairly substantial tax break for the people who are putting in the money. It would be up to the company itself to decide which was the more appropriate way of raising the funds. It would depend, to a large extent, on the degree of risk involved. With a new company with seed investment it would seem to me that the kind of procedure we have set out in this Bill would be more appropriate. That would, in many cases, be a more attractive way of raising funds than going to the unlisted securities market. But it is essentially a matter for the company itself to decide. The intent of this part of this Bill is to bring together people who had investable funds and companies that need extra or new equity capital in areas where that kind of conjunction has not been coming about.

Food processing is covered in the definition of manufacturing industries which benefit from the 10 per cent corporation tax concession. Research in the food area generally is not covered specifically but section 12 covers research and development as one of the operations funded by a company which would be included in the definition of qualified companies for the purpose of this relief.

I accept what the Minister has said that there is a definition of the unlisted securities market. He has also satisfied me in resepct of the companies that would be seeking a quotation from a standing start. I would hope that there would be many instances of companies which would have been trading for a number of years and would have a satisfactory profit record and may be making profits of £50,000, £60,000 or £70,000 a year but would find themselves short of cash and which would be faced, as the Minister says, with the necessity of raising additional risk capital but the profit record of the company would not be of sufficient antiquity confidently to look for a listing on the unlisted securities market. I would envisage in that case that the company would seek out and acquire the backing of perhaps ten people who might put in £25,000 each, making up £250,000. It may well be that that company before the three years have elapsed would be in a position to seek a quotation on the unlisted securities market. Therefore, the more succesful the scheme the greater the problem will be. I would like if the Minister would remain open to a reconsideration of this problem at a later date if that proved to be necessary.

In general I do not think that any section of the Bill deserves a greater welcome than this section. It presents a tremendous opportunity to those who have funds to invest. It also presents a tremendous challenge to Irish entrepreneurs and managers, because at Irish Management Institute conferences on the shores of Killarney extreme views are expressed by those people with regard to the climate for investment and the incentives the Government should give to encourage these kinds of activities. Those with money are being given a chance to invest at little risk: it is a question of whether they are willing to take that opportunity.

Would the Minister keep an open mind in future in regard to the unlisted securities market? It may not become a problem but if it does I would like to think that the Minister would be open minded about it.

I am very glad to be able to say to Senator O'Leary that he will continue to find me in the future, as in the past, very open minded.

That spoils it. That is no guarantee at all.

Question put and agreed to.
Question proposed: "That section 12 stands part of the Bill."

Can the Minister help me with regard to this matter? The section lays out in subsection (1) a number of criteria under paragraphs (a), (b) and (c). Then it goes into subparagraphs and then it goes into sub-subparagraphs, which are very difficult indeed. I am interested in one point in particular. If you look at paragraph (c), subparagraph (1), and sub-subparagraphs (i), (ii), (iii), and (iv), in Roman numerals, would I be correctly reading the section as to provide that after the first subparagraph if the word "or" was in there — I am not proposing it should be in there — it would give the meaning of the thing more fully? In other words, in order to qualify, the various things in paragraphs (a), (b) and (c) must be fulfilled. Must any one of subparagraphs (i), (ii), (iii), or (iv) be fulfilled to qualify under the section? It does not quite read like that. It could be read that it should be Roman numeral I, Roman numeral II, Roman numeral III or all three of those plus numeral IV. I would like the Minister's view as to whether the first four paragraphs are alternative of each other.

If we take the paragraphs on upper case Roman numerals——

I will remember that.

——what is involved here is that the relief would apply where the company was involved in any, all, or some or any combination of the aspects set out in those upper case Roman numerals paragraphs, with subsection (2) there with a view to the creation and maintenance of employment in the company. The reason we have four sections within the upper case Roman numerals is simply to group the different kinds of things that are likely to go together. It is really for ease of exposition that it is laid out in that way.

Would the word "or" after the upper case Roman numerals I and II not——

It is certainly implied there. For example, a company could be enlarging its capacity, acquiring technological information and data and developing new and existing markets so they are doing a bit of each. At the same, if it is creating or maintaining employment in the company it qualifies for the relief.

Or doing any one of them.

Question put and agreed to.
Section 13 agreed to.
Question proposed: "That section 14 stand part of the Bill".

Yesterday I welcomed the initiative in connection with this long-term risk and I felt that it was too restricted. In that context I specifically raised the point about the ineligibility of quoted companies. It is a fact that most companies quoted on the Irish Stock Exchange are relatively small. They are significantly smaller than some unquoted companies which obviously qualify for the relief for investment. Am I correct in saying that agricultural cooperatives, for example, are eligible?

Having made the point however, that there are quite a number of unquoted companies larger than quoted companies, I feel the very limited funds that are available in any case for investment in Irish companies would be channelled from quoted companies and this obviously would have the effect of denying many of these quoted companies access to the principal source of much needed new finance, namely new issues of shares. I just wonder, given the case as I have now put it, whether there is not a case for including quoted companies. I recognise that they have high pressures and that they are well established. They need capital investment.

It does not seem to me that the question really arises on section 14.

I jumped the queue.

I do not know whether we should go back again into the reasons why we have excluded quoted companies and companies under unlisted security market from this. The point is that quoted companies have a track record. Companies on the unlisted securities market develop a track record. Companies that are not quoted anywhere have not got a track record that is known in the investment community. If we provide a tax rate on that kind of investment, that is in the unquoted companies, the purpose is to see if we can stimulate the provision of capital by people who might otherwise not bring their money into the market for investment in companies. I am not so sure that the argument that this will channel money away from quoted companies is an entirely valid argument, that things will start off from an excessively static point of view.

People who put their money in quoted companies are not really taking as much of a risk as people who have put their money into non-quoted companies. The difficulty we have had so far in this country as Senator O'Leary said a few minutes ago, is that on the whole the investing community have preferred to put their money into areas where there was relatively little risk. It is not an exaggeration to say that people who put their money into the most popular shares on the Irish Stock Exchange are not taking a huge risk because they are solid companies on the whole and while they might not have a brilliant performance year after year, it is a fairly safe place to put your money. What we are trying to do here is to get people to put money into companies that are in a much more risky condition, and that is in a sense a justification for the tax rates. We will be trying to stimulate the flow of new investment funds to the extent that it will not have the effect that Senator Hillery says of diverting money away from companies that are quoted on the market.

The Minister has made a reasonable case. The fact remains, however, that there are successful, relatively secure unquoted companies that will qualify under the scheme and thereby potentially put quoted companies at some disadvantage.

That is so. There are companies which for a number of reasons have decided to stay unquoted and would benefit from this scheme. On the whole though, without going into a long analysis of what kind of companies they are, they are ones that have not been perhaps as adventurous as others in terms of expansion and they are ones that often find some difficulty, when they get expansion-minded, in raising the extra cash.

We cannot legislate for every case. The ones we are aiming at are the ones where there is a risk and if there happens to be a few unquoted companies that do not quite conform to that definition, then the reasonable expectation is that they will not be competing for money and that they will not be looking for extra funds if they continue to behave as they have up to now.

I approach the Minister very strongly because the limitation to unquoted companies is quite right. It occurs to me that in this and in other suggestions which no doubt will be made later on that if any concession is introduced we automatically look not at the opportunity that it opens but at all the other areas that we could possibly think of that we could also extend on. The same thing applies in the other House. Members were suggesting that banking services should be the subject of this £25,000 investment exemption. It appears to be running away from reality and making a nonsense of concessions if you try to make them so wide that they will end up meaning nothing. If it is made so wide that safe investment is included, well any rational person will continue to put his money into a safe investment. The risky investment will get nothing at all. Any person making a decision or giving investors advice would have to advise them, if the benefits are the same for going through a risky venture, to go into the non-risky venture. I support the Minister very strongly in that regard. People may not be quite familiar with the difference between an unquoted company and a public company. This will be available to a public company which just does not happen to have a quotation. There are many public companies that do not have quotations. In other words, their shares are owned and shares can be bought and sold in an unrestricted fashion. They are just not quoted on the Stock Exchange. They publish their accounts in the normal way. There are many companies which are not quoted on the Stock Exchange which are public companies. As I read the legislation, and I ask the Minister to confirm it, these companies will be eligible. Now that a greater degree of disclosure will be necessary under EEC legislation, a greater development of these companies as a preliminary to going towards a quotation on the Stock Exchange should be encouraged. It gives information to the community about what is happening in the business world.

Question put and agreed to.
Section 15 agreed to.
Question proposed: "That section 16 stand part of the Bill".

In the context of restriction, on Second Stage yesterday, I raised the possibility of broadening the range of services that are eligible. I recognise that not all services can be included in this category. I specifically mentioned tourism. As I recall, the Minister did not regard tourism as the type of service that he would include and he specifically referred to the over-capacity of hotels at this time. Regrettably I have to agree with him about the over-capacity of hotels. With the combination of the recessionary conditions and the appallingly high tax rates that affect the tourist industry, it is no wonder we have empty bedrooms in hotels.

I just want to make a few supporting points for the tourist industry. It is worth repeating that it is an export industry and an important earner of foreign exchange. My information is that 68p out of every £1 spent by tourists goes to the Exchequer. Obviously the Minister for Finance is interested in that kind of revenue. There are a number of trading State bodies involved in the tourist industry in which the State has already made massive investment. It could be argued that by making the tourist industry eligible, the Government would be actually backing up already heavily subsidised State investments like CIE, Aer Lingus, SFADCo and B & I which are rather dependent on tourist business. Yesterday, the Minister referred to the desirability of the funds under the scheme being channelled to high risk enterprises. The tourist industry is also a high risk industry.

As I said yesterday, one of the concerns that I have is to ensure that funding made available through this scheme goes into areas where we will have the most rapid multiplier effect. I will list for Senator Hillery the range of services that are covered by the provisions.

They include data processing services, software development, technical and consulting services, commercial laboratory services, administrative headquarter services, research and development services, media recording services, training services, publishing services, international financial services and health care services. That covers a very wide range. As I said yesterday and as was repeated this morning by Senator O'Leary, if we widen the scope of this scheme too far we simply dilute the effect and will not get the result that we intend to get from it. To the extent, however, that the scheme achieves its result, we will have an expansion in the level of economic activity and employment. Other things being equal, that will in its own way assist the tourist industry. For those reasons, I would not consider tourism services as being appropriate for inclusion in this Bill. That is not in any way to suggest that we would not like to see a further expansion in tourism. This year's Finance Bill provides some extra assistance for tourism by reducing the rate of VAT on the hire of cars, caravans and boats. That is further evidence of the fact that we want to assist the development of tourism. This would not be a proper vehicle for further assistance for that industry.

Has the Minister given any consideration to the definition of manufacturing goods and whether it should properly include certain intensive types of agricultural development, in particular, horticulture? There seems to be some doubt in that area. I do not have personal investment in that area but I have experience of it. Does the Minister consider this an appropriate area to come within the category of manufacturing goods?

There have been discussions going on for a few years about the possible classification as industrial activity of two areas of what we have normally considered to be agricultural activity for a very different reason to that envisaged in this Bill. Most of the people it is sought to classify as industrial would be far happier if they remained classified as agricultural. The concern is not with the type of taxation provisions we are speaking of here but with a different kind of taxation provision. I am not convinced that we can really make that kind of distinction. As I said, to Senator O'Leary's apparent surprise, I have an open mind on that subject and remain to be convinced.

Question put and agreed to.
Sections 17 to 20, inclusive, agreed to.
Question proposed: "That section 21 stand part of the Bill".

This is an extraordinary section. I do not understand it. It is a very short section. It seems to have been lifted from some report of the House of Lords or some other such source. It states an individual is not entitled to relief in respect of any shares unless the shares are subscribed for and issued for bona fide commercial purposes—that is very reasonable—and not as part of a scheme or arrangement, the main purpose of which is the avoidance of tax. I well understand that it has to be issued for a bona fide commercial purpose. One of the main reasons people will be making use of this scheme is the avoidance of tax.

It will. It states it must be for a bona fide commercial purpose and I accept that. If it is for a bona fide commercial purpose that could not be the main purpose. Presumably in investing in an enterprise like this, a person with £200, £20,000 or £200,000 is doing it, obviously for a bona fide commercial purpose hoping that they will make a profit on it and also because they want to reduce their tax liability. They have a fair amount of money and they want to invest the money rather than just have it earning interest in the bank. One of the reasons they will do this is to avoid tax. It is a legitimate way of avoiding tax. I can foresee a great resistance among inspectors of taxes to implement this scheme at grassroots level. We should be very careful that this scheme does not go the same way certain other taxation relief schemes for increased employment went when there were such convoluted rules that nobody claimed relief on them. We have to be very careful to ensure that this scheme, which is an excellent one, does not go in the same way.

Let us be honest about it. In order to take advantage of this scheme people will do artificial things. I will give an example of the type of artificial deed that will be done. It is something that I thought of recommending to a client of mine. If a person owns a limited liability company in which there are substantial funds, those funds are invested in one way or another. A surplus fund to the extent of £25,000 can be made available over a period. If that £25,000 is paid by way of dividend to a person it will give rise to an additional taxation charge in respect of the person's income because he would have his ordinary income on which he will pay tax. If he invests the £25,000 in one of these ventures he will be able to claim an allowance on the £25,000. Nobody could claim that is not an artificial transaction, for it is such. It would not be there only for the existence of the scheme. It would be achieving the purpose the Minister refers to. The person concerned would be paying neither more nor less tax on the £25,000. He would take the £25,000 from a safe haven and put it into a risky venture. Nobody looking at the transaction objectively could say that it was not done, in the main, for the purpose of tax avoidance.

One of the main reasons for engaging in the transaction would be to minimise the tax liability which would arise in respect of the withdrawal of money from a limited liability company. It conforms absolutely to the criteria laid down by the Minister. A lot of the money which people hold and which will be available will be in limited liability companies because taxation is kinder in limited liability companies. In order to invest here they would have to take the money out of a limited liability company and go through the procedure. They should be encouraged to do so. That is the purpose of this section. A person seeking to do this will be faced with the difficulty of people saying it was done for the purposes of avoiding tax.

With the greatest of respect, I would have to say that the kind of analysis Deputy O'Leary has outlined——

I beg your pardon.

Deputy O'Leary is another fellow.

He is converted.

Reconversion might not do Senator Smith any harm. That kind of analysis is fallacious. The key phrase in here lies in the words "part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax." For a person to benefit under this scheme is no more a tax avoidance than having another baby which will reduce one's tax liablity or taking a mortgage on a house which will also reduce one's tax liability.

For the moment.

It is no different from doing any of the other things which, under our present system, reduce one's tax liability. So it is fallacious to regard the operation of a scheme like this as tax avoidance because it does not take account of the other pertinent requirement which is that it be part of a scheme or arrangement the main purpose of which is to avoid tax. If there was a series of artificial transactions that had to take place in a given order in order to produce a result and at the end of it we did not have an event such as that provided for here, that would be tax avoidance. Since Senator O'Leary referred to other jurisdictions, I should like to quote a short phrase from a recent judgment by Lord Scarman who said:

Every man is entitled, if he can, to order his affairs so as to diminish the burden of tax. The limits within which this principle is to operate remain to be probed and determined judicially.

However, we have to indicate as clearly as we can those legislative limits. This section represents the belt that goes with the braces which are provided in other sections of the Bill.

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

It appears that the administrative procedures under which it is intended this Bill should operate are very important. The inspectors of taxes at ground level should be encouraged to act expeditiously and do whatever is necessary to enable investors to invest with a degree of certainty that their investment will be allowable against tax under the scheme.

At first I thought there was an error in subsection (4) but the Minister pointed out that there was not. The section refers to the procedure to be followed in order to validate a claim. If one looks at subsection (3) it states:

Before issuing a certificate for the purposes of subsection (2)

a certificate for the purpose of obtaining relief

a company shall furnish the inspector with a statement to the effect that it satisfies the conditions for relief, so far as they apply in relation to the company and the trade and has done so at all times since the beginning of the relevant period.

The relevant period is defined in an earlier section as it relates to section 22. In other words, it appears under subsection (3) that the initiative has to be taken by the company. One would think from that that the company would issue the certificate having informed the inspector. Subsection (4) states that no such certificate will be issued without the authority of the inspector. I thought that extra word "or" was superfluous and I thought it should read:

No such certificate shall be issued without the authority of the inspector or where the company, or a person connected with the company, has given notice to the inspector under section 24 (2).

Section 24 (2) deals with disqualification of a company. Apparently the word "or" should be there and it correctly reads "no such certificate should be issued without the authority of the inspector". The remainder of it refers only to particular circumstances. In other words, if you put a full stop after that and make a new subsection, you will get the full implication of what is meant. The company which is participating in the scheme will have to issue the certificate having satisfied the inspector that it is an eligible company. There is nothing very wrong with that but, as I pointed out to the Minister, section 22 (1) imposes strict time limits on the claim for relief to be made by the individual concerned. Basically, it cannot be made more than two years after the end of the year of assessment.

Imagine the situation of a company which wants investments. Nobody will put money into it in the hope that sometime in the future it will receive authority to issue the certificates. A company proposes to raise money. It approaches ten people and they agree to put in £25,000 each. It then goes to the inspector and says: "This is our scheme, this is what we intend to use the money for, will you authorise us to issue certificates?" The inspector need do nothing. There is no time limit within which the inspector must make a decision or any appeal procedure in respect of him making an adverse decision.

I am not concerned about the appeal procedure because general provisions apply to that and, no doubt, the appeal commissioners will hear all appeals under this section. What I am more concerned about is that the inspector will do nothing. The inspector will not say you are eligible or you are not eligible. Very often, inspectors will not have the authority to issue certificates without checking with some central organisation. It is essential that a quick response be guaranteed. On the one hand, money may not be invested without it or, on the other hand, if the money is put up before the certificate is issued, time can run out and people will be restricted in making a claim. The Bill is deficient in not putting an onus on the inspector to make a decision within a certain period and in not laying down a specific appeal procedure.

With regard to section 22 (6) and the re-introduction of the word "negligently" in the establishment of what are offences, we had a long discussion on this last year. I understood that in respect of offences the word "negligently" was to be replaced. The Minister will remember that he amended a number of sections of the Finance Act when it was going through Dáil Éireann. That was commented on favourably in the Seanad. He will also remember that in respect of section 112 of the Finance Act, the word "negligently" was left in. We were not sure whether it was inadvertently left in or not. The Minister at that time undertook to have certain procedures followed with regard to that. He might like to comment on that. Why does he consider it necessary that the word "negligently" should be in this Bill—to make simple negligence a criminal offence?

Section 22 (4) was inserted to protect the investor. The investor will be in a position to know that the funds that he makes available are being applied for the purposes of the scheme. The procedure outlined by Senator O'Leary is designed to ensure that the company clearly shows that it is a qualifying company under the terms of the scheme. Once that has been done, the rest of the procedure can be followed.

I understand that Senator O'Leary is not too worried about the appeal procedure because there is a general right to appeal under the Income Tax Act. What he is most concerned about is getting an assurance that when inspectors get these statements from companies and are asked for permission to issue certificates, they will examine the statements and give the permission quickly and that they cannot mischievously or negligently hold up the whole process for a period which would put the investor outside the bounds of the time limits here. That is something we can look at and ensure, administratively, that it does not happen. I suspect that one of the difficulties we may encounter in applying this would be in getting those statements from the companies to ensure that the Revenue Commissioners are satisfied that the conditions for fulfilling this scheme are fully met.

With regard to section 22 (6), Senator O'Leary has caught me on the hop on that one. I cannot say whether the word "negligently" was negligently left in.

I did not mean to make the Minister hop.

The Senator has me hopping anyway so he has that much satisfaction.

A rare event.

I will look at that again to see whether it is consistent with the amendments which we made to last year's Finance Act.

I would much prefer from the point of view of personal satisfaction to have a Minister of another party coming in. That might mean that he would not have the job he has——

That will come.

The Senator will have to wait a long time for that.

——and the person who appointed me to this position will not be in a position to do so.

An Leas-Chathaoirleach

That is a fair admission.

The Minister and I are of one mind with regard to section 22 (4). It is vital that it is done on a disciplined basis. The issue of certain certificates, mainly for the purposes of capital gains tax, is done in an expeditious fashion. It was like that from the start. It is done in a way which does not militate against the eventual collection of whatever taxation is due. The Revenue Commissioners are to be congratulated in that regard. When the information prior to the issuing of the certification that is necessary in respect of a consideration which exceeds £50,000 is received quickly, it is transmitted to the relevant inspector of taxes. A specialist deals with it and then it is sent on.

I am afraid that these applications will go in to an inspector of taxes who is snowed under with work. He will be dealing with hundreds of companies and hundreds of applications. He will put them at the bottom of his pile. If the certification could be done on a specialist basis, one certifying officer for the country would handle the number of applications you are likely to get. It is not very difficult to do. A large amount of information will already be available. If a company is paying income tax at the rate of 10 per cent, it will be prima facie entitled to this kind of treatment.

With regard to maintenance of employment, a statement that one will maintain employment is almost as far as one can go on that. Would the Minister consider the organisation of it along a specialist line so as to encourage a speedy conclusion to applications when they are made? Would the Minister also give some consideration to inserting the word "negligently" in section 112 of the 1983 Bill? I know certain administrative procedures are being followed in that regard, but the Minister might consider it. This was something I noted last year, and I think it is worth while pursuing.

On the last point that the Senator made, if he looks again at the 1983 Bill he will find that in the section where we removed the word "negligently" a penalty including imprisonment was provided for. That was why we removed the word "negligently". Subsection (6) of section 22 of this Bill deals with the results of the fraudulent or negligent production of a certificate and provides for penalties also. The essential point to make is that while the company would suffer from the penalty the biggest sufferer would be the investor who would lose the benefit of the tax relief. It is therefore important to avoid any kind of negligent treatment of the way the statements are put forward.

With regard to the procedures, I fully agree with Senator O'Leary that we would need to look at the mechanisms we would use in order to speed these matters through. I think, subject to correction—and perhaps I can come back to Senator O'Leary on this—that the first group of certificates to which he referred in relation to the capital gains tax are provided expeditiously—the system works very well—without there being a time limit for the issue of a certificate being laid down in the Act. They are dealt with in a specialist way and it would be my intention to deal with this in a broadly similar way, providing as necessary for the proper liaison between the Revenue Commissioners and at least one other Department that would obviously have some advice to offer on the appreciation of the companies.

Question put and agreed to.
Sections 23 to 28, inclusive, agreed to.
Question proposed: "That section 29 stand part of the Bill."

This deals with bond washing. Would the Minister outline what the position will be in respect of companies which are involved in the trade, wholly or partly, of a life business, and the taxation of profits in respect of investments which they may make from time to time? This is referred to in subsection (2) (b). It appears that they are being treated as a special case.

The development of an investment market in life assurance companies which is tax free, is a considerable disincentive to general investment in the country. The amount of spare resources of the companies which are going into the life market is disproportionately high. One of the effects of the abolition of the bond washing scheme—and an abolition with which I agree—is that there is now an even greater incentive to invest in schemes operated by life assurance companies which effectively do the same thing.

I am aware of the necessity for life assurance and for favourable treatment of those companies that are involved in giving this very essential service to the community, but a clear difference must be drawn between a long term investment which is generally concerned with the provision of an adequate pension for somebody, and the investment on a fairly short term basis of money which is virtually tax free. There are two effects to that. One, it discourages the individual investor from investing in risk ventures, which is something the Minister wishes to encourage and secondly, it means that a substantial and increasing portion of the commercial life of the country is being controlled by the life assurance companies. That is probably an inevitable trend, but the speed at which it is happening is not inevitable and we should do something to control it. No substantial property in the centre of Dublin, or in the centre of Cork, can now be held by a private investor. It is just not possible. Any development which takes place has to end up with a life assurance company or some similar company. I do not think that that is in the long term interests of the country. People should be encouraged to take the risks that are necessary to hold investment like that. Similarly, people should be encouraged to invest in the shares of companies which are quoted on the stock exchange. I am not talking about companies to which a high degree of risk is attached. To a greater and greater extent the institutions and the pension funds are acquiring control of the economic purse strings in the country. This is not good.

Substitution of the merchant princes of old by the life assurance companies in the eighties or the pension funds attached to very substantial companies, is not in the interests of the country, and to have that development aided and abetted by the provision of tax free status to all schemes of the life assurance companies is something to which the Minister should give careful consideration under the heading of anti-avoidance.

This provision would bring profits made by life assurance companies into tax, in the same way as the gains made by other bond washers were brought into tax, except in the case and to the extent that the company might be treated as a dealer in securities. In that case it would fall to be taxed in a different way. Since most of them are not assessed in that way, paragraph (b) means that profits made by life assurance companies from that kind of activity would now be brought into charge for tax.

Question put and agreed to.
Sections 30 to 32, inclusive, agreed to.
Question proposed: "That section 33 stand part of the Bill."

It is crucial that any disincentive effect that the income tax code has on increasing the national herd is removed. Already the effect of the super-levy on our dairy herds is becoming more obvious. With our spare capacity in meat processing and with the elimination of the variable premium, we should ensure that the national stock levels are increased. It is very serious that we are now back to the 1972 stocking levels. I am not saying, and nobody would accept, that all these problems are the result of the income tax code, but any disincentive effect to increasing herd numbers which is embodied in it should be removed.

In the context of the Land Bill which is being debated in this House, the success of the scheme will be considerably inhibited by the stock relief and clawback clauses in our income tax code. Yesterday the Minister indicated that he will be introducing amendments, but he might enlighten the House about what he is doing in that context.

My concern, which gave rise to the statement I made yesterday in the course of my Second Stage speech and to which the Senator referred, is that nothing in the stock relief provision should prove to be an obstacle to the promotion and the use of land leasing under the terms of the Bill going through this House at the moment. I have made a number of changes in the stock relief provisions for agriculture which would improve the situation quite substantially and would rationalise the situation as far as farming is concerned and bring back a greater degree of confidence as to the level of future liabilities for tax. That is one of the useful effects of the scheme. I have taken a ten year period because that is a reasonable period, which is longer than any of the cycles we know of. It is a deal longer than the pig cycle, the cattle cycle, the sheep cycle and the stock cycle. This means we have a provision that would extend over a normal market stock cycle and therefore should not be open to abuse.

The kind of period I have in mind for leasing is different and does not have to rely so closely on cycles. Once we do that it may be necessary to ensure that we do not trip over this provision in relation to leasing, and that the ten years we apply here would make the leasing provision less useful or less attractive than we want it to be. The difficulty is that I cannot say in advance of the passing of that legislation what change would be required, but what I intend to do is, once that legislation has been passed, to look back at it and look at the portions that would be affected by the stock relief provision, and to modify the stock relief provision in those specific cases.

Question put and agreed to.
Sections 34 to 46, inclusive, agreed to.
Question proposed: "That section 47 stand part of the Bill."

Yesterday I raised some issues in connection with advance corporation tax. The Minister did not take up the points I made at Second Stage so perhaps he could respond today.

With regard to advance corporation tax my main point is that the Minister for Finance changed the tax rules retrospectively in the 1983 Finance Act. There is a basic question of equity involved. The Irish indigenous companies that responded to the need for increased capital expenditure did so on the basis of the tax rules as they stood up to the Finance Act of last year. This retrospective change has had serious implications for both jobs and investment confidence, and I will elaborate a little on each of those. This adversely affects cash flow because the companies concerned had not made any provision for this retrospective tax. By adversely affecting cash flow, this has the effect of eroding the working capital base. The erosion of the working capital base in turn can put jobs in jeopardy. It affects investment confidence because the effect of the retrospective tax was to adversely affect the size of the dividends paid, in so far dividends paid have been reduced this can affect business confidence. In my opinion, there is an inequity involved in not providing a transitional arrangement for companies which undertook these capital expenditures. They invested millions of pounds on the basis of tax rules as they stood up to last year. The position is that distributions made out of accumulated profits will be faced with the retrospective taxation which, in effect, is a levy of 54 per cent on past tax profits.

I want to make a plea to the Minister for a transitional arrangement for the companies concerned so that advance corporation tax will not apply until the accumulated capital allowances due on past investments have been utilised fully.

If I did not specifically reply to those points made yesterday by Senator Hillery it was because I had already dealt with them in my Second Stage speech. I would like to quote from that speech:

I would, in particular, like to refute the allegation that ACT, by taxing distributions made out of profits previously charged to tax, involves double taxation. The effect of ACT, in the case of companies with commercial profits out of which dividends are paid with a reduced or zero current tax liability due to the fact that capital allowances have deferred the payment of tax, is to bring forward the payment of a portion of that deferred tax sufficient to cover the tax credit. The ACT is thus not additional to the earlier tax charge but simply an advancement of its payment.

ACT is not a retrospective tax. A case based on the contention that it is a retrospective tax is therefore not a relevant case. ACT is not a retrospective tax in any proper meaning of the word "retrospective". ACT is an insurance policy that secures that a tax credit will not be given in cases where no tax will be paid or where no tax will be paid for quite a considerable period.

On the other point made by Senator Hillery, again I would like to quote from my speech:

The case has been made that, for companies which had substantial accumulated capital allowances when advanced corporation tax was introduced, the tax should effectively be set aside until these allowances are used up. These companies, and all other companies liable to advance corporation tax, are simply being required to pay tax to match the credits granted by the Exchequer to their shareholders against the tax on their dividends. If any companies were, in effect, to be exempt, we would continue a situation where the Revenue Commissioners in certain circumstances refund to shareholders tax which has not and might never be collected from the company.

That responds very directly to the points made by Senator Hillery.

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

On this question of stock relief as it applies to the manufacture of goods, the carrying out of construction operations within the meaning of section 17 of the Finance Act, 1980, a problem seems to arise with regard to the definition of "trading stock". On page 59 it states:

"trading stock", in relation to a trade, has the same meaning as in section 62 of the Income Tax Act, 1967, and in determining the value of trading stock at any time for the purposes of a deduction under section 49 or 51, to the extent that, at or before that time, any payments on account have been received by the trader in respect of any trading stock, the value of that stock shall be reduced accordingly.

It appears that this is an attempt to deal with the problem which arises with regard specifically to the construction industry where speculative builders are building houses for which they receive advance payments. In the nature of the trade, the advance payment which they might receive in respect of any individual house from time to time may at the end of the relevant period exceed the value of the house in that regard. Therefore, they may have a house which is worth £5,000, but they may have received from their client as an expression of his good-will and as part of the contract, a sum of £10,000. it was the practice until recently in making that adjustment to exclude in respect of individual identifiable cases, both the value of the asset and the amount when the amount advanced is in excess of the value of the asset. The Bill appears to be changing that to a situation where the excess amount which the trader would have received would be used to reduce the value of other stock to which it does not refer. Would the Minister tell me if my interpretation of the new rules is correct?

What is provided here is that the value of stock for the purpose of this relief would be reduced by the amount of any payment on account that may have been received in relation to work in progress. If the payment on account exceeds the value of the work in progress, then the balance falls to be deducted from the remainder of the trading value of stock. What happens in a case like that is whether the sum is greater or less than the value of stocks, the trader has been covered for his stock. He has been paid for the stock. Therefore no relief is justified in relation to the holding of that stock. If he has already had the cost covered for him, then by definition it cannot be costing him anything to hold it.

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

I expressed the view on Second Stage that the provision by the Minister of the 3 per cent to cover the inflation aspect of the stock relief is quite inadequate. This does not meet the case. The Minister is to be congratulated for tackling the problem of stock relief which had become a very serious problem in that many companies which had been expanding found they had this potential tax liability which, as the Minister found out last year, they could be call upon to pay at any time for a downturn in economic activity. The provision of this new stock relief will get over that problem because it appears an annual deduction will be made.

In choosing a figure of 3 per cent, the Minister is significantly failing to allow traders in an inflamatory period a sum which will adequately compensate them for the national profits which are associated with increasing stockpiles. There are national profits very much involved in a number of companies in an inflationary situation, and it is quite unrealistic to expect companies to pay tax on profits which are not made, which really only represent the increasing value of the stock they need to maintain business. At a time when inflation is running at 10 per cent to allow 3 per cent is not sufficient, and I would recommend that the Minister give further consideration to that matter in respect of following years. It appears that the Minister has decided to give stock relief in respect of corporation tax, irrespective of whether the stock has increased or decreased during the period. Stock relief will be available on the basis of the opening stock. This is very sensible approach. It means that what he will lose one year he will gain following year. It also means that there will not be this uncertainty with regard to what stock relief people can expect.

Having established this new procedure, the Minister should have made it a permanent feature of our legislation. I accept that from time to time he may have to change the 3 per cent, but that could not be done by inserting it in each Finance Bill, or alternatively, by regulation, depending on the advice the Minister receives. Section 49 (3) says that the relief shall only apply from "the 6th day of April, 1983, to the 5th day of April, 1984". Would the Minister give some consideration to introducing as a more or less permanent feature of our legislation, a stock relief corporation tax provision, and take away the uncertainty which attaches to this provision? Consider a company whose years ends on 30 June or 30 April, and quite a number of companies have years ending on 30 April, 31 May or 30 June. If a company's year ends on 30 April 1984, they will not be entitled to the stock relief provision set out in this Bill. They will be governed by last year's stock relief provision in respect of the accounts which will have ended on 30 April 1983. But when 30 April 1984 comes, they will produce their accounts, but they will not know what their taxation liability will be until after next year's budget. They will be in a state of uncertainty with regard to what stock relief, if any, they will be entitled to enjoy, right up to the period after the budget next year, and right on to the Finance Bill. That company would not know what their stock relief arrangement, if any, would be until this time 12 months. That is not realistic, particularly in a situation where the company are expected to make their returns and pay their tax within a period of nine months, they would be expected to decide how much tax they will have to pay for the purpose of deciding whether to appeal their assessment. All these matters will be relatively impossible for them to design without a more definitive and standard tax regime in the area of property. I would ask the Minister to comment on those two matters.

On the first question of a 3 per cent provision being adequate, I would remind Senator O'Leary of what I said yesterday, that was, that the amount of relief to be provided in the first year of operation of the new system will be based on 3 per cent of the value of a trader's opening stock, and that this gives effect to the budget decision that, in order to control costs, relief equal to 33? per cent of the price increase in the base period will be given. We are talking about relief that is given at the rate of one-third of the rate of inflation over the period. That combined with the fact that the relief operates regardless of whether there is an increase in the value of stock has its own particular value.

Senator O'Leary put it in the terms that he thought the relief would be granted even if there was a decrease in stock values. He agreed with it generally and said it was a sensible provision, that the Minister would lose in one year and gain in another. Of course the obverse of that is that the company will lose in one year and gain in another. When you take those two factors together, one, a third of the rate of inflation and, secondly, the fact that a relief would apply even in years where stock values go down, it improves the situation very substantially for companies involved in this and removes a certain area of uncertainty from their operations. That is important.

The question of making the stock relief a permanent position is something to which I will give some consideration. I would like to say in relation to the last point made by Senator O'Leary, that if there is an enormous problem of uncertainty as to liability of the kind he outlined, it seems to me that there are several ways of dealing with the problem. One would be to make changes in our tax legislation as suggested by Senator O'Leary, and another would be for the company to consider changing their accounting period. That might have other advantages. We know when budgets come out and when Finance Bills are passed in the normal course of events and it seems to me that it would not be beyond the wish of most companies to make sure that they slotted into those dates in a way that gave them maximum predictability at a time when they are making their decisions about paying tax.

Of course that applies in every individual case. It is just not practicable to do it in many cases. The times of the year when companies have the end of their financial year must be spread throughout the 12 months. From a practical point of view they will not get service from the various professions which they need at the end of the 12 month period unless they do that. The Minister will know that it is in his interest that that should happen because the flow of money is then on a more regular basis.

By definition, the number of cases who experience the difficulty the Senator mentioned is very small.

They comprise about one quarter of the companies. They are the people who have their accounting periods ending on the 30 April, 31 May and 30 June. They have to decide what tax they should indicate to the Revenue Commissioners they are going to pay by way of appealing or by not appealing the relevant assessment which they would have got. They have to decide that in advance of the legislation. This is not a problem which is arising just because of this provision. I wish to make it clear that this has been a feature of the stock relief provisions for a number of years. Where the stock relief mechanism included clawbacks or the possibility of clawbacks and where it included more substantial relief in certain cases, the problem was even greater. I accept that. What the Minister is doing in section 49 will bring a degree of certainty to the situation, but there is a remaining degree of uncertainty which it should be a policy of the Minister to remove, if at all possible.

Question put and agreed to.
Sections 50 to 68, inclusive, agreed to.
Question proposed: "That section 69 stand part of the Bill."

It is probably difficult at a time of recession to distinguish accurately between all the figures and factors that lead to a drop in consumption which in effect leads to redundancies and further loss of employment in what is a native industry. We would tend to make the point that on the basis of all evidence available to us, the excise duties which apply to beer and spirits are one of the contributing factors to this problem. Each year the Minister for Finance in the budget, and sometimes in between budgets as well, sees fit to add on additional taxes here. We have now reached the stage where consumption has dropped, where employment is dropping in this area. If the law of diminishing returns has not operated in the overall tax income that is coming, we must be very close to it in some areas and perhaps past it in other areas. We would ask the Minister in the context of future deliberations in this regard to take into account the very essential fabric of this industry and also the question of its effect vis-á-vis trade with the northern part of this country.

I am aware of the concern expressed by Senator Smith. One of the factors that is taken into account in making decisions on changes in the excise duty on beer or on other products is the effect that the change in itself will have on the level of consumption. We have also reached the point where we cannot ignore the effects that differences between the rates of excise duty here and those in Northern Ireland have on consumption and on trade, both legal and illegal, across the Border. Senator Smith is asking that those matters be given their full and due weight in any further consideration of the excise duty on beer. I can assure him that that will be the case.

Question put and agreed to.
Section 70 to 72, inclusive, agreed to.
Question proposed: "That section 73 stand part of the Bill."

The tax which the Government took on petrol just a few years ago was roughly 75 pence but now that has more than doubled. In the context of our earlier discussion with regard to trade vis-á-vis the northern part of this country, the decimation of the traders along the Border area is something which concerns all of us. This has a wider implication in the context of overall industrial costs. The car is an essential part of life for so many families travelling to and from work. The additional duties which seem to be levied consistently on the motorists in what appears to be a haphazard and ill-considered way is having its own disastrous effect on employment. I plead with the Minister to ensure that so far as possible some consideration is given to lightening this load because in addition to car tax there is the additional burden of excise duty on cars themselves and we are one of the dearest countries in the world so far as petrol is concerned.

Finally I would like to refer to the tourist industry. The value of the tourist industry cannot be over emphasised. The number of complaints we get from tourists with regard to this items is very large. It appears that in the overall management of this problem for the sake of a certain number of millions of pounds we are, in effect, reducing the overall capacity of the country and interfering with our tourism industry and creating a disaster for so many families, particularly in the Border areas.

I support Senator Smith in this respect. Coming from a Border county I had been hoping that the Minister would give some relief under these headings, because we have suffered to a great extent because of the differences in prices as between the two parts of the country. I find it particularly annoying when very often I watch hundreds of buses and family cars full of people going North to buy different goods at lower rates than they can buy them here. The question is whether we are losing or gaining by our rates of tax and so on being so much higher. There are people who say that we are losing more than we are gaining by the high rate of VAT on goods. There are many reasons for people from here going to the North to shop. For a time we believed they were going for petrol, but when as many as 200 buses go North on a Saturday one realises that people are not going up there because of the difference in petrol prices. This situation is having an effect on employment in the Border counties.

I realise the Minister's position. He has to get money, but I should like him to give us some figures that would prove that we are not losing as a result of our higher VAT rates. I could not sit here today if I did not make my little mild protest about this. I appeal to the Minister to take our remarks into consideration in preparing his budget next year.

I support the two previous speakers and I suggest to the Minister that where he has a remedy is in the reduction of VAT. I appreciate that the Minister must have ways of raising revenue but perhaps he can find some way of levelling out. There is a need for a revision of the whole VAT situation. However, that alone will not be sufficient. Excise duty is also a very important item. On a television set alone there is a minimum of £100 excise duty. In Newry one can buy a portable colour television set in any radio shop for the listed price of £165 and get a discount which would probably offset the currency difference. A similar television set here is £365.

Televisions are far removed from this section, but the Senator has made the point.

It is relating to VAT. We are talking about revenue.

How does the Senator know that televisions are so cheap in the North?

I know because I go to the North occasionally though not for television sets. I go there for other reasons. I have been asked by the associate trades, the electrical and radio trades, to mention this.

On the matters raised by the section, I would like to make two points. First, we have had for some years a differential system of taxation of hydrocarbons in that we provide a special lower rate of taxation for heavy fuel oil used in industry.

My second point is the general point that applies both to petrol taxation and to other forms of taxation. Senator Lennon asked the specific question of whether we can be sure that we are getting more than we are losing. The total revenue receipts from petrol duty — taking petrol duty alone — have increased steadily down through the years. It is difficult to say whether there is more potential tax revenue being lost by the fact that purchases are being made in Northern Ireland rather than here. That is probably not the case. If we were to be more precise about it and reduce the duty here by X pence per gallon the result would be that we would have a net revenue reduction even if we had a net increase in sales. That is a problem that concerns not only petrol but excise duty on a wide number of other items. Basically we have the difficulty that we have a very open Border with another country, and it is a country where the taxation system can obviously be very different from ours.

There is no particular reason why our taxation system has to be built in the light of the needs of a country with just over three million people and a very young population, with not a very high level of income by international standards. That tax system should hardly be expected to match up in all respects to the tax system of a country with some 58 million people, a higher level of income per head than we have had for quite a long time, and a population that is not expanding anything like as rapidly as ours. The two situations are totally different.

Obviously the ideal thing would be to have, on these kinds of goods that can be easily traded, levels of taxation that would be more or less identical on both sides of the Border. I must say that technically it would not be beyond the bounds of possibility to do that. We talk about VAT. The rate in the UK is 15 per cent. If we had a single rate of VAT on all consumer expenditure here we would have a single rate somewhere in the region of 14 per cent. We could by that means arrive at a situation where there would be no incentive from the point of view of VAT to purchase goods north of the Border.

I cannot give the same kind of opinion in relation to the rate of excise duty. I am not so sure whether, given the proportion of revenue we get from excise duties, we could bring our excise duties to comparable levels with those of the UK or indeed comparable coverage without it making a significant dent in total tax revenue and therefore making a significant dent in our ability to finance public expenditure in the way we have been accustomed to up to now. It is obvious that it must be an increasing part of our concern to take account of this problem. As I have said in the other House, we can begin to make progress on this only when we fulfil two conditions. The first is that we agree to the kind of rationalisation of the tax system that may bring us a little nearer to the levels that prevail in the UK on a technical basis and, secondly, that we agree to rationalise public expenditure so that we do not have the same needs for the high taxation levels that give rise to the problems that Senator Lennon, Senator Daly and Senator Smith have raised here today.

I am not totally happy with the explanation the Minister has given. I suppose I cannot expect him to answer in any other way. He could not give figures on what the losses might be. He says that revenue increased from tax on petrol over the years. This would happen anyway since the number of cars has increased. However, I do not think that is a strong argument to make. It is not one I could stand over in trying to defend our position in relation to VAT as it affects Border traders. Another point he makes is that we have a very open Border. That is all the more reason for our trying to do something immediately about the different levels of tax. We are talking here about petrol but when people go the North for petrol they, naturally, buy anything else they need and which may be cheaper in the North.

I do not mean to be a menace to the Minister, but while it may not be possible to treat Border counties differently from other counties perhaps there could be some levelling off as between the two parts of the country. Perhaps we could take the risk even for 12 months of doing something on those lines. I do not wish to labour this too much but it is a serious matter for people trading in the Border areas. Business are suffering to a great extent. I get a great amount of abuse because of the situation.

It is fair to say that no two Governments will pursue any kind of management of tax situation where one would be equal to the other in a situation in which the needs are totally different. That brings into question the overall artificiality of the Border. Most of us here would not want to be understood as not wanting to see reasonable commercial development in every part of the country north and south. The differences and disadvantage which traders in the Border areas are experiencing are causing this problem. It can only be brought to some form of reasonable conclusion when there is a settlement of that artificial problem.

The problems which have been referred to will probably be highlighted later in the debate.

We have, in overall terms, about a 20-per cent higher cost structure as between excise and VAT than would be operating in the North at the moment. In the meantime while we are waiting for some other developments many families have had their incomes halved. I had an experience only yesterday when I was discussing this matter with a person from Louth who told me that his income had dropped by nearly 70 per cent in the past couple of years. These are very serious matters to be addressed. Perhaps it is not possible to have them solved in the context of this Bill but it is a much wider question that has to be faced up to.

It was interesting in the past couple of years particularly in the EEC negotiations that there were a number of times when the representatives from the UK Government were virtually forced into a position of accepting for the North of Ireland similar treatment as was operating down here. More recently we have a demand for equal treatment, particularly in relation to the agricultural area. It is a tragedy that we cannot operate that on a wider basis for the community and for the country as a whole. Perhaps some negotiations should be taking place with the UK Government in this context, because there are a great number of areas where that kind of co-operation would lead not only to assisting in the areas which we are now referring to, but would eliminate some of the smuggling and the other developments which are becoming all too rampant.

Question put and agreed to.
Sitting suspended at 1 p.m. and resumed at 2 p.m.
Section 74 agreed to.
Question proposed: "That section 75 stand part of the Bill."

I would like to speak about the importation of motor vehicles and the change in the system of licensing which will take place in January 1985 as a result of EEC regulations. I am worried about the situation for a number of reasons. The first reason is that in the UK they have motor vehicle testing and any vehicle that does not pass its MOT test is put off the road and sold at a scrap price. If these vehicles that have failed the MOT test in the UK were shipped over here in quantities and if there were not a set of rules laid down by the Revenue Commissioners for the excise duty to be paid on these vehicles, they could create a very great problem not only for the motor trade, which would be thrown into disarray, but also, because we do not have MOT tests so far in Ireland, we could find our roads littered with these potential bombs. To put these vehicles on the road would be like putting a shotgun in the hands of a child.

Many people are under the impression that because the restriction on the importation of vehicles for licensing purposes is finished on 31 December, they may import these vehicles — which cost about half the price in the UK or even less in some countries on the Continent than they sell for here — and pay the duty accordingly. People involved in the motor trade know that is not so but that message has not come across to the public. I would like to hear the views of the Minister on that matter today. I know he is not going to alter the taxation because he cannot afford to lose the revenue but I know that the people who believe this is going to happen are hanging on.

Last December the Society of the Irish Motor Industry made representations to the Revenue Commissioners and drew their attention to the Dutch system whereby the value of a car was depreciated at approximately 10 per cent per year. If that yardstick, which seems to work well in Holland, were applied here it would mean that every time a car came to the customs entry post the customs officer would take out his little book and calculate the duty and the VAT on the vehicle. This would create no problem at all. At present the customs officer is dealing with it on the certificate of origin or the invoice showing the price for which it was bought and looking up the duty. No customs officer should be expected to have a knowledge of a motor car because a one year old car could be in very bad condition whereas a five year old car could be in much better condition. What are the criteria? How is the car to be valued? Unless the customs officer were an expert on cars he would not be in a position to do that. It would also involve huge queues similar to those queues of buses going to the North described by Senator Lennon. The result would be chaos.

As the Minister is aware, we have that problem already with regard to motor cycles. Motor cycle dealers at present are practically out of business because of the importation of motor cycles to Ireland based on the price in the UK. The practice of people going to the UK and buying a motor cycle for £300 and getting a receipt for £150 is very prevalent at present. The result is that the motor cycle business here is crippled. If we do not get a ruling on this we in the motor trade will find ourselves in a similar position. It is unreasonable of the Revenue Commissioners, who received the submission from the SIMI last December not to have acted on it up to now. Even now there is no evidence to suggest there will be action taken on it. Are we to wait until December?

There is another aspect to this question which may not be of importance to the Minister or the Revenue Commissioners. Because people in Ireland believe that car prices are going to collapse in the new year people have held on to their cars longer than they would normally have done. The practice of changing one's car generates business in the motor industry and gives the industry an opportunity to hold employment at the figure at which it has been and then when the changeover comes in January people would be ready for it. I appeal to the Minister to make an announcement and state what his policy in January 1985 will be. I am sure there will be no change in taxation. The Minister should make clear what criteria will be used to value, for the purpose of tax and excise duty, cars brought into the country by private individuals.

Televisions were mentioned already by Senator Daly but it is right that we should mention them again under this section. I am sure the Minister will understand my raising the matter again. I come from a Border county. Television sales in my area, have ceased. There are not many people borrowing money to buy television sets when they can risk going across the Border and buy one at half, or less, the price charged here. I am questioning the wisdom of having excise duty and VAT at that rate. I would like the Minister to try to put a figure on the losses or gains as a result of this. The people on the outside can always see more. The looker-on sees most of the game. The looker-on in this case feels that by reducing this we will bring back the business to the south where it rightly belongs. The employment situation will also benefit from this. I spoke to some people today, not from Border counties, and they said their business was affected too. It is coming to a stage where it is intolerable for many people and some have to close down their businesses.

I wonder if there could be a risk taken for one year to see how it would affect the business, to see where we might lose or gain at the end of one year. Could we be tempted to take that risk? Even if we were to lose X millions of pounds, and nobody can put a figure on the millions that can be lost or gained as a result of a reduction of VAT and excise duties, at least we would satisfy the many people who are annoyed because they believe we are losing more than we are gaining at the moment.

The Minister said the Border is very long and open. No matter how many customs officials we have on duty there, there are always people who are a little bit smarter than the customs officials and will know many roads with which these officials are not familiar. They will find their own ways of coming across with these. Maybe it is creating more employment by having more of these people on the road but I would much prefer to see that employment in the business of selling televisions in the south. If the Minister comes up with a figure, people may not agree with it. It can be nothing more than an estimate until we would see what the results would be at the end of a year if that risk were to be taken. I seem to be very anti-Border when we are trying to promote cross-Border co-operation but I do not like to see our business going North.

On the first point mentioned by Senator Daly, I understand his worry about the possibility that numbers of second-hand cars in a dangerous condition might arrive here from the beginning of next year. I understand his fear in that respect and the fact that this would have quite a disruptive effect on the motor industry and the people who buy them if they were misled enough to buy cars in that condition. That is not a matter that properly comes within the ambit of the Finance Bill, although I take the point that Senator Daly has made. It will have to be a part of our consideration of the system that will apply from the beginning of January next.

It is no particular pleasure for me to be invited here again today, as I was previously in the other House and before that with the Society of the Irish Motor Industry, to explain in detail to the people of this country how and why they will not have cheaper cars next year. I feel aggrieved that I should be the one who has to do it. The regulations that give rise to that are not within the province of the Minister for Finance, whoever that misfortunate individual happens to be at a particular point in time. What will happen at the end of this year is that it will no longer be necessary to get an import authorisation to import a car into this country. That is the beginning, the middle and end of it. We will be free, at the end of this year, to apply whatever tax system and level of taxation to cars, we will be just as free to do that and no more free to do it next year than we have been for many years past. We have always been in a position where we ourselves decided what level of VAT we put on cars, what level of excise duty we put on cars. The fact that there are still people around who feel that there should be a change in the tax position as of the beginning of next year amazes me. In particular, that there should still be journalists around who claim to know a little bit about what goes on in the European Community and who, writing from the fastnesses of west Mayo or Charlestown or wherever else they happen to be at a particular time, should say that I am operating in an anti-European way in applying these taxes shows a level of ignorance which is absolutely incredible.

Maybe he is a student of form.

It reflects very badly on that particular individual's own attention to the kinds of things that he and other people have been writing for the last few years. There is no truth in the allegation that we are in any way obstructing an EEC market from working or taking away from the people of this country the possibility of buying cheap cars. What we did when we negotiated a protocol to our accession treaty when we joined the Community, at the instigation of people who think very like that gentleman whom I mentioned, we decided quite deliberately that for as long as that protocol continued in operation we would not allow free competition subject to the same tax rules to apply in this country because we wanted to protect the motor assembly industry here. We have got as much out of that arrangement as we could have got during the period.

It is no great pleasure to me to say that the events at the end of this year will not in themselves give rise to any particular pressure on me to change the tax system for cars. A difficulty will arise in relation to the valuation of cars. There are a number of different areas that we need to look at there. Senator Daly has illustrated some of the difficulties by one of the references he made to a system in the Netherlands where the common practice is to depreciate a car by 10 per cent of its value every year. These practices vary from one country to another. In Belgium the common line followed by the motor trade is that a car loses 50 per cent of its value in the first year and around 10 per cent per annum after that. I have benefited from that approach because they have a nice little system under which foreigners going there to reside do not have to pay the VAT on their car for one year. If you hold on to it for a year you pay only half the VAT because of the fact that they depreciate it by 50 per cent of its value in the first year.

We will have to have a base ourselves for valuing vehicles when they come in here. The problem will not be great in relation to new cars but there will be a problem in relation to second-hand cars. The principle that normally would be applied is that the tax base would be assessed as the price which the vehicle in question would fetch in an arm's length transaction. There will be difficulties in deciding on that, and we have not yet resolved them.

It is a little ungenerous of Senator Daly to claim that it is unreasonable that the SIMI has not received a detailed reply to its submission up to now. I commend the society for having come forward with suggestions such a reasonable time in advance of the date of the change, but there are complex issues in this. After several discussions with SIMI, in which these matters have been raised and indeed many more discussions with Senator Daly during the course of which these matters have been raised, I would not feel in a position to say that I could now outline exactly what the arrangements will be.

Senator Daly also referred to the problem of having false prices quoted for motor cycles and the feeling that that could come about in relation to cars. We will obviously have to be alive to that and it is where the principle of the arm's length transaction is of fundamental importance.

Senator Lennon has suggested that I should take a risk and that we should live dangeroulsy for a year, that we should reduce excises and possibly VAT on television sets and indeed before the break he was talking about petrol. I would have to say to the House that we are not in a condition where we can afford to live dangerously. If the gamble did not come off there would be a large budgetary hole to be filled and of course the later in the year you found out that a hole existed the less leeway you have to make it up. Apart from that, as I said on Committee Stage in the Dáil, I am not convinced that we would have the kind of effect Senator Lennon seems to think we would have. I had a long discussion with representatives of the electrical goods industry in which we talked particularly about television sets. It was their contention that if we were to reduce tax levels we would have a gain in sales and that we would more than compensate by the gain in sales for the reduction in the tax level. I am not convinced by the cases they put forward. It may be the case that there would be a compensating adjustment, but based on the information I have seen so far I do not think that it would be of a size that would restore the total amount of revenue. With the current deficit this year going to be hitting up to £1,088 million I am not in a position to live dangerously. I am particularly not in a position to live dangerously where I am not convinced that the gamble would be worth the effort. If it were to appear that in some particular cases I could have a reasonable degree of confidence that the gamble would pay off that would be a different situation.

So far on any of the items that I have examined from that point of view, and I have examined quite a few of them from that point of view, I have not found that that would be the case. To give just one example — it is not directly relevant to the section but I am sure the Leas Cathaoirleach will permit me a little latitude on this — it has been estimated that if we reduced petrol duty by 10 per cent, which would bring about a reduction in the retail price of about 13p, the loss in revenue would be around £30 million. Whether any of that would be compensated for by a reduced tendency, on the part of people to go across the border to buy their petrol I do not know, and I am not so sure if a reduction of 13p in the price differential would bring about a change big enough to offset any substantial part of that loss in revenue of £30 million.

That is really the way we have to examine these things when we are talking about changes. Having looked at a number of these issues, and I must say that that does not mean that I have stopped looking at them, indeed they are things that we review very frequently, I have not found in any case that conditions exist where a reduction in the duty would lead to the kind of increase in sales that we would need in order to maintain the revenue, and even more so since of course a reduction in the duty does not bring about a corresponding reduction in price. A 10 per cent reduction in the duty, for example on beer, would give you a reduction of less than 5 per cent on the price. However, if we arrive at the point where I can be confident that the effects would be enough to compensate for the reduction in the excise duties or other taxes then I certainly would have an open mind on the matter.

Question put and agreed to.
Question proposed: "That section 76 stand part of the Bill."

Section 76 is appropriate in view of the publicity given to the evasion of betting duty recently. There are-however, a number of issues to consider with regard to this section. It goes without saying that I hold no brief either for people who evade betting duty or indeed people who pay betting duty as I consider both of them to be acting in an equally foolish way. We should however, give attention to some of the additional powers being given to the Revenue Commissioners under this section. Subsection (4) provides that:

If the arrears or the returns referred to in subsection (2) are not paid or furnished, as in the case may be, within the period specified in a notice sent under that subsection, the Revenue Commissioners shall, notwithstanding the provisions of section 12 in the Betting Act, 1931, remove from the registered premises to which a notice relates

In other words, they can, so far as I am aware, stop the person who is operating his business from that place from operating as a bookmaker from that place in the future. There are various other provisions with which we can deal later about the reinstatement of that.

That is a very frightening power to give the Revenue Commissioners. I notice there is no appeal procedure. There could be a dispute as to whether or not returns had been furnished or amounts had been paid. The Revenue Commissioners might be of the opinion that the amounts paid were not adequate. On the other hand, the taxpayer, the bookmaker, might be of the opinion that he had paid sufficient. There might be something between the parties in that regard. But even if there is not, to give the Revenue Commissioners the power to close down a premises and to remove the livelihood of an individual without specific judicial review — of course there is inherent a judicial review — is giving them a judicial function which they should not have.

I was not a member of the Seanad or much involved in political life when a former President, Mr. de Valera, insisted that amendments should be brought in to a Finance Bill before he signed it on the basis that the Revenue Commissioners were getting in that Bill powers to detain people or something to do with arrest and that that was in contravention of the Constitution. I am not so sure that the Revenue Commissioners are not getting powers of a nature that do not seem to be backed by any judicial safeguards. I am not so sure that this is not in contravention of the same rights under the Constitution. Why should the Revenue Commissioners, because they come to an opinion that a person has not paid his or her income tax — a decision which might be challenged — have the power of saying that that premises should cease to be used as a licensed premises. That is frightening as it gives a person seven days in which to cease operation. The courts in the exercise of the inherent power to review all legislation and to examine its compatibility with the Constitution and also to ensure that fair procedures are followed will view this legislation with the greatest suspicion.

There are two other matters in this regard which I will bring to the Minister's attention so that he can see the full nature of my objection. Subsection 6 (a) states:

Whenever any premises are removed from the register...

in other words when the procedure which I have just outlined has happened

an officer of Customs and Excise may enter the premises at any time if the business of bookmaking is being, or is suspected by such officer to be, carried on therein and may there search for and demand the production of any books, accounts——

It is not significantly different from what you would expect.

...betting documents or any other documents relating or believed by such officer to relate to the business of bookmaking...

The next section is extraordinary.

...and any such books or other documents relating to the business of bookmaking shall be liable to forfeiture and may be seized and removed from the premises by the said officer.

Contrast that with the provisions of section 89 which deals with the powers of VAT inspectors. It says at paragraph (a) (iii):

may, in the case of any such books, records, accounts or other documents produced or found by him, take copies of or extracts from them and remove and retain them for such period as may be reasonable for their further examination or for the purposes of any proceedings for the recovery of a penalty in relation to tax.

That is much more reasonable. You have the power to remove them and use them as evidence if you believe a person has broken the law. But what section 76 (6) (a) says is that they are liable to forfeiture. In other words, they are liable to be transferred from the owner to the State. That is inconsistent with natural justice, with the rights to property under the Constitution and with the legislative procedures under other sections of this Act. I cannot see why it should be necessary that they would be forfeited. Let a power be given to the Revenue Commissioners to hold them but why should they be forfeited? I cannot understand that and I doubt very much that it is a proper use of the powers of the Revenue Commissioners or that is proper for us to give them those powers.

In section 76 (7) (b) it says:

The registration of premises shall not be renewed under paragraph (a)——

which is where notice has been served, the registration has been cancelled and it deals with correcting that situation. It says:

(i) on any date later than the 30th day of November next after the date on which the premises were last removed from the register...

I do not know what significance 30 November has but I suspect it is the date of the annual licensing. What happens if somebody is served with a notice on 29 November and the subject matter of that notice is in dispute, because it is provided in section 77 that when that person goes to the annual licensing court he is not going to get a licence if the Revenue Commissioners do not agree to it. If 30 November is the date of annual licensing I understand the reason for it.

The two points I should like to bring to the Minister's attention are the provisions whereby the Revenue Commissioners are given the extraordinary power to de-register a premises and the provision whereby the Revenue Commissioners are given the power to bring about a situation where the ownership of the books would be forfeited to the officer of the Revenue Commissioners acting under section 76 (6) (a) of this Bill.

I, too, should like to know who closes down the bookmakers' premises and who has the power to do this? A lot of people in the punting business — and the bookmakers also — feel that the Exchequer would benefit more if the VAT was reduced from 20 per cent to 15 per cent or 10 per cent. Bookmakers and punters would pay VAT which is not being done now. Big punters rarely, if ever, pay VAT.

On Senator Fallon's last point, that revenue would be increased by reducing the rate of duty from 20 per cent is one that is frequently made. I am not so sure about this. The duty has been at 20 per cent since 1975. Different Governments have had the opportunity in the meantime of changing it if they had felt that a reduction in the duty would bring about an increase in the revenue. Over that period and up to today the total revenue in real terms has held up reasonably well. It is a fact that there are many punters who do not pay tax. The only way we could stop that situation would be to put a tap on the telephone of every bookie and every punter. Members of the House know that is not something I would contemplate in any way.

An Leas-Chathaoirleach

It is generally done now, though.

We might get more money that way. At the end of the day that is the only way we could ever be sure that we had covered all the business. Senator O'Leary has gone into an extensive examination of the different provisions of this section. Up to now the only opportunity to withdraw registration was at the annual sessions so that you could find, and commonly found, that somebody who was in breach of his obligations under the Tax Acts, could continue in business. Section 76 (7) (b) (i) provides that the registration of premises shall not be renewed under paragraph (a) so it is only in the cases referred to in paragraph (a) that that provision applies.

On the more general points made by Senator O'Leary, we are dealing with a situation where at any given time a substantial number of bookmakers can be in arrears of payment of their duty or indeed may be in a position where they have not for some time provided returns. Normally returns are to be provided once every week. What we are providing for in subsection (2) is that where arrears of duty are due and owing or a return has not been made first of all the Revenue Commissioners may give notice to the person concerned that if he does not produce the returns or pay the arrears within seven days his premises would be withdrawn from the register. This is something which has been urged, not only by the situation as we find it but also by the very strong recommendation of those people who are in the business — who are operating legitimately, making their returns and paying their tax — and are finding themselves increasingly under pressure from people who are not making returns or who are making them sporadically and who are not paying their tax or paying only a small proportion of the tax they should be paying. We need an effective measure that has a fairly immediate sanction built into it if we are to deal properly with this.

Regarding the rest of the section and particularly in regard to subsection (6) if somebody continues in operation after his premises have been removed from the register he is operating illegally. So we are not talking here about taking documents away from somebody who is carrying on a business in the normal course of events and subject to the normal provisions of the law. We are speaking of a situation where we would be taking away documents from somebody who is operating illegally because you cannot legally operate a bookmaking business without registration. If registration has been withdrawn and business continues to be carried on then it is in fact an illegal operation. That puts this matter in the framework in which it should properly be viewed.

The Minister's reply is totally inadequate. He does not meet the point at all. I understand of course that the opportunity was available to the Revenue Commissioners at the annual licensing, which was a judicial act. I have no objection to that continuing and I have no objection if instead of annual licensing they have licensing every month. And I certainly have no objection if there is a provision built in whereby the Revenue Commissioners can make an appropriate application at any time of the year in respect of arrears or in respect of the fact that returns have not been made or money has not been furnished in accordance with returns that been made. I object to the Revenue Commissioners unilaterally, without judicial review, deciding that somebody just has to go out of business.

It will have two effects. Firstly, it will have the effect of being the subject of immediate challenge and a successful challenge in the courts. What is likely to happen is that the Revenue Commissioners will not do it because they will be afraid of the consequences of what they are about to do. It is not good enough to say that we are giving those powers to the Revenue Commissioners. I object to giving those powers to the Revenue Commissioners and I object to any man's documents being the subject of forfeiture whether or not he is carrying on an illegal business. That is not the point at issue. When documents have been used for the purpose of prosecuting or for any other purpose the property in them should remain with the person who owns them. With regard to subsection (4) the Revenue Commissioners should not be able to remove from the register a registered premises without judicial review. Here we have the provision where in the 1931 Act — as the Minister said — there was an annual licensing procedure and among the people who could object were the Revenue Commissioners. That is fine. Let the Revenue Commissioners be in a position to bring that date forward and instead of waiting for the annual licensing let them be in a position to make an application to the same court at any time during the year. The Bill is unconstitutional. I have no doubt about that and no doubt the Minister will say that he has got advice since that. But how many Bills have been passed through these Houses that have been found to be in breach of the Constitution under all Governments. To give the Revenue Commissioners this power is to give them an executive power which is not subject to review, and it is against natural justice and the Minister's explanations are in no way satisfactory.

There are two issues here which we should not confuse. First of all there is the question of the registration of a premises and secondly there is the question of the granting of a bookmaker's licence. Typically a holder of a bookmaker's licence will have one or more registered premises and will also be able to operate on course. The withdrawal of the registration of a premises is not, as Senator O'Leary pretends, the same or tantamount to putting somebody out of business. There is a separate requirement for the registration of each separate premises run by a bookmaker.

As far as subsection (2) is concerned it provides that apart from the normal obligation on the taxpayer to furnish returns and pay the amounts of tax that subsection provides for the Revenue Commissioners to send a notice to the person concerned about the furnishing of returns or the payment of the tax — tax due and owing. If that person still persists in not making returns or not paying the tax the registration of that premises can be withdrawn by the Revenue Commissioners. In a situation where we are dealing with a number of legitimate operators who are being put into serious difficulty by people operating illegally in specific premises this is a reasonable way of dealing with the problem and ensuring that those people operate in conformity with their obligations under the law.

I cannot accept that at all. Of course I accept that there may be cases in which a bookmaker is entitled to operate his business outside the individual premises concerned. That is possible, and it is also possible that he would not have an on course licence or he would only have a stand at very few on courses, but many bookmakers operate out of single premises. Suppose there was a provision in the Bill that if a draper's shop did not pay its VAT, it could be put out of business, what would the Members of this House think of that? That is precisely what we are doing. It is a different type of taxation but it is taxation.

If you take a case that is even more similar to it, a draper's shop can move from one place to another. If you have somebody who requires specialist planning permission — somebody who is operating a take-away food premises who requires specific planning permission for his specific premises, not just a general shop planning permission — if that person were in arrears in his VAT, do we think that within a period of seven days the Revenue Commissioners should be able to set the planning permission under which he operates as null and void and to stop him operating? That effectively is what they are saying. That is ludicrous. If that was in respect of anything else which is considered more fashionable than the bookmaking profession we would not tolerate it. We are blinded by the fact that we know there is a problem with regard to betting duty and a problem which I commend the Minister for tackling. This is going overboard. This is giving powers to the Revenue Commissioners that they should not have. The day will not be long coming where we will have a provision like this in respect of other businesses in addition to bookmaking. This is totally unacceptable, and I would ask the Minister to amend it.

Many bookmakers may have five or six betting shops. Does it follow that if a bookmaker who owns all of these betting shops does not pay his betting duty that all five or six betting shops could be closed by the Revenue Commissioners?

I was slow to speak on this section. I know this is subject to much public controversy at the moment. Are people in this business living up to the commitment that they have or should have to the State? I feel that they are in the business of betting and taking tax on that bet and not submitting it to the State. There is an obligation on them to tidy up their business. I interpret the Minister as saying that in the event of their not complying with their obligations they are served a notice giving them a number of days to comply with something that is legally required of them. If they do not comply with their legal obligation, then we stop them from trading illegally. That is what the Minister is saying. It might be a tremendous power to give to people, but let us come to grips with the problem. People are in a legitimate business carrying out their responsibilities to this State and are served with a notice that they have not complied with the regulations. If they ignore the notice, what then do you do with the business? Do you allow everybody to carry on illegally for as long as they wish and leave no powers to the institutions of the State to take the proper action? If they could prove in a court of law afterwards that the licence was taken off them illegally, they would be able to sustain a case against the Minister or the Revenue Commissioners for having access, in accordance with this section.

We are dealing here with the withdrawal of a premises from the register. The provisions that are here would apply to any premises in respect of which the obligations set out here were not met. If you had one licensed bookmaker who had five or six premises, and who was not making proper returns or paying tax in relation to any one of those premises, one of the premises would be withdrawn from the register and the others would remain on the register, unless of course the same problem arose in relation to those other premises. Senator Ferris put the matter in its proper context. It is more than an exaggeration for Senator O'Leary to compare this with the collection of VAT from a draper's shop. You do not need a specific licence or registration to operate a draper's shop. In the case of bookmakers' premises, for a number of different reasons the operator of the premises requires a licence and the premises itself needs to be registered. We are speaking of a situation which cannot be in any way compared with the collection of VAT from a draper or even the planning permission that is given to a take-away food operator.

If the Minister does not find my example good enough, I will give him another example. What about the situation of the VAT on a licensed premises? What is the difference between enacting legislation which says that a licence should be removed from a premises to sell alcoholic beverages on the premises in the case where they are in arrears of VAT? The thing is a total overkill by the Revenue Commissioners. As Myles na gCopaleen might say: it is neither profitable nor popular to speak on behalf of the bookmakers. We have a duty to preserve the citizens of this country from the encroachment of the Revenue Commissioners on their ordinary lives. This is another very serious encroachment which I believe to be in error in law and unsustainable under the Constitution. In addition to that, there has been no adequate explanation given as to why the books and records, which could be quite adequately taken and used in the prosecution under provisions similar to those complained elsewhere in this legislation, should be subject to forfeiture in this matter. It is a very poor day if the Seanad allows this section to go unchallenged.

Question put and declared carried.
Sections 77 to 88, inclusive, agreed to.
Question proposed: "That section 89 stand part of the Bill."

When you read this section it looks almost benign compared to section 76. My previous objections have been reduced to relative insignificance by section 89. The additional powers being granted here should be justified by the Minister. I do not think the additional powers would appear to be necessary on the basis of common sense. There may be some practical difficulties which the Minister and his officials have come across which require the changing of the legislation from the very much shorter piece of legislation in the Principal Act of 1972. Basically, there are a number of differences here. For instance, it states that the Revenue Commissioners or the authorised officer may "require the person...". What is the procedure if the person failed to accede to the request which would proceed the requirement? What procedure will be adopted to implement this? There is a new provision to take copies or extracts from it, which is not of any great significance except of course, that it is important that not too many copies or extracts should be taken from people's accounts. People are entitled to a certain amount of privacy in that regard. The Minister might give an indication as to why subparagraph (4) is inserted, because this is a new provision also. I would like to have his point of view on that.

This section is intended to bring powers which inspectors have in connection with the application of VAT broadly into line with those which they have for the purposes of income tax, corporation tax and capital gains tax with a few provisions that are specific to the nature of VAT. As Senator O'Leary stated, the powers under which VAT inspectors now operate were included in two subsections of one section of the Principal Act. They have been there since 1972. In general they have worked satisfactorily. However, a small minority of traders have found it possible over the years to put a certain number of obstacles in the way of authorised officers and the provisions of this section are intended to remedy that provision. In the event that the requirement that is contained in this section is not complied with, there is provision for a penalty for prosecution as there is under the existing rules as they apply up to the date of the passage of this Bill.

Question put and agreed to.
Sections 90 to 96, inclusive, agreed to.
Question proposed: "That section 97 stand part of the Bill."

The levy on banks is a levy on resources and not on profits or incomes as such. The courts found the poor law valuation system unconstitutional for much the same reason. The main banks have a genuine crib inasmuch as they say that the levy falls heavier on them by virtue of the fact that their resources are in excess of £100 million. They are charged at .344 per cent compared with .2 per cent for smaller banks with resources not exceeding £100 million. In addition, they feel aggrieved that other banking institutions such as building societies and other such institutions do not have to pay the levy.

Is this still a temporary levy? Some years ago it was an advantage going into one's bank manager if one was a Member of the Oireachtas but now the banks are inclined to look at politicians as being part of the system that taxes them completely unfairly. They say they pay their company tax and corporation profits tax. As an excuse for not being as generous as they were before, they say that the Government of the day are treating them unfairly and squeezing them on their resources which means that they have less money available to meet the applications of the ordinary commercial borrower or the business person. Perhaps the Minister might give some indication of his long-term intention in this regard.

It is completely inappropriate to compare the bank levy with taxation on the basis of poor law valuation. There is a world of difference between the two. Senator McDonald illustrated it when he indicated how the levy was calculated, .2 per cent on resources up to £100 million and .344 per cent on taxable resources over that amount. That is without going into the way in which the taxable resources are defined. It is not in any way comparable to taxation on the basis of poor law valuation.

Different tax regimes apply to different kinds of financial institutions. I never met a representative of any kind of financial institution who did not think that another kind of financial institution had a more advantageous tax system. Where the truth lies between them is very difficult to say because the provisions for the taxation of institutions and the incidence of taxation on them are fairly complicated.

The tax of which we speak is one which takes account of the fact that banks — I say nothing whatsoever about their intentions or their probity or anything of that kind — are in a position to shed a certain amount of tax liability through a number of perfectly legal devices. The profits on which they are taxed do not necessarily represent in total the profits that are made. That is part of the reason why the levy was brought into operation.

As to the nature of its temporary character, I do not see a bank levy being a permanent feature of taxation of our financial institutions. How soon that can change is a different question. It depends on a number of other factors in the tax system which indirectly affect banks. I cannot give the House any indication as to when the system might change or be abolished.

It is still temporary?

Question put and agreed to.
Section 98 agreed to.
Question proposed: "That section 99 stand part of the Bill."

I take it that this is the exemption of stamp duty for certain categories of young farmers. If it is, I should like to express satisfaction that the Minister is again extending this concession. It is having a beneficial effect on two fronts. It is having the desired effect of encouraging earlier transfers of land but, more importantly, it is an incentive for young people to take formal training in agriculture. This will help them to return a profit from farming in the difficult climate of this year. I hope that this measure, although temporary, will continue for a number of years.

This is very much a temporary temporary measure. The original intention of the scheme was to provoke a movement of land to young trained farmers. It was brought in originally for a limited period with the intention of making sure that those who were then in a position to transfer did so quickly. It did not have quite the immediate effect that was intended for a number of reasons, one being the fact that there are a limited number of places on the ACOT 100 hour courses. It is apparent that there are people who would have benefited from the operation of the scheme up to now but for the fact that they could not get a place on a 100 hour course, which is one of the qualifications which opens the way to this exemption.

It was for that reason that I decided to extend it. A measure like this loses its effectiveness if it is popularly believed that it will be a permanent measure, there is no reason for doing it today rather than tomorrow. The only part of it that would have any application would be the age limit of under 35 years. The intention was to get movement of land quickly. If the impression is given that the scheme will continue indefinitely, that will not happen.

Question put and agreed to.
Sections 100 to 105, inclusive, agreed to.

Recommendations Nos. 1 and 2 are related and may be discussed together.

I move recommendation No. 1:

In page 88, line 39, subsection (1) (c), to delete "25" and substitute "35".

I am asking the Minister to change the qualifying age from 25 years to 35 years. He did that in section 99. I do not know why he picked that age bracket. In properties which are mainly agricultural the same guiding principles should apply. It is important for people in that category. Whether a farm or a land holding is large or small the underlying principles and apprehensions of older farmers are the same. They do not get around to looking after their legal affairs. It should be possible for the Minister to amend subsection (1) (c) this year.

The Minister is increasing the taxation rate to 55 per cent. With this discretionary trust tax of a further 3 per cent, we are in a worse position that we were ten years ago when the country rose up very violently against the principle of death duties. We won an election on that issue because those duties were a tremendous burden. People were very upset and unsure of their future because the taxation system tended to break up properties and put people out of business. The rate of taxation of 58 per cent is too high. The thresholds were set in 1974-1975 and have not kept in pace with inflation or with the value of properties. I hope the Minister will look sympathetically at this section. People who inherit properties in many cases also inherit liabilities. We should assist people to expand and provide additional job opportunities.

Everybody accepts that there is a recession and people are less well able to meet taxation in such times. I do not think there is a case for increasing the rates of taxation as in the tables to section 111 which comes up to 55 per cent. I hope the Minister will look sympathetically at this problem.

I may have misunderstood the Senator and, if I have, I apologise. The question of a discretionary trust does not arise where we have people who have not got around to settling their legal affairs. Quite the opposite is the case. Where there is a discretionary trust, it means that somebody has got around to settling his legal affairs in a particular way.

Under the provisions as they are here, it is possible to avoid the discretionary trust tax if the property in the trust is paid or appointed to the objects of the trusts either before the disponer dies, or even if the disponer is dead, before the last of the principal objects of the trust attains the age of 25 years. There could be a number of principal objects of the trust who are aged more than 25 years and still be in a situation where the tax did not fall to be paid. Even if the disponer is dead, the trustees have flexibility in deciding, for example, which of the children would take the property because they would have time to decide which of them, in the case of an agricultural property, has an aptitude for or an inclination towards farming. The provision provides for time and flexibility in making that kind of decision. For that reason, it would not be appropriate to change the age limit. It would not be appropriate to add another ten years to the period in question.

I understand from Senator McDonald that part of his argument is based on the matter we discussed a moment ago in relation to the exemption of transfers to young farmers under the age of 35, from stamp duty. He feels we should apply the same age limit in the two cases. There is no reason why we should. We are dealing, in the case of a direct transfer, with a different situation from that covered by a discretionary trust.

In the second part of the recommendation, Senator McDonald deals with the rate of tax which it is proposed to apply. The tax provision is directed at those trusts set up essentially to avoid tax or to delay indefinitely the payment of the tax. We are all aware that up to now it was possible to defer, virtually indefinitely, the payment of whatever tax was applied in cases of transfers of this kind. In those circumstances and given the provision of section 106, I do not think that a charge of 3 per cent on the property in a trust is an excessive one. A reduction from 3 per cent to 1 per cent would reduce the yield from the tax to an extremely low level.

The suggestion that between the discretionary trust tax and the capital acquisitions tax we are taxing people at the rate of 58 per cent, is stretching the limits. In the table on page 93 of the Bill the rates of capital acquisitions tax are set out. We are talking about a range of tax rates from nil up through a series of steps to 55 per cent. It would not be the case that all property in a discretionary trust which had been taxed and subsequently distributed and, therefore, liable to capital acquisitions tax would be subject to tax at 58 per cent on the distribution. It would be subject to tax in the hands of the beneficiaries at whatever was the appropriate rate of tax depending on the total amount of gifts they had got and whatever aggregation was being taken into account under the provisions here. There is not a single rate that would necessarily apply. It would depend on the class of the transfer, the threshold that applied in the case, the amount of the gift and the point on the scale on which different parts of it fell to be taxed.

I thank the Minister for his careful explanation. The point I was making on the 3 per cent, which is included in section 109, is that this is a new tax being introduced for the first time. I am not particularly worried about the number of people but once the estate goes over £200,000 we are talking about a 58 per cent tax on the remainder. An estate may be in the red and by virtue of the new taxes being introduced in this Finance Bill and the State going after its pound of flesh, which in all honesty and fairness should be surrendered to the State, the people who will suffer are those who will lose their jobs because the estate is broken up. I do not think that our legislation should allow that kind of situation. It is more important that the State should assist the creation of additional jobs rather than be putting jobs at risk. That is my only apprehension in this matter. I appreciate the rounds to which the Minister has gone, but when we are talking about large employers £25,000 is neither here nor there if we are talking about companies or estates that might be tied up in a discretionary trust. I do not see why the Minister includes the age limit of 35 under section 99 and yet is completely against that idea in section 106 for people who more or less fall into the same bracket.

As regards the discretionary trust tax, we have had a capital acquisitions tax in our tax code since 1976. In other words, we have decided that in the event of gifts, including gifts by way of inheritance, a tax should be paid by the beneficiaries on the value of what they receive. It is and always has been a graduated tax. We have seen the development of a device which, in the great majority of cases, is used either to avoid or defer almost indefinitely the payment of that tax. What I am providing for now is that if that device is used, a tax contribution will be made by the application of the tax to the discretionary trust. We have a number of safeguards. There are cases where it is perfectly legitimate to make an exception. There are occasions where the most prudent thing to do is to set up a trust, for example, in cases of totally improvident persons who would otherwise ruin their families in spite of having a substantial inheritance. We have provided for exceptions of that kind in the Bill which is reasonable. It is not reasonable, once we have decided that we have a tax on gifts given in this way, that we should allow one device to give some people the means of avoiding it or postponing it indefinitely.

The 55 per cent rate would apply only after an inheritance had passed £350,000 if it is a direct gift from a parent to a child. There is a graduated rate up to that. The number of cases where the total taxation on that head would come to 55 per cent and if there was a combination of the two to 58 per cent, are very few.

I know Senator McDonald does not agree that we should maintain the age of 25 years but the age of 25 in this provision relates to the age of the youngest principal object of the trust. There could be a difference of ten or more years between the ages of different principal objects. The purpose of this is to tax the use of a scheme which keeps you out of the business of transferring beneficial ownership of a property for a long period or indefinitely. The purpose of the other matters which we referred to earlier was to provoke a transfer of the beneficial ownership. They have different purposes and there is no reason why the age limit should be the same.

Question, "That the figure proposed to be deleted stand part of the Bill" put and declared carried.
Section 106 agreed to.
Sections 107 and 108 agreed to.
Recommendation No. 2 not moved.
Section 109 agreed to.
Sections 110 and 111 agreed to.

I move recommendation No. 3:

Before section 112 to insert the following new section:

"112. —Part V of the Principal Act is hereby amended by the insertion after section 23 of the following section:

‘23A. —(1) Where a benefit, to which a person (in this Section referred to as the remainderman) is entitled under a disposition, devolves, or is disposed of, either in whole or in part, before it has become an interest in possession so that, at the time when the benefit comes into possession, it is taken, either in whole or in part by a person (in this section referred to as the transferree) other than the remainderman to whom it was limited by the disposition, then tax should be payable, in respect of a gift or inheritance, as the case may be, of the remainderman in all the respects as if, at that time, the remainderman had become beneficially entitled in possession to the appropriate extent of the benefit limited to him under the disposition, and the transferree shall be the person primarily accountable for the payment of tax to the extent that the benefit is taken by him.

(2) The provisions of subsection (1) shall not prejudice any charge for tax in respect of any gift or inheritance affecting the same property or any part of it under any other disposition.

(3) In subsection (1), "benefit" includes the benefit of the cessor of a liability referred to in section 28.

(4) The provisions of subsection (1) shall apply only to a benefit to which the remainderman became entitled for consideration in money or moneys worth.

(5) For the purposes of this Act, "appropriate extent" in relation to a benefit referred in subsection (1), means that part of the entire property in which the benefit subsists, or on which the benefit is charged or secured, or on which the donee is entitled to have it so charged or secured, which bears the same proportion to the entire property as the open market value of the benefit on the date on which the benefit devolves or is disposed of bears to the open market value of the entire property at that date and the gift shall be deemed to consist of the appropriate extent of each and every item of property comprised in the entire property.

(6) This section shall apply only in relation to a gift or inheritance in relation to which the certificate referred to in section 48 (3) has not been given at 25 March, 1984.'."

I am aware that the recommendation, as drafted, is a model of clarity and brevity and needs very little explanation, but it relates to a particular harshness and inequity in the operation of section 23 of the Capital Acquisitions Tax Act, 1976, which for the purpose of this part is the Principal Act. The harshness arises in circumstances where there is a life tenant of property who lives for a long time, and where the reversionary interest in the property becomes vested in a person, and that person dies without ever coming into possession of the property, and the reversionary interest passes to another member of the family and he or she ultimately becomes liable for double payment of the capital acquisitions tax. This appears on the face of it to be a very harsh measure. In effect, what the Revenue are doing in those circumstances is resurrecting somebody from the grave for the purpose of slapping on capital acquisitions tax, and then putting him back into the coffin again, but burdening the person who has ultimately come into possession with the tax.

This measure which I have been describing in abstract terms has particular relevance to part of our national heritage, one of the very important houses which compose a comparatively rare strand of our national heritage, namely, our Gaelic culture. I am referring to Clonalis House. If I could briefly relate the position to the circumstances of Clonalis House, because these circumstances point up how harsh and severe a measure of taxation can be in particular circumstances and how worrying it can be for the future of this important part of our cultural heritage. The financial difficulties now facing Clonalis House stem directly from the inheritance tax arising on the death of the life tenant, Fr. Charles O'Conor. The O'Conor Don, who was a member of the Jesuit Order and who was the owner of Clonalis House, as life tenant, between 1917 and 1981. He died in November 1981. During his long period as a life tenant who did not take up occupancy of the house because of his commitment to the Jesuit Order, the reversionary interest in Clonalis, in other words, the right to receive the estate after Fr. O'Conor's death, passed to, among others, two of his sisters. These were Molly Teeling (née) O'Conor who died in 1953, and Josephine O'Conor who died in 1980.

On the death of Josephine O'Conor the reversionary interest passed to a remaining sister Mrs. Nash who, on the death the following year of Fr. O'Conor in 1981, finally came into possession of the estate. She was the first holder of the reversionary interest actually to come into possession of the estate. As a result of the application of section 23 of the Capital Acquisitions Act, 1976, Mrs. Nash was faced with a double charge — it could have been more than that — of inheritance tax, a bill of the order of £330,000. That is an extraordinary burden for Mrs. Nash who is the life tenant and, in particular, for her son, his wife and young family who have taken over the running of Clonalis House — her son Piaras O'Conor-Nash.

The difficulty encountered is that, despite selling off a substantial portion of the farmland and raising and paying £180,000 of that tax burden, and then facing a further tax bill on the sale of those lands in excess of £50,000, it is not possible to remain viable, to have a sufficient acreage of farmland to support Clonalis House if the rest of that tax burden were to be met. I am aware that private representations have been made to the Minister and to the Minister of State at the Department of the Taoiseach in relation to the cultural importance of Clonalis House. The problem could be resolved by the acceptance by the Minister of this recommendation which would remove the harshness of this measure without depriving the Revenue of a legitimate source of capital acquisitions tax. It is not intended to deprive it where the estate has come into the possession of somebody entitled to the remainder rights in the matter.

It is a matter of very great significance to Members of this House to realise that this provision is putting at risk one of the most important houses and residues of the Gaelic culture and tradition of this country. May I briefly refer to the reasons why Clonalis House is of such importance? Clonalis House is of particular importance because it is one of the great houses of Ireland which represent the Gaelic tradition. It is one of two such houses which are left to us. It is open to the public and visited annually by a significant number of people who come to see the house, the library and other contents. There was a study commissioned by Roscommon County Council from An Foras Forbartha in which An Foras Forbartha in a report in 1983 summarised the importance both for the county of Roscommon and, in a much broader sense, for the whole Gaelic tradition which is epitomised and collected by the continuous residence of a family in that house, and the participation of that family in various ways in the historical evolution of this country. For the people of Connacht particularly, and for all of Ireland, this house has a rare and important cultural meaning. We should be acutely concerned that for the sake of collecting a debt owed to the Revenue Commissioners, we could be striking the death knell on an important part of our cultural heritage.

There are two possible ways in which the problem could be resolved. One would be for the Minister to accept the recommendation proposed by Senator Higgins and myself to remove the harsh anomaly which has resulted in this case where a life tenant was a Jesuit, and therefore was not interested in sophisticated tax avoidance or even worse, tax evasion of some kind. He did not have and did not seek to have smart accountants or lawyers ensuring that his relatives would avoid a tax burden; he simply lived his life and lived for a long time, as the life tenant of this property. There were a number of sisters who, theoretically, got a property, reversionary interest but did not get an interest in reality in the sense that they did not actually come into possession of the property but when the present sister, Mrs. Nash, came into possession of it she had an accumulated burden of tax which may, and will if something is not done about it, result in the property having to be sold and this invaluable historial library and other important parts of our cultural heritage being dispersed.

I would submit that that is a classic example of throwing out the baby with the bath water and killing a potential part of the tourist industry in Connacht, an important source of interest and employment and also very much a part of our cultural heritage. It is of vital importance that not only do we make the adjustment to our tax code which would remove this burden from the present proprietors of Clonalis House, but that we encourage the commitment and concern that is expressed by this young owner and his wife and their family by ensuring that Clonalis is available to the public, is part of the major cultural attraction in that area and is promoted both in Ireland and elsewhere as illustrating and personifying an important and all too rare part of our continuous cultural heritage. I hope the Minister will look sympathetically at and accept this recommendation for the reasons offered.

I support the recommendation and endorse all the reasons Senator Robinson made in putting forward the recommendation. When one dispassionately looks at the position in which the present occupants of Clonalis House find themselves, there are three or four resolutions to their difficulties open to them. With 60 per cent of the land having been disposed of to pay one portion of the taxes which are due on the house and land, the most obvious one would be to sell the remaining 40 per cent of the lands with the house and disperse the collection. This would be little less than tragic. Several thousand people in any year visit this house in Roscommon. The question that would arise then would be one along the lines of something catching fire — what would you do with the furniture? Where are you going to move it on a temporary basis? I could imagine a great deal of energy at the level of the public service, conservationist interest and of politically-minded people deciding where the 5,000 volumes located in the library would go, and where different portraits would go which span nearly 500 to 600 years alone. In that kind of situation we would be striking right against everything we have been trying to propose in relation to the future disposal of artefacts that we hold not for ourselves but on behalf of the nation and future generations.

We are moving towards the movement of valuable articles from central museums and central locations to places where more people can have access to them. An Foras Forbartha's report, commissioned by the Roscommon County Manager, section 2, paragraph 3, contains the phrase that this house and the collection therein comprises a microcosm of life in Connacht. Interestingly, when people make cases for houses and land, they base them nearly always on the house itself. The house — one of two designed by a relatively minor architect in the nineteenth century but a very important one — is only one part of the argument. The argument depends on what is being put together in Clonalis, for example, the design of the house in relation to its garden, the relationship of the whole history of the O'Conor family, whose history precedes Christ by six centuries and who have a unique place in Irish history in relation to Gaelic tradition. The history of why Clonalis House and the Connacht connection has remained there after the decline of Gaelic culture is very interesting in itself. The important part is that this house and the circumstances in which it finds itself are of significance regionally. In some very enlightened age when a Minister as brilliant and energetic as the present one will be presiding over surpluses in the Irish economy, we will be speaking about moving facilities out to the regions that we now simply have to centralise because of lack of funds. We can anticipate what we will be doing in the future by preserving what we have. It makes no sense to be almost pursuing ghosts with our taxation demands, when a young couple with two children who have, in a socially minded way, indicated to An Foras Forbartha a plant not only for the house itself but for the grounds and who speak of a gift to the nation of collections by way of mitigation of their debts, we should seek in every way possible to facilitate the solution they offer.

Roughly 4,000 to 5,000 people visit the house through a narrow gateway which coaches find difficult to negotiate. If the older gateway to the house was restored, widened and the driveway tarmacadamed, many thousands more would visit the house. We must encourage access to this unique combination that represents a microcosm of the experience of Connacht, rather than preparing the day when the house would have to be abandoned. In the submission made to the Minister An Foras Forbartha have made it very clear that not only have outstanding taxation debts to be paid but some work is required on the roof of the house, some work has been carried out by the present occupant and so on. In my opinion, what we should be doing is increasing access to something that will be of immense value, a powerful educational interest in an area that treasures these as now surviving exceptions in the modern age. I strongly support this recommendation in the name of Senator Robinson.

It is a curious feeling, and one which does not go very well with my normal inclination in matters of this kind, to be discussing an individual's tax liability in public. It is not the normal practice of Ministers for Finance or indeed of the Revenue Commissioners, but I think we may absolve ourselves for the nonce from the conditions we would normally apply because of the nature of the case. I have been familiar with a number of aspects of this case for some time.

I have been acquainted with the recommendation, model of clarity and brevity as it is, only since this morning. Senator Robinson, whom I suppose we could class as a smart lawyer, would understand me when I say that I would be very hesitant to accept a piece of text like this without more detailed investigation. It is a complex matter. It is a case which brought together a coincidence of events which has a very low probability in most families.

There are a number of ways in which we can approach this. With respect, I think the suggestion made here is not by any means the only way in which we could approach it. There are a number of aspects of the case which need particularly careful examination. For example, the application of the Capital Acquisitions Tax Act to the case is not a straightforward matter. There are a number of areas which need to be explored further and which I would prefer not to discuss here in public. It seems to me that there are a number of avenues which we can explore that might help to meet the particular case. If they do not, then I would be prepared at a later stage, possibly in next year's Bill, to consider a measure of the kind that has been suggested, although I hope the other avenues we explore will render that unnecessary.

I thank the Minister for his generous reply.

I appreciate that the Minister is prepared to look very seriously and sympathetically at the substance of the submissions being made on this recommendation. As he said, and I think this is so patently true, it is an unique coincidence of events. When that unique coincidence of sequences of lives puts at risk a very valuable part of our heritage, then it behoves us to look very closely and carefully at how we can come to some accommodation or arrangement on foot of it. In the light of the Minister's willingness to look carefully at what possible steps could be taken in the interim, and in default of being able to resolve it in that way, possibly to consider a legislative amendment such as this for next year's Finance Bill — hopefully the matter could be resolved before then — I am prepared to withdraw this recommendation.

Recommendation, by leave, withdrawn.
Sections 112 to 116, inclusive, agreed to.
First to Fifth Schedules, inclusive, 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 3.55 p.m. until 2.30 p.m. on Wednesday, 23 May 1984.