Dáil Éireann - Volume 30 - 20 June, 1929

Finance Bill, 1929—Committee.

The Dáil went into Committee.

SECTION I.

(1) Income Tax shall be charged for the year beginning on the 6th day of April, 1929, at the rate of three shillings in the pound.

(2) Sur-tax shall be charged for the year beginning on the 6th day of April, 1929, at the same rates as those at which it was charged for the year beginning on the 6th day of April, 1928.

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[1495] (3) The several statutory and other provisions which were in force during the year beginning on the 6th day of April, 1928, in relation to income tax and sur-tax shall, subject to the provisions of this Act, have effect in relation to the income tax and the sur-tax to be charged as aforesaid for the year beginning on the 6th day of April, 1929.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: I move amendment 1:—

Before sub-section (2) to insert a new sub-section as follows:—

“Section 21 of the Finance Act, 1920, is hereby amended by the substitution of fifty pounds for thirty-six pounds and of forty pounds for twenty-seven pounds as the deductions in respect of children.”

The amendment which appears on the Order Paper unfortunately is not the amendment which I intended should appear on the Order Paper. It relates to Section 21 of the Finance Act, 1920, and is to increase the allowance made in respect of children. The amendment which we had drafted, and which, unfortunately, owing to a Standing Order of the Dáil, is out of order, provided that the increased allowance in respect of children should only be granted to those whose incomes are less than £400 per annum. We had as a complement to that proposal, and in order to ensure that no additional burden would be cast upon the taxpayer, proposed originally to decrease the allowance in respect of children to those whose incomes are more than £400. As originally worded, the amendment read as it appears on the Order Paper, with the following addendum:

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in respect of an income of more than £400, to proportionate deductions in respect of one child and each subsequent child, which proportionate deductions shall in each case be equal to the basic allowance or allowances, less a pro rata reduction or reductions [1496] in such allowance or allowances of twenty per cent. of income in excess of £400.

We thought by the machinery provided in the latter portion of the amendment to compensate the Exchequer for the loss in revenue which would undoubtedly result, if the amendment as it now stands on the Order Paper were to be adopted by the House. But, as the latter part—the addendum which I have read—in so far as it curtails the allowances made to those in receipt of larger incomes, would contravene the Standing Order of the Dáil which precludes a private Deputy, or other than a member of the Executive Council, from proposing a resolution to the House which makes a charge upon the taxpayer, it, of course, does not appear on the Order Paper. We on this side of the House feel that we would prefer that the Minister should pay his way, rather than that he should continue the practice, which he is now endeavouring to discontinue, of putting upon the long finger and refusing to make provision for those liabilities which immediately fall due—that he should pay his way, rather than that he should involve the State in greater debt than he has. We feel, of course, that any remission of taxation possible, particularly any remission of income tax at this particular moment, is hardly justified and for that reason I am almost prepared to withdraw the amendment as it appears on the Order Paper.

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I have really only put it down in order that our proposal might be put, even in this somewhat irregular way, before the House, because we do feel that there should be some sort of redistribution of the burden of taxation among the people of the country. As I showed in my speech, I think on the general Financial Resolution, the burden of indirect taxation has increased altogether disproportionately to the burden of taxation which is imposed directly on the people, and as direct taxation hits most heavily the poorer classes, and I suppose particularly those who have just come [1497] within the ambit of income tax, we felt when we were considering the Finance Bill that we should endeavour to secure some redistribution in order to lighten the burden of the income tax upon the lower middle class taxpayer, and, if possible, compensate the Exchequer for the revenue which would thereby be lost to it by restricting the allowances which have been made to the richer income taxpayer. As I said, I feel a difficulty in proposing the amendment in its present form, but I should like if the Minister, instead of dealing with the amendment on the Order Paper, would deal with the amendment which has been ruled out, to give us some idea as to whether he himself in future legislation will consider some proposal of the sort to increase the allowance to the smaller income tax payer and, if possible, to compensate the Exchequer for the loss in revenue which would thereby be incurred, by increasing, if you like, the burden, or restricting the allowances at the other end of the scale.

Mr. Blythe Mr. Blythe

Mr. Blythe: I indicated before— I think in my Budget statement— that we had during the year considered a scheme along the lines that Deputy MacEntee desires. We tried to get compensation largely by reducing the half-rate allowance—the amount in respect of which it is given—but we found that there would still be a fairly substantial loss. If our Budget position had been such that that scheme could have been put into operation without the actual imposition of new taxation outside the income tax scheme, I should certainly have adopted it, but I would not care to find further relief for income tax payers by an increase in indirect taxation, and we, therefore, felt obliged to put the proposal aside for the present.

1498

I am desirous of giving some increase in the reliefs available for the smaller income tax-payer rather on the lines given in England, if that could be done within our income tax system. I would like to look at the proposals the Deputy has [1498] put up, but proposals that we had ourselves and that seemed to us to be practicable left a substantial amount to be found. The real position is that it is impossible to accept this amendment because the money would have to be found by some new charges. As to the alternative methods of meeting the loss, I am willing to have them further looked into. It is too early yet to prophesy what the position will be in the next Budget, and I do not feel, therefore, that I can give any promise.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: As I said, we are not anxious to press this amendment to a division, and I ask leave to withdraw it.

Amendment, by leave, withdrawn.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: I move amendment 2:

To insert before sub-section (2) a new sub-section as follows:—

“Section 16 of the Finance Act, 1920, is hereby amended by the deletion of the words ‘equal to one-tenth of the amount of that income’ and the substitution therefor of the following:—

(a) in respect of an income of less than £400, equal to one-sixth of the amount of that income; and

(b) in respect of an income in excess of four hundred pounds, £66 13s. 4d., together with a sum equal to one-tenth of the amount of that income in excess of four hundred pounds.”

1499

This amendment is designed to remove the disproportion which exists between the charges on earned and unearned incomes here as compared with the corresponding charges in Great Britain. The rate of income tax here upon certain incomes is nominally 3/- in the £; in Great Britain, the rate is 4/-. Here, however, the actual amount paid by a married taxpayer who does not receive allowance in respect of children and who is in receipt of an earned income of £300 is £3 7s. 6d., whereas the amount paid in Great Britain upon a corresponding income is only £2 10s. 0d. In the case of a married taxpayer in receipt of an [1499] income of £400, the tax paid here is £10 2s. 6d., as against £10 17s. 0d. which, in the same circumstances, would have to be paid in Great Britain. If, however, the income happens to be unearned, then the income taxpayer here only pays £11 5s. on £300, as compared with £15 on the same income in Great Britain. And if his unearned income happens to be £400, he pays £26 5s. 0d. here, as against £35 on the same income in Great Britain. Thus, in the case of an unearned income of £400, the Irish taxpayer would enjoy, over and above the British taxpayer, the sum of £8 15s. 0d., while if he earned his income that advantage would be reduced to 14s. 6d. Now, if the income was only £300, the advantage would vanish altogether, and instead he would pay 17s. 6d. more than the British taxpayer. In the case of a single man with £300 income, the sum of £10 2s. 6d. is paid in the Free State and £23 in Great Britain. It would seem to us that the incidence of taxation here is inequitable as compared with the manner in which taxation is distributed in Great Britain.

We ought to realise that when a person has to earn his income the amount of the real income he enjoys is probably very much less than the amount of real income a person in receipt of dividends or interest or some other form of unearned income enjoys. We think, in view of the fact that a greater number of people here have to earn their incomes and that the present distribution of the tax, particularly as between the poorer man who earns his income and the poorer man who enjoys unearned income, seems to be unduly favourable to the person in receipt of unearned income, some attempt should be made to equalise the burden. Accordingly we suggest a remission here that would go to equalise the burden between them. For that reason we have put down the amendment as it stands on the Order Paper.

Mr. Blythe Mr. Blythe

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Mr. Blythe: The cost of the [1500] adoption of this amendment would be as nearly as can be calculated round about £110,000 per annum. Now, I have to use the argument against that that I used against the other; that is, that if the amendment were adopted some new proposals for taxation would have to be introduced to meet the deficit. I know that it will be felt undesirable if at any time the reliefs given to the tax-payer lower down the scale here are less than in Great Britain. But I do not know that if we were to bring our allowances to the British level this year we could adopt it as a principle that we would keep them at the British level. It may well be that in Great Britain there will be further allowances. Now, the income tax operates rather differently here from Great Britain. I have not the figures worked out to cover this point, but I think Deputies will understand readily enough that any allowance would lose us a very much greater proportion of our taxation than in England. In England a very much higher proportion of the tax is paid by extremely wealthy people. I once indicated that in the Dáil by showing that a tax at the same rate gives a very much lower yield per head of the population here than in England. That means that in England the wealthy taxpayers are more numerous, and that the relief given to the poorer taxpayers loses a much less proportion of the revenue. It is quite possible that something that would cause us to lose 10 per cent. of revenue might only cause them in Great Britain to lose two, or even one, per cent., so that it is impossible for us to adopt as a principle that we should have our allowances equivalent to the British scale.

The relief in respect of earned income is one of the matters which I feel desirous to attend to along with the increase of allowances for children, but again, I would like to deal with it when it can be done either by shifting the burden of the income tax or by way of relief from taxation, but not by finding the money through the imposition of new charges.

Mr. Flinn Mr. Flinn

1501

[1501] Mr. Flinn: The Minister's argument with regard to both amendments can be put in a sentence: You cannot get blood out of a stone. That is its meaning, and that particular argument for the moment is unanswerable. The difficulty is: the Minister went further, and in defending that particular argument he is indicting income tax as a tax applied to this country.

He says: “I want to increase all these allowances; I am full of the milk of human kindness in relation to these poor people, these people on whom income tax does lie as a burden.” Otherwise the Minister would not be concerned to increase it. He said: “I recognise that in this country there are a large proportion of people who, under income tax, suffer as distinct from merely paying.” Everything that he has said as to the amount which he will lose over and above the amount which would be lost by the same provision in another country is a statement that the income tax as applied to this country is a greater hardship than the income tax as applied to another country. So long as he realises that and will allow that little seed to germinate in his mind between now and the next time he introduces a Budget, I am satisfied.

Mr. Little Mr. Little

Mr. Little: Could the Minister supply the House with figures showing what the loss would be supposing a system such as the English system were adopted—that is to say, with regard to unearned income?

Mr. Blythe Mr. Blythe

Mr. Blythe: I could not supply the Deputy with the information just now, but I could give him an answer if he put me a question later, or perhaps drew attention to the matter the next day on which this Bill comes up. Calculations have been made, and it is only a matter of bringing them up-to-date.

Amendment 2, by leave, withdrawn.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: It has been suggested that we could take amendments 3 and 4 together and, in the circumstances, I shall now move them:—

1502

[1502] 3. To insert before sub-section (2) a new sub-section as follows:—

If any claimant proves that any portion of his income arose directly from stocks, shares or other investments in a manufacturing undertaking (or undertakings, as the case may be) established in Saorstát Eireann he shall, for the purpose of arriving at his assessable income, be entitled to a deduction of one-fifth of the income which thus arose.

4. To insert before sub-section (3) a new sub-section as follows:—

If any claimant proves that any portion of his earned income arose directly from profits in a manufacturing undertaking (or undertakings, as the case may be) carried on in Saorstát Eireann, then for the purpose of arriving at his assessable income, he shall be entitled, in addition to the earned income allowance already provided for under Section 16 of the Finance Act, 1920, to a further deduction of one-tenth of such portion of his income as arose as aforesaid, but such deduction shall not exceed £200 in the case of any individual.

1503

There is a slight misprint in amendment 3. It should be one-fourth instead of one-fifth. The principle of these two amendments is the principle which we have often urged upon the Minister of endeavouring by way of remission or allowance in the Income Tax Acts to give some encouragement to Irish manufacturers. The purpose is to render Irish productive and manufacturing enterprises more attractive to the Irish investor. So far as the first amendment is concerned, we feel that in addition to rendering the enterprises more directly attractive by giving to the person who has invested in an Irish undertaking certain more favourable treatment under the Income Tax Acts, it will counteract the tendency which the present low rates of tax upon unearned income have to make foreign investments more attractive to the citizens of the Saorstát. It may seem a surprising [1503] statement to make, but it is nevertheless true that the lower income tax here makes foreign investments more attractive.

I gave an instance last year for which I worked out the figures. I had in mind then a shipping company which in that year paid a dividend of 7 per cent. and whose £1 shares were then standing in the market at 30/-. It is a very well-managed concern, old and prosperous, and the holders of shares at present, in view of the market price of the stock, have hopes that in time the capital value of the shares will appreciate. Obviously the marginal price at which the British investor would purchase shares in the particular undertaking that I had in mind at that time, in the conditions which then prevailed, went round about 30/-. If a British resident had £750 to invest in a concern of that sort and felt anxious to purchase shares in that undertaking, he would buy 500 of them and in due course would receive a nominal dividend of £35. Out of this dividend 4/- in the pound, or £7, would be retained for income tax, making his actual net gain on that investment only £28. Take the case of the Irish investor in present circumstances. If he bought those shares at the same price he would receive the same nominal dividend of £35, and because he would be liable to an income tax of only 3/- in the pound, he would recover £1 15/- out of the £7 originally deducted from his dividend in respect of British income tax. If we allow 5/- to cover his time and trouble and the cost of recovering the £1 15/-, we find that the amount of income tax which would be deducted from his dividend in that particular investment, instead of being £7 as in the case of the British investor, would be only £5 10/-, so that his return would be 30/- more, or 5.375 per cent. greater, than that of the British investor.

1504

What is the position then? The net return which will find the stock a ready market in Great Britain is [1504] only 3.75 per cent. The Irish resident would receive 3.94 per cent. of the stock, and as the market for the stock is made in Great Britain, Irish buying which, as compared with British buying, will be, of course, comparatively small, will not tend to send up the price of the stock in Great Britain. The Irish investor, therefore, will be always in a position to pick it up at what will appear to him to be a reasonably cheap price as compared with the British investor. You have, then, the stock which can be bought by the Irish investor just at a price which will leave him more than the marginal return. He knows he can go in there and have a slight margin to play with, not a very large one, and as he finds the British people are buying it and looking at the investment with the history of the company in mind, noticing how the shares have appreciated during previous years, he will say to himself: “I have a chance here, and if I do come in on this stock it will appreciate in value, and I will do very well out of it.”

Therefore, indirectly, when he looks at the Irish concern, the position is slightly different. The Irish concern, in the same circumstances, does not appear to him to offer the same favourable advantages. He does not receive anything when he invests in that. The net return he receives from an Irish concern is not anything over and above what his neighbour in Ireland will receive. When he has a choice between the two, it always appears to him that the British investment is the more desirable one. We ought to endeavour to counteract that. We can do so by the amendment which we have down here and which will definitely make an Irish investment always more attractive to the Irish investor than the English one. That is, all other things being equal.

1505

I know it will be said the trouble about Irish investments is that the people have saved money and that naturally when they have saved money, often with great costs and great pains to themselves, they must be very careful as to how they are going to invest it. They will not [1505] have the same confidence in Irish investments because of the conditions which prevailed here up to recently, and because the past conditions or the present conditions of Irish investments do not appear to be as sound or as safe to the Irish investor as conditions of investments across the water. I am only arguing on the appearance of the case. I am not going to say that an investment in a sound Irish industrial undertaking is not much better in the long run than investments in some flotations which have recently been placed upon the British markets. But if the case is that an investment in Irish securities, even under present circumstances, appears to an Irish investor to be more speculative, though in fact it may not be so, than an English investment, we ought, in the present state of income tax, to offer to the Irish investor some inducement to overcome that, something which would make the Irish investment, notwithstanding all the disadvantages it may suffer on account of the condition of affairs, definitely more attractive to him than a foreign investment.

There has been a great deal of money going out of the country. It has been calculated that our investments abroad amount to over £200,000,000. We have found recently that some of the flotations made here, though backed by Government security, are such that the Irish investor appears to be chary about putting his money into them. Possibly the disposition of the market recently does not seem to be properly gauged, and the return offered on the investment may be too low. We could make that return more attractive by increasing it in this way. Before that is done, we may possibly consider whether by means of the income tax we could not make the investment more attractive.

1506

In regard to the amendment, as it appears on the Order Paper, there is a misprint—“shall be entitled to a deduction of one-fifth.” That should be “one-fourth.” The Minister for Finance said last year that he did not think, as it then stood, that the inducement which was offered to the [1506] investor was sufficiently large. I propose to meet the Minister by increasing the remission by 20 per cent., that is, raising it to one-fourth instead of one-fifth, as it was last year.

Mr. Anthony Mr. Anthony

Mr. Anthony: We of the Labour Party have indicated our position in relation to the incidence of income tax for the last few years. I am supporting the amendment of Deputy MacEntee, and I rather regret that we have not taken amendments 3, 4 and 5 together, because much of what I would like to say on amendments 3 and 4, I would also like to say on amendment 5.

Last week, I advocated that certain reliefs should be given to Irish capitalists, Irish industrialists or other persons having money to invest in Irish industry. This is one of the ways in which this relief might be given. I rather regret that Deputy MacEntee has withdrawn his first two amendments, because I feel that we should have an indication from every Deputy in the House as to his position in relation to this very important question. The Minister for Finance himself has stated that there is a great difference between the effects of income tax in this country and the effects of income tax in Great Britain. We see in every phase of our social life the disparity that exists between the present tax in this country and the present and corresponding tax in another country. If there are any two amendments on the Order Paper that have a stronger appeal than any others, they are those two in the name of Deputy MacEntee. I do not want to refer to amendment No. 1, but really I find myself in complete sympathy with every amendment on the paper.

An Leas-Cheann Comhairle took the Chair.

Mr. Anthony Mr. Anthony

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Mr. Anthony: Deputy MacEntee, in the first case, asked for relief in the case of children, but, unfortunately, he withdrew that amendment. I would like to have some indication from the Deputies in the House, irrespective of Party, as to [1507] what they think of matters of this kind. I would also like an expression of opinion from the Minister with regard to the future policy of his Government on the questions opened up by these amendments. I have not the figures to date as far as they relate to Irish money invested abroad, but some years ago I was rather alarmed at, to me, the extraordinary figures then published as to the moneys of Irish capitalists, financiers and others invested in foreign securities. One of the ways by which we could attract that money to this country is indicated in these amendments. The relief asked for is “one-fourth of the income which thus arose.” I think that is the least contribution which this House should make towards Irish industrialists who have had, under the circumstances that have obtained in this country, to invest their money in foreign securities.

In discussing this matter, a prominent financier some years ago told me that even if a slight encouragement were given to him, by way of relief in income tax for money invested in Irish enterprises, he and many associated with him would gladly invest their money in Irish industries. I suggested to him that he was getting better value for his money in this country than in other countries, and he, in turn, told me that even as a financier he was not altogether bankrupt in patriotism. He believed that he would undoubtedly get as good a return for his money here as he was getting abroad if the difference were made up by way of income tax or otherwise.

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I suggest that Deputy MacEntee should not withdraw this amendment, but should have the courage that the Labour Party have had all along and should press this matter. I am not over-anxious for a division in the House, but we want a clear indication from the Government, from the Cumann na nGaedheal, and the Fianna Fáil [1508] Party, too, as to their attitude in relation to this matter. These two amendments, to me at any rate, are the most attractive on the Order Paper to-day. They certainly propose something constructive. I rather welcome that on the part of the Fianna Fáil Party as, at least, their second or third effort to do something constructive in Irish politics. I hope this thing will be persisted in, and that Fianna Fáil will not withdraw these two amendments, but will let us have an indication from the House of what it thinks on what is a purely business proposition.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: I will deal for a moment with what Deputy Anthony has said. I feel if Deputy Anthony were here when the Minister was dealing with my amendments possibly he would not have uttered the strictures which he has on my attitude in withdrawing them. The Minister quite frankly admitted what we know to be the case, and in this matter we had to take a sympathetic view of his difficulty that he does not know where he is to find the money. We would be very anxious if we could possibly manage to press to a division and carry in this House amendments 1 and 2 in my name, but when the Minister tells us he cannot find the money, and that if he is going to make these remissions with regard to income tax he has got to compensate himself for it by increasing the burden on the poorer classes who pay indirect taxation, we on those benches could not stand over that. We realise that the lot of the income tax payer is hard, but we realise that there is a considerable section of the population in this country who are not sufficiently fortunate to pay income tax. There may be degrees of misfortune. Below the income tax payer there is a degree lower still. Consequently we could not feel ourselves justified in pressing to a division an amendment which would result in the income tax payer receiving an advantage at the expense of his less fortunate brethren. For that reason we withdraw 1 and 2.

Mr. Anthony Mr. Anthony

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[1509] Mr. Anthony: On a point of correction——

An Leas-Cheann Comhairle Patrick (Clare) Hogan

An Leas-Cheann Comhairle: I do not want a discussion on amendments 1 and 2, which have been withdrawn. Amendments 3 and 4 are before the House.

Mr. Blythe Mr. Blythe

Mr. Blythe: With reference to amendments 3 and 4, this matter has been discussed before. There was one aspect which I do not know was the subject of much discussion but which I think deserves a little attention and that is the question of complexity. Everybody is in favour of simplifying the income tax code, but simplification can only be brought about if we are determined that we keep the purposes of the income tax code to the collection of revenue and the allowance of such personal exemptions as can be afforded and as seem equitable. If we try to attain a great number of objects or if we try to attain objects outside the collection of revenue by the provisions of our income tax code, then we increase its complexity. Of course, that is not by any means a final argument against amendments of this character. It may well be desirable even to increase the complexity of the income tax code in order to serve the purpose of improvements, but we should not lose sight of this fact, that if the matter were to be done it could not be done really by a simple section such as this. A number of supplementary provisions would be required and a very considerable new element of complexity would be introduced.

I oppose this amendment, however, on the ground that it is not the best or the most economic way to encourage industry. I believe that in so far as the State can encourage industry the other methods that are in use are better, and if we are to do more it should be by extending our efforts along these other lines, including protection in suitable cases, and even subsidies in suitable cases, and assistance such as is given and is of appreciable value in some instances through the medium of technical instruction.

1510

[1510] If we look at number 3 we will see that this particular relief would have to be given in respect of all manufacturing undertakings. I do not see how we can very well say that in the case of undertakings where there is plenty of capital this should not apply. It has been estimated if this section were passed that in the case of Guinness shareholders alone there would be a loss of £30,000, which probably would be more with the correction that Deputy MacEntee has inserted. No useful purpose at all would be served there. There is a concern where the want of capital is not a consideration at all. We would simply lose £30,000 for nothing. I could mention other industries where a considerable loss would be involved and no direct benefit given. As a matter of fact, the greatest part of the loss of revenue would really be in relation to the industries which are fully capitalised and which if they require any further capital for development can get it.

The proposal also has this disadvantage, that it gives no relief naturally to the exempt taxpayer. It gives comparatively little advantage to the smaller taxpayer, and the weight of the loss to the Exchequer would go to taxpayers who are comparatively well off. In addition to Guinness, I might mention a concern like the Imperial Tobacco Company. I do not know that it would be suggested that this should not apply if the company which owned an industrial undertaking were registered outside. In any case I suppose if a substantial thing like this were given in suitable cases and not in the cases like the Imperial Tobacco Company all the technical steps necessary would be taken to have the industry regarded as being established here.

1511 1512

Amendment 3 deals with the case of the private individual. On a matter of detail, it must be unreasonable that the amount of the deduction should be limited to £200 in the case of the individual, where it might really be in the nature of earned income, and [1511] should be unlimited in the case of a shareholder of a company. In any case the difficulty of administering it in the case of a private individual carrying on business would be very great. It would arise, for instance, out of a mixed business. It is difficult enough for, say, the grocer who owns a bakery to present returns dealing with the business taken as a whole. If we were to have the sort of segregation that would be necessary in one of these mixed businesses, lots of difficulties would arise. If you apply it to the whole business, so long as it is actually one business on the one spot singly managed, then you might have lots of people starting some very small manufacturing end. The same sort of difficulty would apply even in the other case. I am taking the extremes of the scale, but the real difficulty would arise in the middle of it. Take the extremes. You have a furniture manufacturer. In one case a person gets the timber in an unworked state and he produces the furniture. The timber is sawn and made into furniture ready for sale. There is a case in this country of, I think, a private firm where furniture is imported and simply french-polished. The french polisher, I presume, would describe his firm as a manufacturing undertaking. There would be all sorts of borderline cases and great difficulties would occur in the working of the scheme. But I oppose it really on the grounds that this is not the best way to promote industry. I do not think, as a matter of fact, that the question of the return that it is possible to receive on money invested in industries in Ireland has been the great difficulty. The difficulty, I think, has been the belief that no return whatever would be received. The lack of confidence that there is in the country is not so much the lack of confidence that only five per cent. would be obtained, where seven per cent. or eight per cent. would be received outside, but the fear of the failure of the business. I believe that this particular type of provision, if [1512] passed, would involve very substantial losses to the revenue, and the revenue would have losses in cases where no benefit at all would come to the community by way of stimulating industry as a result of the losses.

Mr. Flinn Mr. Flinn

Mr. Flinn: The Minister has two arguments against this. One is that the amendment itself is too broad, and the second is that there are difficulties in so far as the onus of proof is to be placed on a beneficiary. I do not see that that need worry the Minister. The man who wants an exemption is the man to take the trouble to provide the facts to prove the case, and I think he will go to that amount of trouble. It is too broad; it includes Guinness's brewery, the banks and various other activities of that kind. I agree that that is the difficulty, unless one can reach the stage of getting rid of these misbelieving black hordes of harpies that gather around the income tax collection. There has always got to be a gradual method of approach. It is merely a question of how we are going to approach it. If the Minister's objection is that this thing is covering too much ground the Minister himself could suggest lines and categories in which that could be reduced in the initial stages. For instance, when we were dealing with the no income tax campaign previously, certain of the banks definitely stated that while they were in favour of and would advocate that principle they themselves were prepared to stand out of the benefit of it. It would be quite possible to leave out breweries and certain activities of that kind, in other words, to proceed by exemption. You simply leave the Act as it is, and you amend Deputy MacEntee's motion to read “certain kinds of manufacturing undertakings, and certain kinds of investments,” until we gradually find by experience what we can include and what we can exclude.

1513

The Minister, apparently, objects to using taxation for the purpose of policy. He ought not to. He only does [1513] it momentarily when he is reminded of it. He did not object to it when he declared, in relation to the £100,000 tax on buses, that it was part of a policy which he has never since disclosed, and does not intend, apparently, to disclose. There is nothing which is more commonly used for the purpose of policy than taxation. Nearly every critical change in legislation—I mean things that are fundamental—has been done in the form of taxation proposals. The Minister knows that perfectly well, and why the income tax code, of all codes, should be regarded as sacrosanct, I am hanged if I know.

There is supposed to be £200,000,000 of Irish capital lying idle in England. What I would like people to understand quite clearly is what that means. We never sent over £200,000,000. We never invested £200,000,000. We sent over some hundreds of thousands of cows, some hundreds of thousands of eggs and firkins of butter for which we never took payment. That is what we have invested. We have invested £200,000,000 worth of agricultural produce in the industries of another country, and the price of that might very well and very wisely be actively encouraged to come back. If the Minister knew the sort of feeling that the average person would have if he could say: “From this day on I will never see or hear the name of income tax,” if he could produce that condition in this country—the mere thought of being clear of all the trouble and annoyance of that system—he would be surprised at the amount of inducement it would give.

1514

I do believe, without any doubt whatever, that if there could be an active and open discrimination in income tax, say in relation to Irish industries, there would be a very definite advance. This is not one of the arguments that comes under the Minister's “You cannot get blood out of a stone.” Frankly, I have no answer to that argument at the present moment. There is no blood in a stone, but we have the assurance in relation to the things which we do want that when it comes to another object and there is a surplus, whether the Minister [1514] is introducing it from that direction or opposing from this, these are proposals which we do not proceed with, because there is no blood in a stone will have the support of the two large Parties of this House —of the Government, its successors and its predecessors.

If the Minister will recognise that quite apart from the amount of money involved, income tax is, of itself, regarded without any particular love or affection; that it is one of the things that people do not like, and that, if it were removed, it would make the country one to which people would be anxious to come, I think possibly that he will regard the instrument of income taxation as a policy machine of infinitely more power than he now does. I am perfectly sure that he has no conception, because he has no basis of experience on which to base that conception, as to the degree to which the present administration of income tax law and its amount are hampering the development of Irish industry. If he had that knowledge he would appreciate the extent to which alleviation could be brought about for the good of the country.

Mr. Little Mr. Little

1515

Mr. Little: Knowing the conservative attitude of the mind of the Minister for Finance, I would like to ask him whether he would not consider even diminishing the actual application of that principle, first of all in establishing it. It would be of immense benefit to the country if we could get agreement on the application of that principle first of all in regard to the need for capital for Irish industry, and, secondly, to the need for using Irish money for developing industry. Perhaps the Minister would confine the principle to giving certain privileges, say, to banks which invest money outside the country on their undertaking to invest money in industries in this country. We have not a complete set of figures, but I do not see why there should not be some way in which we could get the amount of the investments belonging to Irish investors in stocks and shares outside the country through the Stock [1515] Exchange on the one hand and, on the other hand, the amount of money invested in foreign securities, such as bills of exchange by the banks. At least, it would be some advance towards the assertion of the principle if we could get the full facts. I submit that in dealing with incometax the Revenue Department ought to be able to supply us with a considerable amount of data. I would ask the Minister if he would be prepared, even in a detailed way, to admit the principle as being valuable.

Mr. Blythe Mr. Blythe

Mr. Blythe: I could not give the undertaking that Deputy Little asked for, and that Deputy Flinn pressed for. We do not think that this principle of giving special concessions in relation to income tax on income derived from manufacturing industry here is necessary, or that it is a good principle. We believe, in so far as revenue must be sacrificed or assistance given by the State, that the other ways by which assistance is already given are better and that anything more that needs to be done ought to be done along those lines. In reply to what Deputy Flinn has said, I do not take the line that income tax should not be used for policy, but I was trying to point out its complexity from the point of view of the taxpayer, and that, in so far as we try to use it for policy, we are likely to complicate it. We cannot achieve a purpose such as Deputy MacEntee aims at through income tax and at the same time simplify it. It may be necessary to abandon simplification. I think that we must abandon it if we try to do a number of things by means of income tax.

1516

I do not base my opposition on the ground of complexity, although I draw attention to it. I do it in the belief that this is not the best way in which the State can put forward whatever efforts it is able to make towards increasing manufacturing industry in this country. I believe that this thing would cause grave dissatisfaction, that people not specifically engaged in manufacturing industry but engaged in useful business [1516] and giving perhaps as much employment, would have a considerable grievance, and that whatever harm this system may do, such harm would be increased. I believe also that the dissatisfaction amongst people who can live either in or out of the country as they like, and who bring considerable sums into the country, would be greatly increased, and, possibly, there might be some loss of revenue owing to the fact that they might leave. That, again, is rather a minor point. The main argument I have against it is that the methods of tariff or subsidy or assistance, education, or even assistance by finance along any lines that may be found practicable to substitute for the Trade Loans Guarantee Act, are ways on which we proceed, and that this method of differentiation in income tax is not the right one.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: In reply to one or two points which the Minister made, like Deputy Little and Deputy Flinn, I wish to say that this amendment is not in any way meant to be final. We did not propose to put down all the amendments and consequential amendments which would be necessary if the Minister for Finance were to adopt the principle. We felt that those could properly be introduced on the Report Stage. We put down this amendment so as to have the principle involved discussed. Nor do we argue that this is necessarily the best way of encouraging industry, but we hold that it is one way. It is the way the Minister himself has already applied. I think, in the present Finance Bill in relation to debentures, stocks and certificates chargeable by the Agricultural Credit Corporation. He has discriminated in favour of stock of that company. He has found it necessary to do so in the case of that company, which proposes to finance one industry to render it more attractive than the stock of other concerns not operating inside the Saorstát.

1517

While we do not argue that the principle which we have embodied in this amendment is the best way to help industry, we believe that one of the ways industry could best be [1517] helped would be to take as little as possible out of production to lighten the general taxation on the producer. We say that comparing it with the other ways which the Minister has suggested, as compared with the tariff or a subsidy, this way is possibly a better way. I am not prepared to argue the question at length. We all know that one of the indirect effects of a tariff or a subsidy is that it secures the home market upon more favourable terms for the home manufacturer than for his competitors. Because he has a sense of security in regard to the home markets he is content perhaps to rest on his oars and to take the benefits swept to him by the tide. In this way if there is going to be any benefit to the taxpayer or the manufacturer, he has to secure it by his own exertions.

There is just a possibility that one could argue that the way to help Irish industry proposed in the amendment, as compared with the ways which the Minister has mentioned, is the better way. I do not want to argue that point, but we feel, whether this is the best way or not, that it is one of the ways which should be seriously considered by the House, because the fact remains that while there is a very considerable amount of Irish capital invested abroad, Irish concerns do find considerable difficulty in securing the capital necessary for their purposes. Even when issues of stock are made under the auspices of the Government, backed by a Government guarantee on very attractive terms, they do not appear to be sufficiently attractive in themselves to induce the Irish investor to invest in them.

1518

In regard to the point which the Minister made as to the difference between amendments 3 and 4, he argued that there seemed to be an unfair discrimination between a man who earns his income, whose income arises directly from profits of any manufacturing undertaking in the Saorstát, and the man who derives his income from investments in the Saorstát. I think that is quite justifiable, because a man who derives his income from investments has a much [1518] wider freedom of choice. He can invest his money in Ireland or abroad, but the man who gets his income from a manufacturing undertaking here is practically tied to the spot. For that reason we feel that such a large inducement is not necessary to get him to continue the development of his business in the Saorstát as might be required in the case of a person who is free to invest his income here in the Saorstát, in Great Britain, or elsewhere in the world.

There is one other point to which I would like to refer. The Minister said, in the course of his reply, that possibly in order to secure the benefits of the principle we have embodied in amendment 4, a person carrying on a multiple business might start small manufacturing undertakings. We say, well and good. That is the purpose of the amendment—to get him to start small undertakings, to get him to take the plunge and to make things in Ireland rather than to distribute them. That is precisely the point. If a man does start a small manufacturing undertaking he will only do so because he is satisfied that on the balance it is going to be advantageous for him to start it. It is going to spur that man on to an enterprise which otherwise he would not undertake. In the Saorstát there are a number of large concerns which have been acting merely as distributors and not as manufacturers. If our amendment succeeds in getting these people to turn their attention to the manufacturing branch of industry, the amendment will be justified. There would be a large amount of competition between them which would have the effect of reducing prices and costs, and I believe that ultimately there would be a fairly substantial manufacturing interest in the country.

1519

In regard to administrative difficulties, the whole income tax law bristles with them. I know there are border line cases. The whole thing turns on the point: Is the principle a sound one? If it is a sound one, the administrative difficulties [1519] and the cost involved are not any greater than the cost of principles already enshrined in the income tax laws. Every discrimination, whether relief in respect of children or earned income, was carried in face of some difficulty, and they have all been met. I agree that it makes for complexity, but if at the same time complexity can be justified by the results, we are not justified in rejecting an amendment on the ground that it would involve complexities. We think that the principle is sufficiently sound to carry the amendments, and for that reason we could not in justice withdraw them.

Mr. Flinn Mr. Flinn

1520

Mr. Flinn: I would like to make one other point, in relation to another effect of income tax discrimination, over and above the effect of any other tax that I know of. At the present moment the Minister is banking on tariffs as practically his one method of dealing with these matters. He has other methods, but that is broadly his line of country. The difficulty we have with tariffs in such circumstances as we find ourselves, is that the tendency of tariffed industries to change their ownership has actually been increased by the tariffs. If the Minister will go through things statistically he will find that there is a very real difficulty. Those who want to look at tariffs fairly are bound frankly to admit that fact—that it intensifies the trend towards expropriation of industries. I know two cases—the Minister probably knows them as well as I do—of an industry which was applying for a tariff in this country when an Irish manufacturer in that industry got into contact with those who were applying for the tariff and pointed out to them the actual circumstances of that industry in relation to competitors who were not then operating in the Free State. Simply on the grounds of prudence, until they could find some other means of protecting themselves against the dangers that that application for a tariff would have brought on them, they did not go forward with their application. It [1520] is only fair that those things should be said, and said openly, by those who are advocating tariffs.

In this income tax discrimination, we have the only weapon that I know of which can be used for the protection of Irish capital as distinct from the protection of Irish income. If, for instance, the whole of the income tax upon an Irish manufacturing industry were remitted, the shares in any Irish manufacturing industry would be more valuable to an Irish resident than a foreign resident by the capitalised value of that income, and the whole tendency would be that Irish-owned industries in this country would, to the extent of the discriminating relief, remain in Irish hands, and non-Irish-owned manufacturing undertaking in this country, to the extent to which that discrimination was allowed, would tend to pass into Irish hands. That, to me, is the biggest argument in favour of income tax discrimination, and if the Executive Council are not prepared to use this particular means of protecting Irish industry from the expropriation of ownership, a danger which I see growing, a danger which the Minister has experienced and which has been effective in the last few years, they must either be prepared to risk the continuation of that movement or to find some alternative means of dealing with it.

1521

I, personally, have investigated, over a period of years, various possible ways of dealing with that difficulty. While you can, for France, England, Poland or Germany, whose training has been different, whose surroundings are different, whose internal control is different, formulate a lot of ingenious schemes, which have been very largely effective in these countries in preventing that expropriation of the ownership of means of production in this country up to the present, frankly I have not been able to find a method which is workable. This method, in my opinion, to the extent to which it would be used, would be effective. But I am very anxious to encourage the Ministery to investigate, formulate and put before the House for sympathetic [1521] consideration and examination any alternative means they have of dealing with that tendency. They have got to recognise that the tendency exists, and they ought to recognise that in these amendments the principle of the method of dealing with that difficulty is laid down.

Mr. Blythe Mr. Blythe

1522

Mr. Blythe: On the question which Deputy Flinn has last dealt with, the point of view of the Government is not entirely, I think, that put forward by Deputy Flinn. We do not see great objection to the coming in of British companies here, though we recognise that there are many cases in which it would be much more desirable to have home companies owning the industry. We do recognise also that if the process by which concerns founded here by Irish companies are being taken over by English companies were to continue to anything like the extent that it has been going on for the past year or two, steps will be necessary to deal [1522] with it. I agree, and perhaps the Government agrees, with Deputy Flinn, at any rate to this extent, that while the existence of even a considerable number of concerns owned by English companies here would be no particular harm, there are limits beyond which it would be extremely bad for the country that that process should go, and while not having reached a decision that it is yet necessary to take steps to check the acquisition of industry here by outside companies, we have been exploring two or three tax proposals to meet that matter. One of them was a certain rearrangement and modification of the Corporation Profits Tax, and there were others. I do not want to discuss it beyond saying that when we have come to the conclusion that we should take action to prevent concerns here falling into the hands of outside firms, we will take it along somewhat different lines from those indicated by Deputy Flinn.

Amendment put.

The Committee divided: Tá, 50; Níl, 62.

Tá

Níl

Tellers:—Tá: Deputies Briscoe and Flinn; Níl: Deputies Duggan and P.S. Doyle.

Amendment declared lost.

Amendment 4 not moved.

Mr. Flinn Mr. Flinn

Mr. Flinn: I move amendment 5:—

In sub-section (3) to add in line 27 the words: “provided that in the case of a manufacturing undertaking any undistributed gains or profits arising out of such undertaking and employed to the satisfaction of the revenue authorities in extending premises or in installing new plant shall be exempt from tax, while so undistributed.”

I suppose the Minister for Finance is not the only man who has been shocked at being suddenly presented with his own child. As far as I know this amendment is in the words of the Minister for Finance himself, undistributed profits are to be taken as “profits arising out of such undertaking and employed to the satisfaction of the revenue authorities in extending premises or installing new plant” and such revenue shall be exempt from tax. On the occasion of the last Budget, when we put forward proposals for discrimination in relation to income tax, the Minister for Finance said that he himself had investigated one line in which that could be done, and that line was one which, in his opinion, was without apparent defects. He said it would not cost much, that it probably would be effective, and that it seemed to be the most reasonable way in which the matter could be approached. Our answer to that was that we were not concerned as to the manner in which the principle was enshrined in legislation so long as it was so enshrined in legislation and accepted. The Minister promised to consider very carefully between that Budget and this Budget the form apparently in which this proposal which is now offered to him with another formula would be accepted. This is one of the amendments that does not come under the description, “You cannot get blood out of a stone,” because this amendment does intend to produce income.

1525

If this money does go back and if means are used to encourage people to put their money into the development, the building up, and the improvement of the efficiency of their industrial and manufacturing plants, the income tax which will be got from such investments in any particular year ought to be equal to what the Minister would lose as a [1525] capital sum, even assuming that he loses it altogether.

One of the difficulties in connection with this method is that it might be said that a man would keep putting the whole income which he did not want to use otherwise back in undistributed profits, and that then he would be able to sell those reserved included in his business and, therefore, to sell that income clear of income tax. For the purpose of getting over that difficulty we have defined it, in the words of the Minister himself, as profits employed to the satisfaction of the revenue authorities, in extending premises or installing new plant. I do not want to speak at any further length on this matter. I feel it would be painting the lily or gilding refined gold to attempt to recommend to the Minister for Finance an amendment which he himself has drafted and a proposal which he himself has picked out of all the possible proposals of income tax discrimination as the one which he would advocate and with which he could find no fault or blemish.

Mr. Blythe Mr. Blythe

1526

Mr. Blythe: As I said last year, the proposal embodied in this amendment is one which has been a good deal advocated by writers on income tax, and, as I said also, it is one which seems to me to be suitable in the circumstances that exist here. It would be easier to administer than many other proposals that have been made, and the money which would be lost to the revenue without corresponding profit to the community would be less. But it is a proposal which needs some more examination than it has yet got. It is a proposal which involves some difficulties in administration—indeed all these proposals do—and it is one which could not be legalised by a single section such as this. There would have to be clauses containing quite a number of provisions. It is a proposal to which I will give further examination during the coming year with the view, if a satisfactory scheme can be produced, of recommending it to the House. I know there are [1526] objections to it; I know that difficulties would be created, but I am not convinced that those difficulties would be by any means insuperable. However, I could not accept the amendment even if the matter had already been fully examined, because, in dealing with any income tax proposal, a very careful examination of the code and of the drafting is necessary in order to make it workable and in order to ensure that results do not ensue different from those which are intended. I intend to have the idea that is involved here further examined as being one which I believe, on the whole, to be suitable for our circumstances.

Mr. MacEntee Mr. MacEntee

Mr. MacEntee: I rise to correct a misapprehension which something the Minister said may possibly have laid the House under. In dealing with the amendment he used the phrase “lost to the revenue”— money which would be lost to the revenue. One of the advantages of this amendment is that any revenue which the Exchequer might temporarily have to forego is not permanently lost in any way. It is only, as it were, lent to the original income tax payer to enable him to utilise it reproductively. Of course, one of the advantages of the amendment is that it would be reproductive not only from the point of view of the income tax payer, but also from the point of view of the revenue itself. It would be a source of wealth. It is more or less in the nature of a revenue investment and, therefore, in considering it we should not come down to the basis that if we do carry this amendment the revenue is going to lose so much. It is going temporarily to forego certain income for the year, but that income is going to be invested, and if, as we believe, the investment will be a profitable one, the revenue is going to derive advantage from it year by year just the same as the income taxpayer who has secured the remission.

Mr. Blythe Mr. Blythe

1527

Mr. Blythe: I think that is a somewhat rosy view of it. In certain cases, the matter might work out as the Deputy suggests, but there would certainly be other cases in [1527] which the effect of this would be to enable individuals to spend more on their personal enjoyment and still do the things that they wanted to do.

Mr. Flinn Mr. Flinn

1528

Mr. Flinn: Does not the amendment specifically segregate it—“to be used for extending premises and installing new plant”? The Minister accepted that last year. He has had a whole year to meditate on it, and he tells us he is to spend another year meditating on it. Perhaps he will not have that amount of time. If he has the time, he will spend another year meditating on it. When will he do it? This year? Next year? Sometime? Never? A Kathleen Mavourneen Minister for Finance! I do not think the interests of this country can afford a Kathleen Mavourneen Minister as Minister for Finance. It is time the Minister woke up to do something instead of saying what he was going to do next year. He cannot put forward in this particular case the argument put forward in relation to every other amendment the principle of which he was prepared to accept. Therefore, he has got to get another. He has not the time! He told us at the opening to-day that there are £100,000 that he has not got and that he has not provided for and that that must be provided for. Because he cannot find other money, then he has got to turn down this [1528] proposal. And he is turning down this proposal because he has been too lazy to investigate the case and to put up consequential amendments to this. That is a thing which if he wanted to do he could undoubtedly do between this and the Report Stage. Next year! If he is here next year he will tell us that he is thoroughly in favour of this amendment and that he thinks it will not lose any revenue, but that he will have to think about it again. Some year, some time, if the House is patient enough to wait on him, he will carry into law the things which he says are desirable. We had a clear declaration from the Minister last year, quite as clear as we have had to-day, that the year which has intervened would be used for translating into practical legislation the thing which he now says in another year he may be able to translate into practical legislation. There was some validity in the excuse which he had made for the previous amendment which he has turned down. But there is no excuse which is creditable to the Minister or to his staff or is respectful to the House for the reasons now given for not being in a position to put into legislation what he thinks himself ought to be put into legislation and what he led the House to believe last year would now be put into legislation.

Amendment put.

The Committee divided: Tá, 51; Níl, 59.

Tá

Níl

Tellers:—Tá: Deputies Briscoe and Flinn; Níl: Deputies Duggan and P.S. Doyle.

Amendment declared lost.

Sections 1 and 2 agreed to.

SECTION 3.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 3 is really identical with the existing legislation, except that the assessments have no longer to be signed by the special commissioners. As I explained, we had this signing in the case of Schedules A and B. Signing and allowing in the case of other schedules have been the merest formality. There are something like 600,000 assessments, and it merely meant that a batch of books was signed by the special commissioner.

Section 3 agreed to.

SECTION 4.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 4 is for the same purpose.

Section 4 agreed to.

SECTION 5.

Mr. Blythe Mr. Blythe

1531

Mr. Blythe: Section 5 carries out one or two amendments which, I think, will be convenient. It enables, for instance, the inspector to amend an assessment by agreement with the taxpayer and the appeal is then taken as being withdrawn. At present, if there is agreement with the taxpayer the appeal has nominally to go before the special commissioners. In sub-section (5), Section 5, there is one other change. It is provided that the hearing may be by one special commissioner. At present, as I explained already, hearings take place before two special commissioners. The effect of that is that inconvenience is caused at the beginning of a circuit because inspectors have not sufficient time to have correspondence with taxpayers which might lead to adjustment of differences, and at the end of the circuit because the commencing of collections was [1531] delayed and the circuit lasts too long. The system of having appeals heard by two special commissioners was taken over from Great Britain. In Great Britain, however, the circumstances are quite different. There is no inconvenience in the system of hearing by two commissioners there, because there are local commissioners, and moreover, there is no appeal from the special commissioners, whereas here there is an appeal to the Circuit Court Judge on all matters of fact, with, of course, the usual appeal to the High Court on a matter of law. In certain matters in regard to which the decision of the special commissioners is final, applications for certain reliefs, the hearings will still be by two special commissioners. The hearing by one is confined to appeals against assessments, in which case there is the further appeal to the Circuit Judge.

Deputy Law raised a point the last day about one of the special commissioners. As a matter of fact, that special commissioner has been for a considerable time permanent in the post which he occupies.

Section 5 agreed to.

SECTION 6.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 6 is carrying out the same idea. It allows the granting of reliefs by the inspector. As a matter of fact, what happens at present is they are allowed in the assessment, and they are supposed to be allowed by the special commissioner who signs and allows the assessment. It is simply carrying out the idea of having no longer the troublesome formality of books of assessment being signed and allowed by the special commissioners.

Section 6 agreed to.

SECTION 7.

Mr. Blythe Mr. Blythe

1532

Mr. Blythe: Section 7 is necessary because there is a provision, for instance, for the adoption of the basis for the preceding year. At present persons have to make returns based on the amount of profits and gains on the fair or just average of three preceding years, and so on. That will [1532] go, and it is necessary to have this.

Section 7 agreed to.

SECTION 8.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 8 provides for the transfer of certain profits from Schedule A to Schedule D. At present mines, quarries, railways, gas works, waterworks, canals, ferries, fishings and various markets are chargeable under Schedule A on the annual value computed by reference to profits. The present state of the law is obscure in several respects. They are chargeable under Schedule A, according to the rules of Schedule D, and it is simply proposed that these matters be transferred definitely to Schedule D, which will remove certain complexities that exist at present.

Section 8 agreed to.

SECTION 9.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 9, with the two sections which follow, brings into operation the change from the basis of the average of three years to the preceding year. In addition, it makes provision that at the beginning, in the first year of the assessment, under the change, in the case of a new business, the assessment shall be on the profits of the period. Then if it were started as is indicated in the section, during that year, in the next year it will be charged on the basis of the first twelve months working along the actual profits of the second period.

An Ceann Comhairle took the Chair.

Mr. MacEntee Mr. MacEntee

1533

Mr. MacEntee: As this section and some of the other sections are consequential upon the new basis of assessment which the Minister proposes to adopt, we do not really intend to oppose them. There is a good deal to be said on both sides. We feel that on the whole possibly the advantage will be to the Exchequer. We believe it is going to be so, because the Minister, according to his own statements, believes that we are passing through the lowest point of the economic and business [1533] depression which has visited this country, and that consequently two of the worst years are going to be dropped out of the calculation for the purpose of computing an average income over these three years. For the first year or so possibly the income taxpayers may be paying on a higher basis of assessment than hitherto. Of course, one could argue that it might be better to have delayed making the change until things were better in this country. But as the change must eventually be made, we are not disposed to oppose it simply on the point of time.

Mr. Blythe Mr. Blythe

Mr. Blythe: I think there will be comparatively little difference to the taxpayer because the change will always be by way of improvement and, consequently, it will be effected with less of a jolt now than it could be done at any other time.

Section 9 agreed to.

SECTION 10.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 10 is consequential. It will avoid certain difficulties in connection with assessment where investments are changed. All invested incomes will be regarded as issuing from a single source and the assessment will be made on the basis of the income in the preceding year. The difficulties of a change from British War Loan to National Loan or from American Railway Shares to National Loan or anything of that sort will be avoided. There will not be separate assessments in respect of these different classes of income. There will be one investment income assessment.

Sections 10 and 11 agreed to.

SECTION 12.

Mr. Blythe Mr. Blythe

1534

Mr. Blythe: Section 12 deals with the discontinuance of trades. We have a provision here corresponding to the provision with regard to the commencement of a business. If the business is commenced in the middle of a year, the assessment will be on the actual profits for that part [1534] of the income tax year. Then on the next year the taxpayer is entitled to have his profits assessed on the actual profits of the second year. Here it is provided where a trade is discontinued during a year, it takes in the profits of that part of the year which is passed and then the revenue will have the right to go back and tax the last complete year on the basis of the profits actually earned. The reason for that is to prevent a formal and fictitious discontinuance of business after a year when it may have made abnormal profits and is re-established under another name.

Sections 12 and 13 agreed to.

SECTION 14.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 14 has reference to the case where there is a change in partnership. If a partnership is only partially changed, if one partner remains in business and another comes in, then it may be charged normally as a continuing business; but if all the people concerned agree to go out of the business it can be treated as a business which has been discontinued and recommenced. Where there is a complete change of proprietorship, it is regarded as a winding-up of the business and the starting of a new one. The provision in regard to losses is really parallel to the existing provisions.

Section 14 agreed to.

SECTIONS 15-20.

An Ceann Comhairle Michael Hayes

An Ceann Comhairle: How many of these sections deal with a particular matter?

Mr. Blythe Mr. Blythe

Mr. Blythe: All the sections up to 20.

An Ceann Comhairle Michael Hayes

An Ceann Comhairle: If we take 15 to 20, inclusive, and let the Minister make a statement on them, perhaps it would meet the case.

Mr. MacEntee Mr. MacEntee

1535

Mr. MacEntee: That would be better. It might be no harm if the Minister, in his statement, would go back and point out how persons [1535] may secure a refund in respect of losses. It would be well to have that cleared up.

Mr. Blythe Mr. Blythe

Mr. Blythe: On the question of losses, I think that the new arrangement is, on the whole, more satisfactory and should be more favourable to the taxpayer than the old one. If losses occurred under the old arrangement, they were taken into account in the computation of the three years' average. Now it is proposed to allow losses to be carried over a period of six years and to be set against the profits that may be made in the first or all of these six years, if necessary. This particular section is, of course, parallel to the section which was adopted in Great Britain when the change was made there. It is proposed, for instance, under Section 16 and, I think, under Section 15 also, that where accounts are presented for broken periods the average shall be based on twelve months. For instance, in the past, where accounts for eighteen months and accounts for six months had been presented in order to obtain the amount for the year, we might have had to add the six months' profits to the eighteen months and their total divided by two. Under the new arrangement, part of the eighteen months — say six months — that would fall within the period will be taken and one-third will be added to the profits shown in the six months' accounts, so that the average, following the general principle, will not be over any greater period than one year.

1536

There is a change in the basis of Schedule E assessments in the same way as in regard to other assessments. It will be put on the basis of the preceding year, and there are certain minor modifications in regard to double residence. There is also provision postponing Part 2 of the Bill until the year 1930-31. The effect of all these changes is to make a very definite move in the direction of simplification. It is only a comparatively small step in that direction, but it will be of appreciable value to some people. So far as the taxpayer [1536] is concerned, the new arrangement, in view of the times in which the change is being made, will affect them very little. In so far as arrangements are made for setting off all losses, I think the new arrangement is rather more favourable than the old. There is no interference with the present position except an interference which is consequential on the change from the three years average, or whatever other basis existed up to the present. In the case of British dividends accruing to persons resident only in the Saorstát since 1926, they have been chargeable on the basis of income arising in the year of assessment, and a great deal of trouble arose from that because estimated assessments had to be made in virtually all such cases, and there was the question of an endeavour to get payment on account, and, at the end of the year, to make either additional or reduced assessments. Under the new arrangement that will be got rid of entirely.

Sections 15 to 20, inclusive, ordered to stand part of the Bill.

Mr. Blythe Mr. Blythe

Mr. Blythe: Section 21 continues the duties that have, with certain others, been called the MacKenna duties.

Section 21 ordered to stand part of the Bill.

Mr. Blythe Mr. Blythe

Mr. Blythe: The next section, 22, continues the dried fruit duties. The original duties have been in force since 1876.

Ordered that Section 22 stand part of the Bill.

SECTION 23.

Mr. M. O'Reilly Mr. M. O'Reilly

Mr. M. O'Reilly: I move the following amendment:—

Before Section 23 to insert a new section as follows:—

“The duties of Excise chargeable on tobacco grown in Saorstát Eireann under Section 7 of the Finance Act, 1918, shall cease to be chargeable or leviable as on and from the First day of January, 1930, and no duty of Excise shall be chargeable or leviable on tobacco grown in Saorstát Eireann which is sold or kept for sale in Saorstát Eireann as on and from that date.”

1537

[1537] I would like before moving this amendment to say that it would be a good thing if the House agreed to a free vote. That is one privilege I ask for and the other is that the Ceann Comhairle would give as much licence as he may think it is possible for him to give during the discussion on this question. I know very well that the Minister for Finance and others will consider that this is a very big question. I am aware that something approaching three and a half million pounds in revenue is obtained from tobacco. It is at present almost entirely on customs or imported tobacco that that revenue is obtained. It is undoubtedly an extremely heavy tax, especially on the poorer class of people who are unfortunately the most numerous in the country. Several attempts have been made to revive this industry. We have had schemes and we have had subsidies and rebates of duty. They have all failed but that is no reason why the industry itself should be a failure in Ireland. There are times when industries are started, when cooperative organisations are started, times of big prices and perhaps times of abnormal prosperity when in reality it is not good for either cooperative organisations or industries to be started. People are inclined at such times to take abnormal viewpoints, which afterwards have serious reactions when we get into a normal position. A rehandling scheme was started in the tobacco industry which would undoubtedly have been successful — and which was, in fact, to a certain extent successful — but for the particular period of prosperity in which that occurred. We find that tobacco was grown then in competition with other crops which had a guaranteed price, a price which was higher than that paid for tobacco. It was then an infant industry.

1538

People had not a great deal of experience, and it was not quite so well understood as other crops, with the result that farmers naturally went in for crops which, at the moment, gave them the greatest returns. In those particular times, those other crops gave that special return. Afterwards, [1538] when that scheme had fulfilled its time, a rebate of duty was given. That rebate had very extraordinary effects, because the Minister for Finance, and perhaps the Minister for Agriculture, will at once multiply that amount of rebate by 800 pounds, which is supposed to be the produce of one acre of tobacco, and will tell us candidly that the farmer pocketed that amount. That, of course, is not the case. The farmer, under those conditions, pocketed no money whatever except what the manufacturers cared to pay him. The manufacturer may have pocketed the rebate, so that that method was not a good one for reviving the industry. I have, in fact, heard a man who knows the industry pretty well say that if the intention really was to kill the industry, the proposal made to revive it would have effected that end. Tobacco, unfortunately, from the time it was first introduced into this country, became a means to political ends, and at other times it actually entered into international politics. Charles II. found that it was a good method for raising revenue, and he proceeded to prevent the growth of the crop in any of these islands, because he had the monopoly of colonially produced tobacco. The only colony that produced tobacco was the United States. Of course, it was not the United States then. We find, at a later period, that what is the United States now did not at all agree with the economic policy under which it had to live, so it decided to change things by force, and it did so. The British Government, in order to intimidate that country to a certain extent, allowed tobacco to be grown in Ireland, but there was a proviso that it should not interfere with the commercial prosperity of England. The crop was grown most successfully here, and up to 1830, after 100 years experience, the crop was well and properly grown.

1539

We had then begun to compete with the biggest tobacco producing country of the world, the United States. We were then, according to statements made in the House of Commons, the only country capable [1539] of competing in quality with the United States. As it interfered with commercial interests in England and as London manufacturers found that Irish manufacturers were able to produce tobacco of superior quality and at greatly reduced prices, they at once took steps to crush the industry here. We find that in that year, 1830, amongst many who lamented the industry from the point of view of the employment it gave and from the point of view of the cultural effect it had on the people of Ireland, especially the farming community, was the Royal Dublin Society. They lamented the fact that unemployment would increase and they wondered at that time what would become of the people engaged in the industry. There were then thirty-two factories in Ireland and in County Wexford as much as a thousand acres of tobacco were grown. Before the Union an Irish acre produced 15 cwt. of tobacco. The producers got one and sixpence per pound and the Government of this country which then was the Parliament in College Green, in order to protect the industry, levied a duty of three shillings per pound on imported tobacco. It is an undoubted fact that Ireland from the agricultural point of view was then in a most prosperous condition. That prosperous condition excited the jealousy of the British Government and they at once took steps to bring about the Act of Union. I believe if we adopted to a certain extent the method then adopted to protect agricultural industries we would be successful. In moving this amendment, I am not asking for any subsidy or any rebate. Neither am I asking the taxpayer to contribute any sum of money. Therefore, I am in agreement with the Minister for Finance. As long as we do not interfere with the revenue or ask the taxpayer for anything else, I am quite sure we agree.

1540

Another point in connection with the industry is this: This amendment, if passed, will not come into force until January next. In order to grow a crop of tobacco next year, it will be necessary to sow the seed in February and March. The plants [1540] will not be planted out until May and June, and the crop will not be harvested until September and October. The tobacco itself will not be ready for manufacturing for almost nine months or a year after that. Therefore, before anything at all could possibly happen to affect the revenue, two full years would have to elapse. After the two full years have elapsed, and if on the second year the industry is revived and home-grown tobacco replaces any of the imported tobacco, there will be a small loss, perhaps, in revenue, but it will be very small, and, like most other industries, especially agricultural industries, we may take it that there will be no displacements of revenue of any kind for at least three full years. If the then Minister for Finance finds that the displacement is very serious, he has his remedy. He has succeeded in establishing an industry, which is a native industry, and which will undoubtedly be capable of producing some revenue. The Minister for Finance will have made an investment, I hope not for himself, but for some Minister for Finance who may succeed him. At any rate, I take it, it is the duty of the Minister for Finance to make such an investment. As the amendment is not going to cost anything within the next two years that the country cannot stand, I do not see what objection the House should have to accepting it. There are a few difficulties, as I said before, but the Revenue authorities, with their ability, will easily get over any difficulties that may arise.

1541

There was one point that struck me. I do not know much about revenue laws, but it struck me that certain trouble may arise in regard to stalks and wastes. As I understand the matter, on the imported article a certain rebate is given to manufacturers on what are called wastes and stalks. If an industry were started under those conditions, I am quite sure that subsidiary industries, such as the manufacture of nicotine and other things, would also be started. These would encourage the farmer to sell his stalks to the manufacturer in order that he might get a larger rebate. I [1541] am quite sure that the rebate could be easily settled on the question of averages. The revenue authorities must have data sufficient to calculate what would be the average rebate on a ton of tobacco for the last three or four years. That would not present any great difficulty.

There are no other difficulties that I see. We have only adopted this system of taxation of tobacco because of habit. I am quite sure the Minister will admit that he found it there, and found it very convenient and handy as there is not very much trouble in the collection of the tax. But I believe that the time has arrived when we no longer can use handy methods and no longer can get money by any of these handy methods. That is the reason that tobacco has been singled out as being a commodity that can be taxed indirectly with the greatest amount of convenience to the revenue authorities. The present tax was a war tax. It was a tax started when they multiplied £1 by two and got £3. These conditions do not prevail to-day, but the tax is the same, so that it is bearing rather heavily on the people whose income is greatly impaired. In those days people looked on tobacco as a luxury, but we have ceased to look on this industry as being anything in the nature of a luxury one. Tobacco is to-day to most of us a necessity and, therefore, that taxation habit should cease as far as possible.

1542

It would be well in considering this to see what the world outside is doing. We find that the British Government some years ago decided to encourage the growth of tobacco in their colonies, and they gave 2/- preference on the British market. If we had the plant grown here and had a free market we could avail of that 2/- in selling any surplus. At present we cannot do that. Several commissions were set up in Great Britain to inquire into this matter. The Imperial Economic Committee's reports are rather interesting reading, and they give very definite figures regarding the position of [1542] tobacco-growing in the colonies. They tell us that in Nyasaland and in some of the South African colonies the industry is looked upon by the people as being their only hope from the agricultural point of view. But Nyasaland and some of the South African colonies do not seem to have the advantage of a free home market. They have not the advantages that Canada and other countries have. In order to give an example of what a home market really means to the industry, and what bearing it has on the prosperity or success of the industry, I may say that the following is the position, the figures given representing thousands of pounds. You have India, probably one of the greatest tobacco-producing countries in the world, and also one of the greatest consumers. Of every thousand lbs. grown in India, 970 lbs. are consumed in India and 30 lbs. exported. Canada, which is more or less similar to this country in conditions, and to a certain extent in history, has a local production of 47. She consumes 38 of that in her home market and exports 9. The production of the Union of South Africa is 20½. They consume 11 and export 9½, whereas Nyasaland and Southern and Northern Rhodesia export all that they produce. Their exports are: Nyasaland, 8 millions; Southern Rhodesia, 16; and Northern Rhodesia, 2½. There you have had the least development. The industry there gives the least employment because they have not any home market.

1543

It may be said that we cannot smoke the tobacco grown in Ireland. In fact, people stated that it could never become a habit with the people. We find, however, in South Africa something of the same conditions prevailed. As the taste in smoking, like a good many other tastes, is simply an acquired one, we find that in all these countries price governs the taste, and that if a new commodity is introduced, like tobacco, and the manufacturer can get it at a reasonable price, and has a reasonable chance of continuity of supply, he will take that tobacco and [1543] put it on the market and sell it, and it will be acceptable at once to the purchaser. What happened in this country previously was that we never had either of these things. We did not have the tobacco cheap, nor did we have any chance of continuity of supply. As to South Africa, this is what the Committee stated on page 26:

“In South Africa cigarettes made from imported American leaf have been practically ousted by those made from local growth. There is a parallel change in progress in the United States to-day, where cigarettes of blended tobaccos of Virginian and Turkish types are gaining ground at the expense of the purely American.”

That is a matter of taste. One of the arguments put up here has been that Irish tobacco would not be smokeable. We have it, however, on the authority of at least one of the managers of a very large firm here in Ireland that he is prepared to blend a very high percentage of Irish-grown leaf, and that it can actually be sold to the public without the public knowing that. Of course, it is known in all countries that new seed introduced into a country is neutral. The flavour of the plant is to a certain extent neutral for a number of years. Until the seed gets a sort of naturalised and acclimatised it will not adopt any definite flavour. Several experiments have been made here, but most of them were confined to one class of tobacco —the strong dark leaf, which grew without any trouble. That is practically the usual class of weed— because tobacco is really a weed— which grows without any difficulty. There was no encouragement, and perhaps permission was not given, to grow the other, which is the most important leaf to-day—that is the cigarette leaf. We find that in different counties plants of different qualities will grow. Kilkenny produced a really good class of cigarette leaf, while we have to-day a really good cigar being produced in County Wexford.

1544

[1544] That brings me back to the point as to why I asked that the duties and restrictions should be removed. There are certain conditions which at present the revenue authorities will exact from the tobacco grower and one of these conditions is actually in existence in the County Wexford. There we find that an individual who is growing tobacco even against these odds, in order to comply with the excise regulations was compelled to build his factory at least three miles away from where the tobacco was grown. And he had to enter into very heavy bonds and at present such bonds are not easily obtainable. The result of the Agricultural Credit Corporation operations is a proof of that. People are timid in going security for individuals throughout the country for any purpose whatever.

1545

These are some of the restrictions which I would like to see removed in order that the industry may have a fair chance and which will be gone into more deeply later on. The present position of the tobacco industry is that the colonies which in the world production have an advantage of 2/- preference, have made great progress. Of all the countries that have made progress in this direction Canada is the foremost and as I said a few moments ago Canada is a country that in climate and otherwise is most akin in conditions to those here. I am aware that statements were made that tobacco is a tropical plant and that we might as well try to grow tea or sugar cane. Of course I know these statements were made in a humorous way and that there was nothing serious about them. The person who made these statements did not mean them to be taken seriously because tobacco is grown all over the world. We find the Canadian Government are taking very definite steps to still further encourage the production of the plant. At the present time they are actually making a survey of land suitable for tobacco production, in order that that land may be earmarked for that purpose. To say, therefore, that the industry would be of no importance would be completely [1545] wrong. The industry is one that employs a great number of people. It is an industry which the small farmer can profitably engage in provided he gets these particular opportunities. It is an industry into which the human element very largely enters. The grading and handling of tobacco cannot be done by machinery. It is an industry in which the chief work is done when other work cannot be done and one of the best parts of it is that in order to grow half an acre or an acre of tobacco you must have tilled at least four times as much as you grow in tobacco. The crop is only a short time in the ground after which catch crops can be very successfully grown and one of the most successful catch crops that can be grown is wheat. The land is perfectly clean. I do not mean that wheat can be grown in big quantities but I mean that wheat can be grown for the purposes of the small farmer and for his own use. That has been done previously and with great results and it can be done again. It is with confidence that I ask the Dáil to accept this amendment.

Mr. J.J. Byrne Mr. J.J. Byrne

1546

Mr. J.J. Byrne: It has often been said that this little island of ours is a green isle. I think if the House accepts this amendment it will be also said that we are a green people. I do not propose to go back to the days of Charles II. which the mover of the amendment did, but to deal with the question in more modern times about which we have more information than we have of the days in which King Charles lived. I would like to deal with the question purely from the commercial point of view and purely from the point of whether the starting of the tobacco industry in Ireland is likely to be an asset to the State. Now the nearer times to which I have referred have clearly demonstrated three things: the first is that the growing of tobacco in this country can only be accomplished at serious financial loss; the second is that even when we have a crop grown we are unable to dispose of it, and the third is that it will never be a revenue-producing [1546] industry so far as this State is concerned.

I listened to Deputy O'Reilly dealing with Nyasaland and Rhodesia and various other remote countries, but I wondered why he did not deal with the actual facts, which he could easily have got, as they exist about tobacco-growing in this country. He said that Irish-grown tobacco at reasonable prices would be bought by the tobacco manufacturers, completely ignoring the fact that the tobacco manufacturers here absolutely refuse to buy the tobacco and that portion of the crop is still unsold. We are asked to embark on tobacco-growing to-day entirely regardless of the fact that tobacco-growing has already cost the State something not less in amount than £100,000. After we have already wasted £100,000 we are asked to-day to go further and waste more money.

1547

The Committee set up to deal with this particular question of the growing of tobacco stated that to embark on the successful production of tobacco it would be necessary that the country should be involved approximately in a loss of about £116 for every acre of tobacco grown. Paragraph 3 of the Report on home-grown tobacco states that this project has been tried for a period of 22 years up to 1923, that a bonus of 1/- per lb. was paid to growers, that this was changed later to a subsidy of £50 an acre, which was afterwards reduced to £25, and that this was provided for out of a special grant from the Development Fund amounting to about £70,000. And what was the net result of these subsidies? There was a steady decline in the total acreage under tobacco, and we still hold that £140,000 worth of home-grown tobacco in bond which we are unable to sell. The total acreage under tobacco was, in 1914, 217¾ acres; in 1919, 76½ acres; 1922, 51¼ acres; 1923, 33¼ acres; 1924, 20½ acres and 1925, 15¾ acres; so that from 1914 to 1925 the total acreage declined from 217 acres to 15¾ acres. It states in that Report that that decline in Irish tobacco-growing is due first to [1547] the refusal of the Irish manufacturers to buy home-grown leaf at the lowest price which the growers can afford to accept, and that the operation of the Imperial preference of two shillings in the pound in Great Britain had resulted in flooding the market with the cheap Indian and Colonial leafs. These are very important points which the mover of the amendment failed to deal with. They are difficulties which have got to be surmounted if the growing of tobacco as a profitable industry in this country has got to be embarked upon. The Report states that at that moment the produce of several years' crop, amounting to 140,000 lbs., was retained in bond, for which there was no Irish market available and which could only be sold in Great Britain at a substantial loss to the grower.

1548

I wonder why Deputy O'Reilly, who is by no means a fool in industrial matters, did not deal with these particular points so vital to the tobacco-growing industry as it is affected in this country. I note here, in another portion of the report, they say: “Assuming that home-grown tobacco would displace a corresponding amount of imported leaf, the additional loss to the revenue over and above the present rate of preference would be, approximately, £116 for every acre of tobacco grown and marketed.” Deputy O'Reilly, a practical farmer, asks the farmers of this country to embark on a proposition which involves the loss of £116 per acre. Now, I know that this is a green isle, but we are not quite so green as to embark upon a wild-cat project like that. The result of tobacco growing in this State has shown another very important thing; that is, if we continue to produce tobacco, it will have to surmount three barriers. These three absolutely negative the possibility of growing tobacco in this country at a profit. The first of these is that the cost of production tends to increase. The second is that the yield of tobacco tends to decrease, and the third is that the average selling price obtained tends to diminish. I would [1548] say, in the face of these actual results obtained in this country, that I cannot see how this House can be reasonably asked to entertain a proposition of this kind. Deputy O'Reilly referred to various parts of the country in which tobacco was grown.

If the Deputy only consulted this Report he would find there a lesson that we must take to heart in considering