Perhaps I may be permitted to intervene and cut across the line of this discussion. As we have reached the stage when the credit of Saorstát Eireann is for the first time to be put to the test of an appeal for funds to be borrowed in the open market, I think it is proper that I should acquaint the House with such particulars of the financial situation as will enable an accurate judgment to be formed of how we actually stand. I do so all the more readily because numerous irresponsible reports and comments on the financial situation of the Saorstát and the supposed intentions of the Government in the matter have been given currency for some time past, and it is desirable that authoritative information should be available to prevent the growth of misleading ideas. I can only ask the House now to judge the position by reference not to reports from irresponsible quarters but to plain facts which I shall endeavour to place before it as lucidly as possible.
The Government of this country, although gravely preoccúpied with other difficult problems, has now for over a year and a half carried on its financial business successfully without being obliged to look for assistance outside of Ireland. The idea that seems to be entertained in some quarters, that this country as a State is going to be dependant for money on outside capitalists, is a mere delusion, and it has been propagated without encouragement or inspiration from here. It is important to have it understood that the public finance of the country does not need to be conducted, and will not, under the present Government, be conducted in a manner that can render us subservient to any external interests.
I will ask Deputies in the first instance to consider the Statement of Exchequer transactions for the half year ended on the 30th September. This Statement, which has been circulated, is the usual weekly Exchequer Statement as issued in the Iris Oifigiúil of 2nd October.
The important figure on the Receipt side of the Statement is the tax revenue which, taking the several heads together, shows an aggregate of £12,235,000 for the half year, as compared with an Estimate of £20,550,000 for the whole year. I am glad to be able to say that since the original estimate was prepared I have received a revised statement of estimated tax revenue which shows for the whole year an increase of £1,650,000 beyond the original estimate. An increased yield in the non-tax revenue of the Post Office is also expected.
The substantial increase of revenue that we anticipate is attributable largely to abnormal causes, such as the extent of income tax arrears.
The receipts of the half year from non-revenue sources represent borrowings which have been incurred under powers duly conferred on the Minister for Finance by Act of the Oireachtas. The items to which I wish to invite special attention are those under the head of Free State Bills and Free State Savings Certificates. The Bills are short-dated securities which have been taken up by the banks for the purpose of tiding the Government over the interval that must elapse before the proceeds of a funding loan are available. The friendly relations existing between the Government and the banks, and the willingness of the banks to assist the Government in financing the public services in the most effective manner are factors which will be appreciated at their true value by intelligent observers of the present situation. The inherent soundness of the banking position in this country is an important financial asset which the Government have every desire to safeguard and defend.
The Savings Certificates to which I have referred were first introduced in the month of July. In the three months which have since elapsed we have raised from this source almost £300,000. The figure has increased from £220,000 as shown in the sheet to £293,000. I would ask Deputies specially to note this point, as one of the surest indications of the possibility of attracting the genuine savings of the people of this country into an investment which is used for the benefit of this country only, and enjoys a security guaranteed by this country alone. These certificates are of course an excellent investment for any citizen of the Free State from the point of view of yield and of the privilege of exemption from income tax. Organised measures will be taken shortly to bring the advantages of these Certificates directly to the notice of the public, but in the meantime the sale of them has, as is evident, been most encouraging, especially as no special effort has been made to force them into public notice.
Returning to the Exchequer Statement, I will refer briefly to the expenditure side of it. It is necessary to mention that the figures represent money issued out of the Exchequer which is not exactly the same thing as expenditure on public services in the period. But the amounts are sufficiently approximate for practical purposes. The expenditure on general public services amounts, on the basis of the issue shown in the statement, to a total of about 17½ millions for the half year as compared with about 9¾ millions for the corresponding half of the preceding year. About one million of this apparent increase of 7¾ millions is not a real increase, being only a disbursement occurring this year but not last, in respect of land purchase annuities which is offset by a corresponding receipt of the annuities themselves. The balance of the increase is due in the main to obvious and easily understood causes, namely to the facts that the Army charge and the compensation charge had not begun to make themselves felt fully during the same period last year, whereas they were very serious burdens this year.
In regard to compensation, it is well to have it known that the rate of discharge of awards has advanced rapidly during the past half year. There is, in fact, no room whatever at the present time for the complaints which used to be made six months ago about alleged delay in payment of awards made by the Compensation Commission. That Commission, which deals entirely with pre-truce damage, has made considerable progress with the issue of its awards, and the machinery set up by the Ministry of Finance has, for some time past, been working at a rate which has overtaken arrears, and keeps pace with the making of the awards by the Commission. Altogether over 2½ millions in cash had been paid out up to the end of September, the payments in that month alone reaching £430,000. The Army expenditure of the half-year has been on a heavy scale, the Exchequer issues for that service having amounted to £6,149,500 in the period. The Government have had constantly in mind the serious problem which this expenditure constitutes for the Saorstát, and have been engaged for some time in carrying out, through the Minister for Defence, administrative reforms designed not only to put a stop to the waste, which was largely inevitable under the active service conditions of a year ago, but to establish an orderly and systematic control of the whole spending machinery of the Army, with that efficiency which peace conditions should be expected to render practicable. Financially demobilisation is the problem of most interest, and, as regards this, the Dáil is aware that it has already been found possible to effect a large reduction of strength, by allowing a proportion of soldiers to return to civil life, according as the period for which they attested has been completed. As a consequence the strength of the Army, which was some time ago well over 50,000, has now fallen to nearly 35,000. In the next place, reductions have been effected in the high rates of pay which had been settled hurriedly in the troubled days when quick recruitment of an adequate force had to be the primary consideration. For some time past every soldier who is reattested for a further period is only accepted at a new scale of pay, the rate being for a private 2s. 6d. a day, as compared with the rate of 3s. 6d. heretofore paid. Again, it has been necessary to take steps for doing away with the expensive system of dependants' allowances heretofore applicable. Under the arrangement recently introduced no dependants' allowance will be payable in respect of soldiers reattested, beyond a marriage allowance, which has been fixed on a moderate scale. Previously the allowances were for N.C.O.'s and men:— Wife, 4s. per day; first child, 1s. 6d.; second child, 1s.; third and each additional child, 9d. Then, there were allowances for other dependants. The marriage allowance under the new arrangement is as follows:—All N.C.O.'s and men entitled to marriage allowance to allot at least 1s. a day towards the upkeep of their homes; the State will grant 1s. 6d. a day as marriage allowance, and additional allowances for children of 1s. a day for each of the first two children, and 6d. a day for each of the next two children. Four children is the largest number provided for, so that 3s. per day will be the maximum allowance on this basis.
The special units of the Army organised for protection work and marine duties have been almost entirely abolished or absorbed. As a result of these and other measures which have been or are being taken, it is proposed to bring the Army Estimate for next year down to about 4 millions, as against the total of nearly £10,700,000 for this year. As is indicated by the fact that Army expenditure for the half year ended on 30th September last was over 6 millions, the steps taken during the last six months to discharge Army liabilities in the country have made satisfactory progress. Current liabilities are being met in an effective manner, and such difficulties as still exist relate in the main to accounts outstanding from the period of turmoil where there is inevitable delay in getting evidence as to facts. A great deal of delay is occasioned by fraudulent and inflated claims which have been sent in and which necessitate a great deal of special investigation.
As regards expenditure generally, an opportunity of analysing past transactions will be afforded when the Appropriation Accounts, now in preparation, are available for the Public Accounts Committee. It will, I think, be of greater advantage at the moment if I explain in some detail the general course of policy that the Government propose to take henceforward.
Careful consideration has been given for some time past to the relation that at present exists between the revenue available from taxation, even on the present scale, on the one hand, and on the other hand the expenditure that is being incurred on the normal operations of Government; that is excluding Compensation Charges and that part of the Army charge which can be regarded as abnormal. As conditions have not yet had time to become definitely settled, and important parts of the administration are still, to some extent, in a state of transition, exact conclusions are difficult to reach. But on the best scrutiny of the facts available, it appears certain that the normal operations of Government at present entail an expenditure which exceeds revenue by at least something more than one million a year.
Now, whatever justification may exist for going outside of revenue to meet the abnormal expenditure on Compensation and the Army—and the justification in those cases is obvious—the Government are quite convinced that the normal public services must be financed out of revenue and not from borrowing. The evils of a contrary policy are familiar to all observers of the plight of those countries that have conducted their finances without regard to the necessity for budget equilibrium. To aim, accordingly, at reaching such equilibrium, is a guiding principle of the policy that the Government in the best interests of the country find it essential to pursue. Not only is it important to refrain from borrowing for the purpose of meeting such normal charges as should be borne by revenue, but it is important also to recognise that where there is borrowing to meet some legitimate capital need the annual charge in respect of the debt must be met out of revenue. It would manifestly be a spendthrift and ruinous procedure to have to borrow to pay interest on one's existing debts. It is the avoidance of this spendthrift procedure that I have in mind when I speak of aiming at budget equilibrium.
Now, we are spending on normal services at the present time at a rate which substantially exceeds the collection of revenue. This is a definite danger sign which the Government are bound not to ignore. It is specially necessary not to ignore it now, as there is the absolute certainty before us, that the position, if not properly handled, meanwhile will be aggravated next year by a heavy addition of new and inevitable debt charge. Between Exchequer borrowings and securities issued for payment of compensation, it is necessary to contemplate a debt charge of perhaps two millions next year. Moreover, recent legislation has put new burdens on the State, such as Army pensions and the completion of land purchase, the effects of which will be appreciable. For relief from this situation it is not permissible to rely upon a higher yield of revenue from existing taxes. A good year is about to be replaced by a bad year in the computation of income tax, and the general depression of agriculture and industry in this country during recent years are adverse factors of great importance. The appreciation of money and lower prices and incomes generally have a similar tendency.
What, then, can the Government do to bridge this gap of several millions next year, between revenue on the present basis and expenditure in respect of normal services? The obvious alternatives are higher taxes or lower public expenditure, or partly one and partly the other.
It is unnecessary for me to dilate upon the evils of high taxation. It discourages thrift, retards industry, and increases unemployment. Three of our taxes, the beer duty, the income tax, and the Corporation Profits tax, are actually higher than the corresponding taxes in Great Britain at the present time. In addition, our postage rates are heavier than the British. These higher imposts have an adverse effect on workers and all other sections of the community. As regards the direct imports in particular, the Free State producer of any given article who has to reckon with them is handicapped as regards the sale of that article, even in the Free State, as compared with the British producer of the same article, who is not subject to the same imposts.
On general grounds the Government cannot contemplate the imposition on the country of any heavier burden of taxation than it now bears. It is rather the aim of our policy to bring about a lessening of that burden at the earliest possible date, and it is even hoped that by adopting measures of retrenchment, such as I am about to indicate, the possibility of reducing taxation in some slight degree may be considered in relation to the next Budget.
Retrenchment, then, is the only course open to the Government if taxes are to be kept from exceeding even the present high level. Economy is an unpopular policy among those who do not appreciate the true wisdom of it and who will not face facts. Even among those who admit its propriety there are many who admire it in its general aspect but become critical when it is applied in some particular sphere of expenditure in which they take an interest. The Government fully realise all this, but are convinced that in pursuing economy in a practical manner they can count on the support of every Deputy in the Dáil who wishes to keep outside of the Saorstát those easy but improvident methods of public finance that have worked themselves to their logical conclusion in the economic breakdown of certain continental countries.
It is proposed, accordingly, to aim at securing forthwith substantial savings throughout the public services, distributing the inevitable sacrifice as fairly as circumstances permit. As a help towards understanding the position which has to be met I have had prepared for Deputies a special statement, giving in the light of the best information at present available, a revised estimate in summary form of the revenue and expenditure of the current year. This statement shows that after meeting, estimated commitments of every kind, normal and abnormal, there would be an excess of expenditure over revenue amounting to about 18½ millions. An analysis of the figures on which the statement is based discloses that even if we exclude every expenditure which can fairly be treated as justifying recourse to borrowing, there still remains a deficit, as I have already stated, of at least over a million a year. This figure, however, does not give us the full measure of the savings that it is necessary to effect in order to reach Budget equilibrium. We must add to it a further amount of over two millions in respect of next year's debt service. Thus savings of between three and four millions should be aimed at in order to effect a balance, and even then further savings would be required before the present level of taxation could be lowered. Savings on such a scale are not possible without retrenchment over the whole field of the public services, wherever there is a discretion for applying it.
A survey is accordingly at present in progress of every head of public expenditure for the purpose of ascertaining where curtailment can be effected with the least detriment to the public interest. In the civil departments generally the fall in bonus is producing in the course of time an appreciable diminution in the cost of staff. It is reckoned that the provision for bonus over the whole of the current year's estimates amounts to a total of about £1,350,000. This is already down to about one-half of the corresponding figure for the time when the cost of living was at the peak. For the purpose of next year's estimates the provision to be inserted for bonus will be calculated on an index figure five points below that adopted in the current year. If the index figure were to fall more than these five points the bonus payable would of course be likewise reduced to such extent as the terms of the scale provide. In regard to the Civil Service generally, there are two fairly distinct spheres in which economy may be sought. The first of these is the sphere dependent on policy, for which the ordinary example is whether a particular service should be retained or not, and as to this I do not propose to say more at present than that we are considering carefully the justification of existing Government services and will not hesitate to seek Parliamentary sanction for the scrapping of any services, the maintenance of which cannot be fully justified. The other sphere is in relation to the cost of administration of such Government services as we have at the moment in existence, and this resolves itself largely into an examination of the staffing of Government Departments so as to ensure that both in numbers of staff and in scales of salaries our staff expenditure is consistent with the strict economy that is necessary at present. In the case of all Government services, and particularly in the case of those services which were administered as purely Irish Departments before the change of Government, I am taking steps to ensure that the administrative cost of the services for the Free State will compare favourably with the administrative cost of the services for the whole of Ireland, and will reflect the loss of work represented by the present exclusion of the Six Counties. In the case of one or two Departments, the Revenue Department and the Post Office, which were administered from London prior to the change of Government, it will of course be appreciated that the creation of a spearate administration is an obstacle to reduction in the cost of administration. In the Post Office, however, where a majority in numbers of the entire Civil Service is employed the steps which have been taken are already producing an appreciable result. The effect will not have time to make itself fully felt in the present financial year as some of the steps are of recent date, but it is expected that in next financial year the expenditure of the Post Office will have fallen by perhaps £250,000 a year below its recent level. The net loss on the working of that Department should be reduced not only by that amount but by a further amount representing anticipated increase of revenue due to the resumption of more normal conditions in the country. The staffing generally of the Civil Service is under constant review and I have issued instructions to all Government Departments that no vacancies can be filled and no fresh appointments can be made without my sanction, and to obtain this it will be necessary for Departments to prove their needs. At the moment we have more than one heavy task on hand of a temporary character, for example, payment of compensation, collection of arrears of rent, and for these temporary tasks we have had to engage additional temporary staff so that at the moment our expenditure on staff, apart altogether from fluctuations in the cost of living, is higher than it is likely to be in a normal year.
The instructions which have already been issued from the Ministry of Finance for preparation of Estimates for the next financial year lay particular stress on the necessity for all departments carrying out a strict scrutiny of their existing activities. It is explained that in general the financial position is such as to preclude sanction being given for additional charges on public funds, and that the possibility of sanction being given for any new service will normally depend on a clear demonstration that a compensating reduction is being effected in some essential existing service.
Of our total normal expenditure, about 10 millions, that is nearly one-half, is devoted to education in all forms and pensions, including Old Age Pensions. It is evident that the large saving that must be effected will not be feasible unless a fair contribution is made by these services which account for so large a part of our total charges.
As regards education, the Government feel that the time has come when the salaries of National School Teachers must be reviewed. I should explain that the present scale of salaries for these Teachers was fixed in November, 1920, on a basis which made no provision for variation in respect of changes in the cost of living. At the time when the negotiations leading up to the agreement fixing the salaries were taking place the cost of living was still rising, and the agreement was signed at the time when the cost of living was actually at its highest point, being 176 per cent. above pre-war. As Deputies know, the cost of living figure has steadily fallen since the end of 1920, and with it the salaries of Public Servants generally. A Civil Servant, whose salary at the end of 1920 was between £150 and £500 a year, has suffered a reduction varying 30 per cent. at the lower salary to 25 per cent. at the higher salary. Salaries outside the Civil Service have been affected in a similar manner, and we feel that it is not unreasonable that the very decided fall in the cost of living should be reflected in the emoluments of National School Teachers.
