In the past financial year disastrous weather conditions inflicted grave hardship and loss on the agricultural community in many parts of the country. Events such as the Army trouble, which occurred just before the commencement of the period and some of its sequels, did much to shake confidence and impede improvement in business conditions. The seriousness of the shock was evidenced very clearly by the fall in the quotation of the National Loan from 99 to 90; its long depression and slow recovery.
It is significant to find that in spite of adverse circumstances, the Exchequer returns on the whole disclose a reassuring position. We opened the present financial year with a debt of £13,360,353, made up as follows:—
|
National Loan outstanding |
£9,760,859 |
|
Compensation Stock |
501,850 |
|
Savings Certificates |
1,175,700 |
|
Ways and Means Advances |
1,719,000 |
|
Annuities under the Telegraph Acts |
202,944 |
Against this is a figure of £1,223,700, representing advances which are repayable by the Unemployment Fund to the Exchequer.
The Exchequer balance on the 1st of the month was £1,681,192. Last year the comparable figures were:
|
Debt outstanding |
£13,918,000 |
|
Due by the Unemployment Fund |
877,700 |
|
Exchequer balance |
3,395,000 |
If we deduct the Exchequer balance on 1st April of each year from the debt outstanding on the same date, we get a figure of £10,523,000 at the beginning of the last year against a figure of £11,679,161 at the beginning of the present year.
The yield of tax revenue during 1924-5 was £23,203,500. The yield estimated at the beginning of the year was £22,543,000.
The excess of £660,000 is more than accounted for by the fact that the income tax collection exceeded the estimate to the extent of £910,000. Stamps were £12,000 down, and death duties realised £138,000 less than the estimate. Corporation Profits Tax produced approximately the amount anticipated. Excise duties were £212,000 down on the estimate. The deficiency was entirely due to the shrinkage in the yield of the spirit duty, which fell short of the estimate by about £540,000. The beer duty more than came up to expectations, and gave no evidence that any decline is to be anticipated. The yield was £4,439,000, as compared with an estimate of £4,250,000.
The duties imposed on boots, candles, bottles and soap gave a revenue of £245,000 as compared with a loss of about £279,000 consequent on the reduction of the tea duty. The customs duty on motor cars and motor cycles produced £293,000 against an estimate of £240,000 and in actual income in the previous year of £256,000. The yield from sugar and sugar confectionery was £2,149,000, being £49,000 in excess of the estimate. The customs duty on tobacco produced about £40,000 less than was anticipated. Motor vehicle duties yielded £458,000, which is £108,000 more than the estimate.
It will be seen that not only has there been an unexpectedly large yield from income tax, but that with one exception the other staple sources of revenue have given very good results. The fall in the produce of the spirit duties, which, taking Customs and Excise together, amounts to £546,000, is the only indication in our tax returns of increased financial stringency in the country.
The delivery fee on parcels produced revenue at the rate of £47,000 per annum and reduced the number of incoming parcels from 54,000 to 39,000 per week. The Customs Entry Duty brought in revenue at the rate of £40,000 a year but does not so far seem to have had any effect on the number of consignments imported. As, however, it only came into operation on 1st September last, it will be continued at any rate for another year.
Turning to the expenditure side of our accounts, it is worthy of note that expenditure on the Army sank to very little over £3,000,000 as compared with £10,500,000 in the previous year. The amount paid out of the Property Losses Compensation Vote was only £2,270,000. The great discrepancy between the estimate and the actual expenditure was due in part to the fact that early in the year a serious question arose as to the interpretation of the Terms of Reference of the Compensation (Ireland) Commission. For many months the work of the Commission which deals with all pre-truce cases of damage to property was suspended while negotiations were being carried on with the British Government. It was not until the end of the year that a satisfactory agreement was reached and the issue of new Terms of Reference by the Governor-General on 7th January enabled the work of the Commission to be resumed. Another reason for the small expenditure on compensation was that the progress made by the Courts in dealing with claims under the Damage to Property (Compensation) Act, 1923, was not nearly so rapid as we had reason to expect a year ago. Even when cases have been heard there is often great delay before awards and reports are forwarded to the Ministry of Finance. Sufficient progress has now been made to enable us for the first time to form an estimate of our net liability for compensation. The total net amount payable out of the public funds of Saorstát Eireann in respect of compensation for property losses and personal injuries, both pre-truce and post-truce, will not, it is believed, exceed £10,300,000. This is a figure very much less than the burden which was at one time feared. The gross amount of the awards in respect of pre-truce property claims will total about £7,660,000. The British contribution, it is estimated, will be £3,560,000. The net payment to be made from our Exchequer in respect of this part of the compensation charge will, therefore, be about £4,100,000. The estimate which has now been made of our total liability in respect of compensation for post-truce damage to property and for personal injuries of all periods mainly post-truce is £6,168,000. As the investigation of personal injuries claims has been completed, and as between 60 and 70 per cent. of the claims lodged under the Damage to Property (Compensation) Act, 1923, have been heard by the Courts, we have now the data for making a very close estimate. It may be taken that the figure mentioned will require very little subsequent revision. I should like at this point to mention as it were in parenthesis, that £6,168,000 is only a fraction of the cost to the Exchequer of the civil war.
During the past three years Army charges have amounted to more than £21,000,000. The normal figure would have been £6,000,000. Thus the struggle of 1922-23 will involve an actual abnormal disbursement from the Exchequer of well over £21,000,000. The cash payment involved, however, is far short of the measure of loss suffered by the community. Consequential loss, arising from damage to property has not been paid for from State funds, but it has been, none the less, a real burden on the country. It would be impossible to build up a firm estimate of the amount of money represented by such loss and by the general loss of production following conditions of acute disorder. But it may be safely asserted that it was several times greater than the aggregate of the compensation awards for the post-truce period. The case of the Mallow Bridge may be cited as an illustration. The cost of the new structure was only about thirty thousand pounds. But Deputies will realise that the consequential loss to the community arising from the destruction must certainly have run to many times that figure. A conservative estimate, therefore, of the cost of the civil war would be thirty to thirty-five million pounds.
Allowing for the amount yet to be received from the British Government the net outstanding liability of the Saorstát in respect of compensation may be put at £3,814,500. Deputies will understand that ability to estimate with certainty the amount remaining to be paid under the head of compensation, together with the fact that that amount is very little more than half the sum already disbursed, must affect profoundly our Budgetary position. This time last year we had little idea of what the total compensation figure would be. In consequence we could not estimate how much we might have to borrow or what figure our annual debt charge was likely to reach; and a single year's experience in the raising and control of our own revenue had left us uncertain as to the yield which could be anticipated from certain important taxes. Moreover, at that time the end of the civil struggle was still very recent; the possibility of some recrudescence of strife could hardly be said to have completely disappeared; the credit of the State though good was not too firmly established, and the possibility of having to borrow considerable sums in the atmosphere that existed was not one to be faced without a good deal of heart-searching. Consequently last year's Budget, like that of the year before, carried out the view of the Executive Council that existing taxation should be carried on until the financial prospects had become more clearly defined and until there was a disappearance of conditions under which State borrowing might become an occasion of national danger.
This year we propose to make reductions.
It is the opinion of the Executive Council that without further delay the greatest possible relief from taxation consistent with the requirements of sound financial policy should be given to the country. We shall always insist that outgoings not of an abnormal and non-recurrent character, and not in the nature of capital expenditure, shall be met out of revenue. On the other hand, we feel that at the present juncture it is not in the national interest to impose taxation for the payment of charges which may properly be met by borrowing. It is, of course, a fact that the amount and objects of public expenditure and the value received for it, are the really important considerations. Nevertheless there are various factors which make the raising of special sums by borrowing a very different thing from raising them by heavy taxation. It can hardly be doubted that a reduction in taxation will have on industry and commerce a stimulating effect not to be obtained otherwise. The Estimates of Receipts and Expenditure for the year ending 31st March, 1926, published as a White Paper, show that the sum required for Central Fund Services is £3,890,527, and Supply Services £26,238,453. The total estimated expenditure for the year, therefore, is £30,128,980.
For the purpose of arriving at the sum which ought to be defrayed out of revenue certain deductions have to be made under the following heads:—
A. Vote 8—Local Loans, £50,000 in respect of new capital.
B. Vote 11—Public Works and Buildings, £60,000 in respect of compensation for commandeered premises, and £320,000 in respect of new works, being the part of a total provision of £419,715, which may reasonably be regarded as abnormal.
C. Vote 14—Property Losses Compensation, £3,675,300, the entire provision.
D. Vote 15—Personal Injuries Compensation, £32,000, the entire provision.
E. Vote 44—Technical Instruction, £16,075, being a duplicate item included in error in the preliminary estimates.
F. Vote 57—Army, £1,053,117, being the provision in excess of £2,000,000.
G. Central Fund Services.—Service of Debt, Sinking Fund, etc., £910,000, being the provision included in Central Fund services for repayment of ways and means advances, and Savings Certificates.
The aggregate of the deductible items under these seven heads is £6,116,492, which leaves £24,012,488 as the total of the expenditure to be met by imposition of taxation or out of other income.
On the existing basis it is estimated that in the present year there will be paid into the Exchequer tax revenue amounting to £22,554,000, and non-tax revenue to the extent of £4,686,110, or a total of £27,240,110. From this, however, we must deduct £1,260,000, being the estimated instalment of the British contribution towards compensation. We have now a revenue figure of £25,980,110, which may be set against the £24,012,488 expenditure, payable out of income. The difference is £1,967,622, which, if the various deductions we have made are justifiable and sufficient, is the amount by which our revenue would at the present rates of taxation, exceed the sum necessary to be raised in the form of income.
The list of deductible items already given is one which cannot rightly be increased. It would, of course, be possible to go through the Estimates and pick out, here and there, smaller items which in themselves have something of an abnormal and non-recurrent character. But it must be remembered that the Estimates will continue to have a sprinkling of such items which will change in identity year by year but will not vary greatly in number. To bring them into the calculation would only be, to some extent, to falsify the result.
It may be argued that some figure ought to be deducted from expenditure in respect of pension charges at any rate. It is true that at present the Exchequer bears an abnormal burden in the form of superannuation and retired allowances, but most of that part of the charge which is in excess of a normal figure arises from pensions to disbanded members of the R.I.C. These are comparatively young men. They have now a somewhat easy existence and may, in the great majority of cases, be expected to attain to a ripe old age. The same remarks may, to some extent, be applied to civil servants who have retired or have been discharged on Treaty terms. No appreciable diminution of the cost of pensions can be expected for a great number of years. The charge, consequently, must be regarded as fully recurrent and as such ought to be met out of revenue. If any additional argument against borrowing in respect of pensions were necessary, it would be found in the fact that very soon after a substantial reduction in the total of the R.I.C. pensions has commenced to take place, members of the Civic Guard who are more nearly of an age than is usual in a police force will begin to come out on pension in great numbers. A certain overlap will consequently take place keeping the cost of pensions at an abnormal height for a further period.
Looking at the matter from a different angle, it might be argued that under peaceful conditions such as now exist borrowing to meet any part of the cost of the Army is a thing which cannot be justified. The Executive Council, however, are satisfied that Army expenditure would already have sunk to the neighbourhood of £2,000,000 per annum but for the fact that, although fighting has ceased for a considerable time, arms have not been surrendered. This necessitates the maintenance for the present of a force somewhat beyond the normal peace-time requirements as an insurance against a renewal of organised violence. The fact is, indeed, that it is only recently that the Executive Council became completely satisfied that the existing strength of the Army was sufficient. That the country is rapidly settling down, there can be no doubt; and the further we leave the habits and atmosphere of the Civil War period behind us the less becomes the danger of any renewal of rebellion. In the circumstances the abnormal part of the Army charge may be expected to disappear comparatively soon, and, in the meantime, we are satisfied that no just criticism can be levelled against us for borrowing to meet it. In this connection weight must be given to the fact that we have already paid out of revenue a figure not far short of half of the excess or "war" cost of our Army up to date, assuming payment in respect of compensation to have been made from borrowed money.
The question whether the surplus figure of £1,967,622 may rightly be taken as indicating the extent to which remission of taxation should be allowed is one to which close consideration has been given. The calculation we have made allows for the provision out of taxation of £329,000 for redemption of debt as follows:—National Loan Sinking Fund, £262,000; Compensation Stock drawings, £67,000. On the other hand, it assumes that the savings in certain votes will equal the supplementary sums which will almost certainly have to be provided during the course of the year in the case of other votes. In view of the elimination of the Compensation Votes and the marginal part of the Army Vote this is perhaps an optimistic view.
In regard to the future it has to be borne in mind that additional debt for non-productive purposes has to be incurred before we have done with compensation and before the Army has been brought down to a normal strength. In view of the state of employment it becomes more and more doubtful whether any addition to the million and a quarter already advanced to the unemployment fund can be regarded as recoverable either as to princpal or interest. Recent legislation has tended to increase recurrent expenditure under certain heads. All our agricultural and land legislation may be cited as an example. Under existing commitments there will be automatic increases for several years in the cost of secondary education. The passage of the Compulsory School Attendance Bill will result in increased expenditure on primary education. Accruing increments will cause an expansion of the amount required for police.
Moreover, on the revenue side there has over the past three years been an appreciable decrease in the proceeds of taxes as a whole. The estimates of the Revenue Commissioners point towards some further contraction, and the position is rendered weaker by the fact that the estimates are temporarily inflated by an abnormal arrear of income tax.
Against this, however, may be put the view held in many responsible quarters, that in industry and commerce rock-bottom has been reached, and that improved conditions are to be anticipated. In any case, it may safely be said that a substantial reduction in the burden of taxation will of itself produce an improvement in the rate of yield. Again, it seems not extravagant to expect for the future better weather and better agricultural conditions than have obtained for the past couple of years, with a consequent improvement in revenue returns. In view of all the circumstances, the Executive Council is of opinion that, subject to a deduction for unfavourable contingencies, the surplus which has been indicated should be exhausted by remission of taxation. If next year, adjustments seem necessary in consequence of any new facts that may have come to light, they can then be made. It is proposed, therefore, to set aside from the surplus of normal revenue over normal expenditure, a margin of £117,622, and to budget for a reduction of revenue to absorb the remainder, namely, £1,850,000.
The Executive Council believe that the reductions now to be proposed may, given favourable conditions, be regarded as permanent, but it should be pointed out that further reductions cannot arise through changes from taxation to borrowing. They must be based either on reduced expenditure or increased yield of taxes. We are forced to the conclusion that while some relief may be got by cutting expenditure, the best hope of substantial reductions lies in the better development of the resources and industries of the country. Saorstát Eireann has a sparse and scattered population, and close social and commercial connection with a rich and thickly-populated neighbour. These two facts tend to make the costs of running certain Government services disproportionately high. Proposals to cut down expenditure by wiping out services, which modern countries are more and more coming to regard as essential, are of no assistance. The Government will try every means to secure the utmost possible limitation of expenditure, but it will not cut off services, regardless of consequences, and it cannot pledge itself not to undertake from time to time new activities which may be urgently necessary and overdue. The position is, that since whole services cannot be scrapped, big and speedy reductions of expenditure are not possible.
Economies in the public service can only be accomplished by detailed restriction and adjustment and by gradual simplification of machinery. On the other hand, a very moderate improvement in trade conditions, or a very slight increase in national productivity, would, providing expenditure were merely held tight and not permitted to expand, allow of a quite substantial reduction in tax rates.
The Government since the end of the period of turmoil has given a good deal of attention to the development of the productive resources of the country. I need only mention, in passing, the steps that have been taken by way of agricultural legislation and land legislation and the proposals regarding the Shannon and the Barrow. It will be expected, however, that I should make some more detailed reference to our action and policy in reference to tariffs for the promotion of manufacturing industry. Last year certain Customs duties were imposed with a view to giving the country an experiment in Protection. Having regard to the short time that has elapsed and the forestalling that took place in certain cases, the results have been satisfactory.
The boot tax brought in revenue to the extent of £225,000 and stimulated production to a remarkable degree. Returns furnished by the four principal firms in the industry showed that between 1st April, 1924, and 1st December, 1924, the number of persons employed increased by 80 per cent., while as a result of full time being worked wages increased by 100 per cent. Since December the rate of progress has been more than maintained. At least one new factory has been started and others are to be started. As a result of careful inquiries by the Department of Industry and Commerce we are satisfied that the prices of Irish-made boots have not been increased, and in a few cases have been slightly decreased. There is no doubt that in the present year the industry will expand considerably.
The duty on sugar confectionery has been of great assistance to the industry. It is difficult to estimate the revenue resulting from the imposition of the tax since confectionery previously paid duty at rates that varied very considerably according to the sugar content of the kinds imported. It may perhaps be put at £30,000 or £40,000. Between 1st April, 1924, and 1st December, 1924, the number of persons employed in the industry increased by about 26 per cent. Owing to the great variety of goods produced in the sugar confectionery business it has been found impossible to get reliable information as to the movement in prices in confectionery goods. In the case of jam, however, to which the tax applies, careful inquiries show that the prices of Irish jams have gone down, while the prices of imported jams have gone up. In addition, there is evidence that the reputation of certain Irish jams has improved. Enquiries from retailers in Dublin have shown that apart from the differences in price there has been an increase in preference amongst the public for Irish-made jams. In this instance it can certainly be said that Irish manufacturers have risen to the opportunity presented to them. While in the case of sugar confectionery there has been throughout the year a decline in imports, in the case of cocoa preparations (including chocolates) no perceptible decline took place until recently. This, however, was not altogether unexpected, since the making of cocoa and chocolate is a more complicated business than the making of jam or boiled sweets. There is now reason to believe that home production is about to increase.
The effect of the duty on soap and candles cannot yet be judged in consequence of the forestalling that took place. Generally speaking, there has been no increase in the price of these commodities to the consumer as a result of the tax. Candles have become slightly dearer, but the cost has gone up in Great Britain and Northern Ireland to the same extent as in the Saorstát.
Before the tax on bottles was announced, big stocks were already held in the country. On top of this a certain amount of forestalling took place, with the result that the tax has not yet had time to take much effect. Nevertheless, some additional employment was given. The revenue collected amounted to little over £3,000.
During the year we have had a multitude of appeals to afford protection to all sorts of industries. We have been able to give more mature consideration to the whole question, and we have decided to lay certain further proposals before the Dáil. In submitting these proposals, I should like to state quite distinctly that the Government does not believe that it would be for the benefit of this country to establish a general tariff or anything approaching it. And it will not allow itself to slip into the position of having laid the foundations of a general tariff by imposing each year a few duties and giving rise to a host of claims for others. After the present Budget this Government will not break any further fresh ground in the matter of protective tariffs, before the general election. We may alter the rate or adjust the scope of a particular duty; and we may, if we think necessary for revenue purposes, propose to the Dáil Customs duties on manufactured goods of a luxury or semi-luxury type, but we will not propose fresh duties of a protective character on manufactured goods of common and necessary use. At the end of three years from now the effects and reactions of our experiment in protection will have begun to appear pretty plainly and the country will have had an opportunity of giving electoral expression to any conclusions it may have come to in the matter. Whatever Government may then be in power can take any further action it thinks fit.
As we see the position the prosperity of the Saorstát must for a long time depend upon its export of agricultural produce. A protectionist duty, particularly from the point at which it begins to be successful and ceases to yield substantial revenue, must as a rule operate to increase the cost of living. In particular cases there may be reactions which will neutralise this effect. But it can hardly be gainsaid that a large number of protective duties would be bound to result in an appreciable rise in our cost of living figure. A definite increase in the cost of living must act as a handicap on agriculture. While new industries cannot be built up by tariffs without some cost to the country, we are satisfied that if we do not try to go too far or too fast a great deal can be done without imposing on the general community a burden which cannot be borne.
The advantage which all classes would derive from the development of manufacturing industries would be manifold and important. Denser population and greater traffic would help to solve the problem of railway freights for our agriculturists. Bigger towns and cities would mean the expansion of a not unimportant market for our agricultural produce. Energy and money diverted from the creation of unnecessary distributing houses would remove a burden on producer and consumer. The surplus population of the countryside would have increased opportunities of making a livelihood in their native land. Greater variety of occupation and interest in the country would help to develop the social and intellectual life of the nation and give us a more alert and enlightened public opinion.
The Government believes that agriculture must be our first care, but it also believes that we cannot postpone the need for endeavouring to promote industrial activity within our borders.
The tariff proposals which we submitted last year were of a more limited character than we should have put forward if we had had sufficient trained staff to carry them out. Further consideration has convinced us that they were of too limited a character to give the country the practical demonstration of the various aspects of protection which would enable it later on to fix with certainty on the fiscal policy best suited to its needs. We think, however, that the number of protective duties which a country like ours can afford to impose is limited and we think also that any steps in the way of protection taken at present must be looked upon as experimental. Therefore, we must be regarded as shutting the door for some time with our present proposals.
Our main proposition is one which was considered last year, but was not proceeded with. It is for the imposition of an ad valorem duty at the rate of 15 per cent. on all personal clothing and wearing apparel. We also propose a tax of 15 per cent. ad valorem on blanketing, blankets and rugs. The yield of these two taxes is estimated at £520,000. The manufacture of apparel is a type of industry which might well become independent of the assistance of a tariff in the course of a very few years. Many branches of it are already carried on, to some extent, in the Saorstát. The existing factories are by no means working to their full capacity. In this case the imposition of the duty is expected to mean immediately a considerable increase in employment. There has been, it is true, a good deal of speculative forestalling, but it has not covered anything like the whole range of articles of apparel capable of being made here. Labour for this industry is easily trained, and the plant required is not elaborate. It is expected that expansion will be rapid and that before the end of the year several thousands of additional people will be employed.
