I think it might be best that I should make a general statement with reference to the Ultimate Financial Settlement on which Deputy Magennis spoke. Deputies are aware that since the setting up of the Free State the land annuities have been paid over to the British Government to meet the interest and sinking fund, on the land stock that was issued in respect of lands from which these annuities were payable. A difference of opinion arose between the British Government and ourselves in regard to the income on the interest portion of these annuities. We withheld portion of the annuities against our claim for income tax. We were not entitled, of course, to all the income tax on those annuities. We were entitled, in our own view, to the income tax on the whole of some of them, and to half the income tax on the remaining portion. However, a diametrically opposite view was taken by the British Government, which held that as the practice of deducting income tax at the source in respect of these lands had ceased long before the setting up of the Free State no change should have been made, and that the annuities should be paid over to the appropriate fund in full. While that particular discussion was going on there was going on at the same time a discussion in regard to the problem of double income tax, and we were able to reach an agreement on that problem.
That agreement solved the problem of the income tax on the interest portion of land annuities, because as the land annuities went out of the country they were no longer liable to our tax. On the other hand, the new arrangement in regard to double income tax left our Exchequer as well off as it was before. Deputies may have noticed that while I said in my Budget speech that the new arrangement in regard to income tax would leave our Exchequer in approximately the same position as it was before, the Chancellor of the Exchequer said, I think, that the British Government would lose between £200,000 and £300,000 per annum. I will not go in detail into the discrepancy between these two statements. In some respects that discrepancy arose from non-agreement as to the actual effect of the agreement. In the main the discrepancy arose owing to the fact that we regarded ourselves as entitled to the income tax on those land annuities, and the British Government regarded themselves also as being entitled to it, so that while we held ourselves no better off, the British, because they were in a position that was no better than if they had waived their claim to income tax, regarded themselves as having lost a considerable sum. Apart from any question as between the Exchequers, this new arrangement in regard to double income tax was a substantial benefit to a very considerable number of taxpayers, small taxpayers in the Free State, who, under the old arrangement, were not able to get full relief. These were shareholders in companies like Guinness's and the National Bank. Shareholders who were not exempt were all right, but shareholders who were exempt were not able to obtain repayment of the Saorstát tax.
A substantial sum, perhaps £30,000 or £40,000 per annum, actually went into the pockets of Saorstát taxpayers as a result of the arrangement about double income tax. That arrangement had certain other advantages for us besides leaving the Exchequer as well off as before, as well off as it would have been had we without dispute got income tax on the interest portion of the land annuities. It did benefit to a substantial extent a considerable number of Saorstát taxpayers, and, moreover, it did away with a great many sources of annoyance and a great deal of inconvenience to taxpayers, and it meant that after it had been put into operation the administrative cost would be lessened. In view of all that, we felt that it was fair to waive the claim which we had made in regard to income tax on land annuities for the years that had passed, and to pay over to the British Government the sum of £550,000 which we had withheld. As I have already indicated, we held that against our claim. It was a larger sum than I think we would have been entitled to even if our claim had been accepted by any arbitrator as correct. There was a margin for safety.
That covers the first four items under the heads of the Ultimate Financial Settlement. The vital clause so far as we were concerned was the clause providing for the settlement of the double income tax problem on the residence basis. As a matter of fact, this particular agreement could have been entered into long before if we had been able to see that the settlement under the residence basis would have been satisfactory to us. Even at the date of the signature of this agreement all points had not been worked out by the two revenue departments, and it was with some doubt that we were actually able to sign that particular agreement. However, the figures were available shortly afterwards, and the matter was completed satisfactorily. With regard to Article 5 of the heads of working arrangements, this wa s regarded by us as a very satisfactory settlement of the Local Loans Fund question.
Heretofore we had been paying to the British Exchequer the amount actually collected annually in repayment of loans made in this country out of the Local Loans Fund. We felt that that was not a satisfactory position, that the Local Loans Fund had borrowed money at rates of interest very considerably less than money is now worth, and that, consequently, money repaid from here would be re-employed by the British Government on a very profitable basis. The arrangement will ultimately give us a sum that will be very substantial. The amount outstanding in respect of local loans at present is about £10,350,000.
The present value at 5 per cent. of an annuity of £600,000 per annum for twenty years would be seven and a quarter million pounds, but, of course, the present value of our gain on the new arrangement is nothing like £3,000,000, because some of the sums which we will receive will not come in for a very long time. The amount that we collect during the present year will be about £686,000, and it will continue for the first twelve years or so to be over £600,000 per annum, perhaps for the first fifteen years. Thereafter, until the end of the twenty years' period it will be less than £600,000 per annum, but at the end of the twenty years' period our payments will cease. On the other hand, money will continue to come into our Exchequer up to the year 2000—that is, some of the loans will not be repaid until the year 2000. But for ten years after the twenty years' period substantial sums will be coming in.
Since the separation of functions a certain amount of discussion has gone on in regard to British Government property which was handed over. This does not apply to the property of the ordinary civil departments, but rather to the War Department's property and lands, Admiralty property, property held by the Disposals and Liquidation Commission, and Royal Irish Constabulary property. The property in question in this particular clause had been estimated by the British as being worth £5,000,000 odd, but, of course, it was not property for which, if they had decided, instead of transferring to us, to sell to private individuals and take cash, anything at all approaching that amount could have been obtained. Against the British claim that they were not bound to transfer it to us, but to sell to us or sell it otherwise, we had urged that we were entitled to the greater part of it. In this agreement the British handed it over finally without making any claim for payment.
In connection with Article 7, the Compensation (Ireland) Commission gave awards in favour of the British Government, amounting in all to, I think, £490,000. Of that, £130,000 was subject to reinstatement conditions, and, I think, could never have been claimed by the British Government, because, of course, they would not have reinstated, except in certain cases where landlords or others might have a right to compel them to reinstate. But ordinarily they never would have reinstated, and a great portion of that would never have been drawn by them. There remains £360,000. We claimed that in respect of some of the property covered we had a claim to transfer. The amount of that property to which we could have established a claim to transfer was not considerable. One of the very big items in the £490,000 was the property destroyed in the Shell Factory fire, cars burnt, which were, of course, War Office cars, and which would, if they had not been burnt, have been transferred to England at the end of the hostilities. So that I do not think that of the £360,000 remaining we could have established a claim to a transfer of any very considerable amount. Undoubtedly, if the claims had been examined and threshed out item by item we would have had to pay a sum substantially in excess of £275,000.
After the setting up of the Free State the question of the payment to the railways of the second moiety of the sums that were due under the Irish Railways (Settlement of Claims) Act, of 1921 arose. The position, of course, was at that time that the railways needed the money urgently, and the British had a very strong case for declining to pay, because, in general, the financial relations between the Governments had been arranged on the basis of the clean cut, and their claim was that they had no liability to pay, that they were out of the country, and that whatever was due to the railways should be paid by us. At that time we were not actually in a position to pay, and we also urged that the losses and liabilities of the railways arose out of the European War, and that they should pay. The result of the discussion was that, subject to the matter being raised at the ultimate financial settlement— which, of course, at that time it was thought would include the whole question of Article V., and so forth—the British paid over to the Saorstát railways on the 15th January, 1923, the sum of £1,085,721. The matter was, as appears in this paper, raised at the financial settlement, and was disposed of, as Deputies see, by Section 8.
A certain amount of discussion went on between the two Governments in regard to the portion of the Unemployment Fund deficit, attributable to the Irish Free State. The general arrangement in regard to Government funds was, that they were divided on some equitable basis. If the Unemployment Fund had money to credit, that would have been divided, and we would have got our share. As the Fund was in debt, we, at a certain stage of the negotiations, claimed that the new Irish Fund had a debt to the Exchequer to be calculated with reference to the number of unemployed and the funds that have been drawn. We claimed that that was due to the Irish Exchequer. That was, I think, an ingenious argument, but it was not one that we really could sustain, because it meant that the division of these separate funds was to be conducted on the basis of "Heads I win, and tails you lose"; it meant that if the Fund had something to credit we would get a share of it, but if it was in debt the British Government paid. The actual amount of the deficit of the Fund had been borrowed from the National Debt Commissioners. Of course the money had to go back to them, and if we did not pay it meant that British workmen would pay for the sums that Irish Free State workmen had received. So that I think that, although this is a matter which was in dispute for a considerable time, the equities were not with us, and there was no alternative for us but to abandon it.
Article 10 of the heads of working arrangements is really consequential on the agreement of December last year. We escaped under that agreement the liability for British war debt, and consequently we could not continue to claim any share of the reparations or any share of the repayment of inter-Allied debts. The Contingency Fund is practically a Reserve or Suspense Account of the Consolidated Fund of Great Britain to provide for unforeseen expenditure in advance of Parliamentary sanction. It is consequently different from funds like the Development or Road Fund, and others which had to be divided, but the fact that we did not receive a share involved no expenditure on our part. As Deputies may have noted in the annual estimates —I am referring now to Section 11— on page 73 there is a note with reference to the pensions of the Royal Irish Constabulary. It states: "It has been agreed provisionally that Saorstát Eireann will pay 75 per cent. of the above pensions without prejudice to the ultimate financial settlement." That 75 per cent. was fixed after a consideration of the distribution of the Royal Irish Constabulary during the preceding twenty years. The proportion of the Royal Irish Constabulary assigned to the Free State area varied from 78.59 per cent. to 73.99 per cent., but over the 20 years the average was 75 per cent. From time to time various other bases for the division of the pensions charge were discussed. These were: the rateable value of the property requiring police protection in the Saorstát and in the Northern Ireland area, the statistics of indictable offences and the population of the areas, but we came to the conclusion that the division based on the distribution of the force over a period of twenty years was a fair division, and consequently the provisional agreement to pay 75 per cent. was confirmed in this ultimate financial settlement.
With regard to Article 12, certain matters were, during previous discussions left open for consideration at the ultimate financial settlement, or it was arranged that they should be then taken into account. The principal of these was a sum of £180,000 which had been lent to the Dublin South Eastern Railway Company by the British Government. It is a matter on which there was some doubt as to whether they were entitled to claim it or whether, under the general arrangement, it passed over to us and that was deferred to the ultimate financial settlement. By Clause 12 of the Articles, the British Government abandoned their claim for that sum of £180,000.
