The Dáil went into Committee on Finance to consider certain financial motions.

The outstanding financial event of the year 1927-28 was the successful flotation of the Second National Loan. When the first loan was about to be issued, in 1923, predictions of failure resounded on all sides. The gloomiest views were heard from those who might be regarded as entitled to speak with authority. But, when the time came, all classes of the community realised that they had a duty to make the loan a success, and it was largely over-subscribed. Such numbers of small investors gave their assistance that, in spite of the fact that we had individual applications for blocks of stock as large as £300,000 and £250,000, the average allotment was only £300. Last autumn it began to be whispered that our second issue would have to be given to the public at a price lower than 95; but, in fact, we found ourselves in November, 1927, able to borrow all we required on more favourable terms than in 1923, and to borrow with less resort to public propaganda or individual appeal. Our first intention was to issue the entire amount of the Second National Loan in the Saorstát, but later on we came to the conclusion that there would be a certain advantage in demonstrating that the credit of the State was good abroad as well as at home. It was accordingly decided to obtain approximately foursevenths of the amount required from our own citizens and to look for the remainder elsewhere. It was found that the amount to be borrowed abroad could be got more cheaply in New York than in London, and a dollar issue was consequently arranged. Both in America and in the Saorstát the public response was all that could be desired, and it can be said that the success of our second issue was quite as striking and gratifying as that of the first. In the next few years we shall require considerable capital sums for constructive undertakings. Our credit is now such that we can borrow in the international money market on terms of which no country need be ashamed. In the interests of national development, it is vital that this position be maintained. Investors at home and abroad have subscribed to our loans because our financial policy has satisfied them that the Saorstát will pay its way; that it will so handle its budgetary problems that debt will be incurred only for legitimate purposes and that no type of currency inflation will take place. We must continue so to regulate our taxation and expenditure as to maintain the confidence of onlookers in the stability of the State and in the probity of its Parliament and Government, for on that confidence our credit depends, and on our credit depends whether schemes of development can or cannot be economically carried out. Moreover, maintenance of the credit of the State is necessary for the security and expansion of private enterprise.

During the past financial year deposits in the Post Office Saving. Bank increased by £205,000, and the sum invested in Savings Certificates rose by £655,000. At the 31st March last, the indebtedness of the State amounted to £22,486,230, without taking account of undischarged liability in respect of the Dáil Eireann Loans or the sum due to the British in respect of compensation payments made after the Treaty. The total is made up as follows:—


National Loan, 1923


Second National Loan


5 per Cent. Compensation Stock


Free State Bills


Ways and Means Advances


Telephone Capital Advances


Miscellaneous Advances


Savings Certificates


In order, however, to ascertain the real weight of our National Debt, we must deduct from the aggregate of these items certain Exchequer assets, totalling £8,902,000, of which the following are the principal items:—


Exchequer Balance


Advances to the Unemployment Fund


Advances to the Shannon Fund


Advances to the Local Loans Fund


Advances to the Road Fund


Advances to National City Bank in connection with Guaranteed Trade Loans


Purchase of Creameries


When other smaller items are added, the figure for capital liabilities remaining, after making allowance for the assets indicated, may be put at £13,584,000. This is the sum which is comparable with the sum of £12,400,000 given in last year's Budget statement. From the aggregate, however, we ought probably to exclude the amount of the advances for Telephone Capital, having regard to the fact that the telephones are very nearly a paying service. This would bring the net figure for debt down to £12,878,000. But that figure does not show the entire indebtedness of the State. If we take account of the Dáil Eireann External Loan, of the portion of the Internal Loan which has not yet been repaid, and of the debt to the British Government which is being liquidated by the annuity payable under the Damage to Property (Compensation) (Amendment) Act, 1926, we find the total dead-weight debt of the State is nearly £20,000,000. This is a large sum, and must still increase if we continue our policy of borrowing to meet compensation charges and the cost of restoring damaged public buildings, as well as other items of a specially abnormal character. A point has now been reached at which great care must be taken not to increase it unjustifiably.

During the year ending on the 31st March last, the flow of normal revenue exceeded anticipations by about £370,000. Taxation yielded £181,000 more than the estimate, the excess being due to the fact that Death Duties brought in a much higher sum than in any year since the establishment of the Free State. Income tax and super-tax produced £20,000 more than was expected, while the yield of Customs and Excise Duties was £70,000 short. The receipts of normal non-tax revenue were about £189,000 more than the estimate. This was due, principally, to the fact That the fees collected by the Industrial and Commercial Property Registration Office in respect of patent trade-marks and designs yielded no less than £50,000, and to the fact that interest received on Exchequer advances was higher than had been anticipated. The latter receipt was, of course, offset by increased interest on Exchequer borrowings. The Currency Act was not passed before the dissolution of the Fourth Dáil, and did not become law until near the end of the life of the Fifth Dáil, so that the Currency Commission was not set up as soon as anticipated. When it was established it was found the issue of new currency and bank notes required more time than had been foreseen, so no part of the £90,000 which it was hoped to receive from the Commission during 1927-28 was, in fact, realised. The gap was, however, filled by the receipt from the British of about £80,000 in settlement of an old claim in respect of revenue attributable to the Saorstát collected in 1922-23.

The income from the taxes on beer and spirits showed a further decline. Up till the 1st of January last, the yield of the excise duty on beer was somewhat in excess of the amount obtained in the first nine months of the preceding financial year. In the last quarter, however, the amount obtained fell so sharply that at 31st March there was a deficiency compared with the preview year of £113,000. The diminution of revenue in this case was probably due in part to a shortening of brewers' stocks; but, apart from the figures of tax yield, there are indications that in the year 1927-28 there was some further reduction in the consumption of beer. The return from the duty on home-made spirits was £127,000 less than in the previous year. We know from past experience that in a year in which a particularly active agitation in favour of a reduction of the liquor duties is carried on traders' stocks are cut down to a minimum and the duty paid into the Exchequer is reduced to an extent disproportionate to any decline in consumption. Consequently, we cannot assume that anything like 35,000 proof gallons less of spirits were drunk last year than the year before. That consumption fell is, I think, certain, but the extent of the fall can only be conjectured. Whatever it may have been, it is clear that there has not been a renewal of the very rapid decline which was going on three or four years ago. Nevertheless, the position both in regard to spirits and beer is one which the Government cannot view without anxiety. Even those who are most conscious of the benefit of the spread of a spirit of temperance and habits of temperance through the country, must take note of the fact that the phenomenal decline in the consumption of alcoholic beverages which has taken place in recent years has caused economic dislocation affecting very substantial numbers of people. If the decline were to continue to any great extent in the future, businesses and industries in a number of cases would collapse and much hardship would result. Great pressure has been put on us during the past three years to propose to the Dáil a reduction of the liquor duties, but we have felt unable to do so because the increased burden on necessities, or in the form of direct taxation, which would have resulted, did not appear to be justifiable in a period of depression. A marked general improvement in economic conditions would lead to an increase in the consumption of beer and spirits even at present rates, while, on the other hand, the worsening of conditions which might result from a shifting of taxation to necessities could easily cause the decline in consumption to continue in spite of lighter taxation. This is specially true in regard to spirits where the need for relief seems most urgent. We believed last year that the rate of consumption had become stabilised for the present and it is disappointing to find from the revenue returns that an appreciable fall seems still to be taking place.

The yield of the Customs duty on sugar confectionery was down by £23,000, from £108,000 to £85,000. In 1924, the first year in which this duty was in operation, it produced £162,000. The fall in yield which has since taken place shows that the import of sugar confectionery, which includes jam, has fallen by nearly 50 per cent. Several new factories have been set up and others have been extended. It is estimated that about 1,700 people have found employment in the Saorstát as a result of the imposition of the tax. It is generally conceded that our jam and sweet factories have not only increased their output, but have in many cases improved the quality of their products. No complaints of overcharging have been received. The tax on confectionery has been the most successful of all our protective duties. There was little variation in the return from any of the other protective taxes, except that on oatmeal, which fell from £15,700 to £7,800, showing that the duty will probably secure the entire Saorstát market for the home mills in the course of another year or so. Though the yield of the duties on furniture, wearing apparel and boots and shoes has remained steady, progress has been made during the year by the manufacturers of these commodities and additional employment given.

The revenue from the tariff on soap was £43,000 last year, or only £1,000 less than in 1926-27, but it is estimated that in the present year the yield will not be more than £20,000. A new soap factory recently erected will soon be in full working order, and will manufacture brands that have hitherto been imported. In the last financial year, the betting duty was in operation for the whole period and produced £211,000, which was £39,000 less than had been hoped for.

As this is the first Budget to be submitted to the present Dáil, it may be of interest to look back to 1924-25, the first normal financial year of the Saorstát. As Deputies are aware, the position in 1922-23 was that our revenue was collected by the British Government. The Customs boundary had not been established and, an the case of duties of Customs and Excise, we received the share that was agreed to be attributable to the Saorstát area of the general British revenue. In April, 1923, we took over the collection of our own taxes and the Customs boundary was set up. But the returns for the first financial year were exceptional in many respects. For instance, our Exchequer, by virtue of what was known as the clean-cut, received a sum of over £1,000,000 in respect of duty on beer which had actually gone into consumption in England before the 1st April, 1923. On the other hand, large stocks of certain dutiable goods were rushed into the Saorstát in the month immediately before the setting up of the tariff barrier. The first period, therefore, the returns for which we can compare with the returns for last year, is the financial year 1924-25. If we look at the tax revenue for that year, exclusive of the motor vehicles duty, which is ear-marked for the Road Fund and is not applicable to general purposes, we find that it amounted to £22,745,000. The sum collected last year was £19,730,000, or £3,015,000 less than in 1924-25. From this it is apparent that the amount taken by the State from the taxpayer has in the past three years fallen by a little over £1,000,000 per annum. In addition, it has to be remembered that during the period in question the Agricultural Grant was doubled, relieving local taxation to the extent of practically £600,000 a year. Therefore, the true position is that in the last three years the money taken annually from the taxpayer for State services has fallen by £3,600,000, or £1,200,000 per annum. The unloading of the citizens' pockets was slowed up in two ways: in part by the action of the Government and in part by the taxpayers' own change of habits. In the course of the three years to which I am referring, the duty on sugar was reduced from 2¾d. to 1d., the duties on tea, coffee and raw cocoa were abolished, the income tax was reduced from 5s. to 3s., the Corporation Profits tax modified so as to fall on about 60 firms instead of on 600, and telephone charges greatly reduced. These reductions involved an annual loss of revenue of £3,100,000, while, as already stated, the Exchequer also lost £600,000 each year by doubling the Agricultural Grant, making £3,700,000 in all. New protective duties were, however, imposed after 1924-25, of which the principal were the apparel tax, which produced £663,000 last year, and the furniture tax, which yielded £45,000. These, with the betting tax and certain minor duties, took something less than £1,000,000 a year from the taxpayer, leaving a net relief of £2,700,000 as a result of changes in taxation. The taxpayer, by reducing his consumption of beer and spirits, withheld a further £1,300,000 from the annual sum available for the maintenance of public services. The total loss to the Exchequer in the three years through tax changes and fall in yield would, therefore, have been altogether £4,000,000, but for the fact that Death Duties and the Tobacco Duty jointly produced last year about £400,000 more than in 1924-25. This reduced the Exchequer loss to the figure I have already given: £3,600,000.

In considering the proposals for increased taxation which will be submitted to them this afternoon, Deputies must bear in mind that, while the draw from the taxpayer was being so considerably reduced, new services were constantly being demanded and inaugurated. These new services have had the effect of making it practically impossible to reduce normal, as distinct from abnormal and non-recurrent, expenditure. Furthermore, as the bill for war damage has been liquidated and other non-recurrent expenses paid by resort to borrowing, the burden of debt charges has grown substantially. In the year 1924-25 the amount required for service of debt was £858,000. Last year it was £1,229,000, and this year, quite apart from the annuity payable to the British Government, the service of debt will absorb £1,606,000. Even when allowance is made for interest receivable in respect of the Exchequer balance and Exchequer advances, the amount that will have to be provided this year to meet interest and sinking fund will be £586,640 more than we needed in 1927-28.

Twelve months ago I intimated to the Dáil that some difficulty might be experienced in avoiding the imposition of fresh taxation this year. I hoped, however, that it would be just possible to escape it by securing a measure of retrenchment in the public services and by resorting to certain devices which would bring in extra revenue for one year without actually involving the imposition of new taxes. I alluded in my last Budget statement to various indications that an improvement in economic conditions generally had begun. I hoped then that matters would by now have so far mended that we could look forward to obtaining from our existing taxation a yield that would on the whole equal that of 1927-28. Finally I thought that the Tariff Commission might make recommendations that would incidentally give some revenue. The position we have to face to-day is that the small reduction which might have been secured in the cost of normal Supply Services was more than wiped out by the passage of the Old Age Pensions Act, 1928, which had the more or less cordial approval of all the members of the House. The long-looked-for improvement in general economic conditions has indubitably begun. I referred last year to the fact that, for the purpose of estimating the yield of income tax, the Revenue Commissioners compile before the beginning of each financial year a table showing the total profits made by two hundred representative firms in various branches of business in the twelve months ending on the preceding 31st December. Last year the table indicated that, in the period to which it related, profits generally were down by only five per cent. as compared with the preceding year. And it was thought that but for the effects of the British coal strike profits might have shown some increase. The table prepared this year indicates that, so far as the two hundred sample firms are concerned, their profits in 1927 were higher than those of either of the two preceding years. But though economic conditions have improved, the upward movement has been too slight to help the revenue position, for while 1927-28 was a better year than either of the two years which preceded it, it was worse than 1924-25, which it replaces in calculating the three years' average for income tax purposes. In the present year, therefore, receipts from current income tax will be down, irrespective of the effect of last year's reduction of the rate.

A certain decline is anticipated in the yield of Customs Duties and, though the Tariff Commission has produced interesting and valuable reports, they have not tended greatly to replenish the Exchequer. In order to ascertain what changes in taxation are required to give us a balanced budget, we must determine by how much the estimated revenue for the year 1928-9 falls short of that part of the estimated expenditure which must be defrayed out of income. I propose, as in the last three years, to pick out of the estimates of expenditure those items which represent capital investment or recoverable outlay and such other items as might, because of their abnormal and non-recurrent character, be properly met out of borrowed moneys. By deducting the total thus obtained from the aggregate estimated expenditure on Supply and Central Fund Services, we shall find the amount that will have to be provided from the fruits of taxation or other normal sources of revenue during the present financial year. I propose that compensation charges as well as the major part of the cost of restoring public buildings shall again be treated as abnormal and the sums involved obtained by borrowing. The amounts required for the provision of new capital for the Local Loans Fund, for loans to creameries and advances to Agricultural Credit Societies, will also be borrowed, as will the sum which it is anticipated will be disbursed during the present year in re-payment of the principal of the Dáil Eireann Internal Loan, together with accumulated interest. The Estimate for Army Pensions contains substantial provision for the payment of arrears of pensions and allowances principally of those granted under the Act of 1927, and the amount required will be appreciably down after the 31st March next. It is proposed, accordingly, to regard part of the estimate as representing an abnormal outlay, which need not be met out of the taxation of the current year.

With reference to that part of the cost of the Army which is in excess of £1,500,000, I have decided, after considerable hesitation, that I can again recommend to the Dáil that it be defrayed out of borrowed money. I am aware that it will be argued by many people, that although such a course was justifiable last year, the fact that all members of the Dáil have now taken their seats, removes all excuse for finding any part of the expense of maintaining the Army by incurring debt. I think, however, that when it is borne in mind that the task of transforming a standing Army into a force that will consist largely of territorial or militia units is one which presents greater difficulties here than in a country not recently torn by civil war, and when it is remembered that the estimated cost has come down by £380,000 in the past twelve months, there are few who will not agree that a proportion of the cost amounting to about one-sixth may for this year be regarded as abnormal and treated in the same way as, for instance, the whole of the cost of compensation is treated. At the same time, I am clearly of opinion that after this year it will not be possible to make any case for defraying any part of the Army charge by borrowing. Next year, whatever the cost of the Army may be, the whole of the amount required will have to be met out of revenue.

In making my calculations for the Budget proposals for 1927-28, I treated as representing abnormal expenditure a sum of £145,000 provided in the estimates for drainage works. The corresponding figure appearing in the estimates for the current year is £110,000. I have come to the conclusion that this item must be treated as normal expenditure. No Exchequer asset is created by the outlay. In so far as drainage schemes are economic, the money required for their execution is advanced out of the Local Loans Fund. Exchequer grants are given only towards meeting the difference between the cost of carrying out schemes and the value of the improvements effected. The expenditure expected to be incurred in connection with drainage this year is not, therefore, of the kind that could ordinarily be regarded as justifying borrowing. Nor is the amount proposed to be spent so exceptionally high that the burden of providing it ought to be spread over several years. In fact, it cannot be anticipated that for a considerable time to come it will be possible to put the annual estimate for drainage below this year's figure. In all the circumstances, I think there is no alternative to finding the amount required for drainage out of revenue. In connection with this matter, I should like to remind Deputies that it is incumbent upon us to be more careful than ever to see that our financial policy is not open to criticism. The fact that a substantial block of our second loan was issued and is held abroad means that the basis of our Budget proposals will be subject to critical examination and comment of a kind of which we have heretofore had no experience. If our methods were to show any slackness or any tendency to shirk the imposition of the taxation necessitated by our scale of expenditure, the effect on the credit of the State would be speedy and serious.

The estimate of expenditure for the year 1928-29 on Central Fund Services is £4,314,981. That figure given in the volume of estimates for the Supply Services is £22,433,019, but the figure we must take for the purpose of Budget calculations is that given in the White Paper, namely, £22,583,019, which takes account of the additional £150,000 that will be paid out in consequence of the passage of the Old Age Pensions Act. The aggregate estimate of expenditure for the year is, therefore, £26,898,000. For the purpose of arriving at the amount which must be defrayed out of taxation, or other normal revenue, the following items may be deducted from the total;—


1. Vote 8. Local Loans Fund, provision in respect of new capital


2. Vote 11. Public Works and Building, £374,000 out of a total provision of £581,550 for sites, new works, alterations and additions, and £10,000, the total provision in respect of compensation for premises commandeered by the Army


3. Vote 14. Property Losses Compensation, the entire provision


4. Vote 52. Department of Agriculture. Sub-heads F 5 and F 6, £32,000, provision for capital grants to Universities. Sub-head M 4, £3,000, being the amount by which it is anticipated loans for agricultural purposes will exceed repayments. Sub-head M 5, Loans to Cooperative Societies, £35,000, the whole provision


5. Vote 53. Forestry Service, £25,000 out of a total of £52,000 provided for acquisition of land and cultural operations


6. Vote 54. Land Commission, Sub-head I, Improvement of Estates, £223,200, being that part of a total provision, £323,200, which may be regarded as abnormal


7. Vote 55. Advances to Agricultural Societies, £20,000, the total provision


8. Vote 64. The Army, £304,433, being the estimated expenditure in excess of £1,500,000


9. Vote 65. Army Pensions, £75,000, the part of the estimated expenditure on Army Pensions which may be regarded as abnormal


10. Central Fund Services, £219,924, provision for repayment with interest of Dáil Eireann Internal Loan and £225,000 for the purchase of shares in the Agricultural Credit Corporation


The total figure made up under these ten heads is £2,235,337. If we deduct this amount from the aggregate estimate of expenditure, we get a net estimated sum of £24,662,663, to be spent on purposes for which borrowing ought not to take place. But it is safe to assume that actual expenditure will not reach the total of the estimate. As I have pointed out in previous years, the estimates are prepared from fifteen to eighteen months before the end of the year to which they relate. They comprise 71 estimates, divided into more than 550 separate sub-heads, every one of which is supposed to contain sufficient provision for the object with which it deals. The consequence is that although certain votes will in every year prove insufficient and supplementary estimates will have to be introduced, the total expenditure will nevertheless be found in practice to be appreciably less than the total of the estimates taken together. In some countries, this fact is not taken into account in framing budget proposals and any surplus that arises in consequence of over-estimation goes to the redemption of debt. In the case of the Saorstát, the terms on which Compensation Stock and the National Loans were issued, necessitate the making of such ample provision for redemption, that it is unnecessary to aim at supplementing it. Last year, I put the figure for over-estimation in respect of normal and recurrent expenditure at £630,000. This year it cannot be put higher than £600,000. In view of the demand for further expenditure that will arise in other directions, it will not be easy to realise even this amount. If we deduct £600,000 from the figure already given, we get an estimated sum of £24,062,663, which will all be spent during the year and which must all be found by methods other than borrowing.

We shall now consider what income will be available on the present basis of taxation towards defraying normal and recurrent expenditure on the scale indicated. In the White Paper it is estimated that taxation at existing rates will give us £19,650,000 in the present year, while non-tax revenue will amount to £3,513,860, making a total of £23,163,860. Amongst the items included under the heading "Miscellaneous non-tax revenue" is a sum of £500,000, estimated to be the profit which will accrue to the Exchequer from the forthcoming issue of token coinage. This time last year we hoped that the issue would be made in the latter part of the financial year 1927-28, and that portion of the profit, amounting to £300,000, would come into the Exchequer before the 31st March last. Difficulties of various kinds delayed the issue and no receipt was obtained. That, however, did not affect the Budget position, as it had been decided to treat the whole £300,000 as an abnormal receipt, which should be deducted from the aggregate estimate of revenue, in the same way as various abnormal charges had been deducted from the total estimate of expenditure. My proposal this year is that half the estimated profit from token coinage be treated as normal revenue and the other half as abnormal. I think it justifiable to do this. because the Currency Commission, which this year will only provide a contribution sufficient to compensate the Exchequer for loss of stamp duty on ordinary bank notes, will next year give us an additional £250,000. Thus, although the part of the profit from token coinage which I propose to treat as normal revenue will be non-recur rent, it will be replaced next year by a recurrent receipt of equal amount from a related source. Let us, therefore, deduct only £250,000 from the total of tax and non-tax revenue shown in the White Paper. The estimated normal revenue is now shown to be £22,913,860, and if this figure is compared with the net estimated normal expenditure we find that the deficiency to be made good by some method other than borrowing amounts to £1,148,803. Last year the estimate of expenditure that had to be met out of normal revenue amounted, after making allowance for an additional sum of £150,000 for increased debt charges, to £23,331,103. The comparable figure for this year is £24,062,663, or an increase of £731,560. But if the amount to be paid to the Road Fund in each of the two years were left out of account, it would be found that expenditure payable out of revenue, not ear-marked for any specific purpose, had increased by an additional £200,000 or by £931,560 in all. Of the increase, £436,640 is accounted for by the fact that additional provision had to be made for interest and sinking fund. £250,000 of the increase is due to the fact that the annuity under the Damage to Property (Compensation) (Amendment) Act becomes payable this year, and, while there is a slight fall of £7,502 in other Central Fund Charges, the increase in the estimates for normal supply services amounts to £252,422. Of the latter figure, £110,000 may be accounted for by the fact that I have this year treated Exchequer contributions to drainage works as normal expenditure.

Hence, it will be seen that but for the increased charge imposed by the Old Age Pensions Amendment Act, the net estimate of normal recurrent expenditure on supply services would have been very slightly lower than last year if precisely similar deductions had been made from the gross total. The estimate for normal revenue for the present financial year is less than that on which last year's Finance Bill was based by £435,340, or, if we eliminate the marginal sum which was regarded as surplus, by £417,243. If the revenue which is earmarked for the Road Fund were excluded from the estimates of both years, the present year's estimated revenue would fall short of the estimate used in last year's Budget calculations by £217,243.

Leaving the Road Fund, therefore, out of account, the position is that in budgeting for the coming year we have to face an increased expenditure on recurrent and normal items of £931,560, of which more than £680,000 is due to the increased provision for debt charges, and that we have an estimated income which is £217,243 less than the revenue which was anticipated this time last year. In connection with these figures it must be borne in mind that the increase of £436,000 in ordinary debt charges is not all a dead burden on the taxpayer. The interest-receipts included in the estimated revenue for the current year exceed the amount anticipated twelve months ago for the year 1927-28 by £190,000. Nevertheless, all fresh borrowing imposes a comparatively heavy charge, because, while interest may be paid on certain Exchequer advances, sinking fund has all to be got out of taxation.

It has generally happened heretofore that in framing a budget, I have had to consider which of the many concessions claimed by taxpayers it would be most useful to grant. While it is proposed this year to make one or two small adjustments that have been sought by different interests and will involve little loss of revenue, the task of finding £1,149,000 makes it impossible to consider any of the big claims. Our intention is to do as little as possible in the way of imposing new taxes or increasing old ones. We are satisfied that a comparatively slight acceleration of the economic improvement which has begun would result in its being possible to foresee a better yield from the various taxes in the year 1929-30. If the yield began to rise, the balancing of next year's Budget would be eased considerably. In the belief, therefore, that there is every possibility that this is the worst year which the State will have to face from the point of view of tax-yield, and with a view to minimising as far as possible the check which might be put on economic recovery by a great number of new charges, we propose to get a substantial part of the extra income required for the year by a resort to expedients which will give us revenue for one year only. We intend to speed up the collection of the abnormal arrears of income tax. There is still outstanding a sum of about £500,000 relating to years for which the collection ought long ago to have been closed. The result is that Inspectors of Taxes are prevented from giving the attention that it demands to current work and headquarters officers have found it utterly impossible to take up the urgent task of trying to devise an income tax code that would be simpler and more suited to the needs and conditions of this country than that which we inherited. Even if additional money were not wanted, it would be desirable to make a push to dispose finally of the great, tangled mass of arrears which has heretofore handicapped revenue officers and has caused, and is still causing, loss of current revenue. The difficulty of dealing with the problem arose partly from shortage of qualified staff. It takes four years to train an Inspector of Taxes. At the change of Government we were not able to induce a sufficient number of Irishmen in the British service to transfer to the Saorstát, with the result, until two years ago, we were only able to carry on the collection of income tax in a reasonably satisfactory manner through the courtesy of the British Government in lending us the services of a group of experienced inspectors. When English inspectors were withdrawn it was found possible, in some instances, to promote tax-officers to their places, but the staff was still left lamentably short. We have now reached the point when several of the assistant inspectors, who were recruited by competitive examination held in 1923, are ready to be commissioned as inspectors. The Revenue Commissioners are satisfied that, with certain other facilities which we are arranging to give them in the matter of staff, they will be able so to operate on the abnormal arrears that an additional £250,000 will be brought into the Exchequer this year, leaving something less than that sum still outstanding. I hope that taxpayers will realise that what is proposed is for their own good, and that there will be fewer attempts by taxpayers to postpone unreasonably the payment of sums due by them to the Exchequer.

A good deal of misapprehension exists as regards the assessment and collection of income tax. The Minister for Finance and the Revenue Commissioners have no functions as regards the amounts of assessments. The law provides that assessments shall be made by Inspectors of Taxes in the first instance. Taxpayers have a right to appeal to the Special Commissioners of Income Tax against any such assessments. The Special Commissioners are not subject to the Minister, or to the Revenue Commissioners, in regard to their decisions. If taxpayers are not satisfied with the result of appeals to the Special Commissioners they have the further right of appeal to the Circuit Judges and, on points of law, to the High Court.

When an assessment becomes final and conclusive as the result of appeals, or in the absence of appeal, it is the duty of the Revenue Commissioners to see that the tax is collected within a reasonable time. In recent years a practice has arisen which places diffities in the way of collection. Deputies and Ministers are appealed to to intervene and prevent the Revenue Commissioners from carrying out the functions imposed on them by law. I would suggest to Deputies that, in future, they should not intervene in such cases except to inform their correspondents that the collection of income tax has been placed under the control of the Revenue Commissioners, and that any complaints or applications for special treatment should be addressed to that body, by whom, I need not say, they will be favourably considered.

In making these remarks I am referring only to taxpayers who do not carry out their obligations. A tribute must be paid to a great number of taxpayers who meet their liabilities promptly and with the minimum trouble and cost. It is unfair to the prompt taxpayers to allow the careless and indifferent ones to get special advantages. The extra expense incurred in dealing with defaulting taxpayers has become a serious problem.

Deputies may be aware that in a neighbouring country income tax chargeable under Schedule A is now payable in one instalment. The admiration in which the laws of that country are held may vary considerably from one Deputy to another but I feel that in this particular respect they are worthy of the flattery of imitation. The principle of two instalments for Schedule A was only introduced in 1918, when income tax was levied at the rate of 6/- in the £. I do not think collection in a single instalment will involve any great hardship now that the rate of tax has fallen to 3/-. It will bring the treatment of investment income derived from real property into line with that of other investment income; it will lighten official labour substantially and, last but not least, it will bring in an extra receipt of £150,000 this year, to be followed by £50,000 more next year.

At the present time, brewers in the Saorstát are allowed three months credit by the Revenue authorities, so that duty is not paid until three months after the beer on which it is charged has been brewed. In Great Britain and Northern Ireland only one month's credit is allowed. We propose to shorten the period here to two months. In the case of some brewers, the payment of an extra month's duty in the present year may be felt to involve some measure of hardship, but in other cases the additional payment will cause no embarrassment. The charge will produce £300,000 for the Exchequer this year.

By means of these expedients a total additional revenue of £700,000 will be obtained. There will still remain a deficiency of £449,000, and, to this extent, fresh taxation must be imposed. Such a considerable sum can only be obtained by a very sharp increase in direct taxation or by an import tax on articles of general consumption. Various courses have suggested themselves and have been considered. An increase of 6d. in the income tax would theoretically bring in this year about £250,000, and 1/- would theoretically bring in £500,000 or a little more. An additional tax of 8d. per lb. on tobacco would yield £210,000. A tax of 1d. per gallon on paraffin and petrol would produce £125,000. By increasing the duty on sugar from 1d. to 1¼d. per lb. we could obtain £200,000 between additional revenue and reduction of the cash subsidy payable to the Carlow factory. By extending the existing McKenna duty on motor vehicles to include commercial vehicles and tyres we could get £200,000. A tax of 2d. per lb. on tea would give £190,000. By fixing the minimum charge for ordinary telegrams at 1/6 we could get £70,000 in a full year.

We rejected the idea of raising the income tax. An increase of 1/- would not be practicable unless we were prepared to abolish the corporation profits tax. That particular duty disappeared some time ago in England, but we thought it desirable to retain it until we could devise a better means of getting an equivalent of death duties in respect of property owned by foreign companies here. Corporation profits tax bore very hardly, however, on a firm like Messrs. Jacob, for instance, so long as our income tax rate was equal to the British rate. Such a firm saw that by manufacturing here they became chargeable with what was, for all practical purposes, a higher rate of income tax than if they had shifted their work to the other side. If the corporation profits tax were abolished, even an increase of 1/- in the income tax rate would not go anywhere near providing the sum required this year. If the income tax were raised by 6d., and the corporation profits tax retained, the position would be no better, because if the income tax rate were raised at all it would be quite impossible to obtain the additional £250,000 from arrears to which I have referred. Furthermore, if the rate of income tax were raised, the collection of Schedule A in one instalment would inflict definite hardship in the first year. In short, a 6d. increase in income tax would give very little net additional revenue in the first year, would stop the growth of business confidence and check the tendency of well-disposed investment-holders to settle in the Saorstát. A tax of 8d. per lb. on tobacco would bring our rate up to the British maximum rate, but, as we have no colonial preference, the average rate paid here would be higher than in Great Britain. The present duty on tobacco is very high, and it is believed that the yield has been so well maintained only because of the increase of smoking amongst women—the Parliamentary Secretary suggests I should say "ladies." There is, in fact, already a slight tendency for the return to shrink, and it is probable that any increase in the duty while economic conditions are as at present would lessen consumption and fail to give a revenue return proportionate to the hardship that would be felt. The extension of the McKenna duty on motors to all vehicles and tyres we consider a suitable means of raising part of the extra revenue that is required.

The great and rapid extension of motor transport, both for goods and passengers, is making it constantly more difficult for railway services to be maintained at rates that are at all reasonable. Yet, for the carriage of coal, live stock fertilizers and other heavy goods, railway transport at reasonable rates cannot be dispensed with. If the charging of Customs duties on lorries and buses causes the growth of motor traffic to slow down, no harm will be done. There is no danger that the extension of the duty proposed will cause any abandonment of motor transport. It is a tax which can very well be borne and which will be convenient to collect. So far as the tax on tyres is concerned, it will not be a very heavy impost on the private owner.

We did not consider that it would be desirable to impose a tax on tea or a tax on petrol and paraffin. These commodities at present enter duty free and if taxes were imposed on them the result would be that the extra charge upon the public would substantially exceed the amount of income reaching the Exchequer. On the other hand, sugar is already taxed and the expense of compliance with Customs formalities is already being borne. If the duty were increased by ¼d. per lb., there is no reason why anything more than the amount of the additional tax should be passed on to the consumer. On the other hand, the cost of collecting duty at 1¼d. per lb. will not be greater than the cost of collecting duty at 1d. per lb. No additional staff would be required. We propose to increase the duty on sugar by ¼d. per lb.

When I mentioned that a duty on paraffin and petrol of 1d. per gallon would produce £125,000, I should have stated that nearly half of that would come from paraffin and the remainder from petrol.

At the present time, the maintenance of the telegraph service involves a substantial annual loss, and there is no prospect of its becoming self-supporting. On the contrary, as the telephone comes into more general use, it is inevitable that the use of the telegraphs will decline. To a certain extent, falling traffic will make possible reductions of staff, but, on the whole, the tendency will be for the difference between income and expenditure to widen. The service must be retained, and the only way to reduce the deficit and prevent the burden on the Exchequer from growing is by increasing the tariff. We propose to raise the minimum rate for ordinary telegrams to 1/6 each. Even when that has been done, each message sent will still involve a contribution of, I think, about 6d. from the Exchequer. We cannot make a rigid rule that postal services shall all pay for themselves, but if we are to go near getting rid, within reasonable time, of the loss on the Post Office, which at present, after allowance is made for services rendered by it to other Government Departments, is somewhere about £400,000 per annum. We must try to obtain a better return from those branches in which there is the greatest loss. A great proportion of the telegrams handled are of a sporting nature or are messages of condolence or congratulation, and not such as can very strongly claim a contribution from the ordinary taxpayer towards the cost of their transmission. Few people, except those interested in sporting events, send telegrams regularly or in large numbers. On the whole, the increase proposed, which is less than might reasonably be justified, is not likely to affect appreciably the course of business in the country. It will give us £66,000 this year.

The two changes in taxation to which I have alluded and the raising of the charge for telegrams will produce £466,000 and enable us to balance the Budget and leave a small balance of £17,000.

The other proposals which I have still to mention will make little change in the revenue figures for this year. Deputies will remember that in April, 1926, we concluded an agreement with the British Government whereby the Revenue authorities of the Saorstát and Great Britain were enabled to give relief on the residence basis from double income tax and double super-tax. The agreement freed residents in the Saorstát from liability to British income tax and super-tax and residents in Great Britain from liability to Saorstát tax. That scheme has been found to work satisfactorily and has very considerably reduced the difficulties experienced by taxpayers in obtaining relief to which they were entitled. Last year, however, the British Parliament passed legislation abolishing super-tax and instituting a new tax called a sur-tax. It is, consequently, necessary to make an alteration in the Double Taxation Relief Agreement of 1926. That agreement deals only with relief from income tax and super-tax and its provisions would be inapplicable to sur-tax. The new agreement will be signed to-day and laid before the Dáil to-morrow. On consideration of the alterations that it would be necessary to make in the old agreement, we came to the conclusion that in order to simplify the drafting it would be desirable if we adopted the name sur-tax. We have also decided, at the same time, to take advantage of the opportunity of altering the basis of assessment of the tax to the income of the year of assessment instead of the income of the preceding year. The sur-tax for any year, however, will not be payable until the 1st of January of the following year.

Super-tax as at present levied has the disadvantage that it is not assessable until the year following the first year in which the taxpayer's income (as computed for income tax purposes) reaches the super-tax point, and there is a loss of one year's super-tax in the case of every taxpayer. Thus, if a man's income liable to tax exceeds two thousand pounds for the first time in 1929-30 and continues to exceed it every year until the 31st March, 1932, when he dies, he has had an income within the super-tax range for the three years prior to his death, but we get only two years' super-tax. We shall get three years' sur-tax. Whilst, therefore, there is no gain to the Exchequer within the current financial year, there will be a very definite gain over a series of years. An average of £25,000 per annum might be obtained. The new system will be more logical and equitable than the old.

An application was lodged with the Tariff Commission some time ago by the Irish Glass Bottle Company for an exemption from the tariff on certain classes of bottles which they could not economically manufacture and for which applications were constantly being made to them by traders. Subsequently a joint deputation of representatives of the bottle factory and of the bottle users waited on me and urged that I should agree, without the trouble and delay of a hearing by the Tariff Commission, to restrict the tax to glass jam jars and to bottles of the kind ordinarily used for bottling beer, wine, spirits and mineral waters, not including any bottle of a capacity of less than five fluid ounces, and that until such time as the Irish Glass Bottle Company should be in a position to offer for sale white glass bottles of the kind specified, the Revenue Commissioners should be authorised to allow the importation on licence issued by them of reasonable quantities of such bottles. As the modification of the duty requested was desired by all interested parties and approved by the Department of Industry and Commerce, I agreed to recomment it to the Dáil. In effect, it means that the protective duty will, for some time at any rate, apply only to jam jars and to dark-coloured wine, beer, spirit and mineral bottles. All the great range of medicine bottles, in connection with which there has been so much complaint, will be exempt. The loss to the Exchequer will be about £12,000.

The Inter-Departmental Committee which I appointed last June to explore thoroughly, from the financial and other points of view, the present position of Irish racing has recently presented a report. It appears that practically all the racecourse companies and race committees in the Saorstát are now in a precarious financial position and that in 1927, with two exceptions, they incurred losses on the year's working. The Committee were of opinion, and I concur, that Irish racing has reached such a stage that it can no longer support the burden of the Entertainment Duty, particularly since the imposition of the Betting Tax. The yield of Entertainment Duty in respect of payment for admission to race courses has fallen from £21,000 in 1924-25 to £10,700 in 1927-28. I propose that the duty be now remitted. The loss of revenue will be about £9,000.

It is proposed to alter certain existing provisions of the law governing the aggregation of estates for the levying of estate duty. At present, settled property passing on a death under a disposition made by a person who died before the commencement of the Finance Act of 1894 is exempt from aggregation and, being treated as a separate estate, pays duty at a lower rate than if lumped with the other property passing on the same death. For example, A who died in 1893 by settlement dated 1892, settled property valued £1,500 on himself for life, falling, after his death, to his wife B and, after her death, to the children of the marriage.

B's unsettled property at her death was worth £9,000. If B died on the 1st March last the rate of estate duty would be 3 per cent. on the settled property and 3 per cent. on the unsettled property, both being treated as separate estates for the purpose of aggregation. If, however, B has survived and dies subsequent to the passing of this year's Finance Act, the settled and unsettled estates will be lumped together, and estate duty will be payable at 5 per cent. on the aggregate of £10,500. It is considered that, taking one year with another, there will be a net gain to the Exchequer of £15,000 per annum for the next eight or ten years as a result of the proposed legislation. On the other hand, if the change is not made, there will be an actual loss of £10,000 per annum on double taxation relief owing to the British rates being higher than ours. In the first year the positive gain will be about £6,000, and the loss counteracted £4,000. The principle on which relief from double taxation is given in respect of estate duty is that the country of domicile charges on the whole estate, and the other country on the assets situated in its territory. The country of domicile gives relief to the full extent of the tax charged by the other country. Consequently, in the case of the estate of a person dying domiciled here, if we continued to give exemption from aggregation while the British did not, it might happen that they would charge as much duty on part of the estate as we would charge on the whole estate, and we should have to give relief to the extent of the whole of our tax.

In last year's Budget statement, I announced that we intended to take steps to secure that death duties on shares held by Saorstát citizens in British companies doing business here would all come into our Exchequer. The present position is that if a company, the shareholders in which are wholly or mainly Irish, has the greater part of its property here, but is registered in Great Britain, the death duties payable in respect of the shares in that company go very largely into the British Exchequer. Indeed, if a Saorstát citizen died leaving an estate consisting entirely of shares in such a company, we should get no estate duty at all. The shares, being shares in a British company, would constitute property situated in Great Britain and would be liable to British tax. The same shares, being the estate of a person domiciled here, would also be liable to Saorstát tax, but we should be obliged to give relief to the extent of the British charge, so that no duty would come into the Saorstát Exchequer. If, on the other hand, such a company established a Colonial Register here, the position would be different. The shares of a Saorstát citizen entered on the local register would be property situate here, and would be liable to Saorstát tax alone. It was intended last year to pass legislation compelling British companies doing business here to establish Colonial Registers in the Saorstát. Although a great deal of time was devoted to the matter, it was found impossible to devise legislation of a direct kind that would effect the purpose. Accordingly, it is proposed to deal with the matter by way of an increase in the corporation profits tax.

The rate will be raised from five per cent. to seven and a half per cent. in the case of foreign companies, but the higher rate will not be chargeable in the case of companies which have or establish Colonial Registers here or have no Saorstát shareholders. The increased rate is not likely to give us any additional corporation profits tax, because Colonial Registers will, no doubt, be established, but it will in subsequent years bring us in perhaps an average of £30,000 per annum extra in death duties. I might mention that one case came under notice within the past few years in which, if a particular firm had had a Colonial Register here, additional death duty to an amount running well into six figures would have been obtained from the Exchequer.

A number of minor alterations in the law will be made by sections in the Finance Bill. As they are of no financial importance I need not specify them now. I shall conclude by saying a few words with reference to the prospect of avoiding further increases in taxation in the future. Hitherto we have had, year by year, a decreased draw on the taxpayer, and at the same time a continual increase in the number and extent of the services provided by the State. This was possible because we inherited at the change of Government taxation on a very high scale, which was used in the first few years of the Saorstát's existence to defray part of the abnormal expenses due to disturbed conditions. As these expenses decreased, or began to be met wholly out of borrowed moneys, it was possible to take smaller contributions from the taxpayer and yet provide him with additional services. That stage has now been passed. The adoption of any new service of importance will definitely entail increased taxation. Every little group of new services of the minor kind will also mean increased taxation. In future, reductions of taxation will be possible only if a great economic recovery swells the yield of revenue, or if alterations of policy are approved which make possible very substantial economies.

Small economics such as do not depend on policy cannot be expected to do more in the aggregate than to supply the funds for those new services that will be necessary even with the most rigid economy. It cannot be emphasised too strongly that retrenchment which will be worth anything depends on policy and, above all, on refusal to enter on new fields of expenditure. Economies of the kind that would enable taxation to be reduced cannot be effected by what are called popular methods. If, for instance, every civil servant whose basic salary is over £831 10s., or, with bonus, £1,000 per annum, were brought down to that figure, the nominal saving effected would only be £31,000, or £28,000 if allowance is made for loss of income tax. No one, however, who has really given thought to the matter can doubt that a measure of this kind would produce such unsettlement and discouragement as to reduce efficiency and result in money being lost instead of being saved. A policy of retrenchment that will enable taxation to be reduced involves refusal to undertake or extend activities for which there is a genuine demand—activities that ought to be undertaken if agriculture and industry could afford them. I am not arguing that lower taxation is necessarily the goal that should always be aimed at. Increased taxation well spent may often give better results. But all State services have to be paid for out of production—out of agriculture and industry. If production is overburdened, State services, even of the most desirable kind, will hinder rather than hasten progress and will, in the long run, reduce the amenities of life which they are intended to increase. There is tremendous pressure from the country for more State activity, but up to the present very many people have failed to realise that what they have really been asking for is higher taxation. There has been an airy idea abroad that if the number of buttons on the tunies of the Civic Guard were reduced from five to four there would be lashings of money for everything. We are now up against hard facts in a way that we have not been heretofore. I have no doubt that demands for new services will continue, but I should hope they will be less insistent than heretofore and more discriminating. If people will get the habit of thinking of expenditure and taxation together, instead of separately, political discussion will become more fruitful and the task of Deputies and Ministers will be made easier.

Next year some further increase in debt charges will inevitably take place, and some of the items of income on which we are relying to fill the gap this year will not be available. It looks as if current income tax might yield something more next year than in 1928-29, but it will not be possible to collect as large an amount of arrears as this year. It will, therefore, require great and sustained efforts to obtain the economies that will make it unnecessary to impose further new taxation next year. Even if we are successful in avoiding increases for the year 1929-30, the position will then be that the abnormal arrears of income tax will have been completely exhausted, and that retrenchment on a considerable scale, coupled with an improvement in the yield of taxation, will be required to avoid the necessity of new imposts in the following year. The other side of the picture is that trade is now definitely, if slowly, improving, and there is every reason to believe that if we can only keep a rein on public expenditure, while continuing, with undiminished vigour, State activity of a productive kind, the rate of improvement may be definitely speeded up.

took the Chair.