Private Business. - Financial Resolutions.

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

At the conclusion of my Budget statement last year, I warned Deputies that great and sustained efforts to obtain economies would be required in order to make it unnecessary to impose further new taxation in the financial year 1929-30. I also said that even if increased burdens were avoided this year they could not be avoided in the year 1930-31 without retrenchment on a considerable scale, coupled with an improvement in the yield of taxation. My remarks on that occasion were, I am afraid, taken not as an exhortation to Deputies to assist and support the Government in keeping down the level of expenditure, but as a warning to taxpayers that they might expect the worst. I should, therefore, like to begin to-day by saying that there is now no serious cause for alarm. The way before us is not easy, but the difficulties to be surmounted appear to be distinctly less formidable than twelve months ago.

During the year a certain amount of public discussion took place in regard to Government borrowing and the growth of public debt. In some quarters expression was given to the opinion that we had been too prone to rely on borrowing to meet outlay which created no asset for the State, and that in consequence the annual charge in respect of interest and sinking fund payments had assumed menacing proportions. An examination of the facts, however, will show that instead of too freely seeking loans we have pursued a distinctly conservative financial policy, and have kept the dead weight burden of national debt down to a figure which, considering all the circumstances of the past few years, is astonishingly low. Comparatively little fresh borrowing took place during the past twelve months. It was not found necessary to issue the second instalment of the Second National Loan, a fact for which we had some reason to be thankful, having regard to the unfavourable conditions that have for some time existed in the money market. Any sums that were required to meet abnormal or capital expenditure were obtained by discounting bills or by the sale of Savings Certificates. At the 31st March last (if we leave out of account the amount due in respect of the Dáil Eireann Loans and the sum which is being repaid to the British Government by means of the annuity fixed under the Damage to Property (Compensation) (Amendment) Act, 1926) the public debt outstanding was £23,517,000, made up as follows:


1st National Loan


2nd National Loan


5% Compensation Stock


Savings Certificates


Free State Bills


Ways and Means Advances


Telephone Capital Advances


Miscellaneous Advances


In passing, I might draw attention to the fact that during the year the sum invested by the people of the Saorstát in Savings Certificates has increased by £1,038,000, while, at the same time, the deposits in the Post Office Savings Bank have risen by over £160,000. In order to ascertain the real weight of our National Debt it is necessary to deduct from the gross figure of £23,517,000 already mentioned the amount of certain Exchequer assets totalling £9,534,000, of which the following are the principal items:—


Exchequer Balance


Advances to the Unemployment Fund


Advances to the Shannon Fund


Advances to the Electricity Supply Board


Advances to the Road Fund


Advances to the Local Loans Fund


Advances to the National City Bank made in connection with Guaranteed Trade Loans


Advances for Purchase of Creameries


When the aggregate of these, together with other smaller items, has been deducted from the sum of the capital liabilities of the State, we get a net figure of £13,983,000 representing our National debt. This amount may be compared with £13,584,000 last year, and £12,400,000 in April, 1927. If we were to exclude the Telephone Capital Advances from the gross total of indebtedness on the ground that the telephones are practically paying their way and able to relieve the Exchequer of liability, the net total would be reduced by three-quarters of a million. On the other hand if allowance were made for our liability in respect of the Dáil Eireann Loans and the debt to Great Britain which is being liquidated by an annuity of £250,000 per annum, it would be found that the entire dead-weight burden of State indebtedness was something less than £20,000,000. After the present financial year I do not think that this sum will very greatly increase. It is now four years since we adopted the policy of dividing expenditure into two classes—one normal, to be met out of revenue, and the other abnormal to be met by borrowing. In the latter class we have included certain capital expenditure which did not take the form of advances under specific statutes such as the Shannon Electricity Act, the Electricity Supply Act or the Telephone Capital Act; but the abnormal expenditure has for the most part been of a non-capital character. It created no assets and in so far as it was actually met by borrowing and not out of surplus revenue it increased the burden of dead-weight debt.

The volume of abnormal expenditure has, however, fallen very rapidly since 1925-26. In that year it amounted to £3,837,000, though a certain part of that total should be excluded for the purpose of strict comparison. In the following year it sank to £3,250,000. In 1927-28 it was £2,410,000, while last year it was only £1,397,000. In the present year it will again be very substantially down, and we may reasonably hope that in the year 1930-31 the expenditure of the kind which has hitherto been classed as abnormal will include very little in addition to whatever sum may be required for the Local Loans Fund. Though the total outlay under the various heads which have been treated as abnormal has amounted in the past four years to £10,894,000, the sums which have been actually borrowed against it do not reach anything like so high a figure. There are several reasons for this. Each financial year so far has closed with a surplus of normal revenue over normal expenditure, and up till a year ago the surpluses were substantial. In addition, there have been considerable receipts of a capital character from the old Departmental funds which were being wound up, and similar sources. Further, the substantial sinking fund provision which is made in connection with National Loan and Compensation Stock tends appreciably to retard the growth of debt. The gross total of public debt has risen during the four years by just about £10,000,000, but the greater part of the increase is due to outgoings such as advances in connection with the Shannon Scheme, the Road Fund, the purchase of creameries and similar matters. The dead weight debt has increased by little more than £4,000,000.

It is clear, therefore, that our considered policy of borrowing to meet compensation charges, to restore public buildings which had been destroyed, to pay that part of the cost of the Army which was in excess of £1,500,000, and to cover certain other exceptional expenses, has not produced the serious position that certain over-zealous critics have hinted at. On the contrary, a period which was one of great difficulty in relation to the finances of the nation has been passed without the creation of any dangers, or even of any serious problems for the future. The Saorstát has survived an expensive civil struggle which began soon after the commencement of an acute and long-continued economic slump and has done so without the adoption of any financial measure which there was reason to regret or reverse. The credit of the State is: high, and firmly established, a circumstance of which the beneficial consequences are by no means limited to the fact that we are able to borrow more cheaply than most countries for well-planned schemes of development. Good national credit is practically essential to the growth of industry through private enterprise, because in its absence there cannot be stability and continuity of financial policy or any certainty that the State will not be driven by dire need to resort to the imposition of unforeseen and arbitrary burdens. I am satisfied, therefore, that the strict financial methods to which we have adhered and the sound credit position which we have built up have already improved, and will increasingly improve, the prospects of substantial industrial development.

In the earlier part of the last financial year, revenue came in very slowly and although at no time was there any ground for anticipating a big deficit, there was a period during which it did look as if the income of the State would, for the first time, fall short of the Estimate and of the amount required to meet outlay under normal and recurrent heads of expenditure. From the beginning of January, however, the position rapidly improved, and on 31st March there was a surplus of about £100,000 of normal revenue after providing for all items of normal expenditure. The figures for the year, as a whole, may be viewed with satisfaction. They indicate that there is no great reason to fear a shrinkage of the yield of taxation in the future. Since the setting up of the Saorstát we have had to contend with a sharp decline in the return of revenue under certain heads with the result that in spite of all efforts to control expenditure it was in no year possible to give the remissions of taxation that would have been feasible with a stable yield. Henceforward, there is reason to hope that while, perhaps, there will be considerable fluctuations in the return of individual taxes and while the bulk receipts of revenue may go up or down, a gradually improving yield will be obtained, taking one year with another. The only danger of a further decline lies in the fact that a considerable proportion of our Customs revenue is now obtained from protective duties imposed in pursuance of our tariff policy.

As these duties achieve their purpose and stimulate increased production in home industries, they will give a lessening return to the Exchequer. The additional employment given and the additional profits made by Saorstát manufacturers will of course cause new streams or trickles of revenue to flow into the Central Fund. There will be increased consumption of dutiable articles of a luxury or semi-luxury character, and increased contributions of income tax and corporation profits tax, and ultimately also of estate duty and legacy and succession duty. In some cases the loss arising from the disappearance of revenue receipts from a protective tariff will be completely made good. In other cases, however, it seems likely that the growth of Saorstát industry will mean a definite Exchequer loss. But no net loss that can occur will be such as to disturb very seriously the Budget position. If the whole of the revenue from protective duties were to disappear and no new revenue were to accrue from the increase in manufacturing profits and in the national wage bill, the Exchequer would still suffer less than it has suffered since 1924-5 in consequence of the reduced consumption of beer and spirits.

One of the most striking features of last year's revenue was an increase of almost £200,000 in the yield of the duty on tobacco, which produced £270,000 more than the tax on spirits and nearly one-half the combined duties on alcoholic liquors, excluding wine. A considerable part of the increase was no doubt due to extra withdrawals of tobacco from bond, which manufacturers effected in the mistaken belief that the duty was about to be raised. All of the increase, however, cannot be accounted for in this way. Apart altogether from the effects of forestalling, the return was up by at least £50,000.

It is interesting to note that the spirit duty also gave an increased yield exceeding the return of the previous year by more than £100,000. It has been suggested that so far as this particular commodity was concerned the extra consumption that took place last year was ascribable to the occurrence of an epidemic of influenza. I understand that the disease proved fatal in a comparatively small number of cases. Consequently, it would appear that the brisk rush for spirituous beverages not only benefitted the Exchequer but saved human life, which was an excellent result. The Revenue Commissioners do not feel that we can safely rely on any sort of epidemic in the course of the present financial year and accordingly I am anticipating a return below that which was obtained in 1927-8. Allowing for the fact that the shortening of the brewers' credit resulted in thirteen months' tax being collected last year, the beer duty was down by some £50,000. At one time there was reason to fear that the realised yield would fall short of the Budget estimate by £200,000 or £250,000, but in the last three months of the financial year leeway was steadily made up. The reasonably satisfactory figure which was finally attained more truly represented the position in regard to the consumption of beer than the result which appeared likely earlier in the year.

I have on previous occasions explained that while in respect of most commodities, subject to duties of customs or excise, the tax obtained during a particular quarter or half-year affords some indication of the trend of consumption during the period, the yield of beer duty in the Saorstát in consequence of great temporary variations in brewers' stocks, including stocks for export, is liable to fluctuate so extraordinarily that it would be possible for revenue to shrink during a whole year, though consumption was actually increasing, or to increase though consumption was falling. As a result of careful inquiries the Revenue Commissioners are satisfied that while there was some decline in the consumption of beer in the Saorstát during 1928-29 it was inconsiderable. Their view is borne out by the fact that the revenue from imported beer which, of course, was not affected by the shortening of the brewers' credit or variations in brewers' stocks, was up by about four per cent., though there had previously been a downward trend. It is too soon to assume that the return from the beer duty is about to increase or even to become stabilised, but it certainly may be said that the rate of decline is steadily becoming slower, and that if the slight improvement in general economic conditions which has taken place becomes at all more marked the revenue from beer may speedily begin to show a new tendency.

Allowing for the loss attributable to certain modifications made in last year's Budget, the return from the Entertainment Tax showed a slight improvement. Though their financial importance is small, it is of interest to note that the taxes on cinematograph films, clocks and watches and musical instruments produced a yield exceeding that of the previous year by £12,000, whereas a decrease had been anticipated. The tax on sugar produced practically £60,000 more than the estimate which was calculated on the basis of the increased duty. The yield from the Betting Tax fell rather sharply by over £30,000 as compared with the previous year, a fact which would seem to show that whether or not there was an increase in the number of bets made or an increase in gambling amongst particular classes of persons, the actual amount of money wagered with bookmakers in the Saorstát came down from £5,480,000 in 1927-28 to £4,514,000 in 1928-29. The Revenue Commissioners, however, believe there is some reason to fear that with greater experience in preparing their returns a certain number of bookmakers have become increasingly inaccurate. Special steps will be taken to secure a more punctilious observance of the provisions of the law, and it is hoped that the decline in the yield of the tax may be retarded if not arrested. So far as the other indirect taxes were concerned, there was no substantial divergence from the estimate or the figures of the previous year.

Deputies will remember that the provisions of last year's Budget necessitated the collection of £400,000 of income tax which would not in the ordinary course have been brought into the Exchequer in 1928-29. The money was to be obtained by collecting Schedule A tax in a single instalment, instead of in two, and by getting £250,000 more out of the dwindling pool of arrears than could have been got by working the machinery of collection at normal pressure—I use the word advisedly. The amount actually paid into the Exchequer by the end of the financial year was only £43,000 short of the mark. In consequence, the amount of abnormal arrears still outstanding has become comparatively small. The sum which should prove collectible is now estimated at about £130,000. This represents the most difficult type of case which can only be satisfactorily settled after great trouble and prolonged effort. There is no hope of completing the work in the present year. About £50,000 will be collected before 31st March next. The only other abnormal item included in this year's Income Tax Estimate is a sum of £50,000 which will be obtained in consequence of last year's change in regard to the collection of Schedule A. The revenue from income tax, it is estimated, will not fall by more than £100,000 after this year except as a result of changes in the rate or allowances. For the past four years profits in trade and industry have as a whole been steady, with a certain tendency to rise. It can, therefore, be safely anticipated that even if no great change in conditions takes place, income tax will continue to give a yield very little short of £3,300,000 per annum.

Let us now turn to the position in regard to expenditure. The White Paper shows that the estimated amount required to maintain the public departments and meet necessary outlay during the year is, in respect of Central Fund Services, £4,199,220, and in respect of supply services £21,241,430, or a total of £25,440,650.

For Budget purposes I propose, as in previous years, to deduct from the total certain items which because they are abnormal charges of a non-recurrent kind or because they are of a capital nature need not be met out of the proceeds of taxation. They are as follows:—


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


II. Vote 11. Public Works and Buildings, £173,000 out of a total of £373,940 in respect of the purchase of sites and buildings, new works, alterations and additions, and £5,000 being the total provision for premises commandeered by the Army


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


IV. Vote 52. Department of Agriculture, sub-heads F5 and F6, £27,250, provision for capital grants to Universities, and sub-head M4, £2,900, being the amount by which it is anticipated loans for agricultural purposes will exceed repayments


V. Vote 53. Forestry. £25,000 out of a total provision of £50,000 for the acquisition of land and cultural operations


VI. Vote 55. Land Commission, sub-head I, £61,650 out of a total provision of £161.650, being that part which may be regarded as abnormal


VII. Vote 65. Army Pensions, £25,000, being that part of a total estimate of £253,473 which may be regarded as abnormal


VIII. Repayable advance which will be required for compensation for licences abolished under the Intoxicating Liquor Act


IX. Central Fund Services, £80,000 for repayment of Dáil Eireann Internal Loan, and £12,500 for an advance to the Agricultural Credit Corporation


The aggregate of these items is £1,080,000. When that sum is deducted from the total estimate of expenditure, we get a figure of £24,360,000, roughly, representing anticipated outlay to meet which we cannot properly have recourse to borrowing. We are still dealing, however, with a gross figure. Allowance has yet to be made for the element of over-estimation. I have on previous occasions explained that, no matter how carefully the estimates are prepared or how rigidly they are checked in the Department of Finance, they will always in the bulk contain a marginal sum which will not in fact be expended. There are sixty-eight votes, containing well over six hundred separate sub-heads. Departments obtain under each sub-head sufficient money to meet the particular class of expenditure to which that sub-head relates. Naturally and inevitably some small percentage of the amount shown under almost every sub-head in the estimates is really a provision for contingencies. Every year in the case of a certain number of votes the estimate proves insufficient, generally because of some unforeseen development. In the great majority of cases, however, and in the estimates taken as a whole, there is some money over at the end of the year. Last year I fixed the sum which I thought could reasonably be allowed for over-estimation, together with savings, at £600,000, which proved to be practically correct. This year it will not be possible to count on nearly so large a margin, in view of the drastic way in which the estimates have already been pruned. The largest sum which it would be justifiable to expect to remain unspent at the end of the year in consequence of over-estimation and of savings is £435,000, which is about 2½ per cent. of the total estimate for all normal supply services after deducting the fixed grants on which no saving could be effected and in respect of which no over-estimation could arise. If we deduct, therefore, £435,000 from £24,360,000 odd, which is the aggregate estimate of expenditure for those purposes for which it is not permissible to borrow, we get a net total of £23,925,000. This is the amount which will actually be spent during the present year and which must be entirely provided out of the proceeds of taxation or other normal revenue.

The estimate for Supply Services, after deducting abnormal items, is down by £539,000 as compared with last year. This very substantial reduction was not achieved without great difficulty. In January last, after the draft estimates had been submitted, it was apparent that if the total could not be diminished there would be no alternative to the imposition of fresh taxation this year to the extent of several hundred thousand pounds. A special economy drive was undertaken. Projected services which would have been very valuable if there had been money to spare were abandoned, and existing services were reduced and in some cases eliminated, and, generally speaking, the estimates were hacked down to the lowest possible level. I have already referred in the Dáil to the assistance obtained from the Economy Committee, of which Deputy Heffernan is chairman. The Committee was established in the autumn of 1927, and has since then been steadily occupied with its difficult and tedious task. Although it had not begun the preparation of a report at the end of January last, when the necessity for very special steps to bring about a reduction of outlay arose, it had in fact carried out a detailed survey of the greater part of the field of State expenditure and was in a position to indicate a number of directions in which retrenchment was possible. The Cabinet availed to the full of the information which the Economy Committee had collected, and adopted a number of the suggestions which had been before the Committee with a view to their insertion later on in its report. It is hoped that the Committee will be able to complete its examination of Government expenditure during the present year and present a report, for although the general economic outlook is better there can still be no question of the need to limit outlay as much as possible.

Two or three of the cuts which were effected in January and February have attracted considerable public attention and in one of them we were unable to persist because of the overwhelming opposition which manifested itself amongst Deputies. Like many excellent things, it failed to catch the popular fancy. Another, the abandonment of the summer courses in Irish for National teachers, has been misrepresented in some quarters. I need hardly say that it marks no change of policy by the Department of Education in regard to the teaching of Irish. The fact is that while the summer courses were necessary and valuable in the first few years after the change of Government, their utility had gradually declined and in the meantime a slower but more radical scheme for procuring teachers fully competent in the Irish language had been inaugurated. Even if there had been no clamant need for economy the summer courses would not have been continued more than another summer at most. Their discontinuance is no indication of any disposition to look upon expenditure on effective work in connection with the Irish language as a partly unnecessary expenditure from which pickings may be obtained for the Exchequer any time conditions of financial stringency develop.

The decision to stop recruiting for the Civic Guard has necessitated the closing of certain stations and a good many local protests and appeals have been received. We believe, however, that some further reduction in numbers may be possible without much detriment to the public. But, on the other hand, we are convinced that whatever may be the need for economy the remuneration of the Guards cannot be further curtailed. In this respect the limit has been reached. Five years ago their pay was reduced by some fourteen or fifteen per cent. This year their allowances have been substantially reduced. Financially, they are appreciably worse off than police in adjacent countries. Any further cuts would not only be impolitic from the point of view of the maintenance of efficiency, but they would be unjust to individuals who have given faithful service and allowed opportunities of entering upon other careers to go by.

Even when an intense campaign of economy is being carried on, it is impossible to stop all additions to expenditure. There are many cases in which the amount to be provided under a particular sub-head is subject to automatic increases which cannot be postponed or avoided. In other cases, public policy demands that outlay in some new direction be sanctioned or that expenditure on certain special existing services be increased. I consider, therefore, in all the circumstances, it is something of a feat to bring down the total of the normal items in the estimates for the Supply Services by practically £550,000. As I have already indicated, the cutting to which the estimates have been subjected makes it impossible to anticipate that savings, whether arising from over-estimation or further limitation of expenditure, will reach nearly so high a figure as last year. In consequence, the net amount of revenue required to meet actual expenditure under the normal and non-capital sub-heads shown in the estimates for the Supply Services will be less than the amount required last year by only £374,000. The increase in the Estimate for normal Central Fund Services, on the other hand, amounts to £237,000. It is more than accounted for by the additional sums provided for interest and sinking fund.

Two factors are responsible for the somewhat sharp increase in the amount expected to be required for the service of debt. In the first place, it is anticipated that it will be necessary during the year to make an issue of National Loan to the extent of £5,000,000 and nearly £200,000 will be required for interest, sinking fund and flotation expenses. Secondly, I have been forced to the conclusion that the practice hitherto adopted of dealing with interest on Savings Certificates can no longer be followed. As I have already mentioned, the amount that has been borrowed by the sale of Savings Certificates is over £4,000,000. The liability accruing annually in respect of interest will henceforth be very considerable. Up to the present we have only made provision in the estimates for such amounts of interest as it was anticipated would become payable in consequence of the cancellation of certificates in the particular year. The interest that has actually had to be paid in any year heretofore has been only a small part of the interest which had been earned. The position will probably not change much for the next two or three years, but a point will then be reached when big interest payments will have to be made. If no fund were accumulated to meet that contingency the taxpayers of the Saorstát would be faced with the unpleasant prospect of having suddenly to submit to the imposition of the new taxation requisite to provide a very large sum for a purpose for which borrowing would be inadmissible. I have, therefore, decided to set aside a sum of £150,000 as a reserve against the interest on Savings Certificates which will accrue, but not be paid this year. This change of policy increases the Central Fund estimate by the figure mentioned, but I am satisfied that the step could not have been longer delayed. The position accordingly is that while the amount of revenue that must be obtained to meet expenditure in respect of Supply Services is down by £374,000 as compared with last year, the amount required for Central Fund Services is up by £237,000, and the net decrease is £137,000.

The White Paper shows that the tax revenue which it is expected to receive during the year will total £20,436,000, while the non-tax revenue will amount to £3,528,000, making £23,964,000 in all. There are two anticipated receipts included under the heading of Miscellaneous Non-tax Revenue, to which I must draw attention. The first is a sum of £25,000, representing repayments, by Agricultural Credit Societies of advances made to them; the second is a sum of £200,000, which will be received from the National City Bank in repayment of an advance made to it in 1925, when difficulties arose in financing the operations of the Trade Loans Guarantee Act. The advances to the Agricultural Credit Societies were made with money obtained by borrowing, and the sums now being repaid cannot be used to defray expenditure which ought to be met out of taxation. The advance to the National City Bank, on the other hand, was made before we began the practice of dividing expenditure into normal and abnormal categories, and the money was in fact found out of taxation, 1924-25 having been a bumper year from the point of view of revenue. Accordingly, I am satisfied that the portion of the loan which will be repaid this year can be used for any purpose to which tax-revenue now coming into the Exchequer could be applied. Although it is a non-recurrent receipt, it is as much a normal receipt as money arising from the collection of old arrears of income tax, or the shortening of brewers' credit in respect of beer duty. I propose, therefore, to treat as normal all the amounts included in the White Paper estimates of tax and non-tax revenue, with the exception of the sum of £25,000 to which I have just referred. If we deduct that figure from the gross aggregate of revenue, we get a net estimated total of £23,939,000. Comparing this amount with the expenditure figure of £23,925,000, we find that with taxation on its present basis the Budget will balance with a nominal surplus of £14,000. The position is, therefore, that no new taxation is necessary and no remission of taxation is possible. If any changes are to be made they can only have the effect of shifting burdens about.

In case any Deputy or taxpayer might omit to be thankful for small mercies, I shall recall the position that faced us last year. The deficit which had then to be met was £1,149,000. The estimate of expenditure (leaving the Road Fund out of account) that had to be paid out of revenue was up by £932,000 as compared with the previous year, and the revenue was down by £217,000. In comparison with the outlook which then confronted us, present prospects give considerable grounds for cheerfulness. Not only is there no deficit to be made good and no increase of expenditure to be faced, but we are going to have an increase of over £300,000 in normal revenue, apart altogether from the yield of any taxation imposed in last year's Budget or since.

I have during the last three months received from organisations and individuals many suggestions in regard to reliefs which they thought ought to be given, and new taxes which they considered might be imposed. Almost all of the suggested remissions are familiar to Deputies. They have been discussed in the House or have figured in the reports of the meetings of various Chambers of Commerce and similar business organisations.

I have been asked to consider favourably reductions in the beer, spirit and wine duties, in the entertainments tax, the abolition of the corporation profits tax, various reliefs to income tax payers, the lowering of the letter postage rate to a penny, the reduction of the stamp duties on cheques and receipts, the reduction of the standard rate of income tax to 2/-. And now the Joint Committee on the Betting Act has rushed in breathlessly at the last moment with a suggestion, which there has been no time yet to consider, that the tax on bets made at racecourses should be remitted.

On the other hand, in consequence, I suppose, of alarmist rumours about the revenue position, I have got a rather greater volume of advice than usual on how to raise additional funds. The suggestions that have come in recommended, amongst other things, a tax on shops, a tax on commercial travellers, a tax on bicycles, a tax on imported newspapers, a tax on dances, a tax on automatic selling machines, a tax on coursing meetings, a tax on silk stockings, a tax on barristers, and a higher tax than has yet been suggested on buses. Curiously enough, none of my correspondents advocated a tax on petrol.

Feeling that mere chopping and changing of the scale of taxation is useless, and even somewhat harmful, I decided simply to put away till next year, when relief may be possible or new taxation necessary— which I do not expect—the many interesting suggestions that have been submitted to me. Exceptions were, however, made in the case of two proposals.

The appeal for increased allowances to income tax payers in respect of children and earned income was very carefully considered. It is one with which I have much sympathy. But I am strongly of opinion that funds for the further relief of income tax payers should not be found by the imposition of customs or excise duties on articles of common use, because in that case the money would be collected mainly from people who are worse off than any of those who are liable to income tax. I believe also that we ought not to contemplate such a thing as an addition of 3d. or 4d. to the standard rate in order to increase the scale of allowances. The encouragement of business enterprise is largely a question of promoting in various ways a growth of confidence. A proposal at the present stage to increase the income tax rate for any purpose whatever would immediately produce a feeling of uncertainty as to the economic future and be bad for industry. An attempt was accordingly made to see whether, without raising the rate, it would be possible to readjust the burden of income tax between different classes of the community in such a way as to give the reliefs sought without loss to the Exchequer.

As I promised last year, a Departmental Committee was set up to examine the whole matter, and Deputies were invited to lay before it any suggestions which they thought ought to be considered. The Committee were unable to find a scheme which would appreciably increase the children's and earned income allowances without loss to the Exchequer. The plan which they submitted as the best they could devise provided for earned income allowance at the rate of one-sixth on income up to £450, with allowance at the rate of one-tenth, as at present, on income above £450, the existing maximum limit of £200 to be maintained. The Committee's plan also provided for increasing the present allowance of £36 for the first child and £27 for each other child to a flat allowance of £50 for every child. On the other hand, it proposed that where at present only half tax is payable on the first £225 of chargeable income, the full rate should in future begin to be payable after the first £150. The cost to the Exchequer of the scheme as a whole would be about £100,000 per annum. It is as cheap and as equitable a scheme as could be put forward for the purpose in view, and if there were £100,000 available for the remission of taxation it would merit adoption, though no doubt certain arguments could be brought against it, and its effect in increasing the tax payable by some of the people in receipt of comparatively small incomes from investments would be resented. The position, however, is that the £100,000 necessary to enable the scheme to be accepted is not available, and we have been reluctantly compelled to put it aside for the present.

The question of rearranging the scale on which entertainments tax is charged was also considered during the year with a view to seeing whether it would be possible to relieve lower-priced seats in cinemas without loss to the Exchequer. I regret that it was not found possible to get a satisfactory alternative to the present scale without facing a loss of revenue which in the present circumstances we cannot afford.

For some years past I have been pressed to take some step towards the simplification of the income tax code, and, in particular, to adopt the principle of assessing tax on the basis of the income of the preceding year, instead of the various bases which are at present taken for different classes of income. The variety of bases of assessment is confusing to the taxpayer and tends to increase the work of the staff of the Revenue Department. Thus, the profits of a mine are chargeable on the basis of the average of the five years preceding the year of assessment, the profits of a quarry on the basis of the single year preceding the year of assessment, and the profits of, say, a woollen factory on the average of the three years preceding the year of assessment. A professional man who happens to be a director of a limited liability company and who has capital invested in National Loan is obliged to compute his income from his profession on the average of the three years preceding the year of assessment, his income from his directorship on the basis of his remuneration for the current year, and his income from National Loan on the basis of the interest arising during the year preceding the year of assessment.

Again, an employee of a limited liability company is assessable under Schedule E on the income derived from his employment during the year of assessment. If his salary at the beginning of the year is, say, £400, he is assessed to income tax in the first instance on that amount; but if he receives an increase of salary amounting to, say, £50 per annum, with effect as from the 1st October, an additional assessment has to be made for the extra £25 accruing to him during the year of assessment. Extra pay for special work, such as overtime, falls to be similarly dealt with. In the case of various classes of persons who receive special items of remuneration apart from their salaries, these additional assessments, which have to be made after the end of the year, entail much work for the staff of the Revenue Commissioners and a certain amount of inconvenience to the taxpayer.

I propose, accordingly, to embody in the Finance Bill provisions designed to sweep away a good deal of this complexity and to secure, broadly speaking, that all income from trades, professions, and vocations, investment income chargeable by direct assessment under Schedule D, and also income from employments chargeable under Schedule E shall be assessed on the basis of the income of the single year preceding the year of assessment. Mines, quarries, railways and other similar concerns will be definitely transferred to Schedule D, and will also be chargeable to income tax by reference to the profits of the year preceding the year of assessment.

This principle of assessing income tax for any year on the basis of the income of the preceding year is adopted in the Dominion of Canada, in the Commonwealth of Australia, and in many other countries. It was adopted in Great Britain in 1926 with effect as from 1927-8 inclusive. I am satisfied that the adoption of it in the Saorstát will simplify matters from the point of view of the taxpayer and will make for economy in administration.

In addition to the main provisions to which I have referred, there will be certain consequential provisions dealing with commencing and ceasing businesses, the treatment of losses, etc. These changes will not come into force this year. The forms requiring returns from taxpayers for the year 1929-30 have long since been printed in accordance with the existing law; the bulk of them have already been issued to the public, and much of the work towards the making of the assessments must be completed before the Finance Bill can be passed. The Bill will be drafted so as to provide that the changes to which I have referred will come into force for the fiscal year 1930-31.

The present is an opportune time for a change of this character, which will, I anticipate, be effected without any appreciable gain to the revenue at the expense of the income tax payer, on the one hand, or to the income tax payer at the expense of the revenue, on the other. It would be difficult to make the alteration at a time when trade was showing a sharp change either upward or downward.

I should, perhaps, mention that assessments under Schedule A on houses, lands, etc., in the Saorstát, and under Schedule B on farming profits, will continue as at present to be made by reference to the Poor Law valuation. Income taxed by deduction at source—for example, ground rents, mortgage interest, dividends paid by Saorstát limited companies, etc.—will continue to be dealt with in the same manner as at present.

In addition to the alterations which I have already outlined, I propose to introduce clauses to simplify certain formalities in connection with the procedure for the making of income tax assessments and the hearing of appeals. These latter changes do not involve any material alterations in the income tax forms, and I propose that they shall take effect this year.

Since the British scheme for de-rating agricultural land and for giving a seventy-five per cent. relief to industrial undertakings and freight transport hereditaments was published a year ago, demands have been made in various quarters in the Saorstát that a similar scheme should be put into operation here, at any rate in relation to agricultural land.

Before the British proposals were announced we had complaints about the burden of rates and a certain clamour for increases in the different Exchequer grants, as well as for the wholesale supersession of local bodies by commissioners, but there was no agitation for de-rating. It is probable that many of those who have in recent months pronounced in favour of it have done so without fully considering the matter on its merits. But if, on the one hand, a number of people have accepted without much examination the idea that the British Government has discovered a potent economic remedy which would also be efficacious here, the Government, on the other hand, has been anxious not to fall into the mistake of coming prematurely to the conclusion that because of the wide differences which exist between the conditions prevailing in the two countries it would be impossible beneficially to apply the British scheme or some modification of it to the Saorstát. In consequence the whole problem has received a good deal of attention from Ministers and Departments since the end of last summer. An inter-Departmental Committee was appointed to examine the matter systematically, and its report was carefully considered. The more deeply the question was probed the more serious and complicated it appeared. If de-rating on the British plan were carried out here, and if malicious injury rates, drainage rates, and similar special rates were excluded from the scope of the scheme, as it is proposed to exclude them in Northern Ireland, the amounts to be found by the Exchequer on the basis of the rates prevailing in the Saorstát during the past financial year are estimated to be as follows:—

In respect of agricultural land


In respect of farm buildings


Total for agriculture


In respect of industrial establishments


In respect of freight transport


Making a total of


Deputies will notice that the cost of giving the 75 per cent. relief to industrial establishments and freight transport hereditaments would be comparatively small here. Indeed the cost of relieving agricultural land and farm buildings would be almost 92 per cent. of the whole. In Great Britain, on the other hand, the additional relief of agriculture is rather a minor feature of the scheme. It was estimated by the Chancellor of the Exchequer that the cost of de-rating agricultural land in England and Wales and of reducing the rate payable in Scotland to one-sixth of the general rate would amount to £4,750,000, whereas the estimated total losses of the local authorities in Great Britain on account of rates will be £24,000,000. The cost of the agricultural part of the British scheme is, therefore, rather less than one-fifth of the whole. In fact when the special new grant of £5,000,000 which is being given to help to get the scheme smoothly into operation is taken into account the cost of agricultural de-rating is less than one-sixth of the total. Not only is the reform which is being carried out across the Channel one which mainly affects manufacturing industry, but it would seem to have been necessitated by industrial needs, and there would appear to be grounds for doubting whether with the system of land tenure that prevails in Great Britain any part of the benefit which it gives the farmer will be permanent.

It does not follow, of course, that a scheme designed primarily to benefit manufacturing industries might not, if applied to an agricultural country, be just as effective in assisting the farmer. But there are two factors here at present which present difficulties altogether disproportionate to the difficulties involved in Great Britain. In Great Britain the cost of making good the rates lost by local authorities will be about 2.8 per cent. of the national revenue. In the Saorstát it would be 9.2 per cent. of the revenue. In Great Britain it is anticipated that after a year or two the annual yield from a 4d. tax on petrol will meet the whole cost. In the Saorstát a 4d. tax on petrol would provide little more than one-fifth of the sum required. In Great Britain the fruits of a 6d. income tax would be ample to pay for de-rating; in the Saorstát a 6d. income tax would not give a quarter of the money that would be needed. Our neighbours are able to finance the new system out of the proceeds of a single simple tax which can be easily collected and which falls to a considerable extent on a luxury traffic. In case we were to de-rate we should be obliged to put on seven or eight new taxes. If, for instance, we decided to raise the income tax to 4/- we should have to give allowances on the British scale and abandon the corporation profits tax, and the net additional revenue obtained probably would not exceed £500,000. A tax of 4d. on both petrol and paraffin would give about £700,000, or perhaps £50,000 less. A tax of 3d. per lb. on tea would yield £250,000; an additional ¼d. per lb. on sugar—making the rate 50 per cent. higher than in Great Britain—would produce £200,000. An increase in the duty on boots from 15 per cent. to 20 per cent. would procure £80,000, and by raising the duty on all apparel to 20 per cent. we should probably bring in £90,000 more. It would still be necessary to obtain a further £410,000 if de-rating was to be extended to industries and transport. If it were decided to confine the relief to agriculture only, £230,000 extra would be required. Most of the latter amount could be got from an increase of 6d. per lb. in the duty on tobacco. The de-rating of agricultural land and buildings would therefore involve seven items of new or increased taxation, which I may recapitulate:

1/- on the income tax,

¼d. per lb. on sugar,

3d. per lb. on tea,

4d. per gallon on petrol and paraffin,

5 per cent. on boots,

5 per cent. on such apparel as is now subject to 15 per cent.,

6d. per lb. on tobacco.

Deputies will recognise that no Minister for Finance could bring a list like that to the Dáil for adoption and expect to meet with an enthusiastic reception. Such a series of impositions would undoubtedly have an effect on the cost of living and entail consequential increases in State expenditure. It must be borne in mind also that the taxpayer would have to disburse sums in respect of the new indirect taxation which would substantially exceed the amounts which would reach the Exchequer. If the State got 3d. per lb. out of tea, the consumer in all probability would ultimately pay 4d. or 5d. extra. It is certain that if we raised £2,050,000 by taxation in order to de-rate agricultural land the actual charge upon the taxpayer would be anything from £200,000 to £400,000 more. It might even exceed the latter figure.

It is not clear that agricultural production would be increased by de-rating. No doubt the individual farmer would welcome greatly the immediate relief from direct taxation; but his net gain as a general rule would be very little. It is probable that many small farmers with families might lose practically the entire benefits of de-rating in consequence of the increased cost of tea, sugar, oil, boots, clothes and tobacco, taken in conjunction with such increases in the prices of commodities generally as might result from a transfer of a portion of the burden of the petrol duty and additional income tax by those on whom this burden immediately fell. Even in the case of farmers who definitely gained as a result of the change, the net saving would not be such as to have any immediate effect on the economy of their farms. It could scarcely be sufficient in any case to enable them to produce more or give more employment. In consequence the position would be either that the agricultural labourer and the town worker would have to suffer an increased cost of living for a change which brought no advantage to themselves, or new schemes of expenditure would have to be devised to give them compensating benefits.

If de-rating in the Saorstát could be financed as in Great Britain from the proceeds of a single and not very oppressive tax, it would be possible to give the farmer a net measure of relief which would very nearly correspond to the burden which he has heretofore borne by way of rates, and to do it without imposing fresh burdens on classes not well able to bear them. Conditions being as they are, however, the financing of a scheme of de-rating would be for us a problem of the greatest magnitude. The second factor which makes de-rating a far more serious question here than in Great Britain is the effect it would have on the system of local government. Across the Channel the change is being carried out without altering substantially or fundamentally the powers or duties of the local authorities.

The present valuation of agricultural land in Saorstát county areas, including urban districts, is 71.2 per cent. of the total valuation of those areas for rating purposes. In particular counties the proportion rises to 84 per cent. and 86 per cent. In the Saorstát as a whole the percentage of the total valuation represented by agricultural land and farm buildings is about 65, while in Northern Ireland it is about 38. Agricultural land and buildings in Scotland represent about 6 per cent., and in England and Wales agricultural land represents about 2½ per cent. In Great Britain as a whole the proportion of the entire valuation, which would either be wholly relieved of rates or given three-quarters relief, would be far lower than in the Saorstát. This is clear from the fact that of rates lost there will only be 12.2 per cent., whereas in the Saorstát it would be 44.7 per cent.

It will be obvious that it would be impossible for the State to pay out to the county councils sums which, together with existing estate duty grant, licence duties grant, etc., would represent in many cases well over 90 per cent. of their revenue, and leave their present powers undisturbed. If such a thing were done an orgy of expenditure would result. Stabilisation of the total Exchequer grant would not suffice to check extravagance. It would only lead to an agitation for fresh relief when the rate burden on dwelling-houses and the like had risen to intolerable heights. Neither would the fixing of a maximum limit for total expenditure be a workable device. On the whole, it would at present appear that de-rating would necessitate changes in local government which would practically be equivalent to its abolition.

I am aware that proposals for the abolition of local authorities would command a good deal of support through the country. Such support would come not merely from people who think that rates in their own area are higher than they need be, or who have an objection to the personnel or methods of their local council; it would come also from people who take the view that, with the ease and speed of modern communications, a small State like ours, with a small population, does not need local elected bodies at all. Most of the opponents of responsible local government, however, fail to advert sufficiently to the fact that if the administration of roads, asylums, poor relief and public health were vested entirely in the central authority there would arise a pressure for ever-soaring expenditure which would be nearly irresistible. At present demands for increased local expenditure are countered by local resistance, but if local government were abolished, either by the wholesale substitution of commissioners or by the transfer of services to Government Departments, the position would be entirely altered. So long as we have commissioners operating in only a few places, and so long as they hold office only temporarily, the Government need accept no responsibility for their actions. But if there were commissioners everywhere and local councils nowhere, the Government would be obliged to direct the policy of every commissioner and accept responsibility for all his acts. He would in fact become merely the agent of a Department of the Government. Equally, therefore, whether the State administered local services exactly as it administers other services or administered them through the medium of commissioners, we should have constant and practically unanimous pressure from every area for increased outlay.

It has been suggested that the State should take over certain services like mental hospitals and roads, and leave the local bodies to carry on their remaining functions as at present. This alternative has its own disadvantages. It would, of course, leave agricultural land still subject to rates, though they would, for the time being at any rate, be substantially lower. It would, however, inevitably involve an increase in the cost of what are now local services. While in connection with mental hospitals certain economies could be effected as the result of centralising the administration, improvements of various sorts which would have to be made would undoubtedly result in a substantial net increase in the cost of the whole service. If the State assumed responsibility for roads, higher standards and greater costs would ensure. I do not say that in regard to either mental hospitals or roads there would be greater waste under a system of central administration. On the contrary, I think it possible that better value would be got for the money expended. But the object of those who want the change is to lighten the burdens of the producer, and that object would not be attained. Moreover, if responsibility for roads and asylums were assumed by the State, and the local authorities left in charge of poor relief and public health, expenditure on those services would speedily rise considerably. The new outlay might do a lot of good, but it would not serve the same purpose as relief from taxation.

I am satisfied that before anything in the nature of de-rating could be adopted in the Saorstát, or before any alternative method of shifting the rates burden could be safely carried into effect, the problem of the future of local government would require more examination. It is the intention of the Government to explore the whole matter further. An improvement in general economic conditions and in the yield of taxation might easily make the financial aspect of de-rating less formidable in future, and if a scheme of local government reform could be devised which would overcome the administrative difficulties and obviate an undue increase in expenditure, then the proposal would present itself in a much more favourable light.

I come now to the only increase in taxation which it is proposed to make. It will not affect the Exchequer, but it will strengthen the Road Fund a little. About six months ago I stated that the Government intended to submit to the Dáil proposals for increasing the contribution made by motor omnibuses towards the maintenance of the roads. At that time the intention was to impose a mileage tax of 1d., 1½d. or 2d., according to the size of the vehicle, the tax to be paid by means of stamps affixed to a log-book before the commencement of each journey. More recently it has been represented to me that the charge suggested would be excessive. Representatives of the bus owners were not prepared to argue with any vehemence that they were at present contributing to the Road Fund every penny which they could in justice be asked to give. They purported to show, however, that in particular cases a vehicle which is now liable to a tax of £40 per annum would have to pay £290 per annum. Their figures with regard to the annual mileage actually travelled by individual buses are not in accord with figures upon which I relied. If the bus owners' figures are accurate, I am satisfied that the mileage tax originally proposed would be too heavy. Without coming for the present to a final conclusion as to whether or not buses should be taxed on a mileage basis, or what rate would be fair if a mileage tax were determined on, I have decided not to submit to the Dáil the proposals which I mentioned last December. It is intended instead to increase the present tax, which is based on seating capacity, by 150 per cent., so that the vehicle at present paying £40 a year will pay £100. The change will bring an increase of about £45,000 per annum to the Road Fund, but it will still leave the contribution of the buses to the Fund at the modest level of 10 per cent. of the total revenue flowing into that Fund. The increased duty will be payable as from the 1st July.

Further consideration has been given to the proposal to increase the tax on vehicles not fitted with pneumatic tyres. In view of the fact that three years ago the tax on lorries was very substantially increased, it is thought that the additional increase ought not to be imposed for the present.

Clauses effecting minor changes of various kinds will be inserted in the Finance Bill, but I need not enter into any explanation of them at present. Broadly speaking, the provisions of the present Budget leave matters as they were. To those members of the public who think that every Budget should embody several stunts, that will no doubt be a disappointment, but I venture to think that citizens who have examined our financial position intelligently will be tolerably satisfied. Heretofore, in every Budget substantial changes in the scale or balance of taxation have been effected; the influence of some of them on the course of trade was considerable. This year no important change in the table of duties is called for or is possible, but the benefits of the economic policy of the last few years have begun to be felt. For the first time it is possible to look forward from one Budget to another entirely without misgiving or anxiety.