The outstanding financial event of the year 1930-31 was the flotation of the Third National Loan. This loan, as Deputies are aware, had been under consideration for some months, and in the meantime Exchequer requirements had been defrayed by means of temporary borrowings. It was felt in May of last year that conditions in the Money Market were favourable, and that it was undesirable to continue adding further to our floating debt, which had already reached fairly substantial proportions, amounting on the eve of the decision to issue the loan to nearly three and a half million pounds. The loan was an unqualified success, a result which, in view of its terms and the price of money at the time, was very gratifying. Contrary to the usual practice, both in Government and other issues, it did not offer investors a marginal yield greater than that obtainable by investment in our existing stocks. The yield was, in fact, less, and not a few well-known people feared a poor response. About the time at which we went on the market a number of other Governments were borrowing on terms much more attractive from the investor's standpoint. In May, Japan made an issue of 5½ per cent. Stock at 90, New Zealand of 5 per cent. Stock at 99, India of 6 per cent. Stock at 99, while in June the German Government issued a 5½ per cent. Stock at 90. Our 4½ per cent. Stock at 93½ offered a return, taking redemption at the final date, 1970, of £4 17s. 6d., while the countries mentioned, calculating interest on the same basis, offered, in the case of Japan £6 13s. 8d. per cent., New Zealand £5 1s. 8d. per cent., India £6 4s. 9d. per cent., and Germany £6 13s. 8d. per cent.
In consequence of events in the Money Market original subscribers to the Loan have the satisfaction today of seeing their security standing at a premium of over £7 7s. 0d. per cent. (exclusive of accrued interest) above the purchase price. And as practically the whole of the loan was taken up at home, we need not bemoan the fact.
As in the case of previous loans, we found that the success of the Third National Loan stimulated the demand for Savings Certificates, and this stimulus was strengthened by the fall in money rates, which made the terms obtainable from Savings Certificates more and more attractive. There was in the end such an avalanche of buying that, in self-defence, we had to close down the issue. By the 20th February last, the date of closing down, we had received a total in cash of a little over £8,000,000 from the time the issue of certificates started in June, 1923. Cash receipts from sales in 1930-31, though covering a period five weeks short of the twelve months, exceeded by over £500,000 the record sales previously reached in the financial year 1928-29, when a total of £1,385,000 was attained. In the five days prior to 20th February last £193,000 in cash was subscribed.
Though the rate of interest on the new issue, if held to maturity, works out at £4 2s. 9d. per cent., as compared with £5 6s. 2d. on the original issue, the sales to date have been very satisfactory, amounting to £35,000 in cash in the first week, £45,000 in cash in the second, and £41,000 cash in the third.
Notwithstanding the fact that during the past financial year there was grave and growing economic depression throughout the world, the yield of taxation in the Saorstát was considerably in excess of the Estimate. The consequence was that in spite of substantial outlay on relief schemes and on foot of guarantees under the Trade Loans Act, for which no provision had been made in the original Estimates, and in spite of the fact that non-tax receipts were below the figure set out in the Estimates, it was possible to close the year with a small surplus of normal revenue over normal expenditure.
Income from the duty on sugar was up by over £60,000 as compared with the previous year, and exceeded the estimate by some £34,000. The yield of the entertainments tax was again increased, producing £20,000 more than in the year 1929-30. It was, however, the duty on tobacco which gave the most satisfactory result of all the indirect taxes, producing £240,000 more than the estimate. A part of the increase was due to withdrawals from bond for a new factory which was opened in Dublin and to ordinary fluctuation, but part of it was also due to additional consumption. During the past twelve months the manufacturers of home-made matches evidently continued the process which has been going on for several years of driving their foreign competitors out of the market. The amount collected by way of excise duty was up by £1,600, while the yield of Customs duty was down by £1,800. It is remarkable that in every year since 1925 the tax returns have indicated a similar small increase in the consumption of home-made matches and a similar small decrease in the importation of foreign matches. Though the change which took place in any individual year did not seem of much consequence, the cumulative effect of the Saorstát manufacturers' efforts has been that whereas six years ago one-third of the matches used here were of foreign manufacture, the fraction is now only slightly more than a fifth. The tariff on butter imposed on 21st November, 1930, produced no revenue; but on foot of the duty of 4d. per lb. fixed on 23rd January, 1931, a sum of £42,000 was collected. The tax on wireless apparatus produced £4,500 more than last year. In spite of the presumably deleterious effect of the hospitals' sweepstakes, the betting duty, though it yielded slightly less than in 1929-30, exceeded the estimate.
The return from the taxes on beer and spirits was definitely disappointing. In the case of the duties on spirits, as Deputies are aware, the yield which had declined very rapidly during the first few years after the establishment of the Saorstát had seemed since 1925-6 to have become practically stabilised. In the past financial year, however, there was an appreciable decrease in consumption with the result that the Exchequer got more than £60,000 less than was anticipated. The deficit seems to have been attributable to a proportionate decrease in the use of both imported and home-made spirits. The shortage in respect of beer duty was substantially greater, totalling £140,000. Here, however, a considerable part of the fall was due not to declining consumption, but to a reduction of brewers' stocks. In the year 1929-30, the revenue from beer exceeded the estimate by over £120,000, because during that period brewers had thought it desirable to increase their stocks. In the last twelve months those in charge of the industry have pursued the opposite course and the inevitable decline in Revenue has ensued. Whether or not their policy in regard to stocks indicates the views held by brewers as to the prospects of the trade, we have no means of knowing.
Coming to the direct taxes we find that return from death duties was almost £90,000 in excess of the estimate. Income Tax, together with Surtax and Super-tax, produced £50,000 more than in the previous year and exceeded the estimate by over a quarter of a million pounds. On the other hand, Stamp duties yielded £40,000 less than in the previous year and the return from Excess Profits Duty was down by practically £50,000. The increased sum which was obtained from Corporation Profits Tax was due principally to the fact that two years' tax from one important firm was received within the last financial year.
While it cannot be anticipated that in the current year the yield of taxation will be as little affected by the slump in prices as it was in 1930/31, there are no grounds for fearing a catastrophic fall in any direction. It is clear, however, that there is less likelihood this year than ever before of the return of tax revenue substantially exceeding the estimate.
At 31st March last the public debt outstanding calculated on the basis adopted in previous Budget statements was £29,381,000, made up as follows:—
|
£ |
|
|
1st National Loan |
8,186,500 |
|
2nd National Loan |
6,774,500 |
|
3rd 4½% National Loan |
5,914,000 |
|
5% Compensation Stock |
205,000 |
|
Savings Certificates |
6,344,000 |
|
Telephone Capital Advances |
847,000 |
|
Miscellaneous Advances |
147,000 |
|
Land Bonds issued in respect of State contributions under the Land Acts, 1923/27 |
963,000 |
In order to obtain the figure representing the dead weight burden of our National Debt, it is necessary to deduct from the gross total of £29,381,000 already mentioned certain Exchequer assets totalling £14,106,000, of which the following are the principal items:—
|
Exchequer Balance |
£1,841,000 |
|
|
National Loan Sinking Fund (unapplied balance) |
311,000 |
|
|
Advances to Unemployment Fund |
284,000 |
|
|
Advances to Road Fund |
640,000 |
|
|
,,,, |
Shannon Power Fund |
5,711,000 |
|
,,,, |
Electricity Supply Fund |
2,013,000 |
|
,,,, |
Local Loans Fund |
1,966,000 |
|
,,,, |
National City Bank in connection with Guarenteed Loans |
100,000 |
|
,, |
for purchase of Creameries |
459,000 |
When the aggregate of these, together with other smaller items, has been deducted from the gross total of National Debt already given, we get a net figure of £15,274,000, which may be compared with £14,779,000 last year. During the year 1930-31 the dead-weight burden of debt was therefore increased by £495,000. This is not a large addition relatively, and if we consider how it was brought about it will be seen to be of less importance than would appear on first view. Included in the expenditure on Central Fund Services financed out of normal revenue is the very large provision which we make for sinking fund in respect of three National Loans and Compensation Stock. The amount by which liability for these loans and stock was reduced during the year from that source was about £526,000, apart altogether from the sum of £566,950, representing the nominal value of compensation stock paid off during the year at the option of holders, a transaction which was financed out of borrowing. In addition to the sum of £526,000 mentioned, a sum of over £114,000 was carried forward representing sinking fund which, owing to the state of the market, could not be applied to cancellation of stock but which created an additional asset to set against the gross liabilities of the State. Expenditure on normal supply services included, in the Votes for the Post Office, Railways and Public Works and Buildings, annuities of which the capital portion amounted to approximately £81,000, which reduced by an equal amount the State's liability on foot of minor miscellaneous borrowings. The total amount, therefore, by which public debt was reduced out of normal current revenue was £721,000.
On the other hand, however, dead-weight debt was increased by expenditure on certain items which, for Budgetary purposes, were regarded as abnormal and not such as need be defrayed out of the proceeds of taxation. The total of this expenditure, exclusive of £550,000 for capital of the Local Loan Fund, was £370,000, of which approximately £300,000 was in respect of compensation paid for private property injured or destroyed between the years 1916 and 1923, or in respect of the replacement or restoration of public buildings destroyed during the same period. To this must be added the increase caused by an advance of £85,000 for telephone capital. The effect of these transactions was to increase the gross dead-weight debt by £455,000. When this amount is set against the total contributions to sinking fund already mentioned we find that so far as ordinary Exchequer transactions were concerned the burden of dead-weight debt was reduced by £266,000.
But there are other factors affecting debt which do not arise immediately out of cash outlay. The issue of the £6,000,000 Third National Loan at 93½ placed on the State liability in respect of £390,000, against which no cash was received into the Exchequer.
In this connection I may diverge for a moment to point out that if the loan had been issued at par at 5 per cent., though there would have been no increase in the dead-weight debt as a direct result of the issue, the charge for interest in respect of an equal sum of cash raised would have been higher by £7,600 per annum than interest on Third National Loan plus sinking fund in respect of the discount. Thus the issue of a loan at 4½ per cent. at a discount rather than at 5 per cent. at par, though it added to the nominal burden of State liability, actually reduced the yearly cash levy upon the taxpayer. If we suppose that it had been decided to issue a 5 per cent. loan at a premium of 1 per cent., and that the flotation had been successful, the nominal total of State debt would actually have been reduced thereby, because the amount of cash received would have exceeded the face value of the stock issued. Even in such a case, however, the taxpayer would have been worse off than at present, because the annual charge between 1930 and 1970 in respect of interest would still have exceeded by £4,800 the amount required to pay the interest and to make good the discount in respect of a like sum derived from Third National Loan. Thus the nominal increase of debt caused by the issue of Third National Loan at a discount did not put the State in a worse financial position.
I shall proceed now to other factors which influenced the debt position. There was an increase during the past twelve months of £183,000 in the face value of the Land Bonds issued under the Land Acts, 1923-1927, for payments to the Costs Fund and to provide the State contribution to the price of tenanted land, to meet the loss on the resale of lands purchased for distribution to uneconomic holders and landless men, and for certain other purposes. Furthermore, it was found that the assets represented by creamery undertakings which had been purchased out of voted moneys in previous years required to be written down by a sum of £168,000 and £20,000, representing an advance previously made out of Revenue to the Land Commission, has been paid into the Exchequer. The total of the four items mentioned represents an increase in the dead-weight debt of £761,000. If from this we subtract £266,000, the sum by which ordinary Exchequer transactions would have reduced the dead-weight debt, we get the net total of the addition made during the year to the nominal dead-weight burden of debt. It is, as already stated, £495,000. The operation of the Land Act passed last month will, it is estimated, result during the present year in the issue of £1,200,000 worth of Land Bonds for the service of which the Exchequer will be solely responsible. Thus in the current year we shall have a bigger increase in the dead-weight debt than has occurred since 1924. After the end of the present year, however, it is anticipated that the issue of Land Bonds, the charges on which will not be covered by tenants purchase annuities, will not exceed £500,000.
Deputies will note that in the figures which I have given of dead-weight debt I have not taken account of the sum which is being repaid to the British Government by means of the annuity of £250,000 authorised by the Damage to Property (Compensation) (Amendment) Act, 1926. Neither have I taken account of the sums due in respect of the Dáil Eireann External Loans. The effective total of these liabilities is about £5,500,000.
The White Paper issued a week ago shows that the estimated amount required to maintain public services and meet other necessary public charges during the year 1931-32 is in respect of Central Fund Services £4,442,677, and in respect of Supply Services £21,921,573, or an aggregate of £26,364,250. From this total, in order to find the sum which must be met out of revenue, we must deduct certain items of abnormal or capital expenditure for which borrowing may properly take place. They are as follows:—
|
Vote 8.—Local Loans Fund. |
£ |
|
Provision in respect of New Capital |
570,000 |
|
Vote 11.—Public Works and Buildings. |
|
|
£190,400 out of a net total of £339,200 (after deducting £70,000 contribution from Property Losses Vote) for sites, new works, alterations and additions; compensation in lieu of restoration of lands taken over under emergency powers and com- pensation for premises commandeered by the Army |
190,400 |
|
Vote 14.—Property Losses Com- pensation. |
|
|
The entire provision |
187,100 |
|
Vote 53.—Forestry. |
|
|
One-half of the total provi- sion for the acquisition of land for forestry and cul- tural operations |
29,400 |
|
Vote 55.—Land Commission. |
|
|
Improvements sub-head. That part of the provision of £211,250 which will be re- covered from the tenant pur- chasers, less repayments appropriated in aid of the Vote |
43,000 |
|
Vote 63—Wireless Broadcasting: |
|
|
High Power Station |
51,200 |
|
Central Fund Services: |
|
|
Provision for the Repayment of Dáil Eireann Internal Loan |
60,000 |
The total of these items is £1,131,100. When that sum has been deducted from the gross aggregate estimate of expenditure we get a figure of £25,233,150. The amount regarded as abnormal is taken from the same subheads (with one omission) as the corresponding figure last year. More than half the total represents the provision of new capital for the Local Loans Fund, money which clearly should never be found by means of taxation. Of the remainder, two-thirds arises mainly from damage to property which occurred during the Anglo-Irish struggle and during the civil war, and which is now being paid for or repaired. The item from the Land Commission Vote represents an advance which will be repaid to the Exchequer with interest. The repayment of the Dáil Eireann Internal Loan, so far as capital is concerned, represents simply the redemption of a short-term loan out of borrowed moneys.
Although I have not reckoned the value of State-owned woods amongst the Exchequer assets of which I have already given a list, it is nevertheless certain that our annual expenditure on afforestation is creating a saleable commercial property the value of which it is safe to place at half its cost. We have taxes of two kinds on wireless reception. Of these, the Customs duty on wireless apparatus is the more important, being estimated to bring in £35,000 in the present year. When this tax was first levied in 1926 it was promised that the proceeds would be devoted to improving the broadcasting service either by erecting a number of new stations similar to the Dublin station or by erecting a centrally-situated high-power station. It is calculated that the establishment of the high-power station at Athlone will so increase receipts both of Customs duty on wireless apparatus and licence fees that all the expenses of broadcasting, including interest on capital outlay and adequate sinking fund provisions, can be met out of income arising in connection with the reception of broadcast entertainment. The service will then be, as it has always been contemplated it should be, a self-balancing one.
Accordingly, it does not appear to be inappropriate to regard the cost of erecting and equipping the new station as a capital item which may be defrayed out of borrowed money. While expenditure under the various heads which I have mentioned is indubitably abnormal or of a capital nature, nevertheless there are certain objections to picking a number of rather small items out of the Estimates of expenditure and separating them from the outlay which must be met out of the proceeds of taxation. In the first place, it is a practice which might easily lead to abuse, in view of the fact that minor abnormal items will always continue to appear in the estimates, and ought, taken in bulk, to be regarded as a normal feature of our expenditure. Moreover, it may be taken that there will be from time to time losses in connection with capital expenditure defrayed out of borrowed money, which minor capital items, if defrayed out of revenue will not do more than balance, taking one year with another. Again the practice of picking out a number of small items to be paid out of loans is liable to be misrepresented, and so to depreciate National credit. In view of these facts I have not included any new heads of expenditure in the list of abnormal and capital items which I have deducted from the gross aggregate estimate of expenditure. In the ordinary course two out of the seven items at present in the list will disappear at the end of the present year, and another will become relatively unimportant. If no new items are added, the position will be reached in two or three years that deductions from the estimates in respect of abnormal expenditure will take place only in cases in which a definite asset of a realisable character is being created.
In calculating what taxation is necessary, it has for several years past been found possible, and (in view of our ample sinking fund provisions) desirable to make allowance for the element of over-estimation present in the sixty-nine Votes for supply services, taking them as a group. Last year I fixed the amount which might be allowed for over-estimation, together with savings, at £575,000. With careful scrutiny of expenditure, outlay of the kind that I have classified as normal and non-capital should in the present year be kept short of the Estimate by a similar figure. If we deduct, therefore, from the net Estimate for ordinary recurrent expenditure which, as we have seen, amounts to £25,233,150, the sum of £575,000 in respect of over-estimation and savings, we get a figure of £24,658,150. This is the amount which must be defrayed out of revenue.
Turning again to the White Paper, we find it estimated that taxation at the rates at present in force will produce an income of £20,456,000, while a non-tax revenue of £4,205,000 is anticipated. The total revenue in the current financial year will consequently be £24,661,000. When this sum is compared with £24,658,150, the net total Estimate of the amount required to provide normal services and defray other normal outlay up to 31st March next, we find that without any increase in taxation the Budget will balance with a nominal surplus. That this should be the position for the third year in succession gives no small ground for satisfaction. If the estimates of expenditure for the current year are compared with the Estimates which were submitted to the Dáil twelve months ago it will be seen that the cost of normal services has gone up by £459,000. It must be pointed out, however, that the increase is not so serious as would appear at first glance. Nearly £200,000 of the total excess is due to increased interest payments.
A great part of this additional burden will be counterbalanced by additional receipts of interest from the funds and enterprises to which the major part of the extra money borrowed has been or will be advanced. About £230,000 of the estimated increase in normal expenditure is attributable to the supply services. No figure for relief schemes appeared in the Original Estimates last year, so that £140,000 of the excess now shown over the figures of last year arises under that heading. Of the remaining £90,000, a great portion is due to the fact that we are not this year so assiduously seeking out smaller individual items which might be classed as capital or abnormal. As a matter of fact, if we adhered this year to the standards hitherto adopted in classifying normal and abnormal expenditure, the abnormal figure would have been increased by over £60,000.
In the course of last year's Budget statement, I referred to the fact that a departmental committee had for some time been examining the problem of simplifying our income tax code and the system of administration prescribed by it. It was then hoped that the Committee which had been formed in October, 1929, might be able to report by last autumn and that it might be possible to consider their recommendations and lay proposals before the Dáil prior to the introduction of this year's Budget. In fact, however, the investigation was found to be fraught with the greatest difficulties. Many of the more obvious ways of securing simplification were barred by the question of expense—the removal of the complexities would have meant losing the cash. Accordingly, the task of the Committee has proved to be arduous and prolonged, and the report which has just been received consists of three hundred pages, including appendices. Besides holding fifty formal meetings, members of the Committee engaged in a great number of informal conferences, spending a large part of their time over a period of seventeen months on examination of the problems which arose. It has not yet been possible to consider the recommendations which have been made. If it proves possible to carry them out in their entirety, a complete overhauling of the income tax code will be involved. Even if the recommendations, which are very drastic in character, be accepted only in part, I am satisfied that an important measure of simplification can be submitted to the House.
The existing Income Tax Acts contain nearly 600 sections. If the proposals of the Committee are adopted it will be necessary to repeal all existing enactments and pass a new Income Tax Act which could scarcely have less than 150 sections. It would not be possible to prepare such a heavy Bill within a period of several months, but the whole matter will be dealt with without delay.
A little over two years ago the Oireachtas Joint Committee, which was considering the Betting Act of 1926 and the amendments which might be made in it, presented an Interim Report recommending the remission of the tax on betting carried on at race-meetings. The matter was, of course, entirely outside the terms of reference of the Committee, and I have observed that when a Commission or Committee of Inquiry is bursting to offer remarks on a subject which it was not asked to examine, its observations are generally more notable for zeal than for discretion. I was not greatly impressed by the Interim Report, which certainly was not justified by any evidence submitted to the Committee. In the two years that have elapsed the matter has formed the subject of many representations to me. I have received several deputations and have been supplied with a number of memoranda in support of the contention that horse-racing in the Saorstát is going to be destroyed if the tax on course-betting is not removed. I must say that, in my opinion, the case has not been proved.
Undoubtedly Irish racing has declined in recent years, and is still declining. Race meetings are, in very many cases, run at a loss owing to the small attendance of the public, and there is no indication of a generally increased support. But I am quite satisfied that the tax did not do any serious direct injury to Irish racing, and that in itself it had only an inconsiderable psychological effect. The harm was really done by the consistent propaganda which has been carried on against the tax. As one observer put it to me: "Before any tax was actually collected the general public were told that the tax had killed racing, and naturally the public were not going to pay expensive admission charges to view a corpse." To whatever extent the imposition of the betting tax and the propaganda that followed it may have injured race meetings, I am satisfied, on the testimony of many members of the general public, that they were only minor factors in damping down interest in racing. The position remains, however, that while racing executives have been blaming the tax, and while I and others responsible for the tax have had some difficulty in repressing our inclination to blame the racing executives and others in control, the sport or business itself has been getting into a more and more depressed condition. Now I acknowledge that the maintenance of racing is essential to the prosperity of the horse-breeding industry. The sum obtained from the tax on racecourse betting is not large and has been declining. Consequently, without hope of any important direct result, but with the object of putting those who are in control of racing in the position of having nobody to blame but themselves, I propose to insert in the forthcoming Finance Bill a section remitting the tax on racecourse betting.
I hope that after that beneficent gesture I may be permitted to offer a few observations that will be almost in the nature of advice. When the novelty of dog-racing first wore off, the attendances began to dwindle. The owners of the tracks, however, reduced the admission charges very considerably, speeded up the programmes, added to the number and value of the races, and introduced special features of various kinds. The result, I am informed—I have not gone to the dogs— is that attendances are as high as ever before. Moreover, in certain cases recently where horse-racing executives have introduced special attractions, there has been a good response by the race-going public. Finally, let me say that I think there is too much horse-racing in the Saorstát. Last year racing took place on 122 days, 53 of which were devoted to meetings held at courses convenient to Dublin. In addition there are large numbers of point-to-point meetings, which are, I gather, better attended in many cases than the regular meetings. Economic conditions being what they are, I think if we are to have better race meetings we shall have to have fewer of them.
In last year's British Budget the scale of death duties was increased in the higher ranges. As a consequence, if no change is made in the Saorstát scale the operation of the Double Taxation Relief Agreement will cause us to lose taxation to the extent of £12,000 per annum solely for the benefit of the British Exchequer. On the other hand, if we adjust our scale in the ranges affected to the British level the loss will be avoided and some £16,000 to £18,000 additional taxation will be collected. It is proposed now to adopt the British scale up to our existing maximum. The extra receipt this year will be only £6,000, but in future years, as already indicated, a sum of £28,000 to £30,000 will be involved.
It is proposed to make two other changes of a minor character in the law relating to death duties. In Great Britain there have been many attempts to avoid liability to tax on a life interest in an estate passing at death. The method adopted is the formation of a company to which is transferred not only the interest of the holder, but also the interest of the person entitled to succeed, so that when the former dies the estate does not pass and no tax is payable, the interest of the heir or reversioner having already been transferred to the company. Both the holder in whose lifetime the interest is transferred and the person entitled to succession usually receive certain shares in the company and annuities from it, which are equivalent to the income they would have received from the estate transferred. Recently it has been learned that such companies are being formed and such transfers made in the Saorstát. It is accordingly proposed to introduce into the Finance Bill a section somewhat similar to the provisions already existing in Great Britain to deal with the matter.
By Section 20 of the Finance Act of 1896 it is provided in case of pictures or other works of art suitable for a place in a national collection their value shall not be taken into account in computing the estate duties payable on the death of the owner. But if they are afterwards sold, duty is payable on the value as at the date of death. The works of art, however, are deemed to be a separate estate and not aggregated with the other assets of the deceased. The consequence is that the rate of duty charged on the value of the pictures or other works of art is much less than the rate charged on the other assets of the deceased. The position thus created is anomalous. There is no logical reason why, if a man's general estate bears duty at the rate of twenty-five per cent., the duty charged in respect of valuable pictures which he owned and which were sold by his heirs or executors should be only five per cent. The British Parliament last year amended the law so that in future British tax will be chargeable on the price of works of art, when sold, at the same rate as on the rest of the estate. In the case of certain estates failure on our part to enact a similar section would mean that the Saorstát Exchequer would fail to get its fair share of the total tax levied.
Before I pass away from the question of death duties and in connection with the fact that we have more than once felt constrained to alter our scale of estate duties simply because the British scale had been altered, and we were threatened with loss of revenue if we adhered to our old scale, I should like to say that the Government has come to the conclusion that the present arrangement for affording relief from double estate duty and double legacy duty falls in various respects so far short of being fully satisfactory from the Saorstát point of view that it has been decided to open up negotiations with the British Government with a view to finding a more suitable method of dealing with this aspect of the problem of double taxation.
For some time past the silent film has been going out of use in picture houses in the Saorstát, as in picture houses elsewhere, and the long queues in the streets testify to the popularity of the sound film and to the large sums of money which are going to support it. It is supplanting not merely the silent picture but also the orchestra. It has been felt for some time that the rate of tax which was appropriate to silent films was an insufficient levy on talkies. They are not only a more complex product, but their attractiveness to the public enables them to bear more tax. Further, they are also more effective agents for the reduction of our revenue in other directions than the old films. I propose, therefore, that the Customs duties on sound films, whether they themselves bear the sound record or whether they are adapted for use with a separate sound record, shall be increased from one penny to threepence per linear foot. The higher tax will bring in additional revenue to the extent of £32,000 this year and £35,000 next year.
For a considerable time the revenue obtained from dramatic and musical entertainments by artistes personally present has been declining. The competition of the sound films in the Saorstát, which will not be affected by the increase in duty proposed, is such that, economic and linguistic factors being what they are, there is grave danger that in future practically all entertainment, apart from that transmitted on the electric wave, will come in, like our apricots, in tins. It is proposed to remit as from the 1st October next the entertainment tax on entertainments consisting mainly of performances by artistes personally present. The change will be for the convenience of the public and of the officers of the Revenue. At present concerts and dramatic entertainments given in aid of charities are exempt from duty, subject to compliance with certain conditions, as are also entertainments of an educational character. In all such cases, however, application for exemption must be made in advance to the Revenue authorities, and in a certain number of cases accounts must afterwards be furnished showing the disposition of the proceeds. In future this trouble will be obviated. The cost of the concession in the present year will be about £9,000.
On several occasions representatives of the Chambers of Commerce of the Saorstát have urged that the capital duty payable by companies on their formation should be reduced from £1 per cent. to 5/- per cent., the rate at which it stood prior to 1920. The immediate financial loss following a reduction of the duty would be small, say, £5,000 per annum, allowing for a certain resultant increase in the nominal capital of some of the companies floated hereafter. Since the business community regard the concession as one worth asking for, and as it is felt that in the long run the revenue sacrificed will be more than made good in income tax and stamp duties, it has been decided to make the reduction in this year's Finance Bill.
The net effect of the minor tax changes to which I have referred will be in the present year to reduce our tiny, estimated surplus by £1,000. In future years there will be a small gain.
Deputies have doubtless been expecting that I should make some reference to the question of derating. The reports of the Commission have been circulated, and I think I should take this opportunity of thanking the Chairman, Judge Davitt, and all his colleagues for the thorough and painstaking manner in which they have examined a very important and intricate problem, and for the able and valuable reports which they have prepared. Many members of the Commission took part in its work at much inconvenience to themselves, and I think we have reason for gratitude in the fact that citizens of standing are so willing to sacrifice their time and energy in the study of public problems in regard to which the Government and Oireachtas are called upon to take decisions and in respect of which they are in need of impartial and well-informed advice. Though there were great divergencies of opinion amongst the members of the Commission, who were so chosen as to be representative of widely different areas and points of view, nevertheless on many matters of the highest importance they were unanimous or practically so. In regard to the question whether or not we ought to have in the Saorstát de-rating on the British model the Majority and Minority were of one mind. Even the Minority member, who presented a separate report, was not in favour of the complete derating of agricultural land. The Commission were practically unanimous in considering that no benefit would be obtained by transferring to the Central Government the cost of administration of services at present managed by the local authorities. The members of the Commission were also agreed on the impossibility of attaching conditions to any grants that might be given in relief of agriculture.
It has long been pretty generally recognised that if agricultural land in the Saorstát were completely relieved of rates, as it is in Great Britain and Northern Ireland, local government would, for all practical purposes, have to be abolished, and a conviction that local government ought to be retained was obviously one of the factors which influenced the signatories of the first Minority Report against recommending total remission of rates on agricultural land and buildings. In that report, however, it is also recognised that the imposition of the taxation required to raise so large a sum as £2,230,000 per annum, the cost of total de-rating, would be a grave matter for the State as a whole. If the problem dealt with by the Commission is studied in perspective, it will be apparent that the salient feature of the reports is, not the disagreement of members as to whether or not necessary and practicable relief to agriculture should once again take the form of grants towards the reduction of rates, but rather the unanimous opposition of the Commission to that demand for complete de-rating which has got a certain vogue in the Saorstát as a result of British legislation. The signatories of the Majority Report held the view that de-rating would not appreciably increase agricultural production, and that if money were available for the relief of agriculture it should be expended on an extension of various schemes which are already being promoted by the Department of Agriculture. More active encouragement of cow-testing and further improvement of marketing methods, particularly in the direction of grading and, as far as possible, standardising produce, may be cited as examples of the means which the majority would adopt to help agriculture, believing that the direct method of stimulating production has many advantages over any indirect method such as the total or partial remission of agricultural rates.
On the other hand, the signatories of the first Minority Report, while quite in favour of the methods of increasing agricultural production suggested by the Majority, hold that none of them seems capable of achieving the object in view at an early date. They also state that they are satisfied that the remission of rates on agricultural land and farm buildings would have a very beneficial effect in securing an increase of production and employment in agriculture. On the matters in regard to which they are in disagreement, the two sections of the Commission have stated their views temperately, and, obviously, with a strong sense of responsibility. Although the Government finds itself in agreement with most of the conclusions set forth in the Majority Report, it accepts the view of the Minority that the means suggested by the Majority for increasing agricultural production would give results too slowly to improve appreciably the position of the farmer within the next few years. In fact, so much is being done already along the lines referred to that any great, immediate increase in expenditure and activity on the part of the Department of Agriculture would be largely barren of results because the new activities would meet with proportionately less public response than the activities being carried out at present. While the Government agrees that the public attention which has been focussed on the mere matter of rates is excessive, and that even a complete remission of rates would in the majority of cases probably affect production only in a very minor way; while it is satisfied that the Majority Report disposes of many of the contentions on which it has been sought to base claims for complete or partial de-rating, the Government is, nevertheless, convinced that the present position in agriculture is such that a substantial measure of relief is an economic necessity.
Farmers, taken collectively, are pretty certainly neither over-taxed nor under-served, as many of them think they are. On the other hand, though they are incomparably the most important group of producers in the State, it is doubtful whether they manage to get their fair share of the fruits of national production. Bankers meet and fix interest levels; transport workers have unions which maintain wage-rates; traders have various ways of discouraging unlimited price-cutting; the majority of Saorstát industrialists have now the shelter of the protective tariffs, but the farmer must sell his bullock or his pig at the price of the day in a completely free market. His position is much what the position of the city worker would be if there were no trade unions. One of the reasons why farmers do not pay much income tax either in this or any other country is that very big fortunes are not made out of agriculture. A small shopkeeper might be so successful that he would become the owner of hundreds of shops and ultimately win all the yacht races of the world. But who ever heard of a man who started life as a small farmer, and stuck to farming, becoming the owner of a yacht? A man may start making soap in his kitchen, or motor cars in a shed in his back-yard, and become a multi-millionaire. But however hard the farmer works, and however great his enterprise, he will never, unless he deserts agriculture, become the pride and joy of the Inland Revenue. Not only is the agriculturist denied the possibilty of making great profits, but in a time of falling prices such as the present he suffers severely from the fact that when the price-level of primary products falls, the price of manufactured goods does not suffer a corresponding decline until after a considerable interval. Thus, as a producer, he must sell cheaply, but, as a consumer, he has to continue to buy dearly. It is true the prices of his raw materials will always tend to drop equally with other primary products.
At present, for example, the prices of feeding-stuffs and manures have fallen on the average even more than the prices of agricultural produce. But many other things that the farmer must buy are proportionately too expensive and his economic position in too many cases tends to become precarious. Moreover, the psychological effects of the de-rating of agricultural land in Great Britain and Northern Ireland are not to be neglected. If no steps were taken to give any new relief to farmers in the Saorstát, there might grow up amongst them a sense of discouragement which would have damaging economic consequences. I believe with the majority of the De-rating Commission that in most cases rating relief will do little to increase production. In many cases, however, it will help appreciably to prevent the curtailment of production and, taking the country as a whole, there will be a fair number of cases in which it will effect some measure of stimulation. Even where economic results may not be discernible, it will to some extent hearten the workers in an industry which is passing through a difficult period and which can be assisted in no other way. It has been suggested that if a grant in relief of rates is now given, it should be a temporary grant. There are those who think that the economic depression which is afflicting nearly the whole world at present will shortly begin to clear away. Even if it does, the benefit of improving conditions will not reach our agricultural population for some time. Consequently any relief given now must be continued for a few years and grants which have been payable for several years cannot be withdrawn or reduced without upsetting local finances. It is proposed to ask the Dáil to vote a sum of £750,000 for the relief of rates on agricultural land.
[An Leas-Cheann Comhairle took the Chair.]
A good deal of consideration has been given to the question of how the grant now proposed to be given ought to be distributed. We are clearly of opinion that it ought not to be distributed on the basis of rate assessments either for the current year or for last year or for the last three years. To adopt that basis would be to penalise those counties the affairs of which had been prudently and economically administered and to reward the counties which had had wasteful and extravagant councils. Though it was decided in 1925 that the new agricultural grant then given should be distributed on the same basis as the old agricultural grant, it is felt that that basis has now become a somewhat arbitrary one. Its principal recommendations are usage and the fact that the different counties have become accustomed to it and accepted it in 1925 without protest. We must take care, however, not to magnify the elements of unfairness in it. On the other hand, the task of estimating the needs of the various counties on the assumption that they were all run with equal economy and efficiency would be long and difficult, if not impossible. But it would appear that population would afford a rough guide to requirements. It is the usual practice when different countries are joined together in a Customs Union to divide the customs on the basis of population. In States in which a proportion of the revenue collected by the federal authority is distributed to provincial governments population is commonly the basis of division. It is not, however, certain that to distribute £750,000 to the various counties in proportion to their population would be entirely fair unless certain adjustments were made for special circumstances. In any case, distribution on the basis of population solely would represent too violent a change. Taking the view that the old basis had, when first adopted, a justification which retains at least some degree of validity, the Government have decided that the new grant shall be divided as to 50 per cent. on the old basis and as to the remaining 50 per cent. on the basis of the population of the counties. Distributed in this way a bigger share of the grant will go to the poorer and more thickly populated areas than was the case with former grants.
The Government does not feel that any permanent benefit to the farmers of the Saorstát would result from a grant of £750,000 towards the reduction of rates on agricultural land if no reform in the system of local government were carried out. To say that relief of rates would automatically be followed by a new increase of rates is not to make an attack on the members of county councils. The signatories of the Majority Report of the Commission, approaching the matter from another angle, have dealt with the point very fairly. They show that the present doubled agricultural grant is equal to the total amount of rates levied off agricultural land in 1897, and that the net rates now levied off these hereditaments represent increases since that date. It cannot be denied, as they indicate, that many cases exist where increased expenditure could be justified as either necessary or, at any rate, extremely desirable. The fact that the State had already on several occasions relieved rates on agricultural lands and buildings would justify an expectation on the part of local authorities that the State would do so again. This expectation in its turn would encourage new expenditure. If the relief which it is now proposed to give is not to be neutralised within a few years, it is necessary to make substantial alterations in the system of local government which will check the tendency to fresh expenditure. In any case it has long been apparent that our present system has grave defects which militate against efficiency. Accordingly, it is proposed to introduce, at a very early date, proposals for the reform of the county councils. The work of the boards of health will be drawn in to the county councils, the size of which will be substantially reduced. At present, even when a council has only a normal number of wind-bags, the whole time of a meeting is frequently wasted on a few unimportant items. The consequence is that many of the men who would make the best type of local representative are increasingly unwilling to serve as members of councils. With a reduction of the number of members it is anticipated that the number of wind-bags on the various councils will decrease more than proportionately. It is proposed to introduce a managership system for counties somewhat similar to that in operation in Dublin and Cork. It is believed that the reforms contemplated will not only tend to prevent unjustifiable increases in expenditure but will in many cases enable sound economies to be effected.
Having decided that, with the assent of the Dáil, we shall issue to local authorities the sum of £750,000, the question of where the money is to be got arises. The signatories of the First Minority Report recommended an increase in the income tax and a duty on petrol. The suggestion that the income tax should be increased has been carefully examined, and the Government has decided to reject it. It is true that, if efficiently and impartially collected, the income tax is a just tax. But if it is levied at a high rate it undoubtedly tends to lessen enterprise and is a definite handicap to the progressive and expanding business in which development is being capitalised out of profits. Such businesses, though all too rare in the Saorstát, are the best hope of sound industrial growth. We believe that if the prospects of economic progress are not to be compromised, an industrially undeveloped country like this cannot have a higher income tax rate than 3/- in the pound, which only seems moderate because we have recently come out of a period of abnormally high rates and because in Great Britain, a country with enormous accumulations of capital, tax is charged at a rate in excess of ours. When our income tax rate was brought down to its present level, it was anticipated that there would be a certain national recovery of ownership of capital through the return to the Saorstát of those who owned it. That recovery has to some extent taken place and will take place further if our tax rate is kept stable. The recovery of capital to which I refer also means a recovery of national income and, consequently, more income tax, with, it is hoped, more death duties to follow. If we increase our income tax rate now, uncertainty as to the future will arise, and the tendency towards further national recovery of the ownership of capital along these lines will be checked. In this connection also it may be noted that we get every year very large sums of income tax and surtax from wealthy people who maintain houses here, but whose principal residences are in England and whose ties with the Saorstát are not as close as formerly. They are the sort of people to whom income tax is a very important matter. It is held in certain quarters that for some of them the fact that we have a 3/- income tax invests the country with greater charm than the effect of horses, foxes, salmon, family association and scenery combined. Local authorities spend money, and wisely spend money, on the development of tourist traffic, but from the revenue standpoint the visits of the people to whom I am referring are vastly more important than the whole tourist traffic. If a mere handful of them stopped coming to the Saorstát it might mean a revenue loss of £200,000 to £250,000 a year.
Though an increase in the income tax would not penalise the wealthy double-residents in question, it might affect their attitude to the country and in certain cases determine them against a visit. Should we decide, however, to increase the income tax rate, the maximum increase practicable would be 6d. in the pound. If our rate went above 3/6 we should be obliged to abolish the Corporation Profits Tax, which is a tax chargeable on the profits of companies but not recoverable even by shareholders exempt from income tax. If we did not do so and our income tax was appreciably above 3/6, we should have industrial and commercial concerns here which were paying tax on their profits at a rate in excess of the English income tax rate of 4/6. Moreover, we could hardly put more than 6d. additional on the income tax without giving something like the British scale of reliefs. But if we were to give allowances on the full British scale and remit Corporation Profits Tax, the net produce of an additional 1/- tax in a full year would be only about £250,000. Even if we imposed only an increase of 6d., certain additional reliefs by way of children's allowances, etc., would have to be given, and it would be difficult to get more than £300,000 additional revenue in a normal year. But an additional 6d. on the income tax imposed now would not give us anything like that figure before 31st March next. A good deal of this year's tax will not be collected until after the end of the financial year. Moreover, our income tax revenue includes an element of arrears of tax. An increase in the current rate would undoubtedly delay the payment of arrears. It might be two or three years before we should get from an extra 6d. its full theoretical yield. An extra 6d. imposed now, with allowances half-way between our present scale and the British scale, would yield a little over £150,000 before 31st March next, so that the imposition of other taxes to bring in £600,000 would be necessary. In all the circumstances we were convinced that we ought not to propose any increase of the income tax.
[An Ceann Comhairle resumed the Chair.]
The levying of a duty on petrol stands on a different footing, though the bulk of those on whom it will fall are income tax payers. There has been general expectation for some years that such a duty would be imposed. If consumers will not exactly be glad that the suspense is ended, at least they are prepared for the worst. Although there is now an import duty of 6d. on petrol in the neighbouring country, I shall not ask the Dáil to vote so heavy a tax here. In this country owing, it is said, to greater costs of distribution, retail prices are higher, allowing for duty, than in Great Britain. Furthermore, every motorist in this country must pay customs duty on his car, whereas in Great Britain most motorists use English cars, on which no duty is payable. I think, therefore, it would be undesirable to impose a higher duty than 4d. a gallon, which is the amount I propose. This levy will only bring the import price of petrol up to the level at which it stood four or five years ago. In view of the present relative levels of wholesale and retail prices it ought not to be necessary for the whole of the duty to be passed on to the public. The 4d. tax will yield revenue before 31st March amounting to £450,000. There remains £300,000 to be got by some other tax.
At first it was thought that an increase in the tobacco duty might afford the best means of obtaining this sum. But the tax on tobacco is already very high, higher in proportion to the value of the article than on any other commodity except saccharine, and it appeared questionable whether an increase could be borne without checking the consumption. Last year there was a sharp rise in the yield of tobacco duty, but part of the increase was due, as has already been stated, to withdrawals from bond for a new factory which was established in Dublin and to the ordinary fluctuations which take place from year to year. On the whole, receipts from the tobacco tax have been merely steady with a slight tendency to rise. It is well known that in recent years there has been a considerable increase in smoking by women, but when we put that fact alongside the fact that the Exchequer receipts from tobacco have little more than maintained their level, we are driven to the conclusion that the retail price of tobacco is already so high, having regard to existing wage levels and prices of produce, that many men must have been obliged to curtail their consumption. I do not accept the other possible explanation that men are giving up smoking because they regard it as an effeminate habit. When a taxable commodity is very dear and the tax yield static it is dangerous to increase the duty. Those who hold that no moderate increase in the levy on tobacco could appreciably affect its fruitfulness as a source of revenue forget the possibility that if retail prices were raised further, people might begin to give up cigarette smoking for pipe smoking, thereby cutting down their consumption of tobacco and their contribution to the Exchequer.
We have come to the conclusion that from the Exchequer point of view it would not be prudent to increase the duty on tobacco. Although the standard rate of duty in Great Britain is 8d. per lb. higher than the Saorstát rate, the operation of Imperial preference, which does not exist here in relation to tobacco, has the effect of reducing substantially the average rate of duty paid in Great Britain. As more and more Empire leaf is used in Great Britain, the average rate of duty paid on tobacco imported into that country will fall below the rate of duty payable on importation into the Saorstát.
Taxation designed to produce a large sum such as £300,000, must be levied on commodities of general consumption. The duties so frequently advocated on little-used articles of a highly luxury character would bring in practically no revenue. Consequently, a tax on tobacco being considered unwise, and additional duties on alcoholic liquors being out of the question, we must look for the sum we require to articles of necessity.
Although tea is not an absolute necessity of life, it is reckoned, more especially by the poorest of our people, as such. We frequently hear it said that they drink too much tea, but taxation, unless carried to altogether unthinkable lengths, will not change their habits. Consequently, if we levy a duty on tea we shall impose a burden, from which they will take no steps to escape, upon the section of our people which can least afford to bear it.
Sugar is a more valuable item of consumption than tea, but it is not looked upon as so indispensable by the poor. Furthermore, the price of sugar is now phenomenally low. An additional duty of ½d.. per lb. would not suffice to bring it up to the level at which it stood less than three years ago when the import price was 12/4 per cwt. as compared with about 6/4 per cwt. at the end of last month. On the other hand, an increased tax of ½d. per lb., or 4/8 per cwt., would, in the present financial year, give a return to the Exchequer of £315,000, or slightly more than the sum required. It is accordingly proposed to levy an additional Customs duty of that amount, together with a consequential increase in the rates of duty on sugar, confectionery and composite sugar articles.
In this connection I must have regard to the fact that a considerable proportion of our requirements of sugar is now made at home. The subsidy in the Beet Sugar Act of 1925 payable to the Irish Sugar Manufacturing Company is restricted by agreement to a production of 125,000 tons, spread over a ten year period. During the first three years of the ten year period there was no limit to the quantity of sugar which the company might make in any one year for subsidy purposes. The agreement provided, however, that during the fourth and fifth year no more than 10,000 tons per annum should be made for subsidy purposes, and that in the sixth or any subsequent year the production for subsidy purposes should be limited to 15,000 tons per annum. In 1926, the first year of the subsidy period, 9,843 acres of sugar beet were grown, and from that year's crop 11,979 tons of sugar were made. In 1927 the acreage was 17,698 and the production of sugar was 18,066 tons. In 1928 the corresponding figures were 16,624 acres and 19,519 tons. The restriction as to annual production was, as already mentioned, first to operate in respect of the 1929 crop and the manufacturing season of 1929-1930. Were the company to restrict their contracts for the growing of beet to such acreage as was calculated to produce only 10,000 tons of sugar, the area devoted to beet would have had to be very considerably reduced. This was obviously not desirable, particularly so from the growers' point of view, and accordingly I came to an understanding with the company that, in addition to manufacturing 10,000 tons of sugar for subsidy purposes, they might manufacture to the full capacity of the factory, and that in respect of the quantity of sugar produced in excess of 10,000 tons, the company should receive benefit of the then existing Customs duty of 11/8 per cwt., without the imposition of a countervailing excise duty, provided they passed on this benefit to the growers in the price they paid for beet. Under this arrangement the production in 1929-30 and 1930-31 was not limited to 10,000 tons per annum, and the negotiations as to the price to be paid for beet of this year's growth proceeded on a like basis, namely, that the company would enjoy a protection of 11/8 per cwt. in respect of such quantity of sugar in excess of 15,000 tons as they might manufacture during the coming season.
It is now proposed, for purely revenue purposes, to increase the Customs duty on sugar from 11/8 per cwt. to 16/4 per cwt. It is not proposed, however, to permit either party—the Sugar Company or the beet growers—to benefit from this increased duty. We are satisfied that the company are receiving sufficient help from the taxpayers—sufficient to provide for reasonable depreciation of the factory and to provide reasonable dividends for the shareholders, and at the same time to enable the company to pay a reasonable price for beet. It is proposed, therefore, to take such steps as will leave the company and the beet growers in the same position as they would have been had no change in the Customs duty on sugar been proposed. To achieve this end it is proposed to impose an Excise duty of 4/8 per cwt. on sugar manufactured from home-grown beet. Four shillings and eightpence represents the difference between the existing import duty of 11/8 per cwt. and the proposed new total duty of 16/4 per cwt. This Excise duty will be payable by the Sugar Company on such quantity of sugar as they have in stock, and, of course, in respect of their future production. This arrangement will leave the net protection enjoyed by the company on non-subsidised sugar at the figure at which it stood last year, viz., 11/8 per cwt. of sugar, and as a necessary corollary it is proposed to insert in the Bill a provision which will ensure that the position as between the company and the beet growers is not affected by the increase in the Customs duty on sugar.
Of the total of £750,000 which it is proposed to raise by the taxes on petrol and sugar, only a relatively small portion will fall to be paid by the farmers of the Saorstát. The new grant in relief of rates will definitely shift a substantial burden of taxation from the shoulders of agriculturists to the shoulders of other sections of the community. Our financial prospects do not admit of more being done. Even should there be no great fall in the yield of taxation during the current year the balancing of next year's Budget will not be an easy matter. The Estimates of miscellaneous receipts contain important non-recurrent items such as repayment of advances made some years ago out of revenue to the National Land Bank and to the Land Commission, some of which it had been intended to recall last year, but the unexpectedly good yield of tax revenue made it unnecessary. It seems certain that such outstanding reserves will have to be used up in the present year, and if this time next year the imposition of fresh taxation for ordinary Budget purposes is to be avoided it will only be by a very special drive for economy being made during the next six or eight months. I understand that the Economy Committee which has been operating under the chairmanship of Deputy Heffernan and which, as I have stated on previous occasions, has already made valuable suggestions to the Department of Finance, is nearing the end of its examination of the entire field of Government expenditure. With the support derived from the recommendations of the Committee, I hope it will be possible to carry through measures of retrenchment sufficient at least to fill any gaps caused by shrinkage in the yield of taxation or the disappearance of individual items of non-tax revenue. Much will depend on the general trend of economic affairs throughout the world. A comparatively slight improvement would prevent our Budgetary difficulties from increasing. On the other hand, worse conditions outside our borders would in many ways react unfavourably on the Saorstát.
While we may hope for the best, we must prepare for something less satisfactory. Our present relatively good economic position, and the fact that we have again been able to close a financial year with a surplus and to balance the ordinary Budget for the coming year without an increase in taxation, are due to our having in the past declined to embark on rash schemes of expenditure and to our having endeavoured to keep in check increased outlay even on the most desirable objects. I am convinced that if the same line of policy is pursued in future in, if possible, a more rigid spirit of economy, we shall be able to escape all the major difficulties under which so many countries are at present struggling.