Deputies will remember that for several years past the revenue of the Saorstát has, on the whole, been very steady. There have been in certain directions small increases and in some other directions small decreases, but on the whole the yield has been very steady. There was of course a decline in the yield of income tax due to the exhaustion of the fund of arrears which had been in existence since the State started. There was also a decline, sometime in the early years of the State rapid, but recently very slow, in the yield from alcoholic liquors. That declining yield was due I believe primarily to the high rate of taxation and secondly to the adoption of new forms of amusement and ways of spending spare money. We have not found it necessary to impose any substantial increase in taxation for a very considerable time. However, this year the position is different. A decline in agricultural and other prices, and events outside this country which have in various ways affected the trade of the country have produced a position in which there is a considerable decline.
I anticipate that the estimated tax revenue which I gave in the Budget speech at £21,220,000 will not be realised, and that at the 31st March next there will be a deficit of approximately £900,000. Of course it is impossible to estimate what effect may be produced by any changes in price levels in the meantime, or any changes that may be effected by alterations in tariff policy or otherwise in a neighbouring country. But assuming that price levels remain somewhat as at present, and that this country is not substantially affected by any other changes elsewhere, I am now in the position that I must estimate that on the present basis taxation revenue will be short on the 31st March next by about £900,000. Of that sum the greater part will be due to a fall in the revenue from duties on liquor, from the beer duty and the spirit duty. I estimate that the yield of the beer duty will be short on the 31st of March next by about £580,000, and the yield of duty on spirits will be short by something like £90,000, making a total shortage in that revenue from liquor duty of about £670,000. That decline is not all due to a falling consumption here. In fact the greater part of it is due to other factors, to trade factors, or things that have caused a reduction in the stocks of beers in the hands of the brewers.
I have on previous occasions explained to the Dáil that our revenue, particularly in the matter of beer duty, is liable to fluctuate very sharply without there being any corresponding fluctuation in the consumption of beer in the country. Beer duty has to be paid within two months of the brewing of the beer for which it is charged. If for any reason brewers increase their stocks of beer in a particular year the yield of beer duty may go up very sharply. If for other reasons brewers decide to decrease stocks, our revenue will fall because certain brewings will not take place which normally would take place. Certain months' revenue will not come in that normally would come in, and consequently it is possible for us without any great decline in consumption to lose a considerable amount of revenue. That does not apply to the spirit duty. The fall in the spirit duty represents as far as we can ascertain a decline in consumption. The great fall in the beer duty is due only partly to a declining consumption and partly to trade or other factors over which we can have no control, and is in a sense an artificial loss of revenue.
Apart from the deficit which I estimate in respect of the duties on alcoholic liquor, there are various minor falls in revenue, but the only fall of any importance that I foresee is a fall of about £80,000 on the duty on motor cars. That is partly due, the duty being an ad valorem duty, to the decline in the value of cars on which tax is paid. There is also a fall of about £80,000 in the yield from income-tax. That fall in the yield from income tax reflects a slowing-up in the collection of old arrears. It does not reflect any under-estimation in the yield of current tax or any failure to collect current tax. It represents a slowing up which was not anticipated in the collection of outstanding arrears.
I have said that a very large portion of this deficit is due to accidental circumstances, to something not really arising in this country. Half the total is due to those factors, and if circumstances were different it might be possible to say that to a very considerable extent this deficit would automatically right itself in the coming year, but we have to bear in mind that the effect of a fall in prices on the yield of revenue is cumulative. We have to bear in mind that all sorts of industrial securities this year are yielding dividends very much below what they yielded before, that there are cases in which there is no yield of dividends and that it is on this year's income that next year's income-tax will be based. Consequently, we have to anticipate that although this abnormal fall in beer duty can hardly recur next year, that next year the beer duty must to some extent be up, there is bound to be a fall in the income-tax yield in the year which will commence on 1st April next. Then if prices continue at the present level and if all the economic factors which are at present operating, continue to operate that financial and economic stringency is going to affect the yield on beer and spirits particularly.
The position seems to be now that to some extent the fall in the consumption of beer and spirits is an index of the financial condition of the country. There has been ever since the Free State was established a steady fall. In some years the fall was very slight indeed. In other years it was considerable, and it seems to me that the special financial stringency is going to be reflected in a sharp decline in the consumption of alcoholic liquors. Consequently I think we must anticipate that whilst certain things that caused a shortage of revenue in the present year may not be present next year, other factors which are operating this year will, unless there is a general economic change, operate more strongly in the next financial year.
In our view, the circumstances being as they are, it is not right to go on to the end of the year and allow a deficit to appear on the books and to face another year in which there would be, if we were to remain on the present basis, a further decline in the yield of taxation. We feel that this is a situation which cannot be allowed to continue or to develop. Our national credit has been good. We have been in a position in this country, as I have said frequently in the House, to borrow on as favourable terms as any other country. Credit, of course, is a thing which has no permanency in itself. It remains only as long as the conditions which built up that credit remain and therefore short period failure to deal with any Budget situation would be reflected in our credit. Under present conditions we would have to borrow for the present year. We would have to borrow on bills for some period and next year also, because of course, the conditions are not propitious for the raising of a loan. Any failure to deal with the situation which we now see before us would immediately be reflected in the terms on which we could borrow for short periods. It would immediately be reflected in some unwillingness to accommodate us and in some determination to make the period of any accommodation as short as possible, in some increase in the discount rates which would be charged.
A deficit such as we see before us can be dealt with in two ways and I think must be dealt with in two ways. It can be dealt with by means of retrenchment and by means of taxation. A great many other countries have been faced in the present year with the necessity for the presentation of supplemental Budgets. In most, if not all cases, the difficulty has had to be met both by taking measures to secure economy and by the imposition of a certain measure of additional taxation. The Government has for some time been examining various proposals to secure a reduction of expenditure and I propose to address the House on another occasion on these proposals. If possible we do not desire to select one particular group or service for sacrifice, but desire that such sacrifices as have to be made shall be spread as widely as possible over the whole field. As I said, when the proposals of the Government in that matter are in a more advanced stage I propose to speak to the House in regard to them. I am to-day proposing to deal with the taxation aspect of the matter.
There are, of course, as I have indicated, various factors which may affect the situation but I think as they are unknown, their effects cannot be estimated and we must ignore them at the present juncture. The sterling exchange, for instance, may affect the position in various ways. As I explained in the Seanad recently, the decision to remain tied to sterling, after sterling went off the gold basis, was taken, I suppose, primarily, by the Currency Commission but was taken with the full knowledge and consent of the Executive Council. We felt that the circumstances of our trade with Great Britain were such that whatever losses might result from the departure from the gold standard, greater and more enduring losses would be sustained if we were to attempt to remain on the gold standard after Great Britain had left it. Such a course on our part would have involved confusion in many directions, would have involved difficulties and hardships of many sorts and in addition, it would have the effect of immediately creating what in effect would be a tariff against us in the British market. The fact that other countries whose currency was not attached to sterling in the way our currency was attached to it, have since had to go off the gold standard in sympathy with sterling and in order to preserve their trade with Great Britain, is ample justification of the decision taken here at the time. The course of sterling may affect the revenue position here as well as the economic position here. However, we cannot foresee what will happen in that direction. We cannot control it and we do not know whether anybody can control it. I think we have to leave any effects that may arise in that direction out of account.
I propose to ask the Dáil to assent to two increases in taxation. I propose to ask the Dáil to assent to an increase of 6d. in the £ in income tax. That will still leave our standard rate of tax 1/6 in the £ below the rate of tax in Great Britain, and will still leave nearly everybody with liabilities substantially below the liabilities that people with corresponding income would have in Great Britain.
It is not proposed to alter in any way the scale of allowances. In fact it would be impossible at the present stage to make any alteration in that scale. The adjustments that would have to be made, if any alteration were made other than merely in the rate, would cause a necessity for adjustments which would delay the collection of tax, with the result that in the present year, instead of getting an additional yield from the increase, we would actually, before 31st March next, get less tax. Consequently it is not possible to do anything at the present stage other than simply increase the rate. All that will have to be done is this: there will have to be an addition of one-sixth to what was the ascertained liability of any taxpayer.
An increase of 6d. in the income tax rate will produce in the present year £250,000, and in a full year £500,000. That will be the normal yield in a full year. We do not yet see any occasion to alter the estimate substantially. The normal yield in a full year of a shilling on income tax is about £1,000,000. When income tax is increased in any particular year, only half the fruit of the increase can be obtained in that year. The remainder flows over into the following year.
I propose also to ask for an increase on the tax on petrol, to increase that tax by 4d., bringing it up to the British rate. Taking all the factors into account, I do not think that can be regarded as a great hardship, especially when we remember that the other tax which falls on motorists in this country—the Road Tax—is reserved solely for the improvement of roads, and in that way for the service of motorists, whereas in Great Britain the Road Tax up to this was laid under toll for the benefit of the Exchequer. The Road Fund has now been abolished and the road tax flows into the Exchequer, and only such parts as it is thought suitable are paid out for the improvement of roads. In the present year the yield of these two increases will be something like £450,000. So far as the difference is concerned we shall have to make every endeavour possible to meet that by carrying out retrenchments of various sorts, and I would like to ask the Dáil for support in carrying these retrenchments into effect. I have often said in the Dáil that normally there is practically no support for retrenchment from any quarter of the House.
