I move: "That the Bill be read a Second Time." As the House is, no doubt, aware, what is generally regarded as the existing Local Loans Fund is no more than an account in the Exchequer under the control of the Minister for Finance and the moneys to the credit of this account are available for advances to local authorities for housing, for operations under the Small Dwellings (Acquisition) Act, for sewerage and water supply schemes, for arterial drainage works and other analogous activities. The moneys in the fund are also available, to a limited extent, for loans to farmers on holdings of small valuation for the purpose of improving their lands and erecting farm buildings, such as haybarns, etc.
The existing Local Loans Fund, although perfectly legal, has, however, no statutory basis. The sums required as capital for the fund are voted annually by the Oireachtas and are placed to the credit of the fund as an advance by way of Grant-in-Aid. This Local Loans Fund account, as I think it ought to be more properly described, was initiated in 1922 as a temporary measure to make the issues on foot of loans sanctioned before 1st April, 1922, where work had actually commenced before issues from the old Local Loans Fund, set up under the National Debt and Local Loans Act of 1887, and which ceased on 1st April, 1922. Later, this Local Loans Fund account was opened up for one new service of loans after another, until the present position was reached when it was available for all the purposes for which loans might have been made out of the pre-1922 loans account, as well as for a number of services which are peculiar to Saorstát legislation of recent years.
The design of the fund in its present state was never the subject of deliberate planning and its growth, in a rather extemporised fashion, has been responsible for a number of serious difficulties in adminstration which were not so obvious and not so serious in the earlier years of the account, when the amounts involved in it were comparatively small. One of the principal difficulties which has developed, particularly in recent years, arises from the fact that the voting of the annual provision for additional capital for the fund involves a theoretical, though not an actual, charge on the Budget for large amounts. For instance, in 1933-34, the amount of the Vote for the Local Loans Fund account was £2,150,000 and, in the current year, the amount provided is £4,200,000. The Minister for Finance may make and, in fact, has customarily made it clear that this item should not normally be borne against normal revenue and that, therefore, it is to be excluded from the Budget services which are to be provided normally out of taxation. But notwithstanding this, it does not prevent people who look at our accounts and are not familiar with the special position of this fund and the special uses to which it is devoted, from assuming that there is a deficit in revenue at the end of each financial year because of the fact that the advances to the Local Loans Fund under the present system must be classified as an ordinary supply service.
Another disadvantage which arises from the fact that the fund has no statutory basis is that the amount voted in each year must be sufficient to cover the amount of loans likely to be sanctioned in the year, the amount which it is reasonably probable will be sanctioned; in fact, in some circumstances we might say the amount which it is possible will be sanctioned. The amount which is so devoted cannot be confined merely to the amount likely to be required in the year for the actual cash issues. If it were the Oireachtas would be committed to expenditure to an extent which it had not approved and for which its approval ought not to be assumed, having regard to the magnitude of the sums involved. As an example of what I mean, I might refer again to the years 1933-34 and 1934-35. In the first year the amount sanctioned for issue from the fund was approximately £3,050,000. The actual cash advances from the fund were less than £2,000,000. In the current year the amount sanctioned for the fund was about £3,150,000, but the actual loans sanctioned will again be to the order of about £2,000,000.
It is clear, therefore, that under the existing system the fund must always possess sufficient reserves to enable it to discharge its commitments on foot of loans agreed to. That is to say, when the Department of Local Government has sanctioned a loan it must make an immediate provision for the loan, even though it may not be called upon to make any issues in respect of it until a later date, and may even ultimately not be called upon to make an actual issue as great as the amount originally sanctioned. This practice has resulted in a large and rapidly growing surplus cash balance which the Minister for Finance has no power to invest and which is, consequently, a most unremunerative asset. Even if the total Local Loans Fund advances in any year are classed as capital and are not met out of revenue, the Budget for the year must be actually loaded with the debt charges necessitated by the borrowing for this purpose because the moneys cannot be used for any other purpose, cannot be invested in any other way, and yield no interest. There is no corresponding offset by way of additional revenue to the Exchequer.
Another disadvantage which has disclosed itself in relation to the present system is that while the existing Local Loans Fund is, in fact, managed on the principles laid down by statute to apply to the older fund established under the National Debt and Local Loans Act of 1877, the applicability of these statutory provisions to the existing fund is very doubtful, and it is desirable that the position in that regard should be regularised without further delay. There are other difficulties of a relatively minor nature, but there is one which, from the point of view of Parliamentary control of the public finance, is a very important one and that is in connection with the audit of the accounts of the funds. These accounts, showing the total receipts and issues to date and the balance available, are sent to the Comptroller and Auditor-General each year and he carries out an audit. As the fund is non-statutory, he presents no report and does not give the accounting officer a final clearance. In addition, his audit is limited in scope. He does not, for example, carry out any examination of the relative mortgage deeds by which loans are secured, nor does he analyse the treatment of arrears, while, of course, the accounts of the fund are not published.
In view of these difficulties which have arisen, it is proposed to enact this Local Loans Fund Bill to put the fund on a statutory basis. The main principle of the legislation will be that all the loans made from the existing fund accounts are to be treated as assets of the new statutory fund and all repayments of these loans and the payment of interest thereon are to be credited to the statutory fund. In addition, all future moneys required for the issue of local loans will be obtained by borrowing on behalf of the fund either from the Exchequer, from other Government funds, or from the public by the issue of securities charged on the fund. These securities will be guaranteed as to principal and interest by the Exchequer and will therefore be trustee securities. The Bill also contains sections regarding the treatment of surplus balances on capital or income account, the treatment of arrears and prior repayment, audits, reports and accounts, and the general procedure of issuing and collecting the local loans.
It is also proposed to take advantage of the present Bill to clear up the position in relation to sums repaid on foot of local loans made prior to 1st April, 1922. The present position of these is unsatisfactory. Under the terms of the Constitution they have always been treated as miscellaneous revenue applicable to meet the current expenditure falling on the Exchequer The loans are of two types, those repaid on the equal annuity system and those repaid on the principal and interest system; that is, repaid by equal instalments of the principal, with interest charged only on the amount outstanding from time to time. It will be appreciated, accordingly, that each repayment of those loans, whether by way of annuity or by an equal instalment of the principal, contains an element of capital, an element which tends to increase either absolutely as in the case of the annuity payment or relatively as in the case of repayments by the equal instalment principle. As I have already stated, the present position and the position since 1922 has been that all these capital repayments are treated as current revenue for the Exchequer. It is proposed to discontinue this practice of appropriating these capital assets in aid of current revenue and instead, subject to a suitable adjustment with the Exchequer, to transfer on the appointed day to the new statutory Local Loans Fund the whole of these assets and to provide that repayment. whether of capital or of interest, will go to the new fund.
From what I have just said, it will be appreciated that two groups of Exchequer assets are being transferred to the Local Loans Fund. The first of these are the unrepaid balances of loans made from the fund by means of advances from voted moneys; that is moneys voted by the Oireachtas. The second are the unrepaid balances of loans made prior to the 1st April, 1922, and to these must be added such cash portion of the unissued balances of the voted grants as it may be necessary, under Section 3 of the Act, to transfer to the new fund on the appointed day. When the transfer has been made, the Local Loans Fund will reimburse the Exchequer for the transfer of these assets by the creation of a debt in its books in favour of the Exchequer to an equivalent in value of the assets transferred. The debt will be deemed to be an advance made by the Exchequer to the fund. It will bear interest at a rate to be determined and will be repaid as opportunity arises out of the proceeds of issues of the Local Loans Fund stock or out of surplus capital or income arising on the Local Loans Fund. The Exchequer will treat as current income all interest paid by the fund on this advance as long as it remains unrepaid, but repayment of the advance will not be brought into the Budget Account, but, instead of being treated as current income, will be regarded as a capital repayment available for the reduction of debt or for new capital expenditure or advances.
It is desirable, in conclusion, to emphasise that the Bill is designed to deal with a very limited question of finance and the administration of the fund. It does not, for instance, propose to extend the scope of the fund by authorising the making of loans for purposes for which loans, under existing legislation, cannot be made by the State. If it were desirable to extend the powers of the fund in that regard, that would be a matter for separate legislation. The present Bill does not alter in any material respect the normal procedure and practices relating to the grant and collection of local loans. These have operated in the Saorstát area for well over half a century, and borrowers and those on whom will devolve the management and administration of the new fund are perfectly familiar with the procedure.
Again, I should like to emphasise that, owing to the magnitude of the present operations of the fund—I think that over £8,000,000 has been placed to the account of the fund within the last three years—and owing to the magnitude of the other assets which will be transferred to the fund in due course, and in view of the seriousness of the administrative difficulties to which I have drawn attention, the Bill is urgently required and cannot be further deferred. It deals with machinery only and I think it should be largely non-contentious. It does not introduce any novel or untried principles of finance or of administration, and the scheme it outlines can readily be modified in any particular feature so as to bring it into line with any broad principle which may be adopted later in consequence of the Report of the Commission on Banking, Currency and Credit which is now sitting and whose attention has been drawn to the proposals of the Government in relation to the existing Local Loans Fund.