The introduction of a Supplementary Budget would, in any circumstances, be an unpleasant duty for a Minister for Finance. It is particularly distasteful when it is made necessary by conditions of the kind which oblige me to-day to present my first Budget statement to the Dáil.
The members of the Dáil who were present on May 10th last when the annual Budget statement was presented may remember the words of warning then spoken by my friend and colleague, the former Minister for Finance. In the course of his Budget statement that day, Mr. MacEntee said:—
"Stringent and straitened as our position is, I believe that we can endure it so long as peace is maintained. If a widespread war comes, however, our difficulties will be intensified beyond measure. I speak now only of the reaction of such a disaster upon our finances. But there I know that with a much diminished real income, we shall be called upon to shoulder vastly increased public burdens."
Those who heard or read these words at that time cannot have been surprised by the announcement that a Supplementary Budget would be introduced to-day.
Already, in regard to some important sources of revenue, the diminution thus forecast has been only too fully realised. Both in regard to tax and non-tax revenue a fall has to be acknowledged. The total estimated in the Budget of May last to be received under the heading of tax revenue was £26,485,000. The total under the heading of non-tax revenue estimated for was £5,969,000. As a result of the disturbance caused to our trade and commerce by the outbreak of war, these estimates have to be reduced to £24,935,000 and £5,899,000 respectively, or an aggregate decline of £1,620,000. These items show how seriously our estimates of May last have been upset on the revenue side. In addition to this I am obliged to take notice of the fact that in some Departments of Government heavy additional and unprovided for expenditure has become necessary, which is fortunately offset to a large extent by savings in other directions. The position would be quite serious enough even if it could be assumed that these disturbing conditions would be of short duration. Unfortunately, no such assumption can be made. It is generally accepted that the war which began two months ago threatens to be long and calamitous. This prospect must cause us all the gravest concern.
I think I do not exaggerate when I say that if the war continues for any considerable time no nation in Europe can feel assured that before peace returns it will not be involved in the conflict. The small nations, in particular, are in grave danger, not merely of being forced into the war, but of completely losing their independence. The independence of some in Northern Europe, as we know, has already been seriously interfered with and other small nations have actually disappeared as national entities.
Ireland, though neutral, is not and cannot be immune from the effects of the conflict. The inevitable curtailment of our imports and the increase in our dependence on a single market for surplus products create serious problems for our people. Situated as we are in the midst of one of the main theatres of the war, we have had to adopt various safeguards against the dangers to our neutrality, our independence, and the lives of our citizens which such a situation implies. Thus we have been obliged to place under arms a much stronger and better equipped force than the country would need in normal times; we have established a censorship for overseas correspondence; we have set up a coastwatching service, and we have entered into considerable commitments in respect of A.R.P.
The total cost of these and other measures necessitated by the war will be very heavy and, unhappily, the expenditure will be productive of no economic benefit. In facing these heavy expenses it is small comfort to us to know that other neutral States, great and small, have been obliged to face similar, but usually vastly greater, additional expenditure on defence services. During the last few days I read in the public Press that the additional cost to Switzerland for defence services in the protection of its neutrality was estimated to be at the rate of £277,000 per day. Also it was stated that Finland had been obliged in recent weeks to spend a sum of almost £300,000 per day on defensive measures. Even if these figures be not accurate—and, of course, I do not say they are authoritative—they give some indication of the vast sums which such nations feel compelled to expend for the national welfare.
In comparison with such enormous expenditure on national defence by small neutral nations the sum we are expending to protect our neutrality is small. We are restricting all such expenditure to the barest minimum. Every pound proposed to be spent is subjected to the most severe scrutiny in my Department. We have no intention to enter into a competition in armaments with even the least of the nations. We have no wish to do so, but even if we had our financial resources would not permit it.
The cost of the services which the war emergency has obliged us to undertake and which, as I have said, is being kept within the strictest limits cannot, I regret to say, be met to a very great extent by economies in normal expenditure. To meet the cost entirely by such economies would entail a reduction of services on a scale which the Government, having regard to the additional unemployment and hardship which it would cause, is not prepared to recommend and which, in my opinion, no considerable number of Deputies in this House would be willing to support.
It has been said that the way of a neutral is hard; so it is, and we shall be fortunate indeed if the conditions created by the war do not result in greater burdens on the Irish people than those I am now about to propose. It is well for us to remember, however, that if the neutral must suffer, the belligerent must suffer immeasurably more, and that even among neutrals in this hemisphere we are so far escaping better than most.
At all events, we have deliberately chosen to be neutral. We have done so, I think I can say, with the full approval of every member of this House and so far as I am aware, no voice has been raised in Ireland in opposition to this decision. That we have been able to declare our nation's neutrality and that our declaration has been accepted and our neutrality recognised internationally is a final and convincing proof of our sovereignty.
Various opinions on the policies that have led to the war and the aims of the belligerent powers are held by different sections of our citizens, but no influential voice has yet been raised to suggest that Ireland should be a participant. The independence of the greater part of our country, won after centuries of struggle and sacrifice, has been too dearly bought to be imperilled in a conflict which no moral obligation requires us to enter. We have for centuries spent our substance and poured out the blood of our best in fighting the battles of the world. This time our intention is to guard and protect the interests of our own nation.
Even if we were all unanimous in believing that the right was all on one side in this awful conflict, the national interest demands in circumstances as they exist to-day in Ireland, that we be neutral. Our duty to ourselves, the duty of preserving our freedom and internal peace, of working steadfastly for the restoration of our national unity and of conserving, as well as we may in such times, the resources so sorely needed for the rebuilding of a population diminished to a dangerous degree by ages of misgovernment, can best be fulfilled by maintaining our position of neutrality. In doing so, we shall also be making at least a negative contribution to the cause of international peace and keeping intact our right, when the appropriate time arrives, to exert such influence as we possess to promote the establishment of a world order, more just and stable than that which is now threatened with dissolution.
The Government fully realises that a State with our small population and limited resources could not successfully maintain the inviolability of its soil against attack by a great Power armed with all the weapons of modern warfare. But we can make, and we are bound to make, such preparations as will convince a potential aggressor that the military and political cost of overcoming our resistance would be greater than it would be wise to incur.
We are, in my belief, not likely to be attacked. The belligerents of both sides recognise our neutrality and we have no reason to think that they will not continue to respect it. In the course of a long war, however, circumstances may well arise in which our immunity from attack will depend on the knowledge that we are ready and resolved to defend our country to the limits of our power.
What I have just said, as you may well have imagined, is the prelude to a Supplementary Budget of a serious character. I have to make very heavy additional demands on all classes of our citizens. I am convinced all I am about to ask is necessary for our national security.
Before I proceed to state in detail my financial proposals, perhaps I may be permitted to refer briefly to the work of the Economy Committee.
When I was last speaking to the Dáil, on the occasion of the debate on the policy of the Government during the emergency, I explained that, as part of its inquiry into the financial position, the Government had set up an Economy Committee with comprehensive terms of reference which I read to the House. The committee had at that time already made one interim report. They have since continued their examination and have presented a lengthy second report which is at present under consideration. I understand that the end of the committee's labours is within sight and that it is probable that the Government should have their final report within a couple of weeks.
I should like to tell the House that the committee have been extremely painstaking in their inquiries. They have taken evidence from the officers charged with the administration of the various services reviewed, and have sought, as far as is practicable, to secure agreement with Departments as regards possible economies whether by way of a slight lowering of standards during the emergency or by deferring projects involving expenditure until better times. The committee appear, however, to have come to the conclusion, with which I am afraid I must agree, that so large a proportion of the State's outlay is spent on social services that no large-scale economies of the kind that are required to meet the present emergency can be secured without reducing the standard of these services to some extent.
The committee, however, are bearing in mind the desirability of restricting the displacement of labour in urban areas to the narrowest possible limits consistent with their objects while, so far as rural areas are concerned, they have in view the probable effects of the Compulsory Tillage Order on the agricultural labour market.
These are the factors forming the background of the interim reports already submitted. They deal with Land Commission expenditure, unemployment assistance, employment schemes, housing expenditure and draws on the Local Loans Fund for a variety of services.
Now I wish to put before you details of the position in which we find ourselves and our financial propositions for tiding us over the present difficult period.
In the original White Paper estimate £24,146,000 was included in respect of customs, excise, and inland revenue. Under the provision made in this year's Budget that figure was increased to £25,320,000. It will be remembered that Mr. MacEntee, when introducing the Budget, pointed out that it had been prepared at a time when our revenues were declining owing to the unsatisfactory commercial conditions brought about by the tension then so much in evidence. Despite this, the experience of the first five months of the present financial year gave every hope that the Budget Estimate would be realised if peace were maintained.
With the coming of the war it became necessary to consider the position afresh, and a review of the revenue prospects in the altered conditions has, accordingly, been made. In the light of all the available data, it is estimated that, if the existing rates of duties be left unaltered, the total yield of tax revenue, apart from motor vehicle duties, will be £1,550,000 less than the Budget Estimate of £25,320,000. This decrease is distributed over customs, excise, and inland revenue. In the case of customs, which is principally affected, we expect declines in the receipts from hydrocarbon oils, intoxicating liquors, motor cars, clothing and apparel, sugar and various other heads of duty. Excise, which is less affected, will show reduced receipts from hydrocarbon oils, betting, entertainments, tyres, and tubes, and beer, offset by gains expected in the receipts from spirits, sugar, etc.
As regards inland revenue duties, a decrease is probable in income-tax and surtax, stamps, death duties, and corporation profits tax:
In the case of income-tax and sur-tax, as these estimates are based in the main on past profits, there may not be any appreciable reduction in the amount of liability to tax, but delay may be experienced in collecting money from taxpayers generally in the present situation.
In the case of Stamp Duties, the Budget Estimate included a large sum from the duty on sweepstakes. The disturbed international situation has, however, already produced a heavy adverse effect on the yield from this source. It is probable, moreover, that there will be an appreciable drop in respect of some of the other Stamp Duties.
As regards Death Duties, the bulk of this revenue is derived from duty payable in respect of investments, the value of which has fallen owing to the present international conflict.
In the case of Corporation Profits Tax, the duty to be collected during the current year is based almost wholly on accounting periods which have already ended, but as it is expected there will be some delay in certain cases in collecting the tax the receipts in the current financial year are expected to be down.
It is feared that all the factors that have been referred to will adversely affect the revenue at least while the war lasts, but it would be futile to attempt to assess accurately the loss of revenue likely to result over a long period. The position will be kept constantly under review.
In view of the situation which I have outlined, the Government gave consideration in the first place to an increase in income-tax. We have already had an increase in income-tax for the current year from 4/6 to 5/6 in the £. Taxpayers were informed of this increase in May of this year. Notices of assessment have recently been issued to taxpayers all over the country intimating to them the amounts payable on the 1st January next by reference to the 5/6 rate. It is obvious that any further increase in the standard rate notified at this date, involving a substantial increase in the amounts which taxpayers will be called on to pay at the beginning of January, would give rise to serious confusion and in many cases to grave hardship. It would also cause somewhat serious administrative difficulties.
After mature consideration, accordingly, the Government have decided that another increase in the income-tax for the current year is not feasible, but that the standard rate of income-tax for next year, i.e., for the year beginning on the 6th April, 1940, should be increased by 1/-, i.e., from 5/6 to 6/6 in the £. Effect will be given to this decision in the usual manner by means of a Financial Resolution when next year's Budget is introduced, and by the usual clause in next year's Finance Bill; but in the meantime it is necessary, in order to avoid confusion, that we should have legislation governing deductions of income-tax made by bankers and other persons during the period from the 6th April, 1940, to the date of the introduction of next year's Budget Resolutions. The Finance (No. 2) Bill for this year, which will be in the hands of Deputies in the course of some days, will contain a clause dealing with this matter, and the necessary Financial Resolution will be introduced to-day. The effect will be that bankers and other persons deducting income-tax from dividends, interest, etc., payable within the period from the 6th April, 1940, to the date of the passing of the income-tax resolution on Budget day next year will proceed as if a Financial Resolution having statutory effect under the Provisional Collection of Taxes Act, imposing income-tax for the year 1940-41, were passed on the morning of the 6th April, 1940.
Whilst it is obvious that any estimate now made of the yield of income-tax in the year 1940/41 may be affected by circumstances which cannot at the moment be foreseen, it may be stated that the extra 1/- which it is proposed to charge should, under normal conditions, produce an increased yield of about £780,000 in the year 1940/41 and, if it remains in force, £1,040,000 in a full year.
The sur-tax collectible on the 1st January next is the sur-tax for the year 1938/39 (ending 5th April, 1939) and for reasons similar to those operating in the case of income-tax it is not considered feasible at this date to increase the 1938/39 sur-tax rates. There will be a revision of the scale upwards for the current year (1939-40) and tax on the new scale will be payable on the 1st January, 1941. The revision of the scale is a somewhat complicated business. Particulars of it will be given at the normal time when the necessary Financial Resolution is introduced on Budget day next year.
It is proposed to increase forthwith the rates of estate duty chargeable on estates of a value exceeding £10,000. The existing rates will be increased by one-tenth in the case of estates exceeding £10,000 and not exceeding £50,000, and by one-fifth in the case of estates exceeding £50,000. The Resolution will provide for charging the increased rates on the estates of persons dying after to-day. It is estimated that these increases will yield an additional £13,000 in the current financial year and about £80,000 in a full year.
In looking for further additional revenue, I propose to avail of the sources which have served us so well up to the present rather than embark on new types of customs and excise taxation. The advantages of this course are obvious. The machinery for collecting customs and excise duties on the existing basis is in good working order and no additional public expense is involved in increasing existing rates of duty.
New systems of indirect taxation, on the other hand, require expert examination over a period of time in order to ascertain their practicability with the minimum disturbance to trade and to the official machine, and almost of necessity they involve an addition to the burden of public expenditure. It may be contended that some of the existing rates of customs and excise duty have reached the point beyond which they may cease to be satisfactorily productive, according to the theoretical principles of taxation, but our experience of the effect of the addition to the tobacco duties in May last does not support that contention. In that particular case we based our estimate of the yield from tobacco, following the increase in duty, on the assumption that there would be a contraction in consumption. So far, there are no indications that such has been the case.
The changes in duties which I now wish to place before the Dáil are as follows:—
The rate of customs duty on imported sugar will, if the Resolution be adopted, be increased by 7/- per cwt. from 16/4 to 23/4, which is an increase per lb. of ¾d. from 1¾d. to 2½d. The present rates for articles cognate to sugar and included for customs purposes in the sugar group, that is, glucose, molasses, saccharin and articles containing sugar, will be correspondingly increased. The rate of excise duty on sugar made from home-grown beet will be increased by the same amount, from 1/2 per cwt. to 8/2, or from ?d. per lb. to ?d. These changes are expected to yield £243,000 this year, but they will not affect the retail price of sugar operating from the 1st of this month, which will remain at 4½d. per lb., that is the price ruling in neighbouring countries.
Tobacco, I am afraid, cannot escape, and under the Resolution which will be submitted to you, it is proposed to increase the main rate of tobacco duty, that is the rate chargeable on the unmanufactured leaf, in the case of both customs and excise by 2/8 per lb., the customs duty thus becoming 13/4 per lb. and the excise 12/6. This increase is expected to bring in an additional revenue of £227,000 in the present financial year. The receipts would be larger but for the heavy clearances from bond of leaf tobacco which have been taking place for some time and which, no doubt, have resulted in manufacturers and traders being well supplied with stocks.
I propose to raise the beer duty by 12/- per standard barrel of 36 gallons, bringing the excise duty to £5 12s. 0d. and the customs duty to £5 12s. 6d. This increase will mean an addition of £50,000 this year.
Beer duty is assessed by reference to a standard strength related to the specific gravity of the worts before fermentation and this strength is higher than the beer on sale in the course of ordinary business. Twelve shillings per 36 gallons is the equivalent of ½d. per pint at the standard specific gravity.
My last proposal under the heads of customs and excise is to increase the rate, both for customs and excise, of spirits by 10/- per gallon at strength of proof. This will bring the rate of duty chargeable on home-made spirits to £4 2s. 6d. per proof gallon, the rates of customs duty on imported spirits being slightly more, as hitherto. The gain to revenue in the present year from the increase is expected to be about £20,000.
An addition of 10/- per proof gallon represents approximately 2d. per glass at proof but, of course, represents less on spirits as ordinarily sold, which are considerably under proof.
The estimates of customs and excise yield for the current financial year are based on the assumption that the changes in taxation which I have indicated will take effect from to-morrow, the 9th November.
It has been very difficult to estimate the effect of the changes in regard to tobacco and spirits as receipts to date are above expectations and indicate that stocks have been acquired in anticipation of increases in price, of difficulties in renewing supplies or of increased taxation. These factors may help to make the revenue position appear healthy for the moment, but they have the effect of depriving the revenue of the future of some of the yield which would ordinarily be expected.
The various increases in taxation which I have proposed will, if accepted by the Dáil, bring us from now until the end of the financial year a total estimated revenue of £603,000 against the deficiency of £1,620,000 in tax and non-tax revenue to which I referred in the opening part of my statement. There still remains a gap of £1,017,000 to be filled and it is proposed to bridge this gap, in part at any rate, by adopting recommendations of the Economy Committee presented to the Government. These recommendations affect a number of services and the combined effect of the recommendations and of other measures will result in an estimated saving in expenditure this year of £400,000, thus reducing the deficit still further to £617,000. In so far as this sum cannot be met by expansion in revenue beyond the estimates or by further saving in expenditure, any balance outstanding will be carried over into the following financial year, 1940/41, and liquidated by means of the additional revenue derived from the taxes which I have submitted for acceptance to the House to-day.
There is one other matter to which I must refer. The war has resulted in increases in the prices of many essential commodities and, before it ends, further increases are, unfortunately, probable. These increases will bear heavily on every class and there will be a strong temptation to demand corresponding increases in wages, salaries and profits. If such demands were successful, the effect would be to increase prices still more, and to give occasion for new demands. In that way an artificial price structure would be built up which would inevitably collapse at the end of the war, if not before, leaving behind widespread unemployment and depression. The Government feels that it has a duty to do everything in its power to avert such a development, and it is determined to set its face against the efforts of any class to obtain compensation for the rise in prices at the expense of the community. Action to the same end is in contemplation with regard to all classes of public servants, and if the war continues for a long time, the Government may be forced to adopt more drastic measures. I trust that all classes of the people will realise that the course we have in mind, though it may call for immediate sacrifices, is necessary to avert still graver hardships in the future.
It is, I submit, no mean achievement, in the difficult circumstances of the time, to have attained by these various means a practical equilibrium in the Budget.
There is one word more I wish to say here and that is to pay a tribute to my colleague, Mr. MacEntee, whom I have succeeded as Minister for Finance. I have had an opportunity since I took over the Department of Finance of seeing from the inside, so to speak, how efficiently my predecessor performed his work. May I be permitted to say that, in my opinion, no Government could have had a more careful, conscientious or capable guardian or administrator of its finances than he. For whatever time I may have the honour to be Minister for Finance I hope I will be able to continue the high standard of financial probity he ever maintained in our national affairs.
From what I have said earlier, Deputies will appreciate that further borrowing will be required to meet the extraordinary demands made upon the Exchequer by recent events. I propose that this borrowing should take the form of a public issue. I cannot say yet what precisely the amount of this loan will be, but it will be sufficient to cover the objects for which the Minister for Finance announced in May last that he would borrow, viz., for portion of the expenditure on defence, employment schemes, airports and afforestation. The defence programme has naturally had to be speeded up in view of recent developments. The price for equipment has also tended to move against us, and, in the circumstances, a substantial borrowing operation is inevitable. I appeal with confidence to all Parties in the House to ensure the success of this undertaking, and with no less confidence do I appeal to outside interests, the banks and the investing public, whether they have much or little to invest, to help in this important task. The co-operation of all elements in the State is necessary if this crisis is to be surmounted. It is not a time for the nicely-calculated less or more, or for the weighing of alternative courses of action in political scales. In this matter the interests of all sections of the community are identical, and with the assurance of your support I am certain that our contemplated loan operation will succeed.
The additional burdens which, in the name of the Government, I am asking you to place upon the shoulders of the people are, I am fully aware, very heavy. I hope I have convinced you that real necessity exists for them. In the past, the Irish people have willingly made great sacrifices to win independence for their country. Now that it has been won for most of Ireland, they will no less willingly accept the burden of defending it.
Let us hope and pray that peace may soon be restored in Europe, and that the days of trial will be shortened for us and for the whole world; that they will be followed by a peace inspired by justice where the rights of individual nations and the bonds which exist between all mankind will be recognised.