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Dáil Éireann debate -
Wednesday, 5 May 1943

Vol. 89 No. 18

Financial Statement.

My task here to-day is not an enviable one. With all Parties on the alert on the eve of a general election, some looking to scoff and some to praise whatever is produced in the way of a Budget, irrespective perhaps of its contents, I am bound to disappoint not a few in both categories. Last year, it will be remembered, there was no major change in our taxation programme, and the subsequent results have, I think, shown the wisdom of that decision from the national standpoint. In the international field the war has broadened in area and grown in violence. More countries have become involved; destruction has become more widespread on land and sea. While the tide of active hostilities has not touched us, we have not been without our war losses. Our small fleet of merchant vessels has been further depleted by sinkings in which toll has unhappily been taken of human life. With a heavily increased proportion of their resources devoted to total war, civilian consumption in all countries to which we have access has become further restricted, goods available for export to neutrals have diminished, and this has naturally had its reactions on our trade position. But despite the numerous obstacles in the way of trade, visible imports since the beginning of the war had up to 31st March last exceeded visible exports by some £17.3 millions in value. This is an achievement on which the trading interests concerned, as well as the State Departments, deserve a word of recognition.

Economic activity on the whole, including agricultural production, has been fairly satisfactory throughout the past year and the result has been shown in the continued buoyancy of the revenue, which exceeded anticipations under quite a number of important heads. The difficulties of estimation. serious enough in ordinary times, are of course, much intensified in existing circumstances, and we have to balance a number of fortuitous gains against deficiencies which occurred in respect of other important items and also against the ever-growing burden of our expenditure. State expenditure continues to mount in a fashion that causes me not a little uneasiness and, as Minister for Finance, I continue to receive a constant stream of proposals for fresh expenditure, not only from within the Government, but from all quarters inside and outside the House, some even from those who proclaim most loudly the gospel of economy. The voice of caution is seldom raised. Half-hearted political admonishments are, it is true, occasionally heard but, in the political field, I find no one except myself really serious about this business of economy. The daily Press is vocal with clamour for State expenditure on everything ranging from bog roads to concert halls. We have, as it were, become infected with a kind of financial hysteria traceable, no doubt, to the enormous and unprecedented scale of expenditure which all belligerent countries have to shoulder in order to meet the commitments of total war. We forget that these countries are fighting a desperate battle for survival and that this expenditure measures the extent to which their citizens deny themselves many of the necessaries and most of the amenities of life and even the boon of life itself. To put it in another way, all resources of man-power and material are to the utmost extent possible taken by the Government which pays for their use with money raised in every conceivable fashion, by taxation, by borrowing, by liquidation of foreign investments, and by using up domestic capital of all types, agricultural, industrial and commercial, in a manner and at a rate that would be considered reckless in ordinary times.

Apart from what is spent abroad, the outlay of these warring Governments passes into the hands of the citizens, though not necessarily the same class of citizen. By rationing and controls of many kinds — reinforced by patriotic appeals — this purchasing power is not put to its normal uses so far as consumption goods are concerned. What is left after heavy taxation has been met is siphoned off the economic system by means of savings and so prevented from bidding against the particular Government and from diverting the economic activities of the nation back to civilian channels or inflating the price of consumption goods and services. In these circumstances privations and hardships are cheerfully endured which no neutral nation would expect its citizens to bear. Conscription of person and of purse is accepted without question. The State, in effect, takes on an increasingly totalitarian aspect and the individual ceases to count. A position of full employment is, however, attained. If one may judge from the reactions in Parliament and Press against the relatively mild restrictions which have been imposed on economic activities in this country since 1939, there would be little disposition to put up with the major controls, discomforts and privations accepted by the peoples of the belligerent nations. This may be because we are not at war and have not the sense that our existence as a nation is at stake. At all events, it is a fact which people should bear in mind when they read or hear of the various nostrums and panaceas so widely publicised as remedies of our social ills— unemployment, emigration and the rest. All or most of these measures, even if they were sound in other respects, would call for a degree of interference with individual freedom which our people would almost certainly resent and oppose, and none of them could succeed without wholehearted popular co-operation. Failure to recognise that public policy must adapt itself to the character of the people whom it is intended to serve is the besetting sin of our social theorists, as it has always been of their kind. Those of us who have to reach decisions in matters of policy, and to take responsibility for the results, cannot afford to indulge any similar proclivity which we may have. We must consider the popular reactions to our measures. We cannot, for example, risk an indefinite increase in State expenditure on the facile assumption that the public would accept all the restrictions and controls necessary to avert the disastrous inflation which would be the normal result of such an increase.

The solution of our social ills is not, therefore, just a matter of finance, as many allege, although finance has a contribution to make to what can only be described as an assortment of problems. To this contribution I will refer later. It is sufficient now to say that, on the information available, our taxation appears to be as heavy in proportion to our national income, which is the only true yardstick of taxation, as that of any neutral country in Europe and even of some belligerent countries. Further increases can only help to intensify unemployment by destroying economic incentive, increasing costs of production, reducing efficiency and competitive capacity and ultimately hindering our efforts at national reconstruction and expansion in the post-war period. It should be remembered that economic stability is an essential factor in maintaining political independence and that heavy taxation and, still more, over-taxation is the surest way to weaken and undermine the stabilising forces in our national economy.

I cannot here pursue this topic further as our present care must be the financial situation of the State, as seen from the results of the past financial year and the prospects for the coming year.

From the tables circulated to-day Deputies will see that the realised deficit in the national accounts for the 12 months to 31st March last was £2,145,000, as compared with £4,558,000 anticipated. This good result was due to revenue rising above expectations and expenditure falling below. On the tax revenue side, we anticipated a yield of £10,265,000 from customs which, in the event, gave us £395,000 more. The main contributor to this happy result was tobacco, which returned us an excess of £500,000 at £7,969,000. This is accounted for by the increase of approximately one-eighth in the clearances of unmanufactured tobacco from bond which we allowed under Emergency Powers Orders as from 1st November, 1942, and also by additional imports of manufactured tobacco. We felt able to permit increased clearances last autumn because of the improved leaf stocks in this country. These were at a dangerously low ebb about 12 months ago, but thanks to the co-operation of our manufacturers and the services of Irish Shipping, Limited, the quantities in hand have doubled during the year.

Clothing and apparel duties also showed a welcome increase in yield in contrast with an anticipated heavy decline. Our drapers lost no opportunity of adding to their stocks of imported merchandise, and besides the trend of prices throughout the year was upwards — a fact which greatly helped the yield of this as well as of all other ad valorem duties.

The wine and spirits group of duties turned out reasonably well. The high price and occasional scarcity of spirits were partly responsible for the increased attention paid to wine, the consumption of which brought us in a revenue of £212,000, or £42,000 more than we had anticipated. Here again increased imports, mainly from the Iberian Peninsula, have enabled us to build up better stocks. Larger supplies have also induced a wider consumption of brandy which, at £155,000, returned over 50 per cent. in excess of the estimate. The whole of the imported spirits group yielded us well over £500,000, or £100,000 in excess of the estimate.

There was a big decline in the imports of sugar and a corresponding falling-off in the duty paid, as compared with the previous year. In the hydrocarbon oil group, which includes petrol, we also fared badly, the total receipts being £830,000 as against £895,000 anticipated.

As regards excise, the leaders in this section, beer and spirits, retained their place, the former with a yield of £3,112,000 and the latter with £2,107,000. The rates of duty in both cases were, of course, heavily increased in the autumn of 1939, shortly after the outbreak of war. The consumption of home-made beer in terms of bulk barrels has shown in recent years a slight upward tendency, which continued in the last 12 months. The consumption of home-made spirits has likewise shown an improvement, to be accounted for, no doubt, in part by the falling-off of imported varieties.

It is of some interest to note that beer and spirits between them produced in 1942-43, £5,219,000, or 71 per cent. of the total revenue from excise. If we include tobacco, the aggregate yield from these commodities came to £13,976,000, or 42.7 per cent. of the total tax revenue, excluding motor vehicle duties. Thus does the Exchequer benefit from our little weaknesses.

On the inland revenue side, pride of place must be given to income-tax, the yield of which, together with surtax, passed the £10,000,000 mark for the first time in our history. There has been a number of steep increases in rates in recent years in this, the most unpopular, I suppose, of all our direct taxes. The present standard rate of income-tax of 7/6 in the £ is one which I sincerely hope we may not be called upon to exceed. Its high level acts to some extent as a brake on individual effort and as a deterrent to industrial and commercial enterprise. In this way it has reactions harmful to the national economy, a result which does not follow from most forms of indirect taxation if kept on a reasonable basis.

Some ill-effects are also discernible from the undoubtedly high level at which we pegged excess corporation profits tax. The patriotic impulse which drives people to an all-out war effort even under a 100 per cent. excess profit tax is, in part, lacking in a neutral country. The tax has, however, been much more fruitful than expected, and the concessions which I announced 12 months ago at an estimated net loss of £100,000 did not cost us anything if we measure the actual yield of duty, £2,760,000, against the revised estimate of £2,420,000 made after the concessions had been allowed for. The combined yield of income-tax and surtax and corporation profits tax at £12,840,000 amounted to 39.2 per cent. of the total tax revenue, excluding motor vehicle duties.

The most important remaining item on the inland revenue side is estate duty, including legacy and succession duties, which, at £1,370,000, improved on the estimate by £40,000. The yield of these imposts is necessarily conjectural, depending on the mortality rate and on the value of stocks, shares and other forms of personal and real property.

The last big item, stamp duties, brought us £490,000 as compared with an estimate of £463,000. These are to some extent a barometer of business activity, as they include duties on the capital of companies, on cheques, bills of exchange, contract notes, insurances of all kinds and a variety of deeds and other instruments which relate to the passing of property.

On the basis of the Exchequer return as at 31st March last which, as Deputies are aware, does not distinguish between normal and abnormal expenditure, the gap between Exchequer issues for Central Fund and Supply Services and Exchequer tax and non-tax revenue was £3,317,000. The figures for previous years were: —1941-42, £3,644,000; 1940-41, £3,134,000; 1939-40, £2,006,000.

In the period so far covered by the emergency, our total Exchequer deficits have been £12,101,000, all of which had to be financed by borrowing. Accompanied as this was by heavy rates of direct taxation involving, to an appreciable extent, the transfer of income from the saving to the non-saving section of the community and releasing in this way a large volume of purchasing power which would not otherwise be effective, it is not surprising that prices have been advancing here at a fairly rapid rate and that the cost-of-living index has reached high levels. Numerous other influences, to some of which I shall refer later, have, of course, been at work in promoting inflationary tendencies but the influence of public finance in this direction cannot be ignored. Those who press for bigger deficits or higher taxation should ponder this fact.

A succession of deficits makes the task of restoring budgetary equilibrium extremely difficult. Departments become accustomed to a higher scale of outlay. Fresh services and posts are created and vested interests tend to be built up. Spending is a habit which takes root easily and with its growth retrenchment becomes more difficult. We are, of course, far from unique, even amongst neutral countries, in having our Budget unbalanced. As in other cases, the heavy expenditure on the Army and the Defence Services associated with it is mainly responsible for throwing the normal working of the financial mechanism out of gear. In the year just closed our Exchequer issues for Army purposes were £8,395,000, as compared with £8,155,000 in the preceding year, an increase of £240,000. In the last complete year of peace — to 31st March, 1939 — Army issues were only £1,766,000, so there has been a five-fold increase. Heavy expenditure on military objectives, while essential for national safety, does not add to the stream of production or to capital assets. It adds to taxation and promotes the growth of deadweight debt. In the peaceful days which, I hope, lie ahead, when swords revert to ploughshares, this serious impairment of our national finances will, no doubt, be largely removed.

The capital liabilities of the State, including the estimated capital value of State contributions under the Housing Acts, amounted on 31st March, 1943, to £91,938,000, an increase during the year of £1,768,000. In the same period capital assets, mainly cash balances, declined by £1,444,000. The net addition to the capital burden during the 12 months was thus £3,212,000.

On 31st March, 1942, the gross debt of local authorities amounted to £36,388,000. After allowing for the value of State contributions towards housing and for certain electricity and technical instruction loans, the net debt outstanding was £22,767,000, an increase of £293,000 on the previous year.

The combined indebtedness of the State and local authorities on 31st March, 1942, totalled £110,700,000, after allowing for the amount of the advances from the Exchequer to the Local Loans Fund outstanding at that date. Assuming an increase of £1,000,000 in the case of local authorities during the year, the aggregate gross liabilities of the State and local authorities amounted on 31st March, 1943, to £114,200,000, a very substantial figure.

During the year we have increased by over £700,000 to £12,237,000 our indebtedness in respect of Savings Certificates, while to Post Office depositors we owed on 31st March last in respect of principal and interest a sum of nearly £19,250,000 — including £1,550,000 belonging to the Trustee Savings Banks — which was £4,250,000 greater than on the previous 31st March. There has thus been a very rapid growth during the 12 months in the earnings of the people deposited with the State and in our responsibility towards this large and thrifty section of the community. The number of depositors, in round figures, in the Post Office Savings Bank is now 460,000, and in the Trustee Savings Banks 29,000, while the number of holders of Savings Certificates is 225,000.

Owing to the satisfactory yield of revenue in 1942-43, the financing of the various categories of expenditure was effected more easily than usual. For the first time since its establishment, no capital advances were required by the Electricity Supply Board from the Exchequer, owing, doubtless, to the non-availability of materials and equipment; and for a similar reason the Local Loans Fund, instead of drawing on the Exchequer for capital as was anticipated, was able to repay the appreciable amount of £600,000 capital borrowed in former years.

The substantial Exchequer balance of £2.4 millions in hand at the opening of the year, together with the receipts from Savings Certificates and from other short-term borrowings of £1,900,000, left a useful sum of £1? million in hands on 31st March last after meeting all outlay chargeable against borrowings.

Included in the disbursements on capital account during 1942-43 there is, as Deputies will have observed from the Exchequer returns, the large payment of £1,053,770 made to the Industrial and Life Assurance Amalgamation Company under the provisions of the Insurance (Amendment) Act, 1938. That liability had been, as it were, hanging over the Exchequer for a few years but it did not fall to be discharged until the complicated valuations provided for in the amalgamation agreement were finally completed and examined in December last.

The Act of 1938 placed on the Minister for Finance the obligation to make good the deficiency in the funds of the four Irish companies whose life assurance and industrial insurance business was transferred to the terminating company formed under the amalgamation arrangements. At the outset it was estimated that the Exchequer liability would be about £600,000, but this figure was not based on any detailed investigation, and proved to be far below the deficiency revealed by the final valuation of the assets and liabilities of the four companies as at 16th September, 1939, the statutory date of the transfer of business. The increase in the liability to over £1,000,000 may be explained, firstly, by the fact that the excess of the insurance liabilities over the assets of the four participating companies as provisionally valued at 31st December, 1937, was found to be well over £200,000 short of the actuarial deficiency proved to exist at 16th September, 1939; secondly, by the addition of the costs of transfer, including compensation to redundant staff, amounting to nearly £120,000, for which no provision had been included in the earlier estimate; and thirdly, by the obligation falling on the Minister for Finance to pay interest totalling about £107,000 on the ascertained deficiency in respect of the period from the transfer date to the date of discharge of the Exchequer liability.

The payment of this large sum undoubtedly placed a serious burden on our financial resources. At the same time no one can fail to recognise that the very size of the deficiency is a proof of the need that existed for State intervention in the domestic field of insurance and for the reorganisation carried into effect by the Act of 1938. If that Act had not been passed, the early collapse of these four companies would have caused widespread hardship to policy holders, creditors, borrowers and staff, and possibly would have had a damaging effect on national credit.

The Exchequer has a tangible asset to show against the payment made to enable the new company to conduct its operations in a condition of solvency. Under the Statutory Amalgamation Scheme the company has transferred to the Minister for Finance shares which represent approximately 20 per cent. of the issued capital, while the Minister also holds the sole voting rights. Eventually when the terminating company is wound up and its assets transferred to the permanent company, the Irish Assurance Company, the Minister will possess an equivalent shareholding in that undertaking although without the sole voting control that exists in relation to the temporary company. It is too early yet to gauge what return the Exchequer will reap from its investment but the asset which it holds may be of considerable importance if the business of the new company prospers as it should when the initial difficulties have been surmounted under prudent direction and vigorous management.

During 1942 attention was given by the Government Departments concerned to the question of providing credit facilities for farmers, not so much now as in the post-emergency period when restocking and revitalising the land will be a pressing national necessity. Consideration was naturally focussed on the part which the Agricultural Credit Corporation might play in the solution of this important problem. I do not wish to deal generally here with agricultural credit, but I may mention a transaction of the past year which added to the contingent liabilities of the Exchequer and at the same time provided the Agricultural Credit Corporation with the opportunity for making loans at a reduced rate of interest. As Deputies are aware, the Agricultural Credit Acts of 1927 and 1929 enable the Minister for Finance to guarantee the principal of and interest on borrowings by the Corporation. In this way, the corporation raised £500,000 in its early days through the issue of mortgage bonds carrying interest at 5 per cent., which was the rate applying, under State guarantee also, to the original share capital. This 5 per cent. on its capital has been in the past a decisive factor in the corporation's leading rate. Last year the board of the corporation approached me in the hope that means might be found of using the prevailing low interest rates to secure funds to redeem its existing capital indebtedness.

The mortgage bonds to which I have referred carry optional dates of redemption, the first series of £250,000 in November, 1944, and the second series of £250,000 in May, 1946. Accordingly, last December, under statutory powers I gave my consent and guarantee to the creation of a new series of Certificates of Charge, amounting to £1,000,000, called State-guaranteed Mortgage Stock, issued at par, bearing interest at 3 per cent. and redeemable in 1957/67. £500,000 of the 3 per cent. Mortgage Stock was immediately issued, and I facilitated the corporation by taking up the whole allotment for the investment funds under my control, thus saving the corporation the expense involved in a public issue. The proceeds will be used by the corporation to pay off the 5 per cent. Mortgage Bonds as they fall due for redemption during the next few years. The corporation have the right to issue the balance of the £1,000,000 of 3 per cent. Mortgage Stock at any time and this power can, as opportunity may offer, be used either to complete the liquidation of its existing 5 per cent. capital structure or to procure funds at this low rate of interest for re-lending to the agricultural community. In the meantime the corporation has reduced its lending rate to 4½ per cent, a reduction which is also applicable to loans outstanding at the old rates of 6 per cent., 5½ per cent., and 5 per cent. Deputies will appreciate, however, that the beneficial effects of the issue of 3 per cent. Mortgage Stock on the expenses of the corporation will not be realised until after the 5½ per cent bonds have been redeemed. In the interval the concession given in the reduction of the rate of interest on loans to 4½ per cent. involves a substantial loss of income and, correspondingly a call on the Exchequer to honour its guarantee of the 5 per cent. dividends payable on the shares in the corporation held by the public. Provision for this contingency appears in the White Paper among the estimated Central Fund liabilities during 1943-44.

In preparing the White Paper Estimates of Receipts and Expenditure for the year ending 31st March, 1944, I have proceeded on the same assumptions as in previous Budgets, namely, that despite the further expansion and growing intensity of the war, no major economic catastrophe will overtake the country; that supplies from abroad of various important commodities will continue to reach us, and that, with the co-operation of home producers of food and materials, we will be able to carry on with some comparative degree of comfort. These assumptions underlie the revenue side of the Budget and, while they introduce an element of conjecture into the picture, we can only hope that they will prove valid.

On the basis of existing taxation our estimate of tax revenue for 1943-44 is £35,195,000, as compared with payments into the Exchequer of £33,381,000 for 1942-43, an increase of £1,814,000. Customs revenue is expected to rise by £440,000 to £11,100,000, which is very gratifying, especially as it shows a drop under all heads except tobacco, sugar and wine. The greatest loss is in the hydrocarbon oil group, from which we received £1,243,000 in 1941-42 and £830,000 in 1942-43, but can expect only £470,000 in 1943-44. Tobacco is relied on for a yield only a few thousand pounds short of £8,500,000. The duty on imported sugar is likely to show a useful increase owing to higher imports of raw sugar from the British West Indies in the coming year. As regards wine, current stocks in bond are markedly above those of a year ago and in view of the buoyancy of the demand increased sales may be anticipated with corresponding benefit to the revenue.

In the case of clothing and apparel, we face declining imports and a drop in yield of £129,000. A downward trend in the receipts during 1942-43, coupled with indications of a complete cessation of imports of certain classes of clothing in 1943-44, is responsible for the reduction.

Imports of tobacco have been on a more satisfactory scale during the last 12 months. The continued importation of leaf, which comes mainly from the United States, is a matter of interest not only for revenue but also for employment. The demand for the American crop grows in intensity as the war expenditure of the United Nations expand. At the same time, labour and other difficulties in the United States of America are tending to force a reduction in acreage. For the next 12 months, however, I think we can run the risk of maintaining clearances at the rate of 90 per cent. of the standard year, as compared with 80 per cent. previously allowed. This means that our consumption will be over 9,000,000 pounds of tobacco. In terms of cigarettes, this represents a figure the magnitude of which is not generally realised. If we assume that two-thirds of our consumption of tobacco is in the form of cigarettes, and that the latter run to approximately 400 per lb., the consumption, when we add the imports, works out at 2,500,000,000 cigarettes per annum, or about 50,000,000 per week—over 7,000,000 per day. Pipe smokers consume 50,000,000 ounces a year. The snuffers account for most of the remainder.

The great expansion in cigarette smoking in recent years is undoubtedly due to the spread of the habit among women. No figures are available as to their precise contribution to the national smoke cloud, but their activity in this line puts around £2,000,000 a year into the Exchequer.

I may turn now to the inland revenue prospect for the coming year. Its main feature is, of course, income-tax. The standard rate was raised by 1/- to 5/6 in 1939-40, and in November, 1939, was further increased to 6/6 in the £ for the 12 months beginning 6th April, 1940. In May, 1941, yet a further 1/- brought it to 7/6. The receipt in 1942-43, as shown in the White Paper, amounted to £9,500,000, which may be presumed to reflect in full the benefit of the latest addition to the rate. For 1943-44 it is put at £10,619,000, which easily makes it the most valuable of all our taxes for Exchequer purposes. Its companions, surtax and supertax, which yielded £580,000 in the past year are expected to be slightly less in the current year at £575,000.

Motor vehicle duties which, at £631,000 in 1942-43, were £31,000 above expectation are put down at £450,000 for 1943-44.

As regards non-tax revenue, the alterations made in 1941-42 in postal and telephone charges have added substantially to the receipts which are expected, at £2,525,000, to be increased by £100,000 in 1943-44. The commercial accounts of the Post Office show, however, that it has been run at a loss for some years past, except in 1941-42. There have, of course, been years when a surplus was shown on the accounts, but taking the whole period from 1922-23 to 1941-42 the excess of deficits over surpluses amounts to £2,830,000.

The next most important item of non-tax revenue is land purchase annuities which, at £1,750,000, show a slight falling off from last year due to an anticipated fall in the amount of redemptions, as the acquisition of land for public purposes is on a declining scale.

An item of £280,000 receipts in respect of surplus income from the Central Bank is included. The corresponding receipt in 1942-43 was £225,000.

As regards the Road Fund, while its income in the current year will decline substantially, payments into the Exchequer in respect of debt incurred in past years will show a considerable reduction. The net assets at its disposal will be greater and I propose to avail of this happy circumstance for Budget purposes.

On the expenditure side the principal outlay for the coming year will, of course, be on Supply Services. The detailed Estimates set out in the volume already presented to the Dáil provide for an expenditure of £40,696,000 to which have to be added two Supplementary Estimates, one of £280,000 for the Department of Supplies, already approved by the House, and the other of £120,000 for the Department of Local Government and Public Health which is soon to be submitted.

As social services and social security are topics that attract a large degree of public interest just now, it will not be out of place at this point to outline briefly the extent to which the social services sponsored by the State have helped to swell the bill which I am presenting to-day.

On social and ethical grounds conditions of full employment are admittedly our most worthy objective and to that end the thought and energies of the Government have all along been directed. Even in peace time, however, the problem is so beset with difficulties that nothing approaching a complete solution has been found. Those difficulties have multiplied in our present circumstances and the solution now seems more remote than ever owing to the war-time scarcity of supplies which has not merely put a stop to industrial progress but seriously threatened the position of industrial development we had attained before the war. Still, every possible effort is being made to realise in full measure the employment values inherent in the native resources of the country and Government money is being spent liberally with this object. Thus, the Employment and Emergency Schemes Vote provides £1,250,000 for purposes such as urban and rural amenity and utility works, minor employment schemes, development of bog roads, land improvement and reclamation, seed and lime distribution schemes and miscellaneous schemes providing work for the relief of unemployment and distress. This expenditure will be supplemented by a contribution of £180,000 from local authorities. The Votes for Local Government and Supplies contemplate an outlay of £734,000 for works incidental to the production of turf and firewood on a large scale—activities which fulfil a dual function by affording useful employment and by safeguarding the health and comfort of the citizens in providing a substitute fuel for the coal which has disappeared from our hearths. The Public Works and Buildings Vote will contribute some £596,000 for new works and buildings, while expenditure from other Votes in respect of land improvement, forestry, coal and minerals development, Gaeltacht services, and fisheries and grants for housing, drainage, etc., will also help to provide or stimulate employment. These various items add up to the considerable sum of £4,053,000.

On top of this there is provision for capital issues as indicated in the White Paper for electrical development, road work and tourist development schemes, totalling £839,000, making an aggregate of just under £5,000,000. Furthermore, the State has assumed contingent liability for numerous additional activities directed towards the provision or maintenance of employment. I have, for example, given my guarantee for very large overdrafts which are still current for such operations as the importation of tea and fuel, while the activities of Irish Shipping, Limited, which have brought so many vital supplies to our shores, were facilitated by a similar guarantee given by me.

Among the provisions which have already appeared in the Supply Services Estimates there is this year a new benefit. It has been represented that certain classes of works carried out as minor employment schemes in rural areas in which there is unemployment, should also be executed with State aid in other areas where the works were needed, but where the unemployment situation would not warrant their being carried out on the conditions usually associated with employment schemes. What was mainly aimed at in these representations was the construction and, where necessary, the repair of roads connecting two public roads, of accommodation roads to houses, farms and bogs, and the carrying out of small drainage works other than field drains.

After much thought I have decided, as it is desirable as an emergency measure to increase to the fullest extent the productive capacity of farms and the provision of turf for farmsteads, that a sum of £100,000, to be expended in grants for the purpose indicated, be made available out of the amount set out for miscellaneous schemes in the Vote for Employment and Emergency Schemes. The farm improvements scheme has been almost invariably availed of by individual farmers, but the benefit of the works now proposed would in general accrue jointly to groups of farmers.

Where efforts to provide work fall short of accomplishment our social services are available to alleviate destitution and distress whether due to unemployment or other involuntary cause. These services are not surpassed by those of any country with resources and national income comparable with our own. Following a progressive and enlightened social policy, the State, with the loyal co-operation of the local authorities, has undertaken responsibility for assisting the poor and the unfortunate. A substantial measure of social justice is in this way achieved. The Estimates provision for the current year in respect of what might be called the social services proper furnishes abundant evidence of the truth of this statement. For old age and widows' and orphans' pensions, for the various grants included in the Vote for Local Government and Public Health, for national health insurance, for unemployment insurance and unemployment assistance and for other cognate services the remarkable total of £7,500,000 is provided in 1943-44 as against £7,000,000 in 1942-43. A large portion, approximately £1,000,000, of the former sum is earmarked for the relief of distress and hardship directly traceable to emergency conditions as, for example, the food allowances scheme in operation since 1941, the grant to provide fuel for necessitous families, the setting up of a special register of turf and agricultural workers and the increased provision to encourage the working of allotments by unemployed men. In the last pre-war year, 1938-39, the expenditure for social services was approximately £6,000,000 so that current demands represent an increase of 25 per cent on that figure.

Direct Government subsidies in 1943-44 will cost £3,644,000, an increase of £567,000 on 1942-43. A large portion of this will go to mitigate the effect of the increased cost of essential food items. To subsidise the price of turf we are providing this year no less than £660,000.

Educational services from primary school to university will cost £5,312,000 as against £5,150,000 provided last year, and £4,786,000 spent in 1938-39.

The sum of all the grants to be voted in 1943-44 for the provision and encouragement of employment and for social services is over £20,500,000. This considerable figure represents one-half of the aggregate of the Supply Services Estimates. It is an increase of £858,000 on the 1942-43 provision and of just £5,000,000 on the actual expenditure under the same heads in 1938-39. This total leaves out of reckoning several other essential services such as the courts of justice, the Civic Guards and various allied services; the Post Office and the assistance rendered to agriculture by way of grants and otherwise.

An additional social service which has been widely and warmly advocated in recent years is children's allowances. The cost of any such service in this country, with its, happily, large number of children, must be very heavy no matter how modest the allowances or how restricted their scope.

The Government has already officially announced its decision to bring into operation a scheme of children's allowances. The Bill to implement this decision is being drafted. As some months must elapse before such a measure can be passed into law and as a considerable further period would be required before arrangements for putting a scheme of the kind into operation could be completed, I am not asking the Dáil to make any financial provision for children's allowances in the current financial year.

I would invite persons who question our outlook on social matters or criticise the adequacy of our social services to reflect seriously upon the figures mentioned above, from which, incidentally, administrative costs have for the most part been excluded. Generally speaking, the proportion of State expenditure representing the pay of civil servants is not unreasonable. Nevertheless the continued growth in the numbers and cost of the Civil Service is a cause of serious concern. The latest figures available, which relate to the beginning of January, 1912, show an increase since the corresponding date in 1939 of 275 in the number of established civil servants and of 1,126 in unestablished personnel. The increase in the total amount of salaries and wages during the same period was approximately £560,000 a year, about £200,000 of which was due to a higher rate of cost-of-living bonus. Although statistics for the present year are not yet available, it is certain that the numbers and cost of the service have risen still further since the beginning of 1942.

The position, unsatisfactory as it is, would be much worse if the emergency services created since January, 1939, had not been manned largely by borrowing staff from normal services. In this connection, I must say that it is becoming increasingly difficult to maintain the loans of staff at the point they reached earlier in the emergency period. Departments are constantly being pressed to restore their full pre-emergency activities and they, in turn, are tending to press for the return of the staff lent to emergency services. This is a matter in which the Dáil can help by accepting and encouraging the public to accept the very limited curtailment which has occurred in certain peace-time activities.

The most comforting fact about the expansion of the Civil Service since 1939 is that four-fifths of the increase in numbers is attributable to the recruitment of persons whose employment can be terminated when the need for their services comes to an end. This consolation, however, is decidedly lessened by reflection on what appears to be a permanent upward trend in State activity. Year after year, before the emergency began, as well as since, the Government has felt itself impelled to assume new functions and establish new services. If that tendency continues, and all the indications are that it will, further expansion of the Civil Service is inevitable.

It is the fashion at the moment to ascribe increasing Governmental activity, increasing intervention in economic affairs, for example, to the hidden hand of a supposed bureaucracy. In truth, as all but the most prejudiced commentators on public affairs know, there is no bureaucracy in this State. Public policy is determined by a Government responsible to the Oireachtas, and it is administered under the control of that Government. Rightly and necessarily, civil servants have some influence in the formation of policy, but only in so far as their advice commends itself to the particular Ministers under whose direction they work. I think I am doing the Civil Service no injustice when I say that it is very rare indeed to find its members exercising their influence in favour of an extension of State activity. If they have a bias, it is, speaking generally, in the opposite direction.

There remains, however, this great problem. Can we stem the tide of Governmental intervention in what was formerly regarded as the domain of private enterprise, private charity, or voluntary organisation? In order to do so people should, in my opinion, develop a greater spirit of reliance, I do not say on merely individual, but on organised co-operative effort. The trend of social and economic development here, as in other countries, imposes the need for more and more standardisation of products and regulation of activities. We cannot resist that. The only choice open to us is whether we shall respond to the need by increasing the powers and functions of the Government or by the creation and effective operation of a network of organisations to protect the legitimate interests and promote the welfare of the various economic and social elements of the community, while reserving to the Government the function of safeguarding the common good and protecting those who are not strong enough to protect themselves. Theoretically, there would not, I think, be much doubt about our choice; none of us desires the all-powerful State. Yet we are drifting steadily towards it. We are doing so partly because, as our community is at present organised, only the State can do many of the things that require to be done, and partly because, in spite of our theoretical dislike of State interference, we all tend to rely upon the State to do for us things which, if we had the will and were ready to co-operate with our neighbours, we could do far better and more economically for ourselves.

I could give many instances of this tendency to undue reliance on the Government, but it is unnecessary. Deputies already know them. It is a very dangerous tendency, one of the most dangerous of all from the standpoint of the political and social welfare of our people. It would be relatively easy for the Government to create the network of organisations I have spoken of; but the real problem lies deeper than that, it lies in this mental attitude of our people, of all of us. Unless we can change this attitude, and learn to depend more on our individual and group efforts and less on the Government, there is no hope of averting State omni-competence and an ever increasing and ever more costly Civil Service.

Reverting to my outline of the 1943-44 finances, the Supply Services, as in previous years, contain provision for capital and abnormal expenditure usually met by borrowing. The chief amongst items of this kind, all of which are set out in the Table Explanatory of the Budget, is £471,000 in respect of defence expenditure on Vote 10 for Public Works and Buildings and on Vote 63 for the Army. Barracks, store accommodation and a gymnasium are among buildings provided for, while out of the latter Vote armoured cars, transport vehicles, guns, ammunition, and A.R.P. equipment are to be purchased on a substantial scale.

In respect of airports, including meteorological equipment, the demand is estimated at £193,000 in the coming year. Deducting the annuity, calculated on a 15-year basis at 3½ per cent. interest, required to meet the total estimated expenditure, we get a figure of £13,000 to be borrowed. Of the total cost of land acquired and cultural operations for forestry, I propose to borrow £52,000, and in regard to employment and emergency schemes, which have been merged into one Vote, I am borrowing one-fourth of £1,250,000. In respect of expenditure totalling £734,000 on fuel production, under Votes 41 and 69, I feel justified in treating as a non-revenue charge one-fourth of the whole amount, viz., £183,000.

These capital items aggregate £1,032,000, and if we deduct this from the total of Supply Services we get a figure of £40,064,000, to which have to be added Central Fund Services costing £5,073,000, making a total of £45,137,000. We cannot make a deduction for anticipated savings as the experience of past years has shown the difficulty of avoiding Supplementary Estimates.

On the existing basis, tax revenue, as shown in the White Paper, is estimated at £35,195,000 and non-tax revenue at £6,287,000, making a total of £41,482,000. This leaves us with the substantial margin of £3,655,000 between revenue and expenditure. It is difficult to see how this gap can be closed except by further borrowing. The alternatives are economic or additional taxation. As regards the former it is, of course, part of the functions of the Minister for Finance to take all possible steps to eliminate waste and to promote efficiency. He has not only to raise the revenue required for the multifarious activities of the State, but also to see that it is spent to the best advantage. In the discharge of the latter duty he has to depend mainly on the help he receives from other Ministers and Departments. I am assured by my colleagues that there is no avoidable waste and that, in present circumstances, economies are not feasible.

As regards additional taxation, I have already referred to the considerable increase in the burden of both direct and indirect imposts which we have sustained in recent years. It is a wise policy, I think, to reduce our borrowing as much as possible in order to keep debt charges down and so help us in the post-war period. Debt charges are, indeed, already considerable, amounting to £4,025,000, approximately, for the coming year. But while the maintenance of a sound economic and financial front is desirable I feel that a further advance in taxation cannot now be advocated. We cannot bear here the unusually high levels reached in the United Kingdom where the monetary incomes of the population have shown continuous and rapid expansion under the impetus of war expenditure and where the earnings of the people have outstripped the rise in the cost of living. The British national income measured in terms of money has increased by leaps and bounds but here the relative increase has been much lower. Besides we are suffering now to a more marked degree from shortages of the solid and liquid fuels, raw materials, and semi-manufactured goods and chemical products required for industrial operations; machinery, machine parts and all kinds of replacement equipment are also scarcer. Agricultural production, it is true, has undergone considerable expansion in terms of money, but it is difficult to tax the farmer and in any case agricultural production, generally speaking, does not show as good a margin of profit as industrial and there is, therefore, less available for the tax collector.

While no general increase in rates of taxation is being proposed to-day, I think it well to deal at some length with corporation profits tax as some misunderstanding appears to prevail on the subject in business circles and elsewhere.

If the profits of a company do not exceed £2,500 it does not pay corporation profits tax at all. If its profits exceed £2,500 it is charged ordinary corporation profits tax at the rate of 2s. in the £ on the amount by which those profits exceed £2,500. If its profits exceed its standard profits, or £2,500 (if £2,500 is greater than its standard profits) it is charged on the amount of the excess both ordinary corporation profits tax at the rate of 2s. in the £ and excess corporation profits tax at the rate of 10s. in the £, i.e., a total of 12s. in the £, in other words at the rate of 60 per cent. Corporation profits tax is allowable as a deduction for income-tax purposes, and the company also pays income-tax at the full rate of 7s. 6d. in the £ on what is left. The ultimate effect is that, if a company is at present making profits in excess of £2,500 per annum and also in excess of its standard profits as computed in accordance with the law, we take from it in taxation 7s. 6d. in the £ on the first £2,500 of its profits; 8s. 9d. in the £ on the amount by which its normal or standard profit exceeds £2,500, and 15s. in the £ on the balance, i.e., on the amount which it makes in excess of its normal or standard profits.

It may be well to remind the Committee how the standard profit is computed. There is first of all the minimum standard of £2,500. Then, as regards companies entitled to a standard higher than the minimum, no difficulty normally arises in the case of a company which has been in existence for several years. The profit of the best of the last three years prior to the emergency for which the company has made up its accounts is taken as its standard or peace-time profit, and unless the circumstances have been exceptional it cannot be suggested that this is anything but a fair measure of standard profits.

The position with regard to new companies is different. Some of the new companies had been trading for less than three years prior to the commencement of the emergency. Some, which had been trading somewhat more than three years, had not yet got into their stride. It was decided, therefore, in 1942, after careful consideration, that any company incorporated on or after the 1st January, 1934, should be allowed a standard, to be called a substituted standard, of 9 per cent. on its issued capital (including debenture capital, if any) as an alternative to any profits standard to which it might be entitled, based on profits made in a pre-emergency year.

In 1942 some criticism was directed against the allowance of 9 per cent. on preference and debenture capital; but if it is borne in mind that the substituted standard is simply intended to serve as a measure of the trading profit which a company with a certain capital might reasonably be expected to earn it will be seen that this criticism is misconceived. If a company's capital is £200,000 the manner in which that capital has been subscribed will not affect the amount of its trading profit one way or the other, and since we are merely endeavouring to arrive at a figure to be taken as the normal trading profit of the undertaking in peace-time we are not concerned with the manner in which such profit falls to be distributed amongst the individuals by whom the capital was subscribed.

I have again been approached this year, mainly by representatives of the new companies, on behalf of which it is argued that where the substituted standard applies they are being left, after meeting the burden of taxation, with insufficient funds to pay reasonable dividends and provide reserves to meet contingencies which may be expected to arise at the end of the emergency.

I found that the contingency concerning which there is most apprehension in business circles is one which my advisers have had in mind all along, but with regard to which we cannot legislate at present. It is a matter which concerns old as well as new companies. As Deputies are aware, the normal practice of traders when making up their accounts is to value stock-in-trade at cost or market value, whichever is lower. Now it is probable that in many businesses there will be a fall in the market value of stocks following the termination of the emergency, and there is a fear in business circles that if excess corporation profits tax were brought to an end before the slump in stock values took place such fall in values would never be reflected in the computation of the liability of traders to this form of taxation.

The point is not a new one. Special legislation in relation to excess profits duty was passed following the War of 1914-1918 to meet a somewhat similar set of circumstances. It is obviously not practicable to introduce legislation of this nature until the end of the emergency, and it is equally obvious that I have no power to pledge the Dáil which will then be in existence, to any particular course of action; but I wish to place it on record that, in my opinion, if the situation which I foresee arises it is inevitable that suitable legislation should be passed to enable the question of the taxation liabilities of companies in respect of excess profits made since the emergency to be reviewed by reference to any such fall in the market value of stocks following the end of the emergency period. I hope that this statement will allay the apprehension on this subject which has hitherto existed.

It has also been urged that the amount which is being taken from the new companies in taxation is too high, due to the substituted standard of 9 per cent. on issued capital giving an inadequate measure of the normal peace-time profits of these companies. I am quite unable to accept this contention. The point has been the subject of further careful examination this year and I am satisfied that the 9 per cent. standard gives a full and fair measure of the profits which these companies would have been making to-day if there had been no world war.

That being so, is there any ground for the suggestion that these companies should be allowed some relief? The answer to this question depends, I think, on the standpoint from which one approaches it. There is a large body of opinion which, considering the matter by reference to the effect of the taxation on the proprietors of all companies which are making excess profits, would say at once that the taxation is, in fact, too low.

There is, however, the post-emergency standpoint. Because of it, we have framed our legislation so as to leave to companies liable to excess corporation profits tax 25 per cent. of their excess profits, and have at the same time, by Emergency Powers Order, imposed a limit on the distribution of the profits of public companies to their shareholders. Our policy in both respects has been dictated by the consideration that business concerns should be enabled to provide for the changed conditions that will arise after the war, and also to help in providing employment for our people then. If there is anything further which we can do now to encourage employers to place themselves in a better position to give increased employment later on by extending their operations and to encourage the investment of further capital in Irish industries, it is desirable that it should be done.

In the light of these considerations and of the special position of companies which have not been long established, I am prepared to grant some concession to new companies which are liable to excess corporation profits tax. I want to emphasise the word "concession". I am satisfied that the substituted standard as it is at present enables us to arrive at a correct measure of these companies' excess profits and that the change I propose to make will have the effect of bringing into charge something less than the full amount of the excess profits of the companies which will benefit by the concession. The concession will operate as from the 1st January, 1943, only. From that date the substituted standard for new companies, that is to say for companies incorporated on or after the 1st January, 1934, will be 10½ per cent. of the issued capital instead of 9 per cent. as at present.

It has been suggested that the substituted standard for old companies should be the same as for new ones. I am unable to accept this view. Most of the older companies have had ample time to get past the period of growing pains and reach the stage of maturity. Such companies, in the absence of exceptional circumstances, have no real ground for claiming any standard except a profits standard ascertained from their actual profits in peace time. The great majority of them have, in fact, a good profits standard and very few of them have approached me at all. In the case of one old company which claimed to be harshly treated, it was found that its best year for 19 years prior to the emergency showed a profit of only 6 per cent. on its issued capital, and under the law as it stands it had been allowed a standard of 7½ per cent. However, taking again the long view, and having regard to the fact that most of the comparatively small number of old companies which are on the substituted standard were not doing well prior to the emergency and that in the light of the considerations to which I have already referred there is much to be said for helping them to attain a more stable financial position, I propose to increase the substituted standard for old companies from 7½ per cent. to 9 per cent. of the issued capital. I want to emphasise the fact that these concessions are not designed to enable shareholders to get bigger dividends; they are intended to encourage the companies which benefit by them to plough back into their businesses as much profit as possible and thus put themselves in a position to give increased employment after the end of the emergency.

I estimate the cost of these concessions in a full year at about £30,000. The cost in the current year is not likely to exceed £5,000.

One resolution relating to corporation profits tax will be submitted to the Committee. Under the law as it stands a company which by its constitution is precluded from distributing any profits amongst its members is not liable to the tax. A public company, the shareholders in which would naturally expect to receive dividends when profits were available, would not be likely to attempt to evade the tax by altering its constitution. But a private company consisting of a few members could do so, for example, by altering its articles of association so as to prohibit the distribution of profits. In due course, after the termination of the excess corporation profits tax it could again alter its articles so as to permit the distribution of profits, and during the intervening period its proprietors could obtain by way of loan from the company what they were precluded from obtaining by way of dividends. It is proposed, accordingly, that a provision precluding distribution of profits which was not embodied in the constitution of a company prior to to-day's date shall not operate to take the company outside the scope of the charge to corporation profits tax.

There are a number of other minor changes of taxation involving resolutions which I will describe briefly. The first relates to the income-tax code. A section was passed in 1941 to enable a measure of relief from double taxation to be given to individuals who are domiciled and resident in this country after a period of residence overseas in a country within the British Commonwealth of Nations or in the United States of America in respect of income derived from such country. It has been found that on a certain interpretation of this section the recipient of such relief might be left in the position that the total amount of income tax borne by him on the foreign income would be less than one of our own citizens would pay in Irish tax alone on income of the same kind arising in this country. It is proposed to include in the Finance Bill a section to prevent this.

The next change relates to excise. I propose to abolish an exemption from entertainments duty which is available for entertainments promoted for partly educational purposes. The concession is too wide and costs about £7,000 in a full year. Provided that any portion of the proceeds of the entertainment, however small, is devoted to purposes of education, exemption must be granted in the present state of the law. The entertainments affected are of various descriptions but cinematograph exhibitions predominate. Complaints have been received from proprietors of ordinary cinematograph concerns that the exemption confers an unfair advantage on the exempt houses and it is agreed that these complaints are reasonable. In future, exemption will be granted in advance in respect of entertainments (1) which are promoted for wholly educational, philanthropic or charitable purposes, provided no expenses are incurred in respect of the entertainment, or (2) which are wholly of an educational character, or (3) which are promoted by an organisation such as the Gaelic League, the primary object of which is the extension of the use of the Irish language. Where an entertainment is promoted for wholly educational, philanthropic or charitable purposes and the expenses are to be paid out of the takings, duty will be payable, but it will be repaid if it is shown that the expenses did not exceed 30 per cent. of the takings.

Provision will be made to remove any doubt as to the liability of dances to entertainments duty in so far as the attendance comprises dancers as distinct from spectators.

Further resolutions will provide for a charge of duty on excise licences for the sale of intoxicating liquors and tobacco on passenger aircraft. The yield of revenue will be negligible.

We are now in a position to strike the final balance. The cost in the current year, £5,000, of the concession announced re excess corporation profits tax will be met by an increase of equivalent amount from the adjustment referred to in entertainments duty. The only other addition to revenue which I propose to make is the sum of £100,000 which, following precedent, I feel justified in taking as a contribution from the Road Fund. The deficit of £3,655,000 in the national accounts which we arrived at earlier is reduced thereby to the figure of £3,555,000, and I cannot see any way of providing this further sum otherwise than by borrowing.

The past year has seen the enactment by the Oireachtas of the Central Bank Bill. This measure has come at an opportune time as war conditions create for all countries, whether belligerent or neutral, acute strains on the economic situation of which the combined effect is most readily apparent and most directly transmitted to the whole community through the currency system. It is valuable for us in such conditions to have improved the technique of our monetary administration so that it will assist in protecting our people as far as possible from the loss and suffering which a time of war inevitably entails even for those who try to keep aloof from it. The dominant problem in the currency sphere is, of course, inflation. We in this country retain from the last war and its aftermath some recollection of the evil effects of inflation, but we were fortunate then to escape its worst manifestations which have given other countries a salutary dread of courses that would favour its recurrence. Unlike that former occasion our fate to-day is largely, but not altogether, in our own hands and the degree of our success will depend much on our handling of forces within our own control. In our case, as in that of other countries, the problem has a twofold aspect, being partly international and partly domestic.

On the international side the high value of our external trade in proportion to our domestic trade necessarily gives us a keen interest in all that concerns the exchange value of our currency and in all that affects the value of the currencies of the countries with which we have important dealings. The future course of sterling has a special interest for us as the sterling area is the chief destination of our exports as well as the main source of our imports. Other currencies, however, and in particular the United States dollar are directly or indirectly of importance for our external trade. In the last peace-time year, that is, 1938, there were 14 countries outside the sterling area with each of which we had an external trade of £250,000 or more, consisting predominantly of imports, our aggregate trade with these countries amounting in that year to a total of over £15,000,000. In addition to these visible trade transactions we had large external dealings with sterling and other currencies arising from such matters as investment transactions, tourist traffic, emigrants' remittances and so forth.

We have accordingly a close practical interest in the post-war outlook for the international monetary situation and in the various measures, particularly the British and American schemes, which are being discussed abroad in this connection for obviating those harmful currency disturbances which afflicted the world generally after the last war. The exact nature of the ultimate problems that will confront the major external currencies cannot be foreseen while hostilities are still in progress. There can be no doubt, however, that if, as must be hoped, economic progress is to be resumed after the war our concern with external trade and, in consequence, with international currency stability will be greater than before. Our major task for the moment in this sphere must be to pursue a policy which will leave us in the most favourable position for taking our part in the resumption of external trade and for accommodating ourselves, so far as it may be advisable, to any measures that may be devised in relation to the currencies of countries with which we have important economic relations.

In the actual mechanism of these external monetary affairs the central banks of the countries concerned have a task of growing responsibility. In the international currency sphere the chief hope for the future seems to lie in the better realisation that some reasonable stability of exchange is of universal advantage and that co-operation for this purpose can be both feasible and effective. In the creation of the Central Bank of Ireland we have equipped this State with the institution which is necessary in modern conditions to give such co-operation a practical form.

On the domestic side the measure of our own responsibility in regard to the problem of inflation is greater. In such a matter we are not and cannot be altogether free agents. Our courses of action in currency matters, even within the State, have to take account of the facts of the outside world and of the necessities of our external trade and economic relations. They must be such as to facilitate a prosperous export business by selling on terms that the outside market will accept and to permit of the acquisition from elsewhere of the numerous requirements of our import trade. In essence, however, there is no conflict between our external and internal interests in this respect. Inflation is injurious from either standpoint and although outside forces beyond our reach may sometimes encourage it the internal factors which we should ourselves be in a position to control are the more decisive.

Broadly and essentially, inflation is an increase, in terms of money, of prices, salaries and wages without an attendant increase of production on a sound and lasting basis. While it is reflected partly in an increase of the volume of currency, the active causes which in the circumstances of this country are liable to promote inflation are largely those which operate directly in the agencies determining the current levels of prices and wages. It is, therefore, of the highest importance that the various guaranteed and controlled prices should be kept within due limits from which too abrupt a recession will not become necessary after the war. Wages or salaries likewise cannot safely be left to climb unchecked with the prospect of rendering insoluble the serious problems of unemployment and high manufacturing costs which would aggravate the post-war economic position.

In regard to the physical volume of production during the course of the war we have statistical evidence which throws sufficient light for practical purposes on the broad course of events. In the sphere of agricultural output it would seem that, notwithstanding compulsory tillage and high prices, the general volume of production has not altered much. As regards industrial output the latest available figures indicate that the volume of output of industries producing transportable goods has fallen by some 20 per cent. since the beginning of the war. This takes no account of, amongst others, the highly important building industry where the decline has been much heavier. This position as regards the change during the emergency in the general volume of economic output is in strong contrast with the upward movement of prices and also, though to a less extent, of wages.

The cost-of-living index has risen by about 60 per cent. since the outbreak of war. This figure is affected in a high degree by the rise in the cost of food. The result is accordingly in correspondence with the movement shown by the index numbers of agricultural prices. The rise in the agricultural price index in the same period has been approximately 75 per cent.

A study of banking figures suggests that the impetus to these increases has not its origin in the banking system. Bank deposits within the country have increased during the war by about 40 per cent. They have not, however, been reflected in any expansion of internal bank credit as the total of loans and advances within the country from commercial banks actually shows a decline of more than 10 per cent. since the outbreak of war.

The problem of dealing with inflation, therefore, is largely a matter of maintaining adequate checks on the demands so frequently made for higher prices and wages. In the case of primary products in particular the lesson to be drawn from the figures is that producers must turn their minds away from subsidies, guarantees and other adventitious aids and look especially to improved output and efficiency to carry them through the difficulties of the remaining war period and of the time of strain which must follow it. This becomes all the more necessary in view of the high level to which taxation has been forced by the pressure of circumstances and from which, if only in the interest of employment, some relief will be imperative when the period of emergency expires.

Such is the picture of the State's financial position that it is my privilege to present to the nation's representatives to-day. My review may not be a very inspiring or exhilarating one but I submit that it reveals our financial position as sound. Even though our Budget be balanced by borrowing, the ratio of borrowed money is not excessive if we compare it with the ratio adopted by any of the small neutral States of Europe since war began to rage around us. If we can escape with this low ratio from now till peace is restored to the world we can count ourselves, financially speaking, not unfortunate.

I anticipate that critics will-take full advantage of this opportunity to point out many things for which no financial provision or inadequate provision, as they may claim, has been made. So be it. I, for my part, make bold to say that the financial dispositions I have set before you for this year offer to all sections of the community and the various economic interests a fair apportionment of the State's available financial resources.

We are passing through most difficult and dangerous days. We cannot foresee how long this period of stress and strain may last. Nor can we be certain that even more trying times may not be before us. It is the Government's duty to watch and guard with paternal solicitude the interests of all the citizens but in particular to be anxious as to the welfare of those on whom the hardships incidental to this emergency press with greatest severity. I suggest that the disposition of our finances which I have outlined proves that the Government has not, within the measure of its resources, been unmindful of its duty or its responsibility to any section of the community.

Wise planning and prudent statesmanship have helped us to remain outside the world-wide holocaust thus far. May it please God to keep us under His all-powerful protection at peace with all the world till the time of danger has passed.

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