Amendments Nos. 37, 39 and 40 were under discussion last night. On those amendments Deputy McGilligan suggested certain methods of financing, other than those suggested in the section. Reference was made to credit and other matters. I should like it to be made clear to Deputies that the wide question of social credit, currency, or sterling does not arise. Certain references are in order as touched on by the Deputy who moved amendment No. 37.
Transport (No. 2) Bill, 1944—Committee (Resumed).
Debate resumed on the following amendment:—
In sub-section (1), line 30, to delete the words "principal moneys and". —(Deputy McGilligan).
I may continue where Deputy McGilligan left off. As well as amendment No. 37, we were discussing amendments Nos. 39 and 40. By doing so Deputy McGilligan was trying to make it as easy as possible to concentrate the debate. Let us take amendment No. 39 which proposes:—
In sub-section (3), line 37, to insert after the word "person" the following words:—
"corporation, fund or bank (including the Central Bank)".
The section, if so amended, would then read:—
"For the purpose of providing moneys for the sums advanced out of the Central Fund under this section the Minister for Finance may borrow from any person, corporation, fund or bank (including the Central Bank) any sum or sums...."
The section, as it stands, would mean that moneys borrowed by way of debentures for the further development of the railways would be borrowed from some person: that is from private persons through public borrowing. The intention of amendment No. 39 is to make it possible to borrow, not only from private persons, but from a corporation, fund or a bank, including the Central Bank.
When Deputy McGilligan was speaking last night he referred to the way in which money could be got much more cheaply for the purpose intended here through the Central Savings Committee Fund. He referred to a statement made by an important member of the Central Savings Committee a year or two ago when that member, at a meeting of the committee, expressed surprise at the attitude of the Government towards the general savings movement. He pointed out that they were prevented from advertising it and from encouraging people to put money into Savings Certificates, and indicated that, in spite of the endeavour on the part of the Government to damp down moneys going into the Central Savings Fund, actually £500,000 a year was going into it. He said that if it were encouraged, and if certain relaxations were given in regard to the amount that might be put into the Saving Certificates Fund £1,500,000 or £2,000,000 would be going to the Government through that fund every year at a cost to the Government that would be less than 2 per cent. I understood Deputy McGilligan to say last night that the objection the Government had to money going to it in that particular way was that they were not able to use it: that they were getting to much money. I think Deputy McGilligan completely disposed of the idea that, from the liquidity point of view, there is any danger in the Government taking money through the Savings Fund and using it for constructive purposes. At any rate, he pointed out that, instead of going to private persons to get either the whole or any part of the £6,000,000 which may be required for additional debentures under this Bill and paying 3 per cent. or more for it, it could be got through the Savings Certificate machinery at a cost of less than 2 per cent.
I want to indicate that, through the banks, money could be got quite as effectively and much more cheaply. I want to suggest that if money is required, to the extent of £6,000,000 as temporary money, to put into the development of the railways that it could, and should, be got more cheaply through the banks than through private persons. That could be done with advantage to the banks. It would be a strengthening of the banking system, and would result in a substantial saving to the people who have to use the company. I do not want to refer again to the enormous burden which is being put on the people of the country and on the users of transport by the provisions of this Bill regarding the redemption by 1960 of £9,800,000 substituted debenture stock. In view of that burden, since it is necessary, apparently, to get additional money to build up the railways, every possible chance we have of lightening the financial burden of the company and, therefore, of the users of transport, should be availed of. Reference has been made to the enormous amount of credit which is being used by the British Government for the prosecution of the war. During the 12 months ended September of this year £2,000,000,000 of borrowing by the British Government has taken place. That has cost them only about 1.8 per cent. Let us take a look at the floating debt of Great Britain. At present, it amounts to £5,500,000,000 at 1½ per cent. That is not going to be wiped out of existence. It will remain as a consolidated debt owing by the Government to the banks and it will be retained at a rate of interest substantially the same as that to which I have referred.
The people who depend on the railway system have had bombs enough falling on them—the bombs of ages— and the system has been so completely dislocated that it has to be treated in the way it is being treated in this Bill—by the Government taking it into their own hands and appointing a transport dictator to run it. If the expense of running is to be as indicated by this Bill, we should see that the credit utilised for the reordering and rebuilding of the railway is got in the cheapest possible way. Deputy McGilligan has indicated one way in which it can be got at less than 2 per cent. I want to indicate how it can be got from the banks in a way which would be much more satisfactory, from the national economic point of view and from the point of view of the well-being of the company, than the way proposed by the Minister.
Let us say that £4,000,000 is to be expended on the development of the railway and that that sum is wanted. If that sum were borrowed from the banks, it would have a certain effect on the general financial position. Let us consider what the effect would be if the £4,000,000 were borrowed from the public. I do not know how much of the money proposed to be raised for reordering or reconditioning the railway would have to be exported to pay for imports of materials required for the purpose. Let us assume that 50 per cent. of the £4,000,000 would be used to pay for imports and then let us consider what would be the difference between raising that £4,000,000 from the public and raising it from the banks. If the £4,000,000 were raised from the public and £2,000,000 of it were used to pay for imports, there would be a loss to the banking system in this country of the £2,000,000 that had to be paid for imports. That £2,000,000 would have an average earning capacity for the banks of 2 per cent. I think that that is a fair average when we consider the average earnings of the banks on their present capital and, particularly, the income they are able to get on the moneys they are at present accumulating. The loss to the banking system would be 2 per cent. on £2,000,000—£40,000. The money which would leave the country for imports would be gathered by the company in cash or in cheques and the Banking Commission Report has indicated that about one-fifth or one-fourth of the amount of any particular deposit is held in cash in the people's pockets.
When we consider how much the banks would save by the £2,000,000 leaving the country, we have to take it that four-fifths of that amount would be money that had been on deposit in the banks. Money on deposit is paid for at the rate of 1 per cent. While the banks would lose their income on £2,000,000—£40,000—they would save by reason of the fact that on £1,600,000 they would not have to pay the 1 per cent. they are paying on deposits at present. That would mean a saving in the situation of £16,000, so that if the £4,000,000 were raised from private persons and half of it spent for the import of materials to rehabilitate the railways, there would be a loss to the banking system of £24,000 a year.
If, instead of raising the money from private persons, it was taken from the banks, the position would be that, because of the expenditure of £2,000,000 to pay for imports, the banking system would still lose 2 per cent. on that amount. There would be a loss element in the situation to the banks of £40,000. The other £2,000,000, paid over from the banks, would be retained in this country. A certain amount would be retained in cash in the hands of the public. A certain amount would find its way into the banks by way of current account and the rest would find its way into the banks on deposit.
The Banking Commission Report and general banking experience would tend to show that about one-fifth of the total amount of the £2,000,000 would remain as cash in the hands of the people, one-fifth of the remainder would pass into current accounts and four-fifths of it would go on deposit. As £400,000 of the money lent by the banks to the Government would remain in the hands of the people as additional cash, the banks would have to transfer £400,000 to the Central Bank for the purpose of backing the additional money they would have to pay out, so that there would be an additional loss of 2 per cent. to the banks on that £400,000 of securities transferred from the banks to the Central Bank. In respect of that item the banks would lose £8,000. The additional deposits that would find their way into the banks—four-fifths of the remainder, after taking into consideration the cash held in the people's hands—would amount to £1,280,000. As the banks pay 1 per cent., there would be an additional cost to the banks of £12,800. If the money were borrowed from the banks, there would be a loss to the banks under three heads—£40,000 in respect of the imports, £8,000 in respect of the backing for the additional money in the people's hands and £12,800 in respect of the additional money left on deposit—a total of £60,800.
As against that loss of £60,800, the banks would have an additional asset of £4,000,000 which they had loaned to the company or to the Government for the company. If the banks were to get 2 per cent. on the £4,000,000, instead of paying 3 per cent. to the public, their income annually on that sum would be £80,000, or, taking into account the item of loss previously referred to, the difference between the £80,000 they were getting at 2 per cent. on £4,000,000 and the £60,800 they were losing, there would be a net advantage to the banks of £19,200. I have shown that if the money was borrowed from the public the banks would lose £24,000 but, if borrowed from the banks at 2 per cent., they would gain £19,200 a year, and the company would be saved £40,000 a year. That is on the basis that 50 per cent. of the money was spent on imports. If only 25 per cent of it was spent on imports, then the net advantage to the banks of lending money at 2 per cent. would be £28,200 a year. If all the money were borrowed from the public, in respect of the loss of 25 per cent. exported, there would be a loss to the banks of £12,000 a year, so that the gross difference in a case where only 25 per cent. of the £4,000,000 was used to pay for imports would be to the advantage of the banks to the extent of £42,000.
I put these figures before the Minister as a challenge. The banks would make a profit of 1½ per cent. if the money was lent to the company. These figures support Deputy McGilligan's amendment, and show that there is a way to strengthen the banks' position and to ease the situation for the company and the country. The additional debentures that are required have to be repaid in the way the Minister indicated, and these are ways in which that could be done with additional benefit to the general economic position. I do not think the House is justified in agreeing to the Minister's proposals and in turning down Deputy McGilligan's amendment without understanding this matter, and without hearing from the Government any suggestion that the money could be got more cheaply and more effectively by Savings Certificates on the one hand or from the banks on the other hand.
I hope Deputy Mulcahy knows what he is talking about. I confess that I do not. I strongly suspect that the Deputy does not know either. I hope he is able to establish some relationship between his observations and the section in the Bill. I cannot. We are dealing with a section which provides for the raising of money by the State to make good a State guarantee if and when the State guarantee has to be made good. The section in the Bill is framed in accordance with the normal practice in legislation of this kind. The subsection to which the amendment is proposed appeared in standard form in every Finance Bill since the establishment of the State. It has nothing whatever to do with the raising of money for development. I am sure Deputy McGilligan, as a lawyer, knows that the term "person" includes corporations. Deputy Mulcahy read the section as if all the money was to be provided by private persons. There is no reference to private persons. Any corporation is a person. The Central Bank is a person for the purpose of definition. The amendment is unnecessary, because it adds nothing to the legal significance of the word "person". This section relates entirely to one possible set of conditions. It relates to a situation in which the company is unable to meet interest on debentures and the State guarantee is called upon. It provides that the Minister for Finance can meet that guarantee by borrowing. That is all. If the Deputy will study the various Finance Acts introduced from time to time he will find precisely similar conditions.
This idea that you can get money cheaper by some peculiar device is one that we must dispose of. Of course, it is true that the cheaper the company gets money the better it will be for the company. I think we may take it that the management of the company will be familiar with all the ways of saving interest and will be acquainted with all the sources from which money can be borrowed. The whole secret of the financial methods so successful in the case of the Dublin Transport Company was precisely that. But that has nothing to do with this question. I know that some people have the idea that theirs is an amazing discovery, that it is possible for a Government to force people to lend money on whatever terms the Government decides. Deputy McGilligan spoke last night as if the idea were a new one. There is nothing new in having forced loans and debasing the currency. These ideas are as old as money itself. Governments in financial difficulties resorted to those devices in the past and never pretended they had discovered something new. Most of them recognised that they were adopting a practice which was undesirable and discreditable, and they only resorted to it when they found there was no alternative. I do not know what I can do to get Deputies opposite to read some elementary textbook on economics.
The juvenile ideas expressed yesterday by Deputy McGilligan and by Deputy Mulcahy make me despair of getting them to understand the most fundamental principles of public policy. Deputy McGilligan is clearly unable to understand the difference between capital and credit. Deputy Mulcahy has the idea that if we force the banks to lend money at a low rate of interest the money we are going to save will be to the advantage of the banks. We could do that if we wanted to do so. The British Government did that for war purposes. Deputy Mulcahy should study more closely the methods adopted by the British Government for war finance. It involved forced loans at rates of interest determined by the Government. Should we resort to that? Deputy McGilligan thinks it would be good policy to compel the banks which get money on deposit from individuals, and which pay interest at the rate of 1 per cent., to lend that money to Córas Iompair Eireann at the same rate of interest or at some lower rate than the market rate. That is possible. A much simpler device is to tax the banks to subsidise the company. It is precisely the same thing. It would have precisely the same effect as far as the company is concerned, and precisely the same effect on the country. Other people would have to pay more for credit.
Other people pay more for what?
For credit. The banks work as commercial institutions.
It is quite true that the Minister did not understand what I said.
I confessed that, and I expressed doubt as to whether even the Deputy understood it.
I thought the Minister was only pretending, but I see that he was not.
Banks borrow money from depositors and lend it out again.
Are you saying that seriously?
Quite seriously.
And the money which the banks lend out is what they get from depositors?
Certainly. Banks cannot lend out what they have not got.
And anything a bank lends is money it has in the till?
Wait a moment; I do not want to get too far involved with the Deputy. He has not even begun to understand it and I do not want to make him any more confused than he is. In simple terms, a bank gets money on deposit and lends it out. It pays a rate of interest on the money deposited and charges a rate of interest for the money it lends.
Do you think a deposit is what the bank has?
Certainly.
Is cash what a bank has?
Not necessarily.
Because I want to say this to the Minister: cash and deposits appear on opposite sides of the balance sheet.
I am trying to put this in words of one syllable so as to avoid getting it unduly confused and to avoid further interruptions. In so far as it is true that a bank takes money on deposit and lends that money out at interest to persons who are anxious to borrow it and who are, in the opinion of the bank, credit-worthy, the difference between the rate of interest they charge and the rate of interest they pay represents the fund available to the bank to cover the cost of its banking operations and to make a profit. If we compel them to lend money at a lower rate of interest than the market rate, they will have to make good the loss by charging more to other people or by cutting their expenses in some way. I think that is a very simple proposition and one which is quite easily understood.
There is not the slightest doubt that there is power in this Legislature to compel a bank, a corporation or any individual to lend money to the Government at no rate of interest at all. I do not know if it would be regarded as good policy, but it is certainly in our power to do it. We do by taxation compel them to give us money, not as a loan but as a gift, and we pay no interest on it. The extent to which we do that is often the subject of debate here. Most Deputies appear to be under the impression that we are imposing too heavy a burden on the people by way of taxation and that the burden should be reduced. We can adopt this device of compelling people to lend us money. Governments have often done it. I do not say that the Government which did it survived very long, but it has been done in the past. I think it was bad government, bad policy, and, in the long run, led to the ruin of the countries which resorted to these methods and would lead to the ruin of this country as well.
Here we have the proposition that a company wants capital. It does not want temporary borrowings. In relation to the credit requirements of this company, we make provision in the Bill. We permit them to get money on a bank overdraft to a limit of £500,000, but that has nothing to do with its capital. The capital the company will require will be invested in fixed assets. Deputy McGilligan appeared to have the idea that it was possible for the company to go into the banking business, to accept money on deposit and to use that money lodged with it on deposit for the purpose of long-term capital investment. We could put that in the Bill, but the company would get no money. It may be true that if everybody who has money on deposit in the banks presented a demand for repayment simultaneously, they could not get it, but that does not influence the individual who puts money on deposit. The individual knows that he can be repaid and deposits at a rate of interest of 1 per cent. because he wants the advantage of being able to get that money back at a week's notice. If he is prepared to forgo that advantage, he will not put money on deposit in the bank, but will invest in gilt-edged securities or some other stock. He gets a higher rate of interest, but cannot get his money back when he wants it.
It is quite true that we could put this company into the banking business in theory and give it power to accept money on deposit on which it would pay 1 per cent.; but if that company is going to use the money to buy engines, railway stations, land and permanent things of that kind, so that everybody will know that there is not the slightest possibility of any individual getting his money back when he wants it, it will get very little money on deposit. I wish Deputies would begin to understand the difference between capital and credit, between long-term investment and short-term borrowings——
And deposits and advances.
And deposits and advances. These are all simple matters which Deputies can understand if they will put themselves to the trouble of studying them.
It is the first lesson the Minister will learn.
In the case of this company, we are proposing to authorise it to get capital up to a limit of £20,000,000. What is capital? It is not credit; it is not temporary borrowing.
It is cash.
If the Deputy wants to speak in terms of finance, yes; but capital is wealth saved from past production for the purpose of financing future production. Again, let me put it in words of one syllable. If I am a farmer and I grow a field of wheat, when I have cut and threshed it, I have a number of barrels of wheat.
How many?
How many does not matter. I can consume all that wheat in feeding myself and my family, or I can put one or two barrels aside for the seeding of the field next year. If I decide to retain some of the wheat as seed, what I retain as seed is capital. It is wealth saved from immediate consumption to facilitate future production. Is that simple? If I consume all the wheat and find next spring that I have no wheat left in order to grow wheat that year, I have to borrow seed from somebody else. If the person who has the wheat considers that I am credit-worthy, he may lend me sufficient for my purpose.
If you borrow next year's seed on other assets, is it not capital?
Certainly. The Deputy can get this very involved if he likes, but I am trying to put it in the simplest form. What we want for this company is wealth saved from current consumption to finance, or rather to facilitate, future production. We want steel and bricks and timber and other materials of the kind shaped into railway engines, trucks and stations. In so far as it may be necessary for the company to have immediately available cash or credit to meet short-term demands, it can borrow for that purpose. It can borrow on the basis of short-term loans or a bank overdraft, but the £20,000,000 we are talking about will be invested by the company in permanent tangible assets which cannot be realised immediately. You cannot just sell a railway engine every time somebody wants his money back. These people cannot get their money back. That is the principle on which the company will be financed.
A certain proportion of the capital represented by ordinary shares is not repayable at all and the balance is represented by debentures redeemable at a date fixed, and, except in accordance with the terms of the debentures, those who lend the money cannot get it back until that date. They can get interest on the money and the company will be obliged to pay interest on the money in the meantime. If the company is not obliged to pay that interest, people will not lend money. That should be obvious to anybody who has any commercial experience at all. It has nothing whatever to do with temporary borrowings. Deputy Mulcahy has the idea that because we use the term "redeemable debenture," these debentures are intended to finance the short-term cash requirements of the company. They are not. They are intended to provide permanent fixed assets which will earn revenue for the company in the years ahead. Their short-term credit requirements can be met otherwise—by bank overdraft, probably.
It will probably be desirable for the company to get its capital requirements financed by the banks. It should be possible, I am sure, to procure long-term advances from the banks covered by debentures. I think we can leave it to the management of the company to get the money it requires on long-term loans at the cheapest possible rate. We are not going to compel people to lend the money at less than the market rate. We think it is undesirable and would have reactions on the economy and credit of this country which would, in the long run, make it a very disastrous move. I do not see that it arises here, anyway.
Let me repeat that this section has nothing whatever to do with financing the company. It is concerned only with the manner in which the Minister for Finance will raise the money to make good his guarantee, if he has to make good that guarantee. We assume that the circumstances contemplated in this section will never arise, that the guarantee will not be called on; but if it is, the Minister for Finance has to make it good and pay out to the people to whom the money is due the amount he has guaranteed to them, and in order to enable him to do that, we authorise him to borrow from any person, which includes any corporation. I cannot say that it includes the Central Bank. If Deputy McGilligan wants to give the company power to borrow from the Central Bank, he will have to do it by amendment of the Central Bank Act and not of this Bill.
On a point of order. I wish to refer to a matter which arose here yesterday. The Minister referred to the evidence given before the Great Southern Railways Stocks Tribunal and he gave a false and misleading version of the evidence I gave before that tribunal. When I denied the truth of his version, the Minister said that he had the evidence submitted to the tribunal; that he had the report of the evidence given before the tribunal before him. I should like to know if it is proper for the Minister to give his version from an official document which is not available to members of this House and is it in accordance with fair play for the Minister to deny to Deputies access to a document from which he gives what he suggests is a true version of the evidence given to the tribunal. I should like the ruling of the Chair on that matter.
The Minister did not quote from any document. He merely stated that he had a report of some evidence given. I then said— and I repeat it—that the evidence given before that tribunal should not be referred to in this House unless it appears in the report, as Deputies are not in possession of it. This report is relevant, not what witnesses said.
On a point of explanation. The only report of the evidence given before the tribunal in my possession is that which appeared in the daily newspapers.
So far as my recollection goes, the Minister said he had an official report.
No. I have only the newspaper report here, and I would like very much to read it, if I would be in order in doing so.
I understand the Minister to say he had the official report of the evidence, and that seemed to give authority to his statement. If the Minister wishes to withdraw that and make it clear that he was quoting from the newspaper report, it is a different matter. I should like to repeat that none of the evidence which I gave before the tribunal could be regarded as a retraction of any statement I made during the election, and the Minister knows it.
It is a matter of opinion; my opinion is different from the Deputy's
On the amendments before us, let us get at least one hare back into its box so that we will not be tripping over it. The Minister emphasised that, if what I suggested were done, as a set-off the banks would have to charge other people higher rates. I want to put to the House what the results in certain cases would be. I said that if £4,000,000 were borrowed from the banks and 50 per cent. was spent on imports, the net result to the banking system would be an annual loss of £24,000. If it were borrowed from the banks at 2½ per cent., it would save £20,000 a year to the company and the banks would make an extra profit of £39,200 a year. If the banks loaned the money at 2 per cent., the savings of the company would be £40,000 a year.
Has the Deputy not stated all that before?
No, I did not state it in a way in which the Minister could clearly understand it.
I actually wrote down certain figures which are those now repeated.
The Minister suggested that if what I said was put into operation, the banks would lose money. He implied that the banks would lose money and, therefore, would have to charge additional prices to other people. I want to give the Minister certain figures which will show him that he completely misunderstands what I said. I want to show that the money could be lent by the banks at 2½ per cent. and the banks would gain £39,200 instead of losing £24,000. I suggest they could lend money at 2 per cent. and would gain £19,200. They could loan the money at 1½ per cent. and they would gain £8,000 a year, while the company would save £60,000 a year.
Why not get the banks to lend money at a lower rate of interest?
Because the banks would lose then. There is a rate at which the banks could not afford to lend money without losing. I am indicating to the Minister that they could lend it at substantially below the figure he contemplates the public would subscribe at, that is, 3 per cent.
There is no mention of 3 per cent. in the Bill, except as the limit that the Minister is prepared to guarantee.
Exactly, but there are implications. The Minister contemplates that the railway company will pay private persons 3 per cent. profit and the fact that the substituted debenture stock has been created in his Bill and will be paid by the company at 3 per cent. is sufficient. The Minister may leave out of his argument that the banks would lose money by lending £4,000,000 to the railway company at 2½ or 2, or even 1½ per cent.
The argument might be related to the State guarantee of debenture stock.
The Minister is not teaching us anything, financially or otherwise. He said the scheme is that the company will get money to finance itself, that part of it must be by redeemable debentures and the rest will be through other debentures, to which the Minister for Finance will attach his own particular conditions. We all know that. But if I take the new money that is to be raised, I am quite certain the company will not persist in paying 3 per cent. to anybody if it can get money at 1 per cent.
It is important to find out how the Minister will get this money, and at what rate he can get it. I suggested three ways last night. One was by the adoption of the modern device adopted all over the world in which new media of currency are being made from time to time as Governments require them, and they are being accepted. When these are created in very large sums, there have to be certain measures taken to prevent inflation. I believe, when we are discussing anything from £5,000,000 to £16,000,000, we are saved from anybody raising a bogey about inflation in this country. I remember the Minister for Finance talking in the Seanad last year about the money that flowed into this country from England. He said that if we took £14,000,000 or £15,000,000 and considered it in relation to our purchasing power here, it did not matter a thrauneen in respect of inflation. So we can put the bogey of inflation aside when we are considering only £10,000,000. If £10,000,000 were to be created, at least we can leave inflation aside as long as our purchasing power is at the level it stood at when the Minister for Finance spoke in the Seanad a little over a year ago.
As to how that can be got, there is no longer any mystery. People used to shudder at the thought of printing presses turning out new forms of currency that would be regarded as legal tender. It has been done all over the world—it has been done here.
For the purposes of small change.
For the purposes of small change? How did it come about that in his Budget speech this year the Minister for Finance said we had twice as much money in circulation in this country as we had five years ago? Is that all that small change amounts to—that in a very badly off country an increase which is nearly 100 per cent. of the currency in circulation five years ago is possible? That is for the purposes of small change? Is that seriously meant?
It is. Any schoolboy will tell the Deputy that.
Any schoolboy will tell me that? Whether that schoolboy would get off just as lightly as the Minister is getting off is another matter. The increase in money in circulation in this country is a matter of small change, according to the Minister. We have that on record. In any event, it is possible to do that; it is even possible to do it up to the extent of doubling the money in circulation for small change, that is to say, for money that is actively in circulation. Of course, it would be easier to do it if a considerable amount of the new money created is not going to be in circulation—if the velocity of its circulation is to be reduced. Small change passes rapidly from hand to hand. The Minister says you may get to the point when you are clipping your currency. We have got to that point at the moment. While the Minister thinks he is really increasing the amount of money in circulation for small change, we have got to the point where the pound is worth about 10/6 in purchasing power, and we have got to clip currency. There was a time when people were sent to jail for clipping currency, but now it is done quite openly. Wages have just about half their purchasing power. However, the thing can be done, and there is no question of inflation.
The Minister, of course, says that the banks are going to suffer, and that in fact it amounts to forcing loans from the people at low rates; that, if we do get them at lower rates from the people through the banks, then the banks, losing on one thing, will charge more on another, and so your whole fabric of finance will be readjusted with somewhat the same results as before. All this is based on the misapprehension that there is always a certain amount of money in circulation, and that if there is any change made in that it will divert the finance which institutions get. Of course, we know that is not the case at all. The Minister tells us that we should get an elementary textbook on economics. He did not mention what his textbook is. I do not know if it bears a name, but I know that wherever he got it he has the idea that deposits are what the bank has. That is what he got from the textbook. I wish he would look at the balance sheet of a bank. I would have thought if there was anything a bank had it was the first item that generally appears on the assets side of a bank's balance sheet—cash.
Deposits are liabilities also.
Deposits, according to the Minister a minute ago, are what the bank has. Cash certainly represents what the bank has, and deposits are on the other side of the account. I put to the Minister that deposits are what the bank owes. The Minister apparently thinks that, when somebody comes in looking for an advance from the bank, some bank messenger is sent down to the vaults to discover how much they have there, and that then they proceed to find out whether that is as much as will give the customer his advance; that in some way or another you have a relationship between what is either notionally or accurately and positively passed over the counter and what is somewhere hidden in the bank's hoardings. The Minister referred to somebody performing some operation in the neighbourhood of the statue of Queen Victoria. If there were a statue of Queen Anne erected, the Minister should be put on the right-hand side even of Queen Anne, he is so completely out of date in his views. I find it very difficult to argue with a man who starts off with the view that bank deposits are something the bank has, something the bank possesses—assets. In the interval he discovers that deposits are liabilities.
They can still have them.
They can still have them?
Certainly.
Would the Minister tell me has the bank deposits or has it not?
Let me put it this way.
The Minister may put it any way he wishes.
If I lend Deputy Norton a £ note, he has the £ note and it is a liability of his.
If you lend Deputy Norton a £ note, you have the £ note?
He has.
And what about you?
It is his liability.
It is your liability to the person you got it from.
And what is your relationship to it?
It is an asset—I hope.
The £ note lent to Deputy Norton is an advance. It is an asset to the Minister. Where, in relation to the Minister, is the £ note which is a liability?
We are getting into a discussion on the theory, principles and practice of banking, outside the amendment or section.
We are getting below the lowest level in the theory of finance that I ever heard of.
It is very elementary, will admit.
The Minister's great point works up to this, that you are going to force loans out of individuals or banks. I did say last night that it was possible to create money. So it is. It is possible to have this new business handled by the banks. If they are making their profits on the business already in their hands, they should not be perturbed at getting new business at a lower rate of profit or no profit. We are not disturbing them in the old profit they used to get on the old business. We are not disturbing their old fabric to build up their institution.
The next point—I understand that Deputy Mulcahy referred to it to-day— is the vast amount of money there is in the banking system, which people are prepared to leave there and never to draw 1 per cent. of it. What is done with that money? Is it harnessed up to industry in any way? If so, at what rate is it lent to industry? At something above 1 per cent. presumably. Apparently the Minister's idea is all this nonsense about savings being wealth. I think he said that wealth is what you have saved from current expenditure—that that represents the only sort of savings that can form capital. The old idea was that the banks got money from certain depositors and lent that out, and they were supposed to build a lucrative business on that. Everybody knows that there are millions of unused money in this country, and the belief is prevalent in certain circles at the moment that the banks pay 1 per cent. to people to induce them to keep the money idle. It is very much like what we here sneered at in the people in America who burned coffee and wheat to keep them from circulating as commodities. The banks here, as in other countries, are accused of paying a certain amount of money to people in order to prevent their money getting into circulation. Whether they have that purpose or not, the fact is that there is a vast amount of money idle in the banks. We ask that that should be used. We do not say that we will diminish the return that is made to the people who own it. We say: give them their 1 per cent., and, when you have given them their 1 per cent., if the railway company, through the Minister for Finance, can use that money better, the people who own the money are not doing any worse than they were before. They are still getting their 1 per cent., so they are not being damnified in any way. If that money can be put into circulation and used for the purposes of the railway business. I do not see that it does any harm.
The Minister makes some distinction between credit and capital. I should like to have that explained to me. Capital, apparently, is money with which you purchase physical assets. Can they not be purchased with credit? I should imagine they can. In any event, if some man requires capital, can capital not be got from somebody who possesses it, on credit? Surely it can. There is a credit background to the whole thing. However, as I said last night, it is very hard to argue this matter with people who think that investments simply come out of savings; that you cannot get any investments put in the railway business because all the avenues of investment are already open, far too much open, to a small amount of capital; that if you divert capital from some other industry at the moment then you are despoiling that industry of so much, and you must divert it from a channel already open to it and into which it is already flowing before you can get it into the railway. That, in the circumstances of this country, is complete nonsense. It is not the situation. The Minister's phrase—the only thing he can use as a background for railway finance—is "wealth saved from current consumption". I took that phrase down. The Minister's idea seems to be that the only way you can provide money for putting into new railway stock is by getting someone to stop consuming as much as they ordinarily would and to mortify himself to some extent. That is the only way, and you then pass over all that multiplication of savings for reinvestment. Apparently, the Minister believes that and believes that the thousands of millions of pounds spent on the war are got by that process of preventing people from spending on consumption so many thousands of millions of pounds and that that is the only way in which the money could be got. Of course, if the Minister were an Englishman, he would by now have his eyes open to the fact that a debt has been piled up of £500,000,000, even with no interest charges, to represent the advances that have been made. All that is created credit. I read in this House many months ago—and I propose to put it on record again— from the columns of a very orthodox and sober English financial journal, The Economist, of September 4th, 1943. In an article headed “The Future of Banking”, they give this phrase dealing with conditions in England:—
"What has been happening, in short, is that the State has been forced to multiply the means of payment in existence. This newly-created credit has lodged in the hands of individuals and business firms"—
credit, not capital, on the Minister's view—
"who use it as their circulating capital instead of borrowing from the banks. The banks are left to hold, in the form of deposits, this greatly inflated corpus of credit, while the mere fact of its existence deprives them of the possibility of employing it in the classical way."
I recommend to the Minister:
"In other words, the textbook definition of a bank is now badly out of date. A bank used to be"—
I think the Minister still thinks that is correct—
"an institution which collected savings by offering to pay interest on them, and used them to make loans to industry and trade. A bank nowadays is an institution which holds the credit-money of the community, created by Treasury financing, and uses it to finance the Government deficit."
If the Minister would ponder over that for a while, he would advance about 30 or 40 years in his views on finance, but until he makes that advance there is not much in doing more than proposing this particular amendment.
Might I again draw attention to the fact that the capital of this company comes into Section 12, and that on this section it is proposed, if and when it is necessary or called on, to meet a Government guarantee—not by any means to provide rolling stock?
I am prevented from criticising matters of economics, but I suggest that, if the company can get capital and use it to buy rolling stock, it is a matter of great interest to the country how the Minister is going to get the moneys which he will advance from time to time.
There is no question of the Minister advancing money.
If he does.
It is to meet a guarantee—see sub-section (2).
On a point of order, we have from time to time endeavoured to get on to this particular matter on previous occasions and there was a suggestion by the Minister, from time to time, that this, that or the other point could be discussed later and we did come to a point on which we could discuss this matter. There seems to be general agreement, on the nature of the amendment, that we could discuss this particular point.
As I have pointed out, there is no sense in the amendments. I confess that, having studied them. I cannot understand them.
I only intervene because of the views expressed by the Minister, in connection with the method of financing the proposed new transport company.
That does not arise on this section.
I suggest that I have not even been permitted to show that it does. As you will recognise, the matter has been discussed here since 3.30 to-day and every Deputy, including the Minister, who has intervened in the discussion has been allowed to continue and now, when I rise, objection is taken.
The Deputy will be given as much scope as those who have spoken so far.
I just wish to put one sentence.
There should not be a prolonged debate on matters which are, at most, incidental.
This is a section dealing with the Minister's liability to pay interest charges on debenture stock, if the company defaults. I want to suggest to the Minister that that responsibility need never devolve upon him and the community may not in fact be required to pay any interest, if the Minister will adopt another method of financing the company in its efforts to get money in the form of debenture stock. Deputy Mulcahy suggests, although his amendment does not provide for it, that the banks ought to be required to lend money at a certain nominal charge, that they could profitably do it.
Deputy McGilligan's amendment does that.
I suggest to Deputy Mulcahy that, if the company is going to issue debentures at 3 per cent., the banks know that they are likely to issue money at 3 per cent. and they will think it profitable to buy the debentures at 3 per cent. rather than lend money at 2 per cent. I am not interested in the method of financing through the banks and still less by an issue of public credit. If the Minister has any faith at all in his Transport Bill and any faith in the ability of this company to earn a profit and redeem its debentures, there is no reason, transport being so vital to the wellbeing of the nation, why this transport company should be compelled to go into the open market and pay interest charges to people who have a natural interest in selling money at the highest possible price. Anyone with banking experience knows perfectly well that the banks live on selling money at the highest possible price. Every situation which enables a bank to sell money at the highest interest charges is a situation which is greedily availed of by the banks.
There are people who deal in stock exchange transactions and who could make money available always, if substantial rates of interest were paid. Let any one propose to start a factory for the manufacture of boots, to be sold at a maximum of 1 per cent. dividend, these boots being supplied to the needy, deserving people in the State, and he will not raise a halfpenny for his boot factory; but let someone suggest erecting a casino at Dollymount or Dun Laoghaire, offering to pay a rate of interest of 10 per cent., and all the money he wants will be available for that casino. There always is a collection of people available, whether in the form of banks or private individuals, which believes in selling money at the highest rate of interest, and they will only make that money available at the highest rate of interest.
I regard transport as an essential service, something that should be taken over, owned and controlled by the State, run on a non-profit-making basis, so that the community will not be held to ransom because, in its modern complex life, people must travel from place to place. I regard the provision of transport on a non-profit-making basis as being as important as the provision of roads on which people walk, at least without others making a profit out of those who walk on the roads. It is as important as the provision of electricity or water on a non-profit-making basis.
Transport seems to be as vital to the nation as these other services. Yet in this Bill we provide that the company may go to the community and ask for debenture stock at 3 per cent. I do not see why they should have to go to the community for money which will be a liability on the users of transport to the extent of 3 per cent. per annum. The Minister says this company will be required to provide a redemption fund for the purpose of redeeming its debentures, commencing in 1955. In any case these debentures must be redeemed by 1960 unless there is a change in legislation in the meantime. The Minister in reply to a query from me a couple of days ago said that he had no doubt of the ability of the company to redeem the debentures and to provide for interest on the debenture stock. I put it to the Minister, if he is satisfied that this company can create a redemption fund and pay interest on its debenture stock, that the Minister then might adopt a modern method of financing the company, namely, issuing to the company credit in the name of the State with the security of the State behind it so as to enable the company to get such capital as it requires for development purposes, that capital being amortised by payments from the company——
I do not understand what the Deputy means.
Let us suppose that this company wants £6,000,000 for the purpose of developing railway services. The Minister says in the Bill: "Go out and get it and pay 3 per cent." I suggest to the Minister that instead of the company being compelled to go to the public and pay a price of 3 per cent. for that money, the State should make it available in the form of its own notes or in the form of credit on the Central Bank to enable the company to have at its disposal money to the value of £6,000,000 which it can utilise for the purpose of re-equipping the railway.
Does the Deputy mean that we should print off £6,000,000 worth of notes?
I am presenting the case to the Minister in his own language. What is happening to-day? Does not everybody know that the world has long since abandoned the Victorian methods of finance which the Minister is nursing with such tender care this evening?
I want to know what the Deputy proposes.
I shall tell the Minister what I mean though the methods which I suggest may not commend themselves to him or to his friend, the lady in front of the building.
She was never a friend of mine.
The Minister mentions her name more often than anybody else in the House. I thought he had some affection for her methods if not for her physique.
How will the company get the money?
I shall tell the Minister in a second. Then it might dawn on the Minister that there may be something in this scheme of getting money for the company without having to pay this annual ransom. At the present time, before any of our banks can issue a £1 note it must get sufficient security and deposit it with the Currency Commission, now the Central Bank. What is the security that it gets? There is no gold in the country. Silver is not regarded as a security and is not acceptable by the Central Bank as a security. Yet, before an Irish bank can issue an Irish £1 note it has got to deposit some security with the Central Bank. The security that will be accepted is what is known as a British security, sterling assets. Any Irish bank can go into the Central Bank with British securities and these may consist of British Government loans which they deposit there against the issue of notes. But the Irish bank has no assets in the form of capital goods, no security in the form of Irish securities which have a tangible value. The security generally is pieces of scrip acknowledging a liability on the part of the British Government to repay somebody that sum of money whenever the British Government can see its way to do so, under the terms applicable to the debt which the British Government contracted, usually for the purpose of financing the war.
Those are not the precise terms of the Central Bank Act.
The British Government has created a 2½ per cent. loan. Say that an Irish bank wants to get £100,000 worth of Irish notes. It goes into the Central Bank with £100,000 worth of 2½ per cent. British scrip.
£100,000 worth of saleable securities.
Saleable securities represented by 2½ per cent. British Government bonds. It is only when these are deposited with the Central Bank that the Irish bank can get its £100,000 worth of notes issued. Let me put it this way. What does this £100,000 worth of scrip represent? For a very considerable time Britain has had no gold backing for her notes. She has ceased to have any type of metallic backing. They are simply printing notes and they are backed on the security of Britain's ultimate capacity to redeem these notes, to create goods——
To give goods in exchange for money.
At the moment these notes are being issued, not against capital assets such as houses, hospitals and the enrichment of the national estate in that direction. It is simply new money which is being issued by Britain for the purposes of financing the war and the assets on which it is being created, if one can call them assets, are the latest instruments of death and destruction. If a nation such as Britain—Germany and the others are doing it as well—can create credits with a Government guarantee for the purpose of financing destruction on that colossal scale that we see to-day, surely we can create credit in this country for the purpose of extending and developing a transport service which is vital to the needs of the community?
How does the company get the money?
The company can get the money in the same way as the British Government got it for the purpose of manufacturing bombers and submarines.
They borrowed the money.
The company will borrow the money free of interest on State credit if necessary.
From whom?
From the State which will create the money and lend it to the company.
Where will we get the money?
The Minister wants a second text book.
The Deputy says they will get the money from the State. Where will the State get it?
Where does the British Government get it?
They borrow it.
They have borrowed several hundred millions more than is in the whole country.
They have borrowed money which represents a debt of the Government.
They could not borrow all that money because it is not there to borrow it. They have created credit.
How does the Deputy want to create credit? I do not understand his suggestion. Maybe I am ignorant but I think the Deputy is too.
I am trying to instruct the Minister.
How does the company get the money?
I have suggested that every other Government in the world can apparently issue State credits for financing schemes of destruction. Surely it is as possible for us here, as it is for them in the changing circumstances, to issue some credits for the purpose of creating national assets in the form of an efficient national transport system in the country? If the Minister cannot discover where that is done the sooner he gets in touch with some of our representatives abroad the better it will be for an enlightened system of finance in this country. So far as this transport system is concerned, it is being operated by a company. I would prefer to see it owned and operated by the State. But, if it is going to be operated by a private monopoly, so long as that monopoly can mulct the people in the form of high transport charges, I want to see every possible excuse removed from the company for doing so. If the company is likely to be a success, as the Minister thinks it is, then he ought to have no hesitation in creating the necessary State credits, getting the company to repay what it borrows from the State out of the redemption fund which he appears to be perfectly satisfied the company can create, maintain and utilise for the purpose of repaying its debentures. I do not think the company should, necessarily, be forced to go into the open market and borrow money at a ransom, but that the State should make credit available for the company if it is satisfied that the company is efficiently run and, in that way, relieve the company of the obligation to pay interest to those who live on interest and, at the same time, make travelling cheaper for the Irish public.
I want to express the opinion that any idea that cannot be expressed in simple words which the average intelligent man can understand must have something wrong with it. We are proposing to put State credit behind this company. Let me tell the House what I mean by that. We assume that the public would be prepared to lend money to this company at a lower rate of interest if the State guarantee repayment of the money than they would be if the State did not give that guarantee. That is what I mean by putting State credit behind the company. The public will have more confidence in the prospect of getting their money back and interest paid upon the money when the State guarantees it than when it does not. That is easily understandable. We are proposing to give this company the benefit of the State's credit and, by doing so, enable it to raise money at a lower rate of interest than it would otherwise have to pay.
What is the rate of interest at which money will be lent? It is not determined by somebody sitting down in an office. It is determined by a multitude of circumstances and it can be ascertained at any time by reference to the stock market quotations. On any particular day one can find out the price of gilt-edged money. One can turn to the paper and find out what gilt-edged securities are selling at. At the present time the public are prepared to lend money on gilt-edged securities at something above 3 per cent. That is a fact. Nobody has decided that. It has just reached that situation by reason of the operation of all the circumstances to which I have referred.
We know from facts that are obvious to every one of us that there is a great deal of money available now for investment. People have been compelled to save, involuntarily. We would all like to buy more tea, more sugar, more butter, more clothes, if we could get them. We cannot get them. The State has taken action by its rationing schemes to prevent our getting them. We are, therefore, compelled to save, involuntarily, just as the British people are compelled to save. A great deal of that money which has been saved involuntarily is available for investment either in Savings Certificates, in the National Savings Bank, by means of making deposits with ordinary deposit banks or by the purchase of shares or a multitude of other ways.
Because of these circumstances, it is quite true that at the present time there is far more money available than there is use for. The stagnation of commercial enterprise occasioned by the war has, of course, involved the surrender to the banks by industrial and commercial firms of the credits previously available. They do not require credit on the same scale now and, therefore, you have this situation which has been described by Deputies as "the banks bursting with money." That is not a situation that the banks want. They want to lend that money if they can get credit-worthy borrowers for it. Stagnation of commercial enterprise has prevented them from lending money on the previous scale. At the same time additional saving, mainly involuntary, has been going on. A situation will arise after the war in which we hope there will be a complete change. We hope that the revival of commercial and industrial enterprise will mean that the demand on the banks for accommodation will be increased and that the public will be able to utilise their own money in their own businesses to a greater extent than is possible at the present time.
In the case of this company there will be two classes of debenture stock. The substituted debenture stock will carry interest at the rate of 3 per cent. The fixation of 3 per cent. rate of interest in respect of that stock was not determined by any consideration except this, that the owners of that stock at the moment are entitled to 4 per cent. and it is desirable to effect a reduction in the interest charges to be borne by the company. We went, therefore, to the owners of the stock and proposed to them that, if they would accept 1 per cent. less, we would give them in return for that sacrifice of 25 per cent. of their income the added security of a Government guarantee. The owners of stock, by a majority vote, agreed to that proposition. That is why that proposition is in the Bill and that is why 3 per cent. is mentioned in relation to these stocks.
In relation to the new debenture stocks there is no attempt to determine now the rate of interest at which they will be issued. We are proposing to lay down as a condition of their issue that the State guarantee will not extend beyond 3 per cent. We are asking the Dáil to consider to what extent it will authorise the Executive to pledge the State's credit and we are proposing that the Dáil should authorise the Executive to pledge the State's credit in respect of issues of debenture stock by this company to an extent not exceeding 3 per cent. interest upon them. If, in fact, the market conditions are such that the company has to pay 3¼ per cent. or 3¼ per cent. in order to get the money, the State guarantee will only apply as far as 3 per cent. That is not an unusual practice. Under the Trade Loans Guarantee Act loans were given by the banks to industrial concerns here at varying rates of interest but the interest due by the borrowers was guaranteed by the State only as to 2½ per cent. That was a result of an arrangement made with the banks. The actual interest paid by the borrower might have been and usually was substantially higher than 2½ per cent., but, in the event of the borrower defaulting, the State was liable only in respect of a 2½ per cent. guarantee. The same situation will arise here. If, in fact, the company has to pay more than 3 per cent., the State guarantee applies only to 3 per cent. If the situation is as favourable as some seem to anticipate and if the company can get money at less than 3 per cent., then it will borrow at less than 3 per cent. In fact, it is because good financial management enables interest charges to be kept at a minimum that the Dublin United Transport Company was able to effect the substantial improvement in its financial position since 1935. The same financial management will, we hope, be available to this company and will certainly be directed to ensuring that the company will not pay for money one penny more than the circumstances require. When Deputy Norton talks about creating State credit, I take it he has in mind the idea of manufacturing money, of debasing the currency.
Does manufacturing money always mean debasing the currency?
Certainly.
It always has meant debasing the currency?
It is precisely the same process as issuing lead shillings.
Carry on.
It has the same effect upon the national economy as a forced loan.
It is getting worse.
Any economist will agree with that. I doubt if any economist has ever attempted to suggest the contrary. Some people may say it is good policy to debase the currency.
Do not get off from that. You are on the plain statement that the manufacturing of money has the effect of debasing the currency.
The printing of money——
Debases the currency?
The printing of money, which is a very antiquated method——
Debases the currency?
——debases the currency. It decreases the value of the money available for the purchase of goods which are available and, therefore, increases prices and, in fact, means that money is worth so much less to everybody who has it. It has precisely the same effect as a forced loan from every citizen. In fact, of course, as I pointed out to Deputy McGilligan, printed money is only the small change of commerce. If the Deputy wants to know how much money is utilised in commerce he will have to make a calculation based upon the bank clearances of cheques. It is a figure published every week or month by the Central Bank, contained in the Central Bank's quarterly bulletin. Every Deputy knows that 99 per cent. of the commercial transactions of this country are financed by cheque, not financed by the transfer of currency at all.
When you are speaking of money, you do not count cheques?
Of course I am talking about bank money.
Do you count cheques amongst money?
Certainly.
And the increase in all the circulating media is only for small change?
No. The Deputy was talking about printed money. I say printed money is the small change of commerce. We could inflate the currency by printing money. I do not think it would be a very intelligent way of doing it. We can, as Deputy Norton appears to contemplate, go down to the Central Bank and take a brand new ledger, open it and write down, say, £10,000,000 in it and say: "We are going to lend out £10,000,000 which is represented by that figure." It is precisely the same thing as printing the money.
Is a British Treasury note not a cheque?
A British Treasury note is not a cheque.
Evidently, it is all right for them to do so, but if we do it, it is all wrong. Is not that so?
We do it every week. We issue a sufficient quantity of paper money to meet what is needed by the commercial community.
But that is all?
We do that by a method which represents the transference of sound securities into printed money to meet the needs of the commercial community.
And, outside that, there is no increase in the money in circulation—that is, outside the ordinary lodgments of money?
I think that the principle, propounded by eminent economists, is accepted now: that every loan creates a deposit. There is, undoubtedly, an inflationary tendency going on all the time, but that is not, necessarily, harmful. Deputy McGilligan made the usual nonsensical remark about the £ sterling being only 18/6, but what was it worth in 1933 or 1833? Was it worth 20/-, or was it worth very much less or more? There is, undoubtedly, as I have said, an inflationary tendency going on all the time. So far as the increase in money is offset by increased production and the purchasing power of the people remains equal to the supply of goods, that tendency is helpful, but so far as increased purchasing power is not offset by increased supplies, that inflationary tendency is definitely hurtful and detrimental to the interests of the countries concerned.
So far as we are concerned, we want to put this company into the position that it can get a loan at the best possible terms and under the best possible conditions, and it is for that reason that we are proposing to put the credit of the State behind the company, in respect of both the principal and interest on the money borrowed.
I wish the Minister would try to drop this method of getting back to the present situation in connection with the amount offered for money, created, or piled up, and which is seeking expansion at the moment. There is a war situation at the moment, but we are not discussing that, and, as I pointed out last night, there is money in the banks that should be floating about instead of, so to speak, being piled up on people's shelves. In this connection, perhaps I might refer to the Banking Commission Report, from which it would appear that, in or about 1936, there was something like the sum of £90,000,000 of idle money on time deposit. Of that £90,000,000, it was stated that it was safe to say that one-third represented pure "savings bank" money, which would not, normally, be in a joint-stock bank at all—in other words, money that was on the shelf, so to speak. That was the situation in or about the year 1936: there was plenty of idle money in this country. In addition to that we know, with regard to the people representing the Central Savings Committee, that in March, 1942, the reverend chairman of that committee said that these people had been forbidden to buy these Savings Certificates for the past five or six years—that is, from 1926 to 1942. The reverend chairman said:—
"As you know, we have been forbidden to advertise the Savings Certificates or to encourage people directly to buy them for the past five or six years. Nevertheless, despite this silence on our part, a steady £500,000 is invested to advertise, and were the restrictions as to individual amounts loosened, we could, in a year or two, secure an annual saving of £1,500,000 to £2,000,000 in the certificates. That is, that amount of money would be placed at the disposal of the State at a rate which must be considerably less than 2 per cent, if not less than 1 per cent."
In other words, from £1,500,000 to £2,000,000 a year would be placed at the disposal of the State, at a rate of interest of, probably, less than 1 per cent. Now, let us get away from that, and consider what the rev. chairman said, which was to the effect that if advertising were allowed, and the limit of individual holdings increased, there was no reasonable doubt but that we could get a yearly net sum of £1,000,000 or more, at considerably less than 2 per cent., If not less than 1 per cent. The rev. chairman said that if the restrictions were done away with, we could in a year or two secure an annual saving of from £1,500,000 to £2,000,000 in the certificates.
Why should they not do that?
That is the point I am making.
If these people have paid money into Savings Certificates, are they not entitled to get it back?
Yes, but how many of them are entitled to get it at call, or at a week's notice? They have security there, and that is what makes them lend the money, as, I am sure, the Minister knows. The reverend chairman of that committee discussed that fact, and then went on to say that for years past, these people have left that money lying there idle, and that there is a steady increase there in savings year by year, until the Government stopped it. Now, these people are satisfied to get even 1 per cent., or less, on that money, and that money will be available to the Government to put into railway stock, and, possibly, that will be done. Surely, it is not thought that all these people will leap into the bank on the one day to collect their money, but, even in the case of such a thing happening, the State guarantees that these people will be paid, but how will the concerns affected pay? I take it that they will print notes, and they are doing it every day.
That is not being provided in this scheme.
Yes, I understand, but we are here talking about the question of general finances, and, again, the Minister talks about these guaranteed debentures and says, in effect. "We will give a guaranteed percentage, provided that you reduce the guarantee from 4 per cent. to 3 per cent." I want to get rid of that whole matter. I do not like the way it is being done, and in the background of the terms of the guarantee given by the Minister will always be the question: How can he get the money? In view of the vital needs of transport in this country, it is certainly an important question, how money can be got at 3 per cent. In the background of this whole question is the matter of how he can get this money and at what rate. Leaving aside the question that new money has to be provided, we are thinking of the way in which to deal with the matter, and my approach to this delicate question of creating new money might be shown by reading a sentence from The Economist, which is to the following effect:—
"Since 1913, something like £3,000,000,000 of bank credit has been created and has lodged in the deposits of the banks."
Has not the English £ note depreciated to any appreciable extent? Has it not depreciated to the extent of the £3,000,000,000 of bank credit?
Yes, it has.
The quotation goes on to say:—
"Who owns these deposits? How has the distribution of the total—for example, between individuals and business firms—altered? These are questions to which it would be most valuable to have the answers. One thing, however, is clear. The deposits now on the books of the banks have not originated from anything that can properly be called saving. Three-quarters of them have come into existence since 1913, and their origin lies in Government finances. Whatever may have been true in the past, it is almost wholly misleading to-day to regard bank deposits as the fruit of voluntary abstinence on the part of anybody."
That is now the view of the writer in The Economist only, and any student of economics will appreciate that, but the Minister comes in here, and, in effect, says that such deposits must be regarded as the fruit of voluntary abstinence on the part of the people. Now, let us come up to 1931. The Minister says, in effect, that money has been created ex nihilo. Does he know what that means?—“Out of nothing”. If the Minister understands that, does he think that in Great Britain they have been creating money out of nothing and spending it out of nothing, while still avoiding inflation? If that is so, can we not do it also? After all, this is a matter of general finance for the whole community, and here we are only dealing with a small matter, so far as the needs of the general community are concerned— although, undoubtedly, it is a very important matter—and that is the question of transport. Seriously, I do not think that any Minister in any backward country, whether Lichtenstein or any other country, would be capable of saying what the Minister said here to-day. With regard to the Minister's third point, that if you print money you debase the coinage, the position is that all over the world they have been printing money.
And debasing the coinage.
The funny thing about it is that one of the most debased coinages in the whole world is ours because we have not gone in for this process of printing money.
And we have less control over our currency than any other country in the world.
We are allowing the British inflation to flow over here but they have taken measures to stop the inflationary effects occurring over there. We are taking none. Take the contrast of the British with their £3,000,000,000 of new credit which has been created since 1913 and a very big fraction of it since 1939, the value of their £ has stood up better than the purchasing value of our £. The purchasing power of the £ has dropped to almost half here. If you take the value of the £ in the year 1939 as being worth 20 shillings——
Why take 1939?
One must start at some point. That £ will now buy goods representing only 12/6 of those shillings.
Produce £1 and I will give you 19/6 for it.
The shopkeeper will not give me 19/6 worth of goods for it. I will only get goods representing what the Minister has reduced it to. The value of money is constantly changing, but it is only when it is stepped up considerably that people begin to find the bad effects of it. It has been stepped up terribly in this country since 1939. The economic war, of course, helped to reduce the purchasing power of the £ here. The proper value of the £ will not represent to-day 20 shillings' worth of a particular type of goods as it did in 1931.
A shilling will buy one-twentieth of a £ and always did.
The £ here is now equivalent to about half a sovereign. If the Minister does not believe that, then I suggest to him that he ought to study the results of the cost-of-living figures prepared in his own Department. We are dealing here with something in the neighbourhood of £5,000,000. The joint stock banks will probably create that amount in any half year. The Minister's idea of the joint stock banks is that they will never lend money except the money is in their tills, or is represented by property. If the Minister has that view it is hardly worth while arguing with him. It is a theory that was discarded many years ago. The Minister is aghast at the idea of a national government using the national printing press to get money for national purposes. But every bank becomes a printing press through its cheque-book system every day of the week and nobody bothers about it. The Minister must know, if he has read anything at all on the matter, that the banks think they are safe if they only lend out ten times what they have in the way of cash. If they are able to meet one-tenth in the case of a sudden run, that is regarded as good banking practice. In respect of the other nine-tenths, not represented by cash, they are using, or we are using for them, cheque-books, and nobody bothers about it.
I do not know the circumstances under which the Government discouraged people from lending money to the National Savings Bank in 1936. If the Deputy wants to pursue that matter he had better take it up with the Minister for Finance. I can consider a multitude of circumstances in which the Government would decide that it would be good national policy to discourage people from lending money to the Government in order to force their savings being utilised for the financing of industry or of loans to local authorities. On the general question of the ability of the British Government to pay for the war out of savings, I wonder why it is that they consider it necessary to have income-tax at the rate of 10/- in the £.
Is that the Minister's answer? We have no war, and our income-tax is 7/6 in the £.
Did I understand the Minister to say that the Government would refuse to take money at 1½ or 2 per cent. so that the savings of the people might be utilised to enable local authorities to borrow loans?
The rate of interest will be determined by the conditions of the loan. I am quite certain that, in the Department of Finance, in normal circumstances, there is an attempt made at the begining of each year to estimate the aggregate capital issues that will occur during that year, the shares that are going to be issued in industrial enterprises by the Industrial Credit Corporation, issues by the Agricultural Credit Corporation and loans to local authorities. There would be some attempt to regulate the market so that the issues in which the Government is interested will be successful. That would be a function of the Minister for Finance. I can easily understand the Minister for Finance deciding that, in some particular year, other issues which are likely to appear on the market are such that Government borrowing should be discouraged.
They do not want cheap money.
Amendment put and declared lost.
I move amendment No. 38:—
(a) In sub-section (1), line 30, to insert before the word "interest" the words "subject to sub-section (2) of this section," and
(b) To insert before sub-section (2) the following sub-section:—
"(2) Where debenture stock bearing a rate of interest exceeding 3 per cent. per annum is created and issued, the Minister for Finance shall guarantee the due payment of interest thereon to the extent of 3 per cent. per annum only."
I mentioned this amendment previously in connection with amendment No. 36. As the Bill stood, the maximum rate of interest provided for the debenture stock was 3 per cent. I contemplated at the time that would involve the company issuing these debentures at a premium or a discount. From the point of view of the Minister for Finance that is undesirable, because it leaves uncertain the amount of the contingent liability. I am proposing, instead, that the debentures may be issued at variable rates of interest which will be guaranteed only to the extent of 3 per cent. by the Minister for Finance.
This allows the rate of interest to be paid to those people to be higher than 3 per cent.
Yes.
There is an over-riding maximum of 3 per cent.
If the price of gilt-edged securities was above 3 per cent., it would make it impossible for them to raise money at all.
Amendment agreed to.
I move amendment No. 39:—
In sub-section (3), line 37, to insert after the word "person" the following words: "corporation, fund, or bank (including the Central Bank)".
Amendment put and declared lost.
I propose amendment No. 40:—
In sub-section (3), line 39, to insert after the word "interest" the following words: "(if any) not exceeding 2½ per cent. or subject to such charge to meet administration or service costs".
Amendment put and negatived.
Section 17, as amended, agreed to.
SECTION 18.
Question proposed: "That Section 18 stand part of the Bill."
What is the intention regarding this section?
It is not probable that the company will make any new issue of common stock in the immediate future, but we are empowering them to do so. The £4,000,000 was decided upon, more or less, as a round figure. We were anxious to have some figure of about that amount to designate the maximum common stock liability of the company. It is improbable that the company will decide to issue any new common stock, but it is possible for them to do so to the extent of approximately £500,000.
Question put and agreed to.
SECTION 19.
I move amendment No. 41:—
In line 4, to delete the word "six" and substitute the word "four".
The purpose of this section is to authorise the company to pay dividends at the rate of 3 per cent. in respect of its redeemable stock and 6 per cent. in respect of its common stock. Under Section 18, the company will have power to issue common stock up to a maximum of £4,000,000. A situation will, therefore, arise in which the company will have common stock to the extent of £4,000,000 and debenture stock to the extent of £16,000,000. The State proposes to guarantee dividends up to a maximum of 3 per cent. on debenture stock but, in respect of the common stock, the company is to be empowered to pay dividends up to a maximum of 6 per cent. I have already indicated the views of this Party in regard to transport as a national activity. We regard transport as vital to the life of the nation, as something indispensable to ordinary citizens, pursuing their ordinary avocations, as something which ought not to be a source of enrichment to those who invest their money in it. Transport being vital to the life of the country, it should not be made a source of profit-making by investors whose main concern is to get dividends rather than provide a public service. Every dividend paid by this company either to debenture or common stockholders will be paid at the price of levying a tribute on the travelling public.
We do not believe the public should be levied for the provision of such an essential service as this is. This Bill provides for the creation of a private capitalist monopoly in respect of transport. The object of this amendment is to make sure that the public will be liable to pay as little as possible for its transport service. Under the Bill, the company is given power to pay a dividend up to 6 per cent. on its common stock, so that we may have a situation in which the company will be able to pay dividends of, approximately, £250,000 on common stock nominally worth £4,000,000 and the travelling public will, of course, pay the £250,000 in dividends to the common stockholders. If a situation of that kind should arise, in which the company would pay 6 per cent. on its £4,000,000 of common stock, it would be nothing short of an outrage on the travelling public. The Great Southern Railways Company, which is the big partner in this merger, has not paid any dividend on its ordinary stock for the past ten or 12 years. It is quite unlikely that, left to its own management and without State assistance, which is now being provided, it would ever pay any dividend on its common stock. If the public are to be asked to pay dividends on the common stock in future, we think that the dividends should be limited to 4 per cent., being 1 per cent. above the maximum rate of interest payable on the debenture stock.
There is, of course, no proper comparison between the 3 per cent. payable on the debenture stock and the maximum divided of 6 per cent. which may be paid on the common stock. The 3 per cent. is guaranteed to investors in the debenture stock. They will be paid irrespective of whether the company makes a profit or not. There is no guarantee that the 6 per cent. will be paid, or that any dividend will be paid, to the common stockholders. So far as the normal practice of commercial undertakings is a guide, a limitation of 6 per cent. upon ordinary stock would be regarded as restrictive. If I understood the Deputy properly, however, he is of opinion that it is wrong in principle to pay any dividend on the common stock of the company. I think that he would like to propose that but, for some reason, he was induced to make a compromise and he proposes, instead of the proposal in the Bill, 4 per cent. We could provide in the Bill that these people's property should be entirely confiscated and that they should get no return on their investment. The Government did not think that that would be good policy and we do not propose it. We shall resist any such proposal if it is made here. I think that the limitation of 6 per cent. on any dividend that may be paid on the common stock is a reasonable one, in all the circumstances. We are not taking any positive steps to ensure that the owners of these stocks will get any dividends. It is possible that there will be years in which they will not get a dividend but the legislative provision is that they will not, under any circumstances, get more than 6 per cent. Very few people would invest their savings in any commercial enterprise if there was an overriding limitation of 6 per cent. in respect of the dividends payable.
Its assets are all gone.
That is a very debatable question.
You told us so.
A substantial number of the shareholders of the Great Southern Railways Company would argue that they could make the company much more profitable for themselves without any Government assistance. There was even an organisation of shareholders which was of opinion that the only trouble was that caused by Government interference. We do not agree with that point of view but it is the view held by some of the shareholders.
And you do not believe it.
To impose an overriding maximum on the dividends payable on the ordinary stock of less than 6 per cent. would be grossly unfair and I urge the Committee to reject this amendment.
The Minister cannot be serious when he says that the imposition of an overriding limit of 6 per cent. on ordinary stock would be regarded as unfair by ordinary investors. The Minister need not read many economic text books; if he reads the ordinary reports of commercial companies, he will find that what he states is not correct. In 1939, the average dividend paid by a cross section of companies here was 6 per cent. We are dealing in this case with a peculiar company. We are not dealing with a company which is taking the ordinary risks of commercial activity. We are dealing with a company which has got a monopoly, given it by the legislative Chamber, and which is in a far different position from that of the ordinary commercial undertaking, particularly, companies now operating which entered into new fields of activity in the years before the war, fields of activity which were completely unknown to them and in which they ran, possibly, grave risks. They ran those risks and their return is represented by an average dividend of 6 per cent.
There are companies paying 12 per cent. and 15 per cent. but I am taking a rough cross-section and the figure works out at 6 per cent. Here we have a group of ordinary shareholders who are in a most peculiar position. It is possible that, certain conditions occurring, those people, holding £4,000,000 worth of common stock, will become owners of a very valuable concern after a period of years.
Secondly, they will be operating a concern which has been given a monopoly. The Minister stated the other day that a monopoly was not given because there will be competition from private lorries and private cars. A great deal of what he said did not really make sense. Whether or not private cars and private lorries operate, there is a residuum of transport, which is not catered for by private lorries or by private cars, which must be carried by road or rail transport. We have a different position now from what we had some years ago when the railways had to meet the competition of road transport. Road and rail transport will have a monopoly which will be able to earn dividends on the ordinary shares. It is suggested that a limit of 4 per cent. is slightly below what ordinary shareholders in commercial undertakings receive and is unfair to the shareholders. Over a period these shareholders never got 1 per cent. We put the point of view previously, but not in the form in which the Minister expressed it, that it would be in the interests of the country, in so far as earning capacity is concerned, that this should be a nationalised concern. Unfortunately we have not changed our point of view as rapidly as that of the Minister. We are condemned for what the Minister at one time thought. We are not suggesting confiscation.
We suggest that in the legislation now being framed there should be some protection for the ordinary public. The Minister pointed to one argument in favour of the peculiar constitution of the board of directors, whereby we have a chairman, as well as certain directors appointed by shareholders that these, influenced by a desire to see a profit on their investments, will take a more keen interest in the concern than outside directors appointed by the Government. If that is the position we are facing, and if the limit is 6 per cent., is it not ordinary human nature on the part of the directors to see that the earnings are driven up to the point at which they could pay 6 per cent.? As we give them that power I do not see why they should not take advantage of it. Deputy Norton pointed out that to pay 6 per cent. on £4,000,000 represents £250,000 which will have to be paid by the travelling public. If we give the company a new and a reorganised concern, and put them in the position of operating because of a Government guarantee, which makes possible new financial conditions, and in addition give them a monopoly over all effective road and rail transport, surely we are not unfair when we suggest that the limit should be 4 per cent.
Deputy Larkin said that investment in the ordinary shares of companies averaged 6 per cent. We are not proposing that shareholders will get 6 per cent. We are proposing that they will get a maximum of 6 per cent.
You make that possible.
On the contrary, we propose to limit the maximum to 6 per cent. If one year they get nothing, and next year they get 6 per cent., the average will be 3 per cent. I should say that the average, if they get any dividends, will be substantially below 6 per cent. Córas Iompar Éireann will not have any greater monopoly than the Great Southern Railways have now or had at any time since 1933. In so far as the Great Southern Railways were granted a monopoly of road and rail transport under the 1933 Act, that monopoly is not being extended in any way. The position is that monopoly during these years did not enable the Great Southern Railways to exploit the situation to the extent of paying a dividend to the ordinary shareholders. The mere fact that there is monopoly does not mean that the company is going to earn revenue. Obviously, there are factors which may affect earning capacity to a very considerable extent, factors which were there before the war and which can be there after the war. I hope to see the company earning a revenue that will permit the payment of interest on the common stock. It has yet to demonstrate that it will do so.
Would the Minister say, if there was no monopoly, he would still entertain that hope?
With everybody having the right to run public transport services and carry goods for hire, no. I should say that the company would disappear in a very short time. The fact is that the possession of a similar monopoly by the Great Southern Railways did not permit the earning of revenue to pay dividends on ordinary stock. The reason why it is proposed to prescribe a maximum rate of dividend on shares is to ensure that the benefit of the redemption of the debenture capital and the improved earning capacity, if there is improved earning capacity, will redound to the citizens of the country, and not to the shareholders.
In 1960.
Perhaps before then, but certainly in 1960. If there is then an improvement in the revenue position, more than sufficient to pay 6 per cent. on the ordinary shares, the full benefit must be given to the citizens of the country; and cannot be given to anybody else but to users of the transport system.
Of course it can.
Deputy Larkin said that this was a peculiar company. I think it was. It was indicated that the Great Southern Railways, from 1932 to 1938, lost £669,000, and yet found it possible to pay dividends amounting to nearly £1,500,000, and between 1939 and 1942, when, according to the minority report of Dr. Kennedy, the company lost £1,000,000, and made no trading gain, they paid out nearly £250,000.
There was a bit of the printing press there.
These figures are all wrong.
They are not wrong. They figure in the reports in the last few years. We know how it was done. They paid out of money which was handed over after the last war for arrears of maintenance, but which was not spent on repairs and maintenance. It was spent on dividends. Then there was a small subvention from the 1924 Act, which was spent while the going was good, so that the concern went to rack and ruin. The Minister in his speech referred to the chairman's statement about the rolling stock being obsolescent. The Minister knows what the chairman said in May, that the railway was making a loss, and would continue to make a loss unless a reorganisation was successfully carried through, and he could not guarantee that it would be ever successful. He also said that the financial position of the company was very serious, and he anticipated that the revenue for the present year would not meet losses.
In June, he went on to say: "The present earnings even during the war are insufficient to pay working expenses. Even the increased rates will not cover the deficiency in full." As late as October, the chairman returned to the attack and said: "Rolling stock is obsolete. New buildings, plant and machinery are required and reorganisation of the permanent way, stations and yards will require considerable sums of money." Finally, he said that "the public will not subscribe a ‘bob' to the concern." He had in front of him during all these speeches, as any man speaking of fixed assets must have had, mainly the debenture holders, because they were the people who could cash in whatever value there was in the physical assets. The ordinary stockholders got a dividend, according to the tribunal's report, up to 1931. Then there is a blank until they got, in 1943, a payment out of the extra charges which were put on. From 1931 to 1941, they did not draw one shilling and we are now proposing to set up again this Humpty-Dumpty business and allow it to pay 6 per cent.
What are the peculiar circumstances then attaching to the future of this company? They are these: The company is now in the grand position that it is far better than ever before and as a monopoly it undoubtedly has chances now which the old company never had. It has an extra chance given to it by its being linked up to a stronger financial organisation, the Dublin transport organisation, and the fact that it has Dublin transport under its control as well. It has now special ways of freezing out competitors which it had not got in the old days, but, apart from all that, it is now being set up in this way, that the debenture holders, whether the company earns money or not, are to be paid 3 per cent. and the stock is to be redeemed. When all that is done in 1960—and the Minister says he hopes it will be done earlier than 1960—at the public expense and at the expense of the transport users, this almost obsolete concern, refashioned, remade and given new permanent way and rolling stock, is to be handed over to people who have not seen a shilling in the way of dividend since 1931. We are going to say to them: "You now have a property clear of debenture debt and we will allow it 6 per cent."
I do not think that is a fair proposition. I do not think any of these people over expected such treatment. Most of them were reconciled to the view, when they saw the inside workings of the company revealed, that their capital was long since gone and they really have not had a financial interest in the company for years. The Minister recognised that in 1933 when he cut them down by nine-tenths, so that a man had £10 in the company where he previously had £100, and, even since that, the people who hold a fraction of their old-time holding have not got a dividend, except in one year. Now we are asking the public to say in relation to these people that they will allow them to get 6 per cent.
Deputy Larkin said he gave a cross section of companies for a particular year and that the average of these companies in that year was 6 per cent. He did not mean that the average earning of any one of these over the year was 6 per cent., but that, taking them as a group, for a particular year there was a 6 per cent. earning, and that at a time when profits were supposed to be very definitely restricted under Emergency Orders and they could not get more than a certain amount. These are trading concerns, and this is a monopoly with a Government guarantee, the avowed objective of the Minister being that, before 1960, the Government guarantee would have worked so as to wipe out all capital other than the common stock, the holders of which are to slide out as possessors of a grand property. It is our property. It will be either the taxpayers' or the transport users' property in the main, and I do not think it right to hand it over to £3,500,000 worth of common stock holders.
Of the £3,500,000 common stock, only £750,000 approximately will be held by the present ordinary stockholders of the Great Southern Railways. The balance of that common stock will be much the existing preference and guaranteed preference stock of the Great Southern Railways.
What are these shares worth?
The guaranteed preference dividend is paid up to date.
The preference people did not get a dividend since 1931, except possibly in 1943.
Why does the Minister say that they are paid up to date?
I said the guaranteed preference were paid up to date.
The 4 per cent. preference are not. They did not earn a dividend since 1931.
I asked the Minister on the last section whether it was the intention that additional common stock would be issued and he indicated that it was not.
I did not say "No". I said it was unlikely that the company would avail of the power within the immediate future.
For practical purposes, the common stock basis is to be the substituted basis this Bill provides. I do not appreciate the force of the Minister's remark that to fix too low an interest ceiling here would be to prevent people investing money in the railway company. So far as capital on the basis of common stock is concerned, it is in the company already and there is no constructive call going to be made on any capital in relation to the common stock in the immediate future. In so far as the present shareholders of the common stock are concerned, on page 15 of the Report of the Tribunal of Inquiry into stock and shares dealings, information is given as to the amount of guaranteed preference, preference and ordinary stock which changed hands between 3rd January, 1943, and 20th November, 1943. The figures show that 27.6 per cent. of the guaranteed preference stock changed hands during that period. There may be some duplication in these figures, but if the duplication is ignored 27.6 per cent. of the guaranteed preference stock and 29.3 per cent. of the preference stock changed hands. Of the ordinary stock, 21.5 per cent. changed hands. Taking the ordinary stock purchased between 3rd January, 1943, and 23rd October, 1943, 13.9 per cent. of the total common stock changed hands, and between 25th October and 20th November, 1943, 7.6 per cent. changed hands. In any of these figures, there may be a certain amount of duplication, but 27.6 per cent. of the guaranteed preference, 29.3 per cent. of the preference, and 21.5 per cent. of the ordinary stock changed hands as between 3rd January, 1943, and 20th November, 1943. Half the total guaranteed preference stocks are to be common stock in future. When we take into consideration the preference and the ordinary stock, of the new common stock 27 per cent. of the holdings changed hands during that period.
Allowing for duplication, as the Deputy says.
Yes, allowing for duplication. On 19th September, the Minister, in a Parliamentary reply, gave the highest quotations for ordinary, preference and guaranteed stock in June of each year. The highest price paid for ordinary stock in June, 1944, was 51 and for preference 51, so that a 6 per cent. dividend on the common stock is going to mean 12 per cent. in respect of purchases made by people in June, 1944, at 51. No quotation was available for 1943 or 1942, but the quotation for 1941 and 1940 is 8, and a dividend of 6 per cent. on the common stock is going to mean a dividend of 60 per cent. on the amount of money invested by people who bought the ordinary stock in 1941 or 1942 at 8. The guaranteed stock was purchased in June, 1943, at 28½. The preference was quoted in 1942-43 at 18 and at 14 and, in respect of money that is put into this stock, and that is not constructive in any way, it is putting it very mildly to say that the payment of interest will be at the rate of 6 per cent. It will be very substantially more. On that particular point alone, without any reference to the earning capacity of the stock in the past, I think there is no very great injustice being done to anybody by accepting Deputy Norton's amendment. But when we take into consideration that the payment of revenue on this stock will come down on top of the extraordinary extraction of money from the travelling public to redeem the enormous amount of substituted debenture stock provided for here, then there is an overwhelming case for accepting Deputy Norton's amendment.
In considering the equity of this amendment one has to refer to the value of the common stock of the company. When you want to ascertain the value of the common stock, probably as good a method as any is to go back to March of last year and see what the chairman thought of the undertaking. A reference to his speech shows that he thought very little of the permanent way and the rolling stock and he indicated that 50 per cent. of the railway lines in the country were earning no revenue whatever. Then you have the Minister looking at the thing very objectively and telling us that it was simply junk. Evidence given at the railway tribunal put its value in the form of scrap at £4,000,000, and it was even doubtful if it would be bought for that purpose. That is the position.
We have reference under this Bill to £4,000,000 of common stock. If that common stock were valued at stock exchange quotations, or on the ability of the undertaking to earn a dividend, the amount would not be £4,000,000; it would scarcely be £400,000. What is happening under this Bill? We are going to leave the common stock at £4,000,000. In other words, we are going to permit the company to create a share position in which it has at present £3,500,000 in common stock and it may, if it wishes, increase it to £4,000,000.
Take the existing common stock under this Bill at £3,500,000. The company is really being allowed to water its capital for the purpose of earning a dividend of 6 per cent. I do not think these shares are worth anything like £3,500,000, especially bearing in mind that they did not earn a dividend for 13 years. One can hardly imagine shares that have not paid dividends for 13 years being of any great value now. One cannot imagine any person buying them. Yet we are regarding these shares as value at £3,500,000 and we are saying to the stockholders, the people who hold common stock in this junk company: "You can pay yourselves dividends at the rate of 6 per cent. and you can get them out of the travelling public." I think that is a bit thick from the point of view of the travelling public. The shares are not worth anything like the value attached to them in this Bill and these shares are being watered for the purpose of enabling the directors and the common stockholders to put their hands as deeply as they can into the pockets of the travelling public.
Ultimately, when this debenture stock is paid off, the common stock holders will become the owners of the company. The Minister may say that that means nothing, that the travelling public will have a very big say in what will happen. If you reach the point when a group of people holding common stock to the extent of £3,500,000 or £4,000,000 own a railway undertaking, on which debentures to the extent of £16,000,000 have been paid off, you get a situation then in which common stock capable of earning a 6 per cent. dividend, is a very valuable investment. And if the debentures at 3 per cent. can hold their own at par on the stock exchange, what is the position going to be in respect of common stock on which it will be possible for the company to pay 6 per cent.? As Deputy Mulcahy points out, some of the common stock could have been bought for a song 12 or 15 months ago.
Some of the present £100 shares were bought for £1,000.
The dividends are being paid into cemeteries. Dividends have been paid over and over again. They have been paying dividends on whitened bones in respect of this undertaking because the dividend has been paid over and over again in respect of early purchases.
The Minister thought that was so to the extent of nine-tenths in 1933.
The Minister said in 1933 that the stock was worth £10 for every £100 share, and more recently he told us that the railway company had not improved its position. The chairman said so in March, and the Minister said so in May and June of last year. If that is the position, what is the case for allowing the company to have £3,500,000 in common stock on which you will have to pay a dividend of 6 per cent.? That dividend will cost the travelling public £250,000 a year. If the travelling public have to pay that amount each year to common stockholders in this junk company, which has not paid a dividend for 13 years, then the travelling public will have a right to say that this House did very little to safeguard their interests.
I do not know what the value of the common stockholders' shares is. I would like someone to evaluate them. I would venture to say that in the normal course of events you would not sell these shares like hot cakes. In the normal course the stockholders might not get a dividend for another 13 years, unless something special happened. If the State is now intervening to make the shares more valuable in the future than in the past, then the State is entitled to set a maximum to the rate of interest payable, and that maximum should be less than 6 per cent.
It is possible under the present proposals for the common stockholders, having what might be described as a wasted and almost worthless asset, to milk the travelling public to the extent of £250,000 a year. That is an outrageous provision for these common stockholders, and there is no set of circumstances concerning their investment that justifies the House in permitting them to get away with £250,000 per annum, which will be possible under the Bill, at the expense of those compelled to utilise our transport system.
How was the figure of 6 per cent. arrived at?
It was taken out of an emergency order.
Deputy Mulcahy referred to the fact that some holders of preference shares purchased them at less than their nominal value. That fact is an indication that the public do not anticipate that the 6 per cent. is going to be paid with the regularity which Deputy Norton appears to anticipate. The reason for that is that the public know what Deputy Norton and some other Deputies have apparently not yet appreciated, that there is still a transport problem to be solved—that that problem has not yet been solved. We are setting up this organisation with new facilities and powers in the hope that it will be able to solve the problem. We trust it will succeed. Our trust is that it will succeed to the point of enabling a dividend to be paid upon the common stock of the company, but it may not succeed. That element of risk is there, and it is because the public know that element of risk is there that they have not put a value on those shares on the assumption that there is a dividend to be paid regularly at the maximum rate.
Deputy Cosgrave asked how this 6 per cent. was arrived at. It is not easy to answer that question. It is in my view the point at which it is fair to put a maximum limit on the dividends payable.
It is far higher than any which has yet been paid.
Oh, certainly. It is intended to represent an over-riding maximum. I cannot attempt to forecast at what stage the Great Southern Railways Company will begin to pay dividends on ordinary stock, or whether at that stage it will be able to pay more than 1 per cent. or 2 per cent. or 3 per cent. I certainly anticipate that the average dividend earned by those shareholders over a period of time will be substantially less than the maximum. The 6 per cent. is there to ensure, if and when the transport problem is successfully solved, and the Great Southern Railways Company can provide transport facilities at a profit to itself, that, except to the limit required to pay 6 per cent. to the common stockholders, the benefit of that increase in revenue will be experienced by the users of the transport system.
When introducing this Bill, I asked the House not to consider it apart from the 1933 Act. I think Deputies are too easily inclined to forget the provisions of that 1933 Act. It is easy to be contemptuous of those ordinary shareholders of the company, and to criticise them for their neglect of the company's interests. I am not going to defend the management of the Great Southern Railways Company. When I became Minister in 1932, I was left, as a legacy by my predecessor, a transport problem, and the kernel of that problem was to get the management of the Great Southern Railways Company to realise the mess their concern was in. In the legislation of 1933 we took a crack at those ordinary shareholders that was probably unprecedented in the legislative history of any country. By our Act here, without their consent, or without consulting them, we cut the nominal value of their holdings by 90 per cent. Many of those shareholders were the individuals or the descendants of individuals who had invested substantial sums in railway shares, in the belief that they were the best security in which to the up their savings. Many of them represented the widows and dependents of persons who had saved money and put that money into railway shares, believing that by doing so they were securing the economic safety of their dependents.
When considering the provisions of this Bill I want the House to remember that each of those £100 ordinary shares of the Great Southern Railways Company represents an original investment of £1,000, and that the effect of this provision is to ensure that those people, whose original investment was £1,000, cannot secure more than a ½ per cent. at any time in the future upon that investment. I think it would be completely unfair of this House to forget entirely the past legislation and to consider this Bill as the first attempt we have made to interfere with the capital structure of the Great Southern Railways Company. It is not the first attempt. The two Bills must be taken together, and, taking them together, I say it would be grossly unfair to those individuals if we were at this stage to put a further imposition upon them having regard to the action we took in 1933.
I endeavoured last night, after the Minister had repeated himself in using the words "surplus revenue", to get for the House his definition of "surplus revenue". He talked about the surplus revenue that would be available for the payment of dividends on common stock. The Minister has described the position of the Great Southern Railways Company as being almost worthless, but any ordinary intelligent person, any ordinary clerk reading the balance sheet, the abridged statement, as it is called, could not possibly come to that conclusion. Would the Minister give us his definition of surplus revenue from this angle: Is surplus revenue what would be left after the payment of fixed charges, after the full amount has been set aside for the development work which the Minister and the chairman had in mind, and for any other charges on the company? Are we to understand that what is left after setting aside those necessary amounts— I do not know what they are likely to be—is called surplus revenue? Last year, we see here in this balance sheet that the amazing sum of £700,000 was set aside for the renewal of ways and works and the reconstruction of the rolling stock. I presume that that sum has not been spent. It could not possibly have been spent in the year 1943 because the material and machinery required were not available. But, notwithstanding that huge increase of £700,000 over the previous year, and after making allowance for the payment of the 3 per cent. on the ordinary stock, we have a balance of £60,856. If the chairman—or whoever is responsible for fixing the payment of dividends on the ordinary stock—wanted to, he could have paid 9 per cent. to the shareholders for the year 1943.
I do not know what is in the mind of the Minister or of the chairman who is his nominee as to the amounts, if any, which should be set aside, after this scheme comes into operation on 1st January next year, for the renewal of ways and works and the reconstruction of rolling stock. What other charges has he in mind that must be met before he comes to arrive at the figure representing surplus revenue? If we knew what he had in mind, or if we had a definition from him as to what he believes to be the proper interpretation of "surplus revenue", we could come to some conclusion—it would be only in rough-and-ready figures—as to what should be left after providing for those fixed charges, the renewal of ways and works, providing decent rates of wages for the workers who are now very badly paid, and so on. We could arrive at some conclusion as to what the chairman-dictator of this company would be able to do in the shape of making reasonable provision for the payment of interest on the common stock of the company. I am at a loss to understand what the Minister means by surplus revenue, and we cannot understand what is going to be done by the chairman or what the Minister has in mind until he gives us an understandable definition of those words.
It is revenue over and above the working costs and fixed charges.
Would the Minister say whether he considers that the 1933 legislation imposed any real hardship on the shareholders, bearing in mind the fact that whatever dividends accrued to the ordinary stockholder could have been received by the stockholder who still held the common stock left to him after the Minister's cut had been put into operation?
It could be said that it imposed no hardship on the ordinary stockholder, but it did affect the amount payable to the debenture holders and to the guaranteed preference holders.
The section refers to profits available for dividends. They are not defined in any way.
They will be defined to some extent—in the Companies Acts.
This company can do exactly what the old company did?
They can do anything which they are empowered to do by company legislation.
We will take it that what the Great Southern Railways Company did was legal at any rate, although it was not prudent. This company can do exactly what the Great Southern Railways Company did. It can neglect to put money aside for renewals and repairs and pay out dividends?
It is to ensure that the financial management will be sound, having regard to the fact that there is a Government guarantee, that an essential part of the proposal is that a chairman nominated by the Government, with certain powers, shall be appointed to the board.
But this House has no control over that chairman?
No, but the House has control over the Government.
And after a year, when the harm has been done, the Government and this House may become cognisant of the fact that the chairman has done with regard to the new company what the old directors did with regard to the old Great Southern Railways Company. They could pay out dividends up to 6 per cent. by scimping the amount for maintenance and renewals.
It is precisely to see that they will not do so, that the power is being taken.
It is not imposed on them as a matter of legal liability that they should make any provision for renewals or for maintenance of track.
But obviously the Government has a very definite interest in ensuring that the financial management of the company will be sound.
I move to report progress.
Progress reported: The Committee to sit again at 7 p.m.