Ministers for Finance all over the world have in the last five years been creating new records in the matter of State expenditure, supporting this by taxation and borrowing at unprecedented levels. Belligerent and non-belligerent countries alike have been affected, and as the European war closes I can only hope that it will usher in a period when the unparalleled calls on our Exchequer and on our taxpayers will come to an end. During the last five difficult years we have, I submit, handled our financial affairs in a way that though it called for sacrifice, did not impose unnecessary hardship. While expenditure could not be curtailed and had, indeed, to be allowed to expand in many directions, I attempted in meeting it to steer a middle course between austerity and prodigality. I tried to restrain the inflationary forces that get loose in every war, even among the nations not directly participating.
Restraints on inflation.
Inflation can be almost as great a disaster as war itself. It destroys the economic fabric of society and creates a series of strains and stresses that have their outcome frequently in revolutionary violence. Our efforts to check it by high taxation, rationing, control of prices, dividends, wages and other remuneration, and the absorption of savings were not entirely successful. But I submit that in the absence of such remedial measures the situation would have got completely out of hand, with painful results to all sections, but most of all to wage-earners and the lower income groups. While exercising these restraints, we have not hesitated to make use of State credit freely when the occasion demanded. From 1st April, 1939, to 31st March, 1945, the difference between Exchequer issues for Central Fund and Supply Services and Exchequer tax and non-tax revenue amounted to £15,675,000 which had to be financed altogether by borrowing. Various other payments falling to be made from the Exchequer brought this total up to £16,800,000, a not inconsiderable figure in relation to our obligations. The gross liabilities of the State as at 31st March last (including liability for housing and land bonds) exceeded £93,000,000. In addition to these there are State guarantees of various kinds running into many millions to which I will refer later in detail.
The expenditure as measured by Central Fund and Supply Services has risen from an actual figure of £33,110,000 for 1938/39 to an estimated figure of £52,367,000 for the current financial year, an increase of 58 per cent. In the same period net expenditure by local authorities from revenue, less amounts derived from Government sources, has risen from £7,464,000 to an estimated figure of £9,600,000 for the current year, an increase of 28 per cent.
Economic Background.
The concomitant increase in taxation must be considered against the general economic background. Between 1938/ 39 and 1943/44 (the latest period for which statistics are available) the gross output of agriculture rose in value by 79 per cent. while the value of net output of agriculture (or the value added to the materials by the agricultural process) increased considerably more—by 103 per cent.—because of the decline in the volume and value of materials. This increase in the net value of output of agriculture was due principally to a marked increase in agricultural prices—which have nearly doubled since the outbreak of war. On the other hand, the gross volume of agricultural output declined by 11 per cent. in the same period. Between 1938/39 and 1943 the value of net output of industry increased from £35,546,000 to £41,212,000, or by 16 per cent., but the volume declined by 24 per cent. Building, the principal nonagricultural industry in this as in other countries, was operating in 1943 at only one-third of its pre-war volume. The value of the combined net output of agriculture and industry increased by 64 per cent. between 1938/39 and 1943/44.
As regards our external trade, the value of imports in 1944 declined by 32 per cent. and the volume by 70 per cent. as compared with 1938. In the same period the value of exports increased by 22 per cent., but the volume declined by 44 per cent. Despite the numerous obstacles in the way of trade visible imports since the beginning of the war had up to the 31st March last exceeded visible exports by some £16,000,000 in value.
These various economic indices do not all point in the same direction. The general picture is that, since pre-war, wholesale prices have doubled and the quantum of goods available for consumption has declined by about one-fifth. There is, unfortunately, no prospect of an early substantial improvement in the supplies position since, with war-torn nations as our competitors, we shall not be specially privileged to obtain materials, though there should be ample demand for our products. Vigilant care by all countries will be required in the immediate postwar period lest in the scramble for goods the price situation, under fairly satisfactory control so far, should get out of hand.
It is difficult to draw from the available statistics any hard and fast conclusion as to whether our expenditure in general and particularly our taxation have outstripped the economic capacity of the country to bear them. Judging by the pressure to which the Minister for Finance is subjected from many quarters to reduce taxation, the shoe pinches in more than one place, so far without causing actual lameness. On a general survey I am satisfied that, apart from exceptional cases, the burden has not been disproportionate to the economic strength of those called upon to bear it. In the urban areas the high cost of living has affected the population to an extent not felt in the rural, while taxation pressure has also been more severe in the former. Fortunately, the cost-of-living index showed no further rise during the year, the figure of 296 (base, July, 1914=100) being returned in both February and November, 1944. It has, indeed, fallen slightly since. The agricultural price index (base, September, 1938, to August, 1939=100) showed a downward trend during the year, falling from 198 in January to 187 in December, 1944, and recovering to 194 in March, 1945. The high level of agricultural prices is, of course, the incentive held out to the farmers to maintain or increase production, and considering the variety of obstacles with which they have had to contend, they have risen to the occasion in these critical years.
Revenue and Expenditure. 1944-45.
Despite the standstill character of the two previous Budgets, the yield of tax revenue continues to expand, thus confounding the pessimists, who were to be found everywhere. The aggregate of tax and non-tax revenue at £46,175,000 in 1944-45 was £395,000 in excess of the Budget estimate and £2,395,000 in excess of the yield of the previous year. Expenditure, though high, was below the anticipated level, with the result that the deficit for 1944-45 worked out at approximately one-half of the anticipated figure.
A few words as to the yield of various duties may not be out of place. In the forefront, property and income-tax, including surtax, at £12,517,000 was well over £1,000,000 in excess of the previous year. In 1938-39 the yield of these duties was £5,803,000, so that the direct taxpayer has increased his contribution under this head by 116 per cent. since pre-war. The other main direct tax—corporation profits tax—yielded £4,042,000 as against £3,781,000 in the previous year. The yield here has grown seven-fold since 1938-39. There have been substantial increases in the duties mentioned and it should be our first task, on the passing of the emergency, to see that expenditure is reduced and to accord to the direct taxpayer some relief from his heavy burden. There is no doubt that the present high rates of taxation on both personal and company income operate as a deterrent to individual effort and as a drag on industrial and commercial enterprise. It may still be important at present to restrict personal spending power and at the same time to remove obstacles to business revival and expansion. While rationing of so many commodities continues and while imports are so limited and home production is curtailed by shortage of materials, release of additional purchasing power may have a certain inflationary effect, but it should be one of our prime objectives to lessen the burden on the sources of production and employment.
The reactions of high rates of indirect taxation are, of course, also felt throughout the national economy, but not to the same extent. While some of the indirect taxes have an influence on the cost of living many can be avoided by abstinence or restraint. Of these indirect taxes tobacco duty continues to soar and now approaches the £9,500,000 mark. The excise duty on beer advanced by £230,000 and on spirits by £199,000 in the last year. Betting and entertainments duty between them yielded £100,000 more at £789,000. Estates duties and stamps also showed a welcome expansion, while the Post Office registered additional receipts of £100,000.
Not all movements have been favourable to us. There has been a virtual cessation of beer imports since June, 1944, while clearances of imported spirits and sugar have fallen considerably. In the aggregate customs revenue was £312,000 below anticipations.
The income from motor vehicle duties, which falls into the Road Fund, suffered less from petrol restrictions than was expected, the yield at £621,000 being in excess of anticipation.
Deputies will see from Table I of the tables circulated to-day that the realised deficit in the national accounts for the 12 months to 31st March last was £1,749,000 as compared with £3,375,000 anticipated. Even at this reduced figure it was nearly £1,250,000 more than in the preceding year, and this despite a big increase in the yield from taxation. There continues to be heavy expenditure on the Army and defence services associated with it. Exchequer issues for Army purposes in the year just closed were £8,147,000 as compared with £8,189,000 in the preceding year. In the last complete year of peace— to 31st March, 1939—Army issues were only £1,766,000,. so that they have increased nearly 4½ times.
The over-all expenditure, like the over-all revenue, thus reached new heights and the task of the Finance Minister must be to secure a reduction in the former before he can, with any confidence, set about reducing the latter.
Table II compares Exchequer issues for supply services in the years 1943-44 and 1944-45. The services on which issues were greater in 1944-45, or were unchanged, are set out in the first part of the table, followed by the services on which issues were less. In all cases the principal causes of any major variations are stated.
National Indebtedness.
In Table III, showing the capital liabilities of the State at 31st March, 1945, there is an increase in liabilities of £919,000 and a decline in assets of £512,000, the aggregate of the former at 31st March last being £83,731,000 and of the latter, £36,501,000. The estimated capital value of the State liability for Exchequer contributions payable under the Housing (Financial and Miscellaneous Provisions) Act, 1932, towards the annual loan charges of local authorities on account of moneys borrowed for housing amounted to £9,351,000, making a gross total of £93,082,000 for the liabilities of the State.
On 31st March, 1944, the gross indebtedness of local authorities amounted to £37,500,000 approximately. After allowing for the value of State contributions towards housing and for certain electricity and technical instruction loans, the net debt outstanding was £24,356,000. If we assume an increase of £800,000 in the liabilities of local authorities in the last 12 months, the aggregate gross liabilities of the State and local bodies at 31st March of this year may be put at £131,382,000, an amount which is offset by the assets referred to.
The liability to depositors in the Post Office Savings Bank and to trustee savings banks amounted on 31st March last to £31,199,000. This figure, which includes £3,434,000 in respect of trustee savings banks, represents an increase of £6,642,000 over the actual figure at the corresponding date last year. The liability for savings certificates, including accrued interest, is estimated, on 31st March last, at £14,547,000, or £1,361,000 in excess of the liability at 31st March of last year.
The number of depositors in the Post Office Savings Bank is now 558,000 and in the trustee savings banks, 34,000, while the number of savings certificate holders is 247,000.
We had a special publicity campaign last year directed to those who were not already availing of the facilities afforded by our savings institutions. It was intended to help in the formation of thrifty habits, to absorb a certain amount of excess purchasing power, and so act as a minor check to inflation. The campaign had some success judging by the figures I have quoted. The increase in the monetary circulation, to which I shall refer later, continues but there is evidence, as the Central Bank points out in its latest annual report, that substantial quantities of notes are being hoarded in the rural areas. To some extent, the money already withdrawn from consumption-spending was diverted by our campaign into savings institutions and the effect on the size of the average deposit was probably more marked than on the number of depositors.
As Deputies will have noticed, information additional to that given in previous years is contained in the three remaining tables published in connection with the Financial Statement. Table IV shows for each year, from 1938-39 onwards, Government expenditure and revenue as well as the net revenue expenditure of local authorities and the amount of rates collected. Tables V and VI contain the Exchequer statements for the years 1938-39 and 1939-40 and the corresponding statements for 1943-44 and 1944-45. I would commend these tables to the attention of the House as giving a composite view of national and local finances over a critical period.
Revenue Prospects.
The White Paper circulated some days ago shows the actual receipts and disbursements under various heads in 1944/45 and estimates under the same heads in 1945/46. Based on the rates of taxation at present in force, the tax revenue is estimated to yield in the coming year an additional £1,880,000, while the non-tax revenue is down by £60,000.
This assumption of a net increase of £1,820,000 over the yield of what was admittedly a good year may seem optimistic. The advent of peace in Europe should, on the one hand, help revenue. The continuance of the war against Japan will, however, prevent anything like a complete change over of industry in the belligerent countries to a peace footing, and the demands of the civilian population will, for the present, have to take a back seat. But the forces of recovery will, I hope, assert themselves in many directions which will be beneficial to the Exchequer before the 31st March next.
I am, accordingly, assuming an expansion of £457,000 in customs revenue. Petrol imports I expect to be about the same as last year. The stock position of imported spirits and of wine continues to deteriorate and we must allow for a substantial fall of revenue under these heads. No imports of sugar are likely in the current year. Tobacco, the pride of the customs, is expected to yield £9,450,000. It is assumed that imports of raw leaf will continue and that we will be able to maintain clearances on the basis of 90 per cent. of the 1939/40 figure. There has been pressure to raise this percentage, but much as I would like to do so in order to get the additional revenue, I feel that the stock position in regard to leaf would not justify such a step.
As regards excise, the prospects are rated as favourable for the coming year and an expansion in Exchequer receipts of £631,000 is anticipated. Beer, spirits, betting and entertainments between them are expected to provide £7,800,000 out of a total of £9,515,000. The consumption of beer continues its upward trend and we are counting on a further rise in the intake of home-made spirits. The increase in the number of racing fixtures, both here and in the United Kingdom, during 1945/46, justifies us in raising substantially the estimate of yield from the betting duty. The public appetite for amusement seems insatiable, and the entertainments duty, which is drawn mainly from cinemas, is expected to give us no less than £600,000 in the coming year. The yield of the excise duty on sugar is conditioned by the limited supplies available, but the expectation is that the amount cleared will not differ substantially from last year's figure.
On the inland revenue side the same favourable view of the course of events is taken, and the estimated Exchequer receipt of £19,380,000 assumes an improvement of £763,000 on the preceding year. The main feature is, of course, income-tax, which is expected to reach a new record at £12,240,000. The expected fall of £80,000 in the yield of surtax and supertax is accounted for by a single large payment in the past year which was in the nature of a windfall. The upward trend of profits makes it feasible to raise the anticipated yield of corporation profits tax by £338,000 over last year's figure. The yield from motor vehicle duties has, for obvious reasons, been relatively stagnant in recent years, but we anticipate a slight improvement at £650,000 in the coming year.
On the non-tax revenue side the White Paper reveals little difference between the two years covered. Total income from the Post Office is unchanged but the surplus income from the Central Bank is up by £50,000 to £350,000.
The estimated receipt for land purchase annuities shows a slight falling off due to an anticipated fall in the amount of redemptions, as acquisition of land for public purposes is on a declining scale. May I remark here that the arrears of annuities outstanding are still high, £582,000 on 31st January of this year? This is indeed a great improvement on the figure of £1,228,000 returned on 31st January, 1940, but it is desirable that these arrears should now be cleared, and agricultural income has risen to such an extent as to make that possible. Local rates have, of course, been an increasing charge in rural as well as in urban areas but, as a class, farmers have got off lightly during the emergency in the matter of taxation, and this, with the halving of the annuities, leaves little excuse for such a large arrear.
Expenditure, 1945-46.
So much for the various categories of Exchequer revenue during the coming year. On the expenditure side, Central Fund and Supply Services are estimated to cost £52,367,000, of which the latter account for £47,166,000, which constitutes a fresh record. The original net provision for Supply Services last year was £44,983,000 and as compared with this figure the provision for the coming year is up by almost £2,250,000, due mainly to the following factors: an increase of £1,224,000 in the Estimate for Supplies, principally caused by further subsidies on food and fuel; an increase of £682,000 in the Estimate for Children's Allowances, owing to provision being made for the first time for a whole year, and an increase arising from the grant of additional bonus to civil servants, teachers and Gárdaí, amounting to £620,000 approximately.
In the coming 12 months we are providing no less than £4,503,000 for food and fuel subsidies as compared with £4,026,000 last year and £2,564,000 in the previous year. The aggregate of the special provisions included in the various State services in order to mitigate the impact of increased living costs on those least able to bear them, amounts to no less than £8,000,000. While it is not claimed that this, plus the expenditure of local authorities, will succeed in entirely eliminating hardship from the lower income groups in the country, it represents, I submit, a very substantial contribution to that end.
Aids to Employment.
The peace-time difficulties of securing maximum employment are, of course, for neutral countries intensified in a world war, but we are trying to make the maximum use of the employment values inherent in the resources of the country. For this purpose liberal State support has been forthcoming. We are providing again this year £1,250,000 for employment and emergency schemes, such as farm improvements, urban and rural employment schemes, development work in bogs, seed and lime distribution schemes, and miscellaneous schemes for the relief of unemployment and distress. This expenditure will be supplemented by a contribution of £171,000 from local authorities and of £26,000 from beneficiaries under the rural improvements scheme. On turf production and development a sum of £860,000 is to be provided by the State, and on housing grants £630,000. The building trade, which normally provides a large volume of employment, has, as already pointed out, been severely hit by the war but, as shown in the White Paper which we have published on the subject of post-war building development, we are making every effort to ensure that the industry will resume its wonted activity as quickly as possible. On constructional works in connection with airports, £507,000 is to be provided.
The Public Works and Building Vote will contribute £390,000 for new construction, while expenditure from other Votes for development purposes, including land improvement, drainage, coal and minerals development, fisheries and Gaeltacht services will also help to provide or stimulate employment.
These various services make up a gross total of £4,571,000. Over and above this there is provision for capital issues, as indicated in the White Paper, for development works in connection with electricity supply, tourist traffic, telephones and roads, totalling £805,000, making an aggregate of over £5,250,000. In addition, as Deputies are aware, the State has assumed liability for various activities directed towards the provision or maintenance of employment. We have, for example, given guarantees for trade loans and for large overdrafts, many of which are still current, for such operations as the importation of fuel, oils and fats, and grain.
During the year we guaranteed issues of debenture stock by Córas Iompair Éireann under the Transport Act, 1944, to the amount of £9,889,000. This operation brings the total amount of guarantees secured by the Central Fund to almost £60,750,000, including over £15,000,000 in respect of Land Bonds which is really part of the direct public debt as the service is provided from annual Votes.
Development of Resources.
As regards the Government's long-term programme for the development of our natural resources, plans are being framed on lines which it is hoped will result in turf being made available for domestic and industrial purposes, not only as a satisfactory fuel, but also at an economic price. We are all, both as consumers and taxpayers, too well aware that the arrangements for its production which had to be improvised during the past few years have been costly. There is reason to anticipate, however, that the plans at present being laid will show improved results. These schemes will have the further merit of providing employment. In the present year the Exchequer will, as stated above, be called upon to the extent of £860,000 to finance turf production.
The company which was specially set up under legislation in 1941 to prospect for and develop minerals, other than coal, has concentrated on the production of phosphates and pyrites, thus supplementing our limited supplies of superphosphates. With it, under recent legislation, will soon be merged the company which was set up at the same time to develop our coal deposits. The companies will receive advances of £55,000 in the current year and possibly also grants to cover prospecting for the above and other minerals. The limit of advances to the combined companies has been extended to £400,000.
Emergency conditions have operated against the more rapid development of afforestation. The shortage of fencing materials and tools still continues, while suitable seed in quantity is also hard to obtain. Pending easement of the supplies position steps continue to be taken to increase the home collection of seed and to raise larger stocks of seedlings, as well as to maintain the trained executive and labour staffs which have been built up. There is obviously much leeway to be made good, but it may be taken that everything is being done as opportunity offers to facilitate development.
Since my last Budget, legislation has been enacted for a comprehensive scheme of arterial drainage. The scheme involves a fundamental departure from past policy in regard not only to incidence of cost but to the actual work, which will be undertaken on a catchment area basis—the only really sound procedure—and not in the piecemeal manner which has hitherto been adopted. As was the case last year, the provision required for arterial drainage during the present year will not be substantial. It will not be out of place here to mention that in the absence of actual detailed surveys it was not possible, as will be appreciated, for the commission to furnish accurate estimates of the area of lands hitherto subject to flooding or of the cost, otherwise than in pre-war terms, of the necessary remedial works. The results of a survey recently completed in the Brosna catchment have shown that the area of lands to be improved there is more than double the area upon which the commission based its estimate and it is, of course, probable that similar results will be found in other areas, so that the commission's estimate of cost of the entire scheme, which they put at £7,035,000, as well as having to be adjusted to post-war values, may have to be more than doubled.
I referred last year to the Government's intention to establish and equip the Shannon Airport on lines worthy of a centre of international civil aviation. Since then, as the recent discussion in the House on the Air Agreements reached at the Chicago Conference last autumn has shown, it has become a matter of urgency to complete the scheme of development, and this is being pushed forward. Competition between different centres for international air traffic will be intense, and it is of vital importance that the Shannon Airport should be in a position to offer facilities of a kind which will render it attractive to air transport companies operating on international routes. As matters stand, I think we should be pleased with the agreement reached with the United States, and it is to be hoped that agreement on similar lines with other countries will be found possible. Approximately £1,000,000 has been spent on the Shannon Airport. Apart from staff charges, £407,000 is being provided for works and maintenance this year, and that will be by no means the end of the expenditure. I may add that it is the intention to improve still further the Dublin Airport by concreting the runways, at a cost of £350,000.
I would like to emphasise here that our extensive programme of post-war development in these and other spheres can become a reality only if the cost of Supply Services after the war is radically curtailed and if the necessary services, such as food and fuel allowances and subsidies, disappear. The country cannot carry the double burden of emergency services and post-war development. In an earlier part of the statement I pointed out the size of our existing debt. Its annual service now absorbs almost £4,000,000. Further additions to borrowing can only mean further additions to taxation, and unless our burdens are eased in other directions, our contemplated programme of post-war development will inevitably be hampered.
Defence Expenditure.
We are facing the present year with a total State expenditure of £52,367,000, or more than £1,000,000 per week. I had hoped, when introducing the 1944 Budget, that the progress of the war towards a conclusion would have relieved me of the need to provide again for defence expenditure on the large scale of the past five years, but the estimate for the Army this year again exceeds the substantial figure of £8,000,000. Hostilities are, however, ending in Europe and the demobilisation of the Army can soon be undertaken without involving risk to the security of the country. It is the Government's intention, therefore, that the release of personnel will be put in hand at an early date in accordance with an ordered plan. This will, of course, result in savings under many heads of the Army Vote—pay and allowances, rations, clothing and the rest—but any such savings will afford little comfort in the present year to the Minister for Finance. In fact, they will be more than offset by issues in respect of demobilisation gratuities, deferred pay, and provision for the unemployment insurance of demobilised personnel. Indeed, on the best estimate that can at present be framed, it is likely that such issues will involve my having to find a substantial additional sum of money for the Army in the course of the year. I am sure that, much as the taxpayer has looked forward to the end of the emergency for an easement of his burdens, he will not cavil if easement has to be deferred a little longer, so as to permit of some further recognition of the services rendered by these men, many of whom will be faced with difficult problems of resettlement.
Taxation of Industry.
Apropos of our tax burdens, it has been represented to me within the past 12 months by different bodies of industrialists and by individual trading concerns that alterations should be made in income-tax law, so as to afford special reliefs to industry for the post-war years because of various difficulties which it may encounter in that period. On this I should like to invite attention to a few important points that are sometimes passed over lightly. It is well to remember that there has not been in this country a 100 per cent. tax on excess profits, that is, profits made during the emergency in excess of a previous standard. The standards provided have been generous. A circumstance that industrialists have been prone to overlook is that excess profits made before the 1st January, 1941, have not been subjected to the excess tax. I mention these matters for the reason that reliefs have been asked for on the lines of those included in the Income Tax Bill introduced this year in the United Kingdom where a 100 per cent. charge on excess profits exists and where the standard rate of income-tax has been 10/- in the £. It should be borne in mind, too, that our industries have not had to suffer, for example, the dislocation entailed by switching over to war production, not to mention the process of changing back. Incidentally, these considerations illustrate the unreasonableness of the contention, all too familiar nowadays, that simply because a thing is done in another country it should be done here.
It is a plain truth that, taken as a class, those who derive their income from trade have prospered in, and I may add in consequence of, the conditions that have existed during the emergency. In this connection I have withstood in the past four years considerable pressure to increase the levy on excess profits to 100 per cent. It has been argued that no trader should be allowed to make and retain for his own use any excess profits arising out of the emergency. From another standpoint it has been suggested to me that in the peculiar conditions of trading obtaining here in recent times, not only income-tax and corporation profits tax but also excess corporation profits tax were being passed on to the consumer in the same way as the duties on sugar, tobacco or beer are passed on and that in the interests of the consumer a 100 per cent. excess tax was essential. I do not feel it necessary to comment on that view. It is the fact, however, that I did not seek to have the charge raised to 100 per cent. One of my reasons in not seeking it was my desire that provision should be made for the position of industry in the years immediately following the war.
As far back as 1941, when proposing the excess corporation profits tax, I made this statement in the course of my Budget speech:—
"In my proposals in regard to corporation profits tax I have been careful to interfere no more than is necessary with the possibility of companies accumulating resources in order to meet the inevitable shocks of post-war adjustment. While others may differ from my view, I feel that the 25 per cent. margin which we have allowed to remain with them will be adequate for this purpose."—(Official Report, 7th May, 1941, Col. 43).
In my Budget speech of 1943, I said:—
"There is a large body of opinion which, considering... the effect of the taxation on the proprietors of all companies which are making excess profits, would say at once that the taxation is, in fact, too low.
There is, however, the post-emergency standpoint. Because of it, we have framed our legislation so as to leave to companies liable to excess corporation profits tax 25 per cent. of their excess profits, and have, at the same time, by Emergency Powers Order, imposed a limit on the distribution of the profits of public companies to their shareholders. Our policy in both respects has been dictated by the consideration that business concerns should be enabled to provide for the changed conditions that will arise after the war, and also to help in providing employment for our people then...."—(Official Report, 5th May, 1943, Col. 2202).
I then proposed special reliefs, which in due course were given the force of law, by way of increases in the substituted standards, although. I felt at the time that the existing standards gave a full and fair measure for assessing the tax. I went on to say:—
"I want to emphasise the fact that these concessions are not designed to enable shareholders to get bigger dividends; they are intended to encourage the companies which benefit by them to plough back into their businesses as much profit as possible and thus put themselves in a position to give increased employment after the emergency."—(Col. 2294).
I must confess to some disappointment at the seeming forgetfulness of industrialists and others of the limitations which I have had imposed on the extent of the tax. As a result of such limitations it has been possible for them to accumulate reserves against the dangers which they fear in the unforeseeable conditions that will exist after the war. May I add that the total amount of these reserves should by now be not inappreciable?
I hope what I have just said about the history of the matter will show that I did not wait to be pressed before considering the question of the post-war difficulties of industry and, what is more, that I did not hesitats at an early stage to translate the results of my consideration into practical form. If the representations referred to are to be further considered at any time in the future, the use to which industry has put or plans to put the reserves which it has accumulated out of excess profits will be taken into account. If further reliefs to industry are sought at the expense of the general body of taxpayers, the extent to which protection will continue to be afforded in the home market may also naturally fall to be considered as a relevant factor.
I trust that nothing I have said will be misunderstood and, above all, that nobody will infer any change in my general attitude towards industry. I am always ready to listen with sympathy to the claims of industry and to do whatever appears to be just and feasible. For instance, I have already recorded the opinion that if there is a fall in the market value of stocks following the end of the period of the charge to excess corporation profits tax, it is inevitable that suitable legislation should be passed to deal with the matter. But the chief relief to industry must come from a fall in the main rates of taxation, which is in turn dependent on a fall in expenditure.
Further State Liabilities.
There are other liabilities accumulating for which the figure of £52,367,000 mentioned as the Exchequer commitment for the current year makes no provision. Under the Fertilisers Credit Scheme for wheat we had accumulated up to 31st March last a liability of £700,000, and a further liability will accumulate during the present year of about £380,000. The deferred pay to the credit of members of the Defence Forces amounted on 31st March last to £655,000 and the liability was then growing at the rate of £290,000 per annum. The largest of the liabilities for which we have made no provision is the superannuation and retiring allowances of various classes of public servants. A rough estimate of the capital value of our present liability in respect of superannuation benefits for present established civil servants and existing pensioners is £21,000,000. It is hoped to have prepared up-to-date estimates of our liability for other pensions, such as teachers, Gárda and military service pensions, for which the State has assumed complete or partial responsibility. The latest actuarial figure we have in this connection is that in regard to national teachers, in respect of whose pensions liability as at the 31st March, 1938, was estimated at over £15,000,000.
Even without actuarial examination it is clear that the steady growth of pension commitments must be a matter of concern to the Minister for Finance. This will, I am sure, be appreciated when I mention that our gross estimates in respect of Civil Service, teachers, Gárda and military pensions of various kinds have increased by about £300,000 a year since 1938/39. Any further increase in this type of disbursement must be firmly opposed.
Growth and Cost of Civil Service.
As regards the Civil Service, the growth to which I have referred in previous years still continues, and on 1st January of this year, the total number of persons employed reached the peak point, so far, of 30,333 civil servants. This was 787 higher than the number on the same date last year and 1,252 above the 1943 figure.
The cost of the Service has risen in a still more disquieting measure. The annual outlay on remuneration of civil servants is now estimated at £7,300,000. The corresponding Estimates for 1943 and 1944 were £6,100,000 and £6,470,000 respectively. The increase in the rates of ordinary and emergency bonus was the main element in the expansion here. Payments of bonus were estimated to amount to £2,029,000 in 1933; £2,210,000 in 1944, and £2,942,000 in 1945. Deputies will recall that, when I brought the latest rise in the rates of bonus before the House some months ago, the only criticism made was that I should have been more generous.
The figures of cost I have given so far refer to the salaries, wages and bonus of civil servants, including part-time employees, of whom there are a great many in the Post Office. They do not include payments for overtime or travelling and subsistence expenses. Nor do they include payments to persons remunerated on a piece-work, task-work, capitation or fee basis or to persons employed on schemes of work of a temporary nature, as none of these persons can be regarded as a civil servant. Adding all these payments to the £7,300,000 I have already mentioned as the amount which we are now spending on Civil Service remuneration, we arrive at a total figure of over £8,100,000. I can remember a time when the entire cost of government for the 32 counties of Ireland was not much more than that sum. Now, it represents less than one-sixth of the Government expenditure of the 26 Counties. We must, of course, allow for the fact that in the meanwhile the value of money has fallen to one-third, but we surely have here the evidence of an alarming expansion. It is certainly time for us to consider whether the welfare of the country does not demand that we should now set a limit to the extension of Governmental activities, which otherwise threatens to continue indefinitely.
As I said last year, it is the expansion of State activity itself rather than the growth of the Civil Service that causes me the greater concern. I look upon the restless activity of the State as the disease and the growth of the Civil Service, however distressing, as merely one of the symptoms. But I would remind those who regard the symptom as the greater evil, that we cannot have the disease without the symptom.
Government policy has raised the tempo of activity in every Department of State but, as Deputies know, the rise had until 1939 been greatest in the Departments concerned with economic affairs and the administration of social services.
I could give many instances to drive home my argument that we cannot have more State services without more State servants. To think otherwise is a pure delusion, and those who in this House, in the Seanad, in the local boards and elsewhere make speeches and propose motions in favour of additional measures of social security, guaranteed markets, guaranteed prices, minimum wages, further land division, extended afforestation and regulation of a hundred and one activities are all, in effect, advocates of a larger and more costly Civil Service, of what in other moods some of them would call a bigger bureaucracy.
There are, I admit, spheres in which the extension of Governmental activity was and is inevitable, in which the results aimed at are in the public interest and can be achieved only by the Government, or can be much more effectively achieved by it than by any other agency. But are we sufficiently critical in judging whether this condition is fulfilled in each particular case? I am convinced that we are not, that, on the contrary, most of us —and this is true of all Parties in Dáil and Seanad—whatever theories we may profess, show in practice a bias in favour of Governmental action and against leaving desirable reforms to the initiative of persons and organisations outside the charmed circle formed by the Oireachtas and the Government.
My remarks on these matters in previous speeches have evoked such a poor response that I do not feel hopeful of being able now to impress the House with a sense of the dangers we are incurring. We cannot continuously increase the power of the central Government without restricting the freedom and undermining the morale and the self-reliance of the citizen. Those most hostile to totalitarianism are often the warmest and most persistent advocates of direct State activity in many spheres. State control carried far enough is totalitarianism.
Social Services.
I have referred to the interest which the Government has continually displayed in the welfare of the economically weaker sections of the community, and it may not be out of place to mention that the social services proper account, in our Estimates of expenditure for the coming year, for an outlay of no less than £9,686,000, of which old age pensions call for £3,807,000, children's allowances for £2,230,000, unemployment insurance and unemployment assistance, £1,302,000, and food and fuel allowances, £697,000. The aggregate of the corresponding figures in 1944/45 was £9,273,000 and in 1943/44, £7,494,000, so that the expansion in recent years has been considerable. It is still more considerable if measured by reference to the similar services provided, say, ten years ago in 1934/35, which accounted in the Volume of Estimates at that time for a total of £5,750,000. These payments represent, of course, the redistribution, not the creation of wealth. Social services, social security, full employment, and allied topics occupy a prominent place in public discussion just now and alluring vistas are held out of communities freed from want and disease and, almost, from toil. No one will want to dismiss these dreams as entirely Utopian, but, having regard to the economic structure of this country and, I think, with the present constitution of the average individual here, we must make do with the less perfect instruments for which the above outlay provides.
Many, without realising the magnitude of our current outlay on these matters, press for further expansion, and the favourite suggestion is that we should announce here a scheme of what is called social security, on the lines of that proposed by Sir William Beveridge for the United Kingdom. The various services which he proposed fall under four heads—social insurance, national assistance, children and family allowances, and health and rehabilitation services. The first-named covers unemployment, sickness, disability and retirement benefits as well as widows' and guardians' benefit, and marriage, maternity and funeral grants; the second covers various forms of unemployment assistance; the third and the fourth are self-explanatory. The total present cost to the State here of services of the kind covered by the Beveridge recommendations is approximately £8,200,000, and the total expenditure on benefits, exclusive of administrative expenses, is £9,450,000. After serious study I can state that the total expenditure here on benefits as proposed for Britain by Sir William Beveridge would be £38,800,000, of which the State contribution would be £23,500,000. These striking figures seem to dispose of the suggestion that such a scheme is practicable here. Even if we were to follow the somewhat less costly scheme suggested in the British White Paper, the total expenditure involved would be £36,000,000 per annum, of which £20.2 million would be contributed by the State, the remainder coming in the form of contributions from various sections of the population.
Economic Factors.
In framing the social security budget, Sir William Beveridge assumed that in the industries now subject to insurance in the United Kingdom the average rate of unemployment would in future be about 10 per cent., and that over the whole body of insured employees in the first of the five classes into which he divided the total population, unemployment would average about 8½ per cent. The applicability to conditions in this country of these and other assumptions and inferences on which estimates of cost of the Beveridge scheme are based is open to doubt. Considerations appropriate to Great Britain would not apply to a mainly agricultural country such as ours. The unemployment problem here is different in character and its solution seems to be connected more with the efficient development of our economy as a whole than with the offsetting of cyclical disturbances or mass unemployment. The relatively low proportion of employees in the working population leaves us less exposed than more industrialised countries to general fluctuations in the volume of employment. The 1936 census inquiry into unemployment showed clearly that even in the employee class protracted unemployment is experienced by relatively few; so that the employee class might well find social security payments to be a tax from which they personally would derive very little benefit.
Inequality of incomes is less marked here and outlay is, therefore, a more stable quantity. We do not possess the heavy industries which are most subject to trade depression; our industries cater mainly for the home market, under the shelter of protection. Fluctuations in investment are for us of less significance, while variations in our national income and in employment arise chiefly from vicissitudes in the export prices of our agricultural products. Further points of difference may be noted: our sickness experience is worse than the British. The age composition of our population is also less favourable to employment and to a high standard of living. We have a higher proportion of old people (65 and over) and a smaller proportion of people of working age (15-65) than Great Britain. Old age pensions place a severe strain on the public purse and their aggregate amount militates against social payments to other classes on a more generous scale.
Budget Finance, 1945-46.
Our survey of the financial position for the coming year has shown total tax and non-tax revenue of £47,995,000 and total expenditure on Central Fund and Supply Services of £52,367,000. Before striking a balance we make certain deductions, as in the past, for capital and abnormal items to be met by borrowing, which amount this year to £718,000, leaving a sum of £51,649,000 to be met from revenue. In the latter we propose to make only one change, relating to matches—with which I shall presently deal—involving a loss of £53,000, thus reducing our income to £47,942,000 which leaves us with a deficit of £3,707,000, all of which I propose to meet by borrowing. Members will be pleased to know that while existing taxes cannot be diminished, I am proposing no new burdens.
In 1941 the main rate of excise duty on matches was increased from 3/8 to 8/4 per gross boxes, following consultations with the manufacturers regarding the price of matches. The increase in duty was agreed on the understanding that a review of the position would be made when the effect of the increased duty had been observed. In November last strong representations were made for such a review on account of reductions in output and increase in cost of materials and overhead expenses.
I may say that the output of matches from our home factory has been kept up to its present not unsatisfactory level largely through the efforts of the company in procuring suitable raw materials in spite of grave difficulties.
The present position has been thoroughly examined, and as any increase in the price of matches would be most undesirable at the present time, the only other alternative, viz., a reduction in the rate of duty, seems to be warranted, on the understanding that the position will be again examined on the return of more normal conditions.
I propose, therefore, to make provision for a reduction in the main rate of duty by 2/1 per gross, which, of course, will not admit of a reduction in price, but will ensure that the public will be able to purchase matches in reasonable quantities at the prices now current. The loss of excise revenue in the current year will, as stated, be £53,000, and in a full year, £58,000.
On the Committee Stage of last year's Finance Bill an amendment was tabled which, the Deputy moving it explained, was intended to operate in relief of certain professional bodies receiving fees in connection with the registration of members. The Deputy recommended the position of such bodies to me for favourable consideration and asked that a provision be made to enable them, when losses are sustained in such transactions, to set the losses against profits for tax purposes. I undertook at the time to have the matter examined and, as a result, a section is being included in the Finance Bill to secure generally that losses sustained in transactions, which in the event of a profit would have given rise to Case VI liability, may be set off against profits taxable under Case VI. The section will, in addition, secure that any unexhausted balance of loss may be carried forward and set against Case VI profits for the six following years. The estimated annual cost of the relief is inconsiderable.
There will be a section to afford exemption from income-tax in respect of deferred pay which, in accordance with Defence Force Regulations, is credited to the pay account of a member of the Defence Forces and in respect of certain gratuities which it has been decided to grant in respect of service with the forces. Provision will also be made for a death duties exemption. Here again it is considered that the cost will not be appreciable.
The Bill will contain a section affecting corporation profits tax and excess corporation profits tax. The technicalities of this particular matter should perhaps be outlined first. The Great Southern Railways Company was exempt from the tax in consequence of its falling within the scope of a temporary relieving provision for public utility companies which incidentally was renewed for a further period by last year's Finance Act. On the other hand, the Dublin United Transport Company was liable to the tax in the ordinary way.
Both companies were, of course, dissolved under the Transport Act and their undertakings transferred to Córas Iompair Éireann, which was incorporated by virtue of that Act. The new company, Córas Iompair Éireann, by reason of the nature of the undertaking transferred to it from the former Dublin United Transport Company, falls outside the terms in which the temporary relieving provision is framed. Accordingly, as the law stands it is liable to corporation profits tax and excess corporation profits tax on its entire profits.
In view of the existing exemption for railways, it would have been necessary, if no change in the revenue position obtaining prior to the Transport Act were contemplated, to propose that Córas Iompair Éireann should be exempt from the tax on that part of its profits which arises from the undertaking transferred to it from the railway company. I propose, however, that the company should be relieved from the tax in respect of all its profits. The charge to income tax is not affected. I am speaking of corporation profits tax and excess corporation profits tax.
The exemption which I am proposing and which will be covered later on by a section in the Finance Bill will take effect only up to the end of the year 1946, which is the date when the general exemption for public utility companies expires. The position of Córas Iompair Éireann for periods beginning after that date will, no doubt, be then considered in conjunction with the question of renewing the general exemption of public utility companies.
The benefits which will flow to the company from this exemption, which represents an extension of the exemption existing prior to the incorporation of the company, should be a help in the initial stages of transport reorganisation.
The first accounting period of the new company is the 12 months to the end of December, 1945. Corporation profits tax on the profits of that period would normally not be collectable until the financial year 1946-47. It follows, therefore, that my proposal involves no surrender of revenue for the current financial year. Next year's loss of revenue will depend on the success in the year 1945 of the company's operations in regard to the undertaking transferred to it from the Dublin United Transport Company.
So far as the Budget proper is concerned, my task is now complete. There are, however, some other important matters on which I wish to touch.
Relief of Distress Abroad.
Members of the Dáil will remember that during the last year we were happily able to give modest financial help to parts of the world where, owing to conditions created by the war, such assistance was urgently required. This assistance was gratefully received and acknowledged.
An interdepartmental committee has been for some weeks examining the question of the possibility of our aiding in the relief of the people on the Continent now in distress owing to the war. The committee was asked to make a report to the Government on the help that could be made available by the people of this country, and how such foodstuffs and other materials as we might be able to provide could be conveyed to the countries most needing relief and how best they might be distributed.
The problems involved are not easy of solution and there are many difficulties to be overcome before any of the food that might be made available here can be transported overseas. When they have been overcome—and we hope that with goodwill they shall be—a full statement on the subject will be duly made in the Dáil. I am certain that all Parties in the House and the whole community will earnestly desire that this country should give such assistance as may be practicable not merely in money but in the form of food and other essential commodities, supplied even at the sacrifice of reducing our own consumption.
Estimates of National Income.
While I do not think we can achieve "joy through statistics" I propose on this occasion to make an innovation of a statistic character, inaugurating, albeit in tentative fashion, a series of official national income estimates for this State. Heretofore, the only estimates available were made by private investigators, notably those by Dr. T. J. Kiernan, our present Minister to the Vatican, and the well-known more recent series covering the years 1926 and 1929 and 1931-1940, inclusive, by Professor G.A. Duncan, made, in the first instance, for the Banking Commission and continued in the Statistical Society journal. These estimates were extremely useful and the official investigation has established their general reliability. Heretofore, the official service has been unwilling to assume responsibility for estimations of national income, though rough approximations have occasionally been made for Departmental use. This official reluctance has been due partly to the rather considerable sectors of the national economy on which the knowledge of output was uncertain; partly to lack of agreement as to the definitions of national income. Also no clamant desire for these figures manifested itself and the official statisticians had, and have, plenty of other work to do.
The auguries have latterly become more favourable. The measure of international agreement on definition has much improved, particularly as between countries with which we would be interested to compare the absolute level and the general trend of our income. Furthermore, in connection with the consideration of public policy, more detailed knowledge of the money and real value of the national output of goods and services and of its distribution amongst the different economic classes is essential. Most important of all, improvement in the quality and quantity of relevant statistical data, even during wartime, has perceptibly lessened the zone (especially for service employments) in regard to which the economic information has hitherto been of a somewhat conjectural character. For the compilation of the figures which I shall quote in a moment, special inquiries of an onerous character had to be undertaken and, indeed, these inquiries are not yet completed, though notable progress has been made.
Definition of National Income.
For the purpose with which I am concerned the national income is the aggregate value, at current rates, of incomes in money and kind of persons normally resident in the State, before payment of taxes and rates, for services whether performed currently or in the past; thus, the figures include the value of pensions paid to persons for services rendered in the past, but exclude old age pensions, unemployment assistance payments and the like, which are regarded as "transfer payments". In the latter category is also interest on the national and local debt; which exclusion, in whole, is perhaps more difficult to justify (and I do not propose to try to justify it here); at any rate, it means that we avoid the paradoxical situation whereby the larger the national debt the larger the national income. The total includes the value (at prices which farmers receive for produce sold) of farm produce and turf consumed in farm households without process of sale, which output constitutes an important and, indeed, an increasing proportion of the value of the national output, as will appear. In the concept known as private income, which is most relevant to the study of national expenditure and national savings, transfer payments are included, but miscellaneous Government income is excluded. As I have said, the inquiries are still proceeding and even the total figures which I shall now quote are to be regarded as provisional and possibly subject to revision as better information become available. I do not consider, however, that important changes will be necessary, except, perhaps, for the year just ended. The figures for the years 1938-1944 are:—
National Income
|
Year |
£ million |
|
1938 |
153 |
|
1939 |
163 |
|
1940 |
178 |
|
1941 |
194 |
|
1942 |
215 |
|
1943 |
240 |
|
1944 |
250 |
It is satisfactory that our income makes a relatively good showing and that the proportion borne by the agricultural community has increased from 25 per cent. in 1938 to 35 per cent. in 1944. To curb at once any extravagant hopes that may be based on the present level of the figure, it should suffice to say that the increase in the income is purely a monetary phenomenon: excluding farm produce and turf consumed on farms without sale (the estimated value of which was about £13,000,000 in 1938 and reached almost £32,000,000 in 1944) and confining attention for the moment to goods which enter the economic process, the increase in the national income between 1938 and 1944 was equivalent to 55 per cent. as compared with 70 per cent. in the official cost-of-living index number, indicating a decline in the real income of goods and services in the aggregate. More striking still, it is estimated that at 1938 prices (retail for goods sold and at agricultural prices for home-consumed farm produce and turf) consumption of goods has declined from £124,000,000 in 1938 to £102,000,000 in 1944, or by 18 per cent., due entirely to declines in the consumption of goods other than foodstuffs: in volume the consumption of food, drink and tobacco has been well maintained.
I may refer also to a few other interesting items included in the aggregation. The national income figure at the present time contains remittances from abroad to the value of £13,500,000 per annum as compared with £3,000,000 per-war, and in the post-war period the figure will probably tend to revert towards its former level. The output of turf shows an important increase. The estimated value of the output (including consumption on farms) was £3,000,000 in 1938 and £10,000,000 in 1944 (exclusive of subsidy).
Distribution of Incomes.
There have also emerged from the present inquiry for the first time in this country statistics of the number and value of incomes (other than agricultural incomes) classified by size for the years 1938 and 1943 in the £150-£1,500 range—the figures for over £1,500 are, of course, available from surtax statistics. These figures are essential for accurate assessment of the taxable capacity of the community. In the former year, that is, in 1938, the total value of non-agricultural personal income of persons with income exceeding £150 per annum increased from £59,000,000 to £75,000,000, while the proportion of these totals received by the surtax class (i.e., with incomes over £1,500) increased slightly from 17 per cent. in 1938 to 18 per cent. in 1943. To obtain a more correct picture of the share of the owners of higher incomes in the total income of the State, account should be taken of (a) the income of persons other than agriculturists earning not more than £150, which amounted to £51,000,000 in 1938 and £68,000,000 in 1943; (b) the income of persons engaged in agriculture, forestry and fishing. Heretofore it has not been possible to classify agricultural income by size, though consideration is being given to the possibility of obtaining these particulars through broadly based farm surveys. In any case, the great bulk of agricultural income, even at the present time of comparative prosperity, is in the under £150 class. The proportion attributable to the over £1,500 class in the total personal income (that is, of £150,000,000 in 1938 and £228,000,000 in 1943) was 6.6 per cent. in 1938 and 6.1 per cent. in 1943. I should explain that personal income is defined as the aggregate of incomes from all sources (including income in money and kind, pensions, gifts, social payments, interest on the public debt and dividends) at the disposal of individuals normally resident in the State but excludes undistributed profit of companies.
Having regard to the small proportion of total income falling to the wealthier classes even at the present time, it is obvious that the possibilities of extracting further taxes from these classes, for purposes however worthy, are circumscribed, if, indeed, the limit has not been reached as it is.
As regards the lower income groups, non-agricultural incomes not exceeding £150, together with total income in agriculture, forestry and fishing, increased from £90,000,000 in 1938 to £152,000,000 in 1943, which figures constitute 60 per cent. and 67 per. cent. of the aggregate personal income in the respective years.
The general conclusion which emerges from the statistics is that in this State incomes are relatively evenly distributed, which fact militates against the raising of large sums by direct taxation. To a very large extent increased payments for social services, for example, can only be made through taxation of the lower income groups.
Of equal importance with the national income is the national pattern of expenditure but, unfortunately, the statistical information on the subject at the moment is much more imprecise, particularly in regard to personal expenditure in travelling, amusements and personal services generally; and, indeed, information on the subject of expenditure on goods could also be considerably improved. It should be feasible to supplement existing information on this subject by systematic inquiries into family budgets: the question, with that of farm surveys, is being examined. At the moment the principal value of the estimates of expenditure (containing, as I have said, conjectural elements) is for the confirmation they afford of the general reliability of the statistics of the national income. Though the two aggregations are not completely independent, it was satisfactory to find that without adjustment they agreed quite well, leaving increasing balances for savings in the last three years of about £10,000,000 in 1942, and over £20,000,000 per annum in 1943-44. One cannot, of course, place too much confidence in these figures since they are balancing figures which bear the brunt of all the errors of estimation in both aggregations.
These observations represent merely some first reactions to these extremely important statistics which it is hoped shortly to publish with full explanations as to method and displaying the figures for many economic groups. I know that it is unsatisfactory that I should whet the interest of Deputies in this statistical pabulum without satisfying their appetites in full, but I would crave indulgence. For a first inquiry on so important a matter it is necessary to submit the figures to the closest expert scrutiny, to check and counter-check, before publication. This is all the more necessary since there remains a zone, admittedly a small one, in which recourse has still to be had to the sorry device of conjecture.
Currency, Deposits and Debits.
Before concluding, I would like to say a word on the general position. With war-time conditions still prevailing, the tendency towards inflation continues to be a major cause of anxiety both here and elsewhere. In our case the past year has again witnessed a considerable increase in the volume of money of all kinds unattended by any increase in the volume of goods available for consumption. Money in the form of notes and coin in the March quarter of this year averaged over £38,500,000 as compared with about £35,000,000 a year ago and £17,500,000 in the same quarter of 1939. The increase of this item since pre-war is thus 121 per cent. The rise in the volume of deposits of the commercial banks, while proportionately less than for notes and coin, is still very considerable. In the March quarter of this year these deposits averaged about £194,750,000 as compared with about £177,000,000 a year ago and £116,500,000 in the same quarter of 1939. These figures represent an increase of 67 per cent. since pre-war. Potential purchasing power in the form of deposits at the Post Office Savings Bank, including trustee savings banks and savings certificates, has also continued to expand, the aggregate addition to these heads during the past year being about £8,000,000. These figures concerning the volume of various categories of purchasing power do not, of course, give a simple and ready clue to the degree of inflation as much of this purchasing power is not in active use, as such, but is held by the owners as unspent savings. Some indication of the position as regards the turnover of money in actual transactions is given by the available statistics of bank debits. These debits for the year 1944 amounted to £987,000,000 as compared with £926,500,000 for 1943 and £755,500,000 for 1939. The figure for 1944 represents an increase of 30 per cent. over 1939, which is much more moderate than the percentage increases already stated in the volume of money.
Price Structure.
As regards the price level it is possible to get some limited satisfaction from the fact that the cost-of-living index has remained stable for the past 18 months, but it must be tempered by the consideration that this stability at more than 70 per cent. above pre-war is at an unduly high level for a country which is essentially a food-producer.
From a currency standpoint this figure compares unfavourably with the corresponding figure of about 30 per cent. for the United Kingdom and in the interest of maintaining the internal and external purchasing power of our money it is desirable that an appreciable downward movement of this index should be secured. The agricultural prices index has receded slightly from the very high level of the beginning of 1944, when it was about 100 per cent. above pre-war. The recession continued up to November, but the index has risen continuously in each of the four subsequent months. It is very desirable that the rise should be checked and that agriculturists should look for their income to higher production rather than to the continuance of the present abnormal price level. The generally inflated character of our price structure has received further interesting illustration in the efforts made by the Statistics Branch to develop a wholesale price index. The information was disclosed some months ago that such an index for this country showed a wholesale price increase at June, 1944, of 98.1 per cent. above the base period of October, 1938.
The time has come for recognising seriously that the large advances which have occurred in prices of all kinds as reflected in these indices leave us less free to travel further along the path of liberal expenditure than if the existing price increases had been more moderate. High budgetary expenditure and deficit financing are the most potent of all inflationary forces and their effect is most harmful where, through heavy rates of taxation, enterprise is deterred from an extension of productivity. Expenditure in productive enterprise, by the very fact of its productivity, provides its own assurance that it will not be inflationary. Where the State or other administrative bodies are driven to provide funds for the primary purpose of affording remunerative employment, the necessary link with useful production is far more difficult to ensure, and the rate of remuneration, which is no less important than the price level, is less responsive to any objective test of the value of the services rendered.
International Monetary Proposals.
In all countries these are basic considerations in the working of the economic and social system. In every country, including our own, the right ordering of them is primarily a task for domestic treatment. Such treatment must, of course, be supplemented by proper relations with the outside world, and especially so when the limited character of the national resources demands a high proportion of external trade. The acute realisation of this situation has, during the past year, led many nations to confer, through their representatives at Bretton Woods, as to the best means of securing that, in the future, the monetary system in its international workings will make the maximum contribution to a freer and larger flow of international trade. It is too soon as yet to say whether the proposals of that conference will come into operation and, in the meantime, their possible bearing on this country must remain indeterminate. It would be well, however, that no exaggerated hopes should be entertained that the Bretton Woods scheme would provide us with any simple or magical solution of the grave difficulties to be anticipated in the financing of our future external trade, especially outside the sterling area. The proposed international monetary fund has for its main purpose to provide resources to enable a member country to tide over temporary emergencies affecting current transactions in its balance of payments. Facilities for this purpose would be very strictly limited. Accordingly, it is clear, and has been emphatically stressed by many exponents of the scheme, that it does not and cannot do anything to relieve any member of the inalienable obligation to keep his own house in financial order and to procure imports by the old and essential method of maintaining a sufficient volume of exports to appropriate places on an efficient and competitive basis.
