Before proceeding to the Financial Resolutions it is usual that some member of the Front Bench of the Opposition makes a brief reply.
Financial Statement. Budget, 1948. - Financial Year, 1948-49.
The total net provision shown in the Estimates for Supply Services for the year 1948-49 is £70,520,000 or £11,993,000 more than the Exchequer issues last year.
Central Fund Services are estimated to cost £6,809,000 or £171,000 more than the Exchequer issues last year. The two groups of services total £77,329,000. The estimated receipt from non-tax revenue this year is £8,938,000 and from tax revenue, on the basis of the rates at present in force, £59,660,000. The receipts from both sources amount to £68,598,000. I am, therefore, faced with an estimated deficit of £8,731,000.
ECONOMIES.
When introducing the Vote on Account on 9th March last, I informed the Dáil that no Minister of the present Government had had time to examine the details of the printed Estimates for which he had to stand responsible before the House. On that occasion I made it clear that it was the policy of the Government to ensure retrenchment over as wide a field as possible, to limit expenditure to projects and services that were productive or socially desirable and to endeavour to reduce the cost of living in which the very large increase in Government spending is a material factor. Accordingly, I have caused the Estimates to be subjected to careful scrutiny in my own Department and in the other Departments concerned with a view to ascertaining what economies can be effected in the public services. The Departments in general are co-operating wholeheartedly in efforts to effect the economies which present circumstances clearly call for and the examination, so far as it has proceeded in the limited time available, has already made it possible for the Government to take decisions which it is hoped will have the effect in due course of lessening the burden which the harassed taxpayer has been called upon to bear.
The various economies both large and small which have already been decided upon will relieve this year's Budget to the extent of £2,509,000. The adjustments in subsidies which I shall mention later will reduce the bill by a net £3,015,000. The sum of these reliefs is £5,524,000. I am also taking account of further reductions in expenditure totalling £1,122,000 which I am closely pursuing and confidently expect to capture but of which it would be premature to give particulars until they are safely in the net.
It would be tedious to specify the various items making up the savings figure of £2,509,000. I can, however, indicate its main constituents. One of the principal items is the reduction of virtually £750,000 in expenditure on the Army which my colleague, the Minister for Defence, has already announced. Another major economy will result from a change in the manner of defraying the cost of the "cash supplements" to benefits under the various social insurance schemes—National Health Insurance, Unemployment Insurance and contributory Widows' and Orphans' Pensions. These supplements can no longer be regarded as being of a temporary character, and the time has come to merge them in the ordinary benefits, distributing their cost in the usual way between the employers, employees, and the State. It is intended to introduce legislation bringing this change into effect from the earliest convenient date this year; the relief to the Exchequer in a full year would be over £900,000, but in the current year I can safely count on only £500,000. In view of the substantial increases in wages over the past 18 months and the benefits afforded by the increase in food subsidies last October, now no longer offset by higher beer, tobacco and entertainment duties, some addition to the weekly contribution of employees is not unreasonable. Provision is made in the Estimates for a payment of £450,000 to the Widows' and Orphans' Pensions Investment Account, but as the actuarial position is such that this payment is not required, I do not propose to make it in the current year.
There will be no draw on the Vote for Athletics (£25,000). A saving of £10,000 will result from dropping the special arrangements for transfer of harvest workers. The scheme for exploration of mineral deposits, for which £85,000 is provided in the Estimate for Industry and Commerce, will not be proceeded with and savings on turf schemes, airports and other services will bring the reduction in expenditure by the Department of Industry and Commerce to £300,000, exclusive of the adjustments in food subsidies. The substantial saving resulting from the decision to abandon the Transatlantic Air Service will, unfortunately, be offset this year by the need to defray so much of last year's losses on air services as could not be met by reason of the statutory limit on subsidy payments. The programme of State building in the present year, apart from works actually in progress and national schools, will be restricted to projects of an urgent nature which cannot be deferred. Apart from considerations of economy, this course is in accordance with the Government's desire that the resources of the building industry should, so far as possible, be made available for housing. The resultant savings on the Vote for Public Works and Buildings, together with savings on other Votes, including the Votes for the Tourist Board, Stationery and Printing, Education, Lands, External Affairs and Commissions and Special Inquiries total £298,000. Economies expected to yield £176,000 are also being effected by the Department of Posts and Telegraphs; these are mainly attributable to the decision of the Government to abandon the proposed High Power Short Wave Broadcasting Station.
In relation to an estimated expenditure of over £77,000,000 involving an unduly high level of taxation, a reduction of only £6,646,000 cannot be regarded as adequate, and it is intended to examine rigorously the possibilities of further economies with a view to cutting out all expenditure which is not absolutely necessary on economic, social or cultural grounds. In the pursuit of economies the avoidance of hardship to individuals will, however, be a primary consideration.
FOOD SUBSIDIES.
Estimates for the present financial year were framed on the basis that food subsidies would cost £15,143,000, which compares with £4,436,000 estimated in the Budget of May of last year. Of the additional duties imposed to meet the cost of the increased subsidies provided for in the Supplementary Budget, the Government have already abolished, at a cost to revenue of the order of £6,000,000 in the present year, those which they felt bore unduly heavily on particular classes of the community, and it has been necessary to make such arrangements in regard to these subsidies as will enable budgetary requirements to be met without imposing hardship on the community as a whole.
The largest single item in the subsidies total is in respect of flour, which, due mainly to the very heavy cost of wheat imports in the present year, amounts to no less than £9,650,000. Since the Estimate was framed a new factor has arisen which, I am satisfied, can properly be taken into account, that is, the recently negotiated International Wheat Agreement, which provides for an allocation to this country of 360,000 metric tons of wheat a year for the five years commencing on 1st August next at prices of which the maximum will be very substantially lower than the price of imported wheat already purchased. A further factor to which regard may be had is that we have guaranteed to our own farmers an increased price for their wheat for five years, including the present year. In the light of these five-year programmes it would, I felt, be inequitable to ask the taxpayer to bear the entire burden of subsidising the present year's costly purchases within one period of 12 months.
I have accordingly come to the conclusion that the reasonable course is to average estimated subsidy payments over the present year and the following four years and to provide as nearly as may be for equal payments in each year. This may have the effect of increasing in each of the next four years the amount which would otherwise have to be provided by way of subsidy in those years, but I am satisfied that this course is, in all the circumstances, the proper onevis-a-vis the taxpayer. I am proceeding on the assumption that during the following four years our wheat imports will have to be paid for at the maximum price of two dollars a bushel, that freights will remain at their present high level and that imports plus home production may be somewhat in excess of present consumption. On this basis the total cost of subsidy at the present rate over the four years may be estimated at £26,020,000 and over the five years, including the present year, at £35,670,000, that is, an average of £7,134,000 a year. Payment at this rate in the present year will represent a reduction of approximately £2,500,000 on the Estimate provision, and I am taking credit for this sum in relief of the Budget. Should the price of imported wheat average 1.80 dollars a bushel instead of two dollars over the next four years the average annual cost of subsidy on the basis I have indicated would be £6,594,000, which would allow of a reduction of £3,046,000 on this year's Estimate provision, while if the maximum import price should rule throughout but home production for milling purposes be sufficient only to meet our requirements on the present consumption level, the corresponding figure would be £6,714,000. I give these figures to show that in the present financial year I am not taking credit for an Exchequer easement on an unduly generous scale.
Tea supplies are now such as will permit of increasing the ration to two ounces a week, and the ration will be raised to this amount as from the 5th June. The cost this year of the consequential increase in subsidy would be £487,000, but it is proposed to relieve this substantially by a simultaneous reduction of 2½d. a lb. in traders' margins and the discontinuance of the supply of tea at the subsidised rate to hotels and catering establishments, which will then be required to pay the full economic price. The net result will be an additional charge upon the Exchequer of £155,000.
Sugar subsidy was estimated to cost £1,052,800 this year. I propose to effect a substantial reduction by retaining after the 30th June the present price of 7½d. a lb. to manufacturers, which will give a saving of £300,000 this year and £400,000 in a full year. I propose also that as from the 1st June hotels and caterers shall be charged at the rate of 6¼d. a lb. instead of the subsidised price of 4d. a lb. This will provide a further £20,000 this year in reduction of subsidy.
The subsidies on margarine and oatmeal will be abolished, and this will permit of a saving of £195,000 this year.
I expect a further economy of £155,000 on the Vote for Agricultural Produce Subsidies following the removal of control on farmers' butter, the allocation of more milk for the manufacture of chocolate crumb and the charging to hotels and caterers in future of the full economic price for butter.
Adoption of these measures will result in a reduction of £3,015,000 on the Estimates provision of £15,143,000 for food subsidies.
The effect of these adjustments in food subsidies and the economies already mentioned is to reduce the deficit of £8,731,000 to £2,085,000, a figure that can be further reduced, in accordance with established practice, to £1,285,000, by a deduction of £800,000 for capital and abnormal items proper to be met from borrowing.
INCREASE IN SOCIAL SERVICES.
At this point I may appropriately mention an improvement in the social services not covered by the Estimates. All the parties represented in the present Government have accepted it as their duty to provide better conditions for old age pensioners and widows and orphans, and it has been decided to discharge this obligation without delay. As Minister for Finance it will be my duty to recover as soon as possible by further economies the extra cost of these services.
The Minister for Social Welfare is at the moment preparing legislation which will permit of increases in the rates payable to old age pensioners of from 2/6 to 5/- a week, but in no case bringing the weekly pension beyond 17/6. In the case of non-contributory widows' and orphans' pensions substantial increases will be given with other improvements, including a recognition of children as dependent up to the age of 16 years, whether attending school or not. There will be a considerable modification of the means test in respect of both services. The legislation entails the investigation of 150,000 existing old age pensions and 22,000 other cases, as well as a considerable number of new claims and the printing of new pension books. This investigation has impeded the early introduction of the scheme and I cannot, therefore, state the precise date in this financial year when it will come into operation. I feel, however, that it would be unsafe to budget for any less sum than £600,000 to meet the claims likely to come in course of payment in 1948-49, and I propose to make provision accordingly. This raises the deficit to £1,885,000.
INCOME TAX.
The standard rate of income-tax for last year was fixed at 6/6 in the £. In his Supplementary Budget, however, my predecessor announced that an increase of 6d. in the £ would be proposed in the rate for 1948-49. It was not considered possible to legislate last year for this year's rate of income-tax, but the Finance (No. 2) Act, 1947, contained provisions to make the increase effective as regards deductions of tax for the period from 6th April, 1948. The necessary resolution to give statutory effect to the rate of 7/- in the £ will be introduced this afternoon. The increase should bring in about £670,000 additional revenue this year. As credit has already been taken for this sum in the White Paper estimate of receipts, and as no further increase in the standard rate is now proposed, income-tax makes no contribution towards meeting the deficit.
BEER DUTY.
I propose, however, to ask some contribution from the brewing industry. At present brewers are allowed an average period of two months' credit for payment of beer duty, the aggregate charge for each calendar month's brewing being payable on the 15th day of the second month succeeding that in which the beer is brewed. I propose to shorten the period so that the charge for each calendar month will be payable on the 25th day of the following month. This is the practice in Great Britain. The duty on beer brewed in April is at present payable on 15th June. Under the new arrangement, the duty on beer brewed in April, 1948, and in May, 1948, will be payable on 25th June, 1948. To minimise any inconvenience which the change in the date of payment may cause, the Revenue Commissioners will be prepared to allow payment of duty on beer brewed in April, 1948, to be made in ten equal monthly instalments to be paid on the 25th day of each month from June, 1948, to March, 1949, both inclusive. The result will be that duty for 13 months' brewings will be received during the present financial year, and this is estimated to bring in an extra £450,000 to the Exchequer.
WINE.
The rates of customs duties on wine were doubled in 1946 and were doubled again in the Supplementary Budget of last year. The effect is that a duty of, say, 12/- per gallon operative in 1930 was raised to 24/- in 1946, and is now 48/-. At the time of the last increase it was anticipated that the revenue for the balance of the financial year would be augmented by £220,000, giving a yield for the full year of £840,000. In fact, the yield has only been £690,000 and the reason is not far to seek. Until last October clearances had shown a progressive increase, but, taking the five months—November to March—in which the latest rates were fully operative, clearances fell to 159,960 gallons as against 280,578 gallons for the corresponding period a year previously. Receipts were £288,507 as against £264,017 and this despite the fact that the duty had been doubled. Further, the monthly clearances have been on a sharply descending curve— they fell from 52,700 gallons in November to 11,300 gallons in March. In these circumstances, the Estimate for the current year, on the basis of the existing duty, could not be put with safety above £600,000. This figure gives the same yield as in 1946-47 when the duties were half the present amount. Strong representations have been made by members of the wine trade and by the licensed vintners as to the serious fall in consumption and its effect on employment and on their business generally. Apart from these representations it is quite clear that the increase applied in last October has entirely failed in its purpose. I propose, therefore, to reduce the Supplementary Budget increase by 75 per cent., i.e. to leave the wine duties at a figure exceeding by 25 per cent. those imposed in 1946. The rates of 1946 were not followed by any diminution in clearances, which in fact increased, and the change which I now propose should allow consumption to regain its normal level and bring in an additional revenue of £250,000.
ENTERTAINMENTS DUTY.
Entertainments afford another example of failure of an increased rate of duty to yield the expected revenue. The duty was raised on two occasions last year. The first increase, which became operative on 15th August, 1947, added about 60 per cent. to the rates which had been in force for many years; the second increase, operative from 16th January last, doubled the August rates. It became quickly evident that this latter increase would not benefit the revenue to the extent anticipated, and the August rates were restored by an Emergency Imposition of Duties Order as from 15th April, 1948. One effect of the midJanuary increase was that some 248 of the 360 cinemas in the country had by the end of March, 1948, gone over to non-taxable ciné-variety. Section 22 of the Finance Act, 1931, provides that where more than half of an entertainment consists of personal items as distinct from cinematographic shows no duty is payable. Advantage of this provision was taken by such methods as engaging a local musician or two to play to a practically empty auditorium for a couple of hours, after which a cinema show of normal length was given. As the cinema show occupied less time than the personal performance no duty was payable. It is expected that as a result of the reduction of the rates to the pre-16th January figures all the cinemas that went over to ciné-variety will revert. To avoid, however, the danger that this anticipation will not be realised, I have decided, in the interests of the revenue, to repeal Section 22 of the 1931 Finance Act and to provide that exemption will not be granted in future unless the entertainment is wholly of a personal character. In future, the cinema rate of duty will apply when the entertainment consists either wholly or partly of a cinematographic exhibition. Existing rates will not, however, be changed nor will the rebate of duty payable to patent theatres be affected. I am also taking the opportunity of incorporating in a resolution all the provisions relating to rates of entertainments duty. These provisions are at present contained in an Emergency Imposition of Duties Order which I propose to revoke.
ROAD FUND AND HYDROCARBON OILS.
The additional motor vehicle duties imposed by the Supplementary Budget are expected to yield £300,000 this year as compared with £200,000 last year. Provision will be made in the Finance Bill for the transfer of the former sum to the Exchequer from the Road Fund.
The customs duties on motor spirits (mineral hydrocarbon light oil) and on propellants such as diesel oil (hydrocarbon oil, other sorts) were reduced from 1/3 to 9d. per gallon as from 1st June, 1946, with reductions in the excise duty on home refined oils from 1/1 to 7d. The amount of petrol retained for home use has risen from 18,000,000 gallons in the year 1945-46 to 31,500,000 in 1946-47 and to nearly 38,500,000 in 1947-48. This is almost equivalent to the figures for 1938-39. Hydrocarbon oil (other sorts) has risen from 600,000 gallons pre-war to 2,400,000 gallons for 1947-48. The number of new private cars registered for the first time in 1947 was 8,294, nearly three times as many as in the previous year, and this in spite of enhanced prices. In a time of financial stringency such as the present, it seems not unreasonable to look to petrol and oil as a proper source of additional revenue. I have also in mind the fact that petrol entails dollar expenditure. I propose, therefore, to raise the customs duties of 9d. per gallon to 1/2 in each case, with an increase to 1/- in the case of the excise duties. The additional yield of tax for the current financial year is estimated at £910,000.
EFFECT OF BUDGET PROPOSALS.
The sources of additional revenue which I have indicated will yield an aggregate of £1,910,000, so that the deficit of £1,885,000 is covered and I am left with the modest surplus of £25,000.
FOREIGN TRAVEL.
I have one announcement to make which will give satisfaction to those who have been anxious to know whether they can plan for holidays abroad this year, I am going to restore, in respect of a limited number of countries and for the period of ten months commencing on 1st July, 1948, the type of basic allowance for foreign travel which was in operation prior to 31st October, 1947, when the grave foreign exchange difficulties of the time caused it to be withdrawn. As Deputies probably know a basic allowance for foreign travel is an amount granted for the maintenance of the traveller abroad which he can obtain through a bank or travel agency without stating any purpose for his journey; in other words it is available for holiday travel. This allowance is a maximum amount for use by each person during the whole of the period for which it is granted; in the case of the new scheme the period will be the ten months between 1st July, 1948, and 30th April, 1949. The allowance is additional to the cost of travel tickets from Ireland to the holiday centre abroad.
Apart from the manifest impossibility of granting facilities for holiday travel to certain hard currency areas, the general foreign exchange situation is still difficult and consequently the amount of the basic allowance has to be modest and the foreign countries for which it is made available have to be chosen with care. The basic allowance in respect of the period of ten months to which I have referred will be £35 for an adult and £25 for a child under 16 years of age. It will be available in the following countries: Austria, Denmark, France, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. I am, of course, indicating only the broad outline of the scheme and full information as to the details will be conveyed by my Department as soon as possible to banks and travel agencies who ought to be consulted by prospective travellers. The scheme for a basic allowance will not interfere with the existing arrangements under which persons who are obliged to travel abroad for business, health or educational purposes are able to obtain such facilities as my Department deems justifiable in each case. It will, of course, be appreciated that there can be no relaxation in such arrangements and that all applications will have to be carefully scrutinised to ensure that the foreign exchange expenditure involved is in fact strictly necessary.
STATE AND LOCAL DEBT.
Including the capitalised value of the housing contributions, the State debt amounted to £104.8 million at 31st March last. There were in addition contingent liabilities of the order of £70,000,000, some of which threaten to materialise. The gross debt of local authorities was £36,000,000 at 31st March, 1947, and their net debt £23.5 million; during 1947-48 further net debt of about £2.4 million was incurred.
A substantial addition to the State debt is to be expected in the current financial year. The White Paper Estimates include a provision of £6.8 million for capital issues as compared with actual issues of £5.5 million in 1947-48. The main items in the total of £6.8 million are £4,000,000 for advances to the Electricity Supply Board, £1,000,000 for telephone capital expenditure, £800,000 for advances to Bord na Móna, and £750,000 for advances to the Local Loans Fund.
The direct State debt of £104.8 million at 31st March last compares with £100.8 million at 31st March, 1947, and £37.6 million at 31st March, 1932. We have been fortunate in not having been forced into debt to the same extent as other countries, but £105,000,000 is a large total. The service of debt now requires an annual interest and sinking fund payment of over £4,500,000.
EXCHEQUER ASSETS.
Against the debt of almost £105,000,000 assets are held to the value of £49.5 million. Unfortunately a high proportion of these assets either yields no return at all in relief of the annual charge for the debt or yields an inadequate return. We hold shares in various State-sponsored companies to a book value of £4.3 million, but last year dividends were received on less than one-third of this shareholding. Advances total £31.7 million, but only the £16.1 million advanced to the Electricity Supply Board, which is exclusive of the non-repayable advances for rural electrification, can be regarded as providing a full offset to the interest on the corresponding amount of debt created. The £10.6 million advanced to the Local Loans Fund, though ostensibly productive, is to a large extent repaid by means of the subsidies voted in relief of the debt charges of local authorities. We receive no interest on advances of £1,229,000 to Bord na Móna and practically none on advances of £407,000 to the Tourist Board.
CAPITAL OUTLAY AND NATIONAL SAVINGS.
At a time when taxation is of unprecedented severity and economy in State expenditure is imperative, it is more than ever necessary to examine critically proposals for capital expenditure which add to the taxpayer's annual burden and thus tend to stifle incentive and to reduce savings. There is general agreement that housing, though not productive of an adequate direct return in the financial sense, is entitled to special consideration on social grounds. But other plans, however desirable in themselves, which entail heavy expenditure uncompensated by an adequate return, must now be reviewed in the light of the community's capacity to undertake them without undue strain on its resources.
In relation to the vast outlay involved by various State schemes announced during the past few years and the capital needs of commerce and industry generally, the current rate of saving by the community is disappointingly low. Unless savings are greatly increased it is to be feared that they will not be sufficient to meet anticipated capital requirements. Even without any extension of productive capacity the need for increased monetary capital has been created by the rise in prices which has affected the cost of stocks, plant and other assets. Capital outlay in excess of current savings is already exerting a strong inflationary pressure on the national economy. Bank advances, largely for business purposes, increased during 1947-48 by £30,000,000. There was a concomitant fall of over £23,000,000 in the net external assets of the Banks.
TRADE DEFICIT AND EXTERNAL ASSETS.
The effect of the depletion of external assets in 1947 was to offset the increase which occurred in 1946 and to reduce the total to the 1945 level. The decrease is due to the phenomenal excess of merchandise imports over exports. This excess amounted to £91.1 million in 1947 as compared with £33.4 million in 1946 and £17.2 million in 1938. Investment income, emigrants' remittances and other normal sources of "invisible" income from abroad, supplemented by record tourist receipts, failed to cover last year's trade deficit. Exports for 1947 at £38.8 million barely exceeded the 1946 figure but imports totalled £130.8 million as compared with £72.0 million in 1946.
Allowing for price changes, imports in 1947 showed a physical increase of one-fifth over 1939; exports, however, were one-third below the 1939 quantum. The import surplus still continues to be high; for the first quarter of this year imports totalled £36.8 million and exports £10.3 million, leaving a trade deficit of £26.5 million. We have reason to be thankful for the availability of imports on this scale. Increased supplies from abroad have helped to replenish depleted stocks and to bring about the improvement recorded in industrial output. They have also made more goods available for consumers. But for these supplies the national economy and national finances would have been in a serious plight.
We cannot, however, as has been suggested in certain quarters, sustain a continued trade deficit of this order by drawing on our external capital. Owing to the rise in prices abroad, the community's sterling holdings, though greatly increased during the seven years of reduced imports, 1940-46, have not as much purchasing power now over supplies as they had in 1939. This applies also to the income from these investments. The reduction in this, one of the most certain sources of our external purchasing power, the weakness of our export capacity, and the uncertainty of the continuance of income from emigrants' remittances, tourists, etc., at their present high level, render it impossible to view with equanimity a continued reduction in external assets on last year's scale. These assets can be consumed now only at the expense of a reduced standard of living for the future. Even their use for productive capital purposes is advantageous only if the real benefits are at least sufficient to compensate for the resultant loss of external income and purchasing power. Both to offset inflation at home and to prevent serious dislocation of the balance of payments, it is essential for us as a community to produce more, especially for export, to avoid spending our external capital on consumption goods, and to find more of our capital needs from current rather than past savings.
EUROPEAN RECOVERY PROGRAMME.
The aid which is to come from the United States under the European Recovery Programme will help us to put our economy generally, and agriculture in particular, on a sound basis. It is also hoped that the programme will hasten the restoration of the free international convertibility of sterling into other currencies. This is a matter in which, with our large sterling holdings and our predominantly sterling income, we have a vital interest. It would be altogether opposed both to the purpose for which the aid is being so generously extended and to the national interest to regard it as in any way lessening the necessity for urgent and strenuous efforts to remedy the defects in our economic position. In this regard it is of paramount importance that there should be a big expansion in agricultural output as a whole and, more particularly, in the proportion of it available for export.
STATE BORROWING AND LENDING.
The annual accrual of small savings in the form of deposits in the Savings Banks and Savings Certificates has in the past been a substantial and convenient source of finance for capital expenditure by the State. During 1947, however, there was a net encashment of £222,000 as compared with a net increase of £3,352,000 in 1946, following a series of heavy similar increase over a long period of years. This depressing result must be attributed in the main to the widening gap between the rates of interest as reduced by my predecessor in his 1946 Budget and current yields on competitive investments. To narrow this gap and revive a valuable medium of savings, I propose to restore as from 1st July next the rate of interest on deposits in the Post Office Savings Bank to the traditional figure of 2½ per cent. per annum for all amounts within the permitted limit of £2,000. The Trustee Savings Banks will be free to make a corresponding change. I would again emphasise that savings in every form must be increased if we are to avoid serious economic consequences, and I am hopeful that the higher interest rate on Savings Bank deposits will provide an effective stimulus. As a further encouragement to saving I propose to raise the limit on purchases of Savings Certificates so that an individual may in future hold up to 1,250 unit certificates, or double the present amount.
In order to fund temporary borrowings incurred to meet past Budget deficits and expenditure on capital purposes and to provide for further expenditure on schemes of national development, including electricity and housing, we issued last March £12,000,000 3 per cent. Exchequer Bonds (1965/1970). The subscription lists opened on 12th March and closed on 16th March, the loan having been over-subscribed to the extent of £1.3 million exclusive of official applications. Although I had intended to apply on behalf of various funds under my control for bonds to the amount of £4,000,000, I had to be content with the modest allocation of £284,000. Stock exchange quotations indicate that the terms of the issue were nicely adjusted to market conditions. The remarkable success of the issue is extremely gratifying and shows that the Government has the confidence of the people in the tasks which lie ahead.
The terms on which the recent loan was raised reflect the general upswing in interest rates since 1946. It then appeared that it might be possible to raise a national loan at a rate of interest not exceeding 2½ per cent. and, in contemplation of that possibility, Exchequer lending rates were reduced to 2½ per cent. Advances to the Local Loans Fund, the Electricity Supply Board and similar State organisations are still being made at 2½ per cent. even for periods up to 50 years; some of the borrowers receive in addition subsidies from State sources. As the rate of 2½ per cent. now involves loss to the Exchequer I have decided that for advances made from to-morrow onwards from the Exchequer and the Local Loans Fund to State organisations and local authorities the rate of interest will be 3¼ per cent. per annum. It is proposed to alleviate the effect of this increase in the case of housing schemes of local authorities.
TRANSITION DEVELOPMENT FUND.
The Transition Development Fund set up under the Finance Act of 1946 with a capital of £5,000,000 was intended to assist State organisations and local authorities in meeting the exceptionally high capital costs of the immediate post-war period. It was provided in that Act that the fund should be wound up not later than the 31st December, 1948, the balance then remaining to be transferred to the Exchequer. Although the fund has so far been drawn upon only to a limited extent it is expected that there will be substantial recourse to it in the present year for assistance for housing and other capital works. It is proposed to defer the winding-up of the fund until the end of the current financial year and provision will be made accordingly in the coming Finance Bill. In the meantime, consideration will be given to the extent to which charges now accepted as a liability on the fund should be transferred to ordinary Votes.
ECONOMIC CONDITIONS.
I regret that various difficulties have combined to delay the preparation of official Estimates of national income and expenditure in continuation of the series inaugurated in 1946. Every effort will be made to bring up-to-date these statistics which are invaluable as a guide to policy. There is, however, no room for doubt that money incomes and monetary resources are increasing faster than is warranted by any improvement in output. Of the increased pressure of inflation during 1947 there is abundant and disturbing evidence. Monetary circulation rose by £3,844,000 or by 8 per cent. Monetary turnover, as indicated by bank debits, increased by 19 per cent. Bank advances increased by £31.5 million or 55 per cent. There was a considerable increase in income from abroad, especially in the shape of tourist expenditure. Agricultural prices rose by 15 per cent. and the cost of living, despite additional subsidies, by nearly 11 per cent. Agricultural wages are now on average more than double pre-war, while as a result of increases in remuneration since September, 1946, industrial workers are now receiving 65-70 per cent. more than in 1939.
On the other hand, the gross volume of agricultural output in 1947 was 3 per cent. less than in 1946 and 5.5 per cent. below the pre-war level. Industrial production as a whole recovered in 1947 to 4 per cent. above the pre-war volume. Imports, as already mentioned, were about one-fifth above the 1939 volume. Allowing, however, for the proportion of imported and homeproduced goods purchased by tourists, the quantity of goods available for domestic consumption, both from home production and imports, cannot have been much in excess of pre-war.
Until supplies generally expand increases in wages, salaries and money incomes can only result in raising prices still further. To arrest and reverse the inflationary trend, to which wage and salary increases and the present high level of profits and rents contribute, is a matter of prime urgency in the national interest. The substantial wage and salary increases already secured by all classes of workers, with such further advantages as shorter hours, paid holidays, children's allowances and other increases in social services, have gone as far as is possible, in present circumstances, to meet the claims of social justice, and I would make a most earnest appeal to all employees not to seek further increases in monetary remuneration or improvements in working conditions, unless warranted by exceptional circumstances. Recent experience confirms that the benefit of an increase in money incomes is rapidly swallowed up by rising prices. Another important factor in the present inflated structure of wholesale and retail prices is the high level of profits in trade and industry. When the excess corporation profits tax and excess surtax were abolished two years ago by my predecessor, with effect as from the end of 1946, it was expected that this would be followed by a general fall in prices, with consequential effects in the shape of a reduced cost of living and an increase in the purchasing power of incomes. This expectation has, unfortunately, not been realised, and from the figures which I have examined it is clear that excessive profits are still being taken in a number of instances, despite all efforts at price control. I have already appealed for the co-operation of the business community in the task of bringing down prices, but so far without result. If inflationary forces are to be prevented from getting completely out of hand, there may be no alternative but to restore the machinery of control embodied in the various standstill Orders. This is not in contemplation but if it should be forced upon us it would be accompanied this time by the appropriation of the whole, not merely a part, of any excess profits. To avoid the necessity for resort to these unpalatable measures all efforts should be concentrated on producing more and producing with greater efficiency, and on reducing prices, so that living standards will be improved through an increase in the purchasing power of existing incomes.
I think the most surprising thing about the Budget is the applause which greeted it from the Deputies of the Labour Party. I wonder if Deputies opposite require to be reminded that in the course of the election campaign which preceded the change of Government they based their case for the confidence of the people on two main pillars—a reduction in the cost of living and a reduction in taxation. The Deputies who are on this side of the House argued that it was not possible in present circumstances to have both these advantages. We admitted that one could contemplate reducing taxation at the expense of food price subsidies and a consequential increase in the cost of living. We admitted that one could reduce the cost of living by increasing food price subsidies with a consequential increase in taxation. We argued that it was not possible to do both. Deputies opposite argued that they could. In the event they have done neither. This Budget is one designed to increase taxation and the cost of living.
It is not so long ago since Deputies opposite made these election speeches that they do not remember them in detail. Was there any Deputy of the Labour Party who during the course of this election campaign said this to those whose votes he was seeking:—
"The substantial wage and salary increases already secured by all classes of workers, with such further advantages as shorter hours, paid holidays, children's allowances and other increases in social services have gone as far as is possible in present circumstances to meet the claims of social justice?"
Was there any member of the Labour Party who contemplated last January that on the 4th May of this year he would be applauding that statement made by a Fine Gael Minister for Finance? Have not they travelled a long way from their base?
We are told, of course, that the circumstances of the time require a retrenchment in Government expenditure and certain economies have been already announced and further economies have been indicated in the Budget statement. It is, of course, possible to contemplate the realisation of the ideal of reduced taxation simultaneously with a lowered cost of living at some stage. We had hoped that in this year the cost of food price subsidies would fall, not in consequence of any action taken by us, but in consequence of international conditions. One of the conditions which we expected to develop was the International Wheat Agreement, to which the Minister for Finance referred. If that agreement is implemented there will be a reduction in the cost of imported wheat and the Minister for Finance has chosen to base his Budget on the assumption that it will be implemented. Last week the newspapers published reports from the United States of America which indicated substantial opposition to the enactment of that agreement in the United States Congress and the probability of its rejection there. If it is rejected there, then the expectations of the Minister for Finance of a saving upon the subsidy for bread and flour may not be realised because we have also had within the past fortnight a statement by Sir John Boyd Orr, head of the United Nations Food and Agricultural Organisation, that even on the assumption of a most favourable harvest everywhere in this year there still will be a world deficiency in wheat of a substantial size. If there is a world deficiency in wheat of a substantial size and no international wheat agreement of the kind negotiated at Washington, then, inevitably, the fall in the cost of wheat upon which the Minister has based his Budget will not be realised. What will happen then? Will there be a supplementary budget involving taxes upon beer and tobacco, or will there be an increase in the price of bread and flour? I would like that the Minister would answer that question because it appears to me to be an injudicious gamble, in the light of the information available, to base the Budget upon an assumption that that agreement is going to be implemented.
Let us, however, have a look at these economies—and I would like particularly the Deputies of the smaller coalition Parties to judge them from the point of view of assessing the mentality that designed them. It is true that some of the economies are fakes. There is a proposal to spread the cost of the bread subsidy over a period of five years—which in effect means borrowing to meet the cost of portion of that subsidy in this year—and a proposal to bring into this year some part of the beer duty that is appropriate to the next financial period. These devices may not be objectionable in special circumstances and one can understand a hard-pressed Minister for Finance, anxious to avoid political difficulties for his Government, resorting to them. If, however, the inflationary forces to which he referred are as serious as he thinks they are, then these are not devices to be adopted in this year. If there are inflationary forces at work, if they offer to this country the serious dangers which the Minister for Finance appears to think, inflationary forces similar to those operating in Great Britain and the United States, then the wise financial policy was to follow here the same line as was followed by the British Chancellor of the Exchequer and that is in operation in the United States and that is definitely to budget to clear all the expenditure in this year out of revenue this year with a surplus if possible. The Chancellor of the Exchequer in fact budgeted for a substantial surplus in an effort to mop up the surplus purchasing power that he believed was producing the inflationary trends which he feared and which the Minister for Finance here professes to fear also.
A budget, however, is something more than a mere adjustment of the national finances, an arrangement for securing revenue to meet the estimated cost of State services. A budget is in modern times the most effective instrument in the hands of the Government for the implementation of its economic and social policies. The annual budget has been used by other Governments for the purpose of checking inflationary trends, adjusting undesirable deflationary movements, for the purpose of stimulating production by affording the necessary stimuli and to shift the burden of consumer demand from one commodity or group of commodities to another by tax adjustments.
I want the Deputies opposite to look at this coalition Budget as a whole, in relation to the economic and social policy that it may be designed to implement. By adjusting taxation, demand can be shifted from one commodity to another in accordance with some idea of social welfare. What have the Deputies opposite done? What is the Government proposing to do? They are proposing to shift the burden of demand from oatmeal, margarine, petrol and certain other commodities on to beer, wine and tobacco. If there is any social or economic policy behind this Budget at all, the reduction in the duties upon beer, tobacco, wine, cinema entertainment and the other things which were mentioned by the Minister for Finance is an indication that he regards it as socially more desirable that people should spend their money on these things than on the other goods or services the cost of which he is proposing to increase. Did any of the Deputies opposite, when they were advocating the reduction in the duty on beer, say that to offset the cost of reducing beer they were going to withdraw the subsidy on oatmeal or margarine? Those Deputies are going to vote now to reduce the duty on champagne, to take the subsidy off oatmeal and margarine, and to make the worker pay the cost of the cash supplements that he drew in recent years in respect of national health insurance, unemployment insurance, and similar payments.
These things were not just produced haphazardly. The Minister for Finance did not merely produce a list of all the duties that are in force and pick out with a pin those to be reduced or increased. There must have been some design behind the Budget. The Government—a Government which includes Labour Parties, Clann na Poblachta and Clann na Talmhan members—must have sat down to consider this Budget in relation to some general policy. Was it in relation to that general policy that they decided that the social welfare of our people and their economic advancement necessitated cheaper beer and tobacco and dearer oatmeal, margarine and petrol, necessitated that the workers should pay more for their social security benefits?
If there was a policy behind this Budget, we would like to have it explained to us—explained particularly by those Deputies of the Labour Party, Clann na Poblachta and Clann na Talmhan, who, during the recent election campaign, did not give any indication to the Irish public who voted for them that that was the line they were going to vote for in coalition with Fine Gael as a Government. Perhaps they are going to find out something about Fine Gael now. We knew it all the time. They were a Government once before and during that period they proceeded on the general assumption that this country was incapable of economic development, that the most we could hope to do was to remain an economic appendage to Britain, that the only wise policy to follow was to keep on good terms with Britain in the hope of obtaining a higher price for our cattle, that it was useless to think of developing industry or of exploiting our home resources. That was the basis of the policy then.
A Deputy
Did the Deputy ever hear of the Shannon scheme?
When other people urged a more progressive policy, one designed to make the country more self-supporting and stronger economically, the Government said that that was impracticable or that, if it was practicable, it was undesirable. In the course of time, there has developed amongst them towards that idea of developing our home resources a feeling of hostility which has coloured all their political outlook since. So definitely was that the whole policy of the Fine Gael Party that there was never a chance in the lifetime of this generation or the next, of the people of this country voting a Fine Gael Party back into power. They could never hope to get back into office as a result of the support of the Irish people; but there were other Parties in this country, elected on different policies, and they have sold the pass. They have let these men back into power, to implement the same policy that the country rejected in 1932 and six times since then. These are the men who would put us back under a stone in the bog. They regard every idea of developing the resources of this country as other peoples have done as evidence of megalomania. That is their whole outlook. We are to be a cabbage patch for Great Britain. We may not develop the economy of our country in future except in regard to whatever Great Britain in her goodwill might allow us to enjoy. That is the mentality; and it is that mentality which the members of the Labour Party, of Clann na Poblachta and of Clann na Talmhan are now supporting.
We are to have economies. The Army has been cut and the Minister for Finance makes the boast that he has saved £750,000 upon our meagre Defence Services—on the same day as the morning newspapers report (1) that his Holiness the Pope is asking the world to pray for peace, (2) that the President of the United States of America said that 1948, this year, may be the crisis year, which will determine the world's future, (3) that Cardinal Spellman at Melbourne said that the sands of peace are running out, and (4) that American troops are now reported to be marching to battle stations. The indifference of the Government since it was established, to the developments in international affairs which are threatening world peace, has been extraordinary.
What does the Deputy say? Will there be a war?
Deputy Dillon says there will not, but Deputy Dillon said the same thing in July, 1939. Deputy Dillon—the present Minister for Agriculture—cannot always be wrong, but we would like to have some evidence that he can be right sometime, before we will take his word for it. However, behind this curtailment of our defence plans, this wanton interference with the basic plan of the Army staff, which was itself prepared on an economy basis, there is a sacrifice of national interest because it is politically inopportune to protect it.
When was the plan prepared?
The plan of the Army staff was prepared last year—if not earlier, in 1946.
The Deputy knows that the previous Government failed to spend at least £750,000 of that.
That is true. If the Minister's point is that the Army authorities did not succeed in recruiting the number of men which represented the minimum force they regarded as essential to provide an efficient defence service, that is true. The very first thing this Government did was to stop the recruiting campaign.
You did not get the men.
It is quite possible another plan of defence might be as effective or nearly as effective—one which would involve less money and fewer personnel, but the Government has not attempted to produce any such plan. They have taken the plan that was there and cut it in half, with the result that what they are now spending on defence is practically wasted. It is true that there is a corps of skilled and enthusiastic personnel but there is no plan to ensure our safety at a time when, on the highest authority, we are told that the world peace is in danger. Of course, that danger may not materialise; but are we meeting our responsibility to the public who sent us here if we gamble on the say-so of the Minister for Agriculture that there is no danger?
I do not know if Deputies opposite have given this matter any thought. I have no information as to the arrangement for the working of the coalition. Are back-bench Deputies opposite brought into consultation with the leaders? Are they told what the leaders' plans are? Are they told what is the policy and what is the general outlook upon these major issues, and are they given an opportunity to express their views? Do they agree that this is a year in which we should be cutting down, in order to reduce the price of beer, our expenditure on defence services, having regard to those declarations of people not so influenced by our internal political difficulties as is the Minister for Finance?
I do not know if the Minister for Finance was talking with his tongue in his cheek when he spoke about the inflationary tendencies at work. It is true that when the Government reduced the tax on beer and tobacco and decided to make good the loss of revenue by taxing other commodities, an industrial commodity like petrol, or the foodstuffs of the poor, like oatmeal and margarine, they must have had some social policy in view; but it may be that the Minister for Finance will say that even though the tax on beer has been reduced and the tax on tobacco lowered, and the prices of these things are less, there cannot be any greater consumption, because, of course, the amount of beer brewed is determined by the supply of barley, and the amount of tobacco smoked will be determined by the Minister for Finance, who controls the releases from bond. If, therefore, there is to be no increase in the consumption of beer and tobacco, the money left in the consumer's pocket by reason of reduced prices will be available for other purchases. Is that a wise policy to adopt in a year in which there are dangerous inflationary forces at work? If the Minister for Finance believes that, is it not his duty to see that these inflationary forces will be checked by restricting the amount of surplus purchasing power available, the effect of which would be to increase the price of other commodities or cause undue scarcity following from inflated consumption?
I think the answer to all this is that the Minister for Finance does not believe in these things. He came here with a political problem to solve. His difficulty is how to get away from the promises of the Coalition Parties during the election to reduce expenditure and the cost of living, while, at the same time, to hold the Coalition together. It is obvious from the applause we have heard that he has succeeded. I congratulate him on his success.
Mr. Larkin rose.
It is usual to have only one speech from the Opposition.
May I suggest that we are independent Parties here?
The decision of the Chair is that there shall be one speech only from a member of the Opposition Party.