Before proceeding to discuss the first resolution it is usual to give some member of the Front Bench of the Opposition an opportunity of replying as briefly as may be to the Budget statement. Such statement is taken in vacuum, not on the first resolution.
Financial Statement. Budget, 1949. - Financial Year, 1949-50.
Turning to this year, the expenditure on Supply Services is estimated at £65,406,570 or £768,476 more than was actually spent last year. Central Fund Services are to cost £7,728,430 which is £423,093 more than last year's issues. The two groups of services total £73,135,000. The estimated receipt from non-tax revenue is £8,560,000 and from tax revenue, on the basis of the rates at present in force, £64,790,000. The receipts from both sources, at £73,350,000 are £215,000 more than the estimated expenditure. Provision has, however, to be made for additional items of expenditure totalling £676,000. These include increases in Garda pay (£261,000), pension increases for retired teachers, police and civil servants (£208,000) and additional grants under recent legislation for Gaeltacht housing (£15,000). The effect of these additions is to convert the original surplus of £215,000 into a deficit of £461,000, which will be reduced to £161,000 by a contribution of £300,000—the same as last year—from the Road Fund. In addition, a deduction of £600,000 falls to be made from the Supply Services for items of a capital or abnormal nature. This not only clears the deficit but gives a surplus of £439,000. This surplus is increased to £769,000 by an adjustment to be made in the provision for flour subsidy. I have reviewed, in the light of the fall in wheat import prices, the arrangement for averaging the cost of flour subsidy over a five-year period which was explained in the Budget Statement last year. The result is that the provision appropriate to the current year is £6,451,000, or £330,000 less than the amount provided in the Estimates.
With the aid of the surplus of £769,000 I propose to make a number of changes in taxation which, on balance, will be of considerable benefit to the taxpayer.
INCOME TAX AND CORPORATION PROFITS TAX.
I propose to reduce the standard rate of income-tax by 6d, in the £. The cost of this concession will be £750,000 in the present year and £1,000,000 in a full year.
I propose to increase the dependent relative allowance under the Income Tax Acts from £25 to £50, at a cost to the Exchequer of £80,000 in 1949-50 and £135,000 a year thereafter.
I propose also that the housekeeper allowance be increased from £45 to £100, at a cost of £8,000 in 1949-50 and of £13,000 in a full year.
Under the present income-tax code a child allowance is granted in respect of a year of assessment only if the child is living at the commencement of that year. Provision will be made for the granting of the allowance if the child is alive at any time during the year of assessment. The cost of this relief will be £40,000 this year and in a full year £65,000.
In charging the profits of a trader under Schedule D of the Income Tax Acts an allowance is made for depreciation during the year of any machinery or plant used for the purposes of the trade. A number of years ago this wear and tear allowance was extended to persons carrying on professions or vocations chargeable under the same Schedule. I now propose to apply it to persons chargeable under Schedule E. Commercial travellers and others who use their own motor cars in the exercise of their employment will benefit by this provision which will cost £8,000 this year.
Where appeals in tax cases reach the courts, it has, over a period of some 20 years, been the practice to have the proceedings heldin camera if the taxpayer so desires. The adequacy of the existing legislative authority for this practice has recently been called in question. It is my intention, by a section in the Finance Bill, to put beyond doubt the taxpayer's right in this matter. The section will cover appeals against assessments to income-tax, to surtax and to corporation profits tax.
When a company pays corporation profits tax it is entitled to a deduction in respect of that tax in computing its income-tax liability. The manner in which the provision authorising this deduction was interpreted was unquestioned for almost 30 years but has been upset by a recent court decision. It is proposed to restore by legislation the established and accepted basis on which the deduction was heretofore granted.
A Minister for Finance cannot view with detachment the ingenuity which searches for and avails itself of accidental flaws in revenue legislation. Legal evasion shifts inequitably the burden of charge and, if allowed to grow unchecked, might impair to a serious extent the yield of taxation. A way has lately been found through long-established provisions which were designed to prevent tax liability being evaded by means of certain dispositions or settlements. I intend, in the Finance Bill, to remedy the matter.
The agreement in respect of double income-tax, concluded between the Irish and the British Governments in 1926 and confirmed by Finance Act in that year, provided broadly that a person resident in the one country, and not resident in the other, would be chargeable to income-tax only in the country of residence. This agreement —usually called the "residence agreement"—is limited in scope to income-tax and surtax and, accordingly, it does not cover the profits taxes payable by companies, by which I mean corporation profits tax here and the British tax known as profits tax.
Thus an Irish company having a branch in Great Britain is chargeable to profits tax in Great Britain on profits arising there and at the same time it is chargeable in Ireland to corporation profits tax on all its profits wherever arising. The company is liable in consequence to pay double taxation on a portion of its profits.
The revenue authorities of this country have been in touch with the British revenue authorities with a view to arranging for reciprocal relief in respect of corporation profits tax and profits tax. It is expected that an agreement between the two countries will be signed at an early date. The proposed agreement will secure broadly that profits tax paid in Great Britain will be allowed as a credit against corporation profits tax and that, in the case of the British company operating here, the Irish tax will be allowed as a credit against the British tax. It is intended that the agreement will be confirmed by the Finance Bill, which will also contain the provisions necessary to give effect to it so far as this country is concerned.
Negotiations have for some time past been in progress between Ireland and the United States of America which, it is hoped, will result in conventions for the avoidance, as between the two countries, of double taxation on income and on the estates of deceased persons. It is, however, unlikely that these proposed conventions will be entered into in time to be dealt with in the forthcoming Finance Bill.
Section 31 of the Finance Act, 1928, provided in effect that, as compared with the rate of corporation profits tax for a company incorporated in Ireland, an additional rate of 2½ per cent. should be chargeable on profits of a foreign company. The section enacted, however, that the lower rate should be applied to a foreign company if it maintained here a branch register of its shareholders resident in this country. The idea of the legislation was to secure compensation for the loss of death duties which would arise on the death of a person domiciled in Ireland who possessed shares in a foreign company trading here which had not established a branch register. Of late, other countries have represented in negotiation that this is discriminatory taxation. While I do not necessarily assent to this view, I recognise that the case for the differential tax is not so compelling as it originally was, most of the principal companies involved having by now set up branch registers here. Accordingly, I am proposing that the section be terminated with effect as from the 1st January, 1949, from which date profits of a foreign company will be chargeable to corporation profits tax at the rate applicable to the profits of home companies.
WINE.
The yield from the duty on wine has fallen short of expectations. It is now clear that the fourfold increase imposed in 1946 and 1947 has injured the trade to an extent even greater than was represented a year ago, and that the relief afforded in last year's Finance Act, which removed three-fourths of the additional burden deriving from the Supplementary Budget of 1947, has not proved a sufficient remedy. I am informed that, owing to the decline in consumption, there is a real danger of unemployment and on this ground, as well as in the hope of stimulating the revenue, I propose to remove the remaining fourth of the Supplementary Budget impost except as regards sparkling wines. This will restore the rates which were operative under the Finance Act, 1946. It is expected that the additional yield of revenue for the current year will be £30,000. The change will take effect immediately.
PREFERENTIAL RATE OF DUTY ON UNMANUFACTURED TOBACCO.
In the interest of European economic co-operation and to save dollar expenditure, I have found it necessary to direct the attention of tobacco manufacturers to the possibility of obtaining part of their supplies of leaf from countries outside the dollar area. The principal source of such supply would be Rhodesia, but the cost of leaf from that country is about 1/6½ per lb. more than the cost of Virginian leaf. I, therefore, propose, as an inducement to manufacturers, that this differential in price should be adjusted by granting a preferential rate, 1/6½ per lb. less than the present full rate, to tobacco grown in the British Commonwealth. This will involve a corresponding reduction in the excise duty chargeable on home-grown tobacco. The necessary provision will be made in the Finance Bill to take effect as from the passing of the Bill. The cost of the concession is estimated to be £16,000 in the current year and £18,000 in a full year.
POWER METHYLATED SPIRITS.
Under Section 11 of the Finance Act, 1920, and Section 15 of Finance Act, 1921, an allowance of 5d. per proof gallon is payable to a methylator in respect of home-made spirits used in making power methylated spirits. This allowance is in part compensation for the extra cost of manufacture due to excise restrictions and in part a preference in favour of home-made spirits. As regards the alcohol factories operated by Ceimicí Teoranta—a State-owned company—the method of working has enabled these excise restrictions to be modified to an extreme degree. Further, these factories are not only the sole producers of power methylated spirits in this country but under the provisions of the Industrial Alcohol Act, 1938, have special powers in relation to the disposal of the product. In these circumstances, there is no good reason for continuing the payment of the allowance of 5d. per proof gallon on spirits used for making power methylated spirits. I propose that the allowance be withdrawn as from 1st October next. The saving this year is estimated at £27,000 and in a full year at £55,000.
FIREARMS CERTIFICATES.
The present rates of duty on firearms certificates were fixed in 1925. I propose that the rates, some of which are exceedingly low, should be increased with effect as from the commencement of the next licensing year, i.e., 1st August, 1949. The estimated additional yield of revenue will be about £30,000 per annum.
REPEAL OF DUTY ON HYDROCARBON OIL USED IN ROAD ROLLERS.
I propose to ask the Dáil to amend a provision in the law by which the Revenue Commissioners are obliged to charge duty on diesel oil used in road rollers—chiefly by county councils. The cost of this concession will be about £6,500 in the current year or £8,500 in a full year.
NEWS-REEL FILMS.
Representations have been made to me that the duty on news-reel films should be abolished. During the war the operation of censorship presented difficulties in the importation of these films, and importation ultimately ceased. A shortage of celluloid was also a determining factor. These difficulties are now removed, but it is claimed that the distribution of news-reels in this country was never a paying proposition and that with increased costs of production it would now be even less so. I am impressed by the fact that this country is in the unique position that no news-reels are shown here. Although they contain much of only minor interest, news-reels also deal with events of international and occasionally of national importance. For some years no duty has been received on news-reels and in so far as the import duty may be a bar to their importation I am disposed to ease matters by removing it.
ENTERTAINMENTS DUTY-RURAL AREAS.
Last year I promised, without making any definite commitment, that I would examine the possibility of affording relief from entertainments duty in respect of entertainments held in purely rural areas. For all practical purposes the only entertainments held in these areas which are subject to duty are cinema shows and ciné-variety performances. They are operated either by resident exhibitors or by mobile film units, and it has been represented to me that the promoters find it extremely difficult to meet expenses, and that any profits are extremely meagre. There is no doubt that these entertainments do much to brighten life in rural areas and I propose, therefore, to recommend to the Dáil that duty shall not be charged in respect of any entertainment held in a place which is not situate in, or within three miles of, a county or other borough, an urban district or a town of over 500 population. This will afford total exemption from entertainments duty in most places where the population does not exceed 500. The concession will take effect as from 1st June next, and will cost about £21,000 this year and £25,000 in a full year.
ENTERTAINMENTS DUTY-DANCES.
Entertainments duty on dances was abolished by Section 13 of the Finance Act, 1946. It is doubtful whether any substantial proportion of this relief accrued to the public and I see no reason why this form of entertainment should escape its contribution to the public revenue. Accordingly, I propose to restore the duty as from 1st July next. The increased yield of revenue in the present year will be £110,000 and £150,000 in a full year. As in the case of other entertainments the charge in respect of dances will not apply in most centres with a population of less than 500.
STATUTORY DEFINITIONS OF IRISH WHISKEY.
I have received representations from the Irish Pot Still Distillers' Association urging that the terms "Irish Whiskey" and "Irish Pot Still Whiskey" should be legally defined as the absence of such definitions constitutes a handicap in the export market. They pointed out that Scotch Whisky was defined in the British Finance Act, 1933, and were anxious that similar provisions should be embodied in this year's Finance Bill. I have agreed to this proposal, and the necessary provision will, accordingly, be made in the Bill.
ESTATE DUTY.
Estate duty is chargeable on money received under a policy of assurance effected by the deceased in his lifetime where the policy is wholly kept up by him for the benefit of a donee, or part of such money where the policy is partly so kept up by him. In some cases the person effecting the policy assigns it to trustees for the benefit of a donee and at the same time provides a trust fund out of the income of which the premiums are paid. It has been the practice to treat the policy moneys in such cases as liable to estate duty. Doubt has been cast on the validity of the practice and I propose to include a section in the Finance Bill to remove that doubt.
Prior to 1924inter-vivos gifts made for public or charitable purposes were liable to estate duty only if made within 12 months before the death of the donor. In 1924 provision was made to keep within charge to estate duty intervivos gifts of foreign property made within three years before the death of the donor but inadvertently the provision was made to apply to gifts for public or charitable purposes as well as to other gifts. The effect is that inter-vivos gifts of Irish property for public or charitable purposes are liable to estate duty only if made within 12 months before the date of death while similar gifts of foreign property are so liable if made within three years before the date of death. I propose to bring in a section to remove the comparative hardship which accordingly arises in the case of such inter-vivos gifts of foreign property.
Up to 1941 estate duty could have been evaded by the disposition of property in favour of a relative in consideration of an annuity for his own life or that of any other person. As from 1941 exemption from estate duty could not be granted in such cases even though the value of the annuity was equal to or greater than the value of the property. A case has now arisen where the value of the annuity has actually exceeded the value of the property. I intend to provide that in such cases when charging estate duty on the value of the disposed property a certain deduction shall be made. The deduction is to be the excess, from the date of the disposition to the date of death, of the annuity payments made by the relative out of his own pocket or out of the corpus of the property over the amount of the income received by him from the property. A further allowance will be made in respect of simple interest on the excess.
STAMP DUTIES.
I intend to introduce legislation to ensure that the increased rates of stamp duties payable under the Finance (No. 2) Act, 1947, on the purchase on property will not be avoided because of the method by which a sale may be effected. In the first place I shall propose that the amount of the fine or premium payable in consideration of a lease or sub-lease will bear duty at the same rates as those which now apply to the amount of the purchase money on a conveyance or transfer on sale as distinct from a lease. This will remove the anomaly by which the rate of stamp duty could be regulated by the legal procedure under which a sale was carried out. While there are sound reasons for proposing that the increased rates of duties should have retrospective effect in all cases, it is proposed that they should not apply to certain cases where leases have been first executed before to-day. The cases are those where leases have yet to be stamped or the £1 per cent. rate has already been paid or where appeals against assessments adjudicated at the increased rates of duty have been lodged with the Revenue Commissioners.
The second matter on which legislation is proposed concerns the evasion of stamp duties by persons who, in the ordinary way, would pay at the rate of £25 per cent. Because of certain transactions which have in some cases been introduced into the normal procedure of purchasing property, the provisions of the stamp duties applying to foreign purchasers have to an extent been defeated. As a consequence, such purchasers have paid duty at the rate of £5 per cent. instead of £25 per cent. Legislation will be submitted to nullify the effects for the purpose of stamp duties of such transactions.
EFFECT OF BUDGET PROPOSALS.
The net effect of the various adjustments in taxation I have outlined is a net loss in revenue in the current year of £733,500, which reduces the surplus of £769,000 to the more modest figure of £33,500. This amount, supplemented by a subsidy relief now being formulated and by other savings on the supply services generally, will, I hope, suffice to meet the liability for increased Army pay which will mature for payment during the year.
COSTS OF ADMINISTRATION.
Personnel charges form a very big part of the total expenditure for which I have to budget. Excluding superannuation, the all-in cost to the Exchequer of the Civil Service is estimated at £11.5 million; of the Garda Síochána at £2.9 million; of national teachers at £4.7 million; of secondary teachers at £0.5 million, and of the Defence Forces at £2.5 million, making a total of £22.1 million. Superannuation and pension charges bring this total to £24.5 million, an amount considerably more than twice the total State expenditure for all Ireland in years that many of us can remember. There is here serious cause for anxiety. Economies in costs of administration should be attainable through improvements in organisation and methods of work, and anything that can be done in that way I shall do my utmost to achieve. It is, however, obvious that no really big saving can be secured unless a limit is set to demands for the expansion of existing and the creation of new services.
TRANSITION DEVELOPMENT FUND.
By the Finance Act of 1948 the life of the Transition Development Fund was extended to 31st March, 1949. Of the original £5,000,000 there still remained in the fund at that date approximately £3,562,000, issues during 1948-49 having amounted to £952,000. It is proposed to prolong the fund's existence rather than wind it up now and bring this large balance into the Exchequer. By the time the fund comes to be wound up it is hoped that building costs will have settled down sufficiently to obviate the need for such large supplements to the annual voted subventions for housing and public health services. It is estimated that disbursements from the fund for these services in the current year will amount to £1.33 million and issues will continue to be made from the fund pending the authority of the continuation provision which will be included in the Finance Bill.
CAPITAL AND OTHER ISSUES.
I turn now to expenditure which has not to be covered, as it arises, by taxation but will have to be amortised by charges against revenue over a future period. The White Paper of Receipts and Expenditure shows, under the heading "Capital and Other Issues", an estimated total outlay of £12.6 million in the current year, as against £9.1 million in 1948-49. The chief items in this greatly expanded programme of capital expenditure are advances for electricity development (£4.75 million), advances to the Local Loans Fund for housing and public health services, etc. (£2.8 million), extension of the telephone system (£1.9 million), advances to the Road Fund for roads expenditure (£1.6 million) and advances for turf development (£1.08 million). The money required for these purposes will have to be found by borrowing, the charge for interest and redemption being borne annually by the taxpayer, who cannot expect equivalent relief in the form of a return on the investment of the borrowed moneys. This return is to be sought in the additional employment, improved amenities and increased security which the investment will afford, rather than in a direct money dividend. Half of the total outlay of £12.6 million can, however, be relied upon to provide from the outset a return sufficient to offset the corresponding debt charges. Before I mention other important items of State expenditure not currently provided for out of revenue, a few brief comments on the major constituents of this £12.6 million estimate will not be out of place.
ELECTRICITY DEVELOPMENT.
To speak first of electricity development for which the Exchequer will be called upon to provide £4.75 million this year, gross capital expenditure by the Electricity Supply Board is estimated at £5.65 million, of which £0.9 million will be met for the time being by borrowing from depreciation reserves and superannuation funds, the balance of £4.75 million being required at once from the Exchequer. About half of the gross expenditure will be devoted to the expansion of generating capacity and will be roughly balanced between steam and water power. The Erne scheme will call for £1.2 million and it is hoped that by the early summer of 1950 the Cliff Station, with a capacity of 80,000,000 units a year, will be in operation. Work will begin on the development of the River Lee but this 60,000,000 units project will not be completed until the summer of 1953. The first turf-fired station at Clonsast, with a capacity of 45,000,000 units, will go into production next winter. Two new stations—Leixlip and North Wall, with a capacity between them of 50,000,000 units—are on the point of being put into service. Over the next few years other stations on which work is in progress, including Allenwood (turf) and Ringsend (coal), will be completed. Although the output of electricity will be doubled over the next six years or so, it will be hard to keep pace with the rapid growth in demand. As Minister for Finance I have no misgivings about the productive character of this form of investment although the capital involved is considerable.
Substantial progress is being made with rural electrification. In 1947-48, 2,227 rural subscribers were connected and last year the number added was 9,353.
LOCAL LOANS FUND.
After electricity development, the largest item of outlay from borrowings is £2.8 million for advances to the Local Loans Fund. Issues from the fund in 1949-50 are estimated to amount to £3.45 million, of which £2.72 million will be for housing and £0.65 million for public health services, the balance being for vocational schools and other services. The advances of £2.8 million from the Exchequer will be supplemented by the re-issue of capital repayments of £0.65 million. Issues from the Transition Development Fund for housing and allied services are estimated at £1.33 million. Thus, between the two funds, almost £5,000,000 will be made available this year by way of loans and capital grants for housing and public health services. A further £1,000,000 or so will be provided through the Vote for Local Government in the form of housing grants to private persons and others and contributions to loan charges of local authorities. In addition, some of the larger local authorities will continue to finance housing schemes by direct borrowings from the public. The amount borrowed from the public last year was over £3,000,000, of which Dublin Corporation accounted for £2,500,000.
HOUSING FINANCE.
The large and growing sums which are being spent on housing reflect the intensity of the effort which is being made to remedy a grave social problem. The facilities and subventions provided by the State for local authorities are roughly equivalent to the giving of completely interest-free loans for housing. In many cases, notably for rural housing, the terms of State aid are even more favourable. The measure of State aid can also be expressed by saying that, on average, roughly one-half (rather more for rural housing) of the capital cost of local authority housing is, in effect, borne ultimately by the State, the other half being shared by the local authorities and the tenants of the houses in varying proportions. Although the rate of interest on advances from the Local Loans Fund is 3¼ per cent., borrowers for housing are being compensated in respect of the increase from the former 2½ per cent. rate. The compensation, expressed as a capital sum, is in the neighbourhood of £100 for the average urban house.
TELEPHONE CAPITAL.
Capital expenditure on the extension of the telephone system is met by borrowing from the Post Office Savings Bank, repayment being provided for by an annuity charged against voted moneys. The revenue from the service more than offsets this charge. Expenditure in 1949-50 is estimated at £1,920,000. The new main cable from Dublin to Cork with branches to Waterford and Athlone will take about £500,000. The extension of the automatic exchange system in Dublin and Dún Laoghaire, Cork, Waterford and other districts will cost a further £500,000. The connection of 10,000 new subscribers this year will involve an outlay of £335,000 and the balance of the estimated expenditure will be incurred on various improvements of the system. This is all productive expenditure in the sense that the revenue from subscribers is expected to be sufficient to defray interest and capital charges.
ROAD FUND.
The total expenditure of the Road Fund in the current year is estimated at £4,300,000 of which £2,400,000 will be provided from current revenue, i.e. the proceeds of motor taxation, £300,000 from the balance on hands and £1,600,000 from temporary advances from the Central Fund secured on future revenue of the Road Fund. The grants to local authorities for road maintenance and improvement for the current year have been settled at £2,400,000, the equivalent of the estimated revenue from motor taxation.
TURF DEVELOPMENT.
The amount included in the White Paper for advances to Bord na Móna this year is £1,080,000 as against actual advances of £800,000 in 1948-49. This provision is related to the scheme of development authorised by the 1946 legislation under which Bord na Móna plan to attain an annual output of 1,000,000 tons of machine-won turf. Financial provision will be made in an amending Bill for the inauguration of a second development scheme and for the housing of workers engaged on the schemes.
OTHER ISSUES.
Little need be said about the other items comprised in the heading "Capital and Other Issues" beyond an expression of hope that it will not be necessary to make any provision in 1950-51 for advances under the Transport Act, 1944. The provision of £420,000 made under this head in the current year is for advances from the Central Fund in fulfilment of the guarantee of interest on Córas Iompair Éireann debentures. It is my hope, and the community is entitled to expect, that the reorganisation of the company's affairs now in hands will enable it to meet such charges in future years out of its own resources.
LAND RECLAMATION.
The scheme recently announced by the Minister for Agriculture should add considerably to the extent and fertility of agricultural land and so contribute to the recovery in agricultural production and exports on which our future prosperity depends. It has been estimated that some 4,000,000 acres of farmland, widely and unevenly distributed throughout the country, are of little or no value owing to inadequate drainage. The productivity of a further 500,000 acres is capable of being improved by the removal of furze, scrub, boulders and unnecessary fences; with State grants and assistance for draining and fertilising it is hoped to bring back this considerable area of agricultural land into full productivity in the next ten years or so. This investment in the improvement of our basic natural resource, the land, is regarded as an appropriate use of some of the proceeds in Irish currency of the dollar borrowings from the Government of the United States under the European Recovery Programme. Accordingly, the capital cost, though provided in the usual way by Vote of the Dáil, will be treated for budgetary purposes as proper to be met by borrowing which, so far as the American Loan Counterpart Fund is made available, will be effected by the issue of securities to that fund. It will be recollected that the recent Central Fund Act contained a provision authorising the investment of the Counterpart Fund moneys in Government securities.
HEALTH SERVICES.
Apart from the capital expenditure which is being defrayed from internal and external borrowings, expenditure will also be incurred on the provision and extension of hospitals, involving a draw on the investments (mainly sterling) of the Hospitals Trust Fund, which at present amount to £10,000,000 approximately. Grants to local authorities for health services, the growing cost of which is at present borne entirely by the Central Government, are included in the Supply Services, the relevant provision in this year's Health Estimate being £2,160,000. The total net health expenditure by health authorities, inclusive of grants from the Central Fund, is estimated at almost £7,000,000. The capital expenditure mentioned is distinct from these continuing and growing charges against taxation. All this expenditure from public funds, together with the contributions from Hospitals Trust receipts, to the running expenses of voluntary hospitals, private subscriptions, the activities of health organisations, etc., represent a considerable effort to combat disease and improve the health of the community.
CENTRAL GOVERNMENT AND LOCAL AUTHORITY DEBT.
During 1948-49 the total debt of the Central Government, including the capitalised value of housing contributions, rose from £104.9 million to £116.3 million. This increase is attributable as to £8,000,000 approximately to net issues for capital expenditure, as to £1.4 million to increased housing liability, and as to the balance to dollar borrowing from the Government of the United States, the proceeds of which have been placed to the credit of a special account in the Central Bank in accordance with the Appropriation Act of 1948. Net issues to the Electricity Supply Board came to £3.4 million, advances to the Local Loans Fund to £2,000,000, advances for telephone capital development to £1.1 million, advances to Bord na Móna to £0.8 million, and advances to the Road Fund to £0.7 million. These issues were financed temporarily by short-term borrowings which are being repaid out of the proceeds of the recent £12,000,000 issue of 3 per cent. Exchequer Bonds. Interest and sinking fund charges in respect of Central Government debt will amount to approximately £5,000,000 in the current year, apart from the contributions of roughly £0.7 million to housing charges of local authorities.
The gross debt of local authorities was £36,000,000 at the 31st March, 1948, and their net debt £23.6 million. During 1948-49 further net debt of over £2,500,000 was incurred.
DOLLAR BORROWINGS.
The Central Government debt of £116.3 million at 31st March includes approximately £2,000,000 of borrowings from the Government of the United States under the loan agreement entered into last year. By this agreement as extended in February last a line of credit of $89,000,000 has been established in favour of the Government of Ireland. Interest payments in respect of the borrowings are due to commence in 1952 and principal repayments in 1956. The line of credit is drawn upon only as claims for reimbursement of dollar expenditure are discharged by the Economic Co-operation Administration. Dollar expenditure is met initially out of our own earnings and purchases of dollars from London. Total dollar payments in 1948-49 amounted to $70,000,000 of which $30,000,000 was met from our own earnings, $3,000,000 has still to be discharged and the balance of $37,000,000 was drawn temporarily from the Sterling Area Pool. Dollar payments in 1948-49 were less than the expenditure attributable to the year, some of which, particularly for grain imports, will mature in the first quarter of 1949-50. The drawings from the pool have, of course, to be made good according as reimbursement is secured from the United States Government under the line of credit. A sum of almost $8,000,000 was so reimbursed by the 31st March last and was returned to the pool, the proceeds of the sale being carried to the credit of the special account in the Central Bank which then stood at £1,961,515. Although only $8,000,000 approximately was drawn under the line of credit in 1948-49, claims for a further $32,000,000 arise which, when discharged by the Economic Co-operation Administration, will entail a corresponding draw on the line of credit. The imports of grains, oil, machinery, tobacco and other commodities made possible by dollar borrowings from the Government of the United States have been of immense value to our economy. The overdraft facilities provided by the Sterling Area Pool have also been invaluable in easing the transition to the new method of dollar financing under Economic Co-operation Administration. Evidence of the return to more normal trading conditions and of the part Ireland is playing in furthering the objectives of O.E.E.C. and Economic Co-operation Administration and reducing Europe's dollar deficit is provided by the remarkable drop in our dollar outlay since 1947, when it reached the figure of $141,000,000.
USE OF PROCEEDS OF DOLLAR BORROWINGS.
I have already referred to the intention to apply moneys in the American Loan Counterpart Fund towards financing the new scheme of land reclamation. The policy of the Minister for Finance in relation to the investment of the proceeds of dollar borrowings must be guided by two main considerations: The need to avoid inflation or other adverse economic consequences as a result of adding to the volume of money from external sources and the obligation which rests on the Government of repaying the borrowings with interest. To avoid an increase in the taxpayer's burden, the accruing resources of the Counterpart Fund — the amount of which depends, of course, on Ireland's dollar allocations under the European Recovery Programme—must be invested in a manner that will ensure an increase in revenue sufficient to service the external debt. The necessary increase in revenue may be secured either directly, by investment in public projects which are in themselves of a profit-earning character, or, indirectly, by developmental expenditure calculated to increase the national income and, automatically, the yield of taxation. The Dáil will be duly informed and where necessary, asked in the usual way to approve of any such use of moneys in the Counterpart Fund. It is intended that a proportion of the fund should be invested in readily realisable securities as a reserve against the maturing liability for repayment of principal and interest.
STATE GUARANTEES.
In addition to direct State borrowing, internal and external, a considerable contingent liability has been incurred in respect of guarantees. A statement recently presented to the Dáil shows the total principal liability on foot of guarantees of bank overdrafts of certain State-sponsored companies at £9,779,000 on the 31st March last. Further liabilities existed at that date in respect of the guarantee of the overdraft of the Butter Marketing Committee (£664,000) and of debentures of Córas Iompair Éireann (£14,039,000). These guarantees alone total over £24,000,000, most of which is by no means a remote liability. In the case of Córas Iompair Éireann the guarantee of debenture interest had to be fulfilled to the extent of £360,000 last year and is expected to entail a further issue of £420,000 in the current year. There is indeed a possibility, which I sincerely hope will be avoided, that the Exchequer may have to meet its guarantee of the principal of £1,150,000 of Córas Iompair Éireann debentures redeemable next January. In the case of Fuel Importers, Limited, where the guaranteed overdraft amounts to almost £5,000,000 over £3,000,000 represents loss on stores of fuel which will have to be made good by the Exchequer to enable the overdraft to be discharged.
INVESTMENT AND SAVING.
It is clear from the indications which I have given that capital expenditure by the Central Government and local authorities will reach a record height in the current year. Gross capital expenditure by public authorities and by private concerns and individuals will probably account for almost one-fifth of total national expenditure. To keep capital outlay on this scale from having inflationary consequences, it is essential that output and savings should be increased.
SMALL SAVINGS.
In my last Budget statement I announced the restoration, as from 1st July, 1948, of the traditional rate of interest—2½ per cent. per annum—on Post Office Savings Bank deposits. In addition, the limit for individual holdings of Savings Certificates was raised from 625 to 1,250 unit certificates. I expressed the hope that savings would thereby be encouraged. For several months past efforts have been made to direct attention to the advantages of these modes of saving by posters and other publicity devices. As a result of these measures, I am glad to be able to report a marked recovery in Savings Bank deposits and in purchases of Savings Certificates. By contrast with a net withdrawal of £241,000 from the Savings Banks in 1947, there was a net deposit of £1,591,000 in 1948. In the case of Savings Certificates there was, for 1948 as a whole, an excess of repayments (including interest) of £50,000 compared with an excess of purchases in 1947 of £21,000. Since the publicity campaign was started, however, this adverse trend has been reversed; net sales of Savings Certificates between end-November and mid-April amounted to £161,000 whereas there was a net repayment of £81,000 in the same period the year before. Savings Bank deposits increased by £1,520,000, whereas, there was a net withdrawal of £718,000 during the same five months of the previous year. Including accrued interest, the liability of the Post Office Savings Bank to depositors at 31st March, 1949, is estimated at £46,086,000, an increase of £4,304,000 over the figure at 31st March, 1948. The total indebtedness in respect of Savings Certificates at 31st March, 1949, is estimated at £17,097,000, or approximately £592,000 in excess of the liability as at 31st March, 1948. The recent upward movement is encouraging at a time when the need for savings is so acute. Now that it has taken root again the habit of thrift will, I hope, grow and spread. Increased savings are required from all sections of the community as the basis of the capital development which is a precondition of an improved national income.
BALANCE OF PAYMENTS.
A provisional estimate of the balance of payments for 1948 indicates a narrowing of the gap between outgo and receipts. Equilibrium is, however, far from being restored. The deficit on current account is estimated to have been of the order of £15,000,000, involving a corresponding realisation of external assets. This figure is happily much less than the £30,000,000 deficit recorded for 1947. The trade deficit for 1948 was almost as high as that for 1947—£89,000,000, as compared with £92,000,000. The improvement in the balance of payments as a whole is attributable mainly to increased income from tourism, the number of visitors in 1948 being about one-third more than in 1947.
EXPORTS.
It would be overoptimistic to rely upon a continuance of tourist income at such unprecedented levels and so it is all the more necessary to secure a substantial increase in exports. The increase in the value of exports from £39.5 million in 1947 to £47.5 million in 1948 is welcome, but the increase in volume was very slight and a much greater improvement is essential. Owing to a decline in the level of imports and an increase in export values, the trade deficit has been narrowed since last summer, but it still remains about £5,750,000 a month, or, say, £70,000,000 a year, a gap which, even if it were not widened again, could be bridged only if investment income, pensions, emigrants' remittances, sweepstake receipts, etc., remained at their present level and tourist income did not sink below £35,000,000 a year. Obviously these are untenable assumptions and there is no room for complacency about the depressingly low volume of exports, which is still 27 per cent. below 1938. The egg and poultry industry is leading the way to the expansion which is necessary in all branches of the export trade; if this good example is followed in other fields, on a later Budget occasion it should be possible to refer to a worth-while improvement of a more general type.
IMPORTS.
The value of imports in 1948 was £136.7 million, as compared with £131.3 million in 1947. The 1948 figure is the highest ever attained and shows an increase in volume of 27 per cent. over that for 1938. The restocking which characterised 1947 continued during the first part of 1948. It seems probable that imports have passed their peak as a somewhat lower level on average has prevailed since last summer. This reduction is welcome as the high rate of imports tended to impose too severe a strain on the balance of payments. The considerable increase in imports of maize, other feeding stuffs, fertilisers, and oil is a source of particular satisfaction since imports of these commodities help forward the much-needed improvement in agricultural production and exports. Imports from the United States and Canada fell from £34.9 million in 1947 to £14.3 million in 1948. The cessation of coal imports from the United States and a general reduction in dollar purchases, of which wheaten flour and cotton yarn and piece goods may be specially mentioned, account largely for this decline, which was offset by increased imports from the sterling area.
AGRICULTURAL OUTPUT.
Agricultural output is still about 7 per cent. below the 1938-39 level. In terms of 1938-39 prices gross output for 1948 has been provisionally valued at £50,000,000, as compared with £53.5 million in 1938-39. There was a slight recovery as compared with 1947—a year of unfavourable weather—when the gross output figure on the same basis of valuation was £49.2 million, but there is obviously need for a much greater improvement, especially in the production of cattle, sheep and pigs. Crop yields per acre were much better than in 1947, though still considerably short of 1938 levels. This improvement was due to good weather and more fertilisers. The output of cattle and calves in 1948 was, however, 22 per cent. below 1938-39. Sheep and lamb output last year was 40.1 per cent. and pig output 57.6 per cent. under this rather low pre-war standard. An early improvement is expected in the case of pigs, as supplies of maize are now available and the cycle of production is short; recovery in the case of cattle and sheep will be a slower process.
INDUSTRIAL OUTPUT.
The figures for industrial output are more satisfactory. The volume of production of industries producing transportable goods for the year 1948 was 36 per cent. above that for 1938 and 15 per cent. more than for 1947. In industry as a whole—including building and construction, Government and local authority works, transport and public utilities, in addition to industries producing transportable goods—the provisional estimates of the volume of production show an increase of 28 per cent. over 1938 and of 16 per cent. over 1947. These figures show that Ireland is enjoying the improvement in supplies and in other conditions which has led to the general increase in industrial activity in Western Europe.
WAGES AND EARNINGS.
Industrial earnings were, by September last, 82.4 per cent. on average above those for September, 1939. This increase corresponds with the rise in the cost of living since pre-war, so that workers generally have now been fully compensated for the rise in living costs. The cost-of-living index itself has been virtually stable for the past year and it is, therefore, to be expected that the upward adjustment of wages and salaries has been completed. Agricultural wages and farmers' gross incomes have more than doubled as compared with pre-war.
NATIONAL INCOME AND TAXATION.
It has not yet been possible to resume publication of the official Estimates of national income and expenditure which were inaugurated in the White Paper published in March, 1946. Such Estimates are of importance in economic analysis and in the shaping of Government policy, and, as I stated recently, it is hoped, with the collaboration of the new Central Statistics Office, to have up-to-date figures ready for publication next year. A very rough estimate, prepared by short-cut methods, put the national income for 1947 at about £320,000,000. The proportion of the national income which is absorbed by taxation—including local rates and social insurance contributions as well as Central Government tax revenue— is of the order of 25 per cent., or roughly £27 per head per annum. The persistence of such burdens over any lengthy period would be deplorable, and all our efforts should be directed towards securing their abatement.
MONETARY SITUATION AND PRICES.
Total monetary circulation increased by £2,575,000 between March, 1948, and March, 1949. Advances by the banks to Irish customers increased in the same period by £5,332,000 to reach £90,968,000, as compared with £47,437,000 for the March quarter 1939. This increase reflects the rise in the general price level since pre-war. The circulation of cheques in 1948, as indicated by the figures of debits, shows an increase of 16.1 per cent. over 1947. The agricultural price index for 1948 was 248, as compared with 225 in 1947, 196 in 1946 and 100 in 1938-39; for the last quarter of 1948 it was 252, as compared with 241 for the same quarter of 1947. This rise in agricultural prices has far outpaced the rise in retail prices, as indicated by the cost-of-living index, which averaged 183 for 1948, as compared with 178 for 1947 and 100 as at mid-August, 1938. It is clear that the position of farmers has markedly improved as compared with pre-war, both absolutely and in relation to wage and salary earners. This adjustment was a necessary correction of their previously depressed conditions, but with world prices for wheat and other commodities falling further below the guaranteed domestic price, it would be unrealistic for farmers to expect a continued increase in agricultural prices. Improvement in incomes must be sought in increased output and lower costs of production. Wholesale prices advanced 5.8 per cent. between 1947 and 1948 under the influence of the increase of 10 per cent. in agricultural prices. Import prices showed an increase of about 3 per cent. and retail prices, as already indicated, of less than 3 per cent. On the whole, it appears that the upward surge in prices has spent itself and that, if the forces making for inflation are held in check, further increases will be avoided.
CONCLUSION.
This brief survey of present economic conditions discloses favourable and unfavourable features. Amongst the more encouraging signs are the increase in industrial output and employment, the incipient recovery in certain agricultural exports, the reduction in both the over-all deficit and the dollar deficit in the balance of payments, the increase in small savings and the tendency towards stability in the price level. On the other hand, agricultural output and exports as a whole are still at dangerously low levels, capital expenditure— some of doubtful productivity—is outstripping current savings, rates and taxes are excessive, dead-weight debt is rapidly expanding and production costs are unduly high. The primary needs of the moment are increased output at lower unit costs from farm and factory and more saving by the community generally. To this public authorities, central and local, can contribute by reducing their demands on taxpayers and ratepayers. With such improvements rapidly achieved the national economy would gain in strength and stability.
I think that the reaction of the public, like that of the majority of the members of the Dáil, to this Budget will be one of intense disappointment. I do not know what the laughter opposite is intended to convey.
If you had a sense of humour you would.
I am sure I am speaking for many Deputies opposite when I express disappointment that there is not in this Budget a single reference to the comprehensive social welfare scheme which we were assured it was part of the policy of the Government to introduce as soon as possible.
And so it will.
Not this year. Does the Tánaiste think that the workers of this country are like a flock of donkeys that are kept moving by a carrot being dangled in front of their noses? They promised when they set up Government——(Interruptions.)
The Minister was heard without interruption and the Deputy has the same right.
When this Government was set up they published instantaneously a declaration of the purposes for which it was formed, the famous ten-point programme. In that ten-point programme it was stated that one of its immediate aims was to introduce a comprehensive social security plan to provide insurance against old age, illness, blindness, widowhood, unemployment, etc. Within a few weeks the Minister for Social Welfare assured the Dáil that he would have a White Paper embodying the Government's proposals in relation to social welfare available for the consideration of Deputies before the summer of 1948. The Paper did not appear. Further questioned he promised to produce it before the end of 1948. It did not appear. He was questioned early this year and again was able to give no firm indication as to when even the preliminary statement of the Government's intentions would be published. We must assume from the absence of any reference to the scheme in the Budget that there is no intention of bringing it into operation within this financial year. If the Deputies who are committed to the introduction of that scheme, who pledged themselves to their constituents to concentrate their efforts in this Dáil to have it prepared and enacted, are satisfied with that situation then I think they speak only for themselves. I also remind the Deputies opposite that there will be widespread disappointment because of the failure of any serious attempt on the part of the Minister for Finance to implement their pledges to reduce the cost of the Government and with it the burden of taxation.
Let us relate this Budget to one or two preceding it. It is not possible to consider it in this House except we go back a step or two in time. Two years ago Deputy Aiken, as Minister for Finance, opened to the Dáil the Budget of 1947. In the course of that Budget Statement he proposed to this House and secured the approval of this House for taxation which was estimated to yield £53,000,000. The members of the House who were then in opposition and who are now Ministers were unanimous in their denunciation of these proposals. They protested that the burden of taxation which they involved for the people of this country was beyond their capacity to bear.
The late Deputy Hughes opened the debate for the Fine Gael Party and he described the Government that proposed it as the spendthrift Government and as indifferent to the effect of that taxation upon the people of the country and their welfare. The Leader of the Fine Gael Party, now the Minister for Education, described these proposals, proposals designed to yield in that year £53,000,000 in revenue, as leaving the people of this country struggling in misery and distress. The present Minister for Lands, then the leader of the Clann na Talmhan Party, described the Budget as indicating a policy of reckless extravagance and expenditure. Similar speeches were made by the Minister for Social Welfare, the Minister for Posts and Telegraphs, the Minister for Agriculture and the Minister for Industry and Commerce. These proposals related to a year in which the post-war economic crisis in this country was at its height, in which there were major economic difficulties arising out of the scarcity of supplies, in which the Government had to take exceptional measures in order to ease the burden of conditions upon our people. However, because they involved a taxation to yield £53,000,000 they were denounced in these unmeasured terms by the men who are now sitting in the Government Bench opposite. Later in that year when the proposals in that Budget failed to check the rise in prices which was then occurring throughout the world, the Minister for Finance in the Fianna Fáil Government came to the Dáil with a Supplementary Budget designed to bring in a further £4,700,000 in that financial year for the sole purpose of checking that rise in prices through increasing the food subsidies in force. Do the Deputies opposite not remember that they made the burden of taxation imposed by that Supplementary Budget the keystone of their general election platforms? Did they not, at every meeting they addressed in the election campaign, profess their belief, not merely that that burden was more than the people of this country could bear, but that it was an unnecessary burden and that it could be reduced by a more efficient Government, one concerned with retrenchment and economy, the two words of which the present Minister for Finance is so very fond? The present Minister for Finance described that burden of £57.7 million in words which are worth repeating—he is fond of dramatic words—"amazing,""prodigious,""prodigal." These were the adjectives which flowed from the lips of the present Minister for Finance. He came to the Dáil as Minister for Finance in March last year and his first public statement was to assure the Dáil not merely that he regarded that burden as too heavy, not merely that he intended to effect a reduction of that burden, but that he had secured from all his colleagues in the Government an assurance of their willing co-operation in carrying out that programme of reducing taxation below the prodigious and prodigal heights to which it had been raised by the Minister for Finance in the Fianna Fáil Government. Later he introduced his first Budget, the Budget which contained proposals for taxation estimated to yield £61½ million and which, in fact, produced £62½ million. He excused that Budget on the grounds that he was not long enough in office to carry into full effect the policy of retrenchment and economy to which he said he and his colleagues were committed.
He promised in his Budget statement last year that the pursuit of retrenchment would be his major concern throughout the year, and he certainly left the House and the people of the country under the impression that when he came here in this month with the first 100 per cent. Coalition Budget, he would show they were not talking through their hats and that, in fact, they could not merely give the people the benefit of extended Government services but could do so at a lower cost in taxation than had previously been necessary. Now he presents us with a Bill for £64,500,000. That is the amount of taxation which the people of this country are going to contribute in this year. It is true there is to be a reduction in income-tax. Last year the income-tax payers gave the Minister for Finance £1,500,000 more than he expected. The yield from income-tax and surtax exceeded the Budget estimate by £1,500,000, and so, in his generosity and for the purpose of concealing the increased taxation which this Budget means, he is going to give half of it back. Because of the passage of the war-time emergency situation and the improvement in supplies of tobacco and petrol, the tax revenue of this State will this year be £2,500,000 higher than last year. Because of that fact, because of these very specific pledges given by the Minister for Finance and his colleagues, because of the knowledge that the special charges upon revenue necessitated by the emergency have ceased, the fuel price subsidy, the cost of production of hand-won turf through the county councils' scheme, and because the reduction of the international price of wheat have reduced the cost of these services by £6,000,000, surely we were entitled to expect not the paltry return of £431,000 out of a bill of £64,500,000, but a far more substantial reduction in taxation than that. Remember the Minister pledged the Government to it if ever any body of men in Irish politics were deemed to be pledged to anything. This Government were pledged to retrenchment and economy and the reduction of taxation. In so far as they got support from the people at the general election it was on that programme. They did not repudiate that promise when they became a Government. They repudiated others, but that one they announced their intention to adhere to. They announced it in their ten point programme and in the first speech made in this Dáil by the Minister for Finance. They announced it in a more formal manner in the Budget Statement of last year, and that pledge has been dishonoured. Are we now to take it that that has been repudiated? I should have thought that the Minister for Finance could have searched in the depths of his soul and found some lingering sense of shame which would have induced him, as the member of the Government that had to announce the dishonouring of these promises and the breaking of these pledges, to make some excuse, however feeble, and some apology for the default. Search the Budget Statement and see if you can find in it any expression of regret that they have been unable to do what they pledged themselves to do or to fulfil in the least degree the solemn undertakings which they gave to the Dáil.
The details of this Budget will be discussed later in the Dáil. I do not want to refer to them now. I will do this: I will congratulate the Minister for Finance for having given us a far more honest statement than he gave us last year. It may be that the hypocrisy in it is less obvious than it was last year. It may be that the references to continued efforts to find economies and retrenchment contained in this statement are so much propaganda to lull the back-benchers of the Coalition into acquiescence, but the recorded fact is that the taxation which the Irish people will have to pay this year will exceed by £8,000,000 the amount which they paid in the last year of a Fianna Fáil Government, an amount which the members of the present Government denounced as excessive and which they undertook to reduce. Let them explain that to the people of this country. They cannot hope to explain it to us, but let them have no doubt that they will be often reminded of it during the course of the debates on these Budget Resolutions and on the Finance Bill which will follow.
With regard to the Financial Resolutions, we have not had an opportunity of considering them and we propose to allow them to pass now without a division. That, however, is not to be taken as an indication of our agreement with them.
Of course further opportunities will arise on the Report Stage of the Resolutions, and on the Finance Bill.
We are prepared to let them pass now.
The following Resolutions were, accordingly, agreed to:—