Financial Statement. - Budget, 1950.

FINANCIAL YEAR, 1949-50.

Last year, having provided for taxation reliefs of £932,000, I budgeted for a surplus of £35,000, revenue being estimated at £72,916,500, and outlay on Central Fund and Supply Services, after deducting £600,000 for capital expenditure, at £72,881,000. Additional supply of £9,200,874 was granted during the year, and the Exchequer issues finally totalled £81,211,766, representing an increase of £7,730,766 on the gross Budget figure of £73,481,000. Revenue payments into the Exchequer amounted to £74,025,758, leaving a deficit "above the line" of £7,186,008.

By reference to the classification of "capital services" adopted for 1950-51 this deficit of £7,186,008 may be regarded as being more than offset by issues for such services, which amounted to £7,746,353, including £2,464,000 for capital advances to Córas Iompair Éireann. When comparing the outturn for the year with the Budget forecast, however, it is more appropriate to deduct only £4,521,000 for capital outlay and, on this basis, last year's deficit becomes £2,665,008.

The revenue receipts of £74,025,758 show an increase of £1,109,258 on the Budget forecast. Of this increase tax revenue accounted for £1,040,500. A noteworthy feature was that, despite the relief given last year, income-tax, including surtax, yielded £17,051,000, or £1,085,000 more than the Budget estimate of £15,966,000, by reason partly of improved collection of arrears and partly of the general increase in incomes. Estate duties, stamp duties and motor vehicle taxation yielded, respectively, £129,000, £30,000 and £152,000 more than was expected but these increases were offset by a reduced yield of £328,500 from customs and excise duties and of £27,000 from corporation profits tax.

FINANCIAL YEAR, 1950-51.

For the current year, expenditure chargeable against revenue is estimated at £75,676,553. This figure comprises £66,013,553 for the non-capital services detailed in the published volume of Supply Estimates, an additional sum of £600,000 as a provision for Supplementary Estimates during 1950-51, and £9,063,000 to meet Central Fund charges. The last-mentioned estimate shows an increase of £1,166,000 over actual issues in 1949-50, mainly for the service of public debt, which this year includes an annuity of £655,000 to redeem in full over a 30-year period the £12,113,680 of voted capital services which are being financed by borrowing.

The provision of £600,000 for Supplementary Estimates is due to additional expenditure on a number of services, including increases in the pay of secondary teachers and forestry workers, certain defence items, a contribution to a welfare organisation for European relief and a scheme, for which an Estimate of £150,000 will shortly be introduced, to encourage firms and individuals to avail of the valuable technical assistance which is being afforded by the United States Economic Co-operation Administration. The provision will also enable me, after investigations which I intend to make, to give additional grants to university institutions, including for the first time St. Patrick's College, Maynooth.

The original 1950-51 estimate for voted non-capital services, £66,013,000, represents a net increase of £445,000 on the comparable non-capital outlay in 1949-50. There is a greatly increased provision for some of these services, which is offset by reductions in others. Roughly £1,140,000 more is being provided for education, £838,000 more for health services, £297,000 more for the Defence Forces, £178,000 more for grants in relief of rates on agricultural land and £260,000 more for postal and telegraph services. On the other hand, to mention a few of the major reductions, the amount required for tea and sugar subsidies is down by £340,000, the subsidy payable for air services is £420,000 less, and no provision is made under this head for working losses of Córas Iompair Éireann.

The revenue for 1950-51 at existing rates of taxation is estimated in the White Paper of Receipts and Expenditure at £75,050,000. The estimated tax revenue—£65,930,000—shows an increase of £833,000 over actual receipts last year, which is evidence of its continued buoyancy. The non-tax revenue is estimated at £9,120,000—an increase of £191,000 on last year's receipts. This, with a contribution of £300,000 from the Road Fund, will bring the total estimated revenue for 1950-51 to £75,350,000.

The difference between the estimated outlay on non-capital services, £75,676,553, and the estimated income from tax and non-tax revenue, £75,350,000, is £326,553. This deficit will be transformed into a surplus as a consequence of the proposals which I shall now outline.

TOBACCO.

I expect to obtain an additional revenue of £350,000 this year from tobacco as a result of increased clearances from bond by manufacturers. The supply of cigarettes to the consumer is now primarily determined by the capacity to produce and market them and the control over releases is merely nominal. It is, however, being retained as a safeguard against the possibility of future difficulty in maintaining stocks of tobacco leaf at the present level. During 1949 the authorised rate of clearance of leaf from bond was twice raised and a further easement is now proposed. The manufacturers as a whole were unable to avail themselves fully in the past year of the additional releases but the amount of tobacco consumed in 1949-50 was over 1,400,000 lbs. more than in 1948-49. Supplies of cigarettes are now fairly plentiful and the additional output expected during the current year should remove any shortage that still exists.

In last year's Finance Act a preferential rate of customs duty was brought in as an inducement to tobacco manufacturers to obtain part of their supplies of leaf from countries outside the dollar area. Following the conclusion last January of the Treaty of Friendship, Commerce and Navigation with the United States of America it was considered that the retention of the preferential rate would scarcely be in accord with the terms of the Treaty. I propose, therefore, to withdraw the preferential rate with effect from the 31st July next. This date has been fixed so as to give reasonable notice to the tobacco manufacturers concerned. As a further safeguard for them provision will be made whereby non-dollar leaf purchased before that date will be accorded the benefit of the preferential rate. The withdrawal of the preference will probably result in an additional yield of duty of about £25,000 in the current year and £40,000 in a full year.

INCOME-TAX, CORPORATION PROFITS TAX AND ESTATE DUTY.

I propose to have the exemption from income-tax of wound and disability pensions extended so as to include all such pensions granted under the Army Pensions Acts, 1923 to 1949, and all increases in such pensions under those Acts. In view of the passing of the Army Pensions Act, 1949, and the Army Pensions (Increase) Act, 1949, the extension is necessary in order that all income from wound and disability pensions under the Acts may enjoy the exemption.

I also propose that the exemption from income-tax given to widows of persons killed in the 1916 Rising should be extended to include the increased allowances granted under the Army Pensions (Increase) Act, 1949.

This brings me to some cases which I think should receive exceptional treatment. Representations have been made that allowances payable to relatives of signatories to the Proclamation of Easter Week, 1916, should not be subject to deduction by way of income-tax. These allowances were exempted from income-tax for the first year. I understand that one of the reasons for the non-continuance of the exemption in later years was that there had been no exempting provision in the case of the annuity payable under the Griffith Settlement Act, 1923. I propose to have the allowances to relatives of signatories and the Griffith annuity exempted from income-tax for the future.

I referred last year to negotiations which were in progress with the United States of America for conventions with a view to the avoidance, as between the two countries, of double taxation on income and on the estates of deceased persons. These negotiations resulted in the making of two conventions, dealing, respectively, with income-taxes and estate taxes. The conventions were signed on 13th September of last year.

The income-taxes convention covers income-tax, surtax, and corporation profits tax in Ireland and the Federal income-taxes and surtaxes in the United States. It provides for the reciprocal exemption of certain types of income, such as authors' royalties and interest, and, in regard to other types of income, such as dividends, provides for decreased rates of United States tax or exemption from Irish surtax. One of its most important provisions is that which relates to relief by means of a "credit" of the tax of one of the countries against the tax of the other. An Irish resident receiving, say, United States dividends from which United States tax has been withheld, and who is chargeable to Irish tax in respect of the dividends would, under this provision and subject to the confirming legislation, receive a credit against his Irish tax in respect of the United States tax. This "credit" system of relief was one of the solutions of the general problem of double taxation recommended by a group of experts who examined the problem under the aegis of the League of Nations. It is much in use in modern tax conventions.

The liability to double taxation as between the two countries on the estates of deceased persons can arise where the deceased person was domiciled in one country at the time of his death and had possessions in the other. It can also arise in the case of a citizen of the United States, irrespective of his domicile. The estate taxes convention provides for a system of relief by way of credit where there is double taxation of this sort. It also provides a code for determining the situation of certain classes of property and one effect of this may be to charge to Irish estate duty, subject, of course, to relief from double taxation, some properties which were not previously so chargeable.

Provisions will be included in the Finance Bill to confirm both conventions and to provide machinery for allowing United States income-taxes as a credit against Irish income-tax, surtax and corporation profits tax. As the estate taxes convention may result in charging to estate duty some property not previously chargeable a Financial Resolution is necessary.

The conventions will not come into force until they are ratified in the United States as well as here and, if ratified in both countries on or before 31st December of this year, the income-taxes convention will begin to have effect as regards Irish income-tax for the current income-tax year and as regards Irish surtax for the year ended 5th April last. For the purposes of Irish corporation profits tax the material date would be 1st April of this year. As to the United States taxes on income the convention would have effect for the taxable years beginning on and after 1st January, 1950. The estate taxes convention would be effective as regards the estates of persons dying on or after the date on which it comes into force but could, on election by the personal representative, be applied also to the estate of a person dying in 1950 prior to that date.

I propose to continue until 31st December, 1952, the exemption from corporation profits tax which has hitherto been granted to certain companies, including railway companies.

STAMP DUTY.

Last year I promised to consider in connection with this Budget whether any modifications could be made in the 25 per cent. and 5 per cent. stamp duties on transfers or leases of houses and lands. As regards the 25 per cent. duty, purchases of property in this country by non-nationals, never very considerable, have fallen away appreciably. While I do not like the principle of a discriminatory duty I do not propose to have the 25 per cent. rate abolished this year. It still serves a useful purpose in giving an advantage to our own nationals in the acquisition of property and it provides some additional revenue. It is estimated to produce £50,000 this year.

As regards the 5 per cent. duty I have considered extending the upper limit of £1,000 to which a graduated scale now applies but regret that I am unable to propose any alteration in the incidence of the duty this year. The yield of duty at the 5 per cent. rate is estimated at over £600,000. The matter will be reviewed again before next year's Budget.

In my Budget Statement last year I referred to legal evasion of taxation. I pointed out that, when people discover gaps in the taxing net and use them for their own purposes, this means that the weight of taxation that has to be borne becomes to that extent unevenly and unfairly distributed. I pointed out also that such evasions, if not stopped, might in the long run diminish appreciably the flow of revenue to the Exchequer.

Since last year a method of avoiding the normal incidence of stamp duty on the transfer of property has come under notice. It may be explained broadly as follows: Instead of conveying the property on sale the parties arrange to have it transferred by way of lease for a long term at an adequate annual rent. The lease, however, embodies an option for redemption of the whole or any part of the rent by payment of a sum amounting to, say, £20 for each £ of the rent redeemed. Thus, the lease is chargeable by reference to the rent only. There is no fine or premium to attract the duty imposed by Section 24 of last year's Finance Act.

Shortly after execution of the lease the option is exercised by redemption of, say, 99 per cent. of the rent, and the lease is endorsed accordingly. The endorsement may be so drawn as not to be liable to stamp duty. After exercise of the option the lessor assigns his remaining interest in the property —that is, the rent as reduced— and conveyance duty is chargeable on the consideration for the assignment. In consequence, that duty becomes chargeable only on a small proportion of the money passing. I propose to move a Financial Resolution to-day to deal with this method of escaping tax.

Under Section 13 of the Finance (No. 2) Act, 1947, which increased the stamp duty payable on conveyances or transfers of land, provision was made for exemption, from the increased rate of £5 per cent., of certain transfers. The transfers I have in mind are those effected by a local authority under the provisions of the Housing of the Working Classes Acts, 1890 to 1931, or the Labourers Acts, 1883 to 1941, and also transfers by a society registered under the Industrial and Provident Societies Acts, 1893 to 1936, and made in accordance with a scheme to provide houses for its members. When the Finance Bill, 1949— which applied the increased rates to premiums on leases—was being prepared it was believed that a similar exemption was not required. It has since come to light, however, that in certain cases transfers of the types that were excepted from the increased rate in 1947 are carried out by way of lease. I intend, therefore, to include in the Finance Bill a section designed to secure retrospectively that last year's legislation applying the increased rate of £5 per cent. to premiums on leases shall not affect leases of this kind.

It has been represented to me by assurance companies that the law under which policies of industrial life assurance require to be individually stamped should be amended. In the preparation of policies of industrial assurance the companies use forms which have been already stamped. It is found in practice that numbers of these forms become spoiled or useless. The companies apply for and are granted—under statute—repayment of the duty impressed on the spoiled or useless policies. The companies request authority to compound for the stamp duty payable in respect of industrial life assurance policies, that is, they wish that the individual policies should not be chargeable with stamp duty. Instead, the companies would deliver periodical accounts and pay duty on the aggregate of the policies issued during the period. I have accepted this proposal and the necessary provision will be made in the Finance Bill.

In connection with the payment of arrears of old age pensions it has been decided to introduce a new corrective order of £5 denomination. The corrective order would incorporate a form of receipt and in consequence the question of stamp duty would arise. I propose to exempt such receipts from stamp duty.

ENTERTAINMENTS DUTY

An entertainment is exempted from duty where it is shown that the net proceeds are to be devoted to educational, philanthropic or charitable purposes and that the expenses do not exceed 30 per cent. of the takings. Numerous cases which have come under notice indicate that in present conditions it is exceedingly difficult for the promoters of an entertainment to keep their expenses down to 30 per cent. of the takings. The provision as it stands thus fails fully to achieve its purpose. It is proposed, therefore, to increase the expenses limit to 50 per cent. of the takings. The cost of the concession in the current year will be about £20,000, or £25,000 in a full year.

It is proposed to extend to displays of amateur wrestling promoted by the Irish Amateur Wrestling Association and its affiliated clubs the exemption enjoyed by numerous other amateur sports such as boxing, fencing, badminton, etc. The cost will be trifling.

APPRAISER'S LICENCE DUTY.

It has been brought to notice that, as a result of the enactment of the Auctioneers and House Agents Act, 1947, the scope of the long-standing exemption from appraiser's licence duty enjoyed by licensed auctioneers has been curtailed. Provision will be included in the Finance Bill to restore the pre-1947 position. The cost of the concession will be inconsiderable.

EFFECT OF BUDGET PROPOSALS

The effect of the various proposals I have outlined is to convert the deficit of £326,553 into a surplus of £28,447. This result is all the more satisfactory in that it has been achieved without increasing taxation and after providing £600,000 for Supplementary Estimates. I regret, of course, that further reliefs in taxation are not possible this year, but it will be appreciated that in existing economic circumstances, when State investment is being substantially increased on the basis of borrowings, financial wisdom precludes changes that might result in a deficit on the current budget.

OBJECTS OF CURRENT EXPENDITURE OF THE STATE.

Of the total estimated expenditure of £75.7 million on current services in 1950-51, social services and employment schemes account for roughly £13.7 million, food subsidies for £11.6 million, educational services for £9,000,000, agriculture, forestry and fisheries for £6.8 million, postal and telegraph services and broadcasting for £5.4 million, the service of debt for £6.3 million, Army pay and pensions for £4.8 million, administration of justice for £3.6 million, health services for £3.3 million and other services for the balance of £11,000,000. It is clear from this broad analysis that, apart from providing for basic administrative services and helping to improve health, education and productive efficiency, the current Budget also has an important function as a means of redistributing incomes in the interests of social justice.

COSTS OF ADMINISTRATION.

Last year, I estimated the total amount of personnel charges (including superannuation) in the Supply Services at £24.5 million. The provision in this year's Estimates is £26.4 million, an increase of £1.9 million. The items in the total are: Civil Service, £12.1 million; national teachers, £5.6 million; secondary teachers, £0.5 million; Defence Forces, £2.5 million; Garda Síochána, £2.9 million; superannuation and pensions, £2.8 million. These figures include increases of £0.6 million for the Civil Service, due to an increase in numbers and normal progression on the incremental scales and of £0.9 million for national teachers, attributable to the salary award which came into operation at the beginning of the financial year.

The Civil Service, when superannuation costs are reckoned, is responsible for more than half of the total personnel charges borne on the Exchequer. It is disappointing to find that its cost is still rising. In view, however, of the great expansion in the activities of almost all Departments of State, it is not surprising that it should be so, and I can assure the House that no effort is spared in my Department to ensure that expenditure on the Civil Service is kept to the minimum consistent with efficient administration and fair treatment of the various classes of civil servants.

A year ago I said that economies in the cost of administration should be obtainable through improvements in organisation and methods of work. Since then it has been decided to appoint in each of the larger Departments a specially-trained officer to survey the work in detail with a view to simplifying procedure, eliminating wastage, and generally speeding up the discharge of public business. Special investigations have also been carried out during the year with a view to weeding out staff redundancies, mechanising routine tasks, simplifying procedures and forms, increasing output through improved layout and equipment and so on. The results achieved so far have been encouraging, but, of course, large-scale improvements or economies will take some time to achieve.

LOCAL AUTHORITY REVENUE AND EXPENDITURE

One of the tables I have circulated shows the growth since 1938-39 in the current outlay of local authorities and the extent to which their expenditure is met by local taxation and by Government grants. Total current expenditure has risen from £12.3 million in 1938-39 to an estimated £28.4 million this year, but whereas Government grants to local authorities have increased from £4.8 million to £15.2 million, that is by £10.4 million, rates have risen from £6.3 million to £10.9 million, that is by £4.6 million. The greater part of the current outlay of local bodies is now being met from the Exchequer. Since 1938-39 rates have gone up by 73 per cent. while Central Government taxation has increased by 154 per cent. These figures should help towards a better appreciation of the extent to which taxpayers generally have relieved ratepayers of the cost of services administered by local authorities. The Central Government also provides most of the finance required by local authorities for capital expenditure.

II. CAPITAL BUDGET.

ECONOMIC OBLIGATIONS OF THE STATE.

One of the primary responsibilities of a Government is to promote, by an enlightened budgetary and investment policy, the continuous and efficient use of national resources in men and materials. A sound economic system is an essential condition of progress but, unfortunately, the automatic working of economic forces does not guarantee that available resources will adequately and unfailingly be employed to advance the national interest. The modern democratic State is, therefore, rightly expected, not only to maintain the essential liberties of its citizens, but to take an active part in securing conditions favourable to their material well-being. This entails a continuous survey of the economic and social scene and effective intervention, not merely to protect the community against the worst effects of the periodic set-backs to which modern economies are subject, but to ensure that there is adequate capital investment to develop the national economy and to provide ample opportunities for productive employment.

NEED FOR INCREASED INVESTMENT IN IRELAND.

The need for further capital development in Ireland is apparent. Under-investment in our own resources is in part responsible for unemployment and under-employment, for involuntary emigration, impoverished land, industrial under-development, bad housing and other defects in our economic and social structure. A more intensive long-term programme of capital development calls for greater savings from the community but these would be augmented by the improvement in the incomes, health and efficiency of the community which wise domestic investment would secure. The extent to which Irish capital has been invested abroad is sometimes taken as an indication of perverse policy. It is, of course, incorrect to view Ireland's sterling holdings in this light. They represent, in the main, the forced savings of two war periods when the general standard of living was compulsorily reduced by shortage of imports. In normal times no net external investment takes place. The value of the savings held abroad is that they yield purchasing power over imports, support the exchange value of our currency, and form a reservoir of accumulated resources from which, by the will of the owners and with due regard to the balance of national advantage, the stream of future savings can be augmented in the interests of a progressive policy of domestic investment.

PRIVATE AND PUBLIC INVESTMENT.

Private investment is being encouraged in many ways—by protective tariffs and quotas, by State guarantees, by income-tax concessions, etc.— and enjoys a degree of security unusual in the world to-day. There is, however, a wide range of useful capital work which private investors cannot be expected to undertake and which, therefore, must be done on a collective basis by the State. There is investment which, though expected to be directly remunerative, is beyond the resources of private enterprise to undertake or to finance; power development is an example. There is investment, such as land reclamation and afforestation, from which the returns may not be immediate or conspicuous enough to stimulate private enterprise. There is capital outlay, such as on telephone development and the improvement of communications, which can only be undertaken efficiently on a broad scale, and investment in the health and social welfare of the community, through the provision of houses and hospitals, which is unprofitable in a financial sense but confers real benefits and may ultimately lead to an improvement in national productivity.

STATE INVESTMENT IN IRELAND

During the past two years there has been a great increase in State-financed investment in Ireland. The traditional method of presenting the Budget and the national accounts tended to obscure this development. The so-called "below the line" issues for capital purposes reveal an increase from £5.5 million in 1947-48 to £9.1 million in 1948-49 and £14.2 million in 1949-50. In the White Paper of Receipts and Expenditure it is estimated that these "below the line" issues will amount to £19.6 million in the current financial year. The expansion in this category of capital outlay by the State is all the more marked when comparison is made with 1938-39, when the comparable outlay was only £1.5 million. Advances to the Electricity Supply Board in 1950-51 are estimated at £4,750,000 as compared with advances of £802,700 in 1938-39. Advances to the Local Loans Fund in 1950-51 are expected to reach £9,750,000 as against £450,000 in 1938-39, and advances to meet telephone capital expenditure are estimated at £2,250,000 this year as against actual issues of £240,000 in 1938-39. Concurrently with this increase in "below the line" capital issues there has been a tremendous growth during the past year or so in capital expenditure "above the line," that is, in voted capital expenditure chargeable against borrowings. Housing, land rehabilitation, drainage, school buildings, afforestation, harbour works, are amongst the main headings under which this increase has taken place. The amount provided for these capital services in the Volume of Estimates for 1950-51 is £12,113,680, and the importance of this branch of voted expenditure has been marked by the segregation of the capital from the other services included in the Volume of Estimates. An opportunity is now presented for bringing together the estimates of capital outlay both above and below the line, in other words, for presenting a Capital Budget of the Central Government which will focus attention on the extent and nature of State investment. It is desirable that the public should know the extent and purposes of the investment which is being undertaken on their behalf, and that there should be adequate consideration of its financial, economic and social aspects.

STATE CAPITAL BUDGET, 1950-51.

The Dáil is already aware of the constituents of the sum of £12,113,680 included for capital services in the Volume of Estimates for the current year. The White Paper of Receipts and Expenditure itemises the "below the line" capital issues which are estimated at £19.6 million. To this estimate of capital outlay of £31.7 million in 1950-51, there should be added the expenditure of the balance of over £1.6 million which remained in the Transition Development Fund at 31st March, 1950, and the proposed reissue from the Local Loans Fund of capital repayments of over £0.7 million accruing in 1950-51. The total capital budget of the Central Government for 1950-51 may, therefore, be put at £34,000,000. The purposes to which this sum will be devoted may be classified as follows:—

£ million

Housing

14.12

Public Health Services

1.16

Hospitals

0.42

Agricultural Development

6.26

Electricity Development

4.75

Turf Development

1.50

Telephone System

2.25

Transport

1.86

Schools and other State buildings

1.12

Afforestation

0.36

Tourist, Fisheries and Mineral Development

0.20

£34 million

A few words of explanation regarding some of the more important items may be helpful.

HOUSING.

The £14,000,000 odd which is being provided this year out of public funds for new houses is made up as follows:—

£ million

Advances from the Local Loans Fund for Local Authority Housing (including Small Dwellings Acquisition Acts)

8.9

Grants from the Transition Development Fund for Local Authority Housing

3.5

Grants from Voted Moneys for Private Housing

1.7

£14.1 million

In addition to this State-financed outlay, capital expenditure on housing of about £3,500,000 will be incurred by Dublin and Cork County Boroughs, bringing the gross public outlay on new houses to over £17,500,000. Contributions by the State towards housing loan charges of local authorities are not included above; they are estimated to amount this year to £758,000.

During the year it is intended to take steps to reduce the existing complexity of housing finance. At present State assistance for local authority housing is provided in four forms: by advances from the Local Loans Fund, by two kinds of annual grant from the Vote for Local Government—one to meet the statutory contribution towards loan charges and the other to subsidise temporarily the interest charge—and by lump sum grants from the Transition Development Fund. This fund is being continued until 31st March, 1951, but it will then be wound up, the assistance it now affords being merged in the charges against the Vote for Local Government. The effect of this variety of devices is that over half the capital cost of local authority housing is borne by the taxpayer, the remainder being borne in varying proportions by local authorities (i.e., by ratepayers) and tenants. There is no doubt that many of the tenants of subsidised houses could afford to pay an economic rent or a rent approaching closer to it than they now pay. The differential renting system is being encouraged in order to distribute more equitably the heavy burden of housing costs.

As well as bearing over one-half the cost of houses built by local authorities, the State is contributing generously towards the cost of houses built by private persons and public utility societies. During the past year roughly 2,500 such houses were completed with the aid of grants from the Department of Local Government. In the current year it is expected that 4,000 more will be completed. The total provision for grants is £1,725,000, including £40,000 for special grants for housing in Gaeltacht areas. Encouraged by this assistance private house building is proceeding at a rate much greater than pre-war as, indeed, is necessary to overtake the arrears of the war years. In recognition of the present exceptionally high costs to the Exchequer of the capital grants for private housing and of the necessity for a rapid improvement in housing conditions generally, it was decided that the grants for private housing should, for the time being, be met from borrowing, so that there would be no financial impediment to progress with the housing drive and the taxpayers of to-day would not have to carry an unduly heavy financial burden. The effect of including these grants amongst the Capital Services in the Volume of Estimates is that the cost of financing them will be spread over a period of 30 years, during which the borrowing will be repaid in full out of current revenue.

The employment afforded by the housing activity of local authorities and private builders is in itself a great social advantage which has indirect benefits in many directions. On the other hand, the magnitude of the programme inevitably involves certain risks. The resources of the building industry are at full stretch. Skilled labour is still short, and our cement industry is unable to meet the unprecedented demand, with the result that large quantities of much dearer cement have to be imported. In view of the intensive building activity which is being generated by State assistance, building costs require special attention so as to ensure that no section of the community profits unduly from the urgent necessity, on social and health grounds, of improving the housing of the population.

PUBLIC HEALTH SERVICES.

State assistance for such public health services as the provision of water and sanitary facilities is complementary to State assistance for housing. It is estimated that this year State finance will be provided for such schemes to the amount of £1.16 million, partly by way of loans from the Local Loans Fund and partly in the form of grants from the Employment Schemes Vote and the Transition Development Fund.

HOSPITALS.

Advances from the Local Loans Fund for County Homes and Mental Hospitals are estimated at £417,000. A further £2,000,000 may be spent from Hospitals' Trust Fund moneys on the provision and extension of hospitals.

AGRICULTURAL DEVELOPMENT.

The drainage which is being done under the land rehabilitation project, under the Local Authorities (Works) Act, and, on the basis of catchment areas, under the Arterial Drainage Act, combined with the liming and fertilising of impoverished land, represents a comprehensive effort to restore millions of acres of land to full productivity and so increase the national wealth. The provision this year for the land rehabilitation project and water supplies is £3.1 million, for local authority drainage and similar works, £1,750,000, and for arterial drainage, £652,000, making a total of over £5,500,000. Agricultural recovery should be further aided by the provision of £350,000 for grants for the construction and improvement of farm buildings, of another £350,000 for the promotion of poultry and egg production and of £60,000 for the National Stud. This total outlay of £6,250,000 is being treated as proper to be met from borrowing, a course suggested by its developmental character but which will, in the end, be justified only if the expected increase in agricultural output is secured and is consolidated by an improvement in competitive efficiency in the export market.

Within the last few months additional capital of £100,000 was made available to the Agricultural Credit Corporation. Ltd., via the American Loan Counterpart Fund. In many cases where the making of a loan is approved in principle by the corporation the loan cannot, in fact, be issued because the applicant is not registered in the Land Registry as the owner of the farm which is to provide the security for the loan. Difficulties of a somewhat similar nature which arose soon after the corporation was established in 1927 were resolved by the passing of the Agricultural Credit Act, 1928. The present difficulties have arisen because the original purchasing tenants under the Land Purchase Act are dead and the legal formalities required for the registration of the present occupiers as owners of the lands have not been completed. The matter is being examined in the hope of finding a method by which farmers who are otherwise credit-worthy will be enabled to obtain on loan from the corporation the capital necessary for the efficient working of their lands.

ELECTRICITY DEVELOPMENT.

From the initiation of the Shannon scheme up to 31st March, 1950, the State has provided a gross sum of £25,000,000 for electricity development. Over the next decade further finance on a substantial scale will be required to enable the board to meet the anticipated expansion in demand. Gross capital expenditure by the board in 1950/51 is estimated at £5.9 million of which £4.75 million will have to be covered during the year by Exchequer advances, the balance being met temporarily by borrowings from depreciation reserves and superannuation funds. The expansion of generating capacity will absorb half the gross outlay, the principal items being the harnessing of the River Erne and the construction of a turf-burning station at Allenwood. During 1949/50 three new generating stations went into operation, the first turf-fired unit at Clonsast and the Leixlip and North Wall stations, capable between them of producing 100,000,000 units a year. Five new generating stations are under construction and this year the Cliff station on the Erne and the second unit at Clonsast, with a combined output of about 100,000,000 units in a good year, are expected to be brought into service.

Considerable progress is being made with rural electrification in spite of the physical difficulties. The additional number of rural subscribers connected in 1949-50 was 13,688 as compared with 9,262 in 1948/49 and 2,203 in 1947/48.

TURF DEVELOPMENT.

Closely connected with the programme of electricity development are the plans for utilisation of native fuel resources in the form of turf. A high proportion of the projected output of machine-won turf by Bord na Móna will be transformed into electric energy at generating stations on the bogs. Clonsast is the first of such stations and a second, at Allenwood, is already under construction. Legislation has been introduced to provide further advances for Bord na Móna to enable the 1,000,000-ton scheme authorised by the 1946 legislation to be completed. Under a second scheme, total annual output would in time reach 2,000,000 tons. In anticipation of amending legislation the advances required by Bord na Móna this year are put at £1,500,000, of which £1,275,000 relates to the existing scheme. Of the £3,750,000 provided for this scheme in 1946, £3,107,557 had already been advanced at the 31st March, 1950, leaving only £642,443 available until the amending legislation is passed. The original scheme is now estimated to cost a total of £5,520,000.

TELEPHONE DEVELOPMENT.

The £2,250,000 of new capital for the telephone system this year is required for three main purposes. About £1,000,000 will be spent on the main cable from Dublin to Cork, with branches to Waterford and Athlone, on which work is in progress. Extensions of the automatic exchange system will require a further £500,000. The linking up of some 9,000 new subscribers and various improvements in the system will account for the remainder of the capital outlay.

TRANSPORT.

Including £26,000 for loans from the Local Loans Fund, capital of £276,000 for permanent improvements to harbours is being provided from State funds this year. When to this is added constructional work on airports of £333,000 and advances for roads and bridges of £801,000, the estimate of State-financed capital outlay on transport for the year comes to £1,410,000. This sum is additional to an estimated expenditure of about £5,000,000 by local authorities on the maintenance and improvement of roads, financed partly from the proceeds of motor vehicle taxation and partly from the rates. Under the Transport Bill the capital requirements of Córas Iompair Éireann will be met by the issue of State-guaranteed debentures. No subsidy towards the working expenses of Córas Iompair Éireann has been provided for in the Supply Services Estimates for 1950-51. To ease the company's immediate difficulties, provision is, however, being made for advances of £450,000 to meet debenture interest payments. It is imperative that, by economies and, if necessary, by increased charges, the company should, as soon as possible, put itself in a position to pay its way without the aid of the taxpayer.

STATE DEBT.

The financing of the programme of State investment outlined above will call for borrowing on a considerable scale. In 1950-51 the sum required will be of the order of £31,000,000, allowing for the reissue of loan repayments received by the Exchequer and the Local Loans Fund and for the balance available at the 31st March, 1950 in the Transition Development Fund. This borrowing will involve an immediate and corresponding increase in the national debt, although the ultimate increase will be modified by the provision which is being made for redemption of the debt now being incurred. Before considering how the £31,000,000 may be raised a reference to the present state of the public debt is desirable.

The gross State debt on the 31st March, 1950, stood at £157,000,000 as compared with £116,000,000 on 31st March, 1949. The gross increase of £41,000,000 is due as to almost £20,000,000 to dollar borrowings from the Government of the United States. The internal debt increased, therefore, by £21,000,000. The gross debt at present is equivalent to somewhat more than two years' yield of taxation or over two-fifths of the national income. Many countries are carrying a heavier burden of debt. The service charges this year are estimated at £6.3 million or about 8 per cent. of current outlay. The national credit stands high and the possession of substantial external assets strengthens our ability to finance schemes of national development. It is, nevertheless, essential, if the burden on the taxpayer for the service of debt is to be kept within tolerable limits, that the objects for which State debt is incurred should, as far as possible, be productive of an adequate financial return. The need, on social grounds, to incur heavy outlay, only partially remunerative, in order to remedy the housing shortage makes it all the more desirable that the other objects of State borrowing should be fully productive in the financial sense. By this I mean that they should produce a revenue sufficient to service the loan charges either by yielding a direct return or by increasing the national income and so augmenting the yield of taxation. The Government is confident that the schemes of development which are being financed by borrowing will, in general, satisfy this test.

STATE INVESTMENT IN THE PAST.

At this point, it may be useful to cast a backward glance at the State investment already undertaken. At the 31st March, 1949, the total State investment for commercial, financial and industrial purposes by way of repayable advances to, and purchases of shares in, State enterprises amounted to £27.6 million. This had increased to £31.7 million at the 31st March, 1950. The gross amount received by way of interest and dividends on this investment during the year 1949-50 was £938,000 of which £858,000 came from the Electricity Supply Board. This represents a return of 3.4 per cent. on the amount invested at the beginning of the year. The average rate of interest on long-term debt outstanding is 3.6 per cent. The direct return to the Exchequer from these enterprises may, therefore, be regarded as reasonably satisfactory. It is hoped that some of the organisations, such as Bord na Móna, which are still in the developmental stage, will soon be in a position to discharge their obligations to the Exchequer.

In 1938, the first year for which an official estimate of national income is available, taxation of all kinds represented about 23 per cent. of national income. The proportion for 1950-51 is much the same, showing that, on a broad view, Government borrowing and spending has not imposed an increased strain on the economy.

STATE GUARANTEES.

In connection with the direct State debt, reference should be made to the contingent liability incurred by the State in respect of guarantees. This form of State assistance has been instrumental in securing working capital and even development capital for various State and semi-State organisations. The total principal liability on foot of guarantees of bank overdrafts of State-sponsored companies amounted to £7.7 million on the 31st March last and the guarantee of debentures of Córas Iompair Éireann was £12.9 million at that date. During 1949-50, the State was called upon to discharge its liability as guarantor of £1,550,000 of Córas Iompair Éireann debentures. The sum of £7.7 million includes over £4.3 million for the guaranteed overdraft of Fuel Importers, Limited. Here again a call upon the Exchequer is in sight, as losses on the disposal of the company's fuel stocks will have amounted to about £3,000,000 by the end of the current year.

RISKS IN STATE INVESTMENT.

Apart from increasing the burden on the taxpaper, an unduly rapid rate of increase in the State debt may have other undesirable consequences, which it must and will be the aim of the Government to avoid. The risk of inflation will arise if methods of financing are employed which involve the introduction of an excessive volume of new purchasing power. This risk is less serious when the supply of goods can be augmented by the repatriation of external assets, when incomes are rising and the community increases its savings and while there is still a reserve of manpower available for gainful occupation at home. There is the further risk of a lowering of living standards if home production does not expand in such a manner as to compensate for the loss of the income derived from the external assets which are realised to finance domestic capital outlay, but some relaxation of this principle is permissible where the security of the capital is enhanced by employing it at home.

SOURCES OF FINANCE.

There are various sources from which this year's investment programme of £31,000,000 may be financed. Immediately available is the pool of American loan counterpart moneys of which over £13,000,000 was still uninvested at 31st March last. These counterpart resources will be augmented in the course of the current year. The Central Fund Act, 1949, authorised the investment of the American Loan Counterpart Fund in Government securities and £8,500,000 was drawn from the Fund last year for Ways and Means Advances to the Exchequer. There will be further recourse to the Fund this year for the long-term capital required to finance the land rehabilitation project, local authority drainage works, harbour improvements and minerals development. The Fund may also continue to be used, to some extent, as a temporary source of finance for other items of capital expenditure.

There are various other funds under Government control, such as the Post Office Savings Bank Fund and the social insurance funds, the accruing resources of which, subject to preservation of an adequate degree of liquidity, can be invested in Irish Government securities and thus made available to finance State capital outlay. The balances awaiting investment in funds under my control amounted to over £2,000,000 on the 31st March last. During the year it is expected that new Post Office Savings Bank deposits to an amount of about £5,000,000 will become available for investment. The funds under Government control also provide a valuable financial reserve in so far as they hold substantial sterling investments which, within certain limits, might gradually be replaced by Irish Government securities. It is necessary, however, to bear in mind that the realisation of sterling assets and the use of counterpart moneys are methods of finance unrelated to current savings and, as such, may have inflationary tendencies. Recourse to such sources must, in present conditions, be cautious, and the greatest care will be taken by the Government in choosing the methods of financing its capital programme, to ensure that there will be no adverse consequences for the economy.

It is essential that as much as possible of the capital required for State investment should be met from current savings. The public will, in the course of the year, when conditions appear favourable, be afforded an opportunity of placing its savings at the disposal of the Government by subscribing to a new National Loan. I am confident that the public response will show a recognition of the need for further national development and of the excellent security of Irish Government stock. I am also confident of continued public interest in the Post Office Savings Bank and in Savings Certificates, channels through which a substantial volume of current savings is reaching the Government.

SMALL SAVINGS.

I may refer here, with gratification, to the great increase in small savings recorded during the past year. The improvement in Saving Bank deposits, which followed upon the restoration from the 1st July, 1948, of the traditional 2½ per cent. rate of interest and was further stimulated by the publicity campaign inaugurated in November, 1948, continued during 1949. By comparison with a net deposit in the Savings Banks in 1948 of £1,591,000 the net deposit in 1949 came to £4,695,000. These favourable results may be contrasted with the net withdrawal of £241,000 which took place in 1947. Total deposits in the Post Office Savings Bank, including accrued interest, are estimated at £52,000,000 on 31st March, 1950, an increase of almost £6,000,000 on the figure at 31st March, 1949.

Savings in the form of Savings Certificates have also revived, though not to the same degree. In 1949 the net sales of Saving Certificates, after deducting repayments with interest, amounted to £233,000 as compared with an excess of repayments of £51,000 in 1948. The State's liability (principal and interest) to holders of Savings Certificates is estimated at £17.7 million on 31st March last as against £17.1 million a year before.

III. ECONOMIC SURVEY.

AVAILABILITY OF RESOURCES.

It is now time to survey the economic conditions in which the programme of State investment is likely to take place. Obviously, State investment can be properly considered only when it is brought into relation with estimates of private investment and of the resources likely to be available for investment, after consumption needs are met. Only by placing it in its proper context in this way can any judgment be formed of its practicability and of its general implications for the national economy. Hitherto, such a survey has not been possible in the absence of current estimates of national income, expenditure and capital formation. This year, although the preparation of such estimates by the Central Statistics Office is well advanced, only provisional indications can yet be given and these must be regarded as subject to revision.

The national income is taken to be the aggregate current value, before payment of taxes and rates, of incomes in money and kind of persons normally resident in the State, for services which command a monetary reward whether performed currently or in the past. The national income, so defined, is estimated to have been about £320,000,000 in 1947, £335,000,000 in 1948 and £350,000,000 in 1949; the official estimate for 1938 was £154,000,000. These estimates are necessarily given in money terms and, therefore, reflect the changes in money values since 1938. It is not possible at this stage of the investigations to allow accurately for the increase in prices as it affects national expenditure, but there are grounds for concluding that the national standard of living is now, on the whole, higher than it was pre-war.

The income of agriculturists (farmers, their families and wage earners) constitutes a higher proportion of the national income than in 1938—about 30 per cent. as against 25 per cent. Wages and salaries, including agricultural wages, and the remainder of national income form about the same proportion of national income now as in 1938.

Estimates of national income and expenditure afford a general picture of the resources at the disposal of the community in any year and of the purposes to which these resources are applied. This picture may, perhaps, be better understood in terms of market prices, which means that the figure of national income—which, broadly speaking, represents income originating from production and services—has to be adjusted by the addition of taxes that add to prices, the subtraction of subsidies that reduce prices and the addition of depreciation allocations which, of course, are not treated as income. When this adjustment is made, the estimates for 1948 and 1949 become £377,000,000 and £395,000,000, respectively. The resources available in any year for domestic use are augmented or diminished by the net inflow or outflow of goods and services as shown in the balance of payments; a net surplus indicates a transfer of resources abroad for investment and a net deficit a repatriation of investments previously made abroad or incurring of external debt. In 1948, the net external disinvestment was £20,000,000 and in 1949 it may have been about £10,000,000, but this is still a provisional estimate. We may, therefore, put the total resources available for domestic use in 1948 and 1949 at £397,000,000, and, say, £405,000,000, respectively. This is the pool available for consumption, including repairs and maintenance, and for investment, including renewals. Consumption, by private persons and by public authorities, is estimated at £347,000,000 in 1948 and at £354,000,000 in 1949, and gross investment at home—defined as new capital goods brought into use and increase in stocks and work in progress —at £50,000,000 in 1948 and £51,000,000 in 1949. Investment included, in 1948, over £8,000,000 of additions to stocks and work in progress, but in 1949 additions to producers' capital goods formed a higher proportion. In 1948 domestic capital formation may be regarded as having been met as to almost one-half by the realisation of external assets whereas in 1949 it was provided for to a greater extent out of current savings.

A substantial part of the domestic investment which occurred in 1949 was financed by the State. In 1950/51 State-financed investments may be as much as £10,000,000 in excess of the 1949/50 level. Assuming that private capital outlay is at least maintained, provision for this additional State-financed investment can be made only in two ways: by a greater allocation of current resources to domestic investment or by heavier external disinvestment. An increase in domestic production would enable more current resources to be set aside for investment without any curtailment of consumption, but no increased allocation will take place unless savings increase, as this is the means by which resources are diverted from consumption to investment. Increased saving is, therefore, of the first importance as a basis of orderly national development. In this context, I may also stress the need for avoiding increases in incomes not related to increases in output. An expansion in consumption generated by increases in money incomes would deplete the resources available for investment and have inflationary consequences.

Broadly speaking, the State investment programme can be carried through without causing inflation or restricting the amount of capital available for private enterprise, if output is expanded, if resources are withdrawn from consumption by increased savings, and any deficiency in the resources so set aside for investment is made good by external disinvestment in the form of imports of goods.

REPATRIATION OF STERLING ASSETS.

The probable dependence of the 1950/51 investment programme on further external disinvestment calls for some comment. The Government favour the repatriation of sterling assets where it is clearly in the interests of domestic development. To ensure that the general standard of living of the community is at least preserved the reduced purchasing power over imports, resulting from the loss of income from the sterling investments realised should be made good by a compensating expansion in production for the home market or for export. Even if the external balance is not fully restored by increased exports or reduced imports arising from higher domestic output, some net loss of external purchasing power may be regarded as a premium worth paying for the expansion of employment and the greater economic and social security which domestic investment is expected to afford. These basic principles command general acceptance to-day, but there is still some confusion about certain aspects of the question of repatriation of external assets.

Repatriation can take place only through imports of goods and services in excess of current earnings, that is, through a deficit in the balance of payments. Only in this way can the realisation of sterling assets add to the pool of resources available. Unless the proceeds of sale of sterling investments are used to pay for imports of goods and services, no net reduction can take place in the sterling in Irish ownership. If there is no deficit in the balance of payments, the sale of sterling assets by some Irish holders merely leads to an increase in the holdings of others.

Repatriation, which depends on the import of goods, must thus be clearly distinguished from the sale of sterling investments, the immediate effect of which is merely to transform a sterling holding into cash available for spending in Ireland. Without an increase in imports a sale of sterling assets can only mean a switch to active domestic use of purchasing power hitherto dormant. Unless this extra purchasing power finds an outlet in increased purchases from abroad, involving a deficit in the balance of payments, it is almost certain to be inflationary. So far, therefore, as the investment programmes of public authorities and private enterprise are financed out of new purchasing power, there is a danger of inflation which will, however, be offset to the extent that domestic output of consumer goods and domestic savings increase and external assets are repatriated in the form of imports. It is evident that the owners of sterling investments who sell them to pay for imports of plant, machinery, timber and other goods are effectively repatriating their sterling holdings in the sense defined above. Effective repatriation also takes place when bank deposits are drawn upon to pay for imports and the sterling holdings of the commercial banks are thus reduced.

It is necessary to bear in mind not only that the essential condition of repatriation is a deficit in the balance of payments but also that the mere existence of a deficit is not evidence of the repatriation of sterling assets for domestic development. The import surplus may go merely to increase current consumption, there being no net increase in capital investment. Direct capital expenditure by the State is a net addition to domestic capital development only in so far as it does not restrict or delay private domestic investment which would otherwise have taken place. It is only if the deficit in the balance of payments is accompanied by a corresponding net increase in capital outlay at home that it can be said that sterling assets are being realised for domestic development. The question cannot be decided merely by considering the amount of capital goods imported as this may be proportionate only to the normal level of domestic investment and, in any case, the latter involves the use of domestic resources of labour, food, materials, etc., as well as of imported supplies of capital and consumer goods. For these reasons, the resources approach is obviously the correct one, as it estimates the total volume of investment and the extent to which it is expected to be provided for by current savings and by external disinvestment.

The improvement of productive efficiency in industry and in agriculture by the import of modern plant and machinery is one of the most desirable forms of repatriation of sterling assets. Improved efficiency is so urgently necessary to keep pace with developments elsewhere and to expand production on sound economic lines that the Government hope that full advantage will be taken of the technical assistance which is being afforded by the Economic Co-operation Administration.

CONTINUOUS REVIEW OF STATE INVESTMENT.

The State can exercise directly only a limited influence on the repatriation of sterling assets, which must depend mainly on the decisions of the owners of sterling investments and of bank deposits. It can, however, indirectly promote repatriation for productive domestic development by maintaining conditions favourable to private investment in our own resources and by its own investment and financial policy. The resources available for consumption and investment and the disposal of resources between these competing uses cannot be accurately predicted and it is, therefore, essential, if undesirable economic and social consequences are to be avoided, that there should be a continuous survey of the reactions of State-generated activity. In particular, State investment must not be allowed impinge upon productive private investment or impose undue strain on the economy. So far no such undesirable consequences have manifested themselves but, with the higher level of State investment planned for the current year, closer attention will be necessary to guard against their emergence. The Government are fully alive to their responsibilities in this matter and if it should be found that State-financed capital expenditure was proceeding on an excessive scale, the programme as a whole would have to be reviewed and priorities established in the interests of economic and social stability.

EMPLOYMENT, WAGES AND EARNINGS.

The steady post-war increase in non-agricultural employment continued during 1949. The average number engaged in industry in 1949 is estimated at 206,000 as compared with 195,000 in 1948. The continuous increase in non-agricultural employment since the war has more than offset the decline in the number engaged in farm work.

The percentage of unemployment amongst persons in occupations insurable under the Unemployment Insurance Acts, exclusive of agriculture, fishing and private domestic service, fell further in 1949, being only 9 per cent. as compared with 9.4 per cent. in 1948 and 15.6 per cent. in 1939.

Industrial earnings rose by 3.8 per cent. between September, 1948, and September, 1949. Agricultural wages at July, 1949, were almost 9 per cent. higher than a year before and 123 per cent. above the 1939 level.

PRODUCTION.

The value of gross agricultural output in 1949 amounted to £127.8 million as compared with £119.6 million in 1948. The value of net output rose from £105.1 million in 1948 to £110.5 million in 1949.

In volume, agricultural output has now regained the pre-war level. Gross output in 1949 in terms of 1938-39 prices is estimated at £53.3 million as compared with £53.5 million in 1938-39 and £49.7 million in 1948. The 1949 volume of gross agricultural output represents an increase of 7.3 per cent. over 1948. The improvement is most noticeable in cattle, pigs, poultry and eggs. Milk production has also increased remarkably.

Amongst the crops, the rise in barley output was particularly marked. Potatoes and sugar beet also showed an increase over 1948, while wheat output did not fall to a material degree in spite of a 30 per cent. decline in acreage. The increase in live-stock numbers, particularly those for breeding purposes, augurs well for the future, and it is also satisfactory that a high proportion of feeding stuff requirements is being met from home production.

The complete results of the Census of Industrial Production for the year 1948 are now available, and they record a considerable increase in industrial output. The total gross output of transportable goods amounted to £177.6 million, as compared with £154.6 million in 1947, being an increase of £23,000,000 or 14.8 per cent. Net output increased from £48.2 million to £58.5 million, or by 21.6 per cent. Virtually all industries producing transportable goods shared in the improvement, but the principal increases occurred in the food, tobacco and drink groups, and in the assembly, construction and repair of vehicles.

In industry as a whole—including building and construction, Government and local authority works, transport and public utilities as well as industries producing transportable goods— total gross output increased from £184.1 million in 1947 to £215.6 million in 1948, or by 17.1 per cent., and net output increased from £65.8 million to £80.1 million, or by 21.7 per cent. The main increase, other than in transportable goods, was in building and construction, mainly State-financed, where the gross output advanced from £12.2 million in 1947 to £16.8 million in 1948, or by 38 per cent.

Industrial output continued to expand in 1949. Provisional indices of the volume of production in industries producing transportable goods show increases of 7 per cent. above the volume for the year 1948, and 43 per cent. above that for the year 1938. For the last quarter of 1949 the volume of production in these industries showed an increase of 10 per cent. over the volume in the last quarter of 1948. Among the industries with a marked increase in output are those such as bacon-curing — with output almost double that of last year—and the creamery industries which reflect the recovery in agriculture. In industry as a whole, the provisional figures of production for 1949 show an increase in volume of 9 per cent. over 1948 and of 39 per cent. over 1938.

PRICES AND MONETARY SITUATION.

Retail prices have been virtually stable since 1947, the index for November, 1949, and for February, 1950, being 100, the same as at mid-August, 1947. This is equivalent to a rise of 84 per cent. above the level at mid-August, 1938.

Wholesale prices in 1949 remained at the 1948 level but, following devaluation, have shown a tendency to rise. The March, 1950, index, at 139 per cent. above 1938, is 2½ per cent. higher than for March, 1949. We have, so far, not experienced any significant upward movement as a result of devaluation, perhaps, to some extent, because we have been drawing on stocks of food and raw materials purchased at the old prices.

Agricultural prices, which were 148 per cent. above the 1938-39 average in 1948, rose slightly during 1949. In March, 1950, the index was 267 (to base 1938-39=100) as compared with 259 in March, 1949. The high level of prices is an indication of the prosperity at present enjoyed by the farming community but it must also be viewed as an indication of the need for an increase in efficiency and output if agricultural incomes are to be maintained in the era of improved world supplies and increasing competition which is now upon us. The expansion in recent years in the use of agricultural machinery and the progressive introduction of improved methods are hopeful signs.

Total monetary circulation increased by £3,492,000 between March, 1949, and March, 1950. Advances by the banks to Irish customers and bank investments in Ireland increased in the same period by about £3,000,000. The circulation of cheques in 1949, as indicated by the figures of debits, shows an increase of almost 9 per cent. over 1948.

On the whole, monetary stability has been well maintained over the past year. Devaluation may, as time goes on, have a more pronounced effect, but we may reasonably hope to avoid any serious increase in living costs.

TRADE.

The increase in output in 1949 was accompanied by an increase in exports and an improvement in the balance of trade. The volume of exports recovered to within 10 per cent. of the 1938 level having been 25 per cent. below it in 1948. The value of exports rose from £49.3 million in 1948 to £60.5 million in 1949. The higher receipts in 1949 were due almost entirely to a bigger volume of exports whereas the increase which took place in 1948 was due mainly to higher prices. Exports of live stock yielded £5,000,000 more than in 1948 and there was an increase of £5,000,000 in exports of other foodstuffs, of which eggs were the most important item.

The value of imports in 1949 was £129.8 million, approximately £6,500,000 less than in 1948. There was a slight decline in volume, but it is still about 27 per cent. higher than in 1938. With the aid of Economic Co-operation Administration dollars we were able to purchase £18.5 million worth of goods from the United States as compared with £11.4 million in 1948.

The terms of trade further improved during 1949; the ratio of export to import prices rose to 112.5, taking the 1938 ratio as 100. Almost the same volume of imports was obtained for a reduced outlay and this factor, together with the increase in the value of exports of £11.2 million, resulted in the deficit on visible trade being reduced from £87,000,000 in 1948 to £69,000,000 in 1949.

The trade deficit has tended this year to rise again, being £22.9 million for the first three months as against £18.3 million for the first quarter of 1949.

THE BALANCE OF PAYMENTS.

The £18,000,000 reduction in the trade deficit in 1949 brought the balance of payments closer to equilibrium. A provisional estimate suggests that the gap between current outgo and receipts was in the neighbourhood of £10,000,000, as compared with £30,000,000 in 1947 and £20,000,000 in 1948. It is satisfactory that this improvement is attributable mainly to a better trade balance. Net receipts from tourism are estimated to have fallen in 1949 and, as holidays abroad become more popular for our own people and Ireland loses some of its special attractions for visitors, every effort will be needed to sustain this important source of external income. If the improvement in the current balance of payments continues, we shall be better able to bear such loss of external income as may arise from the realisation of sterling assets to carry out productive work at home.

DOLLAR POSITION AND PROSPECTS.

In common with all Western European countries we are obliged to give constant attention to one of the major problems in the field of external trade, namely, the means of payment for necessary imports from the dollar area.

As I explained last year, the deficit on dollar account has since the 4th April, 1948, been met from the allotments made to this country under the Marshall Plan, that generous assistance afforded by the Government of the United States towards European recovery. For the period to the 30th June, 1949, the aid finally allotted to Ireland was $86.3 million, all being furnished as a loan, and for the current American fiscal year ending on the 30th June, 1950, the allotment is $44.9 million, of which $3 million has been given as a grant and the rest as a loan.

The level of our dollar expenditure on goods and services in 1948 was relatively low, being of the order of $70,000,000, or less than half of the abnormally high dollar outlay in 1947, and it was not until the second quarter of 1949 that delays and difficulties arising from the transition to Economic Co-operation Administration financing had been overcome and imports from the dollar area began to flow in accordance with programmed expectations. For that reason, a substantial portion of the 1948-49 Economic Co-operation Administration allotment was carried over for utilisation in 1949-50 and thus enabled a programme of imports for the 12 months from 1st July, 1949, to 30th June, 1950, to be planned at a figure of nearly $90,000,000, of which $24,000,000 was to be met from our own dollar income, which accrues mainly from tourist expenditure and emigrants' remittances.

We are now nearly half-way through the period covered by the Marshall Plan. We know that in 1950-51 the amount of aid which each participating country, including Ireland, can get will be much less than in 1949-50. In 1951-52, there will be a further sharp reduction in American aid, and thereafter we shall have to meet our dollar expenditure from our own dollar income and from such resources as we can command through our membership of the sterling area system. While the recent improvement in the position of the sterling area reserves has been observed with satisfaction, it would be unduly optimistic on our part to assume that the difficulties which the sterling area as a whole experiences in achieving a satisfactory balance with the dollar world will have been surmounted completely by 1952. The indications are, indeed, that, despite the substantial progress towards recovery already made by the countries receiving Marshall Aid, a serious world shortage of dollars will be experienced after 1952. We must, therefore, prepare ourselves for the emergence during the next two years of a more critical dollar situation.

The gravity of the problem can be understood by comparing our dollar imports with our dollar income. The tentative programme of dollar imports for the 12 months beginning 1st July, 1950, which was prepared some time ago, contemplated an expenditure of about $65,000,000, inclusive of freight. In that figure is included some $47,000,000 for wheat, maize, tobacco and petrol. The other items are of a high essentiality and, on present information, available only from dollar sources or procurable only from such sources on satisfactory conditions of supply. Our dollar income has recently, I am glad to say, shown some tendency to increase and is now running at the rate of about $33,000,000 a year as compared with $30,000,000 in 1948-49. It will be understood, however, that, of their nature, the amount and timing of these receipts can never be predicted with certainty. Moreover, portion of these receipts is required for non-trade transactions, the amount of which fluctuates considerably being $9,000,000 in 1948 and $6,000,000 in 1949; only the balance is available to meet the cost of imports.

It would not be safe to assume that income actually received in 1950-51 and available for trade purposes will, at the current rate of inflow, exceed $26,000,000 to $28,000,000 so that, on the basis of the original import programme for that year, a deficit of at least $37,000,000 would emerge. Whatever may be the amount of American aid granted to Ireland for 1950-51, it is to be feared that it will be substantially below that figure. The picture I have given for 1950-51 may in the result be somewhat improved by a carry-over of funds from 1949-50, but it is too early yet to say how far that may happen.

We are, therefore, faced not only with the prospect of having to revise our dollar programme for 1950-51 but of having to draw up our programme for 1951-52 on much more stringent lines. It is clear that during what remains of the breathing space afforded by Marshall Aid we shall be forced to examine with increasing strictness all dollar expenditure with a view to the elimination of imports that can be obtained from non-dollar sources or are not of the highest order of essentiality. Our efforts—and this is of vital importance—must also be bent towards securing a substantial increase in our dollar income. Although merchandise exports to the dollar area are small they are capable of expansion and the Government are considering measures that might be adopted to stimulate them. Our main hope, however, of a material increase in dollar receipts centres on tourism. Arrangements are being made, with Economic Co-operation Administration assistance, for a visit this month of representatives of the hotel industry to the United States to study means of attracting increased numbers of American visitors to this country. This problem has been under investigation by the Irish Tourist Board and the Government for some time. When the report of the delegation of hoteliers is available decisions will be reached as to the most effective manner in which the State, through the agency of the tourist board, can help the hotel industry to earn more dollars. Meanwhile, hotel keepers will be serving the national interest if they fall in readily with any proposals of the tourist board for reserving accommodation for, or otherwise facilitating, American visitors.

IV. CONCLUSION.

To sum up, our economic position, while on the whole satisfactory, is urgently in need of improvement if we are to be able to meet the exigencies of the future and weather possible depressions without impairment of our living standards or loss of amenities and comforts now regarded as essential. I have already stressed the need for increased earnings of dollars and reduced reliance on dollar goods. I have also referred to the need for greater efficiency and for increased output both in agriculture and industry if the substantial progress recently achieved is to be continued and consolidated. Our finances are healthy, but we must be constantly on guard against inflation. The large programme of State investment which is being undertaken to develop the national economy must not be allowed to over-tax our resources or trench upon the capital needs of private enterprise. Apart from increased production, our principal need is increased savings. If the community as a whole works harder, strives after efficiency in all fields of activity, and sets aside more of its income for capital development, we can reasonably look forward to an expansion of employment and to a general improvement in the health and welfare of the community.

Those of us who were reared in the country will recollect in our own districts the type of gentleman who "raps and calls and pays for all," and leaves his debts to his widow and children to pay. The Minister for Finance, backed by the efforts of the Taoiseach and other Ministers during the last couple of months, is trying to put over on our community the idea that there is something virtuous in getting into debt even if we are in an inflationary situation. Judging this Budget from the point of view so very vigorously and even viciously expressed by the Minister for Finance and other members of the Government, it is a rake's Budget, the Budget that is operated by the waster throughout the country, who spends all the money he has, sells his cattle, puts his farm into debt, and leaves his children to clear up the mess.

To go back to the time when he was in opposition, when he and his colleagues condemned as a "crazy extortion" a sum amounting to the half of what he proposes to spend this year, the Minister for Finance in 1948 said:—

"We have been fortunate in not having been forced into debt to the same extent as other countries."

He was referring then to a debt of £91,000,000 in actual fact. That was a large sum, he said. To-day he was clapped by some members of his Party, who clapped him in the old days when he was condemning Fianna Fáil for its extravagance and its crazy extortions, because he announced that, without taking into account contingent liabilities, the national debt at the end of this year will be £145,000,000 instead of the £91,000,000 which he took over from Fianna Fáil. He may get claps from the Fine Gael Deputies who want to spend £34,000,000 or £35,000,000 this year and leave it to future generations to pay the debt. It is very easy, if the Parties comprising the Government have no conscience upon the matter and if they can grab certain funds, to put the payment for their expenses on the long finger.

This year the expenses, which should normally be met out of taxation, amount to £87,000,000, £78,000,000 for the Supply Services and £9,000,000 for the Central Fund Services. That compares with a total of £65,000,000 for similar services in the last year of Fianna Fáil. The present Ministers stumped the country and condemned Fianna Fáil as extravagant for spending £65,000,000. They promised to reduce Government expenditure by £10,000,000. Instead of that, this year it has gone up by £22,000,000, and the Minister proposes to spend another £34,000,000 or so.

We can see the effect of the Minister's proposed borrowing scheme from an examination of the State accounts over the last couple of years. In 1947-48 we spent £3.2 million in paying for interest and sinking funds. That went up by £720,000 in 1948-49 to £3.9 million, and this year, according to the table which the Minister sent around yesterday, it is going up to £5.1 million, or an increase of £1.8 million over the year 1947-48. By taking into account the contingent liabilities of the State, the Minister has indicated here to-day that that figure should be amended upwards and that, instead of £5.1 million being paid out in the coming year on interest and sinking fund charges, it should be really £6.3 million. The Minister has succeeded in three years in adding 50 per cent. at least to our interest and sinking fund charges, or he will have succeeded in doing so by the end of this year. He has in three years added more to that type of expenditure than was added in 16 years of Fianna Fáil Government. They have succeeded in burdening the future taxpayers of this country more in three years than Fianna Fáil did in 16 years.

The Minister for Finance in 1948 said also that a high proportion of even the capital assets that Fianna Fáil had left "yielded no return in relief of annual charge or yielded an inadequate return" and that he was appalled by that. I can say to-day that most of the assets we left—they were left mostly by us—yielded at least an average 3.6 per cent. But the Minister was not satisfied with that and he went on to warn the Dáil in his Budget speech of May, 1948: "At a time when taxation is of unprecedented severity an economy in State expenditure is imperative; it is more than ever necessary to examine critically proposals for capital expenditure which add to the taxpayers' annual burden and thus tend to stifle incentive and reduce savings." The Minister this year is proposing to add to the taxpayers' annual burden a sum of at least £12,000,000 for which not one single penny will come into the Exchequer by way of return. He is spending this year £12,000,000 for services of a type upon which in the last year of Fianna Fáil £3,000,000 was spent without a single penny being passed on to the future. This, of course, can go on as long as the Minister thinks fit. Even though the ordinary taxpayer will not entrust his savings to him, he can go in spite of the people.

The Minister has at his disposal certain funds, including the Marshall Aid funds, which he can invest in Government loans. He has the Post Office Savings Bank. He has various accounts from which he can draw, and from which he has drawn, money at rather low rates of interest. I asked him a question a couple of weeks ago in order to get the situation as to how he raised the £15.278 million, Ways and Means Advances, as at 31st March this year. He gave me the account. Of this £15.2 million, a sum of £3,300,000 was got from the Paymaster-General. It was free. Of course, if it had been invested somewhere else we might have got a little more than that. A sum of £200,000 was from the general balance of the Minister for Posts and Telegraphs. That also was interest free. At 1½ per cent. we got a series of other advances—£2,800,000 from the Post Office Savings Bank Fund; £374,000 from the Unemployment Fund Investment Account; £48,000 Savings Certificates Reserve Fund; £50,000 from the Pensions Investment Account, and £8.5 million from the American Counterpart Fund.

Even though the Minister last year spent £720,000 more for interest and sinking fund than Fianna Fáil, he did not pay the full amount of interest which, according to his own statements in the past, a Government should pay. This £15.2 million should have been borrowed from the public and they should have got the normal rate of interest, according to the Minister's own professions of financial rectitude. Instead of that, he took money from the Post Office Fund, for which the Post Office paid 2½ per cent. to the depositors, and he gave them 1½ per cent. for it. Last year or the year before he took outright from the Post Office Savings Bank Reserve a sum of £466,000. We all know perfectly well that the Post Office Savings Bank Fund, in the present situation of the falling prices of securities—a large amount of them are invested in Britain—needs all the reserves it has. Instead of that, the Minister took £466,000 from it—swept it from the reserve—and he this year took £2,800,000 odd at 1½ per cent. from them. If they had invested in Government securities in the ordinary way, I suppose they would get 3¼ per cent. either here or in Great Britain. In order to get a proper picture of the situation we must add the amount which the Minister normally would pay for this £15,000,000 to the £720,000 extra that interest and sinking fund cost last year.

The question people should ask themselves is: What is going to be the situation, supposing we add another £12,000,000 or £15,000,000 annually to Government expenditure which we raise by borrowing and as a result of which expenditure not a single penny will come into the Exchequer directly by way of return on investment? Almost £2,000,000 will have been added to the interest and sinking fund charges within two years. If we go on for a few years, it will not be so very long until we are paying, by way of interest and sinking fund, more than the total of the last Fianna Fáil Budget, at which the people in the country were appalled. Do the Deputies supporting the Government think it is good policy to put a millstone around the necks of the people of this country in the future in order to avoid the political difficulties of the Coalition Government? We know that a number of the Parties comprising that Government will make demands on the Minister and that every one of these Parties—with the exception of the small group, the Farmers' Party—has to get their price from time to time. But, is this hanging on—this pleasing of the various little sections simply to avoid a general election—and at the price of putting a millstone around the necks of the Irish people in the future, worth while?

The Minister himself denounced the policy of increasing the national debt, even for productive enterprises, but he now calmly asks the people to accept the increasing of the national debt simply to avoid taxation. They will increase the national debt for purposes for which, under the previous Governments, money was found by the ordinary method of taxation. I do not want, at this stage, to prove in detail what I say to the effect that various members on the Government Benches have in the past denounced as "crazy,""extortion,""imposition" and "dishonest" budgets that were less than half as costly for the people. We have another day for that.

I do not want to close without referring to one strange omission from the Minister's speech. For a number of years the members of the Fianna Fáil Government were accustomed to hear loud denunciations of the Fianna Fáil Government on the question of emigration. Did the Minister once to-day in this supposed survey of the national economy even mention the word "emigration"? Did he refer to the fact that in 1947—the last year of the Fianna Fáil régime—11,166 more people came back than went out; that in the first year of the Coalition Government 12,793 more people went out than came back and that, last year, 1949, that figure went up to 18,105? For years the Minister calculated, by reference to the population of towns and cities and villages, the number of people who went out under Fianna Fáil. During the time when, as he admitted here to-day, we were the victims of forced savings—when we had to export and could not get material back in return for our agricultural exports—he denounced the then Government because we could not protect our people from all the ill-effects of a world conflagration and he used to speak here for many hours on financial questions in reference to that question of emigration. Here to-day not once during the 63 pages of his speech did he refer to that. The Minister referred in a very off-hand way to the fact that, five years after the actual hostilities had ceased, our adverse visible trade balance is still £69.2 million, that last year we brought in goods to the value of £129,700,000 and exported only £60.5 million. Do Deputies think that this country can continue to have an adverse visible balance of trade of £69,000,000 a year? Do they think that, if we get rid of our external assets and have no invisible income as a result, the situation will be improved? Do they think that, even if we continue from now on to balance our trade, visible and invisible, with the rest of the world to the extent that we have been doing it up to the present time, we can continue to depend on the tourist trade to balance an adverse amount of £69,000,000 on our visible trade?

We know that the Government recently referred with favour to the tourist trade. They have urged the people to give preference to foreigners in our hotels. The smaller parties in the Coalition are no longer pushing out leaflets describing every tourist coming in here as a spiv coming to eat our butter and eggs. The Minister for External Affairs has ceased to say that we should put a tax on tourists in order to keep them out. They all say now that they should be welcomed. Do the present Government and the supporters of the Government throughout the country think it is right to depend to the extent of £40,000,000 or £60,000,000 on tourists to balance our international trade? Do they think we should be dependent, for our future supplies of bread and even nylon stockings or the wherewithal to make them, on our tourist trade in a permanent fashion? While the Government attitude to the tourist trade has changed slightly in their talk, their actions have changed very little. Although State expenditure has gone up on the Supply Estimates to the tune of £22,000,000 since Fianna Fáil, hardly a single penny is devoted to the development of this trade upon which the Government now say our future economic security so much depends.

On the other hand, they have let the Minister for Agriculture loose to destroy the industry that might have helped to balance our international accounts. When that Minister came back in 1948 after the agreement with the British, he told us in the Dáil that the agreement provided—

"for the farmers a sure and certain market at remunerative prices for every conceivable product that the land of Ireland can produce."

He was backed by the Taoiseach in that debate with similar words. Having secured, as he told the country, this great agreement, he set out as well as he could to kill those portions of our agricultural production that were producing for the home market. He told the farmers that they would get maize at £20 a ton. It is now £30 to the farmer. By making these promises, he succeeded in getting a reduction in the total amount of tillage. He said he was the Minister for maize and that the people could depend on it that they would get the maize at £20 a ton, as much of it as they wanted. I see in last year's returns that we spent something like £8,000,000—I suppose most of it dollars—for maize, to substitute for our own barley, oats and potatoes. He so effectively discouraged potatoes that at the present time we have a famine in potatoes, even for humans. I have not yet seen any member of the Clann na Poblachta Party or the Labour Party, who were so loud in their denunciations of the cost of living, putting down a question in the Dáil as to what the present cost of potatoes is, and were potatoes ever so dear since the time of the famine.

There was a question asked here yesterday.

There is at least one record that the Coalition Government have broken; they have increased the price of potatoes to consumers not only by more than Fianna Fáil did in their 16 long years of office, but brought it to the highest level in the 100 years since the Famine. I suppose the statistics department will take note of the high prices the farmers are getting for their potatoes and they will put it into the general agricultural index, although the fact is that there are very few potatoes being sold, because there are practically none left, and the height of their agricultural prices index will be taken as an indication of the great prosperity of the farmers.

Are there any left in Cooley?

No. From the point of view of the past declarations of the Minister for Finance this Budget is a rake's Budget. I want to say that from the point of view of anybody who has a reasonably modern, scientific outlook on the question of finance, this Budget is a treacherous Budget. It used to be said by the opponents of the modern trend, of the modern outlook in finance, that Governments were not to be trusted, that we ought to keep bankers and other people in control of the level of credit because otherwise Governments would go berserk in their efforts to avoid the political unpopularity of taxing when they should tax and, instead, have recourse to the printing press or an increase of credit.

Leaving aside the warnings of the Central Bank, leaving aside the evidence of our eyes, according to the Minister himself there is inflationary pressure and, in spite of that, he proposes this year to add £12,000,000 more to the money stream which is pressing upon a short supply of goods. I grant you that for the moment there are only certain categories of goods in short supply. If we pump plenty of money into the stream, all we have to do is to allow imports and the goods will be bought. In a country like France, or some other country with a fairly closed economy, closed by the fact that they have no foreign reserves to buy goods or by the fact that they do not allow them in, a comparable increase in the monetary supply of the people would have the effect over a year of gravely increasing the cost of living. We saw one such experiment in France in 1946, when a few billion francs had the result of just doubling the cost of living.

If we continue with this programme of borrow and spend instead of taxing in an inflationary situation the net adverse trade balance to which the Minister referred—some £10,000,000— will probably be very gravely increased during the coming year. If we continue it for another 10 years on a somewhat similar scale the £400,000,000 or £500,000,000 that we have invested abroad will very quickly disappear. I do not mind our external assets disappearing if they reappear here as internal assets. The Minister for Finance and friends of his tried to hang round our necks as a millstone the report of the Banking Commission, which denounced the decrease in the external assets that took place here. During the years before the war Fianna Fáil, as a deliberate policy, tried to realise our external assets by the creation of internal assets. I think it is just a crazy policy to throw away any assets that we have abroad unless we can create an asset of equal value here, an asset that will be of equal value to the community.

The Taoiseach and the Minister for Finance in recent months brought a new type of asset forward. The Taoiseach, down in Clonmel, spoke about the coming Budget as an investment in human improvement. The Minister for Finance spoke about it as a social investment. If we can borrow for human improvement, why not borrow for other things, too? If it is right to borrow for social investment to the tune of £12,000,000, why do you not borrow for orphans' pensions, family allowances and all our health services? Surely they, too, are human improvements?

The Minister for Finance can even get the assistance of a gentleman in another chamber, one of the team who tried to put the report of the Banking Commission as a millstone around the necks of Fianna Fáil in an endeavour to drown them. He asked for support for education through borrowing. I think it would be a good capital investment if we did borrow some money and spent it on the education of some of the university professors of economics, particularly one gentleman who denounced Fianna Fáil for realising external assets while the big housing campaign was going on. This gentleman recently suggested to the Minister that he should borrow for university education, including, I suppose, the pay of university professors. If it is held out that the investment of £12,000,000 in human improvement is a good thing and that it is a good social investment, why do we not get more of the good thing? Why should we have to pay anything at all on our beer or tobacco, or have to pay any income-tax for services which are human improvements?

If the Minister does not know it himself, he can quite easily discover that it is disastrous in times when there are inflationary pressures about to borrow money for ordinary current expenditure. I, as Minister for Finance, had the very distasteful job of trying to cut down on an inflationary situation. We did not get very much help at that time from the present Minister for Finance. However, I pointed out in my Budget speech of 1947 that "it is too seldom realised that the spending by the State of money borrowed from the public tends to add to the amount of active purchasing power almost as surely as an increase of loans by the bank or a fiduciary issue of notes by the State". I went on to say, however, that "while in times of a surplus of saleable goods, it is socially and economically desirable to have additional money created by the State or by the banks, so as to enable consumers to buy total output, any large addition would be disastrous in times like these when there is a grave shortage of goods and an over-supply of money". There is at this present time, on the Minister's admission, a grave shortage of Irish goods upon which to spend the money, and, to soak up the amount of money in circulation, goods are coming in from abroad. That is a disastrous policy, and one of the reasons I bitterly resent this Budget is that I believe it is a treacherous one, a betrayal of the men who stood for a modern approach to finance in the present age.