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Dáil Éireann debate -
Wednesday, 24 Oct 1956

Vol. 160 No. 1

National Loan, 1956. - Statement by Minister for Finance.

I wish to inform the House that a National Loan will open for subscription on Monday next, 29th October. Before I announce the terms of the issue, it would not be out of place to examine what progress has been made towards a better balance in our external trade and payments since I addressed the House last July. I pointed out then that the critical need was to stop the drain in the balance of payments which, if allowed to continue unchecked, would have most serious consequences for the economy. Decisive action was called for to deal with the situation. There was no immediate prospect of a significant increase in our earnings from exports and it was, therefore, necessary to cut down our external payments by reinforcing and extending the scope of the special import levy imposed in March and reducing the basic allowance for foreign travel.

I am happy to say that these measures, together with the other steps taken by the Government to reduce unnecessary spending and encourage saving, are, through the co-operation of the people at large, beginning to produce results. Clear evidence of this is afforded by the trade figures in which there has been a gratifying improvement in recent months.

Up to the end of July this year the cumulative trade deficit totalled £55,000,000 as compared with £58,000,000 in the corresponding period of 1955, representing a decline of only £3,000,000. In the months of August and September, however, there has been a total net improvement of £7,000,000 in the trade deficit as compared with the same two months of 1955. If this trend is maintained we can look forward to a greatly reduced external deficit this year and we can derive encouragement from the thought that if the improvement is maintained we may hope in 1957 to lay the spectre of the balance of payments deficit that has been haunting us for so long. The important thing to remember, however, is that while the latest trade figures are encouraging there can be no relaxation of our efforts. The vital need remains of preserving a sound economy. We must, therefore, be ready to overcome any setbacks but it is heartening to know that our efforts are bearing fruit and that the trend is now in the right direction.

It is against this background of improvement in our national accounts that I announce the terms of a new National Loan. The amount for which the loan is being issued is £12,000,000. The rate of interest is 5½ per cent. and the issue price £98 per £100 of stock or £9.16 for each £10 taken up. Only one redemption date has been fixed. The loan will definitely be repaid in 1966. The issue will be underwritten jointly by the Government and the banks. As it is being made at a discount, the ordinary investor who buys the stock now and holds it for the relatively short period of ten years to redemption will receive a tax-free capital gain of £2 per cent.

Applications will be accepted for amounts of £10 and multiples thereof and only 10 per cent. of the subscription need accompany each application, the remainder being paid over the months of November, December, and January.

The tax privileges which have been a feature of recent National Loans are again included. For example, stock of the issue will be accepted at face value, with due allowance for any accrued interest, as the equivalent of cash in satisfaction of death duties on properties of which it formed a part. Interest will be paid without deduction of income-tax at source, but it will, of course, be liable to tax in the hands of recipients at the rates of tax appropriate to their respective incomes. The usual tax concessions for non-residents are also provided.

The prospectus for the loan, moreover, incorporates a new and valuable concession. This is that the stock will be acceptable at the issue price, with an allowance for any interest accrued, as the equivalent of cash for the purpose of subscription to any public issue by the Government which is made within the next five years and is quoted on the Stock Exchange. In other words, holders of the stock will be able, should they so desire, to transfer direct into any new Government issue of the conventional type announced in that period; the £98 cash which they subscribe for £100 stock of this issue will be worth £98 as a subscription to any such issue. Those who hold stocks of National Loans to maturity are, of course, assured of no capital loss on their investment but it is sometimes a source of anxiety to subscribers that, in the event of their having to realise their stock before the due date, they may suffer a loss because of market conditions at the time of sale. The provision I have mentioned is an assurance to investors in this loan that the value of their security will stand high regardless of market trends. When the five years are up, the short period outstanding to redemption, combined with the other attractive terms of the issue, including its trustee status, will operate to support the market price. In addition, the substantial half-yearly sinking fund allocations which are provided and the fact that the Government stockbroker will be prepared to buy or sell blocks of the stock in reasonable amounts will ensure a continuing and active market in the issue.

The prospectus and application form will be published in to-morrow morning's newspapers and copies may also be obtained as from to-morrow from banks, stockbrokers and post offices. The lists will close not later than Friday, 2nd November.

Every subscription to the National Loan, no matter how small, will help to raise the country's production, create additional employment opportunities at home, stem the flow of emigration, and improve the living standards of all. The works of national development which the loan will finance include land improvement and other schemes to increase agricultural production, expansion of electricity generating capacity, industrial development, purchase of ships and aircraft, improvement of internal communications, development of bogs, afforestation and housing.

There may be some comment that the amount of the National Loan I am now announcing is £12,000,000 rather than the £20,000,000 which has come to be regarded as normal. I should, therefore, explain that, while this will be the only public issue of the conventional type floated in the present financial year by the State or any public authority, it is the intention to supplement the proceeds of the present loan by what is for this country a novel method of raising capital, namely, an issue of Prize Bonds. In recent years there have been many suggestions that such a scheme should be introduced here. These Prize Bonds will be placed on sale early in the new year. They will be encashable in full at short notice but, instead of earning interest, will participate in drawings for cash prizes, free of income-tax and surtax. The proposed issue of Prize Bonds need not cause anyone to hold off subscribing to the new National Loan. Rather the contrary, for subscribers to the National Loan will be at a special advantage in regard to the first issue of Prize Bonds. It will be a term of the prospectus of the loan that each £100 of stock (for which, of course, only £98 in cash will have been subscribed) will be accepted as the equivalent of £100 in cash—up to a limit of £1,000 for any individual—for the purpose of subscription to the first issue of Prize Bonds. The details of the Prize Bonds scheme will be announced at a later date. I would stress, however, that no one need await the terms of that issue because, under the conversion scheme I have announced, subscribers to this loan can, if they wish, exchange on advantageous terms into the first issue of Prize Bonds.

In our efforts to achieve external balance the savings drive plays a vital part. By refraining from unnecessary spending on imported goods and by investing at home the money saved, all of us, no matter what our station in life, can help to create the conditions in which greater national prosperity can be permanently achieved. The recent trade statistics are, as I have mentioned, satisfactory but we still have far to go before our objectives are attained. Every person who feels that he ought to be playing his part in the savings drive is now provided with a timely inducement to add his share to the national effort by subscribing to the loan. The terms are very attractive and, indeed, it may be many years before a National Loan as profitable to investors is again put on the market. I confidently commend the new issue to the House and to the public generally.

Mr. de Valera

No words are necessary from us to recommend this loan. The terms as announced by the Minister are its best recommendation to prospective investors. The Minister has gone extraordinary distances and taken unprecedented steps to make it attractive. This is not the occasion in which one should examine these in detail and consider their likely effects, but, undoubtedly, they make the issue most attractive.

The money is urgently required to prevent any possible suspension of productive effort in the State, and consequent unemployment. Therefore, we are most anxious naturally that this money will be forthcoming and we recommend this loan to the public.

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