The financial year 1956-57 had less than a fortnight to run when the present Government assumed office on the 20th March. When the year's accounts, which are summarised in the first of the tables in the hands of Deputies, were made up, they showed a deficit on current account of £5.95 million. Of this deficit £4½ million arose because revenue failed to come up to expectations and £1½ million because expenditure exceeded the budgetary provision made by my predecessor. The allowance for Supplementary Estimates proved to be inadequate.
2. CAPITAL ACCOUNT, 1956-57
To the deficit of almost £6 million on current account must be added the new borrowing necessary to cover public capital expenditure.
As Table II shows, public capital outlay, including the expenditure of Dublin and Cork Corporations, the Electricity Supply Board and Córas Iompair Éireann, amounted to over £40 million. This was found as to £8½ million by re-issuing the capital repayments made to the Exchequer and Local Loans Fund and by using the moneys available in the Capital Fund. A further £2¾ million was borrowed by local authorities and other public bodies from non-Exchequer sources such as banks and insurance companies. The balance of £29 million had to be found as new borrowing by the Exchequer. When this sum is added to the deficit of £6 million on current account the total gap which had to be filled by direct Exchequer borrowing was £35 million.
It is important to realise how this money was raised. Contrary to what one might expect, the savings directly contributed by the public, through Savings Bank deposits, purchases of Savings Certificates, investments in National Loans and Prize Bonds, did not supply all or even most of the borrowed money. Their total contribution in the financial year amounted, in fact, to only £15.3 million, or considerably less than half the total. That low proportion is at the root of our financial problem. It is evident that direct public support in the form of savings has not been sufficient to enable national development to be continued on its recent scale. In these circumstances there can be no justification for allowing a deficit in the Current Budget to swallow up resources which are sorely needed for capital purposes, resources which, even if fully reserved for those purposes, would still be inadequate in relation to our development needs.
The deficiency in public savings last year was made up in two ways. Approximately £9.3 million was obtained from the banks and over £10 million from Departmental Funds, partly from investment income but mainly from sales of securities. The full picture is given in Table III.
The sale of external securities of Departmental Funds so that the proceeds could be lent to the Exchequer has made available £30 million for public capital purposes since 1951-52. The position has now been reached, however, that we can no longer draw on that source to any material extent since we must continue to keep an adequate reserve of readily available funds against our liabilities to small savers.
The banks provided over £9 million directly to meet State capital needs last year, apart from lending on overdraft for capital purposes to various local authorities and public utilities. Indeed, during the six years just ended, they have provided capital for public requirements to a total of the order of £40 million, mostly at the expense of their sterling assets.
I mentioned earlier that an important source of finance for the capital requirements of 1956-57 was the Capital Fund, to which is credited the revenue from the Special Import Levies. The levies serve the double purpose of restricting imports and diverting purchasing power towards meeting capital requirements. They yielded £4¼ million of revenue for capital purposes in 1956-57, an amount which otherwise would have had to be borrowed. Unfortunately, their efficacy in reducing the deficit on capital account was nullified by the deficit of nearly £6 million on current account. There has been a striking, and very welcome, improvement in the trade position in recent months but some further time must elapse before the continuance of that improvement can be regarded as assured. Even with the levies in full operation our external payments have been barely in balance for the financial year 1956-57. Our capital shortage is still acute and the levies are a reliable and necessary supplement to capital resources. These are two good reasons why it would be unwise to discard them as yet. That does not mean that the Government intend to insist rigidly on maintaining them. On the contrary, the substantial exemptions and concessions already granted, involving a net loss of about £1¾ million of revenue this year, are evidence that the Government are prepared to modify the incidence of the levies where, on balance, the production and employment position, or the public interest generally, is best served by so doing.
3. FINANCIAL YEAR, 1956-57—SUMMARY
To sum up as regards 1956-57, the picture we get from Tables I, II and III is that current revenue fell short of expenditure by £6 million. To cover this deficit and the requirements of the capital programme, a total of £35 million had to be borrowed by the Exchequer. In round terms, £15 million was contributed directly by the public and £10 million each by the banks and Departmental Funds.
4. FINANCIAL YEAR, 1957-58—INTRODUCTION
The budgetary problem of 1957-58, on both capital and current account, is one of exceeding difficulty. Since taking office the Government have had only a short time to review the national economic position. I would like to emphasise, therefore, that while the budgetary proposals I am now putting before the House are intended to deal with some of the immediate problems, the matter cannot rest there. Our economic situation as a whole must receive continuous and careful study. On the financial side, I have particularly in mind the examination of public expenditure with a view to achieving all possible economies and re-directing resources to more immediately productive purposes.
5. CURRENT ACCOUNT, 1957-58
With regard to the Current Budget for 1957-58, our starting-point is the deficit of nearly £6 million which emerged on current account in last year's budget. The estimates for noncapital Supply Services as prepared by the previous Government are almost £5 million higher than actual expenditure in 1956-57. This, of itself, would widen the deficit to £11 million. Nor is this all. The estimates for the Central Fund Services which must be met out of ordinary revenue show an increase of £1½ million over actual expenditure last year, an increase attributable to the growth in debt service charges. This growth is inevitable in view of the steady and substantial annual increase in the national debt.
Towards closing this gap of almost £12½ million we can expect a moderate increase in tax revenue—less than £2 million—at existing rates of tax. Customs duties are expected to show some buoyancy but income-tax, which depends on last year's profits, will be affected by the recession in trade and industry in 1956. Non-tax revenue is expected to increase by almost £1½ million.
As the White Paper published a few days ago disclosed, the estimated revenue, tax and non-tax, available for current purposes, other than the Road Fund, is £111.9 million, by comparison with an estimated current expenditure of £120.9 million. The deficit to be met, therefore, is no less a sum than £9 million.
6. CAPITAL ACCOUNT, 1957-58
The principle of balancing at the lowest possible level, which applies with full force to the Current Budget, is not applicable to the Capital Budget. Here other considerations apply, such as the desirability of making maximum headway with works of national development and of preserving a high level of employment in the creation of durable and productive assets. The fact must also be faced that at any given moment the scale of public capital outlay is largely predetermined by commitments. Contracts have been entered into; work is in progress; the withdrawal of funds at an intermediate point could be wasteful. In my view, the national interest requires the maximum of productive development, public and private, in the years immediately ahead. As regards the public capital programme, I believe that the aim should be not a reduction, unless that should be forced on us by the inadequacy of public support, but rather a reshaping of the programme so as to make it more directly productive.
The public capital programme for 1957-58 is set out in Table IV. The Exchequer borrowing which may be necessary to cover that programme is £31 million. Although this is less than the £35 million borrowed last year— £29 million for capital and £6 million for current account—it is still a very large sum. It calls for a much bigger contribution from the public, through small savings and loan subscriptions, because the special aid provided by Departmental Funds last year cannot be repeated.
Although the problem of financing capital outlay on the present scale is extremely difficult, I am not without hope that the difficulty may in time be lessened. I believe that an increase in private savings may be expected; there is no doubt that it is vitally needed. The great success of the Prize Bonds issue—an enterprise on which I congratulate my predecessor—and the recent upward trend in savings are most encouraging. No matter what the increase in savings, every penny will be needed to support capital development, private and public, and the employment it provides. Nothing can be wasted in the financing of a deficit in the Current Budget.
7. ECONOMIES
A glance at some of the major items responsible for the estimated increase in expenditure on the non-capital Supply Services is sufficient to show the difficulty of making significant economies. Many of the increases are inevitable, being the result of the rising level of loan charges and similar statutory commitments. In other cases economies can be effected only at the expense of employment. Industrial grants payable under the Undeveloped Areas Act, 1952, and the Industrial Grants Act, 1956, account for an estimated additional expenditure of over £400,000. There is an increased current charge of £1.4 million for Córas Iompair Éireann. Public works and buildings account for an increase of almost £¼ million.
I do not wish to be taken as advocating the maintenance of State expenditure at a high level simply to provide employment. On the contrary, the aim must constantly be to ensure to the utmost extent that the employment given is both necessary and productive. Until alternative employment of a productive character becomes available, however, there should be some hesitation to make economies which would have a widespread effect in reducing employment.
It is only too clear that we cannot carry through a public capital programme on the scale envisaged in Table IV and at the same time support the level of current expenditure contemplated in this year's published Estimates. Economies must, therefore, be sought and achieved.
In the short time available since the Government took office it would obviously have been impossible to examine critically and justly all the objects of expenditure of the taxpayer's money. The searching out of wasteful or unnecessary expenditure and its elimination will require keen and continuous attention. But the urgency and difficulty of our budgetary problem this year required that a start should be made at once. I shall mention a number of specific economies which have already been decided upon but which represent merely an instalment of what the Government hope in time to achieve.
It will be no surprise that I should begin with the administrative machine. The present annual cost of the Civil Service, Gárda Síochána and the Defence Forces amounts in round figures to £25 million—almost £17 million for the Civil Service, over £3½ million for the Gárda Síochána and nearly £5 million for the Army. I refer, of course, to remuneration only.
When the cost of administration is complained of, it is in particular the cost of the Civil Service which the critics have in mind. There are almost 32,000 Civil Servants, of whom about half are employed in the Department of Posts and Telegraphs. Numbers rather than scales of pay account for the high cost of the Civil Service. Roughly three-fourths of the Civil Servants are in receipt of salaries not exceeding £600 a year. An annual bill of £17 million for the pay of Civil Servants is, however, too much for a country of our size and resources.
The Civil Service itself has been concentrating for quite a while on organisation and methods studies. Useful results have been achieved but the total cost of administration none the less remains too high. The abolition of certain services would, of course, yield economies but specific proposals in this direction rarely commend themselves to the public, however much a general reduction in costs of administration may be desired. Work could, however, be expedited and expense reduced if delegation of duties were extended and the appropriate degree of responsibility were fully accepted and exercised at all levels of the Civil Service. The existing Civil Service structure seems too elaborate for our needs. The grading system is, to my mind, unduly complex. I intend that these matters will be examined and radical changes made which will, I believe, ultimately produce worthwhile economies.
To secure immediate savings, I have directed that recruitment be forthwith reduced to a minimum, that posts be suppressed at every available opportunity and that overtime be drastically curtailed. I am satisfied that action even on these lines will produce a saving of at least £250,000 in the current year and I am taking that saving into account in framing my Budget.
By the adoption of the most modern methods a reduction in Garda strength has been effected. Every opportunity of further advances in this direction will be availed of consistent with the maintenance of a fully effective force.
The position in regard to the Defence Forces is one which requires special consideration in the light of changing circumstances but an immediate small economy is possible which, with minor savings elsewhere, should yield £100,000 this year.
A fundamental re-examination of the activities of the Land Commission is being initiated. Such a review is clearly necessary. The social and economic changes revealed in the evidence presented to the Emigration Commission and in recent censuses and again in the Farm Survey strongly suggest that the policy originally devised in 1923, and revised in 1933, should now be reconsidered. Farming organisations and other groups interested in securing greater production have been making various proposals which will be examined in detail. Meanwhile, there will be no expansion of the operations of the Land Commission and I hope to save at least £80,000 of the provision made in this year's Estimate.
The Government have reached the conclusion that the benefit to the State from the operations of the Irish News Agency has not been commensurate with the cost of the Agency to public funds. As soon, therefore, as arrangements can be completed, the Irish News Agency will be wound up and payments from the Vote terminated. In view of existing contractual commitments, however, there may be no net saving for some time.
At a time when national production is not increasing and when ordinary revenue is not keeping pace with current expenditure the rising deficits in voluntary hospitals and the growing cost of health services are a cause of concern. The Minister for Health proposes to introduce legislation which will enable him to make economies in the cost of the health services by moderate increases in certain charges and the imposition of some new charges. It is proposed to increase from 6/– to 10/– a day the maximum charge for institutional treatment and also to introduce small charges for specialist and for X-ray services. None of these charges will apply to persons in the lower income group. By these modifications it is hoped to save about £90,000 in a full year. A similar saving will accrue to local authorities.
The various specific economies I have mentioned will produce a saving of at least £½ million in the current year.
8. OVER-ESTIMATION
It is customary each year to take account at Budget time of the "automatic" savings which usually accrue in addition to specific economies, however closely the Vote provisions are estimated. The allowance made at Budget time last year was £3 million; the actual saving by reference to the total sum voted amounted to £3.16 million. Looking back over the past seven or eight years. I find that the average saving has been of this order. I am, therefore, counting this year on a general overestimation, as distinct from specific economies, of £3 million. I might add that I intend to make as great a contribution as I can to the realisation of this estimate by securing further specific reductions in current outlay during the year.
9. SUPPLEMENTARY PROVISIONS
Certain supplementary provisions must, however, be made if the budget is to be realistic. For example, the former Government, though they agreed to implement the Liston Award, made no provision in the Estimates for this payment to secondary teachers. The present Government have decided to give full effect to the arbitration award and this will necessitate a supplementary provision of almost £½ million.
The Estimates prepared by the previous Government showed a reduction in the amount provided for Employment and Emergency Schemes. It was not possible to regard this as a justifiable or feasible reduction in view of the degree of unemployment which still persists and, despite the height at which public capital expenditure is being maintained, I have agreed to supplement the Vote provision by £250,000 so as to allow the Special Employment Schemes Office greater flexibility in arranging for the shortterm relief of unemployment in particular areas.
As Deputies are aware, the 1956 wheat crop was harvested under very unfavourable conditions with the result that in some areas the grain was of poor quality. It became necessary to make special arrangements to take the wheat from the farmers to prevent a large part of it becoming a total loss. The then Minister for Industry and Commerce urged millers to accept all potentially millable wheat, even though partially sprouted, and gave them an assurance that appropriate quantities of imported wheat would be made available to provide a suitable grist. The present grist consists of two parts native wheat and one part imported. Even increasing the proportion of native wheat at this stage may still leave a surplus of native wheat to be brought forward to the new cereal year starting on 1st September next. In view of the expected large acreage of wheat coming forward this year, it would be impracticable to carry over the existing surplus for conversion into flour during the next cereal year. The Government have decided to authorise the disposal of a large part of this surplus as animal feed. The receipts from sales of animal feed will involve a loss of about £150,000 which will have to be met from the Exchequer.
Another item for which provision was not made in the original Estimates arises from the following circumstances. In accordance with a Labour Court award, bakery wages were increased by 10% as from 12th September, 1955. Relief for this extra expenditure was allowed later to master bakers but with effect only from 30th July, 1956. The Flour and Bread Committee have recommended in their final report that retrospective relief should also be given to the master bakers in respect of the period from 12th September, 1955, to 30th July, 1956. Public faith was pledged in persuading the master bakers to pay the extra wages and the Government have decided that the master bakers are in equity entitled to retrospective relief for the period mentioned. The amount involved is about £230,000 and arrangements will be made to pay this sum from the Exchequer.
The Flour and Bread Committee made a further recommendation for the granting of retrospective relief to bakers in respect of deficiency in profits but in the existing state of the Exchequer the Government are unable to accept this recommendation.
With a view to promoting the expansion of production and exports I propose to make three further provisions not covered by the published Estimates.
I propose to make available for the benefit of the sea and inland fisheries an additional sum of approximately £50,000. Of this sum, £45,000 will be used to erect an ice plant at Dunmore East and to provide additional fishing boats. The balance of £5,000 is being made available to the Inland Fisheries Trust in the form of a grant to meet the cost of improvements to inland fisheries and additional expenditure on the Trust's fish farm.
The future of our cattle trade is so important that I am including provision for increased expenditure on the elimination of tubercular cattle under the Bovine Tuberculosis Order, 1926, in those parts of the country to which the new intensive scheme does not yet apply. By this means, it is hoped to remove major sources of infection in advance of the extension throughout the country of intensive measures. Increased compensation will be payable in respect of animals slaughtered under the 1926 Order and additional outlay in this respect is estimated at £100,000 in the present year.
The non-tax revenue for the current year includes a substantial nonrecurrent receipt, on the basis of which I am setting aside £250,000 for the general purpose of improving the marketing of agricultural produce. I have in mind not only a thorough investigation of possible openings in foreign markets but a careful study of such changes as may be necessary to suit consumer requirements in those markets and the making of domestic arrangements which will best ensure increased production at an economic cost. The Minister for Agriculture will have early consultation with appropriate bodies so that effect may be given to these intentions.
The Government are resolved to resist any further additions to the year's commitments. It would, however, be unwise to ignore the possibility of unforeseen contingencies arising. The allowance made for such contingencies in each of the last four years has been £750,000 but it has never been adequate. I am allotting a somewhat larger sum this year— £950,000—which, with the items I have already specified, entails a total supplementary provision for current services of £2½ million approximately.
10. DEFICIT ON CURRENT ACCOUNT
These adjustments of the White Paper figures, namely, the deduction of £3½ million for specific and general economies, offset by an allowance of £2½ million for supplementary provisions, reduce the opening deficit on current account of £9 million to £8 million.
I have already made it clear that the country cannot afford any deficit on current account. The need for productive development to raise our living standards, to provide a livelihood for a larger population and to stem the steady flow of emigration is too great and too urgent for a policy of drift to be tolerated in our public finances. The principle of the balanced Budget has been fully accepted by every Minister for Finance who has sat in these benches. This year I am resolved that it will be put fully into practice. That is the minimum requirement of the situation and on it this year's Budget is based.
11. TAXABLE CAPACITY
Faced with the necessity of eliminating a prospective deficit of £8 million on current account, I had the alternatives of increasing taxation or reducing expenditure. The main supports of the revenue cannot bear much greater weight without sagging under the strain. Last year revenue fell short of the budgetary estimates under virtually every head. We have almost reached the point of diminishing returns and, even in the case of those dutiable commodities which have been most buoyant in the past, we must now go cautiously for fear of exhausting their capacity. Having carefully surveyed the possibilities, I was forced to the conclusion that the most I could raise this year by way of increased taxation was something in the region of £3 million.
12. CAPITAL INVESTMENT ADVISORY COMMITTEE REPORT
Further economies in current expenditure must, therefore, be secured so that we may live within our income.
In this context the advice offered to the previous Government by the Capital Investment Advisory Committee is of great relevance and importance. The Committee envisaged not merely that current outgoings should be balanced by current revenue but also that current revenue should be used on a large scale to meet public capital expenditure. The Committee, in particular, recommended the abolition of the food subsidies and the diversion of the Agricultural Grant to a system of specific aids to increased agricultural production, such as the provision of vouchers for lime and fertilisers.
The Committee's report was published as soon as the members of the present Government had read it. The Committee is to be commended for the speed with which it rendered its advice and for its clear and comprehensive recommendations.
13. AGRICULTURAL GRANT
The Government have not yet considered all the implications of the recommendations regarding the Agricultural Grant. The report raises questions of fundamental importance to agriculturists and it will take time to examine them fully. In any case, the finances of local authorities for 1957-58 have already been settled on the basis of the continuance of the present statutory grants.
14. FOOD SUBSIDIES
After the most careful consideration of the economic and financial position the Government had no alternative but to take the unwelcome decision to with-draw the food subsidies. Based on average consumption per head these subsidies over the past year have been worth approximately 1/1 a week to each individual in the community but the provision of this benefit indiscriminately now costs over £9 million a year.
As from to-morrow, 9th May, payment of subsidy to reduce the price of butter to the consumer will cease. Control over wholesale and retail prices of butter will be moved. The price to creameries for butter will, however, be supported by the Butter Marketing Committee at a level sufficient to continue the existing price position for milk supplied to creameries and to meet the cost of cold-storing butter for winter requirements. The appropriate subsidy paid on butter not yet sold to consumers will be recovered, as far as possible, by a levy on existing stocks. On that account, it may be expected that the retail price of creamery butter will shortly reflect the withdrawal of the subsidy.
As from Monday next, 13th May, all flour delivered from the mills, whether bakers' flour or shop flour, will be charged at its economic cost. Steps have already been taken to restrict deliveries of subsidised flour from the mills to the amounts delivered in the corresponding period of last year. As from the same date, there will be complete decontrol of the wholesale and retail prices of flour and bread. The stocks of subsidised flour held by bakers should, however, result in postponing for some time the necessity for any increase in bread prices. The Government are satisfied that the conditions now prevailing in the milling and bakery trades are such as to ensure effective competition for the available business and it is the intention of the Government to see that this competition will not be artificially restricted.
15. INCREASE IN SOCIAL ASSISTANCE
We are well aware of the effect of the withdrawal of the subsidies for many in the community but we earnestly hope that those who are themselves at work, drawing wages, salaries or profits, will realise that this is a sacrifice which is necessary to overcome a national difficulty and to support the highest possible level of employment and development.
If this sacrifice is not generally accepted and if, on the contrary, particular sections of the community secure compensation for themselves by an increase in money incomes for the same work, the result may be a revival of inflation and the recurrence of deficits in the balance of payments. A renewed drain on our external reserves for consumption purposes would bring in its train a reduction in the capital available for public and private development, a restriction of credit for industry and trade and, inevitably, a widespread increase in unemployment and emigration. This can be avoided if the sacrifice is made. A balanced current budget will ensure that savings and reserves are used only for productive capital development providing a prospect of permanent employment for increasing numbers.
The Government recognise that there are certain sections of the community whom it would be unfair to expect to bear the full impact of the ending of the food subsidies, namely, those who are in receipt of Unemployment Assistance, blind pensioners, old age pensioners, widows and others in the Social Assistance categories. Accordingly, the Government have decided that there should be a general increase of 1s. a week in social assistance payments, extending to adult dependants and one dependent child. This will require legislation but will be made effective retrospectively to the middle of May.
16. INCREASE IN CHILDREN'S ALLOWANCES
Consideration must also be given to the position of families whose weekly expenditure on bread and butter is high because of the presence of growing children. Their position will be eased by the payment of an additional 4s. 6d. a month, with effect from 1st June next, for the second and each subsequent child eligible for Children's Allowances. For May, an additional payment of 2s. 6d. for each such child will be made as an offset to the rise in prices in that month. The May and June payments will have to be made in arrear. Thus, nearly the whole of the extra food bill for all the members of the family of a social assistance recipient will be covered by additional payments from public funds. Apart from social assistance recipients, the head of every family with more than one child will be relieved, in respect of the second and younger children, of almost the whole of the extra weekly outlay entailed by the ending of the subsidies. This is as far as the State can go in the present difficult economic circumstances.
The result of deducting these reliefs from the saving due to the withdrawal of the subsidies is a reduction of £5.15 million in current expenditure in the present financial year.
There still remains a gap of £2.9 million which must be bridged and can be bridged only by increased taxation on a few major heads.
17. TOBACCO
Tobacco must once again be called upon for a contribution. I propose to increase the main rate of duty applicable to leaf to £2 5s. 11d., an increase of 3/2 per lb.; the other rates of tobacco duty will be correspondingly increased. Allowing a margin for the trade, the effect will be to increase to 3/– the retail price of the popular packet of cigarettes now selling at 2/10. The increase in the duty would have the effect of increasing the retail prices of pipe tobaccos generally by about 2½d. per ounce, but the existing rebate on hard-pressed pipe tobaccos will be adjusted so as to restrict the price increases for these varieties to an average of 2d. per ounce.
I propose also to levy a special excise duty of 3/2 per lb. on all duty-paid stocks of manufactured and unmanufactured tobacco held by the manufacturers at 5 p.m. this evening.
Deducting £40,000 as the cost of the increased rebate on hard-pressed tobaccos, I expect to gain £1.01 million from these measures this year.
18. BEER
I propose to increase the beer duty by £1 1s. per standard barrel of 36 gallons, bringing the excise duty to £10 5s. 6d. Allowing a reasonable margin for the trade this will have the effect of increasing the retail price by 1d. per pint. The gain to the revenue in the present year is expected to be about £620,000.
19. PETROL
I propose to raise the customs duty on petrol by 6d. per gallon, with a similar increase in the excise duty. The additional yield should amount to £1.15 million this year.
20. HYDROCARBON OILS OTHER THAN PETROL
Oils other than petrol included in the hydrocarbon group are at present liable to a customs duty of 1s. 8d. per gallon if used for combustion in road vehicles. The oils so used are commonly known as diesel. I propose to increase this duty by 6d. per gallon also, with a similar increase in the excise duty but, through the operation of a repayment provision, the increases will not be effective in the case of diesel oil used in road passenger services licensed under the Road Transport Acts.
