The year 1959-60 ended with a surplus of £1.2 million. It was not spectacular, considering the size of the Current Budget, but it was the largest in over 20 years. Following immediately on the surplus for 1958-59, it is a welcome confirmation of the soundness of our budgetary policy. It reduced the borrowing that had to be incurred last year and it leaves us better able to meet the heavy capital expenditure facing us in the year ahead.
The surplus would have been doubled if we had not deliberately added to the revenue reserve. We did this because we knew the revenue would suffer this year from two exceptional and non-recurring incidents. One of these is a large repayment of income tax which shortly has to be made; the other is the loss to the Exchequer of a month's income tax revenue from the Pay As You Earn scheme. This occurs in the first year of the scheme because the amounts deducted by employers are to be paid monthly in arrear and we shall receive only five months' deductions in 1960-61, the March, 1961, deduction not being paid until April, 1961. By carrying over sufficient revenue from 1959-60 to cover these two losses we dispose of a non-recurring difficulty in a rational way.
The main heads under which tax revenue increased last year as compared with 1958-59 were tobacco, oils, stamp duties, beer and motor cars. Tobacco merits special mention as it yielded an extra £2.1 million.
Though the Exchequer took in less from direct taxation as a whole, the figure was satisfactory considering the reliefs costing over £1 million which were given last year in income tax and sur-tax and the increasing effect of the reliefs of earlier years. In the current year we have to face the full cost of the 1959 reliefs and yet a further increase in the cost of the reliefs of earlier years. The total impact on the revenue this year of the various reliefs given in the last four years is about £3½ million, not counting those given in connection with the introduction of the Pay As You Earn scheme.
Before leaving 1959-60, I might point to the fact that the allowance of £2½ million for errors of estimation was more than justified. Revenue receipts paid into the Exchequer exceeded the estimate by £2¼ million. Expenditure fell short of the estimate by over £1¼ million, mainly because of savings on agricultural price supports and social insurance. The total saving would have been greater but for additional expenditure on such items as remuneration and payments to retired teachers. One cannot, however, conclude from this that a bigger allowance for errors of estimation should be made in future, particularly as the principal factor in the buoyancy of revenue last year was the remarkable jump in receipts from tobacco. It would be over-optimistic to expect a repetition of this phenomenon but the revenue estimates for the year ahead have been based on the expectation that the general buoyancy displayed last year will continue to quite a large degree.
II. CURRENT BUDGET, 1960-61— INTRODUCTION.
The Economic Statistics prepared in connection with the Budget are already in the hands of Deputies. I do not propose to analyse these figures in detail but merely to make some general comments on recent experience and on the prospects for the coming year.
The year 1959 was one of progress and development, despite difficulties in the agricultural sector. Its principal feature was the rise of 3½% in real national output—a rise which will accelerate the realisation of the Government's Economic Programme.
Both exports and imports of agricultural produce were affected by abnormal factors. The long summer drought was the main reason for the fall in British purchases of Irish store cattle. Exports of store cattle were £10 million lower than in 1958. The balance of trade was adversely affected, too, by the need to import large quantities of wheat and other foodstuffs to make up for the deficiencies of the wet harvest of 1958; imports of wheat alone were £3.7 million higher than in 1958. Exports of manufactures, on the other hand, showed a notable increase while invisible items, particularly receipts from tourism, also rose. The result was that we ended 1959 with a deficit in our balance of payments which was a good deal less than might once have been feared. The amount of the deficit is estimated at £8.7 million. It will be recalled that we had a surplus in the balance of payments in 1957 of £9 million, followed by virtual equilibrium in 1958. In effect, therefore, our external payments have been in balance over the three-year period 1957 to 1959.
I am very pleased, indeed, to draw attention to the marked increase in industrial production during 1959. In this respect Ireland has kept up well with the general European trend. A record output was achieved in manufacturing industry as well as in turf production, mining and quarrying. The estimated volume of output in 1959 for all industries and services covered by the Census of Industrial Production was 8% in excess of the preceding year. Much of this increased production went to foreign markets. The value of our exports of products other than live animals, food, drink and tobacco went up by more than £10 million.
The increased activity in industry is, naturally, having a beneficial effect on both employment and unemployment. In transportable goods industries, which account for three-fourths of industrial employment, there were 4,900 more persons at work at the end of 1959 than at the end of 1958 and, as indicated in the Economic Statistics, there was a net increase of some 11,500 in the number of persons in insurable employment in the last quarter of 1959 as compared with the last quarter of 1958. The numbers on the live register of unemployed in mid-April were 7,600 lower than on the corresponding day in 1959 and were indeed the lowest—at this season —for many years. While this improvement is welcome we can by no means claim to be satisfied. Moreover, we cannot view unemployment and employment apart from the problem of emigration.
Emigration—so far as it is due to economic causes—is influenced at least as much by conditions abroad— particularly in Britain—as by those at home. It tends to be greatest when rising prosperity in Britain coincides with a set-back here. It tends to be least when conditions are improving here while industrial production remains static or nearly so in Britain. This was roughly the situation in 1958. An intermediate position is reached when conditions are improving in both countries, as they have been more recently, but the rate of economic advance and the demand for labour are for the moment stronger across the water. The present situation is one of greater employment opportunities both at home and abroad and the good effects are seen in the much reduced numbers on the register of unemployed.
The stability of the price level in recent years has been most welcome. The Consumer Price Index stood in February, 1960, at exactly the same level as in February, 1958—two years earlier. Coupled with the virtual stability in external payments, this has meant that income increases over the period have had a sound basis and have yielded real benefit.
If we go back to 1953, as in the Economic Statistics paper, we find that earnings in transportable goods industries at the end of 1959 were 16% higher in real terms than in October, 1953, while the current minimum rate of agricultural wages is 14% in real terms above the July, 1953, level. Not all sections of the community have gained so marked an improvement in their living standards because national production has not risen to this extent.
The recent wage and salary increases will tend to raise costs of production. Stability, both of prices and external payments, is, however, of such importance that every effort must be made to counter higher costs by better management and increased efficiency. In manufacturing industry generally in recent times there has been a remarkable increase in productivity, which, I hope, will be maintained.
Price stability, indeed, may not be an adequate objective. It has been pointed out many times that, over a wide field, our prices are not competitive in export markets and we are thus handicapped in attaining the expansion of sales on which national progress and increased employment depend. It is, therefore, most desirable that as much as possible of the benefit of improved productivity should be expressed in the form of a reduction in our prices relative to those of our competitors.
There was an appreciable rise in the volume of savings during 1959. Total savings for the year, both personal and corporate, amounted to £63 million as against £50 million in 1958. The improvement in savings is most welcome since it is only on the basis of increased savings that an adequate rate of formation of national capital can be achieved. For the year 1959 gross domestic physical capital formation is estimated at £100 million as against £77 million in 1958 and £69 million in 1957, while over the period as a whole there was no decline in external assets. In regard to industrial production, savings and national capital formation, we are certainly moving in the right direction.
Experience in the agricultural sector has not been satisfactory in the last two years though there are many indications that basically the position is sound. Amongst these indications are the increased numbers of younger cattle, especially heifers in calf, revealed by the January livestock census, the increased attention to soil fertility indicated by greater purchases of fertiliser, the better management of grasslands indicated by the increased use of silage, the improvements in breeding, the continued purchase of additional equipment and machinery, and the increased use of credit for productive purposes of which evidence is provided by the unprecedented rise in advances by the commercial banks to the agricultural sector.
The failure of agricultural income to rise as much as national income generally must be attributed largely to the abnormal weather conditions of the past two years. National income rose from £480 million in 1958 to £503 million last year. Income from agriculture, forestry and fishing, excluding wages and salaries, is estimated to have risen from £98 million to £102 million. The Taoiseach expressed in this House on the 10th March last the Government's concern because farmers had not shared to the same extent as other sectors in the increase in incomes in recent years. The Government's proposals for alleviating this situation have already been announced. They are expected to provide an additional income of over £2 million for the farming community. I shall deal later with the effect of these proposals on the Budget for the year ahead.
As regards the external prospects for 1960, the recent trade figures suggest that we can look forward to a substantial increase in exports. Total exports in the first quarter of the year were almost £5½ million greater than in the first quarter of 1959. Cattle exports can be expected to maintain the upward trend shown in recent months, while industrial exports as a whole should also keep on rising. Imports are likely to be higher also as incomes and production continue to expand. We ought, however, to be able to keep the balance of payments in order in 1960 although we shall have to watch carefully the trend, both of exports and imports, over the year.
As the Taoiseach has recently made a general statement of Government policy in regard to external trade there is no need for me to deal with the matter at any length. It is evident that we must keep closely under review the trading and economic arrangements which are evolving in Europe and elsewhere. Whatever form our relations with the new European groups and alignments may take, it is beyond doubt that we must concentrate on two things. First, we must seek to lower our production costs so that we can economically produce goods to sell at competitive prices against all comers and, second, we must do everything possible to get access on favourable terms to markets in Europe and elsewhere for our agricultural and industrial produce.
Like the Taoiseach I would emphasise the considerable opportunities for export expansion afforded by our Trade Agreements with Britain and reiterate his view that, by making effective use of the opportunities we have in the British market to expand sales, reduce production costs and become more competitive in price and quality, we can attain the greater economic strength and efficiency needed to enable us to break into other markets as well.
The general conclusion to be drawn from a study of the current economic position and the immediate prospects is that this Budget should not be restrictive in character. It is vital that the economic advancement which this country so badly needs and which is manifesting itself in many sectors should not be retarded by budgetary action. On the other hand, the greatest care is necessary to avoid any risk of the deflection to current uses of capital required for productive purposes. I conceive it my duty, therefore, to make sure that the Current Budget is kept in balance, so that resources will be husbanded for the increased capital programme of 1960.
III. CURRENT BUDGET, 1960-61.
The White Paper of Receipts and Expenditure.
The White Paper issued last weekend gave particulars of revenue and expenditure for 1960-61. These figures indicate that revenue is sufficiently buoyant at existing tax rates to cope with the rise of nearly £8 million in expenditure as compared with last year. Tax revenue is expected to be up £5.6 million, an increase to which customs and excise contribute £2.6 million and inland revenue £3 million. Non-tax revenue shows an increase of £1.4 million, mainly from interest on Exchequer advances and the Post Office. I shall, however, be adjusting these figures in some respects. Before I indicate what the adjustments are, I should like to make a few general comments.
But for the increased expenditure on pay and pensions, the extra amount required for debt service, the higher social assistance charge following last year's increase in old age pensions, and the income tax and other reliefs given last year, the outlook for this year's Budget would have been quite attractive. As it is, however, we start with a surplus of only £325,000.
Current Expenditure in relation to National Production.
That there is a surplus at all is attributable to two causes, one, the buoyancy of the revenue, reflecting increased economic activity, and the other, the efforts of successive administrations to keep the growth of public expenditure within bounds. Contrary to popular opinion, an increasing percentage of the national product is not being applied to current public services. The proportion which total current expenditure on Central Fund and Supply Services bears to gross national product fell from 22.5% in 1956-57 to 22.2% in 1957-58, 21.3% in 1958-59 and 20.7% in 1959-60. Measured in constant prices, total current expenditure showed a slight decrease over those years. It has recently been shown that the expenditure of public authorities as a whole —and total taxation—are lower percentages of the gross national product here than in Britain, Sweden, France and the Netherlands and only a little higher than in Belgium and Italy.
These comparisons give no ground for complacency about the levels of current expenditure and taxation, but they indicate that our position compares reasonably well with that of other Western European countries.
The Pay Element in Current Expenditure.
In considering possibilities of economy, attention is often directed to the wages and salaries bill which the Government has to meet. In current Government outlay the pay of the Civil Service, the Defence Forces, Garda Síochána and teachers is of necessity a considerable element. In fact, it represents over one-quarter of the total, and it is obviously incumbent on any Minister for Finance to see that it is no greater than it ought to be. Since rates of pay are fixed under conciliation and arbitration procedures, economy can be secured only by seeing that no more than the requisite numbers are employed and that the best use is made of the services of those who draw their remuneration from public funds. In both these directions, economies are sought by Departments, supported and guided by the Department of Finance.
It would be wrong to say that I am satisfied that further economies cannot be achieved. It would be equally wrong for me to give any credence to the popular myth that vast savings can be made in personnel costs in Government Departments. It is not generally realised that the Post Office, providing what in essence are commercial services, accounts for roughly one-half the total personnel of the Civil Service. I do not believe that by and large the Civil Service is over-staffed or under-worked. This may be the case here and there but I certainly know of places where the contrary is true—where there is shortage of staff and prolonged pressure of work. Problems of Civil Service staffing and organisation can be tackled only by the unspectacular, common-sense methods employed in progressive businesses. These methods are being employed in the public service, are yielding worth-while results, and will be further extended and intensified. The intake of recruits is carefully limited and there will be no relaxation of the drive for economy and better organisation. At the same time, there are no grounds for promising substantial and early relief to the taxpayer in administrative costs. These, broadly speaking, are determined by the extent and nature of the public services which the community expects.
Civil Service Reorganisation.
In my Budget Statement last year I announced that proposals for reorganising the structure of the Civil Service were being considered by the various staff associations. It is obvious that in dealing with a body as large as the Civil Service—with a variety of grades each having its own salaries and conditions determined for the most part under the conciliation and arbitration machinery—material changes can be made only gradually. I considered it best, therefore, to concentrate at the outset on the sector of the general service containing the greatest numbers. The relevant proposals have been fully considered under the conciliation machinery and I am happy to say that agreement has now been reached with the full cooperation of the staff, notwithstanding the conflicting interests involved. The effect on output and efficiency of the changes I am introducing will be kept under continuous observation and the whole position will be reviewed at the end of four years from 1 July next.
The major change is the transfer of certain duties from Clerical Officers to lower grades and the amalgamation of these lower grades into one new grade. This re-arrangement is designed to secure less dispersal of effort and more effective use of personnel and it should in due course produce a reduction in overall numbers. Simultaneously, provision has been made for suppressing three of the Staff Officer grades and absorbing the personnel in Executive grades.
As a result of these changes, the open competitive examination for Clerical Officers in the general service will be suspended after the present year.
Recruitment arrangements are also being changed in other ways. It has been a cause of some concern to me that, for higher posts in the Civil Service for which special qualifications and abilities are necessary, not enough suitable candidates have been offering themselves in recent years. To help in remedying this situation, which would have serious consequences if it persisted, it has been decided that a number of the top candidates at the next Executive Officer competition will be given an opportunity of attending a University at State expense to pursue a nominated course with a view to appointment later to grades such as Statistician, Economist or Administrative Officer. In this way we will be undertaking to some extent the fulltime training of young persons entering the Civil Service immediately after leaving secondary school. It is expected that the availability of these attractive scholarships will make even keener the competition for posts as Executive Officer. Moreover, to enhance the attractiveness of the Administrative grade, both for University graduates and for Civil Service candidates, the minimum salary for Administrative Officers is being raised and more definite prospects of promotion are being offered.
Agricultural Prices and Subsidies.
Returning to the White Paper figures, the first adjustment I have to make is for the estimated cost to the Exchequer this year of the recently announced changes in agricultural prices and subsidies. The Estimate for Agriculture includes a provision of £250,000 for subsidies on dairy produce. In view of the increase in the price of milk, I am adding £550,000 to this provision to cover the possible Exchequer liability in respect of exports of creamery butter and also a liability—assumed provisionally pending the establishment of the Dairy Produce Board—in respect of exports of certain other dairy products. The provision for subsidy on bacon exports has to be increased by £30,000 consequent on the introduction of a higher minimum price for Grade A Special. I have also to provide £220,000 for the new subsidy on potash fertiliser. I have decided to make this a current rather than a capital charge. In the Programme for Economic Expansion special emphasis was laid on phosphorus deficiency as the outstanding grassland problem and it was indicated that the heavy subsidy granted to encourage the greater application of this key nutrient would, for the five years of the Programme, be met from borrowing. It was not intended that this exceptional method of financing should apply to the State aid which—as indicated in the Programme—would later be granted to encourage the increased application of potash. It is more appropriate, having regard to the duration of the benefits derived from fertilisers, that at least this element in the total cost of the fertiliser subsidies should be met at once from revenue.
On the other hand, I regard the recently announced subsidy on fat cattle exports as an integral part of the scheme for eradication of bovine tuberculosis and, as such, proper to be financed from borrowing. The cost has been provisionally estimated at about £¼ million this year but I have not included anything in the Capital Budget for this item until the position with regard to expenditure generally on the bovine tuberculosis eradication scheme becomes clearer. I shall refer to this point again in dealing with the Capital Programme.
As a result of pay revisions recommended under conciliation and arbitration machinery, additional provisions amounting to £580,000 have to be made for pay and pensions of the Garda Síochána and salaries of Secondary Teachers. A claim from Vocational Teachers is at present at arbitration. I cannot anticipate the outcome of the arbitration proceedings beyond indicating the likelihood that a Supplementary Estimate may be necessary in this case also.
Broadcasting and Television.
The Broadcasting Authority Act passed earlier this month provided for the setting up of a new Authority to operate a national television and sound broadcasting service. The amount included for Wireless Broadcasting in the Book of Estimates is for four months' requirements on the existing basis. Before the expiration of this period, it is expected that the Authority will have been constituted and at that stage a new Vote will be required to provide the amounts to be paid to the Authority under the Act. I expect that this will involve a net addition to the expenditure side of the Budget of £350,000.
Members' Allowances, etc.
A recent Act increased the allowances of Members of the Oireachtas and provided for payment of a member's allowance to a Minister or other office-holder in addition to salary. The allowance for the expenses of Opposition Parties in Dáil Éireann was also increased. The Act will come into operation on 1st May, 1960, and the cost this year will be roughly £75,000.
The Social Welfare (Amendment) Bill, 1960, circulated to Deputies on Saturday last, makes provision for a scheme of contributory old age pensions, payable at the age of 70, for persons insured under the Social Welfare Acts. The basic weekly rate of pension proposed is 40/- with a further 27/6d. a week in the case of a married couple. Persons already over the age of 70 may benefit if their insurance records satisfy certain conditions. The Bill also provides for improvements in social insurance benefits, including an increase of 2/6d. a week in basic rates and 5/- a week in the rate for adult dependants of persons in receipt of unemployment or disability benefit. The basic rate for widows with qualified children will be increased by 5/- a week. The allowances for children are also being increased and extended.
Assuming the proposals in the Bill are approved and come into operation on 1 January next, the net cost to the Exchequer this year has to be provided for. So also has the increased cost of treatment benefits. The extra amount required is estimated at £155,000.
Total Increase in Expenditure.
The tot of the additional items of expenditure I have specified is £1,960,000. To make some allowance for other contingencies, I am rounding this to £2 million.
On the revenue side, an upward adjustment has first to be made. I referred at the outset to revenue carried forward from last year to meet two exceptional contingencies. The first of these—a large repayment of income tax—will not in consequence affect this year's revenue. The second contingency is the deficiency in revenue which arises exceptionally because this is the first year of the Pay As You Earn scheme. Because of the carry-forward from last year I can pay into the Exchequer £650,000 which will amply cover this deficiency and still leave the revenue balances at their normal level.
As a result of these adjustments, revenue becomes £137.5 million and expenditure £138.5 million. The revenue cannot, however, stand at this figure. Some further adjustments are necessary for economic, social and other reasons, including the future safeguarding of the revenue itself.
Cinemas and Dancehalls.
I consider it necessary to give further reliefs this year to proprietors of cinemas and dancehalls. I am satisfied that these forms of entertainment, from which practically all the entertainments duty is derived, are no longer in a position to contribute as much to the Exchequer as they have done in recent years. In fact there is a real danger that failure to give substantial relief now would ultimately compel the proprietors of some cinemas and dancehalls to go out of business. Such a development would benefit nobody; on the contrary, not only would it deprive some people of their livelihood and others of their entertainment, but it would also deprive the Exchequer of revenue.
It has been represented to me that the need for relief is particularly acute in the small towns and, as a first step, therefore, I propose to extend complete exemption from entertainments duty to towns where the population does not exceed 2,000. At present, these entertainments are completely exempt from duty only if the population does not exceed 1,000; they bear approximately half the ordinary rate of duty if the population lies between 1,000 and 2,000. This change, which will operate from 1 May, will extend complete exemption from duty to those areas where the half-rate operates at present. It will also serve the cause of administrative economy by obviating the necessity for revenue control of entertainments in those areas where the potential revenue is, in any event, small.
In the case of cinemas outside the exempt areas, the form of relief I propose is to repay each week to each cinema proprietor 20% of the net amount of entertainments duty paid that week and, in addition, the balance of the duty paid or £10, whichever is the smaller amount. I hope this combination of a flat percentage repayment with a lump sum repayment will be welcomed generally, since the percentage repayment clearly favours the larger cinemas, while the smaller cinemas will find the lump sum repayment more valuable. As to the latter, a cinema proprietor whose liability to entertainments duty in any week does not exceed £12 10s. 0d. will be completely relieved of duty for that week. This concession will operate from Sunday next, 1 May.
I consider that the most suitable form of relief for dances is a further reduction in the scale of entertainments duty. I propose, therefore, to introduce a revised scale of duty for dances with effect from 1 July next. Under the new scale, admission charges up to 3/- will be tax-free compared with the present limit of 2s. 6d.; there will be a reduction of 4d. in the duty element in inclusive prices up to 4/- and of 6d. in the case of higher prices.
The concessions for cinemas will cost £300,000 this year and those for dances £50,000, making a total of £350,000.
Other Entertainments Duty Proposals.
Comhaltas Ceoltóirí Éireann, a body established to preserve and promote traditional Irish music, has made representations for relief from entertainments duty in respect of certain entertainments held in aid of its funds. I propose to include in the coming Finance Bill a provision exempting from duty entertainments promoted by Comhaltas Ceoltóirí Éireann where the net proceeds are devoted wholly to the objects of that body. The effect on the revenue will be trifling.
Before I leave the subject of entertainments duty I have one other matter to mention. Deputies will recollect that in 1958, to prevent evasions, I introduced the restrictive measures contained in Section 17 of that year's Finance Act in relation to the 50% repayment of entertainments duty enjoyed on educational grounds, by cinema shows in which there are films having sound tracks in languages other than English. While these measures were successful in eliminating what I might call bogus shows, they have created difficulties for exhibitors presenting genuine entertainments of the kind contemplated by the rebate provisions. I cannot, without undermining the 1958 safeguards, completely remove these difficulties but I propose to introduce with immediate effect certain easements which I now find possible. The alterations are technical in character and will have no effect on the revenue.
I have received representations, which I am satisfied are well-founded, that the increased rate of excise duty of 1/- per gallon imposed some years ago on table waters bears too heavily on many concerns, especially those producing the cheaper varieties and whose output is small. Without some relief, local production and employment would be endangered. The form of relief I propose is a graded rebate of duty related to the annual output by each manufacturer. The rebate, which will operate from 1 May, will be at the rate of 8d. per gallon on the first 20,000 gallons and 4d. per gallon on the next 80,000 gallons. As a result, the effective duty on the total production of about 80 out of some 130 licensed manufacturers will revert to the former level of 4d. per gallon. The cost of the concession this year will be about £70,000.
Special Import Levies.
The Special Import Levies have now been four years in operation but they have been relaxed step by step over the past three years. There remain only some thirty classes of goods on which levy is charged at present; the total yield last year was £1.6 million. It will be recalled that the levies were originally designed to restrict the import of less essential goods and they continue to fulfil this function to a reduced extent. For the last couple of years they have also been a source of current revenue to the Exchequer.
I continued to receive representations during the year from trade associations and firms and traders who brought to my notice the desirability of removing or reducing this or that particular levy. Representations were also made by various foreign Governments. Unfortunately, in view both of balance of payments and revenue considerations, I could not see my way to do as much as I would have wished this year. I did, however, consider very carefully all the representations made and the Government have agreed to certain relaxations. An Order has been made under the Imposition of Duties Act which, from tomorrow, will abolish the levies on clothing, furniture, toys, sports goods and fresh fruit and a number of other items. The duty on bananas which was formerly a levy is also being abolished. The result is that the extra duties imposed on fresh fruit in 1956 have now been completely removed. The levies on refrigerators, light fittings and some other items are being replaced by protective duties. The levy on tinned salmon is being reduced by one-third to 25% (full), 16?% (preferential) and the levies on fancy articles and perfumery by one-quarter so that no levy will now exceed 45%. Some minor adjustments in the content of levy headings are also being made.
Advantage is being taken of the Order to modify the 5% duty on newsprint, so as to enable imports to be exempted from this duty where supplies cannot be obtained from home manufacturers.
Copies of the Order will be circulated as soon as I conclude. The total cost of the relaxations is £555,000.
Hydrocarbon Heavy Oils.
Hydrocarbon heavy oils, that is, oils other than petrol, have always been charged with full duty when used as fuel in road vehicles. When used otherwise, however, they were, before the 1956 Budget, relieved of all duty by means of a rebate. In 1956, by an adjustment of the rebate, these free oils, with the exception of tractor vaporising oil, were made liable to an effective duty of 1d. per gallon. The main classes of oils affected were fuel oil used in industrial furnaces and central heating plants, diesel oil used in railway locomotives, agricultural tractors and stationary engines, domestic paraffin and lubricating oils.
It could never be claimed that this charge of 1d. per gallon is a good tax, since it represents, as to the bulk of its yield, a direct addition to the costs of industrial and agricultural production. Ever since its inception it has been the subject of vigorous representations from many quarters but all that has been done so far is to waive the charge in respect of oils entering into the production of goods for export. I consider that the case for total abolition is sound and that the pre-1956 position should be restored by an adjustment of the rebate. The cost this year will be about £500,000.
Taken together with the reduction in import levies, this concession represents a substantial contribution by the Exchequer towards keeping costs and prices down.
I should mention here that I hope to include in the forthcoming Finance Bill provisions designed to counter the irregular use of the rebated oils as road fuel. These will be administrative in character and will not involve any alteration in taxation.
Harbours—Exemption from Income Tax.
I consider it desirable to exempt the profits of harbour authorities from income tax under Schedule D on lines which will be set out in the Finance Bill. The estimated cost this year will be £70,000.
Tobacco Dealers' Licences.
Wholesale and retail dealers in tobacco, of whom there are about 36,000, are required, under early nineteenth century statutes, to take out excise licences costing 5s. 3d. a year There are also part-year licences from 1s. 3d. upwards and occasional licences at 4d. a day. These licences, originally intended to protect the revenue, have outlived their usefulness and I propose to abolish them with immediate effect. The disappearance of the dealer's licence will relieve revenue officers of a burden entirely disproportionate to the annual yield of about £9,000.
Retail Liquor Licences.
My next proposal, although primarily a reform long overdue on grounds of equity, also serves to eliminate cumbersome administrative procedures. I propose to change the basis of the excise duty on retail liquor licences, which for fifty years has been related to rateable valuation.
The licensed trade have over the years voiced cogent and valid objections to the anomalies and inequities of this system. In their 1957 Report the Intoxicating Liquor Commission described it as "unwieldy and entailing quite a lot of time, work and trouble for the relatively small amount of duty involved". One suggestion made by the Commission was the payment of a nominal licence fee combined with a levy on releases from brewery or bond sufficient to make up the revenue deficiency but, on close examination, I found this would not be practicable. The alternative suggestion by the Commission was to fix standard duty rates for all licences. To avoid loss to the Exchequer it would be necessary to fix the standard rates at levels which would mean substantial increases for many small traders now paying minimum rates. Rather than abandon the idea of reform, I propose to introduce low standard rates of duty under which, for example, publichouse and hotel licences will cost £4 so that even the smallest publican will enjoy some slight reduction. The maximum duty payable by a registered club will also be put at £4. The cost of these measures this year will be £106,000.
Effect of Foregoing Revisions.
The total effect of these changes is to reduce the revenue by £1,660,000, making it £135,848,000 as against an expenditure figure of £138,533,000. At this point, therefore, I am faced with a deficiency of £2,685,000. Even the justifiable deduction of £2,500,000 which I am making for errors of estimation still leaves a deficiency of £185,000. There are, however, two additional items of expenditure which I feel bound, in equity, to undertake.
The increases in food prices resulting from the Government's agricultural policy will mean additional charges on family budgets. While the effect may be to add only one point to the consumer price index—not a very serious matter for those whose wages, salaries or profits have increased—I am concerned about the position of families on rather low, fixed incomes, especially those dependent on Social Assistance. It is proposed, therefore, to increase Social Assistance payments as from 1 August next by 1/- a week all round. Old Age Pensions, Blind Pensions and non-contributory Widows' Pensions will be increased by this amount. Rates of Unemployment Assistance will also be increased by 1/- a week for recipients and 1/- a week for adult dependants. The extra 1/- a week will be paid in respect of every dependent child, both of Unemployment Assistance recipients and of widows, and not only in respect of the first two qualified children to whom payments are confined at present. These increased payments will more than cover the additional weekly cost of the price increases to which I have referred. They will mean a charge on the Exchequer this year of £450,000.
Certain Pension Increases.
In last year's Budget, I made provision for increases in the pensions of retired Civil Servants, Teachers, Gardaí, Army personnel and officials of local authorities and also in Military Service Pensions. These increases were 6% for Civil Servants who retired before 1 November, 1948, and 4% for those who retired between that date and 1 November, 1952. The corresponding dates for certain other classes of pensioners were slightly different. During the debates on the relevant Acts I was criticised for the smallness of the increases and for the overall limitation that was imposed. This limitation was to the effect that no pension could be increased beyond the amount which would be payable to a colleague of identical rank and service who retired on 1 November, 1952, and whose pension is based on the higher salary introduced on that date. The consumer price index has increased since then and, of course, pensioners will be affected by the increased food prices. Serving officers have got a number of pay increases since 1952 but pensioners have lagged behind. I have, therefore, decided to give further increases to pensioners. Those who retired in the period between I November, 1948, and 1 November, 1955, including those who benefited from last year's increases, will get an extra 5%. Pensioners who retired before 1 November, 1948, will receive a higher increase, namely 7½%. The increase in Military Service Pensions will be 5% but a further sum of £30,000, approximately, will be allocated to increasing the special allowances payable to Military Service pensioners and holders of service medals. The details of the increases in special allowances remain to be settled with the Minister for Defence.
The various pension increases will take effect as from 1 August next and the cost, including the increases in special allowances, is estimated to be £150,000 in the current financial year.
These two items of increased expenditure, for which I am sure I will have the approval of the House, widen the gap between revenue and expenditure to £785,000. Some increase in taxation is necessary to avoid a deficit. The remarkable buoyancy of the revenue from tobacco in the past year leads me to look to this source for the additional money needed to balance the Budget.
I propose to increase the main rate of customs duty on leaf tobacco by 1s. 9d. a lb.; the other rates of tobacco duty will be correspondingly increased. The effect will be to increase by 1d. the duty element in a packet of 20 standard-size cigarettes. The increase in the duty element in an ounce of pipe tobacco will be slightly over 1d. except in the case of hard-pressed varieties where an adjustment in the rebate will limit the rise in duty to 1d. an ounce.
Deducting £20,000 as the cost of the increased rebate on hard-pressed tobacco, I expect the increased tobacco duties to yield an additional £980,000 this year.
This is a little more than is necessary for an exact budgetary balance. In fact, I have £195,000 on hands which, I think, can best be applied in the ways I shall now indicate.
Child Allowance—Income Tax and Sur-tax.
In large measure our future economic and general development depends upon the provision of a high standard of education for the young in our schools and universities. The sacrifices which this entails for parents must not be forgotten and I propose to do something to help them. I am inserting in the Finance Bill a provision to raise the income tax and sur-tax deduction allowable in respect of a child from £100 to £120. The cost to the Exchequer this year will be £110,000.
Death Duties Relief
To encourage saving and investment I propose to grant some relief from death duties.
The rates of estate duty at present in force were fixed by the Finance Act, 1951. Estates of a net value not exceeding £2,000 are free from duty. From £2,000 to £3,000 the estate duty is 1%; from £3,000 to £5,000 it is 2%; from £5,000 to £7,500 it is 3%; from £7,500 to £10,000, 4%; and the rates then increase by stages up to a maximum of 53% for estates exceeding £250,000 in net value.
I propose to raise the exemption limit from £2,000 to £5,000 but, for estates in excess of the latter figure, to leave the rates undisturbed.
This easement will carry with it a corresponding adjustment in legacy and succession duties. Under the law as it stands legacy and succession duties are, broadly speaking, not payable where the net value of the property passing on the death of the deceased is not more than £2,000. I propose to lift this figure to £5,000.
These reliefs will cost the Exchequer £50,000 this year.
Other Tax Reliefs.
My two remaining proposals are also intended to encourage saving.
Income tax and sur-tax exemption was provided by the Finance Act, 1956, in respect of the first £25 interest accruing to an individual from deposits in the Post Office Savings Bank, a Trustee Savings Bank or a commercial bank. In the case of a married couple, however, exemption could apply only to £25 of the interest from their total deposits. It has been represented to me by the Savings Committee and others that it would be an added attraction to saving if exemption were to apply to the interest accruing to each spouse and the Finance Bill will embody a section accordingly. The cost this year will be about £20,000.
Section 7 of the Finance Act, 1932, as amended by subsequent enactments, including the Finance Act, 1957, provides 20% income tax and sur-tax relief on dividends or interest from certain securities issued after 4 August, 1932. I have decided to eliminate the distinction between securities issued by manufacturing companies after that date and securities issued on or before it. This will improve the marketability of securities issued by such companies and will stimulate further investment. The cost to the Exchequer of this change— which, of course, carries with it relief from estate duty—will be £15,000 in the current year.
The net effect of my proposals on the revenue side is to reduce taxation by £875,000. Revenue and expenditure are now equal at £136,633,000, and the proposals affecting the Current Budget for 1960-61 have all been outlined. There remain, however, a number of matters to which I would like to refer before passing on to the Capital Budget.
Pay As You Earn.
A notable simplification of the income tax code introduced by the Finance (No. 2) Act, 1959, takes effect as from the year 1960-61. I refer to the replacement of the reduced rates relief by increases of equivalent value in the personal allowances. Another provision which comes into force this year is the flat rate of one-fourth earned income relief on earnings up to £1,800 per annum. The combined effect of these two measures is that, with a standard rate of 7/- in the £, a taxpayer, if his total earnings do not exceed £1,800 per annum, pays 5s. 3d. in the £ on earnings over his tax-free limit. On earnings over £1,800 per annum and on all other taxable income he bears income tax at 7/- in the £.
These modifications were made to pave the way for a simplified form of Pay As You Earn. The Act also empowered the Revenue Commissioners to make detailed regulations. The regulations were made last February and the necessary steps have now been taken for introduction of the scheme as from 6 October, 1960. There has been, I am happy to say, evidence of very ready cooperation from organisations catering for employers and employees. The Association of Chambers of Commerce have, for example, provided valuable assistance in bringing to the attention of the business community their position under the new scheme, by arranging with the Revenue Commissioners for a series of talks and discussions on Pay As You Earn at various centres throughout the country. The success of Pay As You Earn will depend mainly on the wholehearted cooperation of both employers and employees with the Revenue; and the cooperation already given in helping to launch the scheme augurs well for its success when it comes into operation next October.
Employees will benefit most from the new scheme. If it is to get off to a good start, it is essential that every employee concerned should immediately, if he has not already done so, complete a form of claim for income tax allowances and send it to his local Inspector of Taxes.
Inspectors of Taxes and their staffs are most willing to help both employers and employees in every possible way and, if an employer or an employee has any difficulty, he should not hesitate to consult them. A pamphlet on Pay As You Earn for the guidance of employees has been published and will be found to answer most of the problems which would be met in straightforward cases. A booklet of instructions for employers has also been prepared and is now being issued by the Revenue Commissioners to all registered employers.
I shall include in the Finance Bill a provision to exempt from stamp duty the special forms of bank draft which will be issued to employers for the purpose of making remittances to the Revenue Commissioners in respect of income tax deducted under P.A.Y.E.
I have been reviewing the structure of the tax relief granted to manufacturing companies in respect of goods manufactured and exported by them. As a result, the Finance Bill will contain provisions for two major changes which I think it advisable to make.
The first concerns the question of who may claim the exemption. At present exemption does not normally extend to companies which export goods manufactured within the State unless the exporting company is also the manufacturer. The exporting company is the one faced with the problem of finding markets abroad and it seems to me that there is a good case for allowing the relief to such concerns. I propose, therefore, that, in future, exports relief may be claimed by companies exporting goods manufactured in the State. Companies which export their own manufactured goods will, of course, continue to qualify.
I have also decided to extend the terminal date. Under existing law, the year 1969-70 is the last year for which income tax relief on exports may be given so that, for companies entering the export market after the current year, 1960-61, a full period of ten years would not be available. I propose to make 1974-75 the terminal year so that companies entering the export market up to 1965-66 will be assured of the full ten years' relief. Furthermore, to avoid a sudden transition from 100% relief to full tax liability, I propose to bring in a "tapering-off" provision under which a reduced measure of relief will be allowed in the five years following the tax exemption period.
Special provisions to encourage expansion of the hotel industry have already been enacted chiefly by the granting, in respect of capital expenditure incurred on or after 30 September, 1956, on the construction of hotels, of an initial 10% industrial buildings allowance and, as from the current year, of a 2% annual allowance. As already announced, it is proposed to increase the 2% annual allowance to 10% in respect of capital expenditure incurred on the construction or extension of hotels on or after 1 January, 1960. I propose also an extension to holiday camps of the tax allowances available for hotels.
As a concession to mines producing non-bedded minerals, such as copper, lead and barytes, I propose to arrange that the eight-year tax relief given in 1956 will run either from the date of commencement of production or from 6 April, 1954, whichever is the later. Under the 1956 Act no relief was allowable for any year before 1956-57.
I also propose to extend the 1956 tax relief for increased coal-mining to the mining of gypsum.
Business Losses Relief.
The Finance Bill will introduce certain alterations with respect to the treatment of business losses for tax purposes. At present such losses as have not otherwise been relieved may be carried forward and set off against profits of the same trade, etc., for the six following years of assessment. I propose to remove this time limit and to allow the losses to be carried forward indefinitely. I also propose to allow losses incurred in the closing year of a business to be carried back and set off against profits of the same business for the preceding three years.
IV. CAPITAL BUDGET, 1959-60 AND 1960-61.
I now come to the capital side of the Budget. Details both of the outcome of 1959-60 and of the programme for 1960-61 are given in the expanded tables circulated to Deputies and I need draw attention only to the broader features.
Public capital outlay has tended for some years to fall short of budgetary expectations but last year was an exception. Expenditure at £44 million just exceeded the original estimate of £43¾ million, which itself, as I pointed out last year, was several millions higher than the figure contemplated in the Programme for Economic Expansion.
There were, of course, variations from the Budget estimate under several headings. In particular, voted capital services showed an increase of £3.7 million, mainly because the bovine tuberculosis eradication campaign required £3¼ million more than we had originally allotted. I expect that this year's provision may itself need to be supplemented, not only because of the fat cattle subsidy but also because of more rapid progress generally. The eradication programme is a work of national importance which it is essential to complete as quickly as possible, despite enormous cost.
The purchase of shares in Irish Steel Holdings, Limited, as a first contribution to their programme of expansion and development and a higher rate of industrial grant issues by An Foras Tionscal accounted for further increases in voted capital expenditure.
The Air Companies exceeded the Budget provision. On the other hand, the Industrial Credit Company required £1.4 million less than the estimate because their commitments did not mature as rapidly as had been expected. The Company's expenditure is, however, expected to reach the £3½ million mark this year.
Local authorities' requirements for building and construction fell £1¾ million short of the estimate, mainly in respect of housing and sanitary services. The reduction was partly offset by greater expenditure in the private building sector, stimulated by the more liberal grant and loan facilities provided under the 1958 Housing Act. The general improvement in the economic situation probably helped also to stimulate building activity. In the confidence that this improvement will continue, a provision greater than last year's expenditure is being made for housing as well as for sanitary services.
The reduced level of expenditure on housing in recent years has been the subject of groundless criticism. It is due to the satisfaction of housing needs and not to any restriction on the issue of money to finance building. Fortunately, there is no longer any need to sustain the peak building levels reached in earlier years when slum clearance and other major housing schemes were in full swing throughout the whole country. The fulfilment of needs in many areas must naturally be followed by a decline in the rate of building since it would be quite pointless to build houses which are not required for occupation. Instead of the reduction in housing expenditure being a source of criticism, it should be a cause of satisfaction to all of us that we have progressed so far towards meeting our social obligations in this respect.