I want to make it clear that we are not opposed to the imposition of the necessary taxation to raise sufficient revenue to meet essential national expenditure but we are opposed to reckless and indiscriminate expenditure without securing value for the money spent or deciding, in the case of either capital or current expenditure, a correct and appropriate order of priorities. Every rational person recognises that essential State services must be maintained. These refer to the ordinary current expenditure by the State Departments or State social benefits such as social welfare, health and other services. But, we are opposed to spending merely for the sake of spending without due regard being paid to the purposes for which the money is spent, the type of work being undertaken and which involves heavy demands on the community to raise the funds to meet the expenditure.
This Finance Bill centres almost entirely on the proposal contained in Part VI, which provides for the turnover tax. I want to make it clear that we are not opposed to improved social services. In fact, on each of the occasions that we were in office improved social services and health services were provided. Indeed, it has often been remarked that every time there is a change of Government old age pensions are increased. What I want to ensure is that when social welfare beneficiaries are given increases these monetary increases will not be nullified or reduced by a rise in the cost of living. The difference between our approach to this matter and the approach of Fianna Fáil is that under Fianna Fáil there has been a very steep and continuous rise in the cost of living which has offset any monetary increase in the benefits paid to old age pensioners, widows and orphans and the recipients of unemployment benefit and unemployment assistance. This is bad social policy and bad economic policy.
I want at this stage to examine the various views that have been published concerning the proposal to introduce a purchase or sales tax. This matter, as Deputies will recollect, was considered by the Commission on Income Taxation and it is well to recall what the Commission recommended. It is equally important in considering that to remember that this proposal, which is not the one enshrined in the turnover tax, but the proposal included in the recommendation of the Majority Report of the Commission on Income Taxation, was carried by a majority of only one vote. So far as I can find, there were six members of the Commission in favour of a purchase tax and five against it. Having considered the matter and having expressed their views in the Report, the majority eventually came to the conclusion included in the recommendation made in Paragraph 115 on Page 50 of the Third Report, in which it is said:
We accordingly recommend the introduction of a purchase tax at a rate or rates of between 7½ and 15 per cent on a base of £65/67 millions wholesale value, but in any event excluding—
and the exclusions are important—
(a) goods essential for agricultural production,
(b) goods essential for industrial manufacture,
(c) exports, agricultural and industrial,
(d) food, particularly essential food,
(e) fuel,
(f) newspapers and books,
(g) household non - durable goods,
(h) goods already subject to heavy customs and excise duties, e.g. tobacco,
(i) works of art, and goods that are primarily of a cultural nature.
They go on—and, indeed, when you come to this part, you see how innocent these men were of the economic facts of life—
We recommend that the purchase tax be a part-substitute for income tax and that the revenue from it be used to reduce the rate of income tax.
Of course, there has been no proposal in the Budget to reduce income tax and I want to refer the House to the views expressed by Professor Meenan in an Addendum to the Minority Report:
Finally I cannot believe for a moment that the implied bargain of a reduction in the standard rate of income tax to five shillings in return for a limited purchase tax would be regarded as inviolable. Some day or other the standard rate would begin to inch upwards again and the final result would not be a redistribution of taxation but a new tax.
In addition to the views expressed in the Minority Report, the views of three economists are quoted. They are three persons from different universities, all of whom were invited by the Commission to give their views on the tax. The Rev. W. Paschal Larkin, O.F.M.Cap., Professor of Economics, University College, Cork, said:
The expediency of a general purchase tax is very controversial. Its suitability for this country is very questionable owing to our low per capita income, and our rather static consumption habits. Even in England ...there is a strong campaign for further substantial reductions in purchase tax, and its ultimate abolition.
Professor G.A. Duncan, Professor of Political Economy, University of Dublin, said:
All (sales or purchase) taxes possess three qualities in common:
(i) They are excise duties, falling with greater or less inequity according to their technical construction;
(ii) They are regressive, since, to raise revenue in significant amounts, they must fall on articles of common consumption;
(iii) They impose vast amounts of paper-work and accounting on traders, and consequently predispose to evasion.
I doubt if sales, purchase or turnover taxes have had a happy history anywhere, except as excises at wholesale level expressed specifically on easily traceable commodities—and then their produce is somewhat inflexible.
Mr. David O'Mahony, Lecturer in Economics, University College, Cork, said:
A purchase tax would tend to raise the cost of living and thus stimulate demands for increases in money incomes, which would in turn increase costs and thus impair our competitive position.
The Report says:
It will be noted that none of these three economists expresses himself in favour of a purchase tax.
There is even more compelling evidence in the memo submitted by the Revenue Commissioners to the Income Tax Commission and dated 27th August, 1957. It says:
Theoretically the retail stage is the ideal level, i.e. the tax would be charged on the actual price at which the commodity is sold to the final consumer. In practice however, because of the huge number of traders who would be brought within the tax net, a tax at the retail level would be costly and difficult of administration, and taxation at an earlier level is to be preferred. A tax at the wholesale level would seem to be feasible in this country. It would not be unduly expensive to administer and would be preferable to taxation at the manufacturing level.
The Capital Investment Advisory Committee in their Third Report stress the importance of encouraging enterprise by changes in taxation and increasing tax incentives for the investment of savings at home, for the investment at home of past savings now held overseas and for the attraction of foreign capital.
All those views expressed by the Revenue Commissioners and the three economists rejected and condemned a purchase tax or a sales tax, and they would have been in stronger opposition to a turnover tax which was not confined to a limited number of commodities. All these views rejected it on different grounds.
Of course, it is in conflict with the views expressed in Economic Development where it is stated on page 22— and it was published with Government authority and approval in 1958:
Indeed, the limit of taxable capacity has been reached in some directions and it is difficult to see any method by which additional revenue on a substantial scale could be raised without injurious effects on employment and on economic activity in general. A general purchase tax, for instance, would have an immediate reaction on sales of Irish products and would probably, in the end, have inflationary effects on wages and salaries and the cost of living.
It went on to say:
It is desirable that taxes on spending should bear most heavily on less essential imports as this helps to ensure the retention at home of as much as possible of the stimulating effect of capital formation on employment.
All those views expressed after serious consideration by economists and the Revenue Commissioners, who had the accumulated experience of the various proposals as well as practical experience of the difficulties involved in raising revenue, were opposed to a purchase tax, and not merely a purchase tax on a limited range of commodities and, with the exception of the majority report which was carried by one vote only, all the people who were appointed on the Income Tax Commission were opposed to it. The three economists I have mentioned rejected it and gave reasons for rejecting it.
There is an even more compelling argument which I quoted previously but I think it is important to refer to it again. I quote now from a speech made by the Taoiseach and reported in the Official Report of 17th May, 1956, at column 621, volume 157. He said:
I think it is true to say that most people who have written upon the theory of public finance subscribe to the view that it is desirable that the number of separate taxes should be kept as few as possible, that the State should rely for the bulk of its revenue on a few main taxes and should not try to multiply the number of separate taxes.
He went on to say:
There is an obvious reason for that. It is undesirable that the hand of the tax-gatherer should be brought into business. The number of businesses subject to the regulation which is necessarily involved in the collection of taxes should be kept to a minimum. Government intervention for tax-raising purposes in any business always results in waste and is a cause of higher costs as well as of higher prices. Furthermore, it is obvious to expect that the smaller the yield from any tax the higher will be the proportion of that yield absorbed in collection expenses. And, the wider the number of taxes, the greater the prospect of successful evasion by individuals.
Deputies will recollect that when that speech was made by the Taoiseach, the commodities subject to taxes were what we in this country regarded as the traditional tax revenue commodities: beer, tobacco, petrol, income tax, surtax and perhaps a few others. Compared with the proposal enshrined in this Bill, they were infinitesimal in number compared with the limitless range of commodities affected by this measure.
One of the objections which was expressed not merely by the trade concerned but by all those who have written or spoken on this matter is the indiscriminate nature of the tax. In fact, I notice from the booklet which was published—and I gather from discussions with trade representatives— that this is to be a free for all. This booklet on the turnover tax says at page 7:
There may be special problems for retailers dealing in pre-packaged goods and commodities sold in small quantities at standard prices. These problems are capable of solution by adjustment of quantities and prices and the Minister for Finance is actively seeking the co-operation of the trading interests concerned in the matter. Slight changes in standard prices or quantities may, therefore, be expected but each retailer will continue to be free to decide the prices he will charge.
I remember a few years ago, when the obligation to sell bread by weight was removed, the vociferous criticism by the present Government when in Opposition, the criticism that people were being sold goods below a certain weight. Since then we have had here a Prices Bill which has been consigned to the archives and we also have the Fair Trade Commission. The Fair Trade Commission regulations as well as the legislation make it obligatory on traders not to enter into any agreement with wholesalers to fix prices or to agree on any restrictive practices. Any suggestion similar to that contained in this booklet would be contrary to the principles of the Fair Trade Commission. We must decide now is it proposed to jettison the policy behind the Fair Trade Commission, to jettison the general agreement not only in this House but throughout the country that fair trading rules should operate because the proposal in this booklet and the indications given at discussions which these traders have had is that they can make some arrangement and some adjustment in weight.
I do not believe there is in any country that has not a decimal system a satisfactory method available for operating a purchase tax. Sweden is a country in which there are comparable taxes but in Sweden there is a suitable small value coin available because of the decimal system but in this country under the present sterling system it is impossible for traders selling goods to operate this tax. It is relatively easy to suggest that, where people pay a grocery bill at the end of the week, the bill can be totted up and the two-and-a-half per cent marked on it but the average individual does not confine his purchases to one purchase at the end of the week. Every household finds that it has to buy certain commodities at different times and in different quantities and so far as small sales of essential foodstuffs are concerned this tax will press at the same rate on those commodities as it will press on a television set or some other electrical gadget that is not in general use or essential.
One of the strong recommendations in the majority report in this connection, objectionable and all as it may have been, had a far less objectionable basis and was not by any means as comprehensive as this one and it was only carried by a majority of one vote. I do not believe a major tax structure of this nature should be introduced in this country or in any other country on the mere chance vote of one person on a commission of this sort. However, that recommendation excluded essential food and fuel. I need not recite the other commodities that were excluded but all these representations were based on the assumption that food and fuel would be excluded.
Deputies who have spoken in the course of this debate have adverted to the impossibility of operating this tax on any sort of a fair basis because of the fact that there is no unit of currency small enough in general use to operate the tax equitably. I believe the views expressed in the leading article of the Irish Independent of 18th June are correct. The article reads:
Let us take a random example, say, cigarettes. The retailer has to pay tax on the cigarettes he sells. He does not have to recoup it from the customer who buys cigarettes; he may instead put the cigarette tax on the bread which he also stocks. The shop next door, however, may choose to put the cigarette tax on cereals. Up the road may be a shop which simply increases cigarette prices while the supermarket round the corner will not put up the prices of any commodity, but simply add 6d. in the £ to the customer's total bill. The result will be that in the same neighbourhood cigarettes, cereals and bread will be selling for widely different prices in each shop ... The confusion is made no easier by the fact that the retailer must pay tax on his sales of cereals and bread as well as on cigarettes.
That precisely sets out the possible consequences, although it is more than likely that bread or any other essential commodity will be sold at the same price because of the obvious trading disadvantages but it must be remembered that this tax taxes at the same level and at the same rate as non-essentials, essential food, clothing and fuel. One inevitable result of this and the arguments in favour of the fact that the cost of living will rise do not require to be requoted. They have been expressed by the present Taoiseach when in Opposition. They have been expressed by economists who have their views considered by the Commission on Income Taxation. They have been expressed in every recommendation, either minority or majority, of the Commission on Income Taxation. However, if any practical evidence is needed, the Retail Grocers and Allied Trade Associations have been notified by the trade union catering for the workers that once this tax goes on they will seek wage and salary adjustments to offset the effect. If that applies to one category of employee, does it not apply to all? Is it not inevitable that the same pattern of reaction will spread to other trade unions?
With that result, how is there any basis for the suggestions contained in the Government White Paper, Closing the Gap? The Government in that White Paper said:
The Government are convinced that it is necessary to avoid the damage to the national economy which would occur if further wage, salary or other income increases, whether in the public or private sector, took place before national production had risen sufficiently.
One of the objections to this tax contained in the memorandum submitted by the Revenue Commissioners was that it would affect Irish industry, that it would affect Irish industry equally with the goods sold from industrialists abroad. One of the objections was that it would lessen competitiveness and capacity. The Minority Report of the Commission on Income Tax states:
The Revenue Commissioners have informed us that "a sales tax must be viewed primarily as a device to bring within the tax net the products of Irish industry". Their memorandum goes on to point out that, by comparison with Britain, "there is less diversity and buoyancy here, less certainty of export outlets, and therefore greater sensitivity of industry to any adverse influences on the home demand for its products". For these reasons we believe that it would be very unwise to hamper our industries by the imposition of a purchase tax.
The purchase tax recommended was far less embracing and comprehensive than the turnover tax enshrined in this Bill. One of the arguments advanced by Government spokesmen is that this is necessary for social purposes and to improve social welfare benefits. In order to advance that case and give it greater authority, the Taoiseach has recently started to quote the Papal Encyclicals, Mater et Magistra and Pacem in Terris. Even in this week of Ascot fashions, I find it difficult to see the Papal Encyclicals as a suitable mantle for Fianna Fáil.
I want to look for a moment to see how we are considering social priorities and the way in which effective action has been taken. Social priorities do not stop at, nor are they confined to, social welfare services and the health services. Quite recently, we had the serious effects of the adverse weather in the collapse of houses in Dublin. No one suggests that the Government were responsible for that. Unfortunately, these events did occur, but what the Government could have done was to keep up the building rate which was operating before they came into office so that some of these people would have been taken out of those buildings.
It has become one of the easiest untruths for Fianna Fáil to propagate to say that fewer houses were being built and that there was some delay in the housing programme. The following are figures published in the Statistical Abstract for 1962 published last month. I want to quote figures for houses built in both rural and urban areas in 1956 and 1957, for part of which period we were in office. In the rural areas, 1,648 houses were built by the local authorities in 1956, and in the urban areas, 2,363 houses were built. In 1957, in the rural areas, there were 1,617 and in the urban areas, there were 3,167. The total number of houses built with State aid in 1956 was 9,837 and in 1957, 10,969. We come then to 1961/62 and we find for the rural areas in 1961,627 houses were built and in the urban areas, 836. In 1962, 455 houses were built in the rural areas and 783 in the urban areas, a total of 5,798 for 1961 and 5,626 for 1962— in one case slightly over half, and in the other, approximately half, the number built in 1956/57. If there has been any delay in rehousing people from the slums or unfit dwellings, the responsibility lies heavily on the present Government.
Then we come to employment. In local authority housing schemes in 1956, there were 6,045 employed and in 1957, the number had dropped to 3,500. In 1961, the last year for which figures are available, the number was 1,694. I believe we should have a proper order of social priorities but they are not confined merely to monetary benefits. One of the most urgent tasks—and I referred to this on the Budget debate—is to get an agreed capital development programme because at the same time as that drop in housing occurred, we saw in Dublin the erection of extensive buildings, public offices and State companies. I know the Government have no responsibility for private building and we all welcome as much building as possible but there should be an adequate system of priorities. Shortly before the houses collapsed in Dublin recently, we had three vast luxurious hotels opened in one week. Where public money is involved, and in these cases public capital expenditure is involved to the extent that some State companies participated in the undertakings, there should be a proper system of priorities. A first charge should be the needs of our people, particularly housing and hospital accommodation. Other building should then be put in an orderly queue.
When this Government were elected, they claimed that over a five-year period, they had plans to provide additional jobs for those anxious to secure work. I do not want to weary the House by repeating the proposals in the speech made by the then Deputy Lemass, but I do want to compare the results of our period of office and the present period. The following are figures taken from the Economic Statistics Issued Prior to the Budget. If we take the total number in employment, we find that in 1962, it was 1,068,000 and in 1956, 1,127,000. At the same time as that drop occurred, we had a continued substantial rise in emigration which most people agree was not less than 300,000 over the past six years. So that not merely have we not maintained the employment that previously existed but emigration is continuing.
Equally significant is the fact that today it costs between £50 million and £60 million more to run the State than it did in 1956-57. The audited expenditure on public services as published in the Book of Estimates showed that it was £109,456,420 and in 1962-63, it had gone to £153,987,980. The estimated figure for 1963-64 is £167,036,460. The country is entitled to know how it is that with fewer people in employment and with a continued rate of emigration, it costs £50 million or £60 million more now than it did six years ago to provide fewer people with essential services and with fewer people at work, fewer houses been built by local authorities.
Is it any wonder that people believe there is something wrong with the economic administration of this State and the policy operated by the Government? We do not say there has not been in the meantime a change in the value of money. To some extent, the value of money has tumbled and this would account for an increase in the cost of administering State services, but can anyone suggest the drop is sufficient to warrant an increase in State expenditure of from £50 million to £60 million?
One of the points made in the course of a speech by the Taoiseach to some Fianna Fáil committee in Mount Street last week was that Fianna Fáil policy was not widely understood and he suggested that Fine Gael were to blame. I believe the contrary is true, that it is precisely because the people understood the nature and extent of this Budget proposal—remember that on every platform throughout the recent by-election campaign the cry was that the money had to come from somewhere—that there was such an overwhelming reaction. It is no function or responsibility of the Opposition to do what the Taoiseach said. In the first place, they have not got the means of information, they have not got the knowledge, they have not got the financial statistics——