Dáil Éireann debate -
Thursday, 20 May 1965

Vol. 215 No. 13

Committee on Finance. - Resolution No. 20—General (Resumed).

Debate resumed on the following motion:

That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance. — (Minister for Finance.)

Minister for Finance (Mr. J. Lynch)

I have dealt, and I hope adequately and effectively, with the suggestions that the Budget did not provide anything or sufficient for a number of major economic activities such as agriculture, education, housing, and so on. I should now like to come to other points made. While I do not expect to be able to cover every point made in the course of the debate I shall try to deal at least with the more important ones. While Deputy Ryan is still here perhaps I could say to him that there is one part of his speech with which I agree and that was his reference to the fact that certain people acquire property and, because of the added value given to it by local authorities or other such bodies in providing for social needs or meeting the necessity for economic development, tremendous increases occur in the value of that property.

I did give that matter some thought before the Budget. It is rather a complex one and I can assure the Deputy that I shall give it further thought during the course of the year to see what, if anything, can be done because I think it is important that where people, whom I should not like to characterise as "parasites" but who, for non-productive purposes certainly succeed in acquiring land and subsequently make inordinate profits on that land as a result of development by the local authority or because of some other public activity, some benefit should accrue to the local authority or to the Exchequer. However, I shall leave it at that. The Deputy knows the matter has been engaging my attention and will continue to do so.

Deputy T. F. O'Higgins suggested there was no comment in the Budget as to how we could achieve a faster, sustainable increase in employment. He mentioned, in particular, the four points in the NIEC Report. What he said ignores what I said in Part I of the Budget speech in which I dealt at some length with the NIEC commentary and stressed the need for greater competitiveness as a means of assuring increased employment, particularly by means of production for export.

Deputy Cosgrave also referred to this matter, in particular, and I think Deputy Corish referred to it in a less direct way. The NIEC, in fact, make these four points in their "Comments on Department of Finance Review of Economic Progress in 1964 and Prospects for 1965". They suggest we can achieve this greater employment and productivity—

First, by laying greater emphasis on the establishment and expansion of employment-intensive growth industries, especially those employing workers with a higher level of skill, such as electronics and engineering.

My more detailed comment on that is that our industrial grants legislation is sufficiently flexible, in my opinion, for the treatment of proposals for the establishment of these types of industry —that is, these employment-intensive growth industries and those other industries which are particularly desirable, such as the electronics industry. I believe the system is sufficiently flexible and adaptable to ensure greater inducement being offered to promoters of such industries.

As the House is aware, it is only in exceptional cases that the maximum grant payable is approved. Desirable projects can therefore be attracted and assisted by approving the maximum grants available. Advantage can, of course, be gained by this flexibility in securing the establishment and expansion of employment-intensive growth industries of the kind referred to by the NIEC. It must be remembered, however, that the scope of Government action is limited by the numbers presenting themselves in response to these inducements which are, as I have often said, as attractive as any offered in any other country. The scope of Government action is also limited by the effect of the promotional campaigns of the Industrial Development Authority.

Mr. Corish

Surely the NIEC were aware of what the Minister is now saying, yet still made that comment.

Mr. J. Lynch

What I have to say now is, I think, relevant to the Deputy's interjection. Deputy Cosgrave, in referring to the NIEC comments, remarked on the very considerable sum that has been expended in recent years on industrial grants and other inducements and suggested that the time had arrived when a more critical appraisal should be made of our grants system. I think the time has arrived. Indeed, it arrived a couple of years ago and the Industrial Development Authority were instructed at the time by me to inquire into the effectiveness of the grants system. When I say "effectiveness" I mean to inquire into whether we were getting full value for the type and amount of grants we were giving.

The Authority commenced a review of some industries. Naturally they were not expected to report on individual industries. What was expected was a global report with emphasis, perhaps, on individual weakness or strength in some cases. Unfortunately, that review was interrupted as a result of the establishment of the Committee on Industrial Organisation and the necessity to implement the recommendations of one of that body's first interim reports in connection with adaptation and rationalisation generally. Since then there has been a formal review carried out and the Minister for Industry and Commerce will introduce in the very near future a new Industrial Grants Bill which will give effect to one part of the review. I cannot comment on it now in any great detail because the Bill is not before the House, but I can say that one provision in the Bill will deal with the desirability of setting up industrial estates. I do not want now to confuse this with a concentration of industrial activity in any one area. In the past we have had some difficulty in inducing existing manufacturers producing worthwhile competitive goods and giving worthwhile employment to find more desirable premises, premises which would make for more efficiency. Even with the grants, some firms were deterred from taking on the extra expenditure involved. At the same time we had inquiries about the possibility of building advance factories on certain sites, but the difficulty was that our grants system could not apply to such a form of industrial development. The new Bill will, I think, deal with that aspect of the problem. As well as that, there will be this more general review carried out.

The second suggestion of the NIEC is that we can achieve this employment-intensive growth——

...by the speedy implementation of a manpower policy so that shortages of particular skills, or shortages of labour in particular areas, can be remedied as soon as possible.

As I indicated in speeches before the election, both inside and outside the House, the Report of the Interdepartmental Committee on Administration Arrangements for Manpower Policy has been received. It contains a series of recommendations designed to set up the administrative framework for the implementation of an integrated manpower policy.

The Report, which will be published in a week or so, is at present under consideration by the Government and by the Departments concerned. And the Government decision on the recommendations contained in the Report will be completed as soon as possible. It is hoped then that a Bill relating to industrial training, incorporating the Committee's proposals, will be introduced at an early date. As the House is aware, for the first time a Parliamentary Secretary has been appointed to the Minister for Industry and Commerce with the express function of dealing with this manpower policy and ensuring that the implementation of that policy will be expedited.

In this connection Deputy Cosgrave made some mention of the means whereby re-training can be carried out. I have given some thought to this and have come down on the side that An Cheard Comhairle are, perhaps, the best vehicle through which this re-training can be done in association with the vocational schools. As Deputies know, we have a big number of committees, councils and other such bodies dealing with the various parts of the implementation of our economic development programme. I think we should do our best to avoid, where possible, any further proliferation of these organisations. Even though the terms of reference of An Cheard Comhairle do not cover re-training as such—they are confined to making proper provision for training new apprentices—in my opinion, it would be better, although I do not know what the Government will decide, to extend the functions of An Cheard Comhairle to cover re-training, particularly since vocational education interests are represented on it and it is through the vocational system we can achieve a great part of this re-training.

The third point made was that this progress could be made by raising public investment, to which the Report added:

...though we recognise that in the light of the present high and buoyant demand, of pressure on resources in building and construction, and of the rapid increase in public investment in recent years, the scope for doing so at this stage may be limited.

Since the Report has been published the Capital Budget figures for 1965-66 have also been published. As the House is aware, this Budget provides for a total expenditure of £103.72 million. This is an increase of £5.91 million over the amount provided in 1964-65. In the sum provided last year there is the special expenditure, something in excess of £3 million, for the acquisition of the B. and I., which, though in new ownership, is not really a new asset. Nevertheless, the money had to be provided. If we exclude that, the provision in the Capital Budget this year exceeds the provision for last year by no less than £9.4 million, or an increase of more than ten per cent. This figure is considerably greater than the projection in the Second Programme.

As I indicated in my Budget statement, the financing of this large programme will be difficult. We do not expect to be able to rely on our own sources of investment, for example, national loans, to the extent perhaps of more than £42 million or £43 million. Therefore, we will have to look to other sources to find that money. I am sure it will be forthcoming.

The fourth suggestion made by NIEC for achieving greater growth was:

...by using some part of the annual increase in productivity to reduce prices and thus to make possible an expansion in sales and open up new employment opportunities.

I have been stressing that aspect of our development effort for many years as Minister for Industry and Commerce. The Report continued:

If the full benefits of rising productivity accrue directly to the factors of production rather than indirectly by way of lower prices, there is not likely to be a sufficiently large improvement in competitiveness.

What they have suggested is one of the fundamental facts of economic life. It must be taken into account in any negotiations for wage settlements by employers and workers. The key to raising the competitiveness of our goods, and thus to create more employment opportunities in industry, lies in the establishment of the proper relationship between the development of monetary incomes and greater productivity. We must make a choice between the level of incomes and the number of jobs we must have. It is obvious we cannot have both at the very high level we would desire. This key principle adumbrated by the NIEC is fully accepted by the Government. The fact that it is proposed by the NIEC, in which there is a joint participation by representatives of employers and workers, makes it seem reasonable to look forward to the application of this principle in future wage negotiations.

Deputy Costello took advantage of this debate to expound some of the contents of the Fine Gael policy statement Towards a Just Society. A peculiar thing about Fine Gael is that, if they see some worthwhile idea and adopt it, they seem to convince themselves it was their own idea; and anybody else who has the same idea is accused of borrowing it from Fine Gael. This was particularly noticeable when I was Minister for Industry and Commerce. Time after time, coming in here with proposals for legislation dealing with industry or the Estimates for my Department, I was told by speaker after speaker from Fine Gael that it was they who conceived the idea of industrial grants. This was continued notwithstanding that they were told repeatedly that the Industrial Grants Act, 1956, was only a pale follow-on of the original conception of industrial grants enshrined in the Undeveloped Areas Act, 1952. This assertion continued to be made right through the general election. I was at least pleased to know that their present spokesman for industry and commerce in the course of this debate modified this claim in some respects— though not fully because they still seem to claim credit for the conception of industrial grants—that they were not known in this country until the Act of 1956. Incidentally, it might interest Deputy Corish to know that Deputy Donegan claimed it was a Fine Gael Minister who introduced the Industrial Grants Act. I think Deputy Corish will agree it was the late Deputy Norton who introduced it.

Mr. Corish

I do not have to agree. It is a matter of fact.

Mr. J. Lynch

I was dealing with Deputy Declan Costello's assertion that I did a little more "cogging" in my Budget speech. Deputy Costello did admit candidly that much of the policy document of Fine Gael was copied from the programmes of other countries in Europe and elsewhere and that they were proposing policies which were not new but which they felt might reasonably be applied in this country. He said, in respect to incomes policy, if there is such in the Fine Gael document, that we now had come to copy some of their incomes policy by elaborating for the first time in the Budget a method of restraint. He said I advocated that incomes, other than wages and salaries, would have to be watched. Obviously, Deputy D. Costello read the Budget Statement much more closely than he read the White Paper, "Closing the Gap", which was published in 1963. He said the reference to the level of profits at column 966 of my Budget Statement was the first time that profits as such were included as a matter requiring careful attention. Of course, this allegation is quite wrong because the 1963 White Paper at page 8, paragraph 15 specifically stated and I quote:

Profits, industrial and other, form a much smaller proportion of national income than do wages and salaries. Higher profit distributions not associated with higher production or sales have, however, even if on a smaller scale, the same consequences as higher incomes not related to output.

It is quite untrue to suggest that Fianna Fáil's only remedy for curbing prices and maintaining productivity was to request the workers, as such, to restrain their demand for higher wages.

Deputy D. Costello spoke at some length, and, indeed, with some force, about the Fine Gael policy. I feel he made the same speech with equal force many times in the councils of Fine Gael before the policy document appeared. Perhaps, he made it without the amount of success he would have desired but, in the course of his remarks, he took as an example of the shortcomings of programming as against planning certain spheres of capital expenditure in which he alleged there was a short fall in expenditure compared with the amount projected. Of course, that is quite untrue. As I indicated in dealing with the capital programme, far from being short of our projection in the Second Programme for Economic Expansion, it is ten per cent more than it was last year. But I would like to ask Deputy Costello whether such a projection is more attainable whether it appeared in a document entitled “Plan” or “Programme”. I do not see for the life of me how anyone can suggest if a thing is called a plan rather than a programme that we can be assured of certain progress. Of course, that is completely untrue. Our country, and any country, will have to be realistic about targets which can be set. There is no point in setting targets as high as some economists would have us do if we are to ignore the ways of attaining them.

When we produced our Second Programme for Economic Expansion we set what are realistic targets. Fine Gael feel they are not high enough. We feel we can attain these targets and if we attain such targets, then I consider we will have done considerably well in the decade ending 1970. Deputy D. Costello referred in particular to, and seemed to regard as ominous, my reference in the Budget statement to credit management. This appears at column 965 of the Official Report of the 11th May when I said:

It is, therefore, a prudent and reasonable aim of policy this year to avoid an increase in the balance of payments deficit over the 1964 figure. Indeed, some reduction would be acceptable if this proved compatible with a 4 per cent growth rate. These must be our guiding lines in budgetary and credit management.

Deputy D. Costello seemed to think from the statement about credit management that I was going to go much further than even Fine Gael were prepared to go in controlling the banks. Deputy D. Costello's remarks were in reference to the dialogue between the Central Bank and the commercial banks. I dealt with that matter in detail because I regard the availability of credit, the balance of payments and external reserves as being important.

I have read a clatter of documents since I became Minister for Finance on these matters and I am not going to suggest that I can comprehend all of these. I read the document, which was produced by the Central Bank, and in respect of which Deputy T.F. O'Higgins said £20 million, as stated by the Central Bank, was the maximum amount of deficit in the balance of payments that we should allow. I am not accepting that. That is not Government policy. Last year there was a deficit of £31 million and that deficit was tolerable, for many reasons. It was tolerable, first of all because credit was readily available and it was available without undue resort to external reserves.

Mr. P. Hogan

(South Tipperary): It was about £16 million.

Mr. J. Lynch

It was about £16 million, a figure which would be desirable or reasonable. I do not think we should panic about these figures once the other three factors are satisfactory. We have to face the fact that the £31 million deficit was more than offset by about £36 million inflow of capital from outside. Deputy Hogan asked me to break down that figure and I will do so in a minute. It was an unduly high figure. Therefore, whilst we would have sufficient flow of capital in the year, nevertheless, we cannot rely on it.

There are other factors which will make us have regard to the necessity for not increasing this £31 million deficit in the balance of payments. The banks, as I stated in my Budget statement, have been lending rather elaborately and, indeed, have been lending more than the amount they are getting in on their deposits. Therefore, it seems they have had, either through themselves or through the Central Bank, to have resort to external reserves. Our external reserves were increasing not spectacularly but steadily in the last few years. They went up from something like £225 million to over £240 million. There was a slight reduction this year which indicated that credit which was being advanced in one form or another, was being got to a small extent from our external reserves.

It is important that we should keep our external reserves strong because it creates confidence in our country. It creates confidence not only in our own investors in the country but in investors from outside. As long as we can show we can manage our business and maintain our external reserves at a satisfactory level we are all right.

We had an increase in the deficit in our balance of trade in the first three months of this year. There was a £5.7 million increase in our imports and a like decrease in our exports. This could be attributable to a number of factors. There was a falling-off in the number of cattle exported. That was understandable having regard to the high level of cattle exports in the previous year. There was also a falling-off in industrial exports which was attributable to the 15 per cent British surcharge on industrial goods entering Britain. There was a psychological factor associated with the imposition of the 15 per cent surcharge due to the fact that it was to be reduced by one-third to operate from the end of April. It is only reasonable to expect that some exporters held off consignments for export in order to take advantage of that decrease, notwithstanding that we were assisting them to the extent of 40 per cent of the cost of the levy.

Taking all these factors into account, I think it is only reasonable that we should watch these three indicators of our economic situation—the amount of credit, external reserves and the current balance of payments. Taken together, it is only right that we should keep an eye on it and, therefore, I am glad that the Central Bank and the commercial banks are getting together to ensure that the extension of credit on a too-liberal scale will not have a bad effect on our balance of payments position. At the same time, if the banks have to restrict credit because the deposits are not high enough, I would encourage them to ensure to the utmost possible extent that there would be no restriction of credit for productive purposes and they are being so encouraged. If there must be a restriction, that restriction ought not to be applied to productive purposes and less essential or purely personal purposes should take their place in the queue so as to ensure that the important national objective is achieved, that is, the continued steady progress of production and employment in line with our Second Programme.

It is always a great temptation for Deputies opposite to encourage expenditure on the one hand and reduced taxation on the other hand. For that reason, I found it very difficult to understand the speech by Deputy J. A. Costello who I think had his tongue in his cheek and came in with a bit of devilment in his eye when he spoke here the other day.

I found it difficult to understand Deputy Sweetman who castigated me for failing to reduce income tax and suggested certain reductions. It is not very consistent, of course, with the Leftist programme as contained in Towards A Just Society. He made specific propositions about a reduction in income tax. He said that income tax allowances had not been increased this year. Of course, increases in the personal allowance apply to all taxpayers, not only to white-collar workers with whom, apparently, the Deputy was particularly concerned.

Deputy Sweetman sought to make a case for increasing the married allowance by £124 and the single allowance by £60. The cost of such an increase in the married allowance would, in a full year, be in the region of £4 million and the increase he suggested in the single allowance would cost over £5 million in a full year. Therefore, such reliefs would have to be financed either by increasing the rates of direct or indirect taxation. The reliefs he advocated would still affect workers' pay immediately by reducing their take-home packets as a result of PAYE, or by raising indirect taxes. Some idea of the amount of these indirect taxes can be got from the measures I have found it necessary to take in order to raise £5½ million for the social welfare and other benefits this year.

Deputy J. A. Costello referred to the right of appeal from special commissioners to the circuit court. I should have thought that existed in all cases: he appeared to suggest it did not. In any event, I propose to have a look at this to ascertain the position and we can discuss it in more detail on the Finance Bill.

Deputy J. A. Costello referred also to death duties. I do not mind admitting here and now that I had a lot of sympathy with the suggestion that death duties ought to be abolished and it would make for a tremendous increase of capital and the coming of rich people into our country, therefore, making for greater employment. However, I have had some time in the past three weeks to think about death duties. They were originally imposed for the benefit of the greater number and in order to avoid as far as possible the accumulation of vast wealth in the hands of some individuals. The Government's White Paper Direct Taxation contains what I think were very reasonable comments on death duties arrived at following the Report of the Commission on Income Taxation. On page 23 of the White Paper, under the heading The Justification for Death Duties, there is paragraph No. 70, which reads:

Taxation may take many forms but, if the financial status or wealth of the taxpayer is to be taken adequately into account, there must be taxes on income and on capital, as indeed there are in most countries. Death duties, and stamp duties to a limited extent, are the means adopted in this country for taxing capital.

What I think is very important is the final paragraph on page 24, paragraph 75, which reads:

As a means of raising revenue the existing system has the advantage of being of long standing, well tried and known. If the revenue of £3 million approximately from death duties were surrendered, an equivalent amount would have to be made good from some new tax which might be regarded as less equitable.

In fact, it is £3.2 million this year, up to the end of March last.

Another paragraph deals with what would happen in other countries in the case of the abolition of death duties: they would immediately gain, to our disadvantage, by reason of our double taxation arrangements with them.

Deputy J. A. Costello also dealt with the fragmentation of farms which death duties bring about. The ordinary small farm, to which he was particularly referring, would hardly be assessed for death duty purposes at more than £5,000 and, of course, the majority of our farms, as a result, are not liable to death duties.

Mr. M.J. O'Higgins

£5,050.

Mr. J. Lynch

I am going a good bit of the way in order to relieve the situation in that respect. All farms are regarded as real estate for the purpose of death duties even though, in strictly legal jargon, they might be regarded as personalty. Furthermore, there is a provision whereby these duties can be paid in eight yearly or sixteen half-yearly instalments. Therefore, I suggest that Deputy J. A. Costello must have had his tongue in his cheek in making some of his suggestions about reduced taxation.

I have dealt in some detail with most of the points raised and I do not wish to delay the House longer. We have in this Budget not only a good social welfare Budget but, from the fact that we have made provision for increased expenditure on agriculture, industry, housing and other forms of productive effort, a good economic development Budget as well and, please God, with the assistance we have been offered from the other side of the House and the co-operation we can expect to get from the country, we can have greater developments, greater progress and perhaps even a better Budget next year.

Resolution put and agreed to. Resolutions Nos. 1 to 20 reported and agreed to.