The surplus of £800,000 with which last year ended, though small, had an important economic significance. It marked the success of the Government's policy of curbing, largely through budgetary action, the excessive pressure which total national spending had been exerting on the balance of payments. The elimination of the 1965-66 deficit of almost £8 million, coupled with the stabilisation of public capital expenditure, played a big part in bringing national spending within the resources likely to be continuously available. It has thus strengthened the basis for future development of the economy.
Current expenditure last year at £272 million was some £4 million higher than was provided for in the March and June budgets. The emergence of such an excess is no unusual experience. Among the factors responsible were the scheme of headage payments on fat cattle exports to the United Kingdom introduced to support fat cattle prices last autumn; higher expenditure on social welfare benefits due to the temporary increase in unemployment; and a much bigger increase in health expenditure than originally estimated by health authorities.
This excess expenditure was more than offset by revenue buoyancy which reflected the renewed growth of the economy in the second half of the year. A major extra contribution came from the Wholesale Tax introduced on 1st October last, which yielded £2.3 million instead of the budget estimate of £1.5 million It is particularly difficult to estimate the yield from a new tax in its first period of operation, when the true extent of the tax base is uncertain and the allowance made for forestalling must be largely conjectural.
Capital Budget, 1966-67—outturn
Expenditure on the public capital programme in 1966/67 was £99 million, almost the same as in 1965-66. The doubts originally felt about the adequacy of resources to meet the programme, within the limit of a tolerable external deficit, proved unfounded — thanks to the increase in exports, the success of the National Loan and also to an improvement over the budget estimate in the amounts that local authorities and State bodies were able to raise from non-Exchequer sources. These favourable developments assured the financing of the programme. Foreign borrowing brought in £9.8 million, with the result that it was necessary to raise only a net £16.2 million from the banking system, or about half the amount raised from this source in 1965-66. This meant that much the greater part of the Central Bank's recommended £43 million of new bank credit in 1966-67 was available for the private sector.
Economic Review
In view of the number of documents recently published on the economic situation, including my own Department's "Review of 1966 and Outlook for 1967", the comments of the National Industrial Economic Council on this review and the annual survey of the Irish economy by the Organisation for Economic Cooperation and Development, it is not necessary to do more than summarise briefly trends in 1966 and likely developments in 1967.
In 1966, the first priority of economic policy was the achievement of a substantial reduction in the balance of payments deficit, which had amounted to £42 million in 1965. This aim was achieved. The deficit for the year amounted to £16 million or £26 million less than in 1965.
The main factor in the improvement was a substantial rise in exports, a highly commendable achievement in view of the many external difficulties encountered during the year by Irish exporters. Total merchandise exports reached the record figure of £243½ million, an increase of 10 per cent over 1965. Industrial exports were particularly buoyant: they rose by 17½ per cent. Merchandise imports showed very little increase, while net invisible receipts were some millions higher.
To ensure a favourable outturn on external account in 1966, it was necessary to maintain for most of the year the corrective measures taken in 1965. These measures, together with a number of other influences, internal and external, caused a slowing-down in the rate of growth. The increased volume of national production is provisionally estimated to have amounted to about 1 per cent, compared with 2½ per cent in 1965. The volume of output of transportable goods industries was somewhat higher than in 1965 but, as building and construction fell, the rise in total industrial production is believed to have been less than in that year. The volume of agricultural output showed little change.
The annual figures, however, conceal an important change of trend within the year. Indeed, there was a marked contrast between the first and second halves of the year. In the second half, the volume of output of transportable goods was almost 8 per cent higher than in the corresponding period of 1965. This contrasted with virtually no change in output in the first half of 1966. Retail sales were 5 per cent higher in the second six months of 1966, compared with a fall of 1 per cent in the first six months. Investment also was somewhat more bouyant. The change-about in industrial production, consumption and investment was underlined by the trend of imports which rose by £17 million in the second half of 1966, following the decline of £16 million in the first half of the year. Imports in the first two months of 1967 have continued this upward movement.
The dominant note of financial policy in 1966 was one of caution, made necessary by the difficulty of assessing the expansionary force released by the "tenth round" of wage and salary increases and the unpredictability of banking developments and of the private capital inflow. In the event, a surprising expansion of credit took place during the bank strike, while the private capital inflow, affected by external controls and international stringency, staged a remarkable recovery in the late autumn. Viewing the situation in June, at the time of the second Budget, the Government still considered it unwise to submit the economy to the inflationary risks involved in a deliberately unbalanced budget. Instead, emphasis was placed on a gradual relaxation of the corrective measures and, as the various statistics which I have just given indicate, this policy has sufficed to get the economy moving forward, though not yet at a satisfactory rate.
In 1967, the major economic objective must be to step up investment so as to re-establish the growth rates experienced in the earlier years of the decade and thus raise the level of employment. At the same time it will be necessary, if sustained growth is to be achieved, to maintain reasonable stability on external account by containing the forces making for excess demand and excessive increases in costs and prices.
A commentary on the prospects ahead has been given by my Department in its "Review of 1966 and Outlook for 1967". With this as a background and making certain assumptions the National Industrial Economic Council has forecast a growth rate of about 3 per cent, a rise in the volume of fixed asset formation of 5 per cent, an increase in the volume of consumer spending of 3 per cent and a balance of payments deficit of £23 million. The accuracy of these forecasts will depend on the realisation of the underlying assumptions. The assumption about money incomes, which is a crucial one, is that there will be no general increase in rates of remuneration during the year.
If the right conditions are maintained, the outlook for 1967 is promising. The expansion in industrial production, which began in the second half of last year, should continue and gain momentum. Domestic consumer demand should continue to recover as economic activity picks up. This will help to stimulate private investment. On the external front, the Free Trade Area Agreement will assist the expansion of exports, no longer impeded by the British import surcharge. Tourist earnings, which were adversely affected last year by some exceptional factors, should be higher this year.
There are, however, several points of danger which must be watched if expansion is to be sustained without interruption. Our export competitiveness disimproved in 1966; unit wage costs in Irish manufacturing industry went up by 7 per cent compared with a rise of about 5 per cent in the United Kingdom. In view of the continuing restraint on incomes in the United Kingdom, it is vital to ensure that there will be no further deterioration in our competitive position. On the contrary, we must all work for an improvement. It will be more difficult to sell our goods abroad this year. Demand in the United Kingdom is likely to remain depressed for much of 1967. Most of the advanced Western European countries anticipate a slowing down in the rate of increase of their imports. While it will be harder to sell abroad, more imports will be required to sustain the projected increases in production, investment and home consumption. Already, in the first two months of the year, imports are £12 million greater than in the corresponding period of 1966. This emphasises the crucial importance of making this a year in which priority will be given to improving competitiveness through income restraint and increased productivity.
The circumstances of this year point to the need for continued cautious reflation of the economy. This is the key to the budget which I am presenting. The annual report on the Irish economy published recently by OECD supports the view that there is scope for some relaxation of existing demand restraints. The report suggests that achievement of this aim may require some stimulus from the capital or the current budget. The main emphasis, in the Government's view, must be placed on increased capital expenditure. This, together with the resources available to finance increased activity in the private sector, should be adequate to generate a steady expansion of national production. A big increase in current expenditure has to be faced but the Government are not prepared to allow this to destroy the balance achieved in the current budget. Given the conditions likely to prevail in 1967, the reemergence of any large budget deficit on current account could widen the balance of payments gap excessively.
Capital Budget, 1967-68
Expenditure on the public capital programme has been static in money terms since 1964-65 and, because prices have been rising, it has been contracting in volume. A return to the previous level of activity generated by the programme, and indeed a moderate raising of that level, provided excessive commitments are not built up for future years, are justified as a stimulus to the economy generally, including investment in the private sector. Even a slight increase in the public capital programme can give a significant boost to economic activity. About one-half of gross domestic fixed capital formation is attributable to the public capital programme and about one-third of the expenditure on the programme finances directly the creation of assets in the private sector.
The decision to expand the public capital programme is based on the expectation that normal home resources will continue to increase and that those resources will not have to be drawn upon to finance any sizeable deficit on current account. Our own investment resources are relatively scarce and must be carefully husbanded. We have to supplement them by using external capital. Effective use of these resources to increase production and employment will be frustrated if domestic costs and prices are driven up by unearned increases in money incomes. This is a matter within the control of our own community and we will have only ourselves to blame if, through shortsightedness or selfishness, we fail to follow reasonable and responsible courses.
Expenditure on the public capital programme falls into two categories. The first—building and construction—comprises what can be loosely described as social investment. The second by and large comprises development expenditure. These two types of investment are closely related and interdependent. We cannot afford the first without providing in reasonable measure for the second. At the same time it must be recognised that social investment in housing, education and hospitals is a necessary pre-requisite for a full and balanced economic development. The aim in allocating the increased resources for the 1967-68 programme has been to strike a balance between the two kinds of investment and the overall increase of 9.6 per cent is shared between them roughly in the same proportion.
The proportion of national investment undertaken by the Government is so great, and the need for a high rate of economic growth so urgent that the pattern of expenditure on the public capital programme must not be permitted to set into a rigid mould. There is now a greater need than ever to ensure that investment resources are disposed of in the most beneficial manner. Because of the longer timespan of investment projects, radical changes in the pattern of expenditure cannot be made effective in a short period. Those projects which should be given greater or less emphasis can be determined only after a thorough analysis of the different expenditures which make up the public capital programme. Such a comprehensive analysis has been initiated but it will be some time before useful results are available.
Another matter which must be kept in mind is the desirability of reckoning as capital only such expenditure as genuinely merits this description. Expenditures which do not add to the national stock of capital, or must be repeated every year to maintain their effect, are suspect from this point of view. There is, of course, a distinction between the accounting principles involved here and the economic principles which must determine, from year to year, how much of total Government expenditure should be financed from taxation and how much from borrowing. Last year, a significant change occurred through the conversion of a deficit of £8 million on current account into a surplus. This year, a reflationary rather than a deflationary budget is called for and it would not be appropriate to increase taxation in order to cover any of the items now classified as capital. The question must, however, remain open for consideration in relation to the circumstances of future years.
Financing of Capital Budget, 1967-68
The Capital Budget booklet estimates that, after account has been taken of the independent finance available to local authorities and State bodies and of small savings and other normal Exchequer resources, including a national loan, a balance of £25 million will remain to be found to finance the 1967-68 programme. The possibility of widening the range of Government issues is being examined. In particular, discussions are in progress on what might be done to satisfy the desire of life assurance companies and pension funds for a longer-term security to match the maturities of their liabilities. The scope for a shortdated stock is also being looked into.
It is hoped that most, if not all, of the residual £25 million I have mentioned will be available from the banking system. Government borrowing abroad in the calendar year 1966, including the drawing on the International Monetary Fund, amounted to £25 million. Foreign borrowing on any substantial scale is not contemplated in 1967-68. Recourse will be had to such borrowing only so far as may be necessary to make good any shortfall in home resources. Within a balance of payments deficit of £20-£25 million, sufficient credit should be available for the continuation of productive development by the private sector but, if it appears that the public sector's demands on bank resources cannot be fully met in this context, a limited amount of foreign borrowing may be undertaken. It is by no means certain, however, that this need will arise. Government foreign borrowing in 1966, combined with private capital inflow, has raised external reserves above the 1964 level. I expect that the private capital inflow this year will be sufficient to cover the current account deficit on the balance of payments without significant drawing down of external reserves. Strictly speaking, therefore, it should not be necessary for the Government to borrow foreign money, at least until interest rates have fallen further and then only, as I have said, if it were necessary to ensure that sufficient credit was available for private productive purposes.
World Bank Mission
A mission from the International Bank for Reconstruction and Development came to this country a year ago to prepare a survey of the Irish economy as a necessary preliminary to consideration by the Bank of any application for a long-term loan for development purposes. This was followed up recently by a small technical appraisal mission to report on possible projects. No borrowing from the Bank is contemplated this year but the basis has been laid for the formulation of a project suitable for financing by the World Bank in the future.
Savings Incentives
I am very conscious of the need to maintain and, indeed, improve the attractiveness of saving and thus support the excellent work which continues to be done by the National Savings Committee.
I announced some time ago that the Government had decided on an increase from £50 to £70 in the tax-free limit on interest payable by the Post Office Savings Bank, Trustee Savings Banks and certain commercial banks. This will be provided for in the Finance Bill. I feel sure that this will reinforce the good effects of the recent increase of 1 per cent in the rate of interest payable on deposits in savings banks.
The Government have provided a wide and attractive range of facilities and incentives for saving and I am satisfied that there is a suitable medium available for anyone wishing to save his money and invest it in the country's future.
Current Budget, 1967-68
Introduction
I have little doubt that interest in this, as in every budget, is centred on whatever tax changes or other measures I may announce this afternoon. The telescope of public attention is focused on the top mast of the budgetary ship to see what kind of flag is flying, with the result that the hull glides by almost unnoticed. It is for this reason that I want to direct the public gaze downwards for a moment to the great bulk of current Government spending.
Those who think in terms of a big hand-out on budget day should consider first how heavily the budget is already loaded with extra expenditure. The White Paper published a few days ago showed that the current expenditure already proposed for this year is, at £292¼ million, some £20 million higher than the amount actually spent last year. Of this £20 million, almost £7 million goes to cover the extra debt service arising from the expanded programme of capital expenditure. Three major services account for a large part of the remaining £13 million: education, £3½ million; health, £2 million; and agriculture, including rates relief, £2 million.
Education
For the development of Ireland's full potential there is no more fundamental or important investment than that in education. The extensive programme of improvements now under way includes the introduction this year, at a cost of just over £1 million, of important new plans for post-primary education. These include State grants of up to £25 per pupil from September next to secondary schools that decide to participate in the scheme. The minimum grant under this scheme is £15; this is to be raised by stages to £20 and £25 in the succeeding years. Comprehensive and Vocational school fees will also be paid by the State. A scheme for the provision of free school books in certain cases is also envisaged. Free transport for pupils living more than three miles from a free post-primary school centre has been introduced from 1st April this year. The schemes will operate for the whole of the year 1968/69 and the total cost for that year will be about £2¾ million. When the £25 grant is being paid for all secondary pupils coming under this scheme, this will add a further £400,000 a year to the total cost.
Exchequer expenditure on higher education also continues to increase. The sum in the Estimate for Universities and Colleges for 1967/68 is £3,792,600, an increase of £341,000 over the actual figure for 1966/67. Provision is being made for more staff, more accommodation and other facilities to cater for the continued increase in the number of students. The Commission on Higher Education expect this increase to continue in future years. The Commission have made several recommendations involving more Exchequer expenditure to improve university staffing and facilities, to provide extra accommodation and to assist talented students to participate in higher education.
Health
The health services provision is up by almost £4½ million on the original figure for 1966/67, or by £2 million on the actual expenditure last year. This steep increase in the Exchequer bill for health services is due to two principal factors: the rapidly-growing cost of staff and medicines and the departure from the former system under which the Exchequer and the health authorities shared the cost evenly. In fact the Exchequer is this year bearing 55 per cent of the cost.
Agriculture
The increase of £2 million in current expenditure on agriculture, including rates relief, for which this year's budget already provides, is a continuation of the steeply-rising trend in State aid in recent years. The Capital Budget also shows an increase of £1 million for agriculture and agricultural credit. In the past three years alone, total State expenditure, current and capital, in relation to agriculture has risen by 56 per cent — from £38.5 million in 1963/64 to £60.2 million for this year. Support for milk and dairy products has increased from £6 million to £15.4 million, representing, in effect, an increase in price of 5d a gallon and an expansion in creamery milk production of almost 100 million gallons. The guaranteed prices for wheat, barley and pigs have been raised and there have been substantial improvements in farm buildings and land reclamation grants. In addition, several new schemes have been introduced with the object of improving farm incomes; the calved heifer subsidy has now cost £8½ million; the brucellosis eradication scheme will cost £¾ million this year; in 1965, the Government introduced a carcase beef export subsidy to ensure the same support for all beef exports to the United Kingdom as is given to store cattle through participation in the British guarantee system; last autumn, to offset a serious fall in cattle prices, the Government subsidised exports of fat cattle at a cost of £660,000; again, last year, a scheme of subsidies was introduced to improve the standard of mountain sheep farming and a farrowed sow scheme was started as an incentive to increased pig production. I mention these facts to show that the Government have not only been aware of the difficulties facing agriculture but have taken a whole series of practical steps, costing many millions of pounds, to help farmers to overcome their problems.
The support which 70 per cent of the population can afford to the 30 per cent in agriculture is obviously limited in a country of moderate means. The situation is altogether different in more developed and better-off countries where the farming population is only a small proportion of the total and large urban populations provide a ready and remunerative home market in contrast with the position here where nearly half the produce sold off farms has to be exported. We are not in a position to influence materially world agricultural prices. Our exports must be sold in markets which are at times over-supplied and in which prices are tilted against imports by support schemes favouring domestic production. The EEC common agricultural policy will continue to have adverse implications for us until we achieve membership. Even then, we should not expect the millennium. The fact is that some of our agricultural prices are already above the EEC levels, beef and to a lesser extent, milk and dairy products being the most important items whose prices are still below the EEC standards.
Clearly, therefore, neither State aid nor price improvements can take the place of increased production as a means of raising farmers' incomes. Farming can be prosperous only when output is rising steadily. The position in this regard in the present decade has been disappointing. It is a matter of concern, to which the new National Agricultural Council will, I hope, address itself, that the vast amount of capital expenditure devoted to agriculture in recent years has, on a national basis, not yet produced a regular, substantial return. Net agricultural output at constant prices has risen annually on average by only a fraction of one per cent since 1960. In one year, 1964, there was an increase on the previous year of 4 per cent but there was a setback again in 1965 and little change in 1966. This sluggishness of agricultural growth shows up in a fall in tillage, which has largely offset increases in livestock and milk.
Weather has, of course, been an important factor in depressing production. Scientists confirm that the summers since 1960 have been below normal. Apart from any additional budgetary aid, but assuming normal weather conditions, the NIEC has estimated that farm incomes should rise by about £7 million in 1967.
Government policy is based on helping farmers who work their land fully and efficiently to share equitably in rising national prosperity. Market outlets as secured by trade agreements and State aid in the form of production incentives, price supports, credit facilities, structural reform and so on will be effective only if farmers use them in a business-like way to increase their production and incomes. A vigorous and well-managed co-operative movement, based on farm units of viable size, providing comprehensive production, technical and marketing services, and acting in close liaison with the various public agencies would, I believe, enable small farmers, and large farmers too, to reduce their costs and increase output and incomes. There is no obvious reason why the great scope of the co-operative movement in many European countries should not be paralleled here. This is a matter which I hope the new National Agricultural Council will pursue. The Government are most anxious to help farmers to organise themselves for productive purposes. I shall be mentioning in a few minutes the additional aid in support of incomes and reduction of costs which this year's budget can offer.
Limits of Budget
Meanwhile, I should like to revert to the £20 million increase in current expenditure which the budget already carries. This absorbs all but £1.3 million of the additional revenue produced by last year's steep increases in taxation. We have had in recent years to keep on raising taxation in order to cover the cost of the additional services and aids demanded by various sections of the community. The public at large have, with some grumbling, accepted that these expenditures were desirable on social or economic grounds. But there is a limit to the extent to which taxation can be levered up even for the most desirable of objects and this limit can be reached more quickly if the economy is advancing at only a slow pace. This year, however strong the pressure for additional expenditures, I must contain it so that I do not have to raise taxes significantly. I do not want to disturb the costs or prices which affect our competitiveness. I do not want to impede, but rather to promote, the growth of production and employment. At the same time, some social obligations as well as the position of farmers must be looked at as sympathetically as resources will allow. In deciding on budgetary changes, I must keep in mind the need to avoid falling back this year into an uncomfortable deficit position, particularly as many of the improvements now being made in educational and other services are going to cost increasingly more in the future.
Budget plan
Briefly, my budget proposals are as follows. The White Paper shows an opening surplus of £1.3 million and I propose to supplement this by an increase in taxes on tobacco and beer which will provide a further £2½ million. This gives me £3.8 million. It seems to me that, in a year of resumed economic growth, I may, without risk of running into a significant deficit, assume a favourable net error of £4 million in the estimates. On this basis I have £7.8 million to dispose of and this I propose to apply partly to give some desirable reliefs and incentives in the field of direct taxation, partly to improve social welfare and other payments but, for the greater part, to come further to the aid of farmers and the West.
Tax Increases
In the case of tobacco I propose to increase the main rate of customs duty on leaf by 3s 5d a pound with corresponding increases in the other rates of duty and an equivalent charge on stocks held by manufacturers at 5 p.m. today. The effect, in the case of cigarettes, will be to increase the duty element in the price of a packet of 20 standard size plain cigarettes by 2d, making allowance for the incidence of turnover tax. Whilst the duty increase in the case of smaller cigarettes will be somewhat less than 2d, the prices of cigarettes generally may be expected to rise by 2d for 20, since price increases involving fractions of a penny are not practicable. However, the cigarette manufacturers have already undertaken that, should an increase in duty create a problem of this kind, any surplus arising will be applied to their products and passed on to the consumer and will not be used to increase their profits. The increase in tobacco duty, including the charge on stocks, is expected to yield £1¼ million this year.
I propose to find the other £1¼ million by increasing the beer duties by the equivalent of 1d a pint, making allowance for the incidence of turnover tax.
I believe that these tax increases will be generally accepted as modest particularly in view of the considerably increased expenditures which we are undertaking this year in education, health, social welfare and agriculture. Furthermore they will be offset by some not inconsiderable reliefs which I shall now describe.
Medical Expenses
The House will recall that the Commission on Income Taxation recommended that a taxpayer who incurs expense on himself, or on any dependant, arising out of disability or illness which is serious and likely to be permanent should be allowed the vouched expenses in excess of £50 per annum per person and up to a maximum of £300 per person. I have had this matter exhaustively examined and I now propose to grant relief within the financial limits recommended by the Commission, in respect of payments for the professional services of medical practitioners, for maintenance and treatment in hospital and for drugs, medicines and appliances prescribed by a practitioner.
The relief due for any tax year will be given by way of repayment after the end of the year and so, in 1967-68, there will be no surrender of revenue. It is estimated that the cost in 1968-69 will be £250,000.
Dependent Relative
In 1963, the income limit for purposes of the dependent relative allowance was raised from £110 to £120. Before that no income tax allowance was available for a dependent relative whose income exceeded the specified limit. The 1963 Act provided, with effect as from 1964-65, for the granting of a tapering allowance where the income of the person maintained exceeded £120 a year. One purpose of this provision was to obviate the necessity for frequent alterations of the income limit. I now propose to increase the limit from £120 to £140. The cost to the Exchequer will be £250,000 in the current year.
Child Allowance
Last year an increased allowance for income tax of £150 was introduced for children over the age of 11 years, leaving the allowance for younger children at the figure of £120. I am anxious, within the limits of the resources available to me, to do something for the taxpayer with a family of young children. Anything in this area costs a great deal and in view of the increased State aid being provided for free secondary education I feel that the tax relief which I can afford to give this year should be channelled to the parents of younger children. I accordingly propose to raise, as regards children not over 11, the existing allowance of £120 to £135. The cost will be £500,000 this year.
Surtax Earned Income Relief
I have been strongly urged by a number of responsible bodies to remedy a situation which is severely hampering Irish industry in recruiting the services of the best managerial, technological and research talent available. Some years ago attention was drawn to the disadvantage to a developing economy of taxation being relatively heavy in what might be called the higher managerial ranges of income. The steps then taken to rectify this have, however, been nullified by events since, including the necessity to raise the standard rate of income tax last year. The position again obtains that taxation at these levels — that is roughly from £3,500 upwards — is much heavier than in Britain and as a result we are not getting the people we need at this level. It is not possible to reduce the standard rate this year or, indeed, to correct fully the adverse relationship I have just described but I propose to go some way towards doing so, largely by readjustments within the surtax system itself. I propose that the first £1,250 of earned income be not taken into account in calculating surtax, and to recover all but £150,000 of the cost of this by a flat rate increase of 20 per cent in existing rates of surtax. The changes will apply to surtax payable on 1st January, 1968. As an illustration of the net relief which these changes will afford I may mention that a married man on a salary of £4,000 a year, instead of paying £126 more than in Britain as at present will pay £12 less; at higher levels of income, while he will still be paying more than in Britain, the differential will be reduced.
Capital Allowances
By far the greatest advantage which the budget can confer on industry is to restore, by its influence on economic expansion, the steady upward movement of home sales, production and profits.
As a specific encouragement, however, to higher investment in manufacturing industry and an improvement in our competitive position in free trade conditions, I propose to raise to 50 per cent the initial allowance of 40 per cent which applies to capital expenditure incurred in the period up to the 31st March, 1968, on new machinery and plant. I further propose that the 50 per cent allowance should be made available not only for expenditure up to the 31st March, 1968, but also for expenditure in the three subsequent years up to the 31st March, 1971.
I have also decided that a special measure of assistance is desirable to promote the development of industry in our special development region— the twelve under-developed western counties. I propose to introduce what is generally known as "free depreciation" in these areas. This is a special system of tax allowances for machinery and plant. It will apply only to new machinery and plant used in industry— mobile equipment such as road vehicles will be excluded — and will take the form of allowing an industrialist to claim, in addition to the depreciation allowance for which the general law provides, such further depreciation allowance as he may choose. Thus, if an industrialist so wishes, he may write off 100 per cent of his expenditure in the first year. This should constitute a most valuable incentive to investment in western areas.
The increased initial allowance and free depreciation will not be felt as a cost to the Exchequer until 1968/69. The cost in that year is estimated at £500,000 rising to £1,000,000 in a full year.
Social Welfare
Since 1963-64 expenditure on social welfare has risen from £31 million to the present £42½ million, an increase of 37 per cent in four years. Since the last general increase in social welfare rates, however, the consumer price index has risen by almost 4 per cent. To offset this an extra 2/- or so in the main rates would be needed. To give, in addition, a real improvement, the Government propose to increase by 5/- a week the non-contributory old age, blind and widows' pensions, the personal rate of unemployment assistance and the allowance for an adult dependant.
Insurance benefits will also be increased by 5/- a week. This will apply to the personal rates of old age and widows' contributory pensions, unemployment benefit, disability benefit and maternity allowance, and to the allowance for an adult dependant where this is paid.
To mitigate the adverse effects of prolonged unemployment, the maximum duration of unemployment benefit will be increased from 6 to 12 months. Persons with an average of 40 paid contributions a year over the preceding 7 years will be paid full benefit; others, except juveniles, will be paid benefits for the second 6 months equivalent to the maximum rate of unemployment assistance applicable in urban areas. As a result of this arrangement and a further change I shall announce later the unemployment assistance scheme will in future operate substantially for the benefit of smallholders and other residents of rural areas.
The taxpayer here is bearing a high ratio, by international standards, of the cost of social welfare. In the first place, assistance services, which are financed wholly by the Exchequer, represent a high proportion of our total outlay. Secondly, even in the case of insurance services, the Exchequer bears a higher proportion of the cost than in Britain or the European countries generally. When the unified social insurance scheme was instituted in the early 1950s, the intention was that the taxpayer would contribute about one-third of the cost of social insurance. In fact, however, his contribution has been nearer to 40 per cent down the years. The extension of the duration of unemployment benefit, which will lead to a saving on unemployment assistance, is a step towards the goal of more comprehensive insurance cover with a lessening of our dependence on means-tested assistance schemes. It is proposed also to make a modest adjustment in the proportion of the Exchequer contribution to the insurance services by putting the cost of the extension of unemployment benefit and slightly more than two-thirds of the cost of rate increases on the insurance contribution. This should go some way towards achieving the apportionment of cost between contributors and the Exchequer which was originally envisaged.
The infectious diseases maintenance allowance and the disabled persons maintenance allowance administered by the Department of Health will also be increased by 5/- a week.
The increases in social assistance will take effect from the beginning of August and in insurance benefits from January next.
These proposals will cost the Exchequer £1.5 million this year.
There is a growing consciousness in our community of the problems of the old and a good deal of voluntary personal service is being devoted to their welfare. While our social welfare services are being continuously improved, there is considerable scope for voluntary effort in providing old people not just with the bare necessities of life but also with some comfort and companionship. I hope more people will associate themselves with these very praiseworthy activities. For their part the Government have been considering particularly the difficult circumstances of old people who live alone. We have decided to give this group additional help by way of free electricity and transport.
Free electricity and transport for old age pensioners
The electricity bill can be a worry when resources are limited. A scheme is being prepared which will remove this expense, or reduce it substantially, for all households consisting only of old age pensioners. It is intended to give relief from the fixed charge on the ESB's domestic consumer tariff. This is 11/- as a minimum for each two-month period. In addition it is proposed to provide an allowance of 100 units of electricity free of charge in each period. The scheme will be brought into operation from 1st October next.
A scheme is also being worked out in consultation with CIE whereby old age and blind pensioners will be able to travel free of charge on CIE buses and trains during periods when traffic is not heavy. It will be introduced during the course of the next few months.
The net cost of the schemes, as agreed after some experience of their operation, will be reimbursed to the ESB and CIE from public funds.
Public Service Pensions
The pensions of former civil servants, national teachers, gardaí, members of the defence forces and other public service pensioners who retired before February, 1964, have already been increased a number of times. The last increase, granted in August, 1965, afforded compensation for the rise in the Consumer Price Index up to February, 1964, the date of the 9th round of general pay increases. The Consumer Price Index increased by 12 per cent from February, 1964, up to mid-May, 1966, which just preceded the 10th pay round. To compensate for this, I propose to increase by a further 12 per cent those pensions which were increased in August, 1965. The increase will be effective from 1st August next and the cost to the Exchequer this year will be £430,000. In a full year, the cost will be £636,000 plus the cost of recoupment of the Exchequer share of increases in local authority pensions, for which figures are not yet available. Military service pensioners and the holders of special allowances will also be eligible for a corresponding increase.
Farmers
I am left with £5 million, all of which is being allocated in aid of farmers and the rural community, particular attention being given to the smaller farmers and the development of the western counties.
Rates on Agricultural Land
The ability of farmers to meet increases in rates on agricultural land has been a constant concern of the Government. Out of a gross increase of £5½ million in such rates between 1963-64 and 1966-67 the Exchequer has in fact met £4½ million. Owing to the continuous increase in rates generally the Government have decided to give a further measure of relief designed to assist smaller farmers. Briefly, the proposal is completely to derate all holdings on agricultural land of £20 valuation and under in county health districts, and to give a scaled relief to all holdings with valuations above £20 and not exceeding approximately £33. This will cost the Exchequer about £1.6 million in 1967-68 and will bring the total bill for relief of agricultural rates this year to the very considerable sum of £16 million as against £13.4 million last year.
Abolition of Employment Period Orders
To improve the incomes of those living on very small holdings has been a matter of special concern to the Government. The Minister for Social Welfare has been authorised to make changes in the present assistance schemes which will increase their cash incomes significantly. The First Employment Period Order, which disqualifies landholders of over £4 valuation from assistance from March to end-October, will be revoked immediately. The Second Employment Period Order, which would ordinarily come into operation in June and debar until end-October men without dependants in rural areas, including smallholders under £4 valuation, will not be made. The cost of these changes will be £620,000. This will mean that about 10,000 smallholders will now for the first time be eligible to receive unemployment assistance throughout the year. Taking account of the changes introduced last year, these payments will now total over £1 million a year. As a result, smallholders are not only protected against hardship throughout the year but, because the payments are not adjusted for variations in farm output, they have every incentive to increase their incomes by more intensive use of their land. This in itself is an important step towards relieving one of the most difficult problems of rural Ireland.
Milk
The price of creamery milk will be increased by another 1d a gallon from 1st May next. The cost this year will be £1.6 million. A corresponding increase of 1d a gallon will be paid to the liquid milk producers in the Dublin and Cork liquid milk areas.
The special allowance for quality creamery milk has already been increased from 1d to 2d per gallon with effect from 1st April. The Minister for Agriculture and Fisheries appreciates that, because of a lack of cooling facilities, the smaller dairy farmers are encountering some difficulty in meeting the quality standards and he proposes, therefore, to introduce this year a scheme of grants to help such farmers to acquire milk coolers. The grants, which will be for the type of cooler appropriate in each case, will be available to applicants who satisfy certain conditions, as to land valuation and milk supply, designed to ensure that the benefit goes to the smaller dairy farmers. Details will be announced shortly by the Minister. I am setting aside £100,000 to meet the cost of this new scheme in the current financial year.
Pigs
The guaranteed minimum prices for pigs will be increased by 6/- a cwt. deadweight with effect from 1st May. This will cost £200,000. The headage grant for farrowed sows introduced last year with the object of building up pig numbers is due to expire next September. It is being extended to June, 1968, at a further cost of £200,000, making the total additional aid for the pig industry this year £400,000.
Report of Milk Price Committee
The Minister for Agriculture and Fisheries received last week a summary of the recommendations of the Committee set up last year to examine the question of a two-tier price for milk. The full report of the Committee will not be available for some time. The Committee are unanimous in not recommending the introduction of a two-tier price system for milk but they recommend, instead, an incentive bonus scheme for small farmers who are potentially viable, including small farmers who would not be classified as dairy farmers. The detailed proposals of this Committee will, of course, receive very careful consideration and the Minister for Agriculture and Fisheries also proposes to consult the National Agricultural Council about them.
I can say at this stage that the idea of a bonus incentive, given where production has actually been increased in conformity with an approved plan aimed at making the small farm a viable economic entity, is an attractive one. It is consistent with the policy we have been following in regard to small farm development, by the institution of the Pilot Area scheme, the tailoring of various grants in favour of the small farmer and so on. Without commitment to the particular form of scheme outlined by the Committee, but as evidence of intention to start a bonus incentive scheme in 1967-68 for small farmers, following detailed study of the Committee's recommendations and completion of a general review of existing schemes, I am setting aside £250,000 for this purpose now.
Erin Foods-Heinz partnership
The new partnership between Erin Foods and Heinz for the development of exports of food products offers an assurance of a market for vegetables and other produce which will provide a basis for more intensive and profitable exploitation of small farms. This is especially important in the case of holdings which because of their size or type cannot be made viable by pursuing other forms of enterprise.
Western Development
I have said elsewhere that the greatest physical, human and social problem facing us in Ireland today is the preservation of the West of Ireland. If real progress is to be made quickly, all bodies which have responsibilities in the matter must realise the urgency of the situation. The Government are well aware of the economic and social difficulties which the people have to face in these areas and are treating the twelve Western counties as a special development region. We have decided on a number of further steps to encourage and assist local development.
Although every effort is being made to intensify agricultural development, the expansion of incomes of the rural community can be achieved only by a comprehensive development programme aimed at increasing employment and income derived from industry, tourism, angling, forestry and fishing as well as agriculture.
The Government have decided to extend substantially the size of the pilot areas and, having studied a progress report by the Department of Agriculture's Western Regional Officer, are satisfied that land structural reform is the next essential step in the economic development of the areas and indeed of all similar small farm districts in the West. They have, therefore, approved a proposal of the Minister for Lands to initiate an intensified programme of land settlement by the Land Commission in the extended Pilot Areas over and above the normal annual land settlement programme.
To finance this intensified programme in the Pilot Areas in the current year I am making available an additional sum of £200,000. It is the intention to mount this campaign vigorously in the Pilot Areas and to press ahead until the whole task is satisfactorily completed. Structural problems of fragmentation, intermixed rundale holdings and small uneconomic holdings will be dealt with comprehensively. Utilising to the full the powers provided by the Land Act, 1965, particularly the new life-annuity and self-migration schemes, vacant and derelict holdings and lands not being fully utilised will be freed and made available to assist materially in the implementation of the structural reform programme.
Industrial investment in the underdeveloped counties should be greatly stimulated by the "free depreciation" provisions I have announced today. The first factory set up on the new industrial estate at Galway is expected to commence operations next month and work on the estate will be intensified during the summer. Foras Forbartha are having a planning study carried out in Carraroe in the Connemara Gaeltacht.
Employment at the Shannon Industrial Estate continues to expand, having risen by 660 in 1966. Production at the estate has also been rising rapidly, the total value of output last year being estimated at £27 million. It is expected that, by 1970, output worth £40 million will be produced at the Shannon Estate. This is double the estimate in the Second Programme for Economic Expansion.
In many areas of the West, tourism offers the main prospect for expanding incomes. Registered hotel and guesthouse accommodation in the twelve underdeveloped counties has increased at an average rate of 6 per cent in the last few years and the number of guest-rooms will show a further increase of that order in 1967. Supplementary accommodation is also rising at a rapid rate in the West, the increase in the number of guest-rooms in 1967 being estimated by Bord Fáilte at about a quarter. This particular development generates incomes where this is likely to have the greatest social advantage. At the request of the Minister for Transport and Power who is convinced of the importance of farmhouse tourism, I am providing an additional capital sum of £100,000 this year to enable Bord Fáilte to mount an all-out campaign for the development of supplementary rural accommodation— mainly farmhouses — in the West. Moreover, the western counties will benefit preferentially under a revised scheme of incentive grants for additional hotel accommodation which I shall outline in a moment.
Angling is assuming increasing significance in the expansion of tourism in the West and in some of the midland counties which have only recently entered the tourist field on a major scale. The Inland Fisheries Trust has been doing good work for fishing development and an extra £25,000 has been provided for the Trust this year.
In order to ensure that the maximum development will take place in each sphere of economic activity in the West, a special survey of each county is being prepared and I expect to have these within the next few months. The surveys will provide a framework for development in each county.
It is, of course, essential that there should be complete co-ordination between all interested parties in both the planning and implementation of the various measures required for local development in the West. Such co-ordination within each county will be effected by the County Development Team under the chairmanship of the County Managers. These Development Teams have brought considerable initiative to bear on the solution of local problems and I am pleased with the progress they have made, particularly in the last year during which each Team has had the services of a full-time Secretary who acts as Development Officer for his county. The leadership which the Teams and their secretaries are bringing to the West is indeed heartening since this is perhaps the thing most gravely needed in the region. I have no doubt that the County Development Teams will play a major role in promoting the development of the West. I now propose to take the necessary steps to put the Teams and the County Development Officers on a permanent basis, with adequate administrative machinery to be fully effective. I intend to take up with the various Government Departments and State agencies dealing with the West the question of strengthening the arrangements they have with the County Development Teams so as to provide the backing which will enable the Teams to move ahead quickly in co-operation with local voluntary organisations.
A fact which the work of the County Development Teams has brought out clearly is that there are quite a number of worthwhile projects in the West which could, with very little direct assistance, be put on an economic footing. As an illustration I might mention two co-operative ventures, one in Roscommon and one in West Cork, where relatively small help was afforded and as a result a significant amount of work and income will, I hope, be generated among the small farming communities concerned. These and similar projects involving local effort and initiative are deserving of encouragement and I do not want to see any of them fall by the wayside for want of reasonable financial or technical assistance. There is often a gap between what can be raised from existing State institutions and private sources, including reasonable local contributions, and the full cost of getting good projects off the ground. To meet this sort of situation there is provided in the Estimate for my Department a sum of £20,000 for special assistance for such projects. This would not, however, be nearly enough to meet requirements if the County Development Teams generate activity at the rate we hope they will. I have, therefore, decided to increase the provision to £250,000 so as to create a fund out of which payments will be made to assist the development of worthwhile projects in the twelve underdeveloped counties which are inaugurated either by the teams or otherwise. The Fund, which will be known as the Special Regional Development Fund, will be administered with the greatest possible degree of flexibility in providing supplementary finance for desirable projects.
Tourism
To encourage the development of hotel accommodation throughout the country, but with special reference to the western areas, the adequacy of the existing incentive grants has recently been reviewed. As a result, it has been decided to introduce new and increased grants generally and to give extra inducements by way of more generous rates of grant in the western counties towards the construction of new hotels and the provision of additional bedrooms and dining facilities.
At present the maximum grant available to new hotels in the remote tourist centres is 25 per cent of the total construction cost. This maximum is being increased to 35 per cent for new hotels in the western counties. Where a hotel does not qualify for the total construction grant, the grant available up to now was one of 20 per cent in respect of new bedrooms. This 20 per cent limit is being raised to 40 per cent generally and to 50 per cent in the western counties. Dining areas and kitchens in new hotels not receiving the total construction grant have, up to the present, not been eligible for any grant. In future these facilities will qualify for a grant of up to 20 per cent generally and 30 per cent in the western counties. In addition, for the first time, grants will be available for the development of caravan and camping sites — up to 50 per cent of the cost of the works subject to a maximum of £20,000 per site. This grant will apply in the western counties and elsewhere.
The various grants which I have mentioned for new tourist accommodation will be administered by Bord Fáilte. Over and above this, new hotels and the extension of existing hotels in Gaeltacht areas qualify for additional State grants under a scheme operated by Roinn na Gaeltachta. In future in these cases the combined rate of grant from both sources for new bedrooms can be as much as 70 per cent.
The generous range and level of grants now fixed is a further recognition by the Government of the importance of tourism to the country at large and especially to the western areas. I hope that these improved incentives will help to raise appreciably the level of investment in tourist accommodation and, in particular, that they will be availed of extensively in the western counties where the potential for increased tourism is so great.
Details of these various schemes will be announced by Bord Fáilte shortly. Their cost this year is allowed for in the Estimates.
I believe that with this strengthening of the apparatus for the development of the West, the way is now clear for a new and more intensive onslaught on the problem. I emphasise, however, that the impetus for this must come primarily from local effort. The button must be pressed in the West itself. I appeal, therefore, for a great new development of local initiative from Cork to Donegal to undertake the work requiring to be done and I assure everybody concerned that no worthwhile and realistic project in any area will be allowed to fail if official assistance can make it succeed. I appeal, also, to all those in the public service who are involved at any level to bring a new enthusiasm and dedication to their efforts and to concentrate all the administrative resources at their disposal to ensure success.
Mining
One of the significant growth areas of the economy in the last few years has been mining. The achievements of this sector have been impressive and have contributed very satisfactorily to employment and export earnings. I am told that a great future expansion in exploration and development is possible and that additional tax incentives can generate a large volume of outside investment. I have accepted this argument.
A condition governing the existing reliefs from taxation in favour of profits from the mining of certain nonbedded minerals is that the trade of working the mine must be commenced within a period of twenty years from the 6th April, 1956. I propose to extend this period by a further ten years so that the reliefs will be available in respect of mining operations commenced before April, 1986.
Many different types of allowances and incentives have been suggested but, instead of bringing in rather complicated new provisions, I have come down in favour of the simple decision to substitute for the existing reliefs a twenty-year period of complete exemption.
I believe that Ireland now offers a very favourable sphere of activity to mining organisations and I hope they will not be slow to take advantage of this.
Oil and gas exploration
Deputies will be aware of the oil and natural gas strikes made by various oil companies in the North Sea and of the extension of their explorations to the Irish Sea. The Government are concerned to ensure that any gas or oil resources which may exist in the part of the Irish Sea over which we have exploration rights are exploited to the full. Legislation is being prepared to encourage and control exploration for these valuable sources of fuel and power. A consortium of companies has already been granted exploration licences covering the land area and territorial waters of the State.
Profits from land and property development
The House will recollect that there has been certain criticism of Part VII of the Finance Act, 1965, which is concerned with the charging of profits from dealing in or developing land, although there is no disagreement as to the fundamental need for the legislation. My predecessor invited detailed observations from interested parties and undertook to introduce this year such amendments of the law as might be appropriate. A considerable volume of comments and suggestions has been received and examined. As a result of my review I propose to recast the legislation extensively.
As the law of property is of its nature very complex, the formulation of the legislation I am proposing will present some difficulties and I think that it would be unfair to ask the Oireachtas to concern itself with this intricate matter in the restricted time available for the discussion of the Finance Bill. I propose, therefore, to include my proposals in a Finance (Miscellaneous Provisions) Bill in the autumn. This will allow more time for the work of drafting and the Oireachtas also will have a more extended opportunity to consider the proposals.
I should like to make it clear that the relieving provisions I shall be bringing in will be retrospective to the 6th April, 1965.
Appeal Commissioners
The Commission on Income Taxation recommended that the Special Commissioners should be relieved of all administrative duties so that they would become a purely appellate body; and that the designation "Special Commissioner" should be altered to "Appeal Commissioner". Legislation to implement these recommendations will be introduced in the autumn.
Repeal of Section 490 of the Income Tax Act, 1967
Nobody enjoys paying income tax and some tend to dramatise the collection of tax properly due as a struggle between the citizen and the Revenue. There are two observations which I should like to make in this connection. Firstly, the officers of the Revenue Commissioners have instructions to draw the attention of taxpayers to any reliefs to which they appear to be clearly entitled but which they may have omitted to claim, and to respond freely to any requests that may be made by taxpayers for advice as to their rights and liabilities and for guidance in formulating claims to relief. Secondly, there is no such entity as "the Revenue" in the sense of an enemy of the citizen. Every good citizen ought to pay his tax and there must be effective means of dealing with deliberate evasion or refusal to pay. Tax which one person escapes paying is not conveniently wiped out but is shifted on to the shoulders of his fellow-citizens. Refusal to pay amounts to contempt of the Oireachtas. Public expenditure must be financed by revenue and revenue is vital to the functioning of the State.
Deputies will remember that the Income Tax (Amendment) Act, 1967, repealed certain provisions of the Income Tax Act, 1967. Since doubts had been raised as to the constitutionality of these provisions I considered that the sensible thing to do was to repeal them. In the forthcoming Finance Bill I shall propose the repeal of section 490 of the same Act which has to do with the special form of execution order in revenue matters. I shall, however, be examining what provisions in the same field may be necessary at a later stage to aid the efficient collection of taxes and duties.
I propose to make available shortly a loose-leaf edition of the Income Tax Act, 1967, and to issue from time to time fresh pages reflecting any future changes in the law. An index will also be provided.
Other proposals
During the past few months I have received many suggestions, demands and proposals. Some I have been able to adopt, many others I have not. I should like to assure all those concerned, however, that the suggestions have all been sympathetically examined in detail and some which have not been adopted now have been put aside for consideration on another occasion.
Incomes Policy
There are a number of other matters to which I would like to refer before I conclude. For reasons I have already stressed in this speech, amongst the more important of these is Incomes Policy.
In the course of its Report on the Economic Situation 1965 the National Industrial Economic Council laid considerable stress on the necessity for an incomes policy and indicated the general principles which should guide it.
The Government indicated at an early stage that they accepted the validity and relevance of the principles outlined in the report and in January, 1966, the then Minister for Finance moved a motion in Dáil Éireann agreeing generally with the views and recommendations in the report.
In so far as the incomes policy part of the report is concerned, I want, in view of certain doubts which have been expressed, to reaffirm one point made by the Minister for Finance on that occasion, namely, that the Government endorse the NIEC view that an incomes policy must embrace all categories of money incomes and should not be confined to wages and salaries alone.
The NIEC recommendations on incomes policy were very wide and in some cases envisaged further examination of particular aspects of the problem. The Council has arranged to discuss the question further in the light of departmental comments on the various points involved.
While certain aspects of the report require further consideration and examination, there is one matter on which action can be taken now. I refer to the imposition of a general obligation on every person carrying on a trade, profession, or profit-making activity of any kind to keep correct records of his basic business and professional transactions. This was recommended by NIEC and followed from proposals made earlier by the Commission on Income Taxation. So that the necessary preparations can be made, I am giving notice of my intention to introduce legislation next year to impose such a general obligation.
The NIEC has emphasised that the purpose of an incomes policy is not to prevent profits — any more than wages or salaries — from growing. In its recent Report on Full Employment it again stresses the need for profits, this time in the context of providing jobs at adequate wages for all our people who wish to make their livelihood here. We cannot hope to attract the capital needed for development unless those providing it can expect a satisfactory return. Since total profits vary with turnover it is profit margins, rather than total profits, that need to be watched. The Government regard competition as the most effective way of guarding against excessive profit margins. The progressive implementation of the Anglo-Irish Free Trade Area Agreement will be a powerful factor in increasing competition. Cases may arise, however, where competition is not fully effective. These are at present dealt with under the provisions of the prices legislation which have been brought into force by the Prices Stabilisation Order, 1965 and this Order has recently been renewed.
European Economic Community
Events in train in recent months may lead to the reactivation of the applications of Ireland and other countries for membership of the European Economic Community. In that event we may have a relatively short period in which to complete the process of adjustment to Community conditions. Since 1963, when consideration of our application was suspended, the Government have been urging the country to act on the assumption that Ireland's membership may be a reality by 1970. More than half of that period has gone by, but I think it would be true to say that we are less than half-way towards the level of preparedness which prudent foresight demands. If we do not use the time remaining to us to the best advantage, we may have to pay a price in economic dislocation that could put in hazard the country's welfare for years to come. Moreover, our complacency would have caused us to miss an opportunity of achieving a degree of economic progress which would enable us both to exploit to a degree never before possible our economic potential and to play a full part in the shaping of the Europe of the future.
Within the next few days the Government will be publishing a White Paper on the European Communities which will show clearly the kind of environment in which the economy may have to operate a few years hence. Everyone who has a responsibility in the field of economic activity should familiarise himself with the details of that environment. I would appeal particularly to industry, and this includes both management and labour, to face up to the prospect before it, since it is in the industrial sector that we expect to encounter the severest tests and so need to make the greatest adjustments. All that the Government have done by way of exhortation and inducement will be of little avail if industry itself fails to respond fully to the needs of the situation by raising its competitive efficiency to a level that can match that of its future competitors in an enlarged European Community.
Fiscal Harmonisation
Fiscal harmonisation and the ultimate abolition of fiscal frontiers are among the goals which the European Economic Community has set itself. It is only prudent that we should now be adapting our taxation system to the model which the EEC is shaping for its members. While certain aspects of the harmonised system have not yet been set out in detail, the Council has already approved draft directives regarding the adoption of a uniform added-value tax on expenditure on goods and services. The directives require that a tax of this kind must be brought into operation by all the member countries not later than 1st January, 1970. During the period of transition before fiscal frontiers are abolished, member countries will be required to impose this tax at all stages of production up to and including the wholesale stage. They may, in addition, impose a separate tax at either the wholesale or the retail stage. The eventual objective of abolishing fiscal frontiers will be achieved when the structures and rates of taxation, together with tax exemptions, are harmonised.
It should be possible, without undue difficulty, to adapt our existing wholesale and turnover taxes to this pattern if our hopes of membership are realised. This task would be made much more difficult, however, if we were to amalgamate these two taxes as has been requested by certain interested bodies here. Apart, therefore, from the problems inherent in such a merger, it is clearly in harmony with our aspirations to membership of the EEC that the taxes should be preserved as separate entities for the present.
GATT Negotiations
To turn to another part of the international scene, Ireland has been taking part in the Kennedy Round of trade negotiations as a preliminary to accession to the General Agreement on Tariffs and Trade, known as the GATT. The GATT is the main international forum for negotiating multilateral tariff reductions with a view to expanding world trade. Given a successful outcome to the Kennedy Round negotiations, we would hope to accede to the GATT shortly afterwards.
Naturally, we cannot hope to have the benefit of tariff reductions by other countries without conceding some reductions on our side. But the expansion of world trade is in our interest and the general reduction of tariffs should give Irish exporters new and worthwhile opportunities of stepping up their sales of goods abroad.
Progress in the Kennedy Round negotiations has necessarily been slow since some 50 countries are taking part and the process of bargaining extends over the whole range of tariffs and non-tariff obstacles. The negotiations cover trade in agricultural as well as industrial products. On the agricultural front, which is of such importance to us, this has been the first serious attempt to get to grips with the problem of the very unsatisfactory world trading conditions and we had hoped for a substantial betterment by way of freer access to markets in other countries. Unfortunately, the latest indications are not encouraging and it now looks as if we cannot expect major improvements that would benefit our agricultural exports.
The industrial sector presents a more encouraging picture and we hope that there will be a significant reduction in duties on our exports, particularly to continental Europe and North America.
The negotiations are now in the final stage and, allowing for the completion of the necessary formalities, we may hope to become a contracting party to the GATT some time during the present year. If matters go well, this may be achieved within the next few months.
Our application must be approved by two-thirds of the member countries. We expect that it will be possible for us to secure the necessary approval.
Decimalisation of Currency
Deputies will be aware of the recent controversy in Britain over the choice of the pound as the basis of decimal currency to be introduced there in 1971. Countries such as South Africa, Australia and New Zealand, which previously used the British system of pounds, shillings and pence, opted for a decimal currency based on a 10/unit in the belief that it had advantages over the pound. Here, too, the Metric System and Decimal Coinage Committee which reported in 1959 recommended in favour of a system based on a unit worth ten shillings and this recommendation was repeated by an official Working Party whose report was published in 1965. In each case, however, reservations were expressed as to what we should do if Britain adopted a different system.
Our currency units have corresponded for a long time. Whatever doubts may be entertained about the choice of system in Britain, our approach to the question of what unit would best suit us must have regard to the advantages and disadvantages both of following suit and of taking a separate line. We must weigh up these considerations both as regards domestic and external transactions.
Although the solution of this problem is becoming urgent we do not have to take a decision for some little time yet. I propose to make available shortly a booklet setting out in summary form a comparison of three systems, namely a system based in some form on the pound, a 10/- ½-cent system which would result in a two-to-one relationship with the proposed British system, and a 2/- cent system which would have a direct decimal relationship with the pound and be of the same order of magnitude as the chief European currencies.
I expect that the Government will make a decision on the choice of system and on the establishment of a decimal currency board by the autumn. The publication of the booklet is intended to give a final opportunity for reflection and for the submission of considered views by interested persons and groups.
Banking Legislation
In recent years there has been a substantial growth in the number and type of banking and other financial institutions operating in the State. There is considerably greater freedom of entry here into the business of banking than is allowed in other countries and, on the recommendation of the Central Bank, I propose to seek the approval of the Government shortly for the introduction of legislation to control through the agency of the Central Bank the establishment of such institutions and to keep their operations under review so as to provide greater protection for people depositing funds with them and to ensure that, as far as possible, future developments in banking are in conformity with the national interest.
Public Services Reorganisation
As the House already knows, a group was set up by my predecessor in September last to examine and report on organisation in the public services at the higher levels. This group comprises distinguished members with a variety of experience, including a high-ranking official generously made available by the Government of Norway. I understand that their investigations are making steady progress and I am confident they will have valuable recommendations to make.
Meantime, no effort is being relaxed to maximise efficiency in the public service and to adapt it to the new tasks which face it. Organisation and methods surveys and work study, carried out on a full-time basis by officers selected and trained specifically for this work, keep on yielding valuable results. The services of outside management consultants continue to be used for special investigations where it is felt that the necessary expert resources are not available within the civil service itself.
Progress is being made towards the introduction of operations research in the civil service and the setting-up in my Department of an expert unit in this field. Operations research is one of the newest and most advanced of the modern techniques which are being developed as aids to decision-making. The expert operations research personnel of my Department will be deployed to the best advantage in various investigations in the civil service in much the same way as, on a different level, are the experts in my Department on automatic data processing.
Training is reaching more civil servants at all levels. Much of the training is provided within the service itself but I am glad to acknowledge specially the valuable courses provided by the Institute of Public Administration. Civil servants are also sent to suitable training courses organised by the Irish Management Institute and by other bodies both in this country and abroad. Scholarships to a University to follow designated courses or to the School of Public Administration are provided for promising young officers. In general, there is increasing emphasis on training in economics and in techniques like cost-benefit analysis.
One of my principal objectives will be to give my shareholders, the taxpayers, value for their money. It will be my constant aim to seek out economies and to strive for ever greater efficiency in public administration. Modern systems and methods will be introduced at every possible level and time-wasting and outworn procedures, where they still exist, will be eliminated.
Culture and Leisure
In modern society, as income standards rise, there is a compelling social necessity to devote increasing attention to the problems of leisure. To ensure that an adequate variety of cultural and recreational facilities is available for their people, and, indeed, to raise general standards in this respect, is now accepted as an obligation by enlightened governments everywhere. It would be unthinkable to abandon people to the monotony of a working life unrelieved by the stimulus of cultural and intellectual activity. Fortunately we have in the Irish language and in its promotion and development a great field for cultural endeavour which it will be one of my special responsibilities to foster. Television can, of course, be a most powerful influence in this, as in many other ways of creating wider and deeper interests. The State is already providing assistance to music, the arts and the theatre. I intend during the year to consider how these arrangements can be improved, particularly in relation to the live theatre.
Report on Full Employment
The NIEC published their report on Full Employment last month. This was no occasional paper but a searching and cogent document which should serve as a frame of reference for the nation's plans and policies during the next decade. The Government consider this report to be so important that they have arranged to have a special popular version prepared which will be distributed as widely as possible free of charge. The Council, in the words of the report, did not attempt to formulate a plan for full employment. Rather, having stated the problems and assessed their dimensions, the Council suggested some of the main elements of a broad strategy by which full employment might be pursued, examined some of the main obstacles which now lie in the way of its achievement and generally posed the choices which the community, if it wants full employment, must face and make.
To achieve the objective of full employment there must be substantial and progressive increases over a prolonged period in output per worker, in the productivity of investment and in savings and exports. If the full potential of the economy is to be realised, the skills and knowledge within the community and the size, efficiency and up-to-dateness of the stock of capital must be radically improved. Above all there must be a change in attitudes and a genuine will to achieve full employment. This in itself will not be enough. We must also be prepared to accept the policies necessary to achieve full employment and to put them into effect, even where they conflict with the particular interests of individuals, of groups or of localities. This is the challenging message of the report.
National Productivity Year
A central theme in the NIEC report is that productivity must be raised if employment is to be maintained and increased. The Council's call for greater efficiency is addressed to all sectors of the community, including industry and agriculture, distribution, the professions, and the public service. It must be answered not alone by the Government, which is already actively supporting the drive for increased productivity, but by individuals, firms, trade associations and professional bodies in the private sector. To focus national interest and effort on this urgent and vital work, the Government intend to make 1968 a National Productivity Year. Trade and professional bodies will shortly be approached for advice in launching this project. I am confident that the Government can rely on their full co-operation in making this a worthwhile and effective effort. A marked rise in productivity in 1968 would be an encouraging start along the road to full employment and a practical demonstration that the community regarded the NIEC report as a call to action.
Mid-term Review of Second Programme
The preparatory work on the review of the Second Programme is now nearing completion and will shortly be the subject of consultation with the NIEC. Realism must, of course, be the keynote of this review. This will by no means exclude our doing better than we may now think likely, with obvious gains both in employment and prosperity. I look upon the few years now remaining to 1970 as a period in which two main objectives should be pursued: getting back to a steadily sustainable growth rate; and trying to bring about and consolidate the change in attitudes and policies required to set our economic programmes firmly in the perspective of full employment as pictured in the NIEC report.
Conclusion
In this budget I am seeking to achieve a number of objectives. I want to make a contribution to stability in prices and costs by refraining from other than minimal increases in taxation. I have sought to improve the lot of the old and the needy, to develop a new urgency in the solution of western problems, and to bring about a better economic climate through a substantial increase in the incomes of the farming community. I want also to give a fillip to economic activity and to get production moving upward much more rapidly than it has been. Whether this endeavour will meet with full success this year, whether the necessary activity will be generated and resources expanded, depends on the efforts and attitudes of our people as a whole. We can get ahead during the coming year and be a great deal better off as a nation at the end of it if we really want to and if we are willing to seek no more from the community than we are prepared to contribute in return. This budget is my contribution and I am asking everyone else to make theirs in their own way and to the best of their ability.
TABLE I
COMPARISON BETWEEN (i) BUDGET ESTIMATES AND (ii) ACTUAL REVENUE AND EXPENDITURE IN 1966/67.
|
Estimated |
Actual |
Estimated |
Actual |
||
|
£m. |
£m. |
£m. |
£m. |
||
|
1. Tax Revenue (excluding 2 below) |
217.44 |
221.55 |
1. Central Fund Services (excluding 2 below) |
46.90 |
47.84 |
|
2. Motor Vehicle Duties |
11.05 |
10.43 |
2. Payments to Road Fund |
9.75 |
9.22 |
|
3. Non-Tax Revenue— |
3. Supply Services (non-capital) |
211.08(a) |
214.99 |
||
|
Post Office |
17.40 |
18.33 |
4. Surplus |
— |
0.79 |
|
Miscellaneous |
21.84 |
22.53 |
|||
|
TOTAL |
267.73(a) |
272.84 |
TOTAL |
267.73 |
272.84 |
(a) Takes account of adjustments made by the March and June Budgets.
TABLE II
MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE
£000
|
1961/62 |
1962/63 |
1963/64 |
1964/65 |
1965/66 |
1966/67 Provisional |
1967/68 Estimate |
|
|
Service of Public Debt |
31,113 |
34,374 |
38,156 |
42,849 |
49,035 |
56,462 |
64,128 |
|
Social Services: |
51,905 |
57,515 |
63,243 |
75,167 |
84,163 |
92,859 |
98,233 |
|
Social Welfare |
25,694 |
27,889 |
30,941 |
34,854 |
38,683 |
42,650 |
42,556(a) |
|
Education |
16,581 |
18,908 |
20,600 |
26,129 |
29,584 |
31,344 |
34,844 |
|
Health |
9,630 |
10,718 |
11,702 |
14,184 |
15,896 |
18,865 |
20,833 |
|
Economic Services: |
30,602 |
35,039 |
39,199 |
47,614 |
55,164 |
59,772 |
64,515 |
|
Agriculture |
18,893 |
22,320 |
23,966 |
29,967 |
35,795 |
40,778 |
43,078 |
|
Industry |
1,638 |
1,927 |
3,090 |
3,524 |
4,693* |
4,813* |
5,947* |
|
Transport |
8,905 |
9,422 |
10,729 |
12,208 |
12,518 |
12,204 |
13,060 |
|
Forestry and Fisheries |
1,166 |
1,370 |
1,414 |
1,915 |
2,158 |
1,977 |
2,430 |
|
General Services: |
28,288 |
30,799 |
33,630 |
40,671 |
42,784 |
43,367 |
46,713 |
|
Post Office |
8,834 |
9,694 |
10,092 |
13,323 |
13,671 |
13,834 |
15,101 |
|
Defence |
7,527 |
8,065 |
8,686 |
11,330 |
11,666 |
10,418 |
11,969 |
|
Justice, including Gardaí |
5,989 |
6,336 |
7,317 |
7,891 |
8,374 |
9,322 |
9,629 |
|
Public Service Pensions |
5,938 |
6,704 |
7,535 |
8,127 |
9,073 |
9,793 |
10,014 |
|
Other Expenditure |
10,420 |
10,921 |
12,234 |
15,710 |
16,841 |
19,591 |
18,703 |
|
TOTAL |
152,328 |
168,648 |
186,462 |
222,011 |
247,987 |
272,051 |
292,292 |
|
Remuneration included in above figures |
45,272 |
51,164 |
55,276 |
71,032 |
75,502 |
80,603 |
83,232 |
|
1961 |
1962 |
1963 |
1964 |
1965 |
1966 |
1967 |
|
|
£m. |
£m. |
£m. |
£m. |
£m. |
£m. |
||
|
Gross National Product |
723 |
778 |
830 |
947 |
1,018 |
1,065 |
|
|
Current Government Expenditure as % of GNP |
21.1% |
21.7% |
22.5% |
23.2% |
24.4% |
25.5% |
*Excludes temporary assistance to industry of £2.10 m., £2.19 m., £0.20 m. respectively.
(a) Services transferred to the Department of Labour now appear under Economic Services (Industry).
TABLE III
ROAD FUND
RECEIPTS AND ISSUES
|
RECEIPTS |
ISSUES |
||||
|
1966/67 |
1967/68 (Estimated) |
1966/67 |
1967/68 (Estimated) |
||
|
£000 |
£000 |
£000 |
£000 |
||
|
1. Opening balance |
— |
— |
1. Road grants (a) |
8,373 |
8,900 |
|
2. Motor taxation, etc. |
9,215 |
10,000 |
2. Administration, etc. |
842 |
1,100 |
|
TOTAL |
9,215 |
10,000 |
TOTAL |
9,215 |
10,000 |
(a)Including payments on foot of previous years' allocations.
TABLE IV
CERTAIN RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES
|
Exchequer |
Local Authorities |
||||
|
Revenue |
Non-capital issues |
Expenditure from revenue (a) |
State grants received |
Rates collected |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
1957-58 |
122,921 |
128,803 |
51,022 |
24,717 |
20,077 |
|
1958-59 |
126,410 |
126,250 |
53,062 |
23,666 |
20,561 |
|
1959-60 |
129,856 |
128,682 |
55,104 |
24,480 |
21,412 |
|
1960-61 |
138,839 |
139,565 |
57,885 |
26,476 |
22,058 |
|
1961-62 |
151,686 |
152,393 |
64,165 |
28,792 |
23,203 |
|
1962-63 |
163,478 |
168,335 |
67,379 |
32,725 |
22,776 |
|
1963-64 |
184,419 |
186,638 |
71,323 |
34,871 |
24,466 |
|
1964-65 |
219,045 |
222,011 |
82,973 |
41,210 |
26,061 |
|
1965-66 |
240,761 |
248,542 |
91,574(b) |
46,539(b) |
29,733(b) |
|
1966-67 |
272,843 |
272,051 |
102,890(b) |
53,299(b) |
32,780(b) |
|
1967-68 |
293,622(c) |
292,292(c) |
110,775(c) |
58,435(c) |
35,730(c) |
NOTE:—(a) The revenue of Local Authorities comprises broadly rates, State grants and other receipts, e.g., rents, fees, etc.
(b) Approximate.
(c) Estimated.
TABLE V
STATE EXPENDITURE IN RELATION TO AGRICULTURE FROM 1963/64
|
1963-64 |
1964-65 |
1965-66 |
1966-67 Provisional |
1967-68 Estimate |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
Products subsidies: |
|||||
|
Butter and other milk products |
6,038 |
8,174 |
10,704 |
13,880 |
15,400 |
|
Wheat |
600 |
127 |
— |
— |
— |
|
Bacon |
1,400 |
1,950 |
3,100 |
1,250 |
1,400 |
|
Carcase beef and lamb |
— |
43 |
89 |
764* |
725 |
|
Fat Cattle (temporary scheme) |
— |
— |
— |
660 |
— |
|
Subsidies to reduce production costs: |
|||||
|
Ground limestone |
613 |
717 |
889 |
900 |
950 |
|
Phosphatic fertilisers |
2,739 |
3,025 |
2,741 |
3,130 |
3,314 |
|
Potash |
824 |
791 |
791 |
830 |
910 |
|
Livestock Headage grants: |
|||||
|
Calved heifer scheme |
— |
3,153 |
2,852 |
2,000 |
1,550 |
|
Sow headage scheme |
— |
— |
— |
275 |
365 |
|
Mountain sheep scheme |
— |
— |
— |
47 |
100 |
|
Drainage, land reclamation and general improvement schemes: |
|||||
|
Arterial drainage |
1,795 |
1,857 |
1,421 |
1,191 |
1,350 |
|
Land Project |
2,214 |
2,363 |
2,386 |
2,714 |
2,950 |
|
Improvement of Land Commission Estates |
744 |
844 |
937 |
759 |
885 |
|
Other improvement schemes |
499 |
477 |
492 |
208 |
299 |
|
Gaeltacht and Congested Districts schemes |
227 |
324 |
276 |
280 |
304 |
|
Elimination of disease, livestock improvement, etc.: |
|||||
|
Bovine T.B. |
4,660 |
3,124 |
2,058 |
1,930 |
1,900 |
|
Brucellosis eradication |
— |
23 |
70 |
230 |
750 |
|
Livestock improvement |
69 |
140 |
85 |
90 |
104 |
|
Administration of improvement and regulatory Acts |
323 |
456 |
587 |
570 |
684 |
|
Grants towards buildings and equipment: |
|||||
|
Farm buildings and water supplies |
1,389 |
2,064 |
2,283 |
2,427 |
2,739 |
|
Poultry houses and equipment |
70 |
66 |
111 |
93 |
95 |
|
Forage harvesting equipment |
— |
60 |
73 |
79 |
70 |
|
Horticulture |
2 |
3 |
1 |
8 |
108 |
|
Education, research, advisory and technical services: |
|||||
|
Education |
498 |
618 |
773 |
927 |
1,091 |
|
Research |
985 |
1,201 |
1,633 |
1,635 |
1,875 |
|
Advisory services |
484 |
575 |
693 |
786 |
834 |
|
Rural organisations |
27 |
40 |
44 |
45 |
44 |
|
Technical services |
254 |
260 |
378 |
373 |
373 |
|
Departmental land and buildings |
390 |
239 |
267 |
140 |
220 |
|
Land annuities: |
|||||
|
Halving of land annuities |
838 |
843 |
906 |
955 |
989 |
|
Bonus to vendors and other costs |
119 |
119 |
120 |
123 |
124 |
|
Relief of rates: |
|||||
|
Agricultural Grant |
8,955 |
11,188 |
12,487 |
13,342 |
14,420 |
|
Rural Electrification |
900 |
1,250 |
1,133 |
865 |
1,190 |
|
Capital for the Agricultural Credit Corporation Limited |
860 |
3,850 |
3,148 |
2,200 |
2,040 |
|
TOTAL |
38,516 |
49,964 |
53,528 |
55,706 |
60,152 |
NOTE:—Figures are net of appropriations in aid.
*Gross expenditure was £1,814,000 of which an estimated £1,050,000 will be recovered from the United Kingdom Government.
