The Vote on Account as a general rule is confined to a discussion on the Supply Services but on this occasion considerably more latitude than usual seems to have been allowed in the other House. The fact is that we are up against a certain background of crisis in this matter— if not crisis certainly an acute problem. The world seems to be turning, and this country with it, from the inflationary to the deflationary phase, and the problems of adjustment in this phase are no less trying than were the problems in the inflationary phase itself.
Looking round the world we see the symptoms of the deflationary phase in the ever-growing, mutually destructive import cuts in the various countries in the world and in the rise in money rates which has at length reached our own banking system. To use what may be perhaps a slightly vulgar metaphor in this august assembly, the world is suffering from the correction of the morning after the night before of a long career of inflation.
In this country the balance of payments is admittedly in a severe condition of disequilibrium. Everybody is agreed about that. The national finance accounts are also in a position of disequilibrium. A great deal of argument may take place as to the precise amount of our adverse balance of payments and of our Budget deficit. Whatever the actual amount is, the fact remains that both these balances are in disequilibrium. To waste a great deal of time in discussing exactly how far the balance of payments is in disequilibrium merely for the sake of £5,000,000 one way or the other, or how far the Budget is in deficit for the sake of £1,000,000 or £2,000,000, reminds me rather of the various physicians standing round a patient's bed hotly debating whether the febrile patient has a temperature of 106½ degrees or 107 degrees, when it does not seem to me to matter particularly because they are dealing with a state of high fever which needs immediate attention.
I suggest, with a great many of the speakers here and elsewhere, that a background of this kind is not a suitable one in which to indulge in a debate like this in merely polemical Party politics. The Estimates for the coming year are an accomplished fact and it is no use saying that this particular service dates back to 1949 and that to 1947. The fact of the matter is that the Government in power at any particular moment is responsible for the Estimates and for the Budget in the year in which it happens to be in power.
Many of the public services which have to be met in the current year date back to last year, many more date back ten years, others date back to 1920, others to the nineteenth century and others to the eighteenth century. The present Estimates are the confluence of a large number of public services which have grown up over a very long period. I do not think anything will be gained by debates as to who is responsible for starting any particular service which now causes the Minister so much trouble.
The question of our balance of payments was fully debated here before Christmas and I do not think there was much said then that need be repeated now. Reading the debates in the other House, together with the debate here, I think all Parties and, indeed, all intelligent people here have come to certain conclusions regarding our balance of payments. I think there is general agreement that a certain amount of repatriation of external capital assets is necessary, if not absolutely desirable, in the interests of building up the resources of the country in the near future.
I will refer to one fact to which I do not think reference was made here in the debates before Christmas: If a precedent for a policy of this kind is to be sought it can be found in a country to which we are always told we should look for an example in connection with our agricultural policy, and that is Denmark. In the 70 years from 1870 to 1940, if my information is correct, Denmark deliberately converted itself from being a creditor into a debtor country. It repatriated its external investments in order to develop its agricultural resources and it did so with great effect and great success. It is possible that those who are responsible for our financial and agricultural policy might find something to learn by a closer examination of the experience of that country to which, as I have said, our attention is frequently drawn as a model on which to pattern ourselves especially in relation to agricultural matters.
Everybody is in agreement that a certain disequilibrium in the balance of payments must at least be tolerated in the near future for the purpose of capital development. There are certain points that I think need to be emphasised and clarified. One is that the investment must be of a truly productive nature. It must be productive in not too long a run. We simply cannot afford in our present exigencies to look too far ahead and the investment which is financed by the repatriation of capital assets must be of a kind that will give a direct and not merely an indirect return, a financial, if possible, and not merely an economic return, and a fairly rapid and not unduly delayed return.
Another point that needs emphasis is that this process of repatriation of capital assets, as it has now come to be called, depends on the voluntary co-operation of the citizens of this country. That has been very clearly stated by the Minister for Industry and Commerce in the other House. These capital assets are in the ownership of individual people and firms. They are not, except to a small extent, in the ownership of the Government or public authorities. The best way in which these capital assets can be repatriated is by rendering Irish investment more attractive than the investments in which they are at the moment held. The best way for this to come about would be by the provision of suitable opportunities for private capital investment; but to the extent to which that cannot be realised, Government loans to finance public schemes of investment must be sufficiently attractive to induce private investors to exchange their present holdings for Irish Government loans instead.
The Minister for Industry and Commerce in the other House made it perfectly clear that there is no question, at this stage at any rate or in the near future, of anything approaching a conscription of Irish capital, and I think it very important that it should be publicly understood that repatriation of external capital assets is not a matter which the Government can achieve except by persuasion, and Irish investments must be made more attractive to the investor. If that is done there may be a certain healthy repatriation of assets invested abroad for more productive purposes at home. That, in its turn, depends very largely on confidence— confidence in the future of the currency, confidence in the future financial and banking policy of the country, in business stability, in labour stability and in the whole future of the economic and financial atmosphere of the country. If anything occurred to create the smallest disturbance of confidence this programme of capital repatriation would be no longer possible, so, therefore, in discussing this matter we are discussing something with very delicate implications, something which simply cannot be done by brute force and something which, unless the Government is prepared in peace time to take financial measures which are almost unthinkable, cannot be done by Government action alone. I think it important that that should be stressed.
The third point in connection with this which I should like to stress is that a policy of repatriation of capital assets depends on possession of these assets and, to the extent to which it is operated, the capacity for further operation becomes less. It is essentially a wasting policy. It is essentially a policy which sooner or later must come to an end and, therefore, it must be regarded as an interim short-term policy and, as I hope to say before I sit down, as the lesser of two evils, not as something to applaud, not as something to welcome, but as something which we cannot avoid at present without paying possibly too high a price.
That brings me to my fourth point. That wasteful process may be indefinitely continued, may go too far, may go to a dangerous length, unless, side by side with the repatriation of external assets, there is a building up of new savings at home, and therefore I suggest that the major object of financial policy in the Budget in this country should be the encouragement of new savings. The touchstone of any financial measure in this country at the moment is: Does it encourage or discourage new savings? If it discourages new saving, then we will either have less investment, with unemployment and emigration, or a further wasting of our precious external capital assets.
An event has happened in the last few days which, however, objectionable from other points of view, will encourage new saving, that is, the rise in interest rates. The rise in interest rates should encourage people to save more. The rise in interest rates which has taken place in the last week or so has given to me, as a member of the Banking Commission of 1934-38, a certain melancholy satisfaction in the realisation that this, together with other warnings which we gave at the time and which were widely criticised as being unnecessary, unduly alarmist and unpatriotic, have been proved true by the course of events. I was always given to understand, although there is no official record of it on paper so far as I know, that when the £ left gold in 1931 and when the Bank of England rate was raised to 6 per cent in September of that year, an effort was made by the Irish banks at the time not to follow the English rates upward. It was felt that it was unfair to impose a burden on Irish commercial and industrial borrowers, simply because of events which had taken place in the international financial world.
I speak subject to correction by the Minister or other people in the House better informed than I am, but I understand that, for the first time for a very long time, the Irish Banks' Standing Committee did not make an upward adjustment of rates in that month, but within a week deposits began to flow out and after a week an upward adjustment was made. In several places in the Banking Commission Report, emphasis was laid on the fact that, in the absence of measures of a corrective character, of the kind to which I have already referred, a kind which Ministers in the other House in the debate there have ruled out as impracticable in present circumstances, Irish interest rates could not be held at a lower level than English rates prevailing at the same time. The mobility of funds between the two countries is so great that the ordinary market forces would ensure that money would flow from where it was cheap to where it was dear and everything that has happened in the last month has borne out the correctness of that analysis.
There are one or two details of the recently published rise in rates of the Irish banks which seem to call for a certain question. The deposit rate on savings in Irish banks is still lower than the rate on corresponding deposits in English banks, whereas the lending rate is equally as high. I may be wrong, but, as I read the announcement, I took it that the Irish banks lending rates were raised by a greater degree than their borrowing rates, that the rates which they are prepared to charge the public have been raised by a higher degree than the rates they are prepared to give to the public. If I have misread the official announcement, a reassurance to that effect by the Minister will comfort not only me but a great many other people as well.
It will be interesting to see how long the present rate structure can hold. It will be interesting to see if large depositors will be willing to accept ½ per cent. less on their deposits in Irish than in English banks. That is for the future. It may be that a further flow of funds will cause a further jump, but, whether it does or does not, the adjustment which has already taken place should, I think, in serious discussion of these matters in public to-day, give pause to those public men who advocate widespread credits at low rates of interest for housing and other purposes and blame the banks, the Central Bank and the Government when these credits are not available.
I think the experience of the last month has shown that Irish interest rates are very sensitive to outside influences. If people believe that that sensitivity should be reduced, that the Irish rate structure should be rendered such as to be capable of providing abundant credits at low rates of interest to public and private borrowers, the gentlemen who regard that policy as desirable might perhaps perform a public service by making some practical suggestions as to how it would be carried into effect.
There is one aspect of the rise in rates which directly affects the present discussion, that is, the effect of the rise in interest rates on the housing subsidies. In Great Britain, after the rise in the bank rate, the Chancellor of the Exchequer raised the housing subsidies. This was criticised very adversely by the more conservative financial newspapers. The criticism was made that a deflationary measure had been taken on the one hand and that the Chancellor of the Exchequer had not had the courage to pursue that measure into its logical conclusions. The raising of the housing subsidies very largely offset the deflationary effect of the rise in interest rates on that particular activity. I think the Minister might perhaps indicate to the House whether a similar measure is contemplated here and, if not, what the effect on the housing programme is likely to be.
On that I want to say one thing which, I think, needs to be said. It is perfectly true that the fact that the Chancellor of the Exchequer in Great Britain has done certain things is not in itself a reason for our doing them. We are all agreed on that. But, equally, let me say, it is not a reason for our not doing them. We have now got to a stage of sensitiveness in this country that, if the British Chancellor of the Exchequer does what is right, rather than be accused of subservience to British influence, we are prepared to do what is wrong. It seems to me that both those attitudes show an equal lack of independence. Therefore, I do suggest that these decisions in this country should be taken quite regardless of criticism of that kind, that action has been taken because the Chancellor of the Exchequer has taken similar action.
I do not know, of course, what it is proposed to do about the housing subsidies but I do suggest that if the amount of money spent on subsidies on housing in this country is increased, subsidies in other directions should be reduced. The food subsidies in this country are costing about £15,000,000 a year. They benefit every person in the country, rich and poor, young and old, to the extent of about 2/- per head per week. I for one cannot help feeling that subsidised food to that extent for any class except the poorer classes and the people with large families does not possess a justification in the present financial position. The tea subsidy, if it were abolished, would reduce a considerable liability on the Exchequer without imposing more than a trivial burden on the individual consumer. It would enable a freer marketing system to take place. It would enable a greater freedom of consumer choice. It might result in the provision of supplies of better tea.
The butter subsidy is admittedly wasteful. The ration is very high. A reduction in the butter subsidy would kill several birds with the one stone. It would reduce public expenditure; it would prevent us having to import butter from other butter-producing countries and to that extent would help the balance of payments; it would ease the relations between the Minister and the farmers in the dairying areas.
The bread subsidy is more complicated. There are many technical difficulties but this is widely alleged to be a fact, that subsidised bread at the present moment is the cheapest food in Ireland, that it is being fed to pigs and fed to greyhounds. I do not think that the Irish public should be taxed to provide subsidies for feedingstuffs for greyhounds at the present time.
Now, of course, everybody is prepared to agree that a reduction in the subsidies must be accompanied by something in the nature of increased allowances for the more needy classes. That is a corollary of the reduction in subsidies. It has taken place in England and, I suppose, in spite of the danger of being accused of servile copying, we can safely undertake it here.
Children's allowances could be increased. Social services could be increased. Possibly, concessions might be made in regard to income-tax to poorer groups and larger families. But, even when all that has taken place—I now want to reinforce something said by Senator McGuire, something unpopular but which needs to be said— if all these adjustments are made, some people may be worse off than they were before.
I said in the debate before Christmas on the Supplies and Services Bill—I was greatly criticised for saying it, both in the House and outside—that no level of employment is absolutely sacred. Now I am saying something even more terrible, that no level of real incomes is absolutely sacred. I cannot understand why any suggestion that an income should be reduced even to the smallest extent by an abolition of a subsidy should create so much indignation when incomes are slashed right and left by direct and indirect taxation. It may be that the taxpayer, direct and indirect, has become patient, has become resigned. We are not asking the Minister to reveal Budget secrets, but we all know that by this time next week we shall have heard many unpleasant messages from the Minister in the other House. Many people will be worse off next year than this year owing to the Minister's proposals for the Budget this day week, but people are more or less resigned. If they are asked to pay more on tobacco, more on petrol, more on beer, more income-tax, they will not like doing it, but they will not regard it as anything unspeakable, unthinkable. But reduce a subsidy, reduce the real income of any class of consumers by the smallest fraction by reducing a subsidy, and you are doing something anti-social. That is a question which I have not heard any member of the Seanad explain so far.
Subsidies produce a certain rigidity in the whole price structure. They conceal the real cost of living, the real cost of food, the real cost of labour. They make the social accounting which is making such advances to-day partly unreal. So many things are subsidised that the real cost is hard to disentangle. The Minister should consider trying to clarify our national income position by reducing, if not abolishing, most of the present food subsidies.
Even with all possible cuts in expenditure, we know that we have to endure additional taxation. We are prepared for that. This is not the occasion to discuss additional taxation. Next week the Minister will open his Budget. It would be irrelevant, improper and useless for me to offer any observations on that subject to-day. I would make one observation related to general principles—that the touchstone of a good tax is its effect on saving and investment. By that criterion high rates of direct taxation, income-tax, are objectionable. Large classes of the population to-day have so much taken from them in direct taxation that both their power and their will to save are seriously diminished. I am not going into company taxation—there are other people here more competent on that than I am—but high income-taxes on companies' profits also have a disincentive effect on the capacity to invest. That particularly is so in the case of an increase in the standard rate of income-tax which is the easiest of all increases. It is facile, but it would be very unfair and very unjust. In this country only one person out of 16 or 17 pays income-tax at all. Those people have had their direct taxation increased in recent years altogether out of proportion to the national income as a whole.
Income-tax in this country, owing to the peculiar nature of assessment that has come down to us, affects one in every 16 and affects them with great hardship. Whole classes evade tax and other whole classes are exempt. Many people evade and break the law while other people take advantage of the favourable type of assessment which the law provides. Whether it is by legal means or illegal means, 15 out of 16 manage not to pay any income-tax at all. There has been a motion on the Order Paper of this House for the last couple of months calling for an inquiry into this urgent current problem. That motion has been postponed very willingly and very properly in deference to the other urgent activities of the Minister pending the passing of the Vote on Account and the Budget. But I do suggest to the Minister on his visit to the House that when we are anxious to discuss this matter and since we are delaying that discussion very largely to suit the Minister and are willing to do so, it is slightly unfair and slightly prejudging issues to bring about a major increase in the impost pending that discussion. As long as that question is down in the formal motion, I suggest that it is to some extent sub judice. I ask the Minister not to prejudge the result of our motion more than is absolutely necessary by the exigencies of the Budget.
Here again the Minister can learn something by looking at the recent British Budget. The standard rate of income-tax has not been altered. Efforts have been made to reframe the income-tax in order to reduce its disincentive effect. In England the main effort has been to reduce the disincentive to work. In this country, I suggest, the main effort should be to reduce the disincentive to save and to invest. There are certain lessons which I think we can learn from the British Budget. There are two things which we should imitate and one thing which we should avoid. We should imitate, as I have said, the reduction in the food subsidies accompanied by an increase in social services; and, secondly, the recasting of the income-tax code to reduce its disincentive effect. The matter which we should avoid imitating is that the whole cut in incomes which was regarded as desirable as part of the disinflationary effort was a cut in private investment. Standards of consumption were regarded as sacred.
Rightly or wrongly the answer given as the official apologia for that policy in England is that, owing to the steel shortage, investment is to be limited in some respect. As investment has to be increased in the export and armament industries other types of investment must necessarily suffer. That may or may not be a good argument but it is the official apologia for making the fall in expenditure fall on investment and not on consumption. I do not think we have a similar excuse in this country, where investment in agriculture and in other types of production is so clamantly needed that anything in the nature of a tax that reduces investment rather than consumption would be, to put it mildly, very difficult to justify.
May I say, in passing, on this question that from this point of view I think there is something to be said for the form in which the Estimates were presented by the Minister's predecessor? A divided Estimate, while fully allowing as I do for the difficulty of classifying expenditure in capital and non-capital matters, at least brings it before the public mind that the Budget and the programme of Government expenditure and the Government raising of money by taxation is not the same thing nowadays as it used to be —a mere matter of balancing the Government's current account. In every country in the world the principle has been adopted that the Budget must now be made able to accelerate or retard the total amount of activity in the country and not be merely a Victorian budget to balance the Government's expenditure on essential services.
As I say, there is room for wide differences of opinion regarding what is capital investment that is desirable and what is capital investment that is not desirable. There is considerable room for debate as to where the line should be drawn, but with all that I do suggest that the presentation of the Estimates in that form does at least indicate to the newspaper reader that investment for the development of the resources of the country is now becoming to some extent the responsibility of the Government.
I have said something about the necessity for a savings drive. There can be no investment without saving. In this country to the extent that if current savings fall short we are living on the savings of the past. The repatriation of external investments simply means that we are living on the savings of the previous generation; that all the burdens, all the real costs that were incurred by the people who went without current consumption to build up these external investments and we are rightly or wrongly using that saving for current investment. Everybody is agreed that all investment depends on saving but there is something else as well. There can be good investment as well as bad investment; there can be maladjusted investment which is inefficient investment and any investment which is not good is a mistake. What I am coming at is this, that in modern times the volume of investment depends on the volume of savings but their value also depends on the amount of technical knowledge in the country. If the world is richer to-day the people who have made it richer and not only the savers of this and previous generations who have abstained from consumption in order to build up the constructive side of the nation but also the anonymous obscure and frequently unknown chemists, physicists and biologists working in their laboratories who have made the world richer by their discoveries.
I am now asking the Minister to consider whether he could not give us some information regarding the project which a short time ago roused more interest and enthusiasm in wide quarters, namely the setting up of an advanced agricultural institute? Here I am simply asking for information. As I understand it, as a reader of the newspapers, part of the Grant Counterpart Fund was intended to be used for this purpose and it was intended to endow research into agriculture in all its aspects, technical, biological and economic. In view of the slow increase in the output of Irish agriculture some research of that kind would seem to be necessary.
I would ask the Minister if he could enlighten the House of whether the Grant Counterpart Fund is still available for that purpose; if he intends to make it so available or if he intends to provide some alternative means of financing such a body? Many missions have gone from this country under E.C.A. to the United States of America to gather knowledge on improved industrial methods. One subject that was investigated formed the subject of an exceedingly interesting report which was studied with great attention in my own college. That is the question of relating university education to management and industry. I would ask the Minister if any steps are going to be taken to implement the result of these inquiries either through the Grant Counterpart Fund or through other sources?
There is one final matter to which I would like to refer even though it is a slightly personal matter. In this House and elsewhere when students of economics speak on matters such as those we are debating to-day there is a tendency for certain people to treat their contributions as being in some way or other unreal.
In a recent debate in this House in which I made a very simple contribution to the discussion and made a certain very simple suggestion to one of the Minister's colleagues, I was told that I was shadowboxing and raising hares and being "academic." In this House when my legal friends speak on legal matters and when my medical friends speak on medical matters nobody suggests that their contribution would be necessarily lacking in value, but when people, who have, if you like to say for their sins, been doomed to study these matters, attempt to put the fruit of their inquiries at the disposal of a public assembly every taunt that can be raised is raised against them. I am consoled on that question by this: since that debate in this House I happened to get the fifth volume of Ricardo's collected works and Ricardo, it may interest the House to know, sat in the House of Commons for five years as the member for Portarlington—a rotten borough which he only got by lending the local landowner £50,000; however, be that as it may. He spoke on several questions, on the corn laws, the return to gold, the Bank of Ireland and other things. He complained in his correspondence, which is now published in this volume, that no attention was paid to his remarks because they were all dismissed as being "academic," so I am failing, I hope, in respectable company.
What I want to say—and this brings me back to where I began, the balance of payments—is that I cannot help feeling that the people who have investigated economic questions in this country since the Treaty have really done quite a good job of work in the sense that everybody to-day is talking about the things which the economists were talking about a few years ago. In 1938 we on the Banking Commission were told that our preoccupation with the balance of payments was academic and unreal; everybody is talking about the balance of payments to-day. We were told that our regard for the value of sterling and the future of sterling showed something almost in the nature of a lack of proper pride in our own country. In the Dáil Debates during the last fortnight statements about the value of sterling to this country stronger than we ever made, have been made by Ministers and people on the other side of the House. The remarks of the Banking Commission about borrowing for non-productive purposes, the incurring of public debt of a deadweight character, borrowing for housing, have found echoes in what I might call patriotically the most unimpeachable quarters. In other words I cannot help feeling that the course of events has succeeded in educating the Irish people in the way they should go.
I mentioned already this evening that when certain Irish economists to-day are prepared to tolerate, to advocate if you like, the repatriation of external assets, when they are prepared to advocate a programme that allows for continuing disequilibrium in the balance of payments through a period of years, they are accused of inconsistency, compromise and failure to maintain the principles which they maintained on an earlier occasion.
Speaking for myself, and I am sure for some of my colleagues on the Banking Commission, I want to make it perfectly clear that if we are prepared to tolerate a programme of disequilibrium in the balance of payments we do it simply because we regard it as the lesser of two evils. We regard it as a lesser evil to lose some of our external balances than to suffer severe and abrupt deflation. The reason why we have had to come round to this point of view and tolerate policies and programmes which seem to conflict with what we advocated 15 years ago is very largely because the amount of saving in this country and the expansion of agricultural production have not responded to the necessities of the situation. We never hesitated to say that the true line of progress in this country is great investment in agriculture based on abundant saving and high technical knowledge. The great expansion in agriculture has not taken place. I would suggest to the Minister that that must always be kept in view as the touchstone of his policy. In the long run, unless we can expand our exports and agricultural production, we shall have an abrupt correction of our disequilibrium that will be extremely unpleasant for everybody concerned. Meanwhile, as the lesser of two evils, to be endured, to be tolerated, but not to be applauded, a continuing disequilibrium may possibly be allowed to continue for a few years.