I propose to approach this matter entirely in a non-Party way. I do not think that the annual Budget debate, because that is really what this is in the Seanad, is properly a subject for scoring Party points. The last Senator who spoke referred to the importance of the national housekeeping. What we are doing on this occasion is making our annual review of the housekeeping accounts of the country. We are doing it in a period of admitted difficulties. I am not saying who is to blame for these difficulties—they are very largely outside the control of any politicians in this country—but the fact is that the world and this country are going through a period of difficulty. Therefore, when the Seanad discusses these matters of the national housekeeping accounts in such a period, it should do so with a sense of great responsibility. We should try as hard as we can to transcend Party politics on such an occasion.
The Budget, of which this Finance Bill is really a part, is something more than the mere housekeeping accounts in the modern world. It has been frequently said here in the past couple of years—it has become a commonplace which is accepted by everybody to-day —that the modern Budget is something more than the mere account of the Government's annual revenue and expenditure. It has become a very powerful weapon, by means of which the Government is able to influence the economic life of the country. There are two main things which a wise budgetary policy can assist in attaining The first I would call the stability of the system and the second the progress of the system. When we talk about the stability of the system we must draw a distinction between the internal stability of the system—avoidance of booms and slumps, with unnecessary unemployment—and external stability, about which there was a great deal of discussion last year, the balance of payments. The two are related, but for purposes of discussion they can be kept separate.
When I talk about progress and the Budget being an instrument of progress, I mean, of course, progress measured by purely material measurements—an increase in the standard of living of the population or an increase in the population, or, best of all, an increase in both. These, I think, are the two criteria of a well-governed country to-day, a country which is stable and progressive. The Government, through the Budget, has the power of effecting, to some extent at any rate, these two aims and, therefore, has a great responsibility. The Seanad, even more than the Dáil, being largely a non-Party Chamber, has a peculiar responsibility to give the Government whatever advice and criticism on these matters it is able to supply.
I suppose the best definition one can give of the stability of a country is the absence of either inflation or deflation. If either of these conditions is present, it is possible for the Budget, to some extent, to correct it. Inflation and deflation are generally accepted nowadays as being a disproportion between the amount of money spent on everything in the country and the amount of goods of all kinds becoming available. If the amount of spending seems to be too great, it is possible for the Government to damp it down. It can damp down private expenditure or a Government expenditure, both on consumption goods and investment. If the total amount of expenditure seems to be too small, it is possible for the Government to increase up, to build up demand for consumption goods and investment, both on the part of private investors and of the Government itself.
During the 30's, the world as a whole was suffering from depression and this new conception of the Budget grew very largely in those years. During those years, the problem facing the United States in particular and other countries was to build up demand, by means of various methods which I need not go into now, to stimulate activity and to bring into use the resources of labour and capital which were idle at the time. The economic policy of the 30's in the United States was a policy of expansion, a policy to prevent what was known as over-saving, not in the sense that the country was saving too much but that what was being saved was not being productively invested.
It is perhaps not sufficiently appreciated by public opinion that conditions now, 20 years after, have completely and absolutely changed and that the appropriate policies in all countries to-day are the reverse of the policies which were appropriate in the 30's. It is necessary to damp down demand as far as possible, to disinflate or to deflate and to reverse in the 50's every policy which was appropriate in the 30's. That assumes, of course, that we are living in a period of inflation. I admit that there is some unemployment and that there seems to be overproduction in certain trades, but I think it is generally agreed that nothing like a general depression is on the country at the moment, that, in spite of pockets of depression, localised unemployment and certain trades being overstocked, on the whole we are still in the inflationary phase.
In this country, I suggest that the way in which the internal inflation is shown is by the condition of the balance of payments. In some countries, an inflated condition is shown by a rapid rise in the general price level. In this country, there has been a rise in prices, but I think the greater part of that rise in prices is due to causes which have flowed in from abroad. I think it may be the result of inflation, but not exclusively an Irish inflation, and, if it is not the result of Irish inflation, an Irish Government cannot do very much to cure it. The rise in prices in this country reflects three inflations. It reflects the world inflation which, in its turn, reflects American and British rearmament; it reflects the sterling inflation which, I think, is a hangover, if I may use that word, from the period of cheap money; and, finally, it reflects to some extent the home-induced inflation. In this country, wages have risen; costs have risen and public expenditure has risen. All these are inflationary factors, so therefore the rise in prices does indicate an inflation but an inflation generated more, I think, abroad than at home.
In other countries a state of inflation is characterised by a depreciation of the exchange rate. In this country, the exchange rate is tied, and, if the Irish £ is over-valued, it is not free to move and not free to show that over-valuation in the exchange rate. Therefore, the only test left, the only thing which is free to move and that has moved in response to internal conditions is the balance of payments. A disequilibrium in the balance of payments is a symptom of an internal inflation. In this connection I should like to say that I think that Senator Hayes is correct in predicting an improvement in the balance of payments this year. The export figures are improving. I do not wish to enter into any figures in the course of what I propose to say—I propose to deal rather with some general principles— but I will say this, that if the trend in the balance of payments is showing signs of improvement, that trend should be taken into account in the Budget proposals. I do not think it is too much to hope that that trend will continue and that, therefore, possibly, a certain relaxation of budgetary severity, anticipating further improvement, may be legitimate.
Having said that, I do, of course, admit that the balance of payments is still unsatisfactory and that it must find equilibrium again. I am sorry to repeat something which I said in a debate in this House some months ago. However, it is so important and, I am afraid, so misunderstood by a large number of people that I think it is necessary to restate it. It is this: in every country equilibrium in the balance of payments will, sooner or later, be restored. In the long run, imports and exports will prove equal at some period and at some level. When I talk about restoring equilibrium in the balance of payments, what I am suggesting is that an effort should be made to restore equilibrium at a high level that is consistent with progress and prosperity and not at a low level at which it may be restored if unwise courses are too long persisted in.
Other countries with greater freedom of financial action than we have, possess certain weapons which I do not think are available here for restoring such equilibrium. Everything that reduces internal income and internal purchasing power will, of course, have an effect on imports and, in that way, on the balance of payments. As everybody knows, that is the justification for the policy of high interest rates which is now being pursued. I feel that I am correct in saying that this policy is being pursued in every country in the world without exception. As has been said in debates in the Seanad before, it is difficult for the Irish Central Bank and for the Irish Government to pursue a policy of independent interest rates. Anyhow, since last March the interest rates in this country are high enough. Therefore, a mere reliance on an interest rate policy and on internal disinflation of that kind in this country is probably not sufficient to bring about the desired correction in the balance of payments.
I am afraid that I have said before what I am about to say now, but I feel it is my duty to say such things, even at the risk of boring Senators. What I want to say is this: in the short run a certain reduction in imports may be justified and may almost be necessary. That, I feel, justifies some of the taxes imposed in this Finance Bill. Some of the additional duties that the Bill imposes—the duty on petrol and on tobacco—fulfil a double function. They raise revenue, and they reduce imports. To that extent, they have a double justification. Other duties of the same kind, not imposed in the Finance Bill, might possibly be justified. As I said before, motoring generally in this country imposes a serious charge in the balance of payments. I feel, therefore, that the Minister's proposed increase in the horse power tax is justifiable from that point of view.
As everybody will agree, and as we have said several times in the Seanad in the course of the last year, a reduction of imports is only a second best method. In the long run, what this country really requires is an expansion of exports based on an expansion in production, based on an expansion on investment in the export industries.
I have no intention, in this debate, of opening up a discussion on agriculture. In the first place, it would be irrelevant, and, secondly, I have not got the type of courage necessary to enter into such a discussion. It seems to me that as soon as any agricultural question comes to be discussed in this country it always causes our tempers to rise to the highest emotional pitch. However, I would like to refer to the articles with regard to agriculture that have recently appeared in the Irish Times. I refer particularly to an article last Thursday by Mr. O'Driscoll with regard to the great expansion that has taken place in the export of dressed meat. A most significant development has taken place in this trade since the war. It is only fair to say in public that that development is very largely due to the initiative and enterprise of the officials of the Department of Agriculture. The only reason I mention it is to show what can be done in the way of building up our exports of agricultural products. That is a great achievement, and it is that achievement which is partly responsible for the improvement in the exports to which Senator Hayes referred. However, as I said already. I have neither the knowledge nor the courage to dash into an agricultural discussion. Anyhow, it is not relevant to this debate. Everybody will agree that a further investment in agriculture, in a general way, is desirable. I hope Senators will not consider me irrelevant when I mention this matter. I do not think I am, and I will show that I am relevant very soon.
The problem we have to discuss in this debate is this: where are we to get the savings for the desirable investment? I do not think it is sufficiently realised in the democratic world to-day and in countries which are pursuing advanced policies of social welfare that all such investment necessitates some previous saving on the part of somebody at some time or in some place. The present generation seems to me to be taking for granted the great savings of past generations in Ireland. For hundreds of years this country has been built up out of the savings of the Irish people. In the 18th century great canals, roads and country mansions were built on a very extensive scale out of the savings of the people. The great public buildings in the City of Dublin necessitated a large amount of savings. In the 19th century the railways, the harbours, the docks and a great many houses were all built as a result of the savings of the people of this nation. All the projects in the 19th century which were carried out in this country were almost entirely financed out of the voluntary savings of the Irish people. The Government invested very little. In the present century up to recent times, there has also been a considerable amount of saving. The great accumulation of external assets to which so much reference was made was also due to the efforts of past generations. The present generation seem to take that for granted. They seem to assume that the Irish railways, roads and public buildings were given by nature in the same way as the Irish bogs and climate were given. The fact is that all these things represent a very considerable degree of private savings on the part of past generations.
No country is saving enough unless it is saving enough to do in most countries four things, but luckily, in this country only three things. The fourth thing which we do not have to save for at the moment is defence and armament. Leaving that out, no country is saving enough out of its current income unless it is saving enough to do three things, first, to keep all current capital intact, secondly, to build up a desirable quantity of new productive investment and, thirdly, to finance a certain amount of social and amenity investment.
I put those three things in that order with a purpose. If existing capital is not kept intact our capital structure begins to disintegrate. It is only when that is done that there is enough saving to build up new productive investment. By productive investment I mean investment that will produce a profit on the investment, a return in goods or services, something which can be sold and, above all, in this country, if possible something which can be exported. It is only when a sufficient quantity of saving to finance that type of investment has been found in a community that a community can legitimately indulge in social and amenity investment.
I think the word "investment" has been used in recent times in quite a wrong sense. The word "investment" is used to-day to cover what, in my opinion, should be described more properly as durable consumer goods. It is very hard to draw the line between putting one's savings into a dwelling-house and putting them into a refrigerator or a grand piano or any other durable consumer goods. If this can be properly described as "investment", it is the sort of investment which can only be afforded when productive investment has first been provided for on an adequate scale.
Investment cannot take place unless there is a considerable amount of savings out of current income. Up to a certain point and within limits, investment could be financed in two ways other than what I have suggested. One way is by the sale of old, external securities. That is the policy which, in this country, is described by a new emotive term, "repatriation of capital", almost suggesting that our capital invested abroad is in somewhat the same position as the emigrants from the country languishing in a foreign land longing to return.
The other method by means of which, to some extent, the deficiency in current savings could be made up, is by borrowing from abroad. That will be my only reference to Marshall Aid in this debate. But these two methods, selling external securities and borrowing from abroad, are necessarily limited in their extent. They are limited, in the first place, by the amount of external assets available for sale and, in the second place, by the willingness of foreign lenders to lend.
In addition to being limited, they are costly. They are costly in the sense that when we sell external assets, we sacrifice something from which we get interest or dividends. To that extent, we injure our balance of payments. Borrowing from abroad is costly in the sense that foreign loans sooner or later have to be repaid. When the period of repayment comes, we put an additional burden also on our balance of payments.
The point I want to make is that if we finance our investment in these two ways—and we can do that within limits —we are not dispensing with the necessity of savings. We are using the savings, in the first place, of past generations of Irish people and, in the second place, of Americans or other people who are willing to lend their savings to us.
The statement that no investment can take place without previous savings is, I suggest, universally true. If we do not provide enough savings out of current income, our investment programme will be discontinued when we have used up the savings of past generations and exhausted the willingness of foreigners to place their savings at our disposal. I do not wish to make as a categorical statement something about which there can be a bona fide controversy. I do not want to fly any red rags or raise any bad feeling in this debate, but I think I am correct in saying that most people would agree, looking at the matter calmly and dispassionately, that ever since the Treaty, this country has not been saving enough. The history of this country for the past 30 years has been one of a country which has failed to maintain an increasing population. It has maintained the population fairly stable, and it has maintained that population, to some extent at any rate, by the dissipation of the savings of the past.
I do not think that the country has been saving enough currently either to support the existing population still less to allow the population to grow. I do not for one moment deny—I have said this in the Seanad before in the debate on the balance of payments— that there should be some repatriation of foreign assets for the purpose of making truly productive investments, preferably in Irish agriculture. I suggest that our investments in recent years have concentrated rather unduly on protected industries and on amenity investments.
I think that, in the future, we should attempt to reorient our investment policy and build up the productive capacity of the land with the object of restoring equilibrium of the balance of payments at the desirable high level at which we should aim, and not at the undesirable low standard to which we may be driven. I think, perhaps, I may, at this stage, point out that, although investment depends on savings, that investment itself will produce more saving in the future. Investment will produce surplus income in the future, out of which additional savings can be made. There will be something like a cumulative upward process of mutual generation of saving and investment.
I am coming now immediately to the Finance Bill proper, although I mentioned it once or twice before. In considering the Budget statement, I think we should bear in mind that the objectives of Government policy should be to introduce stability in the Irish system, to restore equilibrium in the balance of payments at a high level and to combine that with progress in increasing the size of the population and improving the standard of living.
To come more directly to the Finance Bill, an investment policy of that kind would not only have the effect of improving the balance of payments and improving the standard of living but it would also have the effect of expanding the possibility of desirable Government expenditure. I do not wish in this debate to discuss the volume of expenditure in the present year. This House is not debating the Estimates. Of course, one can say in a general way that if the Government were spending less it would have to tax less. We are all agreed about that. It does not bring us very far. If we say that, and if we ask, as the question has already been asked this afternoon, in what particular directions retrenchment might take place, I, for one, not being a member of the House that considers the Estimate, do not feel bound to make suggestions to the Minister on that matter. My attitude is that whether the volume of expenditure is too high or too low, on the Finance Bill debate, which is concerned with raising money and not with spending it, the volume of expenditure in the current year must be taken as part of the problem we have to discuss.
What I can say, and what is relevant to what I have said before, is that whatever the volume of public expenditure may be it becomes relatively lighter and relatively more tolerable when the national income expands. Just as the real weight of a burden depends not merely on the absolute weight of the burden itself but on the strength of the shoulders of the person who carries it, a given volume of public expenditure in the country depends very largely on the amount of the national income of the country. Therefore, the larger the national income the larger the tolerable amount of public expenditure.
That brings me back to the point I have been making all the time, namely, that an expansion of production based on an expansion of investment, based on an expansion of saving, will produce multiple good results for the economic life of this country.
Assuming that what I have said is correct, I think we are now entitled to examine the Finance Bill from the point of view of that criterion. Does the Finance Bill before us tend to increase the volume of investment and saving? I wish to say something on that subject about one particular tax which seems to me to be the most relevant from this point of view. I refer to the increase which the Minister proposes in the standard rate of income-tax. I do not intend to discuss to-day another question which I hope to discuss some other day in the Seanad, namely, whether or not the distribution of the burden of income-tax is equitable. I am taking the income-tax as it is and simply dealing with the standard rate. But I think I am entitled to make the point even on this debate that if all the inequities in the distribution of the tax were removed and if the tax were more evenly spread over all people with assessable taxable incomes, the standard rate could possibly be lower. However, that does not arise to-day.
We will take the tax as it is. I want to say something about the increase in the standard rate. Income-tax, of course, cannot be considered in isolation. It is part of the whole system of direct taxation in this country. Income-tax must be taken in conjunction with surtax and death duties. The point I wish to make is that the present level of direct taxation in this country has an adverse effect on saving and that, therefore, to increase direct taxation will have adverse effects instead of beneficial effects on the programme of investment which I have been trying to advocate. High direct taxation, of course, must have an effect on the power to save. Generally, in the past, saving has been done by people with surplus incomes. I will not use the word "rich" because there are not many rich people in this country but, I shall say, the "not so poor."
The whole history of the 18th and 19th centuries, to which I referred a few moments ago, is a history of rich people putting their savings into productive enterprises, trying out untried experiments, building up new industries. The whole history of the industrial revolution is based on the fact that there was a class of people with sufficient surplus income to be able and willing to take the risk of investing it in new types of untried enterprises and, in that way, to build up the modern world on the productive side.
It is extremely difficult for anybody nowadays who pays all his direct taxes to accumulate a fortune. Therefore, the fund out of which industrial savings used to come in the past is being sucked dry by all this high direct taxation. But, in addition to the adverse effect on the power to save, I think there is an even more adverse effect on the will to save. This is a matter to which I do not think sufficient attention is paid to-day. A high standard rate of income-tax reduces the net yield of Government securities to what may be a dangerously low point. A government security carrying interest at 4 per cent., from which income-tax is deducted at 7/6 in the £ is really paying only 2½ per cent. When you consider that a large number of people pay surtax as well as income-tax at the standard rate, and when you consider that really prudent people make some provision in the course of their lifetime for insurance against death duties, the net return at present on gilt-edged securities in Britain and here in the case of a great many people, and especially rich people, is a great deal less than 1 per cent.
Business suspended at 6 p.m. and resumed at 7 p.m.