Perhaps it might add to the realism of the debate if I make a few brief and possibly rather incoherent remarks about some of the points raised in the course of yesterday's debate. We had a good deal of talk about subsidies. I personally was in favour of the abolition of subsidies in the Budget of 1952, when the Government certainly went a considerable distance in the direction of abolishing subsidies, while leaving a substantial contribution from the public revenue to the cost of wheat and flour. I regard it as a characteristic and possibly an essential principle of a free capitalist economy that everybody, except the most destitute citizens, should pay the full economic cost of the goods and services required for food, clothing and shelter.
The introduction of the principle of people generally being able to buy things, whether food or otherwise, at less than their economic cost is a typically communist principle introduced into our otherwise capitalist economy. Under war conditions, we had to adopt that communist principle of selling food at much below its cost price. Therefore, I welcome the fact that we are now moving back towards one of the essential principles of the free economy and requiring everybody to a greater extent than before to pay the full economic cost of food. Of course, we always required them to pay the full economic cost of clothing, but there is one element of subsidy, a communist element, which has remained in our economy for the past 30 years and which no Government has had the political courage to abolish. I dare say that, if any Government did abolish it, they would most certainly be defeated at the next election, though possibly they might win the election after that and the election after that again. I refer to the subsidy for shelter, the housing subsidy, which is another communist element that has characterised and perverted the economy not only of this country but of many Western European countries ever since the first European war.
The original cause of the housing subsidy, the reason why we cannot allow the principle of private enterprise to operate freely in the matter of providing houses at a rent, is of course, the rent restrictions code, which has dominated the whole situation with regard to the renting of houses to a substantial proportion of the population ever since the first world war. The fact that a statutory tenant is able to acquire shelter, housing, at a price probably not more than 50 per cent. above the level of the price that prevailed 30 years ago, has given everybody a completely perverted idea as to the price he should pay for that necessary element in the cost of living. We are all familiar with the necessity of paying about three times the pre-1914 price for food and clothing, but we still think of house rents on very much the basis that existed in 1914, with a moderate addition of perhaps 50 per cent., which in many cases barely covers the additional cost of upkeep to the unfortunate owner of a house let to a statutory tenant.
If we could wipe away at one fell swoop the whole rent restriction code and restore housing to free private enterprise, we would, I think, go to the root of the necessity for the heavy cost of subsidising all new housing which is erected at the expense of the State to a very large extent and for which the tenants pay only a fraction of the weekly economic cost. I am saying that, though I know it is not practical politics. I know that the Government, however much they may be convinced of the economic wisdom of what I suggest, are quite aware of the political considerations that would make it highly inconvenient to adopt that policy. I should like the people, generally, to realise that the fundamental cause of the heavy drain on our capital resources, that is caused by the high cost of housing, is due to the existence of this rent restriction code. You could leave the whole thing to private enterprise if you would abolish the whole rent restriction code.
Another aspect of the matter is that the rent restriction code has virtually confiscated a large part of the capital value of all houses let to statutory tenants and transferred it to the fortunate tenants who enjoy those statutory rights. That is a principle of confiscation which I think no capitalist economy can really give moral approval to, but there it is. Many of the people to whom I refer have a genuine grievance against the whole economy and against, not only this Government and the inter-Party Government, but against successive Governments over the last 30 years.
There has been a good deal of talk about the 6 per cent. charged by the banks for loans. I agree that, perhaps, it was necessary in the course of the year 1951 and, perhaps, early in 1952 to shock people into realising the serious state of the national economy by a sudden increase in the rate of interest. After all, we had been accustomed for years to borrowing money at 4 per cent. or 5 per cent., and just as Samuel Johnson said, it caused a great stimulus of intellectual activity if you knew you were going to be hanged in a fortnight's time. Similarly, the sudden shock of having to pay 6 per cent. where before you paid 4 per cent. or 5 per cent. has made people sit up and take notice and refrain from certain enterprises involving capital expenditure that they might otherwise have indulged in.
In the situation of our economy in 1951 and 1952, it may have been necessary to impose that shock, but I think it would be undesirable to continue too long so restrictive a rate of interest as 6 per cent. The mere raising of the rate of interest not only eliminates certain people from the queue of borrowers but it is also apt to eliminate those would-be borrowers who combine caution with enterprise, and it leaves in the kind of borrower who is a chancer and, perhaps, a speculator or a profiteer to whom 6 per cent. is a mere flea-bite compared to the exorbitant profits he hopes to gain. In other words, this difference between 5 per cent. and 6 per cent. is indiscriminate. It would need to be accompanied by some other principle of differentiation if we want to encourage the right people to borrow for various productive purposes and discourage the people who are prepared to pay almost any rate because they hope to make anti-social gains.
Therefore, I recommend the suggestion of Senator George O'Brien that there should be some impartial tribunal to estimate the relative priority of the various claims for capital resources, and to encourage those to come forward that are socially and economically desirable, and discourage the others, however high the rate of interest they would be willing to pay. That being so, I do not think you will need to insist on the 6 per cent. rate very long. In fact, if only you could have the right principle of discrimination between would-be users of borrowed capital you might get back to something approximating to a standard 5 per cent. rate. The sooner the better and the sooner it can be done the more you will encourage the best kind of economic enterprise.
There is another aspect of that matter referred to in the I.B.E.C. Report that I quoted in another connection yesterday. The authors of that report pointed out that we over here professed to believe in private enterprise but, in fact, we are in many respects a much more socialist economy than the people of Britain who professed to be, at all events under the Labour Government, more socialist but, in fact, are a much more private enterprise economy than we are in the important matter of the control of capital resources. That report pointed out that an overwhelmingly large proportion of capital resources used in this country are channelled into enterprises which directly or indirectly are dominated and controlled by the State.
In other words, the State here has the major share of the demand for the capital resources available in the economy whether they originate in savings currently accruing or whether they can only be realised by repatriating external assets. That being so, the State by its policy in capital expenditure can, without any alteration in the rate of interest at all, alter the total demand for capital resources by restricting the extent to which the State itself makes a claim on these resources. If the State is not prepared to restrict its own claims on capital resources available in the economy and if those total resources are limited partly because of the inadequacy of current savings and partly because of the undesirability of repatriating external assets, and if the State insists on taking its £40,000,000 worth of capital resources in the course of any financial year, the whole of the restriction of the demand for available capital resources will have its impact on the private sector of the economy; that is restrictive of private enterprise and to my mind is departing from what should be one of the fundamental features of a capital economy.
Therefore, we have to be realistic and if we really believe in private enterprise the State will have to be a bit less greedy, shall I say, for the limited amount of capital resources that are available and leave more of those resources available for the best kind of private enterprise, industrial and agricultural, and at a rate of interest which does not penalise that kind of enterprise.
There was also much talk about unemployment. I gathered from the remarks of some Senators that the Budget of 1952 was regarded as a primary cause of unemployment. Well, I have already implied that I thought it was necessary to pursue a restrictive credit policy for a time but that, I think, it would be a disaster to continue pursuing that policy too long. I think the causes of the unemployment that was experienced in this economy in the course of the last 12 months or so are not peculiar to our country but are, in fact, an aspect of phenomena experienced in other countries as well. We had exactly the same kind of outbreak of increased unemployment in Northern Ireland and no one will accuse the Minister or his colleagues of having any responsibility for the political and economic welfare of Northern Ireland.
There was also a recession in the volume of industrial output in Britain and in other European countries as well, all because of the various changes that happened after the outbreak of the Korean war and the temporary buying spree that set in immediately afterwards, followed by a temporary cessation of buying in the world markets of primary commodities.
There was some talk about the right to work as embodied in the Constitution. We have to be a bit careful how we handle that right to work because in a free country the citizens claim not only the right to work but the right not to work, the right to leisure. I would be sorry to see him deprived of these dual rights. If the State is going to admit for all citizens the right to work the State will have to go further than that and impose on all its citizens an obligation to work, because the individual cannot have it both ways in his relation to the State. If he insists on the right to work, the State has the right to insist on his obligation to work and that means on his obligation to work at whatever type of work the State chooses to provide for him and at whatever rate of payment the State chooses to fix. That is not freedom; that is a fundamental principle of Communism. If you go too far with the principle of the right to work, you will go far in the direction of a communistic organisation of the economy.
Now for a few amiable platitudes about the general financial situation. I think we must all agree that there is a fundamental principle in regard to public taxation, especially in an economy like ours and that is, that current expenditure should be met from the proceeds of current taxation. Therefore, to the extent that the Government increased taxation a year ago and maintained that taxation in this Budget in order to meet current expenditure, we must accept their action as necessary and desirable, however unpopular it may be from an electoral point of view.
We may also agree that capital expenditure may justly be met by borrowing of genuine private savings and only under very unusual circumstances by borrowing from the banking system. But there is an important distinction between two kinds of capital expenditure. There is the kind of capital provision which involves an amenity expenditure—improvements in hospitals, schools and even roads, public parks, and other items of that kind— which is not self liquidating but is apt to add to the dead weight debt of the community. I would say that capital for the purposes of amenity expenditure should not be borrowed to an extent that exceeds the currently accruing savings of the national economy.
On the other hand, capital which is self liquidating, which produces remunerative assets like the capital involved in the development of the activities of the E.S.B. and of Bord na Móna may be borrowed even in circumstances where it means the realisation by somebody or other within the economy of external assets hitherto invested abroad. In that case the only question is whether the national assets created will be worth more in real value to the national economy than the external assets which have been sacrificed.
It is essential to the stability of the monetary unit of the nation, which is an Irish £ based on sterling, that the Budget should be honestly balanced both on current and on capital account. The failure to balance the Budget honestly, if persisted in sufficiently long, would sooner or later exhaust our external assets and create a situation in which the Irish £ would have depreciated heavily in comparison with all other monetary units.
The balance of payments in 1952 improved considerably as compared with 1951. Some people argue that as that happened it proved that it was not necessary to do the drastic things in that year of 1952 that were done. Actually the relationship between the Budget of 1952 and the balance of payments of 1952 was a relationship of cause and effect. The classical method of remedying an unfavourable balance of payments is to avoid deficit financing, to make the taxpayer pay the full cost of current expenditure of the State and to be a bit more "choosey" about the objects of capital expenditure.
May I briefly run over what I regard as the main objects for which revenue is raised by the Central Government. First of all, of course, it is raised to cover the necessary costs of the public services. Secondly, the budgetary engine is now a recognised means of redistributing the national income in favour of the less fortunate classes in the community. In the third place the Budget is and should be used to promote the kind of development and differentiation of the national economy which we desire to promote in any case; in other words we want to promote industrialisation but only as a means of increasing the real national income. Therefore, we want to promote "agriculturalisation" so to speak, as well as industrialisation, and the general object must be to increase the real national income if we can by a suitable budgetary policy. In the fourth place there is a kind of negative object of public taxation which should impair economic incentive as little as possible and, if possible, strengthen it.
With regard to the second object of public taxation, to redistribute the national income in favour of the less fortunate classes that is represented on the expenditure side by the social services. The necessity and desirability of the social services is now generally recognised and commands general approval. But we have to have a due sense of proportion with regard to expenditure on the social services. That portion of the national revenue which is taken from the taxpayer is spent by the State for the citizen and not by him. Therefore, to that extent the citizen's choice of objects of consumption, the citizen's pattern of demand, so to speak, with regard to his income, is perverted by the interference of the State. He has to pay his taxes whether he wants it or not and the State then decides on using part of that money to transfer to certain other less fortunate citizens; if too large a proportion of the national income is taken from the producers of the wealth of the nation by the State and spent on however worthy objects to the advantage of other less fortunate citizens, who are not producers, you create a gap, a divorce between effort and reward.
The citizen is conscious of the effort he must make in acquiring his salary, but he gets no conscious advantage from that part of his income which he transfers to the State for the State to transfer it to one or other of his poorer neighbours, and to the extent that you divorce effort from reward you do create a disincentive effect in a free capitalistic economy and remove one incentive to full production. Therefore you have to preserve a certain proportion between the amount you can afford to spend on social services and the total of the national income, and it would be a disaster to increase the proportion spent on social services in such a way as to bring about a reduction in the real national income available for all purposes.
Now, with regard to the use of the Budget for the promotion of industrialism, here the main object is to bring about such a re-distribution of human manpower resources and natural resources as will maximise the national wealth of the country, and from that point of view it does not matter whether the new employment and the new wealth created is agricultural or industrial. The main object should be that it should be a positive addition to the wealth of the nation. In the last ten or 15 years statisticians tell that there has been an increase of 60 per cent. in the volume of industrial output, but the volume of agricultural output still hovers rather close to and just underneath the level of its achievement in 1938; and because the industrial sector of the economy is still relatively a small sector of the total economy the effect of a 61 per cent. increase in industrial output is reflected only in a 24 per cent. increase in the real income of the nation as compared with 1938. I would say that the policy of this and preceding Governments has been more successful in altering the pattern of production, in introducing a kind of game of musical chairs in which everybody moves about to a different occupation and some people find no place to sit on and are unemployed, than in increasing its total aggregate; and I would echo again the sentiment of the I.B.E.C. report which says that: "Further industrialisation should be planned with rifle selectivity rather than with shot-gun diffusiveness," reminding the Seanad briefly of some debate we had yesterday, might I say not perhaps entirely shot gun diffusiveness but blunderbuss diffusiveness and, in some cases, all the emphasis on the blunder.
However, I am not arguing now that none of the industries established in the last 20 years is worth while. On the contrary I believe that many of them were worth while, but I am questioning whether every one of them deserves to be where it is, and whether more discrimination in the choice of new industries might not with advantage have been made if we had used the rifle principle instead of the blunderbuss principle; and in particular I would echo the sentiment which runs all through the I.B.E.C. Report that we should in future concentrate on those industrial developments which depend on agricultural raw materials, home produced here by our own agriculture—things like hides, wools, skins and that kind of thing.
In that connection there are certain statistical facts that should be present in the mind of every responsible citizen. The value of industrial raw materials imported in 1949, when you leave out tax on tobacco, was roughly £80,000,000. The value of industrial exports in that year was £19.2 million. In other words, 8 per cent. of out total industrial output was exported, and the value of the raw materials on which that industrial activity depended was four times as great as the value of the industrial finished products that were exported. Consequently our industrial economy depends in its present conditions excessively on imported raw materials and is able to pay for those imported raw materials only to the extent of 25 per cent. What balances the account and what alone enables our industrial economy to survive on its present basis is the fact that 25 per cent. of our agricultural output is exported. In the year 1939, raw materials imported for agriculture amounted only to £3.9 million but the value of agricultural exports in the year was £32.4 million, or 25 per cent. of its total output. Even that was far too low, but without our agricultural exports the necessary industrial raw materials we had to import would very soon have exhausted our external assets; so that our industry depends on the export capacity of our agriculture, and therefore, every industrialist has a direct economic interest in such an agricultural policy as will maintain and expand the export capacity of agriculture.
The I.B.E.C. Report also commented unfavourably on the fact that those £80,000,000 worth of industrial raw materials imported carried 8½ per cent. of customs duties, thus adding to the cost of industrial raw materials from the point of view of our industrial producers. It commented on that:—
"The enormous dependence of manufacture in Ireland on imported materials carries with it sufficient inherent handicaps to effective competition without adding an 8½ per cent. overburden."
I hope the Minister will seriously consider the advisability of removing that handicap from our industrial producers.
The fourth object of public taxation is to diminish economic incentive as little as possible and if possible to stimulate it. I would say with regard to income-tax and profits tax that in their very nature they tend to impair economic incentive. They are perhaps a necessary evil, but let us emphasise their evil character from this point of view, however much we may admit their necessity. In the nature of the case, income-tax is a tax on efficiency and on honesty and those are two very valuable qualities in any community which it would be 1,000 pities to penalise or discourage in any way. The whole income-tax code very effectively penalises both efficiency and honesty. I wish we could invent some kind of tax that would penalise the inefficient out of business, whether agricultural or industrial, and at the same time penalise the dishonest out of every kind of business.
It has been urged that the essential features of the income-tax code, as it applies to the professions and so on, should be applied to agriculture, so that the agriculturist would pay not on his poor law valuation but on his actual realised agricultural profits. I would strongly deprecate any suggestion which would have the effect of imposing a burden of income-tax in that form on our agriculturists, primarily because it would penalise efficiency and honesty and would single out the best farmers in the country for the most severe treatment, while it would have no moral or social effect on the great majority, who would probably escape it altogether.
The rates on agricultural land are not exactly popular with my farmer friends but they are not open to objection of the same kind as I found in the principle of income-tax. The more profit a farmer with a given valuation can make out of his land, the smaller is the proportion of his total income which the burden of rates represents. In other words, rates are, in the technical phrase, "regressive on income", and the greater the income the smaller the rate per £ that he pays in respect of rates. Therefore, rates on agricultural land as such do not penalise enterprise and efficiency. In fact, in so far as they have any effect at all, they should tend to encourage these highly desirable qualities.
On the other hand, there is one aspect of the principle of rates assessment which has a very objectionable effect on enterprise and efficiency. I understand that if a farmer adds substantially to his buildings and premises —and only the best farmers are disposed to make such additions to farm buildings and, goodness knows, there are a great many farms that would be better if they had a better lay-out and more up-to-date farm buildings—one of the first results of increasing the farm buildings is that he becomes liable for a higher valuation and therefore a greater amount of annual rates on agricultural buildings. I am aware that the State, by its various farm improvements schemes and so on, contributes to the cost of various farm improvements, some desirable and some not so desirable; but I would say: "For heaven's sake, sweep away all these farm improvements schemes, which only delay the people in getting things done, which the best farmer would do himself; and reward the farmer by not only not adding to the valuation of his premises, but, as a result of those new buildings, by making a reduction for seven years on his total valuation, exactly equivalent to the increment as calculated by the principle which now operates." In other words, if a farmer adds £10 to the valuation of his farm buildings by reason of new buildings, so far from taxing him on that additional £10 I would exempt him from £10 of his former valuation, whether on land or buildings, and allow that exemption to continue for at period of at least seven years. That kind of change in the rating system would have a very desirable effect in encouraging the best farmers to make a desirable type of improvement.