In the first place, I wish to say that the actual Estimates themselves which are embodied in the Bill before us seem to be reasonable, in view of the rising wages and rising prices in the country. In so far as the Book of Estimates shows an increasing expenditure which reflects rising costs and wages and rising payments to Government servants, it is very hard to see what the Minister could have done to keep the Estimates down. He has reduced a number of Estimates, but a number of others have increased almost automatically. The country must be prepared to pay its own servants and there is nothing we really can do about that.
I am not going to discuss the Estimates in detail, but I wish to make a few remarks about the general financial position, which is usually discussed in this debate. The outstanding feature at this moment, as everyone knows, is that the balance of payments in this country has gone very wrong indeed in the course of the past 12 months. The adverse balance for the year 1955 is estimated at something in the neighbourhood of £35,000,000. This is an extremely serious position, in view of the fact that the adverse balance shows no sign of automatically self-correcting itself. It is not as though it were a case where there was some temporary feature that could be expected to disappear in the course of time; on the contrary, the adverse balance of payments shows signs of getting worse rather than better.
Indeed, the trend ever since 1947 has been disquieting. It is the same trend as was noticed by the, at the time, much-despised Banking Commission of 1934-38. The growing deficit in our balance of payments was referred to in the Report of the Banking Commission, of which the Minister's father was a most respected and valuable member. We were accused at the time of being unrealistic, pessimistic, academic and cassandras—all the adjectives that could be invented by highly educated and exceedingly eloquent critics were hurled at us.
The trend which was visible then has again appeared in the fifties. It was arrested by the war in 1939, when external assets were piled up—not through any great merit on our part, but because our imports were interrupted by the war. Therefore, the situation is extremely serious. It is not self-corrective. It does not contain the seeds of its own correction. It is part of a long-period trend which has been going on since the early thirties, and even earlier, and was interrupted from 1939 to 1947. It is a trend which shows every sign of continuing in the future. As was said by several speakers in the Dáil, it is obvious that the greater part of the excess of imports is the result of excessive consumption. If it was anything in the nature of a repatriation of our capital investment abroad, it might be tolerated, or even approved, but it cannot be justified on those grounds. It is not an importation solely for investment purposes; it is largely an importation of consumer goods which we cannot afford with our exporting capacity at the moment. Therefore, as a nation, we are, of course, living beyond our means.
It is the imperative duty of any Government, which is so unfortunate as to be in power at a time like this, to correct this trend. I say "so unfortunate" because the measures which the Government, in my opinion, is morally bound to take will be measures which will necessarily be unpopular and will, no doubt, have a very bad reception amongst large sections of the community. The Government is asked to do something in the nature of a deflationary programme and a deflationary programme is like a slimming treatment for an individual prescribed by a doctor. It is not very pleasant for a doctor to prescribe it and it is still less pleasant for the patient to pursue it. Nevertheless, it may be a condition for gaining good health; and I have no doubt, knowing the Minister's courage and independence of mind, that he is a good doctor and that he will not be deterred from giving good advice to his patient by considerations of fleeting unpopularity.
If the correct measures are not taken, it is only a matter of time—it is as certain as day follows night—that this country will be faced with an extremely unpleasant situation. On the one hand, we will lose all our external reserves. The amount of our free external reserves is already becoming quite low. Some of the figures which are quoted in popular controversy are unreal. The only external reserves which could be used to meet the balance of payments over a short period are the sterling assets in the commercial banking system. Once they are exhausted, the other external assets could be made available for meeting a deficit in the balance of payments only by measures which I do not think the present Government, with its tradition of honouring the personal liberty of the individual, would be very willing to take. The alternative to this exhaustion of our reserves— the two evils may go together—is the devaluation of our currency.
I want to make it perfectly clear that recent experience in England and in other countries in Europe is that devalution is almost invariably a matter of necessity and not a matter of choice. Where countries have devalued their currency, it is almost invariably a reflection of the bad principles they have pursued in an unwise internal policy which has enabled them to keep the parity of exchange at the old level. I would regard devaluation of the Irish currency as a confession of defeat. It would give, perhaps, a temporary relief; but, as I said, it would be an expensive one, and I hope that we will not be driven to that. Unless the correct medicine is prescribed by the physician and taken by the patient, this country will find itself without free external assets or faced with devaluation of its currency, which, as I say, is a confession of defeat. It is not a solution of the problem; it is not a cure; it is a confession of defeat. It is a confession that the right remedies have either not been attempted, or, having been attempted, have failed.
We heard Senator Hawkins say to-day what is undoubtedly true. Everybody is agreed that, if a man is living beyond his means, the better way of getting him back into solvency is to increase his income, rather than reduce his expenditure. We are agreed that in this country an expansion of production, both agricultural and industrial, is the desirable object of Government policy. The Government and the Opposition are agreed on that. Everybody is prepared to pay lip-service to that principle, but, without going into any details regarding the great difficulty of expanding production, and, above all, of expanding production for export, I want to make this one point: that programme takes time. It is a long-term programme. We hope it will be achieved in the long run, but, especially in the case of agricultural production, it takes years. In industrial production, although it might not take so long, the potential capacity of Irish industry to produce exported goods is not very great.
We are all agreed that, in the long run, this must be the object of Government policy; and, therefore, with the object of building up increased production, that the Minister must aim at an increase in internal domestic savings; and, to that extent, his savings policy is amply justified. It may be that internal savings in this country may not be sufficient to finance the amount of investment required for the expansion of exports. In that case, the attraction of foreign capital, which was debated here recently in connection with the Avoca Mines, will help to fill the gap. But something more than the mere increase of our domestic savings and the attraction of foreign capital is necessary. A great deal more efficient management and efficient labour is necessary in order to build up exports. There must be a reduction in costs, and our exports must be able to meet the exports of other countries on a competitive basis. Therefore, restrictive practices, whether by businessmen or by trade unions, must be discountenanced and must be, as far as possible, removed.
All these things I am saying are platitudes; everybody will agree with them. Everybody will agree in a general way with what I am saying. But, meanwhile, we have a short-period problem. Assuming that we get a great expansion in savings; assuming that we attract a great deal of foreign capital; assuming that we build up an increased supply of managerial ability, labour, skill, knowledge, and efficiency; and assuming that restrictive practices are removed, it will be some years before the balance of payments is put right by the increase on the exporting side of the account. Therefore, the Minister is faced with a short-period problem. This will involve him in doing something which, I think, would be unpopular; but it would not be like the Minister to flinch from doing something in the national interest, if it should happen to make himself, or his Party, or the Government unpopular.
I do not wish to go into detail on this matter. The duties imposed are good as far as they go. They will probably reduce imports. If they reduce imports to the full extent that is hoped, they will reduce the adverse balance by about 20 per cent. The other 80 per cent. calls for more heroic and more unpopular measures. What is really required is a reduction of expenditure, either by the Government or by private people in the country. The balance of payments is nothing more than an indicator of internal inflation. The balance of payments is simply the hand of the barometer showing that the pressure internally in this country has become too high. And, pending the expansion of exports which we all recognise to be the ultimate solution of the problem, some sort of reduction of the pressure of internal expenditure is imperatively required.
That expenditure is largely in the hands of the Government. The Government should, if it can—and here I know I am asking the Government to do something which is almost impossible to achieve in a period of rising prices—reduce current expenditure. There is another type of Government expenditure which can be reduced in the short period, can be postponed, and can be made a bit slower, and that is Government capital expenditure. The Government, directly or indirectly, is the author of a good deal of investment and a good deal of capital expenditure in this country on houses, hospitals, roads, and other things.
I suggest that it is the duty of the Government, however unpopular it would be, to postpone whatever capital expenditure can be postponed, with the object of relieving the pressure of expenditure internally, and in that way doing the only thing which is really sound in this problem, that is to say, disinflating the internal situation, with the object of getting the external situation right. It cannot be too often repeated that the balance of payments is only a symptom. It is nothing in itself. It is the sign of a rise in temperature. In the case of an individual, if a doctor finds a rising temperature, it simply means that the patient is in a feverish condition and what the doctor has to do is to try and get that fever down.
One way to get the national fever down is to reduce, if possible, a certain amount of Government expenditure. I admit it is almost impossible to reduce current expenditure, but a certain amount of capital expenditure can at least be postponed. I am afraid one is driven to the conclusion, however distasteful it may be, that a certain reduction of expenditure by individual people will also have to be either encouraged by exhortation or perhaps by good example on the part of the Government, or, if not achieved in that way, imposed in various ways in which the Government can impose it.
The steps taken in regard to the import levies are good as far as they go. The hire purchase measures are also good. I think they have come rather too late, but they will be to some extent effective. I am afraid, however, that, before this campaign for restoring health to the financial and economic system of this country is completed, the doctor, the Minister for Finance, will have to apply other unpalatable remedies, if he wishes to succeed.
I do not want to drag into the debate the very controversial and difficult subject of interest rates. A great deal of the discussion on interest rates loses sight of the fact that the long-term rate of interest, which is far more important in this country than the short rate, has already risen. It has already risen, owing to the fact that the rates in the sterling area generally have risen. If the rise in the rate of interest that has taken place here is inconvenient to the Irish Government, Irish business and farmers, I really do not think it could have been prevented by anything that anybody could have done. A great deal of the discussion in the Dáil and in the newspapers is about the short-term rate interest, the money market rate. Why, it is asked, should the short-term rate of interest go up because English rates have risen?
I do not propose to go into that discussion in this debate. What I wish to say is this—again, I know it is unpopular but that is no reason for not saying it; indeed. I think it is a reason for saying it—the despised Banking Commission of 1934-38 foretold with almost uncanny prediction what has been happening to-day. The Banking Commission regarded it as almost axiomatic that English and Irish bank rates would have, in the long run, to move in sympathy. Last year, Irish rates were held down after the Bank of England rate rose to 4½ per cent. I do not know precisely what went on behind the scenes. I do not know what part the Minister took, what part the Central Bank took or what part the commercial banks took, but I was interested, as a member of the Banking Commission whose prophecies appeared to be falsified, to see that, by the end of the year, the prophecies of the Banking Commission had come true and that Irish rates were rising.
I am looking forward with considerable attention to the course of Irish rates. If Irish rates are raised in the near future, I will not be greatly surprised. I think it will be the result of forces largely outside the control of the Minister, the Central Bank and the commercial banks. I think that a rise in interest rates in this country, apart from the long-term rate of interest which has risen already, will not do very much harm and will not do very much good. From the point of view of a correction of the balance of payments, I do not think it will do very much good. I do not think that a rise in the short rate of interest will do much to correct the disequilibrium in the balance of payments.
In the 19th century, the historic and traditional method of restoring equilibrium in the balance of payments was to raise the bank rate. Gold was attracted in and the whole balance of payments position became more favourable. We are living in entirely different circumstances to-day, and I think that, if the bank rates are raised in Ireland, it will not be directed towards a correction of the disequilibrium in the balance of payments. I do not think it will do very much in that respect. It will simply be to avoid certain inconveniences inside the banking system.
This whole question of the rise in the short rate of interest has been exaggerated in public discussion. It has been largely the result of misunderstanding. The long-term rate of interest, which is the most important, has already risen and will remain up until the whole financial atmosphere, not only of the sterling area, but of Europe generally has settled down.
Another thing the Minister may have to face in his Budget is increased taxation. It will not be popular, but if the public refuses to respond to savings appeals, if it refuses to save enough voluntarily in order to reduce expenditure on imports and build up the savings necessary for investment, then saving may have to be forced on it through the very unpalatable method of increased taxation. Therefore, I for one am looking forward to the coming Budget with emotions anything but pleasurable. Knowing that the Minister is a person who does his duty, I think his duty on this occasion will be one which I should not like to be doing.
Capital expenditure, therefore, will have to be delayed in certain directions. Everything in the nature of rising costs of production will have to be resisted to the utmost capacity. The only hope of expanding exports is to produce them on a competitive basis. The vicious spiral of prices and wages chasing each other upwards is something very difficult to deal with. It is something that will have to be dealt with as forcibly as possible. The restrictions on imports may have to go further. They may have to be backed up by quotas and actual prohibitions. Although the restrictions on imports are good as far as they go, I do not think they are the ideal method of getting the balance of payments situation right.
The reason is that, so long as the internal inflationary pressure is allowed to remain, so long as the patients' febrile condition continues, the incomes generated internally, if they are not spent on imports, will be spent on something else and to the extent they are spent on something else, they may reduce resources available for export, and put up costs and prices.
The Minister is perfectly aware of what I am saying. I am not saying this for the Minister's instruction because he knows a great deal more about it than I do, but possibly there may be Senators who, perhaps, have not considered that the mere restriction of imports, by way of import tariffs, quotas or prohibitions, may not really get to the root of the trouble. The internal purchasing power will continue to be spent on something else. Therefore, in the short period, the problem before the Minister is to get down the patient's fever, to get down the internal expenditure, to increase internal savings and, after that, to increase internal investment. If the investment is increased in the right directions, if it is intelligent, if it is directed towards the production of exports, if it is accompanied by efficiency in the managerial field, if it is not upset by undue restrictions in the labour field, production in a few years, we hope, will increase.
When production increases, we hope exports will increase and when exports increase, we hope the Irish balance of payments will be balanced at a high level and not at a low level. Imports and exports, in the long run, have to be balanced. That is elementary. Everybody agrees with that to-day. Every newspaper reader agrees to that. It has become part of the platitudes of the man in the street. But, just as in the case of an individual, income and expenditure can be balanced at a high level or at a low level. If they are balanced at a high level, it means a nation is living well, while living within its means. If they are balanced at a low level, it means that it is living within its means, but not so well. Therefore, I suggest to the Minister that, while always keeping as his ultimate objective balance at a high level, during the next two or three years, during which I hope he will continue to occupy the unenviable position he now occupies, his main preoccupation must be to try to make the country pay its way on a rather reduced import bill.
