Finance Bill, 1957 (Certified Money Bill) —Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The Finance Bill provides the Seanad with an opportunity for a general discussion on the economic and financial position of the country. Senators will have read my financial statement which included a review of these matters and the House will not wish me to take up time going over the same ground. I propose, therefore, to confine my remarks at this stage to the provisions of the Bill.

As members of the House are aware, the chief purpose of the Finance Bill in any year is to incorporate in permanent legislation the Financial Resolutions passed in Dáil Éireann on Budget Day. These resolutions dealt with the rates of income-tax and surtax for 1957-58 and with the taxes imposed on tobacco, beer and hydrocarbon oils. The sections of the Bill covering these matters are Section 1 and Section 7 to 10 inclusive.

The Bill also makes legislative provision for the other proposals announced in my Budget statement, apart from those for which special legislation has been promoted. The following sections concern reliefs to operate from 1958-59 in income-tax and corporation profits tax.

Section 2 provides a 25 per cent. increase on existing wear and tear rates on plant and machinery (other than vehicles). Section 3 provides a relief where a person contracts to make annual payments to a university or college in the State for a minimum period of three years for the purpose of enabling the university or college to carry on research.

Sections 4 and 15: Section 4 deals with the extension, to all securities issued to the public—and, subject to conditions, to securities otherwise issued—by Irish manufacturing concerns since 1932, of the relief provided by Section 7 of the Finance Act, 1932. Section 15, Part III of Bill, deals with a consequential Death Duty provision.

Sections 5 and 16: These sections provide for (a) the increase, from 50 per cent. to 100 per cent., of the tax relief in respect of profits on increases in exports of manufactured goods, and (b) the granting of an alternative tax relief of 25 per cent. in respect of profits from exports of manufactured goods. Section 5 deals with the relief as regards income-tax and Section 16 as regards Corporation Profits Tax.

Section 17 to 23: Another proposal announced in my Budget Statement was a special "investment" allowance for tax purposes in respect of expenditure on the provision of new ships. This matter is covered by Part V of the Bill, Sections 17 to 23, inclusive.

As I have mentioned, all the foregoing reliefs will operate from 1958-59.

I also announced on Budget Day my intention to introduce a new scale of entertainments duty. Section 12 of the Bill accordingly provides for new rates of entertainments duty as from 1st August, next, in the case of cinemas. Part VI, Section 24, of the Bill gives effect to my Budget proposal to authorise arrangements in certain cases for the payment, by way of composition, of the Stamp Duty chargeable on receipts.

I come now to some matters which were not referred to in my Budget statement and I propose to give a brief explanation of the purpose of the relative sections of the Bill.

Sections 6 and 27: Section 6 empowers the Minister for Finance to direct that interest on stock which may be issued for public subscription by Bord na Móna may be paid without deduction of income-tax. Tax on the interest will be assessable upon the person receiving or entitled to it. Section 27 is consequential on Section 6. These provisions will bring any stock issued by Bord na Móna into line with National Loan and E.S.B. stocks.

Section 11 provides for the repayment to an oil refiner of any duty that may have been paid on unused hydrocarbon oil received by him for processing in his refinery.

Section 13 introduces certain relaxtions, which experience has shown be desirable, in the provisions Section 17 of the Finance Act 1936, relating to the admission free of duty of household effects imported on transfer of residence.

Section 14 confirms the three Emergency Imposition of Duties Order relating to the Special Import Levies, which were made in April, 1957 these Orders abolished the Special Import Levies on a number of articles, provided for the grant, in certain circumstances, of licences for the importation of good free of the levies, and also provided for certain change in the duties on unprinted paper and on aggregates of parts of moor cars imported for assembly in this country.

Section 25 deals with amortisation arrangements in respect of borrowing for voted "capital services" in 1956-57 and 1957-58.

Section 26 amends Section 7 (4) of the Land Bond Act, 1934, the purpose of the amendment being to postpone by 20 years the date, 23rd March, 1964, after which the Minister for Finance may redeem at par outstanding land bonds created and issued under the Land Bond Act, 1934, as amended by the Land Act, 1953. Since bonds of this category are still being issued for the purchase of lands acquired by the Land Commission, it is felt that the period left before they can be redeemed at the option of the Minister is too short.

The remaining sections, Sections 28 and 29, are standard and require no explanation.

We should be grateful to the Minister for this short exposition of the Bill. The prolonged debate in which we were all very interested this evening has made us glad that the Minister for Finance has taken just the headings of the Bill. I am afraid, however, the Seanad will have to tackle this problem in a rather different way.

First of all, I should like to wish the Minister a successful period of office as Minister for Finance. I have personal reasons for hoping that his period will be particularly successful and that he will not find it as onerous as his immediate predecessors did. I regret that, despite the welcome which this year's Budget got in the Dublin daily papers, as the result of prolonged thought about it, I have come to the same conclusion about it as I came to about the Budget of 1952. It was not that I particularly wished to think the matter over again, but circumstances were such that I had plenty of time on my hands.

When one considers financial matters, it is inevitable that one must use figures. One might make general arguments; one might consider the economic side of these financial provisions; but it is very hard to bring the two together, and make theoretical arguments without bringing figures into play so that the case will be apparent to those who listen. I intend to take pattern by the Minister and be brief, but I propose to speak on four matters: first, the budgetary approach of the present Government Party; secondly, the capital Budget, to the limited extent that it has been changed this year, that is to say how the pattern of it has been changed as compared with that part of last year's Budget which related to capital matters. The third matter is the balance of payment question; and, finally, I propose to make some remarks about our currency and financial system, a subject which most people seem to be afraid to speak about or are diffident about speaking about, perhaps for fear they will be held to be irresponsible if they put forward certain views.

It is extraordinary that, despite the continuous inflation of a decade since the war, there has been less done in this country about financial provisions than there has been in any country in relation to the financial and currency system.

The first point I should like to make about the Budget itself is that, if the figures we have been given of national income last year and the year before are correct, that is, that the income is just over £450,000,000, then all I can say is that this is an extraordinary Budget to introduce in such circumstances. The Supply and Central Fund services amount to £140,000,000; the Capital Services outside that and the expenditure from the Road Fund amount to £35,000,000 and the income of the local authorities, excluding payments from the central Government, to about £30,000,000. These figures for the current year 1957-58 give a total of £205,000,000, that is to say about 45 per cent. of the national income.

I can see immediately the objection being made that the capital part of the Budget is not taxation. It does not matter whether it is or not; it is using up part of the available resources; and unless you are using existing resources by some form of conversion, i.e., existing capital, or you create new capital, it is £200,000,000 out of £450,000,000. The method of creating new capital is fairly well known in the sterling area at present! That 45 per cent. is altogether too high, beyond question. When economists during the past decade were considering this matter, they put various figures on it. Professor Colin Clark some years ago said it should not go beyond 25 per cent. That was at a time when it was running at 40 per cent. in Britain. One looks at these figures and says to oneself. "What if there should be a recession of some sort in the United States? Where then would this kind of picture go; what would happen to it?"

Lest it might be said that, the Government having just changed, the outgoing Government is responsible for the picture, I should like to remind the House of the figures for the last five or six years in Supply Services expenditure. In 1950-51 the expenditure was about £75,000,000; in 1951-52, £90,000,000; in 1952-53, £95,000,000 and in 1953-54, £105,000,000. Then the inter-Party Government came into office and three years later it was £110,000,000. That is to say, whereas in the three years from 1950-51 to 1953-54 expenditure went up from £75,000,000 to £105,000,000; it was kept at £105,000,000 with the exception of the implementation of the Health Act, 1953. The expenditure for the coming year is £112.5 million. I think that that figure for the Supply Services would not be as high as it is if there had been a proper examination of the Estimates. We all know the circumstances in which such examination was not possible. The Economics and Estimates Committee which was to examine the situation for the then Government never met, owing to the general election cutting across the arrangement.

Assuming it is undesirable that the Government should take a very large part of the national income to run its affairs, then I think the impact of the blame is clear. The Party which is responsible for the position as we have it at present is clearly set out in these figures. I do not think there is any answer to it.

The approach to the Budget question could not be better set out than in 1952 and 1956. When I spoke in the other House on the Budget, I showed that the figures published in the "Estimates of Receipts and Expenditure," the White Paper which is issued the week before the Budget, indicated that the picture last year was the very same as that which faced Deputy MacEntee in 1952. It was met last year by the then Government by an increase of 5d. on cigarettes, 6d. on petrol and the levies, if you include them although they were not used for current expenditure. One of the back-bench members of the Fianna Fáil Party added it up very skilfully, although there were certain difficulties, and said the total was £13,000,000. I have applied the same kind of arithmetic this year. I find that this year the total is about £12,000,000 — a total increase of taxation in two years of £25,000,000.

Does anybody believe that if the former Government had remained in office, we would be faced with an increase in taxation, because that is what it is, of £12,000,000 this year on top of a total increase in taxation last year of £13,000,000? I do not think anybody believes it. In fact, the reaction to this year's Budget was such that certain people who voted with the Government in the other House on the first day crossed the House at the end of the discussion on the General Resolution. In other words, when they went back to their constituencies, they found that the people had not suspended judgment this year. In 1952, the people suspended judgment on the matter as they do very frequently. They have not suspended judgment this year. The phrase I heard used in connection with the matter was: "These fellows are hardly back again when they are up to their old tricks." That is a phrase I heard a good while after the Budget was introduced. That was the reaction of the general public.

One other point is that last year there was a fairly substantial benefit conferred by the increase in the unemployment benefit and the widows' and orphans' contributory pensions, but the proof, if proof were needed, that the weight of central and local government expenditure is too great in this country is the fact that, in 1950, despite all the inflation which has occurred since, a penny on a packet of 20 cigarettes brought in £1,000,000 and a penny on the pint brought in £1,000,000. What do they bring in to-day, despite the fall in the value of money since? Anybody who looks at the figures given by the Minister and the yield he expects can draw his own conclusion.

It is slightly complicated because the Revenue Commissioners have taken account of the fall in consumption, due to increased taxation, but it does not matter what allowance they may have made, you will find the figure is about £700,000—somewhere in that region, despite all the inflation that occured in the intervening period. Therefore, I agree with the Minister that it looks as if the absolute limit of taxation has been reached in relation to the narrow field of commodities the Revenue Commissioners have regarded up to the present as being suitable for raising a substantial amount of revenue.

Therefore, it seems to me that there is only one way in future for this country. New services must be met by economies. When one looks at the Budget, what has the present Government done? It has looked again at the food subsidies, as Deputy MacEntee did when he was Minister for Finance. I notice that the Taoiseach on this occasion, as in 1952, made a careful statement about them. I thought more effort had gone into his statement in 1952, if I might say so. I do not think this Budget is as hard on the public of this country, having regard to the year in which it occurred, as the Budget of 1952. Coming at the end of a period of inflation, it has appeared to be harder. The people know the score better, but the Taoiseach stated that the Minister for Finance was trying to save £5,000,000, that he had found this gap of £5,000,000.

The Minister himself said, when winding up the Budget debate in the other House, he saw this gap of £5,000,000 and that the last Government never gave any indication as to how they were going to close the gap; that, therefore, it was quite apparent that if the inter-Party Government remained in office, they would abolish the food subsidies. I can assure the Minister that the Fine Gael Party had no such intention. So little was there any question of it that there was no discussion about the subject even.

I am interested in a calculation to which I gave a good deal of thought. It is this. How far in fact is it true that the Minister will save £5,000,000 by abolishing the food subsidies? This is the picture I found. A sum of £2,000,000 is to be given in increased benefits. Might I say that this is one of the parts of the Budget upon which the Minister deserves to be congratulated? Part of that £2,000,000 — I think about £1,500,000 — will go in children's allowances. I think that the Government, having decided they were going to do this thing, were correct in their decision in that part of the Budget. At least they tried to help out the large families of the poorer workers.

Will the Minister save £5,000,000? Of course, he will not. He will not save anything like £5,000,000. I propose going through the various items which are involved in it. In reply to a parliamentary question before the price of butter and bread had gone up — when apparently it was assumed that the price of butter would be 4/2 and the two lb. loaf probably 1/0½d.—the Minister gave a figure of 4½ points, about 3½ per cent. increase in the cost of living as the effect of the removal of these food subsidies. I do not think that figure would quite hold the field now, but I am prepared to take it and give the Minister the benefit.

In fact, as we know the price of bread went up by 3¾d. and, in Dublin, the price of butter went up 7d. or 8d. There is a general economic point in that in so far as the subsidy on bread was about 3¼d., where we find the price of bread has gone up by 3¾d. That happened because subsidies cut costs at the base and this particular subsidy, being operated through Grain Importers, took the minimum on administration and gave maximum benefits to the people. In fact, the only reason that can be held against it is that there is no point in taking money out of one pocket and putting it into another. That is all right from the Government point of view, but it is a very important and serious point in so far as many citizens are concerned.

Where I believe the Minister is going to lose a large part of what he thinks is this saving is in his loss of revenue. The revenue from tobacco is £24,000,000 or £25,000,000 a year, and if you take 3 per cent. of that, you get some £750,000. Why do I take 3 per cent.? I take it because cigarettes are used to a very considerable extent by young people without family responsibilities who probably would feel less the increase in the cost of food. But I noticed that theSunday Press, on the Sunday after the Budget, came out with a statement that a professor of applied economics had said: “There is nothing in this Budget. Let them smoke a cigarette or two a day less”. It gave me considerable amusement to think what would happen to the Minister for Finance if the people smoked a cigarette or two a day less. The Minister would lose £2,500,000 a year. So the professor of applied economics in question had not applied his mind very much to that particular problem.

The receipts from beer in this country are about £8,000,000 a year. One could go historically into the connection between the price of bread and the price of beer. It is very interesting, but I do not think I will bother. You may take it that this is very accurate — that if the price of beer is low when bread cost is high people drink more beer, but if the price of bread is high under taxation, it is not so easy for people to transfer from bread to beer, even though they might wish to do so. But I do think from what I know of the people who consume beer that the Minister will lose on that the full amount of the increase in the cost of living. The family man, the worker, is inclined to have a pint of beer at the end of his day's work, and 5 per cent. of £8,000,000 is £400,000.

Of course, from the point of view of the country as a whole, by far the most interesting of these estimates was the question of the loss on butter. We have seen various figures, including some suggesting that the consumption of butter has gone down 15 per cent. The fact of the matter is that the price of butter went up very nearly by 20 per cent., and it would not surprise one if the consumption went down substantially. I gave as much thought as I could to it and I thought the consumption might go down 10 per cent. On the figure of £10 a cwt. the figure for the subsidy on exports at 1/8 a lb. will cost the Minister £750,000 because 10 per cent. would be 75,000 cwts.

Why do I take £10 a cwt. when the Minister in reply to a parliamentary question said that the subsidy was 1/3 a lb.? I am afraid I am sufficiently sceptical to notice that in that reply the Minister said that the subsidy "on recent shipments" was 1/3. I am afraid that my scepticism was enhanced when I learned from a friend that Irish butter was being sold for 2/8 a lb. in Britain. I had worked out what the subsidy was, and knew it, on shipments earlier this year. It is not a very complex matter to work out. You can take it that if in fact certain shipments are made with a subsidy of 1/3, there may well have been shipments to Germany and places like that where there were very special reasons that the Germans should make some price concession to us. I am informed that the price of butter in Britain is 2/8. That means the subsidy is 1/8. Therefore, it is £10 a cwt. I am aware that there are other considerations of a more complicated nature which come into this problem by reason of increased production of butter, but I was trying to keep this problem to the trail I set out to pursue.

The sum total of these figures — a loss from tobacco of £750,000, of £400,000 from beer and £750,000 subsidy on the increased amount of butter that will be exported directly due to the increase in price here — is £1.9 million. That gives the Minister a net figure of £3.1 million and the reasoning is quite clear, unlike many arguments made, that there is only one way to do things and that the Minister can only balance his Budget by abolishing the food subsidies. Everybody knows, however, that there are many ways of doing many things. Whenever I hear a person say: "It is the only thing I could do," I often notice, particularly if you know something about the matter, that there are several other methods of doing the job. Therefore the Minister's saving is somewhere about £3,000,000. That is without taking into consideration at all that if one went statistically into a complicated matter, you could, I think, get substantial additional moneys. If you want to put the limitations on it that I believe there are, the Minister will save between £2,000,000 and £3,000,000.

All this of course assumes that there is no change in the existing conditions as regards wages and incomes in the community. If you change incomes of the community, you change the value of money and therefore change the calculation. I am assuming that conditions remain as they were when the Minister introduced his Budget. Might I say that of all the groups affected by the Budget, personally I have most sympathy for a man like an agricultural labourer with, say, a family of three children, to take a moderately sized family. I estimated on the figures given to me by workers that he would lose about 7/- or 8/- a week and that he would gain 2/- on the additional children's allowances; so his loss would be 5/- or 6/- a week; that is to say, 1/- in every £ he earns. We find ourselves back by a rather circuitous route at the figure mentioned by the Tánaiste, and by the Minister for Lands during the election, that people ought to save 1/- in the £. It rather looks to me as if the present Government Party do not trust the workers too much, do not believe that the ordinary worker would be able or willing to save 1/- in the £.

The second matter I want to speak about for a few moments is the changes made in the capital end of the Budget. I have noticed from the Table circulated with the Budget that local authorities are to spend about £2.4 million more this year, which I take it will be entirely on housing. Aer Lingus is to spend £1.4 million more than last year, and there is £.9 million to be lent to the Road Fund. Offsetting these increases, the E.S.B. is to spend £2,000,000 less than last year and C.I.E. £500,000. When you look at this problem, I have great sympathy with the point of view that was being put forward all round this country by the Minister for Lands that the Government were going to attempt to deal with the balance of payments problem by transferring capital expenditure to matters which would make the most contribution to increasing exports.

What do we find? We find housing up £2.4 million; Aer Lingus is to get £1.4 million; and there is £.9 million to go into the Road Fund. Housing, whatever it will impact on, will not impact on the balance of payments for the next couple of years. Aer Lingus and other transport organisations I propose to deal with in a moment in a general way. The £.9 million to the Road Fund, I take it, is really an effort to create jobs, if I might use Senator Lenihan's expression here without any animadversion, except to say that you may find it difficult to create jobs and that the creation of jobs, of work, is very often not a paying proposition.

After my own examination of our transport system, I consider that Irish Shipping is the one I would rate as the best of the transport organisations by reason of the fact that its fleet is earning an income and it is engaged in expanding and is using up its income in that way. But Irish Shipping, so far as I know, pays no interest to the Exchequer on the vast investment that has been put into it up to the present. It does not matter how it came to be there and it may be argued that it did not get funds from the Minister for Finance or got only part of them from the Minister for Finance. The company pays no interest and little or no income-tax.

Aer Lingus, to the best of my knowledge, has never paid any interest on the money invested in it through the Exchequer. I also take it, since it does not make any profit, that it pays no income-tax. C.I.E. not alone pays no interest and no income-tax to the Exchequer but receives a large subsidy. I wonder if in our community you can have the whole public end of the transport system — and in this country it is a considerable part of it — subsidised in effect by the general public?

On the other hand, when these decisions had been taken, I noticed a speech by the Minister for Lands. You might wonder why I mention him so much. The reason is that I have always noticed that he is a very apt exponent of what is the current Fianna Fáil problem, of what the Government is giving thought to. He made a speech recently in which he said there would have to be public works. He was sorry to say it but there would have to be public works. We all know what that means — it means relief works.

He also made a statement, which rather concerned me more than his statement about public works, to the effect that the days of easy money for afforestation were over. Does that mean that one of the most valuable long term investments in this country is to be cut by the present Government? Is that the meaning of that statement?

I notice theSunday Independent in the course of a leading article last Sunday quoted the Minister for Lands as saying that we had spent too much money on housing since the war— £100,000,000 — and that they were delighted to see that was now about to be put aside. All I can say is that the editor of the Sunday Independent cannot have studied his Budget very carefully or he would not have written a long leader, a whole column in length, about this subject which had already been decided against the point of view he was putting forward. It had been decided by the Government more than a month ago and against that point of view.

Lest Senator Lenihan might think I was being unfair in my comment about jobs, one of the most interesting facts in these Tables circulated with the Budget, is in Table IX which gives the assets of the State at 31st March, 1956, and at 31st March, 1957. We find the National Development Fund, as at 31st March, 1956, was £6.8 million and at 31st March, 1957, we have got not the National Development Fund but the National Development Fund Winding Up Account — £2.6 million. The Seanad will note the difference in the figure, £4,250,000. I wonder if one could just make the little link there with the yield of the levies last year — £4,250,000? That is what happens when you indulge in the creation of jobs in that way.

It is only about four years since the National Development Fund was set up with a tremendous flourish of trumpets and here it is now being written out of the accounts at expense to the community. Much of the money was spent on concreting back lanes in the City of Dublin. It is a nice amenity and, in fact, a lane at the back of my house was done, but we got along very nicely before and even if a neighbour of mine who was a very senior Army officer did collect a bit of mud on his good boots going along there, I doubt very much if it is worth £6.8 million when in the end you have the winding up fund.

I want to say a few words about the balance of payments. It is obvious from the figures we have had that the balance of payments in the first half of this year is about £20,000,000 better than it was in the first half of last year, even though the levies were in force for only part of the time last year. I think that is a matter on which the Minister can be congratulated on his arrival in office, even though I think it is true he is inclined at times to say he found an awful mess when he came into office. I notice that he found £5,000,000 next day on his desk, so to speak, coming from a matter which is in the news again to-day, the Prize Bonds. It is not a bad birthday present for the Minister for Finance!

Despite this improvement in the balance of payments, I should like to emphasise to the Minister—perhaps he would try to get his officials to put some ginger into the other Departments concerned — the comparative worthlessness of the bilateral trade agreements with certain European countries. The particular countries I have in mind — I think I should give the names — are Germany, Holland, Sweden and Switzerland. What is the use of making bilateral trade agreements with countries that ask you to buy five, ten or 20 times as much from them as they are prepared to buy from you? The official answer, of course, is that they tell you they do not want your stuff. I have more belief in my own country than to accept the view that we do not produce some articles as good as, and better, in many instances, than are produced in each of these countries I have mentioned. One article we produce better is butter and the current price of butter in Switzerland is 10/6 a lb. The current price of butter in Sweden is about 8/- and in Germany 6/6 a lb. These are the people who can find nothing to buy here.

There are various other countries which suffered from the effect of the war and I think we have done our bit for them. We bought £1,000,000 worth of goods from Japan the year before last and we sold them £12,000 worth. I think that situation is one in respect of which, if the Minister could put some ginger into some other Departments, he would find the people of this country behind him. It might be no harm for him to look round and see if he could not get the people behind him on some proposition?

I come now to what is by far the most serious aspect of what I want to say this evening, and that is the fact that, in my opinion, our currency and financial systems at present are completely out of date. They were established in this country in 1927 at a time when Britain was on the gold standard. We were then on what was called the gold exchange standard by having British Government securities which we could sell for cash in London which we could then turn into gold if we wanted it. I would not mind backing our currency with the British securities if those securities held their value, but, at the time of the devaluation of the £ in 1949, we held as backing for our currency £50,000,000 British Government securities.

It is my considered opinion that the whole effect of devaluation had worked itself out by last autumn. I did not think it would last quite so long. Of course, one does not have to take my opinion on that because the British had to borrow $560,000,000 from an American Government Agency in December and it also asked to be relieved of paying interest on the moneys advanced by America immediately after the war and it had to arrange to borrow back its subscription from the International Monetary Fund as well. The financial adviser to the British Government, Sir Frederick Leith Ross, referred to this matter a few days ago and said that the countries of the sterling area cannot be expected to maintain these assets in London through time.

Let us take that £50,000,000 backing for our currency in 1949. Assuming the equation is correct, what is its value to-day? It is £35,000,000. There has been a loss of £15,000,000 in the interim period and during that period we were adding further tens of millions to the backing of our currency in London and gradually losing it. That is the answer to the articles which appeared in theQuarterly Statistical Bulletin of the Central Bank last year, pointing out how necessary it was for the internal value of currency that one should have external assets. The only way in which external assets affect internal currency is in relation to the position of a country's balance of trade and one must be concerned to have that right through time unless one is content to see the backing for one's currency continually depreciating in value.

What is the reason for that? Twelve months ago we had suggestions made publicly here that in certain circumstances our £ might have to be devalued in relation to sterling. I do not think the people who made those suggestions were very responsible. At the time, we had about £200,000,000 of first line reserve equivalent to our full imports for 12 months and the whole sterling area had first line reserves equivalent to two months' imports of Britain alone. And this is the backing for our currency! But even that does not tell the whole story. I would not be so concerned about it, were it not for the fact that every time our balance of payments tends to go a bit wrong, our whole internal credit system goes with it because the commercial banks are now coming to the end of their tether in relation to disgorging any more of their assets in London for the purpose of collecting in legal tender notes here into the currency system.

I notice one other effect of that, though I am not altogether sure that it is a matter of policy. I notice a tendency on the part of the banks here to allow Bank of England notes to continue to float around. I think the law is that they are to be collected and sent back to Britain. But I have noticed that tendency and if any Senator goes in to cash a cheque for £10, he will get out Bank of England notes and our own indiscriminately. The reason is that the banks, owing to the particular arrangements in which they place their faith, do not want continuously to disgorge their own assets in London for the purpose of keeping up this antediluvian currency arrangement.

This arrangement was set up not before the £ was devalued the last time in 1949 but before it was devalued in 1931. It was an admirable arrangement during the 30s although the 30s might have been the right time in which to change it. It was quite all right then because the assets that were backing the currency were holding their value, but, if you have a situation in which the circulation of money in this country, as it was last year, was held at a figure of £75,000,000 in legal tender notes and you had a circulation in Britain of £1,700,000,000 in 1955, £1,800,000,000 last year and £1,900,000,000 this year, you are entitled to ask what is the backing for the British currency? I am not really asking the Minister that question; it is a rhetorical question. The fact is the British circulation at present is a fiduciary issue. There is no backing for it, unless one can say that Britain, being the largest country in the sterling area, the central reserve of £800,000,000 is the backing for British currency. That is the backing, £800,000,000 to back £1,900,000,000.

Do not forget I am not concerned about the link with Britain. I am not in any way anti-British. I am not concerned with the financial or political aspect of the link with sterling or the link with Britain, but I am seriously concerned with two things. If the backing for the notes is to go down in value, let it go down in value in our own securities and, secondly, if the commercial banks continue to carry on this antediluvian system, then we shall continue to have this continuous jerk on our internal system here. It is all right this year. I emphasised in introducing the subject that our balance of payments is already £20,000,000 better this year than it was last year. The Minister may get a year or a year and a half, but let any little thing go wrong again — I notice the Tánaiste was suggesting the problem had not been solved — and we shall find ourselves back again with an adverse trade balance. The long-term problem has not been solved, but I am concerned that our internal arrangements here should depend exclusively on a link which is operated primarily in relation to our internal credit arrangement by the commercial banks who think in terms of their liquid assets in London.

The old classical economists had a term: when you had an adverse balance of payments, your balance of payments was called "active" and, when you had a favourable one, it was called "passive". These were very apt terms. If there was activity, you had an adverse balance; if it was passive, you had a favourable balance of payments. The necessity for depending on increased resources in London for increased activity here is, of course, partly due to the fact that so much of our industrial activity depends upon imported raw materials. But there are other sides to it.

I criticised on economic grounds the housing programme. That was from the point of view that it would not increase our exports. I agree with the Government's decision to increase the programme because housing absorbs very little imports — about 15 per cent. to 20 per cent. in local authority and small dwelling houses. That is one way of increasing activity, activity which will not make a big draw on external resources. Since the end of the war, we have spent £100,000,000 on housing. Let us finish off the job. I do not suggest it can be completed absolutely, but the bulk of it can be got out of the way and we can go ahead then and do something else.

This position in which the link with London is now squeezing the internal arrangements here is, I think, the major cause as to why we cannot have what they have in all other countries — full employment — and why we cannot have full employment even though we have 40,000 emigrants per year. I was twitted a great deal for saying in the other House that emigration at least ought to enable us to have full employment. It certainly is an extremely adverse condition of affairs when, despite large scale emigration, you cannot have full employment.

I was reading recently a book by a man named Crosland. I think it bore the titleThe Future of Socialism. He said that all parties in Britain were unanimously in favour of full employment. I notice that a man named Balogh, another economist, writing in the New Statesman last week, said that no Government would last in an English speaking country which did not have full employment to-day. I think he must have overlooked us!

Why have we this massive emigration? One reason for massive emigration is that, whereas before the war the average income in Britain, assuming that you had an income, because many people were unemployed, was about half as great again as the average income in this country. Nowadays, the average income in Britain is double the income in this country. Since our two currency systems are linked on parity, you get much the same for money in Britain as you do here. Then, Britain has fallen back relative to the United States of America, so that the average income in Britain which, before the war, was two-thirds the average income in the United States of America, is now only one-half that in America, so that somebody who is prepared to work, going from this country to the United States of America, can quadruple his or her income. I admit that there are other factors besides the statistical analyses of the matter. I am not arguing that they cover the whole picture but they do show why we have such large emigration as we have.

The Minister said in the concluding part of his speech replying to the debate in the Dáil:—

"This Budget is an attempt to get things right so that we will pay our way."

The Taoiseach, in the 1952 Budget, put it rather differently. He said: "pay your way", meaning that everybody should pay his way and, in addition, should be sure that the Government paid its way. I am afraid that the attitude of the present Government Party is very much that the public "must pay our way". There are two possible interpretations. Either interpretation is correct so far as the Government is concerned.

These are the remarks that I want to make on the Budget. I do not think that the Minister can be blamed unduly for the adverse effects which the Budget will have. The Minister was not very long in office when this Budget was introduced. I do think that it might have been better if he had waited a year and seen whether the improvement in the balance of payments would not have brought about an increase in revenue. I think that there is an element of hurry in this Budget and I am afraid that that element of hurry may well result in the Minister losing a good deal more than he will gain by the particular arrangements which he has made and which are to be implemented in the Bill before the House.

The debate on a Finance Bill in this House is the only occasion, apart from the Appropriation Bill, for a general review of the finances of the country. The finances of the country, of course, must be regarded against the general economic, agricultural and industrial background. The Budget nowadays is more than a mere instrument for raising the current revenue. It is used as a method of influencing the whole business situation. It is used to administer a brake when the country is going too fast and to administer an impetus when the country is going too slowly. Therefore, I think I may be excused if I address the remarks I shall make this evening, which will not be very lengthy, to the general background against which the Budget is framed. The particular proposals in the Finance Bill can be more appropriately dealt with on the Committee Stage.

I am afraid that everybody in this country at the moment is agreed that the economic background is not very satisfactory. I think that all Parties in the House will agree regarding that, however they may differ regarding the causes of this condition of dissatisfaction and the probable cures. I think the case was put very well by the Minister for Industry and Commerce in the Dáil yesterday and I cannot, I think, be accused of lack of patriotism if I paint the picture in the same rather sombre colours in which he painted it.

Looking at all the indicators which are at our disposal, they all seem to point in a downward direction. The national income in 1956 was less than in the previous year, both in value and even more in volume. The production in agriculture and industry is, if anything, stagnant. If moving forward at all, it is a very unsatisfactory rate compared with other countries in Europe. The employment figures shown in the recent publication of the Statistics Branch are anything but satisfactory. Employment is down. Unemployment is up. The full extent of the unemployment, of course, is masked by the quite remarkable figures of emigration.

The emigration figures are particularly depressing for two reasons: because they show that for the first time for a long time there are more men than women emigrating; in other words, that employment for the heads of households and in the skilled trades is falling and, secondly, because they show that the population of Dublin is falling. The previous emigration figures showed that Dublin was rising at the expense of the rural areas. The recent emigration figures show that even Dublin is losing its population.

The balance of payments, about which there has been so much discussion recently, is, I may say, just in a precarious equilibrium. It has improved in the last year, but I think the improvement is a result of causes which may prove to be temporary.

The import levies were perfectly proper. They produced the desired result. But I cannot help feeling that the reduction of imports caused by the levies reflects partly a delayed stocking which sooner or later will have to be made up and partly depression in the country caused by the general deflationary situation. It is certainly not a matter for great congratulation. Also, as was stated in the Dáil yesterday by Deputy Lemass, the cattle exports have been particularly good. These are two influences which are, of their very nature, temporary and, therefore, the balance of payments is precarious. It is in equilibrium at the moment but could very easily be disturbed again. A further disturbance of the balance of payments would result in a loss of external assets which would have extremely serious results for the country as a whole.

Certainly, by the standards of other countries, our balance of payments is not satisfactory. The most we can claim is a precarious and temporary equilibrium. Nothing in the nature of a surplus which enables us to accumulate additional external assets is anywhere in sight.

The fact is, however much we may dislike facing up to it, that for some years, perhaps for quite a number of years, the country has been living beyond its current income, that the current consumption has not been justified by the current production of the country and that the standard of living has been maintained as a result of emigration, serious loss of population and of the liquidation of large volumes of external assets.

As Senator Dr. O'Donovan stated, the standard of living in Britain is still much higher than ours because of their policy of full employment. Because of the great mobility of labour between Ireland and Great Britain the only method for our people to achieve a similar standard at home is to get higher production than there has been in the past, sufficient to make an increase in production per head of the population. Otherwise, we will find it very difficult to maintain a stable population except with a falling standard of living. I would like to quote on that from an excellent article which appeared inThe Manchester Guardian on 25th June from its Dublin correspondent:—

"The proximity of Britain and the ease of emigration for the dissatisfied make it difficult, indeed, for any Government to depress living standards ruthlessly, in order to find the money for development. But the Irish as a whole have grown too attached to a standard of living which is not, so far, justified by their own productive efforts. European Free Trade may come as a shock to the Irish economy but a shock may be just what the Irish economy needs."

I agree with each and every one of those words. Therefore, we are really driven to the conclusion that anything like a stable or an increased population depends on an increase in output per head, and that in turn depends on an extensive investment of capital in agriculture and industry. That in turn depends to a large extent on increased savings.

In current discussions on the European Free Trade plan, this country has been described as an undeveloped area. I do not think that is a correct description, for reasons I will come back to later on. I think there is ample capital available for the development of the country, but the fact is that the country has not been developed to the maximum extent which we would like to see. Therefore, our standards of living are falling behind other countries to which there is great mobility of Irish labour. Labour is moving away from the place where it gets low wages to the places where it gets higher wages.

Everybody is agreed that the long-period problem in this country is to raise production per head of the population and that this involves an increase in investment and in savings. It also involves an increase in skill in agriculture and industry. That in turn depends on education in both spheres which also requires a good deal of capital investment. The point I want to make in this debate is one which I made in the Seanad before. This programme, upon which everybody is agreed, depends upon the pursuit of wise measures in the short period. There is no use in talking about a programme for ten or 20 years hence, because we will not be able to implement such a programme if there is any loss of confidence in our currency, our credit or the public finances of the country.

What I said about the mobility of labour is equally true about the mobility of capital. These are things which we would like to see different if it was in our power to change them, but in politics we have to take things as we find them. Labour is so mobile that it can leave the country if it is not satisfied with the standard of living here, and capital is so mobile that, if people begin to have the slightest doubt about the future of Irish currency, their bank deposits can be very easily removed from the country. A flight of the Irish £ could, unfortunately, take place all too easily, and — another point to which I hope to refer later on — outside capital would be tardy in coming into the country.

There is no use talking about long-term progress in Irish agriculture or industry unless we take the appropriate steps now, and the first step we must take is to maintain confidence in the stability of the currency and credit of the country. That brings me to the Budget and the Finance Bill.

One of the reasons why confidence in the currency is being undermined, as Senator O'Donovan says it is, is the universal disease of inflation. The world is suffering from an inflation epidemic to-day, quite as much as it is suffering from an epidemic of Asiatic influenza. The danger is that this epidemic flows over seas and oceans and no country can isolate itself from world inflation, any more than it can isolate itself from the world epidemic of influenza. A country can, however, do something to avoid the worst consequences of inflation. At least it can help to prevent making world inflation worse.

I am afraid we must admit there is a dollar inflation at the present time and, as Senator Dr. O'Donovan said there is inflation in sterling. On top of that we have a bit of inflation of our own. The manner in which inflation manifests itself is in the precarious nature of the balance of payments. As I have said, the balance of payments has been worked back, by heroic measures, into something like a temporary equilibrium.

Looking at the consolidated balance sheet of the commercial banks, I find the Irish banks have been increasing their holdings of Irish Government securities substantially in recent years. I notice that in the column of Government bills there is a large item of, roughly, £10,000,000 of Exchequer bills held by the Irish banks. These Exchequer bills represent short-period borrowings by the Irish Government and, judging by the figures in the consolidated balance sheet of the commercial banks, these bills are not being repaid, redeemed or funded. I suggest that this is an inflationary symptom which should not be ignored. I notice also that other Government securities, long-dated securities, are increasing in the Irish banking system. In other words, the Irish banks have been accommodating the Irish Government in recent years to an increasing extent.

Another thing which shows the presence of inflation is, of course, rising prices, rising costs and rising wages. These are the results partly of inflation but they are also some of the causes of it. We are caught up in a vicious circle of inflation because rising prices, rising costs and rising wages cause more inflation and the question is: where can that process be stopped? There is national inflation apart from world inflation which has come in from overseas into this country. I think that the cure for our own inflation is very largely to be found in the Budget.

I do not want to wander too far from the subject under discussion but I think I am entitled to say this, that economists and bankers all over the world are to-day studying the question of inflation. It is generally agreed that it must be dealt with on three fronts. There must be a financial policy, a fiscal policy and physical controls. The financial policy consists mainly of raising interest rates and the restriction of credit. In the ten years since the end of the war there has been an interesting swing of opinion on this subject. For the first five years Governments were inclined to rely on fiscal methods for curbing inflation and to neglect monetary measures. The result was seen in the devaluation of 1949 and in other devaluations.

Since then there has been a swing in the pendulum and more importance has been attached to monetary methods. Opinion at the present moment seems to be that higher interest rates and bank restriction of credit are not enough in themselves to curb inflation, especially when Government policy may be pulling in another direction. In other countries there has been a policy of raising interest rates for a number of years but the inflation has continued. I think that the Irish economic system is insensitive to changes in interest rates and the Irish economic structure is one which does not depend for its activities on small changes in interest rates.

For the Government to rely too much on the monetary policy either of the Central Bank or of the commercial banks would be an abdication of its responsibility. In modern times the control of inflation by financial and fiscal measures must be a joint operation by the banks and the Government. If each will do its share the share of the other becomes less difficult. Therefore, it becomes a matter of great importance in every country that a vigorous fiscal policy should be pursued. That is why I think that this Budget is good as far as it goes — I say as far as it goes because it goes as far as it politically could — but I do not think it goes far enough for the needs of the situation.

In view of the balance of payments problem, we should look for a surplus in the Budget. A really good Budget in Ireland would be a surplus Budget, but that is too much to look for. For that reason we should be grateful to the Minister for having gone as far as he could, that if he has not budgeted for a surplus, at least he has budgeted for a Budget balanced on current account.

Balancing the Budget is always an unpalatable task for a Minister for Finance. It means doing unpopular things. A surgeon does not like the pain which he causes the patient, at the same time he may have to perform the operation for the patient's good. The Minister should be congratulated on having inflicted a certain amount of inconvenience on the Irish public for their own good. It is an unpleasant task and he has faced up to it with courage.

I would prefer to leave the details of the Budget itself and of the Finance Bill to the Committee Stage. Increases in taxation are not possible at present and the only reduction that could be made on the expenditure side is on the subsidies. The worst feature of the reduction in subsidies, the pressure on the poor, has been met by the additional allowances. In the circumstances, a reduction in the food subsidies, however unpleasant it must have been for the Minister to decide to do, is justified by the facts of the situation.

One of the reasons why the Budget must be balanced, if not put into surplus, is to try to release some resources for capital investment. The long-period programme depends on a great deal of capital investment, and capital has been chronically short for several years. It is particularly short for private investment and private investment is the sort of investment primarily needed. It is the sort of investment that is always most profitable. It is animated by the profit motive and it is much more likely to build up exports than any public investment. The Government investment programme is very large. The need in capital for the Government and its associated public authorities this year is £40,000,000. That being so, it becomes a matter of absolutely prime economic policy that investment should be concentrated on purely productive objects.

The word "productive" is frequently used in a very loose sense and things are classed as being productive which are not productive in the correct sense of the word. In the first place, expenditure to be met by borrowing does not include non-recurrent expenditure of a non-capital kind. The fact that something is not likely to occur every year in the Estimates is no reason why it should not be met out of revenue this year. That is a distinction which has been honestly observed in this year's Budget.

Secondly, capital expenditure of a productive kind does not include durable consumer goods, and durable consumer goods, I am sorry to say, include houses. I know that houses have a justification on social grounds but they are not productive at a time of acute capital shortage. They may have social and amenity justifications, but that does not make them productive in the narrow sense of the word in which it should be used in present circumstances.

I cannot sufficiently emphasise that the spending of public money merely to give employment for its own sake is not justifiable at a time like this. One of the difficulties in the modern world is that the best type of investment does not create very much employment. It is one of the paradoxes of modern times that from the business point of view a good investment probably causes more unemployment than employment. However, in a country like this, with the balance of payments and the Budget in the precarious position they are in, to spend capital merely to create work for its own sake would be unwise in the extreme. The only way in which healthy employment can flow from public expenditure is by the building up of truly productive resources. If production is looked after by the Government the employment can be left to look after itself.

The Government must insist upon a very strict and spartan list of priorities in regard to public investment. The first priority should be industries which provide either more exports or substitutes for imports. That is necessary from the point of view of the balance of payments. The second priority should be industries that produce home market goods, provided they are produced as efficiently and cheaply as imports would be. The lowest priority should be social and amenity investment.

The creation of dead-weight debt at the present time for non-productive investment would be extremely dangerous from the national point of view. We are living in a period of very high interest rates. The world demand for capital is outrunning the supply. Money is dear all over the world and, therefore, the accumulation of dead-weight debt at a time like this would be involving the Irish Exchequer in great difficulties in future. It should be emphasised that this is no time for Ministers for Finance to borrow a penny more than they must. From the point of view of the future of the country public investment should be concentrated on purely productive objects that will not increase dead-weight debt.

Even the immediate Government capital programme still leaves capital short for the need of private investment. Therefore, we must face up to the necessity of a certain amount of repatriation of external capital. A certain amount of foreign securities would be justifiably held to be invested in Irish industry provided it was quite clear that the return from the investment was going to be at least equal to the return of the external capital. We must remember that capital that is wasted cannot be spent a second time, that eggs cannot be unscrambled. We must change our investments with the utmost caution. Our external investments will never be built up again. The period of increasing our external investment has come to an end. Any change now would be downwards. The only source from which external investments can be drawn into Irish production is from the holdings of private investors. The external investments of the Central Bank and of the commercial banks are necessary for the maintenance of the convertibility of the currency.

Therefore, the only free external investments which could be drawn into Irish production are those in private hands. I do not think anybody will seriously suggest that the private owners of external investments should be coerced into investing them at home. The only way in which private investors abroad could be brought to invest at home would be by inducement, by such encouragement as would be offered by appropriate taxation such as the Minister for Finance has introduced in the Finance Bill — some concessions that would tempt people who own external investments to invest at home and, for that purpose, to liquidate some of their external investments.

May I emphasise a point which, I think, could not be too strongly put? No taxation concession will tempt investment in Ireland from private external investments if there is any lack of confidence in the future of the currency. The first condition of investment here is confidence. Accordingly, it is the first duty of the Government to do everything it can to maintain confidence in the future of the State's currency.

Even if current savings and the sale of external investments for reinvestment here are on an extensive scale, further capital may still be required. I think it should be the deliberate policy of the Government, as I gather it is, to attract external capital into the country. I submit it should do everything to attract equity capital. This country should not incur fixed interest obligations abroad. I hope that our membership of the International Monetary Fund and Bank will not be used to increase our external debts. There are other functions these bodies could perform for a country with such a large amount of external holdings which could be repatriated, but further borrowing at interest fixed in foreign currencies would be unnecessary and unwise. Therefore, I think external investment should come in the form of equity capital which would bring with it technical skill and all the advantages of large scale organisations and the knowledge and experience they possess.

I put it to the Government that it should admit the time has come to scrap the Control of Manufactures Act. The Control of Manufactures Act was passed in 1932. It has been pronounced generally as being a mistaken policy. The members of the Government know in their hearts it is wrong and that as long as that Act is on the Statute Book foreign capital will not come in in the required amounts. If the Government is serious as regards attracting foreign capital it should scrap the Control of Manufactures Act. There is nothing to be ashamed of in admitting that a mistake was made in policy 25 years ago when the whole financial position and the balance of payments were a great deal sounder than to-day.

There is a great deal of discussion nowadays about the external assets of the Central Bank and of the commercial banks. It is said that these investments abroad by the banks do not leave a sufficiency of capital in the country for Irish investment. I wish to state that on that matter I agree with the opinion expressed on page 44 of the last Report of the Central Bank in which it is said that the external investments of the Irish banking system have now fallen to a dangerously low level, that there is no further scope for diminution there.

I do not wish to quote the whole of that paragraph now, so near the adjournment, but I should like to draw the attention of Senators to paragraph 59 of the report in which it is stated — I think this should be more generally known — that there was a time in 1955 when the commercial banks actually had to have recourse to the Central Bank in order to replenish their holdings of sterling. In times like these it is most injudicious to talk about reducing the external holdings of the banks in order to build up internal fixed capital. Those holdings are the essential minimum reserves necessary for the maintenance of the status of the currency. Once that begins to be doubted, all discussion about long period programmes for relieving unemployment and stemming emigration is nonsense. I want to state here that, in my opinion, such as it is, the difficulties impeding Irish progress are physical and not financial. The resources of the country have not, for various reasons, been worked up to the full extent to which they could be worked. Ample capital, home and foreign, can be made available. Ireland is not an undeveloped country in the ordinary sense. Merely tinkering with the banks, merely amending certain sections of the Central Bank Act, merely imposing obligations on the commercial banks to hold minimum reserves with the Central Bank, would in my opinion, do a great deal more harm than good.

The future of this country depends on confidence, and in this country people have got certain views, whether right or wrong, regarding the type of banking system to which we have been accustomed. Merely tinkering with the financial mechanism would do a great deal of harm and very little good. I have wandered away from the Finance Bill but I think a lot of what I have said is relevant to it. All I have been trying to say is that the future progress of the country depends on confidence. I do not think there is any harm in repeating that. In turn, confidence depends on the absence of inflation.

In my opinion, this year's Budget has been anti-inflationary. I should have been glad to have been able to pay the Minister for Finance the compliment of saying that he had budgeted for a surplus this year. I am afraid that would have been too much to ask of him. He should be complimented for having gone as far as he did go. The Minister for Finance is in a very responsible position to-day. He is new to that office. He represents a Government which has a majority in Parliament and a mandate from the people.

The next few years in this country may be absolutely vital regarding the political and economic viability of the Irish Republic. I think that, if the Government in power in the next few years flinch in their duty, history will brand them as people who failed to be courageous when courage was required. I hope the Minister will have the courage to pursue the course which this Budget indicates, that he will have the courage to listen to and to follow some unpalatable views. His attitude towards the Report of the Capital Investment Committee was a good sign. Without indulging in any way in going back into the past or saying "I told you so", I would suggest to the Minister that there are other commissions from whom he could get a great deal of advice which, I am sorry to say, he and his predecessors did not appreciate at the time it was tendered.

Reference to the need for cooperation in marketing brings my mind back to the old days of co-operative societies. I hear things said about the advantages of large markets in respect of industrial products which bring me back to the days of the despised Fiscal Inquiry Committee which foretold the evils of indiscriminate protection. I hear things said about inflationary budgets, about the Control of Manufactures Act, about dead-weight debt. All these things are to be found in the report of the Banking Commission, much of which fell on deaf ears at the time.

I hope that in future the Minister for Finance will have the courage to take the views not only of some of the current commissions but of some of the old ones as well. I am afraid there are three stages in respect of the attitude of Governments to the reports of commissions. In the first stage they will not read them at all; in the second stage they will read them but will not act on them; and in the third stage they will read them and act on them, but by that time they may have become out of date. I can speak for a large number of independent people in this country when I say that if the Minister for Finance will pursue his course with courage, the people will support him. It is my opinion that the Irish people are not as unpatriotic when it behoves them to make sacrifices as they are sometimes said to be.

Debate adjourned.
The Seanad adjourned at 10 p.m. until 3 p.m. on Thursday, 4th July, 1957.