Some of us were here last night and were privileged to hear the very fine analysis of our present economic situation by Senator O'Brien. The analysis was very fair and I think I am not unfair in saying that it was certainly in very favourable contrast with the contribution given before that by Senator O'Donovan.
Most of us will agree that Senator O'Donovan, instead of making a balanced contribution from a financial and economic point of view to a very important debate was instead rather prone to indulge in political debate and juggling with figures in a political manner. In particular, I should like to take two or three of the very emphatic statements he made and on which he made a lot of play and examine them.
He made a lot of play on the current estimate for the Supply Services. It is quite clear that the estimate for the Supply Services with which the present Minister for Finance was faced when he assumed office last March had been prepared by his predecessor. That estimate was prepared and printed for the present Minister for Finance by the previous Minister and, as Senator O'Donovan pointed out, it amounts to £112,000,000 for the year 1957-58. However much Senator O'Donovan may deplore that amount, I suggest that any criticism he may have to offer of it should be directed at the former Minister for Finance. On coming into office at the end of March last and being faced with the estimate prepared by his predecessor, what was he further faced with? The Minister was faced also with a deficit of £9,000,000 for which there was no revenue expectation.A sum of £9,000,000 had to be found in order to balance the figure of £112,000,000. I do not think Senator O'Donovan can deny that.
In further criticism of this Bill, Senator O'Donovan said that the deficit £9,000,000 might have been met by economies. He was no stronger than that. He did not offer one constructive suggestion as to how that money could be found. All he said, in a vague fashion, was that the deficit might have been met by economies. In the Dáil, some Fine Gael Deputies mentioned that the Minister could have got the money by transferring the income from the capital levies to the current account. Senator O'Donovan did not offer that as a solution because he knows well it would mean further unemployment and that money at present being spent on capital development would be transferred to finance the Budget on current account. We refused to do that because the Minister believed in implementing his Party's policy of ensuring as full employment as possible. With that object in view, the Minister decided to balance the Supply Services by current revenue and the only way of doing so was by the abolition of the subsidies.
Senator O'Donovan had a lot of theoretical argument about the loss of revenue that would result from the abolition of the food subsidies. He said people would have less to spend and that there would be a reduction of £1.9 million in the coming year from beer and cigarettes. On his own admission, that theoretical speculation was based on the assumption that there would be no change in income during the next year. Senator O'Donovan is not such an abstract economist as not to know that already the trade unions are in negotiation with the Minister for Industry and Commerce in regard to wage increases for the current year. Therefore, the theoretical argument of a loss in revenue, based on the fact that incomes will not change during the coming year, falls immediately, because, in fact, negotiations are in process of being concluded in regard to the fixing of a general wage pattern for the current year.
Senator O'Donovan had to admit, in giving us figures as regards the capital end of the Budget, that the present Government is spending £2.2 million more in capital development in 1957-58 than was spent in 1956-57. He quibbled about the direction that capital development should take. He gave the figures himself — the local authorities will get more to cater for increased housing; Aer Lingus, the Road Fund, the E.S.B. and C.I.E. are all to get more. The important thing is that we are spending more money on capital development. That is merely another facet of the Government's policy in regard to capital development which will improve the unemployment figures.
We had another fallacy in Senator O'Donovan's argument in relation to the National Development Fund. He referred to the fact that at 31st March, 1956, it was £2.6 million; in March, 1957, it was £2.6 million; in other words, that it had gone down by £4.2 million in 1956-57.
Again, that can hardly be laid at the door of the present incumbent of the Department of Finance. That was a loss in the Road Fund from March, 1956, to March, 1957. The present occupant of the Department of Finance went in at the end of March, 1957. That loss took place in the year 1956-57.
The grossest error in Senator O'Donovan's argument, which was answered very simply last night by Senator O'Brien, was contained in the implied statement by him that our balance of payments was really of no consequence at all. If that is so, I should like to know why the Minister for Finance in the previous Government saw fit to impose the very drastic import levies last year in order to cater for a balance of payments position that was getting out of hand. Does Senator O'Donovan not agree that last year the balance of payments position was getting out of hand? Does he not agree that in the year 1955, £35.5 millions was a very unfavourable balance in our external payments? Does he not agree that the import levies were imposed to deal with just that situation?
The former Minister and his colleagues thought the balance of payments position so bad that they had to impose those drastic import levies, which caused recession in trade and unemployment during the past 12 months. It was quite apparent to the Minister in that Government that our whole economic position depends on preserving a proper balance of payments.I think the best comment on this Finance Bill, incorporating as it does the Budget Resolutions, came from Senator O'Brien when he said quite simply: "This is a step in the right direction." I think the Minister is to be congratulated in taking that step within a month or two of coming into office. The Seanad should bear in mind the economic environment within which this Bill was introduced. It is well known and is one which will probably mark out the year 1956 as the worst year, from the economic point of view, since the formation of this State.
There were fewer people at work in 1956 than ever before since 1922. There were 8,000 fewer people employed in industry and 9,000 fewer employed in agriculture. There was the highest emigration rate ever since the formation of the State. Output in agriculture was down; industrial production was down. That was the depressing economic pattern in the year 1956. It was caused by the restriction on hire purchase and credit and by the import levies that were imposed by the previous Government. They were imposed because in the year prior to that the balance of payments position had been allowed to get out of hand to the extent of £35.5 millions.
In an effort to rectify that situation, the previous Government brought in the restrictions I have mentioned. While they reduced the balance of payments position to £14.4 million, they caused unemployment and the recession of trade I have spoken about. That cannot be denied. The figures are there. That is the economic context in which the present Government took office at the end of March this year.
The political context was quite simple. Undoubtedly, the major issue in the last general election was that the people wanted a Government and the reason they decided to give the most overwhelming majority in the history of this State to a single Party was that they simply wanted a strong, effective, vigorous Government to stay there for five years. A Party was given power with a strong majority in order to clean up the economic mess left by the previous Government. That was the directive given to them. This Budget is the first step in the direction of obeying that directive.
There is nothing very conservative about having a proper balance of payments position and a properly balanced Budget. Senator O'Brien last night rightly gauged the importance of a properly balanced Budget in relation to current supply services. As he pointed out, if you do that, it means that all borrowed funds available to the State can be utilised in capital development in order to give employment.Some people are apt to sneer at the theory of a balanced Budget and say there is no need for it. If you have a balanced Budget on supply services, which the Minister for Finance has achieved, you then make available all the borrowed funds, which the State can get, for the various capital schemes which the State can undertake and so give employment to the people. The Minister for Finance has followed that principle.
A second principle is involved in this Finance Bill and it is also a very good principle. It is the principle behind the fact that the Minister has chosen as part of this instrument in this Finance Bill the abolition of the food subsidies.As well as seeing to it that all State borrowed funds shall be utilised in capital investment, he is also seeing to it that the budgetary proposals do not impinge too much on private enterprise so as to deter private enterprise and thereby curtail employment. The Minister could have met the deficit by borrowing. If he had done so, it would have affected the State capital investment programme. He could have met it by transferring the import levies to current services. He avoided doing that because that would also have affected the State capital investment programme.
Thirdly, the Minister could have put up taxation further. He could have put up income tax, and corporation profits tax and could have put on various indirect taxes. But if he had done that, he would have deterred private enterprise.So curtailing private enterprise would probably have resulted in a recession in employment. He avoided both of those pitfalls and decided instead to balance his Budget and provide out of current revenue the current State expenditure on supply services. By not increasing income tax and corporation profits tax and by not increasing any taxes, apart from the petrol tax, he had seen to it that private enterprise and industry will be able to expand in the coming year. He has seen to it that two employment factors in the State, private enterprise and the State itself will be given a full chance and that in the coming year we shall continue to have an enlarging field of State and private investment activities. That has been the main object of the Budget and it is a very sensible object. It will achieve a greater volume of State and private investment activity.
There is one other thing in the Finance Bill which is of great importance. It relates to our exports. We cannot progress in this country, we cannot move from the basis of a balanced Budget or a growing volume of private and State investment activity, unless we are balancing our external payments. We are all agreed on that. In order to do that, we must have a growing volume of exports. That is agreed by everyone.In the long run, agriculture must provide that; but, in the short run, we must have a greater volume of industrial exports. In the short run, if we are to get down to a radical solution of the unemployment problem, we can provide a greater volume of employment in this country only from industry. A rapid expansion in industrial progress provides the greatest chance of providing greater and growing opportunities for our people here at home. I agree that, in the long run, it must be agricultural development; but, in the short run, as regards exports and as regards providing employment at home we must depend on industry.
In that context, Section 5 and 16 of the Finance Bill in particular are very welcome. Section 5 extends the provisions in the Finance Bill of last year and, as I read it, it provides for 100 per cent. income-tax remission on profits derived from exports, over and above the profits of the company in the standard period, which is the year ended 30th September, 1956. Section 5, in addition, provides, that profits on the sale of goods exported out of the State can be computed. It also provides that income-tax referable to profits on exports shall be reduced to 25 per cent. In other words, by Section 5, the Minister is carrying that out on either of two bases, either on the basis of 25 per cent. remission on profits derived from exports or on the basis of 100 per cent. remission on profits derived over and above the profits of a standard period. He has provided there a real encouragement for industrialists who wish to go into the export market. The other section I mentioned, Section 16, merely is the same provision in regard to corporation profits tax. That is a big inducement to people to go into the export market. That is a fiscal encouragement.
The other encouragement towards greater industrial investment and greater export from that industrial investment must come in the form of capital investment from external sources. The Minister has there provided the inducement to people to export.The next question must be to get the risk capital to provide the industry for that export. I am afraid that risk capital is probably not to be found here to the extent we would like, the risk capital is probably not here to provide the exports really necessary to tackle our problem.
In that context, the recent announcement that the Minister for Industry and Commerce is contemplating an amendment of the Control of Manufactures Act is welcome. I should like to cross swords with Senator O'Brien on some of what he said here last evening in regard to that matter. Senator O'Brien implied that the present Government had seen at last the error of its ways in passing that Act in 1932. I think the Senator is wrong. In the context of the situation in this country in 1932, that Act was very necessary. It was an Act designed by a young State, which a young State felt necessary to give proper control to Irishmen in industry, providing goods for the Irish market in their own country.In the environment of 1932, it was very desirable.
That Act has ensured that the control of industry providing for the home market will be in the hands of Irishmen.Senator O'Brien is wrong in saying that the Government has "seen the error of its ways". The Act was right and proper in 1932, but I think it is not a relevant Act in 1957 or for 1958, or the future. That is the view which the present Government is taking in regard to that Act, that, in 1957, it is not suited to our needs. That is why its amendment is under consideration.That is very important, since most people will agree that the risk capital for rapid industrial development is not available here.
In that, there is hope for the future. The fact that in this Bill there is an inducement to people to engage in export, by means of a 25 per cent. or 100 per cent. income-tax remission, coupled with the proposed amendment of the Control of Manufactures Act, should induce both people at home to export more and people outside to come in and provide industries here for the export market.
There is one question I should like to ask the Minister before I finish. I read in the newspapers to-day that he stated yesterday in the Dáil that these fiscal measures in this Finance Bill would mean that a new industrialist starting a fresh industry would get 100 per cent. remission of income-tax on profits derived from export. As I see the Bill at the moment, Sections 5 and 16 relate only to this specified or standard period — ending in September, 1956. Is it true that a new industrialist starting a new industry, geared entirely for export, will get 100 per cent. remission of income-tax on all profits derived from those exports? That is the only query I should like to ask the Minister.
Finally, I think we can state with assurance that the political situation of our country to-day is one in which there is a Government in power with an over-all majority. That immediately guarantees confidence. I will not say anything critical of the previous Government, but the plain fact of the matter is that there was no confidence. I think it is agreed by all that the very fact that there is a Government in power — no matter what you call it — guaranteeing to stay in power for the next five years, is a factor already inducing confidence in our economy.
There has been a step in the right direction by balancing the Budget on current services. There has been a further step in the right direction by increasing the State capital investment by £2,000,000 and, in particular, by increasing the investment in housing.There has been a real step in the right direction in this Finance Bill by providing these inducements for exports.There has been a further step in the right direction in the announcement recently by the Minister for Industry and Commerce that he is considering amendments to the Control of Manufactures Act. The Seanad should have no difficulty in commending this honest and forthright Finance Bill, enshrining as it does the Budget resolutions for the year 1957-58.