The Finance Bill deals with raising the taxation for the proposed expenditure of public money dealt with on the Appropriation Bill and the Vote on Account. I remember last year I strayed somewhat from the straight and narrow path in dealing with taxation and was called to order on that account, but I would ask for a slight indulgence on this occasion. The amount of taxation to be raised depends on the amount of expenditure and, therefore, a word about expenditure will be tolerated as a preliminary to what is to be said on how that expenditure is to be raised. I promise not to be lengthy. In view of recent developments, a few words about the general economic background against which this Budget is introduced are not irrelevant.
In modern times the Budget and the Finance Bill fill two functions in the community. The first, of course, is to balance the public accounts, to raise whatever money is necessary for the expenditure by the Government and by the public authorities for which it is responsible. But in modern times the Budget in any country fills a second and very important function, that is to regulate the pace and tempo of the economic life of the country.
If the economy is flagging, by means of putting more purchasing power into the system and remission of taxation, it is possible by a Budget deficit to encourage expenditure and to try to get the flagging economy to move ahead. If, on the other hand, the economy is too buoyant, and there is too much being spent, an increase in taxation and a surplus or over-balanced Budget may have a very salutary effect in reducing purchasing power and keeping some balance in the system.
Having read the debates in the Dáil recently not only on the Finance Bill but on other matters, I have no doubt at all that the aim of the present Finance Bill and the present Government is not to reduce the rate of growth in this country but to increase it. The Government are following an expansionist policy and, therefore, the Budget must be judged from the criterion "is it calculated to increase the growth of the economy and the national income?". There is nothing in the present situation here to justify anything in the nature of a budget surplus that would be a brake on progress. It is the declared policy of the Government to increase national income by 50 per cent between 1960 and 1970, and that requires an annual growth of over 4 per cent. In 1962 the annual income grew by only 2½ per cent. Therefore, if the declared aim of the Government is to be achieved the annual rate of growth must be expanded from what it was last year.
Again, I beg leave to refer in one sentence, to something which I was told was irrelevant last year, that in any attempt to achieve that rate of growth of course inflationary measures must not be adopted. It is quite easy to expand national income by inflationary measures, but, nevertheless, while the aim of the Government is to increase the rate of growth in the national income it must be done in a noninflationary way. It must be done in such a way as to avoid inflation and not impose a burden on the balance of payments, in other words, to stimulate exports as far as possible.
I want to say a very few words about the economic background to the Budget, and on this I would like to pay a compliment to the admirable publications issued by the Department of Finance prior the introduction of the Bill in the Dáil. Nobody has any reason nowadays really for ignorance in regard to these matters when the Government and the Central Statistics Office have given us a great deal of information and we have no excuse for not making an intelligent appraisal of the situation. I would also like to pay a compliment to a document which appeared since the Budget was debated earlier in the Dáil, and that is the annual Report of the Central Bank, which throws a flood of light on the whole situation of the country. I certainly have been helped in preparing these few remarks that I am going to make on the Budget by a study of the Report of the Central Bank. The Central Bank issues not merely quarterly bulletins of the greatest value but an annual Report which should be read by everybody who pretends to take an intelligent interest in public life.
The most outstanding feature of the economy at the moment is that the rate of growth in 1962 was less than was desired, and on that I would like to refer to the report on Ireland published by the Organisation for Economic Co-operation and Development. I am quoting this from the Irish Banking Review, June, 1963, where the quotation appears. The Organisation for Economic Co-operation and Development states:
A relatively ambitious growth target for the 1960s will imply a substantial increase in the ratio of gross fixed capital formation to gross national product which at present is only 15 per cent.
The Banking Review commenting on that remarks:
This increase in investment will require either more domestic savings or the introduction of more foreign capital or the realisation of some of the country's present external investments. At present the rates of savings and investment is well below the average in European countries.
These are matters which ought to be borne in mind by the Seanad— that the rate of investment in this country is not sufficiently large to sustain the Government's declared aim of economic growth, and that, therefore, we must make it our primary aim of financial policy—and this is coming very close to the Budget—to ensure that whatever taxation is imposed should encourage savings and investment rather than discourage or be a brake upon them.
I have already referred shortly to the necessity for keeping an eye on the balance of payments. All I wish to say about that is that in 1962 the balance of payments was slightly unsatisfactory, but it is only fair to say that the increase in imports was very largely the result of the importation of capital goods which will produce some revenue in the future and that the fall in exports was to some extent caused by a fall in exports of cattle and beef which is not likely to be repeated. At the same time, it was also caused— here again I am trespassing on almost forbidden territory—by rising costs, an inflationary situation in the country which we must try to avoid.
We were lucky last year to be able to tolerate this deficit in the balance of payments without a deflationary corrective, because the fact is that the external reserves of the country substantially increased. It is a matter of some mystery even to the most well-informed people as to where some of those external assets came from, but there is no question at all about their existence. They arise partly from foreign investment in Irish land and industry, partly from foreign purchases of Irish stock exchange securities, and partly from foreign investment in Irish Exchequer Bills and in bank deposits. The fact of the matter is that, luckily for us as a nation, the increase in external investment was sufficient to allow us to tolerate the deficit in the balance of payments without a very painful deflationary correction which might cause unemployment and great distress.
Again I quote from the report of the Organisation for Economic Cooperation and Development as follows:
Ireland's exchange reserves are high enough to enable moderate overall deficits to be faced in support of the economic development of the country. A deterioration of the balance which, largely the result of exceptional factors, was expected to correct itself in a reasonable period of time, should justify drawings on the country's reserves. The unfavourable consequences of a premature check to growth on the confidence of the business community would outweigh any short-term considerations stemming from the reserve position. The willingness and ability of the private sector to adjust its methods to freer trading conditions during the years ahead can only be maintained in a climate of continued expansion.
What I am really working up to is this, that the primary aim of the Government as frequently declared is to expand national income and that that must be done without a deflationary correction of the balance of payments. Otherwise the continued deficit in the balance of payments would need to be corrected, and, therefore, it is the clear duty of the Government in framing the Budget to do everything they can to discourage inflation—either cost inflation caused by rising wages and prices or demand inflation caused by incurring an undue rise in public expenditure.
Before coming strictly to the Budget itself, I wish to refer once more to the Report of the Central Bank. If I were asked to say in one sentence what was the dominant theme in this excellent report it is the rather alarming growth in public expenditure. The Central Bank attaches great importance to the fact that the public expenditure in this country has risen more than the national income. Now that is all I propose to say about the economic background to the Budget. I now come to the more strictly financial field which is what we are debating this afternoon.
The outcome of the last financial year was not unduly unsatisfactory. There was a deficit of £4.85 million incurred on revenue and expenditure. Again, I quote from the Report of the Irish Banking Review, June, 1963, page 5. It said:
This was partly the result of large supplementary estimates and an inevitable rise in the cost of public services. On the revenue side the yield of customs and excise duties was disappointing and from this—
I want the House to listen to this because it has a bearing on what comes later—
the Minister drew the conclusion that it would be unwise to depend this year on traditional taxes on expenditure for any substantial increases in revenue.
The Minister for Finance has stated that at the existing rates of taxation the outcome of the current financial year would be a deficit of £8½ million, but that, in fact, the deficit would be much greater than that because there are certain additions in expenditure which are either inevitable or so desirable as to be almost necessary.
We are not discussing expenditure on this debate and I do not propose to enter into this matter. I simply mention three heads on which the Minister justifies additional expenditure. One is agriculture, the second is social services, the just distribution of the national income and the third is pensions. I think everybody in the Seanad will agree that these are proper subjects for expenditure but the fact of the matter is that even though it is agreed that they should be incurred it means that the Minister has to find £184 million revenue in the coming year and that the deficit of £8½ million to which I referred will be increased to a deficit of £11 million. The Minister has made an heroic effort to reduce this yawning gap by certain measures which I mention without criticising him. We hope that his optimism is justified—whether it is or not remains to be seen.
One thing which he has done which I think we are all agreed is justified is that he has spread a certain amount of expenditure over more than one year and has reduced a certain amount of expenditure, particularly on the Road Fund in the coming year, which has been spread over two or three years. This is only one example.
The second thing which the Minister has done in his optimistic mood is to allow for £2 million over-estimation. Now, this, of course, is quite usual in framing Budgets and last year was exceptional, I think, in the fact that hopes of overestimation were not realised, that this particular calculation was wrong. At the same time, I think the Minister is justified in reverting to traditional practice in allowing for over-estimation and I do not think we should criticise him for doing so. The third thing he has done is that he is to a small degree living on capital. This is one of these things people occasionally do to balance their budgets, one of these once-for-all transactions, in this case, drawing on the Revenue Balance. This is a once-for-all transaction, which, having been exhausted this year, cannot be repeated next year.
The result of these three exercises in optimism is to reduce the deficit which the Minister has to make up to £6¼ million. I for one am perfectly clear that this deficit must be covered by additional taxation, that this country is not in a position to run deficits, that to allow that deficit to stand and cover it as we could, by borrowing, would be very unsound public finance. There is nothing in the situation in the country to justify such a stimulus to private expenditure as the deficit would be. If anything, private expenditure of consumption goods ought to be held down in view of the results of last year's Budget. Secondly, to bridge this gap by borrowing would be using part of the insufficient savings of the country for current rather than capital purposes. It is exactly the same as an individual who is living on his savings, which we are always told is unsound to do in the case of individuals. It is also unsound in the case of Governments. There are occasions, such as I have suggested earlier, where it may be necessary to give a stimulus to consumption in order to prevent the economy going too slow, but this is not such an occasion. Therefore, it seems to me that the Minister, following an entirely sound financial principle, is faced with the disagreeable task of raising £6¼ million taxation either from raising the rate of existing taxes or by the introduction of new taxes.
There are only two ways in which this can be done and I think the Minister has to face up to this disagreeable necessity of raising this £6¼ million in either one of these two ways. Now let us face this quite straightly in the Seanad, that every increase in existing taxes or every new tax does create reaction amongst the people who may be called upon to pay it. I have not said anything, I think, about disagreeing with the Minister, but I am now going to say that I disagree with what he said in the Dáil that taxes do not really impose a burden on the community because the amount of tax is the amount of money spent. I think that is not correct because, in the first place, the people who pay taxes are not the people who benefit from the expenses and the pluses and minuses are in different directions. Certainly, it is no consolation to the people who are called upon to pay additional taxation to be told that some of their neighbours are going to get additional benefits. Secondly, the additional taxation may have a disastrous effect on saving and investment as the Report of the Central Bank and the Report of the OECD have said. Additional taxation can have a bad effect both on the power and the will to save. Therefore, it should be avoided as far as possible, but in this case I think it cannot be avoided.
Additional taxation may reduce the standard of living of some of the people who have to pay it. Therefore, I disagree with the Minister when he said that additional taxation is not a burden on the community. It is. The only way in which it might be made tolerable is by an expansion of the national income. If the national income can expand rapidly, increased taxation can be tolerable.
To come to the two bad effects of additional taxation, the bad effect on saving and investment, and the bad effect on the standard of living, it might perhaps be an over-generalisation to say—but I think I am substantially correct in saying—that the bad effect in regard to saving and investment is usually a result of direct taxation, whereas the bad effect on the standard of living is usually a result of indirect taxation. Direct taxation such as income tax, surtax and death duties reduce the power and will of the community to save and provide for the future. It is increases in indirect taxation, such as tax on commodities, that tend to reduce the standard of living.
In view of the emphasis which has been laid by the authorities to which I have referred on the need for increased investment, I think that if we are faced with a choice between two evils we should choose indirect rather than direct taxation. In the circumstances of this country I think indirect taxation is the lesser evil. There has been a general swing in this country in recent years, and, indeed, in other European countries as well, from direct to indirect taxation. When we were thinking about the Common Market one of the things that engaged the attention of people was the necessity to get more in line with European countries in regard to this matter. Apart from the Common Market, which is not a current issue now, I think that in this country in general indirect taxation is the lesser evil, even though it may slightly reduce the standard of living of certain people who are not otherwise compensated for it. It has not got the bad effect on saving and investment that high direct taxation has.
Having said that, I must also say that for the Minister to attempt to raise the whole of this Budget deficit by indirect taxation would be politically unwise from his point of view and it would be unsound economically. A judicious mixture of the two is necessary. What the Minister has done, in fact, has been to give us a little of each. The people who have to pay the new direct taxation are very annoyed about it, and the people who have to pay the new indirect taxation seem to be even more annoyed.
The additions to the direct taxation are the increases in the corporation profits tax and the tax on rents. At a time when business is being urged to invest and expand and readapt itself to the new situation an increase in corporation profits tax should undoubtedly be avoided if possible. The more that is taken from business by way of taxation, the less there is left for reinvestment. That is obvious. In his speech in the Dáil, the Minister attempted to minimise this by saying that business can avoid additional corporation profits tax, to some extent, by making use of the allowances for modernisation of plant and building which are part of the programme of reorganisation at the moment, and secondly by an expansion of exports which, to a very large extent, escape income tax and corporation profits tax.
That is perfectly true, but at the same time it has not universal application, because there are certain types of businesses which do not qualify for modernisation allowances, and there are also certain types of businesses which do not export and are unable, therefore, to escape taxation through exports. The example I shall give illustrates both points. There are others I could give, but I shall just give one, and that is the banks. The banks do not enjoy these allowances for modernisation, and they are not an export industry. There is no question but that the increase in corporation profits tax will have an adverse effect on savings and investment in business and in industry.
One aspect of the taxation is so objectionable that I shall ask the Minister to reconsider it in the light of the general financial probity of the country. I refer to the retrospective clause. No matter what anyone says, this is a retrospective tax. People will be called upon this year to pay tax in respect of profits earned in previous years. That may have the effect of reducing dividends this year in certain companies, and it will also undermine confidence. The Government have been trying, very successfully, to get outside investors to come in here. I think there is nothing that would deter people from coming to a country more than the thought of a retrospective tax.
People like to know each year what they will have to pay, and they like to know that when they have paid it they will not have to pay any more. This is one matter in the Budget which I criticise and I ask the Minister, if he can, to reconsider it.
A further increase in direct taxation to which no one will object is the change in the tax on the collection of rents. The old method was archaic, obsolete and out of date, and it gave an entirely unjustifiable benefit to a number of people who had done nothing to earn it. Therefore, I think we should applaud the change in the taxation on rents.
Coming now to the other side of the picture, a great deal has been said about the new indirect taxation. I do not propose to say very much about it because it has been very fully debated indeed. The Minister has said in the Dáil—and we must believe him—that to increase the rate of indirect taxation on commodities already taxed would not bring in much revenue. There might be diminishing returns. Therefore, the easy method of increasing the rate of taxation on such things as beer, tobacco, and so on, would not solve the problem. The Minister has said that, and I, for one, am prepared to accept what he said.
Therefore, some new form of indirect taxation had to be worked out. This is a matter which has engaged the attention of financial experts and economists in recent years in view of the different types of indirect taxation in the countries in the Common Market. If this country joined the Common Market there would have been, sooner or later, a certain assimilation in the taxation systems in the Market. There has been a great deal of discussion regarding the different types of taxation which prevail in the Continental countries, apart from the taxation with which we are familiar here and in Great Britain. The Minister had a large variety of choices from which he might have chosen. He might have chosen a purchase tax on the British lines, levied on the manufacturer. He might have adopted an added value tax, which is the principal tax in France, or he might have adopted a sales tax. In fact, he has adopted a variation of the last, a type of sales tax which instead of being based on the taxation of each individual article is based on the turnover of the shopkeeper, and has, therefore, come to be known as the turnover tax.
I shall not say what has been said so much more eloquently in the Dáil and elsewhere—that this tax is unpopular. This tax has created considerable resentment amongst the traders who are called on to collect it. There is no question at all, of course, but that it does involve traders in a certain amount of trouble in bookkeeping and administrative costs which, naturally, they do not like. Secondly, it is unpopular with the consuming public because it is fairly obvious that this tax will be passed on, in some shape or form, by the trader to the customer and that by the time the trader has covered his costs of collection, and various other outgoings, it is quite possible that the customer will pay more than 2½ per cent. That is a possibility that we have to face. Therefore, there is no getting away from the fact that the tax is unpopular. In my experience of public life I think this is the most unpopular thing that has been done in any Budget yet. There has been widespread protest against it and it is rather difficult, in view of that, to preserve a judicial attitude towards something which is so controversial.
There are certain things which may be said, perhaps, not so much in favour of the tax as in mitigation of the sentence on the Minister. One is that a large number of services and goods are already exempted from the tax. In the Finance Bill there is a list of articles exempted from tax. At this stage I would ask the Minister if he could consider adding to that list in two respects. The first is one which has been fully debated in the Dáil and which I know will be debated in the Seanad. Therefore, I merely mention it—the exemption of some of the commoner types of food which enter into the consumption of the poorer section of the community. Other people in the Seanad will deal with that I know. A second matter is one which particularly concerns me as a University representative, and that is books. Over 100 years ago in England there was a tax on newspapers which was stigmatised by Mr. Gladstone as a tax on knowledge. I cannot help feeling that a tax on books is objectionable from the educational point of view. Students at all levels in schools and universities require books. Books are becoming more expensive every year, and I would ask the Minister, merely from the point of view of helping education, if some concession could be made in regard to books, especially books used for educational purposes.
A second claim I might make in mitigation of the sentence on the Minister is that in the course of the debate in the Dáil he did exempt a large number of traders from the full impact of the tax; that by raising the level of the monthly returns he did take the burden of collection off a large number of people who were included in the original proposals.
I might also add, I think, since I am trying to be judicial on this whole controversial matter, that similar taxes operate in other countries. There is no doubt they were resented when they were introduced but they do, in fact, work. A similar sales tax operates in Sweden and in other European countries. I think it is also relevant to say that some additional indirect taxation is necessary. If what I understand by this is correct, it is difficult to think of any alternative that would not be equally objectionable. If the range of goods hit by the tax is as wide as it is in this case, the rate of tax could be kept low. If the number of goods in the tax range is narrowed, the rate must be higher. If it is broadly based it can be at a low rate; if it is narrow it must be at a higher rate.
Finally, I think it is only fair to refer to something which has not been referred to so far and that is, that the additional social services and children's allowances provided in the Finance Bill will to some extent mitigate the burden of the tax on the poorer classes of the community. Children's allowances, in particular, are a useful mitigation of the full burden of this tax. I think I am trying to be judicial in this matter. Some Senators had not perhaps thought about those points I have made and perhaps it will influence parties a little bit towards a more merciful attitude to this tax.
The last matter to which I referred —the increase in children's allowances and in the social services—will reduce the yield of the tax, and will reduce it in the present financial year, because it does not come into operation until late in the year, to a mere £2 million. Here again the Minister has shown ingenuity in trying to get over this difficulty. As I said, he showed ingenuity and optimism, which I referred to in an earlier part of my speech, regarding the way in which the deficit can be reduced. Now he is showing similar ingenuity and optimism in regard to the way in which this reduction in the yield of the tax may to some extent be offset. He is introducing in the Finance Bill measures to prevent, or reduce, the evasion of taxes. The first of these is that the Revenue Commissioners must have fuller powers to insist on the fullest business accounts. Nobody can really object to that. No conscientious citizen can justify any person not paying his fair share of the burden of taxation, and, therefore, I think the Revenue Commissioners should be given this power.
Another matter with which the Minister deals is also perfectly fair and that is that farm profits of people who are not whole-time farmers should be taxed under Schedule D. We all know that there is a certain amount of evasion of taxation by people who are not farmers, who undertake farming in order to get the benefit of the very artificial method of assessment of farming profits. Therefore, I think that this new arrangement that people who are not whole-time farmers should pay on farming profits under Schedule D is quite fair.
The third matter is that of giving people who have been evading tax a chance to make a final settlement with the Revenue Commissioners, and that is also reasonable. It will encourage certain people to pay up certain arrears and will perhaps bring in some revenue and make things easier in the future.
I am afraid I cannot agree with his fourth proposal, which is that the banks and other financial institutions which hold deposits should disclose the interest on those deposits to the Revenue Commissioners when the interest is more than £15 a year. I must say that I think that is a very objectionable proposal. In the first place, it reduces the confidence between the banker and his customer. In this country customers of banks always deal on the basis that their business affairs will not be disclosed by the banker. The banker will now have a duty to make certain disclosures with regard to the deposits of his customers. It might even lead to a withdrawal of deposits. That brings me back to something I mentioned earlier, in talking about the necessity for not depleting our external resources and the necessity of keeping up all the external resources we could in view of the rather weak balance of payments. If people begin to withdraw deposits from the banks and place them elsewhere it will be definitely a reduction in the reserves. It would be something on the wrong side in the country's external capital account.
Furthermore, and this is very important in view of the necessity for investment, the banks' capacity to make advances to their customers bears a relation to their deposits. Everybody knows that there is a maximum ratio of advances to deposits, and if there were anything in the nature of a serious decline in deposits as a result of the removal of deposits caused by fears of this kind, the banks' capacity to make advances to customers would be correspondingly reduced. This would be very undesirable, indeed, at a time when as much capital as possible is necessary both for the private and public sectors. At a time when people are clamouring for capital, to do anything which might reduce the power of the banks to make advances to customers would be a very inconsistent and contradictory step.
That brings me to the last matter practically that I am going to deal with, and that is the capital Budget. The capital Budget forms part nowadays of the Finance Bill and, therefore, we are entitled to refer to it. It is referred to in the debate in the Dáil and it is in the Bill. Again, I refer to something which the Central Bank emphasises repeatedly—the rise in Government expenditure and particularly in Government capital expenditure. In 1962-63 the amount estimated was £66 million and the amount spent was £65 millions. The amount estimated for the present year is £79 million. Of course, when we come to examine the question of whether the expenditure is productive or social we enter an area where there is no basis really for agreement, because a great deal of expenditure which may not appear productive in the short term may be productive in the long run. The best example I can give, of course, is education. It is generally agreed today that the country's best investment is in the education of its citizens, and that that may involve the erection of schools, universities, and technical colleges the returns on which may not occur for many years. Therefore, it must be classed annually from the more technical point of view of the annual finance accounts as social rather than productive investment. A great deal of the investment in the capital Budget—although I quite admit it may be productive in the very long run when the children being educated grow up and begin to earn more —in the short run and from the point of view of the next few years, when the interest on the debt has to be paid, it must be classified as social and unproductive.
One type of expenditure has been criticised in particular, and that is the large amount of building and construction, that there has been something like a boom in the building industry and that it is hard to believe that the amount proposed to be spent on building construction can all be looked on as productive in the narrow sense of the term. The Minister must have had perhaps a slightly guilty conscience or at any rate a realisation of the problem, because he has set up a National Building Advisory Council for the building industry with the object of ensuring that the building work in prospect over the coming years should progress in an orderly fashion and an economic manner and that booms and slumps in the industry should be eliminated. That is a perfectly proper step which the Minister can be congratulated on, but at the same time there is a widespread feeling that some of this expenditure on building construction could be postponed.
I come back again before I wind up to a point that was referred to several times, and that is the insistence in the report of the Organisation for Economic Co-operation and Development on the insufficient investment in this country. Therefore, it becomes a central object of Government and financial policy to encourage savings in every form. One way is to stimulate savings in the narrow sense of the word, trying to make it attractive for people to save rather than spend their income. Another thing, which brings me back to bank deposits, is that we must try to discourage the export of existing savings. If we really want to add to the funds available for the expansion of industry, to do anything to drive bank deposits away is an extremely inconsistent and contradictory thing to do. Finally, we must try to attract foreign capital. We have already attracted a great deal and will attract more but, as I said, such things as retrospective taxation are not calculated to encourage people to invest in this country.
One aspect of the large amount of public capital expenditure provided for in the Budget is the danger that the private investor may be injured in some way. The Report of the Central Bank states that there is no sign that the supply of capital for private investment has been rendered insufficient by the demands of the Government, but it goes on to say that it may be that the price of capital has been raised when the Government are borrowing at the high rates of interest which are universal in the world today and that, if the Government go on borrowing large sums of capital at 5½ per cent or 6 per cent, the difficulties of private business people getting capital may be increased.
Just one aspect in particular to which I should like to refer is that in the last year or two there is evidence that the Government have been borrowing more extensively from the banks than they did. That, I think, is an adverse development. I think that the banks should be regarded as the source of private capital and that for the Government to borrow from the banks, except for short period borrowing like Exchequer Bills, is a development not to be encouraged. There is evidence in the last year or two that the Government have been getting rather more from the banks than they did.
To sum up this rather long speech— I apologise for taking up so much time —the need for all this taxation and borrowing arises, of course, out of the Government expenditure.
It is something which cannot be said too often—I have said it before—that the essential difference between the Government and the private individual is that the private individual has to measure his expenditure against his income, whereas the Government first decide what they are going to spend and then they decide where the revenue is going to come from. The relationship between expenditure and revenue is completely reversed. That is why the Government are different from private individuals because if they spend a great deal more, they can tax or they can borrow. They certainly will not go bankrupt in the way that an individual does. They will not be pulled up short by bankruptcy.
I am not objecting to this increase in Government expenditure in itself but I am objecting to it to the extent that, as the Central Bank Report says, it is outrunning the growth of national income. As long as the total Government current and capital expenditure is in line with the growth of national income it really is not objectionable, but in recent years it has been running ahead. The main aim of all policy here, and the Budget, after all, is the principal instrument of policy in the year, is to increase the national income and wealth in the country. The claims of social justice and cases for redistributive measures may necessitate a certain slowing down in the rate of national expenditure but it must be remembered also, in respect to that, the other side of the picture, the possibility of desirable social expenditure of a kind which we all like to see, depends upon the growth of national income.
The growth of national income is the first essential and there is no use in making elaborate proposals for increased children's allowances, increased benefits for old age pensioners and widows and so on unless the national income is sufficient to meet those calls without having too great an effect on saving or on investment. As I said before in this regard, direct taxation is worse than indirect. The adverse effects of direct taxation are worse than those of indirect. There is a general principle in this country that it is better to tax expenditure than to tax income, but, at the same time, we must remember that there must be a certain amount of direct taxation for two reasons. The first reason is that indirect taxation would not raise enough revenue, and, secondly, because it tends to be regressive. In so far as the principle of progression in taxation is admitted, as it is in every country today, the way in which it is carried out is by direct taxes.
Now, I think, finally, on the whole that this Budget conforms with the aims which I have attempted to stipulate as the aims of public policy at the present moment, that direct taxation has not been raised more than a reasonable amount, that the increase in corporation profits tax, apart from the retrospective element in it, can be endured and that the new indirect taxation has been widely spread. As I said before, certain things might be with advantage taken out of its scope, for example the necessities of the very poor and books. That is a matter which will be referred to by other speakers, but I think, generally speaking, the Finance Bill as a whole does not conflict with the Government's main political aims.
The last thing I would like to say is this. In considering the weight of the burden one has to consider two things. One has to consider the absolute weight of the burden itself but one also has to consider the strength of the shoulders upon which the burden is imposed. A strong man can carry a much heavier burden than a child with far less effort. Similarly, a progressive, wealthy, country can carry a burden of public expenditure much heavier than a country which is either static in national income or progresses at a comparatively small rate. Therefore, if the Government can stimulate expansion, all sorts of social services, all sorts of capital expenditure will become possible which would not become possible in the case of a stagnant economy.