Seanad Éireann debate -
Wednesday, 24 Jun 1964

Vol. 57 No. 15

Land Bond Bill, 1964 ( Certified Money Bill )— Second and Subsequent Stages.

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

Minister for Lands (Mr. Moran)

The purpose of this Bill is to maintain the supply of land bonds for the financing of the land reform programme.

Senators will, no doubt, be well aware that a very great part of the acquisition and resumption programme of the Land Commission is financed by means of land bonds created from time to time by the Minister for Finance. The basic authority for these creations is section 6 (1) of the Land Bond Act, 1934 and at that time it was laid down that the Minister could not create more than a grand total of £10 million in Bonds. This limit was raised to £15 million by an amendment inserted in the Land Bond Act, 1934 by section 7 of the Land Act, 1953.

The Land Bill, 1963, which has not yet come before the Senate contains a proposal to raise the overall limit by a further £5 million but that Bill is making such slow progress through the legislature that a situation has arisen in which the existing supply of land bonds will, almost certainly, run out before the Bill is enacted. Consequently, the Government have thought it best to segregate the Land Bond provision and make a special two-section Bill of it.

Since that decision was taken, however, I have given further consideration to the steady rise in the price of land and also to the very lively tempo of the Land Commission's current work in the field of land acquisition and I have come to the conclusion that £5 million is not an adequate increase in the financial supply. Accordingly, I now propose to provide for an increase of £10 million over all. This should keep the Land Commission supplied for a reasonably long period, during which I expect to see them make a very big impact on the remaining congestion in the country.

Land bonds finance on a substantial scale is vital to our land reform programme. I thrust, therefore, that the Senators will agree to the immediate passage of this Bill so that the Land Commission's planned acquisition target for the immediate future can be achieved and the completion of pending voluntary purchase dealings finalised.

Mr. Fitzpatrick

There is no objection to the Bill from this side of the House. As the Minister has stated, its purpose is to increase the authority of the Minister in conjunction with the Minister for Finance to issue land bonds up to £25 million. The present limit is £15 million. The terms on which land bonds may be issued are governed by the parent Act and there is no reference to the terms on which they may be issued in this Bill. Land bonds have been issued at various rates of interest from 3 per cent to 4½ per cent and 6 per cent. It is highly desirable in the interests of the smooth acquisition of land by the Land Commission that land bonds should be attractive to the owners of land. It did happen in the past, when money was cheap and bonds were issued at 3 per cent, that people who sold their lands to the Land Commission found it was impossible to realise the land bonds at par or anything like par. That left a very bad taste in the mouths of landowners and led them to believe, rightly so, that they were not getting a fair crack of the whip and were not being paid for their land in real money. Therefore, I would like to join in the appeal which was made in the Dáil to the Minister and the Minister for Finance to ensure that land bonds are issued at such a rate of interest as will ensure that they will be marketable at par or even slightly above par. If this is done it will lead to a better relationship between the owners of land and the Land Commission and may enable the Land Commission to acquire an adequate supply of land with the goodwill of the owners of the land.

Professor Quinlan

I wish to support the proposition to keep the supply of land bonds going until the Land Bill comes in. I should like to make just a few comments on the fact that the earlier land bonds have shrunken in value. As the Minister is expanding the scope of the land bonds, he will probably have an opportunity of making some adjustments in the new Bill and he might consider that the time has come to depart from an absolutely fixed interest land bond and relate the interest to that prevailing at the time. In other words, land bonds which were taken out in 1950 or so at a yield of 4 per cent still bear that rate today and surely in justice the holders of those bonds should be entitled to the prevailing rate of interest. It should be possible to introduce machinery to create this variable rate of interest which would ensure a fair return from the capital and also that the bonds would remain substantially at par so that nobody would incur either a great financial loss or a capital gain on selling the bonds. I appeal to the Minister to see if anything on those lines could be done so that the new programme envisaged will commend itself with greater confidence to those who will be asked to accept land bonds for their holdings.

Mr. Ross

I should just like to take up a point which Senator Quinlan has raised. If I followed him correctly, I do not think what he proposes would be workable. He referred to land bonds carrying the prevailing rate of interest and I presume that he means that once issued, they will carry a rate of interest which will vary with the ordinary rates of interest levied by banks and financial institutions. This would make land bonds impossible to negotiate in the ordinary way. What is more important is that the land bonds should bear a capital value at the time they are received, which would be the true capital value in relation to the cost of the lands taken over. What has sometimes happened in the past is that land bonds have been issued at, say, 4 per cent when that was the prevailing rate of interest, but by the time the people who were being paid for their lands had received the bonds the value of their capital had considerably dropped and immediately they stood to lose quite considerable sums. The important point is the capital point and not the interest one. Obviously, a fair rate of interest should be given but it is most important that when a landowner receives bonds for his land he can cash them on the market at a price which will give him the proper market value of his land and not, as has happened sometimes in the past, a depreciating value.

Mr. Moran

I am grateful for the rapid manner in which this Stage is going through the Seanad. Senator Ross has really put his finger on the point from the landowners' point of view in suggesting that the capital value of the land bonds is the important thing at the time of issue. Of course, that also depends, as Senators are aware, on the interest rate prevailing, at the time of issue, for Government borrowing. When the Minister for Finance agrees to issue these bonds he has to have regard to section 4, subsection (3) of the Land Bond Act, 1934, which reads as follows:

When fixing under this section the rate of interest to be borne by any series of land bonds, the Minister for Finance shall have regard to the prices at which the latest issue of National Loan and previous issues of land bonds under this Act or the Land Bond Act, 1933, are quoted on the Dublin Stock Exchange, to the intent that the rate of interest so fixed may (within the limits imposed by this section) be such as to secure that the market price of land bonds of the said series shall, for a reasonable time after the creation of the said series, be at or near par.

From that, Senators will understand that at the time of issue of these land bonds the terms must be such as to ensure that at the time and, as far as can be estimated, for a reasonable period afterwards, that such land bonds series shall be at par. Indeed, if they were anything less or anything much less than par value they would, in fact, be of very little use to the Land Commission because any of the Land Commission's operations are on a voluntary basis and owners will be prepared to accept land bonds at the time of their voluntary sale. In view of some recent administrative changes we have made and in view of the fact that we have now the full co-operation of the auctioneers, I expect in the future we will acquire much more land on a voluntary basis than in the past. Therefore, Senators can rest assured that it is of vital interest to me as Minister for Lands to ensure that land bonds are at par. Indeed the present issue of land bonds are a six per cent issue and were above par prior to the dividend. The last quotation of that ex-dividend was practically 99. Senators will appreciate that all fixed interest securities vary with the depreciation of money but, so far as the present issue of land bonds is concerned, at six per cent they have maintained their price well. For practically all of last year, until the dividend was paid, they were quoted at a figure above par.

We can under this new £10 million issue get out of it as much as we require from time to time. I think possibly the best thing to do is in agreement with the Minister for Finance to have a reasonable amount of that issue at the prevailing rate so that if there is an undue fluctuation in the money market and if the interest goes up a new issue can be created that would meet the particular circumstances of that particular time. However, I think on the point made by the Senators who have spoken on this matter the best answer I can give is that unless these bonds were at par, or close to it, they would be, indeed, of little use for the main purpose of the Minister for Lands. Therefore, it is in our interest and in the interest of the State to keep them in so far as we can at par.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill considered in Committee.

Section 1 agreed to.

SECTION 2.

Question proposed: "That section 2 stand part of the Bill."

Mr. Fitzpatrick

Am I correct in saying that the interest on land bonds is still paid with the deduction of income tax? This is something into which the Minister might look. It is something that is inclined to make land bonds less attractive on the market than other forms of Government securities. I notice in the Finance Bill, with which we will be dealing later, that provision is made for the provision of Aer Lingus stock without deduction of income tax. Personally, I cannot understand why this difference was made between ordinary Government loans and the land bonds. Looking at it from the small investors' point of view, the person not liable for income tax, it is a burden on him to have to apply for a refund of income tax on bonds. I put that suggestion to the Minister for his consideration.

Mr. Moran

I shall look into the point. I have not considered the matter but there may be technical difficulties involved and I shall have it looked into.

Question put and agreed to.

Title agreed to.

Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.