In the past financial year there were no political events which produced any unfavourable financial or economic reaction. The elimination of Article 5 of the Treaty relieved the country of a contingent liability which might possibly, at a later stage, have become a serious burden. During the year the price of National Loan rose gradually and more than once in recent months it has touched the peak figure of 99. Deposits in the Post Office Savings Bank rose during the twelve months ended 31st March from £2,177,000 to £2,402,000. In the same period the amount for Savings Certificates rose by nearly £600,000. The present financial year opened with a debt outstanding of £13,653,270, made up as follows:
National Loan |
£9,435,000 |
Compensation Stock |
914,850 |
Savings Certificates |
1,768,650 |
Ways and Means Advances |
1,113,000 |
Annuities under the Telegraph Acts |
421,770 |
The total thus obtained does not include the liability assumed under the Agreement of December, 1925. Against the debt outstanding there may be set a figure of £1,267,700 due to the Exchequer by the Unemployment Fund. A couple of years ago I described the sum due by the Unemployment Fund as an asset of doubtful value. The position now is that there is every prospect of the amount being repaid. The Exchequer balance on the 31st March, was £233,250. The State debt outstanding at the beginning of last year was £13,360,353 and the Exchequer balance was £1,681,192. If we deduct the amount of the Exchequer balance on the 31st March last from the debt outstanding at that date we get a net figure of £13,420,020. The corresponding figure for the previous year was £11,679,161.
The original estimate of the tax revenue for the year 1925-26 was £22,554,000. Deputies will remember, however, that the Budget provisions last year included not only the relief of local rates to the extent of £599,011 and a remission of postal charges, but also the reduction of taxation by £1,189,000. The revised estimate of tax revenue, therefore, was £21,365,000. The amount actually collected exceeded the estimate by £232,000, reaching a total of £21,597,000. The yield of the various Customs duties was £6,958,000, or £38,000 more than the estimate. In the case of the Excise duties the yield was substantially less than the sum anticipated. The aggregate collected under this heading during the year was £6,336,000, against an estimate of £7,120,000. The deficiency arose from a decline in the yield of the beer and spirit duties. In the case of spirits the yield of the Excise duty was £2,347,000, against an estimate of £2,600,000, showing a deficit of £253,000. As compared with the previous twelve months, the duty collected was down by £349,000. A substantial portion of the decreased yield of tax was due not to reduced consumption but to anticipation of a decrease in duty and a consequent diminution of the quantities taken out of bond during the last two months of the financial year. The latter cause reduced the amount of tax paid by £130,000. In my Budget statement last year I mentioned that the yield of spirit duty in 1924 had fallen short of the estimate by £540,000. In 1925-26, but for abnormal restriction of the stocks held by traders at the end of the year, it would have been only £123,000 below the estimate and £220,000 below the actual yield of the previous year. The collection in 1924-25 was less than the collection in 1923-24 by £490,000. It is apparent that the decline in the consumption of spirits was much less rapid last year than it was the year before. It is calculated that the yield of spirit duty in the present financial year will about equal the actual receipts of last year. Such a result would of course represent a further decline in consumption to an extent equivalent to £130,000 of duty. The Excise duty on beer was expected to produce £4,020,000 during the past twelve months. The sum obtained was £3,449,000, or £571,000 less than the estimate. As compared with the previous year the decline in yield was £770,000. Here again an abnormal factor has to be taken into account. During the year certain brewers decided to reduce the amount of stock held as export reserve. The result was that for some months payments of drawback were normal while receipts of duty were unusually low. The resultant loss to the Exchequer was about £250,000. The decline in yield was therefore ascribable to a fall in consumption to the extent of about £520,000. It is not considered that the sum obtained from beer duty in the present year will be less than the amount actually collected last year. That means that the estimated fall in consumption in the Saorstát will not exceed 50,000 standard barrels against a fall last year of 104,000 standard barrels. The direct taxes all gave results better than were anticipated. Estate Duty yielded £125,000 more than the estimate. Income tax and super-tax produced £325,000 more than the estimate, but £245,000 less than in the previous year. Corporation Profits Tax gave £488,000, or more than double the sum anticipated in the Estimates; but the figure was swollen by a large amount of arrears. The motor vehicle duties produced £517,000 as against £458,500 in the previous year.
On the whole the revenue figures are satisfactory. The duty collected on motor cars and parts was £10,000 more than in 1924-25. Tobacco yielded £20,000 more than the estimate. Although the scope of the entertainments tax was somewhat restricted last year the amount obtained was down by only £5,000. The fall in the amount obtained from income-tax and supertax resulted partly from the reduction of the rate from 5/- to 4/- last year and partly from the fact that the pool of arrears is nearing exhaustion. The sole indication in the revenue returns of serious economic depression in the country is to be found in the figures relating to the beer and spirit duties, and even they show that the people of the Saorstát were able to spare about £17,500,000 for the purchase of alcoholic liquor last year.
Last year I divided the expenditure set out in the estimates into expenditure which might be defrayed out of revenue and expenditure for which borrowing might take place. By so doing it was possible to give relief in local and national taxation, including postal charges, to the extent of almost £1,850,000. This figure allows for the fact that the reduction in the rate of income tax could be only partially effective in the first year. Consequently the remission announced in April, 1925, will further relieve the taxpayer to the extent of £450,000 or £500,000 this year. The position therefore is that apart altogether from any fall in yield at the existing rate, we are taxing to produce nearly £500,000 less than last year and something like £2,300,000 less than in the year 1924-25.
In deciding last year that outlay of an abnormal and non-recurrent character, even though it was not, strictly speaking, in the nature of capital expenditure, might properly be provided for by borrowing, the Government was quite clear that it would be an error to pick out all expenditure which was of other than an entirely normal character and add it to the list of items for which debt might be incurred. It would be possible on a close scrutiny of the Estimates to find in any year a considerable number of sub-heads which were temporarily swollen by some unusual set of circumstances. By adding together the abnormal amounts shown in all such sub-heads, a substantial sum might be obtained, which, if deducted from the total estimated expenditure of the year, would enable us to calculate the amount required to be raised by taxation at an appreciably reduced figure. But such a procedure would put us wrong by giving a false result, and would, in a comparatively short time, prejudice very seriously the interests of the State and the people. Abnormal expenditure under particular heads in one year is likely to be followed by abnormal expenditure of somewhat similar amounts under different heads in the next year. Moreover, even in the same year unusual costs in one direction are frequently balanced to some extent by exceptional savings in another. These considerations do not, of course, apply to expenditure such as arises under our Property Losses Compensation Vote, nor to excess Army charges in the first few years after a violent civil struggle. But if they are not borne in mind in regard to other abnormal spending, the country may find that, without intending to do so, it has begun to pile up debt to meet the ordinary costs of Government. If such a position were reached it would very speedily produce banking and currency difficulties of a serious character, and it would, for a time at any rate, provide an irresistible inducement to reckless expenditure. The present Government is not prepared to reduce or keep down taxation by resort to methods which would be unsound and dangerous to national credit and stability. At the same time, it is fully alive to the necessity of not charging the taxpayer in the coming year with any sums which he might reasonably be allowed to pay by instalments. We are therefore prepared to cut close to the bone in separating capital and abnormal charges from those which must be met out of current income. An examination of the Estimates gives us the following list of items that might rightly be deducted from the total for the purpose of arriving at the amount we must pay out of revenue:—
A. Vote 8.—Local Loans, £500,000 provision in respect of new capital.
B. Vote 11.—Public Works and Buildings, £560,000 out of a total provision of £714,790 in respect of sites and buildings, new works, alterations and additions, £15,000 being the total provision in respect of compensation for commandeered premises, £108,000 the total provision in respect of drainage works and acquisition of a dredger.
C. Vote 14.—Property Losses Compensation, £2,170,500, the entire provision.
D. Vote 28.—Universities and Colleges, £40,000 being capital grants.
E. Vote 52.—Department of Agriculture, £56,800 in respect of the proposed new faculties of General Agriculture in Dublin and Dairy Science in Cork.
F. Vote 54.—Land Commission, £200,000, being that portion of a total provision of £300,000 for the improvement of estates which may fairly be regarded as abnormal.
G. Vote 55.—Advances to Agricultural Credit Societies, £75,000, the whole of the estimate.
H. Vote 63.—Army, £475,470, the amount by which the Army estimate exceeds £2,000,000.
I. Vote 64.—Army pensions, £179,000, being amount by which the provision of £430,000 exceeds the sum expected to be required in a normal year.
J. Central Fund Services, £50,000. Capital subscription to the Industrial Trust Company of Ireland.
The aggregate of the deductible items under these ten heads is £4,429,770, and I am not satisfied that there are any other items which should be set aside with them. The provision in this year's Estimates for Relief Works is only £50,000, and I think it would be taking too optimistic a view to hold that we are not likely to have an average expenditure of at least that amount for some years ahead. If, however, a supplementary estimate for relief works has to be taken before the 31st March next, I think we may agree that the excess sum required should be borrowed. The provision for housing in the Local Government Vote is very large, £348,000, and there is some support for the contention that £100,000 might be regarded as abnormal. On the other hand, housing is a great and urgent problem about which no more can be said than that we are making a little impression on it. On balance it seems preferable to regard the whole provision for housing as normal and recurrent.
The total estimate of expenditure on supply services is £25,567,909, and on Central Fund services £3,069,519, making an aggregate of £28,637,428. If from this we deduct £4,429,770, we get an estimated sum of £24,207,658 to be spent on purposes for which the State ought not to borrow. Deputies have had in their hands the White Paper showing the estimates of Receipts and Expenditure for the year ending 31st March, 1927. The estimated yield of taxation on the existing basis is there shown at £20,578,000, to which must be added £3,134,430 estimated income from non-tax sources, giving an aggregate of £23,712,430. If this figure is compared with the estimate of normal recurrent expenditure already arrived at, we get an estimated deficit of £495,228.
Perhaps at this point I might interpolate a word with reference to last year's figures and certain calculations published by the Dublin Chamber of Commerce. I might say that during the past couple of years I have received many helpful suggestions from, and have had many useful discussions with, the Chamber of Commerce, for which I am very thankful. I just want to point out, however, that the calculations with regard to last year's figures, which they published, unfortunately contain certain omissions which throw them out very seriously. They give the total of abnormal expenditure last year at £2,678,491. Now, a portion of that was not really our expenditure; so far as £709,000 of that sum was concerned we simply acted as a conduit pipe, receiving the money from the British. There are also omissions in regard to the misdivisions of expenditure on public works and buildings. The expenditure on the abnormal portion of the activities carried on under this vote was something like £200,000 less than the sum shown; so that at once there may be deducted from the £1,890,000 odd shown in the table prepared by the Dublin Chamber of Commerce, a sum of £900,000 odd. I had a few moments' conversation with the members of the Sub-Committee, and as our conversation was too brief sufficiently to go into matters that we were dealing with, a certain misunderstanding occurred. I do not say that any abnormal expenditure has been incurred out of normal revenue. As a matter of fact, the £900,000 which I referred to as abnormal expenditure defrayed out of revenue was fully covered by abnormal revenue contained in the income tax vote alone.
I was at the point where I said that on a calculation already made we got an estimated deficit of £495,228. Before deciding whether it is necessary to increase taxation we have to consider whether it is likely that the total of £24,207,658 will all be required for actual expenditure in connection with those services for which we must provide out of revenue. Experience shows that even estimates containing no sub-heads devoted to special or abnormal objects often prove at the end of the year to have been appreciably in excess of requirements. With the closest estimation that could ever be looked for, the margin of excess on the supply services as a whole would not be negligible. There are 66 Votes comprising 529 sub-heads of expenditure. It is the duty of a Department in framing its estimate to ask under each sub-head for sufficient money to provide for the purpose of the sub-head and more particularly it is its duty to ask for a total sum sufficient to meet the probable expenditure from the Vote as a whole. The idea is that neither should the Dáil have to be asked for a supplementary sum nor should any great percentage of the Vote remain unexpended. In practice some Votes prove insufficient and some prove too ample. But Departments naturally and not improperly lean against putting down a figure that may involve bringing in a supplementary estimate. Some of our Departments have not yet been able to estimate as closely as would be desirable. In consequence, the substantial marginal sum which the supply estimates in the aggregate must always contain is at present somewhat swollen. In Great Britain no account is taken for budgeting purposes of this marginal sum. The system there is to use the realised surplus of the year for the reduction of debt. Any portion of the surplus due to the margin of overestimation goes with the rest. Our position requires different treatment. We have a comparatively small National Debt with already adequate sinking fund provisions. It is neither necessary nor desirable in our circumstances that the taxpayer should be obliged to provide anything additional towards keeping our debt total at an abnormally low level. In the opinion of the Executive Council it is absolutely sound in principle when we are trying to get at the amount of revenue required to deduct from the estimate of recurrent expenditure such amount as probably represents the margin of over-estimation.
It is extremely difficult, owing to the number of new services that have been undertaken since the establishment of the Free State and the abnormal conditions under which Departments have been working until comparatively recently, to arrive at a figure. I am satisfied, however, that the margin of over-estimation, together with such economies as may safely be counted on, will not be less than £650,000. Such a figure would seem to indicate the possibility of a small amount being available for minor reliefs in taxation. But account must be taken of two unfavourable factors which have not yet been mentioned. As the Exchequer balance is now very low, it must be anticipated that borrowing in some form will soon have to be undertaken, and that the greater part of the £4,429,770, estimated to be required for capital and abnormal expenditure, will actually have to be got from the banks or the public before 31st March next. Consequently the provision made in the estimate for Central Fund Services for interest and sinking fund will have to be exceeded. On the other hand the revenue collected is almost certain to fall short substantially of the estimate shown in the White Paper. A new arrangement, which I shall explain later, is being adopted in regard to double income tax relief. The change-over from the old system to the new will involve delays in collection of this year's tax. Consequently, although it is expected that the old arrears will be almost completely wiped off this year, certain new arrears will arise and thereby bring the yield of tax down below the estimate in the White Paper. Taking everything into consideration, it is fairly clear that while we need not increase taxation we would not be justified in reducing it.
It must be obvious to Deputies that there can be no question of gambling on the yield of taxation being better than the estimate. Hitherto we have had excess yields of income tax, because arrears were got in more rapidly than was expected, but now the pool is near exhaustion and rapid collection will only mean that we will get more in the earlier part of the year and less in the latter. Estimation of the yield of beer and spirit duties at the figure actually collected last year hardly errs on the side of conservatism. On the other hand it is not possible to reduce tax rates in anticipation of steam-saw economies. I do not want at this point to deal at great length with questions of expenditure. I should like, however, to repeat my statement of last year that economies in the public services can only be effected by detailed restriction and adjustment and by gradual simplification of machinery. I should add that they can be effected very slowly indeed in face of a persistent popular demand for new services and further State activity.
The institution of new services not only means that additional expenditure is incurred, but it also means that officers whose special business it is to restrict expenditure have their energies diverted from pruning the old services to merely checking the growth of the new. The new services that have been undertaken since the Free State was established were essential, because under the old regime so many of the things that ought to have been done long ago were left undone. The point, however, has now been reached when even very desirable and much-desired developments must be postponed to the task of tightening up the existing machine. At the same time it cannot be too clearly stated that any appreciable reduction in tax-rates can be brought about only by increased national productivity. This time next year the yield of income tax at 4/- will have to be estimated at from £750,000 to £1,000,000 lower than I am estimating it for the purpose of this Budget. The probable yield of the various protective duties will also have to be put much lower next year than now. In view of these facts it will be a great accomplishment merely to keep taxes at their present level next year. If Deputies will consider the objects on which State expenditure takes place, they will see that while certain small reductions in expenditure can be suggested easily enough and ought not to be neglected, the big reductions that would give relief of any importance to the taxpayer are hard to find. I have already indicated £24,207,658 as the estimate of normal recurrent expenditure for the year. Let us look for a moment at some of the heads under which that sum is paid out. The amount to be paid out in relief of local rates, including Road Fund grant, is estimated at £2,510,000. Debt charges, including payments to the British Government in respect of local loans, will absorb £1,660,150; old age pensions, £2,557,300; superannuation, £1,800,326; police, £1,517,074; education, not including universities and colleges, £4,319,503; Post Office, £2,462,850; Army, £2,000,000; and revenue, £698,980. The aggregate estimated expenditure under these nine heads is £19,526,189, and it is a total which does not seem susceptible of any very rapid reduction. The figure representing grants to local authorities leaves out of account very substantial sums paid in respect of child-welfare schemes and the treatment of tuberculosis. The amount required for debt charges will increase as fresh borrowing is effected. Superannuation payments will probably increase in consequence of the so-called economy campaign.
As the Gárda Síochána is composed mainly of young men who are at low points on their incremental scales, the cost will increase for a number of years. Education costs will probably increase somewhat. In view of the dearth of suitable candidates for training as teachers, salaries cannot economically be further reduced. The increased expenditure which compulsory attendance will entail will exceed anything that can be saved by súch economies as amalgamation of schools. Post Office wages are low, and any big fall in total expenditure can hardly be expected. Revenue staffs cannot be reduced, and if there were new protective tariffs they might have to be increased. Army expenditure may be brought a little below £2,000,000, but until the country is settled enough to admit of a militia system being established, it cannot be very greatly less than the figure mentioned. The position broadly is that, out of the remaining figure of £4,681,469 we must, as well as affording relief to the taxpayer, provide for the services of Government represented by 49 out of our 66 Votes. Out of this figure we have to provide for the Oireachtas, Ministry of Finance, Public Works and Buildings, Office of Public Works, Rates on Government Property, Stationery Office, Valuation Office, Law Charges. Beet Sugar Subsidy, Universities and Colleges, Ministry of Justice, Prisons, all the Courts and all Judicial Salaries and Pensions, Ministry of Local Government, National Health Insurance, Department of Agriculture, Land Commission, Ministry of Industry and Commerce, Ministry of Fisheries, Army Pensions, Ministry of External Affairs, and all the minor services. Anybody who can provide adequately for all these services out of £4,683,000, and at the same time devote over four, three, or even two millions to the relief of taxation, owes it to humanity to make himself known. There is an idea abroad that the way to reduce taxation is to reduce the salaries of higher civil servants. Without discussing questions of efficiency or Treaty rights, I shall say a word or two about the financial aspect of the matter. If all civil servants whose salaries, including bonus, are £500 and over—that is basic salaries of £330—suffered a 20 per cent. cut, the saving would be nominally £180,000. If, in addition, the civil servants whose salaries, including bonus, are £750 and over, suffered a further 20 per cent. cut, making a total cut in their case of 40 per cent., there would be a further nominal saving of £86,000, or a total of £266,000. But the reduction of salaries would mean a reduction in income tax yield amounting to something very near £50,000. So that the real saving to the State would be about £216,000, representing a relief in taxation equal to almost a ¼d. in the lb. on sugar.
Whatever economies may be effected during the year, there is clearly no prospect of savings of such a sensational character as would justify refusal to accept the estimated total required for recurrent expenditure as the figure upon which our taxation provisions must be based. Therefore, the changes in taxation which we recommend have not for their object a reduction of the sums to be taken into the Exchequer. But we hope that some of them will be welcome at least to some tax-payers if not to others. The most important of them relates to a very vexed matter.
The difficulties arising out of double taxation of incomes have been the subject of discussion since the Saorstát became a distinct fiscal unit in April, 1923.
The income tax code which we inherited provides for—
(a) The taxation of all income accruing to any person resident in the area of jurisdiction wherever such income arises, and
(b) the taxation of all income arising within the jurisdiction to any person wherever resident.
In consequence, directly the Saorstát became a separate fiscal unit, double taxation became operative in the case of income arising in Great Britain to a Saorstát resident and also in the case of income arising in the Saorstát to a British resident.
Owing to the introduction of income taxes into the fiscal systems of several of the overseas Dominions the British legislature had, in 1916, granted a measure of relief from United Kingdom income tax to any person who proved that he had also paid "any colonial income tax" in respect of the same part of his income. Following the report of the last Royal Commission on the income tax a more comprehensive system of relief in respect of income which was liable both to United Kingdom income tax and to Dominion income tax was enacted in Section 27 of the Finance Act, 1920.
Early in 1923 we were faced with the necessity of effecting an immediate arrangement with the British Government for double income tax relief, and it was practically inevitable that the arrangement concluded should follow the lines of the British scheme embodied in the 1920 Act for the following reasons:—(1) The British authorities were at that time unwilling to consider an arrangement on any other basis, and (2) the matter was too urgent to permit of any prolonged consideration of alternative schemes. Double income tax was being levied as from the 6th April, 1923, and a scheme of relief had to be evolved at once.
The agreement with regard to income tax embodied in the Double Taxation Relief Order (No. 1 of 1923) was accordingly concluded. It was never regarded by the Saorstát Government as being a completely satisfactory arrangement, because whilst in the vast bulk of cases it did give complete relief from double income tax the procedure was necessarily complicated, and it was very difficult for the individual taxpayer to understand the technicalities which were inherent in the system.
In September, 1921, the Financial Committee of the League of Nations, which was entrusted with the study of double taxation, decided to ask certain economists to prepare a report on the matter. Four eminent economists— Professor Bruins (Commercial University, Rotterdam), Professor Senator Einaudi (Turin University), Professor Seligman (Columbia University, New York), and Sir Josiah Stamp, K.B.E. (London University)—were invited to undertake the work, and their report, which was submitted in April, 1923, will be found in the League of Nations Booklet (E.F.S. 73 F. 19) published by the League, a copy of which I have caused to be put in the Library.
In April, 1925, I wrote to the Chancellor of the Exchequer suggesting that arrangements be made for the Revenue authorities on both sides to get into touch with each other and explore the question of double taxation afresh in the light of the report of the economists to the League of Nations. This suggestion was adopted and I informed the Dáil in the course of the debate on the Report Stage of the Financial Resolutions on the 6th May, 1925. Since then the matter has been receiving the close attention of the Revenue authorities on both sides and the result is the agreement which will be placed in the hands of Deputies to-day.
In concluding their report the Committee of Economists appointed by the League of Nations state:
"On the subject of income taxation in its developed form, the reciprocal exemption of the non-resident... is the most desirable practical method of avoiding the evils of double taxation and should be adopted wherever countries feel in a position to do so." (Booklet, p. 51.)
The new agreement to which the House will be asked to give legislative effect in the Finance Act is based on this principle. It aims, in fact, at the avoidance of double taxation as far as possible and in this respect differs radically from the existing arrangement under which double taxation is accepted, but each country gives partial relief from its own tax.
Under the new arrangement, a person who, for any year, is resident in the Saorstát, but not resident in Great Britain or Northern Ireland, will be entitled to claim exemption from British income tax in respect of income arising in that year in Great Britain or Northern Ireland and, conversely, a person resident in Great Britain or Northern Ireland, and not resident in the Saorstát will be entitled to claim exemption from Saorstát income tax in respect of income arising in that year in the Saorstát.
As a corollary a person exempted in either country will be chargeable to tax in the other country to the extent of the full income exempted subject, of course, to the usual deductions and allowances.
For example, the Bank of Ireland, which at present pays both British income tax and Saorstát income tax (less double taxation relief) on a large part of its profits, will, under the new arrangement, be chargeable to Saorstát tax only. It will deduct Saorstát tax at the full standard rate from its dividends, and a Northern shareholder who is not resident in the Saorstát will be entitled to claim from the Saorstát revenue repayment of the full tax deducted from his dividends by the bank. He will be liable to return the dividends for assessment to British income tax in the ordinary course, and no question of double income tax relief will arise.
There remains the case of a person who, within the meaning of the Income Tax Acts, is in any year resident both in Great Britain or Northern Ireland, and in the Saorstát. The case of these people is dealt with in Article 2 and Article 3 (c) of the agreement. The broad principle, stated roughly, is that such a person should be assessed in each country on the whole of his income, as if he were resident in that country only, and that double income tax relief, to the extent of the lower of the two taxes, should be given, such relief being borne equally by the two Exchequers.
The administrative arrangements to give effect to the scheme are still under consideration. I would call the attention of Deputies to the provisions of Article 5 of the agreement, which authorises the Revenue authorities on both sides to make arrangements for carrying out the agreement and in particular to make such arrangements as may be practicable to avoid the collection of both British and Saorstát income tax on the same income without allowance for any relief due under the agreement. At the moment I am not in a position to give detailed information as to the arrangements beyond saying that we contemplate the setting up of a clearing house to give all possible assistance in the case of double residents, and also to facilitate the settlement of disputed claims by single residents. It will, I hope, be possible to give more detailed information by the time the Finance Bill is in the hands of Deputies, and I will consider the practicability of having an explanatory memorandum as to the new arrangement circulated at the same time as the Bill. Deputies will understand that in the meantime it is not possible for me to give detailed information concerning matters which are still under discussion with the British authorities.
Just a word as to the financial results of the new arrangement. On the one hand we give up the revenue we at present obtain from companies controlled in England in respect of profits earned here, and generally we give up tax on income arising in the Saorstát to British residents, who are not resident in the Saorstát. On the other hand, we get full tax, instead of part tax, from our own residents who are not also resident in Great Britain or Northern Ireland on the whole of the income arising from their investments in Great Britain or Northern Ireland. The probable effect on our Exchequer of the whole arrangement has been given careful and prolonged consideration, and it is calculated that the result to our revenue will be to leave us approximately where we are at present.
We are satisfied that in other respects the scheme will give us very substantial advantages. It will be much more convenient to administer. It will eliminate a great deal of the irritation incidental to the present system, and it will do away with the hardship which the present system admittedly inflicts on the smaller shareholders in Guinness's and one or two other companies. Finally, we hope that, after the initial difficulties and the difficulties incidental to the change over from one system to the other have been overcome, it will enable us to create the nucleus of a staff to take in hand the question of income tax evasion in the Saorstát, thereby resulting in a substantial gain to the Exchequer, and a more equitable administration of the tax as between one citizen and another.
The adoption of the residence basis for charging income tax makes it necessary in the view of the Executive Council to follow the changes made in the British Finance Bill last year in regard to the rates of estate duty and super-tax. The position at present is that on estates valued from £12,500 to £500,000 our rates of death duty are from 1 per cent. to 6 per cent. lower than the rates in force in Great Britain. For instance, an estate valued at £19,000 would bear duty in the Saorstát at the rate of 6 per cent.; in Great Britain the rate would be 8 per cent. An estate of £60,000 would pay 11 per cent. here and 16 per cent. in England. At the top of the scale the difference falls to 2 per cent. It is not proposed to follow the British scale up to its maximum of 40 per cent., but merely to substitute 27 per cent. for our present maximum of 25 per cent. At present our super-tax scale is distinctly stiffer on incomes up to £10,000 than the British scale. The first £500 liable to super-tax pays at the rate of 1/6 here and at the rate of 9d. in England. The next £1,000 pays at the rate of 2/- here and 1/- in England. Our scale and the British scale were the same until last year, except that our maximum rate was 4/6 while the British maximum ran up to 6/-.
When the two taxes were changed in Great Britain it was calculated that the revenue position would not be affected. It was considered, however, that there were economic advantages in taking smaller annual sums from people who had incomes of from £2,000 to £10,000, even though the deficiency had to be made up by taking, at longer intervals, from the same class of people, much larger sums in the form of death duties.
So far as we are concerned it is not necessary to consider the relative theoretical merits of estate duties and super-tax as methods of obtaining from people of substantial means a proper contribution towards the maintenance of State services. Since the setting up of the Saorstát it has been generally recognised that to have a higher rate of income tax than that prevailing in England was likely to have a deleterious effect upon the economic position of the Saorstát by causing people of wealth to quit the country altogether. In the past a person could not escape the Saorstát tax by merely taking the boat to Holyhead. He had also to dispose of all his property here. Under the new arrangement he has simply to get right out and he will become exempt from our tax. People who are at present regarded as resident both in Ireland and England are generally, or perhaps in all cases, super-tax payers. In most cases they are not bound to the Saorstát by professional or business ties, and it would be easy for them to cease to be resident here. In all the circumstances we are satisfied that to maintain a super-tax scale substantially higher than that in existence in Great Britain would, of itself, in the long run, involve a loss to the Exchequer. On the other hand, we shall not prejudice the interests of the Exchequer or drive people out of the country by bringing our estate duties up to the level adopted in England last year. At present our lower rates involve us in substantial loss under the arrangement for the relief of double taxation as it applies to estate duty. If a person domiciled in the Saorstát dies leaving an estate of which five-sixths is situated in Great Britain, we get tax on the whole estate, but allow relief to the extent of the entire British tax paid on the five-sixths of the estate situated in Great Britain. Prior to last year's British Finance Act our rate on the whole of the estate was higher than the British rate on their part of the estate, and, accordingly, our share of the total tax paid was always greater proportionately than the part of the estate situated in the Saorstát. During the past year the British rate on their portion of the estate of a person who had died domiciled in Saorstát Eireann was sometimes equal to or actually higher than the Saorstát rate on the whole estate. Thus it has occurred that our share of the tax in certain cases has actually been has proportionately than the part of the estate situated here.
In the case of all estates within the limits of value to which the charge applied we are now obliged to give greater relief than previously at an estimated annual cost of £40,000 to £50,000. Let us now turn to the estates of persons dying domiciled in Great Britain or Northern Ireland, and leaving property situated in Saorstát Eireann. The arrangement is that the British authorities charge duty on the whole estate while we charge on the portion situated here. The result of our rate of duty being lower is not that the estate pays less, but that the claim against the British authorities for relief is less.
Examination of the figures of last year and the year before made it possible to estimate with a considerable degree of certainty the effect upon the Revenue of adopting the present British scales for super-tax and estate duty. The reduction of the super-tax rates will involve a loss of income of £115,000 per annum. The increased estate duties will bring in an additional £200,000 per annum. This leaves a balance of £85,000, which it is proposed to use in relief of the burden of Corporation profits tax.
I explained in last year's Budget statement that we could not propose the abolition of the Corporation profits tax at any rate until some scheme had been devised which would give us a fair equivalent of an average yield of estate duty in respect of property owned by foreign companies in the Saorstát. On the other hand, it is recognised that the Corporation profits tax does not tend to check the investment of capital in industrial enterprises in the Saorstát. It is proposed in the forthcoming Finance Bill to increase the tax free allowance for the purpose of Corporation profits tax from £1,000 to £10,000. The adoption of this proposal will have the effect of reducing the number of companies liable to Corporation profits tax from 676 to 91. The loss of revenue will be £85,000 a year. The exemption of railway companies and certain other public utility companies from Corporation profits tax expires this year. It is proposed to renew the concession.
I promised last year in the course of the discussions on the Finance Bill that the question of the application of protective tariffs to agricultural products would be further considered. I may say that during the past twelve months the promise has been most amply fulfilled. The matter was approached in a most sympathetic spirit and various proposals for tariffs were examined. Suggestions had been put forward from various quarters that agriculture in the Saorstát might be assisted by tariffs on flour, bacon, butter, oatmeal, oats and even maize, and also, needless to say, on malting barley. Some of these suggestions, obviously, were not difficult to deal with. The suggested tax on oatmeal, though of comparatively small importance having regard to the value of imports, was one which we felt would benefit agriculture in some areas. We propose therefore to impose a Customs duty of 2/6 per cwt. on this commodity. The yield of tax is expected to be small, perhaps £12,000. Mills which would otherwise be in danger of closing down will be kept going, and about 300 extra hands employed. Farmers will be given a market for an additional 20,000 tons of oats. The proposal for the taxation of imported bacon was recognised to be one in favour of which certain good arguments could be advanced, and it was gone into at great length. The Government is satisfied, however, that in refusing to propose a tariff in this case it is acting in accord with the economic interest of the people. We are convinced that a tariff on bacon would not improve the farmers' prices or increase pig-production. The suggested tax on oats was not agreed to, because it would have had to be charged on seed oats as well as other oats. Of the other proposals I need only say that they did not seem likely to be of any advantage to agriculture.
We have not included in this Budget any proposals for protective tariffs on manufactured goods. In taking this line we are adhering to the declaration of policy which I made on behalf of the Executive Council last year. It seems to us to be clearly undesirable to commit the country to a policy of all-round protection in advance of a general election. It would be even more undesirable to drift along imposing one series of protective duties after another, until we found that without definite design we had created a general tariff. The present tariffs are, I think, looked upon by all sections of the House as experiments which are entitled to a fair chance, and I believe that no matter what change of parties might result from a General Election, a new Dáil would almost unanimously agree that they must be given a further run of, say, eight or ten years. If, however, a great number of additional duties were imposed this year and next, the position would be changed, and even manufacturers who are investing money on the strength of the existing tariffs, would not be able to feel sure that whatever happened politically their industries were safe for a reasonable period of years. For this reason, and because as further tariffs are added they would give a diminishing return, it is certain that additional tariffs imposed now would not give a proportionate increase in development and employment. It is perhaps advisable to say once again that the tendency of tariffs is to increase the cost of living. When a new industry is developed by means of tariffs, it is developed generally speaking, at the expense of the public. We believe that it is worth while incurring expense to initiate, develop and preserve manufacturing industries in this country; but we believe that with the present depressed state of agriculture it is necessary to hesitate before heaping expense upon expense. In the months immediately before a Budget, the majority of our manufacturers show great zeal and ability in trying to prove that they cannot possibly carry on without a tariff. It is impossible to help feeling that in some cases at least if they were as strenuous about producing and selling the right class of goods, they would not need to trouble about protective duties. When we said last year that our policy was to have no more tariffs until we had some sort of mandate from the people, we hoped that some of those who had been besieging us without effect would turn back to their factories and see what they could do for themselves. I know at least one case in which a manufacturer, who said that he would be driven out of business if he did not get protection, and to whom we turned a deaf ear, has managed, unaided, to hold his ground against foreign competition, and even to improve his position a little. We want it to be got out of the heads of a great many manufacturers that the natural and only way out of an industrial difficulty is a new tariff, by means of which the public will be made to pay.
On the other hand, we are prepared to admit that at present conditions in trade and industry are abnormal, that there may be Irish manufacturers who are in danger of being overwhelmed because of difficulties arising from world disturbances of an economic character. We do not wish to take up a coldly puristic attitude about any industry. While we are determined not to be rushed by a clamour into great extensions of our existing list of protected industries, we are prepared to concede that there may be cases in which it would not be wise or right to hold our hand for another two years. A particular industry may be beset by such special and peculiar dangers that there is grave risk of its being lost for want of a comparatively small measure of help promptly given. We admit that in such a case the value of the industry as a national asset should be weighed against the probable cost of saving it and a decision taken on the merits. Accordingly, we propose to set up a Tariff Commission, to which proposals for protective tariffs will be submitted. The Commission will hear evidence for and against every proposal which it investigates. Its proceedings will be public. Having explored the facts fully it will report to the Government upon the need of a tariff for the preservation of the particular industry, upon the amount of protection that would be required, upon the results which the imposition of a tariff would have on other industries and on the cost of living. Having received the report of the Commission recommending a tariff, the Government would, if it were satisfied that such a course was expedient in the general interest, submit to the Dáil a resolution imposing the necessary tax. As the evidence before the Commission would enable the public to form a pretty good idea of what its report was likely to be, a tax would seldom be proposed in respect of which there had not already been extensive speculative forestalling. It would be possible, therefore, to ignore the revenue effects of any duty in the first year. Consequently it is intended that reports of the Tariff Commission with which the Government found itself able to agree, should be acted upon as they were presented, whatever the period of the year. Under the suggested arrangement the Executive Council would not part with its responsibility for policy. It would not be bound to accept any recommendation of the Commission. At the same time it is clear that if the Commission forwarded a recommendation supported by published evidence in favour of a tax, the Executive Council would have to have very strong grounds for declining to bring the necessary proposals before the Dáil.
Before passing away from the question of protective tariffs I must refer to the Customs duty on motors and motor parts. Deputies, I am sure, are aware that, following the British decision of last year to re-impose what are called the McKenna duties, representations reached the Executive Council to the effect that it was essential to the success of the Ford industry in Cork that some arrangement should be reached with the British Government whereby motor parts manufactured in the Saorstát should be admitted free of duty into England. I need hardly say that we were, and are, most anxious that an important industry, unique of its kind in the Saorstát, should be facilitated in every way. The representations made to us were sympathetically considered and the possibilities of the position were thoroughly explored. It became apparent, at an early stage in our examination of the matter, that the only basis on which we might hope to get what those who spoke on behalf of the Ford Company wished for was the reciprocal exemption from duty of Saorstát and British motors on their entry into Great Britain and Saorstát Eireann respectively. After many months of consideration the Executive Council felt compelled to decide that the basis was not one which they could recommend to the Dáil. It would have involved the ultimate loss of most of the £300,000 annual revenue derived from the import duties on motors. It would also have involved some unemployment by worsening the conditions under which firms engaged in the production of commercial or other motor bodies are carrying on.
If the Executive Council have felt unable to adopt measures which would relieve the only motor industry in the Saorstát from difficulties which the taxation of another country has placed upon it, we feel that now the time has certainly come when anything in our own scheme of taxation which can be said to operate unfairly in relation to the Ford car should be removed. In my last Budget statement it was indicated that the basis of the road tax was being examined with a view to revision. It was hoped at the time that an early decision would be reached. But the subject is full of difficulties, and the much-desired equitable basis is very hard to find. The proposal suggested by the Sub-Committee of the Roads Advisory Committee did not commend itself to the Government. It involved the retention of the horse-power tax at a reduced rate and the addition of a petrol tax. It represented what I may call an unhappy compromise. There are many who favour feeding the Road Fund from a petrol tax alone. Such a policy would involve a tax of about 1/- a gallon on petrol. I do not know whether there are other countries which tax petrol at such a rate, but the State Chemist is of opinion that if such a high duty were contemplated it would be necessary to investigate further the possibilities of evasion by means of split cargoes or by the use of special grades of kerosene or lighting oil which it might become profitable to import. A proper examination of the subject could be carried out only by chemists and engineers working together. But even if we were sure that we had a specification which would include all spirits capable of being economically used to drive a car, and at the same time exclude kerosene, it must be acknowledged that a high petrol tax has many disadvantages. It would involve expense and difficulties in connection with drawbacks, which would not be refused to people using petrol for lighting, driving stationary engines, or boats, or for any purpose other than propelling road vehicles. On the Border it would give rise to additional customs formalities and delays. With a tax of anything like a shilling a gallon it would not be possible to ignore the petrol in the tanks of cars entering the Saorstát. Moreover, the petrol tax, like the horse-power tax on its existing basis, would be unfair to the Ford car. In view of all the considerations I have mentioned, we have decided not to propose a petrol tax. A road tax based on the unladen weight of vehicles was suggested and seems to have certain advantages. But data are not at present available to enable a clear opinion to be formed as to how it would work out in practice. In considering various suggestions for changes in the road tax, the Executive Council kept in mind the desirability of some increase in the revenue of the Road Fund and some consequent relief to local rates.
Finally, proposals were formulated which, if accepted by the Dáil, will at once relieve the Ford car from its handicap, compel the heavier commercial vehicles to pay a substantially increased tax, and provide an enhanced annual sum for road improvement. The horse-power basis will be retained. Private cars and hackneys, other than 'buses and char-a-bancs, which have been manufactured in Saorstát Eireann will bear a maximum tax of £10 per annum. In the case of other cars the formula for calculating horse-power in use prior to January, 1923, will again be adopted. This will mean in most cases an increase of the tax to the extent of 15% to 20%. The minimum charge will be increased from £6 to £8. Hackneys up to a capacity of six seats will be taxed as private cars but with a maximum of £20. Goods vehicles, 'buses and char-a-bancs will be charged on a new, and in the case of the latter, a more steeply graduated scale as follows:—
'Buses and Char-a-bancs.
Seating more than 6 but not more than 14 persons |
£28 |
Seating more than 14 but not more than 20 persons |
£40 |
Seating more than 20 but not more than 26 persons |
£52 |
Seating more than 26 but not more than 32 persons |
£64 |
Seating more than 32 persons |
£2 for each seat. |
The number of persons mentioned does not include the driver or his seat.
Goods Vehicles.
Not exceeding 12 cwt. in weight unladen |
£10 |
Exceeding 12 cwt. but not exceeding 1 ton in weight unladen |
£16 |
Exceeding 1 ton but not exceeding 2 tons in weight unladen |
£30 |
Exceeding 2 tons but not exceeding 3 tons in weight unladen |
£45 |
Exceeding 3 tons but not exceeding 4 tons in weight unladen |
£60 |
Exceeding 4 tons but not exceeding 5 tons in weight unladen |
£75 |
Exceeding 5 tons but not exceeding 6 tons in weight unladen |
£90 |
Exceeding 6 tons in weight unladen |
£105 |
The proposed new scale, which is only slightly different from that recently adopted in Northern Ireland, will give an increase of about 50 per cent, in the total revenue from the class of vehicles to which it applies. The tax on trailers to goods vehicles will be increased from £2 to £12. Finally, the charge for drivers' licences will be increased from 5/- to 20/- per annum. The new charges will increase the annual gross income of the Road Fund by about £133,000 up to a total of £673,000.
I now come to deal with what has been designated the "road problem." It is a healthy sign to find that the public generally have evinced a marked degree of interest in our roads, but it is necessary to clear up some misapprehension which apparently has arisen as a consequence of vigorous propaganda. The belief that the roads of the Saorstát are in an unsatisfactory condition is not correct. Compared with other countries, the principal roads of the Saorstát are, in fact, in a fairly satisfactory state. One of the evidences of the rapid return to normality has been the great progress made in the re-conditioning and re-surfacing of our highways.
While devoting themselves to this work, road authorities here, as elsewhere, have necessarily to take cognisance of the fundamental change in road user, arising from the expansion of mechanically-propelled traffic. The adoption of entirely new standards of road construction and maintenance has been necessitated.
The total cost for county roads in 1914 amounted to £695,000, all but £25,000 of which fell to the charge of the local ratepayers. At the present time the cost is £1,750,000, of which £500,000 represents the contribution from motor taxation.
When it is remembered that the total mileage of roads in the Saorstát amounts to 46,700 miles, it cannot be held that an expenditure of 1¾ millions is an excessive amount. We hope, however, that in a year or so, the annual revenue of the Road Fund may run to £750,000 or over, and that by a suitable policy of reconstruction and improvement the cost of maintenance may fall, and the local ratepayers be appreciably relieved.
It is, no doubt, within the recollection of the Dáil that the Department of Local Government submitted a proposition to involve expenditure on 1,500 miles of trunk roads of £3,820,000. This proposal would, of course, involve a borrowing policy. In the present circumstances no portion of a loan repayment should fall on the Central Fund.
I understand that those who are most intimately conversant with the facts relating to modern methods of road construction and surfacing find it difficult to speak authoritatively as to the savings to result in future maintenance. But it is manifest that the re-conditioning of important roads, both as regards foundations and surfacing, will produce very considerable economy.
To capitalise the Road Fund fully would mean that over a period of years the cupboard would be left completely bare for the purpose of a large mileage of our roads which although not of first importance are much too important to be completely ignored. It is felt, however, that a sum of £2,000,000 might be borrowed for reconstruction and improvement work of a somewhat lasting nature. This would involve an annual charge for ten years of £310,000. Such a figure, especially as it would decrease year by year, would leave a sufficient annual sum available for distribution on the same principles as heretofore. The details of a scheme of expenditure of the sum of £2,000,000 will now be a matter for determination by the Minister for Local Government. I hope I interpret his views correctly in stating that he has no intention of announcing any grandiose proposals. Capital expenditure will be cautiously undertaken. The exact condition and life of existing road surfaces will be determined, the aim being to bring the 1,500 miles of roads already mentioned into a generally satisfactory condition for modern traffic.
The Minister for Local Government will be in a position to proceed with a substantial proportion of the work within a very short time. He anticipates that having regard to the recent additions to road plant, schemes can now be initiated much more rapidly than heretofore, and there is reasonable expectation that within the present financial year a sum in advance of at least £1,000,000 may be reached.
During the last few months strong appeals have been made to the Government to reduce the excise duties on beer and spirits. I can say that though the case presented was not unsympathetically considered we cannot see our way to recommend any change. As the brewing industry is one of the biggest and most profitable industries in the country, and as Irish distilling is suffering from the loss of the major part of its outside markets, it seems impossible to reduce the duty on beer and leave the spirit duty untouched as was done in England. On the other hand, it would be indefensible to reduce the spirit duty and leave the beer duty at its present level. If a reduction were decided on, it ought to apply to both taxes, and to be of any use at all it would have to be a substantial reduction. It is not believed that reductions which would result in stout being brought down to 6d. and whiskey being retailed at 3d. or 4d. a glass less than at present, would bring about any appreciable increase in consumption. Consequently the loss in revenue would not be far short of £1,400,000. This sum would have to be got by fresh taxes levied on articles of necessity whereas both beer and spirits are mainly articles of luxury. It would, it appears to the Executive Council, be indefensible to take steps such as reimposing the teaduty and increasing the sugar duty in order to have cheaper stout and whiskey. It has been argued that a reduction in duty would at any rate prevent a further decline in consumption and that a continuance of the existing duties will cause the demand to contract so sharply that in, say, three years from now the yield will be considerably more than £1,400,000 below the present estimated yield. But against this, the figures of the past two years makes it clear that the fall in the consumption of whiskey is becoming slower. If there were an improvement in agricultural conditions, the consumption of beer and spirits would go up.