Léim ar aghaidh chuig an bpríomhábhar
Gnáthamharc

Dáil Éireann díospóireacht -
Tuesday, 26 Sep 1944

Vol. 94 No. 12

Private Deputies' Business. - Transport (No. 2) Bill, 1944—Committee Stage (resumed).

Question again proposed: "That Section 15, as amended, stand part of the Bill."

The point I want to get at is why, with such a large amount of temporary capital there, which apparently has to be paid back, it is proposed to go in for additional temporary capital. The Minister said it was desirable not to have too large an amount of permanent capital in the company; that capital of this kind was necessary because it was expended and left no assets. Take the present £9,000,000 odd debenture capital. There is a lot of that not backed in any way by fixed assets of any kind. If, on top of that, we have additional capital of a debenture kind that is going to produce fixed assets, on what is the new fixed debenture capital to be expended? If the Minister replies that it will be used for replacements, I did not understand from him whether it would be used to replace capital or to replace the actual fabric of the railway company. It is a matter upon which we ought to have some information, because I think that with the enormous amount of debentures there already the idea of additional temporary capital to be added is a thing that would require some explanation. It seems to me to be objectionable.

One of the primary reasons why it is provided that all debenture stock should be redeemable is because it is necessary to fix a limit in time to the State's liability. Ordinary prudent financial procedure would suggest that the State should not enter into a contingent liability without a time limit. I said the normal company procedure would appear to require that fixed assets should be represented by permanent capital subscribed upon ordinary shares, shares which would earn a dividend only when a profit was made, and that loan capital would normally be secured upon the fixed assets created out of the ordinary capital but would be required for other purposes than the type of capital expenditure which was represented in buildings and permanent plant.

In this case you have the company constituted with a comparatively small amount in ordinary shares or common stock and a large amount represented by redeemable debentures. To understand the position properly it is necessary to remember the history of the undertaking. The undertaking is one in which a very large amount of money was originally invested, a substantial part of which must be regarded as lost, because it is represented by branch lines closed and abandoned and stock and equipment which are no longer of first-class utility. The stock and equipment may be in use at the moment, because it is not possible to replace them, but if we are to have an efficient transport system after the war, we must contemplate that a considerable part of the existing equipment will be replaced by more efficient equipment and on the construction or purchase of that more efficient equipment capital expenditure will be incurred. That capital expenditure will not, in fact, be adding to the fixed assets of the company; it will be a replacement of assets rather than an addition, although there will be some additional assets secured.

What kind of assets?

Take the rolling stock, for example. If, as is probable, it is regarded as desirable and necessary to replace the existing rolling stock either by rolling stock of a different character or more up-to-date design or a different composition of some kind, then clearly that capital expenditure is of the kind that should be repaid out of the earnings of that new equipment, if in fact there are earnings sufficient for the purpose. The intention is that the company should redeem the loan capital out of its earnings. In so far as the loan capital is represented by substituted debenture stock, it is under an obligation to effect its redemption after a definite period of time. For new debentures the circumstances of the issue of the stock will have to be determined and the redemption period will be fixed in relation to the type of expenditure in which it is proposed to engage. If the company were proposing to borrow an amount of money for the purpose of erecting new stations, presumably the repayment period would be fixed on a different basis than if the money were borrowed merely to replace existing rolling stock which normally would have a shorter life.

We cannot determine in advance the circumstances in which new capital expenditure will be incurred and, therefore, the terms will be fixed at the time of issue by the Minister for Finance and they will be fixed in relation to the type of expenditure contemplated. In the case of the existing debenture stock, there is proposed in the Bill an obligation to redeem that stock within a definite period. It is intended that this company should so conduct its affairs that in the course of 15 years or so, that is by 1960, when the substituted debenture stock will be due for redemption, its capital liability will be reduced in or around £10,000,000. If the company succeeds in doing that, then at some later stage I would imagine that the management of the company at that time, in consultation with the Government then in office, might regard it as a desirable arrangement that the whole of the outstanding debentures should be liquidated and replaced by a common stock, so that the company would, in fact, have no loan capital, that its capital liability would be represented by its common stock only and there would be no interest charge.

In answer to the Deputy's question, first of all the reason why it is intended to make the debentures redeemable is because it is considered desirable that there should be a limit in time to the State's liability, just as there is a limit in amount to the State's liability; and secondly, because we regard it as a sounder method of financing this undertaking having regard to all the circumstances.

There is just a point to which I want to refer in regard to the wording. I am not a lawyer, so I am not presuming to dictate to the Minister on the matter, but I cannot see that this phrase "including substituted debenture stock" does mean what the Minister intends it to mean. Should he not put in the word "original"? Apparently the Minister means that the debenture stock will include the amount of the original substituted debenture stock, although some of it may have been redeemed?

Is that really implied in the phrase as it stands?

It is intended to be, and I am advised that it is. The intention, as I have said, is that the aggregate amount of debenture stock which may be issued is £16,000,000. If at any time the company issues stock, and then redeems that stock, it has exhausted that power of issue, and can then issue only the balance between the total amount already issued and £16,000,000.

I see the Minister's intention, but is it not conceivable that a future Minister could read it another way?

I do not think so. I am not sure that an amendment of the section may not be desirable for clarification purposes, but that is the meaning it is intended to have.

Would the Minister have it examined before the Report Stage?

Certainly.

I assume that the maximum figure of £16,000,000 mentioned in the section here must be related to the activities of the new organisation over a certain fixed period. For that reason, I should like to know—I have already asked the question but I did not get an answer—what is the kind of scheme that the Minister and the chairman-elect have in mind in regard to the expenditure of the money asked for in this section?

There is not a definite scheme. We have just fixed that limit to the amount. We consider that that amount should be enough; therefore, it is the maximum amount we are proposing to guarantee. Probably a large part of the additional expenditure which the company must undertake will be financed out of revenue. As the House is aware, the company appropriated to depreciation last year a sum in excess of half a million pounds. It is not intended that that amount should be put into a bank and left lying there. It will be utilised for the purpose of financing some of the replacement of stock which is contemplated.

This is not a figure which was thought out in the dark by the Minister and the chairman-elect of the company. There must have been some searching of conscience or mind in regard to the whole matter. Some figures must have been put up by somebody. There must have been some scheme provisionally agreed upon.

It was agreed that, over and above existing capital, about £6,000,000 should be sufficient to meet all possible contingencies.

Surely the Minister is not going to suggest that the electrification of some portions of the system he proposes to modernise is to be provided for out of revenue?

The Deputy has some bee in his bonnet about electrification. I did not say anything about electrification.

Of course, the Minister did not. I want the Minister to say something about it, but apparently he will not give me the information I am looking for. The Minister knows perfectly well that we have been supplied with a well-thought-out plan for a rural electrification scheme to be carried out over a long period of years. I asked the Minister, and I hope he will now tell me, whether that rural electrification scheme is going to be related to any proposal for the electrification of the main line system of the railway?

It is not.

Or, for instance, the suburban system, say from Greystones to Dublin or Bray to Dublin?

The railways may be worked with any kind of power; I am not attempting to prejudice in any way the decisions of the company's board as to the type of power they will use. I am not going to prevent them from using electricity or oil or coal or any other fuel that they think is the most suitable and economical power to use. I expressed the view that electrification by means of a third rail or overhead wire—that was the type of development adopted pre-war—in relation to the main lines of the company is extremely improbable. There are several other methods of using electricity for locomotive purposes which may be suitable to this company. I am not going to express an opinion as to what is most suitable, nor has any decision been made, so far as I know, as to the use of electricity in any form by this company.

I take it that the expert who is responsible for the drafting of this scheme of rural electrification is associated with the Electricity Supply Board, and to that extent indirectly responsible to the Minister for the scheme which the Government has approved?

There is no relationship whatsoever between the rural electrification scheme and transport reorganisation.

I am amazed to hear that. I am not a financial expert, nor have I any technical knowledge whatsoever of the activities of the Electricity Supply Board, but I should imagine that the farmers of the country and the traders in the small towns and villages who, at the end of ten or 20 years, will have to pay certain charges for the rural electrification scheme, would have their charges considerably reduced if the main or suburban lines of our railway system were electrified.

It would not influence their charges in the slightest.

As I have said, I am not a financial expert, and, for the time being, as I have no one at my elbow to prompt me on the matter, I will accept the Minister's statement. This section as it stands is a very clear exposure of the revolutionary change in Government policy so far as the transport industry of the country is concerned. There is no necessity for me to refer to documents going back as far as 1931 or 1932 or 1933. I could quote a speech made by the Minister every year since he became Minister to confirm my statement—the Minister will not deny it, at any rate—that the transport policy of the Fianna Fáil Party was to devise a unification scheme under a policy of public ownership. This is a complete reversal of everything the Minister has said on behalf of his Government in connection with their policy on transport, and even of what he said here on the opposition side of the House.

I do not think this section has any relation to it.

This section is an amazing one. It proposes to give a guarantee on behalf of the taxpayers, possibly involving them to the extent of £16,000,000, to bolster up and modernise the transport system, and at the end of a certain period to hand it over to the common stockholders of the company. Is there any scheme to compare with this in any other country where a democratic Government exists to-day? There are certain aspects of this section that are very closely related to the Fascist policy as exposed after Mussolini became Head of the Government of Italy many years ago. I will justify my statement by quoting from the report of the Vocational Commission, which was under the chairmanship of His Lordship the Bishop of Galway.

So far as I know, the Italian railways are nationalised.

The railways are nationalised, but many of the sections of this Bill are stolen from the documents in the office that Signor Mussolini occupied for a number of years after he came into power.

Does it follow that nationalisation is Fascist policy?

I will quote from the Vocational Commission report at a later stage to justify what I am saying. At any rate, is it the policy of the Minister to use the people's credit to modernise a railway system, to increase its value out of all proportion to what may be the value of it to-day, and eventually to hand it back to the common stockholders of the railway, who have the ownership of the common stock of £4,000,00 under the terms of this Bill? Is that the intention of the Minister and is that what is going to be done?

If it should happen that any other transport organisation be taken over, by the exchange of debenture stock, will that policy eat into this?

The more we go ahead with this, the more I feel, every time I get up, that I must make an additional protest at the manner in which this Bill is presented to us. The Minister has said a few things just now which, if we relate them to one another, make the position more obscure. He stated, as far as I can understand it, that by 1960 he expects the capital of this company to be about £10,000,000. He said, when considering the issue of additional debenture stock, that it was thought that £6,000,000 would be the outside necessary for all contingencies. When we arrive at 1960 and we have the capital of the company £10,000,000, if £3,500,000 of that is common stock, then there is room for £6,500,000 debentures.

But, as against that £6,500,000, we have to picture the £9,800,000 substituted debentures that will exist when the company is formed and the additional capital that may be required for some of the developments the Minister spoke about—up to £6,000,000, let us say. Now, the £6,500,000 that is left of debenture stock in the £10,000,000 has to be juxtaposed in some way or another to the £9,500,000 of the debenture stock that will exist when the company is formed and whatever additional sum is added. If, say, £3,000,000 is the amount of additional debentures created for the purpose of carrying out the additional work, then there can be only £3,500,000 of the £9,500,000 substituted debentures left there and it implies that £6,000,000 of that £9,500,000 would be paid off out of the capital.

The whole £9,500,000 must be paid by 1960.

From my point of view, that makes the matter worse. I understood from the Minister on an earlier occasion to say it was possible that the £9,500,000 might not be completely paid off.

But it might be substituted again by the issue of the debentures.

But that is not intended. It is intended that the £9,500,000 be paid off completely.

That is one of the real reasons why we must oppose this measure at every stage. It says that between this and 1960 there is to be taken from the people £9,500,000 more than the proper and normal running of the railways will require.

Not necessarily. That is where the Deputy is wrong. I mentioned the fact that the company allocated to depreciation last year £5,500,000. If they could do that every year, would that not wipe off the £9,500,000?

Yes, but they allocated £500,000 for wiping off capital—or debts—at a time when their charges were of a shocking kind and were a shocking burden to the commercial community here and were a very big factor in raising the cost of living on the people.

The Deputy must remember this about railway charges: railway charges have been fixed, since railways were first built, on the principle of charging what the traffic will bear. That is the phrase in many countries which dominated the minds of the railway operators—the principle of "charging what the traffic will bear".

Is that not right and fairly sound?

It is the principle on which railway management worked and it seems to me very largely the only principle on which it can work. Conceivably, at certain times, railways may charge less than what the traffic will bear, in order to encourage a particular development, which ultimately will redound to their profit, or for some other point of policy. In practice, however, in normal times, traffic will not move at all, or move only very sluggishly, if the charges are too high. Charges, therefore, are so related to the requirements of the company and the nature of the traffic as to ensure that the maximum transportation will occur, yielding maximum revenue for the transport undertaking. In 1929, the Railway Tribunal determined a series of charges for the Great Southern Railways. It was obliged by the 1924 Act to relate those charges to the standard revenue previously determined by the tribunal under that Act. The charges had to be such as to yield a standard pre-determined revenue. The charges then determined have not been exceeded even during the war. The charges which the Railway Tribunal regarded as practicable in 1929 have not been exceeded now, despite the higher costs temporarily in operation. In fact, from 1929 up to the outbreak of the war the company never succeeded in making those charges effective, because they were more than the traffic could bear and they had continuously to appeal to the Railway Tribunal to let them charge less than the standard charges, because the traffic would only bear less.

But the Minister does agree that the luxury article bears a higher rate—Guinness' porter as against potatoes.

Yes. Deputy Hughes talked about sending diamonds by the railway. The railway could charge rates per ton for diamonds far higher than for potatoes. The railways revenue is not determined by its rates policy, but by the facilities it provides. If it provides adequate facilities for those who have goods to transport, then it will be able to make more effective the railway charges which will be more remunerative to itself. It is far more important that the railway should provide fast efficient services, the type of services the public wants, not merely the transportation of goods from station to station but perhaps from door to door, faster transportation, the type of re-organisation under which they will avoid delays in traffic and the loss to shippers and to traders which those delays involve. Any cattle trader will talk about fast cattle specials and the deterioration that takes place in the value of stock when transportation is delayed. It is the facilities rather than the rating policy that determines revenue and the purpose of this company will be to ensure that far better facilities will be provided than in the past and, if they are provided, the company will be able to make the rates effective and get the revenue.

Last year, whatever about the facilities they provided there were no alternative facilities available.

That is so. The railway company found it easier to get traffic during the war, because there was less competition. After the war, the company will have to compete not with other public transport operators but with private transport. I said before that I, as an individual, if engaged in some trade which involved a lot of travelling, would buy a car and travel in it, if it were cheaper and more convenient to do so than to avail of public services, but if the public services were substantially cheaper and equally convenient, in so far as they served every place I wanted to go, and were equally speedy, then naturally I would be inclined to avail of the public services in preference. In goods transport, the same applies, only much more definitely so, in the case of the private trader who might buy a lorry for the removal of his goods. Again, he will be influenced by the comparative economic advantages of having his own lorry or availing of the public transport service. If the company cannot in fact provide for most classes of traffic a better and cheaper service than the individual can supply, I do not think it will have a future at all except to a very limited extent. It is in the belief that it can do so in relation to very large classes of traffic, if not for all classes of traffic, that faith in the future of this company is founded.

I believe we are starting off with a very unhappy theory, that with a private monopoly governing the whole transport situation in this country, they are going to charge the rates that the traffic will bear. That is, the grabbing hand is going to stand at the doors of our farmers, manufactures and distributors, and will take just as much as it can take without stopping the traffic.

Or driving the traffic on to private lorries.

The Minister can have it whatever way he likes, but the motto that is going to be printed over the doors of the new transport company is: "We will charge whatever the traffic will bear." To show what a just and reasonable thing that is, what a proper and excellent thing, the Minister points out that last year they were able to put £500,000 to wiping out debts of one particular kind or another, at a time when, as I say, businessmen were being charged such shocking freight rates that they felt there must be business in it and invested money in this particular company.

Again, on the Minister's theory, you are driven back to a consideration of what the Transport Tribunal, in 1939, said with regard to the Dublin United Tramways Company:—

"We are of opinion that the company should not be empowered to charge such fares as may be necessary to earn a net revenue sufficiently large to enable this proposal to be carried out. In our opinion it is unreasonable to expect that for the next ten years the community residing in the areas served by the company should be obliged to pay, not only for the current cost of provision of the services placed at its disposal by the company ... but also to provide out of current revenue in such a short period so substantial a sum as £1,100,000."

We are being told quite pleasantly and openly by the Minister that under the scheme he is proposing here, whereby the transport company is going to charge what the traffic will bear, they are going to take, between this and 1960, £9,500,000 more than it would be necessary to take.

Question:—"That Section 15, as amended, stand part of the Bill"—put and declared carried.
SECTION 16.

I move amendment No. 30:—

In sub-section (2) (a), line 8, to delete the figures "1955" and substitute therefore the figures "1945".

Sub-section (2) says:—

"The following provisions shall apply in relation to the redemption of substituted debenture stock, that is to say—

(a) it may be redeemed at par in cash on the 30th day of June, 1955, or an any 31st day of December, or 30th day of June thereafter."

My amendment would have the effect of making that read that it may be redeemed at par in cash on the 30th day of June, 1945. It is bad enought to be resurrecting the Great Southern Railways Company stock at its full nominal value. It is more undesirable in the circumstances in which the country generally is, to leave that stock there up to 1955, without a chance of redeeming it on better terms. I am not quite clear as to the effect of the phrase, "It may be redeemed at par in cash on the 30th day of June, 1955" but if it would prevent the redemption of these debentures at a date earlier than that, I would object to it, because I think the country will wake up some day to see the mess that this represents, and will realise that if the British Government can get the money it requires for national work, to the extent of thousands of millions, at, say, 1.8 per cent., we cannot afford to pay at the rate of 3 per cent. for the carrying on of very necessary services here.

How does the Deputy's amendment, affect the rate of interest?

As I read the sub-section it would prevent the debentures being redeemed until the 30th day of June, 1955, and the Bill provides that 3 per cent. will have to be paid, with a Government guarantee, on the debentures as long as they exist. I believe that we may be driven, by a clearer view of the situation, to changing radically the control of the railway company before 1955 and to clearing out these debentures and replacing them by cash, or in some other way, which could be got at less than 3 per cent. for such an important purpose as transport. In order that we should have a free hand in that matter, I am anxious that any obstruction, which is implied in the sub-section as it stands, that would prevent these debentures being redeemed before 1955, should be removed.

Why is 1955 in here?

The position is that the company is given power to redeem these debentures at par, compulsorily, after 1955. It can call in the stock and pay off the owners of it at par. It may redeem the debenture stock, under Section 21, before 1955, subject to these conditions, that it shall not pay more than the redemption price for the stock; and it must redeem the debentures before 1960. I do not see that the change proposed by Deputy Mulcahy would effect any purpose except to increase the market price of the railway debentures by about five points to-morrow. If we accept the amendment, the company will be in no better position to redeem the stock than if the Bill is left as it is. What we propose is that the company shall establish a redemption fund and it may use that to redeem these stocks.

But that is from revenue.

Certainly from revenue. It has no other means of redeeming these stocks.

A Government in this country may be driven to finding some other means.

I do not understand that at all. What other means?

You may find, on the basis of this Bill and with the economic position we are facing in this country, that the Government will have to change the basis of this company and take it over as a State concern, before 1955.

That will not help it to earn another penny or increase by a penny its ability to redeem its debentures.

It may help it to run the transport system here on capital that will not be paying 3 per cent. for such an enormous number of debentures as is here.

What is capital? Capital in the financial sense is money borrowed from people for the purpose of investment. People will lend money only if the terms on which it is borrowed are attractive to them.

Is that the only way to get capital?

No, of course not; but there is the definite suggestion by Deputy Mulcahy that we should adopt the method taken by the British Government during the present war, in which they compelled people to lend at a certain interest. Of course, we could compel people to provide capital, and compel them to take whatever interest we liked to give on that capital. We could propose to give 1½ per cent. or 1 per cent., but I do not think it is desirable that we should do that. Capital is, in essence, money that has been saved in the past for the purpose of future investment.

Is that the only capital that has been used by the British Government in the present emergency, or is it not a fact that they have created enormous amounts of capital?

Did the Minister read the New Zealand system?

Yes, I know the New Zealand system.

New Zealand is a long way from this amendment.

The only thing to be said about capital is that it is money that has been saved for the purpose of investment, and people will only invest capital—in other words, the money they have saved—on the understanding that they will get some return for the money they consider worth while. Let us suppose that I have won £100 from the sweep—I have not won it, by the way, but suppose that I did win £100 in the sweep—I can save up that money, by putting it in the bank, or I can spend it on furniture, clothes, or other articles, which I think I may need. In other words, I can consume that amount of money within a month or six months, according to my desires, and I should be tempted to do that if there was nothing to be gained by keeping the money; but if, instead of spending the money on these things and getting its immediate benefit, I found that I could invest it in some stock which would pay 3 per cent., 4 per cent., or 5 per cent., then I might say that it would be better to have £3, £4 or £5 per year for my money than to blow in the whole £100 on furniture, clothing, and so on. Of course, the interest rate on investments varies from time to time. Everyone realises that. At the present time, you can borrow money on gilt-edged securities at 3 per cent.

In this country. You can ascertain, from stock exchange quotations of any type, what the rates of interest are—the rates at which people are prepared to invest money. At the present time, Government 3½ per cent. stock stands above par and people will lend money at above 3 per cent. Some people will say that they do not want a gilt-edged security—a security that is beyond any risk—and that they will be prepared to take a chance in some particular concern because it may pay a bigger rate of interest. Such a person may say: "I shall get 6 per cent. or 8 per cent. by investing in this or that concern," but that higher rate of interest is offset by the greater risk which these people take.

We think that we can get money at 3 per cent., and that is what is in the Bill. We are proposing that the debentures of the Great Southern Railways Company, which were issued at 4 per cent., will be replaced by 3 per cent. stock. The new stock may be issued at more, but we are only proposing to guarantee 3 per cent. Now, what is the effect of the amendment that is proposed here? It means that the stock may be compulsorily redeemed in 1945, instead of in 1955. If we were to adopt this amendment, it would mean that Great Southern debentures, which are now at 95, would be 99 tomorrow. It will influence the market, but will not be of any help to the new company. I think that the proposal in the Bill is a much better scheme than that suggested by Deputy Mulcahy.

Is the amendment withdrawn?

I am putting the question: "That the words proposed to be deleted stand part of the Bill."

Question put and declared carried.
Amendment negatived.

I move amendment No. 31:—

To delete sub-section (2) (b).

This amendment and Nos. 32 and 33, with the consequential, No. 34, meet much the same point and, I suppose, can be taken together. However, this amendment approaches the question from a different angle. As the measure stands, in respect of substituted debenture stock, the Bill says that it may be redeemed, at par, in cash, by the 30th June, 1960, and the Bill then goes on to say that if it is not redeemed before the 30th day of June, 1960, it shall be redeemed at par in cash on that date. I do not see why it is necessary to put this compulsory business in. Of course, the answer may be made that it is necessary to put in some date as the appropriate date, and that, therefore, 1960 is a convenient date, but I want to know why 1960 has been chosen as the appropriate date, and why it is necessary to insist on a date being put in. If there is power to redeem substituted debenture stock, as is provided in paragraph (a) of sub-section (2), and if the company is doing well and is in a position to pay off capital liabilities, it will probably do so; but supposing that the company meets hard times, that there is a deficit in its finances, a falling off in trade, employment troubles, and all the rest of it, what is to happen then?

Suppose that occurs in connection with the railway system, why should they be tied down to a redemption date which we fix in 1944, that is 16 years hence? It may be that there are reasons, which the Minister will give us to prove that if everything goes well, and according to expectations, the whole of the capital— that is the substitute debentures— ought to be repaid. The Minister cannot tell what fluctuations may take place in the meantime. At the moment, the world is in a highly disorganised state, and no one can foretell what may happen in the next five or six years, not to speak of the next 16 years. If this paragraph were omitted altogether it will not prevent the company from redeeming whenever they can do it. The only point is that as it stands it binds them to a particular redemption date.

The issue that is raised here is the question whether it is desirable that the company should be allowed to carry this capital liability for any protracted period. Let us try to consider the position of this company. We have not got for it the type of balance sheet that we have for the Dublin United Transport Company, but if such a balance sheet were prepared there would be on one side of it the existing capital liabilities—or for Córas Iompair Éireann the capital liabilities contemplated by this Bill— and on the other side certain assets. These assets will take the form of land, buildings of various kinds, rolling stock and similar equipment, road vehicles and other transportable property. There will be some item representing good will. Clearly, there must be, because the company has, as we know, engaged in considerable expenditure upon the acquisition and extinction of other transport licences. There may have been other expenditure which is not represented by any fixed assets, but clearly that expenditure is not represented by any fixed assets. Now, it is undesirable from our point of view that unremunerative assets of that kind should be carried for any length of time in the company's balance sheet. It may be that a proper valuation of the fixed assets will, in relation to the total nominal capital liability of the company, mean that the good-will item will not be very considerable. Let us, therefore, turn to consider what those other fixed assets are. They will be represented by the permanent way— the line—by a number of stations, by goods yards, workshops and rolling stock. I think it is clear, if this company is going to be in a position to attract traffic to it, it must provide the efficient transport service that we contemplate. To do so, a great many of the stations must be reconstructed; possibly the goods yards will have to be reorganised to make more economical working possible. Certainly, a large part of the rolling stock will have to be scrapped and replaced by rolling stock of a different type. A lot of its existing assets will, in fact, have to be replaced by corresponding, and more efficient, assets.

It is clear, therefore, that this £9,800,000 of a debenture liability, with which the company will start, will be represented on the other side of the balance sheet by a number of assets that will have to disappear, and with them should disappear the capital disability attaching thereto. The view, therefore, is that the aim should be to effect an amortisation of that capital in 15 years. We believe it is possible to do that; that the new system of working which can be brought into operation will permit of economies, apart altogether from the increased revenue that may come from increased business which will enable the redemption fund to be built up, to amortise that capital. There will be new capital expenditure incurred, represented by new debentures in respect of which the obligation to redeem at par in cash in 1960 will not apply. There will be some other redemption date, but it will not necessarily be that date. In regard to the capital liability represented by the new assets that will flow therefrom, the intention is that a situation should be reached in which the obligation to pay interest upon the capital, represented by displaced assets, will no longer devolve on the company. Deputy Davin appears to think that it will redound to the benefit of the common stockholders. It is not intended that it should. It is intended that the full benefit of the amortisation of capital, and the release from the obligation to pay interest on capital, will redound to the transport users, and in order to effect that we are fixing in the Bill a statutory limit on the dividends that can be paid to the ordinary stockholders. No matter how profitable the company's enterprise may become, the company cannot pay more than 6 per cent to the common stockholders.

During the emergency?

At any time. That is the provision in the Bill.

It is an emergency figure?

Relating to new industries?

On the contrary, if the Deputy will remember, the 6 per cent. which was mentioned in the excess profits tax provision in the Finance Act was subsequently changed to 9 per cent., and many industries say that on the 9 per cent. they cannot pay a dividend. That, however, has nothing whatever to do with this. Normally, people would be very slow, if not completely unwilling, to invest their money in common stock on which a dividend of not more than 6 per cent. would be paid, because, unlike preference or guaranteed debenture stock, there is, of course, no certainty that they will get any dividends at all. There may be years in which they will get no dividends. Naturally, therefore, the investor in common stock will say, "In return for bad years there may be years in which the stock will earn 8, 10 or 12 per cent.", and in practice 10 per cent. would not be regarded as an unreasonable dividend on common stock, having regard to the risk which the investor takes—the years in which he will get no dividend at all.

Those who want the greater security of guaranteed or debenture stock will have to be satisfied, in normal practice, with the lower rate of interest. In this particular case, we are proposing to fix a dividend limit. The intention of that is to ensure that when the stage is reached at which the company will have amortised its substitute debenture stock, and will have released itself from the interest charges attaching thereto, the additional revenue available will accrue not to the common stockholders but to the transport users, a benefit which will be represented either in a reduction of fares or in improved facilities.

However, to get back to the main issue involved here, the question which the House has to decide is whether the obligation completely to wipe out the £9,800,000 of substitute debenture stock in 16 years is too heavy an obligation to put on the company: whether we should prolong the period of redemption to the year 2,000, or prolong it indefinitely, and permit the company to carry that capital liability and pay interest upon that capital for a longer period, instead of the company so conducting its affairs that surplus revenue will be used exclusively for the redemption of this stock. We believe that the sounder system of finance—even though it may be regarded as conservative and may involve that major effects of reorganisation will not be experienced by the people of this country for some years to come —is to put that obligation on the company, the obligation to build up out of revenue a redemption fund to enable that capital liability to be wiped out and these interest charges to be got rid of. The assets which that capital now represents will disappear and be replaced by the new assets to which the new capital liability attaches. That is the principle of finance which we are establishing in the Bill. I am interested to know that it is Deputy McGilligan who is proposing a less conservative system of finance because, even though this may be regarded as conservative, it is not as conservative as the finance of the Electricity Supply Board.

How many years old is that?

Nearly 20 years.

People and new ideas have grown up since then.

They have. It may be that completely abnormal economic conditions, either national or international, will so affect the position of this company that it cannot discharge that liability at all. I think that, if such conditions should arise, the Dáil should have an opportunity of reconsidering the position. I do not want that remark to be misunderstood. I contemplate that the company will have that obligation and that the chairman, who will be appointed by the Government, will be told that we expect the company fully to discharge the obligation. If there should come about economic conditions so entirely abnormal that it would be unreasonable to expect the company to discharge the obligation in full, or if it could not possibly do so, I think we, as legislators, should meet here again and reconsider the position.

How does the Minister think the company can discharge the liability?

I think it can be done.

It is purely a matter of speculation.

It is a matter of judgment.

It is a matter of guessing.

We have for our guidance what has been done in the case of the Dublin United Transport Company. By the application of a modern system of finance and——

A continuance of emergency conditions.

Leave out the emergency conditions and consider what was done by the Dublin United Transport Company before 1939. Most of the changes which are now bearing so much fruit for that company were brought into operation before 1939 and were producing results for the company before 1939. They were able in that period to get rid of very heavy debenture liabilities, acquired in the past, which were represented by no fixed assets in the company's ownership. As I told the House, even at the present time, goodwill represents 60 per cent. of the total assets in the company's balance sheet. The company was able to effect a considerable improvement in the services it was giving to the public; it was able to effect a considerable improvement in the wages and conditions of employment of its workers and it was able to do all that without increasing the fares. Between the commencement of the period of re-organisation and 1939 there was a reduction of fares. I do not want to over-stress that because the House will remember that the company had a prolonged strike in 1935. That resulted in the award of an increase of wages to its workers. Not only did the company suffer a substantial loss during the period of the strike but it had to meet the amount of the increased wages to its workers. Arising out of that, the company decided to increase its fares. When re-organisation was entered upon at a later period, the view was taken by the directors that it had been unwise to increase the fares. That was, I think, a very wise view. The fares reverted to their original levels and, since then, there has been no increase. Despite that, the company was able to effect these improved services, improve conditions of employment, with enhanced benefits and pensions, for its workers, and wipe out a substantial capital liability.

How did they reduce fares and increase the revenue?

The only way you can increase revenue in a transport undertaking is, I understand, by reducing fares, provided you can provide facilities for handling the increased traffic when available.

They shortened the stages.

There was some curtailment of the stages since the emergency by Government Order. That was for the purpose of economy in petrol, tyres, and other equipment. The company should be blamed only for what it did of its own accord, not for what it was obliged to do by Government regulation. If we were to go outside this country, we could get examples to support our belief that, by reorganisation, economies can be effected which will enable this capital liability to be wiped out while, at the same time, the general condition of the company will be improved, as in the case of the Dublin United Transport Company. There is, as we know, far greater scope for reorganisation in the case of the Great Southern Railways Company than there ever was in the case of the Dublin United Transport Company. That being so, by use of the same methods, we believe we can get even more substantial results. One cannot stress too much the experience of the war years, because they are abnormal, but it is a fact that, even in the war years, the application of better management has brought about a substantial improvement in the company's finances.

Let me explain that it is not intended that the whole of the new capital expenditure which the company will undertake will be financed by the issue of new debenture stock. To the greatest possible extent, the company should utilise its surplus revenue to meet that type of expenditure and resort only to the issue of new stock when that course is unavoidable. New stock represents a permanent liability, whereas expenditure out of current revenue does not. I find it hard to make a convincing case that the company can, in fact, effect this amortisation of substituted debenture stock by 1960. We believe it can. We believe that it should be required to do so, that it is sounder policy to place that obligation upon it than to lengthen the period or release the company from the obligation completely. Our belief that the company can do this while providing better transport services for the public must, naturally, be related to something approaching normal conditions. If conditions should be so abnormal that the company will be completely unable to earn the necessary revenue—without raising political issues I may say that I refer to something equivalent to the economic war, which, in 1932 and 1933, did, undoubtedly, affect this and other transport organisations—then, we should consider that position here, but we should place this obligation on the company now and expect it to discharge it. We should be very slow to be convinced that such abnormal conditions had occurred as would justify us in releasing the company from that obligation.

What is the Minister's interpretation of "surplus revenue"? Is it the revenue which will remain after carrying out the projected development and paying 6 per cent. on the common stock?

The amount to be paid on the common stock is a matter for the directors. Six per cent. is the maximum they can pay.

What is the definition of "surplus revenue"?

The revenue which remains after the expenses of working and fixed charges have been met. The company will take in for the services which it renders a certain amount. Part of that will go out in meeting the cost of providing those services—payment of wages, purchase of coal and other materials. Over and above these working costs, there will be certain fixed charges—the interest charge on its debentures and certain other charges, such as the obligation which the company is undertaking in connection with its benefit scheme for employees. These charges will be met out of revenue. At that stage, some revenue will be left. Portion of that will have to be allocated to depreciation under the new system of financing which the company is adopting.

But it will not be insisted upon.

Power is taken to insist upon it. Power is taken to compel the company to reorganise its accounts. I understand that it has made an arrangement with the Revenue Commissioners which involves the appropriation to depreciation every year of certain sums, instead of the old system of allocating from revenue certain sums to maintenance and renewals. The depreciation fund will not, as I mentioned, be put on deposit in the bank. It will be utilised to effect the type of reorganisation we contemplate. The balance of the revenue will be available for the payment of dividend on the ordinary stock up to 6 per cent. or for whatever other purpose the company think fit to use it. They can use it in lieu of incurring new capital liabilities or they can allocate it to the debenture fund or devote it to any other purpose permitted by law which appears, in the view of the directors, to be in the best interests of the company.

That is not a definition.

The Minister has gone far outside the scope of the amendment I put down, but I may as well pursue the point now. The Minister talked about the finances of the Electricity Supply Board concern and, in view of his last few words, it looks as if he was going to force upon this company the most conservative type of finance, which is probably that represented by the Electricity Supply Board. It was the subject of comment in the Banking Commission's report that the Electricity Supply Board held obligations which no private company ever undertook, namely, amortisation, and at the same time the repair of wasting assets. If that scheme were carried through as planned and was put into legislation under persuasion, it was because the public was misled, in the main by the Press into the belief that the whole thing was most fantastic. It was put in to secure public confidence, by being over cautious. Under Electricity Supply Board finance, taking the average life of the plant as 33 years, the amazing situation aimed at in Electricity Supply Board legislation was that the people who get possession after 33 years will have a plant entirely free from debt, entirely modernised, and brought up to date. That is an amazing type of conservative finance. No private company and few public companies had anything like that forced upon them. From the Minister's last words I think something like that is going to be forced here.

No. In this case there is common stock.

The Minister said they were going to insist on depreciation of capital. I do not know what that means other than to wipe out a certain amount of the capital year by year. He also said that they were going to have certain renewals and repairs. If that be carried out it means that in 1960 this company will have the plant modernised, and will not have to pay 1d. in debenture interest.

It would be achieved in the case of the Electricity Supply Board but for the emergency. What happened? Consumers of electricity in this generation are paying charges which quite reasonably could be off-loaded on the next generation or on successive generations. The reason for that was, firstly, the fear inculcated by the Press that the undertaking would not proceed successfully, and, secondly, there was the absurd idea amongst the public that there might be other ways of generating electricity than by hydro-electric power; that the whole Shannon business might become a back number, and that it was best to amortise the capital as quickly as possible. Apparently we are setting out, not in a terribly well thought out way, to do much the same thing in relation to the railways. I object to that.

The next four or five years are going to be very critical ones in this country, and one of the things that the public will inquire into is the charges that passengers will have to pay for transport and that traders will have to pay for goods. I do not think it will be possible under this Bill to give them a fair deal in the way of transport. It is going to make it impossible to do so if the Minister sets out to depreciate the capital on some instalment system and, secondly, to insist on what was always regarded as a substituted type of railway finance, providing for renewals and repairs. The second thing that arises in the amendment is that the Minister says that in so far as we can regard this substituted debenture stock as being represented by something in the nature of physical assets these assets are wasting, and will be disappearing as years go on. We are to have a policy of getting rid of the capital some day, by which time whatever life there is in the wasting assets of the railway company will have disappeared. The position here is that there is a so-called redemption fund. There need not be one penny in the redemption fund before 1960 yet, at one fell swoop, the company will be bound to redeem the whole amount on the 30th June, 1960. One hopes that that will not occur. The situation would be bad beyond the gloomiest fears if it had to do that. If the Minister brought in some scheme where assets were valued, as far as the remnants of their life were concerned, and wrote off a certain amount of capital each year, according as the life of the assets disappeared, or was drawing towards a conclusion, I could understand it. The situation is that there need not be anything put into the redemption fund for years, and that then the company could be forced to pay off the whole lot. That is providing the back door is not open. Of course there is a back door, which we discussed on Section 15. There is no doubt that as far as two-thirds of this debenture capital is concerned the Minister for Finance can make more equitable terms, or terms more beneficial to the company than the terms in the sub-section. He could take over and could associate with the debenture stocks which will be created, and pay off these debentures on easier terms than those here as far as redemption is concerned. If the back door is not open then I think there is a very serious position facing the country.

I saw a letter in the papers in which reference was made to the trains. It contained a vivid description of the condition of an amount of the rolling stock. I also saw reference to premises and to the trucks. We know that the permanent way was under suspicion for a long time. I am still suspicious as to how it was brought to the point of being given first-class certificate in such a short time. The whole system has gone almost beyond redemption. The chairman's statement did not produce any belief in the company's property when he said the permanent way and the rolling stock were not in good condition. They would have to be brought into good condition. The company has to pay interest on debentures and has to redeem debentures, and presumably, if it is going to make a splash in Irish finance, will try to pay something on the common stock. It has to pay a good deal of that out of taxed profits.

The calculation I attempted to make the other evening seems to indicate that that is going to take £1,250,000. Outside the war years they never earned that or anything like it. The average amount, after meeting working expenses, was about £400,000. If they have to pay £1,125,000 they have nearly to treble the income and outside the war years they never earned it. I object to a comparison with the war years. The public are forced to travel by these conveyances. They are allowed to exercise no discretion. They are at the mercy of the charges imposed. Traders are also at the mercy of these charges and they are squealing about high charges. Complaints have also been made to the Railway Tribunal. I read of one where the secretary to the Minister for Finance described the whole thing as a blow aimed at the heart of a particular industry. We know the situation with regard to turf. Transport affects us all. I would rather have the system of putting repayment on the long finger than to force it at the cost of transport users or of the State. That is why I want the clause left out. If the money is there, and if there is good management, I hope the new directors will see that the money is paid when they can afford it, but I should like to give the same opportunity and enable them to reduce fares to attract more traffic to the railway system. They may be prevented from doing that which, from a business point of view, they would like to do by the rigid finance shackles which we put in this section.

I think that would be unwise. I do not want to be taken as agreeing with the Deputy that the back-door to which he refers is there. I do not think it is. The Deputy referred to the bad condition of the company's rolling stock. That is precisely the fact with which we have to deal. That rolling stock has to be replaced. Deputy Davin has in mind the possibility that the railways may be electrified, and, without appearing to convey in the slightest the suggestion that there has been any decision to do so, let us proceed to imagine for a moment that that is, in fact, the decision of the board at some future date. What happens? They decide that they have to get a new lot of engines, carriages and equipment of the kind and that all the old engines and carriages have to be scrapped.

No; I said the main lines and suburban services.

It does not make any difference whether there is electrification or anything else. If the company says: "We can afford to spend new capital on this equipment to replace existing equipment," we can say to them: "Yes, we will agree to your doing so, on condition that, first, the additional revenue you get from the new equipment will be sufficient to meet the interest charges on the money you have borrowed to purchase the equipment, and secondly, over and above that interest charge, the amount required to wipe out the debt still attaching to the equipment you are going to get rid of." That seems to me to be sound business practice.

That is an amazing imposition on a company. It means, in other words, that if a man in business sees a new profitable line but had assets in another type which he wanted to leave, the Minister could not allow him to get out of the old business until he had completely amortised all the old assets.

Even though he could see from the new business double the revenue he got from the old. A bank could easily get over that difficulty by lending money.

This is not a new business. The analogy is wrong. If I own a motor car and somebody invents a new kind of car which would be cheaper to operate than the one I have, I will buy the new car and scrap the old, if the advantage of doing so is sufficient not merely to enable me to pay the price of the new car but to recover the loss arising out of the forced sale of the old. That is the position which arises here and it would seem to me to be wrong to say to the company: "Not merely can you borrow the money to buy the new assets, but you can retain the money you borrowed in respect of the old one and continue to charge against the revenue derived from the operation of the concern the interest required to meet the demands of both lenders." I think that would be wrong. I feel that we should say to the company: "In so far as you have to effect this reorganisation, this re-equipment of your concern, you should, within a period of 15 years, wipe out the capital liability you started with which is represented by these assets which you are going to get rid of."

There is this difference between the arrangement contemplated here and that established in connection with the Electricity Supply Board. The Electricity Supply Board was required to amortise the whole of its capital. Every penny it got was borrowed money, and, from the moment it got the money, it had to repay to the Exchequer interest and sinking fund annually. It had, in addition to paying interest and sinking fund on the money it borrowed, to provide a depreciation fund sufficient completely to replace the assets created by the expenditure of that money. This company will have a common stock which is not repayable, upon which no interest charges will arise and upon which dividends will be paid only if profits are earned. To the extent that it has a common stock, it is in a different position from that of the Electricity Supply Board.

We contemplate that it will have other capital liabilities indefinitely. While it may be true that a limit of £16,000,000 is fixed as the aggregate value of all the debenture stock that may be issued and while it may be true that each debenture will be issued with a redemption provision attaching to it, we contemplate, at the same time, that, in 1960, the company will have debenture liabilities even after the substituted debenture stock has been redeemed and, at some later stage, the position will be solidified, either on the basis of a company with permanent debenture capital and common stock, or, as I would think better, a company with common stock only, but if that stage is reached, the nominal value of the common stock would be substantially higher than the £4,000,000 mentioned in the Bill.

You are trying to make them do this within a limited time.

We are trying to make them effect this redemption of the substituted debenture stock within a limited time.

Supposing railway electrification became a project about 1955. You are then going to force the company to depreciate good assets, not of any value in an electrified stage, in five years' time.

The company will not electrify its system or adopt any other change in its equipment, unless it is an economic proposition to do so. It is an economic proposition if in fact the saving to be secured is more than sufficient to pay the interest upon the new capital which must be invested and the charges still arising out of the old. If it does not, it is not an economic proposition.

If it does that eventually, but it is very hard to expect a company to pay all the charges in its first year, or even in five years, if you tie them down to 1960.

This is not a new concern starting off. It is already working.

It is worse than a new concern starting off. It is a concern whose assets have been described in the terms we have all heard.

That may be so, but it is these assets which, even though they may be as unsatisfactory as has been described, are earning revenue now. These assets have to be used now, because no other assets can be got. I agree that in a normal time, if competition were developing from private transport, the company could not hope to maintain itself with the existing equipment, but that equipment is worth something now. It is raising revenue now and meeting the transport requirements of the country now. At some stage that equipment will have to be modernised and improved considerably if competition develops, and it is precisely because that will be necessary that we put this dual obligation on the company not merely to effect such changes as will improve the revenue position, but improve it sufficiently to enable it to get rid of the old charges.

During the Siege of Derry, rats were sold at £1 per head, but nobody went into the rat-breeding business when the siege was over.

I think that analogy is wrong. Quite a number of people have gone into business during the war to meet a temporary need which they know they will be unable to continue when the war has ended. But, in the case of these people, there has been a definite understanding, not merely with the Department of Supplies but the Revenue Commissioners, that they will be allowed to recover, during the war years, the whole of their capital expenditure by making extraordinary appropriations to depreciation. The analogy works against the Deputy rather than in favour of him.

Were amendments Nos. 32 and 33 debated with this amendment?

I wanted to know whether I should endeavour to save amendments Nos. 32 and 33, but I take it that they, as well as amendment No. 34, are being decided.

Amendment put and declared lost.
Amendments Nos. 32, 33 and 34 not moved.

I move amendment No. 35:—

To delete sub-section (3).

The sub-section makes provision that debenture stock other than substituted debenture stock may be created from time to time, and that the redemption thereof may be decided as the Minister for Finance may approve.

After all that has been said about this matter, I am entirely against the creation of redeemable debenture stock. The case against it is the case that is being made all along. I do not know how, under the type of economic conditions that are operating at the present time, the whole of the substituted debenture stock can be recovered between this and 1960 in the way in which the Minister says.

This, I admit, would be quite an interesting discussion, and it could be a very useful discussion if we had any facts to go upon. The fact that would be of most importance is missing out of the whole picture, and that is, how much debenture stock it is suggested would be raised for the purpose of carrying out additional developments in the transport system here. We know that £9,800,000 substituted debenture stock has to be paid off by 1960, but we are given a very poor picture of what the additional debenture stock that is to be provided here will be spent upon and the amount of it there will be. Deputy McGilligan has commented sufficiently on the hardship in present circumstances of requiring that where you have debenture stock with a fixed interest, at the same time it should be required that the capital would be repaid as well. At any rate, until we see how this company gets on, repaying or wiping out the substituted debenture stock that exists to such an enormous amount, we should not saddle the company with any further addition of debenture stock that would be of a redeemable kind. It is for that reason that I oppose this proposal.

There is no prospect that the Minister for Finance would agree to a Government guarantee attaching to debenture stock without a redemption condition. He would regard it, and rightly so, as very bad finance from the national point of view to have a contingent liability on the Government of indefinite duration. If the Government steps in to give the assistance of a State guarantee to this company, it should limit it in time, just as it limits it in amount. That is the reason why the debenture stock is made redeemable, so that the Government's guarantee will be limited in time. I am sure the Deputy will agree that there should be at least the power to attach a redemption condition to the issue of the stock. What is provided here is that there must be a redemption condition attaching to it. It need not be a very onerous redemption condition. The stock might be redeemed in 50 or 100 years, but the Minister for Finance holds strongly that there should come a day in which the Government will be released from its guarantee and the contingent liability on the Exchequer will no longer exist.

It would, I agree fully, be a very onerous burden and an undue burden on the company to require it to redeem any new debenture stock issued prior to 1960; that is not contemplated. While there is no provision in the Bill which limits the discretion of the Minister for Finance in that matter, I can assure the House that will not occur, except the money is borrowed for some purely temporary purpose, and it would be regarded as sound practice that it should be redeemed in that period. I mentioned before that it is probable the redemption condition will vary with the nature of the expenditure. If the company want to spend a couple of million pounds in the erection of railway stations, a 40 or 50 years' redemption condition would be reasonable. If they wanted to spend money on rolling stock, a much shorter redemption period would normally apply. We cannot determine those things in advance and there would be no redemption condition which could apply to all circumstances.

The State is in this matter taking on a contingent liability, one it is true it may never be called upon to meet, but we should be concerned to ensure that the liability is not an indefinite one; that we will know it is not merely limited in amount, but also limited in time; that a stage will be reached when we will have discharged that liability and when there will be no longer any obligation attaching to the State.

Question—"That lines 16 and 17 stand part of the Bill"—put and agreed to.

I move amendment No. 36:—

In sub-section (3), to delete lines 18 and 19 and substitute the words "and conditions as regards the rate and payment of interest".

As Deputies will have noted, the original provision in the Bill was to the effect that the rate of interest on debenture stock should not exceed 3 per cent. It was considered that there may be fluctuations in market conditions and we examined the possibility of permitting the company to issue its 3 per cent. debentures at a premium or discount, according as the market conditions required. There was substantial objection to that from the finance point of view, and it was clear that if that position was sustained some alterations in the provisions of the Bill would be necessary, because conceivably the company could not succeed in raising money in circumstances in which 3 per cent. debentures were discounted by the market and it could only issue 3 per cent. debentures at par. If the existing 3 per cent. debentures were sold at less than par, no one would buy. As there was objection on financial grounds to permitting the company to issue at a premium or a discount, we had to adopt the alternative provision that is contained in this amendment.

We are contemplating the possibility of a variation in the rate of interest on the debentures. There might be a first or second issue at 3 per cent., but an alteration of market conditions may require that the subsequent issue would be at 3¼ per cent., and there might be an issue at 2¾ or 2½ per cent. But if the issue could not be at 3 per cent. on stock of this character, the company might have to offer a higher rate of interest. We are proposing that the State guarantee will not exceed 3 per cent. and, if it should be necessary for the company to issue at a higher rate, that issue will be guaranteed only to the extent of 3 per cent. This limits the State's liability on new debentures to 3 per cent., but it permits the issue of new debentures at par in varying market conditions.

The net effect of the deletion of these two lines: "(a) and conditions as regards the payment of interest (which shall not in any case be at a rate exceeding 3 per cent. per annum") means that we have got rid of the upper maximum of 3 per cent.?

In so far as the interest on debentures is concerned, not so far as the State guarantee is concerned.

So far as the debentures that will be issued are concerned, there was an overriding maximum of 3 per cent. That is now gone and the Minister has spoken of it as if he does not know what the rate of interest may be. It may be 2½ or 2¼. It might be 1 per cent. of course. It is quite permissible to think in terms of 1 per cent. under this amendment.

There is no law against it.

There is no law against it; it is only a question as to whether people's minds can be adjusted so easily to receive that idea. I should like to get some upper maximum in.

The Deputy will appreciate the difficulty.

I do not mind giving flexibility.

That is all that is in it.

I do not like the implication that goes with this.

There is no implication. I may say that when I framed this Bill originally I had to deal with that possibility—that the market rate might be 2? per cent. or 3¼ per cent., but the company could only issue at par 3 per cent. stock. I felt that it could meet that situation by issuing its stock at a discount or by issuing it at a premium, which would, in fact, mean that all its debentures would be 3 per cent. The Minister for Finance objected to that because it left again indeterminate the amount of the liability which the State was undertaking. I could not say that the State's liability was limited to £16,000,000, because conceivably it might be more in certain circumstances. In order, therefore, to permit flexibility, we had to devise the other system which enables the company to issue debenture stock at some other rate than 3 per cent., but if it has to go above 3 per cent. then the State limits its guarantee to 3 per cent.

Amendment No. 36 put and agreed to.
Section 16, as amended, put and agreed to.
SECTION 17.

I should like, if I may, to take amendments Nos. 37, 39 and 40 together. They are not entirely the same thing, but they all deal with financial proposals.

Very well. It might shorten discussion.

I move amendment No. 37:

In sub-section (1), line 30, to delete the words "principal moneys and".

I do not suppose we will get this very important question discussed to a conclusion on this matter which is not finance generally, but only finance as it affects transport; but I should like, on these amendments, to see if I can give a lead with regard to certain new views that are coming to be accepted even by orthodox people, and to see if we can get any volume of opinion to support them in this House. I object —I think it is wrong—to tying this company down to the payment of 3 per cent. on debentures, but the House has taken a decision on that. I have to approach the matter then from the point of view that it is not giving new financial proposals a proper run, in order to try to put it into the framework of what has already been said.

I ask in this amendment that, when the Minister for Finance goes to borrow, he will not be tied to the ordinary old-time method, that of going to the people who own capital in the country and saying to them: "We know you have money. We know you have fruitful fields of investment for it. We know we are asking you to do something in the nature of a mortification of yourself by lending it to us for transport purposes, and, therefore, we are going to pay you a big rate of interest on it."

The Minister spoke here quite recently as if all borrowing must come out of savings to start off with, and as if all savings must be deducted from easy avenues of investment open to the people who have the money. I suggest to the Minister that that view is nearly as old as the finances of the Electricity Supply Board, and pretty nearly discarded. There are very few even orthodox financiers who, at the moment, will agree with the theory that borrowed moneys must come out of savings; that the only fund there is for investment is what people save. Unfortunately, in the case of most of us who are dealing with this matter, our savings are around our own persons. With the cost of living as high as it is, if people want to save money from one purpose, like dining out, to put it into education, there must be a bit of a strain. When you get into another class, where money has to be saved from insurance to put it into education, there is a greater strain. The people of this country, under the impact of the last five years' peculiar finance, have had to save from such valuable things as insurance in order to spend money on food, and of course that is a very annoying type of saving. That sort of personal attitude towards this idea of not spending money on one thing for which it is needed because you want to spend it on something else in regard to which there may be more urgency, accustoms people to thinking of national or community finance in the same terms. I suggest that most of the people who write about finance have discarded that idea. It was really an appropriate idea only at the time when there was what was called saturation of capital, when capital was under such demand that there was not enough of it to supply the demand.

Then, undoubtedly, whatever was spent on the one hand had to be saved from something else. But, with this war under our eyes, when everybody knows that there is money being spent which never was anybody's possession, money which certainly never was saved out of what they were earning, the sums are so vast that the mind simply does not accept that old-time conclusion of the saturation of capital. Everybody knows nowadays that the money which is being spent is not money which anybody had at any time owned prior to its being put into munitions or anything else. It was money that was created for the purpose, and there is nothing—this may be paradoxical—in the background; it is not because somebody in the past made the money, in the sense of having schemes of saving, but because there is something in front of it; because there is productivity arising out of the money that is being spent, under some idea of safety which is regarded as at least a good payment of insurance.

I do not think we are going to fall out of the habit of regarding money in another way. Banks and all sorts of houses simply create money. Do not let anybody be shocked by that, and think it is something which is done elsewhere. We have created money. We have printed money. After the last five years' experience, we should have discarded the idea that the turning of printing presses on notes or anything that passes for currency is something as far off as Russia. We print whatever notes are required here, and the requirements do not come from finding out what people have made, and whether they have deposits in the bank from which they can draw. We print notes when people present us here with British legal tender and demand Irish legal tender instead. We print it for them, and I suggest that we should print it at least as readily—always guarding against the dangers of over-printing—when the demand comes not from people who have English money and want it changed into ours, but when there is some good purpose for which Irish money is required. I suggest, therefore, that when the Minister goes to get the sums of money which are required, he may create and issue securities bearing such a rate of interest, if any, not exceeding 2½ per cent., or subject to such charge to meet administration or service costs as he shall think fit. I have previously said that he may borrow from any person or any corporation, fund or bank, including the Central Bank.

I bring in the Central Bank because if there is any institution in this country which should be endowed with the power to print notes, to create money, it ought to be an institution somewhat under Government control, and the power should not be in the hands of the commercial banks as it is at the moment. We could simplify, of course, the matter of currency in circulation at any time by this habit of changing cheques. Cheques pass as quickly as bank notes. They are all equally valuable as money, because the State assistance has to come in if there is any crisis. I ask that the Minister should be allowed to borrow from any corporation, from any fund, or from any bank, including the Central Bank. I simply wish to ask that we should recognise that, in the financing of a transport venture, if it is to be a source of advantage to the Irish community, that service be rendered to the community at as little cost as possible. One of the charges we should cut out is the charge for the loan of money. The Minister is still in the days where he thinks he must go to the people who have money, that he must approach them as people who have other fields for investment bearing an average yield of about 5 per cent., and that he has to induce this money away from those people to this particular purpose by offering a bit more than the 5 per cent. I suggest that that is not the situation in this country and I suggest that, if necessary, new money should be created. It would have to be created under new conditions which would avoid the evils of overproduction of money in certain circumstances, but I do not think we need do that here. That is why I put in "a corporation, fund or bank". We have in this country, lodged in the banks, according to the latest calculations I saw, the sum of £91,000,000. That was at the end of the year 1936. That was in time deposits—money lodged on deposit receipt.

At present, the amount lodged on current, deposit and other accounts is £178,000,000, inside the State.

It is a vast sum— certainly over £100,000,000—lying on time deposits in the banks, and the people who have it there are getting 1 per cent. That money can be put into active circulation now.

Is it not?

No, it is not.

It is invested in securities to fight the war.

Yes, at 1.8 per cent., on the other side. The banks can afford to do that with a big amount of this money lying on time deposits, because they are getting such an extra amount on their other banking business. At any rate, there is ordinarily a very big amount of money completely or almost completely idle. I think that the Banking Commission estimated that about £36,000,000 belonged to what is called the farming community. That may include the publican in the town who has a piece of land on the outskirts. I do not think it means entirely the agriculturists, as we would call them—the people who own and work the land. Those people who are described as the farming community have that money there and are drawing 1 per cent. on it. That money in the main is not in use in the country, but is there to be tapped at anything over 1 per cent. If we were able to get the £16,000,000, or the £5,000,000 the Minister for Finance requires, out of that fund, it ought to be induced at 1½ per cent.

On condition that we repay it at a week's notice? You could not run a railway on that basis.

That is the old argument about liquidation. There never was anything so nonsensical as this business about repayment. The British have financed the war on a system called temporary borrowings and the temporary borrowings are being repaid by other temporary borrowings and the one is piled on the other. No one believes that the people who lend that money are putting it there because they believe that, if they all rush into the banks together, they will get their money at a minute's notice.

If we use it for the railways, and that happens?

They know that if they rusned into the banks or the railway for repayment, there would be the same critical situation as in 1914 in the United Kingdom and in this country. The position is portrayed by the joke about the man who had a bit of money and hurried to the bank when the crisis was on, saying: "If you have not got my money, I want it; but if you have it it does not matter." It is exactly the same about the week's notice—mention of it shows the old-time finance state of the Minister's mind. If that is all we want to get rid of, if there is over £100,000,000 left relatively idle here and only returning 1 per cent. to its owners and if what they require is the promise that at a week's notice they will get it, it is a very easy matter to segregate £5,000,000 or £10,000,000 or even £16,000,000 out of that £100,000,000 and say that the State will guarantee the repayment, if the people desire the money at a week's notice and will give State money for it. You can print the State money inside a week, and that is all you require.

In addition to that, there is another fund, built at considerable expenditure of enthusiasm—the Savings Certificate fund. A large amount of money was collected into that fund and then an Irishman who was very definitely connected with that movement broadcast to the public that the Government had called the savings enthusiasts into Government Buildings and had asked them no longer to push the sale of Savings Certificates, as they did not want all that money. They said it was too large and was an "At Call" loan. Again it was this idea of being able to meet a demand for repayment. An enormous amount of money was obtained, and at the time this man broadcast there was about £7,000,000. That was not the whole of the Savings Certificate fund, but was the amount gathered in at a particular period. The point was that, if the £7,000,000 were called for at a week's notice, it could not have been paid, as the Government would have to step into the gap and give Government money or, in other words, go in for the process of printing money. We have done that over and over again here when the conditions demanded. There is a very big amount of money in Savings Certificates and it is quite clear to those in charge of that movement that very large sums of money could be got at a low rate of interest and low rates of payment back to the people who own the money.

All that money from either fund I have mentioned can be canalised down towards such a thing as railway finance. I suggest that there should be power to do so. My amendment only gives the Minister power to do this. If the Minister for Industry and Commerce shares the confidence of the Minister for Finance and if he is, in fact, speaking out of this confidence here, empowering either of these moneys to be used will not do much good as, with that viewpoint, they will not do it. However, I would like the power to be there, so that when the time comes and someone is dealing with finance who has a more liberal outlook, they will be encouraged to go to those funds where the money is idle on time deposits or in Savings Certificates, or in such further sums as may be collected. The peculiar thing is that in this country we must come to the conclusion always that we suffer from a glut of capital. When you have a glut of anything, it generally cheapens, but in our case the capital remains dear. It does not keep dear really, because if you get behind the scenes somewhere, you find that all the deposits are going to the financing of the British war effort.

Over £100,000,000 goes, as published in the Government's own journal.

At 1.8 per cent., and the pretence is to be kept up here all the time—a pretence which, unfortunately, the Minister appears to have taken over—that those who have money to lend here are all people who must withdraw it from some other fruitful source of investment and that we, therefore, have to remunerate them accordingly and try to attract it at a larger yield into railway finance. I think that is a complete misrepresentation of the circumstances.

It is certainly a complete misrepresentation of my view. I should say that the big increase in the amount of Irish money reinvested abroad represents money that we cannot spend.

That is only bringing us back to war conditions. Undoubtedly, there is a whole lot of capital here in the banks on deposit which should be represented by goods on shelves. It is not because we cannot buy the goods. Supposing we get back to conditions similar to 1936, 1937 or 1938—a normal period pre-war —and that all the money that should be out on consumable goods is again being invested in consumable goods, we still would have a vast sum of money idle—far more than we can invest here and more than we can get profitable investment for abroad. The peculiar situation is that, although it is lying here, these owners are content with 1 per cent. and are no doubt being filled up with this idea that the reason they should take 1 per cent. is that, if they go in to-day for their £100,000,000, the banks will be able to give it to them inside seven days. Of course, the banks cannot do anything of the sort, but on that pretence they are being held to this 1 per cent. The real background is that, if everyone wanted the money at the same time, the Government would have to step into the breach and would have to pledge the whole credit of the State.

The State clearly in these days must be in the background all the time. It can, however, make living hard for itself by an improvident system of management. A State which has within it men who can work, a certain amount of machines and a certain amount of raw material, is not in danger of going bankrupt. It may, however, make life hard for everybody. If all the depositors with time deposits in the banks want to withdraw their deposits at the same time, there is no money in the banks to pay them, but there is Government backing. That is sufficient and I want to cash into that system. I move to report progress.

Progress reported; the Committee to sit again.
The Dáil adjourned at 9 p.m. until 3 p.m. on Wednesday, 27th September, 1944.
Barr
Roinn