In view of the uncertainty surrounding the Government's financial policy and in view of the misleading nature of the Minister's statement yesterday in general, and the Book of Estimates in particular, I think it is no harm to remind the House of the clear-cut financial policy adumbrated by the inter-Party Government in relation to the means by which the inter-Party Government proposed to finance the capital investment programme of last year.
Deputy McGilligan, in his Budget statement last May, at column 1905 of Volume 125 of the Official Report, said:—
"Of this sum"—that is to say of the sum of £22.3 million—"£21.7 million was obtained by borrowing, the balance being found by the reissue of loan repayments, by drawing down the Exchequer balance and by using the surplus on current account. The greater part of this £21.7 million was obtained through the issue of 3½ per cent. Exchequer Bonds last September and by drawing on new deposits in the Post Office Savings Bank, the balance of £7,500,000 being obtained from the American Loan Counterpart Fund."
That was the method by which Deputy McGilligan told the House the capital investment programme of the year before had been financed. In the coming year he had proposed to finance the capital investment programme as follows:—
"To meet this year's requirements it is estimated that a net sum of £28.7 million will have to be found. It will be necessary to seek again public subscriptions to a national loan. It is earnestly hoped that these subscriptions and savings through the Post Office Savings Bank and Savings Certificates will provide all, or at any rate, most, of our requirements. It may be necessary to have resource to the American Loan Counterpart Fund, but it is desirable that this should be moderate..."
Deputy Lemass followed Deputy McGilligan in the debate on the Budget and it was quite clear from Deputy Lemass's statement that he and his Party were against a policy of borrowing for capital development. He referred at column 1913 of the same volume to the "enormous expansion in the State debt" during the period of the inter-Party Government and said:—
"For how long do you think it is possible for this State to keep adding to its debt in that way when, as the Minister admitted, the investment is not expanding and is unlikely to expand the national production in a corresponding degree?"
In the next column he said:—
"Must there not be at some stage a dropping of the political cowardice which has characterised his policy from the beginning and some realistic facing of the country's problems?"
It was reasonable to assume, when the Fianna Fáil Government took office, shortly after this debate on the Budget took place that, as far as the Fianna Fáil Party had a policy, it was directed against borrowing for capital purposes.
Shortly after the change of Government a debate took place in this House on 18th July, 1951, and the policy of the Government came under review by the Minister for Finance. In the course of his remarks—Volume 126, No. 12, column 1873—the Minister referred to the problems which were clamouring for discussion and these were, first, the character and adequacy of the current year's Budget; secondly, the problem presented by an unwieldy programme of capital expenditure. Then he went on to refer to the balance of payments problem and the dissipation of our external assets. Second in priority the Minister put the unwieldy programme of capital expenditure and we on this side of the House assumed—and we were entitled to assume—that our programme of capital development would be pruned if not cut away altogether. Speeches were made during that debate and subsequently outside the House defending our capital Budget programme and pointing out the necessity for maintaining that programme.
The House is well aware of the events which occurred after that debate. It is well aware of the speeches that were made during the Summer Recess. It is not necessary to recall the crisis and panic speeches that were made leading up to the issue of the Central Bank Report and the policy of deflation adumbrated in that report.
During that stage of the Government's career the people were entitled to assume two things—first, that the capital investment programme was under review and was likely to be cut down and, secondly, that if it was not cut away altogether such of it as was left would be financed by taxation.
Then we came to the debate on the Supplies and Services Bill last autumn and it was with a sense of relief that we heard at any rate one Minister, and the most influential Minister, the Minister for Industry and Commerce, categorically denying that he was against cutting down on capital development and we hoped at any rate that he had brought his colleagues the full way with him in that policy.
I asked the Minister for Finance then a question in the Dáil as to what items of capital expenditure itemised in the Book of Estimates prepared by his predecessors he was going to cut down on and the answer was that the full items set out in the Book of Estimates were going to be expended this year.
It was at this stage then that we had reached a situation that the Government was prepared to carry out our policy of capital investment. There was one vital matter still remaining uncertain and that was the manner in which that capital Budget was to be financed. It will be recalled that Deputy Lemass, the present Tánaiste, had come out against borrowing for capital investment in his speech on the Budget. It will be recalled that the Fianna Fáil Party had expended large sums in placing advertisements on the public hoardings throughout this city in which they came out against the borrowing programme and told the people that the inter-Party Government was putting this country in pawn.
We asked the Government were they going to float a national loan as Deputy McGilligan had announced in his Budget statement. The reply I got when I put down that question in November was that the matter was under review. In December, the Government announced its intention to go to the public for a national loan. It has not gone to the public since that and it is well known why it has not gone to the country. Because of its failure to float a loan in August or September of last year, as its predecessors would have done if they had remained in office, because the market had slumped, it was highly uncertain as to whether the Government would be able to fill a loan if they went to the country after September. Because of the failure of the Government—a tragic and almost criminal failure—to go to the country last July, August or September for a national loan, the only way in which the Government could finance the capital investment programme was by drawing on the American Loan Counterpart Fund and dissipating it completely in one year. The Minister yesterday interjected in the course of the debate that he had spent the American Loan on commitments of his predecessors. There are two comments I would like to make on that. Firstly, the commitments of his predecessors were not to be met out of the American Loan Counterpart Fund: they were to be met by a national loan and by drawings on new savings in the Post Office Savings Bank; and the balance was to be met, as it had been met the year before, by drawings on the American Loan Counterpart Fund. The figures have been given in the Dáil already and it is worth repeating them:—£18.1 millions of the Counterpart Fund was used up between 19th January, 1949 and 13th June, 1951; £18.5 millions was used between 13th June, 1951 and 30th October, 1951; and the balance has since gone. The year before, in the whole year, the inter-Party Government had only drawn to the extent of £7.5 millions on the Counterpart Fund and that was because it had borrowed from the public, it had floated the greatest national loan that this country has had; and it was because of its intelligent policy of increasing savings. By that policy the Government was able to draw only for a minor proportion of its total investment programme on the Counterpart Fund.
Because of the criminal negligence of the Government last year, in failing to take the opportunity when the opportunity presented itself in July, August and September to raise a national loan, the only way they could finance the capital investment programme was by drawing on the Counterpart Fund and dissipating it completely, so that this year now the public will have to face all the rigours of taxation in order to help to meet the capital investment programme. That is the first comment I have to make on the Minister's statement yesterday that the Counterpart Fund was used to meet the commitments of his predecessor.
The second matter to which I wish to refer in that connection is this. The Government came into power within a matter of weeks after the presentation of the Budget. The Government then could have taken any decision it liked in regard to any matter of the capital investment programme or any item in the Book of Estimates. It could have pruned them or cut them as it liked and it was under no obligation to continue the investment programme as set out by its predecessors. We, I think, were correct in believing at the beginning of its period in office that the Government were uncertain as to what they were going to do with the capital investment programme. Deputy MacEntee referred to it as "an unwieldy programme of capital investment". It was within their power within a couple of weeks after coming into office to cut down any one of the commitments of the inter-Party Government. I am glad to see that in the course of time they recognised that every one of those commitments was valid and good and productive of wealth and of employment in the State, and in a period of time they realised that none of those commitments should be cut down. It was in their power, however, to cut them down if they did not believe in them. It was also in their power to finance them, as they should have been financed, by floating a national loan. Instead of that, they dissipated the American Loan Counterpart Fund completely last year.
The Minister in his speech last July also made a statement which is a valid statement of economic policy, but it is not necessarily a statement which we would agree would be applicable in the circumstances in which this country finds itself at the present day. In Volume 126, No.12, column 1876, the Minister said as follows:—
"No one with even a rudimentary acquaintance with economics should be complacent about Budget deficits in present circumstances. I think that all will concede that, in an inflationary situation such as exists in the world to-day, the least the State should do is to refrain from making things worse."
The Minister then was coming out against what he termed "Budget deficits". To use the phrase without prejudice, just for the moment, as the Minister used it, that is to say, to arrive at a Budget deficit by deducting revenue from the total amount of expenditure, both capital and current —by using that definition we found that the Budget deficit this year he estimates will be in the nature of £50,000,000.
I want to say, firstly, that I do not believe there will be a Budget deficit of £50,000,000. I believe that the Minister is deliberately inflating the figures so that he will be able to come to the country when he introduces his Budget and say: "It is not as bad now as we expected." When he comes to his Budget statement in April, I would be prepared to prophesy that there will not be a Budget deficit of £50,000,000. But supposing the Minister is correct, he is this year deliberately creating a budgetary deficit. He describes such a deficit as inflationary and says that—
"anybody with a rudimentary acquaintance with economics would know that the least the Government should do is not to help the inflation by creating a budgetary deficit".
With that knowledge at his disposal and with that doctrine in his mind, he is deliberately, therefore, creating a budgetary deficit this year to the staggering sum of £50,000,000. Either the Minister's economic doctrine is wrong or the Minister is deliberately setting out on a policy which is of a directly inflationary type.
There is another matter to which the Minister did not refer. It must be recognised that a plan or a scheme of large-scale domestic development of capital assets by a Government is a direct way of increasing the deficits in the balance of payments. The last Government with its eyes wide open proceeded to expand its programme for capital development, knowing that thereby the deficit in the balance of payments was going to be broadened. Yet the Minister here seems to be worried to the point of distraction at the deficit in the balance of payments, and he is going to increase that deficit by his own deliberate policy.
I wish to refer shortly to this question of a deficit in the balance of payments. If the Minister is sincere in wishing to get us into equilibrium at the present time and if he believes that large-scale capital development is inflationary and is going to increase the deficit in the balance of payments, he has no right to introduce a bill here for a deficit of £50,000,000. We have the extraordinary spectacle of the Minister appearing to fear a deficit in the balance of payments to the point at which he says we are on the verge of desperation and at the same time he is bringing in a bill here for the country to meet which is going to increase that deficit greatly. The Minister has it in his power to reduce the deficit in the balance of payments, to reduce the inflationary pressure— if he believes it is necessary to reduce those things—by reducing the capital investment programme; and he has not done so.
I am glad that he has not reduced the capital investment programme. It was one of the matters in which the previous Government took the greatest pride, and legitimately, I believe, took the greatest pride, this programme of national development. The inter-Party Government set out deliberately to increase the capital assets of this State and it did so with its eyes wide open. It recognised that the savings of the community, current savings, were inadequate to meet the capital development which the country required, and, in order to meet that development, it was necessary to draw on our past savings in the form of disinvestment from abroad. Anybody with an acquaintance with the figures will realise that our current savings are inadequate to finance the scheme of capital development which we had proposed or to finance the scheme of capital development proposed by the present Government.
The only means by which it can be financed is by drawing on past savings, by disinvestment of external assets. We were prepared to follow that programme and we followed that programme with our eyes wide open to the consequences. The Government incurred a deficit in the balance of payments in order to enable schemes of capital development to be carried on, and, if there were no deficits in the balance of payments in the past three years, capital development in this country would have been greatly reduced, and the housing programme, the hospitalisation programme, telephone and electricity development and land rehabilitation would have been largely cut. The previous Government thought these things were more important to the nation than the preservation of foreign assets which were depreciating yearly and which were liable to disappear almost completely in the course of time, if they were left where they were.
The Minister came out with an extraordinary statement yesterday in relation to the deficit in the balance of payments. As I heard him, and as he is reported in the Irish Press this morning, he announced that, in all, between 1947 and 1951, there was a fall in our external assets of £155,000,000. He has arrived at that figure by adding up the deficits in the balance of payments for each of these years and has assumed, in doing so, that the deficit in the balance of payments last year would be £66,000,000. In parenthesis, may I remark that again, while I fully appreciate the dangers of prophecy in these matters, I venture to prophesy that the deficit in the balance of payments last year will not be £66,000,000?
The Minister arrived at this figure of £155,000,000 by adding up the deficits in the balance of payments and went on to deduce from that that there was a fall in our external assets of £155,000,000. The Minister's advisers should show him the figures. There was no drop in our external assets of the same amount as the deficits in the balance of payments. There was capital inflow during the period 1947-50, amounting in all to £51,000,000 in these four years. There was an incurring of dollar indebtedness during that period amounting to £36.9 million, and during the years 1947 to 1950, while there was a gap in the balance of payments amounting to £90,000,000, external assets increased during that period. The reason was that the deficits were financed not by drawings on external assets, but, first, by the creation of dollar indebtedness and, secondly, because a large portion of it was financed by new capital coming into this country. The Minister should appreciate these figures and should not be trying to delude the people that our capital assets have declined by £155,000,000 in the past five years.
I am prepared to say that our assets will have been reduced last year. I think that, for the first time since the war, there will be a net reduction in our external assets last year. The reason is that there was a greater deficit in the balance of payments. There was less to draw on in the American Loan Account and, probably as a result of the Government's own policy, a lot of foreign capital has been frightened off coming into this country and we will not have the assistance of foreign capital to help us to meet the deficit in the balance of payments. In respect of last year, for the first time we are going to see a reduction in our external assets.
The Minister yesterday and, in fact, in every one of his speeches which I have been able to study, refrained from referring in any degree to the necessity for savings. We on this side have time and time again stressed the necessity of introducing a large-scale savings drive. That savings drive is vitally necessary in order to see that the draw on our external investments is not greater than it should be. Our capital investment programme in any one year can be financed out of current savings or past savings, and, as I have indicated, we have always realised that current savings are not sufficient to meet the investment we need, but the draw on external savings, that is to say, disinvestment abroad, can be reduced, if increased savings at home are brought about. We had a policy— it has been adumbrated numerous times—of endeavouring to bring about a nation-wide savings campaign in order to enable the people to realise that, if they save, schemes of national development can be undertaken with more equanimity than if savings are allowed to be reduced. If the Government is serious in wishing to bring about a reduction in the deficit, let them introduce this national savings scheme, but there was not one word yesterday in the Minister's statement, or in any of his statements that I have been able to find, in reference to the benefits which can accrue from a savings drive vis-à-vis the deficit in the balance of payments.
So far as we have been able to find out, the only policy the Government are proposing to adopt with regard to the deficit in the balance of payments is, first, the niggardly, petty one of reducing the foreign travel allowance to £25 and, secondly, the policy, if one could call it a policy, of import replacement which can only have the effect of increasing inflation at home and reducing our exports.
I do not believe that the Government is going to have the large budgetary deficit which the Minister announced yesterday. I think it was deliberately inflated in order to show to the people when he does come to introduce his increased taxation that in fact that taxation is not as bad as was to be expected in view of the appalling circumstances. First of all I want to join issue with the Minister on his reference to this deficit of £50,000,000. It is wrong finance to lump capital services, below the line issues, Supply Services and Central Fund Services together and to deduct from that the estimated revenue. The proper method to talk about a budgetary deficit is to take the Supply Services proper, that is to say, the current Supply Services, and the Central Fund Services and add them up. That is the Budget which it is the duty of any Government to balance. That is one of the reasons why we object to this Book of Estimates, which is a deliberate attempt to mislead the people by showing to them that the total cost of the Supply Services is £94.9 million without differentiating between capital and current services. Our policy was to balance the current Budget—and every Budget introduced by Deputy McGilligan was a balanced Budget—and for what was not current the proper policy was to borrow for it.
If that is the criterion—and I suggest that it is the proper criterion on which to judge the manner of facing the budgetary picture—if the Minister does not tax for capital items included in the Estimates for the Public Services which amount to £9.3 million, he will have roughly £85,000,000 to be met out of current revenue. In addition to that he will have the Central Fund Services which he said yesterday would amount to £13,000,000. The Minister's task, therefore, is to balance this sum of £85,000,000 plus £13,000,000.
If those figures are correct and if he does not bring about any reduction he has a duty to see that he has a balanced Budget in respect of those two items, but we will set out our hand and record our votes against any proposal to tax for items which we believe to be of a capital nature. They amount to £9.3 million for the Supply Services and the below the line issues which the Minister has said will come to £26,000,000—but it will be very interesting to find how he arrived at that figure.
The Minister will have a very great problem to find the money necessary for the capital Budget this year and I would suggest that the proper way to go about it is his predecessor's way: first of all to get the confidence of the people, to get the country into the frame of mind which the inter-Party Government had created, namely that we were developing the country in the interests of the country and if the Government can bring back the confidence which reigned during the three years of the inter-Party Government the Minister should not have great difficulty in raising a national loan. I said in this House as long ago as July that if the Minister raised a national loan he would have the support of all Parties and I think I can say it again. It is in the interests of the country to raise a successful national loan and if the Minister and his colleagues try to restore confidence in Irish economy there is no reason why they should not get a loan from the country this year. I regard as criminal neglect the failure to go to the country last year for a national loan. As a result of that neglect the Minister has no moneys from the American Loan Counterpart Fund to supplement what remains from the capital Budget.
In addition to financing its capital investment programme by means of public borrowing the last Government partly financed it by increases in savings in the Post Office and by issues of Post Office certificates. Let the Minister undertake what we have advocated, a nation-wide savings campaign, and a part of his budgetary problem will be solved.
The suggestion was made in the Seanad that foreign lenders should be enticed to our national loans and I think the Government should see that a large loan is floated which would, if the contributions of the people of this country were inadequate, be filled by lenders from abroad.
The Government also has the legal tender note fund of the Central Bank from which to obtain money for the coming year. At present, so far as I am aware, the Central Bank holds no Irish securities in its legal tender note fund and there is no reason why say 20 per cent. of its backings of legal tender note should not be held in Irish Government securities. At present the notes are backed exclusively by British Government securities. The Central Bank has power, by virtue of the Currency (Amendment) Act, 1930, which was subsequently included in the Central Bank Act, to hold some of its backing of the Irish legal tender notes in Irish Government securities but up to the present it has never exercised that power. There is a source from which the Government can obtain support for its capital investment programme for the coming year.
Lastly we come to the taxation for it. The last Government was enabled to carry out its capital investment programme without resorting to the tax-payer. We believed that it was proper financial policy, ordinary business economy, to create assets of a durable nature by borrowing and that it was wrong to tax people for one year for assets which would last a period of 50 to 100 years. That policy of borrowing was severely criticised, but in present circumstances I would ask the Government to alter its feeling about our borrowing programme and to endeavour by the means I have suggested to raise the money for the capital investment programme this year from borrowing, not from taxation.
The Minister has followed to a remarkably close degree the steps of his colleague across the water, the British Chancellor of the Exchequer. He has followed him in the reduction of the travelling allowances; he seems to have followed him in his general economic policy although it has been pointed out, time and time again, that policies required in England are of a fundamentally different character to policies required in this country. Do not let the Minister follow him in his cut in the food subsidies. I am sure that the food subsidies are a very tempting bait for the Minister for Finance at the present time. If the Minister followed or would follow a proper financial policy, there would be no need for a cut in the food subsidies this year. I am sure, however, that the people will have to meet a large bill for taxation. They will be faced with a cut in food and fuel subsidies. I feel we are entitled to claim that a large degree of the increase in taxation which will be forthcoming is due to the ineptitude of the Government's financial policy last year and to the uncertainty which has existed in the economics of the Government since it has come into power. It is not those who pay surtax or the companies making large profits who will have to pay increased taxation. The ordinary people will have to pay by way of indirect taxes. The hardships which the people will have to endure will be largely unnecessary and will be as a result of the inefficiency and the ineptitude of this Government's administration during the past nine months.
