I had spent some time before the break in establishing as far as I could that the White Paper on which the Budget was based was guilty of two very great errors, errors which we tried to point out at the time and failed, of course, to get any credence for our views, but errors which the lapse of the months in between has now established to the satisfaction of anybody who can consider what was said and what the events are.
These two errors were, first, that there was a large deficit of £70,000,000 in the balance of payments for the calendar year, 1951, and a likely £50,000,000 in the financial year 1952-53, the second error being that that situation, which was bad enough, phrased that way, could only be rectified by cutting imports. That was the inescapable conclusion of the White Paper, which more or less despaired of any improvement through exports.
As against that, we had our own view, on which we based a policy. It was a view and a policy which we established for ourselves during 1948, more particularly in 1949, and, although we were anxious about the situation in 1950 as divergent to 1951, we still adhered to that programme, because we felt the situation all the time would be coming in our favour and a temporary disequilibrium would soon be rectified.
I had already pointed out that the Budget was founded upon these two errors—some people have called them misrepresentations of the facts. I do not believe that they were deliberately misrepresentative but they were certainly errors, as the events have shown and as, I think, articles that were written about this White Paper have shown, they were errors to the correction of which there were many points of information that could have been adverted to and could have modified at least the views expressed in the White Paper.
From that I had tackled the second point, which was supposed to be a complication of the finance accounts in the year 1952-53, that was, whether the Budget of 1951-52 had balanced or not. Discarding the transitional, the ephemeral, the unlikely matters — at least, the matters that were not likely to occur in a future year — taking these out of the accounts of 1951-52, I felt it was proper and quite easy to show that the Budget of that year had been balanced. I approach this matter in this way: By taking the revenue produced to the Government for a future year and putting against that expenditure of the previous year and taking from expenditure the previous year such matters as were clearly not going to recur, like the arrears of fuel losses and the stockpiling matters, the figures showed that the Minister, if he had no fresh commitments in his time, could have had £2,000,000 and about £150,000 with which to approach the question of the new social services if he required to do that without any cutting of subsidies.
The third point I was making was whether the Budget of 1952-53 would balance. I always felt that it was aimed at over-balancing. The project was to pretend to accept the items that were declared to be proper to be met out of borrowing, but in reality not to accept them and to tax to the point that the whole of the Estimates, including the £9,250,000 which was established as the figure for the items proper for borrowing, would be covered.
The Minister, of course, making a special case by way of special pleading before the arbitration board, said that there was disappointment with regard to the out-turn of the revenue. Items were detailed. The calculation I made on these was about £4,500,000. Of course, that does not end the matter. We did say that the revenue to be exacted from the people in the current year was to meet the whole of the Estimates, including the £9,250,000. The last Exchequer returns, published in this morning's paper, show that expenditure at almost £60,000,000 — £59,942,000 — exceeded revenue, which is £53,648,000, by £6,293,000. Of course, that would seem to indicate that the Budget of this year is going to be very seriously out of balance.
But one must pause and inquire how much of the £9,250,000, what was described as proper for borrowing, is contained in the expenditure up to the date of November 22nd. It is not the most certain way of dealing with the matter but it is the only way that I can deal with it at the moment. If I take the fact that we have the whole of the early six months and, in addition to that, the whole of the month of October and three weeks of November, I make my calculation on the basis of the weeks that have gone and the weeks still to come. Supposing there is a proportionate expenditure of this £9,250,000 supposed to be met out of borrowing, in the time that has elapsed there should be about £6,000,000 of the £9,250,000 of those items to be borrowed met out of the expenditure. If that be the case — I do not know whether it is or not — then expenditure and revenue are roughly in balance at the present time.
It is true that the Budget will not show the return that was forecast in April of this year. We made the case that it was intended, not merely to meet the current expenditure but to meet the £9,250,000 at least, possibly £10,000,000 of what was apt for borrowing. It may be that all that sum will not be covered by current revenue but if £6,000,000 of the £9,000,000 has been met already, it means that there is only £3,000,000 to go and the best quarter of the year, from the point of view of revenue, is still to come. In the January to March period there will be the fruit of the new taxes by way of income-tax and, although there is a recession in trade, that recession does not go back far enough to have any effect upon the accounts upon which the tax will be assessed in the first quarter of next year.
I have not enough material to make any forecast but from what I have it would appear to me likely from the recent Exchequer returns that the revenue this year will meet the ordinary expenditure and leave several millions over.
I do admit that when we were talking about this in April, May and June, we did not pay enough attention, possibly, to the magnitude of the blunder that was committed by the Minister. We did not just give full effect to the impact of these taxes upon the people or to the possibility that they might refuse to smoke and to drink to the extent that they had consumed these articles before and that, therefore, the returns from the taxes might not yield as much as had been expected. There is still a calculation as to how much was expected and whether that was just the amount required to meet what is called current expenditure or whether there was in the calculation anything over and above that for these items that were at least pretended in the Budget speech to be accepted as items proper for borrowing.
In any event, the Minister can face the dilemma on his own. If he likes, he can show a deficit at the end of the year and, after all the hysteria we have had about the alleged deficit in the previous year, that will not be pleasant. On the other hand, it is possible that he may be able to show a surplus — I believe he can — and, in that event, it will be a matter then for the civil servants, the Guards, the Army and the teachers to consider how far the arbitration award had not been brought about by completely false misrepresentation made through the Minister's representatives before the arbitration board and whether they would not have a case to set aside that award on the ground that it had been procured by outrageously false and fraudulent means.
That is so much for the past and projecting a little into the future, to the end of this financial year. With regard to the future proper, the banks have been very much brought into this debate — not merely the Central Bank but the joint stock banks — and I think it proper at this time that a certain line of policy should be indicated with regard to these institutions, the banks generally, but more particularly the Central Bank as a State institution. I have said here over and over again when I have complained about the attitude of the Central Bank, and even of the joint stock banks, that I did not appear to have acted very strongly against these groups when I had certain power over them as a member of Government, and I have explained why I did not run into any sort of hasty action against them or truculen mood with regard to them.
I can repeat what I said before, hoping that it will get better appreciation now, that it is always possible for a Government in control of a majority in the Dáil like this Government to effect its will. It can do the most outrageous things — it can blunder and smash around as the present Government has done; but any group of people who are appreciative of circumstances will move rather cautiously and with a good deal of reluctance against institutions of the banking type. The banks have in the background the whole matter of credit, and it has for a long time been a platitudinous remark that credit is a tricky sort of bird, very easily frightened and not easily reattracted to the area from which it has been displaced.
I always took the line that it was better to try to achieve things by way of a change in the banking situation in this country, or to attempt to achieve that by persuasion and lead rather than by Order, Acts of the Dáil or coercion. I even disapproved of the criticism often levelled at banking institutions, which appears to be accepted by Deputy Cowan, that all the people connected with banking institutions in this country, the Central Bank included, had the wrong motives, and I object still more strongly to the argument based on the fact that it is only to be expected from such people because their background, their history, their antecedents or something about them would make them appreciative more of a policy hostile to this country than of a policy which would be attentive to its needs.
I should like to clear anybody connected with any of these banking institutions of anything in the way of wrong motive. But I think the policy has been wrong, consistently wrong, and now established as wrong, over many, many years. I attempted to sway some of these people by talking to them, by meeting them as often as I could, by argument with them and by putting certain viewpoints before them, and I must say that, at the end, I despaired of getting any fast movement in the way of change from them, and therefore was disposed to take action against them through a process of legislation. On the other hand, I was faced with this: the Government to which I belonged was engaged in a change, a very big change, with regard to the financing of what are called schemes of development in the country.
These schemes were being very ferociously assailed, mainly out of the depths of the ignorance of the people who now occupy Government seats, but there was criticism running through the country which could have done great harm to the whole credit institutions and the whole credit fabric of the State. I had the view, particularly with regard to the Central Bank, that if, when times brought a vacancy in the controllership of the Central Bank, I had taken the opportunity of dropping the present governor, as it was in my power to do, his term of office having expired, I would immediately be subjected to an argument of this type: that I was moving into new and rather treacherous ground, that I was not confident in what I was doing and therefore had to get rid of the person who would show the red light against anything I was attempting in those days.
After consultation with my colleagues, I came to the conclusion that it was better to reappoint the whole staff of the Central Bank as they came up for reappointment as one group, to let them flash their red lights all around the place, to let them disagree as violently as they could and expose their disagreement with me in public as much as they liked, reserving to myself only the right, if they did disagree with me, to take a platform somewhere in a hall in this city and give my point of view in opposition to anything the Central Bank put up. That, I felt, was meeting argument with argument and a better policy than the policy of dropping people because I did not like their viewpoint.
So we kept the Central Bank up, and, while we tried to persuade the joint stock banks to certain effort, and did definitely persuade them with regard to the £5,000,000 corporation advance, we did not take any action against them by way of changing the institution or dropping any of the personnel in so far as we had any opportunity of doing that in relation to these institutions. A new situation has now developed, however, a situation in which more definitely aggressive action can be taken against people who, I think, have given wrong advice and whose advice is now shown to be based on completely wrong information and data.
The capital programme was very much discussed and we had the scandalous matter of the advertisement through this city and through the country of the pawnbroker's three golden emblems portrayed to show that we were running the country into pawn and destroying the country's credit. The capital programme was discussed and criticised from two points of view. First, that the money was being spent on projects which did not deserve the description of capital development, and, secondly, that, whether they did or not, by spending so much money on these schemes and putting, therefore, so much money, through wages and salaries, into the hands of the people, we were creating a very bad type of inflation, a type of inflation which, if it did not mean increased prices, would mean inflated imports from the other side which, of course, showed up in the matter of the balance of payments. Finally, the point was made that there was not capital enough out of the savings of the people to finance these schemes.
We have had a certain number of years since these criticisms were first levelled at us and we have had, since the Budget came around, a very definite education of the people to an appreciation of what we meant and of how sound our policy was, in disagreement with the policy of the present Government. It was not so much that what we said had to be said over and over again in order to convince ourselves that it was true, but we had the difficult task of persuading the people, on a dry, academic and rather esoteric matter like finance, that what we were saying was correct and that what the Government was trying to establish was wrong. The fact that the Government were recently beaten by a two to one vote in a working class constituency in Dublin indicates that the population have got it into their heads that the austerity of the Budget was unnecessary. I think that is mainly the mood which provoked that amazing reaction against the Government within the past fortnight. They can bear austerity, as they showed during the war, if they believe it to be necessary, but they cannot put up with austerity which is the fruit of ignorance and wrong advice. They cannot put up with it when it is shown to their satisfaction that the whole policy was completely wrong and unnecessary.
The capital development programme has now been accepted, but I do not believe that it has been really accepted. I do not believe that the Minister's phrase which he used in the Budget, that it was not worth while for a million or two to quarrel about these capital schemes, means that it had really been accepted. He pretended to take them all in and said that there was £9,250,000 in the present Estimates, the equivalent of the £10,000,000 that we had in the Budget before for the same type of development.
We no longer have criticism of the schemes themselves. They are accepted as proper for the development of the country. We no longer have any criticism of this, that the proper way to finance these schemes is by borrowing and not by taxation. The latter point has been accepted in the Minister's Budget speech, though I believe it is a mere pretence. It has not been shown — I challenge any contradiction — that the money we spent in the three years we had a chance of spending, had the slightest effect in this country by way of inflation on prices in the country. It cannot be said that one price was raised; there was in fact no inflation of the price type by reason of what we did but it was said that inflation of imports did occur. If prices here and there did rise that was because of the impact of the Korean situation affecting the price of outside supplies. As far as this country is concerned our operations did not cause any price inflation through the years. It may be said it caused inflation by way of imports, and that only because we had such a tremendous flood of imports providing us with the goods that prices were kept level.
To come back to the Central Bank, we have shown that the situation painted so darkly in the White Paper can be rectified by an expansion of exports. In any event if we suffer for a while from the increased cost of imports, that inevitably has its corrective when the increase in prices covers the whole field and when we get a better price for exports, so that the terms of trade do not run completely against us but turn in our favour.
There is a new situation — a completely new situation. It will be quite impossible in the near future for the present Government when it becomes an Opposition again to start their run of criticism against these capital schemes. They will not be able to say that these schemes in themselves are not apt for the application of borrowed moneys nor will they hereafter be able to say that borrowing and spending on these schemes has brought about or would bring about any inflation of price. A watchful eye can be kept on the matter to see if any danger arises from that quarter, so that it can be met. In these circumstances it is only the third question that arises: is there in this country the capital that will be necessary for the development schemes we had in mind and which our successors to some extent have accepted? I believe there is. I am not sure that this capital can be provided if the Central Bank is allowed to operate as it has been doing since it was instituted and if the joint stock banks are allowed to function as they have been functioning. I have made this comment often in the House. It is only now I get an appreciation outside, an echo indicating that people who hear the phrase for the first time are astonished at the facts revealed by it, and secondly an appreciation that if these facts exist, then there is something completely wrong with the banking situation.
I have asked, not expecting any answer, whether there is any situation equal to that which we have in the whole world of banking and finance outside this country? Is there a parallel to the situation we have here in which the joint stock banks have, as they had in 1949, £183,000,000 for investment and had invested only £14,000,000 in Irish securities? One hundred and sixty-three million pounds went out of this country. These were the product of the application of labour and brains to certain materials in the country, the fruits of human endeavour here. The banks had piled up £183,000,000 for investment and of that they found it possible only to invest £14,000,000 here.
There is no parallel for that outside this country. Nine million pounds only of the £14,000,000 were in Government issues. The rest of the £14,000,000 was something else not Government issues but at home. Between Government issues and other home investments there was £14,000,000 invested. The rest, £170,000,000, was invested outside the country.
What is the reason given for that amazing situation? The situation is a little better in recent years because we forced the pace. There was persuasion if not coercion put upon them by us. It is still very bad. The ratio may not be 170 to 14 at home but it is still very bad. Even if the amount invested at home is doubled we have not anything beyond £30,000,000 invested at home and £150,000,000 invested abroad. There is no parallel to that in the world and the only excuse I have heard is to be found in this bewildering term, "liquidity." I have not yet met a banker who has advanced any argument based upon home security not being as secure as the outside one. With the recent devaluation and the abandonment of the gold standard in 1941 in mind, it would be hard for a banker to argue that an English security would be more secure than an Irish security. That argument has never been used — I give them credit for not arguing that point.
When it comes to the return on an Irish security, it is accepted that the return on an Irish security is as good as can be got from any outside security. Yield is all right. Security is all right. But the bankers say we must remember our situation with regard to liquidity. Their attitude is that we must keep our finances completely and entirely liquid. This is because owners of personal savings in this country, shopkeepers and farmers, do not ordinarily invest their money but run off immediately to the bank and lodge the money, not on current account but more often on deposit account. The banks say: "There is the money. Money on deposit account can be withdrawn at very short notice. What can we do? We must invest in securities we can immediately realise." They say as an addition to that argument that one can always realise English securities and no matter how much you throw on the market the market will absorb them without any reduction in price, but if they were lodged on the Irish market there are not enough buyers and the price will drop.
There is the argument. The whole of the community, all this mass of conservative people, the farmers, big and small, and the shopkeepers are going suddenly to descend upon the banks and demand payment of the whole £183,000,000. As against that extremely remote contingency these securities must be kept liquid so that if thrown on the English market there would be no drop in price.
The root of all this evil is to be found in the Central Bank. If any of you look at the Central Bank Report just out, you will find that the monetary circulation for the year 1952 is given at Table 6, on page 22. Incidentally, may I refer to what Deputy MacBride has often said in this House that this report of the Central Bank was not warranted under Section 36b of the Currency Act, 1927? It was always represented as "presented to the House pursuant to Section 36 of the Currency Act, 1927". I myself questioned the governor on one occasion as to whether it was proper for him to present this economic lecture pursuant to Section 36, but then told him that it did not matter, that he could publish his report in any way he pleased. It is notable that this year that phrase has been dropped. Apparently it has been discovered that this report of the Central Bank does not come properly under Section 36 of the Currency Act, and we get it baldly presented without that superscription, and we are told by the Minister that it now comes before us under Sections 6 and 8, I think, of the Central Bank Act, 1942.
However, to resume: —
"The legal tender notes for 1952 are stated to be £58,000,000, while for the year 1951 they were £54,000,000."
When one looks at the account of the Central Bank one finds they have the £54,000,000 as a liability, and as against that their assets are gold, to the extent of £2,500,000 roughly; money which is legal tender in Great Britain, about £230,000; sterling balances on current or deposit accounts at London agency or in bank in Great Britain, about £600,000; and British Government securities, £50,500,000. The whole total is £54,000,000.
The Central Bank has had this attitude always, that they must have their funds invested in either gold, money which is legal tender in Great Britain, which generally, I understand, means Bank of England notes that the Central Bank has; sterling balances held at the London agency or certain London banks or British banks or Northern Ireland banks; and British Government securities. The whole of the assets as against the legal tender notes are held in British funds or British money. In other words, the Central Bank desires to have 100 per cent. backing for the legal tender notes in the form of these easily realised securities.
Do not forget the history of this matter. The 1927 Currency Act did say in a particular section that the funds of the bank were to be lodged in certain assets and there were certain investments set out in Section 61. One of these was British Government securities maturing within 12 months. It was later discovered that the Currency Commission was operating that phrase to the extent that most of the funds were in three months' bills for which the yield was next to nothing. As a result, the 1930 Act was brought in and deleted those words, "maturing within twelve months". That left the Central Bank empowered to invest in British Government securities without their having to be of a maturity inside 12 months. Eventually in the Central Bank Act, 1942, a further amendment was made. I need not go through what was done in that Act and I think it would be a perfect summary to say that the Central Bank was empowered to invest in domestic assets. Under Section 8, it could "buy, hold or sell securities of or guaranteed by the State which have been offered for public subscription or tender before being bought by the bank and are officially quoted on the Dublin Stock Exchange and the Cork Stock Exchange, or securities of or guaranteed by the Government of any other country". A second lettered paragraph allowed them to "buy, hold or sell securities of any public authority"— that would go for a local authority —"which are authorised by law for the investment of trust funds and have been offered for public subscription or tender before being bought by the bank and are officially quoted on the Dublin Stock Exchange and on the Cork Stock Exchange".
There have been three efforts made to liberalise the situation in so far as the old Currency Commission, now the Board of the Central Bank, is concerned — first of all, they were tied to the investments they could make, and when they went to invest in British Government funds they had to be ones maturing within 12 months. Steps were taken to remove that limitation as to 12 months' maturity. The third step was taken in 1942 when they were enabled to invest in domestic assets. What has been the return of the bank for that?
