In 1961, for the third year in succession, the momentum of economic advance was maintained. The volume of national production is estimated to have increased during the year by 4½ per cent. The cumulative increase over the three years 1959 to 1961 was almost 15 per cent. as compared with only 8 per cent. for the years 1950 to 1958. The rate of growth in 1961 appears to have been at least as good as that of a number of more industrialised Western European countries.
Our first concern must be to maintain a satisfactory rate of increase in national production. To sustain our present rate of growth, we must in particular continue to follow sound budgetary and monetary policies, promote higher savings and investment and try to secure that national production is not anticipated by advancing incomes.
Balance of Payments
Despite a widening of the trade gap and some disimprovement in the terms of trade, the balance of payments for 1961 showed a surplus of £1 million. The expansion of the economy during the year took place, accordingly, in conditions of external stability. It is worthy of note that over the past five years external receipts and payments on current account have been balanced. External reserves have risen and will serve as a support for future productive development.
Exports in 1961 amounted to £180 million as compared with £153 million in 1960 and £131 million in 1959. Agricultural products accounted for the bulk of last year's increase. Cattle exports rose by £10½ million of which store cattle accounted for £6½ million. The increase in exports of attested store cattle reflects the success of the bovine tuberculosis eradication scheme and is a welcome reversal of the downward trend experienced since 1957. Another substantial increase was in exports of carcase beef, which rose by £6 million. Exports of butter and bacon, carrying, of course, substantial subsidies, were also higher Industrial exports of many kinds, in particular, textiles, clothing, footwear, dressed leather and machinery, continued to expand.
Imports increased by a greater amount than exports with the result that the gap in merchandise trade widened by £7½ million. Most of the increase in imports consisted of capital equipment and materials for the continuing industrial expansion.
The increase in the import excess was offset by a substantial rise in net invisible receipts. Net receipts from tourism, travel, etc., went up by over £3 million while net income from investments, profits, etc., was almost £3 million higher.
The main impetus to the growth in national production still continues to come from the industrial sector. The volume of production in manufacturing industries rose by 8½ per cent. in 1961, following increases of 8 per cent. in both 1959 and 1960. The rate of increase in 1961 was among the highest in Western Europe and, indeed, the total increase of 27 per cent. over the three years has been surpassed by few Western European countries.
All the major industrial groups shared in the expansion in 1961. Large increases were recorded in chemicals, engineering, clothing and footwear, food, and paper and printing.
Agricultural Production and Incomes
Agricultural output in 1961 pursued the steady but moderate upward course of recent years. Net agricultural output increased by about 6 per cent. in value and by 2 per cent. in volume. Farm incomes rose during the year by £8 million. As some running down of stocks took place, there was a greater increase in farmers' cash incomes, which rose by £10 million.
An important factor in the increase in farmers' incomes in 1961 was the expansion of agricultural exports to which I referred earlier. Exports of live cattle, beef, butter and bacon increased in total during the year by £19 million. Despite heavier imports of live animals than usual, the substantial exports of cattle and meat resulted in a reduction in the cattle stocks which had been built up in earlier years, particularly 1959. The livestock enumeration of January, 1962, recorded an estimated decline of 112,000 in cattle numbers as compared with a year earlier. On the other hand, it was satisfactory to note that the number of milch cows and heifers in calf had increased and that both pig and sheep numbers showed a marked rise.
Capital Formation and Savings
Gross fixed capital formation went up by £15 million in 1961 to £102 million, thanks mainly to heavier investment in factory building and larger imports of machinery and equipment.
Total savings increased by £9 million to £68 million. The value of the physical increase in stocks in 1961 being £7 million less than in 1960, the rise in monetary savings was of the order of £16 million. The National Loan in November and the recent Electricity Supply Board issue were both oversubscribed.
The increases in savings and fixed asset formation in 1961 were welcome. The first report on the Irish economy of the new Organisation for Economic Co-operation and Development, which has just been published, makes the comment that a major structural weakness in the economy in the post-war period has been the low level of capital formation, which has represented a much smaller percentage of national production than in the rest of Western Europe. In 1960, for example, the percentage of national production devoted to the creation of fixed capital assets in this country was 13 as compared with 21 for the countries of the European Economic Community combined. The increase in investment in 1961 merely raised our percentage to 14. There is obviously room for a great improvement in the level of capital formation.
The industrial expansion in 1961 resulted in the creation of additional employment. The number of persons at work in transportable goods industries in the December quarter was 5,400 higher than a year earlier and 15,100 greater than in the December quarter of 1958.
Total employment outside the agricultural sector as estimated in April, 1961, was 10,000 higher than in April, 1960. As the fall in the number employed in agriculture in the same period was some 4,000, net employment rose by 6,000. This is the first time for several years that the working population has significantly increased. The evidence since April is that employment in industry has risen further.
Unemployment and Emigration
During 1961 both unemployment and emigration continued to fall. It appears from the net passenger movement figures that less than 27,000 emigrated in 1961, while for the twelve months ended February, 1962, the figure was of the order of 22,000. As the natural increase in the population is approximately 26,000, these figures suggest that the decline in the population has at last been halted and that, if the recent trend continues, it will begin to rise. A rising population would have an important stimulating effect from the psychological and social, as well as from the economic, points of view.
Earnings and Prices
Earnings in 1961 showed a significant rise mainly because of the eighth round of wage and salary increases which got under way during the year. In December, 1961, hourly earnings in transportable goods industries were almost 11% above those a year earlier; the increase in weekly earnings was about 8%. These figures do not reflect the full impact of the recent round as awards have continued to be made in the early months of 1962.
Costs have been affected, as shown in the recent upward trend in prices, following a period of stability. The quarterly consumer price index as averaged for the year 1960 was at the same level as in 1958. In 1961, however, consumer prices rose 2.7% while the mid-February, 1962, figure registered a further increase.
It is no part of Government policy to stop anyone from getting the full reward he has earned for his output. On the contrary, the aim of national economic policy is to ensure, by better organised and more efficient use of productive resources, that real incomes and living standards will be progressively raised. A question might legitimately arise about the timing or amount of particular rounds of wage and salary increases and, indeed, about taking out the whole of the benefit of increased productivity in the form of more money rather than lower prices. On the whole, however, it must be acknowledged that the rise in the money earnings of industrial workers over the period from 1953 to the beginning of the eighth round, when converted into real terms by allowing for the rise in living costs, was matched by an increase in productivity, that is, in output per person.
But when we examine the eighth round, we find ground for some concern because the percentage increase in money incomes is higher than the percentage increase in national production. The inevitable consequence is the rise in costs and prices, which is already apparent, and the likelihood of strain on the balance of payments. There is also the necessity for higher taxation to meet the increased cost of public services and to lesson social tensions and inequalities.
How much more sensible it would be that money incomes should keep in line with national production. Then prices and costs would not be pushed up, as they are being pushed up at present with risk to our economy at a critical time. We all know how difficult it is to reverse these upward movements in the level of costs and prices. It would be much better to avoid them by ensuring an even upward progress of income and productivity. In this way prices and costs would not be disturbed. When income increases run ahead of productivity, their real value is necessarily reduced by price increases, so that the gain for the individual is in part illusory, while, for the economy, the disimprovement in its competitive position is unfortunately real. I have on many occasions emphasised the desirability of using productivity increases to bring about a reduction in prices, especially where our goods are not at present competitive in export-markets. This is all the more desirable as we face the severer competition involved in membership of the European Economic Community.
The difficulties created by the size of the latest round of income increases will be eased provided further claims for increased incomes are deferred until national production has expanded sufficiently to make them possible without another rise in prices. Neither the current rise in prices, due to incomes outrunning production, nor such increase in taxation as may be necessary for the reasons I have mentioned, should justify any demand for a further increase in incomes.
It is well that there is a growing realisation, in Ireland as elsewhere, of the need to establish a more orderly relationship between increases in incomes and increases in productivity. Some time ago the Irish National Productivity Committee issued a unanimous statement of the principles which should determine the division of the benefits resulting from increased productivity. Subsequently, the Irish Congress of Trade Unions and the Federated Union of Employers agreed in principle on the establishment of a National Employer/Employee Conference which would meet annually to discuss wages policy in the light of the overall economic position. I understand that the first meeting will take place soon and I wish it success. The Minister for Industry and Commerce has announced that the industrial relations machinery is being reviewed. But institutional developments, while desirable, will not be successful unless all concerned —employers and employees alike —not only recognise the nationally damaging effects of income increases which endanger competitiveness and external stability, but are also determined to ensure that these will not occur in future.
Prospects for 1962
The present year should see a further substantial rise in national output, although the increase may not be as high as in 1961 and may, as I have said, be accompanied by a deficit in the balance of payments. Last year's rate of increase in agricultural and industrial exports may slacken while imports will probably show a further substantial rise as a result both of the continuing expansion in economic activity and higher purchasing power resulting from the general increase in money incomes. It will be necessary to watch the situation carefully to ensure that no obstacles of our own making are placed in the path of our economic advance. If there is co-operation by all sectors of the community in saving a large proportion of their higher incomes, in increasing production, raising efficiency, and generally putting the national interest above sectional interests, we may anticipate another year of progress.
Looking further ahead, one has to consider how the five-year Programme for Economic Expansion, which came into operation in April, 1959, should be reshaped as it approaches its term in order to meet the circumstances likely to confront the Irish economy from 1964 on.
Preliminary work has started on the preparation of the Second Programme. Background information is being collected and the progress achieved under the current Programme is being analysed. The Economic Research Institute has been requested to study the conditions as to output, employment, investment, external payments, and kindred matters, which would be required by different rates of growth of the economy. It will not be possible, however, nor would it be reasonable, to prepare even the provisional outlines of the Second Programme until the negotiations regarding our application for membership of the European Economic Community have advanced to the point at which the conditions of Ireland's entry are established and the adaptations which will be required in industry, agriculture and other sectors can be assessed with some degree of precision. The industrial surveys which are being conducted under the auspices of the Committee on Industrial Organisation, and the corresponding surveys which are being made in the agricultural field, will provide the necessary groundwork for a considerable part of the new Programme.
European Economic Community Membership Application
The future turns so much on the question of what our relationship will be with Britain and the European Economic Community that a few words on current developments in this context will not be out of place.
In my Financial Statement last year I touched on the consequences for us of the establishment of the European Economic Community and the European Free Trade Association and of any eventual coming together of these two groups. As the House is aware, there have been major happenings in this field during the past year. Britain, our principal export market, and Denmark have applied for membership of the EEC and Norway is expected to do so shortly. Three other countries —Austria, Sweden and Switzerland— are exploring the possibility of becoming associated with the Community.
Ireland applied for admission as a member of the Community last July. A first meeting with Ministers of the Governments of the member countries of the Community took place in Brussels on 18th January at which this country was represented by the Taoiseach and the Minister for Industry and Commerce. The member countries have now requested that a meeting be held on 11th May between their Permanent Representatives in Brussels and senior officials of the Irish Government for the purpose of obtaining, in preparation for a further ministerial meeting, clarification on certain points of an economic character arising out of the Taoiseach's statement in Brussels.
These further meetings should clear the way to actual negotiations with the member countries. The Government—and the various interests throughout the country which will be affected—are anxious to know as soon as possible the terms of Ireland's membership of the Community.
Assuming that satisfactory terms of admission to the Community are negotiated, enough is known at present to enable the general outline of the new environment for agriculture and industry to be discerned.
For agriculture, there is the prospect of a market protected from outside fluctuations in which stable prices, eventually to be aligned, will rule. These are very considerable advantages which could aid the development of our agriculture. There are, however, limiting factors which it would be short-sighted to ignore. The agricultural production of the Community is already such as to meet a high proportion of the needs of the area and is capable of rapid expansion to meet increased demand resulting from higher incomes and a rising population. The levels at which the prices of various products will be aligned within the Community are not yet known. Furthermore, the Community, while protecting itself from outside fluctuations, cannot close its frontiers with the rest of the world if its external trade is to be maintained and expanded. These factors, the significance of which varies from commodity to commodity, serve to remind us that adjustments in the pattern of our agricultural production will be necessary to enable us to exploit those openings which will show promise of most profitable expansion.
On the industrial side, once the necessary level of competitive efficiency has been reached by our industries generally, there will be free access to a vast and expanding Community market, moderately protected against the rest of the world. In this market, development will be based on the economic allocation of resources and the growth of large-scale production under conditions of competition. Transition to this environment will necessarily involve changes in the pattern and structure of Irish industry. The range and scale of production will need to be adjusted to a "home" market many times larger than that to which we have been accustomed. This does not mean, however, that there will no longer be room for the small firm; efficient small units, both as suppliers of finished goods for consumer markets and as manufacturers of parts required for a more elaborate production system, continue to thrive in the Community.
I have outlined only the principal factors which will determine the reorganisation to be undertaken in the more important sectors of our economy. Ultimate responsibility for this task rests with agricultural and industrial producers themselves. Major decisions will, in general, have to be guided by the conclusions to be drawn from the work of the Committee on Industrial Organisation and the parallel studies and surveys being carried out in the agricultural sector, including industries based on agriculture. I can assure the House, however, that the Government will lose no time in taking any measures, or giving any assistance, which may be necessary to facilitate the process of adaptation and adjustment.
Recommendations of Committee on Industrial Organisation
The Committee on Industrial Organisation has recently presented an interim report recommending the provision by the State of certain general forms of aid towards adaptation of industry to meet Common Market conditions. The Committee has made it clear that the prime purpose of its recommendations is to encourage industry to undertake the necessary measures of adaptation in the shortest possible time. The Government have decided to proceed on the basis of the Committee's recommendations.
The principal recommendations are directed towards the important problem of the adaptation of industry to more competitive conditions. The Committee proposed that the initial allowances for tax purposes in respect of expenditure on industrial plant and equipment, at present 20 per cent., and on industrial buildings, at present 10 per cent., should be doubled, i.e., increased to 40 per cent. and 20 per cent. respectively. The Committee also recommended provision through the Industrial Credit Company Limited of loans on special terms for industrial re-equipment. The loans would cover a proportion, to be settled in each case by the Industrial Credit Company, of the expenditure involved and would be granted only where that Company is satisfied that there is a definite prospect that the re-equipment project will make the undertaking fully competitive. The special terms recommended are waiver of interest and deferment of capital repayments for up to five years.
The Committee also suggested a concession designed to encourage joint action by industrial enterprises in such fields as production and marketing. The proposal is that, where two or more enterprises set up a new joint industrial enterprise, each parent enterprise should be enabled to charge against its profits for tax purposes its share of any losses incurred by the joint enterprise in the first five years of its existence.
Provision will be made for the taxation concessions in the Finance Bill. The Industrial Credit Company will be asked to make the special loan facilities available and discussions will be initiated on the terms and conditions on which the requisite capital will be provided for the Company. As these facilities are designed to encourage industry to modernise and adapt itself to conditions of freer trade, they will not, of course, extend to loans covering normal replacements and renewals.
The Committee also made recommendations regarding industrial grants, technical assistance grants payable by the Department of Industry and Commerce, and marketing grants payable by Córas Tráchtála. The recommendation regarding industrial grants, which related to certain projects involving development of existing industries, will be dealt with in amending legislation which will shortly be introduced by the Minister for Industry and Commerce. The extent and conditions of an improvement in technical assistance and marketing grants are being considered in consultation with the Committee.
I should like to take this opportunity to emphasise that reorganisation of production for greater efficiency would still be an essential condition of national progress even if the European Economic Community had not come into being. It is made more urgent by the existence of that Community and our desire to become a member of it.
The Minister for Industry and Commerce has already announced that any forms of State and made available as a result of the Committee's recommendations would be granted in respect of measures of adaptation taken on or after the 14th December, 1961. Effect will be given to this decision. As these aids are aimed at quick results, they should clearly have a limited period of currency. I propose that the taxation incentives should apply to expenditure on equipment, plant and buildings, and to joint enterprises formed, up to 31st March, 1965, and that the special re-equipment loans should be available in respect of projects approved by the Industrial Credit Company up to the same date.
II. CAPITAL BUDGET, 1961-62
The outturn on Capital Account last year is shown in Table II of the Tables in connection with the Financial Statement. It will be seen that the capital requirements of the State and other public authorities came to £57.2 million as compared with the Budget estimate of £55.5 million. This close correspondence of the totals occurred despite variations under individual headings.
The more notable increases were £3 million for agriculture, mainly for guarantee payments on fat cattle and beef exports, over £800,000 for grants and credits for industry and almost £500,000 for television development. Items on which expenditure fell short of estimation included Irish Shipping and the Electricity Supply Board, the reduction in each case being due to delays in the incidence of payments. Building and construction work was short by £600,000 of the £14.4 million estimated; but this variation is not significant having regard to the size of the total and the diffused nature of the expenditure.
Progress with bovine tuberculosis eradication has been such that it is expected that, with the exception of five counties in Munster and one in Leinster, the country will be completely attested by the end of this year. I would urge on all concerned the desirability of co-operating fully in bringing this expensive, but necessary, scheme to completion as rapidly as possible.
III. CAPITAL BUDGET, 1962-63.
When I introduced my first Budget in 1957 I said, with regard to the public capital programme, that I believed that the aim should be not a reduction, unless that should be forced on us by the inadequacy of public support, but rather a reshaping so as to make the programme more directly productive.
In my first two years of office as Minister for Finance a sum of £10.55 million was devoted to agriculture, representing 13% of public capital expenditure for those two years. In the following two years the capital provided for agriculture increased to £23.18 million, representing 24½% of the total. This percentage is maintained for the two years 1961-62 and 1962-63 combined.
In the case of industry, taking grants and credit together, capital expenditure in the first two years of the six-year period since 1957 was £3.35 million, representing 4.2% of the total public capital programme in those years. In the following two years expenditure was equivalent to 7.9% of the total public capital programme, while for the last two years of the period the amount devoted to industry has reached a total of £17.1 million or 14% of total capital expenditure.
Table VI of the Financial Tables shows the main headings of capital expenditure this year in the form set out in the White Paper on Economic Expansion. It will be seen that expenditure is expected to reach a level of £66.88 million or £9.64 million more than the outturn for last year. Expenditure shows an increase under every heading except agriculture and broadcasting. There is a decrease under the latter heading because development works by the television authority are nearly completed. In the case of agriculture the decrease is due to the termination of the temporary scheme of guarantee payments on fat cattle and beef exports which was designed to accelerate progress in eradicating bovine tuberculosis.
The increase in the case of fuel and power takes account of increased expenditure of almost £3 million by the Electricity Supply Board, mainly on generating plant and new high tension lines. I may say that it is intended to make provision during the present session for the completion of the rural electrification scheme.
An extra £1.1 million, bringing the total to £3.5 million, is intended for telephone development. The high demand for telephones continues and is a reflection of increased economic activity and higher living standards.
The enlarged telephone development programme and the increase in other works of a capital nature for which the State is directly responsible, such as forestry, bovine tuberculosis eradication and airports, have caused the rise in the number of State employees in recent years. Every effort is being made to ensure that capital works are efficiently and economically carried out. This is a field in which outside management consultants can make a useful contribution. Two firms of consultants have been engaged in the Office of Public Works and their efforts have already resulted in more economic purchasing arrangements for stores and machinery, including expensive drainage equipment, and the integration of architectural and administrative functions in a manner which yields better planning and control of building work. A management consultant has also recently concluded an assignment in the Forestry Division of the Department of Lands and has been able to bring about substantially increased productivity on work in connection with forest development and management. The benefit is being shared by the workers who participate in the incentive bonus scheme.
The provision for industry this year is higher by £1.93 million; £1½ million goes towards the cost of the new nitrogenous fertiliser factory and there is almost £600,000 more for industrial grants. Also, for the first time, provision of £½ million is being made for Cómhlucht Siúicre Éireann. It is expected that the Company's plans for food processing will soon reach the stage at which the Government will be asked to provide additional share capital. The provision is conditional on the necessary legislation being passed and covers only investment in fixed assets.
The provision made for building and construction shows a substantial increase. Housing, sanitary and miscellaneous services account for an extra £2¼ million. This increase is due partly to increased costs but it also reflects a higher demand for loans and grants for private housing, a resurgence of local authority housing in a number of areas, particularly Dublin, and heavier expenditure on water supply, sewerage and miscellaneous services. These developments are both an indication and a consequence of the rise in national living standards. It is, however, necessary to keep an eye on the resources available and also, as I mentioned last year, to avoid the creation of peaks of intense activity which might be followed by slack periods.
The capital outlay of Córas Iompair Éireann will increase by £1.4 million this year to £2.5 million. Over £½ million of this sum will be devoted to hotel development works and the balance is attributable to acceleration of the railway modernisation programme.
The Government is reinforced by the views of the OECD in its belief that increased investment of a productive kind is in the national interest. The increased public capital programme for the current year has been approved on this basis.
IV. SOURCES OF FINANCE FOR CAPITAL BUDGET.
Table III of the Financial Tables shows the resources which were availed of by the Exchequer to meet capital requirements in 1961-62. The resources expected to be available towards the capital requirements of this year are set out in Table V.
Last year, the support from the public towards the financing of capital expenditure was generally up to expectation. The largest single contribution came from the fully-subscribed 6 per cent. National Loan in November which brought in £16.9 million.
Net receipts from the savings banks and savings certificates amounted to £5 million as compared with £4.2 million in 1960-61. Prize Bonds continued to attract subscribers and, allowing for encashments, brought in £2.4 million, much the same figure as in the previous year.
The confidence which I expressed last year in the growing public support for Exchequer Bills has been justified by an increase in issues of £2.8 million during the past year and the stage has now been reached when consideration can be given to the question of issuing Exchequer Bills more frequently than once a month. I am also considering the possibility of issuing tax reserve certificates to serve as a tax free temporary investment for persons or firms wanting a convenient means of providing in advance for tax payments.
This year's capital programme is bigger than last year's and still greater support from the community will be needed to finance it. The money required for national development should, to the greatest possible extent, be provided by our own people. During the coming year the Savings Committee propose to intensify their drive for new savings and I am confident that, with incomes generally higher, there will be an encouraging response from the public. The country is, indeed, indebted to this voluntary committee whose services are so generously given for the common good.
A natural result of the growth of public capital investment for some years past is the higher debt charges that have to be met from taxation. We cannot, as I said on the Vote on Account, have capital development without paying for it. We must, however, continue to make every effort to minimise the cost by pursuing the policy of favouring productive investment. In this way increased debt charges can be more nearly matched by increased revenue. The voted capital services will need to be examined critically from time to time to ensure that there is recourse to borrowing only for such items as are truly of a capital nature and provide assets for the continuing use or benefit of the public.
Last year the net charge for the service of debt in the Central Fund and Supply Services, allowing for the interest and dividends received from State loans and investments, was £21.5 million. Of this total, £10 million was sinking fund intended for the redemption of debt. This is a substantial amount but it can only be regarded as being fully applied when the current budget is in balance. Since the current budget has, in fact, been balanced over the last four years as a whole, one can say that a total sum of £36 million has been set aside effectively in that period for redemption of the public debt.
V. CURRENT BUDGET, 1961-62.
Tax revenue was very buoyant last year and non-tax revenue also exceeded the budget estimate. The buoyancy was such that it covered the excess expenditure, as compared with the Budget estimate, of £5.3 million on the Supply Services and £0.54 million on the Central Fund Services. It was short only £700,000 of making good the budget adjustment of £3 million for errors of estimation.
The excess expenditure on Central Fund Services, apart from the Road Fund transactions which merely balance the intake of revenue from motor vehicle duties, was caused by the high level of interest rates on temporary borrowings.
When dealing with the Vote on Account, I adverted to the two principal factors which upset the budget allowance for the Supply Services. These were the pay increases, which cost an extra £2½ million in the year, and the large supplementary amount which had to be provided for agriculture. Some £5½ million of this supplementary estimate was for losses on the disposal of 1960 wheat and price support for butter and bacon exports.
The net result of the variations in current expenditure and revenue was a deficit of £708,000.
It might, perhaps, be argued that, if there had not been a substantial net reduction in tax rates last year, the deficit would not have arisen. I do not think, however, that there is good ground for calling in question the tax policy which has been consistently pursued in recent years. Its soundness is amply borne out by the revenue buoyancy stemming, not from increases in tax rates, but from increased national output and earnings promoted by the economic and fiscal policy of the Government, including the progressive reduction of direct taxation. Over the last four years, reductions have been made in direct taxation rates which are now costing the Exchequer upwards of £5½ million a year.
Expenditure and Taxation Levels
Last year I commented on the level of State expenditure and taxation in relation to national production, pointing out that the rise in State outlay since 1957-58 had been more than matched by the rise in national production. That statement still holds good. State expenditure chargeable against revenue has risen by 18½% in the last four years whereas the value of national production has increased by nearly 21%. The proportion of gross national product at market prices absorbed by all taxation, central and local, is about 22%, which is not high by international standards. Tax receipts retained for general Exchequer purposes, excluding road tax which is used exclusively for the benefit of road users, represent 16.9% of national production and are at virtually the same level as in the past three years.
By reference to international standards the proportion of our tax revenue taken in direct taxation is low. So also, so far as comparison is possible, are our rates of direct taxation. This point is significant in the context of our application for membership of the European Economic Community. The disincentive to effort and enterprise which direct taxation can represent has been very much reduced by the adjustments of recent years. More important still, however, is the position which now obtains so far as industrial profits are concerned. The Irish rate of tax, that is, income tax and corporation profits tax, on companies is now 41.7%. This compares with 53.7% in Britain, 50% in France, 51% in West Germany and 47% in the Netherlands. In addition, Irish companies enjoy complete remission of tax on profits attributable to increased exports. Further, in most Western European countries moneys paid by a company by way of dividend come out of profits subjected to tax and are normally taxed again in the recipients' hands. In Ireland, not only is the dividend not charged again to income tax in the hands of shareholders but, where exports relief applies, an appropriate part of the relief allowed to the company is passed on to the shareholder and, in addition, relief may be granted under Section 7 of the Finance Act, 1932, as amended. Another less obvious point is that most Continental countries take as taxable income the increase in the net worth of a company from year to year and thus automatically tax capital gains.
Commission on Income Taxation
I might, perhaps, at this point refer to the reports of the Commission on Income Taxation. I expect shortly to receive the Commission's seventh report which, I understand, will be their final one. The Commission will then have completed the valuable service which they undertook over five years ago. I gladly take this opportunity to pay tribute to the fine public spirit of the members in discharging with such care and attention this long and complex task.
The Commission's first report was concerned with the method of collecting income tax charged on salaries and wages; and it led to the introduction of the Pay As You Earn system. The Government's views on the recommendations in the second, third and fourth reports were given in the White Paper on Direct Taxation published last year on Budget Day. The fifth report, on co-operative societies, and the sixth report, on simplification, were published during the course of 1961. While I have studied these two reports with some care, I would prefer not to take decisions on the recommendations they contain until I have received and considered the Commission's final report which I expect will range over a wide variety of matters. The Government's comments on the recommendations in the fifth, sixth and seventh reports will be set forth in a White Paper which it is hoped to issue before the 1963 Budget.
Progress with tax reforms and simplification
On decisions announced in the White Paper last year, I have the following progress report to make:
First of all one taxpayer, one charge:
The idea here is that each taxpayer should normally be sent a single composite notice of assessment to income tax each year and a single demand later to cover the full income tax charged. This proposal will, as indicated in the White Paper, be implemented as soon as practicable after the delivery of electronic equipment about September, 1963. Considerable headway has already been made in preparing for the new arrangements which will then come into effect. These will involve radical changes in the whole income tax organisation, a comprehensive review of which is being conducted at present. The use of the electronic computer and the concomitant reorganisation of the income tax staffing will, it is expected, result in administrative saving and at the same time increase administrative efficiency. It should also help to ease the strain of work in tax offices. It has, in fact, been necessary to increase the Revenue staffing somewhat to cope with the extra work on Pay As You Earn but the additional expense involved has, of course, been amply recompensed in the form of increased revenue intake. I should like to acknowledge that the fact that the new system has operated so smoothly from the start is due mainly to the wholehearted co-operation received from employers and employees alike.
Surtax liability has up to now been computed in the Special Commissioners' Office at Dublin but, under the decentralisation arrangements now being made, this will in future be a matter for the local income tax offices.
Collection of surtax from remuneration:
In last year's Finance Act a section was included for persons chargeable to surtax who are within the ambit of Pay As You Earn. It enables them, as from 6th April, 1962, to have their surtax collected in conjunction with their income tax. Many surtax payers are availing themselves of this facility.
One form of return for income tax and surtax:
The Finance Act, 1961, also provided for a single return of income by individuals which would suffice for the purpose of both income tax and surtax. The new forms of return are now being issued from the various tax offices. The forms themselves have been recast and simplified. I am confident that taxpayers will find their forms easier to understand and to complete than in the past; and I may say that in this matter the Revenue Commissioners have given effect to one of the recommendations in the sixth report of the Income Taxation Commission.
Consolidation of Income Tax Acts:
Considerable progress has been made in preparing for the consolidation of income tax law. It is my opinion, however—and in this I am of the same mind as the Commission—that there should be revising legislation before a consolidating Bill is introduced. Accordingly, I am having legislation prepared which will provide for contemplated reforms, will eliminate archaisms and deadwood, will remove flaws and in general simplify the code. Work on these amending provisions will be pressed forward and I hope to introduce an instalment of them before next year's Budget.
Stamp Duty Volume:
The compiling of a comprehensive volume on Stamp Duty law is nearing completion and it is hoped to send the material for printing within the next few months.
VI. CURRENT BUDGET, 1962-63 —DETAIL.
As the White Paper of Receipts and Expenditure shows, revenue this year is expected to increase by over £8 million at existing tax rates. Tax revenue accounts for most of this increase, namely, £6 million. The remainder is attributable to motor vehicle duties, Post Office receipts and radio and television licences but the increase under these particular heads is, of course, matched by corresponding increases in related items on the expenditure side. Interest on Exchequer advances, as might be expected, also shows an increase.
In estimating the yield from tobacco this year, it has been considered prudent to allow for the effect of published medical opinion and to assume a reversal of the upward trend in cigarette consumption. Account has also had to be taken of the full-year cost of reliefs in income taxation given last year.
Current expenditure, as compared with last year, is up by £8.2 million. Of this increase, Supply Services are responsible for £5½ million and Central Fund Services, including the Road Fund, for the balance. The principal items accounting for the increase in Supply Services were explained in connection with the Vote on Account. Debt service is responsible for the bulk of the increase in Central Fund Services but payments to the Road Fund on foot of motor vehicle duties also show an increase.
This year, for the first time, the Central Fund Services contain no reference to local taxation grants. I explained on the Vote on Account that the disappearance of this item is balanced by increased expenditure on the Supply Services.
On the White Paper figures the gap between revenue and expenditure is £745,000. To this I must add the first year's cost, estimated at £100,000, of the taxation reliefs which I am conceding pursuant to the recommendations of the Committee on Industrial Organisation. I must also add provision for the increased pay recently awarded to Secondary and Vocational Teachers. This widens the gap to £1,305,000. There are, however, obligations of a social nature which I must also take into account.
The position of pensioners was debated by Dáil Éireann on 21st March last and a Government resolution was adopted to the effect that pensions proposals should be considered in conjunction with the budget, when they could be related to the taxation required to implement them. I indicated that the Government were sympathetically disposed to pensioners and I promised to examine, when preparing the budget, what increases could be given to them.
The pensioners concerned fail broadly into two categories, public service pensioners and social assistance pensioners. As regards public service pensioners, it was acknowledged in the debate that the pensions awarded to civil servants, gardaí, army personnel, teachers and officials of local authorities had not been adjusted as frequently as had the pay of serving personnel. Acts were passed in 1950, 1956, 1959 and 1960 which enabled certain increases to be given but these did not extend to all pensions and the increases given did not compensate fully for the rise in the cost of living. I have had an estimate made of the cost of raising service pensions to take account of post-war movements in the cost of living, with special provision for persons who retired earlier to bring them into line with their post-war colleagues, and I find that the cost would be approximately £1,300,000.
The Exchequer position precludes acceptance of a commitment of this order for service pension increases. I propose, however, to set aside £450,000 this year to cover increases for the various classes I have mentioned as from 1st August next. The full-year cost will be £675,000, which is half the cost of bringing pensions into line with the present cost of living.
In distributing the increases I propose to give priority to those longest retired and to bring all pensioners who retired before the pay revision of 1st November, 1955, up to the level of their equivalent colleagues who retired with the benefit of that pay revision. When introducing the necessary legislation later I shall give full details of the increases proposed. There will be some increase also in military service pensions and special allowances. The cost is included in the sum of £450,000 which I have already mentioned.
The social assistance pensioners comprising the second broad category are old age pensioners, blind pensioners and widows. Persons on unemployment assistance should also, I think, be considered. It was made clear in the debate on the pensions motion that the adjustments which have been made in post-war years in social assistance pensions have more than kept them abreast of the cost of living. The last three Budgets in succession have provided increases amounting, in all, to 5/- a week. An increase in pensions calculated to compensate solely for the rise in the cost of living would amount to about 1/- a week.