Seanad Éireann díospóireacht -
Wednesday, 11 Jul 1962

Vol. 55 No. 8

Finance Bill, 1962 (Certified Money Bill) —Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for Finance (Dr. Ryan)

The Finance Bill this year is shorter and less complex than those of recent years. Most of its provisions are concerned with giving legislative effect to the Budget proposals. The Explanatory Memorandum which was circulated with the text of the Bill explained the various sections in it as introduced in Dáil Éireann. Three new sections concerning stamp duty were inserted during the passage of the Bill through Dáil Éireann and two sections were amended as a result of the further increase in tobacco duty. I shall refer to these specifically later.

Part I of the Bill, as is customary, is concerned with income tax. This year there are only two sections in it. One of these imposes income tax and sur-tax for the current year at the same rates as were in force last year. The purpose of the other section is to enable interest to be paid without deduction of income tax on any security issued by the Agricultural Credit Corporation.

Part II deals with customs and excise duties. Sections 3 and 4 cover the Budget increases in the duties on beer and spirits. Section 5 confirms the Budget increase in the duty on tobacco for the period from 11th April to 9th August and it provides also that, as from 10th August, duty shall be charged at the sum of the rates imposed by the Budget Resolution and the Imposition of Duties (No. 123) (Tobacco) Order, 1962. This Order imposes an additional duty equal to a penny on 20 cigarettes in respect of the period from 14th June to 9th August. Provision is made for its confirmation in Section 10 of the Bill and also for confirmation of another order reducing the rate of duty on used omnibuses. Sections 6, 7, 8 and 9 implement the Budget proposals for certain tax reliefs, namely, in respect of entertainments duty, small customs duty charges and road tax on farmers' tractors.

There are four sections in Part III of the Bill. Two of these—Sections 11 and 13—arise from recommendations made by the Committee on Industrial Organisation. Section 11 doubles the existing rates of initial allowance in respect of capital expenditure on machinery or plant and on industrial buildings. Section 13 is concerned with providing tax relief in respect of payments incurred by companies in making good trading losses of a joint enterprise. Both sections follow on recommendations made by the Committee on Industrial Organisation.

As to the two remaining sections in this part of the Bill, Section 12 exempts from tax interest on any securities, in the nature of tax reserve certificates, which are issued for use in payment of income tax, sur-tax or corporation profits tax. It is hoped to have the securities available within the current year. Section 14 provides for the charging of interest on tax paid in arrear.

Part IV of the Bill deals with stamp duties. Three of the sections in this Part were inserted in the Bill on the Committee Stage in Dáil Éireann. Two of these sections relate to the stamp duty payable in respect of conveyances, transfers or leases of land to non-nationals. Under existing law, if the relevant instrument contains a certificate that the property involved is being acquired for private residential purposes and does not include land exceeding 5 acres in extent, stamp duty is chargeable at a maximum of £3 per cent. instead of £25 per cent. Cases have come under notice in which a transaction comprising more than 5 acres has been split into two deeds of transfer, one of which transferred 5 acres and the other transferred the remainder of the property being acquired. By the incorporation of a certificate in the first deed that the property was being acquired for private residential purposes and did not include land exceeding 5 acres, that deed attracted duty at the rate of only £3 per cent. on the consideration of that transaction. Sections 15 and 16 of the Bill are designed to deal with this situation. They provide for the continuance of relief from the £25 per cent. duty on acquisitions for private residential purposes of property which does not include land exceeding 5 acres but henceforward the relief will be given on the recommendation of the Land Commission and not on the strength of a certificate in the instrument of conveyance or transfer or lease. The Land Commission, where they consider it appropriate, may withhold their recommendation and, in this way, prevent the avoidance of duty at the £25 per cent. rate.

Section 17 repeals the stamp duties payable by members of the Bar on admission as students of King's Inns and on admission as barristers-at-law and it also repeals the duty on articles of solicitors' apprentices. Solicitors have not, since 1954, been charged with duty either on admissions as solicitors or on annual practising certificates. On the other hand, solicitors' apprentices pay duty of £14 on their articles which is paid over to the Society of King's Inns by the Revenue Commissioners.

It has been represented that it is anomalous to repeal duties payable by one branch of a profession, namely solicitors, and to continue to levy them on the other—barristers. It is also understood that the Society of King's Inns is now agreeable to waive its right to the £14 duty on the articles of solicitors' apprentices. The section, therefore, proposes the repeal of the two duties payable by barristers and that payable by solicitors' apprentices as from a date to be appointed by order.

The remaining section in this Part of the Bill, Section 18, increases from four to eight months the operative period for the stamp duty concession granted in last year's Finance Act in respect of certain dealings in Irish stocks.

Part V of the Bill deals with miscellaneous matters. Section 19 is the usual provision relating to the Capital Services Redemption Account. Section 20 makes legislative arrangements in connection with the termination of the Local Taxation Account. Section 21 extends for another three years the corporation profits tax exemption in favour of public utility concerns, building societies and the Agricultural Credit Corporation which expired on the 31st December, 1961. Section 22 is intended to permit of the introduction of a tariff based on the Brussels Nomenclature and to remedy certain technical defects in the Imposition of Duties Act 1957. Section 23 deals with two repeals; one of these is consequent on the termination of the Local Taxation Account while the other does away with the prohibition on the sale at the same premises of both duty paid and rebated heavy hydrocarbon oil. The two remaining sections of the Bill do not call for explanation.

Those briefly are the purposes of the Finance Bill this year. The Bill is, of course, a Committee Stage Bill and I shall be glad to explain any points of detail on that Stage.

Professor Hayes

I suppose it is pleasant to be able to begin by agreeing with the Minister that this is a shorter and less complex Finance Bill than usual. It could be described, I think, as a rather unexciting Bill and I take it that it will have an unexciting passage. I know that the Bill gives scope for a general discussion on our financial and economic position and on the general imposition of taxes. I do not intend to avail myself of that opportunity today. I merely want to raise with the House and with the Minister two suggested amendments and because I do not see any section in the Bill to which I could attach myself on the Committee Stage, I hope I shall have the permission of the Chair to ask the Minister how the matter may be dealt with later on.

The Bill increases duties on beer and tobacco. I know that these two matters raise general questions and general principles. If I were to speak personally and selfishly I could boast that the increased duties on beer and tobacco will cost me exactly nothing.

I raised two points last year on this Bill on 19th July. I should like to raise them again and to ask the Minister whether in view of the sympathy which he expressed on the last occasion he can do anything about them now. The first is with regard to death duties and the way in which they affect a widow with young dependent children. I use the words "dependent children" in the income tax sense, that is, children under 16 or who, being over 16, are undergoing full-time educational or apprenticeship courses.

No provision whatever is made in the death duties code for that kind of case. As I pointed out to the Minister before, our general taxation provisions do make allowance specifically for wives and for children. That is the case with regard to income tax. They recognise the wife and family with regard to income tax and surtax but no such recognition is granted when it comes to death duties. There is a very strong case to be made in this matter.

I am taking the case of a young man, say, between 30 and 40 or 30 and 50, who is the sole breadwinner of the family and who dies, leaving a widow with, perhaps, a house and an insurance policy and something else which will bring her over the limit at which death duties are payable. It is easy to get within that limit in modern times with, say, a house and an insurance policy. If the limit is reached, if the estate is liable to duty, then the duty begins at the very beginning, from the first £. I think that position is wrong.

There is a considerable difference between the case of a man in that age group dying and leaving an estate after him of £8,000 or even £10,000 and the case of a man of, say, 70 whose family have been reared, who are settled in careers or in employment of one kind or another and who leaves money after him. It is not unreasonable that that estate should be taxed but the taxation on the other kind of estate should be on a different basis. I suggest that there should be an amendment by which, following the analogy of the ordinary income tax provisions, there would be an allowance of, say, £3,000 for the widow and £2,000 for each child under 16 and who is dependent in the sense of the income tax code. Duty could be paid on any amount over that.

The Minister on the last occasion said he had considerable sympathy with the point raised, which he had not heard raised before, and that he would look into it. Can he do anything to remedy that situation on the Committee Stage by making such allowance as I mentioned or such other allowance as he himself might suggest? It would cause me a great deal of labour, much more than the Minister's officials would have to undergo, to frame a suitable recommendation for this House. I am aware, too, that, even if he were accepting the principle, the Minister would not accept my wording in any recommendation to be put into a Finance Bill. Even if he accepted the principle of my amendment, he would put words of his own into the Finance Bill.

In the case of a young widow, it is possible for her to have inherited an estate of £8,000 or £10,000 but at the same time to have practically no ready cash available for herself and her children. If she has to go out to work, she must employ somebody to mind the children and there is no income tax allowance for such an expense. I hope the Minister will agree with me on this point.

The second point I raised was this: a child may have an income of up to £80 without being liable for tax and without the parent losing the £120 tax free allowance. The figure in England is higher—it is, I think, £100—and I understand that in England, if the income exceeds £100, the tax free allowance is reduced in proportion. Here, on the other hand, if the figure exceeds £80, the whole £120 is lost. If that is so, it is a very hampering provision.

The Minister last year at column 138 of the Seanad Debates of 19th July, dealt with that point when he said:

That particular point which Senator Hayes has put about the sliding scale—I am not saying whether it should be £80 or £100— has never been put to me, I must say, and therefore I never gave it my consideration, but I would believe that all these things should be roughly the same as they are in Britain.

If I am correctly informed, therefore, the Minister should bring our procedure into line with the procedure in Britain.

I find it difficult to frame recommendations to meet either of these points. All I can do is put the case to the Minister and to hope that as he was sympathetic last year he will be a little more sympathetic on this occasion.

Professor O'Brien

This debate is one of the few occasions upon which general financial policy can be discussed in the Seanad. It is concerned with the raising, as apart from the spending, of money which will be debated on the Appropriation Bill. The Budget nowadays is more than a statement of public accounts: it is a regulator of the economy. If the economy is growing too rapidly, a surplus Budget acts as a brake, whereas if it is not growing rapidly enough, a deficit Budget acts as an accelerator.

The Budget must be studies against the background of the world and of our own country. These interact on each other as Ireland has such an open economy. The volume of external trade is so large that Irish conditions are very sensitive to outside influences. Irish prices, especially the prices of labour and capital, are greatly influenced by those in the outside world. This sensitivity to outside influences is growing and as has been stated in the Report of the Central Bank: "External factors are of increasing importance to the Irish economy."

In studying the world background, the central feature is the recent American stock exchange crisis. It is an important question whether a business recession is imminent in the United States. The prices on the stock exchange and business act and interact on each other. A fall in share prices reflects the expectation of business losses while it reduces purchasing power especially for consumer durables.

The trouble in the United States, as in every other country, is that any effort to stimulate growth may cause an outflow of gold. This is typical of the conflict between internal and external policies. Internal policies of expansion may have to be damped down because of balance of payments considerations. Every country in the world is trying to increase its exports while not increasing its imports. This is, of course, impossible and leads to recurrent foreign exchange crises. Government policy has to look to the short period and be defensive, with bad effects on business confidence and investment. The ultimate cure for this state of affairs is an increase in the international reserves. If central banks had increased liquidity Governments would have more elbow room and would be able to expand more without incurring balance of payments crises. This could be obtained by fluctuating exchange rates but orthodox financial opinion is completely set against that today. Therefore, it need not be discussed any further as it is practically out of the question.

Another thing that could be done is something in the nature of a world clearance system. That is referred to with approval on page 23 of the Report on the Irish Central Bank, that more and more international collaboration is taking place for the safeguarding of currencies. The trouble there is that the complete system will take time to evolve and require a great deal of international agreement. Possibly the most satisfactory and most immediate solution would be an increase in the price of gold but that, of course, brings us far away from Irish problems into American politics. Gold at the moment is still the basis of the world's monetary system. The price of gold has not risen in the past 28 years whereas the price of everything else has. The amount of gold production is not increasing at the same rate as world trade. Therefore, a great many people believe that the only immediate solution of the general shortage of reserves in the world is by the United States increasing the dollar price of gold. But, as I say, that takes me far away from the subject of this debate to which I now propose to return.

In spite of what I said about the world tendency towards deflation, the immediate outlook in the majority of countries in the world does not appear to be too bad at the moment. Take the United States of America. I notice in to-day's Times a dispatch from their New York correspondent which states that:

Mr. Per Jacobsson, managing director of the International Monetary Fund, said last night that the United States economy had shown "a quite remarkable improvement" in the last year and he did not believe it was heading towards a recession. The stock market decline, he said, could be attributed to the end of post-war inflation, which might in itself be a sign of strength rather than weakness. He did not think the decline was likely to affect the United States economy in the coming months.

The same opinion is expressed in the Report of the Irish Central Bank. As regards the United Kingdom, which is the country to which we export most, general opinion is that nothing in the nature of recession is imminent and that a condition of stability has been reached. The official view seems to be that a period of expansion is about to take place. Last Thursday in the House of Commons the Financial Secretary to the Treasury said that the Budget was based on the view that an element of expansion was still appearing and exports were climbing. Public expenditure was certainly rising at least as strongly as forecast in April. Consumer spending also showed signs of increasing.

As regards the European Continent, trade and production are expanding and, therefore, in the main parts of the world with which Ireland trades the immediate outlook is that trade seems to be fairly satisfactory and not of a kind to give rise to alarm regarding the future potential of Irish exports.

To come nearer home, as I said, the Budget must be framed in relation to the world background and the Irish background. As regards the Irish background, we are lucky this year to have a considerable amount of very well-informed comment. There has been a report by the Organisation of Economic Co-operation and Development on Ireland which discusses the long period view. Perhaps, I should say that in respect to this background we have to consider the long period view—is the economy growing?—and the short period view—is it stable from year to year? One of the great problems in the world today, in the United States and elsewhere, is an apparent conflict between growth and stability. An effort to grow too fast leads to instability. As regards the rate of growth, the Irish position is quite satisfactory. The Central Bank Report shortly summarises the findings of the survey by the Organisation for Economic Co-operation and Development—

The general position may be briefly stated. In 1961, for the third year in succession, total national output expanded at a rate substantially higher than that postulated in the White Paper on Economic Expansion issued in November, 1958. Over the three year period, the average annual rate of growth exceeded 4½ per cent. The major contribution to the increase in 1961 was again made by the industrial sector. Current external results and payments showed a small surplus. Capital inflow combined with this surplus to produce a substantial increase in external reserves.

I shall not quote fully. I shall simply quote the final sentence which said:

The picture emerging from the foregoing very brief summary is an encouraging one.

That is the verdict of this international body. There is one feature to which attention is drawn of a less satisfactory kind and that is the need for further investment. Although the Irish economy is growing, the rate of capital investment is lower than that in most European countries. On that subject I should like to quote from the June number of the Irish Banking Review where it states that:

Even during this period of expansion the level of capital formation has been unduly low. In 1960, for example, the percentage of national production devoted to fixed capital assets was 13 as compared with 21 within the countries of the EEC.

This insufficiency of investment is particularly regrettable at a time when great changes will be called for in production to meet the changing conditions in Europe. Technical innovations and increases in productivity call for considerable investment.

The whole uncertainty regarding the Irish position in the Common Market has led to a specific inquiry into how Irish industry should adapt itself to the difficult position which may lie ahead and, as the Seanad is aware, a Committee on Industrial Organisation was appointed to investigate these problems. The first report of the Committee directly bears upon the Finance Bill which we are discussing because the Bill incorporates some of the Committee's recommendations. The Committee made specific recommendations which are summarised on page 21 of the Report of the Central Bank. The principal recommendations which are now coming near the Budget are:

First, that the legislation dealing with industrial grants should be amended to enable An Foras Tionscal to make a grant in respect of an industrial project which involves a switch from one field of activity to another ...; secondly, that the size of coverage of technical assistance grants payable by the Department of Industry and Commerce and the marketing grants payable by Córas Tráchtála should be reviewed; thirdly— and this directly affects us—that the initial allowance on industrial plant and equipment should be raised from 20 per cent. to 40 per cent. and on industrial buildings from 10 per cent. to 20 per cent.

The fourth is that loans, with waiver of interest payments and deferment of capital repayments over a period, normally, of five years, should be provided by the Industrial Credit Company Limited towards financing re-equipment by industrial undertakings within their existing spheres of activity; and the fifth, that the Revenue Commissioners should examine the practicability of a scheme enabling losses incurred by a newly-established joint industrial enterprise to be charged for tax purposes against the profits of the parent enterprises.

The Report states:

In the course of his Budget speech, the Minister for Finance stated that the Government had decided to proceed on the basis of the Committee's recommendations.

Having made these preliminary remarks regarding the economic background, I shall now come nearer to the actual Budget. I think everyone will agree that the first object of this Budget, as of every Budget, should be to encourage growth, to stimulate growth in the economy. Everything must be done to make investment attractive both for Irish citizens and for foreigners but, at the same time, as I have already said, this growth must always be within limits which are consistent with the stability of the economic system.

As I have said earlier, in other countries today, including even the United States, attempts at growth seem to give rise to balance of payments crises. Therefore, the Minister for Finance must have regard not only to the long period aim of growth but to the short period aim of preserving the value of the Irish currency, preventing our balance of payments getting out of equilibrium and the loss of our external reserves.

In order to understand the short period problem apart from the long period problem, I should like to refer the Seanad to a document issued on the eve of the Budget which gives a picture of the immediate background of the Budget apart from the longer background referred to in the Report of the OECD. The outstanding features of these economic statistics are shortly summarised in "Economic Statistics Issued Prior to the Budget of 1962." In 1961 there was a surplus in the balance of payments. The external assets of the Irish banking system increased. The national income increased by eight per cent. Fixed capital formation rose by 15 per cent. from £87,000,000 in 1960 to £102,000,000 in 1961. Total savings increased by about £9,000,000 to £68,000,000, the highest figure yet recorded. The index of average weekly industrial earnings increased by 7.8 per cent. and hourly earnings by 11 per cent. The report states that the analysis of the events of last year is satisfactory.

The Minister, of course, in framing this Finance Bill was concerned with the outlook for the present year rather than the events of recent years. When we come to the outlook for 1962, on the face of it it would appear that a deficit in the balance of payments is a possibility. That view is taken in the Central Bank report. It was also taken in the debate in the Dáil by the Taoiseach. The Taoiseach took the view that, despite the possibility of a deficit in the balance of payments, a deflationary policy should not be pursued because, as he said, everything points to a capital inflow and, if there is an inflow of capital, a deficit in the balance of payments can be sustained without loss to the external reserves.

I do not wish to quote at length from the Taoiseach's speech but he said that the Budget was aimed not at a reduction of purchasing power but a transfer of purchasing power within the community, a balancing operation in the interests of equity and social justice. If this analysis of the immediate past and the prospects for the future is correct, there is no need for the Budget to be framed in order to obtain either a surplus or a deficit. There is no sign of such an acceleration of the economy as to call for a surplus to put on the brake and there is no such sign of a recession in the country as to call for a deficit to give acceleration. Therefore, from the point of view of regulating the pace of the economy the Budget should be neutral.

To come to the narrower sphere of public finance, of course the Budget must be balanced in the sense that expenditure must be covered by current revenue, and as far as possible new capital expenditure should be covered by new savings. Otherwise inflation might occur. A deficit or capital expenditure incurred by borrowing from the banks might lead to inflation which the country simply cannot afford at the moment. That is a matter to which I shall return in view of the uncertainty regarding the Common Market situation.

The outturn of last year's Budget was very satisfactory and in spite of increases in expenditure revenue was buoyant and the year's out-turn was a deficit of £708,000, a very satisfactory result. When we come to regard this Finance Bill we have to allow for the fact that public expenditure will inevitably rise. That is part of the trend of the times in every country in the world, and this country is no exception.

This matter is referred to with some alarm in the Report of the Central Bank. At page 14 the Report says:

There are already indications of official proposals for expenditure beyond the provision made in the Budget. It would be optimistic to expect a faster rate of economic growth in 1962 than in 1961. State expenditure, borrowing and annual debt service charges are thus increasing much more rapidly than national output.

Assuming that this increase in expenditure is almost inevitable, new taxation becomes necessary. It would be too much to hope that existing taxes would be so buoyant as to bring in the revenue necessary in this great additional expenditure. The Minister in his Budget speech faced up to this situation. He stated what he considered would be the new expenditure necessary in the coming year. The deficit on the Budget, assuming no change in rates of expenditure or taxation, would be £745,000. To that had to be added the increased initial allowance recommended by the Committee on Industrial Organisation—£100,000; an increase of pay recently awarded to teachers—£460,000; certain increased pensions amounting to £1,075,000; additional agricultural grants amounting to £2½ million. All these together come to a deficit of £5,330,000.

The Minister also proposes to abolish entertainments tax. The resulting loss of revenue would increase the deficit to £5,780,000. The Minister quite properly allows for errors of estimation a sum of £2 million, leaving a gap of £3,780,000 to be raised. In order to bridge this gap, the Minister had to propose additional taxes. The additional taxes are an increase in duty on beer, spirits and tobacco. As Senators are aware, the duty on tobacco has further been increased in the past couple of weeks as a result of unforeseen additional expenditure.

Before making any comment on these additional taxes, I should just like to refer to the capital budget. The outturn on the capital account last year showed that the State had spent £57 million as compared with an estimated £55 million. The estimate for this year is £66 million, most of which is of a productive kind. The Minister emphasised in the Budget debate in the Dáil that this expenditure would all be productive in the long run. That is no doubt true but, to repeat a point which I have made every year in the Seanad, outlay that may be productive in the long run may cause deadweight debt in the short run. It may be productive without being self-liquidating. Therefore, although it may be perfectly justified from the point of view of the future of the national income, it may create in a short period difficulties regarding additional debt and the service of that additional debt and sinking fund.

I apologise to the Seanad for harping on this theme but I think it is one which should be repeated. The fact that expenditure may be productive in the long run does not mean the debt is self-liquidating and, therefore, from the purely budgetary point of view, which is what we are considering in this debate, the short period effect of borrowing may, perhaps, be more important.

No investment is more productive than education. But it may take a generation to mature and, while it is maturing, the public debt in relation to it may impose very heavy burdens on the Budget. That is my first criticism of the Budget—that a certain amount of the debt incurred in relation to the capital budget will impose a burden on the taxpayer in the short run. This view is corroborated by the Report of the Central Bank, page 17, which states:

The financially non-remunerative character of a great part of the expenditure treated as capital suggests that a proportion of that expenditure should be financed out of ordinary revenue. The available information for other countries indicates that a more conservative policy in this regard would be in line with practice elsewhere.

My next point on the Finance Bill is one which was made in the Dáil and one which I personally do not agree with and that is that more social benefits should have been provided for certain sections of the population. We should all like to see higher pensions, higher social benefits: everybody is agreed about that. But the Minister has to exercise restraint in this matter. The resources available are not unlimited. I have no doubt that he would have liked to give more to needy sections of the population, but the public finances of the country at the moment simply would not stand generosity of that kind.

When we come to consider the new taxes, speaking for myself, I entirely approve of what the Minister has done. If there has to be new taxation, far better to have it indirect than direct. It has less adverse effect on investment and on production. I do not think it could be sufficiently emphasised that the expansion of the national income depends on increased productivity and that increased productivity depends mainly on increased investment. I should like to refer, on this, to a striking passage in the Report of the Central Bank, page 16:

In the first place, it should be better appreciated that, inasmuch as increases in labour productivity simply mean a faster rise in output than in manpower engaged, these increases are mainly due to a fuller or better utilisation of capital or an increase in capital in relation to labour employed. This is not to say that important contributions to productivity could not also be made by better organisation and more efficient use of manpower or by additional effort on the part of employees. But to the large extent that increased output per man-hour depends on investment and on the efficient utilisation of capital, excessive increases in real wages in relation to output can only be at the expense of the very technological change which produced the higher output per man in the first instance. Shifts in income which unduly restrict the profits available for further investment are in the long run contrary to the interests of the employees themselves, as well as of the economy as a whole.

That is a passage which I would like to see engraved on the portals of every business house and of every trade union branch.

Therefore, from the point of view of stimulating growth the new taxes must be approved. The doubling of the initial allowances encourages investment and most of the public investment will be productive in the long run. I should like to say that I agree with the plea of Senator Hayes that the death duties might be amended. Senator Hayes' criticism of the code is based on the hardship caused to certain weaker members of the community. Mine is based on the fact that death duties have an adverse effect on saving. If death duties could be abolished or materially reduced, domestic saving and foreign capital would both be stimulated. The income tax concessions have attracted foreign capital into the country but death duty concessions would attract not only capital but capitalists.

I do not intend to press this point because the whole question of direct taxation is under review but I do ask the Minister to keep it in mind. Nothing acts as a greater disincentive to saving than rises of prices which make money a wasting asset. This brings me to the second aim of the Budget, the preservation of stability. From this point of view the Budget must also be approved inasmuch as it does nothing to encourage inflation. At the present time when a lowering of tariffs is so much in the air, it is most important for every country to keep its price and cost levels competitive, otherwise countries suffer from exchange crises and losses of reserves. The Report of the Central Bank calls attention to the efforts which are being made by other countries in this respect:

There is clear evidence that in a number of countries inflationary trends have become the subject of special anxiety. In March, 1961 the group of experts commissioned in 1959 by the Council of the OEC reported on price increases in the member countries of that organisation. According to their report it is necessary for Governments to consider price stability.

While we can do nothing to avoid an imported inflation from the outside world, we can refrain from adding fuel to the fire. The Report of the Central Bank refers in strong terms to the necessity for Ireland avoiding inflation at all costs:

What all this means for Ireland is that unless the strong efforts to control cost increases in other countries are matched by similar efforts here the encouraging growth of recent years may not reach the stage we wish, or could even be reversed.

The Budget must, therefore, be applauded on the grounds that it is anti-inflationary. Current expenditure is covered by current revenue and new State investment will be covered by new savings. The new taxes reduce to some extent the purchasing power of consumers. Therefore, the addition to the social services does not make any net addition to demand.

All the benefits of the Budget could be eliminated if either a cost inflation or a demand inflation developed. A cost inflation means a rise in costs, principally wages, which makes Irish exports uncompetitive and thus leads to balance of payments difficulties. A demand inflation results from too large a flow of consumer demand which increases imports and equally causes trouble in the balance of payments. Both these types of inflation, it should be said, can be partly caused by the Government itself—cost inflation by unduly high wages in the public services and a demand inflation by too much public expenditure not matched by taxation. Therefore, it is not right or fair for the Government to issue warnings or exhortations to private employers when they themselves in many fields are setting the bad example. That matter has been referred to on page 12 of the Report of the Central Bank where it says:

The opportunity which Ireland had in 1961 of achieving a relative reduction in production costs and gain in competitiveness was missed. It may be remarked, incidentally, that with this result a substantial share of the responsibility rests on the public sector of the economy.

One might say in conclusion that the Budget is neutral and properly so. It could be described as a standstill Budget. A great many departments of public finance are the subject of enquiry at the moment; the relation between national and local taxation is being investigated and fundamental changes in our whole tax system may be necessary if we enter the Common Market and, therefore, it is not a time for dramatic changes in the Irish taxation system. The present Budget is neutral and standstill, neither a brake nor accelerator should, therefore, be applied. The only danger is a deterioration in the situation abroad or at home. There is no sign of such a deterioration. I have already quoted authoritative sources in relation to the United States and the United Kingdom and current forecasts in relation to this country are quite optimistic. If a deterioration did occur it could be dealt with when it arose. It is better for the Minister to err, if he does err, on the side of optimism than pessimism. It is better to have an encouraging than a discouraging Budget. A deflationary restrictive budget could have a bad effect on confidence and investment and I think we can acquit the Minister of bringing in a Budget of that kind in the present year.

Miss Davidson

I should like to raise a small point with the Minister. I would like him to look into the Schedule A tax on owner-occupier houses. This is probably one of the most unpopular taxes and it could be described as an unjust tax. I read what the Minister said in the Dáil on the matter. It is true that grants were given in most cases for the building of these houses but the occupier is not the only person who benefited from these grants. Most people with any knowledge of the building trade know that quite a share of the grants go in profits to the builders. The Minister also mentioned that the owner-occupiers have the benefit of rates remissions but there is often a case where these remissions cease particularly at a time when the children are coming to the age where school fees are a big consideration, and the full impact of the rates is a grave hardship.

There is, of course, as well the income tax allowance on the mortgage interest but this merely means that the Minister's one hand is giving and the other is taking back. This Schedule A tax should be abolished and the Minister should not continue to defend the idea of placing a penalty on a citizen merely because he has been prudent or provident enough to invest his savings in a house for himself and his family. This tax hits hard at the ordinary working man. It may not bother the big man or the industrialist who can, perhaps, pass it on one way or another. That this happens was shown in a recent debate in the House of Commons on the subject of Schedule A tax. One of those opposing the abolition of the tax, a Conservative M.P., Mr. Gerard Nabarro, said he had never paid a penny of income tax under Schedule A in his life since he owned his own house because he was clever enough to arrange his financial affairs in such a way as not to attract any Schedule A liability. He said that he employed a qualified accountant to do it for him and the fees that he charged him were in due course charged against his maintenance relief claim. That is stated in a publication entitled This Week of the 5th of July, 1962.

Professor Hayes

They would not give him that allowance for his accountant here.

Miss Davidson

I am afraid there are many conservative types such as that in this country who can act in that manner but the small man cannot dodge. I would like the Minister to have another look at this tax and see if he can remove it. It is a grave hardship on people who have decided to help themselves in providing houses rather than waiting for the local authority to do it for them.

Dr. Ryan

First of all, there were two questions raised by Senator Hayes which, indeed, last year I promised to give attention to before we reached the Finance Bill this year. Well, I have, I must say, a very considerable number of what I consider very desirable concessions that might be made in income tax, estate duties and so on and whenever there is some money we look at it to see what we can do. It was not worthwhile looking at it this year because there was no money to spare and, therefore, nothing could be done this year, whatever way our sympathy might lie. I should like to say, however, that there is some benefit to the widow and children as compared to an estate left to say nephews or first cousins and they have relief of that kind, that is, in legacy or succession duty when the property is left to a widow and children. To take an example, I just asked what estate duty would be paid on an estate of £8,000, which I admit in present circumstances is not an awful lot for a widow and family to live on for the rest of their lives as the income would not be considerable. On an estate of £8,000 the total duty paid would be about £240 which is not very great. Of course, if you go higher the duty goes higher. I should like to say that so far no Minister for Finance, no Government and no Parliament, have proposed or inserted any allowance such as we have on the income tax side in the case of estate duty. It is a straight out duty and whatever the circumstances the duty is paid with the exception I have mentioned already, when we come to the legacy or succession duty, the nearer the relative the less there is to be paid. In this case there is none at all to be paid. As Senators are aware, the three duties are the death duty, the legacy duty and the succession duty. There is only one duty to be paid in this case.

In the other case mentioned by the Senator, so far as I can find out I think he is not right in stating that conditions are more favourable in Great Britain than here in regard to what is allowed on the income of a child in his own right. The limit here is £80 and it was raised to £100 in Great Britain last year.

Professor Hayes

It was raised to £80 here last year.

Dr. Ryan

Apart from the difference in the amount allowed, conditions are the same. As I say, it is £80 here and £100 there and then it comes in fully against the person. Other income tax matters were raised by Senator Miss Davidson. I should like to say in that connection that the final report has been received from the Commission on Income Taxation. It has not yet been published, It is with the printers, and I think Senators will have it in their hands in a very short time.

I told the Dáil that I hoped to get the Government to approve of a white paper of all the recommendations of the Commission before the Budget next year. A number of matters have been dealt with in that report. Children's allowances are one of them. They have already dealt with Schedule A tax. The Government have deferred but not rejected their recommendation in that regard and said that in present circumstances they did not think it advisable to adopt it. There was also a proposal which dealt with Schedule B which went with it. The Government have decided that in the present circumstances they would not adopt it but that does not prevent any Government from going back to consider it again.

I might say that at the end of the final report that has been sent in by the Commission on Income Taxation and which is now in the hands of the printers there is a summary of all the recommendations from the very beginning to the end. Therefore, it will be necessary for the Government to look at the whole thing again before next year's Budget. I have taken rather a strong line against the recommendation of the Commission on Income Taxation on this item of Schedule A tax. I have never seen any great point of hardship or any reason for considering it on the grounds of hardship.

Senators will realise that there are income grades which do not pay. In other words, a married man would have to be earning something like— so far as I remember—£11 a week or thereabouts, before he would be liable for income tax. Therefore, the Schedule A tax would not apply to him. Senator Miss Davidson talked about the working man. We would want to know who she has in mind when she talks about the working man. We are all, I suppose, working men to a certain extent. I suppose Senator Miss Davidson has in mind the working man who is working for a rather low or moderate wage but this tax hardly bears on such people at all.

Senator O'Brien made a very valuable contribution to the debate. I do not think I could deal with all the points raised by him, and I certainly could not improve on the points he raised, but I should like to give my own comments on some of them. He quoted reports from various organisations and he said that generally the outlook was not gloomy at any rate. The general opinion of the economists appears to be that we need not be afraid of a recession in the future and that trade expansion is likely to continue.

Coming to Ireland, as was pointed out by the publications, the rate of economic growth has been favourable and in 1961 it was very good. The only black spot, as it were, in the economic reports was the small proportion of our income that goes into capital investment in this country. It is lower here than in other countries. That is rather strange, and a hard thing to understand, because I do not think our people are more thriftless than the people of other countries, but we have not got into the habit of putting money aside for investment. The position is improving a bit and perhaps it will improve as we go on.

Talking of the rate of economic growth being satisfactory in 1961, there is a warning from some economists that it may not be as good in 1962. Even Senators who have not taken an interest in the various publications will realise that we are not likely to get the sort of acceleration that was there in 1961. It is more likely to settle down to a pattern now, at the 1961 rate, or, perhaps, a little less. Still we do expect an increase in our economic growth during 1962.

I quite agree with Senator O'Brien that there is a possibility of a deficit in our balance of payments in 1962. In fact, I would say it is almost a certainty but we are not sure, of course, how our external assets may stand. So long as they remain as they are, or a little higher, we need not be frightened about some slight, or comparatively slight, deficit in our balance of payments.

I quite agree with Senator O'Brien that in our domestic finances it is most important to balance the Budget. In my presentation of the Budget first to the Government, and afterwards to the Dáil, it was my aim to have a Budget presented that would be balanced for the year. As the Senator pointed out, last year we ended with a deficit, but last year was a most exceptional year in many ways. First of all, we had very much more revenue than we expected but we had more expenditure. There were two very substantial items in the increased expenditure. One was the increased dairy produce which we did not forecast. We do not express any regret for that of course; we were glad to see the increased production, but we just did not forecast it and, therefore, the subsidy necessary to finance the surplus dairy produce was not covered by the Budget.

The second item was what is now known as the eighth round. Salary increases to civil servants and other public employees of various kinds came into operation mostly on 1st November—some later but mostly on 1st November—and that was about five months of the financial year. I do not know exactly how much it came to in that particular financial year but I know that in this present financial year the total will be over £5,000,000 so that there was at least £2,000,000 unexpected expenditure under that head in 1961-62. We ended with a small deficit and we got off fairly well, in all the circumstances.

Another matter raised by Senator O'Brien—with which I agree, again— is his statement that capital raised by way of loan for a project—maybe the expression was used by myself; I do not know—in the long run may prove to be remunerative but may be a heavy burden in the short run. That is quite true. He cites education. We are very anxious to spend as much as we can possibly afford on education. Perhaps, we do not look at it from the point of view of what we can afford but from the point of view of what can be organised or done by way of expanding educational facilities. The expenditure is coming up very substantially each year. That certainly can be looked upon as a very desirable form of expenditure in the long run. The young people who are getting the education now will certainly be very much better equipped to pay off these debts that have accumulated by way of national debt when they come to get work later on.

Another item on which a great deal of money is spent is housing, which is looked upon as a national asset not a budgetary asset. I suppose, again, we can accept that the coming generation, who will be better housed, will be in a better position also to deal with national debts as they are accumulated.

A point made by Senator O'Brien was that, if there is a danger of inflation, taxation may have a beneficial effect on the economy by taking a certain amount of money away. I am afraid that that is not what I had in mind in this particular Budget. I had in mind, rather, the redistribution of income and expenditure—a redistribution so as to give a certain amount to those who had derived little or no benefit from the increase in national income, like the pensioners who are on fixed pensions; the social welfare beneficiaries who also are on fixed incomes and also the agricultural population which had, I believe, benefited to some extent by national production but not by any means as fully as others. The money was taken for their benefit from those who, we thought, could afford to pay. I do not know that in that case there was very much that could be said for the argument that we had attacked inflation to a certain extent, because the money was spent by somebody. We could say that the money was spent on necessaries rather than on luxuries and that that could be a benefit to the economy.

The whole system of taxation, but in particular income tax, surtax and corporation profits tax, will have to be considered before the next Budget when the final report of the Income Taxation Commission is presented. They have not, I think, dealt with estate duty: that can be considered also. Furthermore, as Senator O'Brien mentioned, there is a commission sitting on local taxation. We felt that local taxation was increasing very rapidly and, if it had not already reached the stage, was likely to reach the stage at which it would, perhaps, be beyond the capacity of certain people to pay. The matter is being considered by expert people in this case to see if any suggestion can be made that would be helpful in solving this problem.

I think that is as far as I have notes on any points that were raised.

Question put and agreed to.

Committee Stage ordered for Wednesday, 18th July, 1962.