On occasions such as this, we discuss the question of taxation policy in general and taxation in particular. I should like to refer first of all to the question of our general level of taxation. There is a tendency for Government spokesmen to be slightly complacent in regard to this. It is an easy thing to say that the level of taxation in this country is lighter than that in countries at a similar stage of development. This has been said but it does not happen to be true.
Some years ago I went into some detail on a Finance Bill to point out that at that time the position was that by a margin which was considerable, our level of taxation, taking the total taxation as a percentage of our GNP, was somewhat higher than in countries which could be classed as being at the same level of development. The circumstances have not changed greatly in the interim. I am sure if this exercise were done again we would find that we still hold somewhat the same position.
If we look at the Second and Third Programmes for Economic Development in regard to this question, we find that the hopes of the Second Programme in regard to the level of taxation were not realised. It is hoped that a certain stage of development could have been achieved by a moderate rise in the level of taxation. It was unfortunate that this particular level of taxation was the first target to be passed and outpaced during the operation of the Second Programme. We do not know what the precise figure is but we are now running at about 30 per cent of our GNP in total taxation.
This is not necessarily a bad thing. It is not necessarily something to be deplored in the sense that we are taking this much in taxation and redeploying the money within the economy. However, we are getting to such a level of taxation that certain dangers as regards the weight of this taxation and the general burden of this taxation now emerge. Consequently, we must be more careful than ever to ensure when we ask the people to bear a burden of this size that, in fact, the money is being well used. As the figure of total taxation gets higher and higher, the onus becomes greater on the Government, and on the Minister for Finance in particular, to ensure that the money taken from the taxpayer in this way is efficiently returned to public use. In particular, there is an onus to see that money is not unnecessarily raised in taxation only to be diverted back to pretty much the same area from which it originally came. The greatest amount of efficiency in both the collection of the money and its disbursement cannot avoid a loss if we are circulating money unnecessarily in that way.
When we approach this problem of general taxation there are some criteria which must be applied. There must be criteria on which any financial policy and any budget must be based and assessed. These criteria will be somewhat different when we are dealing with taxation on individuals and when we are dealing with taxation on corporations. The criteria would be in each case social and economic but there will be a differing emphasis in regard to the two. In regard to the taxation of individuals here the emphasis is on the social purpose. Here we are concerned with the re-distribution of wealth, with the promotion of social justice in our society, so that in regard to the framing of general taxation policy with regard to the taxation of individuals what we are concerned with is the achieving of a social purpose without doing undue economic damage in the process.
So we have various arguments about the level of the balance between direct and indirect taxation. Many people believe that if we allow the level of direct taxation to go too high there is a serious disincentive effect here, so that in fact in attempting to achieve social justice through the re-distribution of wealth we may well do economic damage. I take the view that this case is not a proven one and that in fact we know too little about what are the incentive and the disincentive effects of various types of taxation. This is something on which we need more information, something which would well commend itself to our Economic and Social Research Institute, who could assist the Minister, the Government and the Oireachtas by an investigation of what are the incentive and the disincentive effects of various types of taxation in Ireland, given its economy, given its habits of life and given the psychological disposition of our people. This is something well worthy of investigation.
As I say, I feel that in spite of what is very often glibly quoted, the case for the disincentive effect of direct taxation is not a proven one. There are needs for incentives throughout our whole taxation system, but we know little about their effects.
When we come to the question of the taxation of corporations here the situation is somewhat reversed. We are not concerned now about social justice. Here we are concerned with economic developments, and just as in the case of the taxation of individuals which involves trying to achieve a social aim without any bad effects from the economic viewpoint, here our aim should be a taxation system on corporations which will achieve certain economic objectives without interfering with our conception of social justice. I wonder does our present system of taxation of corporations do this.
I wonder in fact have we got the best system of taxation of corporations and of institutions which will give us the best allocation of resources. I am inclined to doubt it. I am inclined to say that here again there is need for study, there is need perhaps for cautious experimentation on the part of the Minister in regard to this particular topic, because if we raise much of our taxation from corporations on the basis of profitability we may well be going in the wrong direction. The alternative is not easy. It is perhaps easy to say in the abstract, to say in an academic way, that we need a taxation system in regard to corporations which will give rise to the best allocation of resources by penal taxation of the waste of resources. But to translate this from an acceptable principle into a real policy and into actual provisions in the Finance Bill is, as it must be freely admitted, very far from easy. Experiments in Britain in regard to the selective employment tax have not been entirely happy, but nevertheless I do commend this approach to the Minister as something which should be kept in mind as it may well be that it is in this direction that we will have to move if we are to modernise our system of taxation and modernise our budgets.
The Minister has come here with a well-shaped Budget of the traditional type. It is a post-Keynsianster Budget but I think that we have possibly been in this regard post-Keynsianster long enough and that we should from the point of view of using the Budget as an instrument of public policy be moving in new directions still. I think that this is, talking in a general way, something to which the Minister and his adivsers might well turn their minds. We have become used now to the idea of the budget as a controller, not merely balancing the books but also a controller of the economy, and indeed certain provisions that have been introduced in recent years have improved it as a controller. The introduction of PAYE brought in an automatic feedback in regard to the question of the taxation of increased incomes virtually as soon as they arise. I think that once again there is possibly a need to move further in this direction of control. The Minister for Finance can now manage through his Budget, though we have found in the past few years that it requires two budgets a year to do it, to exercise a sort of control to a certain level of grossness as it were; but there are other fluctuations in the economy of a shorter term nature and it is necessary that we should turn our minds towards the question of evening out these fluctuations, these higher frequency fluctuations, which do occur in the economy. This cannot be done by action and re-action. It cannot be done by waiting for things to arise and then acting. In the sort of economy that we must develop here within the next decade it will not be sufficient to have plans available for what must be done in regard to the regulation of the economy, or that we have a contingency plan if this or that should happen. What we need is to solve the problem of how to put a built-in stability into the economy.
How are we to devise a system which is best suited to the Irish economy? This should not be outside our ingenuity. We have seen in the technological field that this building in of automatic compensation and of stability into the engineering systems enabled men to land on the moon. It should not be beyond our powers to build in some more stability so that there will be need in the regulation of the Irish economy for an absolute minimum of direct intervention.
This is the problem we face in regard to the construction here of an appropriate taxation and financial policy, as we face many problems in the next decade, facing problems the like of which we have never faced before. This I think is the sort of way in which we must think out our problems and our taxation policy. Mere alterations in the Budget from year to year, merely trying to put a new version of the old-type Budget, will hardly be enough. It is of course in general terms that I am talking. I am talking now not about what should be in the Finance Bill, 1969, or perhaps not even what should be in the Finance Bill for 1970. I am talking of things which might well engage the attention of the Minister so that as we get well into the 1970s we will have a new type of Budget to meet a new type of age.
I have been dealing so far with general points. There are just a few things I would like to say about the particular provisions of the Bill. Most of them would probably be more appropriately dealt with on Committee Stage but I think it would not be right if I did not welcome some of the provisions of the present Budget. The Minister is to be commended in regard to the introduction of the provision regarding the earnings of artists. The position in the age we live in is different from what has been the position in centuries past. With very few exceptions, the State is now the patron to whom artists must look both in regard to the commissioning of works and in regard to seeing they have an adequate livelihood.
There are dangers in this. We have just one munificent patron. I suppose this is not much different from the position of patrons in the medieval cities of Italy centuries ago where there was one powerful family who by their wealth and their interest in art were the major patrons. The State could use their powers of patronage as well as they were used by the great Italian families of the Renaissance period and it would be doing something for the general good. I commend the Minister for what he is doing here. We all clearly realise that this is a start in a particular direction and one in which the Minister will feel able to go further in the years ahead. For the moment let us welcome what he is doing.
There are other provisions which are also welcome. They are provisions which are moving in the direction of recognition of the fact that family welfare is the great social problem of this country, that it is the large families, the families afflicted by sickness and incapacity, who bear the great social burden. Again we must commend the Minister for what is being done in this Budget. These are all things for which the people will be quite ready to provide the extra taxation. Here again what the Minister is doing, though worthy in its way, is only going part of the way to meet the general problem.
There are other matters in this Finance Bill which I could comment on but they are perhaps better left over for Committee Stage, where they can be dealt with in detail. I wish to say that the main burden of what I have to say on this Stage is that this Budget which we have is a good example of a Budget which we must now consider as being a classical type and perhaps adequate to the problems which we face as we enter the next decade. A great deal of serious thinking will be needed on the part of a large number of people and I ask the Minister to initiate that.