Seanad Éireann - Volume 51 - 15 July, 1959
Finance Bill, 1959 (Certified Money Bill) — Second Stage.
Question proposed: “That the Bill be now read a Second Time.”
Minister for Finance (Dr. Ryan) James Ryan
Minister for Finance (Dr. Ryan): The Finance Bill is particularly lengthy this year and includes some very complex provisions, but I trust that the Explanatory Memorandum which was circulated with it has, to a large extent, compensated for this. It contains very little that was not adverted to in the Financial Statement on Budget Day. The more important additional items are the provisions to combat “bond washing” and the widening of the exports tax relief to cover profits derived from all shipbuilding and ship repairing in this country, both on home and foreign account.
The Bill is divided into eight Parts only one of which is likely to present any great difficulty to Senators as regards interpretation. I allude to Part V which gives relief from Income Tax and Corporation Profits Tax in respect of capital expenditure on assets —industrial buildings and structures, machinery and plant and patents— used up in the earning of profits. The first two chapters in this Part deal with the only two recommendations of the Industrial Taxation Committee which have not already been carried into law. The two recommendations were concerned with the grant of an annual allowance on industrial buildings and for an obsolescence allowance where machinery is not replaced. Chapter I provides broadly for an annual allowance of 2% in respect of capital expenditure on the construction of industrial buildings or structures. Chapter II provides that, whether or not machinery is replaced, a balancing allowance will be given where the machinery is put out of use and the sale price or scrap value is less than the written-down value for tax purposes. Both Chapters I and II provide for circumstances where balancing charges, rather than balancing allowances, may have to be made.
 There are three other chapters in Part V. The first of these, Chapter III, deals with patents. It provides that there is to be an allowance for tax purposes over a span of seventeen years of capital expenditure incurred after the 6th April, 1960, on the acquisition of patent rights and that there is to be a charge to tax on the seller in respect of the sum he receives. It also provides for a deduction in respect of expenses incurred in taking out a patent and for other reliefs in the same connection. The remaining two chapters are concerned, one, with securing that capital expenditure on dredging is to rank for capital allowance in more or less the same way as capital expenditure on industrial buildings and the other with miscellaneous technical provisions.
The purposes of the rest of the Bill are reasonably clear. Part I is concerned with Income Tax matters, all of which were adverted to in the Financial Statement except the “bond washing” provisions and the provision granting tax relief in respect of covenanted subscriptions for the teaching of the natural sciences. The provisions in regard to “bond washing” formed the subject of a separate Financial Resolution passed after Budget Day; they are intended to combat a device by which an unfair tax advantage might be obtained where securities are bought cum-dividend and sold ex-dividend.
Part II is also confined, in the main, to matters, on the Customs and Excise side, to which reference was made in the Budget Speech. The budget proposal in regard to the granting of relief from entertainments Duty of greyhound racing and professional boxing has, however, been extended so as to relieve all sports as from the Ist August, 1959. In effect, this means extending relief to indoor professional sports, as the others are already more or less excluded.
The short section which comprises Part III continues the exemption from Corporation Profits Tax of public utility companies, such as railways, of building societies and of the Agricultural Credit Corporation Ltd.
The two rather lengthy sections which comprise Part IV of the Bill  have as their intention the relief from tax of the portion of a purchased life annuity which may be regarded as representing the return to the annuitant of capital laid out in purchasing the annuity.
I have already referred to the purposes of Part V. Under Part VI, the scope of the tax relief in respect of profits derived from exports is widened in two respects, one being to include ship building and ship repairing, as mentioned at the outset; the other to extend to greeting cards the relief at present granted where a person exports books published but not printed by him. Another section in this Part eliminates the distortion which might otherwise arise in the calculation of the relief where the price of goods carries an element of duty. In this Part, also, there are sections which bring docks within the definition of industrial buildings, provide that capital expenditure on preparing or cutting land may rank for allowances and grant relief from taxation in respect of the expense of training local staff before a new industry begins.
The first of the two sections in Part VII simplifies the rates of Stamp Duty on marine insurance policies. The second section, which was added to the Bill by way of amendment in the Dáil, extends Section 19 of the Finance Act, 1952, so as to relieve from ad valorem Stamp Duty transfers from subsidiaries to their parent companies and transfers between subsidiaries of the same parent company.
Part VIII completes the Bill, except for the Schedules. In that Part, Section 77 makes provision in the usual form for the annuity in respect of borrowing for voted capital services; Section 78 increases the maximum rate of interest payable on trustee savings banks deposits and Section 79 extends the time limit within which trading must commence in order to gain the tax exemption for the mining of non-bedded minerals. The remaining sections relating to repeals, care and management of taxes, short title and kindred matters, require no explanation.
These, very briefly, are the purposes of this Bill. It is hardly necessary for  me at this stage to enter into any more detailed repetition of its provisions. Senators will be familiar with the purpose of many of its provisions already from the Financial Statement and from the ensuing debates in Dáil Eireann. The Explanatory Memorandum, moreover, has already indicated broadly what is intended in the various sections of the Bill. It is essentially a Committee Stage Bill and I shall be glad to deal with any particular point of difficulty on that Stage.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: The Minister has dealt purely technically with the Bill on this occasion. On other occasions, we heard of other matters from him. I do not propose to follow him into the technicalities of the Bill. I think I said last year—I went over my remarks— that last year the Bill was the biggest one for many years. This Bill certainly rivals it in size. The same might be said of the accounting bill the country has to meet. I notice that my remarks were a bit ambiguous on that point. At any rate, last year I was referring to the number of pages in the Finance Bill and I am referring now to the same thing, the size of it and the complications in it.
I should like, first of all, for the second occasion this year, to express my personal appreciation of a decision of the Government—that is, a decision to build the new University College on the Stillorgan road. In view of the extremely difficult conditions in Earlsfort Terrace, it would be desirable if provision were made to go ahead immediately with the erection of those buildings. Even the erection of a single building of the same size would make a very big difference to the conditions. A small sum of money which was made available has been used by the College to renovate the temporary building.
Acting Chairman Acting Chairman
Acting Chairman: May I remarks the Senator that this is a Bill on taxation, not on expenditure? Perhaps what he is saying might be more appropriate on the Appropriation Bill.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: I always understood that the two were taken together.
Acting Chairman Acting Chairman
 Acting Chairman: Not on this occasion.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: Not on this occasion. Then perhaps I should leave that subject for the moment but I think it would be desirable if the work were gone ahead with.
In the Budget this year, the Minister did two really important things from the point of view of the general run of the community. He increased the old age pensions by 2/6d, which had been advocated by many people, including myself, and he cut, by sixpence in the £, the standard rate of taxation. Added to that, the minimum point at which sur-tax is imposed was raised to £2,000 a year.
The increase of 2/6d. to the old age pensioners was really the very minimum that could be given in social justice. It merely brought the purchasing power of their pensions to the level of 1938 because they had no stake at all in the generally improved standard of living of the community. They had no part whatever in that. I admit it is a difficult matter because, on the whole, the improved standard of living went to the farming community whose standard was very low in 1938. I personally see no reason why the old age pensioners, if the general standard of living increases by 15 or 20 per cent., should not get some part of that increase. At any rate, I welcome the decision of the Government, and the Minister's implementation of it, to put the old age pensioners back at least to where they were in 1938.
As regards the other matter, I think that, from an economic point of view, the position was reached some years ago when income tax should be reduced. It was, of course, increased in the famous Budget of 1952 from 6/6d. to 7/6d. in the £. There is not the slightest doubt that from the point of view of the development of our economy, that is about the most valuable concession the Minister could make in taxation. Like every other concession, it has its difficulties and the Minister may well find himself next year, if he is still in office, in an extremely awkward situation, when his  Budget receipts from income tax will be lower next January, in the fourth quarter of the year.
Certainly, the position at the moment in relation to the Exchequer is not nearly so good as it was 12 months ago. Figures published in the newspapers this morning show that expenditure has exceeded revenue by £2 million up to the present, whereas, this time last year, revenue was greater by £3 million. We all know that a certain amount of window-dressing, to use the mildest appropriate term, can be indulged in, in relation to these figures, but, at the same time, there is the fact that the Exchequer position shows a deterioration in the first 15 weeks of the year, of £5 million.
With the reduction in income tax to come and the lower receipts for sur-tax and so on, the Minister certainly seems to have been a brave man in this year's Budget. Many of us felt that he was giving away something which he had not got to give away. Perhaps the enforcing authority in that regard was not public opinion in this country, but the fact that the British rate of income tax had come down to 7/9d. in the £. It is not so very long—prior to the famous Budget of 1952 again, in fact—since the income tax rate in Britain was 9/6d. in the £ when it was 6/6d. here and when the stage was reached that there was only 3d. between the two rates, I take it, the Minister's advisers decided that it was not a very solid position to be in. They were caught between two forces.
According to the Minister, last year's Budget just barely balanced; at least, if my recollection is right, that is what he said. If that is so, on his own standard, taking his own standard as appropriate, I think he is in for serious trouble. I have had disputes with him about the question as to whether or not he made certain savings last year. It is primarily a matter of interpretation. You can say you will make a saving of £300,000 and you may make that saving, but if you make an extra expenditure of £1 million or £2 million, I do not think that is a saving in the sense which is understood  ordinarily by the people. A saving of £300,000 on the Estimates is, or should be, a genuine saving and should be a net decrease in expenditure.
Of course, the Minister did nothing of that sort. The fact is that the Government got themselves into so much trouble during the years 1952 and 1953, and they got the economy of the country into so much trouble, that nobody has since been able to rectify it. The fact is that in 1952 and 1953, the Government were aware that overhead expenditure had become too great, but they were in such a position politically that they were able to do nothing about it, and did nothing about it. The other side of the picture, the purely financial side, is beginning to be apparent to everybody. There is deterioration again in the balance of trade and it is primarily in the balance of trade that this deterioration occurs. It is not in the balance of payments, as such, though, of course, it is taken out progressively from the balance of trade into the balance of payments. The place where the deterioration occurs and has occurred is in trade.
In the first six months of this year, imports are up from £100 million to £107.7 million. That is an increase of £7½ million in imports. Exports are down by about £5 million from £65 million to £60 million, so that there has been a deterioration in the trading position of this country of £12.4 million, from an adverse balance of just under £35 million to one of more than £47 million. If this continues for another six months, we shall have all the old balance of payments arguments again and different points of view being put forward, but on this occasion many of the remedies have now been used up, or turned to other purposes. Neither the Government nor the Department of Finance will have very much room for manoeuvring and, willy-nilly, may have to adopt the methods adopted in other countries to rectify their balance of payments.
On this question, I cannot see any great objection to the import figures being kept as high as possible. There is a great deal of employment arising  from them. Many people make their living from them. We shall have great difficulty keeping the import figures up, unless something is done about exports. There has been a good deal of talk about that. I shall come back to it later on. There has been a great deal more discussion about it than there has been effective work.
The system of levies adopted in 1956 —whatever its demerits politically— at least was effective from the point of view of rectifying the position. Part of these have been taken into ordinary taxation and you cannot do it again or, if you do it again, you will get a diminishing return. This inevitably suggests the solution of physical controls that has successfully been adopted in other countries.
There is, however, one part of our imports for which one wonders whether there is justification, that is, the large amounts of money spent on machinery manufactured in other countries. If this machinery, when purchased by our external capital, were to be used here for the purpose of making external income, I would see no great objection to it, but it is extremely doubtful if it makes any net income at all. The kind of machinery I have in mind is jet aeroplanes or ships that are purchased. You get into the realm of the nebulous when you attempt to estimate what they contribute to the economy. The suggestion is that the jet plane will bring American tourists here. The fact is that they could come here in other jet planes and, also, there are various other ways by which the tourists can come.
In the circumstances that existed here—there is the other kind of machinery imports—with the movement of the working population out of agriculture, there was really no other solution to the problem except agricultural machinery. It may well be, also, that these imports have been at such a high level for some years back that they may now recede some years in the future.
As regards the exports which I think are the more important part of this problem, it is extremely disappointing to see the poor results got from certain of the efforts made. I always  feel, personally, that it is extremely objectionable that semi-State bodies who have a considerable amount of advertising to give away to newspapers should, as a result of that advertising, be able to get blurbs put into the newspapers about this or that matter. By “blurbs”, I mean inaccurate statements as to what they have achieved. I could give numerous instances.
I do not want to pillory any company but certainly some of the companies who have spread considerable amounts of advertising from time to time have had no difficulty in getting statements published, when in fact their achievements were a great deal less than they were alleged to be. These statements—“news items” we will call them—certainly were put into the national daily papers of this country; I do not want to make any discrimination between them. They have no difficulty in getting junks of “handout” printed by the daily papers which I, as an individual, felt were bought by their advertising. It may not have been a direct transaction. It may merely have been that they inserted some big advertising matter some months previously and then handed this into the news offices some time later—an explanation of some matter on which they were being criticised by the public, for instance.
From a figure point of view, the exports were down in the first six months of this year by 5 per cent. That reduction of 5 per cent.—actually it is more than 5 per cent.; it is 7 or 8 per cent.—has come about despite the fact that the terms of trade, that is, our export prices, have been rising fairly steadily in the last couple of years. It is quite obvious, therefore, that the physical quantity of exports is down somewhere between 10 per cent. and 15 per cent. during the first half of the year. That is a very substantial decrease indeed.
If the outlook were favourable for the immediate future, we might say that that decrease could be made good in the second half of the year. Many of the commentators—I thought with more enthusiasm than ingenuity or accuracy—came down heavily on the  side that this balance of payments movement was temporary months ago. It is extremely doubtful if it is temporary. There are a few items that will not be repeated but the general trend at the moment suggests that it will continue for the remainder of this year, at any rate.
I saw recently a reference in the Irish Press to the effect that the farmers have many more cattle now than 12 months ago or something of that sort—that they were keeping their cattle. The one thing I am certain about in this regard is that the Irish banks made very large sums available to farmers to purchase cattle during last autumn and winter, when they were sky-high in price, but the same banks were not prepared to lend a blooming “bob” in 1956 when cattle were infinitely cheaper. That was at a time when cattle were £30 to £40 a head lower than they were in the autumn and winter of last year. The banks would not lend a “bob” at that time for any other purpose, more or less.
One thing I am certain about as regards the cattle trade at the moment, as regards the question of the total number of cattle in the country, and so on, is that the figures have been so discredited by now that nobody would pay the slightest attention to them. He would be a brave man who would say there are more cattle in the country on this day in 1959 than there were on the same day in 1958.
Mr. Carter Mr. Carter
Mr. Carter: Considerably more, many more.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: Senator Carter is putting himself up as a brave man?
Mr. Carter Mr. Carter
Mr. Carter: Exactly.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: I wonder if Senator Carter counted them. I want to say a few words now about the bacon industry and not primarily in regard to the negotiations taking place at present because this is a problem that was considered by the previous Government as well as by this Government. In retrospect, it looks now as though both Governments did not put nearly enough resources at the disposal of or into the pig-raising and the bacon-curing  industries. The results achieved were reasonably good but they did not by any means compensate for the great deterioration in the exports of eggs.
When you look at the position of our country to-day from a general point of view, it would seem that, so far as trade is concerned, the only opportunities available to us are in the food-processing industries. Then you start examining what you could do on a major scale. Certainly, the bacon industry, the raising of pigs and the production of bacon and hams, seems in recent times to have given the best trading. Even with the ten per cent. tariff on Danish bacon, our part of the British market was only about five per cent., the Danes and the British dividing the rest between them in equal parts, well over 40 per cent. each. It was, of course, one of the major points in the old trade agreements originating with the Ottawa agreement of 1932.
The point immediately arises: if with this ten per cent. tariff—do not forget this is a ten per cent. tariff on the value of the Danish product—we can get only five per cent. of the market in Britain for bacon and hams, and that despite the fact that in the late 1920s, our bacon and hams commanded a very substantial premium over Danish bacon and hams on the London market, what will be the position with that ten per cent. tariff gone.
Last year, the value of our exports of bacon and hams was about £8,000,000. Our exports of eggs were valued at £170,000. That export of £170,000 worth of eggs was only a marginal export. It has no significance as an industry. Eggs were cheap in the country and farmers had a surplus which they could either feed to their greyhounds, pigs or whatever other animals they had around the place, or put them on the market for what they could get for them; but in relation to what is, I suppose, one of the oldest of the Irish industries, the production of high-class bacon and ham, are we going to the position of having a marginal export as we have with hen eggs at present?
It is easy enough to jeer about this  matter. Some years ago, I was discussing with one of the British people who was concerned about financial matters the problem as to why the Government did not do something which he was very strongly in favour of doing. He said: “They were engaged in the Persian oil crisis and a Government can engage in only one thing at a time.” I shall not say what our Government has been engaged in over the last six or nine months. We all have a fair idea.
About 12 months ago, many people, for example, business people, began to be extremely worried about the whole outlook in the community. This penetrated to Government circles and certain documents were produced putting forward points of view with some of which one could agree and with others of which one might not agree. However, if we think of the social and economic outlook, the total result up to the present seems to be negligible. When one makes a diagnosis of a situation, although one is proved correct, one might prefer not to be correct. Looking back over what I said during the last couple of years, I think the views I expressed, last year in particular, have been vindicated.
One gets the impression that the only activity in Government at present is in the line of large-scale expenditure on industrial projects, if you would call them industrial projects, by the semi-Government concerns. The great bulk of them relate to transport. The transport companies, taking them both individually and globally, have, from the financial point of view, the worst record of any of the semi-State concerns. They do not seem to believe not alone that there is any obligation on them to pay a dividend or pay any interest on the capital invested in the concern but that there is any obligation on them to make any provision for depreciation so that they will be able to replace their machines when they wear out. Therefore, they come back to the community for increased sums of money.
The most recent example of this attitude is the £3,000,000 loan raised by C.I.E. An ordinary person might have thought that with the sale of all  the properties in relation to the disused railways they are closing down, C.I.E. would be able to finance its other requirements. It is the least one would expect from a concern which is drawing in its horns, that it would not proceed to give fewer services to the community and, at the same time, ask the community for more capital, realising its real capital as well.
The programme so far brought forward by the Government on the capital side to replace the social capital programme which was the subject of so many minatory, depreciatory and other kinds of statements by the bankers and particularly the managers of the semi-Government concerns, who were some of the most vocal about it, is now coming to an end very rapidly. A whole chunk of it has closed down completely, that is, housing. That being the case, one would say that here is a great opportunity to produce the plans for which they require capital which they said was being used up on the erection of houses, schools, hospitals, and so on. Up to the present there is no evidence of their producing anything that is worth a thraneen. The Government and the bankers have had the whole thing to themselves for two or three years and have produced practically nothing.
There is one part of the economy from which everybody would agree you might get results—I think you would get results but certainly everybody would agree you might—that is, by putting a great deal of capital into agriculture.
Business suspended at 6 p.m. and resumed at 7 p.m.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: Before the interval, I was speaking about the position in relation to the investment of capital in this country. The Minister said last year that on the whole the farmers with 100 acres were in a fairly good position. I think that is a view I would be prepared to accept. At certain times there may be a movement of prices or a bad harvest like last year. They may have temporary difficulties, but, taking a decade review of the  economic position, they are probably in a better position than they were, say, before the war. On the other hand, the farm of 15 to 25 acres is rapidly being eliminated and the farmer of 30 to 40 acres, unless he has considerable capital resources, is in difficulties. In particular, where he has family commitments, he is really unable to build up either his capital stock or the equipment on his farm.
For farmers up to 40 acres in extent —in number, of course, they are the great bulk of the farmers, even if they do not farm the bulk of the land— it is literally true to say that, except for what might be called slush money, that is to say, moneys made available on some kind of social principle, nothing has been done in this community in recent times to make available to them the capital which they require in considerable quantities. There seems to me at times to be almost a conspiracy in the Oireachtas on both sides of the House to give these farmers of 40 acres or less no facilities whatever to place their hands on money.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: Would that not more appropriately be raised on the Appropriation Bill? This Bill has to do with the raising of taxation. The Senator is now dealing with the distribution of taxation.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: I feel that perhaps one ought make one speech on these matters, and, if the Chair wishes, I shall make this part of my speech on the other Bill.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: It is strictly a matter of order.
Dr. O'Donovan Dr. O'Donovan
Dr. O'Donovan: These two Bills were normally taken together in this House. I notice that they are not now being taken together. The Finance Bill, after all, is the Bill to implement the Budget and the Appropriation Bill is purely a machinery Bill. Therefore, if the Chair wishes me not to make this kind of speech on the Finance Bill, I shall keep it for the Appropriation Bill. I have no objection at all. I must say the Chair is quite correct and in deference to the Chair, I shall keep my speech for the other Bill.
Professor O'Brien Professor O'Brien
 Professor O'Brien: Before beginning my remarks, I should say that I think it is quite right to get a ruling with regard to what has just happened to my colleague. The Finance Bill really corresponds to the Budget debate in the Dáil and I must say that I should have thought, from my experience here, that Senators are given a fair amount of latitude to discuss the general economic position of the country. It is fairly difficult to discuss public finance except against the background of the general economic position. I certainly had intended to speak on some aspects of the general economic position, apart from the mere raising of taxation.
I really think, in fairness to the previous speaker and to myself, that we should get a definite ruling from the Chair on just exactly what latitude we will be allowed. If we are confined to the numerous clauses in this highly technical Finance Bill, I suppose we can have some sort of highly technical debate—as the Minister said, it is mainly a Committee Stage Bill— but if we are not allowed to discuss anything except the raising of taxation on the Finance Bill, then the debate will have altered its character from that of previous years. I for one would like to know before beginning how much precise latitude it is proposed to give speakers.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: The Senator will readily be able to appreciate the difference between raising money by taxation and the distribution of money which will fall properly for discussion on the Appropriation Bill. Under that Bill, the activities of the various Departments may be discussed. For the information of the Senator, I shall point out that on an earlier Bill, Governmental policy was discussed.
Professor O'Brien Professor O'Brien
Professor O'Brien: I shall proceed until I am stopped and I hope that I shall not exceed the bounds of relevance. As I say, this corresponds to the Budget debate in the Dáil. The Dáil, on the Estimates, has ample opportunity of discussing expenditure in great detail for each Department and I accept the ruling of the Chair that that is a matter we discuss on the  Appropriation Bill. The raising of taxation is, of course, what is discussed during the Budget debate and the Finance Bill implements the Budget policy and the raising of taxation really must be read, I think, against the general background of the economic position of the country.
In the Budget debate, policy was raised by every speaker on every side of the Dáil and until I am ruled out of order, I propose to try to relate this Budget to the general economic background against which it is framed. In doing so, I make no apology, apart from an apology for some technical breach of the rules of the Seanad, because in modern times, it is universally recognised that the Budget is not merely an income and expenditure account of the Exchequer, that it is something more than that. In modern times, a Budget is looked on as the means of affecting the general economic climate of the country in conjunction with the Central Bank. If the country is inclined to go too fast, if there are signs of inflation, the Budget can be used, in conjunction with the Central Bank, to put on the brake. If the country is showing signs of a recession, or a depression, the Budget, in conjunction with the Central Bank, can be used to try to improve economic activity.
This is particularly true of the Capital Budget, because the State capital expenditure and the borrowing which is necessary to finance it, can be more easily accelerated or postponed than the current expenditure. Therefore, the Budget nowadays, which is primarily concerned, of course, with the raising of taxation, does perform two purposes. First of all, it enables the Minister for Finance to balance his annual accounts; it enables the housekeeping of the country to be conducted on proper lines, that the country should pay its way; but it also aims at something much wider than that. It aims— to quote from memory the speech of the Minister in the Dáil—at providing full employment, subject to the avoidance of inflation.
Inflation in this country is shown, I think, by a disequilibrium in the balance of payments. I think that the  balance of payments in Ireland is rather like a thermometer; it shows whether the patient is feverish or not. The Irish economy is a very open economy. In this respect, it is like the British economy. External transactions play a very large part in total activity. Therefore, the Irish economy is very sensitive to changes in world prices through imports and exports and to changes in the world economic climate, changes in the conditions of progress or regression in Europe and, indeed, in the United States.
An open economy of this kind must preserve equilibrium in the balance of payments. It is the first duty of the people who are in charge of the economic circumstances of a country of this kind—whether it be the Central Bank or the Minister for Finance—to preserve equilibrium in the balance of payments. I do not suggest that equilibrium must be preserved every year. I admit that there may be abnormal circumstances such as we encountered last year, bad harvests and things of that kind, that will allow payments to be unbalanced in the short period. I think that position is accepted by the Central Bank. In the latest Report of the Central Bank, page 21, it is stated:
On the basis of these assumptions, and if the recent underlying trends in external trade prevail, the balance of payments position would continue to move in the direction of a deficit larger than in 1958, and possibly equivalent to the surplus in 1957, thus resulting in a rough equilibrium over the three years.
I would be prepared to agree with that definition of a period for equilibrium in the balance of payments, that there may be seasonal or climatic factors, exceptional circumstances, that make it difficult to balance every year and that, therefore, a period of three years may be regarded as a reasonable period in which to preserve equilibrium. But if the country begins to exhibit a disequilibrium for a longer period than that, and a disequilibrium that does not contain within itself the seeds of its own correction, that is a position which, in an economy of this kind, should not be tolerated.
A prolonged disequilibrium in the  balance of payments which does not show signs of self-correction within a reasonable period, leads in the first place to a depletion of our external reserves. That, in turn, necessarily leads to internal contractions of credit. That could easily lead to lack of confidence in the future of the currency or even to a depreciation of the currency, which has been so often undertaken in other countries which have had recurring deficits of payments in recent years.
The alternative is a painful correction and, if the process is allowed to go too far, the country may experience a painful correction such as this country experienced in 1955-1956, leading to unemployment, business losses, severe contractions of credit and, sooner or later, an economic crisis. It has been suggested, in the course of the discussion recently on this matter, that there could be tolerated in this country a disequilibrium in the balance of payments in order to import capital goods, that a disequilibrium caused by the import of consumption goods is admitted by everybody to be intolerable, but that during a period of time, there could be a disequilibrium tolerated for the import of capital goods. I do not accept that argument. I think it is a very dangerous argument.
In the first place, it is extremely difficult to define what are capital goods. The same article may become a capital good or a consumption good, according to the use to which it is put. If a motor car is brought into Ireland as a motor car to be used by an hotel for the tourist trade, it is a capital good; if it is to be used by a private individual for enjoyment, it is a consumption good. How can anyone say, at the time of importation, into which category it fits? Similarly, with mere consumption goods such as tea, wine and things of that kind—if dealers are stocking more rapidly than normal, a large amount of these imports, although they may appear as consumption goods, are capital goods in the sense that dealers are building up stocks. Therefore, the line between capital goods and consumption goods is not to be found merely by the nature  of the import but by the use to which it is to be put, and that is a matter which is quite incapable of definition.
Even assuming that agreement could be found on such a definition, the administration of this distinction would involve something in the nature of an exchange control or an elaborate system of licensing and that, from the political point of view, is extremely undesirable. Furthermore, in this country, capital imports lead, certainly in the short period, to the necessity for further imports, because one of the underlying facts in the economy of this country, which we cannot get away from, whether we like it or not, is that every activity that is generated here sets up a demand for imports. Therefore, the importation of capital, assuming that it is put to immediate use, will set up a demand for imports of raw materials, for wage goods for the people employed, and will in itself generally create further imports.
Finally, even if capital goods can be distinguished and if the distinction can be administered, the invisible account of the country suffers by a disequilibrium in the balance of payments, even in respect of capital imports. Those imports must be paid for, either by the sale of external securities—in which case our external reserves and the earnings on them are reduced and, therefore, our invisible exports suffer— or by borrowing abroad, in which case we impose a burden on the invisible side of the account for future years.
There is one exception, I think, to what I am saying, that is, if capital goods are imported into this country by foreign investors who pay for them with their own foreign currency. Then, whatever the effect of that import of capital goods may be on the demand for further imports, at least it does not in itself deplete our external reserves or weaken our external position.
It is in the light of that attitude— which may be correct or not—that I should like to look at the balance of payments in this country. In 1958, the over-all balance was a deficit of £1 million, as compared with a surplus  in 1957 of £9.2 million. These comparatively good results arose from the favourable movement in the terms of trade. If the terms of trade did not move in our favour in the past two years, the deficit in the balance of payments would have been very much greater than, in fact, it was. That can be accounted for also by certain abnormal influences. As a result of the bad harvest last year, imports of cereals and fuel were greater than they normally would be and there was a large number of recurring capital imports in relation to certain major investments in the South of Ireland.
When I come to look at the picture of the present year, what sort of balance of payments picture are we to have in our next year's Budget? On the import side, we are still suffering from the effect of last year's bad harvest. Imports of cereals and fuel are still higher than they normally would be, but that is something which will correct itself.
On the export side, as Senator O'Donovan said this evening, the picture is far more disquieting. The recent volume of Economic Statistics pointed to the existence of something in the nature of a rhythmic cycle movement in the export of cattle. The disquieting thing is that this is the time at which the upward phase of the cycle is due and yet it has not taken place. I know the reason for that, but that does not make the position any less serious. In the first place, over a short period, there has been a drought in Great Britain and the grass and pastures are bad. The British farmers are, therefore, delaying buying cattle. The prices of fat stock in Great Britain also have not been good and for that reason the farmers are reducing their purchases. A more disquieting feature is that, many British farmers are now very slow to purchase once-tested cattle. That is something which must be looked at by the Government with the greatest possible care—the necessity for accelerating the complete eradication of bovine tuberculosis.
On the Irish side, possibly a factor which, in the long run, may correct itself, but in the short run does not help our balance of payments, is the  retention of more heifers by farmers for breeding purposes. The result of those factors together is that cattle exports this year have been less than was expected and, if there is no improvement in the cattle exports in the course of the year, the balance of payments in the present year could be quite unsatisfactory.
It is too much to hope for an improvement in the terms of trade. The terms of trade cannot go on for ever moving in the same direction and I believe we have reaped all the improvements that are to be found in the terms of trade. Therefore, I think I am correct in saying that, looking at the balance of payments, the drift is in the wrong direction and if the present trend is continued, without being reversed, measures of correction by the Central Bank and the Government will become imperatively necessary within the next 12 months.
The balance of payments, of course, is only one of the factors against which the Budget must be viewed. Before the Budget, the Government published a very valuable volume entitled Economic Statistics. I shall not weary the House with extracts from it, beyond just saying that the general picture is not particularly encouraging, The national income has diminished by two per cent. but that could largely be accounted for by the bad harvest. Savings are down; capital formation remains constant; although there has been an increase in industrial employment, the total number employed is down by 10,000; and emigration seems to have showed down. Some people believe that the Irish population has now reached a new stability and that we can hope for some years ahead that the amount of emigration will not be so large as to cause a further decrease in the size of the population.
Coming nearer to the Budget and to public finance, revenue last year was buoyant and the Minister was lucky that debt charges were lower. Owing to falls in the short rate of interest, the money market rates were lower and, therefore, the amount that had to be paid on Exchequer bills was lower than it might have been if the rates had not gone the way they  did. The result was that there was a small surplus shown in the Budget. That being so, I think the Minister was justified in introducing what might be called his mildly expansionist Budget. By that I mean a Budget which contains incentives for the private investor and also proposes a certain amount of increase in public investment.
The provisions in the Budget were described by the Minister in the Dáil as calculated risks. I think those calculated risks were probably justified for their incentive effect. There was a certain amount of pessimism prevailing in the country which required to be corrected and therefore, psychologically, I think the Minister was justified in giving the country what he described in his Budget speech as a shot in the arm.
There are one or two features of the Budget which call for comment— not for adverse criticism, but it is no harm that the attention of the Seanad should be drawn to them. The balance in the Budget was obtained by a very generous allowance for what is now known as “errors of estimation”. Speaking subject to correction from the Minister in his reply, I think that a subtle change of terminology has been introduced at this point, and that the errors of estimation now include optimism regarding expenditure falling short of what appears in the Estimates and revenue being more buoyant than what appears in the Estimates, but that may not be correct. I should like to know if it is true because apparently it introduces two elements of uncertainty instead of one and, as I say, whatever the interpretation may be, the terminology is unmistakeable, and what used to be called “errors of over-estimation” has now become “errors of estimation”.
However, as I say, we all wish the Minister well in these calculated risks. He has taken two gambles and we in this House certainly hope they will both come off. His optimistic forecast has enabled him to abolish a certain amount of indirect taxation. The import levies which I mentioned a few moments ago as being part of the drastic remedy for the bad balance of  payments in 1956 have now been worked out. They have either become customs duties or disappeared altogether.
The Minister has also succeeded in giving a slight increase to pensioners. Everybody, of course, would like that increase to be more but we must accept the fact that it just cannot be afforded at the present moment. The best way to help pensioners is to avoid inflation and a great deal of our inflation, of course, is imported. It is part of the price of living in an open economy, but, at the same time, we cannot avoid a certain amount of domestic inflation, so by far the best way to help the pensioners is to avoid inflation.
There have also been reliefs for certain industries suffering from undue competition and concessions have been given to dances, greyhound racing and boxing, but the most important concession in the Budget is the reduction in the standard rate of income tax. I should like to quote the Minister in order to express my agreement with him:—
I am convinced that the objective of economic expansion is better served by giving any tax reliefs we can afford this year mainly to ease direct taxation. This accords with the principle, enunciated both by this Government and the Opposition, that whatever taxation is necessary should in the circumstances of this country, fall more heavily on expenditure than on income.
In that expression of sentiments, the Minister has my entire agreement.
The raising of the beginning point for surtax is something that is long overdue. Surtax, owing to the change in the value of money, had become quite unreal and very unfair to a great many people. The whole tax code, of course, still needs a great deal of overhauling but, pending the publication of the Report of the Commission on Income Tax, I do not propose to deal with it any further. The increases in the wear and tear and obsolescence allowances are also welcome from the point of view of investment.
I should just like to mention that a  reduction of death duties could have a very beneficial effect on the question of people coming to reside in this country. I do not wish to labour this point. The Minister quite fairly stated in his reply on the Budget speech that he cannot reduce everything at the same time and that he thought surtax this year would be a more useful reduction. I should like him to put his mind down to the question of death duties. They are higher here in many ranges than they are in the Six Counties. They particularly hit small family businesses. They act as a disincentive to people to come to reside in this country. The yield is comparatively small and the cost of collection is rather high. Therefore, it seems to me that there is a possibility there of further easement in direct taxation. We cannot expect the Minister to do everything the same year. We must welcome the reductions in income tax and surtax, while reminding him that other reductions could be made in death duties as well.
Having taken all these factors into account, the Budget emerges from the debate as balanced. There is a certain amount of what I might call tolerated manipulation in obtaining this balance. In the first place, I said this £2½ million of errors of estimation may not just go right. Also, there is always a certain amount—I do not like to use the word “juggling”— of manipulation in what goes over and above the line. These are orthodox methods in the game of balancing the Budget, so I think we can say that the Budget is balanced, even if on a narrow edge. After all, this is the centenary of the greatest balancing feat in history—the crossing of the Niagara Falls on a tight rope by Blondin. Possibly it is to celebrate that centenary that the Minister is balancing his Budget also on a very tight rope. I hope he will cross with the same success as Blondin had.
I think, on the whole, in view of the state of mind of the country, the Minister's optimistic assumptions and calculated risks are justified. I think the background is slightly deflationary and that, therefore, the shot in the arm is justified.
 I have merely recorded, as its first function as the State housekeeping accounts, that the Budget is orthodox and sound and can be recorded as an incentive Budget. The capital programme which, I realise, is very much more expenditure than revenue, I shall barely mention. The capital programme is based on the White Paper. Actually, it provides for £3½ million more than the White Paper and £7.38 million more in Government capital expenditure than in the year 1958/59. It is mainly productive in the long run. I am prepared to agree that such things as fertilisers, the eradiction of bovine T.B., agricultural and industrial credit, are mainly productive but they involve £30 million for borrowing.
It must be remembered that although they may be productive in the long run, they may not be productive in the short run. It may be quite a long time before the assets created by this borrowing bring in a revenue. Therefore, there is no getting away from the conclusion that the Government capital programme in the short run will add to the amount and burden of the national debt. This is a matter which we have dealt with in the Seanad before and for returning to which I do not apologise.
One of the most dangerous symptoms in the Irish economic position is the growth of the national debt against a nearly stationary national income and a falling population. The Central Bank directs special attention to this matter in page 12 of the current report. It points out that from 1951 to 1959 the net liabilities of the Government grew from £80 million to £192 million and at the same time, the contingent liabilities grew from £63 million to £85 million and, as it points out in the footnote, extensive commitments had to be made in some of these guarantees both as regards interest and principal.
This growing debt has involved a growing interest charge. On the same page of the report of the Central Bank, figures are given showing that the amount of debt we have charged to taxation has grown from £5.3 million in 1951 to £16 million in 1959 and an  estimated £16.6 million in 1960. These are disquieting figures for a country with a falling population. It seems to me that when one regards them, looking back over ten years, one rather gets out of the discussion of the Budget as a mere exercise in State bookkeeping for one year to the general question of the growth of the economic system in this country. I hope I am not becoming irrelevant. If so, I shall sit down immediately. However, I should like to call attention to the great changes of opinion coming about in this State. The book Economic Development and the White Paper Programme for Economic Expansion, are examples of the way in which people are now attending to the question of economic growth.
The fact of the matter is that an infra-structure of public services in this country has more or less been created and that now what is happening is that an increasing super-structure of debt is being superimposed on an infra-structural foundation which is not increasing equally fast. That is why this informed opinion at the present time is being directed to long-period rather than merely annual problems. On that, I should like to quote from the June issue of the Irish Banking Review, page 12, as follows:—
Perhaps it may be correct to say that the emphasis in Irish economic discussion should shift from the economics of equilibrium to the economics of growth. The mere attainment of balance in external payments and the Budget, however desirable in themselves, is not enough to generate the dynamism necessary for progress. In this connection, the following quotation from the address of Mr. Browaldh to the shareholders of the Swedish Bank of Commerce is relevant. “Searching for a single catchword to describe the aims of economic policy, people nowadays talk of ‘balanced growth’. If we assess recent economic developments in our country with this aim in view, we can say: In important respects the economic equilibrium has improved, but the second link in the chain of objectives, economic growth, has slowed down and judged  by modern standards we are at present below the level of full employment.”
That quotation regarding Sweden is precisely relevant to Irish conditions.
The discussion that has been taking place in recent years on the necessary for growth in Ireland has shown the acceptance of a number of assumptions and new ideas that would not have been accepted a few years ago. I should like to draw particular attention to a lecture given at the Conference of the Tuairim organisation by my colleague Mr. Lynch, which has now been published under the title The Economics of Independence. This is only one example of new thinking on this matter.
The articles in the Press and statements by Ministers, especially by the Taoiseach, some of which I shall quote, show that Irish opinion is moving and moving in the right direction. It is a hopeful sign, I think, that these questions are being very largely taken out of Party politics, that a good many of the old catch cries, slogans, shibboleths, are not being repeated any more.
One change is that it is now generally accepted that the cure for unemployment does not rest in greater self-sufficiency, that the home market has been largely satisfied. This does not condemn the protection programme of earlier Governments. It was inevitable and on the whole beneficial, but it has now exhausted its beneficial effects. Many of the social services catering for the home market have already been saturated. House building is slowing down and therefore people are beginning to realise that future growth depends more on exports than on satisfying a naturally limited home market.
This realisation that exports are important has coincided with an extremely important change in the nature of export markets. This is not the occasion to discuss the Free Trade Area, the Common Market, the Outer Seven or the Anglo-Danish agreement. All I want to draw attention to is that the export market environment is  changing. However it is changing, it is changing in some direction and it will not be what it was. Changes of that kind may create new difficulties but they also create new opportunities. Therefore, the country must be very much alive, very flexible, in trying to take advantage of the opportunities presented by this new international situation. It is only fair in passing to pay a tribute to the work of Córas Tráchtála which has already done a great deal to increase Irish exports and, we hope, will do a great deal more in future.
One thing that has been emerging with great clarity quite recently is that this country does depend to a very large extent on the British market. It has been accepted more and more that the British and Irish economies are in many respects complementary, that indeed the two countries, the United Kingdom and Ireland, are a kind of common market. There are free movements of labour and capital; there are related currencies, free movements of funds, and preferential tariffs on trade in both directions. In other words, the political and economic frontiers in the area covered by the United Kingdom and Ireland are not the same. It is now being realised that recent political changes have not really got rid of some of the underlying economic realities, that we must make our future policy in the light of these realities and, having obtained independence, try to get some mutual benefit with the other people concerned. Every effort should be made for Irish farmers to share whatever benefits they can with the British farmers.
In order to show that what I am saying is not merely personal opinion and to clothe it with some political respectability, I should like to quote from the Taoiseach's speech in the Dáil, as reported at column 939, Volume 175, of the Dáil Debates of 3rd June, 1959, in which he says precisely what I have been trying to say:—
There can be no question that any prospect or possibility of expanding trade with Britain, particularly in agricultural products, and of obtaining reasonable security of markets and prices would be of very great  interest. Geographical proximity has forced a degree of integration of the economies of both countries which has been strengthened by arrangements which permit of the free movement of men and money and provide a common currency basis between them. Indeed, it could be said that between this country and Britain there already exist many aspects of the type of economic community which the European countries who signed the Rome Treaty are trying to develop between themselves. In the world as it is developing the interests of both countries would appear to require arrangements for the continuous examination of possibilities of further association in developing trade opportunities.
Whatever our external markets may be, whether they are mainly British markets or other European markets, it is necessary that we should be able to export at competitive prices. No country has a duty to keep the people of this country alive and, if we want to trade with our neighbours, we must be able to sell to them on competitive terms. This, of course, is obvious but it needs stressing. It is emphasised in the Report of the Central Bank:
The position in 1958 should also be considered in relation to the expectation, which continued during that year, of the establishment of a European Free Trade Area of which this country would be a member, albeit on special terms. In the light of this possibility, it became clearer than ever before that our economic policies should be adapted to our situation as a virtually open economy, largely dependent on external trade. The fact that the prospect of a Free Trade Area embracing all or most of the countries of Western Europe appears to have receded should not be regarded as reducing the need or urgency of efforts to increase the competitive capacity of our agriculture and industry.
That cannot be sufficiently emphasised. The real trouble about our competing in external markets is really related to what I mentioned a moment ago,  about our being to some extent already in a common market with the United Kingdom. The fact is that we find ourselves in a common market with a country with extremely high wage levels based on high productivity and it is very difficult for a country with lesser natural resources to produce at competitive prices inside an area of that kind, unless either wages can be reduced, which is impossible, or efficiency can be raised, which is very difficult.
In that connection, I should like to draw the attention of the Seanad to an article in Studies, Summer, 1959, by Dr. David O'Mahony of University College, Cork, where many of the difficulties of our economic situation are put very clearly. Everybody will agree that the time has come for plain speaking and clear thinking on these difficulties, that they are not to be conjured away by denying that they exist. I propose to quote two or three passages from this article but I should like Senators to read it because it does bring out our difficulties very clearly. Dr. O'Mahony says:—
Most of the problems of the Irish economy arise from its two most characteristic features—or peculiarities, as some might say. The first of these is its unusual openness, familiar to us by reason of our constant need for vigilance with regard to the balance of payments. The second, but more important, is the fact that——
Then there is a quotation from Economic Development.
——proximity to and ease of intercourse with Britain tend to set, at British levels, the expected standards for Irish wages and salaries, private consumption and services generally, irrespective of differences in natural resources and productivity.
Our economy is one of the most open in the world. Relatively speaking, we are far more dependent on the outside world than Britain is, although the British seem to be more conscious of the limitations imposed by an open economy on policy-making than we are.
 Some of the consequences of that position are developed in this article:
Important as the openness of our economy is, it is very much overshadowed by the second matter already mentioned. The “ease of intercourse with Britain” is frequently referred to in discussions about emigration, but its nature and significance for the national economy have not yet received the attention they deserve.
The article then considers them at some length. I cannot delay the Seanad by quoting from the article at length but the point made is that this is a high cost economy, owing to lack of natural resources, with small scale industries, a small home market, and that, in addition to that, we have to deal with a very high level of wages, a level of wages dictated by a very efficient and prosperous economy. That is the position. It is because of that position that it is exceedingly difficult for profitable openings for investment to be found in Ireland by private enterprise. That is the position and we must face it. There is no use in not facing it. It is there. It is a high cost economy and we cannot expect to get wages down, even if we wish to do so. Therefore, the only way in which we can find profitable openings is by greatly increasing the efficiency of the individual worker.
One of the troubles about that is that increases of efficiency by individual workers nowadays are almost always the result of a great deal of mechanisation. The more increased output per head we get, the less labour we need. That is the fundamental dilemma facing the country. It has got to be faced. If we want to keep a large population, we can do so only at the level of wages which will enable us to export competitively. If we want to be really efficient by modern standards, we must have a type of labour saving device which leads to a lower labour content for our export industry.
That is not a very popular thing to say but we need to tell the truth. I think this analogy is very close to it.  If there were the same openness and mobility between the United Kingdom and the United States as there is between the United Kingdom and Ireland, British industry would find itself in an extremely difficult position. If English wages had to be the same as American wages, owing to this complete mobility of labour, most of the British export industries would be completely priced out of the export market because American wages are much higher that British because American productivity is higher. If British industries had to pay American wages and compete with American exports, they would find it extremely difficult to do so, unless they were able to raise their output per head quite dramatically.
That is a fair analogy. That is the position. We are in relation to Great Britain in the same position as Great Britain would be in regard to the United States, if there were identity of wages levels in the two countries. The only hope we have of competing in foreign countries would be by dramatically increasing our efficiency and that means, not more labour, but less.
That is the point. Some people wonder nowadays whether private investment will solve our problems. I make no secret of the fact that I am all for private investment. I am completely individualist in that way. My whole mental bias is towards private investment and against every form of socialism. The Central Bank takes the same view. It says that the private sector must be regarded as the principal source of new productive projects. It goes on:
The fundamental importance of the private sector—or more simply of the individual farmer and manufacturer, shopkeeper, salary-earner and wage-earner—has often been stressed. In an economy such as ours the most useful rôle of the State is to encourage and stimulate private enterprise and, by suitable fiscal and financial policies and the provision of educational and other essential services, to create conditions in which economic advancement can be secured by the efforts of the  members of the community themselves.
That is undoubtedly true. Private enterprise, other things being equal, is always preferable to State enterprise. The private investor invests his own resources. He pays the penalties of his own mistakes. He has to accept the acid test of profit or loss. He has to obey the verdict of that market. That makes for flexibility and adaptability for new projects.
Most of the most progressive countries, such as the United Kingdom and the United States, have progressed under private enterprise. We have had numerous very successful private enterprises in Ireland. I certainly think that most people in the Seanad would agree that if private enterprise could be stimulated, it would be most desirable but the regrettable fact, looking at the history of recent years, is that the amount of private investment in Ireland has been disappointingly small.
The Central Bank Report shows the total amount of new capital issues in the years 1954-58—a period of five years. Of a total amount of £111 million, only £3.2 million was raised by private enterprise, that is, by industry and commerce other than the Industrial Credit Company and the Agricultural Credit Corporation. That understates the fact because private business people invest their own savings and borrow a good deal from the bank, but even had they made full allowance for all that, the amount of new private investment in this country has been disappointing in recent years.
That is the result of the lack of profitable openings. That lack of profitable openings is largely the result of what I have already referred to, the high costs. If costs are lower, there would be more openings and if there were more openings, there would be more enterprise. Be that as it may, people who are wedded ideologically to private enterprise, are beginning to admit that more public enterprise in this country may be needed in the future. It is only fair, in passing, to pay a tribute to some of the successful State bodies and public utilities which  have greatly developed the resources of the country in the past 35 years.
Again, I should like to quote from the Taoiseach's speech in the Dáil on 3rd June which shows that he has come to the point of view that additional public enterprise may be necessary, however ideologically one would prefer private enterprise. At column 934, the Taoiseach said:—
In so far as manufacturing industry is concerned, we have said that our main reliance is on private enterprise. I think that must continue to be so. Indeed, present indications are that private enterprise will produce significant developments which will contribute substantially to the country's economic progress. But looking at the results which we have achieved to date against the background of our needs it is not obvious that private enterprise alone will suffice to secure the maximum exploitation of the country's industrial potentialities. In these circumstances we have to think in terms of an expansion of State enterprise in the industrial field and that is what the Government are now doing.
I do not suggest for a moment that private enterprise cannot play a very important part but, if it is incapable of filling the whole gap necessary, the need for more public enterprise must be accepted. If there is to be public enterprise, there must be more conscious direction of investment—more planning. If the State or State-controlled bodies are to invest, there must be no overlapping. There must be a conscious direction of policy, so that the capital, which is scarce enough already, will be most intelligently applied.
One of the concluding recommendations of Economic Development is the setting up of an advisory committee for this purpose. The Taoiseach recently referred in the Dáil to the setting up of what he called a special planning board in the Department of Finance. I should like to remind the Minister that the Banking Commission in its report in 1938 made two recommendations. It recommended the establishment of a Central Bank and  of a Debt and Investment Council. The Central Bank was set up in 1942. I suggest that the Debt and Investment Council recommended in the report should now be set up, possibly with enlarged functions, and that it could form the nucleus of some sort of commission for the planning of investment.
I want to make it perfectly clear that in making a recommendation of this kind, I am not arguing in favour of the so-called planned economy system. I still maintain my faith in individualism, but, in a society where a good deal of investment has to be initiated by the State, one must recognise realities, one must recognise that capital is scarce and that there must be some method of directing priorities. Possibly the most fruitful subject of inquiry would be the possibility of evolving new forms of investment in which public and private investment might to some extent be combined. This matter was referred to by the Taoiseach when he said:
In addition to such extensions of activity as may be undertaken by existing State-sponsored organisations under their own direction and from their own resources, we contemplate the possibility in some instances of partnership arrangements between these organisations and private enterprise. I think it is likely we will find, in practice, that additional State-participation in industrial development can best be effected through the medium of existing organisations, but if new organisations are required, they can of course be created.
When new industrial concerns are set up by State initiative, the possibility and indeed the desirability of translating them ultimately into public companies by the offer of shares on the stock exchanges should, I think, always be kept in mind.
That seems to me to be a fruitful line of development, that in these matters we must not be doctrinaire but must be empirical and must be pragmatic. We must rid ourselves of ideological preconceptions and we must deal with  problems as they arise. The acceptance of a great deal of Government assistance and direction in the investment field is not inconsistent with the maintenance of private enterprise as the main mover, the motive, in the system. Other countries have to face up to this problem; it is not peculiar to us.
The newly appointed Chairman of Imperial Chemical Industries, which is one of the largest concerns in the world, has made some interesting suggestions in regard to England's economic policy—I am quoting from The Observer of Sunday, July 5th— which are worth quoting to illustrate that even what I might call one of the arch-priests of capitalism recognises the necessity today of a certain amount of Government interference in the economic field. The quotation is:—
The effort to mitigate Britain's natural commercial handicap on world trade should, Mr. Chambers suggests, be pursued along three lines. First we should grow more food and do it more cheaply; this means bigger farms and less sentimental emphasis on the small man. Secondly, we should try much more vigorously to foster the home market for our coal. Thirdly, we should concentrate on improving the national transport system and bring down our home costs that way.
These are the priorities, then, as seen by the new Chairman-elect of I.C.I. It is interesting to observe that all three depend ultimately on action by public authorities rather than on private enterprise. I pointed this out to Mr. Chambers, but he was entirely unperturbed by the notion that this was “planning”. His belief is evidently that the country, like I.C.I., must plan a long way ahead and know where it is going, in order to survive and prosper.
One may argue that his view of Britain's vulnerability is exaggerated —I should do so myself—or question his particular choice of priorities. But it is salutary to hear it asserted plainly from this source that we must have a set of national priorities and consciously pursue them.
 If that is true of England, it is equally true of Ireland and, as I said, we must be pragmatic and empirical in this matter. We must not allow ourselves to waste energy by political debates between right and left, between capitalism and socialism. We must take the facts as we find them and try to adopt an intelligent policy.
Finally—I apologise for delaying the Seanad overlong and perhaps exceeding the terms of reference of the debate—to come back to where I began. Whatever we do in this country—and this cannot be sufficiently emphasised—we must have regard to the balance of payments. Whatever form of investment we indulge in, private or public, we must not run into a permanent disequilibrium in the balance of payments. That may sound perhaps defeatist and pessimistic but this must be remembered. An open economy gives certain opportunities as well as certain difficulties. It is not entirely a bad thing to have an open economy. In a recent lecture by Sir Dennis Robertson, late Professor of Economics in Cambridge, it was stated that in regard to Great Britain an open economy has many advantages.
Now, that is very true of this country. It has been pointed out in the Central Bank Report, that this is an open economy and that we will benefit from the successes of our neighbours and that with an economy like ours which exports so much, we have everything to gain when other countries are pursuing expansionist policies. The report says that the improvement in the economic outlook abroad is generally encouraging as is also the emphasis placed in official quarters on the need for economically stronger countries to resume economic expansion.
That is particularly true in our case because the British Government, in recent years, have been very successfully pursuing an expansionist policy and that policy, it has been pointed out, made it so attractive to other agricultural countries. If other agricultural countries are clamouring to get into that market, they really should not discourage as much as encourage us because they have natural advantages  with regard to the great expanding market and we must trim our sails according to prevailing winds and take the advantages of the open economy that already we have gained in the recent terms of trade. That is one of the signs of an open economy and now if we are intelligent we will gain more from the expansionist policies being pursued by European countries. We should direct our policy towards taking advantage of the prosperity of our neighbours. After all, every businessman likes his customers to be well off and we should benefit by the prosperity of our neighbours.
Finally, to end up this rather long speech, looking at the Budget from the point of view of the annual housekeeping account, we can say that it is balanced, balanced rather like Blondin. He got across; his optimism was justified; and we certainly hope the Minister's optimism is justified and that he will get across. It is an expansionist Budget and rightly so, always subject to the overriding position of the balance of payments. If the balance of payments in the second part of the year does not improve, some of the Budget assumptions may have to be revised. That however, is something about which we cannot prophesy. In the long period, the Budget perhaps is irrelevant and we shall have to try to get something more than a balance from year to year and take the longer view.
I shall quote from the Irish Banking Review for June where that point is well put:—
“In the short run the country's accounts are satisfactory.
Equilibrium has been attained— or at least nearly attained—in the balance of payments and in the Budget. The acceleration of the rate of growth of the national economy must next receive attention. For this, more than the ‘shot in the arm’ as the Budget has been described, will be needed. Prolonged nourishment, exercise and possibly blood transfusions may be the essentials of healthy growth.”
Professor Stanford Professor Stanford
Professor Stanford: I am sure the House is very grateful to the last two  speakers for their most intructive and, in general, I would say, constructive surveys of financial policy. What I have to say will seem very minor, indeed, in contrast. It is simply one specific point affecting quite a small group in the community. However, I am encouraged by the well-known quotation from the Book of Wisdom: “He that despiseth small things shall perish by little and little”. The Minister, being a wise man, will not, I think, despise this small thing. In fact, the welfare of a country depends on the accumulation of the small advances, small improvements, together with what Senator O'Brien and Senator O'Donovan have just given us, the wide view which sees the general pattern as well. My small contribution is simply this.
I would ask the Minister whether he would not, next year, consider in his income tax policy, making allowance for this small section of the community. I refer to wage earners who are paying for courses of study for themselves at either of our universities. It seems to me to be a worthy thing for the citizen to do, to try to improve himself, to try to get a degree in that way. At the moment, I understand he gets no remission of income tax. Parents, on the other hand, do get a remission of income tax for their children over 18, if they are pursuing a full time course of studies at either of the universities. It does not seem to me unreasonable—and I hope the Minister on consideration may think the same—that a wage earner who is paying for himself should be given a remission of income tax on those fees. It cannot, of course, be a full time course of studies in this case, because he has to earn his living as well, but it is a considerable and exacting course of studies, leading to a degree or diploma at either of the universities.
It is a small thing, but I think a worthy section of the community would be encouraged by it. It is a very small financial loss to the State, but it would ultimately, I think, be a gain to the State in efficiency and intelligence. I appeal to the Minister to consider this small point for his Budget next year; as some hundreds would be very  greatly gratified if he saw his way to introduce this small change.
Miss Davidson Miss Davidson
Miss Davidson: I could not find in the Budget Statement anything which gave any hope of a reduction in unemployment or emigration or, indeed, anything to brighten the gloomy scene we have in the country today.
In the matter of reliefs, the Minister said that he had only a small amount of money to spare, but in response to many representations to ease the lot of the old age pensioners, he was taking the opportunity to do something practical this year. He said he had decided, therefore, to increase the old age pension from 25/- to 27/6d. a week. This half-crown was given also in the case of a man with a dependent wife drawing unemployment assistance and to the recipients of non-contributory widows' pensions. The rate for a man and his wife in unemployment assistance at the present time, in the urban areas, is 30/- and for a non-contributory widows' pension the rate is 23/-. The new rates will be increased by half a crown, that is, to 32/6d. for one and 25/6d. for the other—which, to my mind, cannot be described as giving relief in a practical way. Even these increased payments, when they come shortly, will still look a very pathetic rent and housekeeping allowance, particularly when those recipients are precluded from earning, in small casual jobs, any addition to the pension. If they take jobs or increase their means, the pension will either be withdrawn or reduced.
This half-crown increase which the Minister is giving to those people is of no practical value at all, if we view it from the angle of what the people lost by the abolition of the food subsidies, by the value of money today or, indeed, by the rise in the cost of living since the Government came into office.
I know the Minister's money was limited, but I think he could have laid it out better. He might have left the entertainments duty on, say, greyhound racing. He could even have put a small tax on horse racing and coursing, for I am sure the sporting  fraternity would not have minded the few extra pence that would have been put on those sports. I am sure they would have faced up to it in a sporting manner, particularly if the Minister had made it clear that he would use the money to ease the conditions of the aged and the widowed.
I cannot let this measure go through without making a reference to the relief granted to professional boxing. Surely this money, clearly should have been given to our underprivileged citizens? These disgusting spectacles of human beings battering each other to pulp should be discouraged rather than encouraged. To hear the Minister for Finance, whom I always looked upon as a very gentle soul, saying that they might prove a tourist attraction, shocked me deeply. Lest I might be considered to be a crank in this matter, I would like to recall that the late Pope Pius XII condemned these tournaments in no uncertain words.
In the matter of income tax, the real grievance of the wage-earner still remains, that is, that there has been no adjustment in the allowances, with the result that many workers, earning wages that in money value are no higher than those not subject to income tax before the Emergency, now have to meet a considerable amount in income tax. This fact overshadows any easement which may come from P.A.Y.E.
In the matter of the sixpence relief granted in the Budget, that goes practically nowhere against the grievances regarding the allowances and I think, indeed, that those who enjoy the sixpence reduction would very willingly have let the Minister keep it for the old age pensioners. I would ask the Minister seriously to look into the matter of adjusting the allowances and putting the tax on the shoulders best able to bear it.
I think, too, that the Minister could have withheld for a while the concessions to the surtax payers and the refunds of tax since 1932 to certain companies, until there was a fairer levelling up of the classes within the State. I realise, of course, that those in the higher income class have also to meet the increased cost of living but they  do not find themselves, like the old age pensioners a few days before pay day, trying to decide what necessaries it is possible to purchase with the few pennies left over from the pension. I should like to ask the Minister why he held up the 2/6d. increase in pensions until August. I am sure he knows the saying: “He gives twice who gives quickly”, but the old age pensioners have had to wait almost four months for the increase, while certain other concessions were given immediately.
Going back to income tax, I should like to say that the extension of the children's allowances to children over 16 years of age undergoing apprenticeship is much appreciated as, in the main, these apprentices are in receipt of only nominal payments and depend for their maintenance on their parents.
Dr. Ryan Dr. Ryan
Dr. Ryan: Two or three big questions have been raised during the course of the debate. I shall take, first of all, the case raised by Senator O'Donovan and the last speaker with regard to the Budget reliefs. The cost of giving these benefits to the old age pensioners, the widows and orphans, people in receipt of unemployment assistance and State pensioners who have very small pensions, is about £1½ million per year. It will not, of course, be so much this year because it does not come into operation until 1st August. The usual date for most concessions is, by tradition if you like, 1st August and I adopt that date in my Budget because if I had taken 1st July, we could not have given so much. It was a case of trying to balance things as best we could.
The sum of £1½ million is very large and in reference to what the last speaker said with regard to the fact that we might get it back on the greyhounds, that would make no impression whatever. The most we have ever got from greyhound taxation was £20,000 a year. When the scheme for the reorganisation of greyhound racing was brought into the Dáil— there was a Commission sitting on that question—Senators may remember that we were strongly urged to try to do for greyhound racing what had been done for horse racing. We were  asked to put it on a proper basis so that good prizes could be given in order to encourage people to rear more greyhounds than we had had in the past and in that way to bring an income into the country from the export of those good greyhounds such as we have achieved in the horse-breeding business by the reorganisation of horse racing.
The idea was that people will not keep greyhounds unless they get something good by way of stakes if they run them, and unless they run them nobody will know their value, so the inference is that you must have greyhound tracks and good prizes. In that way, the value of the greyhounds will be known and good export prices will be got. That, of course, involved the withdrawal of tax on greyhound racing. That was done because it was the comparatively small amount of £20,000.
With regard to boxing, there were not many sports left and we decided that that tax could go. As a matter of fact, so far as I know, only indoor boxing was taxed; outdoor boxing was not taxed. There were just a few odds and ends like that, so we took the tax from boxing because the case was made to us that they could not organise a boxing contest and pay tax and, therefore, such contests were not organised at all. We may have our opinions as to whether or not boxing should be allowed but I do not think that is a matter for me to decide. I am only concerned with where I can get taxes and where I cannot. If there is an attitude against boxing, I think it should be dealt with in another manner.
The next point which was referred to by some speakers was the reduction in income tax. Senator O'Donovan said that I am taking a big risk and he pointed out that I may find myself in difficulties in next year's Budget. I quite recognise that and indeed it was one of the things which was foremost in my mind when I was deciding whether or not I should recommend a reduction of income tax to the Government. I felt I could make that recommendation for this year but I did say to the Government: “We must keep  in mind that we may be taking a risk for next year.” I came to the conclusion, and the Government agreed, that if we were to be afraid of next year and the year after we would never do anything, that if we were justified this year in giving a relief in income tax, we should go ahead and do it.
The present position is not as bad as it may appear. Senator O'Donovan pointed out that compared with last year's figures the figures for income and expenditure this year are nearly as good. Income is lower and expenditure is higher, but there are fairly obvious explanations, perhaps not obvious to everybody, but obvious to those who have the key to the situation. The big expenditure is due, to a great extent, to two items, bovine tuberculosis and the subsidy on fertilizers. They are two capital items, as we all know. I should not like to say that the total increase in expenditure is accounted for by those two items, but certainly they account for a great deal of it and they are items, of course, that have been increased purposely. Expenditure has gone up because it was thought necessary to try to exterminate bovine tuberculosis and to increase the fertilisation of the land by giving cheaper fertilizers, so that those twin items account to a great extent for the increased expenditure.
On the side, there is income which would be as good this year as last year, I think I can truthfully say, if we were collecting duty on tobacco in the same way as last year. Senators may not know that we are not collecting duty on tobacco in the same way as last year. The tobacco manufacturers up to 5th April, or perhaps the end of April, paid duty on the day they took the tobacco out of bond. They were at a disadvantage as compared with other people in that the other people who pay excise duty were required to pay at the end of the month and, in some cases, at the end of the month after they drew it out. The tobacco manufacturers have been looking for the same concession for many years.
They came to see me and I said: “Well, I cannot argue against the justice of the case but what will I do  to make up for the loss of revenue at the end of March because it will mean our Budget will be about £2,000,000 short?”. They said: “We can agree to pay up to date at the end of March and your financial year will be made right”. I said there was another point, that if I were short of £2,000,000 the whole year through, it meant I would have to pay interest on £2,000,000 against that. They made that up to us by agreeing that we could put an extra tax of a couple of pence on the lb. of tobacco, without increasing the price of tobacco and, in that way, we were recouped the interest on the outstanding money.
The result is that the payment of tobacco duty is now very much in arrear compared with last year and if it were paid up as it was paid last year our income would be as good as last year's. I may say, therefore, that I am not at all worried about the statement of accounts this year with regard to expenditure or income. So far, it is working out all right.
The balance of payments, however, also requires explanation. I should say, perhaps, that it is not as reassuring as the income and expenditure on the Budgetary side. I think Senator O'Donovan was right in saying we were £12½ million worse off this year than last year on the balance of payments—something like that figure anyway. One big item in that is the bad harvest. Our import this year in wheat and feeding stuffs and sugar— especially in wheat—has been very much higher than last year because, as Senators are all aware, we produced very little Irish wheat for consumption in last harvest. We, therefore, have to import practically all our wheat this year and we have been importing wheat heavily up to now, during this year.
To some extent, the bad harvest also accounts for our increased import of feeding stuffs and to some extent for our increased import of sugar. Therefore, we may say that the bad harvest has a very big influence in that £12½ million. I do not want to name a figure but it would be a substantial figure, anyway, in that £12½ million.
 On the other hand, our exports are down. We had a carry-over of butter during the winter of 1957/58 from the 1957 production of butter which was ready for export in the beginning of 1958. We have no carry-over of butter this year and, as well as that, our production of butter is down— again, I think, to some extent, anyway, as a result of the bad harvest last year and the bad hay that was produced. The cows did not get over the bad treatment during the winter. I do not say that accounts for the reduction in milk yield entirely but to some extent it does.
There is also a very big reduction in the export of cattle and that is an item that is rather hard to understand. There are various explanations given for that. Senator O'Brien gave the explanation that there was a resistance on the part of the British farmer to buying our cattle because they are not fully attested, as they are in England. There may be something in that.
It is also true that the grass production in England in the early part of this year was not as good as usual and that, therefore, they did not need as many cattle as usual. I do not know whether our farmers have been offering cattle so freely for sale this year as they did in other years, either. As Senators are aware, there was a very good return on the census in January, and last June also, in relation to the number of cattle in the country. In the case of cows and heifers in-calf and in the case of calves and yearlings, the numbers were up but for older cattle the numbers were not up. Therefore, we have not as many cattle for export this year or perhaps even as many.
That goes somewhat to explain the reduction in our exports and the increase in our imports. On the whole, we have a more unfavourable balance in our trade relations this year than last year. We do not know to what extent capital comes into our imports. Senator O'Brien was rather critical even of importing capital. I have a note of that to which I shall refer again. Anyway, we do not know whether our imports may be swollen to some extent by capital items such as equipment, where new industries are about to commence. Certainly, this balance of payments  is a matter we must watch very carefully.
Senator O'Brien says that the balance of payments does harm in this way, that it leads inevitably to a depletion in our external assets—I mean where the balance of payments goes against us—and this in turn leads to restricted internal credit. We all know what restricted internal credit does, and its effects. None of us would like to face it, if we could avoid it. Then he goes on to say that even in the case of capital goods, it would be detrimental to our economy because, he says, the imports of capital goods will set up a demand for more imports, raw materials, and so on.
Senator O'Brien also says it is very hard to define “capital goods.” If Senator O'Brien is right in that argument that we must guard against the import of capital goods because they in turn will be followed by more imports in the way of raw materials, and so on, it makes the solution of our difficulties appear very difficult. I should have thought that if we import capital goods here and if they are used for productive purposes and especially if the production from this new factory or new capital is for export, in exporting our goods, whatever they may be, we are paying for the capital we brought in and, on the whole, it should have a good effect economically in the country.
I may not have followed Senator O'Brien's argument completely. I should like, however, at another time, to find out exactly what the argument is in this case. I should like Senator O'Brien also to consider this. It is not so much the import of capital goods that matters as the total national capital formation in the country, to which he referred. If the total national capital formation is satisfactory, even though our external assets are going down, I think we would not have very much to worry about. After all, if the national capital formation is satisfactory, we know we are going in the right direction and we should not worry even if we are bringing in capital goods.
The figure for national capital formation  over the past four or five years has been on the whole, and must be accepted as, satisfactory. It was much better in 1958 than it was in 1955 or 1956, but it was much better because we had to add in that case the favourable balance of trade and that gave us a very good figure. But, even last year, 1958, when our balance of trade was practically at equilibrium, the figure again was satisfactory and I think we had nothing very much to worry about for that reason.
Senator O'Brien's interpretation of “errors of estimation”, to which I have referred in my Budget speech in the Dáil, is correct. It covers overestimation of expenditure and underestimation of revenue. We took the sum, one against the other, and on that calculation I had allowed in my Budget for an error of £3 million. I hope that will be realised.
On the question of mechanisation, I do not know if it could be absolutely taken for granted that mechanisation will mean reduced labour requirements. Let us look around us and see what has been the experience in other countries. Countries like England and America have become highly mechanised over the past 30, 40 or 50 years but employment there is very high. In fact, as they went on mechanising, employment seemed to rise all the time. As a result of mechanisation, production is going up and with production going up employment is also going up, because not alone are people employed in the factory where there is mechanisation but elsewhere in various ways as a result of the output of that factory. Therefore, we should not take it for granted that if we adopt mechanisation here, we shall have fewer people employed.
Senator O'Brien spoke of the second recommendation of the Banking Commission, saying that when it recommended the formation of a Central Bank, it also recommended—as far as I could catch what Senator O'Brien said—a Debt and Investment Council. I have a fair idea of what their functions were, although I do not remember exactly what the title of it was. However, I can say that in the setting up of the Capital Investment Advisory Committee, the recommendation of  that commission was being adopted more or less. As Senators are aware, they reported on two or three subjects that were referred to them and they very kindly agreed to be at our service again, if we should require them to report on any other question. Therefore, I think we can take it that we have more or less adopted the recommendation of the Banking Commission in getting the services of these gentlemen.
Senator Stanford raised the question of wage earners. I admit that we allow relief in income tax up to a certain amount for every child being educated and, having extended the principle of this Bill to apprentices in that a certain allowance is given to the parents for a boy or girl who is doing an apprenticeship, logically, the man who pays for himself at a university should also be allowed freedom to some extent from income tax.
That case has been considered more than once and there are arguments against it. It is felt that a man who gives his time to a course at a university and pays a fee, does it in order to improve himself, and very frequently, if not always, he gets the benefit of that improvement very soon. The companies with which I was connected before I became a Minister this time, always gave an increment as a matter of course to a person who had got a diploma or anything of that kind, and a great many companies do the same thing. That is one of the reasons taken into account in considering this matter which convinced me that there was no pressing necessity for doing this. If it were done, it would be giving a double reward to a great many people. However, these things can always be considered again and there may be a different opinion on it at another time.
Professor Hayes Professor Hayes
Professor Hayes: There is an increase in national efficiency involved in it, too.
Dr. Ryan Dr. Ryan
Dr. Ryan: There is no doubt about that. I quite agree it should be encouraged.
 Question put and agreed to.
An Leas-Chathaoirleach An Leas-Chathaoirleach
An Leas-Chathaoirleach: Committee Stage?
Tomás Ó Maoláin Tomás Ó Maoláin
Tomás Ó Maoláin: Tuesday next.
Professor Hayes Professor Hayes
Professor Hayes: That means the House will be meeting next Tuesday, Wednesday and perhaps Thursday.
Tomás Ó Maoláin Tomás Ó Maoláin
Tomás Ó Maoláin: It was my intention that we should meet Tuesday, Wednesday and Thursday, if that meets with the approval of the Seanad.
Professor Hayes Professor Hayes
Professor Hayes: I take it the object is to dispose of the business on the Dáil Order Paper, which looks enormous, before the end of the month.
Tomás Ó Maoláin Tomás Ó Maoláin
Tomás Ó Maoláin: It is hoped to get the business finished before the end of the month.
Professor Hayes Professor Hayes
Professor Hayes: Will the Minister for Finance say if the Dáil will finish the Appropriation Bill next week?
Dr. Ryan Dr. Ryan
Dr. Ryan: There is no firm agreement but there is an understanding amongst the Parties that the Appropriation Bill will finish on Wednesday and be here on Thursday.
Professor Hayes Professor Hayes
Professor Hayes: That would be excellent, if it could be done. That is all the more reason for meeting on Tuesday next.
Professor Quinlan Professor Quinlan
Professor Quinlan: Does that mean one day for the Appropriation Bill?
Professor Hayes Professor Hayes
Professor Hayes: No. The Minister is saying we shall get it on Thursday.
Mr. Barry Mr. Barry
Mr. Barry: Could we consider meeting on Thursday?
Professor Hayes Professor Hayes
Professor Hayes: Possibly. Anyway, we shall adjourn until next Tuesday.
Committee stage ordered for Tuesday, 21st July, 1959.
The Seanad adjourned at 8.55 p.m. until 3 p.m. on Tuesday, 21st July, 1959.
Seanad Éireann 51 Finance Bill, 1959 (Certified Money Bill) — Second Stage.