Thursday, 21 April 1927
Dáil Éireann Debate
MINISTER for FINANCE (Mr. Blythe): Saorstát Eireann has now for four years had complete control of its own finances and during the period much has been accomplished. The financial credit of the State has been securely established. The bill for the Civil War and the damage arising out of it has, for the most part, been paid. Reforms have been carried out in almost every branch of public administration. Great constructive schemes have been initiated and are being hastened forward. New help has been given to agriculture and industry. The burden of taxation has been appreciably reduced while the public debt remains low.
The Revenue figures for the year 1926-27 have in various respects been more satisfactory than those for any previous year. The price of National Loan has again risen and has during the whole of the twelve months remained at a high figure. In fact, difficulty has been experienced in purchasing loan for redemption and on 31st March last there was a sum of £119,400 uninvested to the credit of the sinking fund. Deposits in the Post Office Savings Bank rose during the period from £2,402,000 to £2,700,000. As in the previous year the sum invested in Savings Certificates rose by £600,000 odd.
Leaving out of account our liabilities under the Agreement of December, 1925, to repay to British Government the amounts disbursed by it in respect of compensation after the signing of the Treaty, our National Debt on 31st March stood at the figure of £16,854,400 made up as follows:—
|Irish Free State Bills||2,500,000|
|Ways and Means Advances||1,079,000|
|Telephone Capital Advances||576,000|
From the total thus obtained must be deducted, however, £564,591, the balance remaining in Exchequer at the close of the financial year. The net figure therefore is £16,290,000. The corresponding amount at the end of the previous year was £13,420,000.
 There are certain assets which may be set against the total of the outstanding debt. They comprise advances from the Exchequer to the Unemployment Fund amounting to £1,284,700, the ultimate repayment of which may, I think, fairly be relied upon; advances to the Shannon Electricity Scheme Fund amounting to about £1,312,000 and other smaller advances which bring the total up to the neighbourhood of £4,500,000. Our net capital liabilities, excluding the compensation liability already mentioned, are therefore just about £12,400,000.
The original estimate of tax revenue for the past year after deducting the sum expected to be realised from the motor vehicles duties was £20,078,000. As a result of Budget changes the figure became £20,063,000. The sum actually collected was £20,609,000. Death duties yielded £955,288 which was some £25,000 short of the estimate. Stamp duties likewise produced £35,000 less than was anticipated. The yield of the beer and spirit duties was substantially better than was expected.
In my last Budget statement I estimated, not without some misgiving, that the excise duties on alcoholic liquor would produce in 1926-27 approximately the same revenue they had yielded in the previous year. In fact, however, the produce of the excise duty on spirits was £2,401,375, or £46,029 more than was anticipated. Last year, as Deputies may remember, I pointed out that the yield of spirit duty for 1925-26 had been abnormally low because withdrawals from bond had in the three months before the Budget been restricted to an unprecedented extent, and that, therefore, if there were no decline in the consumption of spirits in the year 1926-27 there would be an increase in revenue of £130,000. But though the increase realised was only £46,000, it should not be taken that the annual consumption of Saorstát whiskey declined by an amount equivalent to a tax yield of £84,000. The sum which came into the Exchequer in the past year in respect of excise duty on spirits was something less than the normal yield of the period. During the first  three weeks of the financial year which had passed before the introduction of the Budget, payments of duty were at their lowest.
Excessive reduction of stocks of whiskey by publicans at this time resulted in a certain definite loss of trade and revenue which was not balanced by exceptional consumption later in the year. For two months after the Budget statement, pending the passage of the Immature Spirits (Restriction) Act, the withdrawal of spirits from bond was restricted by the Revenue Commissioners. In consequence, some traders did not get normal stocks until the end of June, and it is possible that some further loss of trade resulted. On the whole it may safely be said that the consumption of home-made spirits (not including poteen) in the year 1926-27 was only very little less than the consumption in the previous year. It is not anticipated that there will be any decline during the current financial year. It is interesting to note that while there was an increase in the yield of the excise duty on spirits amounting to £46,029, the revenue obtained from the customs duty on imported spirits is down by £26,000.
In the case of beer, as in the case of spirits, I estimated in my last Budget statement that the revenue from the excise duty would be the same in 1926-27 as it had been in 1925-26. I am glad to be able to say that the estimate was exceeded and that the yield was up by no less than £124,000. In 1925-26 the excise revenue obtained from beer was abnormally low, because certain brewers decided during that year to reduce substantially their export reserves, with the result that while drawback was paid at the normal rate, there was a period during which less beer than usual was brewed and less duty paid. The resultant loss to the Exchequer was £250,000. A consumption in 1926-27 equal to the consumption in 1925-26 should accordingly have given an increase of £250,000 in revenue, provided there had been no further decrease in brewers' stocks. The figures, therefore, indicate that there has been a decrease in consumption of 25,000 standard barrels as compared with the previous year, and certain other indications  tend to show that the decrease was actually somewhat greater, say, 30,000 standard barrels. Since the decrease in the year 1925-26, as compared with the preceding year, was 100,000 barrels, it is evident that the rate of decrease has been growing less and that the home consumption of beer is approaching stabilisation. Viewing the situation in regard to the consumption of intoxicating liquor as a whole, pessimists who are not also prohibitionists, might take heart from the fact that the people of the Saorstát are still not only willing but able to spend about 17 million pounds per annum on stimulating drinks.
The customs duty on motor cars and motor bicycles yielded £251,000, or about £54,000 less than last year. The decline was partly due to the fall in the value of cars and the slump in the French and Italian currencies. It was also due in part to the discrimination in favour of the home-made car shown in the new basis of road tax, and to the easing off of the brisk demand for cars which arose on the restoration of settled conditions. Recent returns indicate, however, that there will be a substantial recovery in the current year. The duty on wearing apparel yielded £79,000 more than in the previous year, in spite of the fact that since the imposition of the tariff the number of persons employed in the industry has risen by something like 4,200 and is still increasing. There are clear indications that increasing home production will lead to a reduced return from this tax in the present year.
Two new customs duties were imposed by last year's Finance Act. That on oatmeal yielded £15,900 against an estimate of £12,000. Outside millers in some cases have secured mills in the Saorstát and in others are making an effort by extensive advertising to hold their market here in spite of the tariff. On the whole, a decided fillip has been given to the oatmeal milling industry. The tax on wireless apparatus was calculated to produce £20,000. The actual yield to the Exchequer was just over £19,000. The policy of the Government is to expend on additional stations and better programmes all the revenue got  out of broadcasting, whether in the way of customs duties, licence fees or fines recovered from defaulters. Proposals will shortly be submitted to the Dáil for the erection of further stations, including a high-power station which will probably be situated at Athlone. The contemplated developments would not be possible if the income from the tax on imported apparatus were not forthcoming to supplement the revenue obtained from fees payable by owners of receiving sets. It is not considered that the general taxpayer should be required to pay for the improvement and extension of the broadcasting service and it is not intended that hope of development should be abandoned. Accordingly the excellent customs duty on wireless apparatus, at present in force, will be continued.
The various duties in connection with betting yielded £59,028. These taxes did not become operative until 1st November and the succeeding period up to the end of the financial year was that in which least return to the Exchequer was to be expected. We are still without the evidence on which any reliable estimate of the yield of these taxes can be based, but it is considered probable that the sum obtained in the present financial year will be more than quadruple the amount we got last year.
The original estimate for income tax for last year was £4,650,000, but in consequence of the change in the method of giving relief from double income tax, I reduced the estimate by £200,000 to allow for the throwing forward of the payment of certain tax into the next year. The tax collected exceeded the original estimate by £30,000 and the revised estimate by £230,000. In the case of super-tax the revised estimate was exceeded by £91,000. The excess in both cases was due to the fact that arrears have been collected more rapidly than was expected. The past year's work has appreciably reduced the pool of arrears which has so unfailingly replenished our Exchequer for the past four years, but it has not exhausted it. It was expected that the great bulk of the collectible abnormal arrears would by  now have been recovered. The position, however, is that while our zealous and efficient revenue officials have already got from those who refrained from paying income tax to the British and even to ourselves, so long as the State was still, unsteady on its legs, a sum greater than was ever expected, there is still the prospect of getting between £500,000 and £700,000 during the next two or three years before we reach the point when nothing but normal arrears will remain outstanding. It is not anticipated that there will be any decrease in the yield of normal or current tax during the next few years. The decline in taxable income which has been going on since before the setting up of a separate revenue service in the Saorstát seems to have come to an end. A calculation made by the Revenue Commissioners on the basis of returns supplied by over 200 representative firms engaged in all sorts of enterprises, indicates that profits as a whole in 1926-7 were only 5 per cent. lower than in 1925-6. In many cases it is certain that profits would have been even higher but for costs and losses arising out of the British coal stoppage, and the Revenue Commissioners are satisfied that but for that stoppage profits generally in 1926-27 would have shown no decline as compared with 1925-26. The fall that has hitherto taken place in profits has not adversely affected the yield of income tax to any appreciable extent, because in each succeeding year the tax has been more efficiently and equitably collected. It is hoped that before long evasion will be reduced to a minimum. In this way it is expected that the effect of the lowering of the three years' average this year will be largely, if not entirely, neutralised.
In my last two Budget statements, before comparing the estimates of expenditure with the estimates of revenue for the purpose of deciding whether taxation could be reduced or must be increased, I first segregated those items of expenditure which, because of their abnormal and non-recurrent character, might properly be met by borrowing. It is proposed to proceed in the same way this year. The provision for property losses compensation  and for capital for the Local Loans Fund as well as provision for drainage, for capital grants to University Colleges and for loans to agricultural credit societies and creameries, will all be found entirely by borrowing. In the case of expenditure on public works and buildings and on the improvement of estates by the Land Commission part of the outlay will be regarded as normal and part as abnormal and non-recurrent. In the case of Army pensions the amount representing provision for arrears will be set aside to be met by borrowing. This year's forestry estimate is substantially increased and reflects a decision taken last autumn to propose to the Dáil a planting programme of 5,000 acres a year for ten years. It is felt that as a national asset is being created, some part of the annual outlay might reasonably be met out of borrowed moneys. The whole amount due to be paid next June to the subscribers to the Dáil Eireann Internal Loan of 1919-20 will be borrowed.
Except for Army expenditure this completes the list. I need not repeat to the Dáil the arguments I have used in previous Budget statements against borrowing to meet any part of the charge in respect of R.I.C. pensions; nor need I again emphasise the fact that it would be wrong to pick out of the estimates every item that had anything of an abnormal character. The estimates must every year contain a considerable number of such items and to exclude them all when calculating the total of our normal expenditure would be to falsify the result.
I have hitherto held that out of the total outlay on the Army a sum of £2,000,000 should be regarded as normal and recurrent and be paid out of taxation. In the estimates for the year 1923-24 the provision for the cost of the Army was something like £10,700,000. In the course of a statement on the financial position made to the Dáil in November, 1923, I announced that in the following year the sum provided would be brought down to £4,000,000. At that time the Army numbered over 35,000 men, and we still had a large number of internees behind barbed wire. Some time later the Government decided that £4,000,000  must be regarded as double the amount that would in normal times be required for the maintenance of the defence forces, and that we must work down to £2,000,000 as speedily as possible. The conditions that existed when that figure was fixed were still far from normal. The time has now come when it may be reconsidered. I need hardly say that the Government regards the maintenance of an efficient defence force as one of its primary duties, and that it would give no countenance to the idea that the cost of the Army is expenditure which at any time may be arbitrarily cut down. We need a defence force to protect the State and the people from internal attack; we need a defence force to ensure as far as possible that our national rights will be respected by other States. That this is a small and comparatively poor State does not affect the position. If we can only have a small Army we can still have an army of strength proportionate to the wealth and territory to be defended. The state of international morality is not yet such that we can rely on our own national good behaviour to safeguard us. A country that will not provide for its own defence according to its capacity is not likely to have its rights protected in a spirit of pure altruism by any other country. Heretofore our defence force has been simply a standing army. It could, indeed, have taken no other form. But it has always been recognised that once the country had definitely reached normality, a standing army of ten to twelve thousand men would no longer be the cheapest or most suitable type of defence force.
The Government is of opinion that immediately after the General Election it will be possible to take in hand the task of gradually transforming our present Army into a different type of military machine. This opinion rests on the assumption that the electorate will give increased support to parties which accept the Treaty and Constitution and are prepared to work them. If that assumption proves to be justified, it will be possible to save expense by concentrating troops into a smaller number of posts, to push on with the creation of an army reserve, and within a short time to create the nucleus of a  territorial or militia force. In this way we may in a couple of years reach a position in which the number of troops with the colours will be much smaller than at present, but in which many more men than we have now could be immediately mobilised in case of need. Even allowing for any additional burden which may be put upon our Army in connection with coastal defence under Article 6 of the Treaty, it is believed than an efficient defence force, of which the standing troops would only be a part, could be maintained at a cost of not more than £1,500,000 per annum. I propose, therefore, that we should no longer regard £2,000,000 as the normal part of the present cost of the Army, but that the figure should be reduced by £500,000.
The estimate of expenditure for the year 1927-28 on Supply Services is £23,502,631, and on Central Fund Services £3,771,369, making a total of £27,274,000. In order to ascertain the amount that must be defrayed out of taxation or other normal revenue, the following items may be deducted from the total:—
B. Vote 11. Public Works and Buildings, £375,000 out of a total provision of £583,195 for sites and buildings, new works, alterations and additions; £20,000 the total provision in respect of compensation for premises commandeered by the Army; £145,000, the total provision in respect of drainage works.
D. Vote 52. Department of Agriculture, £51,500, provision for capital expenditure in connection with the establishment of the new faculties of General Agriculture and Dairy Science at Dublin and Cork respectively; £19,000 being the amount by which the provision for loans for agricultural purposes exceeds the amount expected to be received in repayment of such loans. £85,000 the entire provision for loans to co-operative creamery societies.
The total of the deductible items given under these ten heads is £3,462,897. If we take this figure from the aggregate estimate of expenditure on Central Fund Services and Supply Services, we get an estimated sum of £23,811,103 to be spent on purposes for which borrowing ought not to take place. But, as I pointed out last year, our estimates taken in bulk necessarily reach a total figure greater than will in practice be required for the service of the year. The estimates containing provision for normal and recurrent expenditure, apart from Central Fund services, number 66, and the number of sub-heads under which such expenditure is set out totals 550. The principle on which the Estimates are framed is that in each sub-head sufficient money shall be provided for the purposes of the sub-head. The Estimates, moreover, are drawn up from 15 to 18 months before the end of the period to which they relate. Consequently it may be accepted that no matter how carefully the Estimates are framed it will be found at the end of every year that, taken together, they have contained provision for more money than was actually required. Last year I put the margin of over-estimation included in that part of the aggregate,  which had not been set aside to be covered by borrowing, at £650,000. This year the figure might be taken as £630,000. If this further amount is deducted from the estimates of expenditure we get a net total of £23,181,103. That is the figure upon which we must base our calculation in regard to any adjustment of taxation. The whole sum will be spent during the year, and no part of it ought to be borrowed.
I turn now to the revenue side. In the White Paper, as Deputies will have noted, it is estimated that taxation on its present basis will this year yield a sum of £20,765,000, while postal and other non-tax revenue is expected to bring in £3,685,000. The anticipated income of the period is, therefore, £24,450,000. Portion of this sum, however, consists of receipts that for the purposes of comparison with the estimates of normal and recurrent expenditure cannot properly be taken into account. Since we have deducted from the total on the expenditure side, items representing capital outlay or outlay that was abnormal and non-recurrent in character, we must also deduct from our gross income all similar items. Accordingly, the figure which appears in the White Paper for miscellaneous non-tax revenue must be lowered by the deduction of the following sums:—
|A. Repayment of Exchequer Advance made in 1922-23 to Local Taxation Account||£19,800|
|B. Dáil Eireann Loans and Funds—Amount payable to Exchequer under Dáil Eireann Loans and Funds Act, 1924||£83,000|
|C. Amount expected to be realised from sale of stock held by Department of Education on account of funds of the old Intermediate Board||£238,000|
|D. Estimated profit this year from issue of token coinage||£300,000|
The amount to be deducted from the aggregate estimate of revenue is, therefore, £640,800, leaving, a net figure of  £23,809,200. When this sum is compared with the total expenditure which must be met out of income, we get a figure of £628,097 representing excess revenue.
Before considering how this surplus should be disposed of, we must allow for the increased debt charges due to borrowing for abnormal expenditure, which will have to be borne this year. It is probable that these charges will absorb £150,000. On the other hand, it may be assumed that the Currency Bill will be passed by the Oireachtas without any amendments that would reduce the profit which will accrue to the Exchequer from the proposed new system of note issue. Of course nothing like £250,000 can be expected this year. But it is not unreasonable to look for a profit of £90,000 or £100,000 before 31st March next. The position, therefore, is that after providing for increased debt charges on the one hand, and allowing for a contribution from the Currency Commission on the other, the sum available for reduction of taxation in the current financial year may be put in round figures at £550,000, leaving a small sum for contingencies.
It may fairly be asked whether there is a good prospect that burdens removed this year will not have to be reimposed next year. There are, I think, two rules which should be observed in deciding how an estimated surplus shall be applied. One is that as far as possible taxation in any particular year should be adjusted to the financial requirement of that year; the other is that switch-back fluctuations in tax rates should be avoided. Accordingly, it is clear that while we should certainly use the available surplus to reduce taxation, we should, in deciding on the form that reduction will take, have regard to the prospects of next year and the following years. If it seems likely that shrinking yield or increasing liabilities will necessitate taxation next year at rates higher than will suffice for this year, then any relief that is now given should be in the shape of concessions the entire cost of which will fall upon the Exchequer in the present year and will not recur. If, however, it seems probable that relief given this year can be continued and even increased next  year, then we may now decide upon a measure of relief that will not only absorb the surplus of this year but will cost an additional sum in subsequent years.
Without even a remote approach to the realms of prophecy, two factors bearing upon the finances of the year 1928-29 can be foretold. Firstly, present recurrent expenditure will be increased by the annuity of £250,000 payable to Great Britain in accordance with the Agreement of December, 1925, and secondly, debt charges will be further increased. That is one side of the picture. The other is not so gloomy. In 1928-29 a full year's contribution of £250,000 should be paid by the Currency Commission. It is hoped to complete shortly the steps necessary to secure that death duties on shares held by Saorstát citizens in British companies doing business here will all come into our Exchequer. The work of the Tariff Commission may lead to the imposition of some customs duties which, though not designed to produce revenue, will nevertheless bring money into the Exchequer. With a sufficient effort savings may be effected which will reduce appreciably the cost of public services. Finally, at the end of another year or two, consideration may be given to the question whether it will be necessary to continue to the end extinguishing compensation stock at the rate of 10 per cent. per annum entirely out of revenue. Taking everything into consideration the Executive Council are satisfied that they are justified in proposing such relief from taxation as will cost £550,000 to £570,000 this year and perhaps £300,000 additional in subsequent years.
We are in the fortunate position of having received a good deal of sincere and eloquent advice about the reductions we should make in taxation. But unfortunately, we have only a limited sum in hand and much of the sage counsel that has been tendered us must be rejected. Let me say at once that we do not propose to abolish the corporation profits tax. By the concessions made last year the number of companies paying this tax has been reduced from about 600 to 60. Half or  more than half of the tax collected is paid by British companies and until the death duties problem which I have discussed in previous Budget statements has been satisfactorily solved we shall keep the corporation profits tax. I admit, however, that in its present form it is not a tax that should be continued permanently. We have been urged to reduce the entertainments tax, though it was scarcely pretended by the kinema proprietors that the reduction would be passed on to the public. I understand that in the event of this Budget proving unsatisfactory, some of the picture-house owners have made preparations to show slides stating in plain terms what they think of the Minister for Finance. I may say that the Executive Council as a body is quite undismayed.
Though it is not really a tax matter, we have considered further reductions in the telephone charges, but in view of the still very considerable deficit on the Post Office as a whole, we have decided to make no change at present. We have once again inquired into the possibility of reducing the beer and spirit duties. As I have already indicated, the decline in consumption which took place after the establishment of the Saorstát has very nearly ceased. It can no longer be urged that it is necessary to make substantial sacrifices of revenue now in order to avoid much greater losses later. We have all along felt unwilling to reduce either the beer duty or the spirit duty separately and our attitude in this respect is unchanged. If we gave, in the case of both beer and spirits, any reduction that would be worth giving, the cost would fully equal or perhaps exceed the entire relief which the present financial position and prospects would render justifiable. We should not, however, consider it sound public policy, with economic conditions as they are, to propose no changes in taxation, other than a lowering of the liquor duties. Consequently we do not recommend to the Dáil any changes in the taxes on beer and spirits.
Apart from the protective taxes only two important customs duties remain. The sugar duty has been reduced by 1¾d. per lb., and is 1/4d. per lb. below  the British level. In view of the establishment of a sugar industry in the Saorstát and of the possibility of its extension, it is not considered desirable to alter the existing duty. The cost of reducing the tobacco duty by 1d. an oz. would be £500,000. If there were a very big sum available for reduction of taxation, making possible a variety of reliefs, favourable consideration might well be given to the idea of lowering the tobacco duty, but to make it our principal tax change at the present time could hardly be described as the best thing that could be done for the country.
The need of the moment is for something to stimulate enterprise, to promote a spirit of business confidence, and thereby to speed up production and increase employment. Relief from taxation should accordingly be given in the way that seems most likely to have a tonic effect on the economic life of the Saorstát. After considering with all care the possibilities of the situation we have decided that such relief as we are able to give will be most beneficial to the country at large if granted in respect of income tax.
We do not accept the extravagant arguments of those who advocate the abolition of income tax. We think that, efficiently administered, it is an eminently just tax. But we also believe that the rate at which it may be levied, without unduly slowing-down the machinery of production, depends on the degree of economic advancement that has been attained. In a country like this where, unfortunately, there are less business initiative and tenacity than would be desirable, a stimulus to development can be given by a reduction in the rate of income tax which could not be given by any other form of relief. Strong social arguments can, of course, be advanced in favour of increased allowances of various kinds, but a lowering of the rate, through its general economic reactions, will give advantages to much greater numbers of people than could be reached by any change in the allowances. It may be hoped that a reduction in the income tax by fostering enterprise will help the unfortunate class who have no income.
Before passing away from this point  I should like to mention one or two subsidiary reasons which we saw in favour of giving relief to the income tax payer. I have already referred to the praiseworthy zeal and efficiency of our revenue service. If the taxpayer, whatever his motive, now pays up better than he used to pay, there seems to be reason in the contention that he should be rewarded by a reduction in the rate. Again, any cause of complaint that the shareholders in Saorstát companies may have with regard to corporation profits tax will at all events be lessened by a lowering of the income tax. A reduction of the rate by 6d. would cost between £250,000 and £300,000 this year, and about £500,000 in a full year. On the other hand, while a reduction of 1s. would cost just about £550,000 this year, in subsequent years, according to the calculation which we have heretofore used, the cost would be somewhere about £1,000,000, which is more than we could afford to give. I am, however, optimist enough to believe that the effect of a reduction of 1s. in encouraging enterprise and in modifying that sense of grievance amongst taxpayers which impedes collection, would result in a 3s. rate yielding ultimately not £3,000,000, but £3,100,000, or even £3,150,000 per annum. Income tax in the coming year will be charged, levied and paid at the rate of 3s. in the pound.
It is not proposed to make any general changes in the income tax code at present. The system we have inherited is undoubtedly much too complicated for this country and some attention has been given to the question of simplification. But the pressure on the Revenue Commissioners and their staff has heretofore been so heavy that it has not yet been possible to map out a scheme of reform. The matter will be kept in mind and as soon as any experienced officials can be spared from urgent current work, an effort will be made to carry out an investigation of the problems involved, but it seems unlikely that any proposal can be submitted to the Dáil for some years.
The provisions of last year's Finance Act consequent on the double taxation relief agreement contained a flaw which, if not removed, would result in super-tax payers who are doubly resident,  receiving in respect of the year 1926-27 a much greater measure of relief than they are really entitled to. It is proposed to put the defect right.
The basis on which the match duty was charged has just been altered in Great Britain. It will no longer be paid on the 10,000 matches but on the 1,000 containers or the gross of containers. In consequence matches packed, as many brands of Continental matches are, in containers holding 35 or 40 sticks, will be severely penalised. There are large quantities of such matches in bond in Great Britain at the present time with names and other inscriptions printed on the boxes in English. The Saorstát is the only place in which they can conveniently be dumped. If we were not to adjust our tax in such a way as to make our market no more favourable than the British, the quantities of Continental matches which would be sent here from Great Britain would be such as would probably oblige the Saorstát factory to close down for a considerable period. We propose, therefore, to change the basis of charge of the match tax in the same way as has been done in Great Britain; but whereas the rate of duty was raised in Great Britain by 20 per cent., we propose no increase.
It has been represented during the past year that certain business is being lost to the Saorstát because of the fact that the sections governing the boot tax contain no provision enabling the Revenue Commissioners to allow duty free admission of parts which have been imported to undergo a further process of manufacture and are then exported. Power will now be taken to allow duty free importation in such cases. Similarly, when oatmeal is imported, made into oat cakes and then exported, it is proposed that the Revenue Commissioners be authorised to pay drawback.
In view of the fact that the time available for the consideration of the Finance Bill this year will be short, we do not propose to incorporate any changes in the law which can be postponed without hardship to individuals or serious loss to the State. Consequently, we shall have fewer resolutions and a much shorter Finance Bill than usual.
 It only remains for me to say that the important reduction in taxation which is proposed was decided on after the fullest consideration and with the knowledge that it necessitates a great and immediate effort to achieve economy. The pool of income-tax arrears is now undoubtedly within sight of exhaustion, and although there are expedients by which a temporary increase of revenue may be got for a year or two without raising the actual rates of taxation, the point will be reached in three years at the outside when substantial fresh taxation will be unavoidable unless there has been either an appreciable reduction in expenditure or such a definite and general improvement in the economic position that existing taxation will yield a good deal more.
The need for retrenchment can scarcely be mentioned without provoking demands for a “Geddes” Committee. And it is always most loudly demanded by those who have not the vaguest idea of what the original “Geddes” Committee was, or did, or of the circumstances in which it was appointed. The Government is fully satisfied that even if suitable personnel could be found (which is doubtful), the conditions which would enable a body on the lines of the “Geddes” Committee to perform useful work, do not exist here at present. We recognise, however, that some special machinery is necessary to bring about the economies which are requisite within the next couple of years. Heretofore the staffs responsible for examining proposals and controlling expenditure have been somewhat fully occupied with work arising from the transfers, adjustments and developments consequent on the change of Government and with the many proposals for new and additional services that have been submitted by Departments. They have been able by means of special Departmental committees and otherwise to examine the staffing of various departments and to secure reductions. They have been able to fasten on heads of expenditure here and there and effect important economies, but they have not been able to  undertake a systematic and searching survey of Government expenditure as a whole. The Executive Council is satisfied that the time has now come when such a survey can and must be begun. Accordingly it is proposed to set up a special committee of experienced officials taken partly from the Department of Finance and partly from other Departments to examine the whole field of Government expenditure and recommend such reductions as appear to be possible. If it can be arranged, a Minister will act as Chairman. It may be that two or three Ministers will undertake to act in turn. It is intended that the Committee shall be constituted forthwith and that it shall keep steadily at work until the investigation is completed. The Committee will have full authority from the Executive Council to require the attendance of all officials and the production of any information it considers necessary. The idea is that every item of recurrent expenditure should be put on trial. The plan I have outlined can lead to satisfactory results only if the widespread demand for ever-increasing State help and State activity is resisted for some time to come. If new burdens continue to be cast upon the State not only will the positive results of the Committee's labours be nullified, but the volume of current work will make it impossible to spare continuously from their Departments the officials of whom it is intended that the Committee should be composed.
I am personally satisfied that economies will be shown to be possible in classes of expenditure that have not been the subject of public propaganda at all. It may prove that some of the activities we inherited from the British are unnecessary or too costly for the Saorstát. In other cases it may be seen that British methods aimed at a standard of technical perfection which the Saorstát need not look for. It would be wrong, however, to give the idea that enormous savings are possible. They are not. The standard of social services ought not to be further lowered and cannot be further lowered so as to give true economy. The amount required for educational services is bound to increase  somewhat. The economic conditions of the Western sea-board cannot be dealt with without expenditure. In certain other respects increases are inevitable. To find savings to meet these additional charges, and to provide the required margin will not be an easy task.
The popular idea that the cost of the Civil Service presents a practically unlimited field for economy is baseless. Civil Service pay constitutes a comparatively small part of the outlay of the State. The greater number of civil servants are employed in the Post Office which is really a business run by the State—a business which is steadily moving to the point of paying its own way. Its employees from the financial point of view are in a slightly different position from other State officials. So far as the greater part of their pay is concerned, they are no more a charge on the taxpayer than railway engineers or tram conductors. Apart from the postal officials, the cost of the pay of the Civil Service is £2,777,777 or 11.2 per cent. of the total of the Central Fund payments plus the votes exclusive of that for the Post Office. The figure I have given includes the salaries and wages not only of civil servants in the ordinary sense of the word, but also of the Governor-General, judges, prison warders, Ministers and charwomen.
Mr. BLYTHE: No. If we add the Post Office figures we find that salaries and wages of the Civil Service amount to £4,563,277 or 16.6 per cent. of the State expenditure. In this connection it should be remembered that a great deal has already been done by way of retrenchment in the Civil Service and that there is continuous revision. Staffs have been reviewed and numbers adjusted. Salary scales have been reduced in respect of new entrants and promoted officers. Annual leave and the subsistence rates of travelling officers have been cut down. The weekly hours of work have been increased.
Not much further can be done without the abandonment or restriction of  services. I am satisfied that there are services that can, at any rate, be partially suspended without great loss to any section of the community. But we can no more afford the reckless scrapping of services than we can afford reckless expenditure on them. We must seek for economy, but we must not forget that we have an undeveloped country, and that our real hope is in development. Public money is the money of people who are for the most part poor and struggling; we must spend it carefully and sparingly. But we must not spend it so sparingly that opportunities of national development are missed or national efficiency is lost instead of being increased. We believe that an inquiry such as is now proposed to be instituted will enable us to pursue a policy of retrenchment that will be at once sound and effective. We have, of course, pursued in the past such a policy, but the point has now been reached when more systematic methods are necessary if further progress is to be made.
The remission of taxation proposed in this Budget will, with the remissions which have already been given, mean that apart altogether from any question of fall in yield, the burden on the taxpayer and ratepayer has been lightened by a net annual sum of nearly £3,000,000. The tea duty, which was 8d. per lb., has disappeared, together with the corresponding duties on coffee and cocoa. The duty on sugar has been reduced to very little more than one-third of the former figure—from 2¾d. to 1d. per pound. Income tax, which was 5s. in the pound four years ago, is now being brought down to 3s. Rates on agricultural land, taking the country as a whole, are lower by more than 1s. in the pound in consequence of the doubling of the agricultural grant. Telephone charges have been substantially reduced. Corporation profits tax was formerly charged on all profits above £500; now it is only charged on profits above £10,000. A number of the customs duties known as key industry duties have depreciated currency duties have disappeared. The protective duties which we have imposed must be set against some of the remissions. But these duties have resulted  in 10,000 people being employed in factories in the Saorstát in the manufacture of the protected commodities.
The constructive schemes which have been initiated within the past few years are well known to Deputies and to the public, and their importance is appreciated. But remitted taxation is soon forgotten, and whatever relief may have been given there are many who groan as fervently as before. It is not always realised that economic depression in the mind of the individual helps to produce economic depression round about him. It is, however, a simple fact that heavy taxation, besides the damage it does directly, injures business by making the individual feel that the odds against him are too heavy, and that he cannot contend with them. Conversely, an important part of the benefit of reduced taxation normally lies in the psychological effect on the individual and the community. If a substantial number of people obstinately refuse to allow even substantial remission of taxation to have any effect on the settled melancholy of their outlook a not inconsiderable part of the value of the relief is lost.
It would be for the good of the country if the kind of inverted Couéism which is so commonly practised in regard to taxation and the effects of taxation lost a little of its popularity. If the facts of the financial and general economic position are looked at squarely, it will be recognised that greater difficulties than any that are still before us, have been surmounted, and that the future may be faced in a mood of sober confidence.
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