The financial treatment of Ireland by the Imperial Parliament has been discussed at some length and at various times since the amalgamation of the British and Irish Exchequers in 1817. But the subject was not seriously discussed as a whole before 1864. In that year, after some opposition from Mr. Gladstone, then Chancellor of the Exchequer, a Committee of Enquiry was appointed whose instructions were to enquire how far the taxation of Ireland was in accordance with the provisions of the Treaty of Union or just in reference to the resources of the country. The Committee found no difficulty in disposing of the allegations which had been made concerning the violation of the financial article of the Treaty, but when it came to a consideration as to whether the taxation of Ireland was just in reference to her resources it did little but emphasise the impossibility of coming to any valid conclusion on the matter on account of the absence of accounts of trade between Great Britain and Ireland. The Committee did, indeed, bring forward other tests in order to measure the respective resources of the two countries, such as the amount of tonnage used in both the foreign and coasting trades of each country, the property assessed to the income tax in each country, the deposits in savings banks, gross railway receipts, and payments on account of death duties, all of which gave a
p.395smaller proportion for Ireland than the Union ratio of British and Irish exports and imports; but it insisted that these tests were simply indications of these resources, and must not be taken as infallible guides. On the whole the Committee came to the conclusion that the distress from which Ireland was suffering was not due to pressure of taxation, but rather to bad seasons. It did not think that the existing system of taxation interfered with the industrial development of the country or that it was called upon to recommend any relief to Ireland which would be at the expense of British tax-payers. As regarded further additional expenditure in Ireland, the Committee stated as its opinion that more harm than good was done in this way, at any rate as regards unproductive expenditure. Its suggestions were, in fact, limited to advocating the advance of public money to Ireland for improving land and furthering arterial drainage.
The conclusions of the Select Committee of 1864 invited no action, and the only result of its report was that some further impetus was given to the system of public loans in Ireland. The subject of Irish taxation was taken up from time to time in Parliament by the Irish representatives, but no further practical steps were taken by Government in the matter until the appointment of the Royal Commission of 1894 to enquire into the past and present financial relations between Great Britain and Ireland and their relative taxable capacities. The Commissioners were ordered to report upon what principles of comparison, and by the application of what specific standards, the relative capacity of Great Britain and Ireland to bear taxation might be most equitably determined; what, so far as could be ascertained, was the true proportion under the principles and specific standards so determined between the taxable capacities of Great Britain and Ireland; and what amount of Imperial contribution it was equitable that Ireland should contribute.
The Financial Relations Commission, which made its
p.396final report in 1896, was not so cautious in its statements as the Select Committee of 1864, nor were its conclusions in any way negative. The majority of the Commissioners agreed that Ireland was overtaxed, although there was considerable difference of opinion as to the extent of this overtaxation. It will be necessary to summarise briefly the views and conclusions of the majority of the Commissioners.
The main principle upon which the relative taxable capacities of Great Britain and Ireland may be best determined was agreed to be that of a comparison of the aggregate money incomes possessed by the people of each country; but in fixing the proportion account was taken of the comparative progress and consequent increase in taxable capacity in each country. Some of the Commissioners were also of opinion that the comparison of the annual wealth of the two countries should be based, not on gross income, but on the surplus, after deducting from gross income an allowance for subsistence for each population. Sir Robert Giffen was of this opinion, and calculated that this yearly allowance for subsistence should be £12 per head of the population in both countries.
The principal specific standard applied in order to estimate the proportion of the gross annual income of each country was derived from the net assessment to the income tax, attention being paid to the relative conditions which prevailed in the two countries as regards wages and other unassessed incomes. It was found that the net assessment to the income tax showed as between Ireland and Great Britain a proportion of 1 to 21. The Irish proportion of income from wages and from income otherwise unassessed was held by all to be not more, and was thought by some to be considerably less, than the Irish proportion of income actually assessed. At the same time it was pointed out that Irish land was more strictly assessed than British, that no adjustment of the figures had been
p.397made in Ireland since the great fall in the value of land, that the assessments in Great Britain under Schedule D. were known to be too low, that a large element of foreign income is not included in Great Britain in the income-tax assessments, and that in Ireland there is an economic drain from absentees. It was also observed that broadly speaking Ireland had made little material progress since the seventies, and that she was probably less prosperous than she had been ten years before the Union. So while the prosperity of Great Britain had been increasing by leaps and bounds that of Ireland had remained practically stationary. It was therefore argued by many of the Commissioners that a readjustment of the proportion of 1 to 21 already obtained should be made in favour of Ireland, because Great Britain's taxable capacity must in any case increase in a more rapid proportion than that of Ireland. The assessment to the death duties was taken as another specific standard of comparison for estimating the annual incomes of the two countries, and this gave the proportion of 1 for Ireland to 17 for Great Britain. Other minor tests were taken which gave various proportions, a few under that of 1 to 17, but the majority considerably over. The Commissioners, however, were anxious not to seem to favour Ireland at the expense of Great Britain, and the majority of them therefore decided that they would be in no danger of exaggerating if they estimated the true proportion of the taxable capacity of Ireland to that of Great Britain to be as 1 to 20. the Financial Relations Returns of 189394 the proportion which the "true"838 revenue of Ireland bore to the "true" revenue of Great Britain was as 1 to 13. Ireland, therefore, bore 1/12th part of the whole expenditure of the United Kingdom, while according to her taxable capacity she should at the lowest computation only bear
p.3981/21st part. So Ireland contributed every year over 2 3/4 millions more than her just proportion. But some of the Commissioners thought that the proportion of 1 to 20 was too high for Ireland, and that a deduction should be made for subsistence for each population before comparing the respective incomes of the two countries. A proportion of the whole income of the United Kingdom, having regard to its population, was set aside, and this allowance was distributed between the populations of Great Britain and Ireland in the proportion which they bore to each other.839 Taking the lowest estimate of British income in 1896 at £1,400,000,000, and the maximum estimate of Irish income at £76,000,000, and adding these sums together, they took one-fourth of the total as the allowance for subsistence for the whole of the United Kingdom. Of the £369,000,000 so allowed they allotted 7/8ths to Great Britain and 1/8th to Ireland, and deducting from the incomes of the two countries the amount so obtained, they found that the surpluses were in the proportion of 36 to 1. The proportion for Ireland and Great Britain respectively was therefore not 1 to 20, but 1 to 36.
The Commission went at length into the subject of Irish taxation since the Union, and found that it had grown from 14s. 5d. per head of the population in 181920 to £1 8s. 10d. in 1893, while the taxation of Great Britain had decreased during the same period from £3 10s. 3d. per head to £2 4s. 10d. The population of Ireland had fallen from 8,000,000 in 1841 to 4,500,000 in 1896, and was therefore less than at the time of the Union; and side by side with the decreasing population the whole taxation of the country had increased from £4,750,000 in 181920 to nearly £7,000,000 in 1896. It was said that the
p.399disadvantageous position occupied by Ireland was chiefly due to the system of taxation in force in the United Kingdom, which selects a few articles for high rates of duty, letting the remaining articles go free. The Irish national drink, whiskey, is taxed at a much higher rate than the English national drink, beer; while the Irish have always consumed large quantities of tea and tobacco in proportion to their wealth, a state of things natural enough in a poor country which cannot afford to consume much nourishing food. It was therefore agreed that, financially speaking, Ireland had gained nothing from the Union, and might have lost much. The population of Ireland was larger at the Union than in 1896, agriculture was more profitable, for the repeal of the Corn Laws had not yet impoverished the Irish agriculturist, the Irish foreign trade was larger, there were more manufactures in the country, and therefore the income of Ireland could not have been less at the Union than it was ninety years later. But under an Irish Parliament, in a year of peace, taxation was a little over £1,000,000; in a year of war and rebellion it only reached £2,500,000. In the war times after the Union Irish taxation rose to £4,500,000 per annum, and in 1896, after a long period of almost continuous peace, it stood at nearly £7,000,000. It was emphasised that these increases of taxation had been taken from an income which only improved slightly in the first half of the century, but which fell very considerably in the second half.
The Commissioners strenuously opposed the view often put forward, that as this whole increase of Irish taxation was spent in Ireland, that country could not complain of her high rates of taxation. They thought this view unjustifiable, for by the Treaty of Union the whole Irish revenue was regarded as a contribution towards the expenditure of the United Kingdom, and there could, therefore, be no separation of Irish expenditure into charges for Irish purposes and charges for Imperial
p.400purposes. How far the extra grants and free loans by the State for Irish purposes should be regarded as a set-off to taxation was a question which the Commission found difficult to determine, and one on which there was little agreement. It was, however, pointed out that the money from which State loans had been made was raised in Great Britain and the interest paid to persons living in Great Britain, which placed Ireland at a disadvantage. At the same time the interest on loans was higher in Ireland than in Great Britain, and local authorities were often compelled to borrow from the Local Loans Fund at 3 1/2 per cent, although they could borrow cheaper themselves.
Finally, the Commission recommended four different ways by which Ireland might be given relief from taxation: (1) The general fiscal system of the United Kingdom might be altered so as to press more heavily on Great Britain and less heavily on Ireland; or (2) a return might be made to the system of abatements and exemptions in favour of Ireland; or (3) a certain sum might be deducted from the public revenue every year and handed over to Ireland for special purposes in that country; or (4) Ireland might be allowed to manage her own local finances, contributing any surplus of her revenue that might exist to Imperial expenditurethis with or without legislative autonomy. As regards these four ways of relieving Ireland the members of the Commission differed widely. The majority of them, however, were in favour of allocating a fixed annual sum as compensation to Ireland, subject, of course, to periodical revision.
There is no doubt that this Commission of 189496 made out a strong case for Ireland, and the fact that it was composed of many eminent men is apt to make a student chary of criticising its conclusions. But in any matter involving changes in taxation or an alteration in an existing system of taxation, great precision is the first requisite, and it must be acknowledged that this precision
p.401has not been attained by the Commissioners so far as regards their enquiry into the respective taxable capacities of Great Britain and Ireland, an enquiry upon which all their conclusions must depend. In statistical science there is only a small gulf between fact and fiction; and between the figures that are facts and the figures that are fiction there are numerous figures that are partly fact and partly fiction, and that can only be accepted as supplying us with more or less trustworthy indications of tendencies, not as giving us sufficient material for arriving at any practical conclusion. As regards the enquiry which was before the Financial Relations Commission, there is little available matter which can be regarded as furnishing us with facts sufficiently precise for coming to a valid and final conclusion. The figures given by the Commission are very valuable in enabling us to realise the economic conditions and tendencies which prevail in Ireland, and they also give sufficient proof that our present system of taxation is on the whole unfavourable to Ireland, and that this fact entitles the country to special consideration in fiscal matters. But when we come to the question as to whether these figures form a sufficient foundation for changes in taxation with a view to lighter pressure on Ireland and heavier pressure on Great Britain, or for a statement that the over-taxation of Ireland may be accurately estimated at a certain sum, we have to acknowledge that more trustworthy evidence must be forthcoming than that which is at present available if we would come to any accurate conclusion on these matters.
The only figures given by the Commission which we are safe in accepting as accurate are those of population and collected revenue. But these figures are naturally of little use in themselves: what we have to do is to get at the relative incomes of Great Britain and Ireland if we wish to compare their taxable capacities. But Great Britain and Ireland have a common system of taxation and absolutely free commercial intercourse, and so the
p.402revenues which are collected in the two countries can give us no basis for coming to any conclusion concerning even the immediate incidence of taxation on commodities. Goods paying duty in one country may be consumed in the other, and therefore the collected revenue must be turned into the "true" revenue, or the revenue derived from commodities actually consumed within each country. The Commission made this adjustment, but the nature of the enquiry is so complicated that we can only accept their figures as giving us more or less approximate estimates, certainly not as giving us an accurate proportion between the revenues derived from indirect taxation in Ireland and those derived from indirect taxation in Great Britain. If we turn from indirect taxation to direct, which at first sight seems less complicated, we find ourselves confronted with similar difficulties, due to the close business and commercial connection prevailing between Great Britain and Ireland. A man often holds property in one country and resides in the other, while there is a large amount of foreign property belonging to people in Ireland as well as in Great Britain which is only assessed in London. In fact, to get at the true figures of the revenue derived from Imperial taxation, so many allowances and conjectures have to be made that the statistical basis of the whole enquiry is much weakened. But if we go further, as indeed we are logically bound to do, and attempt to compare the local rates in Great Britain and Ireland in order to get at the whole fiscal burden on each country, a subject outside the scope of the Commission's enquiries, we find that the difficulties which confront us are almost insuperable. In this case exact returns are impossible, and the whole question is still further complicated because of the nature of local taxation. Local taxation occupies a different position from central taxation, for the greater part of it is either non-tax or expended for productive purposes. It is impossible to compare "advantage received" from local rates in two countries
p.403which differ from each other so widely as Great Britain and Ireland, and in order to compare the burden of local rates this comparison of "advantage received" is necessary. We are forced to the conclusion that the various items of local expenditure cannot be added up in one country to form a total amount, and then compared with the total amount in the other country obtained in the same way. Such a proceeding would give us merely an arithmetical expression which would convey no real meaning until each item had been carefully and minutely examined and analysed, and even then the result would be merely an approximate estimate which would have to be used with the greatest caution. So much for the question of revenue. In the region of expenditure there are also difficulties, for the distinction which must necessarily be drawn between Imperial and local expenditure and the principles upon which such a distinction must be drawn can only be determined in the light of broad financial theories. The Commission showed itself a little illogical on this matter, but at the same time the statistics of revenue and expenditure given by the Commission are perhaps sufficient to furnish us with a working basis from which an enquiry into the respective taxable capacities of Great Britain and Ireland may be started. It is when we come to look into those various elements of the British and Irish revenue which were taken as more exact guides to the relative taxable capacities of the two countries that we realise how insufficient are our existing materials.
The statistics concerning relative income are more important than any other figures furnished by the Commission. Probably no better starting-point for an enquiry into relative income could be found than that furnished by the net assessments to the income tax. But here accuracy is impossible. Possible evasions of the tax are endless, and it is a well-known fact that they vary from schedule to schedule and from individual to individual, so that any attempt to estimate the average amount of
p.404evasion is futile. Again, the composite nature of the tax adds to the difficulty. The income tax is not a single tax; it is a whole code, or system, of direct taxation, and as the methods of imposition vary so greatly in different schedules, it is impossible to arrive at any accurate basis for comparison. Some incomes, such as the salaries of public officials, are necessarily strictly assessed, and it is probably impossible for large public companies to disguise the amount of their profits. But there is no security that private traders may not evade the tax on a portion of their profits and the payments under the head of Farmers' Profits have been described as a "complete farce."840 All working class incomes are exempt from the tax and the profits of many small dealers probably go free. Thus in any comparison of the respective incomes of Great Britain and Ireland founded on the basis of the net assessment to the income tax we can only compare rents, salaries, investments, and some classes of profits; we lose sight of the mass of farming income, and altogether of the incomes of the labourers and artisans. In order to remedy the great fault in the comparison, the actual course of business in the two countries should be examined, noting where radical differences occur; and, far more important of all, an investigation should be made into the actual economic condition of every class in Ireland and every class in Great Britain, but more especially the poorer classes, which are exempt from direct taxation. The Commissioners tried to compare the amount of working class incomes in Great Britain and Ireland respectively, but here their enquiry was beset with many difficulties and only a rough approximation was avowedly obtained.
As a matter of fact, all estimates of income based on property are necessarily merely subsidiary. Logically what we ought to compare in estimating the respective incomes of two countries are the necessaries and conveniences
p.405of life which each country annually consumes together with its fresh annual savings. This is what German economists call the "real" method,841 and theoretically it is the best way of getting at the income of either an individual or a country. Sir Robert Giffen made an interesting attempt to estimate the total income of Ireland in this way,842 but he found himself obliged to make so many allowances and averages that a great part of the foundation of his estimate was cut away. Dr. Grimshaw stated in his evidence before the Commission843 that he could not undertake to estimate Irish income by Sir Robert Giffen's method, because he thought that estimates so obtained would probably be fallacious. All he does after giving his figures relating to Irish manufactures, shipping returns, banks, post office savings, railway receipts, house accommodation, etc., is to state cautiously that in his opinion all these tests showed increased wealth, but that it was impossible to say how much better off was the average Irishman than fifty years ago. Indeed, all attempts to estimate by a money measure the whole mass of commodities and services which come into use during the year are apt to be very conjectural. The necessity of using prices complicates the question and brings in an element of uncertainty, while the broad averages which must necessarily be taken may be misleading, as a fractional difference in one of the premises may lead to a considerable difference in the conclusion. It is also difficult to get at exact figures. For example, Irish agricultural statistics are known to be defective, and so estimates of agricultural produce have to be accepted with the greatest caution.844 The police who collect agricultural
p.406statistics in Ireland can only do so by getting their information from the farmers. But it is obviously impossible for them to interview every farmer, and so they have to take much of their information on hearsay. Even as regards the amount of acres under one crop, and the numbers of live stock kept by each individual farmer, accuracy of computation is not obtained, while as regards estimates of produce farmers themselves find it difficult to measure the probable yield of their crops, and police constables who merely go round looking at the crops can form nothing but a general opinion whether the crops look good or bad. Statistics obtained in this casual way by the Irish constabulary can hardly be made the foundation for reasoning by statesmen or statisticians. In order to estimate a farmer's income on this "real " method as distinct from the "personal" or property method, it would be necessary to know not only the amount of his produce but also the exact quantity which he sells at each price, besides the total value or use of all the bye-products. Such a determination of the price of each different kind of produce would be a matter of great difficulty, and a small difference in the estimate of the price of any one article might lead to a considerable difference in the broad average which must be used to express its money value. We would also have to divide the farmer's stock into capital and income: that is to say, determine how much of it he sells or exchanges in the market and how much he keeps for the use of himself and his family. It would, in fact, be necessary to make out a very large number of family budgets, and to obtain an exact family budget is one of the most difficult tasks which the student of economic conditions can set himself. Theoretically the "real" method is the only proper way of arriving at an estimate of income; but practically in regard to the enquiry which lies before us, the most that can be said of this method is that it may be exceedingly suggestive as giving us a rough idea of the economic condition of the people in the country
p.407under consideration. But estimates of income of a country obtained by means of the "real" method cannot in any way be regarded as conclusive or as furnishing material precise enough in its nature to justify any important change in taxation such as some of the Commissioners of 1896 had in their minds.
But if we make attempts to estimate the income of Ireland by means of the "real" method, and not merely from property statistics, we ought to make a similar attempt as regards British income, for in any comparison of the respective incomes of two countries similar methods must be employed in estimating the income of each. But the Financial Relations Commission made no attempt to estimate the income of Great Britain in this way, and so even the conjectural estimate of Irish income which was thus obtained is valueless for the comparative purpose with which it was concerned. Thus the value of some of the statistical data brought forward by the Commission is greatly lowered from the point of view of the purpose in hand. The statistics which exist at present concerning British and Irish income are insufficient in order to institute a comparison between their respective taxable capacities. It must be remembered that the units which we are comparing are large, and that Ireland, as well as Great Britain, although to a less extent, is heterogeneous. No one who knows anything of Ireland would dream of looking at east and west from the same point of view, and the north-east must always be regarded as something quite different from the remaining part of the country. We are thus forced to the conclusion that the results obtained by the Commission establishing the over-taxation of Ireland can only be taken as provisional in the absence of further statistical data, and as subject to many corrections.
Now, in order to determine the proper financial position of Ireland, it seems necessary to adopt certain general principles as a foundation for argument, and first of all it
p.408must be decided whether Ireland is to be regarded as a fiscal entity or as an integral part of the United Kingdom. The Financial Relations Commission adopted the former view, but this was probably the result of the special circumstances under which it was appointed. It was the period of Home Rule agitation, and a Home Rule Bill was about to be passed through the House of Commons. It was therefore thought desirable both by Government and the Opposition that an effort should be made to ascertain what financial arrangements such a Home Rule scheme would involve. Thus the Commissioners enquired into and reported upon the whole question from the point of view of the separate entity theory. According to their opinion their instructions were to ascertain what Ireland ought to contribute to the Imperial Exchequer in case she were given Home Rule, and thereby created a financial entity.
In consequence the conclusions of the Commission can in any case only be applicable in practice if Ireland is regarded as a separate fiscal entity.
The present Irish position, which looks upon Ireland as a fiscal entity, is based upon a certain interpretation of the Act of Union. It is held that the financial article of the Treaty means contribution according to relative means and expenditure as required without reference to limit of contribution. The majority of the Commission accepted this view, which means that although they considered Ireland as a fiscal entity as regards taxation, they considered her as part of the United Kingdom as regards expenditure, an obviously unfair position. It is, however, extremely doubtful whether the Act of Union does require Ireland to be treated at the present day as a separate financial entity. On the whole, present conditions, whatever may be the practical injustice of their results, fulfil literally enough the intentions outwardly designed by the Act. When the Treaty of Union was being drawn up, it was admitted that indiscriminate taxation and a consolidation
p.409of the Exchequers was desirable, and the chief reason why this was not done was the inequality of the British and Irish debts. Section 8 of article 7 specifically provided for the amalgamation of the Exchequers as soon as the debts of the two countries should be to one another in the ratio of their respective contributions to Imperial expenditure, and also laid down that when this amalgamation had taken place Parliament might, if it thought expedient, abolish the system of proportional contribution and institute a system of indiscriminate taxation. The wording of the article clearly shows that once the consolidation of the Exchequers was accomplished, all arrangements for treating Ireland as a separate fiscal entity, and for fixing the proportions of contribution, should be done away with if Parliament thought fit; there should then be indiscriminate taxation, subject, however, to such abatements and exemptions in favour of Ireland "as circumstances may appear from time to time to demand." Accordingly, when the Exchequers were consolidated in 1817, many exemptions and abatements were retained in favour of Ireland owing to her acknowledged poverty; it was only after 1853 that these exemptions and abatements dwindled down to their present position. It is, however, important to notice that they still exist, and their existence shows that the economic condition of Ireland is held to be such as to entitle her to special consideration in financial matters. But this is quite different from regarding her as a fiscal entity. If financial injustice to Ireland exists at present, it lies not at all in the violation of the financial terms of the Treaty of Union; it is a result of the Treaty itself, which did not sufficiently safeguard Irish interests, and it is also a result of a misinterpretation of the spirit of the Treaty. The economic conditions prevailing in Ireland are even more dissimilar now to those prevailing in Great Britain than they were at the time of the Union; but the exemptions and abatements which Pitt thought so necessary on account of the dissimilarity of these economic
p.410conditions, and provision for which he inserted in the financial article, have dwindled down greatly, and those insignificant ones that do exist benefit the well-to-do and not the poor of Ireland.
At the same time, bearing carefully in mind the true position of Ireland as an integral part of the United Kingdom, it is legitimate enough to regard Great Britain and Ireland as two separate units for the purpose of financial comparison, just as it would be to take two separate classes in the community and work out the different incidence of taxation on these classes. But if we regard Ireland as a unit for purposes of taxation, we must in all fairness regard her as a unit for purposes of expenditure. This the Financial Relations Commission did not do, a logical blunder which makes it still more necessary to accept their conclusions with caution. The Commissioners say that the public expenditure of the whole United Kingdom concerns the whole United Kingdom; that we must logically regard it as expended for the equal advantage of all, and that it is impossible to debit anything that the Central Government spends to the different parts.845 They regard all expenditure as the public expenditure of the United Kingdom, except expenditure that is merely local; and the boundary-line between Imperial and local taxation they fix according to the division of duties between central and local authorities. But this division is surely arbitrary, and seems to confuse the administrative and financial aspects of the case in question, for the expenditure on a service may be Imperial, and yet the service may be locally administered, or a service may be maintained from local funds, but imperially administered.846 If we regard Ireland and Great Britain, or Ireland, England, and Scotland as financial units simply for the purpose of more convenient financial enquiry, we should try and arrive at some sound
p.411principle by which we can assign proportions of total outlay to the separate parts, distinguishing between English, Scotch, and Irish services and services which are altogether Imperial. The clearest principle is no doubt that of "advantage received"although this advantage is difficult, if not impossible, to measure as regards many serviceswhile expenditure that appears equally to the advantage of all three parts should be regarded as Imperial. It must, of course, be noticed that additional expenditure taking place in one of the three units need not necessarily be to the advantage of that unit, and this consideration is especially important in the case of Ireland. Take the case of the large number of troops stationed in Ireland. In so far as this is due to cheaper cost of living, as it partly seems to be, it certainly should not be debited against Ireland. No unnecessary expenditure, such as the high cost of the Irish Civil Service, should be placed against Ireland's account, and the extra cost of police, due to political and social conditions, ought to be regarded as Imperial expenditure, for Great Britain is even more interested in the peace and quiet of Ireland than is Ireland herself. On the other hand, extra expenditure due to economic conditions, such as the loss on the Irish Postal Service, may in strictness be placed to the Irish account, while such expenditure as that recently incurred for the establishment of local government in Ireland, or the establishment of the new Department of Agriculture and Technical Instruction for Ireland, must certainly be debited to that country. But every item of expenditure in Ireland should be minutely examined and analysed, in order to see what is strictly Irish and what may be regarded as Imperial. The results of such a minute enquiry, if indeed it could be satisfactorily carried out, might be in favour of the contention as to the unfair financial treatment of Ireland, or it might be the reverse. But it is certainly unfair to take, as the Commission did, only the revenue side of Ireland's relation to the United Kingdom. In a comparison which
p.412regards Ireland as a financial unit, the expenditure side of the Irish relation to the United Kingdom should also be taken into account. We are perfectly entitled to distinguish between Irish revenue and expenditure on the one hand, and Imperial revenue and expenditure on the other, for purposes of financial comparison; only the classification we adopt must be a precise and proper one, and the difficulties of such a classification are enormous.
There has been little discussion among economists as to the principles which should govern the incidence of taxation as between different countries making up a larger whole. This is because, in most cases under consideration, some sort of a federal system exists, and the question is simplified by the fact that only common expenses are paid out of the common treasury, the determination of these common expenses being rendered easy by the political constitution of the Federal State, while the proportion contributed by each separate part does not appear to be fixed according to any specific standards, but seems to be the result of some system of compromise. But in a unitary State local divisions are held to be of little importance in matters of finance, and there is no financial intermediary between the State and the individual. And so we come to the position of the ordinary Englishman of the present day, who insists that a common fiscal system in two united countries like Great Britain and Ireland must lead to an equality of burden, and that as each individual Irishman only pays in Ireland that amount of taxes which he would pay if he lived in England, Ireland cannot be overtaxed as compared with Great Britain.847
p.413But this point of view is apt to be fallacious when we are considering two countries so economically distinct as England and Ireland, and in which the proportions that the poor bear to the rich are so different. In a unitary State which possesses more or less uniformity of conditions one fiscal system will produce more or less similar results, but it may lead to a fallacy to neglect the due adjustment of the burden of taxation in regard to the territorial divisions of a unitary State such as our own, where heterogeneity rather than uniformity of conditions prevails. We thus lose sight of the fact that under our present fiscal system a poor territorial division, in which agriculture is the chief industry, situated side by side with a rich territorial division which depends chiefly on manufacturing industry, may in practice be unfairly treated under an identical system of taxation.
Of course there is a valuable element of truth in thus emphasising the fact that in a unitary State the State deals directly with the individual in all matters of taxation, for ultimately all taxation must fall on persons. If Ireland is overtaxed it must be because some persons or classes in Ireland pay more than their fair share, and so we come to the really important point in all financial questions, and that is, the real incidence of taxation on individuals. On the whole it seems more profitable as regards the enquiry with which we are concerned to look at the matter from this point of view. We have seen that it is legitimate to distinguish between the territorial divisions of a unitary State for the purpose of financial comparison, and that this separation into separate parts may be useful in enabling us to realise the fallacy of assuming that a similar fiscal system operating in these different parts must lead to precisely similar results. But here Ireland is no peculiar case, for the problem would work out something similarly
p.414were we to separate off certain poor rural districts in England, Wales, or Scotland, and institute an enquiry concerning their taxable capacity and actual burden of taxation. A clearer idea of the actual financial situation of Ireland seems to be attainable if we abandon the idea of treating Ireland as a fiscal unit, and regard her as an integral part of the United Kingdom for all purposes of taxation; and thus meet on their own ground those persons who state that Ireland cannot be overtaxed because she is subject to the same system of taxation as Great Britain.
If we consider Ireland not as a separate entity but as one country with Great Britain for purposes of taxation and expenditure, then all endeavours to determine proportionate charges and expenditure appear irrelevant. What we have to look at is the incidence of taxation on the individual in whatever part of the United Kingdom he may reside. We thus avoid many difficulties and complications and much weakness of statistical data, and our proper enquiry resolves itself into the question whether our present fiscal system is fair in both countries as between rich and poor, bearing in mind the much greater proportion of poor to rich in Ireland. Such an enquiry is more efficacious than any other in locating the actual financial burden under which Ireland labours. All economists are agreed that a man's capacity to contribute to taxation should form the measure of his contribution, and that capacity is in some way related to income. At this point, however, agreement ceases, for some are of the opinion that a man's whole income without making any deduction should be the criterion of his capacity, while others believe that taxation should in justice not be levied on the whole income but on the surplus which remains after the defraying the bare necessaries of life. It is, of course, impossible to take anything from a person who possesses merely a bare subsistence minimum, and allow him at the same time to
p.415continue to exist. But the difficult question is how far this subsistence minimum has to be exempted when the individual has a larger income, and at what amount of yearly income should an exemption for a minimum of subsistence cease. There is no agreement on these points, nor is there any concerning the difficult problem as to what standard of living should be assigned in order to arrive at the proper amount of subsistence minimum. When we are dealing with individuals inhabiting different countries or districts where economic conditions and habits of living vary, these problems become more difficult. The standard of living must differ in different districts, and especially in different countries like Great Britain and Ireland; it is always more or less elastic, and it is difficult to convert it into a hard and fast point. Theoretically, indeed, it seems far more just that capacity should be measured by surplus income and not by total income, but the difficulties of practical application are very great. It is difficult enough to get at income without hoping to arrive at even an approximate conclusion as regards surplus income. And as precision in such an enquiry is above all things needful, it seems more practicable to take a man's total income as the measure of his taxable capacity.
Looking at the matter, therefore, in this light, it may be well to look at the incidence of our present system of taxation on individuals in Ireland. There certainly seems no case for Ireland in the region of direct taxation. The income tax and the death duties do not appear to press more heavily on the Irish than on the British population, while a slight relief is given to Ireland by the non-imposition of certain small taxes.848 But the case of indirect
p.416taxation is different. It was found by the Financial Relations Commission in 1896 that the direct taxes in Ireland yielded 1/20 of the total receipts of the United Kingdom, but that the indirect taxes yielded 1/9. Even if we make all allowances for mistakes which may or may not have existed in arriving at these proportions, the discrepancy which appears between the two yields is far too great. The high rates of taxation on tea, tobacco, and spirits brings about this large Irish contribution from indirect taxation, and they place a heavy burden on the poor, who form such a large portion of the whole Irish population.
The question, then, is not one of the over-taxation of Ireland as a whole. The upper and middle-class Irishman and the Irish well-to-do farmer and artisan have no grievance. The pressure is on the lowest section of the agricultural population and on the unskilled labourers. We thus simplify the problem and find that the question is one of classes rather than of countries. The case is not one of Ireland versus Great Britain but of the unskilled labourer and very small tenant farmer, whether he be found in Ireland or in Great Britain. In Great Britain a labourer with 10s. to 15s. a week, and in Ireland a labourer with 7s. to 9s. a week, will pay as much in indirect taxes as the skilled artisan or tradesman with £1 10s. to £2 a week. But in Ireland there is a huge class with the small income of unskilled labourers, and the income of unskilled labour is on the average two-thirds of what it is in Great Britain, while in Great Britain this class is small compared to the whole population.
In Ireland the people who live from the land, working their holdings as owners or tenants merely with their own labour, number, with their families, about two million persons out of an entire population of under four and a half millions.849 The average holder in this class has a
p.417holding valued for taxation purposes at £6 to £7, and it is from him that the largest amount of taxes come. On the average the income of these small farmers, with the application of their own labour to their farms, seems to be about £35 a year. This would work out at £7 a year for the maintenance of each member of a family of five, a smaller amount than the annual cost of feeding and clothing a pauper in an Irish workhouse. This estimate is, of course, only approximate, and incomes range over and below the average. But it is an undoubted fact, for proof of which absolutely accurate figures are not necessary, that our present system of taxation, which raises such a large amount from the necessary consumption of the mass of the people, presses more heavily on the Irish poor than on the British poor, simply because their poverty is greater, and because the poor in Ireland form a very much larger total of the population than the poor in Great Britain. A certain system of direct and indirect taxation combined may bring about a roughly just proportion between the upper, middle, and working classes, but when, as in our present fiscal system, indirect taxation is limited to a few commodities consumed in comparatively greater proportions by the poor, it presses unfairly on the lowest section of the working classes. And as this lowest section numbers such a large part of the population of Ireland, that country is the most important example of this injustice, although it also exists in Great Britain.
What is needed to remedy the injustice is the readjustment of such taxation as exceeds its proper amount. The present system of Imperial grants, subsidies, and doles to Ireland gives no direct relief to the Irish labourer with his income, say, of £30 a year for a family of four or five, and paying 5s. or 6s., or sometimes even 8s. in the pound in local rates. Such a policy gives indirectly with one hand to take away directly with the other. If the Irish labourer is overtaxed the proper remedy is to relieve him
p.418directly of the over-taxation by a lower scale of duties on necessaries of consumption. We have, of course, to differentiate between the various taxed commodities. Tea has certainly the best claim to relief. No one nowadays would care to assert that tea is a luxury; tea has in fact become a necessity, and this is illustrated by the fact that the recent additions to the rates of duty on this article have not decreased its consumption. Those who before consumed superior qualities may, of course, consume inferior qualities, but those who, like the very poor, consume the cheapest tea that is to be had are not able to retrench on their consumption, simply because tea is the cheapest drink they can get, and it is more especially necessary to those who can afford little nourishing food. To the Irish peasant who lives on potatoes or Indian meal, with bread, bacon, and milk only on a few occasions in the year, tea is almost a necessary of existence. There is a good deal to be said for a substantial reduction in the duty on tea whenever the exigencies of Government allow them to make further abatements in the present heavy taxation. Tobacco stands on rather a different footing, but there seems something to be said for a reduction of taxation on the inferior sorts, for as the tax now stands it presses inequitably on the poor. The spirit duties are, of course, not wholly fiscal, and it may be noticed that the consumption in Ireland of porter is increasing at the expense of whiskey. There used to be an idea that all the evils attendant on drinking arose from spirits, and that spirits should accordingly be taxed more heavily than beer in order to induce people to drink beer instead of whiskey. This theory is now exploded, and although it cannot be said that a heavy tax on liquor constitutes a legitimate grievance, it may be argued that there is a distinct grievance in not taxing all kinds of intoxicants equally in proportion to their strength. The whiskey drinkers all over the United Kingdom have a grievance against the beer drinkers, and the fact that the
p.419majority of Irishmen prefer spirits, and the majority of Englishmen beer, imposes on the Irish a heavier burden of taxation. It does not in the least alter the argument to say, as our Chancellors of the Exchequer are so fond of doing, that it is always open to a man to drink beer instead of whiskey. If the present tax on beer were doubled and the tax on tobacco abolished, the poor in Great Britain would pay no more in taxation, while Ireland would get a substantial relief. It seems improbable that the consumption of beer would be materially lessened by this policy.
It thus appears that the so-called Irish financial problem is not a problem belonging to Ireland exclusively. It is one which concerns the whole of the United Kingdom and which involves a readjustment of the incidence of taxation. There is no case for special and separate treatment of Ireland in this respect, because if taxation, as it affects individuals, is rectified all over the United Kingdom, the main financial injury under which Ireland labours must perforce be remedied, although it does not follow from this that the fiscal system suited to Great Britain is one suited in the same degree to Ireland. But when persons say that at present Ireland cannot be overtaxed because she is under the same fiscal system as Great Britain, they forget that indirect taxation is different in its nature from direct, and that the economic condition of Ireland is very different from that of England. Still, apart from all discussions as to the over-taxation of Ireland, there is quite enough reason for the relief of the poorer classes in that country, as well as in the rest of the United Kingdom, by the reduction of the tea and sugar duties and the abatement of the duty on the inferior sorts of tobacco.850 If we regard Ireland as an integral part of the United
p.420Kingdom all additional expenditure on Ireland comes to be merely a question of redistribution between central and local finance. And thus the so-called Irish problem leads us up to another question which is important for Great Britain as well as for Ireland, and that is a due balance between Imperial and local finance. The present dole system to local bodies is, to say the least of it, unscientific; and it is to be hoped that some better method may be found of relieving poorer districts all over the United Kingdom. Ireland is here again but one example of a question which concerns the whole kingdom, although, perhaps, the most important example, on account of her decreasing population. Since 1860 Irish local taxation has steadily increased, while the population of the country has steadily decreased, so that rates per head have gone up enormously. Evidence was given before the Financial Relations Commission in 1895 that in some of the impoverished south-western districts of Ireland a man renting his holding at £6 a year had sometimes to pay 8s. in the pound in local rates,851 while 5s. and 6s. were common amounts. Since the Irish Local Government Act of 1898 rates have shown no tendency to decrease, on account of the growing expenditure for the housing of the working classes, and for other purposes no less urgent. There is the same problem of high rates combined with poverty in many localities in Great Britain, and some change in our system of local taxation is necessary if we would relieve the pressure on all poorer districts. Such relief would be felt, more especially in Ireland, where the pressure of the rates constitutes a serious drawback to material progress.
Thus two things are needful in order to relieve Ireland from the existing burden of taxation, just the two things which were outside the scope of the enquiries of the Financial Relations Commission. The first is some change in the fiscal system of the United Kingdom, so
p.421that taxation will press less heavily on the very poor, and, secondly, some reform in the existing system of local taxation. If these changes are regarded as impracticable Ireland should be relieved indirectlyand this is a larger question than a purely financial oneby developing the resources of the country in every direction so as to improve the position of the Irish peasant and enable him to bear the increasing pressure of taxation. The Congested Districts Board, the Irish Agricultural Organization Society, and the new Department of Agriculture and Technical Instruction are all going the right way to work to improve the position of the Irish poor by trying to abolish those causes which hamper their material progress, by developing the agricultural and home manufacturing industries of Ireland, and by fostering that spirit of self-help which is above all necessary for the improvement of the country. Now that the Land Bill is passed an opportunity will be given to the Irish peasantry by a really statesmanlike policy to improve their material position, an opportunity unique in the history of the relations between England and Ireland. The efforts which have been made in recent years by Government to foster the development of Ireland in various directions have met with some success, and must be regarded as indirectly giving financial relief to the Irish people.