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Seanad Éireann debate -
Wednesday, 29 Oct 1986

Vol. 114 No. 9

State of the Economy: Motion.

I move:

That Seanad Éireann deplores the handling by the Coalition Government of the economy, which has led to unprecedented borrowing, a record current deficit, and a crisis in confidence, and calls for urgent action to halt the drift into economic abyss.

I am moving this motion this evening because I think everybody inside and outside this House cannot but be acutely aware of the crisis which besets our country at this time. Therefore, it is necessary to put on the record what these problems are and seek to make some proposals to deal with them urgently.

The Government seek to distort recent economic history, and there seems to be no limit to the blatant way they misrepresent what has happened. They continually try to blame others for their failures. It is necessary for us to keep putting the truth before the people. This Government, who pride themselves on honesty and integrity, have been in power for nine and a half years out of the past 14 years. Coalition Governments are responsible for two-thirds of the national debt which is currently running at over £22 billion. They are responsible for two-thirds of the present level of foreign borrowing. They continue to make fradulent claims about controlling Government expenditure, even though it is absolutely, abundantly clear that the finances of this country have gone out of control. Under the present Government, unemployment has climbed to record levels, now nearing 240,000, while at the same time we have again the spectacle of emigration. We do not have exact figures but it is estimated that close on 80,000 people have emigrated in the past few years.

The 1973 Coalition Government started the practice of running current budget deficits and using foreign borrowing to pay for them.

I hope the Minister is comfortable in his chair and that I will be allowed to continue. I will allow him the same facility when he replies.

The highest ever ratio of borrowing by any Government in the history of the State was in 1975 by the then Coalition Government. It ran to 16 per cent of gross national product at that time. The largest ever annual increase in current expenditure took place under a Coalition Government in 1975 when it rose by 42 per cent and public service pay by 50 per cent. Everybody can recall the solemn promises made by the Coalition candidates in the last general election. They promised to eliminate the current budget in four years. Later this was changed in the infamous document, Building on Reality, now Unreality, to change it to 5 per cent. The current deficit will reach record proportions this year. It could be as high as £1,500 million or between 8.5 per cent or 9 per cent of gross national product. Having created the deepest crisis in public finances in the history of the State, this Government in the words of their Leader, the Taoiseach, Deputy Garret FitzGerald said this Government will not be seeking re-election. That must be the first occasion in the history of this State that an outgoing Taoiseach told his audience that his Government would not be seeking re-election. That is not an indictment by me, by the media or by any other political commentators; it is the view of the Taoiseach of the Government he has led for the past four years. In order to be exonerated of all of these difficulties, the two parties in Government will go their different ways.

It is interesting to look at some of the targets set in Building on Reality. The unemployment target was 210,000; the actual figure is near 240,000. Manufacturing output was to be up by 36 per cent; it is up by one-third of that target. Manufacturing employment was estimated to rise by 13,000. It is just over half that figure, nearing 7,000. Agricultural output was to be raised by 10 per cent; that is down by 5 per cent. Agricultural employment was to be down by 9,000, but that figure is 12,000. Construction output was estimated to be up by 1.5 per cent, and we have a catastrophic fall to 12 per cent. Construction employment was to be up by 1,000, it is down by 7,000.

I am not too enamoured by the notion of digging up these kinds of historical facts, but we have been presented over the years with an extraordinary effort to discredit Fianna Fáil in the context of the history of how this country has been run in recent times. It is no harm to recall that every housewife was expecting a direct payment of £9.60. This was not a Fianna Fáil promise. The standard rate of income tax was promised to be reduced to 25 per cent, but over a four year period this Government have extracted the highest ever increase in personal taxation from the community, and in particular from the PAYE sector. They have reduced tax free allowances and hit hardest at large families.

It is clear from what I have said that coalition as a form of Government is totally discredited. What the country needs is an extended period of secure and stable Government, agreeing on their economic and social philosophy and able to implement sound developmental policies over a period of time. Instead this Government hang on to office bargaining from day to day — and this afternoon perhaps from hour to hour — with disgruntled backbenchers who are unable to stand the heat of antagonism from the public outside. This continuing uncertainty is leading to a major crisis of confidence in the financial market. Millions of pounds are leaving the country and hard pressed borrowers already in severe trouble are doomed to further increases in lending rates.

Fine Gael and Labour cobbled together a programme for Government and later changed it to Building on Reality which, in the words of one of their own Deputies, is now like a juggernaut careering down a hill out of control. What worries me in the context of our present economic difficulties is the accepted style with which this Government now plan to run the next general election. The signs are already there that we could be facing one of the most vicious campaigns this country has ever experienced. In the context of a huge problem of unemployment, high taxation and lack of incentive, with so many young people emigrating, this sterile type of politics cannot and should not have any place in our country.

We have the agricultural industry practically on their knees and we do not need any further degeneration of politics into personality or mud-slinging episodes. We are at a crossroads. Problems require to be faced and we will run democracy to its last legs if we consider that the only way we can win, hold office, stay in office, or gain office, is to operate politics on that basis. We require a newer, fairer and more open approach to the people if we hope to gain their confidence and, more particularly, to prepare the road for national recovery.

Everybody has to accept that the public finances must be controlled and we will have to look closer at how that can be achieved. We have allowed the Civil Service to grow too big. We have also allowed this city, in the context of its pivotal position in the country, to develop too fast compared to other regions. By any standards, looking at our population structure, Dublin has huge problems and some of them have been caused by not having a proper decentralisation policy. I am not talking just about transferring offices; I am talking about transferring the decision-making processes into the regions so that we will not have the duplication and triplication of effort that abound in our system of Government which hampers management, middle management and saps initiative.

In a report prepared by the Regional Development Organisation on eastern region settlement strategy to the year 2001, it is said that air pollution, crime, vandalism and traffic growth have contributed to a general downgrading in the quality of life in the eastern region. In the other House this evening they are discussing a Bill setting up a commission to deal with many of the problems that affect Dublin city. Congestion is widespread and is affecting the economic and social performance of the region.

The most minute decisions to be taken by local authorities have to be considered in the Department of the Environment before permission is given to go ahead. At present the Government have power to allocate funds to local authorities in the different regions but we should have a system where each local authority will have the power to work within those confines and make their own decisions to suit their localities. The present policy has led to considerable waste through duplication at central Government level. There is pettiness, bureaucracy and sluggishness in the way many of the schemes are carried out. In the normal way many of these schemes could be decided at local level but they have to be reinvestigated by staff who have never had to face the problem. Yet they are the people who decide which scheme is the most suitable. Unless steps are taken to loosen and reverse this cramped system, the trend may be irreversible in the future. The Government have power to take decisions of this nature, but politicians seem to be extremely reluctant to transfer those powers. Because of problems that face this country and the necessity to devise new strategies and policies to deal with the impact of changing régimes as far as agriculture and other industries are concerned emanating from the EC, we simply do not have the time as national politicians to be involved in the day to day decisions which have to be made. It seems Ministers still want to cling to these decisions, but I believe they should be taken in the regions by the county managers, the local representatives and individuals in middle management throughout our Civil Service system. I do not want to be interpreted here as being critical of the Civil Service. Over a long period I have worked with individuals whose commitment to this country could not be questioned, but they would be the first to admit that for far too long the system has been cramped and needs to be opened dramatically.

In a variety of other areas we have to be much more sensible about how we discharge our public duties. Recently in a local authority adjoining my own I had the experience of a simple legal matter involving a court session for a couple of days. The local authority were liable to pay as much as £4,000 for a senior counsel when there may have been only one or two questions asked. The English system has changed. They do not require two senior counsel, two junior counsel and expensive legal procedures which are developed in a way which make it almost impossible for the average member of the public to come to grips with them. Yet we carry on this kind of expensive system. We load new costs onto local authorities and other regions. We literally cannot afford this.

We need to look at how our banking system is working. When has anybody met a bank manager who told him the reason somebody was in difficulty was a bad decision by the bank in the first place, our rates of interest which are reaching extortion proportions? Banks never make bad decisions. It is the individuals who are wrong all the time. Money was borrowed at 10 per cent but within a few years the rate went as high as 20 per cent and individuals in business enterprises and agriculture could not cope with that. It is time we had a fresh look at this and cut out some of the luxury developments that have taken place in the banking system which have to be paid for by an unfortunate public who are no longer able to cope with the ever-increasing demands on their resources. We must look at the cost structure in the banks and see that the interest margins are not excessive.

In the agricultural area, the debate amongst farmers, farmer interests and co-operatives in the next few months must focus on the need to evolve policies that will do the least damage to agriculture. Every effort will have to be made by the Minister and his officials to secure recognition of the importance of the dairy industry to the economy. This summer the EC, in considering ways of dealing with the problems of the dairy sector and the build-up of stocks, brought forward a number of proposals which are clearly unacceptable to us — increasing the rate of the super-levy, the removal of the right to transfer the unused quota from deficit co-operatives to surplus co-operatives and the suspension of intervention for butter and skim milk powder from time to time. The suspension of intervention, even for a limited period, would remove the guaranteed price for dairy products and the effect on producer prices would be devastating. The effect of these proposals on market prices for butter and skim milk powder will be very serious because there will be a disruption of the sales pattern even in advance of the introduction of such measures. No doubt the task that lies ahead will be difficult. Can a Government, who look over their shoulder from day to day to survive, take on the task of negotiating on behalf of agriculture in the context of these crucial, serious and impending proposals which will have, as I have stated, a devastating effect on the cornerstone of our economy?

One of the greatest drawbacks to an increase in European food sales is the absence of distribution facilities. We must try to gain greater access to the major retail outlets in mainland Europe. To this end, greater co-operation between the co-operative societies is necessary together with an inward transfer of technology and new joint ventures providing a high level of speed and flexibility in getting our product to the marketplace at the least cost. Our domestic market is too small and, therefore, we cannot afford to ignore the opportunities for profitable investment in the EC, US and other markets.

Our interest rates are four times the level of our inflation. We have low personal incentive due to high levels of taxation. We have severe geographical penalties due to distance from our main markets and high freight rates to these destinations. We have an absence of business confidence due largely to the lack of leadership and dynamism by the Government. If we believe in a strong food industry based on native raw materials, we must begin to solve and remove some of those constraints. There is no point in talking about huge imports of food unless we are prepared to make the changes which will make it possible for us to be competitive on the domestic market and, at the same time, penetrate the European and world markets.

We also have to watch the changing trends that are taking place. Many consumers in developing countries are demanding more and more fresh food. They see unprocessed foods as farm fresh and associate them with high quality nutritive value and the absence of chemicals residues and additives. We have to be conscious of meeting these demands if we are to create the kind of job opportunities that we will require for the future.

We have also to look to greater promotion of forest investment and management, developing forest nurseries for the production of forest and ornamental tree species, exploiting the potential for sport and recreation, organising co-operatives for the provision of machinery, labour and contracting for timber harvesting and marketing. We have to have proper tax incentives to encourage private owners to invest in a commodity which is likely to have demand exceeding supply for many years into the future, and well into the next century. In the present climate of quotas and general uncertainty surrounding conventional enterprises, forests could be grown in some of the worst land in the west. We could produce three and four times more per cubic metre per hectare than competing countries. Planting small acres of individual farms with high unit cost is not viable and we must look to co-operatives to enable and encourage investment in this area.

The lack of start-up capital is seen as one of the greatest obstacles to co-operative development. Many new co-operative ventures are started by workers who have become redundant, or by people with very little property and no financial standing or experience with the lending institutions. We need special programmes of tax incentives and State loan guarantees if new co-operative enterprises are to be set up. Many of the people involved, as I have stated, are people who became redundant and who would otherwise be in receipt of social welfare benfit. We pay £9 million or £10 million per day by way of social welfare payments. We must be more positive and try to create opportunities where people will not become dependent on a taxpaying community, the middle band, who are no longer in a position to continue to carry the load.

I do not have time to deal with other matters, but I would like to ask the Minister about the extension of the disadvantaged areas scheme. Have the Government decided to designate the areas which are now less severely handicapped as severely handicapped? Has a decision been taken in relation to the doubling of the headage payments?

We need to take the bureaucracy out of the farm modernisation scheme particularly as it affects small farmers. As regards the ACOT services, we charge farmers who are getting a grant of £5,000, £6,000 or £7,000 the same as an individual who would qualify for a few hundred pounds under the farm modernisation scheme. We need to make those changes in the tourism area which has potential for this country. We need to come forward with proposals which will create more opportunities, enhance our country and at the same time provide much needed capital in the west and elsewhere where there are few other alternatives and where industrial development is at a very low ebb.

We need to speak with our social partners. We need agreement with the trade unions. We need far less confrontation between unions and management, far less demarcation, and fewer individuals who decide to create situations where it is impossible for businesses to develop. There are many industrialists looking at this country who would be far more ready to commit themselves to it if we could rid ourselves of those developments which have militated against us in the past.

We need to get rid of some of the taxes introduced by this Government which have created very considerable problems. I do not wish to go into detail on this matter because I do not have the time but it is clear to everybody that the introduction of the DIRT tax was a grave mistake. Any income that has come to Ireland as a result of the introduction of this tax has been more negatived by the outflow of money.

Senator Brendan Ryan will have his own opportunity later to debate this matter and perhaps we can do it in another forum. We must seize every opportunity to develop programmes. Production processes have evolved to levels of complexity which call for a much higher level of training in the use of basic science than has been the case up to recent times.

I regard myself as a relatively young politician but I have been knocking around for a little while. I know there is a philosophy of despair in this country. I want to believe in the country as much as anybody else. We have the educational facilities, we can make the technological advances which are possible but we need to combine our resources to make the strides necessary at this time. I do not believe that the strategies which this Government have adopted during recent years have been suitable or have helped in this way. They have not, in their style of management, created that kind of hope and possibility for our people. For that reason I am glad to move this motion. If it does not have the effect of changing the mind of the Government in relation to the strategies, I hope it will signal to them that a great majority of the people want to see positive steps taken by the Government who went to see changes put in train and to see an end to the dismal policies which have been pursued in recent years.

I second the motion. I wish to start by dealing with the programme, set out by the Government almost 12 months ago, called Building on Reality. Coalition Governments have been in office almost uninterrupted for the past 16 years with the exception of a short period. The programme Building on Reality was produced by the Government at enormous cost and it was followed by a television debate. After a little more than a year I want to point out the difference between the targets and the actual position of that programme as it stands today.

The first subject on the programme was unemployment, the target for which was 210,000. However, the sad fact is that it now stands at 235,000. That does not take into account the 80,000 to 100,000 people who have emigrated. The exact figure is not known to us. My constituency of Galway West is devastated by this horrendous new emigration to various parts of the world. That is the first damning fact that this Government have to take on board.

The second target in that programme concerned manufacturing output. It was going to be up 36 per cent but in the first nine or ten months it is actually down 12 per cent. That is a very serious situation and one which has turned this Government upside down. The third target related to manufacturing employment. We had been given a guarantee that employment would be up by 13,000 but the correct figure is 7,000 people. There again is a prejudgment which has gone wrong. In agricultural output the target was 10 per cent but it is down 7 per cent. The agricultural employment target was not met and it is now down by 12,000. Construction output was going to be up 1.5 per cent but instead it is down 12 per cent. The construction employment target was 1,000 but in fact it is down by 7,000. I could go on and on. The programme, Building on Reality, was introduced two years before the election was to take place, as they said at that time.

I wish to make a few points about agriculture. The milk yield is down 7 per cent this year, costing us £55 million. A horrific fact has emerged today. We are 2 per cent under the quota allocation. What a disgraceful performance. It is horrifying to think that a nation of farmers — agriculture is our primary industry — are now producing 2 per cent less than our national milk quota. Following all the advice this Government got as well as that obtained by the Minister for Agriculture, here we are nine or ten months later being told that our national yield is 2 per cent less than what it should be. What fools we must seem in the eyes of the world.

In cattle disposal we are down 10 per cent, costing us £80 million. In pig disposal we are down 3 per cent plus a price decrease of 10 per cent which is costing the farming community £30 million. In grain acreage we are down 8 per cent with a yield of minus 10 per cent, costing us a further £30 million. At the same time the imported component in our feed sales are up 20 per cent, costing us a further £67 million. That is the state this country is in and it is the state of our majority industry, agriculture. The farming community are £150 million less well off in one year and in two years the agricultural community have lost £400 million. That is the state this country has been brought to by the Government. It is no wonder that there is depression in the streets, in the marts and in the marketplace.

I know that the Minister and probably the Minister for Agriculture will say it was the bad weather. The bad weather was responsible for a certain portion of it, but not for everything. Certainly the bad weather cannot be blamed for the disgraceful situation in the milk yield where we have 2 per cent less than our quota. Today the greatest problem facing every farmer, big, small or middle sized, mixed or specialised is a cash shortage. It is easy to say we have got inflation down to 1 per cent or zero per cent. That sounds lovely and is statistically fine. Of course it helps the nation. The tragedy is that on the other hand interest rates are at such an appalling level due to the cash shortage in this State, and due to the mentality of the people who do not want to invest under this Government that they have completely destroyed the aim of the Government to bring inflation down to a zero rate. The whole system of banking has to be taken on board and something has to be done about it.

I will give another example of this Government's inability to grasp the situation. The Taoiseach ran a race around the country recently visiting various constituencies. I was judging the constituencies from a marginal point of view and looking at them with a Fine Gael eye. I would say he spoke about the achievements of the Government in each of those constituencies. He said he had received, through the powerful negotiations of the Minister for Agriculture in Brussels, £100 million to deal with the bad debts of the farming community at 5.5 per cent standard interest rate. That was fine. May I ask the Minister for Finance, who is responsible for the finances of this country, what it did to solve the problems of the farming community from a financial point of view? Has this money been distributed in an equitable manner? Farmers in my constituency of Galway West queued at the banks and at the ACC offices in the hope of getting some of that £100 million. If you take it over two years it is actually £200 million. They were told that their debts were not bad enough in most cases.

I wish to have a query answered by the Minister for Finance, who is a responsible Minister. Is it true that if you live on the east coast, or in the south of Ireland if your debts are bad enough and if your credibility with the bank manager is good enough you qualify for the scheme? Was the money apportioned in a balanced way between people living in the west, the north west or in the northern part of this island? That is a very fair question. The farming community of Galway West will not agree that they got anything like a fair proportion of what was given to others in different areas.

If that is so it is a disgrace that this Government are not able to distribute the national cake in an equitable fashion to those who need it. Some people still believe they may yet be able to line up for this money. In any event, the amount of money received was ludicrously small. Therefore compensation was not given, or if it was given it was not given to my constituency of Galway West. That is a matter the Minister should take on board. The Government have let down the people of the west. That is another day's story. One could write a history about it. I will not go into it at present.

There are a few other cases against the Government which should be brought to their attention. Let me refer to the potato crop. Under the 1975 Coalition Government of which the Minister for Finance, Deputy J. Bruton was then a Minister of State, potatoes were fetching £170 per tonne. Today the price of potatoes is £110 per tonne. Taking the devaluation of the pound and everything else into account, is that fair? Do the Government care about a crop which is fundamental to the Irish people and has a historical background; a crop which has been a source of finance in the west down through the years. However, bad as the price may be, we now have inspectors telling the farming community in the west that they must register their tonnage themselves and print on the bag the grade of the potatoes; otherwise they will be liable to a penalty of £1,000. I do not disagree with grading. I do not disagree with achieving quality, but it is not achieved by putting posters in public places such as: "Government warning; watch out or you are dead". That is what is being done. In the wild west long ago if a man was wanted, a reward was given. That is typical of what is happening in the Department of Agriculture today. Yet last year the multinationals could offer for sale — this is public knowledge and this Government are responsible for it — Cara potatoes as Record potatoes. The significance of that is that Cara potatoes can be grown at approximately 24 tonnes to the acre whereas a Record potato can be grown at an average of 12 tonnes of saleable potatoes per acre. I am talking about an inferior potato being sold as a superior potato by the multinationals. When the inspectors were asked to check this we were told only circumstantial evidence was available to them. If they can harass the small farmers of my constituency of Galway West surely they can harass the multinationals as well.

Lambs fetched 55p per lb. last year; this year they are fetching 38p per lb. The Department of Agriculture told us last year that we should produce lambs at 80 lbs. weight. However, when we did that they did not increase the price to the level we were advised to produce them at. The price of an 80 lb. lamb today is £30. Is that the way to treat the farming community?

I will not refer to the beef situation. The devaluation of the Green Pound was a national scandal; it was to be devalued by 9 per cent, then 8 per cent and finally we were told publicly it was 6 per cent and would go directly to the farmer. On the day the Taoiseach told the farmers he was giving them a 6 per cent devaluation, the price of beef in any of the meat factories was 100p per lb. The price of beef today is still 100p per lb. Who hijacked the 6 per cent?

The Minister for Finance is responsible. The Taoiseach is responsible for guarding this State. Will the Minister tell us where all this hard earned money for the farming community has gone? They are robbed and crucified by the Minister's tactics. We heard at the Ard Fheis the Taoiseach criticised Deputy Mr. Charles Haughey who governed this State for two and a half years. In the past 16 years when Coalition Governments governed this State all we heard was hypocrisy and attacks on individuals but the Minister is not one who engages in this activity. The Taoiseach was a disgrace at the Ard Fheis in his attitude towards the people. Does he take the people to be fools? No, Sir. I assume they are not and they are awaiting to respond to the Government's attitude. The sooner they leave office the better for us all.

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"supports the handling by the Coalition Government of the economy, which has led to a dramatic lowering of the rate of inflation, a significant improvement in the balance of trade and a reduction in the Exchequer borrowing requirements as a proportion of GNP, and calls for the development of policies designed to further improve the public finances and to create opportunities for more employment."

While I am entitled to 15 minutes under Standing Orders this debate would be better structured if I sacrificed my time so that the Minister could intervene as soon as possible to answer the charges made against him.

I second the amendment.

When this Government came to office we were borrowing large quantities of money for new services and projects. In the past four years spending has been brought under control to the extent that virtually all our new borrowing is now confined to what is needed to service existing debt. In 1981 Government borrowing for new spending — i.e. non-interest purposes — was at 8½ per cent of GNP. It is now down to 2 per cent and, in accordance with the Government's 1987 budgetary decisions announced last week, will be virtually eliminated next year.

Preparations for the 1987 budget are well under way and the Government have already decided on the Exchequer borrowing requirement and current budget deficit within which the budget is being determined. The deficit for the year will not exceed 7.4 per cent of GNP and the overall borrowing figure will not be more than 11.8 per cent. The overall borrowing figure conforms to the guideline for the 1987 budget which is being recommended by the EC Commission in their recent annual report. The Commission also underlined the importance of taking account of the medium term dimension in framing budget policy for 1987 and this will be done.

The budget strategy for 1987 will require a significant curtailment of public expenditure and tough decisions will have to be made to operate within the parameters the Cabinet has set. Priorities between different areas of expenditure will have to be set within a predefined overall budget. The Government have reiterated their view that higher taxation is not an acceptable alternative because of the consequent damage to the economy. I want to issue a challenge to the Opposition parties, Fianna Fáil, the Progressive Democrats and The Workers' Party.

The Government have made a decision as to the current budget deficit and Exchequer borrowing requirement for 1987. I want Opposition parties now to say what their proposals would be for the current budget deficit in 1987, and for the Exchequer borrowing requirement. That is a simple question. I am not asking them to go into detail about specific expenditure and taxation measures. I am simply asking them to say "how much extra should we borrow as a nation next year?". Any party seriously seeking public support in this country should have no difficulty in answering that simple question. I hope we will hear an answer to the question from Opposition spokesmen in the Seanad today and tomorrow.

As I have said, the Government are on course virtually to eliminate borrowing other than for interest payments. It is worth comparing this with the approach of the main Opposition party who have initiated this debate in the Seanad today. Unlike Senators Smith and Killilea I do not have to, nor do I wish to, go back to 1972 when we had our first current deficit, nor to 1977. All I want to do is go back four or five months to April of this year. In that month Fianna Fáil at their Ard Fheis promised cumulative spending and tax reduction programmes amounting to £450 million. As no expenditure cuts were specified, one can only presume that this — on top of the borrowing that is already being criticised in this debate by the self same Opposition — extra £450 million would be financed by more borrowing. More recently we have had repetitions of these promises by the Leader of Fianna Fáil, Deputy Haughey. I have said before, and I repeat it now, these borrowing promises will push interest rates up even further. More Government borrowing means higher interest rates.

Fianna Fáil, as a political party, have tended in the past at least to have two great strengths. One of these strengths is their perceived appeal to nationalism in Ireland. People see Fianna Fáil as a party that stand strongly for national interest as against the interests of the wider world of Britain or any other country. The other strength of Fianna Fáil is their perception of being a party of the working people. This is something that dates back to the thirties. The party were then seen as defending the interests of manual workers against those with money.

I contend that the present policies of Fianna Fáil in regard to Government borrowing are directly contrary to these two basic strengths that underlie their own political philosophy. Present Fianna Fáil policy is against the interests and philosophies of their own supporters.

Let me explain why I make this statement. The more this country borrows the more it loses its economic independence. A country that has borrowed heavily must depend on the perception of it by its foreign creditors. It cannot afford to say or do things that will frighten foreign bankers. Thus its economic and its political independence is in a significant sense diminished by foreign borrowing.

An indebted country must also pay large amounts of money in interest. If international interest rates rise or fall, an indebted country's fortunes fall or rise in a reverse direction to the movement of interest rates. Thus a country, by becoming heavily indebted, becomes less economically independent and more subject to international financial trends.

A heavily indebted country has to send large amounts of its hard earned money straight out of the country to service debt. Ireland at the moment is sending out well over £700 million each year in interest on foreign debt. This is money that we should be using for job creation here in Ireland but we have to send it straight out of the country as dead money because of past borrowing and yet the Opposition party wants £450 million more borrowing on top of the borrowing already implemented. This is another way in which high Government borrowing is bad for national independence.

Some Senators, Opposition spokesmen and particularly the Leader of the Opposition, talk about the fact that there should not be an obsession with book-keeping, that there should be a developmental approach and there should be more imagination, all code words for saying, borrow a bit more, do not make the financial restrictions this year, put it off. Whenever people hear the Leader of the Opposition or other spokesmen for that party making that case about the need for creativity, developmentalism and avoiding an obsession with book-keeping, they should remember that lack of book-keeping compromised the national independence of this country, which is the very issue on which the Fianna Fáil Party, because of their interpretation of how that should be expressed, base their foundation as a separate political unit in this country. That is the true context within which this argument should be placed, a political one.

In these three ways our present level of indebtedness is strangling our national economic independence. Yet Fianna Fáil seem quite happy to contemplate further increases in the level of debt if this will gain political support for them in the short term. This is contrary to the political philosophy and nationalism of their own supporters. It in something that Mr. de Valera, Mr. Lemass and Mr. MacEntee would never have supported.

The high borrowing policies of Fianna Fáil are also directly contrary to the interests of working people who have been amongst their traditional supporters. High Government borrowing drives up interest rates. Who gains in this situation? Those who gain are those who already have money and can now invest it with high rates of return in risk-free Government bonds and accounts.

Those who lose in a situation of high interest rates induced by high Government borrowing are working people — PAYE payers trying to pay a mortgage which has increased because of the pressure created by high Government borrowing, people trying to establish a business which is strangled at birth because of high interest rates created by high Government borrowing. High Government borrowing makes the creation of jobs more expensive and makes money lying dormant in State secured bonds more remunerative.

The big losers when an actual debt crisis occurs — that has not occurred in this country at this time — are always the poor, not the well-off whose cash is mobile. This is evident in the world today. We have seen instances of this in other countries — for example, Mexico — which are in dire financial difficulties. The rich have been able to move their money out while the poor have had to suffer the consequences of a declining economy. So let nobody defend high Government borrowing on the basis that it helps the poor. The ultimate sufferers from the continuation of the present high levels of Government borrowing will be none other than the poor and the least well-off people of this community. They are vulnerable; they depend on the solvency of the State. It is in no way capable of being claimed that anyone serves the interests of the less well-off community in this country by maintaining benefits that we cannot afford to pay at the cost of increasing the level of national borrowing. Ultimately those who suffer most from an unsustainable level of borrowing are the very people one is intending to help.

No party which espouses the interests of less well off people could possibly therefore justify support for continued high Government borrowing. By their reckless and unfinanced promises, Fianna Fáil are turning their backs on the interests of some of their own traditional supporters, those who are least well-off in this community.

The Progressive Democrats, in their recently published taxation and economic document, are proposing some cuts in spending but these are not to be used to curtail borrowing. They are to be used for reductions in personal taxation. While this is certainly attractive electorally, the country simply cannot afford it at the present time. These cuts in taxation will tend to be spent on imports. Thus any stimulative effect from them will quickly leak out to help the economies of our trading partners, rather than ourselves. On the other hand the Progressive Democrats' economic policies will add further to our national debt and increase the interest burden that will have to be paid by Irish people in 1988, 1989 and subsequent years.

Let me illustrate why this is so. The Progressive Democrats are proposing tax cuts in 1987 amounting to about £200 million. They are proposing expenditure cuts in the same year amounting to about £250 million. Thus, virtually no contribution will be made to the reduction in the deficit. Their policy will, therefore, do virtually nothing to reduce the current budget deficit in 1987.

We simply cannot sustain this approach. It is not good enough for any Opposition party to ignore the 1987 budgetary situation. If the urgent obligation to improve the public finances is ignored, then we face borrowing hundreds of millions more than the Government's recent budgetary decisions of an EBR of 11.8 per cent and CBD of 7.4 per cent would involve. The annual cost of servicing this extra borrowing which is implicit in a policy statement published by the Progressive Democrats would be several million pounds. This would have to be met for each subsequent year and would represent a significant ongoing drag on the economy right into the next century.

The level of interest payments involved in pursuing the high borrowing policies of the Progressive Democrats will very quickly undermine the very tax reductions their policy is designed to achieve. At the moment we are in a situation where the entire PAYE income tax yield is used up in debt service and that is without any addition to our present borrowing level.

Under the high borrowing policies of both Opposition parties these debt service payments would increase even further. The result of this would be that, sooner rather than later, taxes would have to be increased again in order to pay the interest. The Opposition parties must realise that this country is on a treadmill because of its existing level of debt without adding a single penny to it. This now amounts to more than 140 per cent of GNP and is among the highest to be found anywhere in the world. Moreover at present, levels of annual borrowing are continuing to increase.

This situation cannot be allowed to continue. The upward trend in our level of debt accumulation must be halted and reversed. There is only one way in which this can be done and that is to cut the annual borrowing requirement as we have done since 1981 by some three percentage points of GNP, as the Government amendment points out.

In addressing the performance of the Government, it is well to consider in the first instance the situation which they inherited on coming into office four years ago. There had been years of over-spending and over-borrowing. The Exchequer borrowing requirement had reached an all-time high of virtually 16 per cent of GNP in 1981 and there was just a marginal decrease on this in 1982. We were in the grip of a severe international recession, a recession that has persisted much longer than we could have reasonably anticipated at the time. Our options were, therefore, on coming to office severely limited. While priority had to be given to lowering the borrowing requirement, it was necessary at the same time to minimise the consequent short term risks to employment.

The Government have been accused of failing to alleviate the problem of unemployment. This is just not so. When we came into office unemployment was increasing at the rate of 40,000 a year. In the past 12 months it has only shown an increase of 3,000 a year, less than 10 per cent of the rate of increase in unemployment when we came into office. However, the fact that there is any increase in unemployment is nonetheless at this time a great disappointment. It is due to a number of factors, including the continuing international recession and the impact of new technology on traditional jobs and the increasing number of new entrants to the labour market. But for the special measures taken by the Government by way of increased incentives and special schemes, the unemployment situation would be considerably worse.

It is fair to note that during the same period unemployment has been rising in other countries also, even in countries which have not had to cope with an expanding labour force as we have. The creation of more jobs must remain our central economic priority. This is a difficult task in a highly competitive environment, but there are solid indications that the situation is improving.

It is worth remembering that there can only be a solution to the job problem in Ireland if there is also a solution to the debt problem. Ireland's high level of borrowing has a negative effect on jobs. High Government borrowing has a negative effect on jobs because it means that virtually all income tax revenue is absorbed in debt service and thus it results in tax levels which actively discourage job creation.

High Government borrowing has a negative effect on jobs because it absorbs large amounts of domestic money in Government stocks and thus diverts funds from productive investment and the uses which would provide jobs — lending to the Government does not provide jobs.

High Government borrowing has a negative effect because it tends to push up interest rates, which makes investment in job creation less profitable and business prospects of survival considerably less rosy. High Government borrowing has a negative effect because interest on foreign debt takes revenues out of the economy, causing depressed living standards, depressed markets for goods and a consequential low profit profile of job creation projects designed to serve those markets. For these four reasons, there is no choice to be made between tackling unemployment and tackling the deficit. Both must be done together if either one is to be achieved.

The recent upward movement in interest rates has come as a disappointment and is a setback to our efforts to promote greater economic activity. The high level of general interest rates in Ireland is due, in considerable measure, to the level of Government debt and the consequent appetite of the State for funds but the rises in interest rates have also been due to factors outside the control of Government and have much to do with international developments. The volatility of sterling has created particular difficulties for us, difficulties which are entirely outside of our control.

Exchange rate stability is critically important for an economy such as ours which is so open as regards trade and other flows. It is difficult to achieve this stability when major currencies like sterling and the US dollar are very volatile. I have urged repeatedly that Britain should participate in the EMS exchange rate mechanism, but that is ultimately a decision for the UK Government. Our best approach is to maintain a stable position within the European Monetary System. We have now reached a stage where one-third of our trade is with countries participating in the EMS exchange rate mechanism and this proportion is growing.

The Government have made it clear recently that there will be no downward adjustment of the Irish pound within the EMS. The August adjustment was a once-off change which has improved the overall competitive position of Irish industry, particularly in relation to continental European countries. The Government are determined to maintain the current EMS parities of the Irish pound.

There have been outflows of funds from the economy, as reflected in the high level of the unexplained balance of payments residual. These outflows took place particularly in the first quarter of 1986 at a time when there was both speculation about an EMS realignment and a depreciation of sterling and the US dollar.

While, of their nature, it is not possible to identify the unexplained outflows, it seems that the bulk of them can be put down to leads and lags in trade payments arising from the exchange rate uncertainty. Given the continued uncertainty generated by the further fall in sterling and the dollar, these leads and lags have not yet been reversed and, if anything, have been intensified somewhat.

The assurance which the Government have given on the exchange rate should make it clear to speculators that they cannot hope to make gains by transferring or keeping funds abroad in anticipation of an adjustment in the Irish currency. Indeed it is worth noting that anybody who has tried to do this at any point since we joined the EMS got their fingers burned and they will get their fingers burned this time also. The relatively high domestic interest rates make such speculation more expensive at this stage. I expect that the combination of these factors will lead to an early inflow of funds from abroad.

High interest rates are not merely a problem for the business world. They are a problem for the average householder who has to meet higher payments and they add to the already crippling burden of interest payments on the national debt. We must continue to do all that is possible, within the limited scope available to us, to move back to lower interest rates with a minimum of delay. We have now moved into an era when real interest rates are positive; in other words, greater than the rate of inflation, this is a real turnaround from the situation of some years ago. Positive real interest rates mean simply that the amount repaid by a borrower is greater than the amount borrowed in the first place. Negative interest rates enjoyed in the 1970s meant the amount repaid by a borrower was less in real terms than what he or she had borrowed in the first place. This has changed. I think it has changed semi-permanently and it means that just as any householder has difficulties if he is a heavy borrower because of high real interest rates, so also has any country.

Probably the best way to understand what has happened to this country since 1980 in terms of the results of the increase in interest rates is its effect on what has happened to any borrower. The effect on their cashflow position as a result of interest rates being in excess of the rate of inflation, where they were below the rate of inflation in the 1970s, is exactly the same as the effect on the Government finances. People must understand that it is not the result of bad Government or good Government, imaginative or unimaginative Government. It is a result of a reality that is occurring out there in the marketplace which no Government can overcome on their own. We are not in the position of King Canute of being able to hold back the tide. The tide in this case is flowing against borrowers, whether they be Government borrowers or individual borrowers. The sooner one gets out of that situation the better, just as people realise that postponing doing something about a problem if one is a high borrower at a time of high interest rates makes the situation worse. Exactly the same logic applies to a Government of a sovereign country.

Let me conclude by referring again to the problem of employment. I invite Senators to look at what the Government have achieved in this area. When we came to office, unemployment was increasing at 40,000 a year. The increase is now down to 3,000 a year. Jobs are created by selling goods abroad. When we came to office the country had a trade deficit: in other words, we were selling less abroad than we were buying from abroad. Now it has a trade surplus. By selling more than we are buying we have established the right conditions for job creation. We can only create more jobs by selling more; we are now selling more than we are buying, exactly the reverse of the situation inherited by the Government in 1982. We have achieved this because we have cut inflation and thus improved our competitive position.

The Government have introduced successful and innovative schemes to help unemployed people back to work, for example, the enterprise allowance scheme, the social employment scheme and the teamwork scheme. They have given hope and challenge to thousands of people who would otherwise be unemployed. It is worth recalling that the OECD have asked this country to chair a special inter-ministerial study on special interventions in the job market because it has recognised that this country under this Government has done more in terms of special interventions to give unemployed people the chance of working themselves back into a full-time job than any other country in Europe or in the rest of the OECD. That is why we have been chosen to chair this committee that is being established to look at new ways of improving the labour market all over the world.

The Government have also overhauled industrial and tourism policies, publishing the first-ever Government White Paper on either of those major industries. We have shifted the emphasis in industrial policy to marketing of new technology and away from capital intensive projects which had been the practice before. We have dramatically cut VAT rates on tourism, thereby creating competitive conditions for job creation in that most sector, a sector that will be probably the most important sector in the economy of much of the world in the next century.

The Government have also greatly increased the incentive to work by introducing a family income supplement for low income families at work and adjusting pay-related benefits for those out of work. This has tilted the balance in favour of active pursuit of all available employment opportunities.

Much remains to be done. The biggest immediate challenge is the implementation of the budgetary decisions which will remove the greatest single threat to job creation in Ireland — unsustainable Government borrowing which causes high interest rates, an anti-employment bias in investment, a fear of future taxation and a general environment of uncertainty.

This is why I have asked Opposition parties to say where they stand on the 1987 Budget parameters. If there is a national consensus on this issue — on what should be the overall CBD for 1987 as a percentage of GNP and the overall EBR as a percentage of GNP — that, in itself, will give a major boost to confidence and investment in the country.

In 1982, in Denmark, that is what happened. Once it was made clear by the minority Government then come to office in Denmark — who incidentally are still in office there — that they intended to take the budgetary situation resolutely in hand, and it was equally clear that the Opposition were not going to attempt to defeat them for doing so, and that both Opposition and Government were taking their responsibilities to the nation seriously, and once it became clear that the problem that was creating uncertainty and overhanging the market with the fear of increased taxation and a fear ultimately of destitution for those who were relying on the State, as a result of the State being unable to meet its obligations — once that uncertainty was cleared away by the creation of a national consensus on the need to take action on the Government borrowing situation in Denmark in 1982, there was an immediate surge in investment and job creation which was quite out of proportion to the actual measures taken by the Government.

Denmark brought about a situation in which they simultaneously had the biggest reduction in the Government budget deficit and at the same time the biggest increase in employment in the entire Continent of Europe. There are many people in this country who say nothing can be done about the Government deficit because of the huge employment problem; if something is done about the deficit it will have a negative effect on jobs. The Danish case shows that is not true, that by tackling the Government deficit, the uncertainty about possible future taxation, a possible further increase in interest rates, possible better rates of return for money invested in gilts rather than into a productive project is removed, and people are given the sense of certainty and a sense of knowing where they are going, they are able to invest money to create jobs rather than creating money for doing nothing.

Essentially, if the Opposition parties in this debate can respond to the challenge I am putting to them by saying — having criticised the Government which they are perfectly entitled to do — what their budget deficit would be in 1987 and what their Exchequer borrowing requirement would be in 1987, if they are prepared to agree with the Government's targets or, better still, if they are prepared to say they would actually have a lower Exchequer borrowing requirement than we propose for next year, that will create in itself a sense of certainty in the community that this problem is going to be tackled over the next five years, no matter what Government are in office. If they continue to criticise the Government saying, as Senator Smith said, that they are in favour of virtue and against sin — that is about all he said — saying that they are in favour of more promises involving an additional borrowing of £450 million but at the same time condemning the Government's existing borrowing, refusing to say what their policy is on any subject because it might create public relations difficulties which would have to be explained by briefing afterwards, we will never get a sense of certainty in this country. We will continue with the destructive tit-for-tat approach to politics which has created an atmosphere of total unreality, and we cannot afford to go on with that.

I hope this debate will be one in which people on both sides of the House will face up to the fact that, no matter who is in office, we have a problem with borrowing and we as a country must solve that problem. Within this House or the other House we can have an argument, once we agree on a 7.4 per cent deficit, about where the reductions should be. One party might say there should be more reductions in education and another party might say there should be more in the health area. We can have lots of arguments like that; there is no difficulty with such arguments; that is what politics are all about. But all the parties in this House should at least agree on the overall parameters within which we are prepared to work. As long as the main Opposition party continue to deliberately dodge that fundamental question, we will never get stability in this country. We will not have an honest election whenever it occurs within the next 12 or 18 months because the Opposition party will not come out of their bunker as far as telling the truth to the people is concerned.

We have had the spectacle of the Opposition party trying simultaneously to say things that are directly opposite to one another. We read on the front page of The Irish Times on a date early in September — I will not go back to 1972 as Senator Smith did —“Mr. Haughey promises £200 million to the construction industry”. The following day on page three of the Irish Independent there was a briefing from the Fianna Fáil Front Bench that promises were out, that they were not making promises anymore. You even had the same thing in the one speech. In Cork, Deputy Haughey first of all promised to make an extension to the runway and promised to abolish the DIRT but in the same speech he said: “I never made an irresponsible promise in my life”. The man never made a promise in his life and yet he was actually making one at the same time. That suggests a degree of schizophrenia in the Opposition that is certainly not good for their health, and it is not good for the health of the country either. While my primary concern is for the health of the country it must be said that everybody who is responsible should have a concern, that all the parties who have and command considerable support in the country should try at least to face up to the fact that we are living in a real world at present.

We are not living in some sort of kindergarten where one can dream about what one would like to be the case without regard to what would have to be paid for. That is a stage in psychological development that most people pass at about the age of ten. That seems to be the situation in which the present Opposition are labouring. They are saying they would like to cut borrowing but they would also like to be in Government. Therefore, they are prepared to promise more borrowing even though they would like to reduce it. That approach will not get them anywhere and it will not get the country anywhere. It will not give confidence to the financial markets either. We had the spectacle of one of the spokesmen for the Opposition party trying to say on radio on the Friday following the Government's announcement on Thursday, that these measures would not work and that the markets were responding badly to them. In other words, that spokesman for the Opposition was deliberately trying to sabotage what the Government were trying to do to bring about a reduction in interest rates. For pure party political purposes he was trying to say that these measures were not going to work. He was trying to create a self-fulfilling prophecy to the detriment of the Irish people and — he hoped — to the advantage of his own party. That is the height of irresponsibility and it is an irresponsibility that derives from the schizophrenia that is at the heart of Fianna Fáil's attitude to our economic problems.

It is essential that they respond to the challenge I put to them in this debate and say what their deficit would be and what their Exchequer borrowing requirement would be next year. There is no problem about the books being unavailable to them. If they wish to see the books, they can see them any day of the week. There is no mystery about the books in this country. The information is either already published or available for publication at any time, and anyone who wants to see the books can see them if they feel they need to see them in order to say honestly what they believe should be done as far as the deficit in the Exchequer borrowing requirement is concerned. But, please, let us cut out the hypocrisy and, as an adult nation, face up to the problems we actually have in regard to our indebtedness as a people. There is no other way of doing it. There is nowhere as a nation that we can hide at this point and it would be a tragedy for the nation if the next election — whether in 12 months time or less or more — was fought again, as so many of them in the past have been, on the basis of slogans, simplification and the avoidance of reality. It may make life comfortable for politicians but it surely is extremely bad for the country. I hope that one result of this debate, which is a very timely one indeed, will be to put an end once and for all to that sense of self-delusion that has been the mark of much economic and political debate in this country since I became a Member of the other House in 1969.

Senator B. Ryan I think you have only four minutes.

I abstained once in my life on a vote in this House. I am very close to being put in that position again, largely for reasons connected with what the Minister had to say about the nature of the non-economic policy, or the economic non-policy, of what purports to be the alternative Government in this country. There is much the Minister has said that I have disagreed with totally, fundamentally and, I think on a few occasions in print, fairly colourfully. There is very much, I am sure that he both intends to do and aspires to do on the economic front that I will disagree with even more vehemently, and hopefully even more colourfully if I get the opportunity.

The Minister has addressed the fundamental political problem which underlines the country's economic problems, which is that the party who claim to be the alternative Government will tell us nothing about what they are going to do, will tell us nothing about what their future will be, and will effectively attempt to satisfy a range of public opinion, ranging from people like myself on the left to people perhaps even to the right of the Minister. That is covering a fairly wide political spectrum, without any offence to the Minister. They will attempt to——

May I say that is what other people have said about me. I have never admitted to any such accreditation.

The problem with this country at present is not an economic problem but is a political problem. It is a political problem based on an unwillingness to face realities. The realities are considerable and extensive, but to listen to the Fianna Fáil spokesman in this House — a party which traditionally has aligned itself with the weak and the vulnerable in our society — commit the Fianna Fáil party, as a first step towards remedying our problems to abolishing the first piece of decent capital taxation this country has introduced in 15 years, suggests to me that not only are Fianna Fáil out of touch with reality but are out of touch with their roots and history.

The idea that the DIRT tax, however clumsily it may have been implemented with regard to the savings of some small people, is somehow the cause of the flight of capital from this country or is the cause of the country's present economic woes, is such an extraordinary conclusion that it defies belief. What is even more extraordinary is the degree to which the Irish economic, industrial and financial establishment have latched on to the DIRT tax as the cause of all the country's problems with a view to having it abolished. This, I think, is eloquent testimony to the effectiveness of the DIRT tax in compelling a section of our society to pay in taxation a reasonable share of their income from investment which they had managed to avoid on a grand scale for a considerable part of the last 20 years. It is, therefore, welcome. It is a dreadful commitment by Fianna Fáil, who in the words of their deputy leader claim to be a left-of-centre party. Yet, the very first thing they are going to do is to abolish a tax which compels people to pay tax on the interest on their investments in the way the rest of us pay tax on our earnings which we get for what we call work.

Will the Senator move the Adjournment of the debate?

Debate adjourned.
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