(South Tipperary): To revert to the matter mentioned by the Parliamentary Secretary, I cannot blame the Parliamentary Secretary but it is rather extraordinary when we have been speaking about entering the Common Market since 1961, which in itself would entail some redundancy and some rehabilitation training, that, now, in 1965, we have the first effort being made by the Government to do something on this important matter and that up to the time the Parliamentary Secretary made his intimation last May, it would appear no steps were taken on this important matter.
As regards the economic circumstances in which we find ourselves, it would appear from the Taoiseach's statement that our difficulties largely stem from a trading imbalance, in short, a fall in exports and a progressive increase in imports, and that the difficulty was aggravated and triggered off by a recent cash outflow and a fall in our bank reserves.
I do not think the British levy of 15 per cent, afterwards reduced to ten per cent, can have made the very great difference which the Taoiseach would like us to gather. I feel that the primary difficulty lay in our trading position, and that was due to an aggressive policy of inflation deliberately pursued by the Government. If we had attempted to keep inflation under control and to keep the cost of commodities at a lower level, we would not now be whining so much about the difficult situation in which we find ourselves but would be in a far better competitive position as regards exports and international trade.
We are now facing a hairshirt policy, judging from all the recommendations mentioned by the Taoiseach. We are all being asked to tighten our belts. I notice that even in our capital expenditure there is to be a curtailment of somewhere about £8 million. I have not the advantage of having had a look at the Taoiseach's speech as only a couple of copies were available and I am compelled to rely on notes which I took down in very bad writing and which I now find it difficult to read, but I understand that building, agriculture and telephone expenditure are to be particularly curtailed.
I am particularly interested in any curtailment of agricultural credit. As Deputy Collins and the Parliamentary Secretary mentioned, agriculture is still the sheet anchor of our economy. Without denying the great importance of expanding our industrial arm, we must all realise that agriculture is the one export on which there is very little corresponding import expenditure. Beyond importing a few prize animals annually and some machinery, there is no great strain on our economy to produce agricultural export goods, particularly in the field of cattle, sheep and so on which we feed off grass.
Agriculture is, and will remain, a fundamental primary part of our economy and one we can always depend on for exports without any corresponding load of imports to meet. When we come to the industrial arm, we are faced with a different proposition because we have to import increasing quantities of goods. Any aid that we give to agriculture is something that, in the long run, we cannot afford to neglect.
Despite the rosy promises by the Minister for Local Government here the other day when he introduced a large Housing Bill, I feel that we are going to have a serious curtailment in the building of private houses. We are face to face with a balance of payments problem, and if any of us set out to build a house tomorrow, there are certain articles which must be imported, certain piping and cement. When the house is completed, we have to put in a refrigerator, perhaps an Aga cooker, perhaps beds and wardrobes. All these have to be imported either completely manufactured or in various stages of assembly, and when the house is completed, we cannot export one slate out of it. There is no export side to housing.
Building has a large employment content and all the men employed in it are using autocycles, motor cars or bicycles. In their homes they have wireless sets and television sets and all these articles have to be imported. When it comes to building, you are tying up a large number of men and importing a large amount of material and there is no export side to it. Any Government, faced with an imbalance of trade and a consequential imbalance of payments will, of necessity, no matter what they may promise, quietly issue instructions that house building has to be slowed down.
This Government have the example before them of the last inter-Party Government who, perhaps, built themselves out of office. Deputy Dillon said today that he was proud of that, that they had built so many houses that there were not enough people to live in them. This Government, seeing what happened to the inter-Party Government, slowed down housing, particularly local government housing. And if they did not build houses during the past five or six years when they could reasonably be expected to do so, how can you expect them to build them when faced with an economic crisis?
These things should be said so that we will be alerted to these matters in the future and prepared to force the Government to get back again to the building of houses for our people. It is easy to issue good economic statistics if you allow the people to remain in the slums. On the other hand, if you make an effort to get them out of the slums, you may get yourself out of power. That is what happened to the last inter-Party Government. I feel, in view of this, that the elaborate Housing Bill produced here a few days ago will not give us houses.
I was a little amazed by the sudden change of economic front in our society here. We had our general election day on 7th April. We had Budget day some time shortly after that. There was no indication before the election, there was no indication on election day and there was very little indication on Budget day, that anything serious was amiss with our economy. At every polling booth, we had misguided youths going around with the slogan: "Let Lemass Lead On". This was the atmosphere of euphoria which was built up to the time of the election.
I find it hard to believe that the Government were completely unaware of the darkened horizon, of the economic threats that were facing us. Suddenly, on 13th July, they have discovered that drastic measures must be introduced to correct the economy. I find it hard to believe that all these things happened so quickly. I feel that we have not been told the true story, that the Government did not take the people into their confidence until they were securely in the saddle of office for four or five years.
I said in the beginning that our economic difficulty is primarily a trading one, that we have priced ourselves out of the markets by a deliberate policy of inflation. It began two years ago. If there is a point of beginning or a point of departure, I would put it down as the Budget day of 1963 when the 2½ per cent turnover tax was first introduced. We can all recall the stormy scenes in this House during the debate on that tax. We can recall the reaction of the general public afterwards and we can recall the Dublin North-East by-election of May 29th fought primarily on the issue of the turnover tax and which resulted in a resounding defeat for the Government.
In February of that year, the Taoiseach issued the White Paper Closing the Gap and it bore many similarities to the speech he made here yesterday —the same difficulty that beset us in February, our expenditure had run ahead of productivity. Following that, which was interpreted by many as the sounding board of a pay pause, following the Budget of 1963 and following the loss by the Government of the Dublin North-East by-election, two things happened: on October 11th, 1963, Deputy Galvin died and exactly a month later, on November 11th, the Taoiseach announced that the gap between output and earned income had now closed. The gap that was or was not there had now been closed. The red light of February had become the green light of November. In a relatively short period, our economy had so improved that the Taoiseach was saying: “Come on, boys; let's have a `beano'.”
On November 13th a Labour motion to issue the writ for the Cork by-election was defeated in this House, as the machinery had not yet been put right to fight a vital by-election. On December 4th Deputy Norton died. It was now obvious to the Government that two by-elections were impending and could not be avoided any longer. Therefore, in January, 1964, the 12 per cent wage agreement was entered into. The 12 per cent wage agreement which was agreed at the time was in excess of what the economy could reasonably be expected to stand.
The Minister for Transport and Power, speaking today, sought to imply that this agreement was not initiated in any way by the Government. Let us not forget that in relation to these negotiations the Taoiseach asked the Irish Congress of Trade Unions and the Federated Union of Employers to sit around the table for the third time after negotiations had broken down twice, because it was vital for him to get a national wage policy agreement in order to buy back the popularity which he had lost over the turnover tax. We can all recall that, coming on Telefís Éireann at the time, he said to the people: "You will all get a 12 per cent increase in your salaries or wages. You will have a bigger pay packet on Saturday night. Every trader will have more money pouring over his counter. And what is wrong about that?"
The majority of the voters in Kildare and Cork thought there was nothing wrong about it. At the same time a Telefís Éireann commentator was unleashed in the streets of Cork to ask passers-by how they liked the prospect of their new increase in salaries and wages. The Taoiseach apportioned to himself so much credit for that wage agreement that Deputy Tully, who was the only member of this House to participate in those negotiations, felt that the Taoiseach had appropriated too much credit to himself. Now it is a dirty word. Now all the economic difficulties in which we find ourselves are attributed to this 12 per cent wage increase. The Government, the Taoiseach and the Miniister for Transport and Power are very ready to run away from it, having used it to dupe the people of Kildare and Cork and win two by-elections which were vital to the Taoiseach's political existence.
Let us not forget that that agreement meant the disbursement of £40 million to 350,000 people, and that local authority expenditure in 1964 increased by £17 million. When that quantity of money is unleashed in the community and the community is supplying the same quantity of goods and services, it means that a vastly increased quantity of money is chasing the same quantity of goods and services. That is inflation. That means that our competitive position internationally declines. This is all the more objectionable and all the more contemptible because of two things: first, it was done not to get over a national crisis but for the purpose of fighting two by-elections; and, secondly, it was deceptive in so far as not the slightest attempt was made to control the purchasing power of the extra money which the people received.
If we expect the labour side, wage and salary earners, to be amenable, surely we have a duty, having given them an increase, to make some attempt to preserve its purchasing power? I do not by any means wish to minimise the difficulties which I understand are attendant upon the matter of controlling prices, but one must certainly raise the question as to why no attempt whatever was made to control prices. The National Wage Agreement consequently could not be expected in those circumstances to produce the results we should all have liked to see accrue from it. But that is not the whole story.
Further inflationary efforts, too numerous to catalogue, budgetary and extra-budgetary, were deliberately put in train by the Government, again gravely prejudicing our position in the field of international trade. If we cannot produce in competition, then we go to the wall. Remember that at the same time as these measures were introduced, there was a lowering of tariffs and a 20 per cent increase in the import quota from 1st January, 1964. There was an increase retrospectively in corporation profits tax in the 1963 Budget. There was a 2½ per cent turnover tax, a 12 per cent increase in wages, and mounting rates. There were budgetary increases in two successive years on beer, tobacco and petrol. There were extra-budgetary measures in relation to telephones, postage, insurance stamps, et cetera. It is a long litany and I do not propose to weary the House by reciting the whole of it. The increases were all inflationary in character and all calculated to bring us into the mess in which we now find ourselves.
I have no hesitation in laying the blame for this fairly and squarely on the Government and particularly on the Leader of the Government. I have no doubt that the Taoiseach's management of the economy has caused stresses and strains within his own Party. That was evidenced by the fact that one of the members of his Cabinet was constrained to resign. I said earlier that I find it difficult to understand how this particular situation in which we now find ourselves arose so precipitously. At the time of the Budget, or just before it, we had issued to us a Progress Report on the Second Programme for Economic Expansion. This report gives some of the projections for 1965. It says in the Preface:
The projections for 1965 set out in the first part of the Report were prepared by the Department of Finance in consultation with the Departments concerned, the Central Statistics Office, the Central Bank and the Economic Research Institute.
A draft of Part I was made available to the National Industrial Council so that its views could be formulated and made available to the Government prior to the Budget. The Council's views are published in a separate report.
This booklet was prepared by the best economic brains presumably in the country. It gives the outlook for 1965 and the information given here seems to be at complete variance with the information given to us by the Taoiseach yesterday. I do not know how exact a science economics is, but, if this is a sample of it, then it must still be a very inexact science indeed. We have never pretended in the medical world that ours is an exact science. We call it a combination of natural sciences but there are, at least, some scientific aspects to it. We are sometimes right. If this is a sample of the economists' science, either we are being deliberately led up the garden path or the prognostications of these specialists leave very much to be desired.
On page 28 of this document it is stated:
...deficit of £30 million in balance of payments, based on projected increases of approximately £20 in both exports and imports of goods and services.
That is the prognostication given for this year at the time of the Budget by all the authorities I have quoted. Our exports are to go up by £20 million, our imports likewise, and our balance of payments deficit will remain round about where it was last year, at £30 million.
The Taoiseach came into the House yesterday and gave us the trading figures for last year. He told us that our balance of payments, instead of being likely to be of the order of £20 million or £30 million, would be £50 million at least for the present year. This is within a couple of months of this advice to which I have referred being prepared by these various experts. He told us that for the first six months of this year our imports have gone up by £16.2 million and our exports are down by £9.1 million. Our exports were less than half the value of our imports. There is an extraordinary discrepancy between what this report said was likely to happen two months ago and what the Taoiseach told us yesterday is happening now.
I may mention that in dealing with this balance of payments question which they originally said would be £30 million, we find a comment on this matter by the National Industrial Economic Council. It states on page 6:
In terms of constant 1960 prices, the average of the deficits during 1961-4 has been above the figure of £16,000,000 for the current deficit envisaged for the period of the second programme.
It goes on to state, as regards last year, that
...if the terms of trade had not significantly improved in 1964, the current deficit might well have been about £6,000,000 larger.
According to NIEC, £16 million is the figure we should aim at as an average deficit until 1970: yet we are now facing a figure of £50 million. According to the people advising us in this document a couple of months ago, our balance of payments deficit would not be more than £30 million. Either there is some serious error in assessment or the picture is not being presented as accurately as it should be presented.
We are all aware that there has been a considerable capital inflow over the past few years and again the Progress Report for 1964 states on page 33:
The projected deficit of £30 million in the balance of payments is likely to be covered to a large extent, if not entirely, by a continued net inflow of capital. Any drawing upon the external reserves, which have been rising in recent years despite a current deficits on external account, is likely to be small.
Apparently the outflow of capital was not foreseen or at least its possibility had not been adverted to in this Report. We had a net capital inflow in 1964 of £36 million, and if my notes of the Taoiseach's speech are correct, I gathered from him that the anticipated net capital inflow in 1965 would be £25 million. Either the Taoiseach is wrong or this is wrong. It seems extraordinary, having regard to the nature of our economy and knowing how mercurial cash inflows can be, in view of the political situation on the other side of the channel that there seems to be an extremely sanguine approach on the part of our economic advisers to think, as they have said here, that the projected deficit of £30 million—the deficit projected by them —in 1965 was likely to be covered to a large extent, if not entirely by a net inflow of capital. If the Minister for Industry and Commerce or I in our professional capacities were guilty of a series of prognostications as valueless as these, we would not long remain in practice.
The Report goes on to deal with external reserves in the terms I have already read out: "Any drawing upon external reserves which have been rising in recent years despite current deficit on external account, is likely to be small." The Taoiseach adverted to the serious position now obtaining as regards our external reserves. Again, I could not gather quite clearly from him what the exact figures were and Deputy Sweetman who had a printed copy of his speech, speaking here today seemed to be in the same difficulty. Speaking from memory, I understood that in reply to Deputy Lynch, it was stated that our external reserves had fallen £25 million over the past six months. The Taoiseach did mention a figure of £33 million for a fall in external reserves but I do not know over what period or whether it is over a period of 12 months. Deputy Sweetman mentioned that at mid-May of last year our external reserves amounted to £230 million and that at mid-May, 1965 the figure was £208 million. That would be a fall of £22 million. Perhaps the Taoiseach is relating his £33 million to a calculation based on the first half of this year.
The Taoiseach mentioned the Consumer Price Index and personal expenditure. He dealt heavily with personal expenditure. He gave various yardsticks by which personal expenditure might be measured: we were importing too many motor cars; the yield of turnover tax was up by 14 per cent; we were spending more across the counter; hire purchase debt was up 20 per cent in 1964 and showed a sharp rise in the first quarter of 1965; our bank lending was up by £10 million in 1964 and £23 million in the first five months of this year; we are smoking and drinking more; our savings are falling; we are not buying enough Prize Bonds and Exchequer Bonds to please the Taoiseach; our imports of finished consumer goods are rising, and retail sales are up ten per cent. Yet on page 29, paragraph 71, of this report it is stated:
It is expected that the volume of personal expenditure will rise in 1965 by about the same amount (4 per cent) as in 1964. The rise in prices is likely to be much less this year. The index of consumer prices at mid-February was I per cent above the mid-November, 1964, figure mainly because of higher meat prices, but any further rise in 1965 is expected to be slight.
This statement is completely at variance with the statement by the Taoiseach and with the facts as we know them here. We are told that personal expenditure should be less in 1965 than in 1964.
I find it difficult to understand the statement made here today by the Minister for Finance that for the first four months of this year the amount of credit made available by our banks was higher than for the first four months of 1964. I do not know whether that is credit made available to the Government or whether it includes the private sector. I find it hard to follow the Minister's statement as to borrowing abroad. Am I to understand he has already attempted to borrow from the International Monetary Fund or some other source? What kind of reception did he get? I gather from his speech he has already made overtures to international sources and has got the proverbial widow's mite. When we speak of saving and expenditure, it is hard to reconcile that economically with a desire to borrow further. Borrowing is merely a temporary expedient to replace cash outflow. In the long term, it might be better if we did not get any money. I cannot help feeling — I am not an economist—that some more money in the Taoiseach's pocket will merely stimulate the rake's progress. Maybe we should come to terms with the hard fact of the situation that the spending spree is over.
Again, this report mentions very optimistically that, if there is no further rise in import prices and no significant wage drift, some reduction in industrial prices should be possible in 1965. That is the loveliest statement of all. If this economic council in its advice to the Government can foresee a reduction of prices in 1965, pray, what is the purpose of introducing a prices control Bill into this House? It is very difficult for Deputies confronted with information of this sort coming from the highest and most reputable sources. It is very hard to reconcile it with the statements and circumstances as presented here by the Taoiseach.
It seems abundantly clear that in the very beginning of this year—and certainly after the trade figures for the first quarter became available when our imports had increased by £5.8 million and our exports dropped by £5.8 million—there was no justification for the semi-optimistic projections embodied in this report. Whether the Minister and the Taoiseach were generally aware of the difficulties ahead, as they should have been, one thing is clear: they were kept very carefully from the people. They were not allowed at any stage to mar the clarion call of "Let Lemass Lead On."
I should like the Taoiseach to give us a little more detail as to how this Prices Bill he is sponsoring will operate. It may be that during the Committee Stage he may give us more information. I should like to know in particular if this tribunal will be a public or a private one and if there will be an appeal from it. No one has any sympathy with a trader who may be trying to secure extortionate profits but, at the same time, we would not like to feel that any trader would be at the mercy of a single tribunal and be deprived of some sort of appeal.
I would ask the Minister whether if he finds that this Bill is not effective, he will be prepared to introduce a fully fledged prices-income policy. I must express a certain amount of doubt as to whether, in the absense of some such development, we can ultimately secure long-term industrial peace. I was disappointed to hear Deputy O'Leary express doubt as to whether good industrial relations could, in the present temper of workers and wage earners, be reasonably implemented. However, I wish the Minister every success in the difficulties which undoubtedly lie ahead of him. While I do not hesitate to blame his Government and particularly his Prime Minister for the difficulties in which we find ourselves, I can assure him that he will receive the fullest co-operation from this side of the House in any efforts he may have to make in future to establish good industrial relations in our society.
Notice taken that 20 Members were not present; House counted, and 20 Members being present,
