I do not think anyone would seriously disagree with quite a large part of the Taoiseach's speech here this afternoon. I listened to it fairly fully and I felt that many of the arguments which he advanced were arguments which would secure general agreement, but it occurred to me that many of the Fianna Fáil Deputies who flocked into the House to hear the Taoiseach must have felt a little confused at times. They might have been forgiven for thinking that they had possibly wandered into a discussion at the Policy Committee of the Fine Gael Party. I certainly would have sympathised with the feelings, for example, of a person like the Minister for External Affairs on a visit to this country to find, when he comes into the Dáil, that the Government are solemnly asking this Assembly to give formal endorsement to Fine Gael policy which was so derided some months ago.
The Taoiseach, in part of his speech, painted a sombre picture for this year. If I heard him correctly, he argued that, so far as the present year is concerned, it would be difficult enough to hold the present level of employment. He pointed to the fact that there was already a perceptible drop in employment and he suggested that the significance of that should not be lost on the House. He made the case that it would be hard enough to hold the present level of employment and the present standard of living. I think I am quoting him correctly when I say the case he made for the present year, 1966, was that that was all it would be reasonable to hope for, that we should hold the present standard of living and the present level of employment. That statement coming from the Taoiseach certainly paints a very sombre picture. It is quite clear that the airy-fairy type of confidence we heard in this House and elsewhere from Fianna Fáil spokesmen in the past few years, has now been replaced by an atmosphere of gloom and despondency.
We are entitled to examine the causes of that. It is clear that the country is now experiencing a most serious economic situation. Possibly it is no exaggeration to say we are going through now, and have been for the past six or eight months, one of the most serious periods of economic difficulties the country has faced for very many years. I do not think that Deputies, no matter what Party they represent, should approach the present economic situation by taking too pessimistic a view. I have no confidence in the present Government but I have confidence in the basic soundness of the Irish economy. Many people will find it hard to understand why the picture now being painted by Government spokesmen has changed so quickly from the rosy picture we were so accustomed to even a few months ago. Why, when a comparatively short time ago everything in the garden seemed to be rosy, have we now such a dramatic change for the worse in the picture presented by the Government?
I am not, and do not pretend to be, an economist and I find it just as difficult to understand that dramatic change as do the ordinary people who are seeing the picture painted by Government spokesmen now and comparing it with the picture painted only a comparatively short time back. It is important that we should all, as far as possible, endeavour to understand what has gone wrong and, understanding it if we can, that we should endeavour to see that the Government do what is necessary to put things right.
I think there is general agreement that there are some obvious causes for the present difficulties. First, we have a near-disastrous deterioration in the balance of payments position; a deterioration brought about by a fall in exports and an increase in imports. In addition, there has been a sharp, steep rise in the cost of living and in prices. The Taoiseach expressed the hope today that price stability may have been reached but certainly in 1964 and 1965 there was a sharp increase in the cost of living and a steep increase in prices. In addition to the balance of payments difficulty, the rise in the cost of living and rising prices we also had a slowing down in industrial output.
Different causes have been given for the balance of payments difficulties. We all know, because it has been stated so often, that there was a fall in cattle exports and if the sole reason for the balance of payments position was the decline in exports of cattle and beef which might be temporary and could be remedied, we would all agree that the prospects might not be quite as gloomy as they appear to be and even the picture the Taoiseach painted today might not be quite so black. I think there is also agreement that in regard to the balance of payments difficulty the trouble runs far deeper and it is not accounted for entirely by a deterioration in cattle and beef exports but, in addition, the momentum in the export of manufactured goods has been slowed down or lost. The British surcharge obviously had some effect and the Government are entitled to say that was something over which they had no control. That is true to an extent. It was true up to last month or so when our negotiators were negotiating a trade agreement with Great Britain. Certainly, I am not satisfied that our negotiators should have come home without having negotiated as part of their arrangements with Great Britain, that the British surcharge should cease to have effect in respect of this country.
However, undoubtedly the British surcharge had an effect. In losing the momentum in the export of manufactured goods a very definite part was played by increased costs of production here and because of this we lost our competitiveness in manufactured goods. I do not think it can be denied that this loss was in turn caused or partly caused by the imposition of the turnover tax by the Fianna Fáil Government some years ago and by the injection of the 12 per cent wage increase into the economy.
On the question of the balance of payments, there is, on the one hand, the fall-off in exports, the drop in cattle exports and the slow-down in the export of manufactured goods. On the other side of the coin, there has been an increase in imports. Here again, I believe that this is partly due to loss of competitiveness of Irish manufactured goods as against imported articles. For quite some time there has been in operation a Buy Irish campaign. I do not know if members of the House or of the Government regard that campaign as having been successful but there is no reason why it should not succeed, if the Irish commodity was competitive as against the imported commodity, but because we have priced ourselves out of the market and because we have lost our competitiveness and because that was due in part at least—and I believe in great measure—to the policies pursued by the Government, we have this increase in imports of manufactured goods. I agree that the increase caused in that manner, taken as a percentage of the whole, is probably not a great deal but it is significant.
The greater part of the increase in imports was caused by increased imports of capital equipment and material for use in Irish industry and agriculture. That type of import is one which in certain circumstances certainly is desirable. If we import the sinews of war, so to speak, the equipment and the material that are necessary to give greater efficiency to our industrial effort and to our agricultural industry, which in turn results in greater production, then that type of import is desirable but only providing we are in a position to pay for it by increasing our exports. We have fallen down so far as that aspect is concerned. The increase in capital equipment, the increase in consumer goods, have taken place but we have not been able to pay for them by an increase in exports.
It was, perhaps, unfortunate that at the same time as we were faced with these difficulties—the increase in prices, loss of competitiveness, balance of payments difficulties, reduction in exports, increase in imports—there was another factor which played its part, that was the severe reduction in the rate of inflow of foreign capital into the country but, so far as the inflow of capital into this country from outside was concerned, I do not think the Government were ever entitled to assume that the inflow would continue at anything like the same rate as existed in 1964. I think I am correct in saying that in 1964 the inflow was in the region of £36½ million —a figure which was very considerably higher than what was regarded as the normal. If the Government based any of their calculations on that inflow being maintained into the year 1965, 1966, and so on, then I think they made a serious miscalculation. There were factors there which could mark out 1964 as an exceptional year for the inflow of foreign capital. The Taoiseach himself has said that the figure of about £25 million is a figure which could be regarded as a reasonable normal figure to expect. However, the fact that between 1964 and 1965 there was a drop in the inflow of foreign capital again added to the difficulties particularly coming at the same time as a very serious worsening in the balance of payments position.
As I see it, those are the salient features in the malaise affecting our economy at the moment. I think we are entitled to inquire why that has come about before we examine what steps the Government are taking to deal with it.
The Minister for Finance, when he occupied his previous post as Minister for Industry and Commerce, was quoted in the Irish Times of Friday, 2nd April, 1965, as saying that the management of a country was like the management of a business; if they were well managed they would succeed and prosper; badly managed, they would lose money and fall into debt; that the shareholders in a country were the people and the management was the Government.
I think it is fair to take the test which was set as recently as April last by the Minister for Finance and to test the position in this country against those measures and standards which he then laid down.
Measured against that test, what is the position we see in the country today? Many of these matters that I propose mentioning were already referred to by the Taoiseach here this afternoon. Possibly the most immediate matter for concern, the thing that will strike people immediately when they start thinking of the picture presented by this country at the moment is the degree of industrial unrest, of strikes and of threats of strikes. At the moment we have the dock strike. Over the past months we have had a bread strike, a newspaper strike, the maintenance men's strike, the Irish Telephonists Association strike and a threatened subpostmasters' strike and I am quite sure that does not cover the entire list. We are presenting in this country that picture of grave industrial unrest.
A second thing that springs to my mind is that we introduced here prices legislation within two or three months of a declaration by the Taoiseach that it would be only in abnormal circumstances such as prevailed in the last war or where the situation was clearly out of hand that his Government would think of extending Government controls in this way even as a temporary device. The Taoiseach made that declaration. I think I am giving a fair summary of it. He made that declaration when he was speaking in this House on 13th May last on the General Budget Resolution. Yet, within two or three months of that the Government introduced price control legislation into the House. Surely, if the Taoiseach's statement of May last is to be taken seriously, that is an acknowledgment by the Government that they regard the situation as having gone completely out of hand?
I have already referred to the deterioration in the trade balance, to the fall in the net capital inflow, to the increase in imports and the fall in exports. There was also a fall in external reserves of £34 million in the first half of 1965 and—a very serious position so far as the economy of this country is concerned—there was a fall in personal savings and a rise in personal consumption expenditure. There was a fall in the rate of industrial production and, as the Taoiseach mentioned here this afternoon, there was an, admittedly, if you like, gradual, rise in unemployment but, as he said it was a significant matter and one which we cannot overlook.
We have in operation a tight credit squeeze affecting practically every type of business and enterprise in the country and we have all over the spectre of fairly rampant inflation. Taking the test laid down by the Minister for Finance when he was Minister for Industry and Commerce, speaking in April of last year, I do not think any spokesman for the Government can claim that we have here, on that test, a country that is well managed, succeeding and prospering. The second part of the test the Minister applied was that, if the country was badly managed, it would lose money and fall into debt. We are, I think, entitled to see how we are faring on the second leg of the Minister's test.
The Irish Banking Review in its issue of December, 1965, refers at page 5 to what it regards as a trend in the wrong direction:
A further trend which is in the wrong direction is the change in the relative amounts of credit afforded to private and public borrowers. Whereas the percentage of total credit advanced to most classes of private borrowers decreased this year—
They are talking about 1965—
the percentage to public bodies increased by 26 per cent and to Government by 19 per cent.
Later on it comments that the growth in Government borrowing from the banks reflects the financing of a larger overall budgetary deficit.
On the second test, therefore, which the Minister applied in April last, we are faring just as badly as we did on the first leg of the test.
Another matter which will give rise to a certain amount of concern and create a certain amount of uneasiness is, I think, the fact that there was a noticeable fall in the prices of securities on the Dublin Stock Exchange. Now this is the kind of picture that faces us when we are discussing the economic situation and the two motions on the Order Paper. This is a really deplorable picture of the national economy in less than 12 months from the time when the Taoiseach was telling the country we were entering on a period of great opportunity and warning the voters during the general election campaign that, when Fine Gael were previously in Government, credit had dried up, business enterprise was subject to credit restrictions and thousands of people had lost their employment. What is the position today? You have credit drying up. You have the credit squeeze. You have credit restrictions. You have, as the Taoiseach himself acknowledged this evening, a rise in unemployment already becoming apparent.
During the time about which we are talking, there was an increase in industrial production. What is vitally important and what cannot be overlooked in talking about the economy is the fact that, while industrial production did increase, there was, as I mentioned earlier, this slowing down in the rate of growth. This trend became apparent in 1964 and continued on into 1965. According to the figures I have seen, in the March quarter of 1965, production increased by approximately four per cent over the March quarter of 1964. That has to be compared with an increase of about 11 per cent as between the March quarter of 1963 and the March quarter of 1964. You have, therefore, the vitally important fact that there was that fairly radical slowing down in the rate of growth. You have also the fact that there was a slowing down in the volume of retail sales.
I said earlier that this discussion must be somewhat confusing to some of the Fianna Fáil Deputies who have been taking an interest in it. One of the favourite gambits of Fianna Fáil spokesmen when we are discussing economic affairs and, indeed, most other matters in which their proposals are under investigation or subject to criticism, is to look across the House, and ask: "What is the alternative, what are your proposals?" When the Taoiseach was engaged some eight or nine months ago in knocking Fine Gael proposals for an incomes policy, I wonder if he had asked himself what is the alternative at that time, would it ever have occurred to him that inside nine months he would be coming into the Dáil and saying, in effect, that there was no alternative but to accept the Fine Gael policy for prices and incomes? He is probably blessing his good fortune that he is able to hang the hat now on the NIEC report rather than have to acknowledge in public that this arose out of the Fine Gael policy document entitled "A Just Society".
The fact is that Fine Gael published their proposals, concrete proposals, as far back as last April. The NIEC Report was published last November. It is being discussed now in January, 1966. The proposals are the same. The aims are the same. Nine months have been wasted. Apparently the Government now think that an incomes policy should be implemented. They have tabled this motion which shows they are prepared to approve of the NIEC Report. In the light of that, is it not true to say that nine months that could have been employed in implementing an incomes policy have been wasted, an incomes policy the Government are now apparently prepared to implement? Nine months have been wasted. All the time the deterioration was going on in our economic position.
Is it any wonder that in that situation the Irish Banking Review of December, 1965, should pose this question? I am quoting from page 47 where they say:
The deterioration of the balance of payments has led to many warnings and some corrective measures. The question may fairly be asked if some of these warnings should not have been pronounced some time ago and some of the remedies applied earlier. Delay in facing up to difficulties may make their correction more severe and prolonged.
Is it any wonder that another journal which, to my mind anyhow, has certainly not been noted for any hostility to Fianna Fáil Governments over the years, a journal called Irish Industry, in its issue of November, 1965, should have an editorial headed: “Who is to blame?” and should say in the course of that editorial:
Surely a lot of valuable time was allowed to slip by since the first warning clouds of a forthcoming economic depression appeared on our horizon. Government spokesmen, over the last year have drawn attention to the developments which would, in their opinion, lead to difficulties. Strangely enough, nothing was done about it until the position reached its present critical stage.
Later on in the course of this editorial, it is stated:
In important matters like this the business community looks to the Government for guidance. Surely it should have been possible to regulate national spending to national income. No doubt the position was patently obvious to the Department of Finance at all stages, and the Central Bank repeatedly issued its grave warnings. Why then do we have to have every few years these apparently avoidable terms of high financial crisis.
They then say:
The Minister for Finance in a recent statement admitted that the Government felt it was not entirely blameless. Mr. Lynch is to be complimented for this admission. We feel, however, that the Government must shoulder not portion of but the full responsibility.
As I say, that journal, as far as I know, has never been hostile to Fianna Fáil Governments. Members of the Fianna Fáil Party will, I think, regard the Irish Banking Review as in no way having a political axe to grind. The same question is raised in the minds of the writers of these articles: Why did the Government waste time? Why did they not do something about this when it was apparent that a situation was arising which was going to develop into a crisis? We in the Fine Gael Party are entitled to say, so far as this question of an incomes and prices policy is concerned, that the Government have wasted nine valuable months in a period when time might well have been the currency of our economic salvation. That currency was wasted by the Fianna Fáil Government. They have now come to the conclusion that there should be an incomes policy.
I make no apology for emphasising what has already been stated from these benches, that the Fine Gael Party pioneered the drive towards an incomes policy. It is all very well for the Government spokesmen, when their proposals are under fire, to say: "What is the alternative?" in an endeavour to combat criticisms or to cover flaws in proposals put forward by the Government, by adopting what people used to regard as the best method of defence, namely, attack. We in the Fine Gael Party, prior to the last general election, took the trouble to sit down, and study the position systematically and exhaustively, to get the most expert opinion we could, to make a comprehensive survey of the economy, of the weaknesses and flaws we found there, and to suggest our remedies. I think we are entitled to remind not only the Government but the people as a whole that that exercise was engaged in and that those concrete proposals were put forward and are now being accepted by the Fianna Fáil Government.
I have here both the Fine Gael policy document and the Report of the National Industrial and Economic Council. In the section of the Fine Gael policy document dealing with prices and incomes, it was stated that one of the major failures of the Government had been their inability to control the level of prices, and it went on to say that on social and economic grounds, a policy on prices and incomes is urgently necessary. The NIEC Report, in paragraph 13 on page 7, comes out with the same idea, that on social and economic grounds, such a policy is necessary, and the very first sentence in paragraph 13 of the NIEC Report is:
Incomes policy has both an economic and a social purpose.
Paragraph 12 of the Report reads:
If the continuity of economic development is to be assured three things at least are necessary, first, a policy for the planned development of incomes; second, effective action to prevent aggregate demand from rising at an excessive rate; and, third, a policy pertaining to credit.
Again for the purpose of comparison, I may say that the Fine Gael policy document, in dealing with this question of a prices and incomes policy sets out that:
Consideration should have been given to the desirability of influencing all kinds of income. Modern discussion is centred on the need for influencing the level of profits and other non-wage incomes as well as wage incomes. Policies in this connection are generally known as incomes policies and have been advocated for Ireland by Fine Gael for a considerable time.
That is one of the things we said in our policy statement regarding an incomes policy.
I find this in the NIEC Report in paragraph (13) of page 7:
An incomes policy that does not embrace all categories of money incomes, namely, wages and salaries, farmers' incomes, professional earnings, rents, profits and realised capital gains, is repudiated as inadequate and inequitable.
Again, in the Fine Gael policy document, we made the point and emphasised it that as the largest employer in the State the Government should not merely await development of those patterns but they should deal quickly with the claims of their own employees. In that policy statement, we emphasised the necessity for the setting up of guide posts for price behaviour and, having determined the proper behaviour of prices, we suggested it would be necessary that those seeking increased prices should notify the Government and then, if required, that they would have to justify their price increases.
As far as that idea is concerned, it was incorporated by the Government last year in their Prices (Amendment) Bill. We pointed out also in the Fine Gael policy statement that the Government's approach to this question of an incomes policy, from the point of view of dealing with wage incomes alone, had shown no intention of dealing with non-wage incomes or indeed, at that stage, with rising prices. The Fine Gael proposals put before the electorate last April were clear cut. They were not accepted then but they are accepted now by the Fianna Fáil Party and in that sense I think it is true to say that the policies advocated by us then, while derided by Fianna Fáil spokesmen, have now secured general acceptance. It is fair to argue from that that they were worthwhile policies, that the Fianna Fáil Government were not able to find adequate or suitable alternative policies.
I do not mind what I regard as simply a tactical manoeuvre of the Fianna Fáil Party in putting down a motion that the Dáil approves generally the NIEC Report rather than simply accepting the Fine Gael motion which was on the Order Paper long before the NIEC Report was published. It is only a tactical manoeuvre because it amounts to the same thing. The Government are asking the Dáil to approve and adopt principles advocated by this Party several months before the NIEC Report came out. It is interesting to note that in the speech of the Taoiseach on 13th May last, to which I referred earlier, he said in regard to an incomes policy:
I do not think we should allow ourselves to be hypnotised by vague ideas and slick phrases about an incomes policy without fully understanding it or being able to state clearly what this expression is intended to mean. Whether what some people call an incomes policy is practicable at all depends really on what is meant by it.
No one was left in doubt as to what we in Fine Gael meant by an incomes policy. The Taoiseach went on on that occasion:
Most of the ideas I have heard expressed seem to me to be clearly and completely impracticable. The broad aim of the Government is to ensure that all sections of our people will share fully and freely in rising national prosperity. So far as earned incomes are concerned and I am referring to wages and salaries in particular—
Again at this stage, the Taoiseach was confining his mind particularly to wages and salaries in so far as an incomes policy was in his mind at the time.
—this can, in my view, be achieved by periodic adjustments under national agreements freely negotiated following full consideration of the general economic situation...
The point I wish to make is that even as late as May last apparently the question of producing, never mind implementing, a prices and incomes policy was not in the Taoiseach's mind. The NIEC report also points out very emphatically the need for a credit policy. On page 10, paragraph (24) it says:
Finally, action is necessary in the field of credit policy. The role of credit policy in the first instance is to ensure that the volume and composition of credit will be in line with the planned growth of consumption and investment expenditures.
As far as the question of credit policy is concerned, we in these benches can justly claim we did our best to secure acceptance of the necessity for having some kind of rational determination of our credit policy. We pointed out the lack of power of the Central Bank, the lack of power even of the Government to control credit policy and we advocated certain reforms, possibly minimum reforms, of the powers of the Central Bank by means of an amendment of the Central Bank Act. I do not think I am being unfair to the Taoiseach when I say that this question of the necessity for some greater degree of control in banking and credit policies generally is one on which the Taoiseach has changed his mind. When the Fine Gael statement was published dealing with credit and banking policy the Taoiseach, as he did in relation to other aspects of that policy, was severely critical, though some years earlier, in 1957, he made a pronouncement with regard to the part the banks should play in the affairs of this country. At that time, the Taoiseach was in opposition. According to the Irish Times of 18th January, 1957—I am reading now from my own note of that report but I think it is an accurate one—the Taoiseach said:
The part which the banks must play in the effort under national recovery is vital. There appears to be some foundation for the widespread belief that the management of our banks do not regard themselves as being under any special obligation in this regard. It is essential that the banks should have regard to the requirements of national policy as defined by the Government of the day in granting or withholding credit. To the extent that this is not so now, changes must be introduced that will make it so. Decisions on credit policy should be taken at a higher level than the bank boards of directors. The present power of the Central Bank to control the operations of the commercial banks has not, so far as was known, been utilised. It was now fairly clear that those powers were inadequate.
Those were the views that the Taoiseach expressed in 1957.
As I have said, when we examined this general question of credit and the part that the banks might play and when we recommended certain changes, certain modifications and certain strengthening of the position of the Central Bank, the Taoiseach also gave his comments. According to the Irish Press of 20th March, 1965, he had this to say:
The Fine Gael document on the powers of the Central Bank could have been written by any newly-fledged economics graduate without political sense or experience. It is entirely theoretical and of no practical importance at this time. No practical disadvantage has been experienced in regard to Ireland's economic progress by reason of serious deficiencies in the Central Bank's powers. Some day, no doubt, it may be considered desirable to consider changes but, until they are seen to be necessary, interference with the country's banking structure and arrangements would be unwise and could be destructive of public confidence.
That was 20th March, 1965. Here we are, some months later, discussing a Report from the National Industrial and Economic Council in which attention is called to the necessity for action in the field of credit policy. Again, I do not think I am claiming anything this Party is not entitled to when I say we were again in advance of the Government's thinking on this question. We were possibly too far in advance of some of the thinking of the general public on the question. However, there it is. We have, in this discussion, a very full vindication of the views we expressed at that time.
I do not propose saying very much more because this is a personal view of mine. It is a pity, in some ways, that debates of this sort, dealing with the economic situation, particularly when it is a bad one, should have to take place in public because there is always the danger that a person will possibly say more than he should or express something more strongly than it is advisable. But we are a democracy. The people are entitled to know what is going on. Indeed, while, on the one hand, I see the danger of creating such an atmosphere of gloom and despondency by talking about the present economic situation which would shake confidence not only in the Government —I do not mind that—but would shake confidence in the Irish economy itself. I think there must be balanced against that the fact that our people here have always been prepared to face up to realities.
Our people are a courageous people. They are a people who are both able and prepared to accept their responsibilities. The better view is that the right thing is to talk honestly to the people, to explain the difficulties, to lay it on the line so that they can appreciate it and understand it. If that is done, the kind of effort which is required to get the country out of the mess in which it is at the moment will be made willingly by the people.