I move:
That the Dáil do now adjourn until Wednesday, 8th February, 1967.
In recent years it has been the practice on the motion for the adjournment for the Taoiseach to give a comprehensive review of the economy. As, however, the House has so recently had an opportunity of a general economic debate, in reply to which I did give such a comprehensive review, on 16th November, I do not think it necessary for me to cover all the same ground again, but what I have to say in regard to recent economic developments is intended as a background to my remarks on the prospects facing us for the year ahead.
In my speech on 16th November, I referred to the adverse trends that had set in in 1965 and that retarded the unprecedented rate of growth in our economy of 4.3 per cent per annum since 1958. Some of these forces, I said then and I think it has been acknowledged on all sides, were external and beyond our control, such as the British import surcharge and the decline in the capital inflow to this country, but there were three major issues on the home front which had an effect on our growth. These were growth of incomes in excess of increased productivity, increased public expenditure and growth of credit.
The measures introduced by the Government to overcome the difficulties and to reverse the adverse trends we had experienced in 1965-66 have proved successful and, while we have not yet available to us the trade figures for the whole of 1966 or exact figures for invisible receipts, I do not think I would be far wrong in saying that our balance of payments deficit in 1966 will be of the order of £20 million, or less than half the figure for 1965.
The rise in exports of £14 million in the first ten months of this year represents a percentage increase of 7½. This is a very satisfactory increase when account is taken of the difficulties which our exports have had to face during the year: the fall in cattle prices in the British market which virtually shut down all cattle exports to the European Economic Community countries, the British import surcharge on manufactured goods and the general sluggishness of the British market.
Industrial exports have been particularly buoyant. In the first eight months of this year for which exports have been classified on this basis, industrial exports grew by 13 per cent compared with an increase of 8 per cent for total merchandise exports. Industrial exports will receive a further stimulus as advantage is taken of the Free Trade Area Agreement and from the removal of the British levy from the beginning of this month. These benefits should be sufficient to offset the effect of the depressed trading conditions in the United Kingdom on the growth of our exports, provided we can maintain our prices at a competitive level. Because of the unsatisfactory price position in the United Kingdom and the virtual closure of the EEC markets to our cattle, our live cattle exports have fallen this year. From June to August, while the numbers exported were marginally somewhat higher, the value was something in the neighbourhood of £1 million lower than in the previous year. However, other agricultural exports have shown welcome increases, particularly frozen beef, bacon, mutton and lamb, cheddar cheese and butter.
If I may refer further to the agricultural scene; early in 1966, it was estimated that agricultural output and family farm incomes would be appreciably higher this year than in the previous year. However, the persistence of bad weather far into the spring of this year retarded the sowing of crops and the growth of grass, with consequential adverse effects on livestock production and on crop acreages. Following a review of the problems of farmers in May last, a number of measures were taken by the Government which were calculated to increase farm incomes to the amount of about £5½ million in a full year. These measures included increases in the price of milk, the introduction of a scheme of headage grants for farrowed sows and hill sheep subsidy schemes.
Subsequently, circumstances, mainly in continental markets and over which we had no control, led to difficulties in the cattle and beef export trade and adversely affected the demand and prices for Irish cattle and beef. These effects were, however, mitigated to some extent by the coming into operation of the Anglo-Irish Trade Agreement but, nevertheless, in August a temporary headage scheme was introduced. I have received assurances from the people in the trade that these headage grants were of considerable benefit towards maintaining whatever stability could be maintained in the trade over that period. At the same time, farmers have had the benefit of higher guaranteed prices, not only for milk but also for wheat and beet. There has been an improvement in crop yields compared with last year. The number of breeding cattle as well as cattle generally was at the highest level ever, according to the census of June of this year.
The Government are keenly aware of the need of farmers for credit and during the year sponsored the introduction of special agricultural credit schemes. Under these schemes, farmers have been provided with unsecured credit for the retention of livestock. Interest-free loans for the purchase of nitrogenous fertilisers have also been made available as well as credit facilities at 2½ per cent for the purchase of dairy livestock. As regards seasonal credit, the banks are the principal sources of such credit and should most appropriately be so. I feel sure they will give special consideration to the credit needs of farmers in present circumstances.
The Government have amply demonstrated their willingness to take measures to help farmers when occasion demands and it is also the Government's policy to work in as close co-operation as possible with farmers' organisations and to do everything in our power to help farmers to increase agricultural output on an efficient basis, to ensure a reasonable price for important agricultural commodities and to narrow the gap between the incomes in agriculture and those in other sectors of the economy.
I might say that I deplore, and find it difficult to understand, the renewed agitation of the National Farmers Association, in view of the fact that the Minister for Agriculture and Fisheries and I had a very lengthy meeting with them almost immediately after we took office. On that occasion we indicated that we would give very careful consideration to the problems of agriculture. I certainly cannot see what good this agitation will do to anybody. It cannot increase the resources available to the Government for the subvention of agriculture. It is not necessary for me to spell out again the cost of existing price supports for agriculture but it will be the policy of this Government to continue this system in present conditions. Apart from price supports for the main products, including milk and pigs, on which the small farmer particularly depends, an analysis of the figures shows that large amounts are also being paid as direct grants to farmers—Land Project grants, farm building grants and water supply grants. With the aid of such grants and the subsidies on lime and fertilisers, farmers have been enabled to increase production at less cost than they otherwise could. Expanded educational and advisory services are also increasing the farmer's efficiency. Money spent on the eradication of livestock disease undoubtedly improves the quality of stock and such eradication is vital if access to export markets for livestock is to be maintained.
Another problem which is being continuously adverted to is the small farm problem. Most of our farms of course come within the small or medium-sized category. The Government's aims for the development of the small farm areas have been clearly stated in the past. They are, first, to ensure the more intensive use of land through encouraging the farmers to take full advantage of the wide variety of improvement schemes in operation and to avail of the improved technical and advisory services provided for them; secondly, to create the maximum number of viable family farms in these areas; and thirdly, to develop adequate employment outlets in such industries as fisheries, forestry and tourism for those who have to leave farming.
The small farm business plan submitted by the NFA as well as being very costly had many limitations. For one thing, thousands of our small farmers would be excluded because their size of business was too small to qualify. In recent years the Government have introduced a series of important measures for the general benefit of the smaller farmers, particularly those in the western counties. The problem is one which is receiving the Government's constant consideration and attention. At present the Minister for Agriculture and Fisheries is having a look at the small farm problem afresh and will announce his ideas and proposals in due course.
To return to the general economic scene, all the signs point to an improvement in the trend in the second half of the year. The volume of consumer spending, as evidenced by the changes in the volume of retail sales, rose by 1.3 per cent. Home sales of cement, which, of course, are regarded as a very useful, valuable and important indicator, after falling by over 18 per cent in the first half of the year, recovered considerably in the third quarter and are now almost back to the level of the third quarter of 1965.
The changing trend in consumption, production and investment is reflected in the import figures. Following a decline of £16.4 million in the first half of the year, imports rose by £10.7 million in the four months July to October and the increase in unemployment in the early months of 1966 has fallen considerably since May.
As Deputies will have seen from the Central Bank announcement last week, credit has been increased as a result of the advice given by the Central Bank. In the months from May to October, during the course of the bank strike, there had been a considerable input of some £37.7 million by way of increased credit in the economy and of that £37.7 million, £14.7 million went to the private sector. Over and above this, the announcement last week by the Central Bank, to which I have just referred, of an extension of an additional £10 million in credit for borrowers other than the Government for the period up to the end of the financial year, 31st March, 1967, is bound to give further impetus to the revival in economic activity. That is already under way.
It would be foolish, however, to conclude that because we have corrected the adverse balance of payments situation we can now relax all restrictions. I want to emphasise that, on the contrary, now—when we have our external account in order again, and we have done that very successfully—is the time to exercise vigilance and restraint, lest we be forced back into a situation in which renewed deflationary measures would be necessary. Our experience shows that building up confidence can in itself be a powerful stimulus to enterprise and production. There are indications that more favourable trends in demand and production in the second half of the year have led to a revival of business confidence. The present management of our economic affairs is the surest way of sustaining this confidence.
The favourable psychological climate introduced by the adoption of appropriate policy measures provides the conditions for a rapid growth of domestic investment and savings and gives the best assurance of our being able to obtain the supplement of foreign capital and enterprises required for our economic development. The recent national loan has been an outstanding success and this, I think, is a very significant mark of the confidence of investors in the prospects for the profitable development of our economy. A total of £24.5 million was subscribed by the public and this was a record figure for this country. The availability of this capital will, of course, enable us to press on with our capital development programme.
The steady rate of growth of national production in conditions of a manageable balance of payments deficit is the only way we can, as a community, secure significant increases in real income and employment. It is, therefore, the Government's earnest desire that, by maintaining reasonable external stability, we get back as quickly as possible to the type of growth rates experienced in the years 1958 to 1964. We can hardly hope, however, in a single year to get back to this satisfactory growth pattern but we will reach it again very quickly the more our policy is directed towards increasing productive investment and exports. Priority must be given to the encouragement of productive activity in the private sector and credit required for export expansion will receive special consideration.
Before I leave this general subject, I should like again to refer to exports in more detail. The annual report of Córas Tráchtála for the year 1965-66 indicates that, of an estimated 2,000 firms turning out products which lend themselves to export trading, approximately 700, or just over one-third of the total, were exporting in 1965; about one-half of the country's exports, excluding live animals and commodities exported by State marketing boards, were supplied by 50 of these firms, while something over threequarters of the total is accounted for by not more than 100 firms. As Ireland's economic growth depends on a rapid increase in exports, particularly over the next five years, the expansion plans of existing exporters must be supplemented by contributions from those firms which are now exporting if the targets we hope to achieve are to be achieved.
In regard to the future development of incomes, experience has shown that the only increases in incomes which hold their value are those which are matched by increased productivity. If we are to have any hope of enjoying worthwhile income increases, therefore, in the near future, it is clear we must strive to maintain a much higher rate of growth than that achieved in 1966. If we are all agreed on the aims of seeking continued improvements in our standard of living, then we should all accept as our principal objective for 1967 the avoidance of any action which would run counter to the vital need of raising the level of production growth as quickly as possible. The key to real increases in incomes is the principle that incomes cannot precede but rather must follow growth in production. This principle is just sound commonsense and it is particularly relevant in present economic conditions.
As I have said, the recent release of additional credit is intended to stimulate the growth of the economy. It will enable more goods and services to be produced and more people to be employed and exports to be expanded. It would be unwise for any section of the community to regard this flow of additional money as a sign of instant prosperity, calling for an immediate increase in incomes. To use any of this additional flow of money for the purpose of increasing the income of any section of the community would be, to use an old expression, as foolish as eating next year's seed potatoes. The injection of further credit into the economy at this juncture is the vital seed from which will grow increased production and an expansion of exports of goods and services. If we carefully nurse this growth by refraining from seeking increases in incomes which would raise costs and prices, we can once again return to a productive rate of growth which, as everybody will appreciate, is the key to more jobs, less emigration, and real and worthwhile increases in incomes.
The most harmful effect of an early incomes increase would be in the competitiveness of our exports. Britain, our main market, is at present going through a difficult economic period. A severe freeze of incomes is in operation and this, coupled with other deflationary measures, has had the effect of depressing demand in that market and making it much more difficult for our exporters to sell their products. If the prices of our exports were now to be increased to cover higher costs because of increased incomes, we would lose our competitiveness again in Britain and find it exceedingly difficult to hold our share in the market there, to say nothing of being unable to strengthen it. Such a situation would be very quickly reflected at home, as it would lead to reduced production and consequent unemployment.
The present restraint on incomes in Britain is also particularly relevant to the Irish market in this way: British manufacturers, not being faced with increases in labour costs, can continue to sell their products here without increasing their prices. If we allow the prices of our products to rise because of demands for higher incomes, our producers stand to lose their competitiveness not only on the home market, particularly with the prospect of growing competition from British goods, facilitated by the Free Trade Agreement, but also on the British market. Therefore, it is the Government's duty to emphasise, in the strongest possible terms, that we cannot afford here to ignore the severe restraint on incomes in Britain without running the risk of inflicting permanent damage on our own economic wellbeing.
Whatever the conditions in Britain, it must be realised that income increases that outstrip production and productivity are not income increases at all. Not only do they cause insecurity in employment, as there is the danger of reducing the level of employment, but they involve the danger of the loss of new job opportunities. Nobody in this country, no matter how secure he might feel in his own employment, would wish that any action he might take would restrict job opportunities for his sons and others in the community. I do not want to be interpreted as having painted a dismal picture of indefinite restraint on incomes in our economy; what I want to emphasise is that in our own economic interests, it would be sound sense to refrain from seeking increases in incomes just now. Rising production must first be ensured before we can hope for any rise in incomes which will not be wiped out by increases in costs and prices. As I said, the present indications are that the recovery from the low rate of growth in the earlier parts of the year has already started because the economy has been given the necessary vital injection.
Understanding is needed among all sections of the community of the dangers involved in seeking an increase in incomes before an increase in production materialises. On this, I should like to refer to industrial relations generally. There has been a growing awareness of the need for better industrial relations but it is, nevertheless, clear that we are very far from fully realising how important a part good industrial relations have to play in our future development. The smallness of our economy, and our religious and social traditions should help us greatly in tackling this problem. It is therefore all the more disappointing to find so great an increase in industrial unrest in recent years. Managements must examine their responsibility in this sphere with greater concern. All the adaptation work in the world, and all the investment in modernisation, will fail to reap its due reward if industrial unrest is allowed to slow down or interrupt production.
Taking industry as a whole, too little weight is given to personnel work. This could be too easily interpreted as a basic lack of interest by management in its workers. It is probably due, in the main, to the failure to appreciate the complexity of the highly skilled nature of this industrial relations work. Trade unions, too, should take every opportunity of equipping their officials with the best available training. There is no need for me to stress the bad effects of industrial unrest. Firstly, it hits the individual worker and his family, and it interrupts the growth of productivity which is essential for increasing prosperity. It is especially damaging to the export trade on which depend our hopes for raising our living standards in the future. Against the background of the Free Trade Agreement with Britain and a slackening of demand, industrial unrest is a luxury we can ill afford at the present time. Possibly most dangerous in the long run, it can deter those who might otherwise be inclined to invest here by promoting new industry or otherwise. With our imperative need for additional industry in order to provide more jobs, a result like this would indeed be a tragedy.
As Deputies are aware, the Minister for Labour is giving high priority to this aspect of his responsibilities and I would appeal in the most urgent fashion, both to management and the trade unions, to co-operate fully with him in this field. I do not want to go too far into history in regard to the efforts made to improve industrial relations but my immediate predecessor, Deputy Lemass, when he was Minister for Industry and Commerce, and subsequently the late Deputy Norton, tried to hammer out with the trade unions and the employer organisations a basis on which better industrial relations legislation could be enacted. Neither of these, nor myself, succeeded in getting a wide enough area of agreement that would justify bringing in a measure to this House. The Minister for Labour, when he became Minister for Industry and Commerce, pursued these activities and he had several consultations with both sides of industry. While some area of agreement may have been negotiated, I understand that at present revised proposals are now before both the representatives of the employers and of the trade unions. I do not know to what extent they are being treated expeditiously by these bodies but it is obvious that the Minister for Labour cannot wait too long. It is his, and the Government's, intention to introduce proposals for revised industrial relations in the next session.
Another matter which I think deserves some reference is our application for entry into the European Economic Community. Five and a half years have elapsed since we first sought entry into the Community. The delay which has arisen, due to circumstances outside our control, has in the short term presented us with difficulties in maintaining and expanding our external trade, particularly our agricultural exports. These difficulties have in turn reacted on our efforts to sustain an optimum rate growth in the economy. The delay has not been wholly without advantage. It has afforded additional time in which to prepare ourselves for the inevitable impact of free trade conditions in an enlarging European Community. The Government for their part have sought to ensure that this time has not been wasted. We have never ceased to urge on all concerned the necessity for adapting to the new environment in which we will have to operate. Words have been backed by deeds in so far as it lies within the power of the Government to take action.
It is not necessary to remind the House of the impressive list of measures which the Government have introduced in order to assist our people in industry and otherwise to prepare for Common Market conditions. Not-withstanding the facilities afforded, and the necessity for making full use of these facilities, there have been some who have been content to rest on their oars, in the belief that the day of reckoning is far away or, indeed, may never come. To some extent, this attitude is inevitable in the uncertainty produced by the unavoidable delay in bringing our application for membership of the European Economic Community to finality, but to remove, in so far as it is possible, this uncertainty, and at the same time to secure such trading arrangements as would assist our preparations for entry to the EEC, the Government concluded, a year ago, the Free Trade Area Agreement with Britain. It came into operation on 1st July, 1965, and under it, by 1975, we will have eliminated all the existing tariffs on industrial products being imported into this country.
I believe that this, apart from being a useful exercise, is more than that, in that the type of competition we are likely to face from Britain will be little less—in fact, I believe it will be almost equally intensive—than that we might expect from Economic Community countries. Any remaining complacency there might be should receive a jolt as a result of the recent British initiative to undertake high level probes with the Governments of the Six for the purpose of clearing the air as to the terms on which Britain might join EEC. In the course of my discussions with the British Prime Minister next week on this and other matters, I hope to gain a clearer picture of the prospects for the resumption of our own negotiations for entry into EEC. Meanwhile, it is clear, to use Mr. Wilson's words, that the British Government mean business. While it is not possible to predict the outcome of these moves, the general climate in which they are being undertaken does seem better than at any time in the past four years.
Given a favourable outcome, the stage will be set for the opening of negotiations by the countries which are applicants for membership of the Community. It is not my expectation, at this stage, that these negotiations would commence at an early date or that, once commenced, they would be, or could be, rapidly concluded. It has to be assumed, however, from the determined manner in which the British Government are tackling this whole problem, that once negotiations are started, the way will be open to the enlargement of the Community within a few years.
We cannot, therefore, afford to waste any time in finalising our own preparations. The Government have already put in hands a White Paper on the European Communities which will contain, for the information of the Oireachtas and the public, all available information on development within the Communities to date. The preparation of this White Paper is being accompanied by a review. This review embraces all aspects of the economic and administrative adjustments which entry to an enlarged EEC would entail.
On the general economic front, the main task is to ensure that, so far as is humanly possible, everything is done to prepare industry for the sharper competition it will face in the Common Market. As far as agriculture is concerned, I think we have a less difficult task. As Deputies are aware, an elaborate and involved system of agricultural organisation is being set up in EEC and we have to see precisely how our agriculture can be fitted into this, which is for us a novel system. All Departments concerned are urgently engaged in tackling these points and others bearing on our general economic arrangements. Also, close attention is being given to the adjustments that may be necessary at Government level to bring our administrative arrangements into line with those of the Community.
An important aspect of this work is settling the legislative changes that may have to be adopted. These extend beyond the changes consequential on the assumption of obligations relating to the freeing of trade. The objectives of the Rome Treaty extend also to economic union and for this we must be prepared to adjust, as may be necessary, legislation touching on our legal and fiscal arrangements, our social structure, the movement of prices, enterprises and capital. Also our commercial policy towards the rest of the world must be adjusted and there must be a general approximation of laws.
While these changes and adjustments need, as far as possible, to be planned in advance, they will not be undertaken suddenly. So far as can be predicted, a number of years is likely to elapse before membership of EEC can be achieved. There is also the possibility that transitional arrangements can be made to deal with any instances of special difficulty. These will be matters for negotiation. I should not like, however, to leave the Dáil or the country with the impression that the likely timetable at our disposal will permit of any relaxation in our efforts to prepare for entry to the Common Market. The five and a half years that have elapsed since we applied for membership of the Community have gone quickly and, despite the best efforts of the Government, the breathing space allowed to us has not been used to the best advantage by all concerned. The period remaining to us will, I expect, be shorter and, unless the fullest possible use is made of it, we shall find that the opportunity presented by membership of the Community will be diminished and the difficulties increased. I should like to remind industrial management at this juncture that grants towards the cost of enlargement or adaptation of their enterprises may be made only if applications are received before 30th September, 1967, and approved before 31st December, 1967.
I want to say a word about the attitude of the Fine Gael Party towards entry to the EEC. As the House and the country are aware, Deputy Cosgrave, Leader of the Fine Gael Party, and a colleague visited the Commission and in advance of their visit there appeared in at least the Cork Examiner on last Saturday, and possibly in other newspapers as well, a statement.
