I wish now to deal with what I consider the most contradictory and controversial aspect of this year's Budget, that is to say, the complete absence of any measure to deal with the current insidious inflation in our economy or, indeed, the absence of any measure to counter the most serious position of our balance of payments. Because of the recent political crisis I have information that there has been a large-scale cancellation of hotel bookings throughout the country. This will have severe repercussions on the balance of payments and on our economy as a whole. In regard to the inflationary position I should like to quote the speech of the former Minister for Finance on the presentation of this year's Budget, at column 1721, volume 245, of the Official Report of Wednesday, 22nd April, 1970:
Prices here are now going upwards faster than in most other countries in the OECD and the dangers for the future wellbeing of this country if the trend continues are obvious.
Later on he said:
We cannot sustain such a rate of price increases and have satisfactory economic growth as well. If prices continue to rise and our unit wage costs to increase as they have been doing our goods will cease to be competitive on either the home or the export markets.
That is a serious position. That view is backed by a number of publications. I should like to quote briefly from the spring issue of the Central Bank Report:
It has been evident for some time that Irish prices and costs are rising so fast that competitiveness and the future growth of output and employment are being jeopardised. Action to restrain the excessive rise in prices and the related increase in the external deficit is an urgent priority.
Or, again, in Report No. 27 on incomes and prices policy of the National Industrial and Economic Council, at page 9:
There is now a real danger that many Irish goods will become less competitive both on the home and export markets. The external deficit could be widened beyond the possibility of recovery and employment and output could suffer.
Or, even again, the Report of the Industrial and Social Research Institute, page 1; speaking of rising prices:
The worst part of the damage done by rising prices is the part that is least visible, the damage to the prospect of new jobs and of ending emigration.
All these pronouncements by experts, which should be taken into account by any Minister for Finance presenting a Budget, have been completely ignored by the Fianna Fáil Minister for Finance in this year's Budget.
For a number of years reports of the Central Bank have been criticising Government monetary policy and, indeed, Government fiscal policy, all to no avail. One must come to the opinion that the Fianna Fáil Government do not care about the economy as a whole. Lust for power, apparently, is the overriding factor and, I venture to say, especially in times of election, proper and sound monetary policy has been thrown to the wind on a number of occasions. This is a pity because proper monetary policy is very essential to the country's development.
We are, I am sorry to say, reaching a crisis in the matter of inflation. This crisis could have been avoided if successive Fianna Fáil Ministers for Finance had had the guts to manage the economy properly. It is evident that they have not done so. The effects of this rampant and insidious inflation have been felt and indeed will be felt in the coming year perhaps more severely than ever before on a number of fronts. It is expected that in the coming year investment in the economy will decrease.
I should like to quote again expert opinion from the Quarterly Economic Commentary, March, 1970, of the Economic and Social Research Institute:
Other features of the forecast for 1970 which is set out in Table 2.2 include a strong growth in consumption, a reduced expansion in investment and a lower rate of stock building.
That in any economy, perhaps more especially in a developing economy such as Ireland, is very, very serious. It is fair to say that it can be directly attributable to the inflation which has persisted in our economy for a number of years. The long term effects of inflation upon our export potential must be obvious to all.
It is all right for a Minister to come into the House and to say that we can have inflation once we keep it more or less in line with our customer countries. That is not quite so; it is a false statement. We must keep inflation in line with other countries who are exporting to our customer countries.
It is fair to say that the Irish Sea is the costliest expanse of water across which to transport goods. It is probably fair to say that it is as cheap to transport meat from the Argentine to London as it is to transport meat from the west of Ireland to London. This is a crazy state of affairs. Nobody seems to comment upon it. Nevertheless, it is a fact of life which has serious connotations for our export industry.
All costs, labour costs, taxation costs—we must remember that taxation bears heavily on business people —building costs, equipment costs have gone very high in the last few years and if we are to remain competitive someone, sometime, in Government must take sound action to ensure that we at least will survive. It is apparent that the Fianna Fáil Party are not capable of such action.
Inflation has a serious effect in the social field. There are people living on pensions, people living on incomes from investment, perhaps a bit of old property or land. The Fianna Fáil Government do not seem to care about these people. This is very serious. Our country has a higher proportion of persons living on social services than most other western European countries. It has a higher percentage of older persons. Inflation hurts these people very much, deep in their pockets. Again, the Government do not seem to care.
The real danger of the balance of payments position was referred to by the Minister for Finance in his Financial Statement of 22nd April at column 1720 of the Official Report, as follows:
A surplus of £15 million in 1967 gave way to a deficit of £22 million in 1968: last year, the deficit was about £60 million. This year, despite a small improvement in the first quarter, the deficit could be substantially higher. This trend has grave implications for the economy. Unless we abate the excessive increases in domestic consumption and costs, the gains of the past decade and our potential for further progress in the seventies could be put in jeopardy.
That is a serious quotation from the Minister's speech which is worth examination and worth bearing in mind. The fact is that in official reports a figure as high as £90 million has been given as the possible balance of payments deficit in 1970. Another figure that has been given is £75 million. The country's reserves will not stand up to that kind of continuous buffeting.
Again the Minister for Finance ignored expert advice. It is all right coming into this House and giving increases in social welfare allowances but the Budget which he prepared ignored his responsibility to the economy, a responsibility which is a grave one and which must be faced up to if we are to survive within the EEC or within any free trade area.
It is a dangerous policy to pursue to say that capital inflows will offset the balance of payments deficit over a period of years. This money could disappear as quickly as it came in and the recent political crisis will encourage it to disappear. Perhaps, it has disappeared; we do not know. Continued inflation has resulted in a large number of serious strikes. It is all right for people to say that the trade unions have been pressing for higher and higher incomes but the fact is that the Government have been the main cause of that inflation and to a very large extent they must bear the responsibility for the number and extent of the strikes we have had in the last few years.
The inflationary position is going to hurt the tourist business and if we are to survive in the tourist field, we must contain price rises at all levels. As I have already said there has been a reduction in hotel bookings throughout the country because of the recent crisis. The position is far more serious than it might first appear. The present inflationary crisis can, in fairness, be attributed to some small extent to the increase in the cost of imports, imports which may be essential to our economy, imports of capital goods. It is, perhaps, an aspect of the matter which must be acceptable to the Government and the people; if we are to industrialise we must have these essentials.
Perhaps, the main cause of inflation has been an excess in domestic expenditure on all fronts. The greater factor in this expenditure is Government expenditure. No longer is the yearly budget balancing the country's essential services which are run by the Government. In our position we should be budgeting for surplus but the Government have not got the guts to manage the economy properly.
Under the third heading of excess incomes there have been excess incomes granted and sought in the last few years but it was an excess under all headings: excess of incomes from house rents and, indeed, there has been extortion in the rent level in the last few years especially in Dublin and in other major cities; there have been excessive profits which should be controlled; there has been an excess of incomes from dividends and in the incomes of members of the trade unions. We must make a conscious effort to produce an acceptable and voluntary policy of prices and incomes. It is essential for the survival of our economy that the people on all fronts should come together and agree on such a voluntary policy. The Government have not engendered the proper atmosphere in which this could come about.
I should like to refer to a few recent references to a policy on prices and incomes. The first is a reference by Michael P. Fogarty in a report produced under the auspices of the Economic and Social Research Institute "We Can Stop Rising Prices". He suggested that a prices stabilisation level should be imposed on both dividends and pay. He said that there would be an exemption from the tax for any firm or other organisation which satisfied the appropriate Minister—Labour in the case of pay, Finance in the case of incomes—that it intended in the next year to follow a pay and dividends policy in line with national incomes policy. It is an idea worth discussing. It has not been discussed and no action has been taken so far. He was quite unhappy with the present method of negotiating price increases. In the same report he said:
If you look at Con Murphy's report on the maintenance dispute last year, or the report of my committee on the ESB—or for that matter, at the Mulvey report on Bord na Móna—you will find a common thread. Both reports stress the sheer, flaming chaos of the process of deciding on, putting forward and handling pay claims, especially, though not only on the union side.
That is a serious statement by an expert. Perhaps, a more important report was the NIEC report on incomes and prices policy, No. 37. This discussed at some length the inflation in our economy and the practical and institutional necessity for a proper incomes and prices policy. The report stated:
In our view an effective incomes and prices policy is urgently needed to help in protecting production and employment from the disruption threatened by the accelerated rise in costs, prices and the external-payments deficit.
For an appropriate prices and incomes policy there are four essential steps.
The first requirement is the promotion of a general understanding of the national need for a closer and more orderly relationship between incomes and output.
That is fair enough.
The second requirement is an explicit commitment by the Government, the Irish Employers Confederation and the ICTU to exercise their particular responsibilities fully towards creating the general understanding referred to above and the environment in which an incomes and prices policy, based on this understanding, would have reasonable prospects of success.
The third requirement is that the general trends of productivity, prices and money incomes in the economy should be reviewed periodically and guide-lines enunciated for increases in money incomes for the appropriate period ahead (which need not be as short as a year).
The fourth requirement, therefore, is to translate the NIEC guide-lines into terms which are operationally useful for those who would be engaged in detailed negotiations on wages and salaries.
That report looked forward to the development and the establishment of a new employer/employee relationship. It says:
A comprehensive incomes and prices policy would, however, need more institutional backing than this.
There is, therefore, need for a deeper analysis of the relationship between incomes, prices, productivity and employment; for the development of a wider public understanding of those relations.
The report goes on to discuss at some length two ways in which the functions set out could be performed: first, by establishing an independent incomes and prices board and, secondly, by using the existing bodies—the Labour Court, the prices section of the Department of Industry and Commerce and the Fair Trade Commission, which are already concerned with some aspects of these functions.
As an economist, I honestly think the Government should consider seriously implementing the recommendations in that report. They are vital to the survival of our economy. In the Budget the Minister for Finance referred to initial discussions he had had with employer and labour interests, but I would like to see the Minister for Finance, the Minister for Labour and the Minister for Industry and Commerce coming together and producing an acceptable prices and incomes policy. The present system of price control has failed and there must be a fresh approach.
I welcome the increases in social welfare allowances but no allowance is given for the dependants of recipients. The subvention to agriculture is not such as favourably to affect that part of our economy. Because of increased prices more will be taken out of agriculture than will be injected into it. It is a pity, but it is a fact, that the farmer will pay heavily under this Budget. The tax adjustments have complicated rather than simplified the situation. The turnover tax will lead to excessive price rises. That is already becoming apparent and the prices section of the Department of Industry and Commerce is not capable of coping with the situation.
There is nothing in the Budget to contain inflation or combat the dangerous situation in which our balance of payments is. I was looking forward to some export incentives, not only for new industries but for old established industries. The latter have been neglected to a certain extent. We are facing a very tough year. Negotiations are to commence for entry to the EEC. On the home front we are faced with unprecedented inflation. There will be a rise of 10 per cent or 12 per cent in the consumer price index. This will not help us in our negotiations for entry to the EEC. It will bear heavily on our export industries. Let no one make any mistake about that. I believe there will be an autumn Budget in an effort to combat inflation and redress our balance of payments situation. Such a Budget would have been rendered unnecessary had marginal corrections been made over the past few years to combat inflation, to contain imports and to promote exports. Such marginal corrections would have resulted in a complete avoidance of the present serious situation. The Fianna Fáil Government must bear responsibility for the present economic crisis as it must bear full responsibility for the current political crisis.