When I reported progress last night I was discussing the problem of the financing of the capital programme by borrowing to an extent in this country which is out of line with the practice in most other countries. I was noting the fact that there is a divergence between the methods by which a budget deficit is calculated in the finance accounts and in the national income accounts. From the point of view of national comparison, it is the latter we must use. On the basis of these national accounts where, in our finance accounts sometimes a deficit appears, there emerges a certain surplus. This may seem comforting. But it is only when one compares the kind of budget surplus in the current budget, and the scale of the contribution that this current surplus makes to the capital programme, with the figures in other countries, comparing like with like and employing the same comparative system, the national accounts presentation for this purpose, that one begins to realise how out of line we are with other countries and the extent to which we are and have been engaged in something of a rake's progress in the financing of our capital programme here.
I have been extracting certain figures from the relevant statistical publication. May I comment that here, as elsewhere, we are ill endowed statistically. When I inquired in the Library of this House for the comparative national accounts figures of the OECD, no copy was available. One had to be got from the Department of Finance, but the one the Department of Finance had was an out-of-date copy. I had that morning consulted in the Central Statistics Office Library the 1969 edition, but the Department of Finance had only the 1968 edition. That was a bit disturbing to begin with. Nevertheless, from the figures in the 1969 publication and from some other calculations I did with more up-to-date figures which I got, I have come to the following conclusions as to the extent to which we are out of line with other countries in the financing of our capital programme.
What proportion of the current budget is saved? Going back over five years in this country—because to take one year is unfair and is liable to lead to distortion—one discovers that in that period, using the more generous national accounts criteria, we have on average saved 4 per cent. Current revenue, as defined for national accounts purposes, has exceeded current expenditure by a margin of 4 per cent. In finance accounts terms, there is very little difference at all. Let us compare these figures with those of other countries. In the same five years the proportion of the current budget which was able to be used to finance the capital programme in Switzerland was 33 per cent; in Denmark, 22 per cent; in the Netherlands, 16 per cent; in Norway, 15 per cent; in Sweden and Germany, 14½ per cent; in Austria, 14 per cent; in France, 13½ per cent; in the UK, 10 per cent; in Italy, 8 per cent. There is a certain range of variation here. Switzerland is perhaps the odd man out with a very high figure, but the great bulk of the European countries manage to save between 13½ per cent and 16 per cent of their current revenue, and to set it off against capital expenditure to finance their capital programme in part or in whole in that way. In this country in the same period the figure is 4 per cent. The only country which has a worse performance than ours is Belgium. Italy is the next worst, but they did twice as well as we did. Most European countries save three and a half or four times the proportion of current budget that we have saved over the past five years.
Let us consider the capital budget and how much of it has to be financed by borrowing. In half of the countries for which I have information the capital programme, far from being financed by borrowing, itself involves net lending to the rest of the economy. This is true. In Norway 62½ per cent of the funds available for the capital programme are available to lend out. In Denmark, the figure is 40 per cent; in the UK, 40 per cent; in France, 10 per cent; in Sweden, 15 per cent. All these countries have no question of borrowing for the capital programme. There is no question of net borrowing. In fact, on these national accounts criteria, in all these countries they were able to finance their capital programme from current revenue and from the returns from past investment. There was money to spare to lend out to the economy. The Government were helping to provide additional credit to the economy. In certain countries the situation was different. In Germany last year there was some borrowing to finance 8 per cent of the capital programme. In Ireland the comparable figure is 56 per cent. There is no relationship between our performance and that of other countries.
The Government adverted to this in 1962 and 1963, but did nothing about it. We cannot continue indefinitely on this basis. In saying this, I am not criticising the Government's economic approach to this year's budget. The problem is not that they did the wrong thing or went in the wrong direction, but that they started from the wrong place. Over the last ten years, they should have got themselves into better posture. They should have got the finances of this country into a condition more akin to that of other countries. They should not be in a position where an enormous burden of additional borrowing occurs every year to finance the capital programme, only a small fraction of which is, in fact, financed from current surplus. In saying this, I know that I can be accused of economic orthodoxy. Perhaps nowadays that is something of a crime. Much can be said for economic orthodoxy and social heterodoxy. There is no necessary divergence between trying to run a country in a sane manner and trying to control inflationary pressures and trying to pay, so far as possible, as one goes along. There is no necessary conflict between that and a policy of redistribution of wealth on a scale far beyond anything practised here.
We have gone in for economic heterodoxy, for a policy in regard to our finances which is difficult to defend in terms of what is in the interests of the country. At the same time our social conservatism is without parallel in Europe. We have got everything the wrong way around. I should like to reverse that and have a slightly more orthodox approach to our finances and a very much less orthodox approach to the question of social policy to which I shall be coming back later on.
I want to ask the Minister if in the presentation of our finances accounts we could have a little more consistency. If we cannot have consistency for technical reasons could we have a little more explanation? I have puzzled over the reconciliation of the figures in the central Government capital account, that is, table 2 of the national accounts classification of the budget. I am puzzled over how to reconcile these figures with the capital programme figures. No indication is given as to how the two can be reconciled. There is no relationship between them. No two figures correspond.
Where different presentations are made to Deputies we are entitled to be given some indication as to how the figures reconcile with each other. I doubt if I am the only Deputy who is puzzled in looking at these figures and trying to make head or tail of them. I suspect that many Deputies would find this a difficult task. There is not much point in producing new forms of presentation, themselves helpful, if they are not in some way linked to the figures we have already, and if we are left in mid-air, not knowing how to relate one with the other. I would ask that some attention would be given to that in the future. In trying to look at the problems I am looking at at the moment, I find myself at a loss in this respect.
What is the consequence of the kind of budget we have this year starting from the point from which we started? Despite the fact that in this year's cappital programme there is a much bigger contribution from the State bodies— 25 per cent more—and despite the fact that the Government hope for—and it can only be a hope, an expectation— a 40 per cent increase in the sale of securities, including national loan, and hope for a rise of over 20 per cent in small savings—and some of these hopes may turn out to be a bit optimistic—the budget as now presented involves borrowing from other sources, from banks and foreign borrowing, almost 60 per cent more than last year. That is not a very happy picture. Our finances were not in a very good condition before the budget was presented.
Having made these optimistic assumptions about increases of 20 and 40 and 25 per cent under most of the headings in the capital budget, to be left with a residual to be found from borrowing from the banks and foreign borrowings 60 per cent greater than last year—that is £93.8 million as against £59.2 million—is certainly disturbing. Fundamentally a Government who use fiscal measures to reflate but who never use them to deflate could wreck any economy. That has been the policy of the Fianna Fáil Government for the past ten years and it has got us into the difficult position we are in today.
Turning back to the OECD report, there are some comments in it on which we would like to hear the Minister when he is replying. For example, there is the reference in it to incomes policy. The report says that rapid and forceful reflationary measures—and I suppose the Minister would like us to think that his budget represents rapid and forceful reflationary measures—if they are to achieve the desired results must be preceded by action to bring cost price developments under control.
Could the Minister tell us (a) what action has been taken to bring cost price developments under control or (b) would he confirm that he has ignored flagrantly the advice given in this respect by the OECD? I do not see much of an alternative. The wording here is specific. Either the measures the Minister has taken are not rapid or forceful—that is possible—or if they are, they either have been preceded by action to bring cost price developments under control, in which case we should like to be let into the secret of what these measures are, or he has not taken such steps in which case he has ignored the advice given to him which I would have thought unwise in this case.
Later on the report goes on to say the same thing in slightly different and perhaps slightly vaguer language. It says that a solid and broadly based resumption of growth could come quickly but only if inflationary pressures continue to slacken. I am not too content that they are continuing to slacken. In this report, and in some Government statements, there are remarks to the effect that the increase in the cost of living was slowing down. We are told in the OECD report, which is out of date in this respect, that in the last threequarters of last year the increase in prices was only 8½ per cent as against 10 per cent.
God be with the days when we would regard 8½ per cent as a dangerously inflationary price increase. Now it is a matter of sighs of relief all round, but the sighs of relief should be short-lived because the latest figures for the period February, 1971, to February, 1972, show that we are back on the 10 per cent path again. The claims made frequently in this House by the Minister over the past year, and repeated in the OECD report, obviously prepared some months ago, that we are getting inflation under control, are simply not sustained by the facts. The facts are that there is a 10 per cent increase in the period February to February, as big an increase as we have had even at the height of this inflation, say, 12 months ago.
Speaking of the longer-term growth strategy which the Government should adopt the report said that such strategy is necessary if problems of growth, employment, inflation and external balance are to be dealt with comprehensively and if we are to promote the structural changes required to meet the challenge of EEC entry successfully. I endorse that, but where is the longer-term growth strategy? Where can we find it? In what document? In what publication? In what speech by a Minister?
I know there was a Third Programme some years ago. I shall come back to that later. In fact, I will be coming to it next. If that is the longer-term growth strategy it is now so askew that it cannot carry much conviction. I do not think anybody believes that that programme, in its present condition, will help to promote the structural changes required to meet the challenge of EEC entry successfully. If there is one thing that we are good at in this country, it is avoiding structural changes. If there is one thing the public service is dedicated to, it is avoiding structural changes within the public sector. There is no evidence whatever of any structural changes coming, of any long-term growth strategy for that purpose, or of any attempt to tackle in some coherent way the problems of growth, employment, inflation and external balance. From year to year the Government adjust their policies. There is short-term planning but it is somewhat ineffective in keeping inflation at bay or in avoiding the need for successive deflations every five years. These adjustments are made as and when they are necessary. There is no long-term growth strategy
The nearest thing to it was the full employment report of the NIEC to which the Government's response was to pigeonhole the report, get rid of the NIEC and refuse to appoint a successor body, which is not exactly an encouraging approach to the only people in the country who tried to produce the makings of a long term growth strategy. Indeed, while I am on that subject may I remark that the Government's attitude on this has been petty and puerile. The idea that there can be no such thing as a body in this country to deal with economic planning on which any Member of the Oireachtas sits, and that the Government's monopoly of information must be jealously guarded, is one which we cannot accept, and which we will continue to criticise vigorously. The Government know that there is no basis for this.
I was a member of the general purposes committee of the NIEC for a number of years. The Government know that, in all that time, anything I learned in the course of the work we were doing was kept to myself. I never communicated any information I got to the Opposition party of which I was a member. Confidence was maintained. There was one occasion in the Seanad when the Taoiseach suggested the contrary. He suggested that in what I had said in the Seanad he detected signs of something in a report of which he had a copy but which had not yet been published.
He was not aware—I suppose I cannot expect him to read everything I write; that would be asking rather much of him; he was then Minister for Finance; and when I pointed it out to him he immediately accepted it— that the relevant section of the report arose out of ideas which I had published in an article in The Irish Times several years previously. I was at least entitled in the Seanad to repeat what I had said in my own articles two years earlier. The fact that they had been incorporated in a report of the NIEC was hardly a reason for remaining silent about my own ideas as published in the Press. Apart from that misunderstanding no accusation of this kind was ever made or could ever have been made. In those circumstances for the Government to say that no Member of the Oireachtas may serve on this council, that the council must not come into existence, that the NIEC must not be replaced and that no further consultative work may be carried on, is the kind of attitude that is designed to sabotage national growth.
The Government know very well that the NIEC did useful work in many spheres, useful work for which the Government were grateful at the time. No doubt, some of their work embarrassed the Government, but there were times when the work of the NIEC bolstered and backed-up a weak Government and helped them in their problems. All the Government have done now is to abolish that body and to refuse to replace them on the grounds that they will not have any Member of the Oireachtas having any function in any body of this kind. This is a retrogressive policy. It is a policy that has been pursued single-mindedly by this Government for some years past. It is against the interests of this country and of this Parliament. Persistent attempts to exclude Members of this Parliament from any activities outside in which they might gain experience and make a contribution to the economy outside Parliament are unworthy of this Government. It is something that has never been attempted by any Government and I hope that, when we get this Government out, it will not be attempted by any Government in the future.
Regarding the Third Programme for Economic Expansion I want to consider briefly the performance of this programme to date. We must look at how the economy has performed in recent years. Yesterday I gave some reasons for its poor performance, but let us look and see what really happened. First, when we look to see where growth has occurred in the past three years, we turn to Table A on page 29 of the Department of Finance publication, Review of 1971 and Outlook for 1972, which sets out the sectoral growth rates. Incidentally, may I suggest to the Minister that it would be difficult to find a more cumbersome title for a document than this. Could it not be called “Department of Finance—Progress Report for 1972-73”? The present title is ridiculous and makes it difficult for those of us who have to refer to it often.
In this table we find that in all three sectors growth has been behind target: that in the agricultural sector the total growth in the period of three years has been 4.3 per cent as against the projected figure of 6.3 per cent—that was two-thirds of the projected rate. In industry the growth rate was 13.6 per cent as against 20.9 per cent projected —again, only two-thirds of the projected rate. In the domestic sector the figure was 7.9 per cent as against 10.4 per cent projected.
Therefore, one cannot pinpoint any one sector being responsible and this reflects the fact that what has gone wrong in this period has not been a particular failure of performance in any sector but has been the overall failure of the economy because of mismanagement by the Government, because of the failure to control inflation and failure to introduce any kind of incomes policy at a time when it would have been possible psychologically to do so. Then, there was the consequent need to deflate the economy and the mistake made by this and, indeed, any other Government in the past, in maintaining that deflation for too long. The cumulative effect of these failures has been the slowing down of growth across the board. So much for the outlook side of the programme.
Let us consider exports. Here the picture is somewhat less uniform. We find that the growth rate of exports of agricultural products has been slightly better than foreseen, although this situation has not contributed to an adequate growth rate in agriculture. I suspect that this may be due to a repetition of the persistent failure to appreciate the scale of increased inputs into agriculture required to achieve a given growth outlook. The export figures reflect that share of growth output has required more inputs than was thought likely when the programme was drawn up and, consequently, the added values in that sector have been correspondingly less than target. I suspect that is the reason for the divergency.
In industry, however, the growth of industrial exports has been barely half the planned rate in this period. To some degree this reflects the problems of the British economy. Undoubtedly the stagnation in the British economy during this period, a stagnation that it would have been unreasonable to expect the Government to have foreseen, has led to a short-fall, but I do not think the full short-fall can be accounted for by that. Neither do I think that the slowing down of growth in Britain could account fully for such a remarkable failure as halving the industrial expansion rate. Here, we must have regard to the fact that the inflationary pressures at home, the increases in labour costs which the Government have failed to control, have made us less competitive and that we are seeing some effects of this weakening of competitiveness in the slow growth of industrial exports. I do not wish to overstress this. It is not by any means the main explanation but it is a contributory factor, perhaps to a greater extent than we have realised.
I would ask the Minister to tell us something of the reasons for the permance of the Shannon Industrial Estate which was expected to increase its exports by one-sixth but in respect of which exports have fallen by one-fifth. Precisely what is this due to? Obviously, there are certain industries that are not performing as they were expected to perform. Does this reflect the fact that certain large industries there were hit badly in particular markets? Is there some weakness of a general kind affecting the estate as a whole? If so, is there anything we can do about it? We should not allow to develop a situation in which the Shannon Industrial Estate faces this kind of set-back without having some indication of the reasons and of what action we may take to remedy the situation. It is surprising that more has not been made of this. We are entitled to ask the reason for this pattern.
It is instructive to consider these targets. The purpose of having targets is to be able to go back afterwards and see how performance has been and to try to establish, when performance does not match target, whether there is a defect in the formulation of the target or whether it reflects the fact that something has gone wrong, that our policies have been ineffective or whether it indicates a need to change policy. The main benefit of a system of targets in a mixed economy like ours is that it enables us to review policy and pinpoint those policies that have failed. If there is some problem at Shannon that we can identify now, we ought to be told what it is and what we can do to help. All of us value this industrial estate and we realise the extent of its contribution to the economy. It has the merit also of showing us that it is possible in Ireland to create something new like this, that export industries can be established in a new environment and can succeed. I had a personal involvement in the estate in the early years of its development; and if there is some way in which this House can help them we should do so.
When we turn to imports, we get a rather disturbing picture. This is the one area in which the Government have maintained the target. It is not the target to which I would give priority if I had to choose. Indeed, in the case of producer capital goods the import target has been doubled. I would not worry too much about that. The figure for 1971 which must influence the three year growth pattern is very much influenced by the jumbo jets; but, even allowing for that, if we look at the other figures we find that they are much closer to target than they ought to be when everything else is behind target. In the case of materials for further production the figure is 17.2 per cent as against 19.8 per cent projected. The fact that imports have performed "fairly well"—in inverted commas—and exports badly is not something we can overlook.
Here we have the first concrete signs of the way in which the inflation of costs in this country is likely to erode our competitiveness and, ultimately, undermine the value of our currency. We have gone on too long believing that we can get away with this, believing that it is possible to continue indefinitely inflated costs. We have been misled by the underlying dynamism of our exports. For so long we failed to tap our export potential and when we did so in the 1960s we got a sustained growth of exports. This has misled us into thinking that the inflation of costs has not been hitting us. The truth is that the natural growth of exports in a country like Ireland, which is so underdeveloped as a result of Government inaction in the past, is very high and is such that it can be undermined to a significant degree by excessive cost increases and yet get a continuing growth that is significant. Because we are getting a growth in exports of 21 per cent over three years we could cod ourselves that such growth is adequate. It is not adequate for a developing country like ours. It is far below what we ought to be getting and the fact that it is so low for a country like Ireland indicates that our exports are being undermined by cost increases.
The growing and rapidly growing increase in the import share, which is so well set out and which one can derive so easily from the Industrial Review Table at the back of this report, is another disturbing feature. Taking the years 1966 to 1971 this table shows that in 1966 the share of competing imports in home consumption was 15½ per cent, that is, £104 million out of £650 million. Last year, however, it was over 20 per cent, that is, £227 million out of £1,100 million. An erosion of our position in the home market to the extent of just over 20 per cent in five years is disturbing.
I know there are people who will say this is due to free trade and to some small degree it is, but we should not cod ourselves with that. There is a great danger we shall use free trade as an alibi for our own deficiencies. If you examine the import pattern item by item and take each category of imports, if you divide them into competitive and non-competitive and break them down into imports from Britain and other countries, you can see very clearly that in most categories there is no evidence that the free trade area has had much effect, for the very good reason that in a number of cases the preferential margin possibly was not originally very large.
Whatever the reason, in a number of cases it can be seen that the increased imports that have occurred in this period have been equally if not even more from foreign countries than from Britain. You can hardly attribute an increase in imports to the free trade area if the imports are not coming from Britain but are coming from somewhere else. If one narrows it down to the particular sectors of products in respect of which the import increase is coming from Britain, one finds that the amount involved is quite small in the context of what we are talking about. I think it fair to say that of the five percentage points increase in the import content in these five years you could not attribute more than from 1¼ to 2 percentage points to the freeing of trade. I am not sufficiently expert to narrow it down within that range but adopting two approaches that will yield maximum and minimum figures it lies within that range. Therefore, between 3 and 3¾ percentage points of the five point increase in the import content is attributable to other factors, including the secular trend towards an increase in consumption of imports as living standards rise. However, the secular trend up to 1966 was giving us a half point annual increase.
It is quite evident that if you take out the secular trend towards a higher import content, if you take out the free trade effects of these years, you are left with another factor, something new that has crept in, a factor which is increasing fairly rapidly the import content of home consumption. What that is must be, perhaps, a matter of speculation, but I do not believe it is a coincidence that this new factor leading to a higher import content beyond anything that can be accounted for by other factors such as free trade has happened precisely in the period when our labour costs have risen out of line with the labour costs in other countries, especially in Britain. It is difficult to establish cause and effect in economic matters, but I think it is connected with that.
I believe we have seen here in this period the beginning of a development which could be very serious indeed. One could put figures on it and say that today certainly some £20 million, perhaps £25 million or £30 million worth of goods in this country that have been bought by Irish people are foreign goods that would not have been bought and that Irish goods would have been bought in their places if the cost relationship had been maintained. On the import side it is possible to arrive at a rough calculation of the effects and to say that something like £20 million upwards of home-manufactured goods have been displaced by imports because of the disimprovement in labour costs over and above other factors such as the freeing of trade.
Again on the export side, when one sees a slowing down of growth which again must account for something like £10 million to £20 million, I think one can make an informed judgment that overall the erosion of our cost position in the last few years has cost something like £30 million to £40 million in production. When we convert that into employment we are talking of quite a few thousand jobs, jobs that have been lost in some cases through redundancy, in other cases because people who could have been employed were not employed to produce more because the markets were not there any longer at home or abroad.
In any assessment of the proper trend of future incomes by anybody, employers, trade unions or anybody else, account must be taken of this phenomenon. The trade union movement has a responsibility not only to its present members but to the children of its members, to those who could be its future members, through policies of moderation and income growth to maintain and increase employment. In the last few years there has been a tendency for all the emphasis to be put on higher incomes for those who have jobs, and this has already disemployed quite a few thousand people and led to a failure to employ others who would have been employed in making this £30 million or £40 million worth of goods if there had not been this erosion of our cost structure.
Our trade union movement should feel that its responsibility extends beyond its present membership to those who have not yet entered the labour force, those who have had to exclude themselves from it by emigrating. If its policies took account of the interests of those people and not merely of present employees, this could contribute considerably to the alleviation of emigration and the growth of employment in Ireland.