I rise to support this budget and I am pleased to be in the position of speaking immediately after Deputy Haughey because, having been here to listen to him, I shall be able to make a few general comments regarding his remarks. Deputy Haughey spoke well and in a low key. This was entirely in contrast with the strident approach of spokesmen in the Opposition who used such unacceptable terminology as "fraudulent" to describe the budget.
Having said that, I shall address myself to the budget and to our economy. In saying that we should be concerned with having an equitable tax system as a basis for social justice, Deputy Haughey is merely reiterating the remarks and comments of members of the National Coalition Government because we would suggest that what we are about is the development of an equitable tax system as the basis for social justice. There is the necessity within our country for social justice. Our people, as a whole, support the view that there must be social justice but, perhaps, the major area of disagreement at present relates to the measures by which we shall pursue this objective. Much of the debate regarding our economy and regarding the mining legislation which the Government propose to introduce has revolved around these factors and the opponents of the measures which the Government propose to introduce have been attempting to tell us that the implementation of these new policies would spell economic disaster for the country. In other words, many of these opponents of ours would admit the necessity for reform and for social justice but would suggest that the measures we are adopting, while of short-term benefit, would, in the long-term result in the ruination of the economy.
Taking into account the fact that we need these improvements in social welfare and in the social area in general, I would address myself to the tax system, to the economics of the situation, to the position of this country in the economic world and I would argue that the development of the policies of the Government in this area would not in any sense lead to a reduction in the economic development of our country.
Deputy Lynch referred to what he termed the present outflow of funds from this country. Similar references were made by other Opposition Deputies but from the information available to us it would seem that there are no grounds on which to base a statement to the effect that the balance is on capital flowing from this country. On the contrary, there have been suggestions recently, even since the introduction of the White Paper on capital taxation and since the initiatives taken last year by the Government, that the balance has been to this country rather than from it. This is entirely in contrast with the suggestions made by the economic spokesmen of the Opposition and by certain financial journalists. I am sure that the Minister for Finance, together with his advisers in the Central Bank, are keeping the situation under review because, obviously, it would be undesirable that there should be a trend such as that suggested by Deputy Lynch. In a relative sense, if we are comparing the Irish economy, we must compare it with other economies; we must compare it internationally. In Britain today there is an estate duty tax to which Irish funds invested will be subject. We find that the Government there are implementing tougher taxation measures than we have been implementing here so that, relatively, our position has not in any sense been eroded. To bring that point up-to-date and, again, arguing entirely from the economic standpoint, if one were to listen entirely to the remarks of the Opposition spokesmen, the budget would seem to be spelling economic disaster yet in the financial pages of The Irish Times of yesterday we read that the budget is likely to aid share values. This is the evidence to which I am pointing to show that the economic situation is healthy. The financial journalist who wrote the article I am referring to goes on to say that the proposed deficit should boost growth by more than 4 per cent while no specific tax impost has been put on companies. He states further that the general increase in purchasing power which can be anticipated both as a result of the budget and of the national wage agreement should help retailers of non-durable goods. Therefore, it would appear that this budget is acceptable to financial interests.
To indicate further the degree to which that journalist was prophetic, I would refer to the financial press pages of two of our national newspapers this morning. In one there is a headline which states that the market is better after the budget and the article goes on to state that the Irish stock market yesterday showed an improvement. In another national newspaper this morning we read a statement which tells us that the market responded favourably to the budget and with broad gain and it goes on to state that the upsurge of business continued to have a steady effect on the market yesterday after a milder budget than was anticipated. The article goes on to say that equities throughout the list showed good advances. In other words, the budget has been accepted broadly so far as economic and financial interests are concerned. When the chips are down we must judge not from the use of such terminology as "fraudulent" but from the volume of the investment of funds and the movement of funds on the stock exchange. In a sense the present position is analagous with the position that prevailed after the Government announced the introduction of measures relating to the mining industry. For a few days after that announcement we had the same strident noises and the same comments, mostly from vested interests, as we are having now. We had suggestions that the bottom would fall out of the mining industry. Yet although there was a temporary falling off in mining share values, we are now back on an even keel so that the economic indicators are there to suggest that what the Government did was acceptable ultimately to the interests involved. In terms of the degree to which the nation will benefit from mining profits the Government's action was acceptable generally to the country.
The budget is orthodox and in addition to being adventurous it is prudent. It is interesting to note that it was produced after the two months of the greatest crisis to befall the western world since World War II.
The energy crisis of last autumn had a catastrophic affect in Japan, North America and all of Western Europe. That was followed by a series of major crises in Britain, politically and economically, economically to the degree that the working week was cut to three days. Traditionally our economy has been dependent to an extraordinary degree on the British economy. However the prudence, the adventurous spirit and the stability of the budget of this week are a tremendous achievement in this age of rampant global inflation, especially taking into account the particular difficulties of our neighbouring island.
I would hope that the eventual deficit will follow the pattern of last year's budget. Last year the Minister had a nominal current deficit of £39 million which resulted in an actual deficit of only £10 million, a quarter of the budgeted nominal current deficit. I would hope the bouyancy in the economy and the spending which will be generated by the initiatives of this week will also result in a comparable actual deficit.
There is a background for this deficit budget in that the National Economic and Social Council suggested that 1974 would not warrant the application of restrictive monetary and fiscal policies to dampen development. They suggested that curbing gross domestic output could raise rather than lower unit costs. There is a point there that if one were unduly conservative in approaching this budget in present economic circumstances the result might be to increase rather than to lower costs.
In addition, the recent OECD Report gives carte blanche to the Minister to act as he has done. They state that 1973 was a particularly successful year here as a result of an expansionist budgetary stance and a rapid growth in output. As well, they expressed the belief that it is necessary that there should be policy action to “stimulate demand and output”. They say this would seem desirable and add:
Nor should an increased deficit on current Government budget deficit be considered undesirable.
They follow by saying that such a policy would represent a positive response to the threat to domestic output and employment as a result of the oil crisis. In other words, there is established opinion to reinforce the action of the Minister for Finance in producing a budget which has been vindicated by the results on the Irish stock market in the past few days.
I would tend to be more optimistic than some people regarding our international trade position. Here we are extremely conscious of inflation and the extent to which the cost of living has risen in the past few years. We have to bear in mind that this is a global phenomenon. Those of us who have recently travelled in other countries are extremely conscious of the degree to which there has been rampant inflation in Western Europe. Recently a publication suggested that in the past 12 months the relative increase in wage rates here and in Britain was lower than in any of the other countries in the EEC.
I shall revert briefly to the economic background of this budget and to some remarks made by Deputy Colley in his speech on Wednesday. Probably through lack of anything credible to state, he suggested there had been serious consequences in the industrial development field as a result of the announcement of a mining tax. He was challenged on that by the Minister for Industry and Commerce, who was then in the House, and he could not produce a reply. I now challenge any Opposition spokesman to point to any area in which there have been problems in industrial development consequent on the announcement of the mining plans. At the time Government spokesmen gave a solemn assurance that the tax incentives which had been given to manufacturing industry and which relieved them from tax on exports was a complete guarantee. There is no question of the erosion of that position or of weakening on the commitment to such companies.
In Fine Gael we have a problem to a degree in explaining ourselves at times to the electorate in the sense that Deputy Meaney in his speech suggested the Government had failed to bring in a socialist budget whereas other people, Deputy Power in particular, said that Fine Gael had been swamped by Labour in this respect. The Parliamentary Secretary to the Taoiseach referred to the contra position adopted by Senator Noel Browne and Mr. Maher of the IFA. Therefore we are constantly in this middle ground, being accused by both sides of wearing two kinds of hat.
There is no conflict whatever within the National Coalition Government in the formulation of policies. The reason is simple. Whereas some people among the electorate, and some of our journalist friends, tend to categorise our party as representing certain vested interests rather than a broad spectrum of opinion, the policies adopted over a number of years by Fine Gael were entirely progressive in approach and attitude and were most democratic. The result is that there has been a dovetailing of minds and opinions; and I respectfully suggest that in the various areas where legislation has been produced Fine Gael policy has been merely seen to be consistent with the attitudes expressed in policy documents over a number of years.
I shall continue by discussing the background to our economy and suggest that at the root of it is the fact that, as a relatively underdeveloped nation, in recent years we have had to develop policies that were completely liberal in approach to investment, particularly to foreign investment. There were liberals who would agree that our policies were more liberal than the attitudes adopted by any other country in Western Europe or North America. Because of dependence on the development of industrial employment which was essential to our economy, because of the extremely large numbers of unemployed in our primary area of agriculture, we allowed a situation to develop in which we allowed total ownership to foreign interests. We allowed 100 per cent relief from taxes on export sales, we allowed a completely free hand for management and on the boards of such companies we allowed complete repatriation of profits built up in this country by foreign facilities. This is entirely in contrast with the position, for example in Japan, where the nation insists that foreign enterprise establishing interests in Japan can only be on a joint venture basis and in circumstances in which the Japanese insist on a measure of control by Japanese nationals or by the Japanese Government in such developments. Midway between the policy we have adopted and that of Japan are the attitudes of other European countries.
What I am trying to say is that there has been enormous latitude where investment, production and management are concerned. It is against this background that the policy statements and the White Paper on Capital Taxation have been produced. I would respectfully submit that what is happening is merely a tiny erosion of what had been a completely liberal attitude. It seems to me that as we develop as a nation, as our economy improves, as we create conditions of fuller employment, it will be the duty of Government to review the extent to which we have control of our economy and from time to time, dependent on the degree to which the economy can stand it, it will be necessary for us to take a closer look at some of these situations.
I shall refer briefly to the White Paper on Capital Taxation dealing with a capital gains tax and a wealth tax. The point, to a degree, has been missed. It was stressed by the Minister for Foreign Affairs last night when he pointed to two articles written by financial journalists shortly after the publication of the White Paper and in neither of those articles was there a line suggesting that the basis of it was the abolition of estate duty. It is important, in considering the White Paper, to point out that the positive aspect of it is the commitment of this Government to the total abolition of estate duty from April of next year. Consequent on that decision, which had been made as a result of intense pressure from many interests over the past few years, was the necessity to gather the funds from another source. There were certain areas to which one could look. Obviously, in the light of speculative gains in the country in more recent years, it was deemed generally that an equitable approach to the position would be to arrange for a capital gains tax. I am certain in regard to that and in regard to the wealth tax that the Minister will listen with respect to the representations that will be made to him over the next two or three months before legislation is effected in that regard.
I support the publication of the White Paper, I support the philosophy of the Government but I should like to see a reduction, to a degree, in the percentage of tax suggested in the capital gains area and one or two changes in the wealth tax area, if possible, where private houses of people are concerned.
Deputy Colley posed the question as to what we are as a Government, whether we could decide if we are a private enterprise party or a socialist party. I do not believe that the answer to that question is entirely simple. I should like to throw it back at him and at the Opposition in general and to ask them to decide where they stand, whether they are private enterprise or socialist. One can get too bound up in words and jargon and such phraseology. Obviously in recent years we have had the enormous development of State involvement in the economy. We have had the direct investment of the State through semi-State companies in the development of aspects of our economy.
Because of the fact that the Industrial Revolution had by-passed us and that our level of economic development was much less than that of other countries in the developed world and because our resources as individuals were fairly thin, it was obviously necessary to support this type of development. But if we have a country in which the State plays such a major role and has done under successive Governments, what do we call this type of State? Do we call it a socialist State or do we call it a private enterprise system? I think our policy is adequate in that there is a twin approach. There are areas where the State should certainly become involved in the development of the economy, especially areas where private enterprise has not taken up the options. Equally, I believe it to be terribly important to ensure that an economic climate prevails in which private enterprise is encouraged and I believe latitude should be given in this area. I would suggest that this is the policy of the present Government in that there is considerable latitude and room for initiative.
I shall refer briefly to what is obviously the controversial introduction of taxation where the farming community is concerned. I should like to point to the background. In 1960 the committee on income tax stated that they believed that the exemption of certain farmers from the tax net was inequitable. In 1967 the committee on State expenditure on agriculture recommended that taxation should be introduced. Taxation on farmers exists in eight other EEC countries. We are speaking against a background in which there was a growth rate in the particular industry of 32 per cent in 1973. I come from a farming constituency. Having said that, I agree with the introduction of this taxation. It is possible that I am prejudiced in the sense that the constituency I represent contains the most enormous number of small farmers and I know that their interests are not affected by this measure. But from travelling through the country, in the east and in the south, and looking at the general picture of our economy it would seem to me that where very large farms are concerned, in this case we are talking of merely 9,000 out of 170,000, and it is equitable to introduce a measure of taxation. I choose my words carefully. I know the problems the agricultural industry has had in building itself up in the past few years but I know also that there has been considerable discontent in urban areas about what they believe to be a most inequitable situation where lower paid workers are paying their full share of tax through PAYE. I know that throughout the country there has been a measure of discontent with the situation in which agricultural labourers, earning relatively small sums, have been paying their full rate of tax on their slim wages while those who employed them have had the benefits of an expanding economy both in terms of output, profits and capital appreciation. I believe the country will accept this measure as being entirely just.
Regarding the social welfare benefits, I support the initiatives of the Minister and I compliment the Government on the further rates of increase which at the very least are going to match the extent of inflation over the next 12 months. I would like to refer briefly to the west in this regard because, coming from a constituency which has had the most extraordinary level of emigration and where, due to economic circumstances, we have many people living in our county who unfortunately, whilst most hard-working people with a solid background, are not in a position to earn incomes comparable with those earned by people in the large towns or in the rest of the country naturally I welcome the increase in social welfare benefits. As far as this part of the country is concerned the economy depends on them. The fact that certain people are staying there is entirely because such benefits exist. The net effect, if they were abolished in the morning, would be the denuding of much of this country. Business also tends to benefit when increased social welfare benefits are given because the business people are entirely dependent on the money people have to spend.
I should like to make a few general comments about the economic development of the west against this background. Social welfare benefits are acceptable at a high level and are very necessary in this area. It is even more desirable that the Government should produce initiatives to implement policies which will reduce rather than increase the necessity for large scale social welfare activities. It has been fashionable in some areas to suggest that people in the west do not want to work, that they are lazy and have the ambition to live on the dole. This is completely fallacious. A large number of people from Mayo go to work in Britain and the United States. If you go to any of the building sites in Britain and ask them where the hardest working people come from they will tell you they come from the west of Ireland. The same can be said of any of the people from the west who are working in the United States or in Dublin. The spirit is there and they have the will to work.
It is too scathing to suggest when due to particular circumstances some of the people from the west, stay at home on a 15-acre patch, that they should get busy as bees on such a patch. Obviously, if one opts to stay at home in such circumstances one takes an easy way out. I do not condemn them for doing that. We want to see the development of policies which will result in the creation of industrial employment in the western towns, the development of our land resources to a greater degree, the division of our commonages to allow the land to be fertilised to a greater degree, so that we have the economic conditions prevailing in the western area which will not necessitate our people depending on social welfare benefits to the degree to which, unfortunately, they are at present dependent.
I represent these people and that is all they seek. It is an appalling statement to suggest that the people of the west have this dole mentality. This statement does not bear any relevance to the facts. There are major problems in the west at the moment. Our entry into the EEC was hailed as a possible salvation of the country and particularly of the western area. It was suggested that the commitment to the common agricultural policy and the development of a regional policy would help that area. We have been members of the EEC for some time now and there is considerable disillusionment among the people because they find that the approach in the agricultural area is that of a substantial commitment to farms over a certain level. Unfortunately, due to the farm size in many counties of the west many of these farmers will not have the opportunity to participate in the farm development programmes, the farm modernisation schemes and the schemes which require a minimum income level, so there is disillusionment there.
When we go into the area of regional policy we find that such a policy has not emerged from the EEC. I hope, despite the conflict at present, the problems in Great Britain and France and the disagreement there is about this matter, that a regional policy will emerge. I believe it is one of the pillars of the European Communities to arrange that those areas of the Community which are neglected and less developed than the more populated areas will be supported by subsidies which will come principally through this particular fund. In this country the wealthy farmlands of the east and south have benefited greatly from EEC involvement through the common agricultural policy. I hope when the EEC regional fund emerges the Government will ensure that the interests of the west of Ireland are looked at as far as the spending of this fund is concerned.
It is on funds going into the infrastructures, the building up of roads, water and sewerage schemes, the development of our harbours and grants for industrial development that we will depend. For a number of years many of us have been very dissatisfied with the policies relating to the development of the west. Many of us believe, due to what we term the most centralised policy of any country in Europe, that in the remote parts of the country we have been entirely dependent on decision making in central Government Departments and semi-State agencies in Dublin. We believe that fundamental to the problem of the west is the development of adequate structures, through the development of regional development boards consisting largely of people from the region, with funds voted annually by the Government to allow people to work within the province and planning what they see is of interest in the province. They should be able to do this with a measure of independence.
I would like to compliment the Minister for Finance on a speech which he made in Cork about two months ago when he stated that he was having examined the general question of organisations and structures that should exist if there is to be effective regional development. The 14-point plan produced by the National Coalition parties expressed commitment to the western areas. I know from discussions with the Minister that the Government are very concerned about this matter and that a particular examination is being made of western areas where such regional development is concerned within the context of the Minister's Cork speech. I hope certain structures will emerge in that area for which, when they emerge, the Government will be commended. We can go back over the last decade and see where enormous pressures were exerted on the then Government from vocational interests and from those of us who were politically opposed to the Government, and yet nothing happened. I know from the prevailing attitude that good news will emerge in this area before too long.
At an earlier stage I was dealing with aspects of the taxation policy— the incentives, the disincentives, the White Paper, the capital gains tax, estate duty taxation, the grants available for industrial development and taxation policy. I want briefly to refer again to a matter I think I mentioned a year ago. There has been discussion about the extent to which grants were available or income tax concessions were available for manufacturing industry set up in Ireland related to the profits on exports. The present position is that grants are given to such industries all over the country with the exception of Dublin, and it is suggested that the fact that such grants are not given in Dublin is a disincentive to industrial development in Dublin.
However I should like to point out that the other major incentive which was given to manufacturing industry is complete relief from taxation on exports of manufactured goods. While the benefit of grants is not available in Dublin, when we look at the tax concessions on export sales we find this applies to the entire country, including Dublin. Multinational companies, in particular, are not very much concerned about finding funds. Generally they can do this without too much difficulty. The yardstick which they would largely employ to assess an investment is return on investment. If we combine the grant concessions which exists in the rest of the country with the tax concession which exists there and make a comparison with the returns that may be obtained from investments in industrial development in Dublin city, we find the differential is merely marginal and not what it seems in the first instance.
One of the reasons for this, and the public do not seem to be aware of this fact, is that we tend to read only about the grant picture and the extent to which we take big wallops of money and hand them out to individual companies. Obviously if you read statistics in which you see that all of the money has been spread around the country and that nothing has been given to Dublin, you may get the picture that Dublin is not within the area of incentives. The facts point to an entirely different position, because half of the entire manufacturing industry is in Dublin city. As a Deputy coming from the west of the country I regard this as an undesirable situation. Dublin has been expanding. For many people in Dublin it has been expanding too rapidly. There are many opportunities for employment in a vast range of services which are provided in offices, hotels, cafes and other business premises. In addition to that, if we are to encourage, as we have been doing through this tax concession, industrial development in Dublin, I do not believe this to be in the national interest.
I want to give a tiny illustration of return on investment which will point to this fact. Take a simple facility in which there is a capital investment of £100,000. Let us presuppose that in rural Ireland the grant level is 30 per cent. This means that the net investment in rural Ireland in a particular industry is £70,000 whereas in Dublin the initial investment is £100,000, because no grant is available. Let us assume that the profit before tax on the facility is £10,000. The Dublin profit before tax is £10,000; that is also the net profit because there is no tax picture. Therefore there is a return on investment in the facility in Dublin of 10 per cent, whereas in rural Ireland the same facility getting a 30 per cent grant would have a profit of £10,000 on £70,000, which would be a return on investment of 14 per cent. The comparison on the return of investment basis is merely the difference between 10 per cent and 14 per cent, which narrows it somewhat and gives the reasons why there is still major industrial development taking place in the city.
The gap is even narrower than that, because this nominal difference in return on investment between 10 per cent and 14 per cent in this test case is not even taking into account the natural disadvantages of industry established in the south-west, the west and the north-west, the natural disadvantages of being removed from the centre, from services and from facilities, the natural disadvantages in relation to the cost of transport of imported goods and export of finished products.
If people want to establish industry in Dublin let them do so, but I do not think it should be done at the expense of State incentives. Having said that, I do not believe for an instant that the Government should renege on the incentives granted to existing manufacturing industries. Rather do I think that over the next year or two they should have a look at the position for future projections in order to arrange a more equitable distribution of industry throughout the country.
I referred earlier to the necessity for the creation of certain development boards in western areas. Recently in that regard the Minister for the Gaeltacht, Deputy Tom O'Donnell, has announced certain initiatives where Gaeltacht areas are concerned through Údarás na Gaeltachta. I commend the Minister for his initiative since his appointment as Minister for the Gaeltacht. I believe he has given that part of the country an attention which it had not received for many years, because of his special interest and sole responsibility. Under the previous Government the Gaeltacht was incorporated in the Department of Finance, which was probably the busiest Ministry of the State, and consequently it was neglected. However I would draw this analogy: if it is necessary and desirable that there should be certain organisations and a certain approach in Gaeltacht areas for economic development, I would suggest that there is an equal necessity, as I pointed out earlier, for such an approach to those parts of our country which are underdeveloped but which are not in the Gaeltacht.
I know of a case recently where a particular town in Mayo sought inclusion in the Gaeltacht. We have reached an unacceptable stage when any town or village would seek inclusion in the Gaeltacht, not because they would claim their area is an Irish speaking area but because they believe they should be entitled to the grants, facilities, and State investment which are available to Gaeltacht areas. If the policies that have been adopted over a number of years are producing this appalling attitude, where people must get in under the umbrella for economic purposes only, I believe a policy should emerge which will provide equal incentives and opportunities in underdeveloped areas. I certainly support the viewpoint that there should be a separate policy for the Gaeltacht, especially in the area of culture, language and identity. But, as I say, there should be a similar approach to underprivileged areas regardless of whether or not they are Gaeltacht areas.
I should like to refer briefly to the energy crisis and the consequences for Ireland. Unfortunately statistics suggest to us that we are more dependent, in a relative sense, on oil than many of our partners in Europe. In industry, for example, we seem to be dependent to the extent of 68 per cent of our requirements on oil as an energy source, whereas the average in EEC countries is 35 per cent. This poses the considerable problem we have at present. Part of the reason for this is that we do not have the energy resources of other countries. It has been suggested by OECD that it will increase gross domestic product by between 3½ and 4 per cent which would be the largest in any of the countries for which OECD has responsibility. Consequent on that I should like to see the Government vigorously pursuing the development of offshore oil activity in those areas where we have a responsibility and a function. We have seen the developments in Norway and in Scotland. We read of the extraordinary degree to which the development of offshore oil can contribute to the economies of Britain and Norway. It seems that our country is so very dependent on resources and so underdeveloped compared with other countries that this offshore oil could provide for us an equal contribution and, in relative terms, a greatly increased contribution.
I welcome the recent statement of the Minister for Industry and Commerce that he has this matter under active review at present and that he sees a future where there will be an amalgamation of private and public interests in such development and I shall listen with interest to his further comments in this area which I think we should exploit as rapidly as possible.
Associated with the energy question, we had to some extent been given to understand that our peat resources were exhausted. Yet, suddenly when the energy crisis blew up we found that Bord na Móna were in a position to announce a programme for the spending of £20 million on the development of such peat resources. I welcome this announcement because it concerns a prime resource the net effect of the development of which will be the creation of employment and the reduction of our dependence on sources of imported energy such as oil.
The only adverse comment I would like to make in regard to this statement is that it seemed to be concerned to a very large extent with bog development in the midlands. I should like to see the board coming to my part of the country where we have substantial peat resources which I should like to have examined as a matter of urgency, particularly in North Mayo where there is a vast acreage available and where the labour force is there to help in doing the job and where there is an ESB generating station to absorb some of the peat which would be produced. There have been suggestions that the deposit is limited. This is controversial and is generally not accepted by local interests. I would welcome a thorough investigation of the position with a view to the development of the bog in Mayo.
To summarise, I support the budget: I believe it will continue our progress. I believe that deficit budgeting in present circumstances is justified, not necessarily to be repeated every year. This approach was vindicated last year and I think it will be vindicated to an even greater extent this year. Any other policy adopted by the Minister might have led to stagnation in the present very difficult circumstances. I congratulate the Minister.