In accordance with arrangements I shall now call on the Opposition speaker to conclude.
Financial Statement, 1974: Motion (Resumed).
Debate resumed on the following motion:
That Dáil Éireann takes note of the Financial Statement made by the Minister for Finance on 3rd April, 1947.
—(Minister for Finance).
The fraudulent and irresponsible nature of this budget to which I referred on the day it was announced to the House having been exposed, the keynote of the speeches from members of the Government can only be described fairly as bluff and I propose to show why this is so. Possibly, in anticipation of that exposure the first sentence by the Minister for Finance in presenting his budget was a statement which is not correct. I quote from column 1422 of volume 271 of the Official Report for the 3rd April, 1974:
The success of last year's budget policy is illustrated by the near record rate of 7 per cent growth achieved in 1973....
If there is one thing that has been demonstrated clearly by a number of speakers on this side of the House, including myself, and by a number of independent economic commentators both in the House and outside, it has been that last year's budget was not a success in the sense in which the Minister referred to it. Indeed, it has been shown clearly that the growth achieved in our economy took place in the early part of the year, most of it while the previous Government were in office, and that by the middle of the year, as a member of the ESRI remarked, stagnation had set in.
Despite the fact that this is demonstrated clearly by all the indicators available, not only did the Minister for Finance begin his statement in the manner to which I have referred but many Members on the other side of the House, including members of the Government, proceeded as if the statistics did not exist which show that stagnation had set in. These speakers quoted the growth rate and such other factors as employment as if these were the result of last year's budget.
In this year's budget the Minister dealt with the question of income tax allowances. On the day of the budget statement I said that one of the reasons why I described the budget as being fraudulent was that the workers of this country were being given to understand that they would get substantial income tax reliefs and were not getting any such reliefs. I suggested that the very least that could have been expected was that the Minister would restore the income tax position to what it was when Fianna Fáil were in Government. Was that a reasonable proposition? Was it reasonable when one considers the solemn public commitment made by the present Government, admitted by them to be with a view to creating a climate in which a national pay agreement would be accepted? I suggest it is reasonable and that if one reads the records of the debate on the budget, it will not be possible to find as much as one word from any Deputy on the other side of the House endeavouring to controvert that proposition. The only thing—and I could not suggest that this was endeavouring to controvert that proposition—was that the Minister for Industry and Commerce hurled a great deal of abuse at me when he talked on this subject. He said that I was endeavouring to undermine the national pay agreement. Of all the people in this House the Minister for Industry and Commerce should have been the one to have remained silent because he is the man who made a fool of himself by suggesting that Fianna Fáil had been responsible for the rejection, in the first instance, of the national pay agreement. Indeed, he went on to make an even bigger fool of himself by rejecting out of hand my suggestion that in order to create a better climate for the acceptance of a national pay agreement the Government should make a commitment in regard to income tax allowances. The response from the Minister for Industry and Commerce to that suggestion was that it proved that Fianna Fáil deserved to be in Opposition. However, a short time later, the Government had to do precisely what I suggested, having overcome the insuperable difficulties referred to by the Minister for Industry and Commerce and by others in relation to budgetary secrecy, a proposition which in this context had no basis.
At column 1526 of Volume 271 of the Official Report for the 4th April, 1974, the Minister for Industry and Commerce said, and I quote:
...There was no reform of income tax and no facing up to this injustice until we came to power...
In the same column he said:
...The release of 60,000 people from the tax net is a very significant reform in income tax.
In our last budget, 50,000 taxpayers were released from the tax net but that, in the view of the Minister for Industry and Commerce, represented nothing in the way of facing up to the situation. However, when 60,000 people were released from the tax net, some of them for only a week or so, that was regarded by the Minister as being a significant reform in income tax. There has been no significant reform in income tax here for many years. There is no such reform in this budget. Shortly before I left office I was expecting a report on the reform of the income tax code but I had left office before it became available. At least, I presume it became available to the present Minister, but in any case I do not know what it might have contained although I know that what the Minister announced in this budget was merely a copy of what was done in Britain a few years ago. It does not represent any fresh thinking on the question of reform of the income tax code. The real reform with which workers are concerned is the level of income tax which they have to pay. Under this budget many of them find themselves, in relation to income tax allowances, twice as badly off as they were after the last Fianna Fáil budget of 1972.
We also find that the Minister in his budget statement announced a new provision in regard to income tax, the effect of which is to increase substantially the income tax liability of thousands of workers employed in factories set up under Fianna Fáil. I want to make it clear that it has been, and continues to be, basic Fianna Fáil policy to try to ensure as far as possible that we would provide employment, especially industrial employment, in certain areas for people on small holdings who could not make in any circumstances a reasonable living on the land. We were very successful in that programme.
As I said, there are many thousands of workers in the position in which they have employment in factories and they have a small holding and, as a result, they have a reasonable standard of living. Research has shown that in these cases the level of working of the land has been stepped up considerably, primarily because they had a little money available to invest in their land. This provision announced by the Minister runs directly contrary to the fundamental concept of Fianna Fáil policy which we have been pursuing over the years. So far as we are concerned we are totally opposed to it.
There is another aspect of this matter to which I referred yesterday at Question Time. Under the provision announced by the Minister even a married old age pensioner living on a few acres would now find himself paying £92.30 income tax. In his statement at column 1454 of the Official Report of 3rd April, 1974, the Minister said:
...it is proposed that, in the case of farmers not now being brought within the scope of income taxation, only one half of the appropriate personal allowances will be set off against non-farming income, whether of the farmer or of his wife. This restriction will apply as from 6th April, 1974.
The Minister tried to suggest yesterday that smallholders will not be affected by this provision. I challenge him to demonstrate in what he said in his budget statement that there was any exclusion whatever for smallholders. Yesterday, when he produced an estimate of the number of taxpayers likely to be affected by this provision, he was asked what level of valuation did he use to arrive at that estimate. He could not, or would not, give the information. I want to make it quite clear that if the Minister comes here with the Finance Bill to mend his hand in this regard he will have done so because of the exposure of this iniquitous provision by Fianna Fáil.
When speaking on budget day I said that it was fraudulent of the Government to be giving out repeatedly pious platitudes in regard to inflation. At the same time, by last year's and again by this year's budgets, they were deliberately fuelling inflation themselves. The Minister and some Government speakers have spoken rather glibly about stepping up the growth rate. Listening to them, one would think that all that was involved was to pump in more money, budget for a deficit and growth increased. If this were all that were to it, one could ask the Minister: "Why have a deficit of only £66 million for the next 12 months? Why not have £660 million and we would all be happy?" The reason is that this is a much more complex operation. One must take into account the capacity for growth in the economy and try to aim at achieving an injection into the economy of a sum of money which will utilise that capacity and no more. If one pumps in more than the capacity of the economy can absorb, one is directly fuelling inflation, directly putting up prices and directly increasing imports.
On the question of the deficit in this budget we had a very interesting performance from some members of the Government. I think I am entitled to point out that I was the first Minister for Finance to budget for a deficit. I did so having regard to the economic circumstances then obtaining. It was agreed at the time that it was justified on all sides and the result showed that this was so. At that time, I had a fear, and I expressed it, that some day I might be succeeded by a Minister in a Government which was irresponsible and careless of its responsibilities. If that happened the political temptation to budget for a deficit with regard only for political and not for economic considerations would be very grave indeed. My fears in this regard have, I am afraid, been justified by what has happened with this Government particularly in the budget.
The Minister for Industry and Commerce commented on this question of budgeting for a deficit. He commented on something I had said on the 3rd April, at column 1492 of the Official Report. It is interesting to compare what he said with my comment. I said:
...Instead of that we have had this unbelievably irresponsible Budget Statement by the Minister, backed by every member of the Government, of a £76 million deficit in circumstances in which no reputable economist could possibly justify such a deficit.
The Minister for Industry and Commerce, speaking on the 4th April and reported at columns 1538-9, commented on my statement as follows:
If we are being grossly irresponsible we are being so with advice from many advisers who apparently are grossly irresponsible also. A lot of our advisers are very important people who are serious economists. Deputy Colley doubted last night whether any reputable economist would make such suggestions.
I challenge the Minister for Industry and Commerce or the Minister for Finance or any other member of the Government to produce one reputable economist who advised that in our circumstances today we should budget for a deficit of £76 million or £66 million, let them choose either figure as they like. I challenge them to produce any evidence of that.
I would suggest that the Minister for Foreign Affairs, when speaking on this matter, was straining very hard, when quoting the independent advice offered from various sources, to try to show that the advice amounted to achieving an additional growth rate of 1½ per cent instead of 1 per cent. Perhaps this is not as serious as it might sound because he was doing his best to stretch the thing to get somewhere near the deficit that had been announced by the Minister for Finance; but when it came to the crucial question of what is the correct deficit to produce a 1½ per cent growth rate increase, he could not refer to any published advice. What he said was that he had checked with the Department of Finance and had been informed that the deficit in this budget was the right figure to produce an increasing growth rate of approximately 1½ per cent. He did not, unfortunately, give us the details of the information he said he had got from the Department of Finance.
Perhaps the Minister for Finance, when replying tonight, will oblige us by giving us the exact basis of that calculation. Many people, including economists, would be interested in it. Indeed, I suspect it might have some great historical interest because it would most certainly mark the discovery of some new economic law, and that is something that should not be hidden from the public. The Minister owes it to posterity if not to us to produce the precise figures on which that was based, if the Minister for Foreign Affairs was correct in what he said.
Of course the truth is that in considering a budget deficit one has to consider what is termed in economic jargon as the balanced budget multiplier, that is, even if one does not have a deficit, with a higher level of spending there will be a certain amount of stimulus injected into the economy. However, this in itself would not have been sufficient for our purposes this year, and so there was a need for an additional deficit. The question is how much? I agree, and concede quite freely, that there is no clear-cut, precise way of calculating this, but if we operate on the basis of a multiplier of about two— and there is a good deal of authority for this, including strangely enough, in another context, the present Minister for Foreign Affairs—our additional output would be about twice the size of the initial stimulus. Therefore we would need an additional deficit of £15 million on top of the opening deficit of £10 million, making £25 million in all.
These figures are necessarily crude, but at least they indicate the order of magnitude involved. I would be prepared to accept a plus or minus of several millions if somebody produced more refined calculations, but there is no basis for accepting that the deficit must rise from £10 million to £66 million, an increase of £56 million, which is nearly 2 per cent of the GNP, to produce an additional 1 per cent growth rate. I am prepared to accept that we will get an addition of only 1 per cent, and that is precisely the point that I and others on this side of the House have been making—that if you put more in the way of a deficit into the economy than is necessary to produce a 1 per cent increase in growth rate, then you are directly and deliberately fuelling inflation; you are shoving up prices, you are increasing imports and of course you are not in that way helping to raise output or to increase employment.
It is interesting also to consider the whole change of policy involved on the part of members of the Government now as compared with our line of approach. The Minister for Foreign Affairs, when speaking on the budget, accused Fianna Fáil of sticking to one policy, of being consistent. We have no complaint about that. We will continue with policies that we have found to be effective unless new evidence or new circumstances arise, but one thing is certain: neither the Minister for Foreign Affairs nor the Minister for Finance can be accused of consistency in this matter. For instance, the Minister for Foreign Affairs in an article in The Irish Times on 3rd March, 1971, discussed these problems. I would remind the House that at that time growth in the economy was somewhere between zero and 1 per cent. In the light of that it is interesting to consider the comments at that time of the Minister for Foreign Affairs. I quote:
To counter these measures—— He was speaking of inflationary pressures.
——the Government should have cut back the growth of public expenditure, both capital and current.
Later on he stated:
In a year in which Government borrowing both for new projects and for the redemption of old loans had to be at an exceptionally high level anyway, the unprecedented acceptance of an £8½ million deficit in the November Budget aggravated still further the Government borrowing problems.
Later on:
Part of the problem derives from the unhappy reliance on borrowing for almost the whole of the financing of the capital programme. Budget surpluses are a rarity in Ireland and even if one takes account of the fact that the Irish Budget conventions in respect of the classification of expenditure, either capital or current, are by international standards unduly strict— about 10 to 12 per cent of what is regarded as current expenditure in our Budget is treated as capital expenditure in both international and domestic presentation of our national accounts—the proportion of capital expenditure financed from current revenue is small.
and so on. I could quote further from this article but it would be on the same plane. The Minister for Finance is on record from this side of the House complaining bitterly about the increase in Government expenditure.
Compare that attitude with the attitude now when we get a huge budget deficit which no member of the Government has seriously attempted to justify in economic terms and you will agree with my assessment that whatever else members of the present Government may be accused of they cannot be accused of consistency, as we were by the Minister for Foreign Affairs.
Last year the Government deliberately fuelled inflation by increasing the price of almost everything and by injecting into the economy on the capital side money which under the Central Bank guidelines to combat inflation should have been kept out of the domestic economy. Having, as I described in my speech on budget day, scrambled madly around for capital, the Government resorted to unprecedented and, I would suggest, dangerous measures to get their hands on capital.
It is extremely significant that no member of the Government who has spoken during this debate has not alone attempted to refute what I said but has not referred to this vitally important point of how the Government handled the public capital programme, how they got the money. They have not even commented on what the Minister admitted, in the published capital budget for this year, was an exceptional measure. None of the Government speakers referred to that matter of vital importance to the basic stability of our economy.
On many occasions I have asked the Government to take the country into their confidence on this particular problem of capital. It is a problem and I am not suggesting that it is an easy matter for the Minister to deal with. That is not my complaint. My complaint is that it is an enormous problem and the Minister is trying to cover it up. In the process of covering it up he is resorting to dangerous methods. I should like to ask the Minister to state precisely, what the position was in the last financial year in regard to the sources of capital, the effect of what he did and, in particular, to say what he intends to do in this coming year to procure the capital for a considerably increased capital programme which he has announced.
I believe that we, and the public in general, are entitled to know whether he intends to get that additional capital abroad. Has the Minister information about the state of international markets which would make that likely? The Minister made it clear in the capital budget during the course of the last financial year that the state of the international markets was anything but encouraging for borrowing. Does the Minister hope to get considerably more money from the national loan and savings and, if so, on what does he base that hope having regard to the disastrous performance in the national loan and in savings in the last financial year? Does the Minister propose to repeat what he did in the last financial year but on a much bigger scale? If he does he should tell this House and the public.
What the Minister did last year was dangerous and irresponsible and if he proposes to do the same this year on a bigger scale we are entitled to know and to take whatever measures we can to protect ourselves against the consequences of the continuation of this irresponsible policy. Perhaps the Minister will explain the significance of the advertisement in today's newspapers which would seem to suggest that what is involved is the forced-funding of a loan to the Exchequer by departmental funds of about £45 million. The Minister should explain precisely what it means.
During the course of this debate we heard a great deal from the other side of the House about the great job done by this Government in regard to social welfare. The Parliamentary Secretary to the Minister for Social Welfare spoke at great length about the concern of this Government. If there is any basis at all for these claims perhaps the Minister would explain why it is, in the light of the fact that, according to the EEC report on our economy, a further £30 million is becoming available this year from the EEC, he proposes in this budget to spend only £25 million extra on social welfare in a full year as against £39 million last year. Does the Minister remember a drop of that kind before in the additional provision for social welfare? This has come at a time of rampant inflation, the like of which we have never experienced.
On the day the budget was introduced I spoke about mining. At that time the Minister for Industry and Commerce was very annoyed and indignant at what I said. I said that the Government's announcement of their intention in regard to taxation of mines had brought about risks, damage, and, in some cases, postponement, if not cancellation, of industrial projects. The Minister for Industry and Commerce was very annoyed and he challenged me to produce evidence of this. Of course that Minister was only bluffing because he felt reasonably secure that I would not, if only because of my experience in Government, name particular firms.
I have already dealt with this matter on the Bill dealing with mining taxation and for this reason I do not propose to dwell for any length of time on it now. I should like to say again to the Minister for Industry and Commerce that if there was no damage caused to industrial development, or to potential industrial development, by the Government's announcement on mining why did he, the Minister for Finance, and some other Ministers, and certainly the Taoiseach, find it necessary to go out and make speeches offering to give personal undertakings in writing that the export tax relief for industrial firms would not be withdrawn? Either there was a reason for giving such an undertaking—and if there was it was the Government's announcement on mining—or there was no reason for giving it. If the latter was the case they were creating a very dangerout situation by offering such undertakings.
If the Minister for Industry and Commerce can explain that satisfactorily I will be very happy for the sake of our economy to withdraw what I said. But until he explains it he stands convicted of knowingly denying something that I had said which he knew to be true. The Minister for Industry and Commerce was also very indignant when I referred to the transaction in regard to the Cominco company but I noted with great interest that despite his great indignation when he spoke on the budget he made no reference whatever to this matter.
On the Bill dealing with mining taxation the Minister for Finance, when replying, denied what he called the allegation I made. But if he examines carefully what I said he will find that I used very sober words and that the allegation arises out of the circumstances, not anything I said. The circumstances themselves call for an explanation. In dealing with this the Minister for Finance denied that there was any truth in what he called my allegation. However he did not, as I requested him to do, categorically deny that any member of the Government had, directly or indirectly, made available to Cominco information not available to ordinary Tara shareholders or to the general public concerning the Government's intentions in regard to mining taxation or the level of royalties to be imposed on the Tara mines.
I said I denied it.
Will the Minister say that he is prepared to say categorically that no such thing happened?
The Deputy is contradicting himself. He said a moment ago that he made no allegation and he then proceeded to quote the allegation. When the Deputy has his own mind straightened out and says exactly what he is alleging then the matter will be further considered.
So the Minister is not denying it?
The Deputy has stated that he made no allegation but then he proceeds to repeat the allegation he made which has already been denied.
The Minister has been given a number of opportunities. I shall now give him another opportunity.
Smear, smear, smear.
I have told the Minister from the beginning I am not accusing the Government of anything. I am saying the circumstances require the Government to make this clear. Is the Minister not prepared to do that? Because if he is not he is only raising suspicions which did not exist in my mind. He had his chance to make this denial.
Carry on the smear. That is all the Deputy wants to do, and the smears turn back on himself.
It is very significant that the Minister has not denied it. I think Deputy Colley should give the Minister one last chance to deny it.
The Minister will be speaking later, and if the Minister does not take the chance now, he can take it then.
I suggest Deputy Crowley should read his own smear on the last occasion.
Which was perfectly accurate.
No, it was not——
The Minister was misinformed or deliberately misinformed.
Speaking here on the budget on 4th April the Minister for Industry and Commerce said at column 1518, Volume 271, of the Official Report that the language used "by Deputy Colley, the Opposition spokesman on Finance", was "language that was excessive, intemperate and at times hysterical". He referred later to my use of the phrase "fraudulent and grossly irresponsible", and he made some other references to things I had said. It is very interesting to note the views of the Minister for Industry and Commerce on my style of speaking, but it would be far more interesting to get his views on the particular points I raised. It was noticeable that he did not attempt any refutation of what I had said about the reasonable proposition that income tax relief would at least restore the position to what it was under Fianna Fáil, that he made no comment whatever on the very serious criticism I made in regard to the handling of the capital budget. He suggested that Fianna Fáil were trying to undermine the economy.
I would suggest that that comment illustrates the arrogance of the Minister for Industry and Commerce and his desire, if he could get away with it, to stifle criticism. He accused me of engaging in shyster tactics, but what words would one use to describe his performance when he said at column 1522 on the same day:
...and the pretence of the Opposition in all these instances is that not the monetary crisis, not the inflationary crisis, not the commodity crisis, not the energy crisis, but the incompetence of this Government is the sole cause of our current economic difficulties....
He knows and I know that he can comb the reports of the debate and he will find no Fianna Fáil speaker who said any such thing. The point of what is being said from these benches is that having regard to the existence of these various crises the obligation on the Government is even more acute, to take action, under its own control, to reduce inflation. That is precisely what our criticism is. The Government not alone did not take action but deliberately went out and took action which fuelled the inflation in our economy. Again the Minister for Industry and Commerce pretended that Fianna Fáil people had said certain things, and he is reported at column 1524 of the Official Report of 4th April as saying:
To say that huge result of commodity speculation and of the oil price rise had no effect from outside is unfair and it prostitutes the level of serious economic debate.
Who said that? Nobody. I suggest that if one wants to see what shyster tactics are about, have a look at what the Minister for Industry and Commerce had to say in this debate. We had a few other gems from the Minister for Industry and Commerce.
On the same day, at column 1528 he said:
Deputy Colley said that everything possible should be done to stimulate exports. This was the only creative sentence in his speech. Does the Deputy recognise tourism as an export service? Is tourism important in his opinion?
He goes on in similar vein to talk about the importance to the tourist trade of not increasing the price of the pint or tobacco—a valid point. But in last year's budget, the highest increase in excise duty ever was imposed on these commodities. In addition, the VAT rate on them was increased. Last year that was very sound economics, according to the Minister for Industry and Commerce. This year to do the direct opposite is a great performance by this Government.
Later on the Minister for Industry and Commerce again referred to my statement that nothing was being done to stimulate exports, and clearly was confessing failure: What could be done? He could not think of anything, and he is Minister for Industry and Commerce. It is not my job to do his thinking for him, but since he seems to be so bereft of ideas, could I suggest to him that he have a look at the scheme I introduced to provide credit at special rates of interest for exporters? It was introduced on an experimental basis, and it was my intention, having established that it worked effectively—and it did—to extend that to other types of commodities and other types of exporters. If he has no other ideas, he might pursue that one.
The Minister for Industry and Commerce also deliberately misrepresented something I had said and tried to make out that when I talked about a free enterprise economy I was not talking about a mixed economy. In this day and age what else could a free enterprise economy be but a mixed economy? The Minister for Industry and Commerce quoted Aer Lingus, the ESB, Bord na Móna, NET, and the Irish Sugar Company. I wonder does he think they are not operating in a free enterprise economy. Does he think they are not operating against competition? Does he not know that some of them are even competing between themselves?
However, despite the nonsense which the Minister for Industry and Commerce talked and despite the accolade given to him by one of his Labour Party colleagues that he was a very erudite Marxist economist, he seemed in the end to be accepting that we must operate in a free enterprise economy as against a State controlled economy. That is precisely my point. If we must operate in a free enterprise economy, then the test to be applied to any proposed economic measure is a pragmatic test, not is it left wing or right wing. That makes no sense. If you must operate in a free enterprise economy, the real question is: is it going to help or hinder the economy?
Fianna Fáil's philosophy in this regard was summed up very neatly in the phrase that the late Seán Lemass used frequently when he said: "A rising tide lifts all boats". That summarises our approach to the economy. On the other hand, it would seem that the Coalition approach seems to be to achieve equality by producing a receding tide which will leave us all on the rocks. Our philosophy is one of which we are proud; we are proud of its achievements and we intend to continue with that philosophy in relation to the development of our economy.
I suggested before, and will again, that this Government have demonstrated that they are incompetent in the management of a free enterprise economy. There are many examples that can be given to prove this, but let me pick just a few. The announcement of taxation on mining, to which I have referred already, the consequence of which was that members of the Government, including the Taoiseach, had to rush out offering personal undertakings that the tax-free holiday on industrial exports would not be withdrawn; the White Paper on capital taxation, with which I shall deal later, and the Government's performance in regard to that, and a much smaller matter perhaps— though not to the people concerned— the halving of the tax-free allowances of smallholders and others to which I have referred earlier.
It would appear that the style of this Government is to indulge in a great trumpeting of its intentions and then, if it runs up against any opposition, to reverse its position almost completely. There are a number of examples of that, and I have mentioned some of them in the course of my speech. But the serious aspect of this is that the kind of thing which the Government have been doing has been creating a climate of uncertainty in key sectors of our economy. That just might be feasible and workable as a style of government in a State-controlled economy. But we are not a State-controlled economy; we are a free enterprise economy. Consequently the vital decisions which affect the progress being made—if any is to be made by the economy—depend to a very great extent on the individual decisions made by numerous private persons.
In that context the kind of performance we have had from this Government, the creation of uncertainty; the running one way and then running another way; the announcement that they are going to do things like accepting the Kenny Report on land and then doing nothing about it— the creation of uncertainty by this kind of conduct is fatal to an economy operating on the basis of decisions by numerous private persons. These people must have confidence not alone in the economy but in the Government that whatever policy they are following will be consistent, and this Government have ensured that nobody could have such confidence.
I turn now to the question of capital taxation. I want to make it clear that if and when the legislation in regard to implementation of Government proposals on capital taxation comes before this House we, on this side, will have very detailed comments and observations to make. For the moment I wish merely to outline my general attitude to the various proposals. Firstly—and this is a very limited outline of points in regard to them—in regard to the capital acquisitions tax, I believe that the concessions granted or suggested in the White Paper in regard to agricultural land should be extended also to family houses and businesses. The principle involved should be, in regard to any particular asset or the income which could be obtained for it, or, putting it another way—as I think it is put in the White Paper—in relation to agricultural land, the return on capital involved. It seems to me that that is a reasonable principle but there is no good reason why it should be confined to agricultural land. There are different kinds of assets and different kinds of businesses which would have a very different level of return on capital and account should be taken of that in the implementation of the capital acquisitions tax.
In regard to the proposed gift tax, first of all I want to suggest—and this is a general observation in regard to all of the proposed taxes and one that I made on the day following publication of the White Paper—that in the circumstances of rampant inflation which we are experiencing, with the prospect that it will get worse before getting better, it is essential that there be built into the legislation a specific protection against inflation so that tax will not be levied on inflation. I would suggest that that should be applied to the thresholds of levels of liability in regard to the gift tax. Furthermore I would suggest that the proposals in the White Paper in regard to the gift tax are very much open to abuse because they propose to apply the gift tax to gifts from a single donor. It would be perfectly feasible for a syndicate of wealthy people to get together, to agree amongst themselves that each would nominate a recipient of a gift and each would give a gift to each of those nominees of £2,000 or just under £2,000. No duty would be payable. I would suggest that the right approach would be to operate on the basis of gifts from any source whatever, to accumulate them and to have a progressive rate of taxation, depending on the level of gifts as they accumulate.
With regard to the capital gains tax, again it is essential that there be built in protection against inflation so that the tax will not be applied simply to inflation. Furthermore, as I indicated in my original comment on the White Paper, I believe it essential that the principal private residence should be exempt from capital gains tax. There is no justification whatever for including principal private residences and we, on this side of the House, are determined to ensure, in so far as we can, that they will not be subjected to capital gains tax.
Furthermore, the proposal in the White Paper that a compulsory acquisition or compulsory purchase order being applied to property is to be deemed to be the same as a sale, rendering people liable to capital gains tax, is unjust. If you force somebody to sell their property, if you take their property from them and compensate them at or perhaps in some cases even below the market value, then treat them as having sold it and apply capital gains tax, this is, if it does not amount to, getting very close to expropriation. I believe that capital gains tax should not be applied in circumstances of compulsory purchase.
It is very important also to distinguish between different kinds of capital gains. Clearly speculative gains are the things we want to get at but, equally clearly, if a man acquires a business, works at it for 20 years and it increases substantially in value, that is not a capital gain at all in the sense of somebody who makes a quick kill on the stock exchange. To meet this I believe it is necessary to provide a sliding scale with progressively reducing rates of taxation, the highest rate of capital gains being applied to short-term gains and the lowest rate to long-term gains, with a number of intermediate points on the scale. An approach on this basis would be a reasonable attempt, at any rate, to distinguish between what are purely speculative gains and what are not.
I believe the proposed wealth tax is both inequitable and totally inappropriate to our economic circumstances. The first point I would make is that if all acquisitions of wealth have been taxed there can be no obvious case, in equity, for returning each year to levy a tax on the remaining balance. To levy a tax in this way means that if there are two people, both acquiring the same initial wealth in the same year and both paying the appropriate tax, we find that the one who proceeds to spend his wealth in that year has no further tax liability while the second person who holds on to it finds himself liable for a wealth tax. This would not normally be regarded as equitable, nor indeed does it take account of the other aspects of economic policy where the objective is to encourage rather than to penalise people who save.
There is another objection to the wealth tax as proposed in the White Paper and that is that, with inflation running the way it is, inflation itself is in effect a very heavy tax on the holding of wealth. At a rate of inflation of 10 per cent per annum—and it is, unfortunately, going to be higher than that this year—the value of a wealth holding is virtually halved in six years. This is a far heavier rate of tax then even that proposed in the White Paper.
It might be thought that this inflation argument is not valid because many forms of wealth which might be held, such as land, house property or shares in companies, might be expected to rise in value in accordance with inflation. But, as the White Paper stands, at any rate, these increases in value are subject to capital gains, and consequently to tax them again under wealth tax is inequitable.
There are a number of other aspects of this I want to mention. As suggested in the White Paper, indeed as specifically said, there is no upper limit on the amount of wealth tax for which one can be liable. This would seem to mean that a person could be liable for tax which in relation to his income is over 100 per cent. That clearly cannot be equitable. Furthermore it seems to be proposed that this tax should be imposed without regard to the ability of the taxpayer to pay. This is an old problem with which we are all familiar in relation to rates and we do not want to perpetuate that kind of problem in regard to any other form of tax. I would point out that in the case of a business—and this can happen in any business, however well managed it may be—it can go through a bad period when it has little or no profit or even a loss. Under the proposals in the White Paper the liability for wealth tax would still operate each year whether you had a loss or a profit. Irrespective of the size of your loss or profit, it is related to the amount of capital you hold. This can hardly be claimed to be an equitable form of tax.
Furthermore the proposals, I am sure, were not designed deliberately for this purpose but they result in the creation of a major vulnerability of Irish business to all kinds of foreign takeover. The proposals have a built-in advantage for foreigners to take over Irish business of all kinds— hotels, factories and so on. They would all become extremely vulnerable to foreign takeover under the proposals in the White Paper.
In addition the wealth tax proposed would clearly penalise self-employed people and indeed many people who are privately employed, who try to make provision for their old age, for their retirement. It is all very well for people in the Public Service who have pensions and who now have, as a result of the decision taken by the previous Fianna Fáil Government, parity of pension. That means that not alone do their pensions keep pace with inflation but they go further than that and they keep pace with increases granted to serving civil servants, increases in the actual standard of living, not just inflation. Public servants have this and I believe they should have it. I should like to see everybody having it. But self-employed people and very many people employed in private business do not have this and they have to make provision for their old age. Under the wealth tax proposals those people could be very heavily penalised as against people like public servants. This does not appear to me to be equitable, as has been claimed for the wealth tax.
The imposition of the proposed wealth tax would undoubtedly produce a very substantial outflow of capital from this country, indeed a catastrophic outflow. It has already produced a serious outflow of capital. The Minister may say there is no evidence of that, and I have no doubt it is true that there are no official statistics available to show it. But I wonder are the members of this Government so out of touch with real life that they have never discussed this problem with accountants, bank managers, solicitors. If they have not done so I would invite them to do this. They will find if they talk to those people that there has already been a very serious and significant outflow of capital just by publication of the proposals.
The whole proposed operation of the wealth tax would, I believe, be a serious disincentive to Irish people, in particular those who are engaged in production, in agriculture or industry. They constitute a very grave risk to many existing jobs and to the prospect of creating new jobs. I believe it is highly significant that of our eight partners in the EEC four of them, much more highly developed economically than we are, have no wealth tax; and of the other four the manner in which it operates is so much at a lower level in practice than is proposed in the White Paper here as to amount to a minimal form of tax and simply to a check on the reliability of income tax returns. As I have indicated, we believe on this side of the House that a wealth tax is totally inappropriate and misguided in our present economic circumstances.
I referred earlier to the situation in which the Government were scrambling around for capital to finance the public capital programme and had to use what the Minister called an exceptional measure to get £20 million from the Central Bank. They also had to use very exceptional measures in running down further the Departmental funds. In those circumstances it just does not make economic sense to suggest that we should introduce a wealth tax which has already and clearly will, if implemented on a much bigger scale, drive capital out of the country.
I appeal to people not to take their money out of this country in the light of the White Paper despite the commitments the Government took on themselves in issuing that White Paper. I believe they will not be able to implement their proposals in regard to wealth tax because Fianna Fáil have highlighted the iniquities of the proposals and there are enough people who have enough sense to ensure the Government do not implement those proposals. In the light of that, I urge people not to take their money out of this country. I am confident that the reasons which would impel them to do so will not operate.
We have, of course, had a great array of different voices on the Government side in regard to the wealth tax. Deputy Barry Desmond, interviewed recently on radio, seemed to think the only people who were concerned about the wealth tax were those who were affected by it. He went on to include the Minister for Defence in that category. Whatever I may think about the Minister for Defence I believe that, like most public representatives, he is capable of looking at a problem in the interests of the people in general and not determining his own reaction simply by how he will be affected. The evidence is quite clear that there are very many people in this country who would not be affected by the proposals for a wealth tax and who are totally opposed to them because they can see that the consequences would not apply only to those with sufficient wealth but would affect the whole economy and every man, woman and child in the country, put many thousands of jobs at risk and damage seriously our prospects of tackling unemployment in any effective way in this country.
The Minister for Labour, also interviewed on radio some time ago, and speaking about the proposals on wealth tax, indicated that the White Paper represented decisions taken by the Government on policy and commitments. I cannot really fault the Minister for Labour for saying that because what he was saying would be true in the normal way. The Government had, presumably, followed the usual procedure whereby the White Paper had come before them. They had presumably considered in considerable detail such an important document and then decided to issue it. The implications of that are clear, that the basic decisions had been taken by the Government. Items of detail which would not affect the basic principles, were certainly open to discussion and the Government in the normal way would listen to such representations and if they thought the points made were valid then they would have regard to them, change these points of detail but the basic principles would remain. For that reason I cannot blame the Minister for Labour for what he said.
I notice that the Minister for Foreign Affairs and the Minister for Industry and Commerce have suggested that these proposals in the White Paper were necessary if we were to achieve social justice. I wonder if they were necessary in the same way as the Minister for Justice thought and said that legislation on contraception was necessary and then the Coalition parties, having said this legislation was necessary, decided to have a free vote. I rather suspect that is the form of necessity that is involved in this White Paper in regard to the achievement of social justice.
The Minister for Finance has suggested that these proposals are necessary to replace the lost revenue to the Exchequer by abolishing death duties, as though the other proposals, apart from the wealth tax, would bring in practically nothing to the Exchequer, a proposition which he knows is not correct. Then, of course, we had the very interesting intervention by the Minister for Defence in this House on the 25th April and reported in Volume 272, column 197 and 198 when he said:
I am not defending one line of the White Paper. It is not mine, neither is it the Cabinet's. The proposals in the White Paper were produced by civil servants to replace death duties.
I do not suppose I need to comment on that. He said later at column 198:
It is political trickery for anyone to try to pin the White Paper on the Government and it will not be tolerated.
It is not all confined to the members of the Government. I think the back benchers have different views too. They have not all said them publicly. I suspect a number of them have said them privately but we are indebted to the Guardian newspaper in Wexford, published on the 3rd May this year, for an insight into the view of Deputy Esmonde where he is reported, when speaking at a Fine Gael meeting in Fethard as saying that he was personally not at all happy about the proposals concerning the wealth tax.
Then, we come to the position of the Taoiseach in this matter. It will be remembered that at a press conference, shortly before the last election, and conducted primarily by the present Taoiseach and the present Tánaiste, a question was put as to whether the Coalition, if elected, would introduce a capital gains tax, and the present Taoiseach said they had no intention of introducing a capital gains tax. Furthermore, according to an article which appeared some time ago in The Irish Independent, by a letter dated 24th February, 1973, the Taoiseach stated that, if the Coalition were elected, there would be no wealth tax. In the light of all this, is it not reasonable now to ask where do this Government stand in relation to their capital taxation proposals?
The Minister for Foreign Affairs, speaking in the debate on the budget, claimed—I freely concede the claim to him—that he had talked about a wealth tax before the election. He had. Indeed what he said about it was very close to the proposals in the White Paper. It is perfectly true he did so, but were not people entitled to assume that, if the present Taoiseach, the Leader of the Fine Gael Party, was saying there would be no wealth tax, then Deputy FitzGerald was speaking for himself and not for the Fine Gael Party? I believe that was a reasonable assumption.
It now appears, by virtue of some alliance between the Minister for Foreign Affairs and some of his Fine Gael colleagues and some of his Labour colleagues—I suspect not all of them, but some of them—that these gentlemen have got the Government into very serious trouble. It is possible the forthcoming Fine Gael Árd Fheis will sort matters out, but it is quite clear that, as far as this Government are concerned, collective responsibility has gone out the window. The Taoiseach has "shilly-shallyed" too long. He clearly committed himself before the election to no capital gains tax and no wealth tax and the Government of which he is Taoiseach have now produced a White Paper setting out what the Minister for Labour has described as "firm decisions" by the Government to introduce a capital gains tax and a wealth tax.
The differing voices we hear from the Government benches are certainly not edifying. It is no credit to the Taoiseach that this situation has developed. It is no credit to him that on a major issue such as this the Government he leads have gone back on his own personal solemn undertaking. It is no credit to him that he has allowed certain people who, in the past, were not very favourable to him, to gang up in the Government and produce what are said to be by a member of the Government "firm decisions" to introduce a capital gains tax and a wealth tax, totally contrary to the undertaking personally given by the Taoiseach before the election.
The whole thing is a most unedifying and degrading performance. I do not care about the problems it will create for members of the Fine Gael Party or of the Labour Party, but I do care about the damage which has already been done to our economy. I am concerned to see that this matter is sorted out with the least possible delay to alleviate the damage. I am also concerned at the brazen and total disregard for collective responsibility in this Government. I am concerned, too, about the serious anxiety produced by the shilly-shallying of the Taoiseach and the Government in this matter. In my opinion, it will be a very serious matter indeed if they go ahead with their proposals. It is probably even more serious that they are speaking with so many different voices, trying to convince one section of the community they are going ahead and another section that they are not going ahead. This is no way in which to conduct the business of Government.
This Government have in their whole approach to budgeting, to the handling of the economy, demonstrated their lack of responsibility. In the current budget and in the last budget they acted in a way which many non-committed observers politically found incredible. Above all, it is clear that in the preparation of the current budget when members of the Government sat around the Cabinet table and the sums were done the figure that emerged and was allowed to stand as the proposed deficit was arrived at for political considerations and not for economic considerations. It is equally clear that the Minister for Finance, primarily responsible for seeing to it that a responsible approach was made by the Government to budgeting, failed in his duty. He may have tried his damnedest—I do not know, but I suspect he did—but he failed in his duty when he was forced, as I assume he was, to bring in a budget of the kind he did bring in, a budget with that kind of deficit.
He was faced with the conflicting claims from different Ministers. It is extremely significant that in the contributions of various Ministers to this debate and, in particular, those of the Minister for Foreign Affairs and the Minister for Industry and Commerce, reference was made to the possibilities that were open. Both the Minister for Industry and Commerce and the Minister for Foreign Affairs went through the possibilities. They both quoted what I said about the deficit being so enormous. They went through the possibilities of what the Government could have done. Neither mentioned the one obvious possibility about which they were so vocal on these benches, the possibility of pruning Government expenditure. Go through what they said: they mentioned numerous possibilities, but neither of them mentioned that. This is very significant because it seems to me to fit in with the picture of the Government sitting around the Cabinet table doing the sum; a figure comes out and then the Minister for Finance says: "We cannot have that deficit. It is too big. It will damage the economy and we must either cut back on expenditure or apply some taxation, or both." But he is ruled out by his colleagues. I am giving him the benefit of the doubt.
I intervene to advise Deputy Colley his time is nearly up.
I am giving the Minister the benefit of the doubt. He is over-ruled and the Government come in here with this enormous inflationary deficit and two Ministers, who speak on the budget at great length, mention all sorts of possibilities of approach but neither mentions the possibility of pruning Government expenditure. It all adds up to what I said earlier: this budget, for the reasons I have outlined, is fraudulent. It is also grossly irresponsible.
At this stage I should like to extend my congratulations to Deputy Colley for doing his best in what must have been an impossible task. Alone among all the commentators in the country Fianna Fáil, advised by the only economist they could get to support them—their own specially employed economic adviser, Professor Martin O'Donoghue—found cause to criticise the economic philosophy behind the budget.
In common with every Minister for Finance I looked for comment on the budget in the many days and weeks since it was published. Among all the comments there was nothing that was fundamentally hostile, there was nobody who disagreed with the fundamental policy and thinking behind the budget. When we look for neutral observers, we find that organisations such as the OECD, the Economic and Social Research Institute, the National Economic and Social Council, the Confederation of Irish Industry and the Irish Congress of Trade Unions are in substantial agreement with this year's budgetary policy. I cannot recollect any occasion in my 15 years in the Dáil when so many organisations of repute spoke with such a unanimous voice in support of budgetary policy.
The tone of this year's budget debate and the general comment has been quite favourable, even from the Opposition benches. They could not find much cause to criticise the budget so they endeavoured to create a little mischief in relation to capital taxation. I will come to that shortly. There was a general welcome for most aspects of the policy as outlined and the modicum of criticism we had was predictable. It was confined to matters of detail and came mostly from people who were, very reasonably, being brought into the taxation net. They were brought in not because anybody had any desire to do so but simply because the only way to achieve some equity in the Irish taxation system is to broaden the base. That advice comes not only from every neutral organisation in the country but from every economic and financial organisation in the international field.
At this stage I should like to remind the House of my closing remarks in the budget speech on 3rd April. I indicated then there were three aspects of my budget policy. First, there was the promotion of economic growth to ensure that the economy would operate as closely as possible to full capacity so that employment prospects might be enhanced. Secondly, the budget marked a continuation of the social welfare reforms commenced last year and which we intend to continue. Thirdly, there was the securing of greater equity in the sharing of the tax burden in the community.
The first policy objective was approached in the budget along the lines recommended by the organisations to which I have referred, namely, to require an injection into the economy which would ensure a growth rate greater than the 3½ per cent that was projected. It is very interesting to note that the Fianna Fáil spokesman on Finance, supported by all other Fianna Fáil speakers, condemned this policy. An economic growth rate of only 3 per cent or 3½ per cent this year would have meant unemployment. That is the Fianna Fáil programme, their philosophy and economic outlook. Their policy would have meant that this year there would have been a growth in unemployment, a rundown of the economy——
Is the Minister saying I said that?
We found this unacceptable. Deputy Colley argued there should not be a deficit of more than £25 million. This would mean we could not get greater growth this year than 3 or 3½ per cent. That would have meant unemployment, but of course that is in accord with the Fianna Fáil tradition. As Deputy Colley said, they have not been criticised for being inconsistent; they are consistent in having the wrong economic approach to the problems of this country.
The Government decided to give a boost to the economy by not increasing taxation. We wanted to ensure that the economy would operate in 1974 at a level close to the utilisation of capacity. We would have had underutilisation of capacity. We would have had underutilisation of capacity if we had not given that economic boost. Deputy Colley thinks we will exceed capacity, that we will add to the fires of inflation. Again every international competent body happens to disagree with him——
Will the Minister quote one?
The OECD.
Will the Minister quote where they said they disagreed? The Minister should not misrepresent me.
Last year's deficit, which was savagely attacked by Deputies Colley, Lynch, Haughey and all the great economic whiz-kids of Fianna Fáil, was fully justified in the year.
It was not.
It was fully justified in the year. We brought the economy to an exceptionally high level of growth. It is at least 7 per cent, and when the final figures are available it will probably be more. As some commentators have mistakenly interpreted the position, the principal growth was not in the first half of the year. It was towards the end of the year and at a time when the whole world was suffering a recession for a number of reasons, multiplied by the energy crisis towards the end of the year. We do not pretend that all is rosy and easy, that we live in a Utopia and, even if we did, we are constrained by forces outside. Because of the delicate balance needed to achieve external and internal equilibrium, in this budget it was necessary to adopt a flexible policy. We will continue to have a flexible economic policy because we consider it a merit, not a drawback.
The Minister made a surprising statement.
It would be very unwise to ignore the fact that problems might arise during the year if the deficit were not reduced but, because of the growth of the economy, we expect the deficit will be reduced. It would be a problem if we failed to finance the so-called oil deficit by suitable international arrangements. However the collective wisdom of the world today is that we should not panic because of the oil deficit in this or in other western European countries. I consider that thinking is well-founded, that the worst thing we could do would be to adopt "beggar my neighbour" policies. This week we criticised the policy of Italy which we regard as a "beggar my neighbour" policy, which would be disastrous if it were followed by other European countries, or by countries outside Europe.
If the capacity of the economy this year proves insufficient to absorb the additional stimulus of the budget on internal demand, and if inflationary pressure becomes stronger than at present foreseen, we will not hesitate to revise economic priorities. We believe that the management of the economy needed in these changing times is such as to maintain flexibility and this is what we have done.
There is no point in fooling ourselves. There are real problems facing the country, the principal one being the vast imported inflation over which we have no control. At the imported level this inflation is running seven times higher than in 1972. The real and most serious consequence of the oil situation is the transfer annually of £100 million of the effort of this country to oil-producing countries. That means a loss of £100 million per annum of Irish work. If we are to maintain let alone improve our existing standard of living, we must make good that loss by gigantic efforts of our own on a scale not previously required.
We are very properly shocked by the terrible toll of life and limb which has and is being paid by the community in Northern Ireland as a result of activities there of illegal organisations. The economic cost too of the senseless bombing and other terrorist campaigns there has reached an enormous and frightening level. What few of us realise, or even if we do realise it care to think about it, is the heavy cost to the Republic's economy of the criminal campaign of violence in the North and the spread of that to the South.
Therefore I think it proper that I should point out that the cumulative extra public expenditure directly attributable to the Northern troubles in our budget, including provision for the Army and the Garda and compensation for damage to property, up to March, 1975, will not be less than £55 million. Apart from direct expenditure the Northern turmoil has caused very serious indirect damage to our economy through its effect on such factors as investment, tourism and exports.
The cost to the economy in these spheres obviously cannot be precisely quantified, but it is nonetheless real and of very grave proportions. Speaking in broad terms, and on the basis of estimates of a falling off in growth, the overall indirect losses to the economy approach, on a conservative basis, £200 million. Closely linked with the activities of illegal bodies in the North are the numerous bank, post office and other robberies which have taken place in our own territory. It is proper that we should realise that, in other words, the actual cost in money terms to our economy is already in the region of £260 million.
Naturally there is a sense of grievance that oil producing countries and foreign raw material suppliers will, as a result of price rises, take over £100 million out of our economy over the next year. The economic consequences of that loss are very apparent and quickly measured. It means that we have so much less to expend on the welfare of our own people and the development of our economy. It is important that we should also remember that the violent men, so-called Irishmen who spread death, personal injury and property destruction across our land, are doing similar damage to our economic life. These people who have taken the law of the gun into their own hands, without any authority, are literally stealing millions of pounds out of our economy and depriving many thousands of young people of jobs which cannot be created because of lost income and capital. These men of violence are, in every sense, enemies of the Irish people.
To return to some of the specific points in the budget, I should like to take the question of tax reform in the first instance. It is pointless merely to go on denouncing Ireland's taxation code as excessively high by international standards, and as inequitable domestically, because the load of taxation was not spread in accordance with capacity to pay. We have heard that cry, that protest, that moan, that complaint for years past. What is needed now is more action, more actual reform and less verbosity. The well-known dictum that by doing nothing one can avoid making mistakes does not hold true in relation to taxation.
Not only at home but in every international economic and financial body with which we are associated, and in international and financial circles generally, it has long been recognised that the obvious fault in Ireland's taxation system could not be corrected until a Government were in office with the courage to broaden the tax base. Broadening the tax base means including farming and mining profits and closing avoidance and evasion loopholes such as escape holes to tax payments, expense accounts and exorbitant borrowing to set off against income tax liability when those borrowings are for speculative tax free gains.
By doing little or nothing in the field of taxation, and certainly little in the field of tax reform, Fianna Fáil Ministers let the tax situation here go from bad to worse. In their last period of Government the number of income tax payers increased from 185,000 to 730,000 while the number of surtax payers, the people best in a position to pay tax, fell from 9,600 and 6,600, although the number of people with higher incomes was increasing.
When Fianna Fáil did act in the field of tax changes they did the wrong things, like exempting all mining profits from tax for 20 years. On the basis of present day figures that meant a loss of £125 million. With reasonable anticipation of increases in price of minerals it probably would have meant, if we had not got into power, a loss to our economy of £400 million to £500 million. Yet, that was Fianna Fáil's concept of tax reform: to let people dig holes in Ireland, take all the wealth away, and leave nothing behind.
Fianna Fáil also exempted all farming profits irrespective of the wealth of the farmers or the size of the farms. What was their other contribution? What was the specific contribution for which Deputy Colley deserves to be remembered? It was in relation to a matter which I notice he did not mention tonight, a matter mentioned on the first page of the White Paper on Capital Taxation and which is crucial to the whole proposal to bring in a new package of capital taxation— estate duties. Deputy Colley was not getting enough from estate duties with a rate of 40 per cent. That was not enough. He wanted to confiscate family fortunes so he made it 55 per cent instead of 40 per cent. Then he has the audacity to talk about confiscation of private property. That is the kind of thoughtless, indefensible tinkering with taxes which we could well do without.
Deputy Haughey paid a well deserved tribute to the late Deputy Gerard Sweetman, a former Minister for Finance, and he recommended that I should model myself on him and look to his example. I do not need any exhortation from Deputy Haughey to follow the path of the late Deputy Gerard Sweetman, who was a great personal friend of mine as well as a man any economist could very correctly admire. He was a thoughtful man. He did not make any changes without thinking behind the changes. I remember his saying to me on one occasion in relation to the 20 year tax holiday for mines that he nearly fell off the chair when he heard Deputy Haughey throw out that suggestion. There was no other Finance Minister in the whole world who was so reckless.
That was typical of Deputy Haughey. There was scarcely a year when he did not make an effort to be loved by somebody, so he gave the miners tax exemption in one year and the well-to-do farmers with hundreds of acres of land exemption in another year. I am sure that if he had stayed in office he would have long since bankrupted the country or, as he apparently intended. it would be the worker with the small wage packet who would be salted while the well-to-do and the foreigner got away.
In Government we have the will and the courage to effect real reforms like simplifying the income tax code, abolishing death duties, broadening the tax base to include mining and farming profits and capital gains. We have not got from our Ard-Fheiseanna a vote such as the Fianna Fáil Party gave at their Ard-Fheis opposing a tax on capital gains. We are not hamstrung in that way. We have followers who believe that these things should be taxed.
We anticipated that, as we went about these reforms, our motives and our methods would be subjected to searching examination which we accept as entirely proper and welcome. We also anticipated that our motives and our methods would be subjected to mischievous misinterpretation which, if not fair, we accept as inevitable in this imperfect world. We do not complain about this. We will not be distracted from our purpose. We feel sure that the income, profits, investment and taxation climate in Ireland will be more wholesome and acceptable when our tax reforms are completed.
I had hoped that Deputy Colley would have done some homework between his post-budget speech and the speech he made today. He suggested on the day of the budget that we had not brought the income tax personal allowances in 1974 up to the level of 1972. The truth is we have done more than that. We have done a sight more than Fianna Fáil did in fifteen years of office when the tax improvements between 1959 and 1973 amounted to only £23 for a single person and £35 for a married person. Was there ever such a miserable and pitiable performance? We have done more in 13 months than they did in 15 years.
As Finance Minister I consider that I have a triple duty—first, to press courageously ahead with tax reforms widely recognised as necessary and just, not permitting myself to be distracted either by the envy of irresponsible people or the backlash of the hitherto untaxed: secondly, in considering whether to change the taxation code, to carefully balance perfection and equality of treatment with the need to encourage and reward initiative, enterprise and reinvestment without which the national cake cannot be enlarged; and thirdly, not to encourage or tolerate tax avoidance or evasion. Because these are the principles of this Government and because we have publicly declared that we will go about our tax reform in this way we have been subjected to attacks, but at least there has been a great debate over the last year, a debate we all welcome, on taxation matters, including capital taxation. It has been well worth while because it has forced people to think about the use of money, about capital, about property, how it should be created, accumulated, inherited, transferred and used. We have shattered the lethargy, the dullness, the "I am doing all right, Jack, and hump the rest" mentality which marked 15 years of lazy, timid and thoughtless Fianna Fáil administration, 15 years which resulted in our having what is internationally and domestically recognised as the most highly-taxed incomes and the most under-used taxfree capital resources in all Europe.
I was interested to hear Deputy Colley say tonight that the Fianna Fáil Party unanimously attacked our proposal to halve the allowances which the working wife of a farmer can set off against her own income.
That is not what I said.
That is what I understood the Deputy to say.
I did not say any such thing.
At least he spoke about it.
I did not mention it.
Order, please.
I thought the Deputy had. I think it is because in their heart of hearts they fully recognise that we are justified in our action. Most Members of the Opposition skillfully avoided mentioning my budget proposal and now I note that Deputy Colley, if he did mention it did not intend to do so and I accept that. But our proposal is a simple one, to halve the income tax personal allowances which could be set off against a farmer's non-farming income or the income of his wife, not because we want to tax them but because we could not defend a system under which two married women working, say, at the one factory bench would find themselves treated in a totally different way for tax purposes.
If one married woman happened to be the wife of a labourer she had her wage packet salted for tax but if the married woman next to her happened to be the wife of a farmer she paid no tax at all. That was indefensible. The ideal we would all love would be to avoid taxing anybody at any time for any purpose, but until somebody comes up with that panacea we shall have to try to spread the taxation load as equitably as possible. Deputy O'Malley accepted the correctness of the restriction on the working wife of a farmer but he had doubts as to whether it should apply to a small farmer. We have not, and never had, any intention of hitting the small farmer and the Finance Bill will provide that this restriction will not apply to the small farmer. The Bill will ensure that full allowances will be available in the case of a farmer whose farm is of a valuation of not more than £20. There will also be a sliding scale that the full impact of the restriction will not apply where the farm just exceeds £20 valuation.
You worked that out since yesterday.
The background to the Government's decision to tax farming profits and to take the farmer whose land valuation is £100 and over was very briefly as follows. Farming profits have been wholly exempt since 1969 and virtually exempt before that. As I pointed out in my budget speech, both the Commission on Income Taxation in 1960 and the Committee on the Review of State Expenditure in Relation to Agriculture in 1970 recommended the introduction of taxation on farming profits. The Government of the day chose to run away from that; they had not the courage to do it; they feared what Deputy Colley was so indignant about tonight when he spoke so emotionally about the backlash. If a Minister for Finance is not prepared to stand up to mythical or real backlashes he can never effect equity in taxation. But we faced up to it this year and, even if we had not the courage to do it ourselves or rely on our own judgment as to what was fair, we had these impartial reports of 14 years ago and four years ago as well as many other recommendations from responsible people in between.
As I pointed out, farming profits are subject to income tax in each of the other eight countries in the European Community and it was against this general background and having regard to the basic principle that people in similar financial circumstances should be equally treated under the tax code that we decided that farming profits should be subject to tax in the case of wealthier farmers. If the Fianna Fáil Party do not like this it means that they are asserting that they do not believe that people should be subjected to the same amount of tax if they have the same income. They should come out and say that and ask the people to support that principle. We are satisfied that the people are fair-minded and will agree with our approach of principle in this matter.
There has been some criticism of the use of the rateable valuation of land as a threshold for tax liability and its use for the notional basis of assessment. I can accept some of that criticism but I suggest anybody who criticises must produce some realistic alternative and there is none. The 1960 report to which I referred recommended that the whole country should be revalued but it would take eleven years to do it. If the revaluation had begun in 1960, if the Government of the day had not run away from their responsibility we would not have those difficulties people are criticising today. They did run away from it and we have to use whatever imperfect tools are available. I am prepared to consider the possibility of establishing a procedure whereby any farmer who is dissatisfied with the current rateable valuation of his farm would have a right to have it revalued. We all know that this valuation which was done over 120 years ago related to the day of horse and water transport and has little bearing on much of the economic life and transport facilities available today. There are many cases where people might have their valuations dropped and many where it would be the other way round. But, in order to ensure acceptability of the code and not to multiply any sense of injustice people might have, I am prepared to provide a means whereby aggrieved parties might have the matter considered by some impartial assessor.
The suggestion has also been made that this is not a suitable time to introduce income taxation on farming profits. I suppose no time is ideal to introduce a new form of taxation but this time is no better and no worse than any other. It is no valid criticism to say that farm profits are down somewhat this year compared with last year and therefore we should not introduce taxation of farming profits. If the profits are down liability to tax will also go down. If the costs of fertilisers and feeding stuffs have risen, mainly due to world commodity prices accentuated by the oil situation, and if prices of some agricultural products have been somewhat disappointing of late this will be reflected in the net income of the farming community. Consequently, they would have to get this concession when their liability was being assessed.
In each individual case the tax will be assessed by reference either to the farmer's actual profits or if he prefers he can be taxed on a notional basis. This is rather exceptional. An option is being given to individual taxpayers to choose whichever system has lesser liability. Many people who pay tax would love to have an option. No tax will be payable if there are no profits. If there are losses they can be carried forward and offset against later profits. In this way full account will be taken of varying circumstances in which farmers may find themselves.
As I mentioned in the budget speech, the Government are anxious to avoid or to mitigate as far as possible any disincentive effect that income taxation in general might have on effort. They recognise that the introduction of income tax on farming profits may create particular problems in the transitional period. Already we have had consultations, as I promised in the budget speech, with the Economic and Social Council and with representatives of farming organisations. I hope the result of these consultations will be fruitful and satisfactory. I have met the IFA. This week I will meet the ICSMA for the second time. Further consultations should help us to find an acceptable formula.
In the programme which the National Coalition parties put before the electorate, and for which they got support at the last general election, we pledged ourselves to drastically reduce rates by transferring health charges and housing subsidies to central taxation. We said we would endeavour to replace the rates by a form of taxation related to the ability of the person to pay. We have already removed £30 million from the backs of ratepayers. By the time we have finished our programme of transfer in another two years' time the local ratepayers will be relieved of £75 million which formerly rested on them in local rates. This means today that local rates are about £2 in the £1 less than they would otherwise be. If the Government had not changed, the rates throughout this country would be about £2 in the £1 more than they are today. Never has the ratepayer been given such very significant relief.
The question of relating local taxation to ability to pay, which is something which we are also anxious to bring about, is the subject of very active study at the present time. The Economic and Social Research Institute are also involved in the preparation of a scheme which will take cognisance of the capacity of persons to pay.
I am reminded of the deathbed conversion of the Fianna Fáil Party a short while before the last general election when they went back on their White Paper which was then only two months old. It might be no harm if Fianna Fáil remembered about going back on White Papers. They had a deathbed conversion in which they acknowledged that there were injustices in the rates system. They produced out of a hat, to the great embarrassment of several of their ministerial colleagues who were campaigning down the country, a total reversion of their policy in relation to rates. They promised to abolish rates on private houses. This fraudulent promise is being resurrected for the purpose of the local elections. When this quick change was engaged in by Deputies Colley and J. Lynch in Dublin, poor Deputy G. Collins was spending his hard-earned money on a half-page advertisement in Limerick saying that Fianna Fáil would never remove local rates. It is well that people should be made aware of the price of Fianna Fáil's fraud if ever they got an opportunity, or were under an obligation, to fulfil it. The Fianna Fáil election gimmick to make the rates on private houses disappear was and still is a despicable piece of political chicanery which only a gobemouche would accept. People who do not know what a gobemouche is might like to be told that it is a very credulous person who absorbs and throws out nonsense.
The Fianna Fáil hypocritical and fraudulent scheme would entail the following: a VAT imposed by each city or county council on all goods and services including food and oral medicines which the national Coalition Government have zero-rated, in addition to the national rate, at a rate of 3 per cent. As I said on several occasions, Fianna Fáil spokesmen did not agree with the removal of VAT from food. If they got back into office they would restore VAT on food and there would be a rise in food prices of 6 per cent. If they were to follow our wise course, and if food and oral medicines were not included, the rate necessary on all goods and services to replace local rates would be 4 per cent. The price of the Fianna Fáil "make the rates disappear" act would be VAT rates of 10.75 per cent, 23.5 per cent, and 40.75 per cent.
What total figure is the Minister trying to collect with this?
I am collecting the rates which Fianna Fáil said they were going to abolish. If they decided to use the income tax system— we must remember they were delighted to use the income tax system to mulct more and more unfortunate people—they would have to collect income tax at a standard rate of at least 45p in the £. I am prepared to give all the alternatives.
How much are you trying to collect?
The alternative would be to revalue all houses and buildings, something which Fianna Fáil said would take 11 years to do if done accurately. They would have to use some multiple, and the multiple would be from five to ten depending on the area. We have reason to believe that they would have imposed what they would call a fixed assets tax on all house property. Appropriately it would have been known as FAT.
That is the first I heard of it. Now we know what the Minister is thinking of.
It is clear now that the people who would "FATten" under the Fianna Fáil national property tax to replace the rates which in reality they had really no intention of replacing, would put on a property tax to collect the money.
How much is the Minister trying to collect?
There would be a national property tax which would collect in money to the central Exchequer. They would then decide where that money should go. It would not go, as rates were always intended to go, to provide refuse collection, sewerage and water supplies, and so on. It would be the end of local government and a new way for Fianna Fáil to mulct the unfortunate householders.
By how much is the Minister trying to increase that figure?
By the amount that the Deputy proposed to abolish.
The Minister is chancing his arm again. He does not know the total figure.
The Deputy chanced his arm for long enough.
The figure was £35 million in respect of rates on office blocks and similar buildings.
I said I would return to the question of capital taxation. I observed Deputy Colley's absence and I wish to be fair to him. He was able to speak tonight for 20 minutes on capital taxation and on the Government's outline proposals in this regard without mentioning what is basic to the Government's proposals, that is, the abolition of death duties.
I mentioned that.
I did not hear the Deputy.
The Minister must not have been listening.
I am afraid that the Deputy intended saying many things which he did not say while saying things that he had not intended saying.
To refresh the Minister's memory, I pointed out what the Minister had said, that was, that wealth tax was needed to replace the abolition of death duties.
I did not interrupt the Deputy. The often-voiced fear of many that in their death, their next-of-kin would be caught for savage death duties gave rise to the public demand for the abolition of death duties. It is both interesting and fair to comment that the fear of this imposition on the next-of-kin appears to have melted away in the light of the White Paper on capital taxation.
The Minister is learning.
He is a very good reader.
It would appear that, suddenly this year, there is a kind of euphoric expectation of everlasting life in this world but the reality of life is that it is always followed by death and people, very properly, wished to get away from the Colley death duties of 40 to 55 per cent which ruined many a family business and forced many people to sell out.
Can the Minister quote one such instance?
What we have done is to offer, on the basis of existing statistics, an alternative pattern for consideration. Up to the time Fianna Fáil left office death duties applied to estates of £7,500 or more. We improved that threshold and made it £10,000 but what the White Paper has suggested is that we would do away with these confiscatory taxes and replace them with a system of taxation which would enable people to pay by way of small amounts during a lifetime. The rates and the thresholds in the White Paper are related to the number of estates which are caught in the estate duty net. These figures are published annually and can be inspected in the Library by Deputies of the House. Those are the only available statistics of the accumulations of wealth in this country and it is these and not the speculations and the rumours of other people that ought to be used.
We have referred on many occasions to a policy of consultation. Democratic government requires consultation but during the terms of office of Fianna Fáil we did not have consultation. By consultation we mean seeking advice from people, counselling together and getting the opinions of others which can be checked against one's own opinions and judgment. The Government are doing that. We have always acknowledged the need to tailor the proposals in the White Paper so as to take account of the special needs of the different sectors of the economy and of society. This is in the foreward to the White Paper and is embodied in it also. I have spoken of it on many occasions.
I am glad to say that, as a result of these consultations, we have had very useful exchanges of views which will make it possible to formulate more definite and specific proposals. I should like to take this opportunity to express my gratitude to the individuals and the organisations who have taken the trouble of committing to writing their thoughts and suggestions and who have come to see me and officials of my Department and of the Revenue Commissioners in regard to matters of detail and of general principle in the White Paper.
Is there a special section in the White Paper for the Minister for Defence?
It is a pity that the same attitude was not adopted by Fianna Fáil or indeed by a minority of wiseacres who are responsible for many baseless rumours and scaremongering and, indeed, for outrageous allegations, some of which we have heard tonight from Deputy Colley who, obviously has not read the White Paper but who waxed eloquently for almost 10 minutes about the dreadful injustice of taxing inflation. Certainly, the Deputy cannot have read paragraph 122 which, for the first time in the tax law in this country, will ensure that there is an indicator built into legislation to protect people against inflation. There might not have been such an outcry against estate duty if Fianna Fáil had taken account of inflation but they did not do so and would not have done so either if they had been in Government today.
We were not living with the kind of inflation that the Minister is inflicting on us now.
Once again this evening Deputy Colley displayed how Fianna Fáil have returned to their origins once more—they do not care what harm they do while they are out of office. Fortunately, the people are not listening to them and, contrary to what the Deputy alleged in relation to money moving out of the country since the publication of the White Paper, the money is moving in the reverse direction. In January/ February this year the net inflow was £10 million. Following publication of the White Paper the inflow for the month of March was £34 million. It is fortunate that people in this country who have money and who have confidence in this country know they have a Government that are determined to see our economy expand, a Government that are applying the economic policies of the second half of the 20th century and not policies of the 18th or 19th centuries in which Fianna Fáil believed.
Is the Minister seriously saying that there was no outflow?
I have said that the period of consultation will continue to the end of June next. We accept that it would help this process of consultation if the Government's further thinking on some issues of the White Paper were to be made known. I propose to make an early announcement on some of the more commonly commented-on aspects of the White Paper.
How early?
I should like to recall the mischievous scaremongering of last autumn in which Deputy Colley's voice was raised loud and frequently following the announcement of our intention to end the tax-free holiday for mining profits. Unfortunately, the unwise listened then to the mischief makers and some engaged in panic selling but those who kept their cool, and they were the majority, those who trusted this Government, realised that we would produce a fair deal and we have done this.
I have received letters of congratulation from mining interests on the fair deal we produced. It is obvious now from the performance of the stock market that interest in Irish mining is growing substantially. There are people who are falling over one another in the rush to get into what will be a very profitable and expanding industry, notwithstanding all the forecasts of doom from the Fianna Fáil benches.
Similarly, our capital taxation scheme will be accepted. It will encourage investment and will distribute the burden of taxation more equitably. At the end of the day Ireland will have a reformed, a modern and a more efficient tax code, a tax code which will be comparable with that of other countries. Lest Deputy Colley has forgotten, I would remind him that one of the obligations of our membership of the EEC is that we restructure our taxation code so as to bring it in line with what exists in Europe.
People talk of Ireland being a poor country and on that account how some other forms of taxation are not suited to us. Perhaps we should ask why Ireland is so poor. Maybe the answer is that we have not used our resources properly or that there have been too many loopholes for the well-to-do to place their money elsewhere, to live here in an unspoiled environment while the profits made elsewhere escaped the tax net under Fianna Fáil legislation. We have closed many of those loopholes. It was always expected that we would do so because it was accepted that we are a sensible people in Ireland. There was amazement expressed often because we had not moved, as every other country had, not last year nor the year before but decades ago.
The truth is that the wise people are spurning the troublemakers. The trust which sensible people had in the Government in relation to mining taxation is being reflected by the state of the money flow which is coming in, and not going out. It is clear that they will not be misled by the lethargic and chicken livered Ministers for Finance and their supporters who, at one time occupied my seat.
That is totally out of touch with reality.
I regard the Central Bank as being nearer to reality than any of the lounge bar comments with which Deputy Colley might be more familiar.
If the Minister would talk to some of his former colleagues outside the lounge bars instead of inside——
In so far as the effect on enterprise generally and private business in particular are concerned, the Government will ensure that the new system of taxation will encourage, and not discourage, growth and development. To that end we have had very useful discussions with interested parties.
I should like to make specific reference to some of the points raised by Deputy Haughey in the course of the debate. Firstly, his suggestion that an annual wealth tax of 2½ per cent would result in the appropriation of the entire property of each individual member of the community in 40 years or less is, of course, untrue. Some of Deputy Haughey's words and actions in the past demonstrated that he can occasionally take leave of his senses. This is, I think, another of these occasions.
(Cavan): Deputy Colley will not disagree with that.
No, he will not. Deputy Haughey mischievously suggested that the proposed rate of 2½ per cent would apply to the entire value of property when he knows that it will only apply to that portion of property which will be over £150,000 in value. The rates in the White Paper start at nil on the first £30,000 for a single person, £50,000 for a married couple and there are other rates as the amounts rise. Even if the rates in the White Paper were to remain unchanged, Deputy Haughey's suggestion is either to be interpreted as a deliberate misinterpretation of what is in the Paper or else there is a total misunderstanding of plain English and mathematics.
About which tax is the Minister talking?
I am talking about the wealth tax. Deputy Haughey was talking about that as well.
Is the Minister saying that the lower limit is £150,000? Did he read the White Paper?
I have read the White Paper. I said that the rate of 2½ per cent on wealth tax will apply only in excess of £150,000.
On all property?
If Deputy Colley has not yet bought a copy of the White Paper, I will give one to him.
On all property?
I suggest that the Deputy look at the Official Reports.
I am asking the Minister if that is on all property?
I said that the rate of 2½ per cent will only apply to property in excess of £150,000 and it will not apply to any slice of the profits under that sum. That is in the White Paper and it is about time that the Deputy read it. Then he might not be so mischievous in his comments. Maybe he is not being mischievous but he cannot understand plain English and mathematics.
I suspect that I know what is in the White Paper better than the Minister.
The truth is that these imaginary inroads of capital, no matter what the threshold or what the rates will ultimately be, are totally without foundation. They are not in any way as appalling or as expropriatory as Deputy Colley's rates of 40 to 55 per cent on total family fortunes at the time of death—mark you, rates which applied without any protection in respect of inflation.
Deputy Haughey discussed the treatment of compulsory acquisition as disposals for the purpose of capital gains tax. Deputy Colley referred also to compulsory purchase orders tonight. If the proceeds of a compulsory acquisition were to be reinvested in a similar trade or industry no tax liability would arise. Where is the injustice? There is none. If a person sells off an asset and reinvests it in an appropriate trade or business there is no question of subjecting that to a capital gains tax.
We have been anxious at all times to ensure justice and that is what we are doing. I am not surprised to hear those criticisms from a party which has charged Deputy Colley and Deputy Haughey with the obligation of opposing a capital gains tax.
The Minister will bring in that amendment before he is finished. I guarantee that.
A Deputy
Low standards in high places.
Deputy Haughey and Deputy Moore referred to the cost of servicing the public debt which falls as a charge on the current budget. This is considerable. As we borrow more in order to improve the economy it is likely to rise. The figure for the coming year is £155 million. Of that figure a sum of £38.7 million represents Sinking Funds for the redemption of debts. As most of this is not required for immediate redemption purposes, it can, and will be, used for financing the capital budget in accordance with practice which Deputy Colley and his predecessors followed, thereby reducing our other borrowing requirements.
As regards the interest element, the Exchequer generally recovers tax on much of the amounts paid, either from the income of individual investors or from the profits of institutional investors. The cost of debt service cannot, and should not, be viewed in isolation. It represents the main cost of financing the large scale public investment which is essential if we are to provide employment, new opportunities for employment, to raise the standard of living and provide our people with essential housing. It should be remembered by those who apparently resent public expenditure, and consider that all expenditure should be in the private sector, that the main beneficiary of expenditure in the public sector is, in fact, the private sector. They are the people who spend money; they are the contractors who build; they are the factories who produce; they are the hotels who make a living out of tourism, and so forth. A great deal of this benefit, therefore, spins off in the private sector and is also returned to the Exchequer in the form of revenue.
Tonight, Deputy Colley referred again to the receipts from last year's National Loan. I said at the time that the loan was less than we hoped. Apparently Deputy Colley, now that he has left financial circles, does not bother to read the stock market, does not know what is happening on the international money market, does not realise that interest rates here have risen by 4 percentage points since this time last year and does not know that fixed long-term securities everywhere are feeling the pinch. The truth is that this is what is happening everywhere. Far from our National Loan last year being an indication of lack of confidence, it was a fair indication of considerable confidence in the Government that we should have done so well in the light of what happened two days after the National Loan was floated.
I would recall for the House that what happened was that Britain, two days after we had floated our national loan, went into a state of panic following the November trade figures and jumped her rate of interest to a level which naturally upset the flow of funds into our loan. But for the first time in our history, instead of withdrawing the loan as had happened on previous occasions when there was similar market disturbance, I decided that the right thing to do was to improve the terms of the loan and I was fully justified in this by what happened subsequently. Were we to go on the market today in Dublin, or London, or New York, Tokyo or anywhere else, we would have to do so on terms which would be a lot less favourable than those on which we took up last year's loan. In the circumstances, it was an extremely good return, and Deputy Colley knows well that that was the view of all informed sources in Dublin at the time and ever since.
Would this not be a good time for the Minister to tell us about the capital programme?
I am coming to the question of agricultural credit which was raised by a number of speakers during the debate. I want to rebut a falsehood which is being spread regarding agricultural credit. There is no shortage of credit for agriculture. The Agricultural Credit Corporation have received more money this year than last year. We are providing for the ACC in the period April to December, 1974, £34 million. The money which they expended in the same period last year was £29 million. We are, therefore, providing an increase of 17 per cent.
We accept there will be a high demand for agricultural credit for some years ahead. The Government will ensure that this demand is met from all available resources. However, it would be wrong to assume that the growth in demand will be at the same rate as it was in the past few years because, as every sensible person knows, there was a very rapid growth in anticipation of very substantially improved opportunities in the EEC. That was very properly and adequately fed, and we have reached a plateau, as it were, but it is a plateau which will continue to ascend.
Again, it is very interesting to note that people like the Editor of The Farmers Journal have commented that it was right that the ACC should consolidate their position this year, should take a look at the situation and take account of the fact that the demand for a growth in agricultural credit was unlikely to be what it was in recent years. Notwithstanding the fact that people like the Editor of The Farmers Journal, who is an independent commentator, has said that the appropriate thing for the ACC to do would be to stop growing and to consolidate, we have provided for further progress and we consider this is a justifiable policy.
It is worth observing, lest the critics now forget, that net lendings by the AAC increased from £7 million in 1970-71 to £24 million in the following year and by a further £16 million to more than £40 million in 1973-74. There has been no attempt by us to reduce the demand. Indeed we provided a substantial increase last year. The interesting thing about it is that we provided last year £5 million more than the ACC were able to place. As far as we are concerned, there has been no shortfall for agricultural development.
It is also important to remember that the ACC are not the only source of credit for agriculture. Total credit owed by farmers is estimated at £225 million of which £145 million is owed to the banks and £80 million to the ACC. Obviously, the banking system will and should remain a very important source of farmer credit. Farmers' incomes have increased dramatically in recent years and they will certainly continue to improve. For this reason, as the years go on farmers will have more funds available for reinvestment.
I should also like to point out that apart from the £34 million available from the ACC for a nine-month period, there is also £20 million extra available in grants from the Exchequer to encourage capital investment in agriculture—7.3 million in capital grants and £11 million for other purposes such as disease eradication, fertiliser subsidies and arterial drainage —and last year the ACC were provided with £8 million from the Exchequer's resources with the assistance of the Central Bank. This is another clear indication of the Government's readiness to provide the agricultural community with all the credit they can usefully and productively use. We will ensure that this policy of ours will be continued. We are also satisfied that all this assistance which we give, together with foreign borrowings from the World Bank and the European Investment Bank, will ensure that the agricultural community here will have all the credit that is required.
I would suggest to the mischievous people who are arguing to the contrary that it is time for them now to stop their mischief, to stop trying to discourage people from using capital that can be used productively.
There was criticism from Deputy Haughey about the control exercised by the Central Bank over capital inflows. I was surprised to hear this from Deputy Haughey because as a former Minister for Finance he knows something about the working of the system. First of all, it was not in the days of this Government that the Central Bank imposed a requirement that 50 per cent of all net inflows of funds into the commercial banks from abroad should be deposited with the Central Bank. This system was imposed in February, 1973 when the ordinary bank liquidity ratios were raised. The purpose of this measure was to slow down the over-rapid expansion of credit which was taking place. This led to a 30 per cent increase in 1972-73. The restriction certainly had a moderating effect and credit has not increased at the same runaway rate in 1973-74. The Central Bank has been keeping the position under review but its considered view is that it would not be justified in easing the measures while inflationary pressures remain so strong. I was glad to notice that Deputy Colley was very much of the same view when he spoke on the budget.
The commercial banks could undoubtedly place foreign funds advantageously on the domestic market, but were they to do so without some form of discipline and control it would worsen the national position. However, I know a case can be made to give special consideration to major industrial development projects of which, we are glad to say, there are now several in the pipeline. This is a matter which will be looked into.
Deputy Haughey, if I understood him correctly, said State bodies can go abroad to borrow whenever they like and he suggested that there is a restriction on the private sector which did not apply to State bodies. That is a statement which somebody who had not been Minister for Finance could be excused for making but Deputy Haughey knows that borrowing by State bodies is taken into account in setting the public capital programme —that State bodies are not free to engage in borrowing abroad unless it meets with the approval of the Minister for Finance who has to ensure that the borrowing is in accordance with national economic and social requirements.
Some criticism was offered in the debate of my statement that the present time is not a suitable one to publish a four-year programme for economic development and social improvement. We should love to be able to publish such a programme but such a programme could only be as good as the assumptions on which it would be based and nobody but a lunatic would contemplate seriously issuing a programme when there are such a multitude of uncertainties in the international economic and monetary fields. I have said, and I repeat, that we are pursuing facts. We want to get the facts right and we are discussing with the National Economic and Social Research Council, a body which shares with the Government a desire to publish such a programme, how best to go about this exercise.
One thing we must avoid is adding to the cynicism and to the disappointment caused by the failures particularly of the second and third programmes of the previous Administration. Nothing would be more injurious to our confidence and to proper planning than to issue a programme based upon assumptions which within a month could be shown to be totally wrong. We are continuing our work and our study in this field and we feel satisfied it will be possible before the end of the year to publish a programme which will command respect and will be possible of achievement.
I was sorry to hear Deputy Lynch, leader of the Fianna Fáil Party, who was followed by most of his minions in criticism of the social welfare improvements in the budget. Deputy Lynch suggested they were inadequate but I want to show how this can easily be refuted. Since this Government took office Exchequer expenditure on social welfare has all but doubled. The total Exchequer expenditure has all but doubled in a matter of 14 or 15 months from £92 million in 1972-73 to £172 million in the 12 months to March next. The old age pension is now available at 68. It remained at 70 years from 1908 to 1973. It had to wait for the National Coalition to come into office to shift the qualifying age from 70.
The amount of the contributory pension for a couple aged 68 years or over has risen from £10.35 to £15 per week under this Administration, a rise of 45 per cent. The maximum rate of non-contributory pension for a couple of similar age has risen from £10.30 to £14.60 per week, a rise of 42 per cent. As well all know, the means test has been radically and substantially eased by disregarding the first £5 of assessed means. If one had earned one penny before something was knocked off the old age pension. Now one can earn £5 per week before anything is deducted. This has given a higher increase over the same period both in money and percentage terms to those who hitherto had their pension really sliced if they had any alternative source of revenue. Even if it was only £1 per night earned for baby sitting their pension was miserably cut. Such was the attitude of the then Government towards providing old people with some support and some dignity in their old age.
The monthly children's allowance for a three-child family has risen from £4.25 a month to £9.65 a month, that is more than double. A married man with three children drawing unemployment benefit will receive £19 per week from next July plus a substantially pay-related supplement compared with £13 per week a mere 14 months ago. Of course, we are providing all these increases, not from the October following the budget, but from the July following the budget.
That is not the whole picture but yet we are told this is inadequate. Many whose need previously went completely unprovided for such as the deserted wives, unmarried mothers, wives of prisoners and elderly single women in poor circumstances, are now being looked after as well as the adult dependant for old age non-contributory pensioners. We are providing a special scheme of allowance for severely handicapped children. We are stopping the complete scandal of a system under which a person could receive about £10 for himself and his dependant wife if he was under 70 years of age but the moment he reached 70 years of age he received less than £7 per week to support himself and his wife. In addition, we have abolished a large number of vexatious restrictive regulations which had been applied to existing schemes for decades past. We did no more in those matters than fulfil what we argued for from those Opposition benches as being possible of fulfilment. We are not asking for any credit but we are just contrasting for the public——
The Minister is not entitled to do what he did with the EEC money.
——the performance of the two Administrations because we clearly can point out a totally different attitude.
I should now like to deal with some of the economic arguments advanced in the course of this debate. Last year's budget was, we said, an expansionary budget. We were told by Fianna Fáil critics, by Deputy Lynch, Deputy Haughey and Deputy Colley, that it was too expansionary; that we were going to cripple the economy and we would not be able to afford it. We were told that we would have a massive deficit which we could not meet.
Quote.
The Deputy should look up his 1973 speeches.
Quote, and do not attribute to us things we did not say.
I want to show that the allegation that there was a slow down in growth last year is without foundation. Employment in transportable goods industries in the second half of last year was 4,500 higher than the first half of the year. At the end of 1973 employment in those industries was about 7,000 higher than it was at the end of 1972. As a reflection of this increase in employment the number on the live register of unemployed at the end of 1973 showed a drop of over 6,000 compared with the end of 1972. This indicates a very marked improvement compared with the decline of 2,100 between mid-January, 1972 and mid-January, 1973. The comparison is that we did 8,200 better.
Merchandise exports also continued to expand throughout 1973 and into 1974. In the second half of the year the increase was 20 per cent over the level of the first half. In the case of industrial exports the increase was 13 per cent and the fourth quarter increase on the corresponding quarter of 1973 was 36 per cent for all merchandise and 38 per cent for industrial exports. This expansionary trend has continued into the first quarter of 1974 when the year on year increase in total exports was almost 33 per cent and the increase in industrial exports was 37 per cent.
Imports were also rising but there was never in increased imports such a large quantity attributable to further production and to capital equipment. The value of materials for further production in Irish industry in the second half of 1973 imported increased by 10 per cent over the first half while producer capital goods increased by 6 per cent over the first first half. In the first quarter of 1974 the value of imports of materials for further production was 33 per cent greater on average than in the second half of 1973. The corresponding increase in produced capital goods imports was 18 per cent. All this period of very significant progress would not have taken place had we not had an expansionary budget, if we had not had that budget which Fianna Fáil rejected as unsound, as unwise. If we did not provide the extra stimulus in this year's budget we could not maintain that programme; in fact, we would have something in the nature of an economic slump.
The official external reserves rose between the end of June, 1973, and the end of December, 1973, by £35 million to £435 million, despite the widening of the merchandise trade gap and the increase in the balance of payments deficit in 1973. The net capital inflow amounted to about £90 million during 1973, reflecting continued external confidence, and, as I have pointed out already, the level of external reserves continues to rise, and in March alone this year the net capital inflow was £34 million.
There was a very substantial increase in investments in the second half of 1973, which is being carried through in the first quarter of 1974. Needless to say, this confidence is very much reflected in the housing industry where we achieved, notwithstanding our begrudging opponents, the target of 25,000 houses within a year of attaining office, although the base figure was not 21,000, as our opponents suggested before the election, but 18,000; yet we achieved that magnificent increase against all the odds.
Business optimism, notwithstanding the gloomy forecasts from the Fianna Fáil benches and the mischief lobby, is on the increase, and this is evidenced by the fact that 74 per cent of the people replying to the Confederation of Irish Industry and the Economic and Social Research Institute quarterly industrial survey intend to have higher capital investment in 1974, compared with 56 per cent replying to that effect in the same quarter of 1973, and only 49 per cent in the first quarter of 1973.
These are the facts as distinct from the rumour-making and mischief-making of a party that does not know where it is going, which has shown in this debate, as in last year's debate, a complete conflict of policy, a complete conflict of attitude. There are some members opposite who have spoken in principle in favour of the taxing of farmers' profits and, in fairness to them, I want to include in that category Deputy Jack Lynch, the Leader of the Opposition, but then he is at loggerheads with Deputy Haughey who considers the taxation of farmers bizarre and unjustifiable.
Where does the Minister for Defence, Deputy Donegan, stand?
Where do these people stand as a united party producing a policy which is supposed to be defensible? They argue that they are in favour of increasing employment, and yet all their spokesmen have criticised us for taking the party line which was recommended to us by the European Economic Commission, by OECD, by the ESRI, by the National Social and Economic Council, a policy which——
(Interruptions.)
Order, please.
——or else we would go into a state of flux. The truth is that as a result of our decision and as a result of the policies which we are following, we are likely to be one of the more fortunate countries in Europe in 1974. There is no other country at the moment in Europe which is ready to forecast the growth rate which we now anticipate, and we shall find ourselves quite contrary to past experience under Fianna Fáil Administrations, now at the top of the league of the most successful, the most progressive economic entities in Europe. That is because we are following progressively successful policies, successful economically, and progressive and equitable socially. We shall not be put off this course by the little begrudgers from the Fianna Fáil benches, and we are certain that we shall be vindicated once again no matter what difficulties may blow our way. Unfortunately, there will be difficulties in the year ahead. We have never run away from them. We shall deal with them as they come along. We shall operate a flexible policy. We shall operate a pragmatic policy. We shall not be put off by the people with whom apparently Fianna Fáil want to consort, that is the people who do not understand the real needs and the real demands of the Irish people. We shall produce an equitable system of taxation. We shall expand the economy. There will be more cake available for everybody. The result is everybody will be better off.
Could I ask the Minister briefly one or two questions? The Minister said early in his speech that a number of the economic commentators were wrong in suggesting that the bulk of the growth in last year occurred in the early part of the year. Has the Minister volume output figures to support what he said?
I have given the House the figures.
I said "volume output figures" to support what he said. He quoted various figures for imports and so on which, of course, were reflecting inflation. Has he volume output figures to support his contention?
I have given you the figures.
Are they the best the Minister has?
They are too good for you.
I am afraid they do not do what the Minister thinks. Could I also ask the Minister what is the calculation to show that the deficit he proposes will increase growth by between 1 and 1½ per cent? It is the most crucial question in the whole budget debate and he did not answer it. Maybe he would answer it now at this late stage.
The deficit will produce this growth, 1 per cent in 1974, 1½ per cent up to March, 1975.
I am asking the Minister on what is that statement based. What is the calculation to show that a deficit of £66 million in nine months or £76 million in 12 months will produce a growth of 1 to 1½ per cent?
The Deputy knows there is a multitude of factors in this matter. This injection into the economy will produce this net effect.
Will the Minister explain the calculation? Even at a later stage is he prepared to do that?
I shall be only too happy to give Deputy Colley a course in fundamental economics.
At the moment he has not a clue. I have one final question. When will the Minister be prepared to tell the House and the country about the public capital programme.
I have told you again and again.
Six times I have asked the Minister to do it. He had a golden opportunity tonight, but he did not do it. Does he intend ever to do it, or is he running away?
I must put the question at this stage.
It is all in the capital budget.
Question put.
The Committee divided: Tá, 57; Níl, 53.
Tá
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Joan T.
- Burke, Liam.
- Cluskey, Frank.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Eileen.
- Donegan, Patrick S.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- Fitzpatrick, Tom (Cavan).
- Gilhawley, Eugene.
- Griffin, Brendan.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Keating, Justin.
- Kelly, John.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- Staunton, Myles.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Ahern, Liam.
- Allen, Lorcan.
- Andrews, David.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Browne, Seán.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- French, Seán.
- Gallagher, Denis.
- Geoghegan, John.
- Haughey, Charles.
- Healy, Augustine A.
- Kenneally, William.
- Kitt, Michael F.
- Lalor, Patrick J.
- Lemass, Noel T.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Kennedy, Michael.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Kelly and Cluskey; Níl, Deputies Lalor and Browne.
Question declared carried.