Dáil Éireann debate -
Wednesday, 23 Jul 1975

Vol. 284 No. 2

Finance (No. 2) Bill, 1975: Second Stage.

The Taoiseach

I move: "That the Bill be now read a Second Time."

As the Minister for Finance is engaged in the Seanad I am moving the Bill on his behalf. The purpose of the Bill is to give statutory effect to the taxation proposals in regard to value-added tax reliefs and the income tax surcharge which were the subject of financial resolutions passed on 26th June, 1975. These were part of the Government's package of measures aimed at reducing the CPI and stimulating employment.

Section 1 relates to the 10 per cent surcharge. It provides that for 1975-76 the rates of income taxation of 35 per cent and upwards shall each be increased by 10 per cent in the case of tax payable by individuals. To ensure that the surcharge will not put employment in jeopardy, companies will not be affected by it. Section 1 also provides for certain consequential amendments to the Income Tax Act, 1967.

The 26 per cent rate which applies to the first £1,550 of taxable income— that is, gross income less personal allowances and reliefs—is not being altered. Only the 35 per cent rate and higher rates will be increased by the 10 per cent.

This term "taxable income" is a technical term which is readily understood by the Revenue Commissioners, tax inspectors, tax consultants and accountants. It is somewhat confusing for the ordinary man in the street. I want to emphasise therefore that the £1,550 to which the 26 per cent rate applies is reckoned after the taxpayer has already been allowed whatever personal allowance and other reliefs he is entitled to. It is, I think, worth mentioning here that the new tax liability for 1975-76 will be less than that for 1974-75 for most taxpayers both married and single. The surcharge will operate in such a way as will ensure that account will be taken of personal and family circumstances of each taxpayer. It might be of assistance were I now to give some examples.

Where income is £2,500 the surcharge will levy in a year £13.12 on a single person, £1.05 on a married person with no child, and nothing on a married person with dependent children. The surcharge on income of £3,000 will add annually £30.62 to the tax bill of a single person, £18.55 to a married person without children and nothing to a married person with three dependent children. An income of £5,000 will as a consequence of the surcharge impose £101.37 on a single person, £88.55 on a married person with no child and £64.40 on a married person with three children.

The additional £8 million in 1975 that the temporary 10 per cent surcharge on upper level incomes will produce will be expended by the Government in part payment of the cost of subsidies on butter, bread, milk, transport and fuel and in part compensation for the revenue foregone by the abolition of VAT on clothing, footwear and fuels. To that extent the net impact of the cost on individuals will be significantly lessened.

Section 2 together with the Schedule to the Bill provides for the application with effect from 1st July last of the zero-rate of value-added tax to personal clothing, footwear, certain clothing materials and footwear materials and to electricity and fuels generally, other than oil used in road vehicles. The effect of the changes is to relieve completely these commodities from value-added tax.

Section 3 and 4 of the Bill are of a routine nature. Section 3 is the usual care and management provision, and Section 4 provides for the short title, construction and commencement of the Act.

Before I conclude I want to return again to the simple truth that taxation is necessary to meet Government expenditures. There may be argument about whether it is better to tax income, expenditure or capital or the rates to be applied in these categories. But it is hard to attack taxes on nonessentials. The "old reliables" for taxation purposes, drink and tobacco or cigarettes, may not be exactly described as luxuries but no reasonable person would argue that they are essential. If taxes have to be imposed, and they must be to cover the cost of necessary expenditures including all public service incomes and social welfare payments, it is obviously preferable that taxes should be imposed on non-essentials rather than on basic necessities such as food.

Most people would say too, that they would prefer increased taxation of nonessentials to increased in income taxation. In fact that is precisely what was told to the Minister for Finance by the various interests and delegations who made representations to him before the budget of last January. In response to their wishes and to public opinion the bulk of the necessary new taxation was borne by alcohol, cigarettes and tobacco and public comment after the January budget, endorsed that policy. As non-essential goods including necessary tax on them are taken into reckoning for consumer price index purposes, taxation added an extra 2 percentage points to the CPI. In last autumn's White Paper A National Partnership the Government urged that such taxes if used to claim income increases would fuel further inflation and negative social redistribution of incomes. Because of continuing insistence on luxury items as a wage index the public service wage bill has been shoved up by £9 million. With nearly all Government expenditures including social welfare, education, health, Army, Garda and a host of other essential services costing more, couple with a fall in revenue as a result of recession, a further increase in taxation was inevitable. In the absence of agreement to de-tax the CPI for income assessment purposes the Government are obliged, albeit reluctantly, to increase income tax rates to provide the revenue for essential expenditures. Demanding total compensation for taxation creates a vicious circle which we cannot allow to continue if we are to bring our alarming rate of inflation under control.

Experience shows that Government expenditures cannot be financed without difficulty, but financed they must be if the State is to prosper. Individually and collectively we need to have a more honest acceptance of the obligation to pay taxes without always seeking compensation.

The important feature of the supplementary budget exercise is that it is a critical step in the campaign to wind down inflation which, having started now will have to be deliberately continued until our inflation rates are at least comparable with those operating in countries where we have to sell our goods.

I commend the Bill to the House for a Second Reading.

Mr. Colley

This is an emergency Bill. Any doubts there might be to the contrary would be dispelled by reference to section 1. A Bill which proposes to impose an additional surcharge of 10 per cent on all income tax payers with the exception of those in one band is clearly an emergency measure. That there is an emergency is indisputable. The recent speeches of the Taoiseach in particular and of the Minister for Finance on occasions have been designed to bring home to our people that there is an emergency. The fact that we on this side of the House have been drawing attention in the first instance to the steps which were contributing to the creation of that emergency and subsequently to the existence of it, without response from the Government side, is well known and does not need to be gone into in any great detail.

A brief recital of the main economic indicators brings home to us very forcibly that there is an emergency. For instance, there is the appallingly high rate of inflation, the virtually unprecedented unemployment for this time of year, the fall in the volume of retail sales, the apparent fall now in the volume of industrial exports—a most serious matter—the overall contraction in our economy as distinct from even holding our own, the balance of payments deficit which is at a dangerous level and is held in check only because of the downturn of the economy and, of course, there is the frightening level of borrowing that we have now reached. According to the Minister for Finance in his recent budget statement, there was a budget deficit of £116 million in January but six months later this had more than doubled at £241 million. All of these factors add up to a most serious emergency situation. That being so, one can understand the necessity for the introduction of an emergency Bill.

This Bill will not cure that emergency. In fairness to the Government they do not claim it will have any such effect, but we must concern ourselves with the steps that are necessary in order to make even some inroads on that emergency situation. One of the basic problems with which we are faced in regard to this Bill is the fact that the whole thing is based on a gamble. Since budget day the Minister for Finance has referred on a number of occasions to the fact that the Government might be compelled reluctantly to withdraw one part of the package if the other part is not accepted. Should that situation arise we would be in a worse position than if the package had never been produced. This Bill contains portion of the Government's side of the package.

The Government side of the package is two edged. Section 2 is a retrieving section in so far as it provides a zero rate of VAT for a number of commodities whereas section 1 is a charging section imposing a surcharge of 10 per cent on income tax payers. But all of it is contingent presumably on the success or failure of the Government's gamble. Not only are we entitled to but we have an obligation in discussing this Bill to consider the background which has produced the circumstances necessitating the introduction of this emergency measure.

The major problem with which we are faced is that of inflation. This is now acceptable on both sides of the House as incontrovertible. That may seem a simple straightforward statement but it is only recently that this has been accepted on both sides of the House. Up to recently the stance of the Government has been that there was nothing they could do about inflation and that our major problem was to maintain employment. We have had pseudo-solemn declarations from the Government, from the Taoiseach and from the Minister for Finance to the effect that the Government were committed to the maintenance of employment and of the standard of living of our people. All the time these declarations were being made unemployment was rising and the standard of living of our people falling. While there are other factors that enter into it, there can be no doubt that, unless we conquer inflation, unemployment will worsen and the standard of living of our people will drop further.

I must blame the Government for the attitude they have adopted consistently in regard to inflation since coming into office until very recently. We have heard ad nauseam from members of the Government about the effect of world trade difficulties on this country, the effect of imported inflation. The whole thrust of their argument was that because of imported inflation and world trading difficulties it was impossible for this, or any other Irish Government, to do anything about it. That argument was simply untrue. It is now acknowledged by the Government as being untrue because they are now trying to do something about inflation, however belatedly and ineffectually.

I should like to remind the House that we, on this side of the House, pointed out to the Government that what they were doing in their budgetary stance in the past was directly fuelling inflation, firstly because of excessive budget deficits. I say "excessive" in the sense of deficits which were beyond the capacity of our economy to absorb. In so far as a budget deficit is poured into our economy and does not contribute to growth, it is directly causing inflation. We have had a succession of budget deficits from this Government which were doing precisely that. I am not saying that the total of budget deficits of this Government were not non-productive but I am saying that great bulk of them were and, to the extent that they were not contributing to growth, they were directly fuelling inflation. We pointed that out to them at the time and subsequently.

In addition to that, the other major area in which the Government have themselves caused this problem of inflation—which is now our number one enemy—has been the attitude they have tried to put across to the public, that they could not do anything about inflation, an attitude which apparently they believed themselves for some time because their actions were consistent with that belief—the ease with which price increases were allowed in respect of services directly under their control, such as postal charges, CIE fares, television licences and so on; the manner in which the Government allowed some State bodies to by-pass the National Prices Commission, and in other cases, having received recommendations from the National Prices Commission, rejected them and allowed increases considerably higher than those recommended by the Commission. All of this was direct action by the Government fuelling inflation.

We have urged on the Government at some length and over a considerable period that the battle against inflation requires consistent effort, resisting every inch of the way. Of course, one has to give way in a situation of world inflation; one will be gradually retreating but, unless the Government of the day fights every inch along that way, there is no hope for us, and this Government have not been doing so. In trying to read any coherence into their actions, as far as I can see, they believed either that they could not do anything about inflation or that it was not necessary for them to do anything about it. It is true that, in the short term, political advantage can accrue to a government which adopts that attitude.

It is true that a government can appear to be very generous and concerned about various sections of our community if they are prepared to shovel out money for this and that purpose, not caring that they cannot find the money; not caring that, in order to meet the bills thus created, they have to borrow very substantially, and very often abroad, at high interest rates, with risks, because of currency devaluation, of a substantial increase in the repayments required. A government prepared to do that can reap short-term political advantage, and this Government have sought to do so.

Leaving aside the question of right or wrong or what is good for our economy or not, but thinking purely in party political terms, I have always believed and am now quite convinced that politics, unlike what a famous dictum says, is not a short-term business. Perhaps a lot can happen in politics in a week, but politics is a long-term business. A government which embarks on the kind of short-term courting of popularity such as this Government have engaged in, without regard to the longer term consequences, ultimately will pay the price for that irresponsibility and playing around with the taxpayers' money. As I have indicated, a great deal of the expenditure undertaken by this Government, and an increasing proportion of it, has been financed by borrowing, much of it foreign borrowing. Indications are that, not alone has our indebtedness as a nation increased enormously under this Government but that the nature of that indebtedness has changed also. We have now a very high proportion of short-term borrowing which will come home to roost in a matter of two or three years on whatever government is then in power.

I suggest that that kind of approach is what has brought about the emergency situation we now face. When I say that, I do not want anybody to suggest that I ignore totally or sweep aside the very real and serious difficulties in the world around us and the effects such difficulties have on us, effects which no Irish government could control. I am not doing any such thing. But what I am saying is this : other countries, faced with the same difficulties, with the same increase in oil prices, with the same imported world inflation, have tackled this problem and reduced their inflation rates to levels which range between a half and a quarter of ours. That is the significant thing.

It is significant not only as a measure of the failure of our Government to do their duty but is also very significant for the future because if we continue with anything like our present rate of inflation, our wage rates, even if lagging behind inflation, will be way out of line with our competitors. If that continues for any length of time there is no way in which our producers can sell their goods either on the home or the export market. That creates the vicious cycle of firms closing down, of workers being laid off and the economy grinding down. As it grinds down there is less and less base for the Government to raise taxation and to stimulate the economy. So it goes on. I hope all of this is well known to the Government now. It would appear from their actions it was not well known to them up to fairly recently.

That brings me to the next matter I want to put to the Government, and to the Taoiseach in particular who is sitting in for the Minister for Finance. Previously I put this matter to the Minister for Finance and got what I considered to be a very unsatisfactory reply. Perhaps the Taoiseach can give a more satisfactory one.

The measures which the Government have taken, some of which are provided for in this Bill, are mainly measures which we advocated quite a long time ago and which we spelled out in great detail last September. In January the Government introduced a budget and we urged them to take measures of this kind because at that time we were faced with an emergency situation which required emergency measures. However, the Government did not do that; they have only done so now. The question arises, why did the Government not take those steps at least last January? That raises very serious issues. Did the Government know what was right and not take action? Did they not know and, if so, why did they not know? After all, we knew and we said so and we were prepared to go on record on the matter.

I get an impression from various statements of the Minister for Finance that there has been a tendency by him and a number of his colleagues to snatch at straws, that if there is any report, particularly by an international body which suggests even remotely that there may be an upturn in the world economy on a certain date, that he snatches at that. I hope the Government have now learned to ignore this kind of straw-snatching and that they will concentrate on what they can do in our economy to control our situation, irrespective of what is happening in the world around us. The only effect that should have is to spur us to greater efforts in regard to what we can control ourselves.

There is an even greater significance and a more serious question to answer in regard to the Government's failure in their budget last January to take the steps they have taken now, that is in relation to the national wage agreement. The Government knew, as everybody else knew, that there was a national wage agreement to be negotiated shortly after the January budget. We also knew that at the rate inflation was running that agreement would itself be inflationary if it merely provided for keeping pace with inflation. We strongly urged the Government at that time to take the kind of steps they are taking now in an effort to reduce the consumer price index. We pointed out that if the Government did that the consequence would be that the national wage agreement could be negotiated at a considerably lower level because the cost of living increase would be lower and thus a massive burden which would otherwise be imposed on business, whether manufacturing, distribution or agriculture, would be removed. In addition the burden on the Exchequer would be less because of the enormous size now of the public sector pay in the overall costs that have to be met by the Exchequer.

The Government did not take our advice. They allowed the national wage agreement to be negotiated. It is fair to point out that the Government produced a White Paper called A National Partnership. What happened in the national wage agreement was exactly what the Government had asked for in the White Paper; both the employers and trade unions paid attention to the White Paper and did what they were asked. Having agreed to the national wage agreement with considerable difficulty, and some workers having got the first phase under that agreement, the Government now come along and ask that it be renegotiated on the basis that they are taking steps to bring about a reduction, hopefully of 4 per cent, in the consumer price index.

The Government must answer the following crucial question. If this approach is right—we think it is because we advocated it a long time ago —why was it not done in January before the national wage agreement was negotiated? Is it not clear that to call for renegotiation obviously creates many difficulties that would not have arisen if the Government had done their job in January? Is it not obvious that this whole operation is shaking the faith of many people in national wage agreements and endangering the continuation of such agreements in the future? I do not think we have had any satisfactory explanation from any member of the Government for their failure to take action before the national wage agreement was negotiated, which would have led to a reduction in the burden on industry, agriculture and on the Exchequer itself. I hope that in the course of this debate the Taoiseach will indicate the reasons for the Government's failure to take action last January.

There is another aspect that suggests either a great naiveté or a gross, almost unbelievable, incompetence on the part of the Government and that is putting it in very blunt terms. If the Government had embarked on the course they took in January, they could have said to the Employer/Labour Conference : "We will do this if you will do that", and worked out an agreement on that basis. The Government are now saying: "We have done this, will you do that", and threatening that if the other side do not do it, the Government will retract what they have done.

There is no weaker position for a Government to be in than the one in which they are at the moment. The whole operation smacks of either enormous naiveté or gross incompetence. All this suggests that the Government have been taking the wrong approach to the management of our economy up to recently, that they are now belatedly trying to reverse the course and are even handling that reversal in such an incompetent manner as to inspire less than confidence that they will manage even to achieve the limited objectives provided for in this Bill and as part of the package announced by the Government.

The origin of much of what is in this Bill and the Government's package can be traced back to the introduction of the green £ in the Common Market for our agricultural produce. It will be remembered that we on this side of the House urged the Government to go for the green £ and that there was a very lengthy delay of at least six months, but nothing happened. There were, of course, many leaks from informed sources the burden of which was that the Government were not happy at the prospect of applying for the green £ because of its effect on the consumer price index. That was a very reasonable and natural concern. However, we suggested that since the bulk of the products which would be affected were exported, or paid for on an export basis, the effect on the consumer price index at home was relatively limited and that it could, and should, be counteracted by certain forms of subsidy.

The effect of that would have been that the consumer price index would not have been affected on the one hand and, on the other, farmers who were going through an extremely difficult time would have had their income boosted by approximately £40 million. The Government did not take either step. They vacillated for so long that the farmers lost this additional income and, when they finally moved, the consumer price index was allowed to rise as a direct consequence and no action was taken by way of subsidy to keep it down. A consequence of that was rolled in directly into wage increases with a cost which far outweighed what it would have cost the Exchequer to deal with the situation.

Another consequence was, as I said, the failure of the Government to obtain for the farming community at that time an addition to the income of approximately £40 million. This was reflected in our over all economic position because the farming community was going through a particularly difficult time. The net effect was that the consumption of goods overall produced in the non-agricultural sectors of our community went down, with a consequent loss of employment and increased prices to meet increased overheads because of reduced sales and production. The overall effect of the Government's failure in that regard was felt not only in the agricultural sector but right across the economy. It contributed to a considerable reduction in growth in our economy, increases in the consumer price index and consequently increases in the wage bill across the economy, not only in the private but in the public sector.

The lack of approach of the Government to that problem and, when they screwed up the courage to go for the green £ their failure to deal with the consequences arising, is reflected in what has happened since. The reason I am mentioning this matter is that it would appear that we are now about to have another change in the value of the green £. This raises serious questions. The Government ought today to indicate to this House and the country their attitude to this. To the extent that the change in the value of the green £ will improve the income of the agricultural community, I do not think the Government should hesitate for a moment but go for it.

Then the question arises, as it did last year, what about the consequences of that change on the consumer price index? Will it in whole or in part wipe out the benefits of the subsidies announced by the Minister for Finance last month? If there is a danger of that—and it would appear that there is—the Government have to make up their minds what they are going to do. Will they allow that to happen with the consequences that flow from it, or will they provide for even further subsidies to maintain the position as it was envisaged when the Minister for Finance made his announcement? If so, where will the money come from?

The Government have the responsibility for making those decisions and taking the action necessary to implement them. It is not enough, in my view, if the Government continue to vacillate as they did before about the green £ and slowly come around to the position they should have taken first. I am calling on the Government to indicate today if possible—and if not today, then within a matter of days—what action they propose to take arising out of the proposed further change in the value of the green £.

The question of the package the Government announced, of which this Bill forms part, and the threat to withdraw the Government side of the package if the other part of the package is not accepted I referred to earlier, but when we consider this Bill, implementing part of the Government's side of the package, we ought to be told just what the Government's attitude is. We ought to be told, for instance, if the subsidies announced on CIE fares and food, and so on, and the reductions in value-added tax provided for in section 2 will be withdrawn, then what will happen to section 1, the surcharge on income tax? As far as I am concerned, I want an absolute assurance. I want to make quite certain that we will not end up with a surcharge on income tax without the benefits announced by the Government for which the surcharge on income tax is to be a method of paying part of the cost. If it is a package then it is a package for everybody and, if it is withdrawn, or partially withdrawn, then we should go back to square one and the income tax payer should not be left subject to a surcharge while the benefits he was supposed to get are withdrawn. As far as we on this side of the House are concerned that is a basic position we maintain, and we will seek to ensure in the passage of this Bill that that position is safeguarded.

The whole atmosphere the Government are trying to create arising out of the emergency situation we are facing is one designed to reduce expectations and demands. I think the Government are right to do that. The problem is that the Government themselves created excess, expectations and demands, but I am not going to go back over all that. I am saying that I believe the atmosphere the Government are now trying to create is the correct one given the emergency situation with which we are faced. The leader of this party has indicated on behalf of this party that we believe, given the present circumstances, that the national interest does require restraint and renegotiation of the national wage agreement. We believe the issue involved here far transcends party politics.

We believe the whole interest of the nation is tied up in the success or failure of efforts to overcome this dire emergency. Having said that, what I said earlier in regard to how this situation has come about becomes even more serious. Furthermore, the activities of the Government in more than doubling expenditure, both capital and current, in a period of two years have contributed to the situation we are facing and unfortunately robs the Government of a considerable amount of the moral authority they would otherwise have. We do not want there to be any illusion about where the failure has lain but, granted that, the important thing to recall is that, whatever the causes, we are now faced with a most serious emergency, an emergency which cannot be overcome unless right across the board there is exercised a degree of restraint and discipline, which has not been evident up to now and, in particular, has not been evident from the Government.

We are asking the Government now to turn over a new leaf, however belatedly, and do their part in trying to ensure that the national interest is put first, as it has not been for almost the last 2½ years. Now that the chickens are coming home to roost we on this side of the House, who pointed out consistently what was happening, are still prepared, as we were in the past 2½ years—we did our part—to go on doing our part. We are supporting the Government's efforts, however belated those efforts are, to tackle the problem. Consequently we hope that the passage of this Bill will contribute in some degree to the successful renegotiation of the national wage agreement, successful in the sense of its eventuating in new terms which will take account of the emergency situation we are facing and account of the best interests of the people in whatever sector of the economy they earn their living, whether as employees or employers. We have no doubt at all that the best interests of all our people lie in a successful renegotiation of the national wage agreement and in the package the Government have announced being implemented as far as possible. To the extent that we as an Opposition can give our support to that aim we are giving it, conscious of the causes of the emergency we are facing and conscious also of the fact that, when the country is faced with an emergency of this kind, the major problem is how to overcome it, not who caused it.

Mr. Brennan

In this Bill we have an opportunity of discussing important matters affecting the economy. For that reason one will be pardoned if one covers some of the ground covered in different ways in the past in relation to other matters. Any worthwhile contribution to a debate like this must be calculated to help. That is not an easy matter for the Opposition. We may be criticised for not coming up with constructive proposals to alleviate the serious position that exists.

When one looks at the background of this whole exercise and considers what the Government are attempting to do in a small way one discovers that what they are doing is actually undoing some of the things they did in the past, things which have had a serious adverse effect on the economy. I suppose it does not do much good to keep on reminding them of this. To those who would say we are not constructive, the record will show that on every possible occasion we did advise that the Government were taking the wrong steps. Would it not have been nice, when the ESB crippled the people with extra VAT charge, if the Government had moved to prevent it? Would it not have prevented a lot of damage being done and restored some confidence? The people at the time got the impression that no action was being taken to deal with the increasing charges they had to meet from day to day. Would it not have been nice if at the time that the Government, after a five-million introductory speech, extracted several million pounds from the people in increased fuel charges, the Minister had come in and said: "We would be supposed, at this time, to increase the price of petrol but in order to keep our charges below those of other countries and to help industry, particularly the tourist industry, we will not increase the price of petrol"? Would that not have saved the Government subsidising fares now? Would it not have been nice if, in the last budget, the Government had said: "Eventually the contributions to the national insurance fund should come entirely from the employers but now is not the time to do it. Those people have too much of a burden to bear. We will continue to subsidise the fund"? In that way they would have relieved the employers of a considerable impost which at the time they were unable to meet and would have enabled them to have retained in employment many of the people they have paid off. This would have saved the Government having to introduce a £12 employment premium at this time. Would it not have been nice if the Minister for Posts and Telegraphs had said: "I want a few million pounds to do something with the scandalous telephone service but I will take only as little as possible from the people at this time because the economy cannot afford it."

There are many ways in which the Government have contributed to the situation, to the pall of gloom and despair that hangs over the country at this time. If we are to be blamed for not being constructive at this stage we must point out that very little heed was taken of any suggestions we made in the past.

I remember the difficulties we had in negotiating the first national wage agreement. We were proposing legislation to insist that the demands made by the people seeking to compensate themselves for the increase in the consumer price index would not be too great. With the assurances and the co-operation we got from the Congress of Trade Unions and others we withdrew the legislation and consequently had the first national wage agreement, which had in it a certain element of inflation but was much better than the free-for-all type of situation which preceded it. It was the first genuine effort towards getting a grip on the relationship between what are now known as the social partners. It was the first serious attempt to bring about sanity in industrial relations and get the co-operation of the trade unions without which no real progress can be made in this or any other country at any time.

Most of this is water under the bridge, but there is much to be learned from it now. The Taoiseach knows these things as well as we do but he is not in a position to take the action that he knows should and must be taken at some stage because the elements of the Government of which he is the head do not accept the things which are necessary in order to dispel the gloom and overcome the recession in which the country has been plunged so deeply, particularly in the last two years.

It is necessary to have a programme, it is necessary to chart the way ahead. The programmes for economic expansion were a tremendous guide for the economy generally. Sometimes the targets were surpassed, sometimes they were not reached and sometimes we were well off course, but at all times they were a guide both for the public and private sectors and for the government in particular. There were factors beyond our control which sometimes put us off course but, by and large we have moved towards our targets reasonably satisfactorily having at all times to face the unforeseen difficulties of trade disputes and international changes in marketing and pricing. We ensured that the effects were minimised however. In the Department of Labour I experienced the senseless bank strike which crippled the country for a long time, the cement strike, a couple of ESB strikes. These were crippling, senseless and ultimately proved pretty fruitless, but we learned something from them.

Out of all those adversities came the first national wage agreement. Many people realised the foolishness of their efforts and found that a better course could be adopted. We commissioned a man to report on the bank strike. He went into the details of what it was necessary to do to restructure the machinery which supported industrial relations in the banks. These were trivial in comparison with the action taken at the time. The overall effect of his report was that the mountain laboured and produced a mouse. The economy suffered seriously as a result of it, despite every possible effort we could make.

I say this to emphasise the important part which organised labour has to play in bringing about a real and effective improvement in the economy of this country at present, or any country at any time. Workers must realise that the most patriotic thing they can do is to co-operate as partners and indispensable links in the effort to improve the economy. Until everybody co-operates, we cannot say real progress is being made. I found a situation in industrial relations where the bosses in the trade unions wanted to appear as the people who succeeded in extracting more money from the employers. No effort was made by them to point out what the overall effect and the ultimate outcome would be.

We are very quick to copy what other countries do, particularly in western Europe. I often thought it would do us a lot of good if we studied some of the other aspects of those economies. We should take a leaf out of the book of the Federal Republic of Germany and study the way they built up their country after the war with the absolute co-operation of every individual who was responsible for holding down a job or who worked in the services, in productive employment, driving a bus, or working at the bench in a workship, or on the assembly line in a factory, or at a desk in an office. They took the patriotic view that they were partners in a great drive to recapture the greatness of their own country and bring it back to the prosperity they knew it was possible to achieve.

That could not be done without the absolute co-operation of all the people, and particularly the workers. That co-operation was forthcoming and they did a job which is an example to the rest of the world. We copy them and take examples from them in matters such as taxation, but it would be no harm if we took example from them in that field. If there is one thing more necessary than any other here today, it is the harmony and co-operation of social partners working together and realising that this is their patriotic duty and it will achieve greatness for the country. There is no short cut.

One would expect that with the unions represented in Government by people who claim to be their political leaders that spirit would have been found in greater measure in the past couple of years, but it has not. It is the old game of seeking to demonstrate: "We are your great protectors and but for us you would be back to where you were in 1912. We will ensure that the affluent society will pay up. We will extract every penny we can from it to ensure that you get all you want to compensate you for any losses you have suffered as a result of inflation or anything else." That is a wrong attitude and it will never get us anywhere. Whether we are to have worker participation or a workers' democracy, until people realise we are all in this together and everybody has a part to play, the Government cannot claim that we are making any progress.

When I was in the Department of Labour I thought I was getting a progressive rapport with the workers' side of the economy. I thought it was possible to reach the stage where people would realise that the trade union movement has more to do than to continue extracting more out of the economy. They should help the people to realise that we are all in it together and unless we all co-operate the ultimate outcome will be that there will be less for fewer instead of more for many. I sometimes wondered whether those in comfortable employment really had much regard for those who were on the unemployment list.

This is the spirit which has to be engendered. If those who hold themselves out as being the political leaders of organised workers cannot do better than they have done in this crisis, I do not think there is much hope. Inevitably there will have to be a change of Government. I will not labour that because I would be accused of making no contribution to a serious situation. This is a serious situation and it is difficult to see what the approach to it will be. One of the things which has to be done, and it will not be done by pretence or political propaganda, is to restore confidence and give the people the true picture of what is happening and of what the position really is.

There is not much good in somebody saying that next year will be a great year. That has been said without any reason. Last spring the Minister for Finance said there would be a great upturn in autumn and that we were over the worst of our difficulty. He had no reason in the world for saying that. Now we are told it is next year, and next year we will probably be told it will be the year after. Whether there is to be an improvement next year or the year after, the way matters are being handled now will leave a permanent scar on the economy.

We know the number of concerns which got into difficulties and contributed to the unemployment figures. We are aware of the number of firms which had to close down and pay off workers as a result of the policy pursued by the Government. We do not know the number of people who might have been investing in the economy if things had been better handled. That is an imponderable. That must be happening at present.

I thought this whole exercise sounded ridiculous. We heard boasts about a new set of taxes being brought in but it is being done at a time when confidence is badly needed in productive industries. It must have been ironical for those who were struggling with liquidity problems and trying to carry on under adverse circumstances to find that this House was engaged daily in producing new taxes directed at those who were accused of being responsible for the affluent society. If we can continue to have an affluent society all other things can fall into place. It is when we have not got it that we are in trouble.

Nobody knows where we are going from here. In this legislation we are engaged in an exercise, to use a new phrase, to de-tax the CPI. It is a terrible admission, and I do not want to rub it in, but we were frequently told that inflation was due to factors beyond our control, that nothing could be done about it but now we are back-pedalling and taking action to undo what was done. The Taoiseach said the important feature of a supplementary budget exercise was that it was a critical step in the campaign to wind down inflation which having started now will have to be deliberately continued until our inflation rates are at least comparable with those operating in countries where we have to sell our goods. It is a bit late in the day for that statement. I wish the Minister for Industry and Commerce made that statement in the House two years ago. Had he done so we would be in a different position today; we would not have the same gloom, despair and uncertainty that is threatening to cripple the economy and is preventing people from planning for the future.

I do not wish to revamp the story of gloom heard at every street corner, but there is no use putting our heads in the sand. We must accept what the position is, face up to it and try to do the best we can about it. The economy is suffering a permanent scar which will be difficult to eradicate. When we were advocating support for membership of the EEC we had the full co-operation of Fine Gael. We were seeking to confound the arguments against membership, that it was a loss of sovereignty and that our Government would be irrelevant in the EEC. We were arguing against the view put forward by the Labour Party, and the other minorities who supported them, that we would be governed entirely by factors outside our control.

I believed our membership would not seriously affect our sovereignty, but the events of the last two years appear to give credence to what was advocated by those opposed to our membership of the EEC. They said that our Government could do nothing, that we would be completely in the hands of Brussels and we would be buffetted around like a cork on the European wave. That is nonsense. We are our own Government, and a Government which takes money from the people for the running of the country must have a strong whip hand to direct the course of events of our economy. They cannot opt out of a responsibility which must be theirs. Since they have so much fiscal and monetary control and are taking such a huge percentage of the people's wealth they cannot get away from these problems by saying that there is nothing they can do about it, it is beyond their control and the rest of the world is suffering for the same thing.

If we were in power since the last election prices would have gone up and there would have been some unemployment but it would not have been half as bad as it is. We would still be blamed for not taking the proper action but the uncertainty would not have been there and confidence would still be strong. These are important points. The day-to-day effort of political cosmetics is not a substitute for a long term study of policy. I am involved in the coordination of the efforts to up-date Fianna Fáil policy and at intervals we issue discussion documents to inform people obout the policies. I shall try to insist that the policies will be realistic, that they will be capable of attainment within the resources available to support them and that they will be long term ones that will ensure that this country will not merely resume the movement towards expansion but that we will, in the shortest possible time, reach the desired goal of full employment.

In doing that we will not be relegating in any way to a secondary position the important part of the cultural and social side of the programme.

An Leas-Cheann Comhairle

The Deputy seems to be moving from what is before the House.

Mr. Brennan

Perhaps I am, but this might be the only opportunity we will have to discuss, in a general way, our economic position. The legislation we are discussing has widespread and far reaching effects.

An Leas-Cheann Comhairle

The Deputy will appreciate that it does not go into the area of policies of parties.

Mr. Brennan

I should like to point out that if we are to make a reasonable contribution to this important debate it is necessary, if we are to give the people some hope for the future, that we should give an assurance to the people that might help to dispel some of the gloom. It is important that we should assure the people that there is a light at the end of the tunnel.

The affluent society was the target of attack when we were in Government by the then Opposition. There was a feeling that if there were signs of a few pounds extra as a result of a growing economy machinery should be devised quickly in order to rake it off. That is the exercise that is taking place now instead of the cooperative spirit needed to get everybody working together in order to create all the wealth possible and to ensure that everybody gets an equitable share of the wealth. That is a simple policy. To do that it is necessary to ensure that any international happenings likely to affect expansion here would be offset or counteracted by some measures by the Government. It is necessary to ensure that measures taken by the Government do not endanger the progress of those involved in giving employment and creating the expansion we enjoyed for so long because of an increase in exports.

I do not wish to go over the field again, but it is axiomatic that this country cannot expand its economy without expanding its exports. To use the overworked term, the Government have done very little to monitor the economy in relation to unit costs in production and to ensure that exports would continue increasing at the pace at which they have been increasing. It is not sufficient to say that the markets failed because of conditions in other countries. What happened was that we became less competitive, that we have now reached the stage where we are unable to compete because of unit costs in production rising faster here than in any other country. This has happened at a time when we are moving towards free trade.

The NPC have been doing a reasonably good job. They have been found to be the best vehicle by which the Government can monitor prices, but the time has come when the Commission's function should be less circumscribed, when they should be allowed speak out without fearing that in any way they might be offending the higher dictates of the present political propaganda effort which is fostered and maintained daily. I do not think anybody is foolish enough to pay any attention to the preamble to each issue of the NPC report which indicates the amount of money saved to the economy by reason of the increases allowed being less than those sought. Everybody knows that since the whole mechanism of price increases has got out of hand the usual procedure for any concern in approaching the NPC is to ask for, say, a 15 per cent increase in the hope of being granted an increase of 7½ per cent.

It is easy to make a case for increased prices, and it must be difficult for the NPC to take any effective action at a time when the Government are the greatest offenders in regard to increasing prices. One must ask where we go from here. Will the action being taken have any effect? Will the Government be successful in the gamble they have taken? This package is dependent on the action of people outside this House. It is a belated effort but, to a large extent, it is putting the cart before the horse. The time at which the Government should have acted was when the Employer-Labour Conference were working on the national wage agreement. Instead of applying this remedial action months later, the Government should have been working at the time of that conference.

The action they are taking now is dependent on the co-operation of other people who have become an indispensable cog in our whole economic set up.

If we in Fianna Fáil were to be guilty of that serious omission there are some who might say of us that we had not the proper contacts with the organised labour force, but the omission has occurred at a time when the supposed political leaders of the trade union movement are operating in Government. These are people who must be conscious of the necessity of taking effective measures to deal with the situation. They should move now, that is if it is not too late to do so. However, if they can take action, difficult though it may be at this stage, they will be making some worthwhile contribution to the future but I doubt seriously that they have the will to move.

The Taoiseach's speech in relation to this very important matter was short. It was a mea culpa sort of speech which said: “We told you in the past that these things could not be done but now we are trying to do them and we hope to get the co-operation that is necessary although we do not know whether such co-operation will be forthcoming.” We are asked to be constructive. We have been constructive in the past as the record will show. For instance, at the time of the introduction of the green £ we suggested that to offset the effect on the CPI subsidies be introduced. If we are to have progress it can only be brought about by the proper approach of the social partners— everyone realising that he has not merely a duty but a real patriotic duty to help lift up this country from the situation in which it now is. We must have co-operation right along the line with everybody working to help the country rather than to be endeavouring to get from it what is not there. We must not continue to create debt, the repayment of which is more than the country will soon be earning, if we cannot do something that will change seriously the present trend in the economy.

Ruairí Brugha

In so far as the supplementary budget measures and the other recent measures may help our economy, they have the support of this side of the House. However, I do not believe the measures the Government are taking are the kind of measures that will meet the present situation, speaking on the measures before us and the desirable things said in this speech in relation to the necessity to wind down inflation particularly

until our inflation rates are at least comparable with those operating in countries where we have to sell our goods.

There are many such phrases with which I am entirely in accord. In speaking on the measures involved anybody in Opposition must be expected to be as critical—not party-political criticism—as one believes the present situation warrants.

In the initial part of the speech it is said:

It is, I think, worth mentioning here that the new tax liability for 1975-76 will be less than that for 1974-75 for most taxpayers both married and single. The surcharge will operate in such a way as will ensure that account will be taken of personal and family circumstances of each taxpayer.

That is to say that the measure, in relation to taxation, is framed in such a way as to apply to the least number of people. It is as if the Government were saying: we would like to tax people in a way which would appear to be politically equitable and try to exclude as many as possible so that what we are doing will affect the smallest number only and, in that way, we will not be unpopular. Of course that is quite true if the object of the Government is merely to engage in a popularity contest but has nothing to do with the fulfilment of their real responsibility to the economy and the welfare of our people in general.

Further on in the speech it is said:

If taxes have to be imposed, and they must be, to cover the cost of necessary expenditure including all public service incomes and social welfare payments,...

That is quite true but is not what is happening at present. A substantial amount of current State expenditure is being met out of borrowings. In that sense what is said is the right expression but what is being done is not in accordance with the ideal expression of how State expenditure should be met.

The first section of the Bill makes changes in the tax rates. It is worth setting out what will be the new rates and how they will compare with other, relatively more successful and prosperous countries. The new rate of income tax here, over and above the income allowance to an individual whether he or she be married or single, will commence with a tax which is not changed from the previous rate of 26 per cent on the first £1,550. The next £2,800 of income will be taxed at 38.5 per cent and the next £2,000 at 49.5 per cent. The following £2,000 will be taxed at 60.5 per cent and the final £2,000 at 71.5 per cent. Over and above that rate of income the tax level will be 77 per cent, which is reached in or around a figure of £12,000 earnings per annum, depending on the personal allowances of the individual concerned. In effect it is a 10 per cent increase, from the previous 70 per cent to 77 per cent.

This increase in taxation is in addition to the Minister's gift package of wealth tax, capital gains tax and inheritance tax. It is worth making some comparison between our taxable situation and that of some countries to which the Minister for Finance referred in debates over the past few weeks. As I have said, the highest taxable rate here is now 77 per cent above an income of approximately £12,000 per annum. In West Germany the maximum taxable rate in 59 per cent, as I understand at present, but that is not imposed until the income has exceeded £38,900. In Holland the rate is somewhat higher, almost level with ours, at 71 per cent but that is not reached until the income exceeds £22,600 per annum. In Belgium the rate is 70 per cent at the top but that is not reached until an individual earns in excess of £44,000 per annum. In Luxembourg, a much smaller unit, the taxable level is 57 per cent and is somewhat nearer ours, being imposed on earnings of £14,200 per annum. Therefore, not alone are we from 7 per cent to 18 per cent above those countries in ordinary income tax but those earning high salaries in Europe are allowed from £2,200 to £32,700 per annum more than their counterparts here before they reach the maximum levels of taxation.

From the enterprise point of view that means that a person can earn from twice to almost four times as much in countries such as Germany, Holland and Belgium before reaching the maximum taxable level. In all cases the percentage level is well below that of Ireland.

The circumstances of our economy are different from most of these countries. The point that needs to be made in relation to taxation is to see what effect the taxing system has on enterprise in an economy like ours which has not reached the stage of development of most of the European countries mentioned. If these tax rates are taken with the additional package of taxation recently introduced, as well as major over-expenditure here and borrowing from abroad, it is obvious that these developments have helped to reduce our economy to its present level. It is the state of the economy that has led to the introduction of this Bill.

We do not object to a fair capital gains tax, particularly one that captures the exploiter, the get-rich-quick merchant. There is not likely to be much objection to a reasonable gift or inheritance tax. When one considers the high levels of ordinary income tax one wonders what the Government are thinking about in economic terms. If the rates of taxes and the legislation introduced in the last few years are driving capital out of the country—I am assured this has happened—it is little wonder that for the first time in the last few years the larger part of State borrowing for capital purposes, and recently for a good deal of current expenditure, has had to be obtained from abroad. It is not possible to have a successful economy or to have expansion in employment if government policy is directed towards discouraging enterprise. That is the impression that has been created, it is the feeling people have, quite apart from the serious situation arising from very rapid inflation which creates other problems for people engaged in enterprise.

Section 2 deals with the removal of VAT from fuel, food, shoes, clothing and some textile items. The VAT rates now being removed were increased by the government two years ago but the tax on the items mentioned should never have been increased. When it was done the Opposition warned against the increases and we spoke of the inflationary results. The warnings were not given purely from a political point of view but from people who had some experience of the effects of different measures of taxation on the cost of goods. For example, it is not possible to impose a higher rate of VAT, which up to a few days ago was 6.75 per cent, on energy and fuel without it having a significant effect on the cost of the production of goods. Those who have had to deal with fairly substantial ESB bills will know what I am talking about. It is not possible to have additional costs in these areas without transferring them in one way or another to the cost of production of goods. If a government tinkers with that area of the economy they are asking for trouble.

It is obvious that the inflationary cycle into which we have moved in the last two years was, to a considerable extent, primed by Government policy in relation to taxation, spending and borrowing. One could talk about the effects of our current borrowing problem almost indefinitely. Deputy Colley was quite right in what he said earlier. The Government are engaged in a major gamble in their fiscal policy in relation to borrowing. The rate of borrowing at home from the banks has increased almost astronomically, from about 28 per cent to 44 per cent, and the rate for overseas borowing has increased almost to the same extent. We are reaching a stage where short-term borrowing has become the norm and the cost of that borrowing has increased by as much as 20 per cent.

No economy of our size can afford to borrow at the present rate and survive, nor do we have much hope of holding our present markets with our current level of inflation. Even though I do not really believe the measures the Government have taken are adequite, I am glad to find the reference at the end of this speech to the effect inflation has on our ability to sell goods.

If the Government were to undertake the necessary measures which would call for significant sacrifices from the public, I would applaud them. It sounds like lecturing to go into the fundamentals of what we are dealing with at present in relation to our economy, but the foundation of economic success lies in the efficient production of goods at the right price. We cannot hope to sell goods in the markets referred to in the speech unless we can produce them at a price which will ensure that they will be bought. In the western world, there is no alternative to efficient competition in prices. In this country our primary means of production are in agriculture and industry. They are our only real wealth and we depend on them. The price of goods produced in these areas depends on the cost of production, including service charges—heating, energy, wages and so on.

Our economy is in dire straits because the Government have failed to provide an economic policy which would ensure the production of goods at competitive prices. As I said, farming and industry are our only real wealth and all other forms of activity —State or social services, hospitals, transport, banks, insurance companies, office blocks, retail and wholesale outlets—are merely secondary units depending on the ability of the primary producers to provide goods at efficient prices. At present the cost of wages has risen beyond the capacity of industry to be successful. It has not been driven up by the farm or factory workers, but by the secondary services, including State services, Salaries and wages have been allowed to increase far beyond the capacity of the economy to maintain competitiveness.

In an ordinary enterprise if costs begin to escalate, a point is reached where the company has to say: "Stop, we are not making enough to pay the increased demands sought." The Taoiseach and the Minister for Finance should ask themselves who says on behalf of the taxpayer, that the time has come to stop, that we cannot borrow from banks, particularly overseas financial institutions, to balance a situation which, in itself is not sound. As the largest single employer and spender, the Government are responsible for the present situation. Over the past year, despite warnings from the Central Bank, other institutions and the Opposition, the Government have persisted with the policy of spending, borrowing, taxing and as a result, we now find ourselves in the most serious economic danger since the foundation of the State.

This Bill is merely the last item, following on this year's first budget and previous budgets, of borrowing a few million pounds more to subsidise foods, impose tax and reduce value-added tax in some areas in order to bring about what appears to be an artificial reduction in the official index and is merely a political performance calculated to delay the day of reckoning.

We have a serious balance of payments deficit this year which has been modified somewhat in the first six months. When studying the returns, I found there was a drop of approximately £100 million in the first five months of this year. I believe this drop is the result of lack of demand on the Irish market. This would, of course, occur because of the increases in many areas. Nevertheless a balance of payments situation over the past two years has been allowed to deteriorate too far. Our borrowing policy—something which did not exist so far as overseas borrowing was concerned, up to three years ago—is reaching a point where we may consider ourselves fortunate if, next year, we can meet our capital budget. At present our current expenditure deficit, according to recent estimates, is in the region of £240 million to £250 million. It looks as if we will probably have overspent approximately £280 million or more by the end of this year.

The responsibility for State expenditure does not lie with the Departments of State, the civil service or the many substantial semi-State bodies. They must obey the Government who are in charge because the responsibility in the very large area of expenditure where State and semi-State groups are concerned lies on the shoulders of the Government, the politicians in power.

During earlier times—I am harping back now to something I said earlier —when there were difficulties people were prepared, when called upon, to make sacrifices. Today we are facing a serious economic situation, forced upon us by the world situation and also forced upon us by ourselves because we have a Government which so far has not had the courage to introduce a greater efficiency into the expenditure area or to call for a reduction in what can be described as selfish spending, a habit that has developed in our community right from the top. People generally cannot be expected to do something when they have not before them an example from the top. The question is what can industry do to compete with wage and salary increases ranging from 22 per cent to 25 per cent already committed to in the public sector. How can industry survive and how can the jobs of workers be maintained when our prices are escalating in those very markets upon which employment depends, those markets in which inflation rates are well below ours and, in some countries, are being reduced? The key to economic survival in a small country like ours is based on competent political leadership which puts the economic interests of the people before political popularity. The aim of responsible political leadership should be a reduction in the rate of inflation below that of competing economics. It is for the Government to give that lead. If they do not do so then this Coalition will leave behind it the same bad memory that previous Coalitions left behind them. The people will have to decide the issue we are debating here today as soon as they get the opportunity.

Mr. O'Brien

The Opposition are completely overlooking the reasons for this Bill. There has been a good deal of discussion of the 10 per cent surcharge on income tax and the reasons for it. Right throughout the last 12 months the Members opposite have had several motions, all demanding more money for this, that and the other—more money for housing, more money for education, more money for social welfare, more money for the Army, for security and so on. It has always been a question of more money. In order to pay for all these things the necessary finances have to be raised. They can be raised either by borrowing or through taxation. No matter where or how one gets the money somebody has to pay and the Opposition are being less than honest when they criticise this Finance Bill.

The last speaker talked about our taxing the upper income groups and leaving the lower income groups free for, he said, political reasons and political expendiency. Those in the lower income group are those who are hardest hit by rising prices. The intention is to renegotiate the national wage agreement. The removal of value-added tax from foodstuffs, clothing and certain types of fuel in order to bring down the consumer price index is very important. It is a clear indication that the Government are not using and do not intend to use the heavy hand but rather to use negotiation and provide incentives. Incentives are normally responded to and, in the interests of industrial peace, this is the way we should operate.

As a Government, we have always been concerned about negotiation, always prepared to talk and always prepared to come to the conference table. That is how a good Government should operate. The Opposition are missing the point in regard to this Finance Bill. The argument has been advanced that employment is contracting. The premium employment benefit will ensure the maintenance of jobs and the creation of new jobs when the upturn comes. When it does come industry will be properly geared for the upturn. More money is being made available for industrial training, showing the confidence we have in industry by ensuring we will have the trained personnel for industry in the future. It is essential that we should have a pool of trained industrial labour. That is what we are doing here.

More money is being put into housing. The Government are making £10 million available and the banks are putting up £40 million over the next two years. More money is being invested in the building societies contrary to what some Members on the opposite side say about money flowing out of the country. This is mischievous and dangerous talk, and anyone with any sense of loyality would not engage in that kind of activity.

The capital gains tax was mentioned. Members opposite dragged their feet on this when it was being discussed. One got the impression that they were actually against it.

Their opposition to the wealth tax is known. We had all the scaremongering. I would describe these measures as mild social reforms. They highlight the difference between the Government and the Opposition in regard to concern for a proper redistribution of wealth. The Opposition have not faced up to the fact that we have major economic problems and while some stem from internal inflation many of them are due to external factors. Problems still exist in the highly industrialised countries of Europe—Germany, France, Italy and England. Those countries have always been far better off than we have in terms of productivity and of wealth and they are feeling the pinch. Because of that they are not importing in the same quantities as they might be and this is affecting our exports. However, the signs are that this is changing and later in the year and coming into next year there should be a significant upturn. The steps the Government have taken in this budget will ensure that they will be ready to meet the challenge of increasing our exports.

At the rate inflation is running something had to be done. In a situation of high inflation the people hardest hit are those in the lower income groups. This Government have cushioned that effect in every way. We must now ensure that inflation is curbed. The removal of VAT will make a significant impact in that regard. This must be coupled with restraint from all sides of the economy to ensure that we as a nation get back into a competitive situation vis-á-vis our competitors in Europe. We are in the Common Market and they do not owe us a living. We must go out and earn it and that is how it should be. We must gear ourselves and we must invest. The Government have taken this into account in this budget and are getting the ship straight and on course again.

We must look at ways and means of increasing our productivity. There is nothing wrong with high-rate economies if they are geared to high productivity but the idea of watching the CPI and then making claims without any thought of raising our rate of production gets us into trouble. We have a low productivity rate as compared with our partners in Europe. The Government, in time, will have to look at the whole trade union movement and the employer side because we cannot stand the strain of competition. What we are doing now is a step towards reducing inflation but it is not a cure. The cure is within ourselves. Are we prepared to work harder, to put more into it, to get more out of it? If we are prepared to come to terms with the hard reality of life we can weather any storm because we are an emerging industrial nation with a bright future. We can only reap the highest benefits from it if the Government, the employers, the trade union movement and the farming organisations come to terms with the problems, discuss them and take whatever remedial action is necessary in the short term and in the long term ensure that we adapt ourselves in agriculture and industry to meet the challenge. We can meet it. We have the backbone, the ability and the will. I believe we are now getting down to it and with offshore oil and gas, our new-found mineral wealth, and the way the Government have handled the negotiations in regard to these, the prospects are bright.

As a nation we must examine our conscience and work with the Government. I would appeal to the trade union groups to think, because inflation does not make for more jobs, it makes for fewer jobs. Anything that can be done to curb inflation will ensure a growth in exports, a growth in employment and a general upsurge in prosperity. We all have a lot to do because a Government can only do so much. A Government can give a lead. The lead is in this document. Now the people must think whether they want to grasp all they can and let the less well-off go to the wall and some of those who are grabbing will ultimately go to the wall because we will not be able to afford the type of settlements that some people are demanding. We must look at ourselves and ensure that we take the right course at this time. The Irish people have always had the good sense to take the right course of action. If we do that we are heading for a prosperous future under the leadership of our Taoiseach, Deputy Cosgrave.

Mr. Moore

This is a very important occasion. Indeed, one might call it a critical occasion. It is not our desire on this side of the House to try to score points on the Government although it would be quite easy to do that. Because of the crisis facing the country we have a solemn duty to expose the Government's faulty handling of the situation this year in particular. In January, when the Minister for Finance introduced what we used to think was an annual budget, he said it was a holding operation. Since we had the second budget, we know the holding operation was not very successful. It did not hold very much. It does not hold any hope now. It did not hold back an increase in unemployment, or the rate of inflation, or the rise in the cost of living.

It is easy to say outside influences are the main cause of these problems, but it is not good enough that we should be evasive about what is facing us in the hope that things will get better in two or three years' time. This morning the Taoiseach said:

This term "taxable income" is a technical term which is readily understood by the Revenue Commissioners, tax inspectors, tax consultants and accountants. It is somewhat confusing for the ordinary man in the street.

That sums up the Government's policy. It is somewhat confusing for the ordinary man in the street. When the national pay agreement was being discussed, the trade union leaders and the employers had a tough time in getting the principle accepted. The Government sat back and refused to take any part in that debate. Eventually agreement was reached and, as matters deteriorated, the Government brought in a second budget holding out certain carrots and laying down certain conditions. The carrots will be available only if the trade unions decide to cut back on the agreement reached. This was a breach of faith with both sides of industry who negotiated the agreement.

I realise how much worse the economic situation has become since the agreement was drawn up. I blame the Government for that. I blame them for their attitude towards the agreement and for the confusion which now exists. Have the subsidies promised in the budget been implemented? They were conditional on the trade unions doing certain things. Where do we stand with regard to the last budget? If the trade unions do not fully agree with the Government, when will the subsidies be withdrawn if they have been implemented? Whoever is replying on behalf of the Government should clear the air and tell us where we stand.

Will the Government guarantee that if the trade unions and the employers revise the wage agreement there will not be a further call for further cutbacks later this year? Can we get the Government to decide on some definite policy with definite targets and some hope or promise that they can be achieved? Are we to go on drifting into further economic chaos which must result unless proper and adequate measures are taken to improve the lot of the people?

While it is true that many of the influences which are affecting us badly are imported, the Taoiseach said they do not account totally for the position. We can do many things to achieve well-ordered progress on a well-compassed course towards prosperity, or even to maintain our standard of living. We are becoming more uncompetitive as the economic blitz persists. I can give two examples. A large firm in Dublin lost 20 per cent of their staff through redundancies. They manufacture an article which is also widely manufactured in the United Kingdom. Things are not going all that well over there either, but that industry is now flooding our home market with their products because they can sell them cheaper than the home manufacturer can.

Manufacturers on the far side of the Irish Sea will be seeking to take more and more of our home market. Are we gearing our industry to withstand the new challenge from the United Kingdom, which is not exactly a model of progress? Industrialists there are able to make themselves a little more competitive than we are, and they are trying very hard to take more of our market from our home manufacturers. I have spoken to manufacturers in this city and I am convinced that both the management and the workers in this case are doing their very best to meet the new challenge but, because of a crazy system of taxation, they are finding it very difficult to overcome it.

The other example is that of a large concern with branches in Dublin and Cork. Recently they were faced with the problem of a great number of redundancies. They had discussions with the workers. They were able to prove that an American concern were able to produce the finished product at a little above the cost of the raw material for the Irish firm. How can any concern compete in those conditions? This is what I have in mind when I say the Government are not coming clean on their policy towards industry. We are becoming more and more uncompetitive. Now there is a great onslaught on the home market because some of the ailing industrial concerns in Great Britain in sheer desperation are cutting back their costs and seeking to take more and more of our home market. Our home market is not all that big.

We on this side of the House have been telling the Government that their approach to many of our major problems is wrong especially in regard to taxation and the relationship between the Government and industry. Unless at this eleventh hour the Government are more imaginative in their thinking and produce a progressive policy such as other EEC countries have done and have proved so successful in their battle against inflation, we face a serious situation. None of the other EEC countries have the rate of unemployment or inflation we have. I suggest that we send officials to those countries to study the measures adopted there. It is possible that we could then see where the weakness is in our industrial and economic makeup to such an extent that we cannot hold on to the home market.

I agree that our exports this year increased but in recent months a change for the worse has taken place. Unless the Government produce an imaginative policy to put Irish industry in a position to meet the challenge of outside competition the deteriorating situation will continue. We have achieved great success in industrial development and with proper Government guidance and help we could continue to develop the industrial arm of our economy—I include agriculture in that. However, the Government in their taxation policies this year have done nothing to help the industrial sector to make any progress. The time of this House has been taken up on financial measures which in the long run will prove a waste of time.

The Government should consider giving those engaged in industry hope for the future by devising a scheme such as one for long-term credits. The Government should point out to the people that in this hour of trouble and trial we must be more competitive in selling our goods abroad and on the home market. They must tell the people that while they realise that sacrifices are called for now they do not think the lower paid section of the community must continue to make these sacrifices. The unions have been criticised for their attitude in the present negotiations, but we must realise that they represent people who have little margin between themselves and want. Those working in manufacturing industry, salary and wage earners, should be given a guarantee that if they agree to the Government's proposals when the upturn in the economy comes and the much promised bonanza arrives they will share in the new wealth we hope will accrue from the discovery and development of commodities like oil and natural gas.

It is not too much to ask for this new social pattern. It is not too much to ask that the pattern will not be the same as this year whereby the national wage agreement which was freely concluded between employer and employee will be suddenly cast into doubt by inept handling of the economy by the Government. When the Government are talking to the trade unions and employers they should tell them if they have a new blue print which will ensure that all people will share in the new wealth promised as a result of the development of the resources off our shores. People will no longer accept a stop-go type of economy. At one time people are being told that things are going well but at the same time we have more than 100,000 unemployed, a rising cost of living and galloping inflation.

It is within the wit of any democratic Government to ensure that we have a better order of economy for the future under a free enterprise system as exists in the other EEC countries. The Government must be sincere with the people and not have a carrot-display budget and saying that if the workers do certain things the Government will do other things. It is wrong that the Government should bring in subsidies and say that they are conditional. The Government should tell us if it is the intention to bring in more subsidies. Unless the Government announce that they have firm plans to take us over the problems facing us they cannot expect co-operation or loyalty from employers or employees. It is ironic that the Government should have issued a short report on how to combat poverty when there is a great poverty of thought in the Government towards the improvement of our economy.

Deputy O'Brien said that if we all got together we could do great things. I know the Deputy was sincere, but that is not enough. I am sure the people will come together if they believe that the Government are sincere and have a practical policy to put before them. That policy should safeguard the people from the effects of the present economic blizzard, or are the Government becoming so complacent as merely to blame outside influences for our problems? Will it be their attitude to sit back and say that they cannot do much about the situation because the problem is a worldwide one? Let us consider our position vis-á-vis the other eight members of the EEC. Somebody has said of the UK that she is suffering so badly from post-Empire pains that, as a society, she is becoming more sick. However, let us consider other European countries that are battling against the present economic difficulties, countries that are being successful in their efforts in this regard. Unless the Government here can generate a climate of belief in ourselves, our problems will become much worse. It has been suggested that within a short time there may be 200,000 people unemployed. I have not heard that suggestion being described as a defeatist attitude. While such a prospect may be unpalatable, the question of whether that stage will be reached depends to a great deal on the Government.

When this Government came to power they were handed over a very sound economy, an economy that was capable of great development. I realise that there are influences at work which are imported and which we cannot prevent but which are contributing to some of our problems. However, I do not accept the Government's complacency in this regard. I do not accept that we cannot take the sort of action that is being taken by, for instance, West Germany, Denmark and Holland. West Germany has a very strong economy despite the disaster of World War II which brought her to her knees and despite the fact that she is a partitioned country. By the application of their native genius, the Germans have been able to build their economy so that today her people enjoy one of the highest standards of living in the world. Germany has both an inflation and an unemployment problem but these problems are contained within manageable limits while our difficulties continue to become greater.

The Taoiseach may say that we have taken certain action, that we have eased the burden on people by the provisions of the budget, that certain conditions have been given in an attempt to effect a 4 per cent cut in the cost of living, but unless the Government are prepared to examine our problems and take decisions as to how best they can be solved, the outlook for the country is bleak.

If the workers are to agree to a modification of the national wage agreement they must be given a guarantee that there would be no further modification. They must be given a guarantee also that those whose salaries and wages are in the lower brackets will be given some credit by way of State bonus for the sacrifices they are making now when there is material evidence of oil and gas from our territorial seas. If the Government continue to endeavour to solve the problems piecemeal they are not likely to get the full co-operation of those who are working to create wealth for the nation.

Mr. Toal

I wish to say merely a few words on this measure. The Bill is designed to wind down inflation and to stimulate employment. With that objective in mind I would expect it to be welcomed by every Deputy in the House.

I am glad that VAT is being removed from footwear, from essential clothing, from non-vehicular fuel and electricity, but I am very disappointed there is no such concession in respect of furniture. By "furniture" I mean such essential items as beds, chairs and tables which bear a VAT rate of 19.5 per cent. Obviously this is a penal rate especially when one considers that the rate in Northern Ireland is only 8 per cent.

We all know that along the Border, on the Northern side, there are many Jonesboro'-type markets. People from this side of the Border can go to those markets and bring back to the Republic goods to the value of £52 on each occasion. There has been a tremendous upsurge in the purchase of furniture in Northern Ireland by citizens of the Republic. When we take into account also the importation by traders of foreign furniture, even from non-EEC countries, and also the secondhand furniture sales, one realises the mammoth task facing the home manufacturers.

The groupings for the various rates of VAT have been re-examined. At a time when the 6.75 per cent rate on footwear, for instance, has been removed completely, it is difficult to understand why there should not be at least a substantial reduction in the 19.5 per cent that applies to furniture. Such reduction would encourage sales of Irish-made furniture, thereby ensuring more employment for our people.

In my county furniture manufacturing is a thriving industry. In my home town one furniture concern has closed down and the others face great difficulties because of the importation —whether it be from Northern Ireland, EEC countries or non-EEC countries—of cheap furniture with which local manufacturers are unable to compete. In this respect the only thing for the Government to do is to give immediate assistance to such people by reducing substantially, or abolishing, value-added tax on essential items of furniture. By that I mean items such as chairs, beds and tables. By so doing they would be not alone helping the furniture manufacturers but stimulating employment and rescuing the industry before it is too late.

I heard the Taoiseach say that we should all face more honestly our obligation to pay tax. That message could not be spelled out too often. To my knowledge the average Englishman fills out his tax forms diligently, correctly and more honestly that does his Irish counterpart. Perhaps he pays the tax unwillingly but at least he shoulders the burden and meets his commitments. I do not know what is the reason for the Irishman's reluctance to pay tax in a prompt and accurate fashion. Perhaps this stems from former times and our ancestors' distrust of authority. I should like to see business people especially being more honest and accurate in filing their income tax returns. Unless we all do this we ourselves will suffer ultimately because, if the Government cannot get in the moneys they require by way of taxation, they will have to impose taxation on items which could be devoid of it were everybody more honest.

I should like to see also a more decentralised system for the collection of tax here. In the Cavan/ Monaghan, Louth/Meath region there is one inspector of taxes located in Dundalk. The average businessman or farmer cannot take time off to drive 50 miles to Dundalk to have his income tax affairs settled. I should like to see a tax office established in every town. I know this would take time but I should like the Taoiseach to address himself to this question in his reply. In the interim, with the complexity of tax measures confronting people at present, I should like to see the inspectors of taxes in the various regions attending at least once a month in the major towns in each county.

Acting Chairman (Mr. Carter)

I should remind the Deputy that the method of collecting taxes is not a subject for debate under this Bill.

Mr. Toal

As I said, this Bill is designed primarily to wind-down inflation. We have heard a lot of talk from the Opposition about inflation. They know the facts of it as well as we do. First of all, there was the fourfold increase in the price of oil; there was also the worldwide increase in commodity prices and the fall in the value of sterling. In addition, there have been the exorbitant wage demands being imposed by workers on various firms here. We have wages chasing prices and prices chasing wages. Unless we are prepared to cut down our demands the spiral of inflation will continue. This Bill is designed to halt the spiral of inflation and reduce it.

Needless to say whatever measures the Government adopt, they need the co-operation of all our people. People talk about patriotism. We have sufficient of the political kind but very little of the economic kind. I do not mean that merely in a confined sphere of "Buy Irish"; I mean it over a broad spectrum, even in the sense of acceptance of the tax proposals of this package; accepting them in a civil spirit and shouldering the burden so that our economy can weather these difficult economic times. I commend the measure to the House.

Mr. Dowling

Unlike some speakers, I take a different view of the tragic problem this country now faces. This problem must rest on somebody's shoulders. We must examine the situation and ascertain the full extent of the problem before we can attempt to solve it in its entirety. For the past two years the Government have been bluffing their way through. Contributing factors to the very serious situation in which we now find ourselves were vote-purchasing activities, internal pressures, which bring about somersaults in relation to policy and statements emanating from various Ministers from time to time, and the yielding to outside pressures. We have experienced a disastrous situation during the past 12 months with the vicious upward spiral in unemployment figures and the ever-increasing dole queues.

Is this measure sufficient to remedy that tragic situation we now face? Positive action must be taken to save this nation and we have not had that. The Government have introduced a measure and qualified it with the implication: do not do as we do; do as we tell you or we will make you. That is no way to treat this positive problem we face now which requires deliberate action on the part of the Government. We must know exactly where we stand before we can discuss the complex situation in its entirety.

Will the Government continue the subsidies or will they be removed? We must ascertain the position. We have had the irresponsible projection by Ministers that certain actions will be taken. The Government should take a positive line in relation to the rectification of this problem. It constitutes a very serious situation, a loss of confidence in the Government, by industrialists and other sections of the community. Confidence is the key note. There must be confidence— confidence in the future, confidence in the Government and in their policies. But no policy has been presented. Two-and-a-half years ago when this Government assumed office we were a creditworthy nation with an amount of finance available from a variety of sources. We are now on the verge of bankruptcy and the past 12 months have highlighted the complete incompetence of the Government. We should not try to cover up the misdeeds of the Government but we should try to extract some information from them. They have concealed what has happened with the result that concerned people are not able to evaluate the true situation.

The matter of State finances has been referred to by the few speakers on the Government side. We have seen the lonely vigil of the Taoiseach for a number of hours, and now the Minister for Finance is the only Minister on the Government benches. Not a single member of the Labour Party has thought it worth while to come in and support the Government. If Members such as Deputy Barry Desmond and others who have been vocal in the past have not come into the House to support the Minister, we must take it they are not in favour of the present measures. So far there has not been a single member of the Labour Party in this House during the debate and, with the exception of the Minister for Finance, there is not a single Fine Gael member present. That is the situation in what we were told was an all-important debate that would rectify the present tragic situation.

Budgets are meaningless now. What happens is that the Minister for Finance presents a list to the House; the purpose of part of the list is to buy popularity. There is no question of making ends meet. We have been told that when the upturn comes things will be all right; we will have plenty of minerals, oil and natural gas. The Government decide on expenditure and they borrow to meet the long list with which the House was presented.

In the last few years there have been many reversals of policy. VAT has been removed from a number of items although the tax was increased on those items in the not too distant past by the Minister. CIE and ESB charges have been imposed by the power of this House but a few weeks afterwards the Minister reversed the situation. There was the national wage agreement which the Minister for Finance and other members of the Government applauded but yet a few weeks later we were told it must be modified. One does not know the state of the economy from budget to budget, from week to week, from day to day, or from one Government meeting to another.

Have the Government changed their minds since they presented this Bill? Has there been any change in Government policy? It is very difficult to discuss any situation in this House because we know that within 24 hours, or with a change of Minister on the front bench due to an interval break, there may be a change of attitude. The Government do not know where they are going from day to day. There are many internal problems and pressures within the Government, where some Ministers are told by their colleagues to hold their political nerve, to damp down the fires. This is their only solution.

Who is the real Minister for Finance? It is not Deputy Ryan. Who is the real Taoiseach? There have been so many changes and so many conflicting statements with regard to the economy that we cannot accept the word of any Minister for more than the hour in which he makes a statement. We know that Deputy Ryan is only a cloak for the real Minister. No doubt the real Minister will emerge in a short time. Perhaps we might be told now who he is so that we may assess the situation and try to rectify it. We must know who is in control. There have been distortions and reversals of policy as a result of a variety of pressures on the people who are supposed to be in power.

We are concerned about the survival of this nation. We want positive action to ensure that we have a viable economy. People will have to make sacrifices. What is required is courage —not in-fighting, not political pressures of one type or another. If the people of the country are asked to accept the situation and to make sacrifices to ensure that we have a viable economy they will do it.

We know the bluffing that went on with regard to the national wage agreement. The Government applauded and approved that agreement in this House but, at the same time, the Minister for Finance knew that it was not going to be accepted in its present form by his Department. Before he introduced his budget, why did the Minister not take the trade unionists into his confidence and tell them the situation? Instead of that, at a later stage he waved a big stick and told them if they did not do what the Government wanted they and the people would suffer the consequences.

What is required is confidence and common sense. Irish workers have always been reasonable and responsible. During the years they have met their responsibilities in full; when called on to make sacrifices they did so when they knew the facts. On this occasion political blackmail has been applied. Threats are no solution to any problem. What is needed is a disclosure of the facts so that everyone can judge the situation.

What will happen in the future if the so-called package is a failure? The trade unions will be blamed. The Minister and the Government have left themselves a way out. The trade union movement is a responsible body which will measure up to the high standards they have always maintained when dealing with the national problems which have confronted them from time to time. On this occasion, too, I am sure the Irish workers, reasonable and responsible men who are concerned about the future of the nation, will measure up fully to the tragic situation in which we find ourselves because of the incompetence of the Government. Threats such as those to withdraw subsidies and impose further taxation are no solution to the problem. To handle a problem successfully one must let the people know where they stand and what the consequences will be if remedial action is not taken. If the people are given the facts, they will respond without the Minister using blackmail. It is an insult to the trade unions when the Minister uses a big stick to threaten them. As I said, these are reasonable men who will consider in a reasonable way the problems facing the nation.

I had hoped that a positive policy would have emerged from this Government which would have inspired confidence. People have no confidence because we are still waiting for the full package. We still do not know if the subsidies are on or off. Will there be a reversal of other benefits in the package? Will the employment subsidy and other concessions be withdrawn? What exactly are we discussing? Nothing positive, but a package which might exist in some form or other. For the past two years this Government have been approaching the economic situation in a not very positive way.

How will the trade union movement view the situation when they sit down to negotiate further wage agreements? Many questions will have to be answered if this Government are in power, and the unions are entitled to these answers. Perhaps the Minister will give some indication of what will happen if the package does not work. What remedial measures will be taken?

Ministers welcomed the national wage agreement but only a few weeks later this so-called package was brought in. Why was it brought in so soon? Why did the Minister conceal it? Did he not know about it or had the Department of Finance already come to the decision that the economy could not stand it but did not tell the Minister? Or did the Minister know but keep it from the trade unions? That is an unhealthy situation and will not be tolerated in the future.

We need courage, not bluff to meet this situation. We must make a national effort to overcome this disaster, much of which is of our own making. There has been much talk about industry, workers, unemployment, corrective measures and inflation. From June, 1974, to June, 1975, there was an alarming increase of 46 per cent in unemployment. As well as the 100,000 on the live register we have the school leavers who are unable to get employment. Some people are predicting that the unemployment figures will rise to 200,000 in the near future. When it reaches that figure the Government will probably do what they did on a previous occasion—desert in the middle of the night. History has repeated itself on many occasions since this Government took office.

Some people have no hope for the future, particularly school leavers and those on the dole and this Bill gives them no hope. The remedial measures outlined in this document are not adequate to make us a viable nation again. It provides for the removal of VAT from certain personal clothing, footwear, clothing materials, footwear materials, electricity and fuels generally. We are told later on that luxuries are taxed and no reasonable person would argue that they are essential. Of course luxuries should be taxed. Everyone agreed that they should be taxed. Taxes should be imposed on nonessentials. I have been pointing out here, however, that many items essential where the ordinary household is concerned are taxed because they carry value-added tax.

Debate adjourned.

Business suspended at 2 p.m. and resumed at 3 p.m.