Facts, however unpalatable, must be faced. We have passed through the second year of the worst economic depression the western world has witnessed for almost 50 years. It is necessary for me to stress this at the outset, for several reasons. First, Ireland has had to contend with a situation not of her own making: as a small, export-dependent economy, we were very badly hit by the effects of the world-wide slump in economic activity. Indeed, because of our small size and vulnerability, we have, perhaps, suffered in some ways more than many other countries. Second, while the Government's economic policy has consistently been to try to safeguard employment and living standards at the expense, if necessary, of considerable budgetary deficits, there are limits to such a policy; in the last resort we are dependent on an increase in world trade of which there has as yet been only the first hopeful signs. Third, when the long-awaited economic recovery does come, there can be no assurance that it will restore the patterns of growth to which we have become accustomed since 1960.
These severe limitations on the Government's freedom of action mean that the highest priority has to be given to tackling the one economic problem that is, to some extent at least, within our own power to control—namely, inflation. The first steps in this direction were taken in my June, 1975, budget by a series of measures designed to halt price rises and break inflationary expectations. At the time, these were pushing income demands to levels which were already threatening our international competitiveness and putting our economic future in jeopardy. While the full fruits of these measures have yet to be seen in the pay pause for 1976 called for by An Taoiseach, the initial response required by the Government—a modification of the current national pay agreement—was forthcoming. I am, however, bound to say that inflation remains the greatest single obstacle to our economic health and prosperity and that its main contributing factor of domestic origin is excessive income increases. I will return to this point later, but it is essential to state it at the outset, since it permeates every aspect of our economic performance.
The economy in 1975
This budget—more, perhaps, than any other in recent years—must be seen in its economic and financial context. Its shape and aims, the particular means of implementation chosen and the limits of their effectiveness are all set by the economic climate and availability of resources, present and prospective. It is normal, in budget speeches, to review the recent development of the economy and its prospect at some length. On this occasion, I shall be much briefer; not because it is unimportant—on the contrary, as I have said, it is more important than ever—but because the ground has been covered in some detail in the new publication "Economic Background to the Budget", which I issued earlier this week so that everybody would have an opportunity of studying and understanding beforehand the background to the budget.
Last year was a disappointing one for the Irish economy, but this must be judged by reference to the performance of other countries— especially of our partners in the European Community. The fall in the volume of our output was about the same as for the Community as a whole. Unemployment was regrettably high, though the increase during the year was not, in fact, as fast as that of the majority of our fellow members. While our price rise was, unfortunately, one of the worst, it began to slacken in the second half of the year. Largely because of the low level of economic activity, combined with exceptionally buoyant agricultural exports, the balance of payments deficit fell to £30 million compared with £300 million in 1974. In the last few months of the year, there were signs, from indicators such as imports, output data, retail sales and bank lending, that the recession has flattened out.
Economic Prospects for 1976
The world economic situation is expected to improve in 1976, but recovery seems unlikely to be dramatic. The internationally-held view is that there will be only moderate improvement, strongest in the United States and Japan but significantly weaker in Europe. In the United Kingdom, still our most important export market, demand is unlikely to recover until the second half of the year at the earliest.
A revival of world trade may not, therefore, be immediately of great benefit to us and our export prospects for the coming year are no more than moderately encouraging. This makes it crucial that we should improve our international competitiveness by getting our own inflation rapidly under control. Even if we do, it is clear that the prospects for growth in Ireland's economy in 1976 are limited, particularly in the first half of the year.
Economic Strategy, 1976
Against this external background and the constraints of our deep-rooted domestic problems, it would be unrealistic to pretend that we can quickly return to the comparatively high rates of growth to which we have become accustomed. Our aim for 1976 must be to give top priority to tackling the basic problems which beset our economy, so that we can derive maximum benefit from the more generalised upturn in world economic activity likely in the latter part of 1976 and especially in 1977.
Economic policy for 1976, if it is to be soundly based, must meet three vital requirements. First, it must reduce our excessive rate of price inflation. Second, it must, within the taxation and borrowing resources available and the limited opportunities for growth, give a high priority to safeguarding employment. It must, finally, limit the growth of public expenditure, the expansion of which has been such a feature of recent years.
Inflation
A Minister for Finance, in talking of inflation, shares with a cleric preaching against sin the risk of wearying his audience. The boredom of an audience notwithstanding, fundamental truths remain. It is essential constantly to remind ourselves of the basic facts of our economic situation: we are utterly dependent on exports for future growth and jobs, we cannot export if we price ourselves out of our markets, we will do so if we inflate faster than our trading partners, our inflation is still much above the EEC average and the main cause of our own inflationary trend is excessive income increases. That is the position in a nutshell and it should not, by now, be necessary to explain further why a pay pause after the current national agreement is not merely desirable; it is essential to our economic future.
Several consequences flow from this. The first is that, while this budget forms a necessary part of the nation's economic policy for 1976, it is only a part and, perhaps, not even the immediately important part. The first priority is to settle the behaviour of incomes for 1976.
Incomes policy
Last month the Government laid the seriousness of the national position before the country when An Taoiseach addressed the nation on television and radio and through the Press. On the same day An Taoiseach and Government Ministers met the social partners and told them that to maintain employment, those who have jobs should not press for any further pay rise at least until the end of 1976, apart from the payment of standard increases remaining as commitments under the present pay agreement. A similar restraint would be required of those with incomes from other sources. While the Irish Congress of Trade Unions has been unable to recommend the Government's proposals to their affiliated trade unions, the Government expect that, nevertheless, congress's recognition of the national economic difficulties and the Government's request will ensure the measure of restraint sought. My budget is based on this expectation, both in the view I have taken of economic developments this year and in the forecasts of public expenditure and revenue. In our circumstances, there is no alternative to a pay pause.
The Government have, moreover, accepted a report from the Labour Court indicating that the obligation to achieve equal pay by the end of 1975 could result in a significant loss of jobs. The Government have, therefore, decided that the Anti-Discrimination (Pay) Act, 1974, should be amended to allow industries to defer equal pay if it should lead to loss of jobs. Sex discrimination in public service pay rates is being eliminated with effect from the 31st December, 1975, at a cost of £2.5 million in 1976. This action completely fulfils our EEC obligations and fully conforms with the provisions of the Anti-Discrimination (Pay) Act, 1974. The Government very much regret that, at a time of unparalleled stringency, it is clearly not possible to provide in addition for the final removal of marriage differentiation. Steady progress has been made in this direction in recent years and up to 60 per cent of the gap has already been closed. I am ready to enter into discussions with staff interests about the ultimate elimination of this gap on a phased basis. I would stress that the Government remain firmly committed to the principle of equal pay and are determined to give effect to it in the public service at the earliest possible time.
The Government are also preparing legislation to restrain non-pay incomes. These include dividends, directors' fees and rents. It is not intended to undermine in any way the capacity of business to invest and expand, or to squeeze its ability to earn—we depend too much on profitable business for that. Non-pay incomes will be required merely to carry their share of the burden of income restraint. The legislation will be of limited duration and is intended to ensure equity among all income receivers at this difficult time. While the legislation will shortly be introduced, it will, if passed, remain inoperative on the Statute Book until developments on pay are clearer.
The second consequence of what I may call the economic facts of life is that income restraint, in one form or another, will have to continue for a long time to come. It has been fashionable to regard income increases as in some way "distributing the fruits of growth". On that view, it would be logical, when we have had an actual fall in GNP over the past two years of about 3 per cent, that incomes should have fallen in real terms by a corresponding amount. Instead, over the last two years, nominal increases in employee incomes of over 40 per cent have been typical. The consequence of that is equally clear: for the rest of this decade, there is no scope, without the risk of recreating inflation on a most damaging scale, for income increases on the scale we have suddenly experienced over the last two or three years.
We have, so far, escaped the full and dangerous consequences for our competitive position of our rocketing money incomes only because the rise in costs here has been paralleled in our main export market in Britain and because the accompanying slide in the value of sterling has cushioned our trade elsewhere. The British Government are, however, making a determined assault on the excessive growth of income and hope to cut the rate of inflation to single figures by the end of the year. We must set ourselves a target no less ambitious if we are to secure our future prosperity.
The Government have already charted the way forward. The formula suggested—a moratorium on pay increases after the termination of the current national agreement until at least the end of 1976—would help to safeguard our competitiveness both on home and foreign markets; it should, at any rate, match the effort being made by our British competitors.
Tax-free price index
Too often in the past, wage settlements have been arrived at by reference to the consumer price index, as though the index were the distillation of all factors relevant to wage negotiation. It is, of course, nothing of the sort; it simply reflects movements in the prices of goods to consumers. As such, it provides a general indicator of movements in the cost of living. In so far, however, as prices are affected by changes in the level of indirect taxes, the index reflects these changes also. I have repeatedly argued that inflationary wage settlements are inevitable as long as people insist on compensating themselves by wage increases for the effect of indirect taxes imposed to finance transfer payments or to meet the general needs of managing demand. I am, therefore, arranging to have a separate index published which would not reflect these tax changes—a taxfree price index. This will allow people to distinguish between price rises to the consumer resulting from market forces and those arising from the necessity to raise taxes to meet the cost of services demanded by the community and for which the community must, accordingly, accept the necessity to pay without seeking compensation. I should like to make it clear that, along with the new index, the consumer price index will continue to be published as before.
PUBLIC EXPENDITURE
General considerations
I have dealt at some length in my previous budget statements with the disturbing rate of growth in public expenditure and it is hardly necessary to traverse this ground at length yet again. There are, however, several notable features of public expenditure which have become increasingly evident in recent years.
The first, of course, is the accelerating rate of growth in the total, which in ten years has grown from 35 per cent of GNP to over 50 per cent. Rather more disturbing is the fact that within this total, current expenditure has been rising faster than capital outlay—not the proper order of priorities, given our major needs for job-creation in the future. The third feature is the sheer difficulty of curbing this rate of growth, let alone reducing it, without reducing either the scope or the standard of popularly demanded public services. But reduce it we must, for we must, after all, rely on the private sector as much as or possibly more than we do on the public sector for future growth and employment. There is, moreover, a growing contrast between the demands of the public for services to be provided "free", or at prices which do not cover their cost, and their obvious reluctance as taxpayers to pay for them. Let it be bluntly said and honestly admitted: the Government cannot provide "free" services. They have to be paid for by someone and that someone is the taxpayer, that noble patriot christened by the Dublin Opinion Seán Citizen. His sister, Máire Citizen, also pays. The taxpayer's reluctance shows itself in the demands for wage increases to compensate for the increased taxation necessary, in the tendency towards tax avoidance and evasion, and in the unwilingness of those at present outside the tax net to be brought within it, at least on the same terms as everyone else. Indeed, in the difficulty of raising increased resources and in the ceiling of varying kinds that taxation seems to be approaching there are also compelling reasons for taking firm action on public expenditure.
Effects of inflation
Inflation itself has, as I said in my budget speech of June last, been a major contributory factor to this problem: it has both inordinately raised public outlays and at the same time constricted revenues, so that the gap between both has widened enormously over the past two years. It has become fashionable with some economic commentators to point to the rapid growth in public expenditure as a primary cause of inflationary pressures in the economy. But this is an over-simplified view of the situation and tends to blur the distinction between cause and effect. The Government are fully conscious of the extent to which unrestrained spending policies can fan the flames of inflation, but it is unrealistic to ignore the extent to which the rapid rise in Government expenditure is a consequence, rather than a cause, of inflation. The fact, however, that high spending policies were appropriate to the unique circumstances of the past two years is no justification for the continuation of such policies when circumstances change.
Effects of recession
While a major effort has been made to moderate the growth of public expenditure, the impact of the recession has inhibited the Government from acting unduly harshly to curb otherwise undesirable trends. The Government are satisfied that their past expenditure decisions were fully justified. It cannot be controverted that had restrictive policies been followed the recession would have been deeper and unemployment greater. Public expenditure, resulting in unusually high current budget deficits which have to be met by borrowing, has had to make good, in part at least, the fall-off in private demand and investment. Public expenditure has, in present conditions, a major role to play in underpinning economic activity and the Government have made, and will continue to make, strenuous efforts to redirect expenditure into productive, employment-giving activities. When economic recovery returns, however, we will have to be extremely vigilant to ensure that Government expenditure does not preempt resources the private sector needs. Recovery in the private sector will, in turn, permit firm control of public expenditure unhampered by the present overriding need to maintain demand. Indeed, it will be essential to do so: the present public sector deficit simply cannot be maintained indefinitely. We have no option but to accept it at its present level because of the recession; but if such deficits are to have any rationale—or, indeed, any economic purpose—they must be reversible when the recession passes. Part of the present deficit is reversible since, as the economy recovers, revenue buoyancy will increase and certain items of expenditure directly related to the recession, particularly those arising from high unemployment, will be reduced. In addition, a return to more normal rates of price and income increase will, relatively, lower the cost of public services. Even allowing for these influences, however, it is obvious that there are other strong factors at work pushing up public expenditure which are not so easily reversed, whatever the state of the economy. These forces, if not arrested, could lead very rapidly to the public finances running completely out of control.
An illustration of the possibilities in this regard was given by An Taoiseach in his discussions with the social partners before Christmas. He pointed out that, if all the demands made on the Government were to be met without additional taxation, it would be necessary to try to borrow almost £1,300 million. As borrowing of this size is simply not possible or acceptable, and there are limits to the amount of additional taxation that can be levied, cuts in planned expenditure were necessary and have been made.
Main constituents
Capital and current expenditure combined almost doubled in the past three years—from £912 million in 1972-73 to £1,817 million in 1975. Current expenditure alone rose from £663 million in 1972-73 to £1,350 million last year. Public services pay, expenditure on social welfare and service of the public debt account for nearly two-thirds of this figure. The level of expenditure on these headings is largely determined in response to autonomous inflationary trends.
The cost of debt service reflects not only the additional borrowing undertaken by the State to finance a rapidly expanding public capital programme and the growing current deficit, but also the massive rise in interest rates over the past few years.
Social welfare expenditure requires no apology. For far too long, the less-well-to-do members of our community were forced to accept living standards which imposed real hardship because they were the least well-equipped among us to cope with the ravages of inflation. The Government were determined to cure that situation. We took effective action to ease the lot of those most in need and we will always be prepared to ensure that inflation does not erode the value of social welfare payments.
PAY
General considerations
The third major element in public expenditure is public service pay. This term is used to cover the pay cost of the civil service, national and secondary teachers, the defence forces and Garda, together with the Exchequer contribution to the pay of nurses, doctors and other health board employees and vocational teachers. It does not include the pay cost of the staffs of State-sponsored bodies, universities or voluntary hospitals, though a significant part of these pay costs are borne indirectly by the Exchequer through the grants paid to these bodies. Public service pay is the largest single element in the total of current public expenditure. Nevertheless, I must emphasise that the growth in this figure from £200 million in 1972-73 to £449 million in 1975 chiefly arises because the Government as an employer and a party to national pay agreements are obliged to extend to their employees wage and salary increases negotiated or awarded under these agreements. Those in the public sector cannot be expected to accept income increases smaller than those being granted generally in the private sector. The fact is, however, that many of those in the private sector nominally entitled to increases under the current national agreement are not, in fact, at present receiving them— and of course, those in the public sector are, by and large, in secure employment not subject to the redundancies being suffered elsewhere.
The provision for public service pay in the 1976 Estimates volume is over £532 million. To this figure must be added over £85 million representing the pay elements in university, voluntary hospital and certain semi-State body grants met by the Exchequer and nearly £50 million for public service pensions. Intimidating as the total of £667 million is, this figure is based on the assumption that, apart from commitments under the existing national agreement, there will be no pay increases in the public sector in 1976. The increase in the public service pay bill is over 18 per cent. Of this about 13 percentage points represent the carry-over effect into 1976 of standard increases under the national pay agreement, together with the payment during 1976 of standard increases yet to come under these agreements.
Claims for special increases
I should like to refer briefly to the claims for special increases for the public sector—that is, for increases additional to the standard increases under the 1975 national agreement. If granted in full, they would cost some £60 million a year, most of which would fall on the Exchequer. The Government have, therefore, reluctantly come to the conclusion that they have no option but to defer consideration of all outstanding claims for special increases, subject to a few exceptions, until at least the end of 1976. The Government feel sure that, in the critical situation now facing the country, the public sector staffs will accept this position. Any increase in the total bill for pay and pensions other than those provided for in the present budget would necessitate the introduction of a supplementary budget during 1976. Any extra taxation involved could be injurious to the nation's economic wellbeing and would also be inequitable if it had to be paid, as it would be, by sections of the community who were themselves deprived by economic circumstances of corresponding income increases.
Public service numbers
About 2 percentage points of the increase in the public service pay bill of £532 million are due to provision for extra numbers. In the civil service itself, there has been a very rigid limitation on expansion over the past year and posts have been authorised only where they were inescapably required for essential work. Considerable progress has been made in re-deploying existing personnel to the best advantage. Despite a significant expansion of work in several areas, the net increase in civil service posts during 1975 has been kept to less than 1 per cent, whereas the average annual increase in numbers in the preceding five years each year was nearly 6 per cent. Most of the posts created in 1975 were required for work concerned with social welfare benefits, EEC agricultural schemes, the prison service and revenue collection. It will be necessary to exercise a continuing restraint on numbers throughout 1976. As Minister for the Public Service, I have directed my Department to continue their efforts to improve civil service efficiency. It must be recognised, however, that it is not possible in the longer term to curtail growth of the civil service if endless demands for expansion of State activities and improvement of public services are to be met. As I said earlier, demands for services and unwillingness to pay for them are simply irreconcilable.
Some of the expansion springs, of course, from necessity rather than new demands. Defence Force numbers, for instance, have increased during the past year by 17 per cent and there has been a 3.6 per cent increase in Garda numbers. Despite the high cost involved, we must keep our security services at the level necessary to guarantee the safety of our citizens against the evil, wantonly wasteful and criminal actions of enemies of the people who profess political motivation for their heinous barbarities. Another area of necessity arises because numbers of teachers have increased by over 5 per cent to match the increase in the numbers of pupils. The Government would like further to reduce pupil-teacher ratios but it is not yet possible to do so. There has been a small increase in the numbers of health board employees to cater for improvements in the health services.
Public service arbitration machinery
An important factor in the cost of public service pay has been the existence of different arbitration boards in the public sector, which has contributed to "leapfrogging" pay claims and often to widespread dissatisfaction. Early last year, the Minister for Labour and I had discussions with the Irish Congress of Trade Unions on the subject. We proposed that steps be taken to ensure consistency in the operations of these boards and it was decided that a working party, on which the ICTU are represented, should urgently consider the question. Following a protracted series of meetings, it has been agreed that the various conciliation and arbitration schemes be amended to provide that Labour Court members should be appointed to arbitration boards where either party to a particular claim so requests.
In our discussions with Congress we also proposed that the whole question of separate arbitration boards for public service groups be reviewed. The working party is now continuing its work on a fundamental reassessment of public service conciliation and arbitration arrangements covering, in particular, the role of the Labour Court. It is critically important that an early solution be found to the problems in this area.
Pensions
Public service pensions, which follow pay increases, now account—as indicated earlier—for almost £50 million of the total non-capital expenditure, which is an increase of £10½ million in 1976 over 1975.
Public expenditure strategy for 1976
The Government are naturally disappointed that in present circumstances it is simply not possible to fulfil all the earlier expressed hopes and honestly made commitments for policy changes and new services. Following the nil growth of 1974 and a decline of 3 per cent in 1975, the level of GNP in 1976 will be about 12 per cent lower than the forecasts made in 1973 before the oil crisis precipitated the world-wide recession. We openly and truthfully acknowledge that, because our resources are now less than they would have been in normal times, we have to modify or postpone many ambitions. Better to do that than to aggravate our present difficulties by trying to do the impossible.
I have outlined the reasons why there are limitations on the growth in public expenditure, the dangers and inherent contradictions in attempting to allow existing trends to proceed in the face of public unwillingness to pay the taxation necessary to meet the cost and the inbuilt resistance to change which make it difficult to achieve any flexibility in the system. Above all, as I have pointed out, there is an inescapable upper limit on the size of the increase in public expenditure which can be tolerated this year. Within this limit, however, other considerations have to be taken into account, in particular the needs of the economic situation.
It is clear that because of the world economic position, and in particular the state of the British economy, little real stimulus to the economy can be expected from exports, at least until nearer the end of the year. Similarly, the pause in incomes, while absolutely vital to improve the economic health of the country, will take some time to produce results. If, therefore, economic activity is to be increased, particularly in the period before external demand begins to recover and the incomes pause improves competitiveness, the boost must come from public expenditure. As the publication "Economic Background to the Budget" points out, economic growth would, if there were no stimulus from public expenditure, be less than 1 per cent. Indeed, it would be in the region of ½ per cent.
This is unacceptable to the Government. Instead, the budgetary aim this year is to use public expenditure, the real constraints on resources, to stimulate economic activity. Total Government expenditure in 1976 will amount to £2,105 million, of which £1,683 million is due to current expenditure and £422 million to capital expenditure—mainly on the public capital programme. Total current resources available, at existing rates of taxation, and non-borrowed capital funds amount to £1,319 million, a shortfall of £786 million on planned expenditure. The sources from which the gap must be financed are increased taxation or borrowing. In deciding on the appropriate mix of these alternatives account must be taken of many, and sometimes conflicting, economic and financial considerations. Having regard to the need for an economic stimulus without damaging competitiveness and the desirability of phasing out current deficits over a period of years and thus restraining borrowing requirements, the Government have decided to bridge part of the gap by £107 million net additional taxation. The Government's borrowing in 1976 will amount to £679 million—an increase of £78 million on 1975.
The Government's strategy is to prune current expenditure where it does not contribute significantly to increased economic activity in general and to employment in particular. Such a policy allows resources to be freed for an increase in capital expenditure, which should provide a stimulus to domestic demand and a boost to employment. At the same time, we are moving towards a more desirable composition of Government expenditure: by the increased emphasis on capital investment, future prospects for growth and job creation will be enhanced. We propose to continue the move in this direction and to subject all non-capital expenditure to critical examination by reference to the criteria I have mentioned.
CURRENT EXPENDITURE, 1976
1975 outturn
My January, 1975, budget envisaged a deficit of £125 million. By the time of my June, 1975, budget the revised deficit had become £222 million, to which £20 million was added by the net cost of the package of economic measures I then announced. The actual deficit for the year was £259 million. The January expectation of revenue for the year was £1,126 million; by June, this had been revised downward in the light of trends prevailing to £1,110 million. The eventual revenue outturn was £1,091 million. The shortfall in tax revenue was mainly attributable to the fall-off in income tax receipts— because of reduction in overtime earnings, increasing unemployment and short-time working—and in VAT receipts, due to depression of trade. Total current expenditure turned out at £1,350 million, or £2 million less than envisaged in the supplementary budget of last June.
1976 estimates
The opening total for current expenditure in 1976 is £1,682 million. Of this, the largest component is accounted for by non-capital supply services at £1,348 million, which show an increase of £216 million, or 19 per cent, over the 1975 estimates, including supplementaries, for those services.
New services
The 1976 estimates volume includes provision for a small number of new services. About £6 million is being provided for the transfer of a further instalment of health and housing charges from local rates to the Exchequer. This brings to £39 million the amount by which local rates have been relieved since 1973. If the Government had not accepted both this liability as it stood in 1973 and the full increases amounting to £21 million since then in the costs of these services, local rates would on average be about £4.50 in the pound greater and the Exchequer would have had an additional £60 million to spend on central Government services. The estimate for social welfare contains a significant new provision of £2 million for the supplementary welfare allowances scheme which is to be introduced in 1976 to replace the home assistance scheme. The basic innovation is that country-wide statutory standards will be laid down for the administration of the scheme, whereas the previous home assistance scheme was operated at the discretion of the local authority.
The estimate for international cooperation contains a new provision of £1 million for international development aid arising mainly out of the Lomé Agreement. In the estimate for Industry and Commerce £400,000 is provided to help with credit for Irish exporters of capital goods.
Subsidies introduced in June 1975 budget
The subsidies which were introduced in my June, 1975 budget, in order to combat the inflationary trend by achieving price reductions in respect of clothing and footwear and of certain items of transport, food and fuel, will be continued. Over £46 million is provided in the 1976 estimates for this purpose.
Education
The 1976 estimate of expenditure on education is £241 million. This represents more than one-sixth of total current expenditure and is £49 million more than in 1975 or three times the expenditure on this service five years ago. As would be expected in such a labour-intensive area, the bulk of the increase is on pay and pensions, which account for about £180 million in 1976. There are also substantial increases under other headings, namely, secondary capitation and tuition grants for which £4 million extra is provided, operating costs of school transport— an additional £3 million—and grants to vocational education committees which are up by £7.3 million. Few, if any, will dispute the importance, or begrudge the cost, of education for our young people. This generous disposition towards our youth will have to be reflected in a willingness to pay the cost or else our children will be the sufferers. The choice is stark but very simple. If we want to advance our children's interest, we will have to pay the cost through higher taxation.
Social Welfare
Expenditure on social welfare has trebled in the past five years. The 1976 provision, at £243 million, reflects the substantial improvements since 1973 in rates of benefit, which rose by almost 80 per cent on average, the alleviation of the means test and the reduction in the pension age from 70 to 67, which also allowed many additional people to qualify for free travel, free electricity and TV licences. Unemployment insurance and assistance, which cost the Exchequer £48 million in 1975, is expected to cost £60 million in 1976, an increase of 25 per cent.
Health
Government expenditure on health in 1976 is estimated to cost £242.5 million of which £153 million represents pay. Five years ago—in 1971-72—this expenditure was little more than one-fifth of the 1976 figure. The transfer, now almost complete, of health charges from the rates to the Exchequer is at present costing the State about £50 million a year when account is taken of both the direct reduction in rates expenditure and the increased costs which would otherwise have fallen on the rates. The immense increase in health costs must, of course, worry us all. Have we experienced improvements in services commensurate with increased costs? These are issues which are being urgently examined by the Department of Health.
Justice and Defence
These services will cost £156 million in 1976 compared with £61 million in 1972-73, reflecting the Government's continuing appreciation of the community's preoccupation with security, to which I have referred. Were evil men and women not now engaged in unforgivable campaigns of criminal violence in our midst in this island, nearly £100 million could have been released to provide jobs to create sustainable wealth. We should resolve to make 1976 a year of total repudiation of all men of violence, irrespective of the political causes they evoke in self-justification. The bulk of the extra money on security will be spent on the Garda and the Defence Forces— both for pay and for improving communications, equipment and transport. The Prisons Vote, which shows a significant increase, provides for continued modernisation of prisons and improvements in security. These are areas of expenditure in which there will be no stinting. It is high time that those unfriendly to the aspirations of our people appreciated that we will not compromise with the forces of evil and destruction.
Agriculture
The 1976 estimate for Agriculture provides for non-capital expenditure of £79 million compared with £65 million in 1975, an increase of 20 per cent. In addition, £36.5 million is being provided for relief of rates on agricultural land—an increase of over £6 million on 1975. The increased expenditure on agriculture is a reflection of the Government's anxiety that the growth potential of Irish farming should be used to the full.
Posts and Telegraphs
Non-capital expenditure here in 1976 will be £111 million, an increase of almost £20 million on the 1975 figure. About half the increase is for pay, indicative of the fact that the Post Office is highly labour-intensive. The estimate also provides for an increase of £2.6 million in the grants to RTE. This reflects the increase in TV licence fees recently announced.
Industry and Commerce
This estimate provides for an increase of £7.2 million or 32 per cent for non-capital expenditure. Increased non-capital grants are being provided for the various promotional bodies such as the IDA, the Institute for Industrial Research and Standards and Córas Tráchtála.
Local Government
This estimate includes £29.4 million for housing subsidy—an increase of £4.9 million. This increase mainly covers the cost of new houses coming on charge for the first time but it also provides for the cost of transferring a further instalment of housing charges from the rates to the Exchequer.
Labour
This estimate provides for an increase of £3.5 million, or almost 70 per cent, in the non-capital grant to AnCO, which should result in a very significant expansion in the industrial training programme during the year.
Capital expenditure, 1976
I come now to capital expenditure. Expenditure on the public capital programme in 1975 was £467 million. The reduction of £22 million on the estimate was due mainly to the demand for agricultural and industrial loan finance being less than the amounts allocated for these purposes. In view of the further deterioration in the employment situation and of the need to stimulate investment, the Government have decided on a substantial increase in expenditure on the public capital programme in 1976 despite the large borrowing involved and the high cost of servicing the debt. The 1976 programme has been settled at £596 million which is £129 million or 27.6 per cent more than expenditure in 1975. This represents the maximum possible within the limitations of overall borrowing and will provide a much-needed boost to economic activity in 1976.
In determining the composition of the 1976 programme, the Government have given first priority to investments which will promote economic growth and sustainable employment. Nearly half the overall increase of £129 million has been allocated to investment in industry, which shows an increase of £64 million or 71 per cent over expenditure in 1975. Investment in agriculture on the capital side will rise by £18 million or over 25 per cent. When account is taken of the construction content of the whole public capital programme, the total provision affecting the building and construction industry is £325 million, an increase of £45 million over 1975.
Estimation of revenue
My estimate of total revenue receipts for 1976 is £1,248 million, as shown in the White Paper on Receipts and Expenditure. This total represents tax revenue, including motor vehicle duties, at existing rates, and non-tax revenue. The estimation of tax revenue is always conditioned by the expectations of economic developments during the period in question.
I am hopeful, having listened to many experts, both national and international, that the estimate I have now made for 1976 is well-judged and likely to be realised but I cannot rule out the possibility of having to revise my expectations at a later date, up or down. Because of the volatile economic world in which we live, the position will, as in 1975, need to be kept under careful review. Meanwhile, I am faced with an opening current budget deficit, being the gap between estimated expenditure and expected revenues, of £433 million. This budget, as I have said, provides for raising £107 million by way of net additional taxation. Allowing for a net increase of £1 million in expenditure the resulting gap of £327 million will form part of the Exchequer's borrowing requirement for 1976.
Exchequer borrowing
I am circulating a table showing in summary form the Exchequer's financial requirements in 1975 and 1976, together with the sources of finance. The extent to which it has been possible to satisfy the Exchequer's requirements in 1975 from domestic sources has been particularly gratifying, though I am not unmindful that this is due in part to the fall-off in other investment. Net receipts from sales to the non-bank public of Government securities, including the national loan, have in recent years averaged about £25 million annually and the original estimate for 1975 was put at £40 million.
Last June, I increased the net figure to £90 million. In the event, the actual outturn exceeded all expectations at £191 million, some of which came from non-domestic sources. To satisfy demand, I created new tranches of existing stocks during the year and my Department and the Central Bank continued to support an active market in Government securities. Receipts from domestic non-bank sources are particularly welcome because they reduce dependence on monetary methods of financing and do not create the potential for undue credit expansion at a later date.
A more rapid expansion of bank resources than expected led to a higher level of purchases of Government securities by the commercial banks. The Associated Banks also assisted the Exchequer by taking over most of the financing of intervention buying of agricultural produce, thereby enabling the Exchequer to recoup the bulk of its outlays in 1975 and earlier years. The Central Bank increased their portfolio of Government securities by £50 million.
Because of all these favourable developments it was possible to limit the intake from Exchequer foreign borrowing, which at one time seemed likely to exceed £200 million, to £164 million in 1975 and to leave over a substantial amount of the dollar credit facilities negotiated in 1975 for drawing down in 1976.
When account is taken of all resources available to finance current and capital expenditure in 1976, including the revenue from the proposed tax increases in this budget, it will still be necessary for the Exchequer to raise £679 million by borrowing. The comparable borrowing figure for 1975 was £601 million.
These are very large amounts, indeed, and have an immediate impact on expenditure in the form of debt service charges. Such charges amounted to almost £200 million in 1975 and will require some £300 million in 1976. They are a massive burden on the Exchequer. Debt service charges are and must be a first charge on revenue. It is well to remember, therefore, that borrowing is not the painless panacea which some people suggest.
