I propose to give some indication as to why, in my opinion, the budget, which undoubtedly was a severe one, was necessary and to why the basic strategy in the budget was correct; and also to give, in my personal capacity as a Deputy rather than as a member of the Government, my own views about public spending in general, and the extent to which I think a great deal of our public spending is, through no fault of any particular Government, not directly related to the needs of the people and could be reviewed more strenuously, perhaps, than it has been in most countries.
The underlying causes of the present budgetary situation are numerous. Obviously, the cost of Government goes up in the same way as the cost of living goes up for every other person or service, but the recession we are suffering at the moment has had the effect of aggravating this problem. It was estimated by two economists recently that, if we did not have the level of unemployment we have at the moment, which is due in large measure to a depression in world demand for our exports and a depression in world trade generally, the Government would save about £30 million a year on direct payments to people who are unemployed and on other services to such people, and that the additional taxation which would be paid by such people if they were back at work would be somewhere in the region of £140 million. Thus when people are suggesting that public expenditure is out of control, they must realise that this £170 million could be saved if we could get more people back to work, and if we could get out of the economic difficulties which we, in common with other European countries, are facing. The sum of £170 million which would be saved in that manner would be equivalent to half the current deficit.
There is another problem in relation to public expenditure, that the cost of public service pay has increased very substantially. In 1969-70 public service pay, as a percentage of total Government expenditure, was 26 per cent. In 1975 it had risen to 33 per cent. In fairness, it should be said it has been over 30 per cent before, but there has been a fairly dramatic rise in the first part of this decade. This is in part due to the fact that the full national wage agreement increases have been paid to those who are in the public service, whereas they have not been able to be paid in other sectors of the economy. It has been estimated by the Government that a very substantial saving of about £70 million could be made in the money which would be spent next year, and consequently in the level of taxation that may have to be raised, if we got a pay pause.
There are a number of other fundamental reasons for the increases in expenditure. There has been a change in the demographic structure of Irish population in the past five years, so that there is a higher dependency ratio in the community than previously. There is a much larger number of children going to school now than was the case even four or five years ago and, in accordance with the pupil-teacher ratio under our educational programme, extra teachers must be provided. Of course, extra money must be provided for the teachers. The increasing number of children in the community has led concomitantly to a greater increase in the payment of children's allowances, to lesser levels of income tax being levied because of the impact of children's allowances on taxation levels, and also to higher levels of social welfare benefits in relation to the heads of families, given that we have a larger number of children.
At the other end of the scale there is a larger number of older people, even in the last five years. Older people are living longer and are, therefore, living longer into the period of their lives when they are receiving various benefits, and rightly so; it is something which everybody will obviously welcome. However, it is an underlying demographic reason for a higher level of Government expenditure.
The Government have faced this issue squarely. The public pay rises were paid. Services for our children, for our old people and for our unemployed must be provided, and the electorate are faced with the necessity for providing the money to finance these services. I believe that the Government have taken the basically correct choices in seeking to raise the money. Rather than increase the level of income tax they have chosen instead to levy the money in the form of expenditure taxes. The basic reason for this, as I interpret it myself, is that people have some choice in relation to expenditure taxes. If on the other hand the money is taken at source before they receive their income, they have no choice. Furthermore, if one were to increase the level of income tax instead of increasing the expenditure taxes as the Government have done, it would decrease the incentive to work. The overall effect of the Government's budget and the other measures they have adopted has been to increase the incentive to work.
Our approach to income tax since we became a Government has been one of seeking to improve personal allowances so that people will have an incentive to go out to work. I could illustrate that point very graphically by saying that in each of the past three years under the present Government there has been an increase in the basic personal allowances for income tax, whereas in the previous 16 years of our opponents' period in office, personal allowances were increased only four times in the whole 16 years.
We are concerned about increasing the incentive to work through adjustments in the income tax code. We have also expressed our concern to improve the incentive to work through the employment premium scheme introduced last June. Approximately 4,000 people who would otherwise be unemployed are now employed under that scheme. The Government have introduced a community youth training programme which was extended to the whole country last January by the Minister for Labour. This programme will provide employment for young people on amenity and other schemes which are socially beneficial, their salaries being paid by AnCO through a training grant, half of which will be paid in turn by the European Social Fund. The work they do will have a skill and training content and they will be supervised by craftsmen who were themselves previously unemployed and who will have received special training in supervision and training of young people. So, not only will young people be given a start at work in a positive amenity type job but adults previously unemployed will be taken on in a supervisory capacity.
The Government have also sought to improve the incentive to work by taking strong action—long overdue, to my mind—against those who have been evading income tax. The fact that a special staff unit has been set up in the office of the Revenue Commissioners to oversee the anti-evasion drive and devise new procedures to pursue tax defaulters is very welcome. There are already signs that the announcement is having a very salutary effect. Also, in regard to the incentive to work, the Government are in the course of taking measures in relation to pay-related benefit and other benefits such as differential rents to ensure at all stages that people will not gain by becoming unemployed and that they will at all stages gain by taking a reasonable offer of a job even if they are on benefit on a pay-related basis. To ensure that no persons are getting social welfare benefit fraudulently action is also being taken by way of the statutory penalties to be imposed on employers who do not comply with their obligations regarding payment of social welfare contributions being substantially increased. These penalties will make it far more difficult for employers to take on people who are still drawing unemployment benefit.
In my constituency people quite often complain about the extent to which income tax is being evaded and about the extent to which some people are alleged to be abusing the social welfare code and getting money to which they are not entitled either because they have employment which they are not declaring or for some other reason. I do not know if everybody would agree but I think anybody who either defrauds the Revenue, does not pay the taxes others are paying in a similar situation, or anybody who draws benefit which he is not entitled to draw under the rules and does so knowingly is committing social theft just as if he took the money from an individual. The fact that he takes it from all of us does not make it to any less extent theft. As every member of the public has a duty to inform on anybody who is committing theft against an individual, I think we have a duty also to inform the Garda about any person we know is committing theft against the general community whether by tax evasion or abuse of the social welfare code. I know that people who inform have a bad name in Ireland but if we are to get to the root of abuse of the tax code and the social welfare code we must have people prepared to give information about any forms of what I have described as social theft. The Government's anti-tax evasion drive and the new system of penalties in regard to non-insurance of workers are designed to assist in this process and ensure that the money is saved for those who really need it rather than have it going to tax evaders and welfare abusers.
In time of recession when there is under-utilised capacity in the economy there is justification for high level public spending and for the concomitant high level of public borrowing to finance that spending, or in the traditional Keynesian sense to take counter-cyclical measures, but it is equally important to ensure that when the recession ends, as undoubtedly it will, those counter-cyclical measures are phased down so that the resources are allowed to flow back into the private sector once the private sector can take up the slack and use the excess capacity in the economy. The Minister for Finance clearly recognised this in his budget speech when he said:
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.
As a statement of long term policy for the period following the end of our present recession this is a very sound one which deserves support. In my contribution I propose to make a few suggestions of a purely personal nature, more as a Deputy rather than as a junior member of the Government about how I think we could, in the long run through improvements in parliamentary procedure and so on seek to mitigate any unnecessary growth—I stress the word unnecessary—in public expenditure. It is important to keep public spending within bounds because ultimately it will have to be paid for by taxation. It is all right to borrow in the short term but these borrowings must be repaid out of current taxation ultimately and the larger the proportion of our income and our expenditure that goes in tax, the less the proportion left to individual choice.
There are many areas in our community such as leisure time, an area for which I have some responsibility in the Government, where a major philosophical question must be posed: who can make the best choice for us in relation to expenditure on leisure activities—ourselves as individuals or a bureaucracy however benign? That question needs to be posed right across the board in relation to any proposals there may be for increased expenditure on this or that. We must also realise that every decision to spend money by the State has not only a tax cost but also an opportunity cost. That money could have been spent on something else and the very fact that it is decided to spend it in a particular way deprives us of the opportunity of spending it in whatever other way it could have been spent.
There have been a number of reasons, some good, some bad, for the large increases in public spending in all the countries in Europe over the past 20 years in our technological society. People are more interdependent than they were before. There is greater need than there was even 20 years ago for the State to step in to regulate affairs and to protect the weak than there was in a society that had not that same degree of interdependence, technologically and otherwise, generated between people. There is also the need to make sure that in a community which is getting more prosperous the weak and poor get an increasingly larger share of those resources. There is evidence indeed only today from Britain that even still very substantial inequalities exist, not just in money, but in such things as infant mortality, life expectancy, even apparently trivial things such as the physical height of children, ownership of a telephone or motor car, between those in the lower and higher income groups. There are problems of a serious nature, of a redistributive character to be tackled in our community. Ultimately it falls to the Exchequer to affect that redistribution. In doing so it does lead to increases in the level of public spending.
I contend that there are other reasons less valid for the increases in public spending which we have seen in most European countries over the past years, reasons which are quite unrelated to need. I will give two examples.
It is much easier for politicians to gain votes by calling for increases in spending than by specifying how spending can be reduced. It is much easier, particularly, to present yourself in your own constituency by calling for increased spending, because the taxes to pay for increased spending are levied on a general basis across the whole community. If you call for saving in relation to a matter in your own constituency, the saving will not accrue to your own constituency but to the people of all Ireland, whereas calling for increased spending is calling for something which can be identified within one's own constituency. One can call for the provision of a school, a dispensary or any other thing public provided for by public expenditure in that way. Therefore, because of this local consideration, we do not as politicians have a balanced view of the benefits as against the real cost, because the benefits tend to be presentable more easily locally than the costs which are going to be levied on a non-local basis.
It is evident in Estimate debates in the House that Deputies find it very easy to call for increases in spending, because the discussion on the Estimate in which the calls for increased spending are made are at one end of the year, and of course there is no talk at that time, when one calls for an extra provision for two or three more hospitals in particular areas, about the tax cost of that. The very same Deputies who have been calling for increased expenditure—as I am sure I did myself when in Opposition —on a particular item in an Estimate debate can decry with equal eloquence the tax which has to be levied to pay for it.
Every Deputy here is a public servant. When we talk of public servants there is a tendency to think very narrowly of civil servants, not even of the teachers and employees of State bodies who are public servants just as much. All of us who are public servants very often have an interest of which we are quite unaware in the expansion of the public sector, because the bigger the public sector the greater are our prospects for promotion. In the case of politicians the bigger the public sector, the greater is our influence. The more money that is passing out in schemes, the more opportunity we have of offering to get some of these for our constituents and so forth. The larger the public sector the more influence those of us who are in Government have over the total situation in the economy. There can be thus an unhealthy degree of unconscious self-interest both among politicians and public servants, in increasing the size of the sector in which they are employed. Also those of us in the public sector are in a uniquely strong position to argue for increases in public spending. We Deputies are the experts on the need for improved facilities. We Deputies are also the people who decide here in the Dáil whether there should be increases for facilities.
In the same way, who are the experts on the appropriate level of educational spending? Educationists who are employed in the public sector and who are benefiting from any increases there may be. Who are the experts on increases in medical expenditure? Medical people, who are in many cases drawing direct benefits from any expansion there might in medical expenditure.
Of course, people do not always, and in fact most of the time do not act as public servants whether they be politicians or otherwise, in the interests of their own personal promotion or of the promotion of their own profession. Most of the time that thought would not enter their heads. At the same time, this real benefit does exist for them in an expansion and we cannot afford to ignore it as a long-term factor underlying increases which there may have been in public spending.
Another reason why public spending very often exceeds the real need for it is that it is practically impossible to get rid of a scheme which no longer serves the purpose for which it was set up, partly because of inertia, partly because somebody is benefiting from it, and that somebody is usually in a position to exercise pressure and the easy way out is taken very often. We must recognise that if our economy is to be sucessful, above all it must be a mobile economy which can respond quickly to consumer demand on the other side of the world by producing what is needed, that can provide new services as and when they are demanded in an increasingly technological market that is increasingly changing. I submit that the larger the public sector the more are resources immobilised.
It is the private sector mobilised which can respond quickly because of the profits motive, because of the flexibility which exists in the private sector with various individual agents operating as against the monolithic public sector. In the interest of mobility in our economy it is desirable that there should be some careful check on any expansion which might be made in the public sector.
Of course, the public sector is not the only influence operating to create immobility of resources in our economy. Quite clearly, large personal holdings of wealth are often not distributed in the best way or used in the best way by individuals. In my view, the Government's decision to introduce a wealth tax was economically justifiable because it will impose some levy on the holding of wealth and will encourage people who are holding wealth in unproductive forms—they may have difficulty with the income they are deriving from it in paying the wealth tax—to reallocate their wealth into other forms of production or use which will yield a return which will enable them comfortably to pay the wealth tax. I would not wish therefore to be presented as saying that the only cause for immobility in our economy which is a problem, is the size of the public sector. There are great holdings of wealth and also various restrictive practices in practically every profession which prevent the freedom of change in forms of production which we should have if we are to have a truly mobile economy.
Very often, public schemes which are introduced allegedly to encourage activities have the effect of discouraging those activities. Let us take the example of a grant for a sports club. If there was no grant for doing a particular job, the sports club might just go ahead and do it with its own resources and get it over with. However, if they think there is a scheme under which they could get even 20 per cent of the cost they scratch their heads and write in. A letter is sent back to them and they have to fill up a form in great detail. An inspector comes down—all this is at somebody's expense—and inspects the work and says: "Maybe you should make this alteration or that." They make the alteration and, by the time the job is completed and the grant is paid, two or three years have elapsed from the time the job would have been finished if they had gone ahead and done it. The same goes for farmers applying for grants. Very often they would do the job themselves much more quickly if they did not have to get involved in all this form filling which goes with schemes in the public sector designed to encourage particular activities.
I should like to make a few purely personal suggestions as to how I think these increases in public spending which are unrelated to real need, could be curbed in the long run. As I said in the short term I believe there is a strong justification for large public spending to get us out of a situation where there is a slack in our economy. But in the long run we need a better system for the control of public spending for the reasons I have outlined. We are now in the process of drawing up an economic plan for the country. It is very important that such an economic plan should be concerned with planning the level of public spending as well as planning other matters. It is very important that levels of public spending should be expressed or projected both in cash terms and in kind. Very often if they are expressed in terms of kind, the anticipated expenditure on a particular item can go well ahead of what is projected because of unanticipated cost increases in the item. It is very important that we should have a projection both in cash and in kind so that, if we find that the cost of a particular form of spending has gone up faster than the general increase in the cost of services, reallocations can be made and questions can be asked.
For instance, we need to express our planning in education sense both in terms of the number of new places in schools and the amount of money we are prepared to spend to achieve that. We may find after a few years that the cost of providing those school places has far exceeded what we anticipated it would be. We will need then to be in a position with this information and make whatever changes are necessary. In the context of such a plan, there is a need for some sort of an independent review body to examine all public spending on a continuing basis, and to report publicly to the Government on items which are no longer relevant. We have many schemes which are redundant, or which no longer represent the optimum distribution of our resources. If we had some sort of independent body which could review them and make recommendations to the Government, these schemes would be brought to light.
It is very difficult to expect Departments who are administering schemes to say: "We are doing this but we think we should get rid of it, and cease spending money on it." They fear that if they do that, the Minister for Finance will take the money back and say: "Thank you very much. I will keep the money now." The result is that Departments will not come forward with suggestions as readily as they might in relation to savings which could be made. We need an independent body to assist the Minister for Finance in the work which he alone in the Government has to do in curbing the level of public spending. He is the man who is concerned with keeping down spending. Nearly all the other Ministers in one way or another are concerned, so far as their own Departments are concerned, with increasing the level of spending. He is one man at the Cabinet table and they are 14 against one. This is a problem for whoever may be Minister for Finance.
In considering the area of parliamentary reform we need to have closer cohesion between decisions taken in the House to impose taxation and decisions to increase spending. Estimates are discussed at one end of the year and taxation at the other, totally unrelated to one another. One way this could be helped would be if, instead of discussing the estimates here in the House towards the end of the year to which they relate, no money could be spent in the year in question until the Estimates had been submitted to the Dáil, and approved. That would mean, of course, that the Estimates would have to be submitted to the Dáil and approved in the year prior to the year in question.
It would be useful if we could set up some sort of taxation index expressed in terms of pence in the £ on income tax. To take my own Department, Education. If we voted £X for it and the Opposition had been suggesting we were not spending enough and should add £Y million to that, we would be able to say on the basis of figures we had in terms of the taxation index: "If you pass the Estimate as it stands, there will be an increase as a result of this next year of 4p in the £ income tax, whereas if you make the addition proposed by the Opposition, which will cost so much, that will mean 5p in the £ added to your income tax next year."
Obviously, that type of detailed work could be best done by a committee on the House, perhaps a budget committee such as they have in certain European Parliaments, rather than in the set piece debate we have here now. There is a need to get down in detail to the impact on taxation of each individual Estimate and to enable the House to take a conscious decision that when it votes money for any service that by that very act it is increasing the level of taxation which it will ultimately have to find in the form of the budget for that year.
There is a case in respect of new schemes of public spending being introduced, to insist on a more specific authority being granted by the Dáil for each new item of spending. I know we have to have Supplementary Estimates and so forth, and that a group of new subheads can be submitted in a Supplementary Estimate and they have to be approved by the Dáil. The present procedures would not allow it in the absence of a budget committee, but, perhaps, we could have a requirement for each new scheme to get the specific separate authority of the Dáil which would contain in that authority a terminal date for the scheme so that unless the scheme was positively renewed by the Dáil it would lapse. Things tend to be continued ad infinitum without the need for them to be reassessed. Perhaps we could have written into that resolution some semi-statutory criterion for the operation of that scheme, for measuring its success in terms of output and results rather than in terms of pounds spent. This could be used on a continuing basis to measure whether the anticipated results of the introduction of this extra public spending are in fact occurring on the ground. If it could be clearly demonstrated that such was not the case then the scheme would fall to be queried. I know there would be immense procedural problems in the absence of parliamentary reform in doing anything along those lines but this is something we need to think about.
We need, generally speaking, to look at the whole area of devolved authority by Governments in the country to bodies like the health boards, vocational education committees, county councils and so forth. There has been for many years, not only in this country but in Britain as well, an increased tendency for the central Government to delegate things to the local authorities but to remove any real discretion from the local authorities. I would like to quote an item from a British magazine called the Banker, which is in relation to Britain but describes something which occurs here too. It states:
... but there must remain a strong presumption that if local councils had had to find a much larger proportion of their revenue from local taxpayers their attitude to spending would have been very different. As the Report of the Royal Commission on Local Government put it in 1969, commenting on the rising trend of grants, which has since proceeded so much further, "The tendency is not a healthy one. It limits not only the freedom of local authorities in making decisions that should properly belong to them, but also their sense of responsibility, to the extent that they are spending money they do not raise and do not have to account for to their electors".
It is also the case that very often local authorities are in the opposite position, that they have to raise money for things which they have no control over and over which they have no discretion.
There is probably a case for looking generally at all these various authorities to see if we could delegate to them responsibility for particular things which they must pay for entirely out of locally raised taxes, with, of course, some block subsidies for poorer areas. Members of local authorities would then have more incentive to keep costs down because they would have to pay in the end by taxes raised locally. It would be an immensely difficult task and I do not think it is something which could be done very quickly. However, it is something which we should consider very carefully. Generally speaking, from the point of view of cost control, we need to set our targets not just in real terms but also in cash terms. We need to have something in the nature of cash limits on spending. The Financial Times stated:
Since public expenditure has always been planned in real terms —miles of roads, numbers of school places, and more recently the real value of pensions and welfare payments—this can produce large unbudgeted increases in expenditure on programmes which are themselves unchanged.
We need to take a look at that very carefully.
We might also introduce to the public sector some element of the concept of consumer sovereignty, that the consumer of the social services will have a greater choice and in the exercise of his consumer choice could exert greater pressure on the providers of the services to provide them in the best form possible.
There is a debate in England in relation to the introduction, possibly, of the system of vouchers in the area of education where the money for education would be paid to the parents rather than to the schools in relation to their needs, the number of their families, the extent of their income and so on and that the parents with that amount of money would be able to shop around between the different schools and see what schools could offer them the best bargain. This would have certain problems in relation to whether or not the parents would know what is best for their children. It would mean, on the other hand, that schools would be under pressure from parents all the time to provide the most attractive programme and to provide a programme at the minimum cost so that an undue extent of the vouchers held by the parents would not be exhausted.
The same sort of notion could possibly be introduced in relation to the provision of public housing and the distribution of agricultural land to farmers. You could have a situation where instead of the Land Commission taking over estates and distributing them the small farmers who need land could be given title to long term loans at subsidised interest rates. They could then go into the market place themselves, bid for the land and get it against competition with this extra help. This might lead to a more efficient distribution of resources than the present system where everything is centralised, divided up and files sent up to Dublin and so forth. Obviously there would be very great administrative problems in doing anything of that nature but it is something which needs to be looked at.
In areas where we decide we need to increase public expenditure on a particular item we can ask ourselves if it is necessary to achieve this objective by the creation of a new, pensionable position in the public service for a person who will have to remain in the public service long after the particular scheme in question is no longer necessary. The fact that it has been deemed necessary, traditionally, always to create new permanent posts to do new work, although the work may be only of a relatively temporary character, has perhaps contributed to the growth in the public sector. We could, perhaps, get over that by providing increased services by the use of independent contractors and by employing people on a contract of employment rather than in a permanent post.
We need to look generally at our social security schemes and our income tax schemes to see if they can be integrated more and have less administrative costs arising from administering them separately. I have been given obviously a few personal ideas as to how, in my view, we could in the long run introduce procedures which would give us greater control over the growth in public spending in the House and have more public information about the impact of decisions to spend. In the long run this would lead to a more balanced economy and a more balanced relationship within the economy between the public sector and the private sector. I believe the size of the private sector need not necessarily be a divisive issue between the left and the right. One can very often, if one is a little more efficient about it and if one applies business-like principles, achieve many of the social objectives in which the left are interested without diminishing the freedom of the private sector in which the right are interested. This can be achieved in the area of public spending and by the review of public spending in the long run. There is room to achieve those twin objectives without conflict.
It is clear from the budget speech that this overall review of public spending is taking place. In the firm line he has taken regarding the creation of new posts in the public service the Minister has shown that he is prepared to face up to some of the underlying reasons for the growth in public spending. From the detailed review taking place now there are reasons to be hopeful that in the long term we will overcome this recession and the problems it has created for us, and that one beneficial legacy of the recession may be a more realistic attitude to the role of the public sector. That is something which I and, presumably, Deputies on all sides would welcome.
