We have listened in this debate to apologies from Government spokesmen, particularly Ministers, including the Taoiseach and the Minister for Foreign Affairs. If I am not misinterpreting them the burden of their argument falls under two headings. The first is that circumstances are such that no other course was open to the Government because the situation, to use the phrase of one of them, "was not of our own making". The second leg of the general argument which the Minister for Finance set up as a defence at the end of his budget speech which seems to be the principal element was: "what would the Opposition do"? The simple answer to that is that the Government are in power and it is a question of what they will do.
The Taoiseach conceded that an Opposition are entitled to put the onus back on the Government of the day. He developed this point and also tried to develop the point that the Opposition were trying to support the Government in certain measures, which involved spending, and were crying for restraint in spending and it was sought to make this a contradiction. On the face of it that is very fair and very reasonable but one has to get down to the kernel of the matter. The kernel is, yes certain spending and certain improvements are desirable and necessary but in order to effect that there must be something to support them. Our quarrel with the Government is that they have not provided the wherewithal to support this.
It would not help to repeat the details of the budget debate but the point of principle can be illustrated historically and there is a lesson in it which I commend to the Minister for Posts and Telegraphs whose most bitter opponents recognise as a very distinguished historian. It is in that spirit that I wish to give my interpretation of history. I am sure the Minister will agree that history is not a mathematical science, but nevertheless, there is truth in history. That truth can be ascertained and trends interpreted as may be proved by some of the Minister's publications not dealing with current affairs. The politician is too close to the event to be the historian but it is in the spirit of some of the Minister's earlier works that I commend what I have to say to him.
There must be something to support; there must be economic activity to support expenditure. The wherewithal to finance and support social services or necessary contributions to offset adverse economic situations must ultimately come from productive effort. The ultimate success of a Government's policy in either improving social conditions or in coping with a temporary emergency of bad times when spending may be necessary, although immediately the finances are not available from productive resources, depends on a policy which will provide in the end for the funds and resources to justify and support the expenditure that is made.
I should like to take a common example. In the old days, when there was stability before inflation and when our values were not perturbed by the very rapid changes in our currencies, if a businessman approached a bank for an overdraft for business purposes he might be in one or two circumstances. He might go because he wished to develop his business or because the situation had outrun his own immediate cash resources and he had to borrow to keep going. In either of those circumstances his bank manager would give him the loan on the basis of certain criteria. If he was looking for a loan for expansion the bank manager would need to be satisfied that the project had a reasonable business chance of success, would produce the adequate return so that the loan and interest would be repaid. If those conditions were satisfied he got his loan. In the same way, if it was to tide over a temporary deficit, a shortage of immediate cash, the bank manager would facilitate him on condition that he was satisfied that the situation was such that he could, within a definite foreseeable time, prosper to the extent that he could repay the interest and the loan.
I have seen a lot of fancy economics tried since I became a Member of this House in other countries and here. I believe it is fairly common now that the basics of economics remain the same, that it is not possible to produce wealth out of fresh air. The realities of finance are the realities of production and unless there is real wealth to correspond with the financial and monetary calculations one cannot have prosperity. On that criteria let us look at our experience here and then judge the performance of the Government. I should like to deal with the history of the State, very briefly. The first Government of the State were faced with certain problems but they had a policy which I need not go into. The party which I belong to had another policy and achieved power in circumstances where they were able to put their economic policy into operation. Quite apart from the political achievements of either Government in either sphere, when the Fianna Fáil Government went into office in the thirties they did so with an economic programme based essentially on the primary purpose of stimulating economic activity and the production of wealth.
A start had to be made in the initiation of small industries and the promotion of such bodies as Bord na Móna to provide employment in industrial activity and growth. On the agricultural side there was a corresponding positive policy to bring about productive effort, and without boasting, that policy proved successful and its success was one of the major reasons for our survival economically in the period up to 1945. What I am emphasising is that that primary policy was aimed at productive expansion and by achieving that we ensured the other things would follow. It was possible to achieve it in spite of very serious political difficulties, which are not relevant to this debate, but they were very serious handicaps in the implementation of those policies in those days.
Because that was a primary purpose, there was an upsurge of the will to achieve among our people, and there was achievement in employment and the provision of social services. I want to point out that the provision of the social services was not based on borrowing or on left-liberal theories that assume the money comes out of the air. It was based on the reality of the situation. These achievements were substantial in the context of their time and it was only possible to give them as a lasting net benefit because there was a basic economic policy implemented and supported by social services.
I will not go into a litany of the actual benefits which were given and the services introduced, even though sometimes one is stimulated by uninformed remarks of others, and I attribute that to both sides. The benefits were given on the basis of an economy that could support them and it is because of that that they were lasting and enduring. That is the first lesson, and it is history. For the student of political history of the time it is there on record. Everybody will appreciate that the result of that policy at that time ensured that this country could survive a world cataclysm and come out of it in such a condition that when 1939 came we could give services and find the the money to maintain defence forces at a level that had not been thought of before. We were able to produce the supplies we needed and the economy survived not a depression but a world cataclysm.
One would have thought that would be sufficient, but we must follow up history and I do it purely to draw a lesson. I have tried not to claim credit or cast blame, which I will leave to the historians and the partisan politicians.
We come now to the first Coalition. Nobody doubts, at least I do not, the bona fides of their intention to do as well for the country as a Government as anybody else, but being an ad hoc coming together of unco-ordinated groups, they prospered for a while, they squandered—I beg pardon, I will withdraw that word for the purpose of this debate only—they dissipated our external assets and for a cuuple of years had a bonanza, but when hard times and pressures came they broke up from inside and left an unhealthy legacy that made it necessary for the succeeding Government to bring in corrective measures that were painful and difficult for the community.
The 1952 budget will be remembered as a severe impost. It was introduced by a Fianna Fáil Government because of the legacy left behind by a Coalition Government that broke up and blew up from inside. Fianna Fáil paid the penalty for doing what they thought was the correct thing, and had corrected the situation, by being thrown out again in 1954. Again, in 1954, a Coalition Government assumed office, essentially the same Coalition, with the same advantages on the crest of the wave that they had in 1948. But, by 1957, there was the deterioration again, when the Coalition cracked up from inside. What was the trouble in both of those cases? The absence of a coherent constructive policy, the relying on spending at the beginning, the courting of popularity and the inability to stay together when the pressures were such at the end. Here I must make an exception which I did in my budget speech. It would be unfair not to acknowledge again the contributions of an able Minister for Finance of that last Coalition who, unfortunately and tragically, is no longer with us. In laying the ground for the subsequent recovery I shall not seek to deprive him of his due share of credit. Notwithstanding that, the Second Coalition blew up from inside and the Fianna Fáil Party had to take over again and were there for 16 years. Whatever is said about the party in those years there was economic recovery—I do not want to repeat what I said on the budget on the 4th March last—and expansion.
My point for this debate is that that recovery and expansion that took place was a positive programme, or succession of programmes for economic expansion and brought buoyancy into the economy, made funds available, made it possible to develop further and raise the standards of living of our people. Notwithstanding political difficulties internally that continued right up to the accession of this Coalition in 1973. Right up to that date there was progress, economic growth—take any of the indicators one likes—and there was improvement in the social services and standards of living of our people.
We were adequately prepared to go into the European Economic Community, an event which was prepared by the last Government but implemented under the present. Here again we have a lesson to learn and it is this, that economic, positive activity is what is necessary to support spending. Those were the circumstances in which this Government assumed office. Why is it today, that we have, starting with the Minister for Finance, continued by the Minister for Foreign Affairs and the Taoiseach today, emphasis on the hard times and circumstances beyond their control? Let me be fair here, and I think I was fair on the 4th March last; nobody wishes to fault them; indeed there is great sympathy for any Government that had to face the economic deterioration that suddenly came upon this country and the world in 1973. But it is here that our ways part. The Government did not react in time, they continued their policy of buying popularity, spent money indiscriminately stopping gaps, did nothing to take positive action to keep economic activity going, to stimulate activity when that was needed, had no continued policy for economic growth and was, so to speak, seduced by circumstances into a stop-gap policy of spending money to try to ward off the problems.
I can give two examples of the Government's lack of foresight and failure to react in time—when the oil crisis of 1973 arose, with all its implications, then the Government should have been that that was a true emergency situation. It was then there should have been quick reaction as there was, say, at the outbreak of war in 1939, to adjust to the new situation and ensure that, above all things, people were kept in jobs, employment safeguarded, that if controls on expenditure or anything of such nature had to be introduced, that was the time to do so, having tried to guarantee that the minimum of people would be thrown back on the mercy of the State for support. Instead of taking that line the Government came along and boasted openly that they were giving money. I would hardly be doing them an injustice if I said that the general suspicion was that they were boasting of unemployment because it afforded them the opportunity of giving such generous reliefs and support. That may seem a bit hard on them but it seems to me that there was a little bit of that basic psychology at the beginning, hoping, like Macawber, that something would turn up to make the crisis temporary, turning what was really a developing disaster into an occasion for making political propaganda.
What have we today as a result? We have high unemployment, a level of expenditure by the State it cannot continue to carry indefinitely, as is now not only admitted by the Government but forms the basis of pleas and cries of distress from Ministers to restrain expenditure, pointing that resources are limited. That is what has happened under this Government.
If the Government ask us what Fianna Fáil would do now, as they have asked us, I will throw the ball back into their court and say: "Look what you have done; look at the situation you have brought about". What can be done other than to go on borrowing and exhorting people not to spend, and taking money from the people from increased taxation? One of the tragedies of the situation is the performance of the Government over the past 18 months. The situation is so perilous now that even the expectations of normal recovery are insufficient to give a relatively painless way out of the situation. I do not fault the Government for not being able to perform miracles but I place the blame on them for allowing a situation to develop where miracles are required.
The Minister opened his statement by saying that apart from changes in tax, the main emphasis of the Bill is towards equalisation of the tax burden. Whatever way he dresses up the burden of tax the people will have to pay it. This device of spreading taxation was first introduced in a Transport Bill the Christmas before last. That burden of taxation has grown to a degree that is very onerous on those who have to bear it. Due to the unemployment situation that is a shrinking number. While the Minister is increasing taxation his policy, whether in capital legislation or in our current fiscal legislation, is resulting in the contraction of resources available to him although he has to give reliefs to coat his pills. Money is going out of the country. Money is not being availed of for productive purposes. The Minister has to go from one area to another to scrape the bottom of the barrel.
The case of the public services is in point here. A year ago if one were to judge by the Minister's attitude things were progressing well. I do not think that anybody would have thought it necessary to take the steps that have been taken in regard to PAYE for the public service, although the Minister was very strong on equalisation of the tax burden. The Government's policy has all the appearance of precipitate stop-gap action. From the point of view of business efficiency what is the sense of paying a lot for or to something and then collecting it back. That is the case with a lot of our taxation, and elsewhere as well. Just as other sectors of our community have had to suffer for the Government's lack of supporting policy the State servers have to come in to be raided as well. The private sector, the self-employed, corporations, all have to be raided. To what purpose? If we were supporting ourselves some case could be made, but this money is being taken from the people along with what could be used in circulation to stimulate economic activity.
Compare the national debt of this Government to the record of the last Government, even making allowances for inflation. The country is up to its neck in debt, and the problem of servicing the debt is a sizeable part of the taxation. Take the Book of Estimates in the period since this Government took office. Take its face value or break it down and you see the same picture—Government expenditure at the highest level possible. Take budget deficits growing in like manner. Finally, take the borrowing. Borrowing has got to the point at which we are now, so to speak, second mortgagees. Borrowing from the EEC we are becoming very close to being controlled by the conditions that may be imposed on us.
I think it was the Minister for Foreign Affairs who said, and nobody will quarrel with the sentiment, that it was the duty of those whose inflation was high to correct it and the duty of those whose inflation was lower or under control to help the former to do so. Nobody will quarrel with that sentiment. The point is, our rate of inflation is largely the result of the negligence of the Government in not coping with the situation in time. We are unfortunately high amongst those in Europe whose rate of inflation is dangerous and amongst those who, as the Minister for Foreign Affairs said, have the duty to correct it rather than amongst those who could help those in difficulty. That is where we stand under this Government.
When I mention inflation, to be fair and objective again, I acknowledge, as I acknowledged on the budget, that there is some case in an inflationary situation such as we have for some increase in the national debt and an inevitable increase in the cost of Government. Something can be said for a controlled deficit policy and something can be said for borrowing. While admitting all that, that ambition is valid only if the increase in debt, in expenditure, in borrowing and in deficits is kept within tolerable limits and by tolerable limits I mean limits the economy can bear in the reasonable middle term and in the long term.
The second point is there must be a positive programme to prevent wastage of resources. What do we find? We find inflation gone to what is really an intolerable level and we find unemployment also at an intolerable level. This is where this Government have brought us. It is where we do not know what next to expect from the Minister for Finance.
Yesterday there was a British budget and, making allowances for the plea of the Taoiseach that we are smaller, the performance of the British shows two things we are not showing. Now I know figures can be quoted to prove cases, but the British are showing some correction of the inflationary position and their imposts have been less than ours. At the end of the speech by the Minister for Foreign Affairs—incidentally, for him, a subdued speech, and that speaks volumes—he talked about "real terms". I asked him what "real terms" meant and he spoke about terms from which price increases were excluded. The Minister is an economist and perhaps his idea of reality and mine do not coincide, but I wonder what the judgment of reality will be by the man who goes in to buy a drink, be it beer or spirits. Is he better off or is he worse off? All I will do here is invite the Minister to visit the establishment that sell these commodities and see what the reactions of the customers are. The reality is, of course, that thanks to taxation the price of drink here has gone up more than it has gone up in Britain, although we are not effecting a similar equivalent correction in our difficult economic situation.
Take VAT. Everybody knows that prices have gone up because of the Minister's increase in VAT. The British Chancellor of the Exchequer cut VAT. Our Minister for Finance increased the standard rate of VAT from 6.75 per cent to 10 per cent. What is the reality for the person purchasing? I could go through a number of items. It is a little academic to use words like "real terms" and all the other jargon when the man in the street and everybody else knows we are approaching 120,000 out of work, when the prices of many commodities have gone up and the housewife finds there is a greater demand on her purse when she goes to pay her weekly or monthly bill, when the standard of living is falling. What are the realities? That is the question I would like to ask the Minister for Foreign Affairs. Economics are all right and can give some guidance but the basic economic fact is there has been a deterioration and there has not been a correction. I have a note here of the Minister for Foreign Affairs saying figures can be misleading and I think he claims they kept prices down.
One of my difficulties—I would not like to misquote anybody, particularly a courteous gentleman like the Minister for Foreign Affairs is—is that we do not have the report available to us in time. If I have misquoted I am sorry I did so, and I will unreservedly accept correction. If my note is right, he gave me the impression that figures were misleading and prices were kept down. Perhaps he was talking about something in relative terms, I do not know. In absolute terms, I would need to be convinced that prices have been kept down. Again, I will appeal to the tribunal of the man in the street and the woman in the home.
The Minister for Foreign Affairs, like the Taoiseach, issued a challenge. Before I accept this challenge, at the risk of very slight repetition to summarise a point, let me say that I think I answered the Taoiseach's point when he tried to suggest that we wanted to spend and save at the same time. I reject that interpretation. A certain amount of spending is necessary. If people are thrown out of work they must be supported. We cannot let them starve. These people would rather be at work earning. Of course we want to maintain certain standards of living as far as we can. It is only as a last resort that one would fall back on cutting. Incidentally, I thought it ironical that the Taoiseach should suggest we wanted to cut social services. In the past, we may not have been able to increase the services as much as wished, but we never took money from the old age pensioners. That was an achievement of a former Government.
It is not that we wish to deprive people and stop necessary and constructive spending but what we want is to have the necessary activity and earning power in the community to be able to afford spending and make it worth while. Look what the Minister had to do in regard to the pay-related benefit. He had to bring in tax restrictions. In this budget he is giving with one hand and taking with the other. This is inevitably the result of spending without really having anything to spend.
I will return to my main point, that is, where I think there is a misconception on the Taoiseach's part. We make no apology for supporting measures to help the unfortunates who are suffering from the present economic depression and who are not being relieved by this Government. That in itself is not good enough; we should be doing more to generate activity. We are not going beyond reason when we point out if you give workers—those people who are self-supporting and paying for those who cannot support themselves—an increase, it is being taken off in tax. If you give increased social welfare benefits you are taking from the rest of the people by way of increased stamps. There is a better way to do it, that is, to have the economic activity that would supply the flow of cash and resources, that will enable you to give these benefits and make these improvements without having to raid the pockets of the members of the community.
There is no lack of logic in our position, but there is a great weakness in the Taoiseach's position in that his Government, and the Minister for Finance in particular, are now wholly engaged in stop-gap activities. There have been some good things in all the financial provisions introduced by the Minister for Finance. Let us take the capital legislation. We criticised two of those Bills, but the Capital Acquisitions Tax Bill has some very excellent features. In the budget there were some welcome reliefs and some good features, but to take the whole package together, it is a disaster. It is like the curate's egg. If I might summarise the matter in rhyme, I would report it this way:
Parts of it were excellent
So far the curate went
But then it must not be forgotten
That the curate's egg was rotten.
That summarises the quality of the policy of the Minister for Finance.
I may seem to be hard today. I am hard because there have been ample warnings. Apart from the thrust and counter-thrust of politics, and the immoderate partisan approach of many of us, at least some of us have freely, and more than once acknowledged the difficulties facing a Government today. If Deputies look at the Official Report, column 1334, Volume 228, for 4th March, 1976 they will see that I have amply conceded that point. I further recognise, and responsible Deputies on all sides of the House recognise, that there are many factors in this situation which make things extremely difficult for a Government—not least of which is a current trend in modern life towards indiscipline, that people are unwilling to believe in the future, to pull together and give for the future, Managers, Ministers or anybody in authority have a difficult time. A lot depends on the co-operation one gets. All freely conceded, but that does not absolve the Government, after three years in office, from giving a lead behind which the people could rally, a lead which was never more necessary than now.
I want to deal with some specific points directly related to the Bill. The Minister has a fixation about tax evasion. Nobody wants to see tax evasion and everybody wants to support him in avoiding it but the cry of it has become a method by which he gets more tax rather than blocking evasion. Tax evasion is now being used by the Minister as a tool to scrape the bottom of an almost empty barrel. The result of this is further imposition on the citizens, further restrictions, further loads and uncertainties in regard to the law. I will go so far as to say that more than once the Minister may have been less than frank. I sympathise with him in a way because he is under compulsion. The compulsion which compels him to this course is an indication of the impotence of this Administration to cope with the problems which have to be coped with.
The Minister did a constructive thing in the Finance Act, 1975. In section 31 he gave stock relief, which was, at first, for the accounting periods between 6th April, 1973 and 5th April, 1975. This would apply to company accounts ending on 31st December, 1973 and 1974. One of the difficulties is that owing to the slowness with which we get the bound debates it is very difficult to trace statements if one has not taken a note of them at the time they are made. I do not believe what I am saying is wrong. If my recollection is right the stock relief given under that Finance Act was, first of all, a deferred tax and was understood to be so by accountants. As far as my recollection goes the Minister later informed the House and the public that the relief for the first two years was a straight relief and was not a deferred one, that it was a flat relief for the three years and that there would not be a clawback.
That was excellent consolation to companies which had stock problems arising from inflation, and it was a measure to help industry in regard to industrial supplies in the difficulties of emergency. It was appreciated very much. The result is that anybody who had completed his accounts for 1974 was confident that that was forgiven liability and in the tax computation it was taken in as deferred tax. I will withdraw my remarks wholeheartedly if they are wrong.
My reading of section 26 of this year's Finance Bill is that whereas a company's accounts are for a calendar year for the year ending 31st December, 1973 or 1974, the stock relief is absolute but for the year ending 31st December, 1975, which comes within the period mentioned in this section although the relief will be given, it is deferred relief. This is an essential change. I know the Minister might have a reason for it. I am not saying that he undertook more than to go from year to year or that it would be reasonable to ask him to consider this as a permanent matter. If he said nothing more about it I would simply take the attitude of being thankful for small mercies but he has changed it again. It was for the first two years of the three an absolute relief, even though it was a deferred relief but it has now become applicable to the accounts ending within this period, it has become a deferred rate with a clawback in the subsequent year.
I should like to quote what the Minister said in the course of his budget speech on 28th January last, as reported in the Official Report, Volume 287, column 655:
An area in which, within the limited room available, I propose to give some relief concerns stocks. Companies engaged wholly or mainly in manufacturing, construction or farming, or in the sale of plant, machinery or material to those sectors have, following the January, 1975, budget, been allowed special tax relief in respect of the additional cost of replacing trading stocks at inflated prices. It is proposed to provide for the continuation of this relief for a further year to assist companies in the sectors indicated, who may still be experiencing severe liquidity problems because of the impact of inflation. In my financial statement last January, I indicated that it was then intended to bring unincorporated traders in the sectors concerned within the concession this year, with retrospective effect, so that over a two-year period they will be placed in the same position as qualifying companies. As I explained, this could not be done last year for practical reasons. This year's Finance Bill will provide for the retrospective application of the relief to unincorporated traders as intended. The cost of this, together with the cost of a further year's extension in the case of both companies and unincorporated traders, is £7 million in 1976.
I invite the House to consider the terms of the Bill with the Minister's statement and to ask, in relation to section 12, whether the statement corresponds completely with what is in the Bill. Would I be unreasonable, referring to section 26, if I said that one would have taken from the Minister's statement the indication that the stock relief would continue as it had been for one year? Would that have been an unreasonable interpretation of what the Minister said? Would it be unreasonable to assume that the Minister, having brought in this relief as deferred taxation and then made the relief absolute with no regard to the year ending in the periods mentioned, would have given the relief on the same terms?
Would it not have been more frank of the Minister to have said: "Yes, I am going to provide for stock relief as heretofore but I am going to reintroduce a deferral and provide for a clawback"? If the Minister had done that in January instead of springing it in this Bill no one could have faulted him. There may have been good reasons for doing this although it will be greatly regretted by industry. Am I being unreasonable if I suggest the Minister was less than frank in his statement? If, by any chance I have misinterpreted the Minister, if by any chance the fiscal reading of the Bill is different and the relief is permanent for 1975, I will be happy to withdraw everything I have said.
It is very difficult to be sure of one's interpretation of a complex income tax code but if the Minister tells me that the accusation I made against him was wrong and that the relief is permanent for the three years I will be happy to make all the amends I can. Even if the Minister tells me he will reconsider the matter that is not good enough although I hope he will reconsider it. The Minister may have good reason for this but he should give us his reasons.
There is another surprise in the Bill which I do not recall being mentioned by the Minister when he introduced his budget, the shifting of the onus of proof in regard to motor taxation.