I move:
That Dáil Éireann condemns the Government's total failure to honour its own undertaking of February 1973 "to control and stabilise prices"; notes with deep concern the huge increase in the price of virtually every commodity since 1973; and deplores in particular the major contribution which the Government itself has made towards bringing about in Ireland the highest rate of inflation in Europe which is leading to the gradual destruction of our economy.
At the outset it would be well for me, in relation to this matter, to refer to that somewhat infamous document published on February 7th, 1973 setting out the Coalition's 14-point programme under the heading "There is An Alternative". Indeed, there was an alternative to the stability, the progress and the prosperity that this country was experiencing at that time and, tragically, that alternative was chosen. In relation to prices this document stated that the immediate economic aims of the new Government would be to stabilise prices, halt redundancies and reduce unemployment under a programme of planned economic development. It is hardly necessary to comment at any length on the question of the stabilisation of prices when one realises that many commodities today are costing twice the amount they cost in 1973. Certainly, it is not necessary to comment on the reference to the halting of redundancies which are running at umpteen times the rate at which they were running at that time in 1973. Neither is it necessary to comment on the question of unemployment which is now almost double what it was then.
The document goes on to say that it is essential to control prices if these important economic aims are to be realised, that, therefore, the Government would introduce strict price control. Further on the document says that the Government would regard the control of price inflation as indispensible to the continuance of the national wage agreement.
These statements were believed by a significant number of the electorate, a number that was significant enough to bring about a change of government although in that election Fianna Fáil increased their first preference votes by 30,000. Of the 14 points, all of which are equally jocose now, with the hindsight of three years of Coalition government the one at that time in 1973 which made the greatest impact was this pledge to control and stabilise prices. I recall canvassing as a candidate in that election and on several occasions during the campaign people expressed to me their belief that prices would not increase after February, 1973 if the Coalition came to power. It would not be within the rules of order for me to express the views of those people today because their views are expressed volubly and somewhat indecorously by those who were codded and who now admit freely that they were fooled into believing that there was some element of truth in that wretched document and in that idiotic promise in particular.
We turn now to the present situation vis-à-vis February, 1973. The consumer price index has risen between February, 1973 and February, 1976, the latest date for which it is available, by 63.2 per cent. Inevitably there will be a further increase of several per cent up to mid-May this year but that figure will not be available until some time next month. Assuming that there is an increase in the region of 4 to 5 per cent in the quarter to mid-May, it is not unreasonable to say, given that the vast increases from the 1st March will be included, that the increase in the consumer price index and the overall increase in all commodities in the three years since this Government came to power is 65 per cent. On average, every item is costing two-thirds more than it cost on the day that we had this solemn promise to control and stabilise prices.
In discussion that one hears nowadays about prices I observe, as many others observe, that a certain degree of fatalism is surfacing in relation to the whole situation. There is now an absolute belief that this Government are totally incapable of doing anything or of even attempting to do anything in relation to price control and because they are not making an efforts in this regard, some members of the public at least may get the impression that the alternative to this Government will not be able to succeed in this area to any great degree. There is general agreement that we would succeed in regard to prices to a much greater extent than has been the case with the present Government but that we would not have the sort of success that the public would like. I shall endeavour to disabuse people of that belief and to consider the situation in regard to inflation generally and to prices in particular.
Increases in prices are the chief symptoms of inflation. The situation was expressed well by the National Prices Commission in their November, 1972 report when they said that inflation would not be curbed or stopped by deploring its symptoms—price increases—that its pace would be reduced only by attacking its causes in so far as these lie within the control of the Irish community. In their March, 1973 report the NPC set out what they considered to be the six main reasons for price increases here and I should like to consider briefly each of those reasons. They were: increases in import prices, increases in export prices, increases in indirect taxes, increases in money incomes, growth in Government expenditure and the accommodating nature of monetary policy. They dealt with each in some detail vis-à-vis the situation in March, 1973, the month in which the Coalition came to power. They pointed out that these six factors or a combination of them were the causes of inflation here and they considered in some detail what control we have in so far as these situations are concerned. Much of what they set out is no longer pertinent. It is outdated in the changed circumstances of today but if I might comment briefly on each factor and on its relevance to the present situation, we might get to the root of the causes of inflation, at least to some extent and, consequently, to the root of the appalling price increases situation that we have experienced during the past three years, an across-the-board increase of 65 per cent.
The first is increases in import prices. The commission say that import prices have risen for three main reason—inflation in the countries from which goods are imported, the devaluation of the Irish £ in terms of currencies other than sterling and increases in world prices of basic commodities. In the view of the commission they were three valid reasons at that time. I have no doubt they were valid at that time. Two of them clearly are not valid today. They are the rate of inflation in countries from which goods are imported by us because, almost without exception, the rate of inflation in all countries from which we import goods is considerably lower than ours. Therefore, that factor has no influence whatever today. Similarly, increases in world prices of basic commodities have no relevance whatever today, although they had in 1972 and 1973 because, if one examines the graph for the London commodities market in 1975, there is an enormous decrease. Recently there has been something of an increase in the price of some basic commodities but it would not yet have had any effect here. What would have effect is the enormous decrease in world commodity prices during 1975.
That leaves us with the only point which is still valid in 1976 under the heading "increases in import prices", that is, the devaluation of the Irish £ in terms of currencies other than sterling. That was something of a problem in March, 1973. I need hardly say it is very much more a problem today because the rate of devaluation of sterling as of yesterday and consequentially of the Irish £, as against the basket of other world non-sterling currencies was the astronomical figure of 38.8 per cent. Obviously, this must have a serious effect on our costs because it is driving up the cost of our imports to a significant degree.
I want to suggest that this is not a matter that the Government can wash their hands of, saying: "That is all happening in London and we have no control over it because our £ is going down with the £ sterling". I believe that with our inflation rate projected to run in 1976 at approximately double that in Britain it is out of the question for us even to contemplate breaking the link with sterling. But I would suggest we can begin to take steps, and should have done so over the past year or two when it became evident that sterling was getting into the most serious difficulties to reduce our inflation rate by control of the domestic factors contributing to it and which I will suggest later now cause 80 per cent of domestic inflation. By bringing our inflation rate below that of Britain —and this should have been done over the past two years—we could now he in the situation that we could, with safety, and with great profit to ourselves, break this much talked about link with sterling. At present if we were to break it—because of the fact that we are projected to have a 20 per cent inflation rate in 1976 as against 1 to 10 per cent or 11 per cent in Britain—we would be in the position, at the end of 1976, that instead of being stronger than the £ sterling the Irish £ would be considerably weaker. Therefore, it is not correct to say that the factor called "increases in import prices" is one totally outside the control of our Government, although it is one over which, obviously, they have less control than in relation to a number of the other items to which I shall come later.
The second one is the question of increases in export prices. That does not have a great influence on domestic costs and prices. The one example one could give of where it did have a bearing was when, in late 1972 and early 1973, the export price of meat at the time of our accession to the EEC rose very substantially. That forced up the domestic price of meat. Paradoxically enough it is not a factor of any great significance now particularly because of the devaluation of the £ sterling which enables Irish exporters to get proportionately more without having to increase their export prices in real terms. Therefore, the influence of export prices on domestic prices is not nil but is fairly negligible.
The third factor is "increase in indirect taxes". This is the first of these various heading where unquestionably our Government have an enormous influence on what will be our inflation rate and, accordingly on prices. The last part of my motion reads:
...and deplores in particular the major contribution which the Government itself has made towards bringing about in Ireland the highest rate of inflation in Europe...
I suggest—and the figures are there clearly to prove it—that we have a situation in which, by the imposition of higher indirect taxes, such as higher rates of VAT, the Government have deliberately driven up the consumer price index. By deliberately driving up the consumer price index they have caused higher and higher demands to be made for wage increases which, in turn, have driven up costs and, consequentially, prices.
We had a situation in January, 1975, when a new national wage agreement for a 12 months period was just beginning to be negotiated. At that time Deputy Colley, on behalf of the Fianna Fáil Party, strongly urged the introduction of food subsidies in order that price increases and the consumer price index would be kept to a minimum, so that in turn the national wage agreement might be arrived at, at the most reasonable figure possible, enabling this spiralling, vicious circle of inflation, at long last, to be broken. There was an opportunity then. But, instead of introducing those subsides and keeping down inflation at that time, the Government increased indirect taxes, and taxes generally, to cause a 4 per cent rise in the consumer price index in January, 1975.
The national wage agreement was concluded in April, 1975, and ran until the 31st March, 1976. Needless to say, the national wage agreement was unnecessarily inflationary because the demands of the unions and the workers were made much higher than they need have been had the cost of living not been driven up by 4 per cent by the Government themselves in the budget of January, 1975. Then, when the damage was done, when the national wage agreement at an unnecessarily high level was entered into, in June, 1975, the Minister for Finance came along with another budget in which he introduced food subsidies which this party had been advocating since October, November and December of the previous year and immediately by so doing reduced the consumer price index by 4 per cent. It was of no value to the economy as a whole to do so at that time because the damage was done in a national wage agreement being entered into and ratified which was no higher than was essential from the point of view of the workers at that time but which need not have been anything like as high if those subsidies had been brought in in the January budget rather than in the June one after the agreement was over.
All of that was pointed out to the Government at the time by various speakers from these benches. But, lo and behold we have the very same thing happening again this year except that it is even worse because, in the budget introduced by the Minister for Finance, in this House on the 28th January, 1976, the huge increases in VAT, duty and excise on a large number of commodities caused the cost of living index to rise by 5 per cent.
We are stll endeavouring to get a national wage agreement. It seems very problematical whether or not one will ever materialise now; it has dragged on and on for months. But a tentative agreement had been arrived at until the Government claimed the right, some weeks ago, not to be bound by it and get out of paying the increases that would arise under it. Apart from that fact, the increases which were agreed to in that agreement, subject to the various subsidiary matters which have not been agreed subsequently, were very large. There is no question about that. The percentages in regard to some people were as high as 20, and more, when there was, at the same time, a wage agreement entered into in Britain where the increase was kept down to 4 per cent. The reason it was possible to get a 4 per cent agreement in Britain and totally impossible to get it here was because of the sensible approach to the whole problem by the British Chancellor of the Exchequer in his budget in March, when there was an incentive given to the workers to moderate their demands and when it was made quite clear to them that it was in their interest and in the country's interest that they should do so. It was also made clear to them that it was worth their while to do it. They have agreed. The other major difference between what has been done in Britain over the last few months and what has not been done here is that the British Government played a major role all the time in the negotiation of that national wage agreement. Here we have a situation in which in one budget the Government deliberately increased the cost of living by 5 per cent. How in the name of goodness can that Government come along a few weeks later and say to workers: "You will have to moderate your wage demands; we cannot have any wage increases in the country this year?"
Last February that is what the Minister for Finance and the Taoiseach were saying. By March and April they had totally changed that point of view and were seeking to defend a national wage agreement which gave increases as high as 20 per cent. The whole thing would be laughable if it were not dragging the country down and down, dragging the economy down and down, and pushing our inflation rate upwards at the very time every other country in Europe, including Britain, is showing a marked decrease in the inflation rates they had and which for the most part, apart from Britain, were considerably lower than ours. We have the awful mistake of 1975 repeated to a more damaging extent in 1976. It is sheer hypocrisy on the part of the Government to ask trade unionists even to contemplate a pay pause when the Government are doing a great deal more than anybody else to drive inflation, costs and prices up.
The fourth heading under the list of six given by the prices commission was increases in money incomes. I believe I have dealt with that situation because it arises directly from the imposition of higher indirect taxes, higher costs on the part of the Government which are driving money incomes up and creating further inflation to add to the inflation the Government's own efforts is creating.
The fifth heading is growth in Government expenditure. It is perfectly evident, not alone from the quantity of growth we have had in Government expenditure in the last few years, but, even more important, from the nature of the growth in that expenditure and what it is being spent on, that this must have a most serious inflationary effect.
This in no sense is an imported factor. This, like the last two headings I have been talking about, is entirely within the control of the Government. If they not alone fail to control inflation under these headings but actually cause it to increase still further then nobody but the Government can be blamed. When that inflation exhibits itself in the symptom of price increases nobody but the Government and the foolish economic policies they have been pursuing over the last three years can be blamed for these price increases.
We have had growth in Government expenditure on a huge scale which has two particular characteristics in the last three years that growth in Government expenditure before never had. One of those is that growth in Government expenditure over the last three years was almost entirely financed out of borrowing, a high proportion of which was foreign borrowing, which is the most inflationary type of borrowing where we are repaying not just what we borrow but a huge additional premium in non-sterling currencies to those from whom we borrow. The second characteristic of increased Government expenditure over the last three years was that a great deal of this increased expenditure, which was borrowed, was not being expended in the fashion in which prudent Government previously expended it, that is in capital projects which generate their own repayment.
We now have the situation, as was very clearly pointed out by the Minister for Finance in his speech on the Second Reading of the Finance Bill which was recently before the House, in which an enormous proportion of that borrowing is paying current expenditure, such as wages to civil servants, the Army, the Garda and so on and paying social welfare benefits. There is no question of a capital investment of that money at all that would generate its own repayment. We have, therefore, directly and deliberately, an enormous growth in Government expenditure making a huge contribution to the rate of inflation we have here and thereby a huge contribution to the price increases we have seen during the past three years.
The sixth and final heading, which the commission refer to, is what they call the accommodating nature of monetary costs. That is less important now than what it was then. I believe what the commission had in mind was the making available by the banks of fairly large sums, of fairly heavy lending both to the public and private sectors. While there is still very heavy lending by the banks to the public sector, unfortunately, for all of us, lending by the banks to the private sector nowadays, particularly for industrial or other productive purposes, is very limited. The banks acknowledge the fact and are worried by the fact that they are seriously underlending.
The House will have seen that of the six factors the three most important are Nos. 3, 4 and 5, all of which are directly under the control of the Government, increases in indirect taxes, increases in money incomes and growth in Government expenditure. The Government, in each of those three instances, as a matter of deliberate, fiscal and economic policy, have gone out of their way to let inflation rip and to cause it to rip further than it would if they had a neutral policy in regard to this and very much more than if they had made a reasonable or prudent effort to try to control inflation.
It has been calculated by economists of note in the country that the imported element in our inflation in 1976 is 20 per cent. In other words, 80 per cent of our inflation and our price increases today arises from domestic factors which, as I have demonstrated, are all factors which come directly under the control of the Government, in which the Government can say yes or no, which they can increase or decrease as they see fit. They have seen fit to allow the situation to come about nowadays in which the imported element in our inflation rate is only 20 per cent and the domestic element in it is 80 per cent. This is not just my opinion. The Taoiseach has made statements on more than one occasion in the past six months or so to the effect that domestic causes are by far the predominant causes of our inflation today and, consequently, of our price rises and so on. Those domestic factors are factors entirely within the control of the Government.
It is worth nothing the increase in the VAT rates from 1972, when VAT was introduced at 5.26 per cent, to the present situation since the 1st March this year when it is 10 per cent at the low rate, an increase of almost 100 per cent. How it could possibly be argued that an increase of that magnitude—even though I agree foodstuffs are no longer subject to VAT— in a comparatively short time can be anything but deliberately inflationary is beyond me. It is worth nothing that our lowest rate of VAT is 10 per cent. The standard rate in Britain is 8 per cent and the only other rate in Britain is now 12½ per cent while we have 20, 30 and 40 per cent rates as well. We appear to have the highest rates of VAT in the EEC and some of the highest rates, if not the highest rates, of indirect taxation in the world.
People sometimes criticise the National Prices Commission as if they were not doing enough to keep prices down. The commission acknowledge this. Their powers are extremely limited. Basically, there is very little they can do. They can monitor applications made to them, but the number of applications which have been made is quite small. People do not realise this.
The Prices and Charges (Notification of Increases) Order was made within the past few weeks by the Minister which exempts from price control a large additional number of manufacturers and other people who had previously been controlled. The attitude of the commission was set out in their early days. They said in their November, 1971 report that where enough firms were competing with each other or were facing competition from imports, market forces could be relied upon to keep prices from increasing out of line with increases in costs and would ensure efficiency in goods and services. They said that they envisaged that their main interest would be in cases where there was one firm, whether in the private or public sector, or a few dominant firms in an industry where competition from imports was absent or limited or where competition for any reason seemed to be restricted. When those guidelines were laid down in 1971, inflation here was 8 per cent. The Government were keeping it down to that figure and were pursuing economic policies which would ensure that there would be no increase above that figure. They succeeded at that because the rate in 1972 was 8 per cent, having been 9 per cent in 1971.
While that kind of approach may have been adequate for the National Prices Commission in the prosperous days of 1971, I would suggest that they are not adequate in these days of appalling inflation and terrible economic degradation in Ireland in 1976. We have approximately 120,000 people officially registered as unemployed, plus tens of thousands of others who are not registered. We have an appalling situation where major State companies have informed their employees that they will not be able to pay their wages this autumn. The Government are going as an employer to the talks which are taking place in relation to the national wage agreement saying that they will be seeking to avail of the clause which allows smaller and weaker private firms to get out of what would otherwise be their obligations under the national wage agreements in the past.
That is the kind of economic situation we have today. The fairly easygoing guidelines that the National Prices Commission laid down for themselves in 1971 should be more strictly enforced rather than less strictly enforced, which appears to be the tendency now in the light of the order recently made by the Minister and his proposal to ameliorate further the whole price control situation from the point of view of firms who hitherto had to apply.
However, because the National Prices Commission are only concerned with the symptoms of inflation and because they can do nothing about the actual causes of inflation, I think it is unfair to criticise whatever shortcomings they may have. One hears criticisms from time to time; they do not have enough staff; they do not go into applications deeply enough; people are applying for unnecessarily high increases in the expectations that some of what they are applying for will be granted and they frequently end up in the somewhat embarrassing situation of getting an increase way above what they want. There may or may not be some basis in these criticisms, but the commission's role in this whole area is very limited, one in which they can only do a small amount of what they would wish to do.
The real control of inflation—and I want to emphasise this—lies in the hands of the Government of Ireland, in the same way as it lies in the hands of the German, French, Belgian or English Governments. These Governments suffered difficulties at the end of 1973, as we did, but in each and every case, they have overcome them very successfully. Inflation rates in many of these European countries now are as low as 4 and 5 per cent. Our projected rate for this year is 20 per cent. That projected for Britain is in the region of 10, 11 or possibly 12 per cent. We have suffered, in the last quarter for which we have figures, an increase of 7.3 per cent which, on an annual basis if it were to be repeated in three further quarters, which I sincerely hope it will not, would give us an annual inflation rate in excess of 30 per cent.
I raised a number of questions about the prices of specific commodities in this House in recent weeks. I asked for a comparison between the Northern Ireland and Republic prices of exactly similar priced products. One was concrete blocks. I quoted the figures which had been given to me, were checked and were accurate, that a certain quantity of concrete blocks could be bought in Northern Ireland for £10 and a similar quantity of exactly similar blocks can be bought in the Republic for £22. We have a situation nowadays where many detergents which were at one time manufactured here are now manufactured in Britain and imported here. The retail price in Northern Ireland of these detergents —and they are at least as far from the factory as we are—is significantly lower than it is in the Republic, although they are all made in the same factory in Britain. Similarly, there is the situation in regard to the price of drugs. Like the other matters I raised, the Parliamentary Secretary announced that he proposed to refer it to the National Prices Commission.
