Deputy Moore is in possession and has 36 minutes.
Financial Statement, 1977: Motion (Resumed).
Debate resumed on the following motion:
That Dáil Éireann takes note of the Financial Statement made by the Minister for Finance on 26th January, 1977.
—(The Taoiseach.)
Since the Minister introduced his budget it has been described in many ways. Some say it was an election budget, others that it was not, and it is difficult to find any category in which to put it. If it was to be an instrument of social justice or of a wider distribution of the national wealth or to attract more investment, in these it fails.
Last week we had a most disturbing report from the authorities on the child care centres. There are thousands of youngsters in these care centres and the report stated that the centres may have to be closed due to insufficient money to keep the children in them any longer. The budget total is £2,200 million, yet we could not in the bigness of our hearts find sufficient money to guarantee that these eight child care centres would not have to close their doors and that these children would not be thrown on the streets. Perhaps they will be eventually.
I understand that since last Thursday there have been talks between the Departments of Education and Health and the school authorities. I would ask the Minister to give us some information on the present position regarding these care centres. Very often the liberals in our midst would attack the religious orders and say that they have more influence than they should have. The religious orders who ran these homes for many years, unpaid in most cases, have not been as vocal as they should have been and now, as I have said, these centres may have to close for lack of money. Had the authorities of the schools been more forceful in their methods of bringing their grievances to the notice of the Government and had we had road blockades and strikes, we would not have the situation that these centres would be closing when 1,500 children are involved.
Is it all an empty gesture that we imply that we treasure all the children equally? In a budget of £2,200 million we could not even plan economically to ensure that these care centres would be not alone maintained but improved. Many of these centres have been able to stay open but they are housed in old buildings bought some years ago. The cost of heating them alone is about half the capitation grant paid on each child. The wonderful work done by the religious authorities in these care centres has meant that a lot of these unfortunate children, some of whose parents are dead, some from broken homes, have found a haven where they had proper housing, clothing and food, and some of them are taking third level education. Because of the fall in the number of vocations there are not enough religious to carry on the work. That means that lay people will have to be trained for it and paid. We want to pay the highest possible salary so that we can get the best workers, but we cannot do this.
If this be taken as a high-water mark of financial planning then Heaven help the country. This is something that shows the futility and bad planning of the Government's overall policy. Today one hears much talk about their making education available to all children who desire it and have the ability to take it, but here are hundreds of children who are denied the right not only of full education but of a roof over their heads. Yet the Government tried to tell us what a marvellous budget this is. In that aspect it fails.
I am not an economist or a financier. Those who are competent to do so may well take this budget and show what a bad instrument for national development it is. I sincerely hope when the Minister is replying this evening he will tell us he is making money available for these child care centres so that not only can they be kept open but we can go on improving them and ensure that every child in them will have a proper opportunity to live a full life in his or her own country.
The Government will be glad to see the national pay agreement has been accepted. Not only the Government but any person who wants to see order and stability will welcome that. In my union I voted for the agreement. I do not say it is an ideal agreement but, in present circumstances, it is better to have an agreement rather than none. The Government can hardly cavil about the help they got from the trade unions. Since about 1970 we have had national pay agreements. Since this Government took office we had one each year.
The Minister for Labour in one of those trite statements he makes, one of those pathetic statements he makes, said we will not have full employment with one national pay agreement. Nobody suggested we would. The Minister puts up his own words and then starts to knock them down. That is what is wrong with the Department of Labour and the Department of Industry and Commerce. No wonder our attempts at job creation are falling down. No wonder thousands of our young school leavers cannot obtain employment when a Minister says we will not have full employment with a national agreement. In this Government's term of office we have already had three national pay agreements. Nobody in his senses would make such a statement. It was totally uncalled for and absolutely unsupported.
You do not need to be an economist to realise that it will take more than a year for us to reach full employment. This budget is no help in the creation of employment. In fact, it will retard it because of the Government's ineptitude in the matter of price control. This was one of the planks on which they were elected. By the time this national pay agreement ends in about 14 months' time, if the Government keep to their past practice, they will have allowed inflation to erode whatever benefit comes to the people including the whole range of those who have to earn their living.
This budget gives no incentive to trade unions and employers to evolve or draft an economic plan which would give hope to the thousands signing on at the labour exchanges or to young people leaving school. Certainly in the case I made about the child care centres the budget has not been very wisely drafted. It is easy for any Opposition in any Parliament to criticise the Government but everyone will agree that, with the means at their disposal, the Government could have generated hope that in the future we could build up our economy. If people saw that the Government were serious in trying to do this, they would back them. At the moment, there is this national malaise which is not helping in the creation of that willingness on the part of people to work hard and share with their less well-off fellows. Because of that failure, people may well lose faith in democracy and our young people will become the target of all agitators who want to see the end of democracy. By the very weakness of the budget we are playing into these people's hands.
The Government have the power to direct our finances towards certain economic targets which would enable us to create an extra 30,000 jobs per year, or even to reduce the total number of unemployed. They should give some indication that they really mean what they said in their election manifesto. Parents of today must be cynical when they see their boys and girls leaving school, or university, or any educational level, and know the vast majority of them will not obtain suitable employment. If our school leavers cannot be given employment immediately, there should be an enlargement of the operations of a body like AnCO where they will be given some training so that they can give their parents some return for their struggles in rearing them. Not only that, but they should be given an opportunity to create wealth which will enable us to raise the general standard of living.
The Government should send out an idealistic call asking us to think more about the person who has not got a job. The Government, the employers and the trade unions should draft not only a national pay agreement but also a national plan for economic development. When the change of Government takes place—and it will not be long now—as a member of the Fianna Fáil Party who undoubtedly will form the next Government, I will welcome a national economic plan.
The Minister said this budget would be implemented if the unions decided to accept the national pay agreement. They have done so. That is a good sign. Because of the state of the economy, the Government must go much further and admit they were not able to maintain the standards we had. They have not been able to prevent an increase in unemployment. We have the highest unemployment rate in the EEC and the highest inflation rate. The time is coming when the Government will have to go before the people and admit they failed to keep their promises made four years ago. This would be the honest thing for them to do because the evidence is there.
In the short time at my disposal this evening I have tried to point out that their economic planning is crazy. There is grave social injustice under this Government. Any confidence one may have had that the economic and financial resources of the State could evolve a plan to provide jobs for all our young people leaving school has been eroded. We cannot give a guarantee that these children in the care centres will be able to hold on to the roofs over their heads or able to continue to enjoy the standard of living given to most of them by the religious orders. What faith can anybody have in a Government that cannot ensure in this small sector of education that we can maintain existing standards? People may say that this is a very small sector and that out of £2,100 million the amount needed is very small. That is the whole point; it is so small out of the total money involved in the budget that any wise Finance Minister could have said: "We will see where the greatest need arises". Surely ensuring the future of these children must be one of the greatest needs.
Last week the head of a major religious order shook many people with his announcement but we should remember that he also said that they had been too quiet and instead of pressing the Government they merely obtained large overdrafts. Because of that, the time of reckoning has come when the overdrafts must be met. Many of the buildings that house the children are old; formerly they were called orphanages. They will have to be replaced. It is a poor reward for the religious orders that, despite the magnificent work they have done for many years, when we come to show our appreciation for their voluntary efforts we cannot even ensure that their good work will be continued. That is why I ask the Minister when replying to give some indication of the progress of the talks initiated last week. I hope he has good news for the House because on reading what the reverend gentleman who spoke last week said we find he said that they had sought interviews before with the Government but these were refused.
One may say this is not a political issue and I do not want to make it one but every Member of the House has a duty to raise this matter. This is the Parliament of the people and there are very few people who are not interested in this matter of how we disburse the national wealth. If the religious orders and the children in the care of these centres have been too quiet and if they have carried on until the crunch which has now come, surely we are teaching people the lesson that one can be too quiet in fighting a cause. I have seen city streets blocked by protesters and traffic disrupted. I have seen the sheer vandalism of damage caused to motorcars and other property during so-called protests but nobody has protested on the streets about these children. Nobody shouted "stop" to the closure of the centres. I hope the Minister will advert to this matter when replying; if not, I shall raise it in the House as often as I am allowed to do so.
People will say that it is very easy for the Opposition to criticise, that it is part of their job. I suppose it is also part of our job to say what we would do if we were in government. All the time when we were in government we never allowed child care centres to close for lack of finance, as far as I can recall. I think I can promise now that if we are returned to power these child centres will not close.
I want to refer to the lack of investment by the Government in the construction industry. It has become a cliche to say that this industry is the national barometer, that if it is doing well the economy generally is doing well. That is probably true to an extent but anybody can now see that the construction industry is far from doing well and there is little hope of it improving because of any provision in the budget. We shall have the absurd situation that while about 25,000 building workers are unemployed the housing waiting lists are growing and young couples particularly are forced to live in unsuitable housing accommodation because they cannot get houses. In the past, I suppose it was not too easy for young couples to acquire their first dwelling after being married but under the previous Government at least we had a realistic loan arrangement under which a young couple could get an SDA loan at a reasonable rate of interest. Last week I pointed out the ridiculous situation that in present circumstances if a couple can afford to buy a house they will not qualify for an SDA loan because the SDA limit is £4,500 and the average price of a house is £9,000. Therefore they would have to find £4,500, as a deposit, not counting legal expenses or the cost of furniture. If their income is over £46 a week they will not qualify.
This sector of the building industry could be given a shot in the arm by the Minister if he put extra money into the SDA loans, raised the loan limit to a realistic figure so that young couples could undertake to buy houses now on the market. If the Minister did this the building industry would benefit; demand for houses would increase and extra workers would be taken on and more houses would be provided. Instead, building workers have no jobs and people on housing waiting lists have no hope. This must be changed because the social conditions a housing shortage can create may change it in a way we do not like.
Although the Minister has ruled out a second budget this year, he should have a second look at some of his priorities because they are not in the right order. The budget as an instrument for development is useless. The Government will take credit for giving tax concessions which were conditional on the acceptance of the national pay agreement. I welcome the acceptance of that agreement; I voted for it in my union.
The area where the Government failed is plain for all to see. Unless they take stringent measures in the very near future social and employment conditions will worsen and this time next year we could have an even more chaotic situation. A cynical person might say that that could not be but it could happen unless the Government, even at this late stage, take a fresh look at their priorities. This budget is tolerating an injustice to the children I mentioned and this must be corrected. It is not helping the building industry either. Possibly an economist or financier could show that the budget is even worse than I think it is. Under this budget a man earning a large salary will get a big tax cut and a man on low salary will get a small tax cut. To use a cliché the rich will get richer and the poor will get poorer. In my view things are even worse than that. This budget illustrates that the Government, because of the national malaise, have not the heart to tackle the problems posed by the present state of the economy.
I congratulate the unions and the employers on accepting the agreement. The Government have not encouraged the trade unions or employers by taking them into their confidence when preparing financial and economic plans. If they had, this might have led to a plan which could have given a better living for our people. It could have given some hope to the school leaver that unemployment would be lessened, if not solved. Children in care centres would have been assured that they would be able to live in those centres until they got employment and the religious orders would have been shown some appreciation for the work they have done over the years. They are getting a measly capitation grant for their children, which has not been increased sufficiently. Again, I ask the Minister to tell us in his reply what will happen to the children in these care centres.
I am glad to have the opportunity of saying a few words in this debate today. I understand that the Minister will be replying later this evening. I am speaking on a very auspicious day because the premises of the budget provisions were based on the potential agreement on the national wage agreement. This agreement is extremely welcome because had there not been a consensus among the social partners, trade unions, employers and the Government, in so far as the pay policy is concerned, the ravages of inflation would have been infinitely worse than they are now, despite the problems we are facing.
We have certain irreconcilables. Some people seek price controls from the Government but, singly, price control is an area about which a great deal of nonsense is spoken in political circles. We get political demands for control of prices against an economic background in which it is extremely difficult for the Government to control prices without resulting in the bankruptcy of people in the wholesale, retail and manufacturing trades. If profits are to be maintained in industry and trades, and if we are to guarantee and continue employment in those sectors, reasonable margins are necessary. With rising costs due to factors entirely outside our control, with the importation of goods, which are costing much more because of devaluation, and with the increased price in agricultural produce for our own people because of the enormously increased benefits for our farmers through EEC membership, price control is an extremely limited option open to a Government. The extent to which they can control prices is very dubious given the necessity which is operating at the present time of having a prices commission monitoring prices, having price limits on essential items, controlling prices under legislation and through the courts which is happening very rigorously. It is important to reiterate Government policy on essential foodstuffs. Government benefits tend to be overlooked and disregarded completely when it suits the critics.
Let us talk very briefly about food subsidies. The position about essential foodstuffs is that price increases are caused by what our critics like to call internal inflation rather than imported inflation. We are supposed to be nominally in control of internal inflation. When internal inflation consists of a large sector of agricultural foodstuffs which has increased in price, then it is internal inflation. It is not desirable that there should be Government policy to reduce food prices to the detriment of the farming community if we are living in a farming country with the highest proportion of people living in the farming sector. Consequently, our policy within the EEC lobbying in so far as the common agricultural policy is concerned is totally different from the interests of industrial nations like Britain or West Germany.
To offset the appalling price rises there is a very strong policy of subsidising essential foodstuffs. The food subsidy at the present time is at a level of about £48 million, which is an enormous sum of money. It is an attempt by the Government to help those in the lower income group. We are talking here of milk, butter, flour and so on. If this massive food subsidy did not exist today the cost of living would be about 2½ per cent higher than it is.
There is a lot of woolly thinking about price control. If we import bananas or coffee there is no way that we can control the prices except by ensuring that there is a reasonable margin of profit. With the devaluation of sterling against other currencies, due largely to events in recent British economic history, this Government cannot be held responsible for many of the price increases.
I am delighted that agreement was reached yesterday on the terms of the new national pay agreement. No other country owes us a living. It is a fact that a gap exists between present income and the capacity to live as well as some people lived in the past. It is essential that the Government should protect the standard of living of people presently in jobs, but it is even more important for the Government to see that there is an environment that will provide conditions which will result in jobs for future generations. At present the unemployment levels are unacceptable. We must consider those who will be leaving school this year and the problems that will be faced by countless people in future years in obtaining employment. We are told that we must create about 300,000 new jobs between now and 1986 in sectors outside agriculture. The priority of the Government must be to create the conditions whereby the school leavers of today and tomorrow have the possibility of getting jobs. In circumstances like this restraint is necessary in some areas. The Government can exercise control in the area of incomes. Patriotism today is completely different from the type of patriotism we spoke of 50 years ago. It is restraint in demand in the consumer area that is called for today.
I spoke briefly about the devaluation of the £ sterling and the difficulty it brought with it. There was a staggering increase in importation costs, but it had also brought certain very substantial benefits to this country. We are fortunate that our economy is geared to a large extent to depend on income earned from other countries for our exports of agricultural goods. While the devaluation of the £ is not a long-term help in financial terms, it is at present working to the advantage of Irish exports especially in the industrial sector. Despite inflation, despite the disadvantage at which we have found ourselves in some countries outside Britain, the devaluation factor of itself has simply built in a particularly strong Irish competitiveness. This is a fact of life which it is sometimes difficult to get across to the man in the street. Many of us relate everything to prices and incomes in this country and do not give sufficient consideration to what has happened to standards and prices in other countries. It is apparent to anybody who has travelled in Northern Europe within the past few months that there is this very strong Irish advantage. The ball is presently at the feet of the Irish farming and industrial sectors, of manufacturing companies and of the people involved in tourism. They must get out and sell. We have gone past the point where we can tolerate severe bias and criticism. Some of it has been justified but much of it does not relate to the facts of the situation.
We are speaking this year in somewhat easier conditions than those in which we were speaking last year. This budget spells out very strongly that the Government are committed, as the Minister described it, to the work ethos and are bringing in a range of incentives for the individual and for companies at home and abroad. The conditions are such as a result of this budget that the finger must be pointed at people other than those in Government if there is a weakness or slackening in the rate of development and growth in the country. We are all partners in this, and that fact must be remembered. The budget brought good news to the business community. The greatest single criticism levelled at the Government from upper income elements, regardless of background, has been the supposed penal nature of the Government's capital taxation measures. There has been an outcry about the introduction of the wealth tax and a somewhat smaller outcry about the capital gains tax. These are the supposedly penal introductions of the Government, bringing rampant socialism across the land and discouraging all initiative. As the Taoiseach said in his speech on the budget, the financial analysis of the present capital taxation measures shows that they are bringing in less than half the amount of money to the Exchequer which was received from the estate duty which this Government abolished.
This factor is not highlighted enough. The Government are being unfairly pilloried in this sector. Some years ago when we were in Opposition we listened to speeches of farming organisations, representatives of the business community and representatives of the chambers of commerce and other organisations about the extremely penal nature of estate duty taxation. If one was judicious and, having made provision, lived a certain number of years, one escaped the net. The Russian roulette factor came into it if for personal reasons it was not possible to make such provision or if one made provision and died within the five-year term. The result of sudden death or the lack of provision meant carving up substantial farms, selling businesses off and so on. Some of the great houses of the country—some of those people are at the moment complaining about wealth tax—could not be retained because of the estate duty taxation. If there were a successive number of debts, in some cases this reduced to nothing what had been substantial estates.
We do not hear a lot about the abolition of estate duty. The wealth tax and other capital taxes are bringing in less than half what came in from the estate duty taxation. The base line for wealth tax is fairly high at £100,000, private houses are exempt and in many cases there may be a division of assets in family businesses which allows further relief. The rate of interest is relatively low, so that even to people in that category the payment of a relatively small sum is a great deal less penal than the possibility of being caught once or twice in one's lifetime for a very large sum of money.
The personal income tax relief in the budget at all levels is very welcome. With regard to the Fianna Fáil attitude to income taxation, their attitude to the philosophy of government and the type of attacks they make on the Government it seems to me that we are dealing with a Fianna Fáil Party composed of two parties. We see two entirely antagonistic attitudes developing within that party on issues such as this. Until this budget, when personal income tax relief was introduced and in which corporation profits tax was reduced, we had Deputies from the front bench of Fianna Fáil, such as Deputy Haughey and Deputy O'Malley, decrying what they described as the rampant socialism, the lack of incentive and the lack of initiative of the National Coalition Government, talking about the freedom of man and the fact that there was a brain drain because people could not earn enough. We had Deputy Moore, whom I hold in high esteem, saying a few moments ago that as a result of this budget the rich are getting richer and the poor poorer. We also had Deputy Dowling in his contribution talking about the greater relief for the wealthy person and that the poor man was getting poorer. It seems that the Fianna Fáil Party need to address themselves to this issue and get some kind of consensus about what their attitude is. The contributions we are getting are poles apart and would probably be very much to the right or very much to the left of the parties represented in the Government.
The personal income tax relief and the corporation profits tax reduction point up some interesting contrasts between the incentives available here compared with Britain. The taxation measures in Britain, both at personal level and at corporate level, are penal in comparison with the position in Ireland. In addition to that there is the added incentive here in manufacturing industry where tax relief of 100 per cent is available on all exports sales. Against this background I wonder, if, within the IDA programme, we are getting a sufficiently large participation by British industry and British interests in the industrial development programme in this country. We are fortunate to have a very substantial investment from the United States. There seems to be an increasing investment from west Germany and other continental countries as well as Japan.
It may well be that the British factor relates to events in the North. I have no doubt they do to a certain extent, but I do not believe they should count to the same extent in industry as they might in tourism. In tourism we are dealing with the decision by an individual in regard to the country he will visit. He will make his decision on surface impressions he gets from the media. The industrial sector requires a greater analysis of attitudes and backgrounds. It seems to me that we should push harder now to get a larger level of British investment in this country.
The corporation profits tax reduction from 50 per cent to 45 per cent, 40 per cent to 35 per cent and the rise of thresholds is not a great amount of money, but at least it is a step in the right direction and I welcome it. The only quibble I have with the policy of reducing corporation profits tax is that I believe there is a tendency among Governments to improve policy in certain directions but at the same time involving certain built-in disadvantages for the country. Take this relief of 5 per cent in the corporation profits tax and relate it to the potential of the offshore petroleum development from Donegal to Cork and along the south of Ireland. It seems to me that in a case like this, where the Minister for Industry and Commerce has made available generous incentives and in which there has been agreement with the petroleum companies about exploration, rents, leases, royalties and tax, that those companies have come here on the taxation base which existed at the time of those negotiations. When we are talking about a wasting resource, something which will not be there forever, it seems to me that, while the marginal relief of 5 per cent corporation profits tax is a useful incentive to the existing base within the country, if it is given in addition to petroleum interests who have been coming in here and who are presently exploring off the Irish coast it may be an extremely high price for this nation to pay to get a general mood of enterprise and incentive moving here.
There is a tendency for Governments to introduce welcome measures across the board to correct an imbalance, to correct a poor situation or to provide incentives but the danger in bringing in sweeping relief is that contained within sweeping relief there may be sectors where a different attitude should be adopted. On the question of offshore development, discussions took place between the Minister for Industry and Commerce and the multinational oil companies against a background where satisfactory discussions took place about rents, leases, royalties and tax and against a background where these companies took up options here on the tax base line which existed at that time. We are discussing what is fundamentally a wasting resource that will not be there for ever, if discovered. Because of this I question the wisdom of the State in this example. Is this 5 per cent wise or not? I hope the Minister will have time to deal with that factor when replying to the debate.
I am assured that the stock relief introduced by the Minister some years ago was deeply appreciated in the industrial sector. I am glad the Minister has continued the tax relief related to inflation. This extension is welcome during this period of reinflation and difficult times internationally. In addition, the removal of the uncertainty in regard to whether or not it is an outright reduction or whether it is a temporary relief is also welcome. Industry is of vital importance to the country because future jobs will come to a large extent from the industrial sector. I accept that agriculture is basically the backbone of the country but in terms of numbers we are not likely to see an increasing number of people working in agriculture in the coming years. Tourism, whilst welcome as a great producer of capital and an injection of foreign money into the country, is again, on analysis, not an employer of men for 12 months each year. That is why industry is so important. We are getting over the worst as far as industrial policy is concerned.
I expressed the view recently that whilst we had an enormous level of redundancies here in the last two or three years some of our critics glibly blamed these redundancies on Government policies and a lot of other factors. The redundancy levels we are experiencing could be much the same even in conditions of boom in the Irish economy and world economy mainly because of free trade. Some years ago the Anglo-Irish free trade agreement was signed in Britain and this was the first opening of the door. We must remember that we had a completely protectionist economy; the shutters were up around the country and industry was artificially protected. Much industry became feather-bedded in that era when they did not have to compete with products from outside the country on an equal basis. Under that agreement, and subsequently when we joined the EEC, there had to be a quid pro quo and the barriers had to come down.
People always try to blame the redundancy situation on inflation, the world recession, and on the National Coalition Government but in spite of all this a large proportion of this would be happening in periods of boom. The industrial picture is encouraging because against this appalling background of redundancies, factory closures and bankruptcies there has been a substantial creation of new jobs by the Government through the IDA in the past four years. That is not appreciated sufficiently because in some years it has about equalled the redundancy level. In the past four years something approaching 60,000 new jobs in manufacturing industry were created. They are the statistics relating to this. If we could only get rid of our chips, our own sense of inferiority in certain sectors and open our eyes and see what is happening in other countries we might appreciate this. The statistics of industrial exports over the past year have been staggering, apart from the devaluation factor and apart from inflation. We are talking about levels of increase running up about 30 per cent in some sectors. We would want to start saying this a little more often because the preponderance of speeches in the last three years from the Opposition and commentators outside the country has tended to build up a phobia and a sense of inferiority which I thought we had lost here some 20 or 30 years ago. Apparently, it has not gone. This budget with the incentives it gives in income tax relief, corporation profits tax and the huge disparity that now exists between the incentives at personal level to work and at corporate level between here and in Britain provides the conditions past which the other partners here need to look to themselves if expansion does not take place.
There has been a tendency by Fianna Fáil spokesmen to be very nationalistic about industrial policy and to respond to the gods in suggesting that the industry we want is national industry. There is a tendency to suggest that we have passed the stage where foreign industrial development is welcome here. The Opposition spokesman on Industry and Commerce at the recent Ard-Fheis made remarks along these lines. He said we had reached a new point where we can consider a new type of industrial policy which would give preference to the Irish base and adopt a different attitude to people coming from outside. Just about a year ago Fianna Fáil tabled a motion seeking legislation to require that the IDA toe the line in this regard by giving a certain proportion of their grants to Irish industry and to see to it that the amount of money given to foreign concerns does not exceed that point. If the Government were to follow that advice, they would be following a prescription for disaster. If the IDA were required to give proportionately less to foreign industry, we would reach the point where we would lessen the level of development against a background where we need 300,000 new jobs between now and 1986. It is farcical to suggest this. We cannot bask in the luxury of taking options where jobs and job creation are concerned. It is not a question of getting into a fashionable slanging match about whether we want labour intensive or capital intensive or foreign or native industries. Provided they comply with Irish laws and fit into Irish society, regardless of where they come from, they are welcome in my book.
It is difficult to assess the position where the public service is concerned. There is a tendency for people who are not involved in the political process or in local authorities to have a distrust of the civil service and to point to the appalling cost of the public sector. Relative to the GNP it is tending to cost more than it was costing. We have to have regard to the fact that the State is involved in many more areas than previously, that since EEC accession there has been vital work to be done vis-á-vis the EEC, in the interests of the country, and many of the grants flowing to the farmers and other sectors would not be there if we had not the administrative machine to deal with all the problems thus created.
Different departments have grown, particularly those of Defence and Justice. For instance, the Estimate for the Department of Defence in 1969-70 amounted to £14½ million and this year it was £70 million. It is of importance to put these matters into perspective. Increases in the number of civil servants have been restricted. In 1975 the percentage increase was two; in 1976 it was down to one in contrast to 6 per cent in the period 1969 to 1974. The saving thus made would be in the region of £20 million. An important feature is that there has been a will on the part of the civil service to co-operate with the Government.
The borrowing requirements of the Government as a proportion of the GNP is admittedly appalling but is so because the country was hit by the oil crisis. However, this, too, must be put into perspective. The borrowing requirements in 1976 were £506 million, 11.5 per cent of GNP, which contrasts with the 1975 figure of 16.9 per cent. It needs to be contained and I hope the policy of the Government will be to continue to contain it. The trend is right, the approach is in the right direction.
My final word is that if we could only instil in our people the necessity, where possible, to buy Irish goods we would immediately create jobs. We face a major problem in this sector because many people in the trading community do not stock Irish goods to the extent they might. We are faced with a careless attitude on the part of our people in the matter of buying Irish goods. They should seek to buy Irish if it is as good as the imported product.
I welcome the climate created by the budget, particularly the tax reliefs, and I hope the partners in the country outside the Government will take up the options so that we can get the country moving again after the appalling crisis we got into.
It is fair to say that the most notable feature of the budget and the manner in which it has been presented by the Government, particularly the Minister for Finance, is a claim that the recession is over. I wonder if the Minister for Finance and his colleagues realise just how lacking in credibility that claim is and how much more effective it would be if they were to put the improvements which have occurred in certain economic indicators into proper perspective.
That would entail saying, as I have said on a few occasions here and outside, that any improvement in our economic position is welcomed for whichever cause it has occurred, but that in order to gauge whether there is a real improvement or whether one can go so far as to say the recession is on its way out, it is necessary to analyse the cause of the improvements, such as they are. Any analysis in that respect will show that the principal reason for such improvements as have occurred lies in the falling value of the £. I indicated on budget day the stark reality of the fact that while our industrial exports grew very substantially to non-sterling countries last year, our exports to Britain dropped.
We must not lose sight of the reality of that or fool ourselves into believing there is a real improvement taking place as a result of our efforts. I do not think the Minister is doing any good for this country by pretending otherwise. We all understand the political difficulties he faces, that with an election pending he must put the best face he can on it, but from the point of view of the national interest it is not a good thing for the Minister to talk in the grossly inflated terms he has used about the recession being over.
Even from a political viewpoint, I do not think he is helping himself or the Government by these obviously inflated claims which lack credibility. They lack credibility primarily be-because people can see for themselves what the situation is. They can see that our unemployment figures are at record levels, and I say "record levels" because the actual recorded unemployment is more than 118,000, almost as high as the highest figure ever recorded—during the war—but now we have far more young people seeking employment who are unregistered than at any time in the past.
People know this. They know our inflation rate, at the most recent level recorded, was 20 per cent for the 12 months. They know the appalling amount of debt and the appalling millstone around the taxpayers' necks represented by that debt. The recent figures on our balance of payments show a dangerous trend. In the light of all these facts it is not realistic to talk about the recession being over.
I suggest the next most notable feature of the budget and its presentation is the extremely doubtful conversion of the Coalition to the value of encouraging enterprise. I say "extremely doubtful" because first, the measures in the budget are not nearly enough, but second, and perhaps more important, it is clear that if by any mischance they were to win the next election it would not be long before they had reverted to the pattern they have followed in virtually every budget up to now, a pattern in which the general theme was "soak the rich".
A phrase never used in this country. The Deputy is confusing us with those across the water.
The Minister anticipated what I was about to say. The usual phrase used by the Minister to justify his policy has been "equity in taxation" and, in the name of equity, he has done the most appalling damage to the economy. The fact that he has in a few instances tried to mend his hand with this budget simply does not excuse what he has done in the past and his colleagues with him. As a former Minister for Finance I am perhaps particularly conscious of this but I want to repeat here that, when I criticise the Minister for Finance, I am not referring only to the Minister for Finance; his colleagues are equally responsible with him for what this Government have done.
This alleged equity in taxation is partially being abandoned in this budget. The best example of that is, I suppose, the considerably greater reductions in income tax for those who are very well off as compared with those who are on lower incomes. The mere fact that the Minister has done this illustrates of itself the nonsense he has been preaching over the past few years because what is really important to the people is whether their standard of living is improving or whether it is not, not whether everybody is going to pay precisely the same proportion of his or her income in tax. In the long run, when people come to vote and measure the performance of the Government, this is the measure they will apply and not the one the Minister has tried to encourage in recent years when giving the impression that it was necessary to impose a degree of tax on the middle income group which inevitably causes and has caused an almost complete absence of incentive.
I and this party have never made any excuse for recognising the importance of incentive to get the country moving and keep it moving. On the record of this Government it is now quite clear that, once they feel they have got over the hump—in other words, if they find by any mischance that they win the next election—they will revert to the policies they were following in recent years, policies they themselves have been forced to admit in the Green Paper were leading to disaster.
The alleged conversion of the Coalition to the benefits of initiative and enterprise is, as I said, an extremely doubtful conversion. It is one of which I personally am not convinced. When one considers the tax cuts proposed in the recent budget one is entitled to ask again in the overall context why is it that the Minister says that in 1977 we will have a growth rate of 4 per cent, a growth rate which would be very substantially in excess of what we have had in the last four years. But, if that is so, what justification is there for a cut in the real standard of living of the great majority of the workers? There is an onus on the Minister to explain that. He could perhaps justify it if his forecast was nil or 1 per cent, or possibly even 2 per cent. If there is any basis for what he is claiming, and if it is real growth, it certainly does not justify the proposition, taking the cuts proposed in the budget plus the pay increase under the national wage agreement, of an improvement in the standard of living because the great majority of workers will suffer a reduction in their standard of living. That is true even if one accepts the suggestion that the inflation rate in 1977 will be only 14 per cent. It may well be that the inflation rate will be bigger than that. There are a number of possibilities which suggest that it may but, even taking that figure, it is still true that the majority of workers will suffer a fall in their real wages this year.
There is a particular onus on the Minister to explain why that should be the evolution with a 4 per cent growth rate projected. The proposals from this side of the House in September last included far more substantial tax cuts, cuts designed to maintain the workers real standard of living not to reduce it and, at the same time, to reduce the overheads of business so that production could be more competitive and create more jobs. When projecting forward to the end of 1977 and the inflation rate, when people look at the recent price increases in such thing as coal, flour, tea and other essentials, and when one looks at the enormous increases announced in the budget for telephones and the postal service, people see the tax cuts for the great majority of workers in proper perspective and recognise that the alleged benefits are illusory.
As the Minister well knows that the tax cuts he proposed in the budget do not even match inflation last year, not to mention inflation in previous years under the Coalition. As I said on another occasion, I am afraid that the prospects of the taxpayer ever getting back to the position in which he was under Fianna Fáil are now extremely remote. One of the major problems we faced under the Coalition has been the lack of understanding apparently by the Government of the necessity for total commitment to fighting inflation, to fighting every inch of the way against price increases and to grant them only when they were absolutely unavoidable but, much more than that, to ensure that the Government themselves do not add to inflation. In every single budget, except the one we are now discussing and the mid-1975 budget, the Government specifically and deliberately increased very substantially the cost of living. The best example of that is last year's budget where, as a direct consequence of the increases in that budget, quite apart from all the other increases outside it, our inflation was increased by one quarter. In other words, it could have been reduced by one quarter if the Government had not done what they did by way of increased taxes. This is particularly disturbing when one finds this was not done to enable the Exchequer to pay its way.
One recalls there was a deficit forecast in last year's budget. If there was any economic justification for that deficit then there was no need for the additional taxation imposed. There was no need for the taxation which added 5 percentage points to our inflation last year. This is typical of what this Government have been consistently doing and what we have been consistently pointing out to them was causing inflation. One wonders if the Government even yet have grasped this basic economic fact. As inflation is increased here, particularly as a result of costs within the country, Irish goods are made less competitive and as they become less competitive fewer of the goods are sold, more and more Irish firms close and more Irish people lose their jobs. This is a simple basic economic fact but it has gone on year after year under the Coalition until thousands and thousands of people have lost their jobs as a direct consequence of the mismanagement of our economy by the Government.
The priorities of the Government seem to be totally wrong. I am not going back over all the Coalition have or have not done. I am just talking about the situation as we find it now and as we have known it to be last year. When one does that one sees there are three major problems facing us in this economy—unemployment, inflation and the condition of the State's finances.
Our priorities in dealing with this matter, as indicated in our economic proposals, are to tackle unemployment and inflation first and, as a consequence, to bring about the cure for the third problem, namely, the chaotic condition of the State's finances. As a simple illustration of how that follows, I would point out that we calculated that the creation of 20,000 jobs in the first year of our economic plan would increase the net returns to the Exchequer by £47 million.
Let us look at what happened and the out turn last year with which the Minister was faced when he brought in this budget. We find that little if anything was done by the Government to tackle unemployment. As I pointed out, inflation increased by one-quarter and the only area that showed any improvement was that of the State's finances. It was a relative improvement because it meant that instead of having a huge budget deficit we just had a major budget deficit. It was quite major but substantially less than was planned. Unless the Government were totally without control over the situation, one must assume that is what they planned and, therefore, one sees the Government's priority. That seems to have been to try to improve in some way the condition of the State's finances without doing anything worth while about unemployment or inflation. I want to make it quite clear that so far as we are concerned we believe that that priority is both socially and economically wrong.
A big change.
No. This has always been the situation and the record shows that. The Minister is overlooking the fact that he and his colleagues have created such an enormous mess in our economy and in the condition of the State's finances that it will be necessary for anyone who wants to tackle the problem to adopt emergency proposals. They may be proposals which in normal circumstances would not be acceptable. I said earlier I was not going back over the cause of the situation but the fact is that given the situation that exists it is necessary to define the priorities and work to produce those priorities. The evidence shows that the Government's priorities were quite wrong.
On may say that there has been a late repentance by the Government as exemplified in this budget. The effort is to suggest that this is so but that is not the case. The Government have learned for whatever reason—it may be nothing to do with the economics of the situation or the economic priorities but rather with political realities—that they should not again, at least in this budget, increase the cost of living by deliberate Government action, as they have done so often. That is a step in the right direction and one we have urged on them every year. However, when it comes to the creation of jobs, the first priority, what do we find? The Government's major weapon in this area and the way they approach the problem—it is the way a Government would approach it in normal circumstances—is in the capital programme. Here the Government's record is really frightening.
We have the situation where in the mid-1975 budget the Minister proudly announced an additional £28 million for the public capital programme and six months later he had not spent £22½ million of that sum. Last year he was proposing to spend money in the public capital programme for job creation but, on the outturn, we discovered that £50 million had not been spent. Then, this year as part of the great package to provide jobs he tells us he is going to increase capital spending by more than £50 million.
If he did not spend the money provided in the capital programme in the second half of 1975 and in the whole of 1976 is that not clear evidence that there is no commitment on the part of this Government to do what they can to create employment? Does it not suggest there is no guarantee that the programme announced by the Minister in this budget will be carried out this year? If two years in succession he substantially under-spent the capital programme, what guarantee is there that he will not do it again this year? I suggest the evidence is that there is no commitment by the Government except in so far as there is political pressure. There is no commitment to tackle inflation or unemployment. It is quite clear that if we are to tackle the very serious problems facing us the first requirement is to have an integrated economic plan, one that will tackle at the one time the major problems I have outlined.
We all know the history of the Minister's attitude in this regard. I am not going back over that either but it is notable that the Government recognised in the Green Paper that the first requirement, if one were to tackle this under the heading of "Outline of proposals to stimulate economic growth", was the preparation of a clearly defined plan for economic growth. How long do the Government think they can go on talking about the need for a plan? How long do they think they can go on moving pieces of paper around and calling meetings to discuss this, that and the other instead of doing the job they were elected to do? Is there any reason to believe that, having failed for so long to produce such a plan, they can at this stage produce one? Everybody knows that the Government cannot and will not produce such a plan, although they recognise the need for one, because they cannot agree on the nature of such a plan. They pay lip service to this concept and that concept but that is not what it is about. The situation is so bad that the Opposition, in an unprecedented move, produce a plan. Only one or two members of the Government have attacked the proposals. The attacks are based on a misreading of figures—I am putting it as charitably as I can—and there has been no worthwhile criticism of the plan.
There has been the half-hearted use of some features of the plan in the budget. In this connection, I should like to repeat what I said on budget day. I thanked the Minister for the tribute he had paid to Fianna Fáil by using some of those features. I did not say that the Minister had stolen them nor would I say so. I said he used them. To the extent that the Minister uses our ideas, it seems that it is an advantage to the country. The best features of the budget have come from our proposals. The tragedy is that is a half-hearted use, that it is not part of a plan. It is designed on an ad hoc basis to get votes. It is not part of a plan to get the economy moving. It is not part of a plan which will realistically tackle unemployment and inflation.
I wonder whether the Minister has grasped the essential nature of our proposals. I will try to explain it to him again. The essential nature of our plan is that we propose to cut the expenses of Irish business by tax cuts for employees which would substitute for pay rises and to cut the social welfare contributions of employers. If that had been done the consequences would have been that the workers would have maintained their standards of living, the costs of the businesses concerned would have been held down and the goods would have been more competitive. Therefore, more people would have been needed to produce them. Jobs would have been saved and more jobs created. That is the essential nature of our proposals. The Minister has half-heartedly taken the idea of the tax cuts but not sufficiently to maintain standards of living. He has not done it sufficiently to obviate the charge involved for business generally in paying the national wage agreement. The approach of the Government seems to be an ad hoc one, not designed to tackle the problems we are facing. I regret that that is so but it is only right that it should be pointed out that there is no plan, that there is no effort on an intelligent basis to tackle the problem as it is now without reverting to the cause. The fact that the Minister has used some of our ideas and has either not been willing to use them properly or has not understood them properly so that they could be part of an integrated plan, is regrettable.
When Deputy Staunton was concluding he made a plea for more buying of Irish goods. Again, that is part of Fianna Fáil's proposals, not just for the obvious reasons with which we are all familiar, but for economic reasons. It is part of the working out of the economic proposals, the manner in which they are paid for and the manner in which balance of payments problems would be avoided. In this connection, we have in mind proposals which would be effective, which would make the buying of Irish goods a realistic campaign, one which would not depend on patriotism—not that I deride patriotism, but we know that it does not operate effectively in this area. The most effective way to sell Irish goods, provided the quality is adequate is by making them at a competitive price. The proposals I have outlined would make them progressively more competitive. That is the most effective way to ensure that more Irish goods are bought.
Apart from the general aspect of the budget, there are some specific matters to which I want to refer, primarily because the Minister did not refer to them and I want to ask him whether he intends to include provisions in the Finance Bill to deal with them. The first one relates to the restriction on the expenses of business cars. I should like to know whether the provisions operating in this area are intended as a revenue-raising measure or whether the object is to discriminate against particular forms of business and professional activities. If it is intended to raise revenue, could the Minister give us an estimate of the amount that has been raised? It is clear from what has been happening that the cost of administering these restrictions is increasing substantially and has taken up a great deal of time and I wonder whether the Minister considers that the cost involved to the revenue justifies the imposition involved here on business, which many people consider to be quite unfair, and justifies the irritation to business and professional people which is caused by these restrictions.
Another matter which has led to much irritation and, I suspect, to a great deal of cost to the Exchequer relates to the provisions concerning benefits in kind from the use of cars provided by an employer to an employee. The restriction here operates in the case of people with an income exceeding £1,500 per annum. That level was set in 1967 at a time when such people were thought to be higher paid employees. Not alone is that limit out of date but a very harsh minimum figure was imposed last year with the result that a great deal of time is used up in filling up forms and on correspondence with the Revenue Commissioners. That time-consuming operation applies not only to the Revenue Commissioners but also to the taxpayers. I would like to know what revenue has come from the charge on benefits in kind from motor cars and what estimate the Minister can give of the official cost of administering this.
The 1976 provision is of course a minimum charge of 15 per cent of the cost of the car. The Minister claimed that it would simplify the system. We told him at the time that it would not. The evidence is clear that it has not done so and the amount of time taken up and irritation produced by this is enormous. A great deal of hardship has been caused to a number of taxpayers, and in particular I would mention the case of commercial travellers; they are not the only people but they are the most obvious case of people who are provided with a car by their employers, for whom a car is an absolutely essential tool of their employment; yet they are being treated in this way, deemed to have a minimum use of a car for their own benefit whether they have or not. The Minister must be familiar with the anomalies that have come to light in this case.
It is time he had a rethink about this matter to find out whether the whole thing should not be cleared up now with great benefit to the Exchequer as regards time and money and to the taxpayer as regards not only the saving of tax but the saving of time and irritation, because this matter has caused an enormous amount of ill-will. Any approach to clearing it up should consider a certain amount of retrospection in order to clear arrears out of the way. There are different ways of tackling it. I could make some suggestions and will, if necessary, on the Finance Bill. The Minister might look at the British system. It is not perfect but it is certainly simpler and more equitable than the system he has introduced.
Another matter which is causing a great deal of concern is the ceiling of £2,000 on interest eligible for tax relief, apart from the special categories that are provided for. The Minister has given no indication of any change in this although inflation is eroding it. A rate of interest of, say, 15 per cent suggests there should be a maximum borrowing of about £13,000. At the rate house prices are going many quite modest semidetached houses are well above this figure and young married couples are being penalised by being deprived of the full benefit of tax relief for the interest they pay. The restriction here is a very arbitrary one and the way property prices are going, unless he does something to raise the limit, a great deal of hardship will be caused.
There is a strong case for treating the purchase of a principal private residence as a special category, as I urged previously and as I urged in relation to the capital gains tax. The Minister will remember his original proposals did not do that, but the position now is that the principal private residence is regarded as in a special category under the capital taxes. The interest paid on a loan to purchase one's principal private residence should be in a special category, and I would like to hear what, if anything, the Minister has in mind in that regard.
When the capital taxation Bills were going through this House a few years ago he undertook to review the exemption lists each year to ensure that account would be taken of changing money values. As the Minister well knows, the thresholds are being eroded by inflation but he does not appear to have made any reference to this in his budget speech. I would like to know whether he intends to do anything about these limits in accordance with his undertaking when the Bills were being passed. The Minister might also indicate what is his policy in regard to these thresholds now. It could be of use if the Minister would indicate the amounts which have been collected under each of the three capital taxes and if he would say whether he is satisfied that what has been collected justifies the expenditure in terms of official time and effort.
(Dublin Central): And the money driven out of the country in the meantime.
That is another matter, but it should be possible to estimate clearly what is involved from the official side.
Deputy Fitzpatrick ought to bring back whatever money he has sent out.
In regard to the income tax changes, it is surprising, to say the least, that nothing has been done about the allowances for children or other dependants. I am sure the Minister appreciates that, if the allowance is supposed to be compensation for the cost of maintaining and educating a family, it might well have been expected that the allowance would have been increased to meet to some degree the increased costs which parents are incurring year after year.
Only it is an election year they would be gone.
That is a possibility all right. The relief announced in regard to corporation tax for manufacturing companies is another area in which it would be helpful if the Minister would indicate what stage has been reached in the discussions with the representatives of industry on the precise conditions which are to govern the relief to be given by reducing the rate of corporation tax to 25 per cent. In his speech the Minister said the relief will apply only to taxable profits made from 1st January, 1977, by manufacturers whose production and employment are raised significantly above the 1976 level. Can it be stated at this stage what the Minister has in mind by a "significant" rise in this level? Will these conditions require that both production and employment should be raised? What will happen if production and employment are increased for, say, nine months of the year but the good results are negatived in the final three months due, say, to a strike or to some interruption of supplies? How is the increase in production to be measured? Will it be measured by volume or by the amount of sales? If the numbers employed are not increased but if more man hours of employment result, will the relief be given? These, and many other questions, are being asked by people who are involved in this. If industrialists are to be enabled to plan and if the benefits sought to be derived from this relief are to be gained, the answers to the questions being asked should be given as soon as possible. The Minister says that the stock relief was to be continued up to 5th April, 1977. While the relief given for 1974-75 and for 1975-76 seems to be permanent, in some circumstances the relief for 1976-77 may be withdrawn and relief given on accounts ending before 5th April this year may be withdrawn also. The circumstances in which the relief may be withdrawn are defined as a drop in the stock value or a cessation of trade. Is it possible to indicate what will be the extent of the withdrawal? Will it be complete or will it be only to the extent of the fall in the value of stock? These, again, are questions on which people would welcome information as soon as possible.
Regarding the Minister's proposals for the taxation of farmers, many people would appreciate his indicating how he arrived at the multiplier of 65 and whether this figure has any relation to any established measure. The proposals to ask a farmer to pay his tax in one lump sum on the 1st September, 1977 is one which, as the Minister knows, has aroused a great deal of opposition, opposition which in my view is fully justified. Farmers should be given the benefit of paying in two instalments in the same way as other taxpayers are allowed to pay. If the Minister has anything to say on this topic he might choose to say it in reply to the debate. There are cynics who think that he may be prepared to say it now that the national wage agreement has been voted on but this is a matter for the Minister.
We are glad that the national wage agreement has been accepted. This party pioneered such agreements and have gone to a great deal of trouble in efforts to ensure their continuance, at times paying a high political price for our efforts. However, on balance, we believe that national wage agreements are more equitable than are free-for-all situations particularly in so far as the lower-paid workers are concerned. But having said that, I must say also that from the point of view of workers in general and of our economy in particular, the combination of the terms of the national wage agreement and the tax cuts announced by the Minister are much less satisfactory than would have been the proposals put forward by us in September last. I say this because a great majority of workers must suffer a fall in their standards of living this year, whereas our proposals were designed to ensure that there would be no fall in living standards. Another reason for the agreement and the tax cuts combined being unsatisfactory is that they increase the overheads of Irish business and Irish manufacturers and, to that extent, render them less competitive. Consequently, more jobs are put at risk. Unfortunately, it is not only a matter of more jobs being put at risk but of some jobs being lost. It is better, though, that we would have the agreement and the tax cuts rather than to have nothing. But let us be clear that this was not the best option open to us. It was the option that was imposed by the Government and by the Minister. The accompanying proposals for job creation are anything but satisfactory.
I have indicated already the legitimate reasons for doubt as to whether the proposed extra capital spending will ever take place but even if it takes place the stance of the Government in this regard is not indicative of a determination to tackle unemployment as our major problem. Indeed, the withholding of the £50 million capital spending last year and then offering it this year as an inducement suggests a total lack of commitment, an ad hoc approach to a problem in order to overcome the difficulties presented by the demands of the ICTU, while there is a lack of a determined approach to tackle the whole problem of unemployment.
It is clear that even if the package announced by the Minister succeeds to the fullest extent—there are doubts about that—the problem of unemployment will remain enormous at the end of 1977. Allowing for the many thousands of young people who will be coming on to the market later this year, the unemployment problem will be worse at the end of the year than it was at the time the Minister introduced the budget.
The clear requirement of our economic situation and of our people at this time is that there be leadership but leadership involves the ability and the willingness to take responsibility for decisions. I do not know whether the Minister is willing to accept such responsibility but if he is, he is unable to indicate that, because he cannot get agreement on the decisions that are required. What is required is that the Government, having consulted with all the relevant parties, are willing to discharge their obligations. The buck stops with them. They must be prepared to say: "This is what we believe needs to be done". They must set out attainable targets, not pie in the sky targets or targets which in the end will not have been worth striving for, such as the effort in regard to job creation in this budget. The Government must be prepared, too, to gear the structure of the whole State apparatus and to create a climate which is conducive to the attainment of those targets. They must go out and sell those targets to the people. All the evidence of our past history is, that given this kind of leadership and given the attainable targets, our people will respond. Year after year, under this Coalition the people have had no such leadership. No targets have been put before them other than spurious targets on which the Government turn their backs a month or two later.
I do not wish to go back over all the sordid history of this Coalition but it is impossible to forget that a short time before the Minister for Finance was telling us that the recession was over, he was talking of how serious the situation was and the Taoiseach was telling us that this Government were not going to tread the primrose path.
This kind of nonsense and gimmickery may seem to the Government to be of some political advantage. I do not believe it is, but that is a matter which will be determined fairly shortly. Irrespective of whether it produces political advantage or not one thing is certain, that is, that it is not the stance of a Government which are going to do anything for this country to get it out of the mess in which it is. Nobody can dispute that fact. I guess that the Minister and his colleagues in the Fine Gael Party would feel, rightly or wrongly, that if they were in Government on their own they could approach the problem in the way I have outlined, that they could set targets, that, they could go out and sell them and that they could agree. I do not know whether they could or not, but I am sure the Minister thinks so. I am equally sure that the Minister knows, as I do, that while he and his party are in coalition with Labour there is no way they can agree on any worth while economic plan. There is no way in which they can put attainable targets before the people and there is no way in which they can give the leadership required from any Government in the circumstances we face today.
That being so, more and more people are recognising this reality. Without the necessity of casting aspersions on the competence or otherwise of members of the Government, the composition of the Government ensures that our problems cannot be tackled, that our problems will get worse and worse to the extent that if there is any improvement in our situation it will only be marginal and will be due to causes outside the control of the Government. As more and more people recognise this political reality, whatever political sympathies they may have they will recognise that there is only one way to get this country moving again and that is to make sure when they get the opportunity in the general election that they elect a Fianna Fáil Government which, whatever its fault, can agree and has agreed and has put forward its proposals to get the country moving. With that kind of programme being implemented by a Government which believes in it and which knows that it can make it effective, there is no doubt that the choice the voter is given is one on which he or she will not have too much difficulty in making up his or her mind. The time has come for real leadership and for real targets to be put before the people. The time has also come when people in general have recognised that no matter how long they wait they will not get that from this Coalition.
As is my wont I want to be fair to the Opposition. They had an impossible task in the budget debate this year. A futile exercise of trying to find faults and flaws in a budget which, even if I say so myself, is a good budget from every point of view. It has been recognised by virtually every objective commentator as an excellent budget. It was universally accepted even by the Opposition, although understandably they found difficulty in publicly acknowledging it. I do not blame them for that. It is not the tradition of Oppositions in Ireland to praise the Government of the day and I am happy not to be embarrassed by praise from Fianna Fáil. At the end of this debate we now see that the Opposition speakers had the vain and unrewarding chore of trying to find something to say against the budget, something which would sound plausible or in any way worthy of consideration. They failed not for want of trying but simply because of the well-known truth that one cannot beat a good thing. This year's budget was good for the country.
We had the spectacle of the Fianna Fáil spokesman for Finance, Deputy Colley, devoting a large part of his speech to a defence of the Fianna Fáil exhortation that the country should borrow until it bursts, in the vain hope that it could borrow. They suggest a borrowing of at least £1,000 million this year mostly from abroad. Nobody would lend that amount. If by any chance Fianna Fáil could find somebody in some part of the world ready to lend it, they would soon find themselves being dictated to, like Britain and other countries are being dictated to today, by the International Monetary Fund and other agencies. If their wildest dreams should be fulfilled and they were able to get their hands on this hot money, they would not be economically free. The country would be subjected to the dictates of international organisations.
Whatever difficulties we may have experienced in the last few years, there is no international financial agency dictating to this country the manner in which the country should be conducted. For all the long-winded, repetitious, irrelevant and frequently contradictory rhetoric indulged in by the front and back bench speakers of the Opposition, no useful purpose was served by most of their contributions. Perhaps it demonstrates plainly and unambiguously the complete absence of any actual or latent talent in the ranks of Fianna Fáil. In all the weeks of the budget debate there was not even one constructive suggestion from the Opposition. This is regrettable if not deplorable, but it at least puts the public on notice that the Opposition are as bankrupt today of ideas as they were when they were dismissed by the electorate just four years ago for the same reason.
As this Government enters its fifth year of office it has produced an incentive budget for individuals and for business. I so described it and it has been so received. It is most heartening that the general public and the business community in particular have endorsed this budget and the trade union movement found in it a satisfactory basis for acceptance of the terms of the 1977 national wage agreement. An important watershed in our national development has been reached with yesterday's formal recognition by the social partners of the inescapable link between national budgetary policy and incomes. This victory for common sense is a gratifying culmination of the Government's efforts over the last four years to get widespread acceptance of the severe limit on the capacity of the Exchequer to allocate additional resources to promote economic growth, to encourage employment and to provide for social development without recourse to additional taxation. As we to encourage employment and to provide for social development without recourse to additional taxation. As we have always preached, it is crucial to the achievement of more employment, economic growth and social progress that full account be taken by everyone of all these wider implications, including taxation and public expenditure, as we plan and work for the future. Very positive steps have been taken by all concerned in responding to the initiatives which have linked in a very clear way national budgetary objectives and income policies. On behalf of the Government I express our appreciation of the responsibility and patience which brought about the right outcome. Good foundations have now been laid. The budget was a critical part of those foundations, not only in relation to the national wages negotiations but in relation to economic performance in this year and in the years to come. It was exceedingly well received by the people who make the vital decisions governing expansion and investment.
I would like to refer to the way in which it was received. A survey of chief executives in key industries, representing firms employing in all over 40,000 people and with a cumulative turnover of £1,000 million, commissioned by Business and Finance, immediately after the budget showed that substantial majorities of the country's most influential businessmen are convinced that the budget has engendered a more favourable climate for investment, will result in increased industrial output allied with improved employment and will make a definitive contribution in the reduction of inflation.
The Irish Management Institute described the budget as "reasonable and thoughtful" and:
a budget which makes an honest effort to achieve its objectives of improving economic growth, fostering conditions for greater enterprise and spreading the benefits of prosperity.
This is typical of the response of the business community in general with the sentiments expressed by a leading accountant in the Press who said:
The proposals on taxation are imaginative and politically courageous and have already contributed significantly to a revival of business confidence.
In a nutshell, the psychological effect of the budget has been enormous. All sectors of the public recognise that there is a worthwhile incentive to the individual to work harder, to earn more and to improve his position, that there is an inducement to companies to expand, to produce more, to take on more workers and increase profits. There is no need for me to itemise once again the many incentives of this year's budget because they are well known. Suffice it to say that the more they are availed of the happier I will be because it will mean that the country will be producing more, will be wealthier, it will be easier to service economic expansion and social development and to improve the standard of living of a larger number of people.
A former President of the Institute of Chartered Accountants underlined for the business community the message of the budget. He underlined it also for the individual worker because the message for all is the same. He was addressing the Dublin Rotary Club and he said:
I do believe that there is an important responsibility for all of us to respond to the initiatives in this budget and to begin to create again the confidence which will lead to investment decisions, hard work, creation of real wealth for all of the communities and the creation and maintenance of more jobs.
It is not often that a budget receives such an extensive welcome as this year's budget. It is generally accepted that the Government have done all they could in present circumstances to foster enterprise and growth within the constraints imposed by the necessity in our own interest to reduce our dependence on borrowing and to avoid adding to the tax burden imposed by the increased level of borrowing which was necessary to sustain economic activity during the recession. Employee interests are showing a commendable willingness to moderate their demands in the interests of improving competitiveness. The onus now rests with business, as has generally been accepted. I am confident that business will not be found wanting and will maintain and improve the revival which is already apparent.
In the contributions to this debate a number of Opposition Deputies have questioned the validity of my statement that things are looking up again. If gross domestic product fell by 1 per cent in 1975 and increased by 3½ per cent in 1976, any person with an understanding of the difference between plus and minus would consider that we are in a plus situation and, therefore, out of the recession and, therefore, things are very properly looking up. To deal adequately with this point, I would like to draw people's attention to what has happened to our economy in 1975 and 1976 and set the development in the international context. Despite what some contributors to this debate have implied, there was no way in which a small local economy like ours, with exports equivalent to about 50 per cent of what we produce, could be exempt from the adverse effects of a world-wide recession and a fall-off in world trade. Nonetheless, our performance over the last two years compares more than favourably with that of many stronger countries. In 1976 we more than made up for the ground lost in the previous year.
1975 was a remarkable year for agriculture. Net output increased by 12 per cent, farmers' incomes by 50 per cent and exports by over 20 per cent in volume. Last year as a result of consequential cattle supply constraints, output and exports fell in volume terms by 8 per cent and 10 per cent respectively but higher prices helped to cushion the effects on farmers' incomes. Because of these fluctuations and the general international recession which was widespread in 1975, a more accurate picture of performances is obtained by taking the years 1976 and 1974.
Last year output was some 2½ per cent higher than in 1974, and 3½ per cent higher than in 1975. How do other economies compare with Ireland? Over the same two-year period, 1974-76, Germany's growth in output was not as high as Ireland's. We had a 2½ per cent rise and Germany was 2 per cent higher. In Italy the rise was less than 1 per cent while in Britain output last year fell compared with 1974. This is the answer to the argument of Deputy Colley and others that the growth in the Irish economy was due to devaluation of sterling with the Irish £. If that was the reason for Ireland's improved performance, why did it have a reverse effect in Britain? For the seven major OECD countries the figure was about 4 per cent up but for the other 17 smaller members of the OECD, with the exception of ourselves, the growth rate was less than 2 per cent. We did better than our comparable partners in the OECD and that is a very creditable performance, indeed, considering the extent to which Ireland is obliged to rely upon the sluggish market of the United Kingdom at present.
Some Deputies in this debate and at the Legion of the Rearguard jamboree at Ballsbridge last weekend referred to the recent quarterly economic survey of the EEC Commission as a refutation of the Government's economic thinking. I would point out that the same Deputies were only seven months ago relying upon another expert view, to wit the ESRI forecast that the Irish economy would grow by only ½ per cent in 1976, and the outcome, as we know, was 3½ per cent plus. Of course, the experts are not always right. Arthur Burns, the chairman of the Federal Reserve of the United States of America, said on one occasion: "There are no such things as experts. There are just some people who are better at guessing than others." He was probably right.
The EEC Report, however, was based for the most part on data which was going stale by the end of November last. Quarterly reports from the EEC should be read with a great deal of caution and in the knowledge that they are usually written a long time before they are published and that national governments have available to them data which is much more up to date than what is available in the huge machine of Brussels. At a time of rapid economic change—and last year we had exceedingly rapid economic change throughout the Community and Ireland in particular—such reports need to be read with even greater caution.
The EEC report did not take account of the end of the year economic trend of the budget or of the proposals for the national pay agreement. It was written before any of these were known to them. I do not blame them for not knowing them. They did not know them and they were not part of the report. Consequently, the report itself is of little relevance to the post-budget situation. It is unfortunate that in its timing and phrasing the Commission's report has unwittingly caused no little confusion. The report states that the most urgent problem of the Irish economy is to curb the growth in nominal incomes. It is a view with which the Government entirely agree. There is nothing new in it. We have been asserting this for the last four years. The development since the report was drafted has again underlined the over-riding importance that the Government attach to securing income moderation. The report has given rise to some singularly ill-informed comment and I hope that now that I have put the report in its proper context it will no longer be relied upon by people who by quoting it merely make themselves look foolish.
I would like to deal with the industrial situation in the last year or so. In 1975 industrial production fell by about 6½ per cent. This decline was less than the OECD average of 7½ per cent and substantially better than the decline as recorded in the same period in countries with very strong economies like the US and Japan. Although full statistics for last year are not yet available, it seems likely that our industrial output last year grew by over 10 per cent. By the third quarter of 1976 production had exceeded its pre-recession peak of early 1974. There are those who will say that we are not yet out of recession but our production today is above the pre-recession peak of 1974. Only two other countries in the OECD had a better performance than us, the Netherlands and Greece. So, our industrial performance throughout 1975 and 1976 is quite remarkable. It reflects great credit on our industrialists and I should like to pay them the tribute they deserve. Those industrialists, in a year when our main market in Britain was depressed, sought out new markets and capitalised on the competitive advantage provided by the depreciation of sterling.
Some Deputies like Deputy Colley have suggested that all of the rise in the volume of our industrial exports which, incidentally, was of the order of 17 per cent, and the 10 per cent increase in output last year were attributable to the weakness of sterling and the fact that some new firms came on stream. While these factors undoubtedly played a part, and one should not minimise it, they are not the whole picture. If they were, then Britain should have had a similar performance. British manufacturers had the same advantage that we had in relation to currency depreciation and yet industrial production there expanded by only 1 per cent while manufactured exports increased in volume by only half our rise of 17 per cent. By contrast, Britain's share of world trade fell in the same period and even as world trade fell in 1975, Ireland's share of a declining trade rose and rose again last year, whereas Britain had a very poor performance by comparison.
It has been suggested by Deputy Colley and Deputy Haughey among others that the 1976 budget did not achieve its objectives which were to curb inflation, safeguard employment and limit the growth of public expenditure. The fact is that we have progressed on all three fronts, not as much as I would like, not as much as the Government desire but, nevertheless, we have progressed. The underlying rate of inflation in 1976 as measured on a constant tax-price basis was about 13 per cent compared with a rise of 20 per cent in 1975. Employment in industry began expanding in the second quarter of last year and rose by 3,500 between the first and third quarters and the unemployment situation has also eased. At the beginning of 1976 the year-on-year rise in the numbers on the live register was, unfortunately, about 20 per cent. The latest figures, for 11th February, show an actual fall on an annual basis. Equally encouraging is the seasonally adjusted trends which shows that between August and January the numbers on the live register fell by over 5,000.
As regards limiting the growth of public expenditure, I should have thought that documentation released at the time of the budget would have proved conclusively how successful we had been in that regard. As I said in the budget statement, the provisional out-turn estimate of current public expenditure in 1976 was £1,672 million; that is £11 million less than the original budget estimate despite the fact that additional money was provided to the tune of £29 million during the year for health services and social welfare and to cover the costs of the interim pay agreement which were not known at the time of the 1976 budget. But, most significant, in a year of rising costs this was the first time in 20 years that it was possible to contain expenditure within the original budget estimate. To those who have suggested, as Deputy Colley did today, that a Government composed of more than one party, a Government of Fine Gael and Labour cannot agree, cannot control expenditure, cannot have agreed policies, I say: We did what they never did: we controlled public expenditure and kept it within the original estimate. That was a very significant success and something of which we are proud. It is a policy we intend to continue.
On the capital side, there were also substantial savings but, as I must stress again, this was due to lack of demand and not to any policy decisions to make financial cutbacks. We expect that growth this year will be of the order of 4 per cent. Indeed, the latest forecast emanating from the Economic and Social Research Institute suggests that we are on the conservative side and that growth this year will be of the order of over 5 per cent. I am humble enough to accept for the moment the lower projection but if the incentives which we have provided in this year's budget are taken up quickly enough, it is possible to achieve the 5 per cent growth rate in 1976. Frankly, while this has been described as an election budget I would say that its main impetus, the greatest good that will emerge from it will come not immediately in this year but in the years to follow as the climate of confidence which we are generating gathers momentum and spreads throughout business generally with tremendous growth in investment and employment as a result.
The main factor contributing to the achievement of the increase in growth will be industrial exports. On the assumption that the standard increases under the national pay agreement are not exceeded—it is very important that they should not be—the competitive advantage our industrial exports gained last year due to the depreciation of sterling will be maintained and improved. Thus, it is expected that our industrial exports will benefit more than proportionately from the forecast increase in world trade through an improvement in Ireland's market share. The growth of investment this year will be largely influenced by increased public capital expenditure on employment creation as announced in the budget—a subject to which I shall return.
The favourable reaction to the budget is ample evidence that the incentives were well judged and that faster growth will be accomplished. The exceptionally high trade deficit recorded last month should not be taken as indicating an unfavourable trend. The provisional trade figures do indicate, however, that the deficit, unadjusted for seasonal factors, rose from £40 million in December to just over £90 million in January. This sudden capricious deterioration resulted from the coincidence of a number of factors to which I should like to refer. Some of them were quite exceptional: for instance, an increase of £9 million in the importation of cereals and cereal preparations due to a bunching of shipments and a surge of oil imports to the tune of £12 million. The latter increase was due to the delivery of orders placed in anticipation of an OPEC increase in prices in December. In addition, the value of manufactured imports reflecting in an improvement in the economy rose by £15 million. Export performance deteriorated slightly compared with December due, in the main, to a slowdown in manufactured exports related to the Electricity Supply Board dispute and the unduly long Christmas and New Year holidays which we awarded ourselves. Machinery and transport equipment which are both ingredients of economic recovery were a substantial part of the manufactured imports increase and, therefore, it is not in itself a cause for regret. Last week, referring to part of the very substantial increase in imports, I said it was attributable to a Bord na Móna turbine; of course, I should have said it was an ESB turbine. So, the January deficit is freakishly high and it would be very misleading to draw any conclusions as to the likely trends throughout 1977. Of course we must be careful to have less reliance upon imports and to endeavour to increase our exports very significantly.
In recent years the need to relieve the pressure of global recession obliged us to adopt emergency measures to deal with the most pressing problems. Because of the improved underlying economic situation, this year I was able to take effective measures to set the economy in the right long-term direction and get at the deep-rooted underlying causes of our present difficulties. The main aims of economic policy this year are to expand economic growth closer to existing capacity so as to move towards the higher growth rates of 6 per cent, and over, which we indicated in our Green Paper, to cut our inflation rate still further and to achieve an employment level far higher than we have at present. Apart from the direct measures introduced to reduce inflation and unemployment, for example, food subsidies, the employment creation package and the more extensive employer premium programme, I am also introducing, as is known, generous taxation reliefs in the areas of both personal and company taxation in order to provide the proper environment for continuing expansion of the economy.
The Government's Green Paper, as is known, proposed a wide range of measures for discussion with the social partners as part of the process of re-directing resources to improve economic performance. Consultations are in progress with the National Economic and Social Council on many policy issues. Meanwhile at inter-departmental level work on the more detailed and technical aspects is being finalised. Since autumn, interested parties have understandably concentrated their attention on the short-term issues related to the national pay agreement. Now that is happily resolved, we will need to expand discussions to cover economic, financial and social policies right through to the eighties. Deputy Colley sneers at the idea of having consultations and discussions. We consider them essential.
Would the Minister like to quote my sneers?
I understood the Deputy was sneering at having consultations instead of, as he said, firmly telling the people what to do. We will evaluate the contributions of the social partners and other interests. These will be drawn together with the work which is proceeding in Departments with a view to settling a plan which will have realistic goals and which will set ways of attaining them and, therefore, command what is absolutely necessary in relation to any plan, that is, the support necessary to achieve them. We have had too many cases in the past of reports being pigeonholed, reports which never commanded the respect necessary in order to make them a success. We intend to have this support when we formulate the plans so that the disciplines which are essential to the success of economic planning will be observed.
One of the great handicaps, of course, from which the Opposition are suffering is a pathological inability to see things as they really are as distinct from a desire to have them as they would wish them to be. This paranoia led Deputy Brennan to remark, in total conflict with the truth, that the Organisation of Economic Co-operation and Development condemned the Government's Green Paper. The latest OECD report on the Irish economy, published last November, included a section on medium-term development which referred to the projections for the period from 1976 to 1980 which were contained in the Government's Green Paper. The OECD did not, as Deputy Brennan alleges, comment on the contents of the Green Paper. Rather they prepared their own projections for the way in which the economy would have to develop by 1986 if full employment were to be achieved.
It is noteworthy that the scenario envisaged by the OECD was, in fact, similar to that contained in the Green Paper and pointed to the need, as the Government have argued, to maintain competitiveness and boost exports, and to shift resources to investment, particularly industrial investment. In addition, it pointed to the importance of a favourable external investment and realistic domestic income expectations in the medium term. Contrary to what Deputy Brennan and his colleagues said, the OECD are very much of the same mind as the Government as to what course the economy must take if we are to achieve, as we intend to achieve, full employment.
This year's public capital programme, as published before the budget, showed an increase of 15.3 per cent in nominal terms as compared with the outturn for 1976. This would be equivalent to an unchanged volume of expenditure as compared with 1976. An increase of £36.6 million for capital expenditure under the public capital programme is included in my national wage agreement related job creation package. Because the national wage agreement has been adopted that package will now be implemented with all possible speed. As a result of the carefully designed budget and acceptance of the agreement, public expenditure on the capital side in 1977 will be 22 per cent higher than in 1976. This represents an increase in volume terms of 5½ per cent.
This is only part of a story. The very substantial increase we will have in the private sector this year in capital investment will yield a very large number of additional jobs, not merely temporarily but on a permanent basis. So much for the myopic view of the Opposite benches that the 1977 budget would lead to a fall in investment. Deputy Haughey excelled himself in this debate in miscalculation and misstatement in alleging that actual expenditure in the building and construction industry will be 15 per cent less in 1977 than it was in 1976 whereas, in fact, there will be an increase of 19 per cent—some difference.
The addition of £12 million in my national wage agreement related job creation package brings the allocation under the heading "building and construction" in the public capital programme to £15 million over actual expenditure in 1976. That is only part of the picture. When, in addition to the main item the figures in Table 5 of the public capital programme under "building and construction", account is taken of areas such as industry, agriculture and telecommunications, the overall public capital programme provision for 1977 affecting the building industry shows an increase of the order of 13 per cent to 14 per cent on the out-turn for 1976, excluding the job creation package. Taking that package into account, the increase in 1977 is, as I said, 19 per cent. These increases compare with the estimated increase in building costs of about 15 per cent to 16 per cent this year. Again we have an actual real rise in employment in 1977 as compared with 1976. Furthermore, the tax concessions will once again stimulate activity in the building industry to higher levels. They must be taken into account in any assessment as to what are the prospects for the construction and building industry.
I should like to comment now on housing. Suggestions were made that the public capital programme provision for housing in the current year was inadequate. I should like to point out that the allocation for local authority housing has been increased from £65 million to £74.1 million. The 1977 allocation will not alone enable local authority housing output to be increased from 7,200 to 7,500 but will also meet the cost of loans under the recently introduced low-rise mortgage scheme whereby tenants and prospective tenants of local authorities will be able to buy private houses.
In the case of private housing, the primary sources of housing finance will continue to be—and we make no apology for this—as they were in 1976, the private lending agencies, building societies, assurance companies and banks, which loaned out record amounts of money last year. When these agencies are performing very successfully we see no reason why public money should be "sloshed" around unnecessarily in this area. The important thing is to get the houses built. It does not matter a hoot from what source the money comes. If it comes from the private sector that means it is possible for the public sector to expend public money in other areas where money is not available.
Last year, for instance, the building societies advanced £120 million as against £74 million in 1975. As they did in the past two years, the Associated Banks will also advance this year at least another £20 million for housing. Under Fianna Fáil the banks had run away from making money available for housing. Under this Government they have confidence that the building industry and the Government's objectives in relation to housing will be sustained and they are providing the money, whereas they did not have that confidence in the Fianna Fáil Administration which so frequently showed a disinclination properly and adequately to house our people.
Deputy Briscoe stated that I had implied in my budget speech that local authorities had gone on a wild spending spree during the period of the Government's rates transfer policy between 1973 and 1977. That phrase "wild spending spree" belonged to Deputy Briscoe; I did not use it. I wish to draw attention to the unusually large increases in rates financed expenditure on services other than health charges or housing subsidies which were transferred to the Exchequer during the period. The increase of 211 per cent to which I referred could not have been due to national wage agreements as Deputy Briscoe suggested because general wage increases were not of that order during that period. They were about half. So there is something to be looked at there, whatever Deputy Briscoe may think.
Deputy Haughey referred to a very serious miscalculation in the 1976 budget estimate for public service pay. I am afraid the miscalculation once again is on Deputy Haughey's side. He got himself mixed up, not for the first time but he will hardly be sacked this time for doing it. He got himself mixed up between the term public service pay, that is, the pay of civil servants, teachers, Army, Garda and health boards and the overall budget provisions for pay which, of course, includes the pay element in the grants to certain non-commercial State-sponsored bodies, universities and voluntary hospitals as well as pensions for public service pensioners.
The 1976 budget provision for public service pay was £540 million and the out-turn was £530 million. The 1976 overall budget pay provision was £679 mil-million and the out-turn was £679 million. This was very close estimation. As regards the £46 million for this year, as I said in my budget speech this sum is being provided to meet all additional pay increases in 1977 falling on the Exchequer, including the national pay agreement and it is on the basis that public service staff will continue to show, as I acknowledge they have shown in recent years, moderation and responsibility in their pay demands in the present year.
Deputy Colley referred earlier to the foreign debts of the Exchequer and asked why so much foreign borrowing was necessary. He is now of the opinion that we should be borrowing a lot more.
Not from abroad and for expenditure on productive purposes.
If the Deputy and his party should by some mischance slip back to power and try to borrow £1,000 million, as they propose to do, in a year in Ireland, they would kill the private sector and with it tens of thousands of jobs which are directly dependent upon expenditure in the private sector. Deputy Colley knows that well.
The Minister has a lot to learn.
Now we know and we will tell the people that they dare not let Fianna Fáil back because that is what they will do—they will try to borrow £1,000 million at home and so kill the Irish private sector.
The Deputy knows the Exchequer borrowing requirement is the residual figure of current and capital budget that has to be financed by borrowing. There is a limit to what can be borrowed on the Irish domestic market and on that account there has to be recourse to foreign borrowing. In recent years, mainly because of the recession, public expenditure was increased substantially and since it was impossible and inappropriate to raise taxes to match this rise in expenditure the borrowing requirement rose steeply from £134 million in 1972-73 to £506 million last year. Since the credit available to the Exchequer at home was not sufficient to finance this increased borrowing requirement, increased foreign borrowing proved necessary.
However, I would point out that when I took office, the receipts from sales of Government stock and from small savings were very small indeed. In 1972-73 they came to less than £100 million and of this the banks alone provided £52 million through purchases of stock. In the intervening years these receipts have grown enormously to £370 million, for instance, in 1975. Last year, mainly due to the bank strike it was not so good but, nevertheless, £240 million were borrowed at home.
This increase in the resources becoming available from domestic sources has been quite remarkable and I intend to further intensify my efforts to develop the domestic capital market. In this way, I hope to minimise reliance on foreign borrowing but we will not attempt in the foreseeable future to try to borrow so much from the Irish market that will kill the opportunity of making money available to the private sector.
I would now like to turn to the question of taxation. The Minister for Agriculture and I will shortly be meeting representatives of farming organisations to discuss, in keeping with the need in fairness to collect as far as practicable similar amount of taxes from people with similar incomes and liabilities, how to tax farming profits in a way which will encourage output rather than act as a disincentive to production.
I, therefore, will not comment extensively on the matter at this stage but a few points should, I feel, be made. It was widely recognised, even by persons engaged in farming that the previous multiplier of 40 bore little relation to actual farm incomes. Even when it was introduced it was only about two-thirds of the then appropriate figure. With rising farm incomes in recent years it has become increasingly unrealistic. The new multiplier of 65 is a figure which will bring national incomes closer to national farm incomes. Even though more realistic than its predecessor, the new multiplier of 65 is favourable to farmers. Allowing for the fact that the number of deductions allowed has been reduced, a full value multiplier, based on farm incomes in 1976 would be in the region of 80 and in 1977 would be over 100. A farmer whose real income is below the notional income ascribed to him may appeal against the assessment by producing accounts related either to the previous year or the current year.
When I met the farming organisations last May they expressed the view that they would like to have a simpler system involving fewer deductions and an adjusted multiplier. That is precisely what we have given them on this occasion. If further deductions were to be allowed, there would be a need to increase the multiplier. In accordance with the wishes of the farming organisations we have gone for a simpler system.
As Dr. Seamus Sheehy, agricultural economist of UCD indicated last night, there can be no real argument against the amount of income taxation which the Government propose to collect on farming profits in 1977. Farmers, he said, were likely to pay £57 million in different forms of taxes in 1977 and he judged that to be "a fair share—no more and no less". The only valid argument, according to this neutral and objective observer must relate "to the form and not the overall level of tax". This is an area which the Government are disposed to discuss with the interests involved but it must be remembered that £35 million tax on farm income was included in the current budget revenue for 1977.
Through ignorance or malice, some Opposition spokesmen and others have wrongly suggested, and I repeat wrongly suggested, that all farmers who or whose spouses have full- or part-time employment off the farm will have to pay full tax on their farming profits and on their incomes as employees. This is not so. The tax position of farmers with off-farm income from employment was not changed by the budget and will not be changed by the Finance Bill. They only become liable for income tax on their farming profits if the rateable valuation of their land is £75 or over.
As proposed in the budget, a landholder who carried on a trade or profession will be liable for income tax on his farming profits regardless of the rateable valuation of the land. There has been some confusion regarding the phrase "trade or profession". It refers only to the self-employed and does not, therefore, include wage or salary earners, such as teachers, nurses, factory workers, labourers and so on. People such as shop owners, publicans or contractors would be regarded as carrying on a trade and professional people, such as veterinary surgeons, doctors and lawyers, will be liable to income tax on their farming profits regardless of the rateable valuation of the land.
As I have just stated, contracting, as such, is a trade. However, in the case to which some Deputies referred, where a small farmer does a little contract work, he would not necessarily be regarded as carrying on a trade for the purposes of this provision. A farmer who uses his own surplus machinery to do some contracting work would not be regarded as carrying on a trade, whereas a farmer whose machinery was clearly well in excess of his own needs and who holds himself out as a contractor, and that is the significant phrase, would be affected by this provision. This is not a change in the law; this has always been so.
There has been some criticism of the proposed scheme of income tax rates on the grounds that those liable at the higher rates benefit most and that a married man gains less than a single man. They overlook two factors. Firstly, the reduction in the tax rates includes the removal of the temporary surcharge which affected the standard and higher rates but not the 26 per cent rate and, secondly, the scheme, including the increases in allowances, must be taken in conjunction with the terms of the national pay agreement. When it became necessary in June, 1975 to introduce the temporary 10 per cent surcharge in order to help finance the food subsidies and to replace revenue lost by zero rating clothes and footwear and fuel, which brought about a significant reduction in the cost of living, it was those in the higher tax brackets who were hardest hit by those increases. It is to be expected, therefore, that the removal of the surcharge and the other adjustments would have a significant impact on those higher income levels. The point about the scheme which I announced is that despite this those on the lower income levels still fare significantly better in terms of the percentage of tax saved than their more affluent neighbours.
Concerning the second point—the comparison between the married and the single person—I should like to point out that if the people concerned care to look more closely they will see that the percentage of tax saved by the married man is in all cases greater than the amount of tax saved by the single person. The reason why a married man at a certain level is shown as saving less in absolute terms than a single man with the same income is that the former was already paying a significantly lower amount of tax on account of the additional tax free allowance to which he was entitled. Again, however, a more relevant comparison between the two may be obtained from the table showing the increases in disposable income arising from the combination of the proposed national agreement increases and the personal tax relief which was issued, the House will recall, as part of the budget documentation. This table indicates that, by and large, a married man gains more than a single man in terms of net weekly take-home pay when both the pay increases and tax concessions are taken into account.
Exclusive concentration on differences in the cash and proportionate tax savings which will arise at different income levels and on minor differences between different classes of taxpayer is, in any case, unbalanced and misguided as the objectives of the new structure are concerned not only with helping to maintain real disposable incomes but to create the conditions in which real disposable incomes can be increased through increased productivity and enterprise and now in most cases can be increased without attracting a discouraging rate of income tax. The cash savings arising from the new structure are greater for high earners than for low earners. It must be remembered that because of the progressive nature of the tax system high earners are at present paying a much higher proportion of their gross income in tax than are those whose earnings are more modest. Moreover, the immediate benefits of the new tax structure to the disposable income of managers and executives in industry can be confidently expected to boost entrepreneurial activity which will in turn present increased opportunities for em-employees generally to boost their earnings through increased demand for the goods they produce. If one looks at the successful economies across the world, one will find that the highest rate of income tax is invariable in the region of 60 per cent or even less. The important point about the personal income tax concessions which are announced in the budget is that they afford a significant amount of relief for each and every taxpayer in the country and I believe that this is probably without precedent. Their implementation in the context of the acceptance of the national pay agreement will mark a major step forward in terms of increased competitiveness and incentive to work.
Deputy Staunton asked me this afternoon to give special consideration to the appropriate form of taxation for offshore petroleum operations. As regards the taxation arrangements which will apply to offshore petroleum operations, it will be recalled that in April, 1975 I made a statement setting out the Government's approach to taxation in this sector. This envisaged a separate and appropriate code of taxation for this unique field of enterprise and legislation is at present being drafted to give effect to the detailed provisions necessary for this purpose. The statement which I made in 1975 was, of course, based on the rate of company taxation then effective and indicated that the legislation would take account of the particular circumstances of the offshore petroleum industry. Full account will be taken of the views of the companies involved and the Government will keep their taxation arrangements in this area under review in the light of developments generally and in the light of the proper share of the benefits from any finds which should accrue to the community through a package of royalties, rents, taxes and so on.
Some Opposition Deputies claimed that the increases in social welfare payments provided for in the budget do not adequately compensate for inflation. That is an argument I want to quickly deflate and I want to write these statistics into the record. In their more leisurely moments the Deputies and others may study them. If one considers the contributory old age pension and the base date of October, 1972 one finds that including the benefits of 1977 the pension will have risen by 124.2 per cent against an increase in the CPI of 103 per cent; so there is a real increase of 10.4 per cent. I can give similar detailed figures for other headings but I will just give the overall figure.
I do not like to interrupt the Minister but did he not say in the budget that the increases in social welfare were related to the inflation of the previous 12 months?
Yes.
Well then, why not take your figure back from October, 1972?
I am speaking of the record of this Government. If we take even last year's figures the increases given in this year's budget more than compensate for the rise since the allowances were last increased.
All I ask is that the Minister should do it consistently.
I shall do it consistently and having given one figure I shall now give the comparable one. Taking the non-contributory old-age pension, with the base figure for 1972, the increase in benefits to 1977 is 128.2 per cent, the CPI increase I have already given and the real increase is 11.3 per cent. The increase in unemployment assistance, taking the base date August, 1972, is 134.5 per cent, the CPI increase from that date is 105 per cent and the real increase is 14.4 per cent. The increase in unemployment benefit, taking the base date October, 1972, is 124.3 per cent, the CPI increase being 103 per cent and the real increase 10.5 per cent. This is only part of the picture as everybody well knows because in addition to increases in the rates of benefit, which for the first time have consistently exceeded increases in the CPI, the period 1973 to 1977 has been one of unprecedented expansion in the coverage of schemes which have been expanded by the abolition of the income limit for social insurance, the easement of the means test and the reduction in the pension age from 70 to 66 years, free TV licence, travel and electricity allowance for invalidity pensioners and easement in the stamp contribution qualification for women for unemployment assistance. At the same time, new schemes have been introduced such as the pay-related scheme and special allowances for unmarried mothers, prisoners' wives and single women approaching pensionable age.
The Government have gone a long way in a short time in improving the position of all the less well-off. Of course, we would always wish to be in a position to do more but we have done a great deal when resources were very severely limited.
It is not noticeable then.
I want to deal with a point which has been raised in the course of this debate and elsewhere about the social insurance stamp. The Government have made a very significant contribution to the reduction in the social insurance stamp this year. Last year there was a very substantial increase in the stamp. The employer had to pay an extra £1.17 per week for the stamp. This year the employer has to pay an extra 42p only, or 75p less. That is an answer to the several critics who have picked up the Fianna Fáil argument about the amount of the stamp. We have put in a massive Government injection to subsidise the stamp this year both for employers and employees as a result of which they will get immeasurably higher benefits if they are in benefit without having to contribute this year as much as last year towards the improved benefits they will be drawing. To complete the picture, the figure for employees this year is 27p as against 42p last year.
Of course, it is very popular to call for reductions in public expenditure of all kinds but it is less popular to maintain control in the face of unrelenting demands for more cash for meritorious causes. We hear many calls for more expenditure for meritorious causes, one of which is the capitation rate for children in residential homes. I gather that one or two Opposition Deputies endeavoured to make a meal of this matter today.
I want to write some statistics into the record. Current expenditure on the special schools and residential homes increased between 1973 and 1976 by 159 per cent. My colleagues, the Ministers for Health and Education, will shortly be announcing yet further improvements in the State aid for such homes which will be in keeping with the improvements which the Government have given over the last few years without having to have emotional speeches delivered by Members of the Opposition or by their allies outside the House.
I take it this will be announced before the election.
The time for what I have to say is limited but I will undoubtedly be dealing more specifically in the Finance Bill with some of the more detailed queries which have been put to me. I notice from what we read and observed over the media at the weekend that the hackneyed Fianna Fáil Party watchword is something about getting the country moving again. They do not say in what direction. Their financial policies would, as I have already pointed out, put the country into bankruptcy, their economic proposals would crumble in chaos, their taxation and social thinking would create again in Ireland the inequitable society which we happily dismantled over the last four years.
When in office it will be recalled that Fianna Fáil were always turning corners. In Opposition they are always on the move. Remember their 1957 slogan "Wives get your husbands back to work". They got back to office and they fulfilled their promise by moving the husbands of Ireland into jobs in Wolverhampton, Camden Town, Islington and further afield. The people are unlikely to become enthusiastic now over the rethreaded slogan of "getting things moving again" when we all know from experience that Fianna Fáil in power between 1957 and 1972 moved 25,000 people out of the country annually, reduced the number of people actually working by 37,000 and had 80,000 people unemployed in 1972 at a time of unprecedented world economic expansion.
Inertia rather than movement has always been the distinguishing characteristic of the backward-looking legion of the rearguard. I will conclude by paying the Opposition this tribute. In this budget debate they have, to the best of their limited resources, fought a rearguard action, an engagement fought by the soldiers of destiny to protect the retreat of the main body of their troops.
Does the Minister intend to continue, as he said on budget day he would, an examination of the possibility of abolishing children's allowances, free school transport and an abatement of the rates on agricultural land?
The Deputy knows that such a statement was not made by me. I think the Deputy is quoting from some of the statements in Ballsbridge.
I want to get clarification of this. Did the Minister not say on budget day that he intended to have examined by the NESC the question of circular transfers? Did he not previously explain that he meant circular transfers to include children's allowances, free school transport, an abatement of rates on agricultural land?
The Deputy is trying to mend his original mischievous intervention.
Perhaps the Minister would care to clarify this very important matter with the Deputies behind him.
He will do away with children's allowances.
Question put.
The Dáil divided: Tá, 71; Níl, 62.
Tá
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- Fitzpatrick, Tom (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Halligan, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Keating, Justin.
- Kelly, John.
- Kenny, Enda.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McDonald, Charles B.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- O'Leary, Michael.
- Pattison, Séamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Thornley, David.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Allen, Lorcan.
- Andrews, David.
- Barrett, Sylvester.
- Blaney, Neil T.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Crowley, Flor.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Gibbons, Hugh.
- Gogan, Richard P.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Keaveney, Paddy.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.