The Minister for Finance and his colleagues for some time now have been endeavouring to persuade us all that the economic situation is improving. Optimistic reports, concessions, new policies, favourable announcements, all these are the order of the day. A totally unfounded claim that we have come out of the recession better than most countries is being constantly reiterated. This sudden ability to see an improvement in what up to now has been regarded universally as a catastrophic situation is, of course, part of a comprehensive Government campaign to set a favourable scene for the general election. It is absolutely fraudulent and in no way related to the realities of our economic situation.
Although it is not easy to do so, we must try in this debate on this Finance Bill to clear away this fog of deception and look at what is really happening throughout the economy. The truth is that there is no real improvement in the long term economic outlook. In fact, all the evidence available to us points to a depressing and discouraging future with serious social and economic problems building up. The figures which are being fastened upon with such pathetic eagerness by Ministers are of a minor, marginal nature. In fact, the changes they are referring to do no more than emphasise the depths of the depression. Because the level of economic activity has fallen so low, some upward movement of this sort was inevitable through the normal swing of the pendulum. It is no more than that.
Far from the economy being broadened and strengthened to cope with the increasing demands which will be made upon it in future, its ability to cope with those demands has, in fact, been very seriously impaired. It is particularly depressing to note that, in this sort of situation, the Labour Party's only contribution is to propose more bureaucracy, another great source of wasteful public expenditure, a State development board if you do not mind. It is surely indicative of the quality of the economic debate which apparently goes on within the Coalition that they should actually be arguing at this stage about such an out-of-date second-hand notion.
That is the sort of thing economic theorists were promoting in Britain after the war. As Britain went further and further downhill, more and more of these paper panaceas were brought forward: national enterprise boards, development corporations, every conceiveable type of useless bureacratic monstrosity they could think up. Is our situation not bad enough? Is there not enough wasteful expenditure of public money already? Does the sparkling performance of our existing State monopolies inspire anyone to believe we really need another one, a big brother which will dwarf all the others in the extent of its losses and its inefficiency?
Last week the Economic and Social Research Institute published a study on unemployment by R. Geary and M. Dempsey. That study confirms in a most dramatic fashion many of the things some of us have been preaching for well over two years now. The general conclusion of Geary and Dempsey is that in the years to 1980 our unemployment will reach catastrophic proportions unless the Government make a sustained and direct attack on this over-riding social and economic problem. They point also to the possibility of the emergence of a sub-proletariat of unemployed people virtually alienated from the economic system and suggest that this could give rise to heightened social and political tensions within the community.
I said exactly the same thing in a luncheon address to the Chartered Accountants as long ago as November, 1975. In that address I said:
At current trends and if nothing intervenes it is probable that the number of persons unemployed by 1979 will be 200,000. As a high proportion of this number will be young, active and with a high level of education and skills a corresponding rise in the level of social tension is inevitable.
Geary and Dempsey go on to suggest that the problem of unemployment should be tackled by a special works programme whose main objective would not be economic but to put people to work, and that 3 per cent of GNP be channelled into this works programme. They go on to point out that 3 per cent of GNP in 1975 would have been £105 million. This is exactly in line with what we have been proposing. I personally suggested well over a year ago that £100 million should be diverted from the public capital programme into a jobs for jobs' sake programme.
The truth is that, while the swing of the pendulum to which I have referred will bring temporary improvement in the level of economic activity the underlying long term problem remains. Unless we are to slip further and further behind our European partners in the Community, put up with second-rate status, and accept high levels of unemployment, inadequate health, welfare and educational services, a new radical far-reaching approach to economic management must now be undertaken.
For some time now I have been asking for a review of our general economic development strategy. In my view, not alone must we have a vastly increased national investment programme, but the areas into which that investment is being channelled at present must be reviewed. For over a decade now we have been investing increasing amounts of scarce capital in establishing sophisticated modern industries with superb technology, but industries which provide relatively little employment. This has been done both by re-equipping existing domestic plant and by importing new industrial capacity from abroad. This new structure of technologically advanced industry which we are providing through the present strategy will undoubtedly serve the traditional economic ends in relation to increasing gross national product and contribute to our balance of payments situation. I do not think that alone can be accepted as sufficient any longer.
A recent report issued by the Irish Industrial Development Authority announced, with perhaps justifiable pride, that since 1968 that authority made available to existing Irish firms a total of £75 million by way of grant to enable them to re-equip and modernise. The total expenditure involved in that re-equipment and modernisation programme by the firms concerned amounted to £319.4 million. So the total sum of grants of £75 million generated a total of £319.4 million of expenditure. The investment of that amount of over £300 million certainly increased greatly productivity, efficiency and competitiveness in the industries concerned, but it was also responsible actually for reducing the number of persons employed in those industries. So when the programme had been completed we had a situation which involved the expenditure of approximately £320 million of capital with fewer jobs in those industries than before the programme had been commenced. I believe, therefore, that what we have been doing is investing heavily in efficient technology but not in employment.
I have for some time been convinced that the time has come to make a major change in our investment strategy and to concentrate more on the intensive development of our natural resources rather than on the importation of this expensive technology. Apart from anything else the development of these natural resources will certainly be more labour than capital intensive and an investment programme must contribute to a much greater extent to solving our employment problem. Our agriculture, our sea fisheries, our tourist potential, forestry, mineral deposits are still comparatively underdeveloped. I believe that if we develop them in an intelligent and rational manner they are capable of providing our rising population with a satisfactory standard of living and of absorbing our workforce in a way that putting more and more scarce capital into mere industrial productivity can never do.
Another vital necessity for economic growth is a reduction in the rate of inflation. In 1976 the rate of inflation in this country was 18 per cent and the forecast for this year is 14 per cent. The only reason that this decline from 18 per cent to 14 per cent is anticipated this year is because the Government themselves have not this year added directly to inflation by the imposition of taxes as they did last year. This negative one of not positively adding to the rate of inflation is the Government's only contribution to the problem of inflation this year. We cannot hope for real economic progress until the rate of inflation is brought down to 4 per cent or 5 per cent. There is general agreement about that. Nevertheless, in spite of the fact that most competent observers would agree that we cannot really start to achieve development and progress until the rate of inflation is 4 per cent or 5 per cent, the Government, Ministers and friendly commentators are trying to persuade us that all is well, though on their own admission the rate of inflation this year will be 13 per cent or 14 per cent.
It is interesting to note that there are two different theories about inflation and its causes. The standard interpretation, the standard formula which is steadfastly adhered to by the economic establishment in this country, is that inflation is caused mainly by income increases and can only be defeated and economic salvation achieved by imposing and maintaining a stern policy of income restraint. That is the economic dogma, the credo, which has been preached for many years by what I describe as the economic establishment in this country: that the cause of inflation is principally income increases and therefore the way to get inflation under control is by controlling incomes and keeping them down.
It is no harm to realise that there is another theory. That theory suggests that this approach by our economic establishment is all nonsense, that incomes rise only because the recipients of those incomes have to continue demanding increases to keep up with rising prices and to try to maintain their standard of living and that, in fact, income increases as such are a result and not a cause of inflation. Whichever of these two analyses is correct, there is no doubt, in my view, that in our circumstances the only certain way to defeat inflation and to restore some semblance of a stable relationship between wages and prices is by increased productivity. The real answer to our economic problem is increased productivity throughout the economy at all levels—people working more effectively to produce better goods and services and thereby people able to earn a great deal more to improve their standard of living without contributing to shoving up the level of inflation. That is how the breakthrough must sooner or later be achieved. Productivity is the key, and the increase in productivity we need can be achieved only by stimulating enterprise and initiative and restoring the incentive to earn. That is where I believe this Government have failed, more definitely and more clearly, than in any other area. The working population have become tired and disspirited and demoralised because the Coalition Government—and the Minister for Finance in particular—have killed initiative. They have made individual effort unrewarding and, indeed, unpopular.
Deputy Ryan has seen his role as Minister for Finance not as a Minister for economic development but almost exclusively as a Minister for taxation. All his energies and the energies of his Department and the Revenue Commissioners have been devoted to expanding, refining and developing the taxation system. That is the objective he has set and it is to that end that he has devoted his energy in his period of office to date. He has concentrated on extracting more and more from the existing level of national income rather than endeavouring to procure an increase in the level itself.
The way to procure that increase in the level of national income, the way to stimulate economic growth, to restore enterprise and to procure the increase in effort and productivity we need is to effect a major reduction in the tax level on personal earned income. Such a reduction would provide the greatest possible incentive to increased productivity. It would galvanise the economy and in a very short time raise it to new and unprecedented levels of activity. Income tax is calculated to bring in around £500 million in this financial year. To reduce by half the amount of income tax paid by individuals on their earned income would probably cost something in the region of £200 million. That amount, however, would very soon be made up from increased revenue right across the board arising from the entirely new level of economic activity which would be generated. It would be justifiable, therefore, to run a budget deficit to whatever extent would be necessary to meet it. That deficit need not necessarily be of significant proportions because the way the Exchequer returns are running at present it should not be an insuperable task to accommodate this amount within the existing limits. In that connection it should be recalled, for instance, that the outcome of last year's budget was £127 million better than had been projected.
Those who talk about the dole and allege that people do not want to work because it is more advantageous to draw unemployment and other benefits misinterpret the situation. Our levels of welfare benefits are not so wildly generous that they would give rise to that sort of situation except in so far as a very small minority would be concerned. The real problem is the level of tax, the excessive amounts taken from wages and salaries under PAYE. That is what has killed initiative, has removed from ordinary men and women the motivation to work more efficiently for clearly identifiable rewards. From my observation I am convinced that, at this time in our circumstances, the high level of personal taxation is the greatest single factor inhibiting economic growth and that a reduction in its level would have dramatic results throughout our economy. Our situation, in its long term prospects, is so discouraging that some major and daring initiative of this kind must be attempted. Of the 24 countries in the OECD, in so far as living standards and the general level of economic development are concerned, we are fifth from the bottom of the league. At our present rate of economic development, we will remain there.
The Minister for Industry and Commerce and some of his colleagues recently have taken to stating that we have come out of the recession in a much better state than most other countries. It is only necessary to look at the place we occupy in the OECD table of economic and social statistics to realise how meaningless, irrelevant and fraudulent are statements of that sort.
I want to suggest also that the Government's handling of the introduction of farmer taxation has been particularly inept. They have allowed, and have actually encouraged, this issue to generate a new and sharpened antagonism between our urban and rural communities, between the farmers and the trade unions. This is an unhealthy and harmful sort of controversy that must, in the best interests of the community as a whole, be defused as quickly as possible. The best way to counteract that unhealthy development—which has serious long-term implications for our community and for our prospects of economic development—is to re-state what are the facts of our economic life. In our circumstances a growing, expanding agricultural industry is essential as a basis for sound, long-term, economic development. Every urban dweller, industrial worker and salaried worker has just as real an interest in the development of our farming industry and of increasing our agricultural output as has any farmer. Anything that acts as a disincentive to increased agricultural output is detrimental to our economic development in general and to the ultimate best interests of all members of our community, whether they live in towns or in the country. It is terribly important that that basic message be as widely understood as possible, that we get away from the attempt which has been made to give one section of the community the impression that they can gain at the expense of the other.
Expansion and development of our agricultural industry are essential to sound economic development. That fact should have been a major consideration in deciding on the system of farmer taxation which was to be introduced. The depressing truth is that agricultural output is not increasing. In money terms farm income has increased during the last two years but net agricultural output has fallen; there was a fall of 10 per cent in the volume of net agricultural output in 1976 and a marginal increase of 1½ per cent only is forecast for 1977. Therefore, over this two-year period there will be a substantial increase in the volume of net agricultural output. What is happening is that because of the operation of the common agricultural policy of the EEC our farmers are being paid more for the same output. Of course this means that some farmers, in the short-term, and from the point of view of income only, are doing well but Irish agriculture, as an industry, is not expanding or developing in the way that our general economic development requires that it should. It is terribly important that that fundamental fact be understood by everybody concerned, that Irish agriculture, as an industry, is not developing or growing; in fact it is declining.
It is my view—and I think that of most observers—that Irish agriculture is still capable of enormous expansion and of supplying the raw material needs of a growing food processing industry. It is capable of providing greatly increased employment on and off the farm. One of our major economic objectives must be to secure that expansion, making us one of the leading producers in the world of quality processed foods. Doctor John J. O'Connell of the Department of Applied Agricultural Economics at UCD, however, has shown in a recent report that neither agriculture nor the food processing industry has capitalised on the improved market access our EEC entry afforded us in the way that they might have done. Therefore, because of this unsatisfactory situation, it was clearly necessary—in the interests of general economic development and not just in the interests of farmers—that the system of farmer taxation which was being introduced would ensure that farmers would still have every incentive to increase agricultural output in volume as well as in value terms.
Agriculture is a long-term industry. Farm development and production must be planned over a four or five year period at least. For that reason it is essential that the taxation provisions applicable to farming be settled for a reasonable number of years ahead. Furthermore, two or three years' advance notice should be given of any significant changes in those provisions. Those are the considerations which have determined Fianna Fáil policy on farmer taxation. We believe that in order to provide the necessary incentive for increased production and output, the notional system must be retained permanently, that all wages, contractors' costs, depreciation and interest should be allowed as a deduction, with the amount being paid in local rates being credited against the amount of tax payable by the farmer. In our view that system will enable the farming community to contribute in a fair way to the overall cost of running the country while, at the same time, ensuring that the individual farmer has every possible incentive to increase his production.
The bloodstock industry provides us with a classic illustration of an industry which has become an accidental casualty of the tax system. When the Minister introduced the wealth tax he did not intend to destroy the bloodstock industry, and I want to acknowledge that, but in the event that is exactly what he has done. It must be admitted that the Minister, in bringing in this new series of capital taxes, endeavoured to provide for the development of the bloodstock industry because it was a valuable industry. In this country at that time we were well on the way to becoming the world's leading producer of bloodstock. Now, unfortunately, the effect of the introduction of the wealth tax has been to completely sabotage that great industry and to completely reverse that improving, growing trend which was evident in the industry before the introduction of this tax. As I say, the Minister made certain provisions which, in his view were sufficient and which I think he still maintains should be sufficient to protect the bloodstock industry, but the facts are there to contradict him. Over the last two years or so something up to 20 of the finest and best old Irish bloodstock studs have gone out of business, and this is entirely due to the operation of the wealth tax.
I am not at this stage interested in saying which was the more valuable, whether it was more important to achieve the Minister's taxation objectives in introducing a wealth tax or whether it was better to have preserved an Irish bloodstock industry. That is something which would require a great deal of discussion and debate. The Minister may argue that the considerations which he had in mind, broadening his tax base and gratifying the wishes of certain sections of the community in regard to the wealth tax, were the important considerations. Whatever his ambitions were, he must now face up to the fact, though he did not intend it, that the introduction of his capital taxes has seriously set back and, perhaps, impaired irretrievably the Irish bloodstock industry.
There are two specific aspects of the current tax provisions to which I would like to refer. They are, perhaps, points which are more appropriate on Committee Stage but I would, nevertheless, like to give notice of my intention to raise them at the appropriate time later on.
I want to draw the Minister's attention to the fact that the taxation, as a benefit in kind, of the use of a company car by an employee is working out very unfairly, indeed, and causing considerable hardship in many cases where I am sure this was not intended. There are many commercial travellers who are seriously affected by this provision. I think all of us have recently come across a number of commercial travellers in our constituencies who are being subjected to severe hardship because of the operation of this provision. I recently came across in my own constituency the case of a commercial traveller with a large family, a man who in the normal course of events, is just about able to make ends meet. He has recently received additional assessments going back over a number of years in respect of the alleged benefit he is supposed to derive from the private use of the company car.
I have had other examples given to me of men whose tax free allowances have been reduced by £300, £400 and £500 because of this provision. In the case of the man in my constituency with whose circumstances I am familiar, the benefit in kind is entirely imaginary. This man must take the company car home at weekends in order to be able to get away early on Monday morning on the company's business and his use of the car for his own purposes at weekends is minimal. If at some other level of income certain individuals receive substantial benefit from the use of company cars, then I do not think that fact should be the cause of inflicting completely unjustifiable assessments on hardworking commercial travellers, and that is what is happening at the present time. I intend to return to this matter when we come to Committee Stage.
I would also like to raise at this stage the question of granting relief to taxpayers in respect of payments made under the Health Contributions Act, 1971, because I believe there is a serious anomaly existing in regard to these contributions. Section 145 of the Income Tax Act of 1967 provides for the granting of relief in respect of premiums paid under a contract of insurance to an authorised insurer carrying on the business of insurance in this State. On the other hand, the Revenue Commissioners take the view that health contribution payments are an application of income and not of disposition and, therefore, do not qualify as a deduction for purposes of assessment to income tax. That is grossly unfair. It should be altered and we should avail of this Finance Bill to alter it. The ordinary citizen is compelled by statute to make these health contribution payments whether he wants to do so or not. If he has a right to limited eligibility, then these deductions are made and he has no say over the deduction. Therefore, to my mind, they should be fully allowable as deductions for income tax purposes. As I say, I hope to return to that matter on Committee Stage, but in the meantime, I want to give the Minister and the Parliamentary Secretary notice of my intention to raise that.
The Minister's thesis in his opening remarks was generally to the effect that the reform of the tax structure he had brought about over the last three or four years had enabled him to give concessions in this year's budget and in the Finance Bill. That is simply not the case. The Minister's motivation in making whatever concessions he made in the budget and in the Finance Bill was electoral. He was seeking short term electoral advantage. The reason he was able to give these concessions, such as they were, was not that he had reformed the tax structure; it was merely a reflection of two facts: one, the rate of inflation which prevailed during 1976 had swollen receipts into the Exchequer under practically every heading and, two, his policy, which resulted in many desirable social expenditures being either postponed or savagely curtailed. It was those two things that brought about the favourable situation in the 1976 budget, which, as I say, turned out £127 million better than had been projected. That is what enabled the Minister to give the minimal concessions he has given this year, and I think it is important to realise that is what happened.
In his opening remarks the Minister described this as an "encouragement Finance Bill". I will not ask the House to comment on the inelegance of the language but we should look very seriously at the concept of this "encouragement Finance Bill". We must ask the Minister who, other than perhaps the Revenue Commissioners, are being encouraged by this legislation? The marginal concessions which were outlined in the budget had been already long since overtaken and cancelled out by rising prices and cost increases. In so far as the Minister, in the hope of gaining some electoral political advantage, gave these scattered concessions to different sections of the community, they are no longer of any relevance or significance. The general mismanagement of the economy has, as I said, ensured that they have been overtaken and cancelled out a long time ago by rising prices.
There is no solace in this Bill for the hard pressed householder, for the housewife or for the wage or salary earner. For them, unfortunately, since the budget things have got tougher and harder day by day. They will have to wait, and they know they will have to wait, for a different Minister, a different taxation policy and a different economic outlook, to secure some respite and encouragement. In their management of the economy, this Government have failed miserably. I doubt if it is possible for the Minister or the Parliamentary Secretary to identify any single section of the community who can claim now, in the overall, that they are better off than they were when Deputy R. Ryan became Minister for Finance for the first time. If there is any such significant section of the community, I would be very interested to learn of them.
Because the Minister concentrated all his attentions and energies on his hobbyhorse of perfecting some textbook taxation system and perhaps because of ordinary incompetence, the simple fact is that the Minister has failed to manage our economy in the best interests of the ordinary men and women. He has failed to protect them in their jobs, to give them any security in their employment, to provide any worthwhile level of employment capable of absorbing the increasing number of school leavers coming on the employment market and to retain any relationship between wages and salaries on the one hand and prices on the other. Admittedly, that is not an easy thing to do in a modern community and particularly in an open-ended economy like ours. Difficult though it may be in the circumstances, I do not think the Minister could have made a worse job of it than he has done—18 per cent inflation last year and 14 per cent this year, in spite of all he has attempted to do.
In the fundamental things that affect ordinary men and women in their daily lives, his management of the economy has been a dismal failure in the last three or four years. It is a poor recompense for him or for any of us if the only thing he can claim in this Finance Bill is that he has improved the system of taxation, although I do not think he has improved the system of taxation.
My principal thesis in this speech is this: the only way to break out of this deadlock of rising prices and rising incomes—whichever is chasing which is for somebody else to decide—is to increase productivity. We should get more people working better, more efficiently and effectively to produce cheaper and better goods and services. Once we get that process under way, we will get inflation under control and will have reasonable, stable relationships between prices and incomes. That is the only way to do it. Anything else is an illusion and fraudulent. The only way to get increased productivity is to give ordinary men and women the incentive and motivation to achieve it and the only way to do that is to give them more and more of their income in their own hands to spend as they wish and not as some socialist theorist in the Minister's office or somewhere else thinks it should be spent.
The Minister's major catastrophic failure is that he has not introduced in our difficult economic circumstances— fifth from the bottom of the OECD league—a taxation system which would give ordinary men and women the necessary incentives to give us the the economic growth, development and productivity we need if we are ever to become a worthwhile community in an economic and social sense.
