I would like to make a few remarks on the contents of the budget, the purpose of the budget, how it should be seen in the light of circumstances this year, and to deal with some of the Opposition's criticisms or, in some areas, lack of criticism.
The first point to emphasise is that a budget is one component of Government policy and has to be seen in conjunction with other actions and other programmes of government. I make that point at the outset because listening to the more exaggerated Opposition comments one would get the impression that they had some mysterious formula by which a single budget could be used to cure all the ills, real or imaginary, of a population in one single stroke. That is nonsense.
A budget at the best of times makes some adjustments in the pattern of economic activity and can take some positive steps to bring the economy along a desired path. That is the approach which has been put forward over the years by Fianna Fáil and it has been the pattern continued by the present Government. Since the 1977 election our three budgets can be seen as part of the same coherent overall policy for tackling the various needs and problems confronting the country.
I want to begin with one example of that, namely, the changes in the area of PAYE taxation. We heard from a number of Opposition speakers implying that these PAYE changes were made reluctantly, grudgingly or that they were forced on the Government by a court decision. That is simply not so. It is true that the court's decision would have required part of these changes to have been made at some early date, but it was equally clear that the changes made last week go far beyond what was necessary to implement the court's decision and, much more importantly, it can be demonstrated even more clearly that the changes made last week are consistent with the policy adopted by Fianna Fáil at the time of the 1977 election and before it.
The frustration, the sense of grievance, the consciousness of an excessively heavy load of taxation on the PAYE category built up during the Coalition years. Let us nail that first. It will be recalled that in the years 1975 and 1976 the income tax rates were increased substantially and no adequate provision was made to adjust those tax free allowances and the tax bands in an adequate way to take account of inflation. As a result, by 1976 Ireland had the doubtful distinction of being the country that imposed the heaviest burden of income taxation on the ordinary wage earner. The fraction of the ordinary wage earner's pay packet taken from him in income tax reached its peak in 1976 and placed Ireland in the unenviable position of being the country which inflicted the heaviest burden of any country in western Europe at that time. That is where the problem began. That is where it built up. That is where it festered.
The first movement away from this crushing burden on the PAYE taxpayer came with a publication not in 1977 of our manifesto but in an earlier document published by Fianna Fáil in September 1976 when in opposition titled "The Real Emergency". It was designed to draw attention to the real difficulties confronting the country at that time. The reason for having to do this was that an attempt was being made to whip up false hysteria on security issues which were quickly demonstrated to be irrelevant and largely non-existent. We were concentrating on the real problems—unemployment, inflation and taxation. That was the stage at which we first enunciated the need to introduce substantial cuts in income taxation and more importantly to say that the main component of those PAYE tax cuts should be aimed at married couples because they had suffered most and had the greatest need of an easement.
Members will recall that in the wake of that first publication of our policy in regard to income taxation, there was a very remarkable shift of approach on the part of the then Coalition, almost as dramatic as Saul falling off his horse. The then Minister for Finance, Deputy Richie Ryan, initially reacted to our approach by denouncing it and saying it was totally impossible to implement, it could not be afforded, it was irresponsible and so on. The Coalition quickly tore up their own draft of an alleged programme for economic and social development, although they managed eventually to turn out a pale imitation of one—"Economic and Social Development, 1976-1980". It was a masterly production of 38 pages which had to be so butchered as a consequence of our proposals that it became a laughing stock. In their haste to alter its contents to take account of our policies, we had the unprecedented spectacle of a document being published on a Sunday evening and a press conference being hastily summoned for that evening. The haste had been so apparent that the contents page—it was corrected in the copies distributed to the public at large—was for the original document and did not coincide with the text. Why? Because there had to be a hasty movement away from the then policy, which was that we would have to face up to cuts in public expenditure and that there would not be any prospect of a reduction of the taxation burden.
Very quickly in the wake of the Fianna Fáil approach we had an ability to introduce some limited tax cuts, and in the last Coalition Government budget of January 1977 there was a belated limited effort to give some easement of the taxation burden. There was some improvement in the tax rates and some lowering in the top rate of income tax. However, that by no means dealt with the problem because the reliefs were very limited, halting, grudging steps in the direction of tax reform in the PAYE system. They were changes which were forced on them by the approach Fianna Fáil had adopted.
We followed up our September 1976 commitment by boldly announcing at the time of the 1977 election that if elected we would take the first steps towards equity in the treatment of married couples by doubling the tax free allowances for them so that they would be equal to twice those of single taxpayers. That commitment was honoured in our first budget of 1978. There were further improvements in 1979 and in the course of that year, as the discussions on the national understanding proceeded and in the aftermath of the march by the PAYE taxpayers, there was much examination of this issue. A working party were set up as part of the groups preparing the national understanding specifically to examine the taxation question, and various points were clarified. In the text of the national understanding is a paragraph which states:
The Government, for their part, considered that the 1978 and 1979 Budgets recognised the need to keep the absolute burden of taxation as low as possible and are also concerned that taxation is equitably distributed.
The document gave details of the changes made up to that time and then stated:
The Government will continue this approach with the intention of achieving an income tax system based on full income splitting.
So all the Opposition talk to the effect that this move towards equitable treatment of married couples had been forced on the Government by court decision is not true and can be demonstrated not to be true. Equally, any suggestion that the budget in this area indicates a marked shift in policy in the taxation field is not true. On the contrary, we can see quite clearly a positive clear direction of policy since the autumn of 1976, a policy which was given its first expression in our first budget of 1978 and which has been continued since.
That is one feature of this budget which I welcome and which has been the subject of widespread welcome throughout the community because there has been this degree of progress in the production of a tax system that is not only equitable but is being seen to be fair to all taxpayers.
The second feature of the budget is the improvement in social welfare allowances. Various attempts have been made to suggest that in some way or other Fianna Fáil have been grudging or limited or reluctant in giving social welfare improvements, that in some sense they have been attempting to favour the wealthy at the expense of the less privileged. That is not so, nor is there any substance in the suggestion that there has been a shift of policy. The fact is that there has been a substantial real improvment in social welfare benefits this year as there had been in the two previous budgets. That approach of providing the maximum possible real improvements in social welfare benefits has been and continues to be a consistent feature of Fianna Fáil Governments, in marked contrast to the miserable improvements made during the Coalition years.
Despite all the flowery language and pious expressions of concern for the lot of the under privileged, when in Government the present Opposition did precious little about it, and the record is there to indict them. It can be demonstrated beyond all doubt that their recognition of the lot of the weaker sections was grudging. When you look at what happened during their four-and-a-half years in office you can see that the aggregate improvement in social welfare benefits during the period was 10 per cent or less, working out at about 8 per cent—2 per cent a year. That was the measure of the Coalition's concern for an improvement in the position of the lower paid.
How does that contrast with Fianna Fáil, alleged to be the hard-faced party concerned only with the position of the wealthy? The two budgets of 1978 and 1979 produced an improvement of 15 per cent in the two-year period—in other words, 7½ per cent a year—and because we do not yet have the rate of inflation in the course of 1980 and therefore cannot say exactly what will be the real improvement in social welfare benefits this year as a result of last week's budget increases, there cannot be any doubt that the real benefit this year will be of the same order of magnitude, and I will be very surprised at the end of this year if we do not record at least another 7½ per cent improvement in the real position of social welfare recipients.
For three years running we can see a record of substantial improvements in the position of social welfare recipients, a three year aggregate that will go down as one of the best records in the history of this State. The reason I have to say "one of the best" instead of the best is because if we go back to earlier decades we would be begining from a situation where there were not any social welfare benefits and it was a Fianna Fáil Government which introduced them. Therefore, in percentage terms there would be a picture of more dramatic progress.
Having spoken about the PAYE and social welfare aspects of the budget we come to the logical point that these improvements must be financed, and naturally one other element of the budget that requires attention and that ought to provide a better base for Opposition attack is the imposition of the tax increases needed to finance the improvements. The tax increases were concentrated in three main areas: cigarettes, alcohol and hydro-carbon fuels. Although, of course, these tax changes had the undesirable effect of adding to the overall measured rate of price increases this year, nevertheless in the circumstances they can be demonstrated to contribute to other desirable objectives and to help the overall economy through the difficult international climate of the early months of the eighties.
The way in which I would argue that they do this is twofold. First, I want to make the point, which appears to have escaped speakers from the Opposition benches—although I suppose if they had noticed it it would not have been to their advantage to have drawn the attention of the House to it—that if they are concerned about the distribution of the overall tax burden, if they want to see PAYE taxpayers paying less and therefore other groups paying more, may I point out to them that this shift in tax burdens helps to produce precisely that result? I can illustrate that fairly easily. The House will recall that many of the placards carried by PAYE taxpayers during the various marches had slogans to the effect that they had only 70 per cent of the income but that they were paying 88 per cent of income tax; so, 70 per cent, then, for that group. That means that if one imposes £100 million extra taxation on oils, petrol, tobacco, alcohol or whatever, approximately £70 million of that £100 million will be paid by those PAYE taxpayers. We have no great reason to believe that their pattern of use of each of these items is markedly different from that of other sections of the community. Therefore, the PAYE group will pay £70 million out of any £100 million extra in indirect taxation. That means £30 million will be paid by the farmers and the self-employed. If you use that £100 million of extra taxation to reduce the PAYE tax burden by £100 million then naturally they are to that extent better off. The net position is that they gain £30 million at the expense of the self-employed and farming taxpayers because everybody will have made his tax contribution when he spends part of his income on each of those items.
Therefore the shift from direct taxation and PAYE taxpayers to the greater use of indirect taxes is appropriate in the present conditions of our economy and can make its own useful contribution to bringing about a better distribution of the overall tax burden as well as, of course, in the case of cigarettes and alcohol, perhaps helping to curb somewhat any tendencies towards excessive consumption of these products. Certainly, in the case of oil—given that we have moved into a much more difficult period in history with regard to its availability and price—there must be national concern to ensure that we make the greatest possible economies in the use of oil products. As we know, this is a requirement not merely in Ireland but in the whole of the civilised world. Therefore in my view there can be no objection, looked at in national terms, to a programme which emphasises the need for maximum economy for forcing us, through one of the most effective means known—namely, higher prices—to think twice and carefully when we set about using any form of oil product. Any adverse effects higher oil prices may have, whether on the weaker sections of the community or on industry, can be dealt with through appropriate adjustments in the spending programme of the Government. As we have seen, these adverse effects have been dealt with in the case of social welfare beneficiaries by the provision of generous increases in the various benefits. On this question of the overall tax burden I see no justification for any attempted Opposition criticism.
The next point with which I should like to deal rather briefly—but since it has been the cause of some comment from the Opposition benches, with some attempts made to imply a shift in policy, it is no harm to clarify it and state the position carefully—is the approach to reducing the Government's borrowing requirement. The implication is that there must be some form of split in the Fianna Fáil Party or that there must be some clash on the right policy to be pursued and that this is demonstrated in the way in which there is now a reduction or cutback in the overall level of borrowing, that in some sense there is to be a movement away from or a change in policy from the two previous years. Naturally, when Opposition speakers make this point they regard it as a statement of changed policy in the last year. Again the record shows quite clearly that there has been no such change or shift of policy. In my view there has been no shift in policy because the commitment to reducing the public sector borrowing requirement was made three years ago, prior to the 1977 election.
The position can be summarised at that point by showing that there were three major economic problems confronting the country—unemployment, inflation and the state of the Government's finances. Not even Fianna Fáil could solve all three simultaneously. The sequence for action would be to tackle unemployment, inflation and then, as sufficient momentum was built up by way of faster economic progress, by way of growing employment, by way of heavier volumes of investment, this faster growth and increased employment would provide conditions in which we could set about bringing down the Government's borrowing requirement. Indeed, as we know, the budget of last year was framed to achieve that kind of movement. The fact that the outturn in 1979 did not achieve the desired result is not to suggest that the policy has been changed or that it failed but rather that it reflected short-term influences at work last year which we know about and which were repeated again in the course of the debate yesterday by the Taoiseach, when he pointed out the way in which the impact of disrupted oil supplies and higher oil prices, as well as the impact of domestic events knocked budgetary arrangements off course last year. What is being done this year then is an endeavour to re-establish the momentum towards bringing down the borrowing requirement to a manageable and realistic level. If there is to be any dispute in this area, as I see it, it can only be a dispute as to the precise scale of and speed at which any such reduction in borrowing level should be made. Here, in so far as one can discern any coherent policy from the Opposition benches, I have to say that they appeared to be speaking with false tongues. On the one hand, some speakers have been saying that there has not been sufficient done to reduce the level of Government borrowing in order to protect our currency, to ensure that we can preserve the value of the Irish punt in the EMS. Indeed, we had one Opposition speaker going so far as to allege that the budget arrangements would create the risk, or the threat that the Irish punt would have to be devalued. At the same time we had other speakers—indeed, the same speaker—going on to complain and lament the fact that there had not been more spending on various desirable proposals or greater tax concessions given to PAYE taxpayers.
It is not possible, on the one hand, to say that we want Government borrowing reduced and, on the other, to say that we want the Government to spend more on tax cuts. That is the classic case of the Opposition trying to run several horses and ride off in different directions. That explains why they could never arrive at any coherent policy. Trying to say that borrowing should have been reduced while at the same time advocating more spending or more tax cuts is trying to have one's cake and eat it. If one looks at the figure which is struck in the budget, 10.4 per cent of GNP, it can be seen to strike a reasonable balance. We must bring down the level of Government borrowing. That was a view expressed four years ago by Fianna Fáil and was part of their overall approach to policy. It is a view that has been repeated in the present budget.
There is no point in setting about restoring order to Government finances in a way that would make the cure worse than the illness. If one is to go for a drastic type of deflation which would cut out Government borrowing in one single budget, almost inevitably the consequence would be massive deflation of the economy, large scale reductions in employment and almost certainly all kinds of disruptive influences at work in industrial relations. The situation one would face if one were to attempt a savage reduction in public sector borrowing would be to worsen the state of the economy and weaken its ability to expand in future years. There is no way one can achieve a savage cut in Government spending without damaging the level of investment. It is that level of investment which must be seen as one of the underlying sources of growth and therefore the underlying element that would cure our economic ills.
Opposition speakers are trying to have their cake and eat it, trying to argue that in some sense the policies of the previous two years were mistaken—that is when they usually stand up and wave copies of the manifesto—and are now implying that the country has to pay for the mistakes and that the Government have embarked on a different policy. When they attempt that approach they are demonstrating clearly that they never bothered to absorb or understand Fianna Fáil policy in the first instance or, if they did, it suits their convenience to forget it. I will spell out what the approach has been to tackling the restoration of order to the public finances while, at the same time, ensuring that we can provide adequate employment opportunities and improvements in the overall standard of living.
One can view the process as having three elements. The analogy which I have used before and will use again is that of the three stage rocket that will put one into orbit. One needs a short-term policy to get one off the ground, to make a quick immediate impact. Secondly, one needs a meduim-term programme that will run over a few years, that will produce enough momentum and enough by way of visible output to carry one through into the third stage where, hopefully, it has now built up sufficient momentum so that one can switch off any boost the Government were giving in the first two stages of getting off the ground and flighting one onto one's final orbit path.
What were the three stages so far as the Fianna Fáil approach was concerned? The long-term stage was to build up a sufficient level of private investment so that it would, over the indefinite future, be sufficient to provide the jobs needed for a growing population. Moving back from that, the medium-term programme had to be one which would create the right environment in which this private investment could take place. The creation of that environment can be thought of as having two main components. On the one hand, one must have the right taxation and financial incentives and on the other one must have the right physical environment. One must make good the deficiencies in telecommunications, transport systems and so on. As the initial programme to get one off the ground in the first instance one must make a dramatic, decisive impact and be seen to make it quickly on the high levels of unemployment and inflation. Those three stages were spelled out when we were in opposition from autumn 1976 onwards and was implemented by Fianna Fáil in Government over the last three years.
The short-term programme, that of the quick dramatic impact on the problems, was the one illustrated by the crash programme to create 20,000 jobs and also by the initial programme of tax cuts. The reason for needing that short-term programme was that the climate of confidence in investment had been so shattered, so weakened and undermined during the years of Coalition that we felt there was little prospect of building adequate growth in investment in a sufficiently short period of time. It is hard to put precise numbers on these kind of things but nobody in the early months of 1977 could have believed that the volume of private investment would rise in 1978 to almost 20 per cent. It had fallen during the years of Coalition and people were talking in terms of, at best, increases of 6 to 8 per cent. Such increases would have been grossly inadequate to make any worthwhile impact on the employment needs of the economy. We would have been struggling on with massive levels of unemployment and, with a growing population, they would have added to the dole queues or they would have been driven back to the traditional remedy of the emigrant ship.
If you wanted to turn that situation around, you had to make a very quick, dramatic impact and that was the justification for the short-term programme of tax cuts and job creation, which, of course, meant a temporary increase in Government borrowing. Once that initial injection had been made you are then moving on to the medium-term programme where, having demonstrated that progress was possible and having spelled out enough of your policies to illustrate clearly the direction in which the economy was to move, you could then set about making good the medium-term requirements and, hence, the preparation of a five-year programme to modernise the telephone system, a ten-year programme to modernise roads and other measures to deal with the needs of a growing industrial sector as well as action on the fiscal front by way of guaranteeing the type of taxation arrangements which would operate for manufacturing industry in the years ahead. Here I illustrate one example, the arrangements to introduce a 10 per cent rate of tax on profits from manufacturing industry, to operate up to the year 2000.
A second very important illustration is the introduction of the enterprise development programme operated by the IDA, which was specifically designed to encourage Irish people with ideas, enthusiasm and some belief in their own ability to make a contribution to their own country and to come forward and launch their own small industries, with the maximum amount of financial and other support services. That programme, as the House knows, has been working satisfactorily, the combination of those elements creating the right kind of medium-term amendment. As these would build up, with greater native growth of industry through the success of the enterprise development programme, as the climate of a better, more modern infrastructure and stable tax arrangements was more widely perceived and recognised throughout the international community, so one would expect an increased flow of external investment to Ireland. As we know, this has been happening. The influx of new industry into Ireland has more than doubled over the last three years so that, in combination, the increased inflow of external investment, coupled with a growing tide of investment encouraged among our own people, would build up to the point where one could enter into the long-term path, where the private sector would develop sufficient investment momentum to meet the employment needs of our population without any requirement for regular boost or support from the public sector. That was the pattern quite clearly perceived, that was the one introduced and that is the one being continued. When people start criticising the movement towards reducing the borrowing requirements and the reduced emphasis on employment creation programme, it is important to point out that unemployment is not the major problem today that it was three years ago. Indeed, in many parts of the country employers will say that the difficulty is not one of lack of jobs, but the opposite—a lack of workers available to fill the existing jobs. In those circumstances it would be pointless to pursue a programme of artificially boosting the number of job opportunities when those already available are not being fully taken up.
The policy being consistent and, more important, being successful, I was reminding myself, listening to some of the Opposition speakers, of what they were saying at the time. I suggest especially, if I may, to the people in the media—because I do not expect the people on the Opposition benches to take these points to heart—not to be too caught up by what people say today, yesterday or tomorrow. If you want a better appreciation of the apparent views held by people you should go back and see what they were saying at the time. When I hear people like Deputy FitzGerald coming into the House and talking about the marvellous recovery that was under way in 1977 and how it was totally unnecessary for Fianna Fáil to come in with a programme that artificially boosted the economy at the time when it did not need this boost, I scratch my head and say "Where was I in 1977 that I was not aware of this marvellous recovery that was under way"? Was it only myself? Where was everybody else that year? I do not recall anybody talking about massive recoveries in the economy, being on a growth pattern or anything else. Quite the contrary, I can recall people expressing real concern. One matter was engaging me at the time and I was able to find quite easily some papers by Brendan Halligan, Secretary of the Labour Party and one of their more articulate spokesmen on those issues at that time. What was he saying at the end of 1976, when he was talking about the need for radical new policies—to tackle what? The unemployment problem. Why? Because he opened one of his papers by saying "In 1926 there were one-and-a-quarter million people at work in this country. Fifty years later that number has fallen by almost 200,000. Such failure is without parallel in the industrialised world".
He goes on to say that even in the apparently successful decade of the sixties the picture had not really altered. Why? Because in 1960 the total number of workers was 1,055,000; in 1970, the number was 2,000 fewer, so during that decade total employment actually fell despite the heavy successes in raising living standards. He goes on: "The truth is that our past economic performance when it came to providing jobs has always been abysmal". He talks about it holding out a positively frightening future. Why? Because he draws attention to the studies made by the ESRI about the growing population and the dramatic needs there will be for additional jobs. I enjoyed one of the paragraphs in this paper, because the author was talking about what might or might not be done. He felt that it would all have to be done through additional State investment, but went on to say:
The provision of an answer is the most important central issue facing policy makers today. The answer must be an immediate one. It must be capable of instant implementation and for that reason must take into account existing political and economic realities. There is absolutely no point in putting forward doctrinally pure solutions in circumstances where the majority will reject them.
I could not have written that paragraph better myself. Because, of course, that was exactly what we did in 1977.
