I dtosach báire ba mhaith liom mo buíochas a chur i íul don Teacha O'Donnell as ucht an dea-mhéin a chur sé in iúl dom ins an oifig nua atá agam agus as ucht na tairsceana a rinne sé, a chuid cabhrach féin agus cabhair comhguaillithe san Pharliamint Eorpach i gcás cursaí fuinnimh a bheith dá bplé ansin. Tá mé buíoch dó as ucht na tairsceana sin.
In considering any annual budget it is necessary, if one is to form a balanced judgment, to assess it in the context of what has happened in the past and, in particular, what has happened in the year previous to bringing in the annual budget. I propose, for that reason, to commence what I have to say by looking at some of the features of 1979 because I believe it is necessary to do so if one is to assess the budget for 1980 in any balanced way.
When we look at the position arising in 1979, and speaking in an economic sense, we find that there were a number of satisfactory features and there were also some features which gave cause for concern. I shall start with the good things and mention some of them. First, the fact that the growth in the economy was well maintained is something which was satisfactory. That growth was maintained despite external difficulties and self-inflicted wounds. There were very serious self-inflicted wounds suffered by our economy in 1979. Of course, by self-inflicted I mean internally, something for which we cannot blame anybody abroad or external conditions. I am referring in particular, to the industrial relations scene and, above all, to the postal dispute and the damage which that caused to our economy. I will be referring to certain aspects and results of that later on. In the context of growth it certainly reduced the growth which would otherwise have been available. As a consequence—I do not think we should be under any illusion about this—failure to achieve the growth which was otherwise available meant, among other things, fewer jobs for our people, less revenue for the State and, therefore, greater resort to borrowing in the short term and a consequential resort to higher taxation this year and in subsequent years. The level of growth despite all that was well maintained.
Next, I shall refer to the position of industrial exports, which continued to per form very well. In fact, they rose by almost 25 per cent in value as compared with 1978. Agricultural exports were particularly disappointing. The disappointing performance in that area contributed in no small way to the problem of the balance of payments front, which arose later and to which I shall be referring. We should not in our concern at the poor performance on the agricultural exports front lose sight of the very satisfactory performance on the industrial exports front, a performance which has been consistently good over the years and away above world performance. It is true that this is due to a very great extent to the success that has attended our efforts and the efforts of the IDA, in particular, to attract industry here from abroad which is geared to the export market. This is undoubtedly the main cause of the sparkling performance of industrial exports over the years but that is not to take from the value of the performance. One of the prime purposes of attracting these industries is precisely to get that type of performance.
Another area which could only be termed satisfactory is the area of investment. For the second year in succession investment was very substantial. I regard this particular economic indicator as a very important one and a very heartening one because the substantial level of investment means, among other things, money put into various projects which will in due course produce more jobs for our people. There would be no hope of expansion in employment without investment. In addition, the level of investment reflects a considerable confidence in the future of our economy and not the kind of confidence which all politicians tend to engage in, particularly if we are on this side of the House, but the kind of confidence that is measured by people putting their money into the economy. That is the real test of confidence. It means people invest not just short term but long term confidence in our economy. For those reasons I attach considerable importance to the rate of investment as an economic indicator.
There was another area of satisfaction and that related to interest rates, particularly mortgage interest rates. It is quite true that we started off at a high rate but during the course of 1979 there has been a constant and dramatic increase in interest rates around the world. I may be wrong in what I am about to say, because I am just speaking from recollection and I have not checked it, but in my lifetime I do not recall interest rates around the world rising at anything like the rate they have been rising during the past year. Despite that our interest rates did not increase in line with this worldwide movement and our mortgage interest rates from the building societies stayed steady. That is something that was also a very satisfactory feature of our economy's performance in 1979.
However, the outstanding feature of the performance of our economy last year was of course in the area of employment. The increase in employment and the drop in unemployment continued to be spectacular. This trend was contrary to the trend obtaining in almost every other industrialised country in the world, which proves, if it needs to be proved, that it was not an accident but the result of deliberate Government policy, of it being the priority in economic policy of the Government. Also—it is worth making the point again because so often the point is wrongly made and it is repeated so often that many people believe it—the fact is that, if one examines the performance of the economy, one finds that the major portion of the new employment created was created in the private sector and not the public sector. This was precisely in line with what we had planned and with what we put before the people in our election manifesto. We said we would have to prime the pump and that we would have to make that effort in the first instance in the public sector but that in due course that was aimed to produce a response in the private sector. The fact is that it did produce it and the majority of the jobs created were created in the private sector.
The position is that in the two-and-a-half years approximately which elapsed between the time the Government took office and the end of last year there was a net increase in the numbers at work of about 38,000, having allowed for redundancies, people coming off the land and so on. I do not think we realise just how spectacular this performance was. Between April 1973 and April 1977 the numbers at work fell by about 20,000. During the decade of the sixties, which was the previous most successful period of our economic development, there was no increase in the numbers at work but in the two-and-a-half years I am talking about, from the middle of 1977 to the end of 1979, there was a net increase of about 38,000. I hope that fact will tend to put the achievements of the Government in relation to jobs into true perspective. It has been the Government's priority in the economic field.
The Fianna Fáil election manifesto in 1977 will come to be seen as a document which marked a major change in Irish economic and political history. It represented a new and radical departure because it laid down as a central principle that unemployment would no longer be politically acceptable. The achievement of full employment became the Government's major economic aim and the steady drop in the numbers out of work since we came into office, and which I have just referred to, shows that we were not indulging in idle promises. In clearly defining full employment as our priority and in implementing policies directed to that end, Fianna Fáil since coming into office charted a course that no future Government can reverse. Fianna Fáil had made a commitment to our young people and I believe that this is a commitment which the young people will insist on from any future administration from any side of the House.
I would suggest that Deputies opposite should think well about this matter because their approach to the question of full employment over the past two-and-a-half years has been timid, to say the least. Indeed some people would say, strangely enough, that it is the Leader of the Labour Party who has been most vocal in telling us on these benches that we were too ambitious. We identified unemployment as a chronic social scourge and we resolved to tackle it on an unprecedented scale. We saw it as the most urgent of all social requirements, apart from its economic aspects. I wonder will the parties on the other side of the House try to tell the public that we were wrong to do that. I wonder will they try to tell our young people that. Let us suppose that we had listened to the timid advice we were getting from the other side of the House. Let us suppose we had watered down our policies in this regard. If we had done so the result would have been that many thousands of those who left our schools and colleges in 1978 and last year would now be on the dole. The fact is of course that were it not for the priority we gave to employment since we came into office we would now be facing a major and, I believe, dangerous crisis, not just economically but socially.
I do not believe that the present generation of young people would put up with a situation in which they would have no hope of a job or a future in their own country, and they would be right not to put up with it. The great significance of the Fianna Fáil election manifesto and the performance based on that in regard to employment is that we have established a situation under which no Government from any side of the House in future will be able to disregard the claims of our young people to a job in their own country.
I have been talking about aspects of the performance of the economy last year which gave satisfaction but, as I said, there are other aspects which were a cause of concern, and I should like to refer to some of them. First, our borrowing was too high. It is true that, if one compares our level of borrowing over a number of years with that of all our partners in the EEC for instance, one finds that the level of borrowing in this country as a percentage of GNP is away above that of our partners. Traditionally it has been so as long as I can remember. The reason is that we are starting from a much lower base and are engaged in a process of development in which our partners are not. If we are to develop we have to engage in a level of borrowing which would be unthinkable in an economy which was much more highly developed than ours is or has been in the past. Allowing for all that, our borrowing was still too high last year and exceeded the target I set out in the 1979 budget. It is necessary to have a look at why that target was exceeded. It would be totally unrealistic in any review of our economic performance not to examine why that target was exceeded because it is an important aspect of our economic performance.
The first item that occurs in the reasons why we exceeded our target is one which is unusual in the sense that, I hope is non-recurring. I refer to the loss of revenue arising out of the postal dispute. As I said, I hope this is non-recurring. This year we get in the revenue that was not collected last year and in that sense it is unusual. I am subject to correction on this because the figures have changed on a few occasions, but as accurately as I can make it out the amount of revenue we should have collected in 1979 and which did not come in because of the postal dispute amounts to £88 million, being £44 million in tax revenue and £44 million in non-tax revenue. This is an unusual item in that it did not come in last year but it should come in this year, in addition to the same sum coming in in the ordinary way.
There were other items which do not come into that category—over-spending for one reason or another which we will not recover. The first item relates to public sector pay. It will be recalled that when the 1979 budget was introduced the national understanding had not been negotiated and we were therefore in the position where we had to make some kind of estimate of what would emerge. I do not think it is revealing any secret if I say that we could not disclose publicly whatever estimate we arrived at, because if we spelled it out in advance of the negotiations one could be sure that that would not be the result of the negotiations. Neither am I revealing any secret when I say our estimate in that regard was an under-estimate.
When the national understanding was finally concluded statements were made on behalf of the Government to the effect that we regarded the level of pay settlement agreed as being at the outer limits of what was tolerable and at a limit that would not have been tolerable but for the fact that it was accompanied by other aspects of the agreement which held out hope of, among other things, a greater degree of industrial relations stability. Although I do not think it is accepted generally that it has resulted in that, I understand the statistics available in regard to man hours lost in industrial disputes since the national understanding was entered into bear out the fact that there was a considerable improvement, presumably as a result of the national understanding. In the context in which I am speaking, that is, excess borrowing over what was estimated, the fact is that the cost of the national understanding to public sector pay was considerably more than we were in a position to estimate when the 1979 budget was being prepared.
As the House will recall, there were special PAYE concessions provided for in the national understanding, the bulk of which were paid in late November last year. They, of course, were not provided for in the budget. It is true there were moneys coming in from the EMS subsidies which were not allowed for in the budget. They were kept in hand last year but the items I am mentioning far exceeded the amount of the subsidies coming in in that way.
The deficit in the operation of CIE cost about £21 million more than was estimated. There was over-spending on social welfare, partly due to the postal strike, which amounted to £35 million, and there was over-spending on health which amounted to £16 million. These items are in a different category from the first one because once you are overspent on things like this, the money is gone and can be met at the end of the year only by borrowing.
Something that arises out of the nature of the first item I mentioned, the £88 million in revenue not collected last year because of the postal dispute which should be collected this year, is the current deficit which, as it turned out in 1979, was about £520 million. If you allow for the £88 million coming in twice this year—which is in effect what happens because it comes in this year in respect of last year and this year—it is fair to say that a comparable current deficit between last year and this year would be obtained by deducting £176 million—twice the £88 million—from £520 million, giving a current deficit of about £345 million.
The current deficit budgeted for by the Minister for Finance in this year's budget is £340 million. Some people have said that the deficit is too high having regard to the factor I mentioned, that is, that the figure compared with last year would be approximately £345 million. Anybody looking at the overall situation and the circumstances obtaining this year will recognise that the effort involved in keeping the current deficit to that level is considerable and has involved substantial retrenchment in certain areas on the Estimates. A possible response to the situation which faced the Minister for Finance and the Government in preparing this budget, a response which was urged on us from various quarters, is one that would be disastrous and it has been resisted.
Another item that gave cause for concern is the performance of the economy in 1979 related to the balance of payments, specifically the adverse trade balance from which we suffered. It is not enough just to take the overall figure and ignore the underlying realities. The underlying realities show that broadly speaking there are four categories with which we have to deal. One is the producers' capital goods which have shown the highest rate of growth in imports. That is a good thing as this consists of equipment and plant going into the creation of more jobs and the more efficient production of goods for sale at home and on the export market. This is something to be encouraged, something without which we could not have any hope for the future. The next category is semi-finished goods brought in here for final processing and in most cases for export. A lot of jobs depend on those imports and it is one of the features of our economy that whatever we do we still have to have those substantial imports unless thousands of people are to lose their jobs, and they increased substantially as well. Consumer goods, which also increased substantially, increased at the lowest rate of increase. The underlying features of imports show that the highest increase was in producers' capital goods, next in semi-finished products and then in consumer goods, which is the right proportion if we must have increases in our imports. No matter how important it is that we must have imports of semi-finished goods or producers' capital goods there is of course an absolute limit on how much we can pay for those goods and that is pretty important particularly in relation to the last category, which is oil.
In 1979 we paid about £140 million more for oil imports than we had paid in the previous year. I described this on occasions as a hand coming into the Irish economy and taking away £140 million. We are all £140 million poorer as a result. We cannot make it up by taking it from each other; it has gone out of our economy. The only way we can catch up upon that is by producing more goods more efficiently and selling them abroad.
This whole question of the price of oil is looming very much over our economy and those of the rest of the industrialised world. That is what it did to us last year and it will cause more damage this year. Nobody can say with any degree of certainty what the damage will be, but we can be sure that it will cost a great deal more money and possibly the increase in the price of oil this year will be greater than it was last year. We have to accept the fact that, bad and all as the increase in oil price is, there is also no certainty of supply, which is another factor that has to be considered. This has operated very much to the detriment of our balance of payments situation and it has also affected our other EEC partners, with the exception of Britain which has its own oil, and all of them have gone into deficit as a result. It is nice to know that we have companions in distress but it does not get us over our difficulty and we have to do what we can to remedy it.
However, we should not go overboard in this regard. We can take steps in regard to energy. The whole field of energy is one of major debate around the world, and one important aspect of the debate is the element of energy conservation whereby people can save energy and money at the same time by being aware of what energy they are using and making conscious efforts to use energy efficiently. The Government are acutely aware of this and increased importance is being given to conservation in the overall energy scene. An aggressive energy policy is being developed and many important elements of such a policy already exist, such as the comprehensive programme in the industrial sector being carried out by the IIRS, the energy savings tips for motorists which have been the subject of publicity campaigns, the availability of advice on insulation in the home, a project using reject heat from an electricity generating station for horticultural purposes and the sponsorship by the Department of Energy of a schools competition for energy conservation being organised by the Junior Chamber of Ireland. Further conservation measures are being evolved and decisions will be made in the near future. Relating conservation to economic development in most western democracies, we find that a policy of energy conservation is an essential part of policies for long term economic growth. Ireland is no exception and this is one of the main reasons why conservation is being given such a high priority by the Government. I referred earlier to the effect that certain advice was coming from certain quarters which if it had been accepted would have been disastrous. I am referring to the aspects of the economy which gave cause for concern. I have mentioned most of them. Perhaps the one I have not mentioned which is of great importance is inflation. The rising rate of inflation was, of course a cause of concern. There was the combination of the current deficit being substantially in excess of target set for the reasons that I have mentioned with, and as a consequence, the borrowing requirement as a percentage of GNP being substantially in excess of the target set—although substantially less than it was some years ago—and the increased rate of inflation. If one viewed all of these together solely as the aspect of the economy with which one had to be concerned; if one ignored the aspects of the performance of the economy to which I have referred earlier which were a cause of satisfaction and concentrated on the items which were unsatisfactory, one could arrive at the situation in which one would say that we had to take drastic action to deal with this.
Having regard to our membership of the EMS, the fact that we have an independent currency and the necessity to maintain the value of our currency, when one considers all these things there is a great temptation, particularly for the orthodox, conservative, outdated approach to take over and to say that these are the things to concentrate on and to remedy, no matter what the consequences. People tend to forget that we have had experience in the past of that approach being adopted because of concern about the level of our reserves or the excess of imbalance in our trade deficit. We have had experience of these kinds of what I can only call panic actions being taken and, all right, they have had the effect in due course of bringing down the excessive deficit in our balance of payments. They have also had the effect of throwing thousands and thousands of people out of work and many more thousands on to the emigrant boat. They have shown at the end of a year or two a better figure for balance of payments and a better figure in terms of the measurements applied by the Central Bank to some aspects of the economy, but they have shown a tremendous drop in growth in the economy together with a tremendous drop in employment and increase in unemployment and emigration. This is what the record shows.
There was a grave danger that the Government might be stampeded into that approach in preparing this budget because the manner of viewing the performance of the economy in 1979 was unbalanced in the sense that I have mentioned, with the good aspects of its performance being ignored and the bad aspects of its performance being exaggerated. The realities underlying those bad aspects were ignored or overlooked. I am referring particularly to the burden of the excess in the current deficit, how that occurred, the one-off nature of it and how it is being remedied this year. With no special effort by the Government, that is being remedied. I am referring also to the nature of the balance of payments, particularly the balance of trade and the nature of the burden there. I do not want to be misunderstood in what I say.
I want to make it quite clear that I believe that the economic indicators to which I have referred as giving cause for concern were doing so and it was not open to the Government blindly to ignore these indicators. I hope I would be the last person to urge such a course. It is essential that the Government take note of these indicators, but it is even more important that in taking notice of these indicators the Government should not panic and that the measures being taken should be designed to remedy these difficulties, taking account of the surrounding circumstances, external and internal, and assuring that we do not sacrifice any of our people's jobs on the altar of financial orthodoxy.
I do not wish to be offensive to anybody, but I have noticed that those who are most vocal in their condemnation of the excessive borrowing—and it was excessive—and of the excessive balance of payments deficit—and it was excessive—and in their urging what I regard as unthinking measures to remedy this, tend to be people who are well off and in very secure jobs. They do not tend to be the kind of people who personally are going to be affected by these measures. If you are one of those people who is or would be affected personally by these measures, then you have a more than academic interest in it and you want a Government who will tackle the problems that will arise but who will tackle them not in a blind way which produces a result on a balance sheet while thousands of people are out of work. That is the old-fashioned way. That is why I was talking about the out-dated approach to this problem. "A conservative, orthodox, out-dated approach" is what I said. That is the approach that we had in the fifties and we know what it did. We do not want to repeat those mistakes.
I wish to refer, in this regard, to another piece of propaganda myth repeated so often that many people now believe it, which is that we, in our election manifesto, went out to buy votes and now find that we cannot pay for them. That is the way, in shorthand, that it is put. Of course, the reality is, if one looks at the performance of our economy last year, and even at the areas where it fell down, or fell short of the performance we should have liked—and I have been referring to some of them— and analyse the causes, it will be found that the cause of our difficulty does not relate to the Government promising so much that it could not pay for it. In fact, broadly speaking, the main causes of our problems last year were the increase in the price of oil and the damage we inflicted on ourselves by our inability to settle industrial disputes.
Neither of these causes can be attributed to promises made and the Government being unable to pay for them. That is a myth and, apart from my understandable objection to that myth from a purely political and, also, a personal point of view, it is very bad for the future of politics and economics in this country if we are to reach a stage where we are going to be told no Government ever again can put before the people an economic programme with targets and say to the people "If we work together and if we exercise discipline, we can achieve certain targets but, of course, there are things that we cannot control, and if things externally, like the price of oil, go haywire, then we cannot achieve those targets. If we go mad in the form of strikes and go-slows and what have you, then we cannot achieve those targets." Are we to be told now that no Government can ever again put that kind of programme before the people? Are we to take it that that kind of programme, which for the first time asked the people, by treating them as intelligent adults, to exercise their judgment, cannot be put forward in future because this myth is being spread around that to do so means that you are just fooling the people and that, in fact, you are making promises which you cannot keep and cannot pay for? Whatever else may be said, by way of criticism of the Fianna Fáil election manifesto, that argument should not be made because it is not true.
I want to refer briefly to the provisions in this year's budget relating to social welfare, not to go into them in detail because that has been done by quite a number of speakers, but to point out, once more, the fact—and it is a fact—that although speakers on behalf of the Coalition parties regularly tried to put forward the idea that, whatever their other faults, they always had a greater degree of concern for the weaker sections of the community than we have had, that kind of statement is unfounded, if you look at the facts. Each budget introduced by this Government since the election, including the budget we are now discussing, bears out the fact that, in real terms, the people who are dependent on social welfare are better treated and better off under this Government than they ever have been under any Coalition Government.
Furthermore, I want to refer to the income tax provisions in the budget which take so many people out of the tax net that it should be a very considerable ease to those people and, indeed, let us be honest, to the Revenue Commissioners as well. Also, for every married couple, whether the wife is earning or not, the effect of this budget must be very substantially to increase the take-home pay. Again, that has been gone into in detail and I do not want to go into any more detail, but I do want to say that, some time ago, I pointed out that I believed that income splitting was the only practical way of dealing with the problem of giving equity to the married couple under the income tax system when we were trying to deal with a situation where, in some cases, both were earning and in other cases only one was earning.
I want to repeat, for the record, that income splitting is not the ideal answer. There is no ideal answer. There are snags about income splitting, but of all the possible solutions, that is the one with the fewest snags. It was part of the Fianna Fáil policy and was held out as such and, indeed, you find it referred to in the national understanding specifically as part of the Government undertaking that it would work towards income splitting. Income splitting has been introduced fully in this budget. We have gone only part of the way up to this. I want to point out to some people who either did not understand or did not want to understand that, when the Supreme Court made its decision in the Murphy case, a lot of people then understood, for the first time, what the consequences would be if that decision were to be implemented and that if we did not have the provisions announced in this budget there would be clear and gross discrimination in such circumstances against the great majority of married couples where there is only one partner earning. I tried to point this out on a number of occasions. Perhaps some people did not like the phrase I used in pointing it out, but a lot did not understand it. I hope they understand it now and know that the Government has taken steps to ensure that no such discrimination will arise in future.
My final point refers to the increase in oil prices. There have been substantial increases in taxes on tobacco and alcohol announced in this budget and these increases on tobacco, alcohol and, also, oil all affect the consumer price index. If people in this country think they can make a wage claim which will, for instance, transfer, to them compensation for the increase in the price of oil, all they can succeed in doing is taking it out of the pockets of other members of the Irish public. They are not taking it from the Arabs or from the people who are producing the oil, similarly in regard to tobacco and alcohol. There is general agreement that the load of direct taxation is too high and there were great cries for the Government to reduce the level of direct taxation. How is any Government to do so if they cannot increase indirect taxation on luxuries without having those increases claimed for and multiplied enormously in every wage claim that is made subsequently?
I am trying to indicate that it is vitally important, in future wage claims following the expiration of the national understanding, that it be recognised that if compensation is claimed for this kind of increase, then we will simply be setting off a spiral of inflation, with prices following wages and wages following prices and that we will all end up poorer. Whereas if people are prepared to be realistic about this and recognise that this kind of increase, particularly in luxuries, should not be compensated for in wage claims then those who need assistance will get it under this budget and those who do not can choose whether or not they wish to pay the increased tax. If they do not agree to that and say it must be compensated for in their wage packet we are all in for a very rough ride.
