I should like to take up where Deputy O'Leary left off and refer to the attitude outside the House to this budget. It is not true to say that the budget is introduced by the Minister and debated by Deputies and then has no bearing on the economy or on the people. Criticism or praise of the budget will come from the public perception of its effects. The public will judge whether it is suitable for the economy in 1980 and whether it will deal with the problems facing us. One of the problems is to try to bring order and balance into our public finances. Another is how it deals with inflation as a consequence of the tax revolt last year and the feeling of many people that they are being treated unfairly under the present tax system as opposed to other sections of the community.
The number one enemy in trying to bring order into finances or taxation is inflation. I did not hear any speaker refer specifically to the problem of energy and its effects on the economies of the world. Admittedly I did not hear all the speeches or read all the contributions. Bringing order and balance into public finances is stated as one of the aims of the Government and one of the objectives of the 1980 budget. Any Martian who descended into this country after 27 February last who heard the ringing phrases of the Minister for Finance and the Taoiseach about bringing order and balance into our public finances would be forgiven for thinking that that was something that would occur only from 27 February on and for thinking that before that nobody was responsible for the disorder in our public finances. That can be directly traced to the policies pursued by Fianna Fáil since they came to office in 1977, policies of deliberate budget deficits on the current side which had to be financed by borrowing. There seems to be an impression among some Deputies and among some people outside the House that a deficit is something that goes away at the end of the year. This is not true, a deficit is like an albatross around the necks of the taxpayers where as long as the capital remains unpaid and as long as interest remains to be paid we must borrow to finance that deficit. This budget might mean that there is more realisation about the sophistication of public finances. The people are, hopefully, beginning to realise the connection between the taxes they pay, the policies pursued by Governments, the balancing of a budget in any one year and the requirement in succeeding years to pay for the shortfall in previous years. The consequences of borrowing in any year will be felt as long as the capital remains unpaid and interest has to be paid on the borrowing.
In relation to deficits in budgets, they have been with us now for about ten years. At the start of the oil crisis early in the seventies we pursued a policy of having a deficit budget in order to maintain employment because we felt that this was the way to cushion the inflationary effects of the oil crisis on the economy. That was a successful policy. The Irish Banking Review issued last month is the latest independent report published on the economy and in relation to current budget deficits it says:
The stated purpose of these deficits has been to protect living standards and employment through a period of high inflation and pressure on employment growth.
Such a policy is subject to strict limitations and it can be operated for only a limited period.
It is precisely for those reasons that we operated such a policy. Having come through that period it was obvious to the Government of which I was a member that that policy had to be wound down. We lost office in 1977. Fianna Fáil introduced budgets in 1978, 1979 and 1980 and the same copy of that review said that:
In January, 1978 a deficit budget was introduced (the current deficit in the year 1978 was £398 million) but the economy was not in the grip of a recession at that time. Indeed throughout 1976 and 1977 activity in industry, and particularly in industrial exports, had been at very high levels following the recovery which emerged in the latter part of 1975.
If there is any vindication of the policies we pursued or any criticism of the policies pursued by this Government that is not politically biased it is this report. Reasonably enough, people outside the House would say that any criticism of the present Government from this side would contain an element of bias and vice versa but this independent body produced a review which endeavours to look coldly at the economy and the policies being pursued and they came up with the finding that the Fianna Fáil budgets of 1978 and 1979 were unnecessary. They are not sure yet but the broad hint in the balance of the argument is that the 1980 budget will not be of benefit to the economy. That is because of the budgets of 1978 and 1979. The effects of one budget dictate policies and make decisions necessary in succeeding years. These decisions might be different if the difficulties brought forward from preceding years were not there. There is no doubt that the loose spending policies pursued by Fianna Fáil in 1978 and 1979 have made the present budget necessary.
I have heard the Minister say on a number of occasions that the problems facing the economy in 1979 were not obvious until the budget had been introduced that year. That is not so, the problems facing the economy and the economies of all the oil dependent world were quite obvious from the time of the general strike in Iran at the oil refineries in the middle of 1978 although they were not taken into account by the Government in framing their budget for 1979. The deficit in the 1979 budget was £521 million although the deficit budgeted for was £289 million. It was almost twice the amount budgeted for and this year the budget is £353 million. Can we hope that the figures for this year's budget will not be as much astray at the end of this year as were the figures for 1979 having regard to the budget projections of February 1979? This bringing of order and balance into our public finances is to a large extent cosmetic in this budget because the Minister is bringing from last year and deducting from the amount of money that will be necessary for him to borrow, the sums that were unpaid because of the postal strike in 1979. The Minister will also bring forward from 1981 and this is why people should be nervous about what 1981 has in store for us. To bring the budget as near balancing as possible this year, the Minister has brought forward from 1979 a sum of £80 million or £100 million and from 1981 the Minister has brought forward payment of £24 million approximately from the self-employed who have been asked to make an earlier payment, and there is a further £8 million or £9 million in duty on spirits which will be paid in December of 1980 rather than in March of 1981. Taking these three figures into account the real deficit is much higher and the real borrowing requirement for 1980 is much higher than the Minister stated in the budget. Of course only for the very hefty indirect taxation imposed, that borrowing requirement would be very much higher.
I would like to say a word about the taxation elements in the budget. The readjustment of the tax bands has been of benefit to people at a salary level which tended to remove the incentive from them to earn and to work; I refer to people earning over £10,000. Some people might hold that these were the more wealthy members of our community and that they were less deserving and less in need of relief in their taxation bill than others. But there are real reliefs being given to them and that is reasonable because, compared to many other countries where these people might be tempted to go to earn their living, these people were more heavily taxed here than was good for the economy and it certainly did not provide them with any incentive to work. But it is a pity that it would not have been possible to extend that downwards to those less well off, those earning under £8,000 or £9,000, so that a proportionately equal relief would be granted to all.
Let us take the budget as a whole. Taking the payments in indirect taxation, the increase in petrol and oil, the increase on beer and spirits, car tax and VAT as against the relief given in taxation, it would appear that the charge made that there is no benefit in the budget to anybody earning less than £8,000 or £9,000 a year is well founded. That applies particularly to single people. I am sure that after the marches of last year the Minister recognised the necessity for granting some relief to help to damp down the anger of the taxpayers. But it is also fair to say that the budget made a virtue out of the necessity that was imposed by the Supreme Court decision. The Government had no real alternative but to introduce new bands and new rates of tax as a result of that decision and we are all grateful for it.
The Government took another decision referred to by the Minister in his speech. That was to set up the Commission on Taxation. It is unclear what the purpose of this commission was. The Minister in his budget speech said that it was to assist the Government to provide an adequate tax system. That is a laudable aim and we would all subscribe to it provided that the findings of the commission would be brought forward very quickly and that they would be accepted. Of course the history of commissions on taxation here is that the findings have not come forward quickly and when they have they were of a nature that had only a marginal influence on the tax burden on the public. On 15 April Deputy Horgan asked the Minister:
Is it correct to say that the commission's terms of reference include a request from the Government for an early report on the question of taxation of banking profits...?
The Minister said that he had attended the inaugural meeting of the commission the previous day. In reply to the question the Minister said:
... at the inaugural meeting of the commission yesterday I did refer the question of profits and tax on profits of the financial institutions and others to them for urgent consideration for interim reports.
Yet, on the following day, 16 April, in the debate on interest rates when Deputy FitzGerald said that the Minister has said that he was referring the question of the banks' profits to the commission, the Minister denied it. The Minister said:
The commission are not being asked to look at bank profits but to look at the question of taxation on those profits, and that is a rather different matter.
Obviously some of us are confused as to exactly what the commission are looking at in this regard. If the commission are being asked to look at bank profits then it would appear that the Government are under the impression that bank profits are something that can be further taxed. Indeed the speech by one of the Ministers of State at the weekend would make it appear that the Government was running up a flag and signalling the banks that they were dissatisfied with their performance and intended looking into their profits. On two days running the Minister made two different statements so I am not sure what the position is. But, taking the Minister's statements with the statement of the Minister of State at the weekend it appeared to me and to many people outside to be quite obviously put together by somebody else and given to the Minister of State to deliver as an attack on the banks but that it came from either the Minister for Finance or somebody else. I cannot prove that but this is how it appeared to me and to many other people.
The Minister also said that he had no function or say over the rates of interest charged by banks, that he was informed and that the Central Bank was the pricing authority for commercial banks.
If the Minister has no say over the rates charged by banks but if he is dissatisfied with their profits and if the speech by the Minister of State last weekend attacking the banks is in the Cabinet's mind at present then the Government have a duty to do something about it. It is not good enough to send out a Minister of State to make a speech attacking the banks if there is no follow-up to it. The Minister concerned is Minister of State in the Department of Justice. He is a man who is new in his job and whose brief encompasses law reform vaguely and there are many other things he could talk about in his own Department as a Minister holding a new portfolio and a new set of instructions that would be of interest. Why was he chosen to deliver this speech which is an attack on the banks? This is a cowardly way to go about it by the Government.
If the Government are dissatisfied with the way the banks are behaving, as the Minister for Industry, Commerce and Tourism appears to be, they should come out as he did and attack them frontally. If a section of the Government feel as that Minister does, they should say so and not use a Minister of State to throw the mud they have made into balls. It is not fair to the Minister concerned nor does it help to inspire confidence by the financial institutions in the Government. No doubt the Minister will say that my interpretation of this is not correct and that the Minister of State decided to make this speech, that it was his own personal feeling and that he had nothing else to talk about in his Department and decided to attack the banks. If the Minister for Finance says that I will have to accept it because I would not know any better.
The financial institutions are entitled to know whether the Government have confidence in them or not because there are contradictory sounds coming from the Government about the banks. The public are entitled to know whether the Government have any authority over the banks and, if they have, if they intend using it. If the Minister for Finance whose job it is, and not that of the Minister for Industry, Commerce and Tourism, says that he has no intention of interfering with the pricing mechanism of the commercial banks that might be the right decision. It is obviously the advice he got from those who are advising him in this regard, the Central Bank. If there is such a thing as Cabinet responsibility and united Government, the Minister for Finance, for the sake of his pride if not for the sake of the unity of the Government, should not allow himself to be humiliated by speeches such as those made over last weekend by the Minister for Industry, Commerce and Tourism and the Minister of State, Deputy O'Doherty. If there are two Ministers attacking the banks while at the same time he is saying that he has confidence in them and that they are doing the right thing according to the advice he is getting, he should go to the Taoiseach and ask to have them removed from office or to shut up. It may appear politically clever for the Government to be speaking out of both sides of their mouths at this time. That is the kind of chicken that comes home to roost and the kind of trickery that can only damage the very sensitive set of balances that keep an economy moving forward.
I advise the Minister, and say this without any political partisanship, that if he does not establish that he is the one dealing with the financial institutions and ensure that his Cabinet colleagues and junior Ministers shut up about matters that are purely in his area of responsibility, then we will all suffer from that in the future. There must be confidence and an element of trust between the financial institutions and the Government of the day. That is essential. If the financial institutions feel that what the Minister for Finance says does not really matter because there are people sniping away at him in the background for other reasons, that will damage the economy in as much as it will be another straw in the wind of damage being done by the Government. What the Government do affects the country and if the country is damaged everyone suffers.
A savage battery of indirect taxations were imposed in the budget. They will have a serious and damaging effect on the economy because of their effect on inflation which is the number one enemy not just in this country but in others as well. If we do not bring our level of inflation down to the same rate as that of our main competitors in external markets we cannot survive as a nation. Jobs will be lost as sure as God made little apples.
The country can only expand its work force by expanding industry and can only expand industry by finding new export markets. That is a truism. If we do anything that damages—there is a lot in the budget that does—that prospect of remaining competitive on our home markets with imported goods or on our export markets with the people we have to compete against, then the prospects for the economy and employment are not good.
There have been many assessments as to the effect on the cost of living of the measures introduced in the budget. If we take the most favourable one, that produced by the Government, at 3.8 per cent which is just the effect of the increased prices as a result of the tax imposed by the budget, that still means that the year-on-year inflation rate by mid-May will be coming up towards 20 per cent. This is at a time when our trading partners in the EMS have inflation rates in some cases of only one-third of that. That does not take into account the effect the 3.8 per cent increase in the budget will have on other costs and the snowball effect it will have on the inflation figure as it works its way through the economy for the next 12 months.
As Deputy Michael O'Leary said, with the rates of CPI increases already forecast, the negotiation of a national understanding will be extremely difficult. That is probably true. People genuinely fear that whatever wage increase they get when the agreement ends they will be financially worse off than they were earlier. This fear exists because the trade unions and workers do not have faith that the Government will keep inflation within reasonable bounds. This tends to make the negotiators look for increases to cover what they think will be the rate of inflation for the next 12 months. This affects our costs. If our costs are wrong we cannot sell our goods; if we cannot sell our goods, not alone will it not be possible to expand employment, but we will not be able to retain our present rate of employment.
Thankfully many of our larger new industries can survive and hold their own, if not expand, within the present inflation figures, with the present high bank rates and the higher energy cost that will result from this budget, because they are modern, well-equipped, adequately financed, and in many instances, are selling in markets where there is little or no competition, or they are selling products of which there is not an over-supply. But many of our older, traditional industries are in very serious trouble. I cannot emphasise that fact often enough. I know it is a fact from talking to people working in some of the older, labour-intensive industries. They should be given some hope for the future. I do not want to prophesy a bleak 1980 for some people in jobs, but I would not be doing my duty if I did not keep emphasising this fact to the Minister. I know the Minister for Industry, Commerce and Tourism is getting this advice from the directors of Fóir Teoranta. Last year the Minister allocated £6 million to Fóir Teoranta and £3.1 million was spent; on that basis, this year he allocated £3 million to them. I have no doubt he will be back here later in the year with a Supplementary Estimate for an increased allocation to Fóir Teoranta.
Inflation has affected small traditional businesses by making it necessary for them to invest extra money in stock. They get this money by borrowing from the banks. This means they must provide extra money to repay interest charges. The interest rate for their total borrowing increases because interest rates will match inflation rates and vice versa. These companies are now facing a national understanding that will also reflect the rate of inflation. That may be regrettable, but the Government should not say that the indirect taxes in the budget should be discounted as far as negotiations for a new national understanding are concerned.
Many small vulnerable industries are faced with a free-for-all. They can be very quickly put out of business because many of them are not efficient exporters. They do not have a tradition of exporting in spite of the help given them by CTT. They have no confidence in selling on the export market. On the home market, they are consistently facing increased competition from goods imported from countries where the cost difference, if it exists at all, is being whittled away by internal costs.
The Government should have seen the knock-on effect of these indirect taxes when they were being introduced. It could be said that the indirect taxes on beer, spirits, wines and cigarettes had not kept pace with inflation over the years and it may be possible to make a case for taxing them, but not to the extent that beer, spirits and particularly mineral waters were taxed. It is extraordinary that a pint of lemonade costs more than a pint of beer. Three bottles of coca cola cost almost £1. I do not know what madness got into the Minister to make him decide to savagely increase the price of minerals which are consumed mostly by our youth in whom the Minister and the Government profess to have such interest. Ironically, this will get into the Guinness Book of Records as the greatest imposition of taxation anywhere in the world.
Before imposing taxes the Minister should ensure that they will not damage employment in the industries concerned. I am not sure that that is the case here. I understand from a limited survey of public houses carried out in the last month that trade is down. While they are taking in roughly the same amount of money as they did 12 months ago, the quantity they are selling is significantly less. Hopefully, that situation will recover during the summer with the coming of our tourists, but unless the producers of beer and spirits can expand their export markets that will affect employment in those industries.
The most damaging of all the indirect taxes was that on diesel, petrol and LPG. The most talked of was the increase to £1.50 for a gallon of petrol. The Minister may try to sell it as an energy conservation measure, and I agree that if that is why he imposed this massive duty increase on petrol he has succeeded, because it is physically obvious that there are fewer cars on the road. I do not have this information from garage owners but visually it would seem there are fewer people driving.
A further major charge on industry has been the huge increase in the duty on what are called "other oils". Public transport is exempt but the ESB are not, and the extra duty this year would cost the ESB £11 million. Already £4.6 million was being collected in tax from ESB oil usage. This new taxation on the ESB can be recovered from one source only, because under the Act setting up the ESB they are bound to balance their books every year. When the ESB go to the NPC later in the year for another increase to balance their books, it will add to the vicious inflationary spiral because every industry in the country will be affected and they, in turn, will put up their prices and this will whittle away their competitiveness in home and foreign markets. I would add that the amount currently being collected from the ESB in oil duties is approximately 20 per cent of their total fuel bill.
When we talk about an energy policy here we should not be asking whether we can get the amount of fuel we want but the amount that is needed. It is unlikely that there will be more oil available ever again than there was in 1978. Other oil producing countries will be unlikely to be able or willing to make up the loss of Iranian oil. The Saudi Arabians have increased their production from 8½ million barrels to 9½ million barrels but we do not know how long they will maintain that production because they know that the longer they leave the oil in the ground the more valuable it will become. It is unlikely that other oil producing countries will be inclined to increase the amount they extract, for the same reasons.
We are such small oil users in world terms that we will always find it possible to get not all we want but sufficient to meet our needs, which should be the main consideration in any energy policy here. Our concern should be to offset as far as possible the effects of the increased price of oil on our economy. We are a trading nation, we buy and sell, and we can only sell in home and foreign markets if we are competitive vis-á-vis the price of goods produced by our competitors. If we are not competitive we will lose, and vice versa. In any energy conservation policy it is the Government's duty to maintain our competitiveness by minimising the effects on our industry of the cost of imported oil. In that way we will be more likely to be able to sell our goods abroad.
In the last few years the Americans have managed to lower their energy dependence in each unit of production by 20 per cent against a world figure of 7 per cent. In other words, they have been nearly three times as effective in their energy policy. Therefore, if we have not a proper energy policy, if we have to put extra duties on oil and consequent extra taxes on electricity generating, obviously our goods will not be competitive in the markets in which we and the Americans compete against each other. We have far too high a dependence on oil for the generation of electricity.
The price of oil is very important to us and there is no prospect of a drop in oil prices in the foreseeable future. Of the 30 major oil fields, none has been discovered within the past ten years and these fields supply over 50 per cent of total world needs. There are 30,000 other fields, including most of those in the North Sea plus the show we have in the Atlantic. Many of these latter oil fields have come on stream because they have become economic since the oil crisis of 1973. That will be the pattern in the future. As the price of oil goes up more and more of the smaller fields will become economically viable.
We can, of course, expand our coal burning stations, but from the point of view of the balance of payments that is not a solution because the coal must be imported. It will probably be two years before a decision can be made whether it would be economic to bring oil ashore from the Porcupine Bank and process it here. The alternative energy sources will all play their part in lowering our dependence on oil, but we are faced with the prospect of nuclear energy before the end of the century unless a renewable source of energy can be discovered. As the Tánaiste has said, that seems to be pushed forward a little because of the downturn in the demand for oil due to recession. Conservation has also helped, but no Government or political party who are serious about the future should say that never in any circumstances will we have nuclear energy here. It may be a reality which we will have to face.
This budget will be judged more importantly outside this House than inside it. It will certainly damage our export prospects because it will make it more difficult to remain competitive. The tax reliefs to those earning between £7,000 and £9,000 will be more than eaten away by the indirect taxation imposed in the budget. That indirect taxation, particularly in its effect on energy costs, will damage our competitive position in external markets. It will be very difficult to extend the national understanding or negotiate a wage agreement which will not in itself be inflationary as a result of this budget, which will be a major contributor during 1980 to the inflation spiral.
