: I move:
That Dáil Éireann re-affirms confidence in the economic policies of the Government and expresses approval of the measures being taken by them to mitigate the effects of the present world recession, to expand employment, to assist the agricultural industry and to promote general economic development.
I believe it would be helpful to the House and to the general public if, at the outset of our debate. I were to outline the present state of the world economy, the deep recession into which it has declined and the effect of this recession on our own economy.
For us it is the state of the economics of the 24 countries which are members of the OECD that is of primary importance. These countries represent the developed industrial world of which we are a part and it is the situation in them that affects our prospects and our progress. The simple fact is that economic growth throughout this area has collapsed. Output is actually declining and in the second half of 1980 it will fall by 1.75 per cent in the OECD area as a whole and by 2.1 per cent in the European Community. It is expected that this decline in output will continue into next year and that growth will not be resumed until the second quarter of 1981.
This recession is most clearly seen in its impact on employment. There are now over seven million people unemployed in the European Community which is the highest number since the Community came into being. At the height of the previous recession the number of unemployed in the Community did not exceed five million people. In the OECD area as a whole there are 20 million unemployed compared with the highest total reached in the last recession of 15 million.
These figures indicate the extent of the disastrous decline in economic activity and employment in a world of which we are an integral part.
They show the sort of depressed world conditions in which we had to operate this year and the reality with which we had to contend in conducting our business and managing our economy. It is unrealistic for Deputies to talk about our economic situation or the Government's handling of it as if we were an economic island unaffected by developments in the outside world. We are, for instance, one of the countries in the European Community which depends most heavily on imported oil and we have therefore suffered more than most from the oil price increase. The effect of the increase on the price of oil alone will be to transfer out of our economy this year over £250 million which would otherwise have been available to be spent inside the country for our own benefit on a variety of economic and social projects.
Many of our industrial firms depend for their success on their export trade. These firms have had to try to sell into markets which were in a very depressed state. This resulted in a general falling-off in sales and output leading to widespread closures and redundancies.
Agricultural output and farm incomes have been seriously affected by adverse weather conditions and rising costs.
Our tourist industry has been badly hit by the general effects of the recession and by other factors.
These are some of the elements which have affected our economic performance this year.
I mention them and the difficulties they have caused us not in any defensive spirit but in an endeavour to set this debate in a realistic context and to secure the widest possible level of understanding of our situation and an accurate appreciation of how we have been faring. I want the judgment of the House and country on our economic management to be on the basis of how we coped with the actual situation confronting us and a full understanding of the difficult and adverse factors with which we had to contend.
At the time of the budget, it was clear that this was going to be a difficult year. I said in that debate that the combination of factors confronting the Minister for Finance this year was perhaps the most difficult that any Minister has had to face in this country in modern times. But I also made clear that it was not our intention to make the changes outlined in the Budget and then leave the economy to its own devices. I gave an undertaking that, as the year unfolded, developments would be watched and assessed. I made it clear that the Government saw the management of the economy as a continuing day-to-day responsibility and that any corrective or supplementary measures which might become necessary would be undertaken.
This debate, therefore, provides a welcome opportunity for the Government to give a progress report on how that stated policy of managing the economy on a continuing basis in the interests of economic progress is being implemented.
The Budget was designed to achieve a better balance in the public finances while at the same time maintaining economic activity and employment at the highest levels possible consistent with that objective. Though it was pressed upon us from many quarters we rejected a policy of deflation as being inappropriate in our circumstances.
This Government is committed to economic development and the highest possible level of employment, whatever the difficulties. We believe that our economy, with its need to absorb a steadily increasing labour force, must continue to grow if our society and its institutions are to respond to the legitimate economic and social aspirations of this and future generations.
Our young, educated population must be assured that the goal of economic and social progress will be consistently pursued. This Government, by its policies and actions and its capacity to manage the economy, is in a position to give that assurance. Our economic problems are complex and deep-seated. Failure to solve them would have serious implications for the future of our society and its institutions. They will not be solved by deflationary policies. Such policies would only intensify our economic problems and open up divisions in a society which, because of its small size and limited resources, should be united in pursuing the overall objective of the prosperity of all. The right approach is to manage the economy skillfully and sensitively to ensure continued progress and growth, even when world economic trends are adverse. This is what the Government is committed to achieving. Our objective is to come through this recession with least damage to our economy and our capacity to avail of the upsurge in Community and world economic activity when it occurs next year.
Let me turn now to assessing the performance of the economy in its different sectors and the outcome of our policy and actions. Any examination of the Irish economy must pay particular attention to the trade statistics, the balance of payments and the level of the external reserves. We have an open economy with foreign trade comprising a major part of overall economic activity. Our balance of trade, balance of payments and external reserves are therefore of special importance. Recent trends in this area are encouraging. At the start of the year it was estimated that the balance of payments deficit might be in the region of £750/£800 million. However because of a considerable improvement in our balance of trade, an improvement which the trade figures for September confirm is continuing, the balance of payments deficit for the year will fall to not more than £600 million and in fact some commentators now place it at £575 million. This improvement is largely due to the fact that while imports have increased substantially there has been an even greater increase in exports which have increased by more than 20 per cent. At the same time our external reserves have been greatly strengthened. It is significant that this improvement in our balance of payments and our external reserves has been achieved in face of a major increase in the price of oil which, as I have said, costs us an extra £250 million. This is an encouraging trend. It demonstrates the underlying strength of our economy by its ability to accommodate a substantial addition to the import bill in this way.
The rate of inflation is moving downward also. The massive increase in oil prices in 1979 and 1980 generated a new round of inflation throughout the world and in line with this general international movement our rate of inflation climbed to 20 per cent earlier this year. It has now started to come down and the increase of 3 per cent in the last quarter was the lowest such increase since the November quarter of 1978. Inflation for the year as a whole will probably be around 18 per cent. If there are no new significant increases in the price of oil, inflation will continue to fall throughout next year. This downward trend in the rate of inflation can be expected to contribute to a significant improvement in our economic prospects, particularly in promoting investment confidence.
The high rates of inflation prevailing throughout the world and the balance of payments deficits which many countries were experiencing combined to increase interest rates in most countries. High interest rates penalise our economy very severely because of our exceptional need for investment to improve our productive capacity and efficiency.
The Government took a number of measures to counteract the worst effects of these high interest rates by arranging exchange risk guarantee schemes which enabled farmers and manufacturers to procure low interest Euro-currency loans. Building society mortgage rates were also subsidised. Prime interest rates have been reduced by 4 percentage points since April of this year and the general future trend is likely to be downward. This lowering of interest rates can make a substantial contribution to improving the economic outlook and should help to stimulate increased investment and growth.
I have again and again emphasised the importance of industrial relations and the fact that in no other way could we contribute more effectively to our prosperity as a people than by establishing a stable industrial relations climate. The inconvenience and disruption caused to the general public are the most obvious results of industrial disputes but the actual economic loss is often of much greater significance and indeed can be incalculable. The tragedy is that if the established negotiating procedures and institutions were utilised, the loss to the workers concerned, the damage to the economy and the inconvenience to the general public could all be avoided.
It was the overwhelming need to secure industrial peace which lay behind the Government's policy of securing a new national understanding to succeed the previous understanding that ran out this year. While it may not be possible to secure industrial peace across the whole economy by the adoption of this new national understanding, it is certain that, without such an understanding, the industrial scene could very well have become chaotic.
The Government, therefore, had no doubt about what was needed. We sought to secure, if possible, a national pay agreement which would be acceptable in economic terms, give certainty about pay levels for as long a period as possible and avoid all the chaos and disruption which is inevitably associated with pay bargaining at individual plant level. The pay provisions of the draft national understanding eventually arrived at can, in the view of the Government, be borne by the economy provided the understanding is made fully operative in all its provisions.
Those who criticise the draft national understanding should be clear on the fact that its terms preclude strikes or other forms of industrial action by trade unions or employees in respect of any matter covered by the agreement and it requires peaceful industrial relations procedures for any other claims arising from defined special circumstances. This is one of the main justifications for a wide-ranging national understanding such as has been drafted. Employer organisations and trade union leaders must ensure that all their members fully understand that the agreed industrial relations procedures laid down in the draft understanding on pay and conditions of employment are vital for our economic survival at this time. If they are not adhered to and in particular if unofficial disputes continue to disrupt out economic life in spite of all the commitments in the national understanding, then the whole value of future national understandings as such will be brought into question.
It is suggested in some quarters that the levels of pay in the national understanding are excessive. I want to admit frankly that they could turn out to be excessive if the national understanding is not fully and totally implemented throughout the economy in all its provisions. If, however, it is so implemented, then I have no doubts whatever about the capacity of our economy to absorb all the pay and other provisions of the understanding. In this regard, two aspects are crucial. Firstly, there will have to be full adherence to the industrial relations procedures so that disruption and damage through industrial disputes will be minimal, if not totally avoided. Secondly, there will have to be an all-out concentration on the improvement of productivity. The understanding commits both sides to a national effort to increase productivity. The Government are anxious that this commitment should be effectively taken up and translated into reality. They intend to pursue with both sides of industry a realistic programme designed to eliminate all those restrictive practices and other elements which restrict output and the reduction of unit costs and thereby prevent both the workers involved and the community as a whole from benefiting fully from modern technology and improved techniques.
That we are capable of increasing productivity is shown by the fact that gross output per person in manufacturing industry in Ireland increased at an annual average rate of nearly 5 per cent between 1970 and 1977. Recent studies, however, have shown that in the mid-seventies output per person in Ireland employed in industry and agriculture was less than half that in the smaller Community countries and that output per person in the services industries was also significantly less. We cannot as a nation accept such a productivity gap and hope to maintain our living standards. The size of the gap shows how much ground we have to make up if we are to compete successfully with our trading competitors.
The 5 per cent annual increase between 1970 and 1977 shows that we can improve productivity if we decide to do so. What is required is to build on this and raise even faster our national level of productivity. Levels of productivity which in each sector and in each industry are comparable with those in other countries are essential to provide new jobs, protect existing jobs and increase our living standards. We are fortunate in having a long-established commitment by employers and workers through the Irish Productivity Centre to work together for increased productivity. The Government will examine immediately in the context of the provisions of the national understanding how major new practical efforts can be made to increase productivity positively and universally throughout the economy.
As in other countries, the greatest and most severe impact of the recession in Ireland has been on unemployment. At the end of September, the latest date for which figures are available, there were 105,600 persons on the live register. This is an unacceptable level of unemployment. In comparing the growth of unemployment with that in the other Community countries—and in some of these unemployment has risen much faster than here—it must be borne in mind that our population is growing at seven times the average Community rate. We have, therefore, to provide employment for a labour force which is increasing rapidly due to high natural growth and to large numbers of people returning to live and work here. The CSO estimate for the year to mid-April 1980 shows that a net 20,000 persons returned to Ireland in that year. Many of these are being attracted back by the new highly-skilled industrial jobs which we are continuing to create in spite of all the economic difficulties,
We have been creating new jobs in manufacturing industry at remarkably high levels throughout this year. Unfortunately, job losses in our older industries have been heavy. We have made determined efforts to keep these job losses to a minimum. The Minister for Industry, Commerce and Tourism has intervened time and time again, through the various agencies at his disposal, to help industries in difficulties. A special scheme of cheap credit for working capital to be administered by the Industrial Credit Company was inaugurated last June. Additional capital funds have been provided in a number of different areas to ensure that various public work programmes were maintained at a level which would avoid lay-offs which would have added to the unemploynment total.
At the outset of the national understanding negotiations in July last, the Government committed themselves to taking a comprehensive series of measures to stimulate the provision of new jobs and to reduce job losses if the negotiations resulted in an acceptable national pay settlement. These measures have been outlined in the draft national understanding. The considerable level of public expenditure involved can only be undertaken if the income levels over the next 15 months are limited to those provided in the draft national understanding. In the preparation of their plans for 1981, which are now under way, the Government intend to give special priority to the provision and maintenance of the highest possible level of employment that our economic and financial circumstances will make possible.
Agriculture has been harder hit by the recession than any other sector. Bad weather reduced output in many parts of the country and income was seriously affected by rising costs. We have watched anxiously over these developlments throughout this year and have consulted regularly and closely with the farming organisations. There is now widespread understanding of how important for general economic development a profitable and prosperous agriculture is. Many of the job losses in other sectors of the economy have been due to reduced demand for goods and services by the farming community. Because of their appreciation of the importance of a prosperous agriculture, the Government have already taken special measures to assist farming productivity and investment and to mitigate the economic difficulties facing individual farmers. These measures have been taken as part of the Government's policy of continually monitoring the economy and taking appropriate corrective and supplementary action when necessary.
The prosperity of our agriculture depends greatly on decisions made under the Community's common agricultural policy. The most important of these decisions is the level of prices. These prices effectively establish throughout the Community the prices farmers get for their products. The present situation of high inflation throughout the Community demands greater appreciatijon at Community level of the need to ensure, as the Treaty requires, that agricultural prices fixed by the Community itself give fair living standards to the farming community. The economic advantages to the Community of a prosperous agriculture are plain. It employes nearly eight million persons. This employment must be protected at a time when there are over seven million unemployed throughout the Community. The Community's common agricultural policy ensures the security of its food supply and creates stability in its balance of payments. The farming industry in many parts of the Community is the major purchaser of goods and services from the other sectors. A prosperous and progressive farming community is an important stabilising and constructive influence in the evolution of society within the Community.
The Government, therefore, propose to campaign vigouously in the Community for the improvement of the common agricultural policy and its price-fixing policies to take account of the current erosion in the living standards of the farming community in many member states. We will be pressing, in the Council and with the Commission, the question of ensuring fair living standards for Community farmers, as laid down in the Treaty, and in the interests of the general economic welfare of the Community. It is my intention to have this question included on the agenda of the next European Council. The treaty has clearly already laid down an obligation to ensure a fair living standard for the farming community and we will fight to see that the Community adheres to that principle.
The Government believe in managing the economy in consultation and with the highest level of co-operation of the representatives of the different economic sectors. We maintain a continuing dialogue on economic and social progress with industry, farming and trade union representatives.
I believe in the value of this constructive participative role for the large sectoral interests in our society. I and my colleagues have, therefore, met regularly with leaders from the trade unions, employers, industrialists, farmers, fishermen, financial institutions and State-sponsored bodies. These meetings have enabled views to be enchanged about current problems and possible solutions. Government decisions can be better informed and more soundly based as a result of information and views obtained in this way. I believe that the non-Government participants have found these meetings fruitful and helpful for their actions and decisions.
These meetings will continue to be held as the Government consider that economic and social progress, particularly in these difficult times, can be attained by more open, more responsive and more participative Government. We are too small a community and economic entity not to approach our problems in a united. constructive and co-operative spirit.
Because I was concerned that the semi-State sector might not be contributing as fully as it could to economic progress, I initiated a process of discussion with the heads of the principal State-sponsored bodies to see what factors, if any, were inhibiting their capacity to make the fullest contribution they were capable of to economic progress. The contribution these bodies have made to the development of the modern Ireland is significant. I am anxious that their development potential should be encouraged in every way possible. In the discussions I have had positive measures have been identified which should result in greater enterprise and initiative in this sector of our economy which at present has a turnover of nearly £1,500 million and employs over 70,000 persons. The purpose of these measures is to ensure that the State-sponsored sector can make the greatest possible contribution to our employment objectives and to general economic development.
The state of the public finances is a major pre-occupation of the Government. The Government laid down in the budget certain targets for the year in relation to public expenditure and the Exchequer borrNwing requirement. In my speech on the budget I also made clear that the retrenchment needed in public expenditure must not be to the detriment of investment, growth and employment. As the year went on and the world recession deepened and its impact on our situation became more serve, it was clear that additional public expenditure was necessary if we were to avoid serious economic disruption and greater unemployment. This expenditure has covered both capital and current needs and was based on the clear-cut need to maintain employment and essential public services.
The additional capital expenditure covered needs in industry, agriculture and infrastructure. Additional current expenditure was also required urgently for farm rescue operations and for services to industry. Additional funds have also been provided to maintain health, social welfare, transport, telecommunications and other essential services.
The decision to provide these additional funds was a difficult one. It reflected the basic conflict that always exists in the area of public finance between the requirements of prudent financial management and the alternatives of unemployment and the disruption of essential services. We believe that in our economy, with its potential for growth in new efficient competitive industry and more productive farming, public expenditure constraints must be applied sensibly and with a judgment as to where the balance of economic advantage lies.
The question can often be presented in the simple form of whether it is better to expend scarce resources to maintain a particular worthwhile economic activity, and thereby keep people in employment, or expend nearly the same amount of public money paying the persons concerned unemployment benefit. The levels of public expenditure at any time should, also, be related to trends in the general economic and financial scene. These trends are now favourable as compared with the situation at the time of the budget and justify some relaxation in the interests of preserving employment and protecting our basic social fabric.
The most important need in our economy, given our stage of development, is for further economic growth and employment, and this objective must always be balanced against other economic and fiscal requirements. In the current situation of high and growing unemployment, forced upon us by external factors, increased public expenditure, if sustainable, can be justified by the basic criteria I have outlined.
At what level public expenditure and public borrowing should be settled at any time is not an issue to which there is a precise objective answer. In my view, an important part of the answer lies in the composition of our public expenditure. I am increasingly convinced that our public expenditure, and particularly the Exchequer borrowing requirement percentage, is too high, partly because it contains many items of expenditure which should be financed in the private sector. This structural aspect of our Exchequer borrowing requirement is one which must be taken into account when making international comparisons about the level of Exchequer borrowing. The capital expenditure on telecommunications this year, for instance, accounts for 1½ percentage points in the Exchequer borrowing requirement expressed as a percentage of GNP. This is a commercial service giving a commercial return which in most other countries is financed outside the central Government accounts. This will occur here when the statutory corporation is established to take over the telecommunications service. But, even within the present composition of the public capital programme, there is considerable scope for private financing and funding of facilities now the subject of Exchequer borrowing. The Government is exploring a range of such possibilities with a view to a more rational structure of public finances.
The possibilities in this respect are considertable. Developments following our adherence to the EMS have brought about a situation where additional institutional and other funds in the private sector are available for long-term growth investment as distinct from short-term or medium-term fixed-interest investment.
We are looking, therefore, at the possibility of developing new financial arrangements to meet infrastructural requirements which will enable these funds to be utilised for higher levels of investment than can be obtained at present.
Our need for investment is particularly great given our present state of development. We can progress to higher levels of productivity and output only if we have a comprehensive and efficient infrastructure of roads, airports, telecommunications, sanitary services and industrial facilities and if our growing population acquires the education and technological skills of modern industry and agriculture and enjoys satisfactory living conditions. We cannot compete successfully in the free market of the Community while our infrastructure is so far below the standards in other Community countries. Our infrastructure deficiencies clearly retard our economic progress. We have shown our ability to attract and develop new industrial and commercial undertakings where the necessary facilities are available. More advanced countries passed through our stage of development when infrastructure and social capital investment on the scale required today was not an essential accompaniment to industrialisation.
We cannot, therefore, escape the need for investment at levels which historically are remarkably high. We have currently the highest investment rate in the Community and one of the highest in the OECD area. That level will have to be further increased if we are to make ourselves economically competitive and prepared to take advantage of our ability to master the most advanced of modern industrial skills and to sell our products in the markets of the world.
This investment barrier to higher levels of output and productivity must be taken into account when considering the appropriate level of public expenditure at any time. We must aim to increase our productive investment so as to be in a position to profit from the recovery in Community and world markets which is expected to occur from the second quarter of 1981 onwards.
Our need for productive investment was reflected in the public capital programme provided for in the budget and will be added to by the additional capital expenditure we will undertake under the national understanding.
The Government has been particularly concerned to maintain high investment levels in the current economic situation. As a result of Government policies, investment as a whole is running about 40 per cent higher than it was in the last recession. An important achievement for future growth is that this year investment in grant-aided industry is expected to increase by 10 per cent.
One of the most encouraging aspects of our current economic situation is the remarkably high level of new jobs being created in manufacturing industry. These jobs are being created at an annual rate of over 20,000 which is an exceptionally high rate. The Government's investment programmes have given special priority to manufacturing investment and to co-ordinating infrastructure investment with industrial investment. This priority is reflected by the results being achieved. These new nanufacturing jobs, generally of high technology and high productivity, give us the productive capacity to expand our exports, raise our living standards and provide employment for our educated young population.
The high level of new manufacturing jobs would be sufficient in normal circumstances to give us a significant net increase in employment. But, in common with other Community and OECD countries, our industries are suffering from the reduced demand which is at the root of the present world economic recession. As a result, job losses are more than offsetting the job gains in manufacturing industry. I might point out, however, that these jobs losses are still significantly below those experienced in the last recession.
The Government has taken and will continue to take every possible measure to assist the firms experiencing these job losses. A particular necessity is to achieve a fairer share of the domestic market for Irish firms in the older traditional industries such as food, clothing and footwear. A special campaign has been undertaken with the support of unions and employers to bring home to all concerned— consumer, retailer and wholesaler —how important it is to increase the share of Irish goods in the domestic market.
The Government's high investment policies benefit all regions of the country. This Government is firmly committed to the principle that national economic and social progress is the sum of regional economic and social progress. We believe that regional disparities in income and opportunity can be removed only by making it possible for each region to contribute its resources and skill to the national effort. The regional industrial plans are bringing modern industry to every part of the country. The gap in income between the regions is decreasing and population is now growing in all regions for the first time in over 100 years. This population growth is occurring not only in the urban areas but also in the rural areas. We have recently announced our intention to decentralise central Government services to 12 regional centres. Our infrastructure investment programmes are planned on a regional basis so that each region gets its fair share of investment funds and we shall maintain this emphasis on regional development. We must mobilise the human potential and resources of all our regions in order to achieve the highest possible level of economic and social progress.
When, therefore, we examine the general state of the national economy, we should not neglect to note that one of the most dramatic changes in our economy has been its regional development. The standards available to our people in all regions have been greatly improved by the spread of economic and social opportunities beyond the major cities. This Government sets its face firmly against the once-fashionable theories that economic growth and opportunity should be concentrated in a limited number of centres. We believe in the capacity of people everywhere in this island to participate fully and creatively in the growth and expansion of our economy. Such participation has a deep social purpose and meaning. The ability to obtain satisfactory economic and social opportunities in their own community provides people with a more meaningful life.
Community life and culture in many parts of our island have been disrupted and deprived for too long as the young people left in search of employment elsewhere in Ireland or abroad. This has impoverished the social and cultural life not only of local communities themselves but of the nation as a whole. We must not, in considering economic issues, forget the ultimate social purpose which economic development serves, which is to bring a fuller and happier life to all our citizens no matter in what part of our island they are born and wish to live. We must, therefore, in all our discussions of national economic issues, recognise the fundamental economic and social transformation of our regions on which national economic development depends. This is a basic objective of this Government and it is reflected in our decisions in regard to infrastructure investment, industrialisation, decentralisation of central Government services, development of educational, health, welfare and cultural facilities and aids to the farming industry.
We must also ensure a better and fuller life for those who through no fault of their own are underprivileged or handicapped in any way, and as such will not participate automatically in increasing prosperity. That is why the budget this year provided specially for social welfare recipients and brought greater equity into the tax code. In the draft national understanding, we have undertaken to continue to protect the living standards of social welfare recipients and have made important commitments to improving the content and scope of our social welfare measures. We will continue to adhere to this basic principle of equity for all in our economic and social policies.
We have had to nurse the economy through one of the most difficult years in our history. The combination of adverse factors was quite unique. We have had to husband our resources and take finely-balanced decisions between the conflicting needs of maintaining employment and controlling Government expenditure at a time when our population and labour force have been rapidly increasing. We have been reasonably successful in this pragmatic approach and, as a result, we are weathering the economic storm of 1980 better than most. We are, in fact, coming through with much less disruption of our economic capacity than we might have feared. Some recent major investment decisions in the private sector are a clear indication of confidence in our economic future.
As I have indicated, favourable trends are now emerging. These give us encouragement to be more hopeful about the plans we are preparing for 1981 and to look at some more optimistic options. We want this debate to generate confidence throughout the community in the basic strength of our economy and its capacity for growth. The Ministers primarily concerned with the economy will give an outline of their plans and programmes for the different sectors and their determination to press ahead with expansionary proposals to the greatest extent possible in spite of the present difficulties and problems.
It is our determination to secure the widest possible support from all the interests involved—trade unions, farmers, employers, economic and commercial bodies, financial institutions—for our policy objectives and for our plans to attain them. In this way we will mobilise every national resource and seize every opportunity open to us to come out of this recession and to achieve new and higher levels of economic and social progress which our rapidly growing population and our social needs demand.
