A high proportion of the jobs lost during the current recession will be quickly regained as trading conditions improve because of the fact that a higher than average proportion of them has resulted from firms letting people go and remaining in business rather than from outright closures. The same cannot be said, as I discovered yesterday at the Industry Council in the Netherlands, in respect of many other European countries where the heaviest losses have occurred in sectors of industry like steel, ship-building and motor cars in which prospects of recovery to the previous levels of employment are either dismal or non-existent. In spite of this recession industrial job creation here had its best ever year last year.
Finance Bill, 1981: Second Stage (Resumed).
Still being done by mirrors.
By achieving a total of 35,000 job approvals the IDA substantially surpassed its own target of 30,000. It is confident that in 1981 it can break its own record. It has set a target to negotiate and approve industrial products during the year with the potential to generate 36,000 new jobs in manufacturing and service industries.
Irish industry is expected to provide over 50 per cent of these jobs and more than 10,000 of them are likely to come from small indigenous firms. Despite the difficult worldwide economic situation the IDA are confident that the present high level of activity can be continued. Manufacturing investment in 1981 is expected to be £700 million representing a volume increase of 8 per cent on the record figure achieved in 1980. During 1981 the IDA will intensify its efforts to encourage all its clients, existing and potential, to broaden the scope of their investment. It will aim at total business concept, which is new in its promotions here and it will encourage such companies to consider investment not just in production plans, which has been the invariable practice up to now, but also in the establishment of research and development facilities and the setting up of marketing, servicing and head office type functions. A concerted drive will also be undertaken to increase the volume of local purchasing. I believe this development will strengthen our industrial base further, ensure a greater level of linkage by overseas companies and provide greater employment opportunities for our growing population.
The availability of the new 10 per cent tax rate on manufacturing profits is a major new incentive for companies selling on the domestic market. It is of considerable benefit particularly to indigenous industry, which should be unceasing in its efforts to maximise the benefits and opportunities which it presents. Many of our newly-established small manufacturing companies were born out of the needs of large industry. I am confident this new rate of tax will prove a significant incentive for greater development of interim industry linkage. The IDA and SFADCo will both encourage domestic small industry fully to exploit the opportunity which this new tax rate presents to maximise the opportunities arising from the setting up of major projects both at their construction and operating stages and to exploit any opportunity for export substitution.
I am sure the House is well aware of the dramatic growth which has taken place in the electronics industry in recent years. I do not propose to go over that well-trodden ground again today. Suffice it to say that more than £350 million has been committed to date by overseas electronics companies in fixed asset investment in over 70 manufacturing facilities. Today the industry provides employment for over 14,000 people and produces a wide variety of electronic products ranging from micro-processors to medical and scientific instruments to large computer systems.
This investment would not have taken place and neither would employment have been created on such a scale if the IDA planners had not the foresight to recognise the growth potential of the industry. This potential was recognised back in the early seventies and they responded by undertaking an intensive marketing drive to persuade the key names in the industry throughout the world to locate in Ireland. The planners in the IDA have not been idle since the early seventies. They continue to monitor international trends which have taken place as a result of rapid technological advances. This monitoring is constantly taking place to alert the IDA to new areas of potential growth and to allow them to react swiftly and effectively when new areas are identified. The intention is to get this country involved in the major new areas of technological development at the earliest stages. In that way, as our experience with electronic industry has demonstrated, the most benefit will accrue.
The forward thinkers are now turning their attention to the possibilities presented by the growing demand for technical services. In 1973 the IDA introduced their present service industries programme on a pilot basis. This programme has been moderately successful and is expected to generate 1,500 job approvals this year. The IDA have recognised the growth capacity of the services industry particularly in the technical sector. That sector has a much greater potential for generating high quality employment and substantial foreign exchange earnings than have been tapped to date. This area is seen as being complementary to the sophisticated manufacturing base which is being built up here at present. An example of this can be taken from the electronics industry. For example, ten years ago computer services, data processing and software hardly existed as a separate entity. Now more individually tailored software is the fastest growing sector of the computer industry which is itself a high flier. American and European trade associations have both forecast their respective markets to grow at 6 per cent per annum over the next five years. This puts the estimated value of the computer services industry at around £6,000 million in Europe and at £80,000 million in the US by 1983.
It is worth noting the changing relationship between the hardware and software costs in data processing. The hardware costs of computers are increasingly being overwhelmed by the software costs. Deficiencies in software capability may prove in many countries to be the greatest inhibition on further hardware investment and development. The Government recognise that the needs of the technical services sector are primarily people-orientated and that it relies more on intellect than on capital equipment. It is therefore an important target sector in the national effort to create professional employment for school leavers and graduates. The Government also recognise that, if we are to fully exploit the potential of this sector, an incentive package must be designed which takes into account the special features of the sector. In the past the IDA relied on a combination of training grants, capital grants and the tax incentive of export profits sales relief to attract companies in the technical services sector to Ireland. Their success in this field has been limited by the fact that this sector is not at all capital intensive and, accordingly, the attraction of capital grants for potential companies is significantly reduced. Recognising the enormous potential of this sector for us in the 1980's and beyond, the Government have decided to equip the IDA with a specially designed incentive package. Accordingly, I intend introducing legislation in the Dáil in the next few weeks to amend the Industrial Development Acts to allow the IDA to approve special employment grants towards the employment of persons in service industries which contribute significantly to regional and national development. This is a totally new development in our industrial and job creation strategy. Our obligations under the EEC Treaty require that new incentive schemes be approved by the Commission and such approval is now being sought.
The main differences between an employment grant and the normal IDA capital grant will be that in the case of the employment grant it is not related to the creation of capital equipment but to the provision of employment. This new incentive is designed to assist promoters in meeting part of their payroll costs, which is the main operating cost for a technical services industry project during the first and critical year of the project. It is considered that more than half of the supporting jobs in this sector will be of a graduate, professional or technical nature or of a similarly high quality. The IDA will continue to utilise training grants as a major incentive for this sector. This is a particularly attractive form of incentive from our point of view because up to 55 per cent of such grants are usually recoverable from the European Social Fund.
This sector is particularly suitable for Ireland because by its nature its capital costs are small, its transportation costs are negligible, it is a low energy user, it creates high quality employment by requiring brain power, which we do not lack, it earns substantial foreign exchange and therefore makes a contribution to our balance of payments. Other advantages relate to the fact that service projects entail little importation of capital goods or of raw materials. The vital ingredient for success is the expertise of the labour force. We have now, through the efforts of our second and third level educational institutions, the best equipped young generation ever to emerge from here.
The IDA have identified key areas in the technical services sector on which they will concentrate their activities when they have the new incentive package to offer in respect of computer software services, design and planning, commercial testing laboratories, headquarters operations, research and development, both free standing and otherwise, and contract research centres. The proposed programme is deliberately selective and based on a detailed examination of a wide range of service sectors which have a potential for new job creation and are strategically important to future economic and industrial development. This list of areas is indicative of current priorities and it does not mean that worthwhile projects in other areas will be precluded. In pushing ahead with this intensive programme we will endeavour to stimulate indigenous efforts to the greatest possible extent as well as seeking to attract major growth companies from overseas. This development will rely heavily on an improvement taking place in our telecommunications and transportation networks. The Government are confident that, as a result of a massive programme of investment which we have undertaken, the essential infrastructure will be in place when it is required. The recent marked improvement in telecommunications in the past year are very heartening.
I expect that this new incentive policy for these services will result in the annual creation of 5,000 jobs in this sector by 1985. The new programme will represent a much smaller cost to the State in terms of job creation than the existing IDA manufacturing programme. This is not to say that we will weaken in our resolve to provide additional manufacturing employment but that the two programmes will go hand in glove. I will refer to the electronics industry once again to illustrate this point. The provision of specialised computer software services is a further step along the road towards maximising the benefit associated with having some of the most go-ahead producers of computer hardware in the world manufacturing here. This is the type of progressive integration that the IDA, under this new and imaginative programme, will seek to achieve in other areas.
The second half of this decade will see ever-increasing worldwide demand for technical services and information. The new incentive package with which the Government propose to equip the IDA will make it possible for Ireland to be in on the ground floor of such development and for us to capitalise on the opportunities presented for employment creation. I see this sector charting the way forward into the 1990's and beyond. This sector will be complementary to the sophisti— cated manufacturing sector already established. Together they have a major role to play in helping us achieve our twin objectives of full employment and a rise in the standard of living for all. The success of our economic performance in the last four years must be measured against the record of other developing economies to be fully appreciated. The level of increase in manufacturing investment from output and exports speak for themselves. There can be no argument against hard facts. The Government's policy of accelerating productive investment has underpinned this successful outcome. Our investment has been very high during the last two years, with fixed investment running at an average level of over 13 per cent of GNP. Among OECD countries this ratio has been matched only by Japan. This has been one of the most favourable features of our economy and it is why we were able to achieve last year a record level of new job approvals.
This Government are determined to remain growth-oriented despite the present state of world economic activity and demand. The more investment there is today, the more jobs there will be tomorrow when the current recession has passed. One of our primary objectives now it to maintain growth in our manufacturing output and industrial production. There is no other way to develop a modern economy except through growth in manufacturing output. Living standards cannot be maintained or improved unless the productive sector is expanding and expansion can be achieved only by manufacturing goods at international prices and marketing them effectively. Our objective is to beat the problem of rising costs by improving efficiency in every activity throughout the economy, by changing our attitudes to productivity, by improving the infrastructure, by helping our young people to grasp the opportunities of tomorrow's world of technology, by making a determined effort to switch from imports and by redoubling our export sales efforts. Our aim is to increase the output of all the productive sectors of our economy, to raise living standards and create employment. In fact, we cannot afford low productivity in any sector of the economy, whether in the productive sectors, such as manufacturing and agriculture, or in support services, such as transport, construction, the public service or commerce. What we need is a national commitment to eliminate inefficiency, waste of any kind and, if we still have it, complacency.
Measures in the Finance Bill to stimulate investment by private enterprise in infrastructural projects, such as rented accommodation, multi-storey car parks, toll roads and bridges, will help maintain employment levels in the construction industry and will underpin our economic development thrust in coming years. The Government's investment commitment, £360 million, has been earmarked in the investment plan for industry alone during 1981 and the introduction of the 10 per cent corporation profits tax rate in during 1981 for manufacturing industry are positive measures which should contribute to helping Irish industry to weather the present difficult period and to face the challenges of the eighties. And challenges there will be. However, we should not be dismayed by these challenges. We must not allow ourselves to become discouraged by the present temporary economic difficulties. These are serious and difficult times, but we should not forget that we have many strengths in our industrial sector built up over the last quarter of a century. We have, perhaps for the first time in our history, a reasonably healthy industrial base, with competent managment personnel who know what they can achieve, who know they can measure up to competitive international standards. We have some of the most modern factories in Europe, with a solid base, and the new growth industries of chemicals, electronics and pharmaceuticals. This is an economy in which young Irish businessmen can experience the best international management practices and be exposed to the latest technological developments. It is an economy in which these young Irish businessmen should be and are being stimulated and motivated to set up indigenous companies to complement the trust of the foreign multinationals and to go on to develop new overseas markets for new, innovative products designed and made in this country. In this regard I am particularly pleased to see, during the last three years in particular, the growth of indigenous industry and the emergence of high quality native managers and entrepreneurs to manage these industries. I have initiated and encouraged this trend because I believe it is the way of the future. I believe that over the decade of the eighties the growth potential for small industries will be greater than ever due to the increasing number of spin-off opportunities now arising from new, larger scale industries.
I also believe that the eighties will see a vast array of new businesses and job creation opportunities becoming available to Irish entrepreneurs and managers. I believe we can face the challenge of the years ahead in a spirit of optimism based on our record, our resources and our prospects. We have now built up a momentum of economic growth which will carry us forward and which, with proper guidance, can be sustained. There are very few countries I can think of that have the opportunities or the potential of Ireland. We have a strong national policy, we know what our goals are, we have a solid agricultural base, a modern industrial structure, growing skills of management and a small share of international trade. The economic fundamentals of Ireland are, in my view, unique in the opportunities they afford our people if we wish to grasp them. Our own greed, as expressed in a desire for incomes and social services greater than the economy can bear, and our conservative resistance to change and innovation are the only things in the long-term that will kill that chance. Cyclical things, like the present world recession, only temporarily delay progress. If we decide to kill that chance, then it will have been our decision.
The approach of this Government to our economic problems, as expressed in the Finance Bill and in the speech of the Minister for Finance when introducing it here yesterday, reminds me powerfully of a death bed conversion, or, which is rather different, of an attempt to persuade the electorate that a death bed conversion has in fact taken place. Of course, we know it has not. But from the opposite benches there has come a stream of speeches, many of them tailored almost as if we had been in Government for the last four years, stating that measures are now being taken to put the things that are wrong right and to put the country back on the road to prosperity. There is no account of how it got diverted from the road to prosperity, apart from the odd statutory reference to the oil crisis, which of course is real enough. It reminds me of the story of the long time sinner who was finally persuaded by his grieving family on his death bed to have the priest in. The priest came to see him, went through all the rituals and, coming towards the end of these, asked the dying but still conscious sinner: "Do you now renounce the devil and all his works and pomps?" Something stuck in the old man's throat and he said: "Hold on now. This is no time to be antagonising anybody." This is the kind of financial and economic response we have by the Government to our very serious economic problems, which at least in part — we can always argue about how much in part — are their responsibility for having created. They like to give the impression of repentance. They like to give the impression that things will be all right, if only from now on we follow their nostrums, we accept their good faith and believe in their collective wisdom.
Of course, the other thing to pay attention to is the fact that in the orchestra on the benches on the far side of the House there are different players with different instruments. When the occasion suits them they will be gloom and doom merchants and, when the occasion suits again, they will be the people who will say that everything is getting better. There are, for public consumption, two Fianna Fáils, the Fianna Fáil of the Taoiseach and the other Fianna Fáil. I was amused by a reference in a paper the other day to the Minister for Industry, Commerce and Tourism, describing him as the Opposition's favourite Minister. Having listened to his speech here this afternoon, there is little favour we could find with many of its aspects — and there are one or two other aspects to which I will come in a moment. But, if there is an idea abroad that the Minister for Industry, Commerce and Tourism is the Opposition's favourite Minister, then I should like to take whatever steps I can to disabuse people of this notion. There is perhaps reason for this because the Minister for Industry, Commerce and Tourism is well known for his habit of extending two metaphorical fingers in the direction of his Taoiseach whenever he feels the humour on him to do so. Whether on economic issues, the North or anything else, the Taoiseach can barely move a step without an O'Malley fire cracker exploding somewhere around his feet. Of course there is some interest and amusement on this side of the House when the internal tensions of that party and Government become so publicly visible — they divert us, but they are no more than a diversion. I have to say in relation to this party, that there are no favourite Ministers in Fianna Fáil. We are in a state of deep gloom when we see them individually and collectively. They are all in it together. Whatever their public relations, whatever their fancy footwork, whatever their attempt to present themselves as the acceptable face of a modern capitalist party, there is no such thing, as far as those benches are concerned, as any acceptable face of a party like Fianna Fáil.
The electorate will be invited, when considering the Government's economic performance, to vote in favour of this "acceptable" face of Fianna Fáil rather than the unacceptable face of Fianna Fáil. It is our job to persuade them that there is no such thing, that if you vote for any Fianna Fáil candidate, no matter how charming and likeable he is, you are voting for the Taoiseach, the Minister for Finance and the economic policies they have introduced and maintained in the House and outside it.
It is a measure of the degree of unreality which now attaches to those economic policies that the Minister for Industry, Commerce and Tourism can come in here and say that the fundamental purpose of the Government is designed to maintain growth. He might deserve a hearing if there was any growth to maintain. Growth has been axed to the roots and everybody from the Irish Congress of Trade Unions, the Confederation of Irish Industry, farming organisations and every organisation in between are almost universally convinced that we will be very lucky if we get growth off the base line this year. We have to agree with the Minister when he says that growth is ultimately the answer to the economic problems we find ourselves in. The political and ideological disagreements arise in relation to the instruments by which that growth can best be encouraged and fostered.
We find a degree of schizophrenia on the Government side that is amazing and one wonders why people continue to accept it so much. On the one hand the Government are preaching a principle of private enterprise and saying that private enterprise is the motor of the economy and, on the other hand, there is a degree of interventionism by the Government, although it certainly does not go as far as we would like and is not as subtle or as flexible as we would like it to be, but is, nevertheless, in total contrast to the ostensible rhetoric they come out with in defence of the private enterprise system. We have, for quite some time, had a substantial interventionist policy in relation to manufacturing industry.
The Minister for Industry, Commerce and Tourism, following his mentor, the Minister for Energy, in releasing his Ard Fheis speech in advance this afternoon, has now indicated to us that he proposes to bring in legislation to extend the scope of the activities of the IDA to the service sector. We are not against interventionism but we believe it should be described as what it is. We also believe that if an Irish Government adopt interventionist policies they should be in a position to claim some of the fruits of that intervention directly rather than simply allocating grants and other kinds of subventions, with a few or no strings attached, to private industry, which may or may not be efficient and may or may not be socially responsible.
The service sector will be of growing importance in the Ireland of the future. It is only logical that any interventionist policy should be extended from manufacturing industry into the service sector although we will have to hold judgment until we see the small print of the scheme the Minister proposes before we can tell if there is a requisite degree of public accountability and social accountability for this massive extension of State financing. We must also ask the Minister, when we start thinking seriously about the most basic resource we have, the six inches of soil which lies on the top of Ireland, when will he instruct or encourage the IDA or some other body set up for the purpose to do something about providing industrial and service jobs, which are not just based on Government handouts, grants and subventions, but on an intelligent, methodical exploitation of our renewable resources, which are the most precious resources we have and which we possess to a degree which virtually no other European country does.
The Irish climate is a cross for all of us to bear but it also ensures we can grow and produce agricultural produce better almost than any other country in Europe. We have yet to apply to the agricultural sector the kind of management, investment and encouragement which the industrial sector has been receiving for many years and the service sector is now to receive as well. We are approaching the thing from the wrong end. The results are plain to see. They are continuing job losses in industries, which are very often founded by multinational companies and which prove to be too fragile to exist for any extended length of time in the conditions of free trade or which are upset by any momentary worsening of recessionary trends. At the same time, we are experiencing a massive shortfall in agricultural incomes and the flight from the land. One wonders if there will be anybody left to fly in ten or 20 years time. At the same time, the problems of adequately funding our social services are exacerbated by the fact that we have the highest dependence ratio of any country in Europe.
It is easy to see, looking back on it, why successive Governments have gone for the strategy I have been criticising rather than the one I am suggesting. This is because nothing can provide a job more quickly than a multi-national company with an IDA grant package and a heap of tax incentives. This policy of "never mind the quality, feel the width" has resulted in the short-term provision of a lot of jobs in the country but it has failed to tackle the underlying structural problem of providing an industrial base related to our indigenous resources and particularly to downstream agricultural based industries. When there is a recession in the countries from which much of this investment and many of those jobs come, when the technology with which they have provided us becomes a little bit too expensive to operate here by comparison with the countries in the Far East, when OPEC raise their prices yet again, these countries will draw in their tentacles and Ireland, as the furthest outstretched tentacle, will be the first one to be withdrawn. There is considerable doubt as to whether this policy which has produced jobs in the short term, and I am not against jobs in any way, will be successful in the long term or whether it will end up simply with the IDA continuously resupplying jobs to meet the job needs caused by the redundancies in other IDA industries there were put in ten or 15 years previously. Even now, though the industries are not the same industries that were put in then, the number of redundancies is noticeably in excess of the number of jobs being created. We are running very hard but not even in order to stay in the same place. We are running very hard but we are travelling inexorably backwards. The moving staircase is too fast for us to catch up with.
In response to all these problems which even the Government must admit to, all they can offer us is more of the same. It is true that any intelligent and reasonable economic policy will, for the next few years, involve some belt tightening but it is equally true that, first, the belt tightening that will be needed will be substantially worse than would have been the case if Fianna Fáil had not been in power for the past four years and also that it will be much more difficult to secure national understandings or anything of that kind if people see that the axe is not being wielded on a uniform basis and that some people are being asked to bear more of the cuts than is the case with other people.
In this context the tax system is of critical importance. I have almost come to the conclusion now that the Government are losing heart in their attempts to persuade taxpayers that we are on the way to introducing a fair system of taxation. We know that wealth tax has been abolished. I shall not weary the House with a repetition of that but what is less publicly known is that the yield from the capital gains tax has been reduced by 70 per cent compared with the tax that was enforced when the Coalition were in office.
Because people have short memories they forget that these various taxes — the wealth tax, the capital gains tax and the other capital taxes — that were introduced by the previous Government were intended to replace death duties which were being abolished. Now not only have death duties been abolished but so have all the taxes that were introduced to replace them. In this year alone if death duties were in existence at their previous level, there would have been at least £40 million to £50 million more coming into the Exchequer. I doubt that that would have been sufficient to do everything that needs to be done but it would have been better than a slap on the belly with a wet fish which is all the Government are offering at this time.
I invite the House to consider the alleged tax concessions announced by the Government. I use the word "alleged" because instead of tax concessions we have tax impositions. It flies in the face of the ordinary use of language to describe what the Government are doing as a tax concession. On 24 February 1981 I asked the Minister for Finance the amount of extra finance he expects to collect in income tax in 1981-1982 compared with 1980-1981 and the amount by which that sum will exceed the cost of the income tax concessions for 1981-1982 as announced in the budget. The answer was that tax estimates are prepared by reference to financial years and that it is estimated that the increase in income tax collection in 1981 compared with 1980 will be £131 million and that the cost of the income tax concessions as announced in this year's budget is estimated at £66 million for this year.
If one subtracts £66 million from £131 million, one is left with £65 million. In other words, the net imposition of this budget in terms of income tax is of the order of £65 million. The Minister tried to put a brave face on the matter later by pointing out that to help him balance his books he wanted to add the cost of the concessions announced in the 1980 budget. The logic of this escapes me because if we are to add the cost of the concessions of the 1980 budget, why could we not go back to the 1979, to the 1978, to the 1977 or to any other budget? Why stop anywhere? I do not think that the taxpayers are being fooled. I am convinced that they are very much aware, perhaps silently but some of them sullenly aware, that the alleged concessions are not concessions in any sense.
What impertinence, then, on the part of the Minister in announcing in the budget as a concession the slight addition in the PAYE allowance, an addition that was wrung out of him at the midnight hour by the negotiators in the national understanding talks. We all knew that was coming but it was put into the budget by the Minister as if he had just discovered it under a head of cabbage at the end of the garden.
There is one small point of detail to which, in the interest of equity, I should like to draw the Minister's attention and which would cost virtually nothing to put right by way of an amendment to the Finance Bill. I refer to the situation in which if a man marries before the end of the tax year and if the woman he marries in dependent on him in the sense that she does not have a job outside the home, he is entitled to a refund of tax for the year in which he marries. However, the reverse does not apply if a woman who is working outside the home marries a man who is not so employed. I hope that the Minister will right this small anomaly.
Also, not only for the Ard Fheis or from the point of view of Fianna Fáil's election manifesto, I invite him to include in the Finance Bill something concerning the taxation of bank profits. I was amused to read in the newspapers this week that a prominent accountant had defended the financial, economic and profit structure of the banks. I have no doubt but that the gentleman concerned is an excellent accountant but to hear him defend the banks is like hearing an alcoholic defend the pubs.
The Central Bank in their submission to the Commission on Taxation have estimated that if the banks were paying tax on their profits in the same way as other businesses pay tax on their profits, there would be an extra £40 million accruing to the Exchequer.
The Central Bank are not exactly populated by revolutionaries waving red flags or charging up and down corridors screaming for people's heads and if they assess the true tax liability if the banks were to be assessed on the same basis as other companies and come up with the figure of £40 million more than the banks are actually paying, there is something obviously wrong.
Banks are sometimes generous to their clients. They do not foreclose and so on but we should be very careful in assessing whether this is paper generosity or actual generosity. The inescapable facts are that banks that have lent unwisely, that have allowed people to use bank finance to buy, perhaps, non-productive assets, to buy at too high a price and to repay during too long a period, have no option but to hold back. The banks have a vested interest in the survival of those who owe them money. There is nothing generous about that. It is pure self-interest, the instinct for survival but to describe it as some kind of altruism stretches credibility to the very limit.
In relation to tax, I should like to bring to the Minister's attention a question I asked on 2 April. In his budget speech and generally this Minister and the Government have placed considerable emphasis on indirect taxation. I asked the Minister the VAT refunds in each of the past five years and what percentage of VAT in each year such refunds represented. The Minister told me that in 1979 21.7 per cent of all VAT collected was issued again in refunds and in 1980 that proportion had risen to 28.2 per cent; £184.6 million collected in VAT was given back to traders and other suppliers in refunds. I am not saying that they were not entitled to refunds but there is plainly a major financial problem here if there is such a rising graph of refunds as a proportion of revenue in such a major item of indirect taxation. I would ask the Minister to give some attention to this matter and to tell me whether there is something as sinister in it as there appears to be.
From the Government benches, the CII and other conservative sources of inspiration and alleged economic wisdom there is one simple answer to all our problems, namely, that people should take home less in wages, that they should produce more and accept less than the rise in the cost of living in order to safeguard jobs and safeguard our economy.The Irish Banking Review, which is published by the Irish banks and which, no more than the Central Bank, could be regarded as a source of radical and revolutionary comment, points out in its March issue, in an extended article on productivity, that industrial productivity in Ireland is actually marginally above that in Britain and, secondly and more importantly, that there is no necessary correlation between incomes and economic chaos. It identifies the fact that, apart from Britain and one or two other countries, Irish productivity can be assessed as lower than in other countries. However, it goes on to state:
The very fact that these estimated levels of productivity are lower in Ireland than in Europe suggests that changes in technology, economic structure and dependency ratios could give Ireland a higher material standard of living (as conventionally measured) than at present.
There is nothing here about working people pegging their demands or about forcing people to work longer hours or for less money. There is a very strong suggestion that technological changes, changes in the economic structure and in the dependency ratio, which are rather more difficult to achieve and take a longer time, are the long-term answer to our economic problems.
In the coming election the electorate will have one central economic question to decide: whom do they want to see presiding over changes in the economic structure of this country? When they look at the changes which have taken place in our economic structure during the past four years they would be very ill advised to entrust that task again to a Fianna Fáil administration.
The Minister for Posts and Telegraphs, Deputy Reynolds, has ten minutes.
That is not very much time to say all I wanted to say.
The Minister should think of all the telephones which could be installed in that time.
If the Minister starts installing telephones now he will not say anything.
There is nothing to worry about. Far more of them have been installed than anyone thought.
Some of these years the Minister will get around to connecting them.
Deputy Cluskey is still an unbeliever and a cynic and does not believe that the telephones work. His view is a reflection on the labour force in the Department who are, in my view, doing an excellent job.
The Opposition asked for an economic debate but, following their contributions, one must ask whether they have availed of this opportunity. There were calls time and again for such a debate, which should be concerned with the handling of the economy by the Government. If the Opposition believe that the economy is going in the wrong direction, surely some suggestions could have been forthcoming. I would have expected Fine Gael to let us know their economic policy since this was very much fudged over at their recent Ard-Fheis. Have they got such a policy? If so, what is it all about?
I was amused at Deputy John Kelly's recipe for reversing economic decline during his speech to that Ard Fheis. He said that with Fine Gael there is only a will and that the road back to economic recovery is a narrow, stoney path to national solvency and self-respect. I hope he takes the opportunity in this debate of spelling out exactly what this means. I and many others believe he is talking about right-wing monetarism as practised by Mrs. Thatcher. If so, let him spell it out. If this is not what he means, perhaps we should listen to what his leader said. He was obviously afraid of what Deputy Kelly had said. Deputy FitzGerald said that in no circumstances whatsoever would his party embark on the pursuit of some straitjacket policy which would risk causing more unemployment and more doom in the economy. What is he trying to convey to the Irish public? I had hoped he would take the opportunity to speak in this debate and tell us what he really means, which I believe to be the exact opposite to what Deputy Kelly means. He is trying to take a middle-of-the-road path and shade his economic policy towards acceptance by his marriage-partners-to-be sitting opposite. He is trying to be all things to all men and this is not possible.
We are all agreed that we are in an economic recession, the worst since the thirties. It is even worse than the recession in the post-war period. The question concerns what the Government are doing about it.
We are quite clear about the road we are taking, but I am not sure that the Opposition know which road they are on because they cannot read the signs. We have said quite clearly that we will not choose unemployment as an instrument to solve our economic difficulties. In relation to the current deficit in the budget, we say that we will phase it out over a period and we make no apologies to anybody for borrowing for infrastructural purposes. We are doing the jobs which are necessary to enable the economy to grow from a proper infrastructural base.
In this regard telecommunications has a major role to play. For the first time there has been a recognition that one of the greatest retarding factors in the development of our economy is the lack of adequate telecommunications services, whether for industrial development, for social use so that people have an equal opportunity of communicating, or whether it be in the furtherance of this Government's policy of decentralisation and regionalisation. In 1980 we spent £123 million in the development of communications and this year we will spend £220 million. This Government are putting their money where their mouth is.
When the opportunity comes for the Opposition to talk about potholes, I can tell them they will be on a loser from day one.
The Minister has five minutes left and should not get into potholes.
I had only ten minutes because the Opposition wasted time fighting over small points. This is a debate about the direction of the economy and where we should be going. I believe there is fuddled thinking on the Opposition benches. One Deputy wants to go right, another left and a third wants to go to the middle. We are going in a straight line and stating our policy. We are not going along the road which has had devastating effects on the British economy. If Deputies want to know how successful that policy has been they should read yesterday's scary headlines. In Britain a total of 2,263 firms failed in the first three months of this year, 174 a week compared with 160 a week in the last quarter of 1980. We are not following that road, although we believe there are people on the other benches who would. They do not have the guts to come out and say that and want to hide behind smoke-screens, as they have always done.
There is another aspect of the policy being followed in Britain which is not suitable to Ireland. There was a shock to the correction of the inflation rate yesterday with the publication of manufacturing and input costs, which increased for the third month in a row. That is not the panacea for all ills, as some people might think. We have put our resources towards maintaining as far as possible our living standards while reflecting a social conscience by continuing Fianna Fáil policy of looking after the less well off in our society during very difficult times. That is what we will continue to do. That is the philosophy the Irish people have always responded to. We are spending the money building up the infrastructure and we make no apology for it.
Deputy Horgan asked where we stood in the public and private sectors. If he cannot understand that by now I will have a very difficult job convincing anybody else where we stand. It is quite clear from our investment plan — £1,700 million have been invested — where we stand and what we are doing. Do the Labour Party disagree with £49 million being invested in CIE, £18.5 million in new buses which we need so badly? Would they disagree with spending up to £60 million on the electrification of the Howth-Bray line to solve some of the major traffic and transport problems in the Dublin area? If they would, let them say so, because that is where we stand in the private sector. Would they disagree with £19 million being invested in Aer Lingus? Would they disagree with the final balance of £2 million being invested by Aer Lingus in a £20 million project in Rathcoole? Is that not putting investment where it will generate economic activity? Is that not spending money to create jobs at home when we know some of our major markets have been contracting?
We all know consumer demand is on the floor in Great Britain and that 45 per cent of our goods are sold there. I believe we are now looking to the areas where the real markets are. Not alone are we in a recession but I believe we are seeing a restructuring of the world economy. Over recent years we have seen a transfer of wealth from the West to the East. We all know that the major expertise is available in the West but the resources are in the East. Our future lies in gathering whatever share we can of the markets in the Far East. It was brought home very forcibly to me in the last few weeks when I backed an Irish trade mission in Libya to see what opportunities exist there, not alone for our private enterprise and exporters but also for State agencies. There are many opportunities there——
Will the Libyans buy our telephone service?
The Minister should conclude.
I could not even make a telephone call while I was there. I was in Amsterdam two weeks ago and I could not get——
The Minister should conclude. Deputy Kelly has not been called.
If the Deputy wants to talk about postal services he should go abroad and send a card——
I am sorry, Minister, but your time is up.
Fine Gael always knock Fianna Fáil and try to undermine the confidence of the Irish people. Our way forward is a positive way forward, investing the money where it is needed and creating jobs at home——
Fianna Fáil under the leadership of Deputy Charles J. Haughey will lead us out of this recession——
Did you see at Manorhamilton——
Tell us your economic policy. Tell us if it is different——
Would the Minister please conclude?
I had only ten minutes and did not have enough time.
What brought Deputy Kelly into the House at this stage?
I want to speak later.
The final speaker for the Labour Party, Deputy Cluskey. I will be calling Deputy Kelly later. Deputy Cluskey is in possession.
My ears are ringing from all the roaring and shouting I heard during the last few minutes.
The Deputy should have had the good manners to let me speak and I would have finished in time.
The Minister's chapelgate contribution was worthy of a concelebrated Mass.
I thank the Deputy for his attention. He has much better listening power than——
No. I felt sorry for the Minister.
We never feel sorry for ourselves and the Deputy should not feel sorry for us either.
He should have been at the top of a ditch when making that speech.
The Bill now before the House provides legislative forms for the provisions of this year's budget. It is, therefore, both damaging and irrelevant. It is damaging to our economic prospects and social development because it enshrines provisions which have already fuelled the inflation spiral and undermined essential social services. It is irrelevant in so far as it does nothing to get to grips with the deep-seated problems of the Irish economy. We in the Labour Party strenuously oppose the Bill for both of these reasons.
The Bill has a shameful aspect also. As one would expect from this Government, it contains further financial gifts for the speculator class who grow rich on profits earned from the social needs of their fellow citizens. They do not deserve tax incentives; they need to be effectively and justly taxed on their profits and on their accumulated wealth. I would remind the House that only yesterday the Dublin Stock Exchange saw many of the parasites within this community reaping hundreds of thousands of pounds of unearned capital gains as a result of share manipulation and on the basis of nothing more than rumours of oil. What hope is there for the poor and the unemployed in a society in which many still look up to and admire such undeserving profiteers? We in the Labour Party are totally opposed to any form of tax gift to speculators.
The Finance Bill enshrines the budget provisions. The budget, in theory at least, is the annual expression of Government economic and social strategy. As such, this Bill cannot be anything other than a miserable evidence of failure.
This Government's economic strategy lies in ruins. Any pretence of planning or of management has been abandoned in favour of public relations. No credibility whatever attaches to the Government's policies or to their predictions. The very process of budgeting, of official estimates of receipts and spending and of policy elaboration have been brought into real and damaging disrepute. The facts of the situation speak for themselves.
Economic growth has collapsed. GNP growth in the region of 1 per cent provides absolutely no basis for a realistic assault on our great social problems and offers no hope to our growing population. This economy requires an average rate of growth in excess of 4 per cent per annum if it is to have any hope of reducing unemployment significantly and providing adequate resources for essential investment and public services. The momentum of growth promised in the 1977 manifesto has been lost, not just because of world recession, but because of mismanagement and misdirection of resources. Votes have been paid for rather than jobs created under Fianna Fáil's crazy priorities.
Unemployment is continuing to increase in real terms. This week's figures show a real rise of almost 2,000 on the live register over the past month. Unemployment is now at an all-time record level of over 125,000. Last Monday's edition of "Today Tonight" very clearly underlined the depth of the human tragedy which exists where there is mass unemployment. Youth unemployment is now a major fact of Irish life — and perhaps our greatest political challenge. Let no one forget the cynical and totally unprincipled approach of the Government to the young people of this country in 1977. Perhaps the message of "Let's Make It Our Kind of Country" was really directed to the property speculators and wealth tax evaders.
Agriculture, which is still the country's basic economic activity, has been allowed to decline at a rate which is quite unbelievable. Almost all of the early gains of EEC membership have been frittered away in certain sectors and crucial investment has been curtailed. The Minister for Agriculture, unable to act without the constant attentions of the omni-present Taoiseach, has handled the Brussels negotiations in a naive and thoroughly unprofessional manner leaving many crucial issues unprovided for, including the critical need for a calf subsidy, to rebuild the national cattle herd.
The deficit in the balance of payments is, once again, becoming a major constraint on our economic development. Linked with the spiralling growth in foreign borrowing it threatens our future prospects. There has been a great deal of misleading talk by the Minister for Finance and others about this vital subject. The fact is that the trade deficit last year was in the region of £1.3 billion and the balance of payments deficit reached £750 million, about 10 per cent of GNP. This serious situation came about despite a fall in imports because of the cutback in industrial investment. Ireland's external competitiveness was substantially undermined by the Government's heedless and inflationary behaviour.
The rate of price rises is now over 21 per cent annually. This rate seriously jeopardises the national understanding and puts the social welfare provisions of the budget into a rather different light from that implied in the Government's propaganda. On that point let me state that — contrary to the deliberately created impressions that increases of 25 per cent had been given all round — a widow with three children on contributory pension will receive 17½ per cent and on non-contributory pension less than 17 per cent — in a year of more than 20 per cent inflation. So much for the Government's compassion and for its honour in social matters.
The public finances are deteriorating into a hideous mess. Last year saw a budgeted deficit of £347 million on current account end up as a final deficit of £547 million, an error of £200 million or almost 60 per cent. Exchequer borrowing amounted to 14½ per cent of GNP. In January, just nine weeks ago, the Minister for Finance solemnly told this House that this year's deficit would be of the order of £515 million or 5¼ per cent of GNP. Today, could anyone seriously believe that the final outcome will be much less than £850 million — or 8 per cent of GNP? At that rate Exchequer borrowing will soon go to £1.6 billion, or almost 16 per cent of GNP. These staggering figures are evidence of something that must be characterised as worse than incompetence.
The fact is that the entire budgetary process is being undermined by this Government. To slightly misquote the Taoiseach, sufficient for the day are the headlines thereof. Never mind the deliberate distortions, the creative use of figures, the manipulation of previously trustworthy official documents, such as the Book of Estimates. Tell the people that social welfare is going up by 25 per cent when he knows the true figure is 17 or 18 per cent. Tell the people that the deficit will be £500 million when he knows the true figure is £800 million. It will be all right on the night, the headlines will be good. Let tomorrow look after itself. That is the Government's deplorable approach to the budgetary process. But one cannot fool all the people all the time and the facts are speaking for themselves today, only two months after the charade of the budget speech. There is now not even a semblance of economic planning.
Since the Government came to power they have produced four so-called planning papers, green or white. They run to a total of about 350 pages of altogether irrelevant verbiage. They contain some of the most remarkable economic nonsense of the age.
Let me remind the House of the Programme for National Development 1978-1981, published just two years ago with much PR activity and media attention. Table 2.1 of that document predicts four things for 1981:
that unemployment would be no more than 23,000 — 75,000 less than at the end of 1978:
that inflation would be below 5 per cent:
that economic growth would be 5 per cent annually; and
that the exchequer borrowing requirement would be below 8 per cent of GNP.
Comment is really superfluous.
It is not so much the fact that the figures are ludicrously wrong. It is that a Government should lend themselves in the first place, to such blatant economic nonsense. No-one who contributed to that document, including the Taoiseach who would like us all to believe that he was on Innishvickilaun between 1977 and 1979 instead of mismanaging the Departments of Health and Social Welfare, could seriously have believed those predictions. Yet they were solemnly published as the policy of the Government of this country.
Planning does not exist. It did not exist when Deputy O'Donoghue presided over his little empire round the corner. It does not exist now when the Taoiseach presides over everything. Planning cannot be said to exist when every word uttered by economic Ministers is belied immediately by their own actions.
For example, in the 1980 budget speech the then Minister for Finance said: "We cannot ask the taxpayer of tomorrow to pay for the services we require today. That would be socially unfair and economically irresponsible". He produced a 60 per cent error in the current deficit at a cost of £200 million.
This year, this Minister waxed eloquent on the same theme and said: "Borrowing for current purposes must be reduced with all practicable speed and on an orderly basis." Eight weeks later we read of new evidence that current spending is again out of control with every likelihood of a £300 million error in 1981. It is both depressing and demoralising.
Planning has been abandoned. I believe that it is this fact which, more than anything else, has hit at business confidence today. Fianna Fáil sought re-election in 1977 on the platform of competence in economic management and they made great play of their capacity to plan and to produce orderly progress across the whole spectrum of economic activity. Many a chamber of commerce echoed to applause for the well-phrased expressions of awareness and understanding—under Fianna Fáil a climate would be produced in which business would prosper as the most up-to-date techniques were applied.
Today all that is evident is that far from using up-to-date techniques of commercial planning, Fianna Fáil have employed some of the most blatant old fashioned techniques of vote-catching and that they are now bereft of other ideas. The facts, as I have said, speak for themselves.
Fianna Fáil have totally failed to deliver on their manifesto programme and they stand condemned for dishonesty, misleading advertising and transparent incompetence.
There must be a change. Fianna Fáil cannot, and will not, deliver that change. I believe it is necessary in this important debate to spell out the way in which Labour would bring about the change which is essential if there is to be a future of hope for the people of this young country which has become, in a real sense, the country of the young.
The challenge which we now face is immense. Our country needs to be transformed if an end is to be put to under-development, low incomes, unemployment and social injustice. We must provide 30,000 net new jobs a year over a decade or more if we are to achieve full employment. This will demand a rate of sustained economic growth never before achieved or even contemplated in this country. The Irish economy will need to grow up to one-and-a-half or two times as fast as the rest of the EEC in order to approach full employment and acceptable living standards. This will call for profound changes in past national policies.
The greatest failure of the Irish economy to date has been the inability of the private enterprise system of itself to deliver full employment. Side by side with affluence among some sections of the population and progress in certain sections of industry and agriculture, there are still many of the familiar characteristics of under-development. Past policies have failed and if they are continued they will not succeed in the future. The need is for a planned economy.
The Labour Party's belief in a planned economy goes back to its earliest statements on economic policy. In contrast with the other political force in the country, Labour believe that the State must accept the primary responsibility for economic development. It must plan by directing the use of capital so that investment will go into the industries and types of agriculture which are most beneficial to the community. In a national plan which has as its objective a thriving, expanding economy, a wide range of social services and a high level of general welfare, profit and corporate power cannot be accepted as the sole determinants of investment.
Planning is essential. By planning we do not mean a reheated and repackaged version of the discredited economic programmes of the past or the pathetic series of Green and White Papers of the present administration. By planning we mean a cohesive national strategy for both economic and social development based upon clear and democratically accepted goals, with policy instruments and planning structures designed to mobilise all sectors in a genuine partnership.
I would place very great emphasis on the question of planning structures. In the absence of such structures it is only too easy to substitute thead hoc gimmick for well thought-out strategy. The abolition of the Department of Economic Planning and Development was a disservice to the whole concept of planning. Despite the shortcomings of that Department, and of their one and only Minister, they represented a clearly evident, official location for planning at the national level. Not alone must there be a planning Department but there must also be a new emphasis on the planning function of the Government as a whole through a restructuring of the back-up services to the Cabinet itself. And, the planning process must be made both democratic and participatory so that all sections of the community will be involved in decisions which affect their economic future and social well-being.
Planning must concentrate upon clearly stated objectives. I would identify five national objectives in the economic field which require priority attention at the present time, each one of which should be the subject of open and public debate but, above all, of firm and courageous government decision.
First, the formidable job creation target of 30,000 net new jobs a year must be made the prime national policy goal.
Second, the evil of sustained high inflation must be recognised and dealt with.
Third, there must be a new and determined drive for growth in the economy, led by a vigorous State enterprise.
Fourth, order and control must be restored to the public finances of the State within the ambit of the national plan.
Fifth, there must be a real balance between the economic and social aspects of the national plan, in the interests of justice and harmony.
Full employment must be restored to the position of a premier policy goal and must be sought in a realistic and determined manner. The fatuous claim of the Government that full employment could be achieved in four or five years has done much to discredit them, but also to discredit economic and social planning.
Full employment will not be tackled effectively if this country continues to follow the policies which have brought us to the present unhappy situation of 125,000 officially unemployed and perhaps 40,000 more out of work. We must seek and apply policies which go to the heart of the problem and which carry the wholehearted support of the entire community.
Within a national development plan there must be a coherent industrial strategy. This strategy must fundamentally rely on Irish resources and on the utilisation of the most advanced technologies under Irish control. There is not the slightest possibility that private enterprise alone will meet these demands. The State itself must provide the motor for a sustained and successful programme of industrial development through the rest of this century.
Public enterprise must be central to the planned development of the Irish economy, leading in both technological advance and employment creation. The public sector must be underpinned by sound legislation and by effective central administration, stressing the need for a high quality of management and for innovation. Clear objectives must be set and there must be workable structures for accountability. All State enterprises must be properly funded through direct State equity participation.
The expansion of the State sector is crucial, having regard to the scale of the economic task facing the nation. Expansion will involve more public acquisition in key areas of economic activity, the creation of new State enterprises, especially in areas of technological advance, and a systematic programme of diversification in the existing commercial State organisations.
At the centre of the expanding public sector will be a national development corporation which will supervise and promote the State manufacturing and service enterprise, define the areas of growth and technology where relevant openings exist, plan for the expansion of the State sector by all appropriate routes, and supervise the necessary State holdings in mining, offshore development and so forth.
The State sector will not alone have concern for increasing the number of jobs. It must have a leadership role in improving the quality of work. Industrial democracy must be extended to the entire public sector and made fully meaningful by the establishment of works councils which will ensure the full participation of the work force in all aspects of development. The example of the public sector will then be extended to the private enterprise area.
On the basis of these general principles and goals, Labour's strategy for the public sector will be seen to be comprehensive and realistic. It stresses the importance of putting effective control of major areas of the economy into public hands while ensuring that such a policy will result in innovation and efficiency rather than conservatism and bureaucracy. This policy, like any other, must serve people's needs and the nation's interest and must never be allowed to become a sterile, doctrinaire position devoid of flexibility and relevance.
State enterprise, properly structured and properly directed, can be the most powerful source of dynamism in an Irish economy geared to satisfy the needs of all the people. The idea of the State sector as inefficient, uneconomic and bureaucratic has arisen because over the years there has been no coherent philosophy of State involvement in the economy. What Labour propose is a new economic structure in which society's goals are articulated in a democratically based plan and pursued through a system in which the people's own enterprises will play the major roles of leadership, innovation and effective performance.
One very, practical consideration should serve to underline the need for Labour's approach to the public sector. Ireland's economy today is subject to the very real threat of an almost total takeover by, or sell-out to, foreign interests. About two-thirds of the new jobs planned by the IDA in the period up to 1982 will come from new foreign investment or from existing foreign owned undertakings. The sell-out of Irish companies in manufacturing and commerce is equivalent to the sell-out of Irish land holdings and it is not in the long-term interest of the country.
A walk around any supermarket or clothing shop will show that fewer and fewer Irish-controlled brands can find shelf space. Ireland today is seen to be an adjunct of the North of England for the marketing purposes of the multinationals. Whether the shopper is looking for cornflakes or for shirts, for biscuits or for socks the likelihood is that foreign brands will predominate or have a monopoly. This cannot be good for our economy and it will be countered in many cases only by direct State action. Such action is essential.
Private enterprise will, of course, continue to carry much responsibility in our search for new and better jobs. Its role is accepted and must be fully supported. Problems in this respect will exist only if the private sector permits itself to remain the prisoner of doctrinaire ideas about its own role since entirely new attitudes are required in today's economic circumstances.
The externally controlled sector of Irish manufacturing industry in 1973 accounted for almost 30 per cent of jobs, two-thirds of all exports and one-third of gross output. By 1977 its share of employment had reached almost 40 per cent and the period ahead will see this figure exceed 50 per cent. The present plans of the IDA foresee half of the new jobs created between 1978 and 1982 coming from new foreign investment, while at least one-third of the remaining jobs to be created will come from existing foreign-owned firms.
I understand therationale of IDA policy and I applaud the vigour with which that policy is pursued by the staffs of the authority. What I question is the underlying philosophy of the IDA approach and of the Government policy which is behind it. Reliance on mainly foreign private investment for the future development of industry can indeed produce short term results, but it will inevitably bring about a situation in which we have little or no control over our own industrial destiny. Power over jobs and investment will more and more lie in the head offices of multinational corporations, with all the uncertainty which that position will inevitably entail.
The future role of the IDA must be critically reviewed so that it concentrates its attention on the creation of a modern, competitive industrial sector in which the major share of ownership and control will stay in Irish hands. Such a strategy will involve the IDA in placing priority on support and development of existing and new Irish enterprises and on joint ventures between the Irish public and private sectors.
In addition, there is a clear need for a strong code of law and practice in relation to take-overs of Irish industrial and commercial undertakings. We must seek to ensure that the assets of our national industrial sector will not be sold out of domestic control without an opportunity for legal action to protect essential national interests. This is not a recipe for undue State interference but rather a commitment to ensure that Irish business law and administration are brought into line with national policy priorities.
Great economic power and influence are concentrated in a small number of private financial institutions, many of which are controlled from outside the country. The decisions which these institutions take concerning the use of their resources clearly affects the quality of the country's overall economic and social life. To say that they should continue to make these decisions without regard to the country's needs, as determined by Government, is virtually to deny the right of the Cabinet to govern.
Public control of the financial sector is essential if the needs of the ordinary men and women in Irish society are to prevail over forces which operate only for the profit of the few. In far too many matters of direct concern to the people the rules are set by the financial institutions with scant regard for their consequences.
First, the role of the Central Bank must be changed to give it positive powers to effectively control financial activity with authority and within the guidelines laid down by Government. The Central Bank, in turn, must be under the direct control of the Government, who alone must have ultimate responsibility for economic policy. In a democracy this is the only acceptable situation.
Second, in seeking support for the concept of public control of the financial system, we must also establish the principle that banks or other financial institutions should be taken into public ownership where this is necessary for the achievement of economic and social objectives. The example of so many European economies can serve us as a guideline for appropriate action in this regard. In France, Italy and Austria, for example, the state owns a major part of the financial and banking services. Almost half of French banking is state owned, while in Austria the proportion is over 70 per cent. In Germany half of the building societies are in public ownership. The Labour Party see the systematic entry of the State into the banking, house finance and credit sectors as central to any worthwhile national plan.
Third, State involvement in the financial sector must be linked to overall economic and social strategy. The example of Italy is interesting. Four of Italy's largest commercial banks are owned by IRI, the Italian State development corporation, which controls and co-ordinates so much of that country's industrial sector. Labour's blueprint for a major industrial development corporation will take fully into account the need to integrate industrial investment policy and financial strategy.
Fourth, control of interest rates is a central issue. It should not be thought that this is an easy matter to deal with in a small and open economy like that of Ireland. However, the positives role of the Central Bank which Labour envisage will enable the State to exercise influence and to intervene directly in the interest rate system. A selective policy, with differential interest rates according to the nature of individual loan applications, can be adopted together with direct controls over bank profit levels. Major projects of long-term economic and social importance must not be sacrificed on the altar of banking orthodoxy. Lending to the State sector in particular must be subject to the considerations of national rather than banking policy.
The attack on inflation must be given major priority. In this I want to identify just three main elements which must have our attention and our commitment in the months and years ahead.
First, we must accept the direct link between inflation and job losses. Lack of competitiveness is leading to redundancy and to factory closures. It is hitting large sections of our basic agricultural sector and of the food processing industry.
Second, while much of our inflation is imported, too much is being created domestically by direct Government action and by inappropriate approaches to income growth. Our own actions are fuelling inflation and adding to already existing trends.
Third, inflation is to a large extent the product of psychological attitudes. Fianna Fáil have generated inflation by the deliberate stimulation of unreal expectations among many sections of society through the dishonest promises of the 1977 manifesto.
The only approach to winding down inflation is a planned one. Our economy must be brought into close alignment with the mainstream of European economic trends through the positive approach to planning which I have already proposed. There must be a long-term, planned approach to incomes policy based upon the successful continental models of permanent consultation between Government and the employers, unions and farmer organisations. The current national understandings represent only the first step towards a truly comprehensive approach in which all aspects of the incomes question can be tackled in the context of overall national development.
Incomes policies relating wages and salaries with investment and employment will not succeed in a capitalist economy. The belief that worker restraint will lead to higher growth, lower inflation and increased employment is a fanciful conception unless it is accompanied by profound changes in the ownership structure — in other words, in an economy organised on socialist lines. Hence, fundamental to Labour's policy for the planned economy and industrial development is the achievement of worker democracy.
There must be co-ordination of incomes policy and taxation policy. During the current debate on taxation it should be remembered that the present unjust and unbalanced taxation system is almost exclusively a Fianna Fáil creation. The work of the previous Government towards achieving more progressive and equitable taxation was opposed bitterly by Fianna Fáil when in opposition, and in Government they have systematically dismantled those taxation measures introduced by the previous Government which sought to achieve greater equity and social justice.
The present taxation system is simply the most visible piece of evidence pointing to the injustice of so much of our social structure. It will not be properly dealt with unless that whole structure is dealt with too.
There must be action now on the tax front. The demands for PAYE reform must be complemented by the restoration of an effective capital tax, by the introduction of foolproof methods of assessing professional earnings — for instance, by introducing a mandatory receipting system for doctors and others — and by an effective and just farm tax. What was commenced with Labour in power and in the teeth of a world recession must be carried forward now.
Taxation is only part of the total scene, as I have said. Our attention must be turned to other injustices which abound. A fair deal for the PAYE sector must be matched with a fair deal for the unemployed in jobs; a fair deal for the pensioners in a dignified standard of living; and a fair deal for the poor and low paid in simple justice. We must not be content with raising the tax yield from the speculative groups in our midst. We must put an end to all of their anti-social pursuits in the interest of society at large.
Fair taxation of farm profits must be accompanied by a fair deal for small farmers, for farm workers and for those young people who want to get a start in farming. Justice is indivisible and must be seen to be so.
Policy against inflation must also contain effective means of consumer protection and a price control system that is understood by the public. Price control is no panacea. But neither must it become a toothless and divided structure recognised only as the bearer of bad tidings. Greater independence for all aspects of the consumer and price control services must be ensured.
When I rose to make this speech the Minister responsible for communications was critical of the contributions that had been made on this side of the House. He said that this party and Fine Gael in their contributions to the debate were not putting forward alternatives. There is no doubt that what I have just said on behalf of this party is a very clear alternative indeed. One need not agree with our approach. One does not have to subscribe to our policies, but it would be blatantly dishonest even for the present Government not to acknowledge that we have spelled out a clear alternative to the approach towards solving the economic and social ills which have bedevilled this country since the inception of this State.
Because the speech I have made is highly political in content it will probably be dismissed, since in this country we do not like talking about real politics. We would rather have exchanges of parliamentary pleasantries across the floor of the House as to who shot whom in 1922. This party, since its foundation in 1912, have been tempted at all times to inject real politics into Irish political life and over the last few years we have become increasingly encouraged in that pursuit. We believe that what we advocate is giving a clear choice to the Irish electorate: conservative, as represented by the Government, not in their verbiage but in their actions, and progressive, even radical, as advocated by this party.
Make no mistake about it, the last 60 years have proved beyond doubt that the conservative approach will not and cannot lead to anything except the list of economic and social ills voiced in this House over the last two days. You cannot get full employment under the present system. It is not possible. You cannot get social justice under the present system. It is not possible. You cannot hold out any hope to our young people so long as we continue under the present system. It is not possible. The only way forward, and we are totally convinced of this, is by the adoption of the policies I have outlined on behalf of this party. We are aware that the young people are becoming more and more aware of that fact and will respond to our appeal for support in allowing us to implement these policies on behalf of all the people. Fianna Fáil have failed dismally and there is no way, with their outlook and their vested interests, they can succeed in achieving full employment and social justice and equity in our society.
The Deputy should conclude now.
So should the Government.
I often say hard political things about the Minister opposite but I do not intend any personal malice or discourtesy towards him, and perhaps I may begin by saying I intend no discourtesy now and I hope he will accept my apology if I offer it now, that for personal reasons I have to leave as soon as I finish speaking.
I read the Minister for Finance's speech. I did not hear it delivered yesterday; I listened to parts of the speeches of his colleagues and read more of them. I must say that, even in the days when the National Coalition felt most embattled and when the people were agreed that we were right to feel embattled, I never heard such a pathetic defence being made for ourselves by our speakers, and such a pathetic effort to put a face on the indefensible, as the Government offered us yesterday and today in what I call this second budget debate.
The plaintive cries from people who were full of confidence a few short years ago, the Minister opposite, and the Minister for Transport, Deputy Reynolds, who was the last speaker for his side, that we should say what we would do, come very poorly from an Opposition, as they then were, who were so slow to outline anything except handouts when they occupied these benches. Of course, we have not failed in quite the way the Minister opposite would wish the public to think we have failed. Ever since moving across the floor of the House at the people's wishes to the Opposition benches, we have produced a constant stream of policy documents and statements. While the Minister and his colleagues will scarcely suppose that we are so naive as to unmask every detail of an election programme, for all we know months or maybe a year in advance, by the form our criticisms of the Government's performance has taken we have made clear the lines on which reform and restructuring of this stricken economy should proceed.
It is not so much the plaintive pleas that the Opposition should tell the Government what to do — although, in fact, we have offered the Government some very concrete advice, which, in my own spokesmanship field as I will demonstrate in a little while, the Government very sensibly have taken — which impress me, but the desperation which has crept into some of the backbenchers' speeches. Deputy Andrews is my constituency colleague against whom, believe it or not, I have no personal animus. He behaves towards me on a constituency basis, so far as I know, with at least the normal quantum of fairness and civility. I have no complaints about him on that level at all.
He came in here today and made a speech in which he actually dipped back into the Dáil Official Reports of 1974 and 1975 in order to find speeches of mine which I made when I was merely a Parliamentary Secretary in the hope that he would there discover some unguarded word or phrase of mine of frankness implying that I was prepared to concede a few inches of territory to the then Opposition. He thought that was still a useful weapon at this conjuncture to use on behalf of the Government of which he is a supporter.
How pathetic can a speech and a Government be? He is not the only one. I am sorry to say his speech and that of another Fianna Fáil Deputy last night also contained the first promise that the Fianna Fáil election campaign will be so desperate that they will not even stop short of smearing candidates' characters. Deputy Andrews gave the clearest possible notice of that. So too last night did Deputy P.J. Morley. It is not so much these straws in the wind but, when the Government get to the point of threatening that when an election is called they will look into the ideological credentials and personal beliefs of every candidate, and make damn sure that the public know about them, the comparison I make is the legend about when Cromwell was besieging Clonmel and he was being held up by the gallant defenders for longer than his plan or, if the Minister wishes, his strategy required.
He was walking around the fields in gloom one day when what did he find only a silver bullet. He said to himself: "Begob, these fellows must be really down on their uppers when they are melting silver plate to fire it out of guns, and when the only metal they have left is silver." There are many items in that little historical parallel which I would not wish literally transferred to the present situation; but when I find Deputy Andrews and Deputy Morley insinuating that we can expect that kind of character-smearing of our candidates, or the candidates of the Labour Party, in the next election I say to myself that these are the silver bullets of which any decent man or decent woman should be ashamed.
Let us leave aside these trivial parts of the Government's case and get down to the hard meat. What about coming to the hard meat of the Minister's own speech? The Minister was anxious to tell us about the Exchequer returns. Before he did so, he told us that the Government's "plans for social and economic development were sound and prudent" and, he said, "recognised as such by reputable, independent, economic commentators". Who are these reputable, independent, economic commentators? I will give way to the Minister if he will name just one.
It was not Deputy O'Donoghue.
I will give the Deputy that information when I am replying. Possibly the Deputy has nothing prepared. I will not help him to make his speech.
It is possible that in some economic hedge school there is somebody who has not actually been bought and paid for and who is willing to say that. I should like to know who he is.
Obviously the Deputy does not know who spoke in the debate. Deputy Morley did not participate.
The Minister spoke here yesterday. There is a little convention which I know seems to be trivial these days. Perhaps it is childish and old-fashioned and very square of me even to mention it. There is a convention that one does not tell lies to the Dáil. I know it is often more honoured in the breach than in the observance. Let us suppose the Minister has some respect for it. If so, I have to assume he really meant what he said here yesterday when he assured the House that their "plans for social and economic development in the future were sound and prudent, a fact recognised by reputable, independent, economic commentators". Please name one in the past 12 months who had a single word of praise to offer for the Government's plans and management of the economy.
I will when I am replying. I will give the Deputy more home truths. He should not be a court jester. Is he on stage tonight?
When the Minister tells us who this reputable commentator is I should like him to flick open the Minister's speech and look at page 24 of the script. The Minister said:
The Exchequer returns for the first quarter of the year were issued last week and some commentators interpreting these have suggested that the budget deficit is running ahead of target. These figures, however, do not represent the expected trend for the year as a whole because there are a number of important factors which did not come into play in the first three months.
Indeed there are, but they are not on his side of the argument.
The pattern of receipts and issues so far is, in fact, generally in line with expectations. On the current expenditure side, 24.1 per cent or less than one quarter of the total amount budgeted for the year has been spent in the first three months.
I admit that a schoolboy, or somebody with as much grip of the general picture as the Minister for Labour, Deputy Nolan — and I will have something to say about him in a few minutes — might assume that, if you have got away with 24 per cent of your budgeted expenditure with only 25 per cent of the year gone, you were doing all right. In fact, you had your nose ahead. As the Minister ought to know, and as those advising him ought to know — perhaps they were simply told to delete this, or he deleted it for them — the historic patter is that expenditure in the first three monmths of the year runs perceptibly below a quarter and mounts as the year goes on.
Let us take the figure of 24.1 per cent for the first three months. Let us call it 25 per cent, if the Minister likes, in round figures. I know I am taking up .9 of a percentage point, but let us suppose we are absolutely level-pegging for the first three months. What will provide for the 25 per cent increase in social welfare, not one penny of which has been spent or could have been spent in the first three months because it only came into force this day last week? Where will the money come from for that? What will the deficit look like when that is added on? What about the second phase of the national agreement which, whoever else will not get it, the public service will get? Public service pay and pensions absorb over half of the national budget and we are talking about a 7 per cent slice of that. What will the deficit look like when that is accounted for? From the best estimates I can get the likely shortfall this year, based on some of the items on the expenditure side which could not have figured in the first three months of this year, is about £300 million. For the Minister to make a Second Stage speech on a Finance Bill, which by agreement of the House was extended to include a budget debate, and make no reference to heavy expenditure items is something which is not far off the silver bullet technique so far as debating is concerned. As soon as the search parties have come home with independent reputable economic commentators between their teeth I would like to hear their comments on that point. We will see how reputable they are if they attempt to defend that.
This kind of debate has gone on here ever since these parties changed sides. In 1979 and in 1980 we predicted that Government spending would have to overshoot the budget target. Who turned out to be right? Was it the Minister and his Department? Was it the Government of which Deputy Haughey is now leader but of which he was then a member and was widely credited with knowing something of such matters? Was it Deputy O'Donoghue, Deputy Lynch, Deputy Colley? Or were the Labour and Fine Gael Parties right? I know that appealing to a record does not prove a point but it lends a certain confidence to the tone in which one may reiterate a simple point the next year based on similar arguments.
In relation to special public service increases a sum of £100 million was provided last year and this was widely overshot. Much less than that has been budgeted for this year, but the signs are that it will be overshot for electoral reasons.
The Minister only barely mentioned the unemployment situation in passing, although I recollect that in 1976-1977 that was the theme on which the then Deputy Gene Fitzgerald was the most vocal. One could not hear oneself think in here with the roaring and bellowing that the Deputy produced on the subject of "jobs for our young people". Let us have a look at the jobs for young people and at the man who is in charge of announcing and defending the figures.
Deputy Nolan, I assume is a decent man. I have no animosity against him or fault to find with him, except that he does not know what he is talking about. I assume that the Minister is not trying to deceive people. I would not claim to have caught the Minister out in a lie so I will not allege that he has deliberately said something false. That would be too unjust. Therefore, I assume that the Minister for Labour means what he said in his press handout on 6 April last. What the Minister said then forces me to conclude, assuming that he is not telling a lie, that he does not know the first thing about unemployment trends. If Deputy Tom Nolan were just plain Mr. Tom Nolan and I had to explain this to him I would say "It is like this. What we call unemployment is what we have when people have not got jobs, but there is such a thing as seasonal employment. These are mostly outdoor jobs, of which there tend to be more available when the weather gets better in the spring; and there are fewer of them available later in the autumn when the rain becomes unbearable and the evenings close in. These jobs are building jobs, jobs on the roads and on the bogs. Whether the unemployment picture is good or bad there is within a range of thousands a fluctuation which is as regular as the rising and the setting of the sun".
I have no doubt that there are corresponding factors in other countries and that there are seasonal fluctuations in employment in other countries. I would say to him "The weather tends to improve here round about March. The evenings start getting longer, people start going out and working more on the roads and on the bogs and building starts to pick up because of the more favourable conditions. This occurs even in bad times and there is always a bit of an upturn in these sectors. The result being that usually by about the end of February we find that the crude unemployment total which may be very high will fall a little, because however bad it is there is still a little activity in building on the bogs and on the roads. People who were laid off during the winter are taken on and perhaps more will be taken on until late autumn and then they will be laid off."
I want to make the Minister opposite, and the notional Tom sitting on his three-legged stool in the corner, to whom I am trying to teach the simple facts of unemployment trends, a present of the following prediction: that they will probably find the crude unemployment total tailing off a little bit more over the next few months. It will probably shed a couple of hundred each month until September and if it does not keep improving until September the Government are in real trouble. To back up that generality, I will tell the House what has been happening over the past nine years. There is no point in going back any further because it is the same every year. There has not been a single year in which the crude unemployment total has not fallen between the end of February and the end of March. In 1973 it fell by over 4,000, in 1974 it fell by over 2,600, in 1975, at the depth of the recession, it still fell by 170.
We did not issue any statements clapping ourselves on the backs for that. One did not find Deputy Michael O'Leary exposing his ignorance about unemployment trends in that way. In 1976 it fell by 1,500, in 1977 it fell, in that month, by over 1,200, in 1978 by 900, in 1979 by 3,500, in 1980 by 800 and this year by 200. The drop in this year — as they say also in Merrion Street — is "of the same order" as the drop we had in 1975. But in 1975 there were 23,000 fewer people on the dole than there are now. In 1975 when the "Minister for Hardship" was in control, when all the other people about whom it was so easy to speak and shout, sneered and roared contemptuously from this side of the House — one was Deputy G. Fitzgerald, then with no responsibilities to carry and nobody seeing what metal his bullets were made of. It was easy then of course to complain about unemployment but there were 23,000 fewer people unemployed in 1975 than there are now. That did not prevent unemployment from getting substantially worse in the following year, as I predict it will in the year ahead.
Now, to go back to the little chap in the corner: "So you see how it is now, Tom, about seasonal unemployment. Do not any longer, Tom, please, issue any statements like this. If you ever become a Minister for Labour, if you ever grow up and get that job, do not ever issue a statement like this saying that you are `welcoming the reduction in the live register figures for March' and saying that `this was the first decline in the monthly figure since the deepening of the present recession earlier last year'." The Minister said:
The March figures vindicate the Government's strategy of increasing productive investment so as to create new jobs and preserve existing jobs to the greatest extent possible.
I know there will be some little fellow charging off now to Deputy Nolan, perhaps even now has done so, saying "Kelly down below there is tearing strips off you or that that — deletion — is making hay of your statement." I am sorry if I am causing him pain. But a Minister for Labour who wants to be taken seriously, and a Government who want to be taken seriously, ought not to have statements like that coming out, when they discard and eliminate the seasonal factors in unemployment figures, because the figure is now 1,800 worse than it was four weeks ago. Of course we did not hear much about that from Deputy Andrews — I beg your pardon, I thought I heard over the intercom the name P.J. Morley, but it may have been some other P.J. in the ranks over there; I thought it was Morley.
It was not Deputy Morley, but that is only one of the many mistakes the Deputy has made since he began.
Wait a moment, now, this is quite important, if it was not Morley I wish to apologise to him because I would not wish him to think that I was accusing him of anything so low if he did not in fact say these things. But it was a Fianna Fáil Deputy whose initials are P.J. — I am sure there are a few of them — and I will check up on which of these people with the characteristic initials it was. At any rate they were full of talk of that kind, full of flipping open the speeches which junior Members of the Coalition Administration, like myself, had made six or seven years ago, but not so good about making sense of unemployment figures, the Exchequer figures or anything else.
On public service pay the Minister opposite said:
Pay costs are, of course, of crucial importance and not simply because of their Exchequer implications. At a time of international recession, when it is essential for us to improve our competitiveness in world markets, we cannot afford to allow public service pay to increase in a manner totally out of line with what is happening in the private sector.
Who is speaking here? Whose voice is this? Suppose I were an archaeologist, in a couple of hundred years' time, and I found embedded in the foundation stone of a monument — the Tomb of the Unknown Minister of State or something of that kind — this single page, I would say to myself: which government was responsible for this?
...we cannot afford to allow public service pay to increase in a manner totally out of line with what is happening in the private sector.
I would say to myself: that sounds very like the tough talk of Richie Ryan, Liam Cosgrave and those who went in for it, those who managed to get wage agreements in 1976 and 1977 to a level which made possible the industrial recovery of 1977 and 1978. That sounds very like that tough Government which did not mind doing unpopular things and which screwed down the inflation rate until it fell far below the 10 per cent mark. That sounds very like them; that sounds like the crowd who put an embargo on recruitment into the public service. It does not sound at all, oh no, like a Government who paid out to a large part of the public sector a figure considerably more even than an arbitration board had recommended. Above all it does not sound like a Government or a Minister who had increased the size of the civil service in four years by 12 per cent or 13 per cent, and for what? What are they all doing? But they have to be paid too. It is not simply the level of awards, it is the number of people to whom you pay them. If you have got a very small, skeleton service — and I am not advocating that the service should be necessarily stripped down to the point where it is undermanned — but where you have a very small service, public or private, in other words, if you are running something which is capital-intensive, and not labour intensive, it does not really matter what the size of your pay awards is because they are not a large factor in your calculations. But where the size of your service and the number of people you have to pay is growing, and growing uncontrollably, when you yourself have not got the guts or the political will to stop it in case you lose a few lousy votes, then the point has been reached that you are disqualified from complaining about the inroads the public service pay is making on the Exchequer and the economy.
This is supposed to be the era of the microchip, the era of the new information technology which constitutes a threat to employment. It is the era, according to all the experts, which will decimate employment in banks and insurance companies, in service industries of all kinds. But apparently all these office aids do not make any impact on the public service which the public have to pay for. That goes on inexorably, remorselessly growing in size. If the Minister who inherited, God knows, a big enough civil service from us, had kept it that size and refrained from extending it by 12 per cent or 13 per cent in four years, mark you, it would not really have mattered had he overshot on percentage levels in pay rises. Let me do myself a bit of political, electoral good by saying: we could have been perhaps more generous with the public service, not that I recommend treating people unequally, but we might have been able to have been even more generous with the public service had there been fewer of them to whom we had to be generous.
Therefore we find now, in this piece of paper that the archaeologist has dug up, that archaeology has betrayed us, we were all wrong, it was not in fact the Minister for Hardship or his associates who produced this bold phrase about not allowing public service pay to increase in a manner totally out of line with what is happening in the private sector. They have allowed it, not merely in percentage terms but in the gross impact on the Exchequer in regard to the number of people who must receive these increases. If ever a Government, and particularly a Minister for Finance was discredited in presenting almost any argument about the economy it is the Government of Deputy G. Fitzgerald. Mind you, it would be quite unjust to put all the blame on him, he is a recent arrival only and we do not know how long he is staying. I am almost sorry to introduce this into a debate of this kind but——
The Deputy has not spoken about the subject yet.
I remember that image of human life — an old Anglo-Saxon poem — about the little bird which flies out of the dark into the lighted hall, flits through the lighted hall, is seen and sees for a little while, flies out of the hall at the end once more into the darkness. That is a very touching and beautiful allegory of human life. I am sorry to have thought of it off the top of my head in comparing the passage of Deputy O'Kennedy through the Department of Finance with that image. But, in a sense the speed of his arrival and departure — mind you, not caused by any accident but utterly predicted and known to the man who appointed him — is the single greatest disgrace in the economic management of this State in the last four years, and it is against heavy competition that I am awarding that palm. It is against heavy competition that I characterise that as the single greatest disgrace——
Deputy Kelly without interruption.
I vacated the office of Attorney General at the people's will because the Government, which appointed me, lost office. Deputy O'Kennedy, having being in the Department of Finance for a year, left it to go to Brussels, which the man who appointed him knew he was sending him to a year previously. His opinion of his own conceit was so high and his opinion of his own mastery of those details was so great that it did not really matter who he had in the Department of Finance; he was only a cipher, easily manipulated, a pawn that just with the press of a switch on the intercom he could put right if he got a couple of hundred million pounds wrong in a calculation on the morning. He might easily do that because Deputy O'Kennedy, by training, education and background had no greater competence to fill the Department of Finance than Deputy Dick Burke would have had at the end of 1975. What would have been said had Deputy Liam Cosgrave sent him to the Department of Finance for a year, knowing that he would be going to Brussels a year later? The roof would have fallen in on him; and every criticism spoken about him would have been correct.
There were many among the Deputy's party who did not want him to go there.
Deputy Kelly without interruption.
I have got one more thing I want to deal with. I am afraid it is a rather technical matter and will take me the rest of my time. I will try to abstain from polemics while I make those points. The Minister for Finance said yesterday:
There is a growing realisation internationally that the successive oil price rises are unlike other temporary setbacks to growth that have occurred over the last 30 years. The price of energy, as a factor of production, has permanently risen to a much higher level.
A lot of us are lucky with the kind of jobs we have. I have always recognised that I am very priviliged in my job outside the House. I believe one of the worst jobs is that of somebody in the public service who has to write a Minister's speech. For all I know he comes in in the morning with the same kind of bothers at home we all have, with screaming children and so on, and he groans to himself: "What will I put in this man's mouth? I had better fire in something about the cost of oil." He gets a few words down. I always find that is a help. "There is a growing realisation" is always a great start to a sentence. It carries him through a line and it gives a bit of bulk to the speech.
Would the Minister for Finance tell us something that we do not know, for a change? It is incredible that a Minister for Finance could tell us this. I hope Deputy Corish will not mind if I mention the name of his distinguished predecessor in the leadership of the Labour Party. I remember the late Myles na gCopaleen making unmerciful fun of the late Deputy Norton when he was Minister for Industry and Commerce, because on a couple of occasions he said, which was not such a very odd thing to say in 1948 or 1949, that air transport was here to stay. Deputy Norton used often say that in his speeches. The late Myles na gCopaleen used make unmerciful fun of him for that. I feel that to be told in this day and age by a Minister for Finance that "there is a growing realisation" is as though the thing is only still dawning, that there are corners the dawn has not yet reached, even in this House, if the Minister's implication is to be taken seriously. The Minister apparently realises that dear oil is a fact of life. Has he asked himself what the Government or the people in his own Department are doing in response to that new fact of life other than whingeing about it and complaining about it? What have the Government done, in concrete terms, as distinct from talk, by way of trying — I do not mean tinkering with the problem — to produce alternative energy sources and wind down our oil consumption and demands?
In the 1980 science budget the National Board for Science and Technology say on page 52:
The search for new energy sources and conservation technologies has given rise to unprecedented levels of expenditure on energy research, development and demonstration projects, by government and industry internationally. The Irish situation has been less satisfactory in that necessary programmes and related resources need to be substantially increased.... Although national expenditure has grown rapidly to an estimated £2.3 million in 1979, Ireland ranks last but one among OECD countries in terms of realtive expenditure in energy research, development and demonstration.
That may not seem to be very important to the Minister but that is a very damning thing for a country, which is the scene of a "growing realisation" that dear oil is here to stay. In order to put that into perspective let me tell the Minister that £2.3 million spent on energy research and development is between .1 and .2 of 1 per cent of what the country spends in electricity bills a year. It is only a fraction of 1 per cent of what we pay the ESB for the electricity it sells us. That is what we spend in research and development on energy, even though there is a "growing realisation" that dear oil is here to stay.
The only country in the OECD, which has 20 members or so with a lower proportion of GNP devoted to energy research and development than us is Greece. I do not know what their reasons are, and I will not criticise them for being even worse than we are. The Government and the Minister for Finance are in a very weak position to lecture us on the subject until they can pull their socks up in regard to research and development of alternative energy techniques and of conservation and better use of techniques for the very dear energy we have at present.
Since we have been invited non-stop by the other side to say what we would do I will tell the Minister and the opposite side of the House what actually we have done. Admittedly, being in Opposition, we can only say, but before the Minister sneers too loudly at anything we have said I want to draw his attention to a curious little fact. My party published in May 1980 the only detailed policy on energy which any party have ever produced. The document was in preparation for about eight months before that. The final stages of putting it together were from January to March 1980. My strong impression during the latter stages, when the thing was nearing completion and we were showing it to some outside experts for their views, was that our procedures were not entirely watertight. Some of the people we consulted, no doubt quite innocently, passed on this or that because, almost contemporaneously with the publication of that document, the new Minister in charge of energy, Deputy Colley, began a series of policy U-turns, policy statements and policy attitudes, which contrasted radically with the attitude taken by his predecessor, Deputy O'Malley.
I will not annoy the House by simply reading out stretches of our policy document. I will briefly mention eight areas I have identified as ones in which we were ahead of the Minister for Energy in stating plainly what we stood for and what we believed. These are things in which he subsequently imitated us. He will not admit it but I have a moral certainty that our policy document is in his hip pocket and permanently stays there. That is where it will remain until he has used every idea in it. Before anybody thinks I am complaining about that, I want to say I am not complaining about it, I am delighted about it. I have perhaps gone too far in trying to make things easy for the Minister for Energy because I can see that he is on the right path. He is at least on the right path from the sounds he is making. Not a lot of action has come out from the far end so far. He is on the right path so far as his stated attitudes are concerned. As the House may have noted. I have refrained from trying to hound him. I do not think that a man who is doing what is right should be hounded. I have been as constructive as possible in the one or two Bills that he has brought before the House and this has been because of my recognising in these Bills my own spurious offspring in the political sense.
Perhaps the Deputy will let us have his suggestions.
We were the ones to put first, in the form of our policy document, a firm recommendation that the Carnsore proposal should be put on the long finger, that there should be no proceeding with a nuclear project there. This was not because of any ideological or religious objection to the project. We did not have any such objection. I must admit that the Labour Party were against any such move from the start. We considered that any such move would be unduly expensive, wasteful and unnecessary in our present circumstances and that it was something that should be resorted to only as a last option, after every other option had been explored but had failed. A couple of months later Deputy O'Malley's policy was put into reverse by the Minister for Energy. Also, in that document of ours which was issued in May of last year we were the first to state that we were committed to the building of a pipeline to take natural gas from Cork to Dublin and beyond Dublin to the Border for piping into the North of Ireland, if necessary. I shall not use the word "steal" or anything of that kind because I am glad that that policy also lodged with the Minister for Energy and made sense to him. It is now Government policy.
We were the ones, too, to point out that enormous quantities of the heat that is generated is lost by being pumped into rivers and lakes or by going out through chimneys in our network of generating stations. Obviously, much of the energy that is generated is used in the generation of electricity but a large proportion of it is dissipated into the air or into our rivers. In other countries such heat is made use of by way of district heating systems, combined heat and power stations, whereby whole suburbs or even whole towns are heated. I have a great deal of respect for the ESB and for their achievements, but up to the time of our suggestion in regard to the use of heat lost through these generating-station chimneys, they had not done anything that was visible on the surface with the exception of heating a few experimental glasshouses in, I think, Shannonbridge.
It was in Lanesboro.
A couple of weeks ago this item of Fine Gael policy turned up, too, and a suggestion which we had disinterred and which had been made as long ago as 1975 by two ESB engineers that the waste heat from the Ringsend power station should be used to heat 4,000 to 5,000 households in Dublin is back on the table.
We were the ones who suggested that there should be a dispersion of wind farms with experimental windmills in order to avoid the problems intermittent throughout the country and starting with one on an island. That policy was adopted also by the Minister for Energy who even went further and named Inisheer as being the island to be used for the experiment. We suggested also that waste should be burned in order to generate electricity even if the waste output was not enough to operate a complete station in which case it could be combined with other fuels to produce electricity and heat.
I was amused to note recently that the Minister for Energy went to Denmark to find out about such developments. It was not necessary for him to have made that journey, because we had done all the work. I recall being at a film show and demonstration about 18 months ago on the results of the Danish research. Therefore, all that information is available here. I am convinced that it was in our document that the Minister found the idea; but good luck to him if he succeeds in this area. I will cheer him on and there will not be any question of sour grapes when I am invited to the opening, regardless of who is in power at the time.
We were the ones, too, who suggested the possibilities of small-scale hydro power. I am not talking about the large hydro-power stations because the rivers that are of sufficient size and fall to justify such stations have all been used. There are many smaller streams which for more modest purposes could be used in the generation of electricity. We find that our suggestion in this regard is now under active consideration by the Minister for Energy.
Something else which we suggested but to which I have not yet heard him refer was that the IDA should endeavour to attract firms to this country who could be made to develop the technology of small-scale hydro generation so that we could make machines here for this and sell them abroad, unlike the telephone system that the Minister tells us he is trying to sell to the Libyans.
Again, we were the ones who suggested that the North-South electricity link should be reopened. That suggestion is now back on the table. In the preface to this document of ours I suggested that the co-operative principle should be harnessed in energy development. We find this suggestion incorporated in the Turf Development Bill. I have reservations of a legal kind and which I shall not go into now about the proposal to distinguish between private and co-operative developers but the Minister is on the right track and I hope he will be successful in this area. Every effort should be made to make people aware of the advantages of the co-operative development of small bogs. Such development would be much more profitable than private development.
Just as was the case with regard to the ESB 55 years ago, this party in terms of all these policies, have pioneered the developments of which future generations will reap the benefit. Therefore, I do not wish to hear any more from the other side of the House about our being short on suggestions.
Perhaps the Deputy will let us have a copy of his policy document.
I should like to begin on the note on which Deputy Kelly ended and to repeat that there have been very few worthwhile or constructive suggestions from the other side of the House. As usual, we have had plenty of the negative type of suggestions. For the most, the contributions from the Opposition have been disappointing. I was particularly disappointed with the contributions that we had from them yesterday afternoon. We have heard little from them today that is new. I appreciate the reasons for Deputy Kelly having to leave but I am sorry that he cannot stay because I have a few words to say to him.
I shall send somebody along to replace me in a moment.
However, I expect that the Deputy will be reading the report of the debate later. The first point is that the Deputy should not be under the misapprehension that all the thinking in the field of energy belongs to Fine Gael. Indeed, the many points he mentioned were adverted to by the Government long before we heard them from Deputy Kelly.
Perhaps the first indication of the Government's commitment to this whole area was when the Department of Energy were established. The Minister for Energy has been extremely active in respect of a question that Deputy Kelly has raised, that is, the question of our reliance on oil. By way of supporting the Minister this year in his efforts in the investment plan, I provided £290 million by way of capital expenditure, the vast proportion of which goes to switching our reliance on oil to other fuels and to other sources of energy.
Deputy Kelly was wondering whether any commentators have agreed with the Government's economic strategy. I can assure him that there has been such agreement. At short notice I was not in a position to resurrect for the Deputy details of those who commented on the plan and of how correct it was or of those who commented on the budget but the reaction was favourable. I can tell the Deputy, however, that there was an article inBusiness and Finance last week in which was quoted the views of an international banker and economist. This gentleman is reported as having said that Ireland has continued to be the fastest growing EEC member in recent years and one of the most rapidly developing economies in the OECD despite general adverse conditions since the mid-seventies oil crisis. I hope that Deputy Kelly will accept this as favourable comment and I would ask him to accept that I am not one who would ever tell lies to this House.
Deputy Cluskey said that we must accept that there is a direct relationship between inflation and job losses. I would accept that there is such a relationship though it would be wrong to attribute all job losses to inflation because there are many other factors involved. For example, a world recession can affect job losses, markets, industrial harmony and other areas also, but having said that I do not wish to underlay the importance of the role of inflation and the importance of trying to control it. Yesterday and today I have stressed the Government's concern to bring down inflation.
Deputy Cluskey also outlined the framework for a future Utopia. He said that in his view this was the only hope for full employment and social justice. Time does not allow me to analyse Deputy Cluskey's philosophy in detail but I doubt if many will be convinced that he has produced a formula for success. The policies of the present Government provide the only formula for achieving the objectives of full employment and social justice which Deputy Cluskey and all of us want to see.
If I am disappointed by Opposition contributions to this debate it is because none of the speakers put forward definite proposals for handling the economy. Deputy Kelly spoke about his great document on energy needs in the future, but never commented on the way he thought the economy should be handled. I want to correct a claim made by Deputy Horgan that capital gains tax receipts had been reduced by 70 per cent as compared to when the previous Government were in office. The fact is that yields from the tax amounted in 1976 to only £0.43 million and in 1977 to £1.47 million. By contrast, the yield in 1980 was £6 million. This is the kind of incorrect statement which has been made in this debate.
When the Coalition Government were in office they were referred to by many as the prophets of doom and gloom. Obviously the prophets have maintained that outlook throughout their period in opposition and we have listened to the same style during the past two days. We have heard claims for increased spending, decreased taxation and deflationary cutbacks in borrowing.
Let me repeat my statement of yesterday. The decisions taken by the Government have been positive, that our imaginative economic policies are both sound and prudent and will leave us in a position of strength to take full advantage of the expected upturn in the economy later in the year.
Before turning to the points raised by Deputies on the Finance Bill I would first like to respond to the learned critics of our financial and economic policies. Deputy Bruton spoke at length on the Exchequer returns for the first three months of the year. He saw these figures as confirming his opinion that the budget targets are illusory and will not be realised. The Deputy, of course, interpreted the figures to suit his own purpose. He was eloquent on the subject of expenditure but he studiously overlooked the fact that current expenditure up to the end of March was less than one quarter of the total amount budgeted for the year overall. This is surely the most significant figure in any assessment of the overall pattern. Equally misleading was the Deputy's invalid claim that none of the £80 million provided in the budget for special pay increases was spent in the first quarter. The fact of the matter is that almost £14 million of this provision was spent.
May I ask for a copy of the Minister's speech?
No. The Deputy was not here at the beginning of my speech when I was speaking off the cuff. A partial copy of my speech is available which the Deputy may have if he wishes.
I now repeat that the figures for the first quarter are in line with expectations. Deputy Bruton can hardly be taken seriously when he suggests that my budget statement should have included projection of the Exchequer end-March position. On the Revenue side the changes announced in the budget did not have a significant impact in the first three months but this will change in subsequent quarters. The increased Post Office changes did not take effect until 1 April.
Nor did the social welfare increases.
The Minister should be allowed to continue without interruption.
The excise duty increases did not take effect until late in the first quarter and of course a large percentage of payments following these increases were delayed because of deferment arrangements. I would also draw Deputy Bruton's attention to the substantial increase in the intake of corporation tax later this year which has been provided for. I have already pointed out that in drawing comparisons with 1980 there are special factors which must be taken into account. Because of a purely technical timing arrangement, there was an increase of approximately £50 million in central fund services in the first quarter of this year compared with the same period last year. Deputy Bruton dismissed this as an inconsequential matter but we are talking here about a figure of £50 million.
It was not explained.
Another special factor which improved the 1980 figure was a backlog of general tax revenue arising from the Post Office strike of the previous year. Neither does Deputy Bruton acknowledge the effect on revenue in the first quarter of this year, by comparison with 1980, of the major income tax concession announced in the 1980 budget, or of the changes in the payment dates of income tax by the self-employed which were announced at the same time.
The Deputy went on to draw comparisons with the first quarter of 1978, claiming that debt repayments have trebled, that current expenditure has doubled but that current revenue has only increased by 73 per cent. He said that this shows an unfavourable pattern in our finances.
Some of the figures quoted by the Deputy are wrong. His figure of £1,199 million for current expenditure in 1981, and his corresponding 1978 figure, include voted capital services, which have increased at a very fast rate since 1978. Excluding these services, current expenditure increased by 88 per cent, compared with an increase of 73.6 per cent for current revenue. For the year as a whole, however, revenue is expected to be 94 per cent higher than in 1978.
The trebling of debt repayments mentioned by the Deputy refers to the figures published in the Exchequer statement as "issues for the redemption of debt". I am not clear on what the Deputy is implying here. The figures do not reflect either the overall debt position or the cost of servicing the debt, since they include movement of funds from the Exchequer to departmental funds and the Central Bank and normal Exchequer bills transactions, many of which are "in and out" transactions which are matched by corresponding figures on the receipts side of the Exchequer statement.
They all occurred in 1978 too.
Both the national debt and the cost of servicing this debt have grown at a much slower rate since 1978.
That is bunkum.
They have not even doubled, much less trebled as implied by the Deputy.
I bet £100 they are trebled by the end of this year.
The Minister, without interruption.
Why quote wrong figures? They will borrow £2,000 million this year.
Deputy L'Estrange was so quiet in the Coalition days when he was a dignified little alter boy at the back who said so little.
I was never dignified.
As usual there is no substance in Deputy L'Estrange's prognostications. As I have said, the national debt and the cost of servicing this debt have grown at a much slower rate since 1978. They have not even doubled, much less trebled as implied by the Deputy. I would regard such comments as mischievous.
Before I leave the Exchequer returns, let me emphasise again that the Government are committed to reducing the borrowing requirement. We have put into effect the measures necessary to achieve this and we will see to it that these measures are fully implemented.
Deputy Bruton had much to say on the subject of planning. He claims that to improve our economic performance we must have a plan and that the government have no plan. Obviously the Government's investment plan 1981 is being overlooked by the Deputy. This Government are committed to planning.
You can call anything a plan nowadays.
At times it appears that some people on the other side of the House have very short memories. This Government are committed to planning — unlike the Coalition Government which preceded us. We have published five planning documents. Our predecessors published one short document in 1976. The programme of planning undertaken by this Government in 1977 was highly successful in enabling growth rates to be achieved which were among the highest recorded in the industrialised countries.
Due to the action of the previous Government.
We adopted a planned approach to extracting the maximum momentum from the then favourable international economic climate.
When the international environment deteriorated we did not adopt a passive approach of claiming that there was little we could do. Our response was Investment Plan 1981 — an imaginative and carefully thought out strategy to deal with the effects of the current recession while pursuing essential development. The plan comprises an investment programme of record proportions which will lead to a considerable increase in the productive capacity of the economy — laying the solid foundation for future growth.
The plan is also having an immediate dynamic effect. By the end of the year we estimate that its implementation will have directly created 10,000 new jobs——
And 200,000 unemployed.
——and indirectly will have given rise to many more. The plan represents the best possible means of meeting this country's immediate requirements while improving our potential for future growth.
As for the longer-term, Government planning must be concerned with the practical realities. It would not be consistent with these realities to publish detailed annual targets for the next five years or thereabouts when the course of international developments cannot be predicted with any certainty. The draft EEC medium-term programme foresees that, even with a recovery from the present recession, there will be a period of slow growth in demand ahead. It calls for a major effort by member states to improve their competitiveness by giving priority to investment in productive capacity. We are in agreement with this principle and the investment plan gives concrete evidence of the priority we have accorded to investment.
In a small open economy, inflation largely reflects the price we have to pay for imported oil and other goods and services. Nevertheless, the Government are concerned that on the home front there are difficulties, particularly in relation to domestic costs, which are affecting our competitiveness. These difficulties must be overcome so that we can plan realistically for growth and employment in the medium-term. This, and other issues, are being drawn together by the Government in their current planning operations and practical steps are being taken to deal with them. To improve our economic performance and to achieve long-term growth, we must have regard to the very real constraint imposed by the balance of payments deficit on our freedom of action and we must have specific measures to deal with it. This is the essence of practical planning and not the publication of the unpredictable.
Deputy Bruton complained at some length about delays in finalising the annual Estimates of expenditure. He suggested that the Estimates should be submitted to the Dáil at least in August or September of the previous year so as to allow adequate time for discussion of the figures and for changes. I have no reason to disagree as a matter of principle with the Deputy's viewpoint and I do not see this as a matter of party politics. I am aware that in many European countries the Estimates are settled before the beginning of the financial year.
But there are practical difficulties in the way of speeding up the process of preparing the Estimates. The procedure which the Deputy has in mind would impose considerable extra work on the Dáil. Also, unless the Estimates were considered in the same context as resources, I fear the tendency would be to press for bigger programmes rather than adopt a prudent attitude towards spending.
They should be considered together.
From the amount of time devoted to inflation during this debate it would appear that the Opposition do not recall that in the three years from 1974 to 1976, the average annual rate of inflation was 19 per cent. On two occasions in 1975 under a Coalition Government this country experienced its highest rate of inflation for the decade — 24 per cent. In the three years from 1978 during this Government's term in office, inflation has averaged 13 per cent.
It was 11 per cent when Fianna Fáil took over in 1977.
The Minister without interruption.
Let the Minister give the full picture.
Indeed in 1978, the Government succeeded in reducing the rate of inflation to 7½ per cent, the lowest annual figure in the past decade.
Deputy Bruton indulged in some creative arithmetic to the effect of exaggerating our rate of inflation. He has taken the rate of increase of about 6 per cent in the quarter to mid-February last and multiplied it by four to get an annual rate of 24 per cent. That figure of 24 per cent is meaningless.
You cannot take the figure for a quarter, which inevitably shows the impact of once off factors which will not continue, and operate as if it gave any real indication of the annual rate of inflation. If I wished to follow that approach I could take the increase in consumer prices in the preceding quarter, at about 3 per cent, and use it to arrive at an annual rate of 12 per cent, half the Deputy's figure. I could also take the figure in the quarter to mid-February 1975, under the Coalition, of 8 per cent and use it to arrive at an annual figure of 32 per cent.
It was 10 per cent when Fianna Fáil came into power.
I will not adopt this approach because, as I said, it is meaningless. The fact is that, allowing for the effects of the budget, the percentage increase in average consumer prices this year over last, which is a proper measure of annual inflation, is expected to be less than last year, as Deputy O'Leary was prepared to admit.
The changes in the provisions on taxation for married couples, the increases in social welfare benefits, well above the rate of inflation, are only two examples of worthwhile changes which had to be paid for somehow. The Opposition cannot legitimately criticise us on the one hand for the size of the current budget deficit, and on the other for taking steps in the area of taxation which will reduce that deficit in relation to GNP. Deputy O'Leary has sought to argue that increases in indirect taxation are, because of their impact on prices, damaging to the national understanding. I have seen nothing to suggest that increased direct taxation is attractive to trade unions or to their members. I would ask them not to take the narrow view of looking solely at the impact of the budget tax increases on prices, but to look at the budget as a whole, and to weigh the benefits it is bringing in the way of improved employment prospects, higher social welfare payments and increased equity in the direct tax system.
The Opposition have said that I have shown interest in their approach to our economic problems, as if this were a criticism. They could have taken it as a compliment if they had coherent policies to put forward — that is the deciding factor there — but they have shown no signs during this debate, of having policies on inflation or in any other economic area. Deputy O'Leary, for example, has recalled the Coalition's use of subsidies to affect the rate of consumer price increase. But how could increased consumer subsidies be provided at Exchequer cost, while the current budget deficit was being reduced, as sought by the Opposition, unless taxation was increased or other expenditure cut? What taxes would they like to see increased? These are the questions the Opposition have left hanging in the air. They do not have any idea how to answer them nor did they in the four years in Government when Deputy L'Estrange sat so quietly on the back benches, ashamed of his Government's performance and never opened his mouth.
I was never ashamed of them. They were a good Government. In 1976-77 the Minister, when in opposition, was crying for subsidies. Are subsidies wrong now the Minister is in Government?
Similarly, the agreement reached last week on Community farm prices will have a very small impact on consumer prices. Do the Opposition then oppose the farm price increases? How is their criticism of the size of the farm price increase reconciled with their views on consumer prices? Have they proposals which would give a bigger Community farm price increase, a smaller impact on consumer prices, and a reduction in the current budget deficit, all at once? From what we have heard in the past two days, I doubt it.
Finally, as usual the opposition have not got a common list of priorities. For Deputy Bruton, the inflation rate is the number one priority. For Deputy O'Leary it is the reduction of unemployment. Quite different economic policies follow from one's decision on which is the priority area. The current British Government, for example, places particular weight on reducing inflation.
The Taoiseach has a special relationship with them.
The Opposition have been highly critical of some of the budget changes. They have queried the budget arithmetic and have tried to create the impression that the figures do not match reality. I notice, however, that they have steered clear of the subject of social welfare. They have not acknowledged the substantial improvements in social welfare benefits which were announced in the budget and which came into effect in the past week.
All independent commentators have readily acknowledged that these increases are particularly generous in our present circumstances and are real proof of the Government's concern for the less-well-off sections of our community.
We will all be less well off before long. We will all be qualifying for that benefit.
These social welfare improvements are costly. The budget includes a provision of £111 million for them for this year. This money must be raised elsewhere and the Government took the decision to increase taxes on a number of non-essential items to pay for them. Would the Opposition have chosen to keep the social welfare increases at a much lower level? Or would they have met the cost of these increase through more direct taxation? There are no other options and yet the Opposition keep hinting that there is some magic formula somewhere that will bring all the pieces together painlessly.
Deputy Bruton referred to Ireland's credit standing in the international banking community. I can assure the Deputy that the terms on which Ireland can borrow on the international capital markets clearly confirm our ranking as a prime credit on these markets.
In January of this year, on the Dollar Eurobond Market we secured identical terms to the European Investment Bank which, as Deputies will be aware, carried in effect the combined guarantee of the ten member states of the community. Moreover, a global assessment of country credit ratings released only last month by a leading international financial publication confirms that, compared with a similar assessment in 1979, Ireland has improved its rating and now stands among the countries rated the best credit risks in the world. The study was based on objective ratings supplied by a representative sample of a very large number of banks throughout the world.
Ireland's favourable standing among the international banking community was also highlighted within the last fortnight when, during the course of a visit to Dublin, the president of one of the ten largest banks in the United States expressed his confidence about the medium term prospects for the economy.
As regards the international bank referred to by Deputy Bruton I would point out that the bank concerned has recently indicated that it is prepared to lend funds to my Department. I need hardly point out to the Deputy that banks will not offer to lend funds unless they are totally satisfied as to the standing of the borrower.
I would like to take this opportunity to exhort Deputies to avoid making comments either publicly or in private discussions with banks which might damage our international credit rating and thus involve increased borrowing costs to the economy. Our patriotism as public representatives deserves at least that, even from the most irresponsible Opposition this country has ever had.
What did Deputy Haughey say in 1976 and 1977?
I quoted what the banks said about the country.
In my opening statement yesterday I referred to our position on European Community policy. Since the budget debate both the Taoiseach and I have discussed further the international economic position, and the appropriate response to it by the member states, with our Community partners. These matters were discussed by the Taoiseach not only at the European Council at Maastricht, but also with Chancellor Schmidt during his recent visit to Bonn, and they were the dominant subject of interest at the meeting of Community Finance Ministers in Breda in the Netherlands which I attended last weekend.
The Finance Minister of all the member states agree that there are economic problems within the Community at present. In every member state unemployment and inflation are both serious, and are not amenable to quick, easy solutions. But these problems can be resolved, if the people of the community respond with sufficient determination, vigour and discipline. All of my fellow Finance Ministers shared the opinion that one of our principal political tasks is to bring this message home in our respective member states and I have taken the opportunity offered by this debate to do so.
Deputy Kelly apologised to me for his absence from the House when I told him I would have something to say about his comments. I regret he is not present to hear what I have to say but I appreciate the reason for his absence. Deputy Kelly is reported in the press to have taken the view that my activities at Breda were somehow inappropriate. He has conjured up visions of the Finance Ministers of other countries objecting to the line I adopted. I can calm his fears. Nobody resented the statement of Ireland's position. We were there as men with common, difficult problems which we are all trying hard to resolve. Our debate was entirely constructive, and devoid of any adverse reaction to my viewpoint.
Deputy Kelly's position is somewhat odd when compared with that of his party leader. In his comments on the Taoiseach's statements following the European Council at Maastricht Dr. FitzGerald was highly critical of the Government's approach to EEC matters, claiming that we lacked any strategic approach, that we are passive and that there has been no serious effort to advance our vital interests. The economic policy of the European Community is a matter of vital interest to us, yet when I raise it Deputy Kelly seems to find this inappropriate. He says that the other member states would resent our "hard neck". They were the words he used in the course of his stage performance in Terenure, or wherever it was. We have shown no "hard neck" but where this country's vital interests are concerned I would make no apology for showing one if needed.
The Minister only shows it at home.
Deputy Kelly might study his own party leaders's comments on the Taoiseach's statement. Dr. FitzGerald wanted to know why the Taoiseach did not press the argument that what is needed at present, in the countries of the Community that are best placed to do so, is the application of short-term demand stimuli. The Taoiseach did, of course, argue for a positive Community economic policy, as he made clear in his statement in Maastricht. I too argued at Breda on these lines. Yet Deputy Kelly disagrees because I followed an approach close to that favoured by his party leader. In other words, which of them wants to go which way?
And this approach is not without success. I am the last to exaggerate our influence on the Community economic policy. But we can point to the path we think it should follow. Community economic policy has today taken a more expansionary path through joint action by France and Germany. The German Government decided this morning to finance, through the international capital market, and in close co-ordination with France, a new investment programme centred on the energy sector. This is the very kind of approach I favoured at Breda.
The Irish pound has now entered on its third year of membership of the European Monetary System. Most commentators would agree that the system has been a success. It has brought considerable stability to the exchange rates of the participating currencies at a time when other major currencies, such as the US dollar, the pound sterling and the Japanese yen, have been subject to major fluctuations.
From an Irish viewpoint the system has, in addition, provided an arrangement more suited to our needs than would the continuance of a link to the pound sterling. Over the past two years sterling has appreciated by approximately 30 per cent against the other EMS currencies. This was due largely to the influence of North Sea oil and the high interest rate policy of the UK Government. In these circumstances, the retention of the link to sterling would have cost this country's industrial, agricultural and service sectors dear in economic terms.
The Irish pound's position in the European Monetary System band has been characterised by stability from the start. Sterling's appreciation outside the system has, of course, complicated our efforts to reduce inflation and this is a source of concern to the Government. However, this in no way invalidates the correctness of Ireland's participation in the European Monetary System, which continues to be a zone of monetary stability in a turbulent international monetary environment.
Between the end of 1978 and early 1980 the average rate of inflation in the main OECD countries rose from 7 to over 12 per cent while the price of oil more than doubled. This substantial worsening of actual and anticipated inflation was directly reflected in an upsurge in interest rates. Moreover, Governments world-wide took the view that in the face of the external price shock the over-riding priority was to prevent inflation from becoming embedded in the system due to a parallel explosion of domestic cost and price increases. The policy response was, therefore, to maintain and indeed tighten monetary targets which further reinforced the upward tendency in interest rates. The scale of the rise — six to eight points for short-term rates — was very similar and rates in almost all cases exceeded their previous peak levels in the major countries.
It will be evident from what I have already said that there is a very large degree of interdependence between countries. This interdependence has been reinforced over the past 20 years or so by a rapid expansion in the quantity of goods and financial assets traded across borders, and these trade and capital flows have become quite sensitive to price and interest rate differences. The result has been that while, on the one hand, countries have benefited greatly in the form of larger outputs from the increased specialisation, on the other, the rise in interdependence has an associated cost in terms of increased vulnerability to disturbances arising in other countries.
Ireland is a good example of a small and open economy and it should be clear, therefore, that interest rates here are determined to a very large extent by international developments. This explains why interest rates rose in tandem with other countries in late 1979 and early 1980. I would like to answer Deputy Bruton's statement last evening that the Government are forcing up interest rates. To do this I need do no more than draw attention to the fact that at mid-1979, when the interest rate rises began, the prime commercial lending rate here, that is, the rate charged for short-term loans to best customers, was the highest in the EEC. The current rate, on the basis of the latest information available, is now fourth lowest in the Community. It should be clear, therefore, to all that prime rates in Ireland have fallen and fallen significantly relative to other EEC countries over the past year and three-quarters.
Because of increased foreign borrowing.
On three separate occasions in 1980 the banks announced reductions in rates which brought the prime rate here from 18 per cent to its current level of 14 per cent. This is in marked contrast to Deputy Bruton's allegation that the Government are forcing up interest rates. Quite on the contrary, the Government where possible have taken action to ease the burdens of the high cost of capital. The Government took measures through the ICC to widen the facilities available to industry by relieving the borrower of the exchange risk on loans denominated in other EMS currencies.
More foreign borrowings.
At the time the scheme was introduced loans of up to five years were being made available at 13½ per cent while comparable domestic loans were 18¼ per cent. The Government also introduced through the ACC a productive investment scheme, based on borrowing in EMS currencies for the agricultural sector and this was bolstered by a further similar facility made available through the associated banks.
The Government also took measures, when rates were highest, to ease the burden of mortgage repayments on house purchasers. Since these schemes were introduced domestic interest rates have fallen while those of EMS countries have in general tended to rise in line with conditions in the international markets.
There can be no question, therefore, of the Government forcing up interest rates, and Deputy Bruton's allegation that they do this by trying, as he put it, to grab more and more of the available money to finance their own deficits, displays a fundamental ignorance of the operation of the financial system here. As he should know, the demands which the Government make on the volume of domestic savings are carefully tailored so as not to upset those markets. The inference which the Deputy made, that there can in some sense be a "crowding out" effect in an economy as open as ours, does not stand up to serious examination.
They borrow abroad instead.
Deputy Bruton said that he was very worried about the balance of payments deficit. The Government are well aware of the fact that it is a constraint which must be watched very carefully. However, we must be clear about why it is rising, because therein lies the key to answering the question "what should be done about it?" In my opening statement I said that the oil import bill will be about £900 million this year, a truly staggering figure. We cannot do without oil. It is vital in production and transport. But we can act to contain our demand for it, and this Government are doing just that. Again, we can act to ensure that whatever oil may be in our offshore areas is found and brought into production as soon as possible, and again the Government are acting vigorously in this area.
There are also other policies which have a favourable impact on the balance of payments deficit which we are pursuing, for example, by ensuring that Irish goods are used wherever possible. But there is one policy which we are not prepared to follow, and that is to force the economy into recession in order to cut the import bill. That would probably work. Recession might also hold out to some the prospect of reducing inflation, an objective which is, according to Deputy Bruton, Fine Gael's first priority. Is that the approach his party favour in dealing with the balance of payments and inflation?
I now turn to some points raised in the course of this debate on the text of the Finance Bill. Deputy M. O'Leary inquired as to whether the allowances in respect of rented residential accommodation, which are provided for in section 21 of the Bill, would be extended to such accommodation completed but unoccupied prior to budget day. The intention of this section is to stimulate new investment leading to new building activity and employment creation in the construction industry. To allow past construction work to qualify for the allowance would be clearly inconsistent with this over-riding objective. The introduction of any new allowance must take effect from a given date, which in the case of capital allowances has normally been budget day or immediately afterwards, and this unavoidably means that earlier activity cannot benefit. In this case I would point out that residential units which do not qualify because they were completed before budget day can always be placed on the market for sale to owner-occupiers, the market for which in most cases they were intended and which will continue to be the dominant element in the housing market for the foreseeable future.
As regards the point raised by Deputy N. Andrews in relation to the self-employed and pensions. I should explain that the relevant sections of the Income Tax Act deal only with the conditions which must be satisfied if premiums paid to secure a pension are to qualify for income tax relief. They do not prevent any person, be he in the business of letting property or not, from entering into a contract with an insurance company which would provide for his retirement.
I mentioned yesterday that the Commission on Taxation are required to recommend such changes as they consider necessary so as to achieve greater equity in the tax system and I will give consideration to what they have to say on this matter to which the Deputy referred.
Deputy Niall Andrews also suggested that dividends from credit unions to members should be exempted from income tax. Under section 43 of the Finance Act, 1972, the income of registered credit unions is exempted from income tax. This is an exceptional measure of relief which does not apply to other financial institutions. It provides a very substantial benefit for credit unions and their members and I am satisfied that it gives due and adequate recognition to the important role of the credit union movement in the community.
In conclusion, I would like to emphasise again the Government's determination to strengthen and expand the economy so as to achieve real long term improvements in the standard of living of our people. The investment plan and the budget are part of our overall strategy towards reaching this objective. This Bill, as well as underwriting the budget measures, provides additional incentives for financial and economic improvement.
- Ahern, Bertie.
- Ahern, Kit.
- Allen, Lorcan.
- Andrews, David.
- Andrews, Niall.
- Aylward, Liam.
- Brady, Vincent.
- Briscoe, Ben.
- Browne, Seán.
- Burke, Raphael P.
- Cogan, Barry.
- Collins, Gerard.
- Conaghan, Hugh.
- Coughlan, Clement.
- Crinion, Brendan.
- Daly, Brendan.
- Doherty, Seán.
- Farrell, Joe.
- Filgate, Eddie.
- Fitzgerald, Gene.
- Fitzpatrick, Tom. (Dublin South-Central).
- Fitzsimons, James N.
- Flynn, Pádraig.
- Fox, Christopher J.
- French, Seán.
- Gallagher, Dennis.
- Gibbons, Jim.
- Haughey, Charles J.
- Keegan, Seán.
- Kenneally, William.
- Killeen, Tim.
- Killilea, Mark.
- Lawlor, Liam.
- Lemass, Eileen.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Loughnane, William.
- McCreevy, Charlie.
- McEllistrim, Thomas.
- Molloy, Robert.
- Moore, Seán.
- Morley, P.J.
- Murphy, Ciarán P.
- Nolan, Tom.
- Noonan, Michael.
- O'Connor, Timothy C.
- O'Donoghue, Martin.
- O'Hanlon, Rory.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Paddy.
- Reynolds, Albert.
- Smith, Michael.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Woods, Michael J.
- Wyse, Pearse.
- Barry, Peter.
- Barry, Richard.
- Belton, Luke.
- Bermingham, Joseph.
- Boland, John.
- Bruton, John.
- Burke, Joan.
- Burke, Liam.
- Byrne, Hugh.
- Collins, Edward.
- Corish, Brendan.
- Cosgrave, Liam.
- Lipper, Mick.
- McMahon, Larry.
- Mannion, John M.
- Mitchell, Jim.
- O'Brien, William.
- O'Keeffe, Jim.
- O'Toole, Paddy.
- Pattison, Séamus.
- Cosgrave, Michael J.
- Creed, Donal.
- D'Arcy, Michael J.
- Deasy, Martin A.
- Desmond, Barry.
- Donnellan, John F.
- Enright, Thomas W.
- Griffin, Brendan.
- Horgan, John.
- Keating, Michael.
- Kenny, Enda.
- L'Estrange, Gerry.
- Quinn, Ruairí.
- Ryan, John J.
- Taylor, Frank.
- Timmins, Godfrey.
- Treacy, Seán.
- Tully, James.
- White, James.
First sitting day after the recess.