The question of the eligibility of this motion from the point of view of Standing Order 48, having regard to the recent discussion on the economy on the Second Stage of the Finance Bill, only came before the Ceann Comhairle at a very late stage when arrangements for the debate were complete. In the circumstances the Chair is allowing the debate, but this decision is not to be taken as a precedent.
Private Members' Business. - Government's Economic Policies: Motion.
I move:
That Dail Eireann, having regard to the wide range of crises which beset the nation at present including:
—the continuing rise in unemployment which, it is forecast, will rise to 135,000 by the end of the year;
—continuing dramatic increases in prices, which rose by 21% in the year to mid-February last and which are forecast to rise by 18% in 1981;
—the crisis in our balance of payments and the dangerously low level of our external reserves;
—the recent increase in interest rates, which reflects growing pressure on the Irish Pound and which will create further difficulties for industry at a time when this sector is already in deep crisis;
—the cuts in local authority and health board expenditure which have led to substantial reductions in the quality of the services provided by these public bodies;
condemns the incompetence of the Government, and recognising that the Government has disastrously mismanaged the nation's economic affairs, resolves that it has no confidence in the present administration.
I have no desire to cavil on the comment you have made regarding the Labour Party's motion. To quite an extent we, too, are in some difficulty in framing a motion of this nature, because from day to day one is not quite sure what motion one should table on economic and social policy in order to respond to the vacillations of the Government in the management of the economy. Even this evening, as the House starts to debate this motion, we are informed that a Bill will be circulated tomorrow dealing with the textile industry and its role in the economy. A new factor enters into the economic equation.
The main reason we have tabled this motion is that since the Taoiseach took the decision to abolish the Department of Economic Planning and Development there has been no short or even medium term planning of the economy. We are now apparently to go into a general election tomorrow and already, before the official campaign has started, the Government have overspent in this year's management of the economy, an estimated £200 million in what can only be classified as belated and almost hysterical vote-getting projects and services in key electoral areas. Witness, for example, tomorrow's announcement on the textile industry, foreshadowed in terms of a proposition to give relief there. The whole situation has reached a state of electoral farce. We should have a general election, so that those who have some responsibility in the public sector for framing economic and social policy will be able during the summer to bring the country back to some semblance of political control over the management of the economy as a whole.
The single most important aspect of this motion — a motion of condemnation by the Labour Party — is this. While our immediate preoccupation is with the coming general election, the time is long overdue for some serious long-term economic planning or, at least, some serious realisation of the enormity of the problems facing us in the next ten years. That seriousness does not seem to have impinged on the consciousness of the Government.
Our economy has been operating well under its potential capacity for the past three years. We have had a labour force growth of 1 per cent per annum. We had a productivity increase of 2 or 3 per cent per annum. Output should be growing at somewhere about 4 per cent per annum. In terms of growth, 2 per cent has been achieved in 1979, 1 per cent in 1980 and a prospective 2 per cent in 1981. Clearly, therefore, the principal objective of any future policy of the next Government must be to try to raise actual growth rates of output to the level of our potential.
We are endeavouring to become an alternative Government and we accept that there are factors common to whatever Government will be in control of the economy. There are oil price rises, which the Government have trotted out now and again. There has been the virtual collapse of incomes on the agricultural side. We are well aware of the weak state of general industrial demand in Europe and the United States and the decline in British industry. All these factors — many outside our control — are undoubtedly holding us back. I submit in so far as we have a lack of domestic policy, that the mismanagement of the public finances by the Government at central Exchequer level has now left almost no room for manoeuvre in terms of assisting Irish industry, job creation, job maintenance and job protection.
We now have an unprecedented and almost unsustainable level of public foreign borrowing. This is the price we are paying for the oscillations of Government. One need only look back to the January budget to see what has happened since then. There are oscillations of policy by the Government on a daily basis with no coherent effort to endeavour to bring the economy back to some sense of development. For that the country is paying an extremely heavy price. I submit the next Government will have to sit down and over a five to ten year period plan an economic and social programme on a coherent and effective basis, outline its main objectives, stick to that programme and put it through. That is our present single greatest political need.
When the Labour Party were considering putting down this motion and discussing it at the Parliamentary Labour Party meeting, we looked at some of the statements made, particularly by the Taoiseach. On the very first page of his budget speech in 1981, the Taoiseach said:
We must improve the structure of the public finances and provide a solid foundation for the greatly increased level of economic activity needed in the years ahead.
Then he said:
This requires, in particular, a phased reduction in the real level of the current budget deficit.
Yet, within four months, that particular approach was jettisoned by the Government because at this stage the effort of election promises has been so geared up that unless we have an election in the very near future, at the present rate the current budget deficit — and I said this repeatedly to the Minister for Finance — will not be just £515 million this year but will probably be £750 million or £800 million. That is something which no new Government would wish to face next Autumn after the summer recess. It is not a situation which a new Government could view with any degree of equanimity in facing the electorate in the years ahead. We must express our concern in this House and our condemnation of the Government's total failure to plan the economy for the years ahead and in particular, for this critical year of 1981.
I now make a particular plea to the Government and to all my colleagues in the party-political sense that in the next three or four weeks, if we with our small economy continue at this rate buying votes on the basis of the promises and statements trotted out by successive Ministers on the Government side, it will hardly be worth anybody's while taking over the reins of Government in the month of July and right through to September of this year. I do not want to hark back to the individual commitments already made, but I believe very firmly that any future financial resources or borrowings which the State might enter into in the remainder of this year should be exclusively, rigorously and deliberately devoted to providing moneys for the productive base of our economy. There are very few votes indeed to be got, on a sheer manifesto-type popularity election, for the rigours of that approach.
We must now provide moneys towards producing employment for those who are out of work. Since there is obviously not a great deal of national political concern about the fact that there will be up to 150,000 people unemployed when we enter into the summer, with 30,000 school leavers coming on the labour market, so far as we in the Labour Party are concerned — and I am quite sure this applies equally to the Fine Gael Party — the provision of employment for those brothers and sisters in our community and for young people without work will be our absolute and total priority irrespective of any other demands which may arise on the Exchequer on any front during the year ahead.
I want to spell out the waste, one might say, in terms of the failure to redirect our public finances in the past two or three years. We have had virtually no policies for full employment and the Government have not given it the priority which that single greatest need demands. I give some figures of State expenditure on unemployment benefit and assistance in the past three years arising out of a Dáil reply to a question which I tabled on Wednesday, 13 May. They underline the stagnating impact on the economy of unemployment benefit expenditure to those in need and the failure to re-direct Exchequer expenditure, particularly into job creation.
In 1978, £72.3 million was the State's contribution to unemployment expenditure. In 1979, the total State expenditure was £75 million and, in 1980, £95 million. This year alone it is estimated at £114 million. It must be remembered that the State's contribution to total insurance expenditure is of the order of 20 per cent, so that the real total contribution of the community as a whole, endeavouring to combat the evil — nowadays it is not fashionable to refer to it as an evil — of unemployment is, of course, very much greater than £114 million.
The scarce financial resources of our State should also be devoted towards particular schemes of employment for the thousands of young people who will finish formal education this year and seek jobs in our community. It is easy to make a statement of this nature but, looking back at the efforts of 1973 and 1974 and right through to 1979 and 1980 and the variety of schemes which were not introduced, it is fair to say that at present the impetus in devising new schemes and in ensuring the development of the three or four existing schemes has slowed down very considerably in the past 12 months. There is practically no comment from the Government at this point in time on that basic need in our community.
In relation to labour intensive industry as a result of the very considerable pressures from the Confederation of Irish Industry and the textile sector, the Government have responded belatedly. We do not know, because the Bill has not been finally circulated as yet — it will be circulated tomorrow — but, were it not for an election, it is fair to say that the special cases for new policies in that sector would have been totally ignored by the Government. It is remarkable that during the past few years the labour-intensive sectors of industry, in particular the textile, clothing and footwear industries, have received very little support from Fianna Fáil. The Taoiseach has made very broad public statements with regard to supporting these industries but apparently it has taken the prospect of a general election to get some kind of commitment from the Government.
It should not be forgotten by those sectors that the Government terminated the employment maintenance subsidy scheme, the re-equipment grants scheme and the technical assistance consultancy grants scheme. The sectors involved cannot regard what the Government have done as being a serious attempt to deal with the growing unemployment problem. The industries should be actively supported and lifted out of the relegation zone to which they have been consigned by the Government during the past two or three years.
The textile, clothing and footwear industries employ 20 per cent of the manufacturing industry workforce and they contribute more than £400 million per annum to our industrial exports. They are also extremely important as basic employment outlets for women workers. Yet, since 1977 when this Government took office many jobs have been lost in these sectors. The apparel industries group handed out leaflets at the Fianna Fáil Ard-Fheis condemning what they regarded as a sell-out of their interests by the Government. The Government have responded with this legislation. It shows there has been very little coherence in their assessment of the needs of industry and it has made many observers look with a jaundiced eye at their policy in this area.
Other labour-intensive sectors of industry experienced problems in the transition to free trade during the seventies. We owe it to the employers and employees of these firms to support them now in their economic difficulties. Irrespective of what the Government are doing tomorrow, we should insist on the restoration of the employment maintenance subsidy for a further period — I would go as high as £10 per employee per week to eligible firms. There is the need for the restoration of the re-equipment grants scheme for selected sectors who are experiencing special difficulties, in particular the textile and apparel sectors.
There is also the need to pursue urgent negotiations with the European Commission and, through the Council of Ministers, to ensure that the multifibres agreement which is to be renegotiated later this year will take into account the special problems of Irish industries. The new agreement should incorporate a recession clause so that imports to the EEC will not get a guaranteed and growing market in Europe when the aggregate demand falls within the Community.
The Labour Party have a reasonably enlightened and progressive policy towards the development of Third World countries but there is a need for a balanced approach in this area. There is little public evidence of any great contact between the Cabinet and Ireland's Commissioner in Europe with regard to the matters I have outlined. For all practical purposes, Ireland's Commissioner seems to have faded off the face of the earth. The Government should ensure that the multifibres agreement is dealt with adequately so that abuses arising from the previous agreement are not perpetuated in the years to come.
There are other aspects to our motion before the House, namely, our comments on the matter of price inflation. We must be critical of the policy and strategy of the Government with regard to containing domestic inflation. Last year the rate of inflation was 20 per cent and this year it will be between 17 per cent to 20 per cent. By any European standard that level of domestic inflation is horrific. It does not bode well for our creditworthiness with regard to future borrowings. At the moment wage demands are following price increases, quite a proportion of which can be attributed directly to budgetary policy. I do not propose to bandy statistics about with the Minister. He knows as well as I the impact of the past two budgets on our rate of inflation.
The contribution from these two budgets in this regard was a solid 8 per cent. It was only when the January-February economic policy of the Government became unhinged that they resorted in a last desperate fling to the introduction of further partial food subsidies to try to bridge the gap that has been allowed to broaden above and beyond the national understanding. The response to that was purely pragmatic. It seemed to have no relationship either to the national understanding or to the economy. As the Minister knows, too, that move has not had much impact on either of those parties directly concerned in the national understanding negotiations. In these circumstances we are entitled to be critical of the Government in so far as their strategy followed on the mitigation of the worse effects of price inflation.
We have, also, the general crisis in terms of our balance of payments situation. No matter how one views the Irish economy at this point, one must inevitably come to the conclusion that if we are to tolerate a budget deficit this year of £750 million or about 7 per cent of GNP and if we are to have a balance of payments deficit in 1981 which could well be as high as 13 per cent of the GNP — and these are reasonably responsible current estimates of what is likely to happen in the out-turn for 1981 — there is no doubt that our credibility will be eroded to such an extent in terms of international borrowing, even for basic infrastructure, that we will face a direct refusal in this area. That would be a matter of very serious concern. I am not making these statements lightly. On any of the committees on which I have served outside this country, particularly the Economic Affairs Committee of the Council of Europe, I have found that some of my colleagues, particularly those in France and Germany, have marvelled at our being able to get away with sustaining such a high level of current budget deficit, of inflation and of wage unit cost increases of such magnitude. They find it extremely difficult in the context of international borrowing to understand this situation. Perhaps it is because of the relatively small scale of our economy that we are not in the situation, as one might expect any of the major European countries to be in if they found themselves in the circumstances in which we find ourselves, of having our foreign creditors taking a close and sharp look at the viability of our economy.
As has been pointed out, about every 75p in the £ of PAYE revenue goes directly towards servicing the national debt. That is the kind of strait-jacket into which the Government have landed the economy. A very different type of Government will be required to turn the economy around and to ensure that the Irish people are faced with reality in terms of our budget situation.
To sum up, I would make the point that it is not possible to run the country either now or in future years, or to reduce unemployment or to provide for the kind of capital investment funds that are needed for basic infrastructure, on the basis of existing Exchequer income policies. Our country is in great need of investment for infrastructure but this cannot be provided on a narrow income basis that is related to PAYE and which is dependent on customs and excise duty, on VAT, on the buoyancy of drink and tobacco and on pay-related social insurance. Another factor is that the level of income in terms of tax contributions from the agricultural sector is extremely constrained by reason of the farmers having experienced three or four disastrous years in terms of income.
Unless the Government are prepared to extricate themselves from the tax net which has closed around them as a result of the abolition of rates, of car tax and so on, or unless we are prepared to drink ourselves into alcoholism or to smoke ourselves to death, I cannot see any way of providing the Exchequer revenue that is necessary. Alternatively we would all have to travel about 60,000 miles per year in our cars or pay 50 per cent of our incomes in taxation if the necessary revenue is to be provided. The Government have abolished virtually all capital taxation and they are now in the situation in which the tax base of the whole economy has been eroded. There is no room for general manoeuvre. At the same time there is the major conflict, but one which has not been admitted by the Government, of trying to run a country, while advertising in the paper that 1,000 extra gardaí are to be recruited and while the Minister for Health has been going around the country for the past three or four months promising hospital and health service development practically everywhere without there being any indication of where the money is to come from.
Or of when the work will start.
That has not been determined either. We have a situation in which special consideration is given to certain sectors arising, understandably, with the whole range of public sector pay levels, whether in relation to gardaí, to nurses or to any other group. Admittedly, all the increases concerned are agreed through acknowledged procedures but there is no indication as to who is to bear the cost, as to whether it will be borne by those directly concerned or as to whether the community will be in a position to bear the cost of this kind of approach by the Government.
We have tabled this motion of condemnation of Government policy, that is, in so far as they have any policy. If this country is to return to a situation of a consistent economic growth rate of at least 4 per cent per year and if we are to have an internationally competitive economy with a degree of creditibility abroad that will allow us to borrow money for productive capital investment, we will require a new Government who will make considerable changes in strategy and we will require a degree of planning that is totally absent in so far as the present administration are concerned. We will require an election campaign in the next few weeks or, if the Government change their minds again, in September or next year. A total change of Government strategy will be required with some sense of urgent planning, rather than the kind of approach we have had from a succession of Ministers of Finance in the past two or three years.
The amendment tabled by the Government to our motion has little relevance to the real needs of our economy. The people will have an opportunity to vote for a change of Government in the next general election. That change cannot come too soon in the interests of economic development, the prospects of developing employment and real economic management in the near future.
I move:
To delete all words after "That" and substitute:
"Dáil Éireann re-affirms confidence in the economic policies of the Government and expresses approval of the measures being taken by them to mitigate the effects of the present world recession, to promote growth in output and employment, to combat inflation and to promote general economic development."
I listened with interest to Deputy Desmond's contribution. It was a poor performance if, as he says, we are close to an election. It would not be my idea of a good speech at a public meeting. I was a bit surprised at Deputy Desmond's monetarist approach which was rather new from a so-called socialist. I want to pay some attention to one point at the outset. I will cover the other points later. I want to praise Deputy Desmond on his accuracy and correctness because he seems to have just woken up to the vulnerability of our industries. The people in those industries have not got the short memories possessed by people like Deputy Desmond. I will explain the position to him.
He referred to the Bill to be circulated tommorrow. My colleague, the Minister for Labour, will deal with that Bill competently in the House tommorrow. Deputy Desmond made such allegations that, either he was displaying a complete ignorance of the situation, or he was being deliberately mischievous as he can be on occasion. I will trace the history of the Bill to show that the people have not got the short memories which people on the other side of the House may have.
In 1978 the Government introduced for the first time an aid for firms in the vulnerable industries sector of clothing, footwear, textiles and leather. That employment maintenance scheme continued during 1978 and 1979 and, because of difficulties about its acceptance in Brussels, a new scheme was introduced in 1980 entitled the temporary employment subsidy which had to end on 31 December 1980.
In my budget speech I said:
The Government have for a considerable time now been concerned with the problems of vulnerable and sensitive industries. The change to fully pay-related contributions in funding social insurance expenditures, while principally taken for other reasons, was, in practice, of major assistance to these industries, which are mainly labour-intensive. It will also be recalled that the employment maintenance scheme and its successor, the employers' temporary subvention scheme, made a further major contribution towards securing employment in the textiles, clothing and footwear sectors, but had to be terminated following objections by the EEC Commission that they represented a distortion of competition through State aids contrary to the Treaty of Rome. In view of these EEC objections, it must be recognised that the difficulties involved are very great. The Government are, however, continuing to examine the problem to see if firms with a prospect of long-term viability can be helped through temporary difficulties.
The Government have been endeavouring for a considerable time to devise a new scheme. Time consuming and necessary discussions were held with the EEC Commission and with industry. The problem was referred to as far back as my budget speech. I have referred to it since then as have other Ministers. This is the background to the Bill being introduced tomorrow. There is no change of direction there. Any leaflets handed out — and I saw none — did not influence that decision.
This Government are committed to an energetic and expansionary approach to the management of the economy and I am convinced that this is the only way to achieve the progress this country needs. We have pursued these policies throughout a period of severe world recession and there is now ample evidence that the Government's approach to economic management was the right one. There are clear signs in recent months of renewed vigour in the economy. Output in manufacturing industry rose by 5½ per cent in January and by 6 per cent in February. This is the fastest sustained rate of expansion in manufacturing output recorded since 1975. This is hardly the performance of a sector in deep crisis as the Labour Party motion would have us believe. Investment is also showing signs of considerable buoyancy. Cement sales have risen in each of the past two quarters, a sure indication that activity in the building industry is improving.
The volume of imports of investment goods in the period December 1980 to February 1981, the latest quarter for which full information is available, was significantly higher than in the preceding three months and, under the impact of the Investment Plan 1981, should strengthen further in coming months. Industrial exports are also very good despite continuing unfavourable conditions in most of our export markets. The value of industrial exports in the first three months of this year was up by 10 per cent on the last quarter of 1980, a very considerable rise between one quarter and the next. The impact of the new industries which the IDA have been attracting is shown by the increase in exports of office machines and scientific equipment in March last of almost 50 per cent over the level a year earlier.
Consumer demand is also strong contrary to the picture painted by the Opposition. Since November last, retail sales have been rising steadily. The volume of retail sales in the three months from November to January seasonally adjusted was 5.4 per cent higher than in the previous three months. There is also the evidence of an increase in new private car registrations. In January, these reached 13,152, a record figure, and the figure for February was almost similar. The total figure for January 1981 is no less than 46 per cent higher than for January 1977, yet another indicator of the progress made under this Government.
These improvements all point to the strengthening of economic activity, even though external developments have not been favourable. Industrial production in the European Community as a whole fell in December and January last. While there is every indication of an international upturn this year, it is clear that the upturn in the economy here is taking place well before any international upturn. This can only reflect the impact of this Government's positive approach to the management of the economy.
Deputy Desmond referred to the growth rate this year. I would put it at 2½ per cent. I would remind him also that the projected growth rate, or the average for the entire Community, is minus half per cent. I believe this is a further indicator of our strength.
The Central Bank would not agree with the Minister there.
I did not interrupt the Deputy. But if he wants a debate on the Central Bank Report with me here, or in public, he is very welcome to do so at any time.
I am glad to say that all the unemployment indicators are contrary to the unsupported and irresponsible allegations made by Deputy B. Desmond and others, or perhaps I could say the prophets of gloom in Opposition now who were such prophets of gloom in Government in 1976 and 1977. The live register figures to date indicate a considerable slowing down on the rate of unemployment increase. The CSO monthly returns of industrial output for January and February would support the view that the unemployment level is now stabilising with the prospect of a fall in the months ahead. The labour force increase is being absorbed by new employment, as the data since 1977 proves.
An early decline in unemployment, rather than an increase, as suggested by Labour Party spokesmen, is a realistic prospect when account is taken of the current job creation programme. Between April 1977 and April 1980 employment increased by 80,000. In the four years from April 1973 to April 1977 the corresponding figure was 14,000. Therefore, compare the three years of 80,000 with the four years of 14,000, which indicates as well the actual position under this Government. In 1980 IDA job approvals totalled 35,600, significantly in excess of their target of 30,000. This year the number will rise to 40,000. This record level of job creation will have a greater impact on unemployment in 1981 because the incidence of job losses due to recession will be significantly less than it was last year. There has already been a substantial fall in the numbers on short-time working.
The Government's investment plan will also have a major impact on employment during the year. The investment plan will result in higher direct employment of about 10,000, most of it in the building sector. This extra employment will be additional to the jobs arising in manufacturing industry as a result of investment by the industrial promotion agencies. Substantial indirect employment will, of course, also arise in Irish firms supplying materials and services both for the various investment projects and for new manufacturing firms. In addition, the 1981 Estimates contain some £17 million for direct job creation schemes.
Our labour force is still increasing at a more rapid rate than in other EEC countries. In 1981 the increase could be of the order of 15,000. The challenge is to maintain the progress in providing jobs for these young people and at the same time reduce the existing level of unemployment.
The facts point to a great measure of success since 1977. The indications are that this success will continue as a result of Government policy, and that we will have achieved the employment objectives set for 1981.
To moderate the effects of world inflation on the consumer and on the economy, we have introduced progressive social welfare policies, consumer subsidies and tax concessions.
The signs are that inflation is dropping both internationally and domestically. Bodies like the OECD and the EEC have both forecast that inflation will be less this year than last year and that in the second half of this year an appreciable reduction will occur. Regarding inflation at home, the Government have acted to halt a rise in prices which would have resulted from the Brussels farm package and from other developments, in particular increased CIE and ESB charges. This factor has not been taken into account in the forecasts made in certain economic commentaries. The estimated effect of the action taken by the Government in the subsidies package will be that in the quarter to mid-May the CPI increase will be approximately 2½ per cent, the lowest for any quarter since November 1978.
In my budget statement last January I emphasised the Government's concern to bring greater discipline into our public finances. We accept that borrowing for current purposes is undesirable and that it should be tolerated only in certain circumstances. It must be phased out as quickly as we reasonably can.
Too rapid a resolution of our borrowing however would obviously force the economy into marked recession and this would be imprudent at a time when it has been necessary to sustain growth and employment in the face of the severe downturn in world trade. Consequently, the Government are implementing a policy of phasing out the current deficit on a gradual basis. The 1981 budget provides for a deficit of £515 million, or 5¼ per cent of gross national product compared with a deficit equivalent to 6½ per cent of GNP last year. The total budget estimate of Exchequer borrowing for 1981 is 13 per cent of GNP compared with a borrowing equivalent to 14½ per cent of GNP in 1980. These figures illustrate the policy of progressively reducing borrowing while at the same time placing greater emphasis on investment expenditure. The provision for investment in the 1981 budget totals more than £1,700 million, an increase of 36 per cent on the 1980 level.
The target set in this year's budget will be achieved. The outturn figures for the first quarter of the year were on target while the pattern of receipts and issues for the quarter was in line with expectations.
For the longer term we must continue as a major budget priority to reduce progressively our reliance on borrowing, especially for current purposes, and to direct all possible resources into productive investment programmes.
The Government have always recognised the balance of payments as a potential constraint and I would not wish to give the impression that we are complacent about the present position. But it is important to bear in mind what I said earlier: that there is a potential trade-off between balance of payments correction and the maintenance of employment. Last year our balance of payments was virtually stable. This was despite a higher oil bill and in marked contrast to the deterioration seen in every other EEC member state, apart from Britain, which is self-sufficient in oil. The Government, through the investment plan, are providing for a massive increase in investment this year which will involve the increase importation of capital goods. But in the longer term this investment will increase the exporting ability of the economy.
Another factor which will influence external payments this year is the continuing effects of the successive rapid increases in oil prices in 1979 and 1980 and the influence of an appreciating dollar on our oil bill.
The answer to a deterioration in payments caused by these developments is not immediate retrenchment but gradual adjustment. All countries in the EMS are suffering from this. Even Germany, a country which for so long has been in payments surplus, is expected again to be in substantial deficit for the second year running. If Germany and other countries were to act immediately and in unison to correct these payments imbalances, there would be a world recession of such magnitude as never experienced before. We must all adjust gradually and this is the policy which the Government are following.
Incomes restraint to bolster competitiveness and thus help exports and keep non-essential imports down is, of course, crucial. Another aspect I would like to comment on is the role which tourism can play. In 1979 — the latest year for which full information is available — our tourist industry earned the country no less than £335 million, quite a substantial sum. Indications are that it was up again in 1980. The indications for the tourist season so far this year are excellent. Inquiries from abroad and visitors from abroad in the first quarter were well up on the corresponding quarter of 1980.
I would be the last person to suggest that we put an end to foreign holidays, but I would urge those who plan to go abroad this year to think again on whether they could not have an equally enjoyable holiday at home. In 1979 Irish residents spent £250 million on foreign holidays. This would be an expression of practical patriotism. It would not only help the balance of payments, but it would help the people employed in the tourist industry.
There has also been a claim that our reserves are at a dangerously low level. This is definitely not the case. The balance of payments deficit will be financed by capital flows and the reserves will not be run down. Monetary policy, with the stated objective of the maintenance of external reserves adequacy, has a key role to play in the financing of the deficit and in ensuring stability for the Irish pound within the EMS. The implementation of the domestic credit guidelines in the first three years by the Central Bank is evidence of resolve in this regard. Along with this, the Irish pound continues to remain comfortably within the EMS limits while our international credit rating continues to be excellent.
None of this points to a dangerously low level of reserves. In fact, the official external reserves are more than adequate to meet our needs. At the end of 1980, our reserves were large enough to cover three months' imports — a high figure by international standards. At the end of April we still had 2.6 months' cover. This is an acceptable figure, given the pattern of our trade and payments. To speak of our reserves as being dangerously low is incorrect, misleading and is contrary to the national interest.
The rise in interest rates was necessitated by a combination of factors, both international and domestic. In response to volatile and high US interest rates, rates in the majority of our EMS partners have already increased — in some cases by as much as 4 percentage points. Rates here are still low in comparison with other countries and our relative position in the EEC prime rate league is roughly the same as last October before the present round of world interest rate increases began.
The sharp upward movements in international interest rates made a parallel adjustment of Irish rates necessary in order to avoid capital outflows, given the size and openess of our economy in terms of the exceptionally large volume of trade and international payments. Failure to raise Irish rates in line with those abroad would have run the risk of a sizeable drain on the reserves through "switching" of the large volume of foreign currency lending by Irish banks, through arrangements for trade payments and through losses of the large amounts of foreign balances and investments by non-residents.
In the light of this it is obvious that failure on the part of the Central Bank to allow our rates to move in line with developments abroad could have had very damaging consequences. These would have been infinitely more serious than the marginal adverse effects of the recent rise of roughly 1 percentage point.
It is estimated that the additional interest costs in 1981 will be roughly £4½ million for agriculture and £3 million for manufacturing and building and construction. The marginal nature of the effects are obvious from the fact that total costs in industry and agriculture this year are estimated to be approxiately £10 billion. The increased interest costs therefore represent less than one-tenth of 1 per cent.
This is doubly insignificant in the context of the measures undertaken by the Government this year to stimulate economic activity in the agriculture, industry, construction and other sectors of the economy. I cannot, therefore, accept any suggestion that the recent increase in interest rates will create difficulties for sectors of the economy.
There have also been suggestions of "growing pressure on the punt" as a factor in the recent increase in interest rates. This comment distorts the real position. Our currency has enjoyed, and continues to enjoy, a high degree of stability in the EMS. This is in marked contrast to the other major world currencies. The main exchange rate development at present is the appreciation of the US dollar which has risen very strongly against all the world's major currencies, including the EMS bloc. This appreciation is due largely to the high interest rates in the US, which, in turn, have forced the EMS countries to increase their own interest rates. The upward international movement in interest rates, and not any weakness of the Irish currency, was the dominant factor in the recent modest rise in our domestic interest rates.
This Government remain totally committed to a planned approach to the management of the economy. Government planning since 1977 has been ambitious and responsive to the economic and social needs of the community and has been aimed at harnessing the enterprise and development potential of both the private and public sectors. The investment plan is the most recent expression of our commitment.
Government planning for the years ahead will focus on the growth potential of the economy. Our aim is to identify the realisable increases in output and employment that are possible and the measures that the Government could take, given an appropriate response from the community, to achieve this progress. The Government intend to publish a further planning paper dealing with the issues of medium term development in the light of the current international economic situation. This paper will identify the growth which is possible for the Irish economy and the requirements that have to be met in order to achieve this growth.
The establishment of the National Enterprise Agency marks another major policy initiative in the Government's programme. The agency have a far-reaching mandate — to achieve the creation of productive employment in commercially sound projects which are not otherwise being exploited at present. By seeking out and pursuing energetically new business opportunities the agency will be making a significant contribution towards the national objective of achieving full employment. Among their specific areas of interest will be the development and commercial exploitation of projects based on natural resources such as forestry; the possibilities for import substitution; and the results of research into product and market development.
The agency's investment decisions will be taken in accordance with strict commercial criteria and the objective will be to support those projects with real prospects of achieving profitability. The agency will also have considerable flexibility as to their involvement in particular projects. They may either act on their own or in joint ventures with other organisations in the public or private sectors. The role of the board of directors in shaping the investment policy of the agency will be of crucial importance, particularly in their `start-up' phase. In this respect the wide-ranging abilities of those persons who have kindly accepted my invitation to serve as directors of the National Enterprise Agency will be a tremendous asset.
The Government also recently announced the establishment of a sectoral development committee. This committee, who are representative of Government departments, State agencies, the trade union movement and industry-employers bodies, have already commenced operations. They will evaluate both current problems and the potential for development of economic sectors. The sectoral evaluations to be undertaken will encompass both sectors which have strong growth potential and sectors which are experiencing particular difficulties in their present operations.
The Government's approach to incomes policy has been as dynamic as in general economic policy. It was this Government which developed the concept of national understandings. These have taken wage negotiations out of the traditional narrow arena which they had been in since the mid-1970's and placed them where they should be in a much wider framework which takes account of all the economic and social factors which together determine the quality of the standard of living of all.
The negotiations which led to the signing of the second national understanding were delicate. However, I am satisfied that we concluded an agreement which struck a fair and reasonable balance between the interests of all parties, our social development needs and the economic constraints facing us as a nation.
The Government are confident that the spirit of co-operation we have built up through the negotiations of the last two national understandings can be further developed. We have shown our ability and willingness to implement our promises under these understandings.
I note with great pleasure the general expectation that agricultural incomes are expected to rise by up to 25 per cent, according to the ESRI this year. This boost to the farming community will stimulate production and thus enable farmers to make a greater contribution to the economy, a contribution which is so important in terms of prosperity in every town and village, employment in the processing sector and exports.
The Government have been acutely conscious of the difficulties which farmers have experienced in recent times, and, recognising the importance of agriculture to the national economy, have provided the maximum resources for farmers consistent with the many other demands on State funds. Accordingly over £100 million has been approved by the Government since June 1980 over and above the original Estimates allocations in 1980 and 1981 and a further £20 million is being provided to enable the special EEC package, worth £51 million in all to Irish farmers, to come into operation.
These aids cover a very broad range, including extra finance for capital investment under the farm modernisation scheme, reliefs to reduce outgoings on rates and taxation, increased headage grants for sheep and cattle in the disadvantaged areas, a calved heifer scheme, fertiliser subsidies, and grants for silage making. They have been designed with a twofold purpose in mind: in the short term to maximise farmers' incomes in a period of difficulty, and to provide incentives towards increased production, which in the longer term is the only way to combat falling incomes. I should like to emphasise that these measures are additional to other national and EEC aids and other incentives already available to Irish farmers. To mention but one of these, the special Western Package, which I hope will come on stream shortly, will make a major contribution towards solving the structural problems of agriculture in the west.
The House is aware of the satisfactory results of this year's price negotiations in Brussels where increases of over 13 per cent were won for Irish farmers by the Minister for Agriculture and where the Council asked the Commission to have a further look at the question of providing assistance to Irish farmers with a view to bringing proposals to the Council for decision before 15 July.
However, there is a limit to what the State — or even the EEC — can do for Irish agriculture. Farmers know this and are aware of the need for action of their own to raise productivity on the farm. I believe that the Government, through the measures they have introduced and the package of aids and price increases negotiated in Brussels, have re-established the base from which Irish farmers will now advance to set record levels of income and output.
This Government's record far outweighs that of the Coalition Government. I could dwell on the very fast growth and employment creation we achieved in our early period of office, but I think a fairer comparison would be between how we are coping with the current recession and how the Coalition fared during the earlier recession following the first oil crisis.
It is clear that we are making a far better job of offsetting the effects of the international recession. All indicators show this. Redundancies last year were far below the figure of over 19,000 achieved by the National Coalition in 1975. Investment will undoubtedly grow this year, under the impact of our investment plan. In contrast, under the Coalition, investment fell steadily between 1973 and 1975, and in 1976 it was still 5 per cent lower than in 1973. That is a deplorable record in an economy with our investment needs. Industrial production fell by 6 per cent in 1975, a figure worse than anything ever recorded under this Government. Industrial employment reflected this, falling by 13,000 in 1975. Throughout the period 1975-77, the monthly index of employees in private building and construction remained depressed; the upturn only began in 1978 under the impact of this Government's progressive policies. Inflation in 1975 averaged 21 per cent, and at one point, mid-May of that year, reached an all-time high of 25 per cent; significantly higher than anything reached under this Government, even allowing for the recent massive oil price increases.
I could go on, but I need not. It is clear that our record, even during the international recession, is far superior than that of the Coalition.
In a debate such as this one must look for some basis upon which to compare the performance of the Government which is under scrutiny with that of other Governments facing a similar situation. The statistics available on that point are a far more damning indictment of the vacillation and lack of policy of the present Government than anything that we on this side of the House could put forward. I refer in particular to the statistics comparing Ireland's economic performance in the recent past with that of our 16 major competitor nations contained in the most recent Central Bank report. Those figures compare how Ireland has done as against the United States, Canada, Japan, West Germany, France, the UK, Italy, Belgium, the Netherlands, Denmark, Greece, Spain and Portugal. I am afraid those figures disclose that we have done extremely badly. We all know that the Government have faced an international economic recession but we also know that the Governments of those other 16 countries faced an increase in their oil bills too. The best way of deciding how good our Government are is to see how we have done in these difficult situations as against how they have done in the same difficult situations.
I shall start by referring to economic growth because without economic growth one does not have anything. One does not have anything to live on unless one produces and there can be no increase in living standards unless one increases what one produces. In 1980 the gross national product of this country fell by 0.5 per cent, the worst performance of all the 16 countries I mentioned with only one other country, Denmark, doing equally badly. Denmark also had a decline in production of 0.5 per cent. That shows how badly we are doing as against comparable countries. It also shows how badly we are doing as against the way we were going in 1978. In 1978 we had the fastest rate of growth in GNP, 5.4 per cent, of all the 16 countries. In 1980 we had the biggest fall in growth of all the same countries. We had a decline in production and we were the worst in 1980 although we were the best in 1978. That shows how badly the Government have been able to cope with the international recession in comparison with other countries.
Lest we might think that there is something unusual about this I should like to point out that in 1980 while Ireland's production fell by 0.5 per cent, in the supposed sick man of Europe, the United Kingdom, it actually increased by 2.9 per cent. GNP went up in Britain by almost 3 per cent last year while it fell here by 0.5 per cent. It went up in Italy, another so called sick man in Europe, by 3.8 per cent last year. There was an increase of almost 4 per cent in GNP in Italy last year while Ireland's production fell by 0.5 per cent. The same goes for another alleged sick economy, Belgium. Their production rose by 1.5 per cent while it fell in Ireland by 0.5 per cent. Those comparisons show how badly we are doing.
I should now like to refer to another index of our performance, our balance of payments, how much our income as a country exceeds or is less than what we spend as a country. Countries, when one boils it down, are like households. If they are living beyond their means like a household they get into trouble. If a country has a negative balance of payments ultimately it will get into trouble just as a household will get into trouble. There is far too much artificial complication of economics. One can understand economics in most cases by looking at the situation of a household and this country as a household is spending far more than other countries are spending, relative to what we are taking in. That is probably the most alarming of all the indices of economic performance here.
In 1981 it has been predicted — the Government have not contested this prediction — by the Central Bank that the balance of payments deficit, the difference between what we are spending and what we are taking in, will be 13¼ per cent of gross national product, 13¼ per cent of a negative balance in terms of the excess of our spending over our production. This may surprise the Chair although I know that the Chair is as well informed as anybody from listening to these debates — involuntarily in many cases — about economics. It may surprise the Chair to know that our balance of payments deficit at 13¼ per cent of GNP is three times as bad as the next worst country on the list, not three times as bad as the average, not three times as bad as the best but three times as bad as the next worst country on the list as far as balance of payments are concerned. Ireland's balance of payments deficit for 1981 will be 13¼ per cent, according to the Central Bank, as against 4½ per cent in Belgium, the next worst country, as against somewhere between ¾ and 1 per cent in the UK, as against a deficit of 1½ per cent in Spain and as against a deficit in Portugal of somewhere between 2¼ and 4¼ per cent. We simply cannot go on like this. Let nobody delude himself that these figures are not available to people who are lending us money: the bankers in New York and Zurich or wherever else the Government go for funds know we are living beyond our means.
A banker who sees a farmer spending more on his farm and life-style then he is taking in is not going to continue lending him money forever. I am sure that the Minister of State, knowing the problems of many of his constituents as he does, is aware that banks tend to adopt that attitude with his constituents as they do with my constituents. Banks treat countries as they treat farmers or other creditors and if countries are spending more than they are taking in the banks are going to say "Stop" in the same way as they say "Stop" to a farmer, businessman, teacher or anyone else who is living beyond his means, and that is something which we as a community have not come to realise. Even if I bore the House I must repeat that we, as far as living beyond our means is concerned, are three times as bad as the next worst country on the list.
The next index for comparison of how Ireland is doing as against other countries is that of increases in prices. It has been said on many occasions, in my view with considerable truth, that Ireland's fundamental economic problem is its failure to tackle inflation. There was a time when we did well as far as inflation was concerned. In the last two years of the Government of which Deputy Corish was Tánaiste we had a rapidly declining rate of inflation. In the last two years of the present Government we have had a rapidly increasing rate of inflation. However, lest I be accused of being partisan or unfair, I will compare not the performance of Fianna Fáil now with the performance of the Coalition but the performance of Fianna Fáil now with their own performance in 1978. They cannot accuse me of being unfair in making that comparison and it will show how much worse things have become since 1978. The Central Bank — again their estimate has not been contested by the Government — predict that our rate of inflation in 1981 will be something in the region of 17.5 per cent. That rate of inflation is likely to be exceeded by only one other of all the 16 major competitor nations I mentioned, namely Greece, with a projected rate of inflation for this year of 23 per cent. We are the second worst as far as inflation is concerned. It may surprise many of us with our inherent national inferiority complex, believing that inevitably we are going to do badly as against everyone else, to know that in 1978 we in this country — and Fianna Fáil can take their share of the credit for this if they wish — had the sixth lowest rate of inflation of all those 16 competitive nations. We have gone from having the sixth lowest rate of inflation in 1978 to having the second highest rate of inflation in 1981.
That means that we cannot sell competitively abroad, that we cannot defend our home market whether it be our home market for tourism to which the Minister made some pleading reference a few moments ago, or our home market for food or our home market for manufactured goods. If our rate of cost increases is the second highest amongst all of the competitor nations of course we are going to lose our markets at home and abroad. That is obvious. People in the shops are not fools. If they see the price of Irish goods increasing at twice the rate that imported goods are increasing of course they will buy imported goods. No amount of preaching is going to stop the housewife from doing that. That is inevitable. We are allowing a situation to continue wherein our rate of inflation is the second worst of all those 16 competitor nations as against being the sixth best in 1978. Perhaps I could illustrate my point by showing our rate of inflation in comparison for instance, with that in Japan. Ours is 17.5 per cent. The Japanese rate is projected to be only 5.5 per cent. Is it any wonder that the Japanese are taking over the Irish market? Our rate of inflation compares very unfavourably with the projected rate for Belgium of 6 per cent, for the Netherlands of 6 per cent, for Denmark 9.75 per cent, for Spain 14 per cent, for Canada between 10 and 12 per cent and for West Germany 4.75 per cent. Those are the projected rates of inflation for other countries with whom we must compete, when our rate is projected to be 17.5 per cent. Clearly things have been going radically wrong in the last two years under the present Government.
The Minister sought to compare the record of the Coalition with that of the present Government. I intend to deal with that more fully tomorrow, but I will make one point in regard to the increase in the cost of living which perhaps is the best way of measuring the performance of the Government. Under the present Government in the last two years the rate of increase in the CPI has been far faster than the rate of increase in the price of imports. Therefore, the amount that we have added here in this country to our own cost of living has been very great under the present Government, whereas during the period of the Coalition, even though the rate of inflation was high and no-one can say it was anything but unsatisfactory, the rate of increase in the shops in Ireland during that period was actually less than the rate of increase in the price of our imports. During the period of the Coalition we in Ireland suceeded in reducing the rate of inflation that we were bringing into our country whereas during the period of office of the present Government they have succeeded in adding to the rate of inflation that was being brought into this country from outside. That is a fair way of comparing the performance of the two Governments.
Probably the most serious prospect facing this country, given that we are by far the most heavily borrowed country abroad, is the danger of a dramatic tightening in world capital markets. We all know that the situation in the Middle East is very unstable at the moment, and most of the money that we are borrowing comes from the Middle East. It may come to us from a German, Japanese, Italian or Swiss bank but it is Arab money that is being recycled through the European and US financial systems into this country. There is plenty of Arab money flowing into that system at the moment because of the increases in the price of oil that have taken place. However, if suddenly — it would happen suddenly not gradually — as a result, for instance, of a war in the Middle East, the Arab money that is now being sent to the world capital markets were to be kept at home in the Arab world for the purpose of fighting a war or carrying on other activities within the Arab world; if suddenly the money which is plentifully available for us at the moment should no longer be available, not only would we not be able to borrow additional money but we would be unable even to recycle our existing debts, to maintain our existing level of indebtedness. It is important to realise that more than half of all the money that we owe as a country at the moment — when I say "we" I mean the Government and the semi-State bodies — has to be repaid within the next five years. If at any time in the next five-year period capital markets were suddenly to get tight and money was no long available, we simply would not be able to renegotiate new loans and we would find that we would not have the cash flow to continue living. Far from not being able to increase our debt, we would not even be able to stay as we are.
Debate adjourned.