I move:
That Dáil Éireann condemns the decision of the Government to reduce the 1983 Public Capital Programme by £220 million and deplores its failure to fulfil the promise by the Minister for the Environment to provide £100 million extra for the construction sector and now calls on the Government to recognise the serious jobs crisis that has arisen and to introduce urgent measures to stimulate the private and public sector to avoid the collapse of the construction industry.
Our reason for putting down this motion is to draw the attention of the Government to the serious state of the construction industry in the hope that we will get a positive response that will benefit the industry and those who depend on it for employment. The construction industry is in a situation of serious crisis and my concern is the harmful effect this crisis will have on the economic and social wellbeing of our people. Construction is our second largest industry. It employed 105,000 people in 1981 but now well over 40,000 construction workers are unemployed. A continuation of the serious decline in the industry will have tragic consequences for thousands of other families unless serious steps are taken to arrest the decline.
It is necessary at the outset to establish the extent of the problem and then to get an admission from the Government that they recognise the seriousness of the situation and the need for corrective measures. The Minister knows that confidence within the industry itself plays an important role and that lack of confidence results in an acceleration of decline. The Construction Industry Federation for some time past have been carrying out their own survey of the industry and the most recent survey in March 1983 illustrates the depressed state of the industry and the overall lack of confidence in its future under present policies.
More than 2,000 builders were consulted in this survey and 55 per cent of them expected a further reduction in construction activity in the period April-June 1983. Some 49 per cent held this view in the residential building section, 61 per cent held this view in the non-residential activity section and 64 per cent held this view in the civil engineering section, whereas normally 73 per cent of them would have expected an increase in building activity in the same period.
It is clear from the results of the survey that those actively involved in the industry now have a very pessimistic outlook on the future. The survey confirms that more than half the building contractors expect to have less work on hands in the summer period than they had during the winter period. Traditionally the summer months are a period of higher output in construction so we must conclude that the summer period will see a further decline and a worsening of the already bad winter situation.
I should like to quote the opinion of the Construction Industry Federation on the survey as given in The Irish Times of 20 May. Under the headline “Outlook for building industry remains bleak” it goes on to say:
The construction industry remains in the doldrums and the outlook continues to look bleak, according to the Construction Industry Federation. The March survey carried out by the CIF on behalf of the surveys division of the EEC "reflects the attitudes of construction companies in the aftermath of the Budget, which saw a 15 per cent cut in the volume of Government investment in the industry, an increase in the cost of building work through the imposition of increased and additional taxes and levies, and no incentives to promote private sector investment in the industry," the CIF says.
The March survey was carried out in the first three weeks in April and when combined with the December and October surveys during 1982 "shows that a continuation of the dramatic fall-off in construction activity and employment is expected by the vast majority of construction companies during the second quarter of this year."
My only wish in debating this motion is to seek a positive response from the Government to save this industry and those dependent on it from the dire consequences of the disaster with which they are now confronted. Scoring political points has little merit when one realises the magnitude of the human misery and deprivation that will result if action is not taken. My party are gravely concerned with the extent of the problems affecting the construction industry and we are alarmed that the Government may not yet have fully realised the extent of the crisis and the need for immediate Government action to avoid the danger of wholesale collapse.
All the economic indicators reflect the rapid decline in construction activity and the major fear is the danger of a more accelerated rate of decline. Action now can avoid the danger of further large sections of the industry collapsing. If action is delayed it will be too late to save important sections of industry from going to the wall.
The construction industry is funded by public and private capital investment. Public capital investment levels are decided by Government and private capital investment is influenced by Government who can create a financial climate that will attract or discourage private investment. Last November, Fianna Fáil took the unprecedented move of publishing the Public Capital Programme five weeks before the start of the next financial year and in the middle of an election campaign. Those Estimates showed the clear commitment of my party to the construction industry in the capital allocations made for each Government Department. The Public Capital Programme published by Fianna Fáil provided for a total expenditure of £2,110 million. The Coalition's post-election budget provision was £1,890 million, a reduction of £220 million. Their decision to reduce the Public Capital Programme by this amount was a deliberate political decision taken by the Government to reduce the overall borrowing requirement for capital purposes.
Whether the Government were right or wrong in making this decision is what this debate is partly about because the resultant fall-off in construction activity is a contributing factor to the crisis now affecting the industry. We argue the Government were wrong in making that decision because it represented too severe a restriction at a time when the industry was experiencing an overall shortfall in capital investment due to the serious recession affecting the economy generally. I believe the Government would have been better advised to maintain the level of public capital investment proposed by Fianna Fáil in view of the decline in private investment which was known to have taken place. I have not advocated, as stated by the Minister last week, that the State should deploy resources on a scale which would completely offset the decline in private investment. Such a course would be foolish in the extreme. However I consider it foolish of the Government to have cut back so deeply on planned public capital investment at this time. It was the wrong kind of move. It has shaken the industry's confidence and has led to the belief that the Government were reappraising the importance of the construction section in the economy.
It is thought that some Ministers believe that it is wrong for the State to support construction in time of recession and that jobs in this industry do not have the same value as in manufacturing. Regarding the cut of £220 million in the Public Capital Programme I believe this was a monumental blunder by the Government which will have to be rectified before the year is out. My motion refers to a promise made by the Minister for the Environment that £100 million extra would be made available to the construction industry. The Minister recently denied in the Dáil having made such a promise. He made the denial at column 1137, Volume 342, of the Official Report of 12 May 1983.
I wish to quote from two newspaper cuttings to show that the building unions claim that they were told by the Minister that a further £100 million would be invested. The first quotation is from a journal, which I mentioned during my Estimate speech, which is considered the favoured reading of some members of the Coalition Government. It is certainly very favoured reading of the Minister of State, Deputy Quinn. This is Liberty, the journal of the Irish Transport and General Workers Union, the April 1983 edition. It has a front page heading “Construction — an industry in crisis”. I want to quote from an article on page 3 of that journal which is headed: “Coalition ignores jobs crisis”. The article states:
Group Secretary, Des Geraghty, has accused the Coalition Government of failing to recognise the serious jobs crisis in the construction industry. In fact he said, the Government are actually making things worse. He described the 300 proposed redundancies at Irish Cement as a graphic illustration of the severity of the problem ...The construction sector was originally promised an extra £100 million by the Government which was not forthcoming. While we were all further disappointed by the drastic cutback of £220 million in the Public Capital Programme of the present Government we were assured that the Government intended other initiatives which would induce greater private investment in the construction sector.
Mr. Geraghty is an important official in the Irish Transport and General Workers Union and he would not have made a statement that a promise of this kind was made by the Minister unless he had some reason to do so. The official journal of the Transport Union has seen fit to publish his statement.
I was not present at these meetings. I understand that the Minister met the building industry in Dublin on 17 January 1983. On that occasion he told them that he was committed to the maintenance of employment in the construction industry. We have since seen the Minister and the Minister of State preside over what is probably the greatest drop in employment the industry has ever experienced since that meeting. He told the meeting, according to Mr. Geraghty and according to a large number of other people who were present at the meeting, that £100 million extra would be invested in the construction industry. Of course, following that meeting, as spokesman for the building industry at Cabinet table he has been responsible for the cut of £220 million in the Public Capital Programme which I have already mentioned.
Another group of building unions, the Cork Building Group of Trade Unions, as indicated in the Skibbereen Eagle of Saturday, 23 April 1983, stated:
The Cork Building Group of Trade Unions in a statement condemns very strongly the lack of initiative and investment in the construction industry nationally. It would appear that the industry will be decimated by a further 16 per cent in the coming year and when one considers that 35 per cent of all building workers in the Cork area are unemployed there is very little hope for the future.
The statement goes on to say:
At a meeting, just prior to the budget, with the Tánaiste, Mr. Dick Spring TD and Mr. Ruairí Quinn TD, attended by all shades and representatives of the construction industry, an investment of £100 million was expected; instead a clawback of £220 million was introduced resulting in a total loss of £320 million to the industry.
I cannot understand how the Minister can deny having made this commitment to the building industry at that meeting or on a subsequent occasion when he was interviewed by the media. In case there is any doubt as to what the Minister said the House should know that in the Programme for Government there is another reference to this commitment of £100 million. On page 6 it is stated:
There are a number of cases involving we believe up to a further £100 million of projects in which infrastructural work can be usefully undertaken on a joint public-private basis.
We have not yet seen sight of that £100 million, whether it is the commitment entered into at the meeting which took place in Dublin on 17 January or at the meeting which took place prior to the coming together of Labour and Fine Gael to form the Coalition Government. In the Programme for Government, on page 6 as I mentioned, the commitment is there. The Minister confirmed that later at his meeting with the representatives of all sides of the unions. Anybody reading that part of the booklet could not but conclude that there was an intention to provide £100 million extra. I am told that this was a major factor in determining support for coalition at the Labour Party conference in Limerick. Many of the delegates who attended there, representing building unions, were of the opinion that that promise was conveyed to them by the Minister.
The Minister said in the House last week that he accepted that the building industry was going through a difficult period which in his view resulted from the growth in output in the 1977-79 period which he says he considered to be excessive. He then stated that the proper course is to maintain constructive liaison and dialogue with the industry and to seek through mutual co-operation to keep the industry on an even keel and prevent, as far as we can, the swing in output that has so bedevilled it. Those are fine sentiments in normal times but they do not give any indication that the Minister is conscious that this industry is facing its worst crisis since 1950. Dialogue with the industry is meaningless in circumstances where the responsible Minister fails to implement promises accepted in good faith, such as the promise of £100 million extra for construction.
I would like to say to the Minister of State, Deputy Quinn, who is in the House representing the Minister, that I do not believe that the industry is on an even keel. I suggest that it has in fact developed a very dangerous list, that it is sailing in very turbulent waters and that many of its prominent members have already fallen overboard, lost without trace. The remainder of the crew are looking anxiously towards the captain to see them safely through, but in this case some people are beginning to wonder if the captain is even at the helm.
Nobody on this side of the House ever suggested that it was possible to insulate the building industry from what is happening in the rest of the economy, and it was facile of the Minister last week to imply that anybody on this side would subscribe to such simplistic views. I accept, as stated by the Minister last week, that the industry has to rely for a large part of its output on the level of demand for its services from the private sector. I had pointed out that the Government had deliberately cut back on public capital investment, but it is true that the level of private capital investment is being seriously curtailed due to a series of measures introduced by the Government. I will list only some of them.
I will start with the changes in VAT. The Government increased VAT in the building industry from 3 per cent to 5 per cent, an increase of 2 per cent, adding approximately £700 to the price of a house. I have seen other estimates of the increase in the price of an average three-bedroom house following the VAT increase which is higher than that — I am not giving an exaggerated figure. The House will find it extraordinary that a Government who continue to make grants available to encourage people to provide their own homes, a grant of £1,000, should introduce through legislation increases nearly equivalent to the value of the grant which they are giving to young couples and others buying houses. It is very difficult to understand why the Government persisted in increasing VAT on new houses purchased by people buying their first homes. It is a complete contradiction in terms — the Government continuing to pay a grant and at the same time clawing back its value through increases in VAT.
No Minister in this Government has sought to explain the Government's policy in this respect. No Minister has stated why they think it necessary to impose such an additional charge on young couples and others seeking to provide homes for themselves. Surely it must be Government policy to encourage people to provide their own homes and, when circumstances, financial and otherwise, do not allow it, the State would come in and assist with local authority housing. Here we have one negating the other and it is not logical. Can the Minister explain the thinking behind the decision in regard to new houses?
This will also have a deflationary effect on demand by increasing the costs. The Government also introduced new planning charges which are costing the industry £6 million extra per annum. Here we have an industry starved of funds and a Government who introduce new measures that will take out some of the sums that are available for housing and put them into the Exchequer for other purposes. The level of the charges introduced by the Government are penal in many cases and it is difficult to justify the level of charges that have been introduced. The hardship that will cause and its disincentive effect on investment have not been fully calculated, but the estimate of £6 million has not been denied by the Minister or the Minister of State. Here again we see a complete reversal of the type of policy the Government should be encouraging, to encourage further investment rather than to be taking money away from the industry.
Another move introduced by the Government which surprised the House and the country was the decision to reduce capital allocations to the Housing Finance Agency by £10 million, the value of approximately 500 houses, another extraordinary decision, especially at a time when the cash flow to the building societies and other sources of finance have been diminishing. The Local Loans Fund has been playing a reduced role in the financing of house construction recently. Other agencies, such as insurance and assurance companies, have been giving a diminished contribution to housing capital.
The decision to establish the Housing Finance Agency was supported by this party in Government through the allocations they made in the Estimates published last November. However, for some unexplained reason the Government decided to reduce that amount. In his budget statement, the Minister for Finance announced PRSI increases which it is estimated will increase wage costs in the building industry by 3 per cent, again adding to building costs and making it more difficult for people to purchase homes, and in turn making it less attractive for people to invest.
The Government also introduce restrictions on mortgage relief which will have the effect of reducing the cash flow to building societies. We have seen that the building societies are proposing an increase of ½ per cent to compensate for this change. The Government abolished the employment incentive scheme in the construction industry and the residencerelated tax incentive scheme. They restricted the application of section 23, the tax incentive, which had been introduced by Fianna Fáil in the 1981 Finance Act. This Government reduced the value of that concession.
In the Finance Bill there is a failure to alter the clawback provisions in relation to stock relief at a time when the construction industry is in decline. This has bankrupted many companies. I have been informed reliably by many people who have been in the industry all their lives that the single most pressing problem affecting the industry at present is the potential effect of this clawback on stock relief. I am told that many firms are facing a period of contracting stocks, and in many cases the clawbacks will mean that tax will be payable out of all proportion to current profits.
This stock relief was introduced in the 1975 Finance Bill to give deferred tax relief on artificial increase in stock and work in progress, due to the very high inflation at that time. The 1976 Finance Act was retrospectively extended to include construction operatives. The 1977 Finance Act allowed stock relief claimed in the first two years as a permanent relief, that is, no clawback, and altered the method of computation for future years by restricting the amount of relief at 25 per cent after all allowances, balancing charges, losses forward, etc., had been claimed. The subsequent Finance Acts, up to and including the 1983 budget, maintained the above position, and all reliefs claimed were treated as deferred tax. Originally it was envisaged that the clawback of this deferred tax would take place when inflation had been brought under control in a reasonably buoyant economy. However, the industry, now in serious recession, with consequent downturn in output, faces a clawback of stock relief at a time of rapidly diminishing profitability. Indeed, there can be the ridiculous situation that a company that had not made a profit and therefore had not tax liability, because of the clawback could find itself liable for very substantial sums of money.
At a time when it can least afford to meet charges of this type, the resulting negative effect on cash flow will have serious consequences for many companies' ability to continue to trade. The 1983 budget proposals have decided to maintain the stock relief allowance for a further year. However, this is not an advantage to construction because due to the downturn in output companies will not be in a position to avail of the relief. The budget and the Finance Bill, and all the amendments the Minister has introduced, do not deal with the serious problem of the clawback. We have put down some amendments to the Finance Bill at present before the House in regard to the clawback, and we hope the Government will support our amendments, or else come forward with their own proposals. There is serious concern in the industry at the effects of this clawback provision. Unless some steps are taken by the Government to relieve the situation a number of companies will be forced out of existence. I ask the Minister in his contribution to refer to the effects this clawback proposal is having on the industry and to state whether the Government are conscious of the extent of the problem, and if they propose to take any steps to alleviate it. I mentioned that two weeks ago on the Estimates debate but unfortunately in his reply the Minister did not refer to many of the important points made on this side of the House.
The other measures the Government have taken which are having a bad effect on the industry is the decision to increase the CRV charges by as much as 50 per cent. It is not the effect of any one of these measures — except maybe the clawback provision which in itself will have a disastrous effect on the industry — but it is the combined effect of all the measures which will result in increased costs, reduced consumer demand, reduced profitability and disincentive for further private investment. It is difficult to understand why the Government should introduce all these additional impositions on an industry which is already in serious decline. Government cutbacks in capital expenditure, combined with this package of disincentives, is starving the industry of funds resulting in massive unemployment.
The Minister castigates the private sector for the withdrawal of private investment in the building industry and says it is unrealistic to expect the State to match in full the reductions in private investment by a corresponding increase in public capital support. I agree with him wholeheartedly, but I do not think anybody made such a silly suggestion. However, what seems unrealistic to me is the action of the Government in introducing disincentives to private investment at a time when private investment had already dropped by 50 per cent in the period 1979 to 1982. It is incomprehensible that any Government could conceive to do so much damage to such an important sector of the economy, upon which they should be depending for the creation of jobs, to relieve the terrible unemployment problem affecting the nation. Unless there is a reversal of Government taxation proposals for this industry immediately, it is likely that half its work force will be unemployed by next December.
In short, what I am suggesting is that cuts in the Public Capital Programme be restored and financed as planned by Fianna Fáil when in Government last November; that the Minister fulfil his promise to invest a further £100 million in construction; that the Government drop the planned increase in taxation in the building sector, as I have already outlined; that the Government restore the £10 million cut for the Housing Finance Agency allocation and that the Government introduce new incentives to encourage investment in construction projects, particularly in the residential building sector where the demand far exceeds the supply. There are many options open to the Government in this area. They have the obvious success of section 23 of the 1981 Finance Act to guide them, if they would only take a positive approach. Other suggestions have been made, such as joint venture housing, equity sharing scheme and endownment mortgages. Another positive suggestion is that deposit interest on special savings, such as building society savings accounts be relieved of Government tax as the money is eventually invested in construction work and helps to boost the economy.
At present individuals wishing to save for a house must first pay income tax on their salaries and they must pay tax again on deposit interest earned on any part of that salary invested as savings. The tax code discourages personal savings and affects the level of private investment in construction and other sectors. For instance, the announcement today by the Minister for Finance that tax inspectors will in future be allowed full access to the building societies savings accounts of their clients on foot of a High Court order will result in large amounts being withdrawn from building societies and invested abroad. The Minister's proposals that the High Court order must issue if the tax inspector states he is not satisfied with information given, is an extraordinary one and will destroy for all time the customer/client confidentiality relationship which has been the cornerstone of banking and building society business in this country.
The worst affected areas in the building industry in this recession are possibly Cork, the Midlands and Galway, because they are in recession for longer than any other part of the country. I have a knowledge of and interest in the Galway region. The construction sector in the Galway area has been in a crisis situation for two years. Public capital investment in the area is practically nil. Private investment work has dropped off dramatically. Unemployment in Galway city and county reflects the steep decline in the construction industry in the area. There are a total of 3,800 persons employed in the construction industry in County Galway. In June 1982 there were 1,015 unemployed; in September 1982, 1,130; December 1982, 1,316; March 1983, 1,448 and the projected employment for June 1983 is 1,648, 43 per cent of the total work force. The projected unemployment figure for 9 August 1983, after the summer holidays is 2,100,55 per cent of those employed in the building industry in the Galway region. One builder who had been constructing about 240 houses per annum is now building 45. A builder who employed 35 blocklayers is now employing one. About 20 small builders have gone out of business and the large builders have reduced the numbers employed and some of them have closed down until things improve. Some builders' suppliers have gone out of business and others are letting their staff go.
I want the Minister to tell the House why his Government persist with the wrong policies, why they impose disincentives instead of creating a climate for investment by dropping repressive Government tax measures. Has the Tánaiste, the Leader of the Irish Labour Party, no concern for the plight of the unemployed blocklayer, plasterer, carpenter, electrician and builders operatives who are walking the streets suffering the frustrations and indignity of hopeless unemployment? Nobody could blame him for the despair of the building workers' families if our present plight was solely caused by the international recession over which we have little control, but that is not the position. The international recession is partly the cause of our problem but the situation has been compounded by direct Government action to which I have already referred.
Surely it cannot be rigid adherence to strict Socialist principles that is responsible for the Government's reluctance to come to the aid of this industry? One would hope not. We in Fianna Fáil have no such reservations about the benefits of the private enterprise system. We believe it should be encouraged at every opportunity. The Labour Party decried the profit motive, yet now look to private investment, in the middle of a recession, to come to the aid of failing Government policies for the construction industry. It is the old problem of Socialist Labour in Coalition Government with conservative Fine Gael, contradictory policies, vying for influence in a compromised Government. This lack of clear sighted policy for the industry is sapping confidence and will lead to further failures. We do not claim that the steps we suggest would restore the industry to full employment overnight but we do claim it would reverse the terrible decline which has now gripped the industry. It would restore a measure of confidence and give the people who are so badly affected by this crisis some hope for the future.
I hope this debate provokes a positive response and will draw from the Minister and his Minister of State recognition of the very serious decline which has gripped this industry. I hope that they will realise that the measures introduced by their Government since January are having a detrimental effect on that industry. There is lack of confidence, bewilderment about the future and fear of investing money in construction because of the continuous flow of tax measures which the Government are imposing on them, making it unattractive to invest. It is foolish and wrong to ask the private sector to save the industry when the Government are doing absolutely nothing to create the incentive which would bring a response from the private sector by way of increased capital injection into the industry.
