I welcome the opportunity provided by this debate to identify the problems that face our economy, to indicate the Government's approach to these problems and to give to the Opposition the opportunity to present their own analysis and approach to the economy.
I would like to quote at the outset a key sentence from the Programme for Government:
The dual task of halting and reversing the growth of unemployment while phasing out the current budget deficit poses a greater challenge than any Irish Government has faced domestically since the early years of the State.
This sentence highlights in a critical way the twin dimensions of the task facing the Government. First, there is the dimension of control — control which is vital if we are to continue to exercise discretion and choice at national level in the management of our economy, and to sustain the social progress already achieved. We have already exercised that control. On assuming office we had to take a series of measures designed to begin the long and difficult task of restoring order to the public finances. We will need to continue to exercise that control in the months and years ahead.
Second, there is a major need for a creative dimension in national policy that will help to create the large numbers of sustainable and worthwhile jobs that are required by our people in the years ahead. I emphasise the need for creativity for many reasons. Not the least of these are the major constraints and limitations on policy that already exists, arising from the recession and from the burden of accumulated debt both domestic and foreign.
We cannot pretend that there are instant solutions or bogus remedies.
Before elaborating on these themes, I would like to emphasise the impact of the recent recession and the problems it poses for us. In general, in the post-war period until 1973 the Western World experienced strong growth with minor cyclical movements. Ireland shared in that experience from the late fifties onwards. However, from 1973 we have had two major recessions with one major recovery in the 1976 to 1979 period, with the most recent recession now turning into a gradual recovery.
The Irish people chose by Referendum in 1972 to participate fully in the international trading economy. Our performance is therefore linked to it, and there can be no long-term answer by OECD countries seeking to be more competitive with one another by currency realignments or other means. The OECD themselves clearly recognise that there is no long-lasting solution possible without a great degree of international co-operation. In their July 1983 report, they make the point that, in the absence of a coordinated approach, there is the risk of the emergence of policies whose effects are quite different from those intended by the policy makers.
As an open trading economy Ireland has been subject to the recession and stagnation of recent years. This can most clearly be shown by putting before you the increases in total unemployment and in unemployment amongst those aged 25 or less that have taken place in certain Community countries between October 1979 and June 1983. These were in terms of percentage increases:
Total Unemployed |
Age 25 or less |
|
Germany |
+ 189 |
+ 162 |
Italy |
+ 57 |
+ 61 |
U.K. |
+ 118 |
+ 119 |
Netherlands |
+ 282 |
+ 231 |
Denmark |
+ 88 |
+ 70 |
Ireland |
+ 128 |
+ 212 |
EEC(average) |
+ 90 |
+ 71 |
These rates of increase show that many European economies, however strong they might have been regarded, were not in a position to insulate themselves from the impact of the international recession.
The recent OECD "Employment Outlook" put the international argument well in commenting that:
The general magnitude of the task of dealing with unemployment can be illustrated by the following simple calculation. 20,000 extra jobs will be required every day during the last five years of this decade if OECD unemployment is to be cut to its 1979 level.
It continues:
Sustained economic recovery is obviously vital to reversing these trends. There are clear signs that the long-awaited recovery is now under way, but it does not seem likely to make inroads into unemployment for some time and even when it does, a sizeable unemployment problem will remain, particularly in Europe.
I have referred to these aspects of the international environment to show a general context for policy consideration. I now return to the two themes mentioned at the outset in relation to domestic policy namely, the continuing need for a control dimension and at the same time the need for an approach in the years ahead whereby the creative talents and organisational capacities of our people can be harnessed to the national task of sustainable job creation.
It is clear to everyone that we could not continue, in the management of our economic affairs, along the lines followed generally in recent years. For example, at the end of 1982, foreign debt was £5,200 million; in 1971 it was £90 million. The interest charges which represent a real transfer of resources outside the country were £5 million in 1971, and £516 million in 1982, excluding interest on the debt of semi-State companies.
It is essential for the moment to continue with the policy of borrowing abroad but the rate of increase of such borrowing has been slowed down and the rate of increase of new additional foreign borrowing, as distinct from refinancing, has got to be slowed down further, in the years immediately ahead. This has nothing to do with any economic theory. It is a realistic judgment on balance to ensure for the Irish people the maximum degree of choice and discretion in economic and social policy.
This year, for the first time for many years the broad overall budgetary targets will be reached. This does not mean that we are seeking to "balance the books" for their own sake. It is necessary to get the public finances under control so that our credit rating can be sustained and limited flexibility created for the years ahead. The Programme for Government (December, 1982) stated:
The phasing of the elimination of the current budget deficit between now and 1987 will have to be undertaken with due regard to prevailing economic conditions, and in particular to the importance of achieving economic growth and dealing with unemployment.
This does not mean that the current budget deficit must be phased out equally over a five-year period, nor does it imply that other magnitudes such as the size of the Public Capital Programme or the level of the Exchequer and public sector borrowing requirements are not important. It means that we as a Government have to be serious, not cavalier, about certain financial targets because otherwise the level of correction that would ultimately be required would be such as to damage all prospects for growth, decimate the social services and threaten the democratic cohesion of the nation.
After an improvement in 1982, the balance of payments is improving sharply again this year to a level around 2 or 3 per cent of GNP, compared with about 14 per cent in 1981. Some of this is related to favourable price movements in oil products, to a fall off in import volumes due to the recession, but also is directly related to an exceptionally strong performance in manufactured exports which this year are expected to increase by 12 per cent in volume terms.
It is clear that there had to be a major adjustment by comparison with 1981 when we were overspending abroad to the extent of one-seventh of our national output. The balance of payments situation is crucially important because it means that when we get back to the growth required to reduce unemployment, the balance of payments should not re-emerge as a major constraint on Government action.
I should like also to underline the sharp decline in the rate of price increase which started in mid-1982, and which has reflected the general decline internationally, the strength of the £IR during the winter period, and the more moderate wage movements in recent times. There are now very good grounds for believing that with a constructive response from everybody — and I accept that this has to include Government action in the indirect tax area — we will move in the future back towards the type of single figure price increases experienced in the sixties. A reduction in inflation will help to make us more competitive, and will make more real for pensioners, unemployed people and other social welfare recipients the impact of the 10 per cent and 12 per cent increases last June, and the additional 5 per cent payable to the long-term unemployed since early this month.
As we all know, improvements in various indicators have been occurring at a time of little or no growth in the economy when major job losses continue to occur with the numbers unemployed rising sharply.
As I have said, the options for dealing with these problems in the immediate budgetry context for 1984 are limited by the constraints arising from the policy choices of previous years. In this context, the level of current expenditure and its targeting, the level and distribution of taxation and the level and composition of the Public Capital Programme have to be seen in the context of both what is feasible and prudent to borrow, both at home and abroad next year.
The House will have many opportunities to debate these matters in the months ahead. I wish at this stage to make some general remarks.
The facts dictate that we must have a careful and planned approach to public expenditure. By far the greater part of public expenditure in practice is committed in advance in any given year; for example, the payment of interest to service existing debt, expenditure on essential services and on necessary transfers for social welfare and other areas. I do not hold the view that a high level of public expenditure is of itself socially or economically undesirable: public expenditure is vital to secure certain key economic, social and redistributive objectives and will remain so. What must be an issue is the efficient management of existing public spending programmes, the elimination of waste, and the phasing down of programmes that serve no necessary economic or social objective.
It is necessary to distinguish between the legitimate views of interest groups of all types in public expenditure programmes, including both those providing and receiving the various services and the overall resource cost and economic and social impact of individual programmes.
In the area of taxation, the widespread demand for tax equity in the years ahead must be translated into a series of concrete actions including the widening of the taxation base. It is, however, important to remember that a large proportion of tax revenue will be pre-empted each year to service the national debt, and any prospects of a reduction in overall taxation must take account both of this and of the need to maintain essential public services.
The same constraints apply to capital expenditure as to the current side. Selectivity and careful targeting of limited resources by reference to economic, infrastructural and social needs will be of prime concern to the Government.
I referred earlier to the need for a creative dimension in policy approaches to the issues we face. I think, having outlined the context of these problems, that no Deputy will disagree that only radical and bold initiatives will help us to overcome them.
For the purposes of debate, I want to encapsulate those problems in two words. The first of those words is unemployment, the second is equity. And I want also to start from the point that as far as I am concerned, there are no sacred cows, immune from critical examination, that can be allowed to stand between us and solutions.
To turn first to the question of unemployment, we are in grave danger of allowing the emergence of an alienated, frustrated and bitter population, young and not so young, for as long as we fail to redress the scourge of unemployment. The economic effects of unemployment are obvious, not only to the individual but to the community as a whole, both in terms of human hardship and an ever-increasing drain on smaller and smaller resources. We have now a human emergency in this State and we do not have the capital resources available to us to deal with it. Given that that is the case, how do we begin to approach the solution?
Firstly, we argue strongly that a medium-term economic plan, prepared on the basis of independent expertise and setting out the options and decisions that are open to us, is vitally necessary. Such a plan, which will also spell out the benefits of decisions in terms of improved employment prospects, is now in the course of preparation by the National Planning Board, which was established by this Government, and it is expected to be ready for submission to the Government early next year.
Secondly, since they came into office, this Government have continued with the task of ensuring that each of our industrial sectors is planned in accordance with a long-term strategy in order to realise the full potential of each sector. We are now well advanced in this work. Already over two-thirds of industry is the subject of searching analysis by tri-partite committees representative of industry, trade unions and Government. Already two reports have been completed — on the clothing and textile industry and on mechanical engineering. These reports and the others to follow shortly on electronics, beef, marketing, chemicals and pharmaceuticals, plastics, fishing, construction and the dairy industry will be the basis of a series of radical decisions by the Government to accelerate the growth of these industries. The recommendations being made reflect the considered views of all concerned with the industrial sector in each case and, therefore, will provide a solid base for action. Among the actions that we intend are that the training funds and agencies will be able to contribute more directly and effectively to the needs of progressive and enterprising companies. We also intend to ensure an infusion of management, marketing and technological skills where that is necessary.
Thirdly, by examining and encouraging measures to improve the competitiveness of our goods and services. All of us accept competitiveness as vital, although I regard it as a wider concept than often discribed. For instance, it does not necessarily follow that low wages will produce efficiency, quality, and predictability of supply, and it is these attributes which in many cases are the key to competitiveness. There are many areas where there is a need to bring a high level of commitment to bear on the realisation of excellence in terms of quality; the marketing and delivery of products; and on essential research and development, both in the area of new products and new methods of production.
Ways of improving this commitment through greater involvement and participation in real decision-making, need urgent debate, and the relationship between wages and productivity needs greater study before simple conclusions can be drawn.
I do not intend, in making this point, to deny the truism that in the short-term, and with a given technology, movements in money wages greater than those of our competitors will tend to reduce competitiveness and increase unemployment. It is also true that there are other factors that affect competitiveness, such as increases in the costs of social insurance, energy, transport and telecommunications, and in many of these areas the Government have a key role to play in controlling costs.
Fourthly, my party have always believed that there is a strong case for significant State involvement in job creation. The Government will shortly have before them for consideration a draft White Paper on industrial policy, setting out the decisions that need to be taken for a revitalised approach to industrial development. The National Development Corporation will play a substantial role in that revitalisation, and will contribute to the creation of viable jobs in the years ahead.
Fifthly, it must be recognised, that we have a special problem here in Ireland. We have the highest growing population in Europe, and we have the highest proportion of young people in our population in Europe. If that means nothing else, it must be seen to mean that the emphasis of policy must continue to be towards the young, both in terms of training and work experience on the one hand, and the creation of sustainable jobs on the other. The agencies that we have created and charged with this task have worked well within the limited structures available to them. Great demands will be placed on those agencies in the years ahead. To date, for instance, more than 100,000 young people have participated in youth employment and training programmes under funds set aside for this purpose — 47,000 in 1983 alone.
Sixth, there are many things which we as a community can do in relation to the problems facing us. I do not believe there has been adequate public debate about the changes in attitudes that may be necessary, and the sacrifices that must be countenanced, if we are to make inroads in a real way into the despair of many of our young people. It may be that a great deal of research is necessary into these areas. For my own part, I believe that they need to be exposed to the light of public view, so that the whole community can exercise a choice.
What sort of areas am I talking about? Let me list several that I believe would benefit from full and open discussion:
—the ending of restrictive practices, including many that may operate in the professions;
—the relationship between shorter working hours, increased leisure, and income;
—the limiting of overtime;
—earlier retirement;
—later entry to the work force through increased emphasis on the transition from school to work.
All of these, and more, are subjects which have something to contribute to the question of employment. How much they have to contribute is a question that can be answered only by research and debate. For many reasons including this; I welcome the willingness of the social partners to engage in dialogue with the Government in the coming weeks.
Seventh, since the adjournment of the Dáil in July, there has been reassuring news on the mineral exploration activity off the Waterford coast. Pending the emergence of information from further essential tests, it is necessary for us all to be just cautiously optimistic. The basic framework relating to the development of hydrocarbons has been in place since the mid-seventies, and the Government are determined to ensure that any commercial finds are developed to the maximum national advantage.
If Ireland were to become a major energy producing economy, there would be greater flexibility in the long run in the management of the national economy. It would be foolish to assume, however, that the discovery of oil, even in large quantities, would necessarily secure major continuing growth in national wealth or in employment.
I want to turn now to the question of equity, particularly in relation to our taxation system. I have already stated my view, well-known to Members of this House, that real equity in our taxation system can come about only through a broadening of the tax base. I want to make some general remarks on this subject.
Before doing so, I would like to remind the House that the 1983 Finance Act contained within it a greater degree of commitment to this principle than any recent such measures. The numerous provisions of that Act aimed at stamping out evasion, together with the introduction of the income-related residential property tax, were clear evidence of the Government's determination to move as fast as possible to a situation where people could be content that the level of tax they were paying, if high, was no more than on par with what was expected from everyone else in proportion to their means. There remains a great deal of work to be done in this area. Over the next few years we will have to move to ensure that wealth is taxed in a visible, measurable and substantial way.
I recognise that there will be many in this House who will find such discussion unpalatable. However, there can be no escaping the reality that a disproportionate share of our burdens are now being carried by the PAYE sector and that simple justice demands that the load be shared more evenly.
I would like, now, to refer to issues relating to the construction industry. The Government inherited major problems in this important sector at the commencement of 1983. Employment had dropped by 18,000 and output was down some 18 per cent from the peak years. Efforts had been made to sustain and increase the level of public spending, but there had been a drastic fall off in private investment which was down some 50 per cent from 1979 levels. Heading into this year, therefore, the Government were faced with a building industry in steep decline and a crisis in our public finances which severely constrained the Government options relating to the public expenditure component of investment demand.
The task of Government was to find a balance between the necessity of control in the public finances and supporting a building and construction sector that had become over-dependent on public spending. The level of public investment was planned at the highest sustainable level, but the inherited financial constraint meant that public sector investment could not be undertaken at a level that would offset the substantial fall that has occurred in private investment.
In so far as major programmes under my Department's control are concerned, output and employment in housing, roads and sanitary services are likely to show an increase in real terms over 1982.
Housing now represents 42 per cent of the total output of the building industry. As the provision of housing for the community is also an area of prime social concern, it is encouraging to find that the output of the housing sector is holding up well despite the adverse economic environment and the decline in construction output generally. Completions this year should not be far short of 26,000 — about 6,000 on the local authority side and the remaining 20,000 or so on the private side.
The relatively good performance of the house building sector is due in no small measure to the massive scale of Government investment in housing this year. Between capital and current the total provision for Government expenditure on housing is £500 million. Of this £208 million has been allocated to the local authority house building programme and this provision has allowed local authorities generally to increase activity under their programmes. As a result the number of dwellings completed by local authorities will show a marginal increase, average employment on the programme will be up 7 per cent to 6,300 and the number of dwellings in progress at the end of August was 8,067, compared to 7,318 at the same time last year.
The relatively good outturn on the private housing side is due to the availability of mortgage finance and to the level of Government incentives to first-time owner-occupiers. The building societies are, at the present time, doing very well as the main suppliers of mortgage finance. It now appears that their loans to house purchasers this year will come to about £375 million — a very substantial increase on the £292 million lent last year. This sum is complemented by a further £125 million provided in the public capital programme — £75 million through the local authority loans scheme for persons in the lower income bracket and £50 million through the Housing Finance Agency catering for those on incomes of £10,000 or less. The sums provided under both of these schemes will be fully utilised. It is particularly gratifying to note that the agency is proving attractive to house purchasers and, by drawing on institutional funds that may not otherwise be invested in housing, is proving to be a real bonus to both the house building industry and to purchasers alike.
The fact that house building has to a large extent weathered the worst of the current economic recession gives grounds for confidence that an improvement in general economic conditions will be reflected in increased output. The recent fall in building society mortgage interest rates, which are now at the lowest level for over five years, is another factor contributing to confidence in the future of the housing sector.
The main improvements required to bring the road system, and especially the national routes, up to a standard adequate to meet our economic, social and environmental needs have been set out in the Road Development Plan for the eighties. We are now four years into the term of the plan and I have had a major review of it completed in my Department which I am about to submit to Government as an updated framework for road investment throughout the rest of the decade.
Some £260 million is being spent this year by local authorities on road transportation and safety. This includes grants of £115.5 million from my Department's Vote for road improvement and maintenance works, an increase of 14 per cent relative to 1982.
As far as future strategy for the building industry is concerned the Government will have a number of aims:
firstly, to return the industry to a pattern of sustainable growth underpinned by sound economic policies;
secondly, to restore stability and to avoid the undue fluctuations that have caused so much damage in the past by prudent use of the public capital programme;
thirdly, to ensure that investment meets reasonable economic criteria in regard to return and effectiveness;
fourthly, to devise new means of broadening the scope for private investment in construction and in particular to bring new sources of private funding to the provision of infrastructure.
I am hopeful in addition that the steps I have taken to streamline the planning process and to remove other unnecessary constraints to development will make their own contributions to the improvement of prospects for the industry.
In conclusion, then, it is clearly the Government's job to accept the primary role in leading the nation to recovery. This is not to say that unemployment can be reduced or reversed on a continuing basis by Government action alone. National co-operation and understanding for the measures that we are and will be taking will over time reverse the trend in unemployment. Dialogue and communication with the social partners will be a critical part of this process. To succeed in the major task ahead will require an entrepreneurial and organisational capacity far in excess of what we have shown in the past in the public, private and co-operative sectors.
If we want increased living standards and are seriously striving for the goal of increased employment, we must honestly accept the disciplines and risks involved. I believe that as a nation we can rise to the challenge.