In moving the Estimate, I propose to review the problems facing our country at the present time and to outline the action the Government are taking, and will be taking, to overcome these difficulties. First I shall outline the main points to which I wish to direct attention.
First of all, I want to suggest that we should recognise the progress that is being made slowly but surely in improving the underlying economic and political problems in our country.
Inflation is now in single figures, less than half what it was two years ago, and likely to fall by the end of the year to 7-7.5 per cent with a prospect of moving down towards 5 per cent in 1985. A rate of inflation of the order of 5 per cent, if we could achieve it, would be the lowest rate since the late sixties.
Manufacturing output is beginning to grow on a broad front. In 1983 it was up by 7 per cent but in the first quarter of this year, as compared with the first quarter of 1983, it was up by 8.5 per cent and the great majority of sectors showed increases.
Exports of manufactures have continued to grow at a phenomenal rate. They were up by 13 per cent in 1983 and in the first four months of 1984 by almost 22 per cent, figures which have no precedent or parallel anywhere else in the industrial world.
In the past year unemployment has significantly slowed to a rate less than half what it was in the first five months of 1983. In the three most recent months, there was in fact a reduction in the number on the live register, seasonally adjusted.
Foreign borrowing in 1983 was down by nearly one-third on the 1982 level. This is a remarkable improvement in the previous trend, one that had resulted in so much of our resources being transferred abroad in foreign debt service.
The current budget deficit, as a percentage of GNP, will be very much lower this year than last year — of the order of half what it would have been in 1982 had we not been returned to office in 1981 to tackle this problem.
While these are all encouraging developments, we are still faced with acute problems. Our unemployment rate is unacceptably high. Our rate of public expenditure is still too high, requiring recourse to excessive taxation and borrowing. Our competitiveness in the market place needs improvement by more moderate labour costs and greater enterprise in management and marketing.
Above all, we need a recognition by the community of the need for a concerted effort to place our economy again on a secure competitive basis that will generate the large number of jobs we require to reduce unemployment in the face of a rapidly-growing labour force. The Government will shortly place before the nation a national economic plan which will spell out, soberly and realistically, the clear choices and options our society has in order to bring back growth in the economy and in employment.
The Government are fully satisfied from what has already been achieved that our policies will succeed in restoring the economy to a structure and vigour that will enable us in the medium-term to resume a high level of economic growth and employment.
Ministers are engaged in a wide series of reforms in their several areas of responsibility.
A sound beginning has been made in reforming our taxation system; because of the state of the public finances this will require planned stages of reform over a period of years.
The White Paper on Industrial Policy to be published shortly will contain our proposals for the accelerated development and expansion of our industrial sector.
A new course has been set for a more accessible and relevant education system.
The public service is being reformed to bring about better service to the public and to ensure that the highest posts are filled by the most able people.
Our national resources are to be developed to the fullest extent and with regard to the public interest.
The Garda Síochána are being protected against political interference affecting their independence and integrity.
Our objectives for greater social justice are being greatly advanced by the family income supplement scheme to come into force in November.
The Oireachtas itself has been radically reformed by the new expanded system of committees.
Proposals for local government reform are now being prepared, with a view to implementation next year. State enterprise, in the form of the State-sponsored bodies, is being given new opportunities to serve the people through better financing arrangements and more coherent policy directions. There is much to be done in many of these bodies to ensure the degree of service to the public to which they were accustomed in earlier decades. The arts and culture, and women's affairs, two important areas of Government, under Ministers of State in my Department, are both being advanced with a new vigour and commitment.
The report of the New Ireland Forum represents an historic achievement by the parties in this House and the SDLP and provides the agenda — including its openness to other views which may contribute to political development — for future discussion and negotiations on the problem which Northern Ireland and its divided communities present to all who cherish democratic values in these islands.
Having summarised the main points I wish to make, I shall now develop some of them in more detail. The first step in tackling our problems is to face them realistically. The second stage is to analyse just how, within the limits of our own capacity in this island, we can, on the one hand, mitigate these problems and, on the other hand, prepare the way to take advantage of the economic recovery now occurring elsewhere in the world — however limited its scale and however brief its duration, in order to speed the process of recovery.
Besides the danger of pretending that we can solve these problems on our own regardless of what is happening in the world outside, there is a second and opposite danger, the danger of fatalism: the danger that, as we recognise the reality of our situation as a small cog in a huge world wheel that has become stationary for several years and is, even now, beginning to move again only slowly and with difficulty and without any assurance that it will remain long in motion, we might decide that it is a waste of time trying to help ourselves. Nothing could be more unwise, more damaging — and more untrue.
There is nothing in the nature of this country or its people that condemns us to impotence in the face of the challange we now face. On the contrary, we have shown that in the past dozen years, which have included two major oil crises, that while we certainly have the capacity to make a mess of our own affairs at the level of national economic management, as we did between 1977 and 1981, we also have the ability to achieve, in certain areas, a performance well ahead of that of our neighbours.
I will illustrate this with two simple figures. The first is the fact that during the past 12 years we have doubled our share of the world's markets in manufacturing — exporting today about twice as much and employing in the export trade twice as many people as would have been the case if we had done no more than keep pace with other countries in expanding our manufacturing base. The second is a much more short-term statistic: last year when industrial production elsewhere and world trade were virtually stagnant, our manufacturing output rose by 7 per cent in volume and our exports of manufactures by 13 per cent; this year already manufacturing output in the first three months has risen by 8.5 per cent and is much better spread across the different sectors of industry than for a long time past, and the volume of exports of manufactures jumped by almost 22 per cent in the first four months.
These two sets of figures, the doubling of our share of the world market of manufactures over a period of years and the extraordinary growth in industrial output of exports achieved in the last 18 months at a time when nothing comparable was happening in any other industrialised country, show that we have a capacity to out-perform others when we set our minds to it. It it true that last years increases in output and exports of manufactures were based almost exclusively on two sectors which comprise a very small element in our economy; the chemicals industry and the electronics industry especially the production of computers, this year there are signs that the recovery is more broadly based. For example, while the office and data processing sub-sector continued to grow strongly, with output up in the first quarter by 54 per cent the textiles sector recorded a significant increase of 10.5 per cent in output in the first quarter as compared with a decline in the whole of 1983 of 6.4 per cent and only a minority of industries failed to show improvements in output.
Given these facts, it is clear that a favourable climate exists in this country for the expansion and development of manufacturing industry. Moreover this year's budget has offered further incentives for investment, in particular through the new venture capital arrangement in respect of non-quoted companies. At the same time, a new stimulus for individual enterprise has been provided through the enterprise allowance scheme which has met with such a heartening response from so many people at present registered as unemployed, who have the will and the capacity but hitherto lacked only the means to set themselves up in business on their own. Over 2,100 are already benefiting from this scheme and the numbers are rising each week.
We cannot ignore, however, that in recent years the cost of our goods and services has become less competitive relative to those produced in other countries which are sold here on our own market or on other markets in which we compete. The fact is that over the past five years hourly earnings in this country have risen at an average annual rate of 16 per cent as against 7 per cent a year in the United States and 5 per cent in Germany. The figure for the United Kingdom for this period is a good deal higher — the average annual increase in earnings there over the five-year period was 13 per cent, but for the most recent two-year period the differential between ourselves and the UK has increased sharply, with wage rates here rising half as fast again as earnings have risen there.
Even if, during the course of this year the value of the dollar and sterling remains at its present level vis-à-vis the EMS currencies thus depriving us of potential benefits in terms of a lower imported rate of inflation, we are now nevertheless in sight of an inflation rate comparable with that of the other countries with which we mainly trade. Price increases in the 12 months ending November next are likely to be around 7 per cent to 7.5 per cent as compared with increases of over 20 per cent during much of 1981 and well into double figures in 1982.
We now have the prospect within our reach of an annual rate of inflation of 5 per cent as we move into 1985. We require only one more push to get our inflation rate, and our rate of pay increases down to those of the countries with which we compete, so as to bring to an end the long debilitating period during which we have been losing competitiveness vis-à-vis other countries in so far as labour costs are concerned.
I do not suggest for one moment, however, that increases in labour costs at a more rapid rate than elsewhere are the sole cause of our loss of competitiveness in recent years. I have already outlined the role that management can play in making our goods and services competitive — a role that in some cases management has failed to play. Unless there is a rebirth of enterprise in both the private and public sectors, and there are signs of this, at the level of those responsible for managing and directing these firms, the alignment of our labour cost increase rates with those of other countries would be insufficient to achieve the planned expansion that we require to achieve the rapid increase in employment during the recovery that now appears to be underway outside our shores.
We must also appreciate the effect excessive pay increases in the public sector can have on the general capacity of the economy to compete in the market place in goods and services. The bill for Exchequer-financed pay and pensions in 1984 is 9 per cent up on the figure for 1983, due to the carry-over costs of general increases under the 1983 public service pay agreement and the continuing commitment to deferred implementation of certain other special pay claims. This 9 per cent increase represents the limit of what the Exchequer can afford in the present year and the Government have, therefore, made no provision for any general increases in Exchequer-financed pay under a 24th pay round in 1984.
I must stress in the strongest possible terms the incapacity of the Exchequer, by which I mean the taxpayer, to bear anything more than a few percentage points of an increase in the annual pay bill in 1985 and the immediately succeeding years, and increments and special pay awards now committed for payment in these years already pre-empt something like 3 per cent for the next couple of years. Restraint in the public sector pay bill over the period immediately ahead must be accepted by the public service — and seen by the entire community — as fundamental to achieving the nation's heartfelt desire to see again a solvent economy which can grow rapidly in activity and employment. During the next few years the Government simply will not be able to raise the funds from the economy to finance other than very small percentage additions to the total pay bill — which amount to £2.5 billion for the Exchequer alone for 1984. The economy is already over-borrowed, over-taxed and subject to uncompetitive charges for public services. In these circumstances lack of restraint in public pay, by directly or indirectly adding to taxation or borrowing, or to charges, already far too high, for public services, would cripple our prospects for economic growth and increased employment. Increases in the public sector pay bill beyond the very limited amounts to which I have referred would now impose an extra burden on the economy such as to cause unemployment in other sectors less secure in employment than the public sector itself and which daily have to face severe and unremitting competition in the market place.
I am confident that the public service appreciates these considerations and that, in a period when inflation should be in low single figures, the low level of increase in the public service pay bill which the economy can afford will be accepted as realistic and fair.
There has been a welcome expansion in international economic activity during 1983 and into 1984. This upturn has been led by the US; other countries including Japan and the EEC countries are beginning to benefit. In line with this expansion, world trade is expected to grow in 1984 by up to 7 per cent. Of particular interest to Ireland is the expected rise in UK imports, of the order of 7 per cent for 1984.
However, there are uncertainties surrounding this recovery. There is the continued concern over the international debt problem and the international financial and monetary system is still under considerable strain. The recent increase in US interest rates will have an unsettling effect on confidence. Moreover, growth in the US may not be sustained. In that event, Europe would have to consider what steps it should take to maintain the limited recovery now under way. It will be one of the principal objectives of our Presidency of the Community to direct or partners' attention to this issue, potentially crucial for them as well as for us.
At home, gross domestic product is estimated to have grown by a modest 0.5 per cent in 1983, and growth of about 2 per cent is expected in 1984, although I should not be surprised if the figure were somewhat higher. This growth, although modest, is soundly based. It is not the rapid mushroom-type growth induced by pumping money into persons' pockets in order to boost consumer spending 60 per cent of which goes abroad, anyway, and give a false and temporary sense of prosperity, such as we experienced, indeed, in the late seventies. It is based, instead, on fundamentally sound financial and economic policies which have reduced the level of inflation to single figures, with the prospect of further reductions in the coming months. The trend in our balance of international payments will continue to improve, although not at the rate we have seen over the past two years. As the economy begins to recover, increases in imports will start to offset some of the improvement in our export performance. Nevertheless, our balance of payments deficit should remain at a manageable level of less than 6 per cent of GDP. An especially encouraging development is that in the first four months of the year, allowing for seasonal variation, our merchandise trade was roughly in balance — a quite remarkable achievement for which I cannot readily recall any precedent since the years of the last war.
The increase in demand for our exports with a resultant increase in industrial output should soon begin to have an impact on investment and employment. Already there are signs that this may be starting to happen on the employment front. We have seen a reduction in the seasonally adjusted unemployment figures in the last three months, although it is much too soon to say whether this improvement can be sustained. What we can say, however, is that our official projections for unemployment in the current year will prove to have been notably pessimistic — as I told the Dáil some months ago was likely, in my personal opinion, to prove to be the case.
I recall the Opposition arguing with me about that at the time. They seemed to feel that I should not express a personal opinion. The fact is that in matters of this kind we are, properly, guided by the advice given to us by our advisers. Any of us, between ourselves may have an opinion and may be unduly pessimistic, but we are not entitled to follow the practice of the previous Government of using personal opinions to change the figures in a way that would be more favourable to us. I am glad nonetheless, that my personal opinion which we did not seek to impose on the budget figures, looks like turning out to be correct in this instance.
One of the most striking features of Irish politics during this period of extreme difficulty for our people has been the consistency of their support for a Government which have sought without fear to expose our problems for public scrutiny and to point the way ahead, and the corresponding rejection of an Opposition whose single-minded devotion to seeking short-term advantage at the expense of the country's miseries has made it appear to the people at large a most unattractive second-best. This was most strikingly demonstrated in the recent European elections when the expected protest vote for Independents and minor parties came back to the Government parties rather than to the Opposition on the distribution of their preferences. So overwhelmingly was this the case in Dublin, for example, where well over two-thirds of the votes distributed to these parties came to the Government parties and less than one-third to Fianna Fáil. In the final stage of the count, 60 per cent of the votes came to rest with candidates of the Government parties and only 40 per cent with Fianna Fáil. An important minority of the electorate had been moved to protest against hardships arising from past Fianna Fáil mismanagement but, having protested, had remained quite determined to withhold any support for a return to a Fianna Fáil Government and did so by a most emphatic majority. The same thing happened on a lesser scale in Leinster, Munster and other parts of the country.
