I move:
That Dáil Éireann condemns the failure of the Government's economic and financial policies and their disastrous impact on employment, investment and living standards.
Ireland at the end of 1985 faces a bleak, economic and social situation that has no parallel since the 1950s. There is no sign of any real recovery. In most material respects the economy is in a much worse state today than it was three years ago when the Coalition took office. We now have mass unemployment, crushing levels of taxation, and a hugh national debt that has grown from £12.8 billion to over £20 billion in three years. Living standards have been grievously depressed, but the fall in living standards has not been matched by any increase in jobs or healthier public finances. No Government in recent times have been guilty of such a appalling record of failure and mismanagement or presided over so much damage to the national economy.
This motion deals with Government economic policies and it is necessary, therefore, to try to follow the path of those policies since the Government took office. First there was the Joint Programme for Government. A great deal of that document was abandoned within a few weeks of the Government's taking office. Despite election promises to pursue "a more flexible approach" to our national economic problems, deflationary policies were embarked upon immediately with the 1983 budget. This comprised a set of savagely deflationary measures which took immediate effect. Later, in October 1984, after the Government were subjected to severe criticism from many quarters about the mismanagement of the economy and document Building on Reality was announced with a massive build-up of publicity.
In effect Building on Reality set out to maintain existing policies but with greatly scaled down targets. In particular, it offered no improvement on the employment situation. By this autumn it had become clear that Building on Reality and its projections are so far off course that they are no longer relevant. Unemployment is much higher than even the very high peak predicted in the document, public service pay and current budget deficit targets have been massively breached. By its own standards Building on Reality has failed in its primary purpose. There are now no attainable policy objectives left in the document. The Government point to the rate of inflation, to interest rates and to the balance of payments as evidence of the success of their policies. But in fact inflation and interest rates are doing no more than reflecting international developments and the improvement in the balance of payments is simply a reflection of the totally depressed state of the economy.
In one of his characteristic economic U-turns the Taoiseach stated recently at the IFA special conference that "the economic strategy of stimulating growth is the only realistic approach to job creation and to the improvement of our national finances". But in May 1983 the Taoiseach claimed that "the maintenance of public solvency requires action diametrically opposed to that which the employment situation demands".
The Taoiseach's recent statement must be looked at against the background of a serious falling off in economic growth this year. It is now calculated to be 1 per cent as against 2½ per cent in 1984. How can a growth rate, a miserable almost non-existent growth rate of 1 per cent, do anything for job creation or improving our public finances?
In the Joint Programme for Government the Coalition promised "firm and decisive action" to halt and reverse the growth of unemployment. Unemployment was then 170,000. Today it is 226,000, and will no doubt in the next couple of months revert to an even higher figure. The Government's only argument now is that the rate of increase in unemployment has slowed down. But even if it were true what hope or solace does that offer? It is in fact an admission that unemployment is still rising. It is no great consolation to someone wearily answering ads, for employment to tell them that, even though there are more and more people unemployed, the rate of increase is less than it was. Furthermore, in the last three years unemployment has, in fact, risen twice as fast in Ireland as elsewhere, and we have been doing significantly worse than our EC partners.
Another aspect of these appalling figures is the degree by which the real level of unemployment is now masked by temporary training schemes and by high emigration. There are a number of alarming indications that emigration is reaching very large proportions. It is accepted that the CSO figures on passenger traffic to and from this country are not a very accurate guide. Nevertheless, in 1984 an astonishing 39,000 more people left this country by air, sea and across the Border by public transport, compared with 13,000 in 1983. There is other circumstantial evidence of a big surge in emigration. Increasingly as all Members know local authorities are finding themselves left with houses on their hands as happened during the massive emigration in 1956. We all know from personal experience and observation at local level that people are going away and going away in large numbers.
Earlier this year the Taoiseach claimed that at least employment would begin to rise again this year. The Central Bank rejects this claim. In its latest report the bank points out that the average level of employment in industry will show a somewhat larger decline than previously forecast, that there will be further declines in employment in the building sector and in the public service and an overall fall in agricultural employment.
The Government have taken no serious employment initiatives. On the contrary they have taken a number of measures in successive budgets, such as cutbacks in capital investment, the public service recruitment embargo, the liquidation of State companies, which were clearly going to increase rather than reduce unemployment. Employment is clearly not a priority of the Government.
The decline of the construction industry has been accelerated again this year. The index of employment in September shows a 15 per cent decline compared with an 8 per cent decline in September of 1984vis-à-vis the previous year. The recently announced measures for the rehabilitation of older dwellings, while welcome, will not have any serious impact on the situation, compared with the flattened out state of the economy and the continuing sharp decline in capital spending by the Government. There are no major construction schemes being undertaken at the present time. The submission of the construction industry in September 1985 states that “the most critical factor facing the economy and the construction industry is a total lack of confidence” and that “there will be no improvement until there is positive Government action”. The increase in VAT from 3 per cent to 10 per cent between 1983 and 1985, the abolition of the residence related tax incentive scheme, the abolition of section 23, and the residential property tax are listed as factors that have greatly accelerated the decline in the industry. The decline in output was 15 per cent in 1983, 8 per cent in 1984 and an estimated 6 per cent in 1985.
The Government's positive discrimination against the building and construction industry has puzzled and dismayed many thousands who have relied on that industry. The absolute neglect of the industry is as clear and as definite as it is inexplicable. The positive contribution which the building and construction industry has made in the past and is capable of making to overall economic development cannot be questioned. It is a valuable part of the overall economy in the employment it gives, in the infrastructure it provides and in the fact that in the main, it uses indigenous materials and resources.
What has happened is that the industry has been brought to a situation from which many of those fully conversant with it in all its aspects believe it may never recover. It is not simply a matter of activity slowing down. The very fabric of the industry is disintegrating. The industry had a network of expertise and skills which covered the whole country and it had an organisational structure and management and professional services which enabled it to undertake projects of any size, from the smallest to the largest and of any complexity, from the simplest to the most advanced. The structures which existed and which could be mobilised to undertake any new project are disappearing. Old established firms are being liquidated.
We heard on the news this evening that another old firm, Roecrete, have gone into liquidation. Professional partnerships are being dissolved, valuable building and construction skills embodied in a trained workforce are disappearing. The industry is now in such a state of disorganisation and demoralisation that it will take a long time to put it back into its former capacity and to re-establish its structures and restore its capacity. There are many things in the Irish economy today to be deplored and regretted, but there are none more heartbreaking than the state to which this once reasonably prosperous, well organised industry with such enormous potential has been reduced.
The last three years have also seen a serious decline in investment. Up to 1982 the level of investment in the Irish economy was always a surprising source of encouragement and particularly the manner in which it held up even in the worst circumstances. Despite a modest increase this year compared with last year, investment in manufacturing industry is far below the levels of a few years ago. This is beginning to be reflected in a tailing off of growth in industrial production and exports. Industrial production actually declined in the first seven months of this year. The slowdown is particularly pronounced in the chemicals, metals and engineering sectors — in other words, these sectors where there has been a heavy concentration of foreign investment. Export growth has also slowed down, with exports in the second and third quarters down on the first quarter. The ESRI commentary observes: "This pause in export growth was due mainly to a failure of the modern industries to maintain their previous rate of growth".
It must be a cause of serious concern for the future that, export growth is now tailing off. Balance of payments problems could well re-emerge. The ESRI point out that the deficit will be the smallest proportionately since 1975, but that, also was a year of deep recession, and add: "However, it should be recognised that it (that deficit) is being achieved at a time of continuing recession in the home market, and would be liable to rise sharply if there were to be a vigorous recovery in domestic demand", in other words, confirming my thesis that the balance of payments improvement this Government are claiming credit for is in fact nothing more than a clear-cut reflection of the depressed state of our economy and the low level of consumer demand and expenditure. The ESRI also remark with regard to next year: "There is not expected to be a vigorous recovery in demand during 1986".
Now, I do not know how the Taoiseach, the Minister for Finance or any member of the Government can claim that they see light at the end of the tunnel, or that we are the healthiest economy in Europe when those simple facts are considered. In my view, this Government have a close down mentality. This applies in both the public and private sectors. When difficulties arise, their first instinctive reaction is to send for the liquidator. Attempts are rarely made to formulate a reconstruction package of proposals, or to make some effort to maintain the enterprise and preserve the employment. The results of all this, the accumulation of all these actions can be seen in the lengthening dole queues and in the thousands of shattered lives of men and women who have given a lifetime of service to an organisation only to find themselves suddenly and brutally thrown aside, often, unfortunately with no adequate provision for their pension and other entitlements.
In my view it has become increasingly important also that we look a great deal more closely at the role played by the commercial banking system in these situations and in the economy generally. In the case of many recent closures both in the public and private sectors, banks have and had a lead role in closing down a number of enterprises. If we are to blame the managements of the enterprises in question for allowing them to get into financial difficulties, can we completely exonerate their bankers in all cases?
The commercial banking system currently is compelled to make enormous provision for bad debts. This is a very serious aspect of the economic and financial situation. That bad debts have arisen on this scale is almost certainly a result of the continuing decline in the economy and the loss of markets, both domestic and overseas. Again, however, the question must be asked, can the banks themselves be completely exonerated? Have there been errors of judgment of major dimensions on their part, either by advancing too little or indeed, equally unfortunate in some cases, advancing too much?
For some considerable time now, the Irish commerical banks have, in effect, negatived the whole principle of limited liability. This has arisen from their widespread practice of demanding personal guarantees from proprietors and directors of limited liability companies for advances made to those companies. These personal guarantees have operated, in effect, to completely set aside the protection that limited liability is designed to afford to the entrepreneur. At present, there are a number of instances of this kind in cases where limited liability companies have failed and directors are being called upon to forfeit all their personal possessions. Is it legitimate for bankers to pursue directors personally in this way for their most personal possessions, to the extent that they are left totally destitute?
This is a whole aspect of the economic and fiscal situation that will have to be looked at very carefully indeed. There is no point in this Legislature enacting legislation providing for companies and their activities and, in particular, enshrining in the legislation the principle of limited liability if the banking organisations, the commercial banks are, in effect, going to operate in such a way that there is not really limited liability because of their insistence on personal guarantees. Apart from the humanitarian aspects of these actions by the commercial bankers, I believe they are detrimental to enterprise and act as a disincentive in the economy.
In my view, one of the major defects of the economic and financial policies of this Government was their total commitment to high levels of taxation. The very first thing the Taoiseach, Deputy FitzGerald, did when he came into office in July 1981 was to impose a budget of crushing taxation which has since been recognised by most economic experts to have been a major mistake.
In subsequent budgets, taxes were substantially increased in practically every area, direct personal taxes and indirect taxation. It is now clear that these drastic increases in taxation have been totally counterproductive. Their inevitable outcome is the size of the current budget deficit that we face this year and the prospect of another major current budget deficit next year. These levels of tax have killed incentive and depressed economic activity to such a level that we are now experiencing diminishing returns in many areas. For instance, VAT this year has failed to reach the targets set by the Minister in his budget. As I have said on another occasion, what the Government have been doing is adjusting everything downward. Higher and higher taxes are now bringing in less while, at the same time, they have completely depressed economic activity and made recovery impossible as long as they are maintained.
I have already publicly committed Fianna Fáil to the lowering of tax levels as an essential element of an economic recovery programme. A major change is needed. The monetarists have had their day. Their policies have failed. They have reduced this economy to what can be described only as a devastation level. Because the economy has been so depressed, it no longer has the capacity to generate the necessary levels of resources to finance public expenditure at present levels and, as a result, we have had this explosion of Government borrowing in the last three years — as I have already pointed out, £12.8 billion at the end of 1982 to approximately £20 billion at the end of 1985.
In their manifesto for the June 1981 general election, Fine Gael and the present Taoiseach promised to reduce the standard rate of personal tax to 25 per cent. That was their specific election promise going into that general election campaign. Of course, that promise has not been heard of since. Again the Joint Programme for Government promised that the proportion of tax derived from PAYE on wages and salaries was to be reduced and indirect tax increases minimised in order to help to reduce inflation. It is important to repeat that: in the Joint Programme for Government that they drew up coming into office this Government promised that the proportion of tax derived from PAYE on wages and salaries was to be reduced and indirect tax increases minimised in order to help to reduce inflation. Yet the first Coalition budget in 1983 gave no income tax relief of any kind and imposed unprecedentedly high rates of VAT, up to 35 per cent.
Total taxation was slightly under 36 per cent of GNP in 1980. In 1984, due to measures put forward in successive Coalition budgets since July 1981, it is now 42.5 per cent of GNP. Therefore, total taxation has increased from 36 per cent of GNP in 1980 to 42.5 per cent of GNP. This is actually a high tax Government and there is no way they can avoid admitting to that description. In other words, in today's terms, this Government are taking approximately £1,000 million more in higher taxes. In this country we have now reached the ludicrous stage where a single industrial worker could be paying the top 60 per cent tax rate on an income which is little over £9,000 a year.
There is probably no other country in Europe that subjects significant numbers of its industrial workers to the top rate of tax. Four out of ten taxpayers in this country are in the higher bands. The indirect tax levels after the 1983 budget were the highest in Europe. Surely, bearing in mind the increase in the population, and especially the adult population, the depressed state of consumer spending — well below now what it was in 1980-81 — is the surest possible proof of the severe squeeze on incomes by taxation in the last few years.
This State faces major financial problems which have got worse, not better, in the last three years. There is a serious revenue shortfall this year. The VAT returns up to mid-November show an increase of 3.5 per cent only over the 1984 figure instead of the 9 per cent increase targeted in the budget. Of course, it is possible that that situation may improve a little coming up to Christmas on account of the increased levels of consumer expenditure always associated with the Christmas period, but I do not think there will be any significant improvement. In fact, all the indications are that consumer spending this Christmas season will not be of any particular significance in that regard. Therefore, we have had the situation in which the Minister, in his budget in the early part of this year, targeted for a 9 per cent increase in VAT and he is getting 3.5 per cent only. Surely there could be nothing more clearly indicative of the failure of his fiscal policies than that statistic?
While there are no official figures published, except quarterly, for the current budget deficit it is possible to calculate that deficit from the weekly Exchequer returns with an accuracy of plus or minus £10 million. Halfway through this last quarter of 1985, by 15 November, the current budget deficit had already reached £1,350 million as against an original target of £1,234 million. If the Minister, in the course of this debate, wishes to contradict that figure he is, of course, at liberty to do so. But from our calculations — and we have not access to the sort of information the Minister has — the current budget deficit is already £1,350 million at this stage. Therefore, it is likely that, at the end of the year, there will be a gap of at least £100 million or possibly more.
The Taoiseach came into this House — I recall it well — and claimed that the State was on the edge of bankruptcy when the current budget deficit was 7.4 per cent of GNP in 1981. But he now maintains, when the deficit is 8.5 per cent of GNP, that national solvency has been restored — an interesting use of statistics — we were teetering on the brink of bankruptcy, the IMF wolves were at the door in 1981 because the budget deficit was 7.4 per cent of GNP. But now there is light at the end of the tunnel; we are one of the healthiest economies in Europe when the current budget deficit is actually 8.5 per cent of GNP.
