I move:
That Dáil Éireann at its rising on 16th December, 1988, do adjourn for the Christmas Recess.
1988 was a year of exceptional economic progress. In many ways it exceeded our expectations. As a result there is a much greater feeling of confidence in the country's future and a belief that we can overcome our problems. This does not mean that there is any room for complacency about the present situation. We have a long way to go before we secure acceptable levels of employment, safe public finances, a tolerable level of taxation and adequate living standards for every section. But at least we are moving steadily in the right direction, and there are results to show for the restraint and discipline that have been accepted. But there can be no premature relaxation of effort, if we are not to put at risk all the gains that have so far been made.
The success achieved to date should not mislead anyone into believing that the time is ripe to start pushing for sectoral advantage. The limited margin of manoeuvre that we have won must be consolidated and extended, not squandered. Our major problem of unemployment, the excessive burden of taxation or the elimination of social deprivation will not be solved overnight. We have a great deal still to do and must clearly identify both our priorities and what we can afford.
The Programme for National Recovery has in many ways been the key to success. The programme is unique in that it represents a realistic consensus on the principal aims of economic policy. The balanced strategy agreed between the Government and the social partners is working. Valuable contributions are made in the Central Review Committee by the participants. The committee have in many instances stimulated the further development of policy as well as providing a forum in which difficulties and misunderstandings can be resolved.
The Programme for National Recovery has worked well because it is based both on realism and the participation of the major representative groups in our society. It has been clearly shown to be by far the most satisfactory way to manage our affairs. In fact, the approach we have adopted is advocated by the European Commission as an essential element in the implementation of the Delors plan for economic and social cohesion.
The programme has helped to give us the best year for industrial peace since the early sixties and to maintain the lowest inflation rate since 1960. At 2 per cent our inflation is below the UK and the EC and OECD average. Low inflation has reduced energy, telecommunications and other costs, contributed to competitive buoyant exports, a growing surplus in the balance of payments, increased industrial production and substantial positive economic growth.
It was, of course, inevitable as the financial situation improved that a number of voices would start to seek concessions, press demands and exert pressures. At the very first sign of improvement, no matter how tentative, there were bound to be demands from different quarters for concessions and reliefs regardless of the consequences.
This is a situation about which we must be very firm and extremely careful. Otherwise everything that has been achieved by sacrifice and discipline could be very quickly lost again, and we would be back in to the old appalling situation where we had to borrow just to keep going.
To understand this it is only necessary to look around the world today and to see how unstable and changeable the whole financial scene is. We can see clearly at first hand the recent British experience and the problems that have arisen there. A new administration is about to take over in the US. It is against the background of these very uncertain world financial conditions that we have to frame our policies. Everyone can see that we had a major success in 1988 in collecting a large volume of arrears of taxes which had been outstanding for a considerable period of time.
The collection of these arrears had been called for frequently in this House and outside it. The success of this major collection effort greatly eased our internal budgetary and borrowing situation, but it is absolutely critical both for the good of the country and for the proper management of our financial affairs that everyone clearly understands the exact significance of this major once-off receipt of revenue by the Exchequer. Its effect and its implications must be clearly understood.
A large amount of arrears of taxes which were due to the State and which in many cases had been outstanding for some time were paid during 1988. The amount was somewhere in the region of £500 million. The effect on the 1988 financial outcome was dramatic. But it must be emphasised again and again these were not recurring taxes; they were taxes which were owed and once they were paid were no longer due. While the effect on the 1988 budget was entirely beneficial, it must be fully accepted that this great benefit was of a once-off nature and will not be repeated. These taxes having been paid are no longer due. There will be no similar bonus next year.
In order that there should be no false expectations or any hopes raised which cannot be subsequently met, the Government must emphasise again and again and ensure acceptance of the fact that the exceptional improvement in the receipts and therefore in the budgetary position in 1988 cannot be repeated in 1989, and that the budget of 1989 will have to rely primarily on the normal sources of revenue. Furthermore, it will have to take account of a number of additional items of expenditure which will arise. To maintain and sustain the very definite feeling of realism and discipline which has prevailed throughout the national community for the past two years it is essential that we all keep in mind exactly what our basic realistic financial position in this country is.
I want to make clear what the state of the public finances is as we end 1988 and face into 1989 and the January budget. The public finances are the pivotal factor in our economic and social development, and the public should be told exactly how they stand and not be misled by wildly exaggerated statements of the kind that have been made recently.
The total national debt is still in the region of £25 billion. It costs us approximately £2 billion every year to pay the interest on that debt. This huge annual interest payment is equivalent to nearly £2,500 annually per taxpayer. It is a major constraint on our ability to allocate resources for social services and economic development. In so far as the national debt in relation to the output of goods and services by the community is concerned there is, in fact, hardly any change in the situation. In 1987 the national debt amounted to approximately 133 per cent of gross national product and this basic position is relatively unchanged. These are still the basic stubborn facts of our national financial situation and it is grossly irresponsible to pretend or to lead others to believe that the situation is otherwise.
Our objective on coming into office — and clearly spelled out in our election programme — was to prevent the burden of debt growing faster than our resources, as had happened throughout the eighties. The Programme for National Recovery set a specific target of stabilising our national debt relative to output by 1990. On the basis of our present performance this will be achieved. Developments in 1988, however, have been particularly favourable in this regard because of the tax amnesty. This brought us unexpectedly nearer to our goal. It carries the implication, however, that some tax arrears that would normally be collected next year have in fact come in this year, and may affect normal revenue targets in 1989. We must be clear, therefore, as to what the underlying deficit was in 1988, if the once-off bonus were abstracted from the figures.
The simple reality of our financial position as a nation is that strict discipline must still be maintained over the public finances. Government expenditures must still be scrupulously examined and carefully controlled. We can only incur those expenditures which we can afford to pay for out of the level of goods and services that we produce.
In order to assess properly the prospects for 1989 and plan accordingly, we must look carefully at what happened to the financial returns in 1988 and measure what exactly the position would have been had there not been the exceptional tax receipts. This will enable us to see what the underlying position is and what the borrowing requirement would normally have been so that we can decide the correct opening borrowing position for 1989. This is the only valid basis on which to plan the 1989 budget. An unrealistic opening position would totally invalidate the basis of the 1989 budget and cause serious problems later in the year. Applying the normal budgetary criteria it appears that at the end of the current year, 1988, the Exchequer borrowing requirement would have been half what it was in 1986.
To halve the annual Exchequer borrowing requirement in two years must be regarded as a good performance in financial management, particularly as we achieved at the same time faster economic growth, improved social equity and substantial tax reform. All the community shared in this achievement in supporting or accepting the measures taken.
At the same time we must fully accept that we are only making the necessary arrangements and laying the foundations for future progress. We must achieve economic progress and development in order to tackle the problem of unemployment. The core of our problem is to maintain fiscal control and discipline while at the same time promoting within the constraints of that control the highest possible level of development and employment. I believe that 1989 can be a significant year in this regard.
We have a responsibility also to improve the circumstances of the poorer sections of our community and to make further progress in tax reform. These are the commitments we made in the Programme for National Recovery and these are the commitments we will continue to honour fully and effectively.
It is the Programme for National Recovery which has provided the background against which it has been possible to go a long way towards bringing the public finances under control.
The first essential for the economic activity which provides employment is sound public finances. This was clearly recognised in the NESC report of November 1986, which stated that the stabilisation of the debt — GNP ratio was imperative. Even though the last Government had made limited progress in reducing the Exchequer borrowing requirement from 16 per cent to 13 per cent of GNP, nevertheless over a four-year period to the end of 1986 it was quite insufficient to prevent a rise in the national debt — GNP ratio from 94 to 130 per cent of national income. Real interest rates were, accordingly, at an all time high at the time of the 1987 budget. This Government had no alternative but to substantially reduce the borrowing requirement which then stood at over £2 billion by making substantial economies across the entire area of Government expenditure. This process had to be deepened and extended in the 1988 and 1989 Book of Estimates.
But we must all realise that the debt-GNP ratio at the end of 1988 will have changed only marginally. We cannot, therefore, deviate from the strategy of reducing borrowing further though there is a limit to the pace at which borrowing can be reduced if essential services are to be maintained in current circumstances of high unemployment which both increases demand on the Exchequer and depresses its tax revenue. The room for manoeuvre in the 1989 budget is, therefore, strictly limited.
The improvement in the public finances has contributed to perhaps the most dramatic achievement of the year, the opening up and maintenance of a 4 per cent-5 per cent interest rate gap vis-á-vis sterling. Lower interest and mortgage rates have been of great benefit to every sector of the economy and to most individuals and families as well. This development has also allowed us to relax exchange controls as part of the preparation for 1992, with the minimum of disruption. It has also made the conditions for investment in Ireland infinitely more attractive.
Favourable international conditions have created an opportunity to promote foreign investment and there is a significant up turn in this area. It would, however, be imprudent to speculate on future developments in the international economy, although the present outlook is reasonably good. But the lesson of the last 15 years is clear. There is always some degree of turbulence in the international economy and we will be far less vulnerable to adverse developments abroad, if we have made every effort to put our own house in order when conditions are favourable.
This Government fully understand that a policy of concentrating exclusively on fiscal rectitude would be both unsuccessful and unsustainable, as previous experience had proved, and that such policies must serve as the basis for the promotion of economic growth and social improvement. In the Programme for National Recovery agreed with the social partners last October a balanced set of four objectives were adopted, relating to the public finances, tax reform, social equity and employment, with an emphasis also on the European dimension, which is the key to the next stage of development. I would like to comment on progress made on each of these objectives, and to point out that we have fulfilled our commitments and have made good progress so far.
The effect of our policies over the past two years has been that, given the low rate of inflation, the income tax concessions, the pay increases, the social welfare increases and the lower mortgage rates most families and individuals have experienced a modest improvement in their standard of living. With regard to greater social equity the Government have adhered to the key clause of the Programme for National Recovery which reads:
The Government will maintain the overall value of social welfare benefits and, within the resources available, will consider special provision for greater increases for those receiving the lowest payments.
These commitments were met. There was a general 3 per cent increase in social welfare payments in the budget, significantly in excess both of general inflation and wage increases under the programme. There was a 6 per cent increase in child dependant allowances and an 11 per cent increase in payments to the long term unemployed. This is entirely in keeping with Fianna Fáil's caring social philosophy. In the three years from 1980 to 1982 when resources were available, Fianna Fáil increased social welfare benefits by between 20 per cent and 25 per cent which, in particular, permanently improved the lot of pensioners.
The philosophy behind the Commission on Social Welfare report is sound, but it is a basic fact of life that only national economic recovery can provide us with the means to deal with poverty in an effective and lasting way. The reverse is also true. In times of falling economic growth and rising inflation it is the poorer and weaker sections of the community who inevitably carry the heaviest burden.
The Government are fully committed to reducing the personal tax burden in an equitable way. We have also embarked on a major programme of tax reform and here I would like to make the point that probably the most important element in tax equity is to ensure that all taxpayers pay what they legitimately owe. It is not possible to have tax equity if a large section of the tax-paying community simply does not pay up. It is in this particular regard that this Government have made a really significant advance.
The Programme for National Recovery reaffirmed the Government's commitment to tax reform, and set out specific cumulative tax reductions over a three-year period amounting to £225 million. The reliefs provided in the 1988 budget will in fact amount cumulatively to more than £400 million. We are very close to having two-thirds of taxpayers on the standard rate as we undertook to do.
The Government have enormously improved the tax system in respect of establishing greater equity between the PAYE sector and the self-employed. The two initiatives introduced this year, the tax amnesty and the introduction of self-assessment for the self-employed, both proved extremely successful. Around £500 million in arrears was collected and early indications are also that the yield under the self-assessment system will be well ahead of that in previous years.
The Government are determined that this improvement will be maintained and built upon. Self-assessment enables the Revenue Commissioners to concentrate more resources on detecting tax evasion. We are determined to establish a fairer and more efficient system. The success of the Revenue Commissioners in collecting outstanding arrears this year clearly indicates that the Government and the Revenue Commissioners are determined that tax default or evasion will no longer be tolerated.
There is clear evidence of a positive improvement in employment. The increase in employment by 6,000 in the year to April 1988 is the first significant increase since 1980 after a fall of 77,000 in the first half of the decade. Unemployment has been running significantly below last year's figures, and there was an encouraging fall of nearly 2,000 in the seasonally adjusted November figure. Indeed, it was the largest fall since the present series of statistics commenced in 1967, and the underlying trend has shown a downward trend for the past four months and is now at the lowest level in over two years. Our aim must be a significant recovery in employment.
A report on progress in job creation under the Programme for National Recovery was issued in the past week by the committee set up to monitor progress on the programme. They reported progress on job creation in all the sectors targeted by the programme. It is clear from the report that the programme is on target and that the ambitious objectives set for job creation will be achieved.
Positive and sustained economic growth is essential to the creation of increased employment and the stemming of emigration. Following years of stagnation, Ireland experienced 5 per cent economic growth in 1987, and this is likely to be followed by growth of up to 2 per cent in 1988. The ESRI have independently predicted 3 per cent growth in 1989. The figures for industrial production published yesterday show that the strong improvement in output is continuing. This growth has been very obviously export-led.
In 1987 our exports increased by 14 per cent to £10.7 billion, the first time the £10 billion barrier had been broken. We also enjoyed a balance of trade surplus of some £1.5 billion. This momentum has been maintained through 1988. In the first ten months to October our exports have already exceeded £10 billion and we have every confidence that exports for 1988 as a whole will reach the £12 billion mark. We have also generated a balance of trade surplus of £1.7 billion already this year and we expect this figure to rise even further by the year's end. A particularly satisfactory aspect of our export performance is the fact that while exports overall are up 14 per cent, exports from indigenous companies are actually up 16 per cent.
At the beginning of 1988 following a major review the industrial development agencies were allocated the objective of creating 20,000 extra jobs each year for the next ten years. There is every indication from results provided by the IDA, SFADCo and Udarás na Gaeltachta for the first nine months of the year that this target is being met.
On the small business front there is an extensive upsurge in job creation. New start-ups are happening at an impressive pace and a strong commitment is reported in the small firm sector to growth through international markets.
There is a continuing and significant flow of substantial new foreign investment in targeted sectors such as electronics, software development, pharmaceuticals and health care products. In addition, 1988 has seen extensive reinvestment in expansions by overseas companies operating in Ireland, reflecting their confidence in the general economic environment.
The overall position is that Irish industry is beginning to respond to the positive economic climate with a number of strategic investments announced by major aggressive, developing Irish concerns.
A significant job creation impact is already apparent in 1988 in sectors such as mushrooms, furniture, Irish-owned electronics, printing and software. The foundations have been established for firm development in food and natural resources and clothing with ongoing growth in the development of linkages which provide significant opportunity for Irish companies. There is also evidence of a resurgence of investment proposals emerging from the commercial State companies, especially Aer Lingus and Aer Rianta.
We are determined, and with good grounds for confidence, that the job creation targets established in the Programme for National Recovery will continue to be met, and the development work undertaken in the past 12 months by the agencies in small business, Irish industry and overseas industry will have a positive impact on job creation in 1989.
The establishment of the International Financial Services Centre in the Custom House Docks area is being successfully realised. Within the short period of some 20 months since the centre was launched, 43 projects have been approved by the Minister for Finance for the centre, including some extremely large and well-known international companies. Already 23 of these companies have commenced operations. The others are at various stages of setting up business. Companies are currently operating in premises outside the centre but will move into the centre as soon as the accommodation is ready.
Progress with the construction of the centre is there for all to see. Employment commitments by companies approved for the centre already amount to 1,300 and there are some 200 engaged on the construction work. Construction employment will build up quickly in 1989 as work on further buildings get under way.