A Cheann Comhairle, I welcome this opportunity for the Dáil to discuss NESC Report No. 88 on "Ireland in the European Community: Performance, Prospects and Strategy". I recently had the opportunity to elaborate some views on the content of the report at a seminar organised by the Irish Council for the European Movement, and I am glad to avail of this opportunity in the new Dáil session to repeat and develop these views to the House.
From the outset, I would like to convey the Government's gratitude to the members and secretariat of the NESC for the very comprehensive manner in which they undertook this important study. The report's findings are both authoritative and detailed. They represent an important addition to our fund of knowledge on the complex issues which they address — issues which will have a fundamental impact on Ireland's performance leading up to and subsequent to the completion of the internal market by 1992.
Before dealing with the report in detail, I would like to announce that, in the context of renewing the mandate of the NESC for another five years, President Delors has accepted an invitation from me to nominate to the NESC an observer from the European Commission. This observer will participate substantively in the deliberations of the Council and will be able to make available to the Council first-hand knowledge of Commission research and experience relevant to topics being considered by the Council. This development represents a further significant increase in the importance of the NESC as a forum where the principles of economic and social development can be discussed in a nonpolitical atmosphere by the social partners leading to constructive proposals and recommendations for ultimate economic and social change by the political process. The involvement of the European Commission in this forum will be extremely valuable, providing a two-way exchange of knowledge and experience — the Commission gaining closer knowledge of our problems and potential, and our social partners being continually in touch with relevant developments throughout the Community. I would like on this occasion to thank President Delors for his decision to take this step, which can be seen as being taken in the interests of greater cohesion of our economic and social progress with that of the Community as a whole.
While the report will clearly be of particular interest and relevance to all sections of our society, I believe that it will also be of interest to our partners in the Community, if they are to understand all the economic and social forces which will be at play — for large and small, central and peripheral countries in the Community — in the run-up to the completion of the internal market. For this reason, I have sent copies of the report to my fellow heads of State or Government in the European Council, as well as to the President and Members of the Commission. This is because I believe that the detailed and authoritative nature of the report, coming as it does from a distinguished body representative of all key sections of our society, can give them a keen insight into both the concerns and the goals, which determine Ireland's negotiating position within the European Council in the run-up to 1992 and beyond. I also had an opportunity to refer to the report and some of the points made in it, when I met with President Mitterrand of France last Friday.
The report responds to specific terms of reference set by the Government in the economic and social areas which are germane to the NESC's general remit. The report is of the same importance as the earlier report from NESC entitled "A Strategy for Development 1986-1990". This provided the kernel of the Programme for National Recovery, which has proved to be the catalyst for a dramatic and sustained improvement in the economy over the last two and a half years.
The report originated from a request issued by me to the Council of the NESC in May 1987, to study Ireland's comparative performance in the European Community since joining. As a result of this request, the terms of reference decided for the report were:
(i) to undertake an in-depth study of Ireland's comparative performance in the EC, incorporating an assessment of the impact on Ireland of membership of the Community;
(ii) to assess the problems and opportunities inherent in unification of the internal market;
(iii) to put forward and evaluate the policy options available to help mitigate the problems, capitalise on the opportunities and consider what countervailing measures may be necessary.
If I were to attempt to paraphrase the conclusions of Report No. 88, I would say that the NESC's stance is clearly that Ireland's future lies in the fullest participation in the European Community. The central argument in the report is that full economic, monetary and social integration is in Ireland's best interests. However, the NESC are fully aware of the problems and difficulties that have been and will be experienced in the process of integration. Indeed, the Council's report provides a comprehensive analysis of these problems. Having considered the benefits of advanced integration and the difficulties which can arise at various stages of integration, the Council concludes that there are two prime requirements for Ireland:
(i) a clear national strategy for European integration which will provide a guide to external negotiations and domestic decision-making;
(ii) continued consensus among the social partners, at the national level and at the level of the firm, to ensure a swift and flexible response that is most conducive to the objectives of fuller employment, higher living standards and a better social framework.
The Council is confident that, if these requirements are met, Ireland should be well placed to maximise the developmental opportunities of the current phase of European integration. Otherwise, there is a strong likelihood that Ireland's performance over the next decade will fail to show a significant improvement over that of the 1973-86 era.
While the Government do not necessarily agree with every hypothesis advanced and every conclusion reached by the NESC, we are in agreement with their basic thrust, i.e. that Ireland's best interests are likely to be served by the fullest measure of economic integration, provided that this is accompanied by the necessary measures to strengthen cohesion in the community.
The analysis in the NESC report of Ireland's economic performance since joining the Community focuses attention on how we as an economy and society responded to the challenge posed by membership. In particular, domestic economic policy is an issue of critical importance in this context. The Community is now firmly committed legally and constitutionally to greater cohesion between all regions of the Community. This authoritative evaluation of our performance to date, set out in the NESC report, gives us clear guidance for a strategy which will ensure that our policies and actions and those of the Community can achieve the stated objective of cohesion.
It is appropriate, at this juncture, to introduce a note of caution, which is acknowledged by the NESC, at the analysis in the report on the question of the impact of EC membership for Ireland to date. Deputies will also acknowledge that the facts of our economic performance since 1973 were not solely the result of our membership of the Community, but also due to a host of other factors such as technological change, shifts in global trading patterns and two major oil induced recessions in the world economy as a whole. Indeed, an attempt to isolate the effects of EC membership since 1973 is particularly difficult, given that our accession to the Community coincided with a major and prolonged change in the world economic climate brought about by these recessions, which had a particularly profound impact on a small open economy such as that of Ireland's.
This is not to say that the NESC's analysis should be ignored. It should instead be seen as an indication of the complexity both of past trends and of any attempts to analyse likely future trends in the run up to 1992. In addition, it is clearly difficult to disentangle the effects of EC membership in itself from those of our own behaviour and policies during our period of membership. Clearly, there is no immunity for any country from the implications of shifts in global demand for products, developments in technology and changing patterns and terms of trade. The need to adapt is a continuing fact of life for every open economy, regardless of the trading bloc or group to which it belongs.
To recognise this is not to imply that we have no control over our economic destiny. On the contrary, it means facing the fact that economic performance is ultimately determined by our capacity and willingness to confront change boldly. Our experience over the last two and a half years offers ample proof of this contention. By responding flexibly, correctly and in time to events and trends in the international market place we can weather unfavourable changes and build on new opportunities as they arise.
EC membership over the past two decades, accompanied by huge technological advances and significant adverse changes in key international factors such as inflation, interest rates, energy costs and employment, was always bound to pose an immense challenge to Government, industry, trade unions and the farming community. As a society, we must accept that, since our accession, insufficient progress in closing the income gap and on the employment front derives in part from our own actions or inaction as well as from any inadequacies or failures of Community policies.
We have, however, learned over the past two decades some useful and at times costly lessons about how macro-economic policy should be conducted in an open economy. One lesson, in particular, is that expansionary fiscal policies financed by massive external borrowing that were practised after our EC entry in 1973 do not work. During the last two and a half years reductions in Government expenditure and borrowing enabled us to achieve lower inflation, lower interest rates, greatly improved public finances and, more recently, increasing employment. It also enabled us to derive the real benefits from EMS membership, by enabling us to maintain lower inflation and interest rates than Britain and closer to those in Germany.
The clear evidence of our determination to tackle the budgetary problem restored confidence in the economy and has improved our international credit rating. As interest rates began to fall, inflation reached a 30 year low, international competitiveness steadily improved, employment started to expand and unemployment to fall. This process has gathered momentum in 1988 and 1989, to such an extent that the recent OECD Survey on Ireland refers specifically to a "remarkable turnaround in both domestic and foreign confidence in the Irish economy". This quite remarkable turnaround is reflected, for example, in the fact that in both 1988 and 1989 the amount borrowed by the State has been cut by considerably more than had been planned, so much so that we are already well ahead of the target set in the National Development Plan of lowering the Exchequer borrowing requirement to 3 per cent of GNP or less by 1993. This major improvement has come about because of progress on both sides of the national accounts, reducing spending and improving revenue. Government expenditure as a percentage of GNP has been cut by a full 10 per cent in three years, from 55 per cent in 1986 to approximately 45 per cent this year. At the same time economic growth and a vast improvement in the level of tax collection greatly increased the revenue returns. The combined result has been a dramatic improvement in the public finances.
I would draw Deputies' attention in particular to the fact that the severe corrective financial measures taken over the last two years did not result in a major depression of economic activity. In fact, the reverse was the case. The remedial action actually established a climate for investment and business expansion, for confidence and for optimism. Even in the year of the toughest measures, there was GNP growth of 1.6 per cent, while in the years 1982 to 1986 when the national debt was rising rapidly there was no growth at all. This year, GNP is likely to grow by 4 per cent or more.
As a result, employment is set to grow significantly. Between April 1987 and 1988 employment rose by 11,000 and unemployment fell to 224,000 compared with the period up to 1986 when both unemployment and emigration were climbing sharply at the same time. While employment growth will have been retarded by the fall in public service numbers, we expect a strong resumption of the upward trend this year, particularly in the productive industrial and service sectors. Increasing employment, reducing unemployment and emigration, is the central objective of Government policy to be achieved both by macro-economic policy measures as well as by sectoral development measures.
The key factors for economic success in a small open economy are competitiveness and flexibility. The more competitive an economy, the more output it can sell and the more investment it will attract, generating further increases in economic activity and more jobs. While NESC rightly point to the fact that the stance of Government policy is a crucial determinant of competitiveness, it is not the only consideration; the response of the other social partners is an equally vital ingredient. With most of the economic fundamentals in order we are now poised to reap the benefits in terms of sustained growth and a substantial increase in employment. That crucially depends on maintenance of social partnership and consensus, which has enabled us to make such rapid progress so far.
The co-operation and involvement of the social partners in the Government's economic strategy in the context of the Programme for National Recovery has been a key factor in helping bring about the dynamic recovery of economic growth since 1987. I am sure that Deputies from all sides will join with me in acknowledging and commending the social partners for their crucial role in this process. I cannot emphasise enough, however, that the progress we have made over the last two and a half years in restoring confidence and growth to our economy has been possible only because we all worked together. Trade unions, employers, industrialists, farmers and Government combined in a concerted Programme for National Recovery, which has been a unique endeavour with remarkable results.
We have a unique opportunity to develop a successful, disciplined economy, that in good times and bad will perform so as to protect to a large extent employment, incomes and living standards. There is a number of models in Continental Europe and further afield of this type of economy that performs consistently and successfully.
This is a small open economy, with a limited domestic market on an island some distance from our main markets, emerging from a state of underdevelopment. We will only succeed in raising the living standards of our people and giving them the social services and cultural amenities they are entitled to, if we combine all our resources and work together in an agreed strategy toward common objectives. For over two years we have shown the enormous success that can be achieved in this way. We have demonstrated that, while becoming internationally competitive in our goods and services, we have also managed to improve our standard of living. We must not let this valuable consensus fall apart now.
The pursuit of sectoral interests, without regard to the wider national interest, would rapidly undo most of the hard-won progress that has been achieved. Any short-term gains would soon prove illusory. It should be acknowledged that the social partners have a far wider and more important role in society than merely pursuing narrow sectoral ends, and that policies relating to inflation, employment, social welfare and taxation have as much impact or more on the welfare of the community than short-term financial gains.
Indeed, the experience of the Programme for National Recovery perfectly illustrates the point. The Programme for National Recovery has ensured, by a combination of pay increases and tax concessions, that average take-home earnings have increased in real terms during the lifetime of the programme by between 3.5 per cent and over 7 per cent in 1988 and 1989.
The programme has enabled us to sharply improve our international competitiveness, as evidenced by our outstanding export performance, while at the same time improving our standard of living. I believe, therefore, that we must all learn the lessons of the last 16 years; confrontation brings failure and setback; co-operation brings progress and success. Maintenance of consensus is therefore vital to our prosperity. Consensus requires discipline, patience and compromise. But it is a faster route to increased employment and other shared economic and social objectives than any other.
It follows from what I have just stated that the Government fully endorse NESC's view that the maintenance of a domestic environment conducive to growth and enterprise is vital to our success in post-1992 Europe, and, that this environment requires continuation of the sound macro-economic management that has been pursued since 1987. But the challenge posed by realisation of the internal market means that important sectoral decisions and initiatives also need to be taken, and I propose to look at these now.
It is fair to say that the greatest effects of EC membership were undoubtedly felt in manufacturing industry. This was because barriers to trade in industrial goods were removed with membership much more so than barriers to trade in services, and agricultural trade was regulated by the Common Agricultural Policy. The restructuring which has taken place in Irish industry as a result of this process is well documented at this stage. The relative decline of the indigenous sector, and the growing concentration of foreign firms, especially in some sectors of industry, reflect the very substantial changes which have taken place in manufacturing activity.
There is no doubt that the approach of the single market combined with our greatly improved economic performance has increased Ireland's attractiveness as a location for industry. The attraction of companies like Intel and Motorola, the growing interest in Ireland of Japanese and other Far Eastern companies are very encouraging developments. The Government will continue to give every support to our industrial promotion policy abroad.
But there are other encouraging features within our outstanding export performance of these last three years. One has been the export performance of the reduced indigenous sector. Surveys conducted by Córas Tráchtála indicate that exports from this sector grew by 23 per cent in 1988 and that an additional 4,400 jobs were created in the process.
Notwithstanding these trends, the central issue relating to industrial policy in the future will be how, in the light of the impending removal of barriers to intra-Community trade, we can ensure that indigenous industry in particular adapts and performs better in the next ten years than in the past decade. An important strategy towards this end is the national linkage programme operated by the IDA, which is developing a core of top-class Irish supply companies to the global multinational corporations based in Ireland and throughout the Community. Adequate preparation for the internal market has also been the key theme in the Government's National Development Plan and in our 1992 information and awareness campaign, Europen.
On balance, there seems to be a certain degree of cautious optimism about the impact of the single market on Irish industry. If one of the main direct effects of the single market is the reduction in costs to industry through the elimination of customs and frontier controls, tax harmonisation, common technical standards and increased competition, Irish industry stands to benefit. In addition, the removal of non-tariff barriers and other obstacles to trade in our principal export markets should give Irish products and services access to markets from which they have previously been excluded. The challenge and the resultant opportunities are clear: it is now up to Irish industry to respond to them.
I would not disagree with the NESC report that greater specialisation in certain industries will be required, and that this will involve a greater concentration on the scale of firms. Our industrial promotion agencies are already focused on these aspects. The Government agree with NESC that industrial policy must also assist innovation in products and design, as well as processes, if it is to succeed in furthering self-sustaining industrial development. Already, there is a far greater emphasis on aid for R&D and new technology. This is fully reflected in the industry programme set out in the National Development Plan, and indeed this aspect has attracted favourable comment from other member states' representatives on the Advisory Committee on Regional Policy. These aspects will be pursued vigorously, particularly in the context of the forthcoming review of our industrial policy, which is due in 1990, and which will deal with new initiatives called for in this area.
Deputies will be aware that the NESC report rightly underlines the importance of the financial services sector in the development of the economy. Worldwide, financial services have been the fastest growth industry of recent years. The Irish financial sector exhibits many of the characteristics identified in the report as necessary elements for dynamic growth. It is competitive, innovative and, in many respects, already attuned to the international market place. A further positive aspect of the sector is that the domestic market has long been accustomed to the presence of major international firms competing with local enterprise. Irish institutions have shown their ability to succeed as important players in sophisticated international lending, foreign exchange and securities markets. The Government have built on these strengths in the successful promotion since 1987 of the International Financial Services Centre in Dublin. A most encouraging sign for the future is the participation there already of over 70 enterprises including many of the leading EC, US and Japanese banks. As a result, the centre will be the most significant addition to the city of Dublin and, indeed, to the Irish economy for many decades. It will serve as a flagship project designed to consolidate the economic gains of the recent past and to act as a catalyst for future sustained growth.
The Government agree with the report that we must not handicap our financial sector by an inappropriate regulatory environment. At the same time, it is vitally important to realise that prudent and effective regulation is a critical factor in successfully maintaining a country's financial reputation. The Government envisages regulation that will meet this need without being cumbersome or excessive; regulation that will assist rather than inhibit the development of the industry. The guiding themes in the recent legislation on banking, building societies and insurance are the need for sound and sensible regulation, the removal of restrictions on competition and the centralising, as far as practicable, of the regulatory powers in one supervisory body, the Central Bank. Furthermore, a useful and constructive dialogue has been taking place between the financial services representative bodies and the official authorities. It is important that the sector provides an appropriate input to policy-making leading up to 1992.
How well our financial institutions fare in the completed internal market rests ultimately with individual firms. Interestingly, NESC's report makes it clear that the relative levels of efficiency between competing institutions is a much more critical factor for success than is size. The Government can provide the framework for development of the financial sector, but the success of the strategy will depend on the enterprise of individual firms themselves.
On agriculture, the main thrust of the NESC report is the need for Community policies in regard to price support and production control to give greater priority to the problem of low income farmers; and for long term policies to solve structural problems, particularly as regards the areas of policy still largely subject to national decision-making. I take the point fully that it is incumbent on the Government to use all their negotiating skills to ensure that Community policies are supportive of Irish farmers and relevant to the new problems of Irish farming, because, clearly, the internal market process and the keener competition it will bring is as relevant to our farming community as it is to the rest of us. Clearly, the goal of 1992 is to improve the living standards of all our citizens and, in our negotiations in the Agriculture Council, I can assure the House that the Government will seek to influence the evolution of Community policy along the lines recommended by the NESC.
An important development is that the Commission recognise the structural problem posed by a relatively small number of large, efficient producers and a much greater number of farmers on very low incomes. The Commission is now moving to address the problem posed by this situation. We are fortunate that the brief of the Commissioner for Agriculture now extends to responsibility for rural development. This new approach signals a recognition on the part of the Commission of the importance of rural development, and this will be of positive significance for us in the future. I agree with the NESC that Ireland should be to the fore in promoting constructive developments in this area. Already, the work carried out in the pilot areas for the integrated rural development scheme provides an important basis for future action.
At national level, the House will agree that a major factor in solving the problem of low incomes in agriculture will be to put the fundamentals of the economy right. The agricultural industry has benefited considerably from the success of the Government's economic policy and in particular the reduced interest rates of recent years.
Progress in developing the food sector has been somewhat disappointing. For example, in the past the CAP encouraged farmers to produce beef for intervention and assisted companies to store beef, which was then sold in a relatively unprocessed form to non-EC markets. The long term future for the beef industry lies in supplying commercial markets in Europe, while the problem of seasonality in production and supply will also have to be resolved. The food sector is nevertheless undergoing major structural and financial development at present. The flotation of some of the major co-operatives on the stock market indicates a new confidence. Substantial investment is taking place in the sector. I am confident that this investment and the new market-led approach will stimulate the food industry and eleminate many of the problems, mentioned in the NESC report which have retarded growth in the past.
In addressing the issue of harmonisation of indirect taxes in the Community, NESC's task of reaching conclusions was greatly complicated by the emergence in May 1989 of an incomplete outline of the Commission's new approach in this area. At that time, the Commission saw its new approach — avoiding specific rates or bands and opting for a "minimum" rate formula — as giving greater flexibility to the member states. In principle, this approach would allow countries to settle on the tax rates which they wish. The Commission thereby hoped to avoid the budgetary and other adverse effects, which were at the root of the controversy about the Commission's original proposals tabled in August 1987 by Lord Cockfield.
Unfortunately, the flexibility suggested in the Commission's proposals may be more apparent than real. NESC's analysis of the implications of the new proposals for Ireland is realistic and perceptive. NESC takes the view that under the Commission's approach, and without frontier controls, Ireland would be forced by market pressures to move very close to UK excise and VAT rates. The alternative would be a severe distortion of our trade. However, approximation of our VAT and excise rates with the UK would, on very reasonable assumptions, entail an annual revenue loss to Ireland of some £600 million or 3 per cent of GNP. As the NESC rightly indicate, such a loss would create a real dilemma for the development of our fiscal policy over the medium term. If we had to sustain a loss on this scale, our ability to effect essential reforms in income tax, and to continue to curtail State borrowing and reduce the debt burden, would be very seriously impeded. This would not be what the Single European Act intended nor, indeed, would it be in line with the Community's own advice to us about the imperative need to continue the Government's present economic and fiscal strategy, including tax reform and restoration of sound public finances.
However, there have been some recent and interesting developments in this area. Following the tabling of the Commission's proposals last May, the council established an ad hoc group on the removal of fiscal frontiers. This group reached unanimous agreement on a report which was considered by the Ecofin Council on 9 October last. Significantly for Ireland, the conclusions agreed at that meeting came out in favour of a system of VAT payment in the country of destination, and not in the country of origin as had been proposed by the Commission. Thus, exports would continue to be zero-rated, and imports would be charged at the domestic rate in the importing country, upholding the existing destination principle. The conclusions indicate that this will apply for a limited but unspecified period.
This approach would reduce the dangers of deflation of trade. The Ecofin Council also agreed that, in regard to the limits on purchases which travellers may take across frontiers, special arrangements might be necessary for two member states, Ireland and Denmark. It was also agreed that VAT on cars should be chargeable in the country of registration. There is a great deal still to be discussed and the Commission has reserved its position on these conclusions of the Ministers, but I believe these developments have endorsed the Government's prudent and responsible approach to adjustment of our own tax system to Community developments, which it now appears may be quite different from what was originally proposed.
This was far from taking adequate account of Ireland's concerns, and it is, therefore, still incumbent on the Commission to bring forward proposals which will enable us to participate as fully as possible in the benefits of 1992, while at the same time continuing the present thrust of our fiscal policy, which is the bedrock of our recent economic recovery. The solution will require further modification of the latest proposals or the adoption of other measures, and the Government are actively engaged in discussions with the Commission and our Community partners towards that end. Indeed, recent comments would indicate that there is recognition of the seriousness of the problem for us in the Commission.
In general, NESC have produced a perceptive chapter on the problems of indirect tax harmonisation and its implications for other parts of the tax system. This Government have already undertaken far-reaching reforms of the tax system in relation to self-assessment, collection and enforcement, the planned reduction of the standard rate, and corporate taxation. Far more has been achieved in terms of spreading the burden, rationalising the system and reducing tax in the last two budgets, than was achieved for many years previous to that. The all-party committee on the financing and funding of local government will provide an opportunity to test how far the Deputies and parties in this House are really prepared to go on fundamental reform. The recent opportunistic call by the Fine Gael spokesman on finance to restore full mortgage interest relief can hardly be seen as the action of a courageous reformer.
As Deputies are well aware, taxation decisions are made at budget time and in the Finance Bill, not at this time of year. Five criteria will govern future changes in taxation; to maintain a fair and equitable system; the paramount need to sustain the continuing improvement in the public finances and to reduce the national debt; the need to encourage continuing wage restraint, while at the same time promoting an improvement in real incomes; the need to improve the competitiveness of our economy and to retain our skilled people at home; and finally, the need to maintain a balance in the economy by keeping consumer spending growing at a reasonable pace that does not jeopardise low inflation or our positive balance of payments situation.
Under the provisions of the Single European Act, the pursuit of economic and social cohesion is now a principal objective of the Community. The Structural Funds are only one of the several instruments needed to pursue this objective. Even after the recently agreed doubling, the Structural Funds will represent considerably less than half of one percentage point of Community GDP. In any event, cohesion is now an obligation of the Treaty, to be taken into account in the implementation of common policies and of the internal market. Member states are obliged to conduct and co-ordinate their economic policies to attain greater economic and social cohesion and to reduce regional disparities in the Community. The Government agree with the NESC that sustained growth of the European economy requires growth-oriented management of economic policy at Community level.
NESC recommend that the Government support the Commission and the European Parliament in the broad thrust of their policies for the development of Community regional policy. The Government certainly wish to see and will work for the development of a more clearly articulated and more effective Community regional policy.
It is appropriate to place on record here that agreement has now been reached on the Community support framework for Ireland, namely the context in which the greatly increased structural funding for Ireland will be invested up to 1993. The contribution of the Commission to the national development plan for the period 1989-1993 will be £2,860 million. Taking account of additional funding for new Community initiatives in which Ireland will share, the total support to Ireland over the five years in question should exceed £3 billion.
The achievement of this amount is the outcome of protracted, intense and carefully conducted negotiations with the Commission. In relation to our economy it is a significant addition to our investment resources, and a not inconsiderable achievement. The overall total amount for the community was fixed, and our share of that total had to be decided in relation to the shares of other member states. In fact, Ireland has secured the highest per capita share of the less developed regions of the Community. By 1993 we will be in a position to have doubled the 1987 allocation from the Structural Funds in today's prices.
There has been some misunderstanding about the regional aspects of the national development plan and our submission to the Commission in support of our application for assistance from the Structural Funds.
I would remind the House that, from the very beginning of our membership of the Community, a principle was clearly established that all of this State would be treated as one region. This principle has never been departed from in our relationship with the Community or the Commission, nor has it ever been called in question on either side. It represents an entirely rational approach. After all, the population of Ireland as a region is just over three million. In other European countries such as France, the FRG, Spain and Italy, individual regions may have populations of up to nine and ten million.
So the concept of Ireland as one region has always been accepted and acted upon. Nevertheless, on this occasion, the Government, entirely on its own initiative, decided in drawing up the national development plan to break it down into seven sub-regions and to carry out extensive and detailed consultation with economic and social interests in the sub-regions.
This was the first time ever in this country that any national economic plan was broken down into sub-regional sections and that full-scale consultations at local level were undertaken. It was entirely in keeping with the definite regional policy implemented by this Government, which includes such concrete aspects as decentralisation of the public service, the establishment of regional airports and many other similar elements. Our specific initiative in regard to sub-regional consultation was publicly welcomed by the Commission, who stated that they were impressed by it. For the first time ever in the preparation of a national economic plan, ideas for projects and developments were sought from every area of the country and, through a structural mechanism specifically established for the purpose, were incorporated in sub-regional plans for subsequent inclusion in the overall national plan. In these circumstances, it is simply untrue to suggest that there was any lack of consultation on sub-regional input on this occasion.
I would like to make it clear also that the sub-regional process will continue. We had made this clear from the time we published the national development plan. The two groups — the advisory and the working groups — which have been involved in the preparation of the national development plan at each sub-regional level will now be merged in each sub-region into one unit, which will monitor the implementation of the operational programmes and advise and comment on them. The merged groups will elect their own chairperson and secretary, and will have a representative from the Commission.
A crucial aspect of the national development plan and the operational programmes is the manner in which they will be implemented. This goes to the very basis of our ability to succeed in improving our infrastructure, our competitiveness, and the productive capacity of our economy. We have in this country fully adequate administrative mechanisms and systems for administering economic and social policies. These have been built up over the years in accordance with our particular requirements, in a way that is appropriate to our economic and social circumstances and the size of our country and population, without too many tiers of bureaucracy. These instruments of policy are flexible and directly related to the development needs of our economy and society. They involve different approaches in different sectors. For instance, industrial development policy is in the main centrally administered but with an input from local regional offices. Roads and sanitary services programmes are implemented on a county basis by local authorities.
There is no question but that the requirements of efficiency, effectiveness, and expediency all demand that the national development plan and its operational programmes be implemented through the structures which already exist, with which everyone is familiar, and which have evolved to meet the particular circumstances and population structures of this country. These structures have, since we joined the Community, successfully administered the Structural Funds without any difficulty or complaint from the Community. I am glad to say that in discussions I have had with the distinguished President of the Commission he fully agrees that, in the case of a relatively small region such as Ireland, the system of national programmes we have adopted with sub-regional monitoring and co-ordination was by far the most effective, if not the only way, to successfully organise the implementation of the national development plan. I am also pleased to note that the NESC report itself agrees with the treatment of Ireland as a single Community region, and accepts the consequent role of national government in the formulation of structural plans and policies for the country.
It has been suggested that the NESC report contains an implicit criticism of the strategy for development spending supported by the funds which is set out in the plan. It is true that the report cautions against an unbalanced pattern of expenditure which promotes infrastructure to the neglect of the directly productive sectors of the economy, but the national plan does not do so. It envisages massive support for areas other than infrastructure, areas of spending designed to exploit the indigenous development potential of the economy in industry, tourism, agriculture, forestry, fisheries, aquaculture and so on. This is quite apart from the encouragement to some of these sectors through tax incentives and other policies that do not involve expenditure eligible for EC support. The plan fully respects the balance recommended by the NESC.
The NESC also say the Government should address a wide range of infrastructure programmes to ensure that every sector of the economy is in a position to take full advantage of the opportunities now unfolding. In fact, the Government's approach in the plan has been to address infrastructural needs right across the board in an integrated way, so that each area will complement the other and contribute to creating the conditions in which the productive sectors of the economy can operate efficiently on the domestic and international markets. Let me also recall that access and transport infrastructure are precisely the areas which have been identified by the representative organisations in industry, agriculture and tourism, as most pressing in the need for major improvements as the single market is progressively created.
The debate on EMU at Community level is still at a very early stage. The ultimate form of economic and monetary union will only be determined by the detailed negotiations which have yet to take place. In this context, the findings in the NESC report are timely and relevant.
I clearly set out our attitude to EMU as recently as at the European Council in Madrid last June. I pointed out that we have a positive approach to EMU and will work for its accomplishment, but I have also made it clear that progress must have regard to two essential requirements. There must be a balance between advances in the economic and monetary areas, and there must be a balance between the development of EMU and the strengthening of the economic and social cohesion of the Community. There is no integrated economic area which has not had to take strong interventionist measures to ensure that the economic and social benefits are distributed fairly throughout its different regions, but economic analysis and history shows this is essential, if the cohesion, stability, and durability of the integrated area are to be sustained.
In my discussions with President Mitterrand last Friday, I reiterated our view that EMU could not work without convergence. The reports of both NESC and the Delors Committee clearly recognise that, if sufficient consideration is not given to correcting regional imbalances, the prospects of lasting economic and monetary union will be seriously at risk. Where the reports differ is in the degree and, possibly, the nature of the effort, on the part of the Community, which requires to be made towards strengthening economic and social cohesion. In making this comparison, however, we must bear in mind that the Delors Committee consisted of individuals of differing nationalities, experiences and philosophies. Indeed, given these differences it is most significant that the committee came forward with a unanimous report which acknowledged that particular attention would have to be paid to promoting balanced development throughout the Community.
That being said, I agree with the view of the NESC that the report of the committee is unduly hesitant and conservative in respect of the assignment of policy functions to the Community in an EMU, and also with the NESC view that the extent of economies of scale, and particularly spill-over effects from public policy, are such, and will be such, that responsibility for many more functions and policies than is envisaged by the Delors Committee will have to be shared between the Community and national tiers of government.
Among those policies, I would number measures which would modify in an automatic fashion the adverse impacts which the process of structural change can have on regions within the union. Such instruments already operate in existing unions. Tax systems are structured so that a drop in the income of a region results automatically in a reduction in its contribution to the higher level of government. Similarly, there are positive mechanisms for supporting incomes in the regions affected in this manner. The totality of such measures are a powerful force for cohesion.
Such mechanisms must, of course, be complemented by common structural efforts to aid the advancement of less-developed areas. The basis for such action has already been laid by the decision to make a substantial increase in allocation of the Structural Funds for the less developed regions of the Community, but I agree with the NESC that there is no guarantee that structural measures on their own will bring about the required degree of economic convergence. That reality is recognised, however tentatively, by the Delors report, which for the third stage of EMU envisages the Council of Ministers having authority to take "decisions to make discretionary changes in Community resources (through a procedure to be defined) to supplement structural transfers to member States ..." Both types of measure are, therefore, essential to the durability and stability of a union, and they must operate in a mutually supportive fashion. They are not alternatives, and to suggest otherwise is, in my view, misguided.
The sharing of the Community of responsibility for a wide range of policies including both automatic adjusters and specifically targeted structural measures, would inevitably mean the enhancement of the Community budget. We are in favour of such a course, which would intensify the internal solidarity of the Community and its ability to maintain major economic stability and sustainable economic growth. The size of the EC budget at about 1 per cent of Community GDP is far too small to make a really significant impact in achieving economic and social cohesion. In 1992, the budget will still be no more than 1.2 per cent of Community GDP, even after the doubling of the Structural Funds. This falls, as the NESC report brings out, well short of what economic authorities consider necessary as a basis for progress towards a durable and stable EMU. The report of the McDougall group, cited by the NESC, considered that a budget of 5-7 per cent of GDP, though much smaller than in mature federations, would be adequate if it was high powered. By high-powered they meant fulfilling to a high degree the redistributive and macro economic functions that are to be expected of an economic union, but at the same time aiming at minimum Communtiy-level public expenditure and minimum centralisation in the supply of goods and services.
We have to be aware, however, that there are some other member states who may not view the requirements of the future in this light, and who are, in fact, opposed to any further development of the Community budget. It will be our aim in the negotiations before us to advance our vision of the Community to the greatest extent possible. I believe the McDougall approach of minimum centralisation but maximum leverage from Community spending offers the most hopeful approach.
I would agree with the conclusion of the NESC report, which suggests that the Cecchini report on "the European Challenge 1992 — the Benefits of a Single Market" was flawed in certain respects, including the suggestion that it was based on an inaccurate and incomplete account of the theories of international trade and integration.
I cannot fully accept what the Cecchini report says about the potential distribution of gains. The recent work on international trade shows that, although the total potential benefits of trade to the EC as a whole are greater than was conceived in the traditional theory, these benefits are unlikely to be shared evenly and the possibility exists that a country could lose in significant ways from economic integration, unless there are countervailing measures and policies. The Cecchini report creates the impression that the trend of economic thinking is towards the view that the gains from integration are automatically more certain and more evenly distributed. This is not our view of how thinking is developing, and we will be pressing the need to ensure that cohesion must be at the forefront of all Commission study and thinking in developing the internal market. This means that, as provided in Article 130B of the Treaty, inserted by the Single Act, all decisions by the Community affecting a less developed economy such as ours must take full account of the extent to which these decisions will accelerate or hinder cohesion. The analysis in the NESC report supplies the deficiencies in the Cecchini report.
The NESC considers that the development of the social dimension of the single market merits considerable and more urgent attention, that this dimension is especially significant for small, less developed economies like Ireland, and that the active development of specific policies which are implicit in the social dimension would contribute to the stability and cohesion of the Community as a whole.
The report emphasises that the social dimension is an important aspect of positive integration, and, applying their analysis of the requirements for integration of both inter-regional and interpersonal redistribution, they conclude that the principles of public finance suggest that there are now grounds for partial centralisation of specific programmes in the broadly social area. Thus, their conclusions reinforce those reached in their analysis of Economic and Monetary Union.
The Government welcome the fact that the NESC have been able to agree on forward-looking and helpful conclusions in regard to the social dimension. From the outset, the Government have taken a positive and constructive attitude to this aspect. For us, the most important social dimension is the creation of sufficient jobs to meet the needs of our people. We have stressed this crucial aspect in the past and will continue to do so. Our priority now is to translate economic growth into increased employment. We want the Community of 1993 to be one in which conditions of work and employment will be further improved and in which training will be expanded and upgraded. We naturally support the strengthening of social dialogue, which at national level has been so central to our progress in recent years, and which, as I have already mentioned, must now be continued and reinforced.
The issue attracting the greatest attention at present in the social context is the proposed European Social Charter. The Commission has now approved the final draft of a charter, which it is hoped to have adopted at the European Council meeting in Strasbourg, in the form of a Solemn Declaration by the Heads of State and Government. At the Social Affairs Council and the European Council, we have supported the principle of the charter. We have informed the French Presidency that we support a charter incorporating political commitments, subject to certain concerns being met. As recently as last week, we reiterated our position to the current President of the European Council, President Mitterrand, and to the Commissioner for Social Affairs, Vasso Papandreou, during her visit to Dublin.
We wish to ensure that, as endorsed in Madrid, only those tasks that can be better achieved at Community level will be subject to Community regulation, with other tasks left to national legislation and collective bargaining; and we wish the charter to have regard to possible effects on cost competitiveness and, therefore, on employment prospects, particularly for small and medium sized enterprises. We are satisfied, however, that it will be possible to strike a reasonable balance between these considerations and the need for basic protection for those at work.
Before concluding, I would like to respond to certain demands from some Deputies opposite that the Government should establish an all-party committee to review the implications for Ireland of 1992, following the publication of the NESC report.
I would remind the House that, as soon as the previous Government came into office in 1987, I appointed a Minister of State in my Department, charged with full time responsibility for the co-ordination of Ireland's approach in the Community. This arrangement still applies under the present Government. In 1988, I established a Committee of Ministers and Secretaries of Departments, which have been meeting weekly, chaired by myself, to oversee our preparation for the internal market. In July 1988, we also launched a major national campaign to promote awareness and preparation for 1992, which is continuing. In the drafting of the National Development Plan 1989-1993, as I have alreday mentioned, we initiated detailed consultation at sub-regional level for the first time ever. These consultations, and the subsequent plan, form the basis for the Community Support Framework for Ireland up to 1993. The NESC report which we are discussing today and tomorrow was prepared on the Government's initiative.
I am satisfied that this Government's record in disseminating the fullest information and promoting the maximum discussion and consultation on issues pertinent to the 1992 process has been full and adequate. Furthermore, the Oireachtas Joint Committee on the Secondary Legislation of the Communities have a specific brief to examine draft Community legislation, including that on the internal market — to keep a close watching brief on developments leading up to 1992 and beyond, and to exercise their powers in this context as they see fit. As the Government's energies are increasingly absorbed in preparing for and later managing the Irish Presidency with effect from 1 January next, I cannot see any useful role for a further committee along the lines suggested.
In conclusion, I would again like to commend NESC for preparing this report. I am confident the House will agree that it is a matter for satisfaction that the various economic and social interests represented on the Council were able to come to such fruitful conclusions on issues of great complexity and controversy. It is a lesson to us all how difficult choices in economic and social development can be identified by analysis, discussion and dialgoue in a spirit of objectivity and public service.
It would be my wish that our problems can be approached in the same constructive spirit in this House. I readily acknowledge that there are many problems to be solved and that progress is needed on many fronts, above all, in relation to employment. But we should also be encouraged by the tremendous progress made in dealing with our underlying problems in the last two and a half years. Continued progress must not be put at risk by abandoning the consensus that has worked so well. We have to determine our priorities as we have done in the Programme for National Recovery, in the National Development Plan and in our programme for Government. Responsible opinion in this country wishes us to continue along our present course and to redouble our efforts. We will not be deflected by unrealistic demands or by short term political pressures from pursuing the steady progress which is required to secure a prosperous future for the Irish people in the Europe of the nineties.
