The Programme for Economic and Social Progress represents a fundamental change in the approach of both Government and the social partners to the matter of managing our affairs. A small trading economy cannot prosper with divisive and competing interests. Through the implementation of the programme, the Government and the social partners have adopted a strategy which will accelerate economic and social progress in the nineties. This strategy is to maintain a low inflation economy with a stable exchange rate which can compete internationally. By entering into a partnership between all the interests concerned, we have put ourselves in the position to transform Irish society in this decade in such a way that we will increase significantly our prosperity and distribute that prosperity more equitably and fairly.
Fundamental to the successful implementation of the programme and achievement of the benefits it will bring to our society, is that we maintain firm control of our public finances so that there is a steady reduction in the national debt to GNP ratio. This is an overriding principle of the programme and one which cannot be infringed in the implementation of the programme. To depart from that principle would plunge the economy back into a spiral of rising inflation and interest rates, lower real incomes, declining standards of living and collapse of the investment we need to create jobs.
If we have learned anything over the past few years, it must be that macro-economic stability is vital to economic progress in a small open economy. The central objective of macro-economic policy in the programme is to secure and strengthen long term growth potential.
The improvement in macro-economic conditions since 1987 has been the fundamental reason for the improved performance of industry in terms of output and employment growth. Industrial enterprises, whether in public or private ownership, which can competitively export or displace imports have been, and will continue to be, the most important engine of Irish economic growth. One out of every three jobs in the Irish economy is now dependent on manufacturing which spends £10,600 million in the economy each year.
The primary objective for manufacturing in the Programme for Economic and Social Progress is to make the maximum contribution to employment growth and higher living standards in Ireland through building a strong internationally competitive industrial sector. In practical terms, the aim is to create 20,000 new jobs each year of the programme in manufacturing and international services.
To achieve this goal, the Government will continue to strengthen the indigenous industrial sector, particularly in terms of scale and innovation. It is essential that we ensure greater integration of industrial activity with other sectors of the economy so that we can increase the Irish value added share of industrial output.
A major priority in this has to be the development of natural resources which can then serve as a foundation for increased industrial expansion. We must also seek to achieve a satisfactory regional balance in industrial development.
The cost of servicing public debt this year will amount to more than £2.4 billion. It will account for between one-quarter and one-third of every £1 collected on tax revenue during the year. It will, for example, absorb the combined total of all the money collected in VAT, under the employment and training levy, and motor vehicle duties or more than three-quarters of all expected income tax revenue this year. Our total national debt still remains significantly higher than GNP. It is an enormous burden for taxpayers and represents a huge constraint on the Government's ability to undertake economic policies which help to create employment or social policies which provide adequate services for those most in need in our society. It is for these reasons that the control of public expenditure remains high on the agenda of the Government.
With a great deal of effort and sacrifice on the part of many we have started to achieve control over public expenditure in recent years. The ratio of national debt to GNP has been falling steadily and the Government are determined that this process will continue. A great deal of the burden of adjustment must fall inevitably on programmes involving current expenditure and this involves difficult and painful decisions at times.
The alternative is, however, an even less attractive proposition. The experience over a large part of the past ten years, shows clearly that a failure to take in the short term the actions needed to bring public expenditure under control results at a later stage in a need for even more drastic and painful action to bring order to the public finances. We are today still paying the price in terms of high unemployment and, sometimes, less than adequate social services for the failure to face reality following the oil-price shocks to the world economy in the seventies.
Control of public finances remains the vital touch-stone of the Government's responsibilities in economic management. How well they do this has a major influence on the confidence of investors in the Irish economy — a confidence that is restored only by sustained good management practice by the Government over a prolonged period.
Many commentators have pointed to the fact that interest rates in Ireland in recent years have remained stubbornly higher than those of our narrow-band EMS partners despite exemplary achievements in the economic fundamentals of productivity inflation, trade surpluses, public expenditure control, and so on. I share the concern of the business sector and of mortgage holders on this score. The reality, however, is that we are paying, through higher interest rates, a risk premium for our past failures to manage our economic affairs well. The longer we continue on the prudent management of the economy achieved in recent years in co-operation with the social partners the greater the increase in credibility achieved and the lower the need for a risk premium in interest rates.
This trend will be further strengthened by the enactment of the Competition Bill, 1991, which represents a central instrument in the Government's programme to revitalise the economy, to encourage growth and thereby address the most pressing problem facing us all — unemployment.
The legislation will bring about a fundamental change in the basic structure of the market place by introducing into it a statutorily protected requirement for competition. Competition is fundamental to a growing economy. It is the life blood of an efficient market — a dynamic regulator without which everyone suffers. When competition is present, resources are allocated efficiently, innovation and enterprise prosper, and consumer welfare is safeguarded. Without competition firms may become dominant and bleed the economy. Without competition cosy cartels can emerge and share markets to the detriment of consumers and suppliers alike.
Without competition a dominant market player can abuse his position to prevent new players entering the market place or to undermine successful companies. Without competition stagnation can infect a firm, an industry and the economy as a whole.
The impact of all Government policies on the creation of employment must be central to all our deliberations. This does not mean that the Government must adopt a crude, simplistic approach by increasing expenditure on "co-called" job-creation measures. If there is one lesson that everyone should have learned in recent years it is that government, per se, does not create sustainable jobs and that attempts to do so on any significant scale are more likely to undermine than support job creation over a period of years.
If I could point to an example: the Review of Industrial Performance undertaken by the Department of Industry and Commerce for the three year period to the end of 1989 and published last December showed quite clearly that over the period of 1985 to 1989 direct public expenditure on promoting industrial development fell significantly — by some 29 per cent in real terms. Over the same period, however, there was a very significant improvement in job creation in the manufacturing sector compared with the previous four year period.
Our experience over the years shows a poor correlation between direct State expenditure on industrial and promotion and net employment creation. The conclusion is clear: more State expenditure is not an adequate response to our employment creation problems. Such an approach may, in fact, be self-defeating if it contributes to an imbalance between Government revenue and expenditure which give rise to borrowing, inflation or interest rate levels which, in turn, undermine the confidence of investors in the management of our economic affairs.
The achievement of increased employment levels in the traded goods and services sector of the Irish economy depends on demand conditions in both our home and overseas markets and the ability and willingness of Irish-based firms to compete effectively in these markets and to undertake the investment which will enable them to do this. The willingness of firms to invest in employment creating projects and their ability to compete effectively depends significantly on their confidence in the management of the economy by the Government. In order to engender and sustain such confidence the Government must avoid policies involving expenditure which cannot be undertaken without recourse to levels of taxation which stultify effort and enterprise or which require Government borrowing at levels which lay claim to a high proportion of future Government revenues.
As stressed in the new programme, the development of indigenous industry is a priority. We must eliminate the barriers to growth and develop the necessary skills in existing areas of perceived weakness. The performance of the medium to large indigenous sector has been very disappointing over recent years. Falling employment, loss of domestic market share, low profitability and declining levels of investment have characterised these sectors. If we are to generate jobs and wealth in Ireland, we must build indigenous companies of sufficient quality, scale and strength to win and sustain profitable positions in international markets. This has to be of paramount concern to every individual and company in the country who has chosen to live and work in Ireland.
Basic entrepreneurial ambition is central to this. While the State cannot create ambition, it can and will underpin entrepreneurial effort through ensuring a competitive cost structure and a range of State supports designed to supplement the entrepreneurs vision.
The Government have recognised that there has to be a sharper focusing of the various industrial support measures for indigenous industry. This has happened over the past three years. Much greater emphasis has been placed on international competitiveness, strategic development and major incremental growth within companies. No support is available for marginal investments or in cases where no additional output or employment will result. The fundamental issue we are now addressing is ensuring that State supports are directed at areas of business weakness, particularly marketing, product development and management. NESC identified the development of greater scale in Irish industry as a critical need in the context of the greater competition arising from the Single European Market. The Government share this view and are currently addressing the problem in a number of ways.
As a consequence of the recent Review of Industrial Performance, it is now the case that state supports are being concentrated selectively on those indigenous companies capable of achieving and sustaining positions in international markets. We must help companies grow to the scale necessary to maintain their positions, and this is being done through marketing, product development and management development supports.
The industrial development agencies now have an operational target to increase by 100 within ten years the number of Irish manufacturing companies having an annual turnover greater than £5 million in real terms over the period. We are seeking to identify companies with significant growth potential that can benefit from a substantial programme of State supports. Regrettably, I have to say that the majority of indigenous companies may only have limited potential for significant development because of the nature of their activities or limitations in their capabilities. It must remain the case that companies cannot expect to be candidates for significant State support unless they are reoriented towards development opportunities or build-up of their capabilities.
While the Government believe that sustained industrial development requires the development of a strong indigenous sector, and this is a priority under the programme, we also continue to need overseas industry. This has been a major employer in Ireland and one which has provided modern industrial technology, capital inflows and domestic market opportunities for indigenous industries. In both cases, we must maximise all the benefits that flow from such industries while ensuring a balanced growth of direct and indirect jobs.
We cannot ignore the benefits which have come from overseas industry but we must strive to increase the role these firms can play in the context of Ireland's industrial development. It is essential that all potential benefits from overseas firms are maximised. We will continue to seek overseas industry which will make the maximum direct contribution to the Irish economy in terms of sustained high skilled jobs and net exports, including inputs of local material and services. We will achieve the maximum value for money through the targeting of resources towards sub-sectors and markets of greatest potential and the differentiation in the incentives package between different categories of project.
Our job creation needs are such that we must make Ireland attractive to overseas and indigenous industry to locate here and carry out further investment. A positive cost environment, together with highly qualified human resources, and the extension of the 10 per cent corporate tax rate for manufacturing to the end of the year 2010 represent a significant benefit to industry located here. Indeed, I would like to take this opportunity to rebut suggestions that the decision to extend the 10 per cent rate was unwise. This is one of the key elements in allocating overseas investment to Ireland, and would be regarded by many as the most important. Certainly, the Industrial Development Authority were in no doubt as to the need for the extension and their executives are at the coal face of overseas promotion and know what are the critical factors in winning projects.
A further cornerstone of the Government's commitment to job creation is the move to relate industrial incentives to the jobs created in firms rather than to capital spending, and this will be continued. As a result, there has been a reduction in capital grants, and a shift from capital grants to employment grants, marketing and other forms of support. Grants are assessed and decided on a per-job basis, and capital grants are paid only on achievement of job targets. This is the factual situation and is being ignored by people who continue to call for changes that are already in place. Accelerated capital allowances will be reduced to 25 per cent from April 1991 and eliminated in April 1992, and other tax provisions, such as the 10 per cent incentive tax rate, the BES and section 84, have been tightened up.
The shift in industrial aids to meet the needs of indigenous industry will also continue. Exchequer expenditure on the marketing programmes supported by the EC Structural Funds will more than double by 1993 from £14.7 million in 1989. Similar expenditure on science and technology programmes will total over £100 million in the same period compared to £15.8 million in 1989.
My responsibilities for science and technology have a direct bearing on creating advanced factor conditions and infrastructure resources. Such factors and resources facilitate and sustain the creation of high productivity jobs in advanced sectors and segments of industry. There is a need for our industry and entrepreneurs to constantly upgrade their skills, processes, products, marketing focus and competitive advantages. There is no standing still. It is those high productivity branches of activity that give high incomes. High incomes for individuals translate into high national income and to general prosperity, but that can only happen if Irish companies upgrade and aim to be advanced, sophisticated and thoroughly professional providers of goods and services.
I am very keen to use every opportunity, including this debate, to impress on Irish business the need for standards. ISO 9000, in particular, is a basis, a resource for industry. It will become a basic qualification without which one will find it difficult to supply the rising standards and expectations of a growing number of European buyers. Allow me to use this forum, as I have used many another, to call on industry to install quality standards and, in particular, to install ISO 9000.
Irish firms, generally smaller than their counterparts in any industry elsewhere in Europe, must improve their process technology, product technology and service to customers. Through programmes for advanced technology in, for example, software or through building a more supportive infrastructure for our Irish electronics firms we can help them to upgrade and innovate to stay ahead. There are programmes for biotechnology, power electronics, optoelectronics also.
We in Ireland must never become complacent about our competitive advantages in European or global markets. Low order advantages, like labour costs or natural resources, are a sine qua non. If we did not have them we simply could not compete. However, they are not enough.
Competitiveness, and the capacity to expand and grow, is won at the level of individual firms and industries. Policy is assisting them to build their competitiveness by upgrading their technology. They must adapt and enhance their position by gaining high order competitive advantages that superior knowhow confers. Then their position becomes more secure and provides a sounder basis for growth.
As I stated, the new job targets for manufacturing and international services in the period of the Programme for Economic and Social Progress will be 20,000 a year. The achievement of these targets will require: continuing stability in the economic environment and cost competitiveness throughout the industrial and services sectors; a positive external environment for our exports; and a co-operative response from firms, employees and the various State agencies involved in supporting developments.
The overall jobs target in manufacturing and international services for the period of the programme remains at 60,000. We must recognise that recession in the UK and US may retard developments and attention was drawn to this factor in the programme itself. Because of this there may be fluctuations around the planned annual job target of 20,000. This does not in any way diminish our determination to achieve the 60,000 job target. We will achieve this and hopefully more.
The achievement of this target will be facilitated by the introduction of a number of new measures such as: a wider use of employment grants as the means of channelling State aid into developing firms; the exploration of new segments in the internationally-traded services sector, examples of which are audio visual sevices, entertainment services and education and training; addressing specific manpower needs in the provision of additional third-level places; the development of land suitable for industrial development; and maintaining pressure on the EC Commission to carry out a rigorous examination of State aid schemes throughout the Community, particularly those in central regions which have the effect of negativing the regional aids operated in Ireland at significant cost to the Exchequer.
Furthermore, as stated in the programme, an Industrial Policy Forum involving the social partners and relevant Government Departments has been established to examine industrial policy issues such as those adverted to by the social partners in NESC, including implementation of measures for indigenous industry and the achievement of the maximum return from the industry budget.
It is more than apparent from these actions that the Government remain firmly committed to developing a vibrant industrial sector within Ireland which can contribute to the growth in national wealth and employment opportunities. Since 1986, the economy has expanded rapidly, growing by about 5 per cent in both 1989 and 1990. Such strong growth, back-to-back, over the two year period has not been achieved for more than a decade. Much more importantly, this achievement was not accompanied by spiralling inflation, a burgeoning balance of payments deficit, a sliding exchange rate, and a soaring debt/GNP ratio. Quite the contrary; in this period of expansion, those financial fundamentals all improved.
Ireland's inflation rate has now become firmly established as one of the lowest in the world. Our exchange rate remains steady within the EMS. Our balance of payments position has been transformed from one of deficit to healthy surplus. Most significantly, the upward drift in the debt/GNP ratio was first halted, and then set firmly on a downward path.
We must constantly bear in mind the four key elements of this strategy and recall their essential purposes. The fundamental outcome must be that the strategy results in an improvement in the competitiveness of the economy. The four key elements are: restoring stability to the public finances; committing ourselves to a stable exchange rate; devising sensible arrangements in relation to incomes and other domestic costs; and structural reform of the economy, particularly in relation to taxation. These will remain central to Government economic policy and will be pursued relentlessly.
I subscribe fully to the need to make competition policy an important instrument of our industrial development policies. If Irish indigenous firms are protected from the cold wind of competition on the domestic market it is most unlikely that they will be able to secure new markets or maintain existing ones in an international trading environment where the barriers to trade and to competition are being removed. As I highlighted earlier, the proposed new Competition Act will make a significant contribution to the creation of a more innovative successful and competitive sector in Ireland.
With the ending of the Gulf War, the outlook for the manufacturing sector appears to be improving. The IDA expects the level of new first-time job creation to be broadly in line with expectations. Implementation of projects approved in recent years is progressing well. While, the after-effects of the Gulf War, coupled with the continuing recession in the UK and US means that the net employment growth of recent years is unlikely to be repeated this year, the volume of manufacturing output is projected to maintain the growth level of 5 per cent achieved in 1990. Manufacturing export volume growth is predicted to be 5 per cent compared with a level of 7.5 per cent in 1990.
Prospects in key sectors are now recovering. There is renewed interest in electronics, with a high level of site visits from the US. Electronics exports are expected to grow by 6 per cent in 1991. The software sector continues to perform well and exports are projected to continue to grow, though not as rapidly as in 1990. Growth in output and exports of pharmaceuticals are expected to be broadly in line with 1990 levels of 2 per cent and 6.5 per cent respectively. The prospects for a small and medium sized indigenous sector are still dominated by the impact of the recession in the UK and the low level of domestic demand conditions. In the agribusiness sector the continuing rationalisation will inevitably mean further job losses during 1991.
ESRI forecasts the growth in real GNP at 2 per cent in 1991. The OECD forecasts a higher rate of 2.2 per cent. Both forecasts are broadly in line with the Government's own estimate of 2.25 per cent real GNP growth. A growth rate of 2 per cent in 1991 would place Ireland slightly above the EC and OECD average for the year. However, this growth rate may not be sufficient to generate a significant increase in employment.
The essential point I must get across is that there never was a magic wand which could be waved to generate economic developments, wealth and employment. These must come from the efforts of all in the economy working together to maximise mutual benefit. The Government and the Social Partners fully subscribed to this philosophy in the most tangible way possible by agreeing the Programme for Economic and Social Progress.
I would like to give the balance of my time to Deputy Michael Martin.
