There are two points which should be borne in mind in this debate. The first is that we have been faced in recent weeks with new economic problems and difficulties arising from international currency and interest rates developments. These problems and difficulties must be faced by us — as by other economies — and measures taken to deal with them, but we should not be daunted by these new difficulties and problems — serious though they are. Above all, we should not be deterred by these events from the policies and strategies which have transformed our economy over the past five years. That is my second point. Our economy today stands out for its underlying strength — an inflation rate among the lowest in the world, a substantial and sustained balance of payments surplus and a budget deficit which is the lowest in the Community. The Exchequer returns for the third quarter indicate that we are well on target for this year. These are the foundations on which a modern, competitive economy is built. These are the foundations on which we have built over the past five years one of the highest rates of economic growth in Europe, averaging nearly 5 per cent and well above the OECD and Community averages.
Everyone in this House who speaks in this debate or who listens to it, will well remember when this economy faced insolvency in 1986 with the highest budget deficit we ever had, with a debt GNP ratio heading towards 130 per cent, with capital fleeing the country, with our currency devalued and unstable, with a substantial balance of payments deficit and with negative growth in the economy. In particular, the main Opposition spokesmen, who formed the then Government which was unfortunately as unstable as the currency, will be acutely aware of how the Governments which succeeded them retrieved the economy from that insolvency, which stared us in the face at the end of 1986, by the policies followed since 1987 which have restored the public finances and the economy to their present strength.
The transformation of the economy and the public finances was brought about by the consensus approach we adopted of forming an alliance between the Government and the social partners representing employers, trade unions and farmers. Together we agreed on how to develop our economy and create greater social justice. Together we agreed that, for living standards to rise, we had to place our economy on a new competitive basis so that we could trade successfully in an increasingly competitive world.
We should, in present circumstances, take heart, therefore, from what we have achieved over the past five years. We have even done something which so many other economies have failed to do — we have increased employment. In the past five years, employment has increased by 45,000 as compared with a loss close to 80,000 in the previous six years. Our strong economic performance is producing jobs. Employment in Ireland grew annually by an average of 1.4 per cent between 1987 and 1990, that is seven times faster than the average for the past 30 years, but that is not enough. We must do more.
There can be nobody in this House who can suggest that our trading economy can generate additional jobs, except on the basis of a competitive economy based on low costs and low inflation. That is the economy we have created over the past five years and we must maintain and improve that status in spite of the current new problems and difficulties which we hope will be temporary and transient.
I can understand how the abnormal and unacceptable increases in the live register which we have been experiencing may make us overlook just how well, at least comparatively, we have been doing on employment. That is relevant to this debate. Let me outline what has been happening since the international economy began to slow down in 1990. I will work from OECD estimates — published last June — of what actually happened in 1991 and what they foresaw for this year.
Over the two years combined, the OECD suggested that Irish employment would rise, but marginally. Our own indicators support the view that total employment has been broadly stable, with gains in areas like manufacturing, the financial sector and in services working to offset contraction on the construction side and in agricultural employment, but how well have other countries been doing?
OECD estimates for the UK indicate a decline of virtually 5 per cent in employment over the two years. In North America, broad stability was estimated for the US — on the basis of some recovery in 1992 — while Canadian employment was expected to be down by 1 per cent. In Europe, reflecting the growth induced by German unification, fairly strong growth was expected there, with a positive overspill into some neighbouring countries. While Japanese employment was estimated to rise strongly too, there were expected to be losses of 2 per cent in Australia and somewhat less in New Zealand.
But what of other smaller countries, like ourselves, significantly dependent on external trade — Belgium, Denmark and Austria, for instance? Over the two years, the OECD estimated an employment fall of 0.5 per cent in Belgium and of more than 1 per cent in Denmark. Austria, on the other hand, being placed to benefit particularly from the overspill growth effects of German unification, was estimated to see net employment gains of 2 per cent plus.
In the round, these data point to a strong Irish performance, in particular in the face of the contraction of demand in the UK, our nearest neighbour and major trading partner where there has been such a substantial fall in employment.
This gives the lie to propositions that, somehow, massive job losses lie behind the rise in our unemployment levels. Falling employment is not the explanation for the simple reason that total jobs in Ireland have remained broadly stable. What, then, lies behind the live register increase?
There are two main reasons. The first is demographic. The number of young people coming of age to begin work each year is far greater than the number reaching retirement — by about 25,000 annually at this point. Second, while one cannot be precise on figures, we appear to have experienced some net inward migration in recent times, additional to the natural growth of our labour force. Preliminary population estimates for April last suggest marginal net inward flows over the 12 preceding months. These estimates relate to total population rather than to persons of working age only, but there has been strong recent growth among under-25s on the live register, 14,000 more this September than last. Because of the substantial fall in UK employment since 1990, return migration is already a significant contributor to the live register — as much as 10 per cent of new entrants to the live register in recent months.
I accept that it is no consolation to the unemployed that we have been doing relatively well on jobs nor that it is growth in the labour force rather than net employment losses which lies behind rising unemployment. Those without jobs do not want explanations but work. This is why, in addition to adhering to the macro-economic and budgetary policies necessary for growth, we have introduced a wide range of new measures and initiatives to create more employment, and we continue every week to seek out new job opportunities.
Over the past five years workers have had substantial real improvements in their living standards. Take home pay of a married man earning the average male manufacturing wage will have increased by over 10.5 per cent between 1987 and 1992. This improvement in workers' living standards resulted from a combination of reductions in income taxation, moderate wage increases under the Programme for National Recovery and Programme for Economic and Social Progress and, of course, low inflation.
It is not just those in employment who had improvements in their living standards. In the past number of years the value of basic social welfare payments has been more than maintained against inflation. For example, the basic rate of payment for a married couple with two children on long term unemployment benefit went up by 38 per cent between mid-1987 and mid-1992. In the same period, prices rose by less than 17 per cent, giving them a real rise in welfare benefit of about 18 per cent.
We can continue to increase our living standards if we continue to maintain the discipline and the consistency of policy which has underpinned our economic and fiscal policy over the past five years. I should also point out that the effects of the currency developments are not all negative. Inflation could come down 1-2 per cent next year as a result of the fall in import prices.
I am grateful for the wide measure of national support for our fundamental strategy which we have received during the current crisis. This support has come from political quarters, from the social partners and, indeed, even in many cases from the sectors that have been badly affected by recent developments. There has been an understanding by most people that we cannot afford just to look at the relief of short term pain, or at narrow sectoral interests, but that we need to take into account the long term benefits of a consistent economic strategy. I am convinced that the Irish economy can emerge all the stronger from this crisis, enjoying increased confidence at home and abroad.
It is only with the currency crisis that we began to see the benefits of the policies we have pursued over the last five years. Otherwise we would have been swamped as we were in 1986.
Many ideas have been put forward over the last fortnight for mitigating the effects of sterling devaluation and recent interest rate rises, most of them made in a constructive spirit. There was, however, the impracticable suggestion that foreign investors in Irish stocks should be given cast-iron guarantees against any potential loss, which showed a very strange set of priorities. It was also proposed that the Government should restore full mortgage relief, and suspend or abolish employers' PRSI. These would have been very costly measures — employers' PRSI for example, brings in about £1 billion per annum — with serious long term implications for the budget. Parties opposite will recall that food subsidies brought in to meet a particular situation in the late seventies were not finally abolished until January 1987. The banks and some of the building societies have in different ways shown a degree of flexibility with regard to the sudden increase in repayments as they affect mortgage holders. I understand from the banks and building societies that the option is available now to almost all mortgage holders not to pay the increased mortgage rate over the next three months but to add the amount in question to the outstanding capital. This is also the position with Dublin Corporation. This option will substantially cushion the effect of interest rate increases for those where a sharp and sudden increase creates hardship.
As far as the productive sector is concerned, a carefully targeted measure such as the market development fund is a much superior method of getting to the companies that need assistance if they are to maintain output and employment. We will do ourselves no favours if we start showing a careless attitude to Government expenditure as our ability to maintain our position is based on the conviction of the markets that Government finances are firmly under control. Nothing must be done to shake that conviction. This is not the time to start thinking that we have leeway to increase the level of Government borrowing. We all know where that path leads. It is important that all of us be required to make some adjustment to meet the new situation rather than expect the Government to be able to insulate the country completely from changing external conditions. There is no merit either in throwing overboard the national consensus and alliance with the social partners which has allowed us to make so much progress together since 1987.
The Oireachtas Joint Committee on Employment provide an ideal forum for considering new suggestions and proposals that may be made in this House, and I would strongly urge all parties in this House to participate fully in it, at a time when it is important for all of us to be seen to work together. I would say to Fine Gael: that if they have any workable ideas for new jobs they should send them to the Joint Committee where they will get careful consideration.
I detect a growing public understanding that it requires more than an expression of strong political will or a burst of moral indignation to solve the unemployment problem. Most responsible economic opinion believes that the Government are pursuing the right strategy, even though further progress is needed on a number of different fronts, and that this strategy is capable of yielding substantial results, once general economic conditions improve. The progress made in creating 45,000 net extra jobs in 1987-91 shows the potential of what can be achieved. Moreover, the greater wealth that we have created since 1987 with an average growth rate of nearly 5 per cent has helped us to improve substantially in real terms the conditions of those dependent on social welfare. The 4 per cent general increase in July is significantly ahead of inflation.
Historical parallels have little relevance in a modern State that has proper social provision and it makes no sense to try to conjure up images of social revolt. The notion that the State can directly create tens of thousands of jobs by socialist style intervention is out of date and discredited; so also is the hollow political call to create more jobs without putting forward any new ideas. The State has a role to play in creating the right conditions, and in encouraging and promoting development in particular sectors, but intervention beyond a certain point can be positively counterproductive. Unlike six years ago, most observers see an encouraging economic future ahead. We should have the courage to persevere and not to give up because of adverse external circumstances.
I want to make it clear that it is our firm intention and determination to defend the value of our currency. We showed this by our actions at the height of the currency speculation and we will continue and maintain that policy. I would like to congratulate the Minister for Finance, his officials, the National Treasury Management Agency and the Central Bank for their part in the successful defence of our currency.
Since 1987, the Government have pursued a consistent line in regard to our currency. That policy is, and will continue to be, the maintenance of a firm exchange rate within the narrow band of the European Exchange Rate Mechanism. That policy has delivered significant benefits in the form of very low inflation and general economic stability. It has also created confidence abroad in Ireland's ability to successfully manage its economy. In recent years, this growing confidence has led to large capital inflows, particularly inflows to Irish Government securities, and it is these inflows which helped reduce the differential between Irish and German interest rates from over nine percentage points in early 1987, to less than one percentage point earlier this year. Maintaining our current exchange rate policy is the only way we can ensure a return to lower interest rates.
The Government are acting resolutely and consistently to complement and reinforce all existing strategies and measures to deal with unemployment by new concerted efforts and radical approaches. Through the initiatives which we have taken in recent weeks, the Government have shown their commitment and clear determination to take all possible measures to accelerate employment and reduce unemployment.
The essential purpose of the very useful and productive meeting I had with the CRC on 3 September, where I was accompanied by Ministers directly concerned with the issues under discussion, was to review progress under the Programme for Economic and Social Progress, with special reference to the grave unemployment situation, and should be seen in the context of the ongoing process in which the Government are according top priority to job creation.
In addition, we in Government had wide ranging discussions with the CRC on a broad range of strategies and measures concerning such sectors as tourism, agriculture, marine, aquaculture, forestry, construction and North-South trade which offer potential for significant growth and employment creation.
The most important conclusion from the meeting was that the CRC is now examining, at my request, new strategies and measures within the framework of the Programme for Economic and Social Progress to increase employment and will be submitting its recommendations to the Government by the end of this month. For my part, I have given an undertaking to the social partners that these will be fully, carefully and quickly considered by the Government.
The Government have, in the light of discussions at the CRC, taken a series of specific decisions on establishing county enterprise partnership boards which I believe are of major importance for enterprise development and job creation in this country.
The partnership boards will play a major role in job creation at local level. They also represent a significant step forward in the devolution of power to local communities. Ordinary people will have the opportunity to participate in decisions affecting their lives — decisions which up to now have been made at national level. No proper supportive structure to encourage the setting up of small businesses has existed and this new initiative clearly fills that vacuum.
Each board, with directors drawn from all our main industries and State agencies, will provide for the close co-operation of the private sector and the public service. The chairperson of the boards will be an employer representative. The other members of the boards will include the chairperson of the local authority, the county manager and representatives of local communities, social partners and public agencies.
The partnership boards will have three key objectives: the development of small and start up enterprises, employing up to 12 people; training and education, especially as linked to enterprise development; and local community development. The partnership boards will prepare action plans for their counties and areas. These plans will set down specific proposals, to be implemented through decisions of three key sub-committees of the boards, in the areas of small and start-up enterprise development, of training and education and of local community development. A forum of relevant local organisations will be held in each county quarterly, to ensure an exchange of ideas and feedback to local communities on the boards' activities.
The funding of the boards, in addition to the drawing together of existing publicly funded initiatives, will consist of additional funds of over £100 million committed by the Irish financial institutions; in addition Irish public funds of £50 million will be provided by the Government and there will be additional EC funds.
Funding from the financial institutions represents an important step forward. The four associated banks — Bank of Ireland, Allied Irish Banks, Ulster Bank and National Irish Bank-Woodchester Credit Lyonnais Bank, the ICC, the ACC, the Trustee Savings Bank and the Irish Permanent Building Society have collectively committed funds of £95 million to be used in conjunction with the county enterprise partnership boards.
These funds will be available for loans on favourable terms, including no guarantees in the case of incorporated entities and the underwriting criteria will reflect a balanced view of the financial institutions' good commercial practice and social responsibility in playing their part in achieving the aims of the county enterprise partnerships in tackling the unemployment problem. In addition, there will be an active policy by the banks to provide specialist staff to assist in the evaluation and operation of projects on a "hands-on" basis.
Enterprise projects submitted to county enterprise partnership boards for funding will be evaluated in terms of commercial viability by an enterprise sub-committee of the board. Personnel designated by the financial institutions will assist in the evaluation and the board will decide the most appropriate method of funding, whether by direct grant, loan, interest subsidy or equity for approved projects. Officials of my Department are now liaising, and will continue to liaise, with the financial institutions on the detailed implementation of the scheme.
Discussions are continuing with the financial institutions, in particular with other building societies and with the insurance companies on further contributions to the overall enterprise fund. The Government are satisfied that there will be a further positive response from the financial institutions arising from those discussions. Equity capital will be included in the further contributions, in particular from the insurance companies.
The enterprise partnership boards will each have a small core staff that will transfer to them from county development teams, from regional tourism organisations, from IDA/ABT, Eolas, SFADCo/FÁS/VECs and, where available, from the social partners, including private sector employers.
The county development teams and regional tourism organisations will continue in existence in each case until partnership boards have been established in the relevant areas.
The process of establishing partnership boards will start immediately and will be undertaken in consultation with all existing interests, including in particular public service staff interests at both local and regional level.
As further evidence of our resolve and determination, the following employment initiatives have been introduced by the Government in recent weeks beyond those I have already mentioned above such as our decisions on: the first phase implementation of the Culliton Report's recommendations; a two-year exemption from PRSI payments for employers who take on additional employees; a new payroll levy on employers to fund apprenticeship training in certain sectors; follow-up on recommendations by the Oireachtas Joint Committee on Employment with increased places in the community employment development programme — 1,000 new places — in the vocational training opportunities scheme — 1,000 new places — and in the special employment scheme — 4,000 new places; introduction of a new financial services product involving private trusts which will provide additional employment in management and ancillary activities at the International Financial Services Centre.
There is, in addition, a number of ongoing measures which will contribute to reducing unemployment. Since 1987 tourism has dramatically shown its ability to increase employment. Employment in the industry rose by 31,400 between 1986 and 1991. The task force on tourism will shortly report to the Minister who has already underlined that the way forward towards greater tourist earnings and greater employment is increased product development and marketing of holidays in specialised sectors where we are highly competitive and attractive.
The employment subsidy scheme continues to make a steady contribution to new employment. Already some 3,350 jobs have been created under the scheme. The EC funded job training scheme has not yet made a significant contribution to reducing unemployment but with the new more flexible conditions I am assured by employers that the uptake will increase significantly.
I have asked every Department to bring forward new ideas or projects for jobs for consideration with the Estimates for 1993 and this also applies to our industrial and commercial semi-State bodies.
As a speedy response to the new difficulties created for enterprises by the currency changes, the Government have established the market development fund of £50 million for the period up to the end of March 1993 to assist firms which have been seriously affected by the recent turmoil in exchange rates within the Exchange Rate Mechanism.
The measures are intended to provide support for jobs in the manufacturing firms which could face serious difficulties in maintaining positive margins on sales in the UK market and in those parts of the domestic market and certain major overseas markets which are subject to strong price competition from UK firms. These developments pose a threat to many of the jobs involved unless firms take immediate action to increase their competitiveness in existing and alternative markets.
By helping firms to help themselves the fund will also contribute to the achievement of the stability necessary to maintain Ireland's membership of the Exchange Rate Mechanism at a time of considerable uncertainty.
In establishing the fund, the Government emphasised that assistance would be directed very specifically at firms which would have temporary difficulty in maintaining employment and in adjusting to the recent fundamental changes in the market place arising from the devaluation of sterling. Firms will need to demonstrate the ability, commitment and actions being taken to manage their way out of current difficulties.
I was pleased to see the positive response to the new measures by industry and by exporters in particular. The support of the Irish Exporters' Association was especially notable in welcoming the new appreciation of exporters' problems the Government had shown. The Government look forward to a constructive relationship with firms affected on export, and on the home, markets not just in the UK markets but including, for example, those affected in the sheep and pig meat and mushroom businesses.
There is a tendency in some quarters to decry our excellent economic fundamentals, as if they were irrelevant to unemployment and the "real economy". The last few weeks have brought home to us that there is a very real connection. Without good fundamentals we would not have been able to maintain our exchange rate, or to sustain any confidence in the Irish economy. We learnt in the seventies and early eighties that poor fundamentals, high inflation, a huge balance of payments deficit, and heavy Government borrowing, would sooner or later leave a trail of destruction in terms of jobs, with nearly 80,000 jobs lost between 1980 and 1987. Poor fundamentals, particularly in regard to the public finances, meant that Deputy Bruton, as Minister for Finance, had to resort to unilateral devaluation in August 1986, despite his earlier forthright assurances to the contrary — with a resulting crisis of confidence and a big jump in interest rates, up by up to 4½ per cent by October 1986. In sharp contrast, during the current international recession, there has been a minimal loss of jobs, and we have been able to hold our course through present extremely turbulent conditions.
In that context, I would like to quote from Finance magazine's annual survey of Irish economic forecasters, completed after the devaluation of sterling. It begins:
The Irish economy is set to continue to turn in some of the best performances of any economy in the O.E.C.D. area over the next three years, irrespective of the effects of the E.R.M. currency turmoil.
My message in this debate is that we should take hope and confidence from the progress we have made since the dark days of 1986 and that we will similarly overcome the current difficulties which have been created for us by international currency and interest rate developments.
The Government will continue the disciplined macro-economic policy which we have followed since 1987. We have the support of the social partners, recently expressed in the CRC for that. As part of that policy we will maintain a strong currency. We will devote all our energies to the measures we have been introducing to accelerate employment and reduce unemployment in the face of the unique demographic pressure we are experiencing. We have made a dramatic, radical and historic change in the approach to creating jobs by setting up county enterprise partnership boards to weld together at county and local levels the efforts and enterprise of local communities in creating new employment opportunities and a new economic vigour at community level. We have in the past few days — with a speed which has been widely commended — set up a marketing development fund with £50 million to spend on overcoming for companies the worst effects of the sterling devaluation.
We are on the threshold of the Single Market which opens its frontiers on the first of January next. This offers us new potential for employment. We are now one of the most competitive and low cost economies in Europe poised to take advantage of the easier access to Community trade.
And there beckons beyond the Single Market the prospect of Economic and Monetary Union which, through its coordination of economic and monetary policies, a single Central Bank and ultimately a single currency, will enable us in a market devoid of currency and interest rate fluctuations to gain for our people a much higher standard of living based on our efficiency, our productivity, our commitment to hard work and excellence, our high standards of education and our overall competitiveness. These must be our ideals. These we are now well on the way to achieving. Let us not falter or fail at this critical time. Let us not be blown off course by the sudden squalls that have hit us. We have managed the economy well in the face of graver problems and we will continue to manage it with the same skill and resolution that have overcome those grave problems. Together with the social partners and with the co-operation of firms affected by the current crisis we will come successfully through this ordeal which we hope will be of short duration.
