Dáil Éireann debate -
Tuesday, 13 Jun 1995

Vol. 454 No. 3

Private Members' Business. - Public Expenditure: Motion.

Mr. McCreevy

I move:

"That Dáil Éireann, having regard to the mistakenly planned current budget deficit in 1995, the out of control public spending, the lack of prudent financial planning, the lack of any coherent medium or long term economic strategy, the panic decisions of the Government as announced on Thursday, 8 June 1995 and the ad hoc policy announcements of Ministers, and in the light of the recent damning Annual OECD Survey on the Irish economy, condemns the Minister for Finance in particular for his imprudent mismanagement of the public finances and the economy and calls on the Government to implement the coherent and prudent fiscal, monetary and economic policies of Fianna Fáil-led Governments since 1987.”

I wish to share my time with Deputy Bertie Ahern. It is difficult to hide from the truth. Good economic management is difficult but it was abandoned when this Government came to power in December 1994. Sound economic, fiscal and monetary management was the order of the day. Unfortunately mismanagement is now the order of the day and there is no hiding from this inescapable truth.

When the Fianna Fáil administration left office in 1994 we had the first balanced current budget deficit in 27 years, the lowest inflation and interest rates for decades, a steady rise in employment, increased economic growth and a National Development Plan which would channel billions of pounds into the economy by the end of the decade. Whatever our critics may say about us, any independently minded person would agree that Fianna Fáil-led administrations since 1987 have proved to be successful in turning the economy around from the disastrous situation in the mid-1980s.

A few months ago the incoming rainbow Government promised firm management of the public finances. In his budget speech on 8 February 1995 the Minister for Finance said:

We will need firm discipline and strict adherence to our commitments if we are to meet the targets which we have set for ourselves in the policy document —A Government of Renewal.

Four months later on 8 June the Government suffered a panic attack and the Minister for Finance announced cutbacks. It appears to have come about as a result of the recently published OECD survey on the economy. When a person is a couple of stones overweight he does not need a dietician to inform him of this unwelcome fact. Is it that the Minister for Finance and the Government have been asleep for the last six months and need the OECD to tell them what Opposition Deputies have been saying, independent analysts and commentators constantly repeating and the world and its mother shouting from the rooftops.

What new circumstances arose last Thursday, four months to the day from the date of the budget, which were not known to the Government when framing the budget? No exceptional international economic events occurred. Nothing of an exceptional nature occurred in our economy. If the board of directors of a commercial company behaved in this fashion the shareholders would be justified in looking for their removal.

The OECD survey states:

Despite its good performance the Irish economy continues to face high levels of public debt and unemployment ... tighter control on public expenditure appears to be necessary in order to sustain progress in reducing the debt to GDP ratio as specified in the Maastricht Treaty and to make room for a further reduction in the tax burden.

The survey has confirmed and legitimised all the recent statements made by me and my Fianna Fáil colleagues on the downturn in control of the level of public spending. There is a 10 per cent plus increase in expenditure this year over 1994 when one excludes the tax amnesty and compares like with like.

While it may be true of politicians the world over, Irish politicians seem hell bent on setting their faces against the lessons of the past. While one could be excused for forgetting economic mistakes made 40 years ago it is beyond belief that a Government would not have learned from the daft economic and financial policies pursued here in the 1970s and 1980s.

There was nothing wrong with attempting the policy experiment of current budget deficits in the 1970s. As an economic option it is a tool to be used at appropriate times in economic development or in the lifetime of an economic cycle. It is important to state the foregoing because I have been critical of the policy of current budget deficits since becoming a Member of the House in 1977. My criticism has been based on the blindingly obvious: current budget deficits are an incorrect policy option for an open economy. This is not to say that the option cannot be used. However, it should only be used in exceptional circumstances. The lesson we should have learned from that experiment is that in a small open economy current budget deficits create massive long term headaches and mountainous international indebtedness. Very few long term sustainable jobs are created by indulging in such a policy.

Having achieved a current budget deficit in 1994 I would have thought no sane Government would go back down the other road. I and my party Leader pointed this out when the budget was introduced and in repeated statements over the past few months. I do not regard my view of current budget deficits as either left-wing or right-wing, just pragmatic. Surely if it is proven beyond any shadow of a doubt that a certain policy option does not work in an Irish context, reason compels it to be abandoned.

Whereas it is easy to make decisions to increase spending, all Governments know the exceptional pain and political difficulties associated with taking corrective measures. It has taken over a quarter of a century to return to a position of paying for current expenditure out of current income. Whatever justification there may be in occasionally planning for a current budget deficit, there was no such justification in January 1995. Any junior certificate student taking the business organisation paper in the 1995 examination knows that you do not put more money into an economy which has experienced the growth rates Ireland has in the 1990s. Any amateur economist sitting on a bar stool knows that simple fact. We do not need Central Bank reports, stockbrokers' analyses, business journalists or Opposition politicians to spell out the blindingly obvious. Any Government should adopt a prudent approach to its first budget and provide for the rainy day which invariably comes around.

There has been a sea change in the thinking of socialist parties worldwide. The traditional socialist view of spend and spend again has been abandoned from Australia to Central Europe but Irish left wing parties are living in the past and refuse to accept that. This left wing dominated Government is not prepared to accept the changed economic thinking of recent times and has adopted the attitude that others are wrong and it is right. They are supported in this by some media commentators who find it impossible to burn their 1960s socialist clothes.

The ink was hardly dry on the Minister for Finance's Budget Statement when the Minister for Social Welfare announced an extra £140 million in expenditure. Apparently the Government believed some fancy creative accounting would explain this expenditure away and no analyst would realise it was additional expenditure. Not long after, and to keep the delegates at the Democratic Left conference happy, the Government announced a major change in the law relating to service charges. When one strips away the verbiage surrounding the decision the Government effectively said "if you do not feel like paying these service charges then do not bother because we will not pursue you further anyway". What kind of signal was this to give to the electorate and the international markets?

It is patently obvious the Minister for Finance is being ignored by his colleagues. There is no point in him ringing up journalists in the middle of the night to tell them he will get tough on spending. This happened some months ago and the Minister got the headlines he wanted in the morning papers. However, there is little point in closing the stable door after the horse has bolted.

Ministers have been unable to resist the temptation to give in to pressure groups and some have announced their willingness to do certain things without any recourse to the overall budgetary position, and least of all, any recognition to the existence of the Minister for Finance. The Minister for Education has succeeded in transferring responsibility for early retirement for teachers to the Minister for Finance and lately I have detected that the blame is being shifted to the officials in the Department of Finance. It should be remembered that Ministers, not officials, make policy decisions and it is not correct or ethical to shift the blame to officials in any Department. If collective Cabinet responsibility is to mean anything in this era of openness, transparency and accountability Ministers must be prepared to defend the actions of their colleagues and not indulge in "slieveenish" cop-outs.

On the imminent Tinakilly think out, I send my sympathies to all Ministers and, in particular, to the Minister for Social Welfare, Deputy De Rossa. This supposed champion of the under-privileged and disadvantaged showed his true colours in giving them a 2.5 per cent increase in the budget. I look forward with some eagerness to see how the champion of old age pensioners will square his ideologies with his new found responsibilities. He was somewhat testy on last night's "Questions and Answers" programme. He will have to learn to grin a bit more and bear it better.

The Government is not following any clear strategy. The Minister for Finance is being ignored and last week's headlines were not about his efforts but about those of the Taoiseach. The headlines screamed "Taoiseach to order tough curbs on spending". In interviews associated with those decisions the Minister for Finance said the Government was engaged in minor adjustments only. Yesterday morning one of the headlines stated "Another £70 million in cutbacks on cards". Yet within hours, in an interview, the Tánaiste and Minister for Foreign Affairs stated this was not correct.

History seems to be repeating itself. I recall similar confusion in the FitzGerald-led Coalition Government of 1982-87. The then Minister for Finance, Deputy Dukes, was publicly humiliated by the then Tánaiste, Deputy Spring, who left his hospital bed to inform the Taoiseach of the day that the line of the Minister for Finance was not Government policy. The clear difference in strategy between the rainbow partners is disturbing and signals there are clear divisions on economic strategy. Perhaps it was inevitable that a Government comprised of parties of the far left and far right would display such confusion. It is this type of muddled analysis which dug the Irish economy deeper into the mire during the period 1982-87.

This administration is finding out that government is about making choices, making tough decisions and sticking by them. I remind the House and at least one newspaper that Fianna Fáil is now in Opposition. It is the job of the Government, not of the Opposition, to prioritise its spending. On the formation of the Government my party leader, Deputy Bertie Ahern, said that when Fianna Fáil returns to power he expects the economy to be in as good a shape as it was when it left office. Given the record of the Rainbow Coalition Government over the past six months obviously he will be disappointed.

Mr. B. Ahern

The economy and the national finances were in excellent order when they were handed over to the Government in December 1994 and there was a high level of confidence in business. Unfortunately during the past six months there has been serious mismanagement of the economy and a sharp erosion of confidence, as shown by the recent poll in The Sunday Business Post. A golden opportunity is in danger of being missed and there is no consistency, no firm sense of direction and no coherent leadership. Fine Gael and Labour Coalition Governments were always bad for the economy and the story is no different this time.

Stop-go economic policies instead of the sound and steady progress made under Fianna Fáil-led Governments of the past eight years are the last thing the country needs. The Government announced reasonably tough public expenditure targets which corresponded to Fine Gael policy as announced by Deputy Bruton last November in his proposals for Government. Within a few weeks of taking office these targets were overturned and ignored. The Taoiseach gave the parties of the left their head and abdicated his responsibilities while new expenditure commitments were announced. Last week the Government announced new stringent measures. Of course, there would be no need for these if the Government had adopted a firmer approach in the first place.

As the old adage states "Begin as you expect to continue". Fianna Fáil did this in March 1987 and up until now the country did not look back. The Taoiseach was wrong to state yesterday while canvassing in Wicklow that this was the first Government in the history of the State which had set itself a public expenditure limit. He should check the facts. Fianna Fáil's 1987Programme for National Recovery stated: “Expenditure will be contained in real terms at or below the 1986 expenditure levels measured as a percentage of GNP”. We kept our commitment not only during the first year but in the following years.

Why should people be impressed by the Government's broken commitments? The parties of the left suffer from the fallacy that increased expenditure, taxation and borrowing are in general a good thing and that their constituencies benefit more from public spending than from reduced taxation. They do not stop to think about the national welfare or the burden this expenditure places on the PAYE taxpayer. The lesson of the late 1980s was that the confidence gained from tight financial control as well as the freedom to manoeuvre, outweighed the direct effects of fiscal contraction. Conversely, the loss of confidence resulting from loose control outweighs any direct benefit resulting from increased expenditure.

The first mistakes were made by Labour during the interregnum. The Fianna Fáil Government had approved a tough provisional Book of Estimates which was drawn up under my direction and which recognised that the continued growth in public expenditure and rising interest rates had to be curbed. The Labour Leader, Deputy Dick Spring, went for the political soft option of a Rainbow Coalition Government which included Democratic Left, rather than face up to the tough decisions with Fianna Fáil. A similar dismissive approach was taken by the Minister for Finance, Deputy Quinn, to my view that the current budget deficit which was eliminated in 1994 should not recur so that an important signal could be given to the markets.

I do not want to make too much of it, but I wish to refer to reports at the weekend, obviously fed by the Minister for Finance, his handlers, advisers, programme managers and other people outside the Civil Service, to the effect that last year's figures were achieved with the help of an EU bonanza. It is no secret that it was the opposite, that Brussels got the call before Christmas, just after I left, when there was a question of a few hundred million pounds coming in from the Regional Fund and the Social Fund, the cheque was lost in the Christmas post and was not included in the current budget deficit. The current budget surplus would have been far greater if those cheques had arrived as was our intention. That argument will not wash with anybody and in any case the markets knew the position at the time and would not believe anything from those sources.

I also took the view, in my negotiations with Labour, that in a period of high economic growth — the Maastricht criterion — we were not stringent enough and that we should try to reduce the Exchequer borrowing by 0.5 per cent of GNP each year. The Exchequer borrowing requirement had been on a declining trend since 1992 until this year. The New Zealand Government, with which our officials spent some time last year examining their policies, is eliminating borrowing to reduce the national debt. Real tax relief as opposed to illusory conjuring tricks on budget day will be possible only if we keep Government borrowing expenditure under firm control. There will always be once-off items and Deputy McCreevy has outlined those which this Government has come up with but they should not serve as a routine alibi. The underlying growth in day-to-day current expenditure this year is 11 per cent, including last year's amnesty, which would otherwise mask the trend. There is a great effort to change around these figures. In conjunction with my colleagues in the Department of Finance last year we did not try that trick. We always gave the up front figure, otherwise the markets and the public would have been conned. The figure is 11 per cent and we have to face up to it. If we do not face up to what the Government is trying to deal with we will never get it right. The Minister for Finance, Deputy Quinn, will admit tomorrow for the first time that the underlying increase is 11 per cent. I ask the Government to stop talking about nonsensical figures of 5 per cent and 6 per cent, which are unreal.

The total current expenditure, which includes the debt servicing costs, between 1992-94 declined in real terms, allowing some leeway, but including the amnesty, total Government expenditure increased by 6.4 per cent last year, about 4 per cent in real terms while this year it will increase by 7.6 per cent or about 5 per cent in real terms. That is too much. If I had remained Minister I would have insisted that the real expenditure increase be limited to about 2 per cent or 2.5 per cent and that is what was in the Book of Estimates which I and my colleagues had completed before being kicked out of office.

The Taoiseach and the Minister have promised a pro-jobs budget with tax relief next year. That was supposed to be what it had given us this year. Is the Government now belatedly acknowledging that its financial and economic policies have taken a wrong turning? As Deputy McCreevy said here on budget day, the budget, despite some worthwhile measures, did not achieve very much overall. That was denied but now it seems the Government is admitting it.

I will give a few illustrations about where the Government has taken off the brakes. It showed no constraint in bringing in an unprecedented number of programme managers and special advisers from outside, instead of using the resources available within the public service. One cannot get through the corridors with all the programme managers and advisers now blocking the way. I was in Wicklow last night and I noticed that most of them were down there temporarily.

There has been a 300 per cent increase in information and public relations services for the Taoiseach and a 30 per cent increase in the costs of administering the office of the Tánaiste, including a trebling of the travel allocation. That is setting a very bad example. Incidentally, the office is unnecessary and one which previous Tánaistes did not need. In his proposals for a programme for a new Government last November, Deputy John Bruton said: "Extravagance in the operation of Government must be curbed". Based on those figures he failed to act on this occasion.

The Government adopted a totally lopsided approach to social welfare expenditure with the Minister for Social Welfare concentrating all his resources on a couple of areas. As Deputy McCreevy said, he awarded a minimal increase to the old and the unemployed without families. Free third level education was announced, based on defective costings and created serious new anomalies. The Minister for Social Welfare made it clear last night — he seems to make it clear every night he is on any programme — that he totally disagrees with that collective Government decision. Is this Government bound by the doctrine of collective responsibility or is it just a political shambles? Some favoured areas received increases of anything from 20 per cent to 60 per cent and even in some cases increases of 100 per cent. The £100 million Bord na Móna debt is being written off in one fell swoop — grand if we could afford it. The planned partnership of ICC-ACC, as part of the creation of a third banking force, has not been carried through and it seems they are to be kept in State ownership for purely ideological reasons.

The Rothschild Stokes Kennedy Crowley Fry report which I commissioned last year seems to have been shredded. I do not know why the Garda bothered to question me about it, it was leaked anyway because no interest was taken in it. Now An Post will lead the way. I have great regard for An Post but when I was Minister for Finance my aim was not to make An Post into the third banking force but to give them resources so that they would not lose the savings certificates of old people who were buying them. All of a sudden, within a year, they will lead the way into a national third banking force. I reckon the Bundesbank will be terrified when they see this announcement in the next few days.

While large increases were allocated to some areas, other areas suffered, notably the county roads and the community employment schemes on which the deputy leader of my party successfully managed to change a Government decision after three months of hard effort. In addition, new spending obligations are looming: notably the European Union agri fines and compensation for the hepatitis C victims.

I am not criticising every individual decision. My argument is that the cumulative effect of all the decisions taken at budget time and subsequently is more than the country can afford at this time. Government is about choosing priorities; that is why we elect it. It is not a question of paying out everything that crosses one's desk. My party had a realistic attitude to Government expenditure. A complete freeze will not address our social needs. In many areas we need improved social services when we can afford them.

If we could reduce the cost of borrowing and the cost of unemployment it would create resources for tax cuts and selected improvements in services. Cuts can be achieved by maintaining confidence in the system, keeping down the live register, keeping interest rates down and using the money productively. Relaxing financial control has damaged confidence. The currency has been under pressure at the bottom of the ERM since early in the year, except for last week, when it went slightly above the French franc but yesterday it went down to the bottom. While I was in office we stayed in the national narrow band with the Deutschmark. We have since fallen out of that and there has been substantial unexplained outflows. I do not want to dwell on that but perhaps the Minister will explain how in the first quarter of the year £1.6 billion went out of the system, £210 million more than for the whole of last year. As Deputy McCreevy said on "Morning Ireland" recently, all we want is explanations.

It is clear that while in the last two years unemployment turned out better than forecast at budget time this year, it will be worse by several thousands with detrimental budget implications. Voices in Brussels are casting doubt on our ability to participate in European Monetary Union. We have much convincing to do and we have lost ground during the past five months. Perhaps the Minister will state how that will resolve itself.

Last week's mini budget was clearly felt necessary to reassure the markets. If our financial affairs had been managed properly in the first place it would not have been needed. Public service embargoes are inflexible instruments which mean that certain areas can be deprived of necessary staff while others remained overmanned. We brought in administrative budgets that helped long term planning, it is another demonstration of the lack of confidence in the senior levels of the public service that is now being overridden. Administrative budgets were a good idea and worked extremely well. I regret the fact that they are now being abolished in favour of the old blunt instrument which as Minister for Finance, Deputy Bruton, brought in in 1981.

The Minister for Health seems to regard his Department as exempt from all these things even though the number of health workers has shown the greatest increase over the past five years. The Minister for the Environment is not telling the people the full truth either when he says that central Government investment in local services will be maintained. The cut in the rate support grant is at one remove from a cut in central Government support for local services.

We have a serious law and order problem and nobody in the House argues about that. The arguments for putting off the planned provision of additional prison places are threadbare in the extreme. The Minister for Finance who talks about moving to multi-annual planning said that the provision of the additional prison places would do nothing to solve the problem during the next three years. On that basis he might as well stop building new roads and most other capital projects, including the Lee tunnel and the Tallaght hospital, as they are not due to come on stream immediately either. What sort of miserable short term vision is this?

The Minister also talks about the peace dividend but there are a little over 50 IRA prisoners left in Portlaoise Prison. They are filling a fraction of the number of places to be provided at Castlerea. There is also the question of conditions in some of our older prisons. That is one of the reasons for building a new women's prison. Clearly, women are not given as high a priority by the rainbow coalition as it sometimes likes to pretend.

As recently as 30 May in this House the Minister for Justice, Deputy Owen, boasted that over 200 prison places would be provided at Castlerea and the new women's prison during the next couple of years to reduce the pressure at Mountjoy Prison and other institutions, in combination with an increased reliance on community sanctions. Deputy O'Donoghue will recall that the Minister said the exact opposite a few days later. Representatives of women's groups were involved. The Minister concluded by saying that she hoped there would be an acknowledgement in the report of the visiting committee next year that some action had been taken on the question of overcrowding. It does not look as if this will happen as no action has been taken.

In the words of Deputy Eric Byrne — if one listens to local radio in Dublin one will know that late each Sunday night he makes a statement criticising the Government and then vanishes for the rest of the week — conditions at Mountjoy Prison are Dickensian. The Government has decided to do nothing about this.

Today I asked my party's Whip the current position in relation to the transfer of sentenced prisoners legislation. I thought once this legislation had been enacted Irish citizens would be able to return home but it now looks as if that they will have to remain abroad as we will have nowhere to put them. There is no point in passing the legislation if we are only conning those who have been waiting a long time for it to be put through.

A few months ago the Minister for Justice sought and received the support of my party's spokesperson, Deputy O'Donoghue, on the question of the desirability of reforming the law on bail. This is not now going to happen even though the Fine Gael candidate in the Wicklow by-election is trying to pretend otherwise. Last year the Leader of Fine Gael Party, now Taoiseach, Deputy Bruton, solemnly pledged to reform the bail laws. On 14 May 1994 at his party's Ard Fheis he said:

A great number of serious crimes are committed by people already out on bail. On 15 March bank robbers were arrested in Dublin for possession of a housebreaking instrument. They were promptly released on bail. Later the same day they were again arrested in the course of committing a bank robbery.

The Taoiseach gave the public the misleading impression that he would do something about this when in office. This is the classic case of promising to do one thing while in Opposition and doing the exact opposite when in Government. This does not represent openness, transparency and accountability, rather it is a definite U-turn — one of many. Under the threat of resignation the Minister for Justice has been offered a face-saving deferral in place of cancellation. It is obvious, however, listening to the Taoiseach and the Minister for Finance, that the prison building projects have been cancelled for the lifetime of this Government. The west is being given the same old answer.

I am delighted that Deputy Byrne has entered the Chamber.

Mr. E. Byrne

The Deputy is talking about me again.

Mr. B. Ahern

I hope the Deputy does not continue to look so foolish as each time he makes a statement on Sunday night the Government lets him down.

Mr. E. Byrne

I must teach the Deputy a thing or two about making statements.

Mr. B. Ahern

When he asks his handlers to write statements for him will he please state that he is a powerless Government backbencher?

Mr. D. Ahern

He is an apologist for the Government.

(Interruptions.)

An Ceann Comhairle

Let us have an orderly debate. Deputy Byrne will doubtless have his chance later on. In the meantime he must remain quiet.

Mr. B. Ahern

Making the decision to scrap the prison projects while the Minister for Justice was away was the ultimate insult. The credibility of the Government in its drive against crime has been undermined. The public and the criminal fraternity have been given a clear signal that the Government is not serious about tackling crime and that it does not figure among its priorities. This has serious economic and social implications as business will not thrive in areas where crime is rampant. Our citizens are entitled to a life free from fear of personal attack or robbery.

The Taoiseach talks about those who do not pose a threat to the community, for example those who fail to pay fines, but what about all those who do pose a threat and who have to be released early because of lack of space or who are let out on bail to commit more offences, such as break-ins, as he cited in his Ard Fheis speech last year? My party's attitude is that habitual criminals belong in jail for the protection of the public. There are still far too many out on the streets who mock the gardaí with impunity.

During the past eight years Fianna Fáil managed our economic affairs extremely well. There was high growth and low inflation. We reduced debt, cut tax rates, secured large inward investment and good industrial relations. If we are to enjoy growing prosperity, avoid future recessions as we avoided the last one and create more jobs we will have to attend to two things in particular. The bottom line is that the state of the national finances is vitally important. If they go out of control we will be back in deep trouble. We should not be content to rest on our laurels. We should be seeking to improve our financial position while conditions are so favourable to make room for tax cuts. The second vital ingredient of success is continued social consensus. Stop-go policies — as shown, for example, in the approach to teacher pension entitlements — will not make it easy to maintain this.

The financial markets will be watching very closely as the Government has lost some financial credibility. The carry-over effects of spending measures already announced will mean there will have to be a virtual freeze in Government spending and probably some cutbacks next year and the year after. There will be nothing left for the Minister for Social Welfare, Deputy De Rossa, and his party to spend; they have already laid the cupboard bare in just five months. While the lobbyists concerned will not like it, there will be little room for the Labour Party's favourite expenditure schemes. It will be interesting to see if the stability of the Government can be maintained in conditions of financial stringency and if, having failed the test this year, they will be more capable of passing it next year. It looks as if it will have to resort to much privatisation if it is to make ends meet. In this regard Telecom Éireann was mentioned yesterday.

For the sake of the economy and the welfare of the nation I hope that we succeed in getting back on course as set by Fianna Fáil. We should never have left this course. As Deputy McCreevy has outlined at Question Time, the Government should follow our advice. We know that we will not have an opportunity to return to Government this year but the Government should heed the good advice we have been giving it for several weeks. It is not necessary to wait for the OECD, the ESRI, the IMF or the World Bank to ridicule it; it should listen to our advice. It could then do a good job.

Before this debate is brought to a conclusion perhaps the Government will comment on the excellent Masonite economic project which will secure jobs and prosperity for County Leitrim. Already one Minister is trying to block this badly needed project in the west. Like the prison and so many other projects, it is being given the thumbs down by the Government.

This motion in the name of Deputy McCreevy gives the Government an opportunity to restore some confidence. A huge number of people have transferred funds out of the country because of the threat of interest rate changes and other matters which are leading to instability. This trend will continue unless action is taken by the Government.

Mr. Broughan

This also happened when the Deputy was in Government.

Mr. B. Ahern

More money was transferred out of the country — £1.6 billion — during the first quarter of this year than at any time during the past 15 years, even during the currency crisis.

Mr. Broughan

What about 1991?

Mr. B. Ahern

Those are the questions to which we would like answers in this debate.

Minister of State at the Department of Finance (Mr. Coveney)

I wish to share my time with Deputies Eric Byrne and Broughan.

An Ceann Comhairle

I am sure that is satisfactory and agreed.

Mr. Coveney

I move amendment No. 1:

To delete all words after "That" and substitute the following:

Dáil Éireann, having regard to

— the fact that this Government is the first to commit itself, in A Government of Renewal, to specific limits to increases in public expenditure;

— the commitment to ensure that adequate resources are available so as to promote additional employment, reward work and reduce taxation;

— the timely action announced by the Government on 8 June last aimed at ensuring that the Government's prudent economic and fiscal policies as set out in A Government of Renewal are maintained, in particular the target of 2 per cent real growth in gross current supply services expenditure in 1996 and 1997;

— a positive assessment of the OECD Economic Survey of Ireland which states that the economic outlook for Ireland in 1995-96 remains favourable, with output growth projected at near 5 per cent and projected continued growth in employment and in real disposable income; and

— the acceptance by the Government of the public debt philosophy and targets set out in the Maastricht Treaty, including keeping the EBR prudently below 3 per cent GNP and the debt/GDP ratio steadily reducing towards 60 per cent, has full confidence in the budgetary and economic policies being followed by the Minister for Finance."

The Government amendment sets out clearly the principles underlying the prudent economic policies for both the short and medium term which are set out in A Government of Renewal. The clarity of these policies contrasts sharply with the unfounded rhetoric evident in the motion tabled by the Opposition. This Government has always been prepared to listen to constructive advice and criticism. However, there is nothing constructive in describing the decisions taken last week as panic measures, reflecting imprudence in planning and lack of control.

The reality is that the Government, recognising that expenditure could run slightly ahead of the 2 per cent target for 1996, has taken prudent early action. This Government does not wish to engage in unfocused, ill-planned fiscal measures at the end of the year. In taking these actions now, well before the half year stage, the Government is allowing Departments prepare balanced, planned and efficient programmes for 1996. I cannot see how any Member can describe such steps as panicked or imprudent.

The Deputies opposite have seized on the OECD survey as support for their rhetoric. This report, described as damning by the Opposition, reports favourably on the Irish economy and on the policies being pursued by Government. The report concludes that the economic outlook for 1995 and 1996 remains favourable with output growth projected to be near 5 per cent. It also concludes that current expenditure targets are consistent with reducing the debt ratio towards 60 per cent by the end of the century. The report certainly recognises the need to maintain control on public expenditure. Specifically the report states: Achieving a further reduction in the debt ratio to meet the Maastricht criterion will require a marked slowdown in the growth of Government expenditure such as that suggested in the policy programme of the new Government. In short, on the matter of public spending the OECD is supportive and not damning of Government policy.

The achievement of the 1995 budget objectives of rewarding work, promoting enterprise and strengthening social solidarity, requires the maintenance of a stable, low inflation and competitive economic environment. Getting these basic factors right is crucial to sustaining growth in output and employment over the long term. It is this long term perspective which defines the strategy adopted in the budget. Moreover, this primary concern with sustaining the momentum of growth and job creation over the longer term determined our decision to make necessary adjustments to expenditure announced last week.

It is instructive to examine the trend in current expenditure over the period since 1990, as compared to the discipline which the Government has brought to bear. The focus here is properly on the evolution of non-capital supply service which represent day-to-day spending by Departments rather than on central fund services where the level of expenditure is essentially non-discretionary.

Including the additional provision of £140 million for the equal treatment payout this year, the Revised Estimates Volume projects a gross non-capital supply services increase of 6.9 per cent in 1995 over the 1994 outturn. This is a more modest rate of increase than any achieved since 1990. Gross current supply spending increased by 10 per cent in both 1991 and 1992. Excluding the exceptional £140 million allocation to equal treatment reduces the 1995 increase to 5.6 per cent, well below the 6 per cent undertaking set out in the policy document, A Government of Renewal. In addition, the £140 million will not form part of the base for the calculation of the expenditure ceiling in 1996.

The Government is fully committed to securing the strict limits being applied to the rise in current departmental spending, which for the first time ever have been set out unequivocally in A Government of Renewal. At 6 per cent in 1995 and at 2 per cent in real terms in 1996 and 1997, these limits are set well below the levels of increase which occurred over recent years. It is of course not easy to shift away from a pattern of significant real spending increases to impose these more modest objectives. No benefits can be achieved from decisions taken too late in the budgetary process. It is prudent to allow Departments the time necessary to properly plan for 1996. That is why decisions are being taken now. Deputies opposite are mistaking prudence for panic.

One important aspect of this process is, necessary, the need to secure further improvements in the efficiency and effectiveness of the delivery of public services. This drive for improved public service performance is a focus of the strategic management initiative which has been formulated in my own as in other Departments to release the maximum potential of the real resource offered by a focused and motivated staff. Over time I expect that such measure, will prove of real benefit to the clients of all Departments and to the country as a whole.

Looking ahead to the more immediate prospects in 1996 and 1997, the Government has moved to ensure that the benefits to be obtained within the expenditure constraints can be maximised. Preliminary indications suggest that spending in 1996, if unchecked, could grow a little faster than the 2 per cent real limit. Ministers have, accordingly, been asked to review their existing policies and expenditures so as to ensure that the best possible value can be secured within the spending target. In addition, recruitment is being restricted to ensure that, aside from some exceptional cases, public service numbers will be held to the level obtaining at 9 June. This is control, not panic. It demonstrates that this administration takes its programme very seriously, so seriously that it is willing to underpin its spending commitments with the policy measures necessary to ensure that they will be delivered.

There is no point in sitting back to await departmental spending bids and attempting to deal with the issues in late autumn on an ad hoc basis. That is the recipe which has been at least in part responsible for the undesirably large increase in public expenditure that I have already discussed.

A number of commentators raised concerns about the impact of the Government's budgetary policy on Garda and Defence Forces personnel. This Government will keep under review the necessity to undertake certain planned spending in the light of the continued peace in Northern Ireland. We have agreed to defer the Castlerea prison project. The ceasefire was not in place when the Castlerea prison was planned in the first instance. Should the ceasefire hold, the likelihood is that a significant number of prison places may be freed up. It is, therefore, a prudent decision to defer the Castlerea prison project. In this regard it should be noted that the Castlerea project would not have become operational until early 1998.

As Deputies will be aware, there is increasing use being made of non-custodial sentences, especially community services. In 1994-95, significant additional sums have been spent on the probation and welfare service to improve the management of released prisoners and to supervise community service orders etc. It is to be hoped that continued peace in Northern Ireland will allow for a large number of gardaí, who are currently located in the vicinity of the Border to be redeployed to areas of greatest need. It should also be noted that an information technology plan costing some £28 million over the four year period 1994 to 1997 is being carried out at present, which will permit more than 560 man years to be saved throughout the force and result in overall greater efficiency. This investment will result in a significant increase in the operational strength of the Force.

The Government decision does not materially effect existing policy on the gardaí as set out by my colleague the Minister for Justice. With regard to the Defence Forces, the number of military and civilian personnel will not exceed the strength levels prevailing on 9 June 1995. This will allow for an intake of cadets and apprentices in the normal manner later this year. Nothing in the Government decision reflects any weakening in our stance on law and order.

This Government's determination to ensure a strategic approach to the allocation of resources in 1996 and 1997 is reflected in the decision to secure relative stability in public service numbers and to ensure that public servants are deployed in an increasingly efficient and effective manner. A brief review of public service numbers since 1987 puts this policy development in context. The size of the public service workforce is determined by the level of services — in areas such as health, education and welfare — which the Government deems necessary and affordable having taken account of overall bugetary constraints. Many of these services are, by their very nature, people intensive.

The fall in public employment in the period 1987-90 coincided with a widespread consensus on the overriding need to contain and reduce the overall level of Exchequer indebtedness. The implementation of a restrictive numbers policy prior to 1990 also coincided with a period of reducing levels of unemployment.

It is also the case that the reduction in numbers achieved between 1987 and 1990 was achieved at considerable cost to the Exchequer. For example, the public service early retirement scheme was availed of by approximately 10,000 public servants at a cost of almost £130 million.

However, overall numbers began to increase sharply from 1990 onwards. In 1990 numbers employed across the public service rose by over 3,500. Between 1991 and the end 1994 public service employment levels increased by an annual average of over 3,400. Furthermore, it is anticipated that numbers employed will increase by an additional 3,600 by the end of 1995 unless action is taken to stabilise numbers growth. Action has now been taken by this Government.

While the improving overall budgetary position in recent years provided successive Governments with a welcome opportunity to expand and improve on service levels provided to the public, the increased staffing levels required to implement these improved services are very significant. The Exchequer is quite simply not in a position to maintain the levels of increase in public service numbers that have occurred since 1990. This would not be prudent.

It is useful in this context to review the extent to which employment levels have increased across the Civil Service, health and education sectors since 1990. These sectors account for over two-thirds of total public service employment. The Civil Service accounts for over 14 per cent of total public service employment. Increased staffing levels in recent years — up by almost 3,000 since 1990 — has allowed significant service improvements to be implemented.

The Civil Service is a significant employer. As of 1 January 1995, there were 30,131 whole-time equivalent employees in the Civil Service.

Since 1990 Government spending — particularly on current supply services — has increased by, on average, about 5 per cent a year. Given the labour intensive nature of many Government services, it was inevitable that public sector employment would grow in tandem with this increase in expenditure and services. Thus, between January 1990 and January 1995, non-industrial Civil Service numbers increased by 2,740 or 10.7 per cent. This rate of increase is clearly not sustainable. Hence the need to secure relative stability in numbers by curtailing the creation of additional posts.

The education sector accounts for 27 per cent of total public service employment. Numbers employed across the education sector have increased by almost 5,700 since 1990. The additional recruitment sanctioned by this, and previous Administrations has resulted in improvements in pupil-teacher ratios at primary and secondary levels and in the vocational education committee's, and the provision of additional teacher posts to deal with the needs of disadvantaged pupils. In addition, increased caretaker, clerical and post-primary vice principal and guidance posts have also been provided. Furthermore, there have been significant increases in the number of third level places available to school leavers over recent years, requiring increased staffing resources at third level. These achievements will not be lost as a result of the recent Government decision.

The health sector accounts for approximately one-third of public service employment. This sector bore the brunt of staffing reductions in the period 1986-89 when total numbers employed fell by over 6,700. By the end of this year it is estimated that employment levels across the health services will have increased by over 11,000 since 1989. The provision of these additional staffing resources across the health services in recent years has significantly benefited the general public.

Health sector employment was just under 62,000 at the start of 1987. This reduced to 55,300 at start 1989. By the end of this year, employment in the health services will be in the region of 66,000. These figures confirm that the health sector has not only fully recovered lost ground in the 1987-90 period but is also meeting many additional service requirements not previously catered for.

This Government has committed itself to specific real rates of increase in public spending for 1995 to 1997. It was the first Government to set such targets. The decisions taken last week were not to cut Government spending, as some have said, but to ensure that spending growth for 1996 will be the targeted 2 per cent real increase.

These decisions have been taken sufficiently early to allow Departments to properly plan the utilisation of the resources available for 1996. They are entirely consistent with the determination of the Government to apply prudent and cohesive budgetary policies. These policies have been endorsed by the OECD in its report on the Irish economy. It comments favourably on our economic performance and the decisions taken last week are entirely consistent with the policies underpinning our economic performance.

The policies and achievements of this Administration are set out with great clarity in the motion in the name of my colleague, the Minister for Finances and I strongly commend them, and the motion, to the House. I am disappointed the Leader of Fianna Fáil, Deputy Ahern, is not present. I believe he was rather bitchy in attacking me in my absence tonight and I understand why. It is sad that he has gone to the Leas-Cheann Comhairle's county to try to win votes for his candidate. As a Wicklow man, the Chair knows full well he is wasting his time as Deputy Ahern will not return to the House with another Fianna Fáil Deputy in tow. I suppose that is why he was so narky today.

Mr. McCreevy

The Deputy should wait and see what happens on 29 June.

Mr. E. Byrne

I am always amazed by Fianna Fail's almost supernatural gift for shooting itself in the foot. Its motion calls upon the Government, of which I am a proud member, to implement the coherent and prudent fiscal, monetary and economic policies of Fianna Fáil-led Governments since 1987. As we all know, that is the party which mislaid around £2 billion in EU funding on the short trip from Edinburgh to Dublin. We are still feeling the effects of the incredible shrinking billions Fianna Fáil lost. Most recently it was apparent with the suspension of the control of farmyard pollution scheme. "Prudent" is not the first adjective that springs to mind when seeking to describe Fianna Fáil's handling of the public finances.

On assuming office the Government was faced with a legacy of almost unprecedented mismanagement, ineptitude and bungling. It is important to refresh Members' memories in that regard. Successive Fianna Fáil-led administrations tried to deny married women their rights to social welfare equality arrears. Rather than paying up, they chose to put those women through the legal hoops in Ireland and Europe. This Government must now pick up the tab that has run into hundreds of millions of pounds over that which it would have cost the taxpayer if Fianna Fáil had made those payments while in office.

It is interesting to note that taxpayers will be intensely depressed when they see the legal bills attached to this Fianna Fáil débâcle in its crude attempts to deny those women their entitlements. The 1980s, about which Fianna Fáil regularly reminds us, witnessed major irregularities in the beef industry and the taxpayer was presented with not only a bill of £40 million for the beef tribunal but a possible EU fine of £100 million. The Fianna Fáil hands-off approach to irregularities in the Blood Transfusion Service Board went undetected and this Government faces a compensation bill for those infected with hepatitis C, the cost of which has not yet been ascertained. Many other bills may come fluttering on to this Government's table because of Fianna Fáil's recklessness and political ineptitude.

This motion is symptomatic of the Opposition — induced schizophrenia we have all witnessed in Fianna Fáil since last December. It is interesting to note that irrespective of all the rhetoric in the motion. Fianna Fáil carefully avoids any demand for a reversal of the spending cuts. Since this Government took up office. Deputy Bertie Ahern has trotted out a weekly speech decrying Government spending. His speeches alternate between, on the one hand, attacking us for too much public spending and, on the other, not enough. Last week the Government announced prudent curbs in spending and Deputy Ahern promptly accused the coalition partners of panicking.

Unlike the parties who have a vested interest in big businesses, Democratic Left represents those on the economic margins of society, the people who would be hurt most by a Government spending spree because in the long term they would have to pick up the tab in the inevitable cutbacks. Deputy Broughan and I recall the cutbacks announced when Fianna Fáil insisted on redundancy packages being paid to those in local authorities when staff numbers in Dublin Corporation were savagely reduced from 8,500 to 6,500.

The spending cuts announced last week will ensure that public spending does not get out of hand and that the most vulnerable sections of society are not exposed. Not surprisingly, Deputy McCreevy focused on Democratic Left, a party which has always had an influence out of proportion to its numbers. I look forward to our numbers in the House being increased after 29 June. Deputy McCreevy was particularly scathing about the payment of equality arrears, something which does not come as a surprise to me. Fianna Fáil has been mouthing the same refrain since the payments were first announced. I challenge its Leader to stop beating about the bush and tell us if he ever intended paying married women their equality arrears. If so, when, and with what resources? If, as I suspect, he did not intend doing so, will he come clean on the matter?

Once again Fianna Fáil is in a hole of its own digging. I suggest it throws away the shovel, stops digging and reflects on the unpaid bills it left behind when departing for the Opposition benches last December. I would like to say much more on the matter, but as time is limited, I will defer to Deputy Broughan who will take up the cudgels and complete the attack.

Mr. Broughan

I am flabbergasted at the audacity of Fianna Fáil and Deputy McCreevy in tabling this motion under the malign influence of the Progressive Democrat Party and the Newt Gingrich of Irish politics, Deputy Michael McDowell, the "Mac the Knife" who told his party conference a few weeks ago that he would slash the annual budget by £1,000 million. Fianna Fáil appears to be under this nefarious influence.

Deputy Byrne referred to Fianna Fáil's schizophrenia, but that is more evident in the Progressive Democrats, none of whom has the guts tonight to discuss this important issue. On the one hand, week after week, we hear Deputies O'Donnell, Harney and Keogh ask for more resources for child care, education and security and, on the other, Deputy McDowell tells us he wants to slash public spending. That is the flag Fianna Fáil is flying. My colleague, Deputy Byrne, correctly stated that it was Fianna Fáil in the 1970s and 1980s who caused the dreadful debt burden the country has had to bear for the past number of years and which absorbs £2.5 billion of our basic budget each year. It was the policies of Martin O'Donoghue, a colleague of Deputy McCreevy, that unfortunately launched us on this road for which we have had to pay dearly and on which this Minister has had to take a prudent line.

Deputy Ahern's main problem is whether to run in Dublin Central or Dublin North-West, where he would like to run. He cannot decide whether to remain on the social solidarity road which, to an extent, he travelled under the partnership Government or to go down the Progressive Democrat road of implementing cuts of £1,000 million and attacking social solidarity. Will he pull Fianna Fáil into the PD orbit? I am also struck by the fact that the Progressive Democrats do not have a candidate in the Wicklow by-election. Are they fearful of selecting one to argue on the doorsteps for the policies espoused by Deputy McDowell which they advocated at their recent conference?

Under the present Minister for Finance economic growth was 7 per cent last year and 6.7 per cent this year, inflation is well under control and there has been a massive trade surplus. While Deputy Byrne and I are unhappy with the progress on unemployment, at least the figure is decreasing towards the 250,000 mark which did not seem possible a short time ago. The Government was pleased that in recent weeks a respected independent economic commentator, Davy Stockbrokers, indicated that we will stay well within the 2 per cent current spending limit over the next few years.

They expect that while the Exchequer borrowing requirement in 1995 was budgeted at £813 million, 2.4 per cent of GNP, the tax take from our booming economy will be at least £100 million higher and as a result we will end up with a real current deficit of £735 million, 2.1 per cent of GNP — a better performance from the Minister, Deputy Quinn, than from his predecessor. The Government has responded vigorously to spending in health, education, housing, social welfare and security and an additional 17,000 civil servants were employed in recent years. The Minister for Finance prudently seeks to ensure that the current budget deficit will be on stream at the end of the year. That is the target he has set and will achieve.

Dr. McDaid

I should like to share my time with Deputy Séamus Brennan.

An Leas-Cheann Comhairle

I am sure that is satisfactory and agreed.

Dr. McDaid

When this self-styled rainbow Coalition took office a few short months ago not even the most realistic pessimist could have foreseen that it would transfer our healthiest economy in over a quarter of a century into a nightmare, with a speed that has left the nation gasping. Even the Fine Gael-Labour Coalition of 1982-87 took a little longer before finally doubling the national debt, leaving us on the very brink of national bankruptcy.

In 1987 Fianna Fáil assumed office under former Deputy Haughey who wisely chose former Deputy Ray MacSharry and, later. Deputies Albert Reynolds and Bertie Ahern to serve in the Department of Finance. What was achieved by them in the ensuring few years drew gasps of astonishment and praise throughout Europe. In 1995 we are left with a rather unpleasant feeling of déjà vu, although this time we sincerely hope we will not have to wait until the car is half way over the cliff before a Fianna Fáil driver is called on to come to the rescue once again.

Just a few months ago we handed over to this transparent Government the nation's finances which were in the best order for 25-30 years, resulting from tough, unpopular decisions having been taken. Now there are ominous signs that those eight years of sustained economic growth are about to be reversed taking us back to the position that obtained in 1987.

The Labour Party served a good apprenticeship under Fianna Fáil but clearly are not capable of being in charge of the nation's finances. When a good chef prepares a dish, he takes special care to mix the ingredients to ensure they are compatible. It would appear that a good political chef would never mix Fine Gael and Labour, placing them in the same Government, because history has clearly shown that the nation's stomach finds this particular recipe very disagreeable and harmful to its health. The Labour Party recently served a useful apprenticeship under Fianna Fáil, until the pupil, the Labour Party, felt it was wiser than the teacher and ran off in a tantrum, enrolling in a different school where Master John Bruton was so delighted to get any kind of pupil, he handed over total control of the classroom to the Labour child who was allowed to take over the Fine Gael school lock, stock and barrel.

I have the greatest respect for the Minister for Finance as a politician but about ten days ago I remarked that, unless he could manoeuvre a rapid U-turn, the signs were pointing ominously in the direction of January 1987. That U-turn has commenced but the driver, his crew and mechanics have gone into a state of total panic; God alone knows where this vehicle will end up as the Labour Party and Democratic Left change their view for the sake of personal convenience.

I note that the remaining Irish Life shares held by the Government are among the options mentioned in the rescue effort. This is amusing considering that the Minister who holds those shares at present is a member of the Labour Party. On 4 July 1990 the Minister for Equality and Law Reform, Deputy Taylor, then contributing to the Second Stage debate on the Insurance Bill, 1990, at column 64 of the Official Report of that day said: "The Labour Party are opposed to selling even one share of the people's holding in Irish Life..."

Later, in the same contribution he said that measure was Thatcherism at its worst. Five years later, are we to witness the Labour Party embracing the much-maligned former British Prime Minister, Lady Thatcher, as the latest addition to their list of Government advisers?

What of Democratic Left? Also, on 4 July 1990 the Minister of State at the Department of Enterprise and Employment, Deputy Rabbitte, was even more colourful in his reaction to the sale of Irish Life when he said at column 68 of the same debate:

We have to ape Thatcherism at the end of the Thatcher era when it is patently evident to everyone that the experiment has not worked, that it has devastated one part of Britain and sold off the family silver in so many of the fine public enterprises in the United Kingdom.

I have no objection to the sale of Irish Life shares in a good cause, even if described as the family silver, but I will become a trifle concerned if I discover that the sideboard, dining table and all the other contents of the house are in danger of following suit.

I said earlier that the Labour Party served a good apprenticeship under Fianna Fáil but it was never so silly as to think the Labour Party was ready to be entrusted, with their colleagues in Democratic Left, with control of the nation's finances. The fact that the Taoiseach, and the senior party in Government, Fine Gael, thought otherwise, clearly demonstrates that neither the Taoiseach nor his Fine Gael Party is qualified to be in charge of this nation's affairs. With each passing day it becomes ever more clear to the electorate that a Government is in office by mistake. I trust that the good, learned people of Wicklow will endorse that view in the forthcoming by-election.

Mr. S. Brennan

This Administration has now lost the confidence of the business community at home and abroad, which is clear from a number of recent independent surveys. This loss of confidence in the administration of our economy has occurred progressively as the Minister for Finance and his colleagues stumbled from one decision to another.

The Minister for Finance presented his first budget on 8 February 1995 which, as I and others said at the time, was imprudent but we were disregarded. We also said it was an expansionary budget in an already expanding economy and, therefore, unnecessary but we were not listened to. I and others went on to argue that the budget was reckless because it did not take into account that the current level of European Union transfers to Ireland, after 1999, will fall by between £500 million and £1,000 million annually. Unfortunately, that fact is still being ignored although it is an important factor in our economy at this stage in its planning.

In spite of some noble aspirations, incredibly the Minister's budget included not a single reference to the substantial reductions in transfers from the European Union to Ireland which will begin within a few short years; there is no long term planning in that. The Minister's budget included tax cuts for the banks and big business but not for small business. The Minister was surprised at the initial widespread criticism of his budget and the growing criticism levelled at it within the financial community and business generally since then.

The Minister's second mistake was to add to the current level of spending budgeted for at that time, by agreeing to additional current expenditures. He sought simply to justify them as being unavoidable. Furthermore, the Minister dealt with increasing Irish business community concern about the appropriate Irish pound exchange rate simply by repeating his wish that the Irish pound would enter the proposed European Union currency block when the German Deutsche Mark entered such a scheme; wishing it to happen is not an economic strategy; looking forward to it happening is not an economic programme, what was required of the Minister was a rational explanation of Government policy in regard to our currency strategy. We received no such explanation, just the Minister's wish and hope that some day it would happen but it will not happen without a strategy and the Minister did not give us one.

In addition, the Minister introduced the now infamous section 153 in his draft Finance Bill which, if enacted, would have forced legal and financial advisers to companies to betray their clients' confidences. Fianna Fáil objected to this proposal, as it constituted a major attack on civil liberties. I am also advised that several major potential investors in Ireland were horrified at that proposed legislation which was without precedent in the free world. When challenged about this proposal the Minister said he would not discuss any change no matter what was said in the House. We told him at that time it was wrong, that he would have to change it and, in fairness to him, he came into the House and did change it.

IBEC and the OECD have now forced a change in Government policy, which is welcome. The Minister does not appear to understand what normal people mean by control of Government spending. In recent months he has inspired articles in newspapers about his strong control on current Government spending. The Minister appears to be fooling himself in that he seems to believe what he reads in those newspaper articles, after he has briefed the journalists concerned, is what is happening. He is not fooling the investors, however. They know that the Minister for Finance is wholly aspirational when he talks about Government spending. What they see is an outflow recently of more than £1 billion. As our party Leader, Deputy Ahern, said tonight, that is the worst outflow in 15 years. Investors are not fooled by the Minister's lack of strategy in Government planning of the nation's finances.

The collapse of Irish and foreign business confidence in the Government is reflected in two ways: first, in the loss of the £1.5 billion in reserves — as has been bluntly stated, investors vote with their money and can take their money elsewhere and, second, in the increase in Irish interest rates since Minister Quinn presented his budget on 8 February 1995. The hardening of interest rates can be traced to the Minister's announcement in the budget.

The Government is soft on current spending and on the nation's finances. This attitude has increased interest costs to Irish home owners and to Irish business. If the Minister had prepared an effective budget for 1995, and if he had tightly controlled current spending since then, the three month rate would probably have returned to its relationship with the Deutsche Mark interest rates and would be 1 percentage point less today. The budget directly increased interest rates by 1 per cent. We told the Minister that would happen but he did not appear to listen to us at the time.

Contrary to what the Minister claimed, the budget has adversely affected everybody in that it has saddled borrowers with unnecessary high costs. Now he tells us there will be a change of policy. Why were we not listened to on 8 February when we pointed out that the last thing a country needs when it is growing is an expansionary budget. We made that clear at the time but we were not listened to.

The parties of the left are leading the country's economic policy. That is clear to investors here and to those who watch Irish investment internationally.

Mr. D. Ahern

God help it.

Mr. S. Brennan

Throughout the world, where there is a left dominated administration, there are left dominated economic policies. What do left dominated economic policies mean? They mean increases in spending, borrowing and taxation leading to high interest rates, rising inflation and the commencement of a vicious circle, the result of which is recession. We hoped it might be different here, that the parties of the left might be so pulled to the centre, they would avoid that vicious circle. Unfortunately, that did not happen and we have seen in our economy the result of a left dominated economic strategy.

Mr. D. Ahern

And it will get worse.

Kathleen Lynch

It is bad news when Deputy Brennan has to bring in his own hecklers.

Mr. D. Ahern

Deputy Lynch will be apologising then.

Mr. S. Brennan

Because investors have seen this left dominated strategy, they have voted with their cheque books and moved their money out of this economy. That will continue and I predict that the end of June figures will show greater outflows and expenditure will rise even faster, despite what has been said.

Deputy Bertie Ahern was the first Minister for Finance to balance a budget in 27 years. That did not happen by accident nor by EU fund manipulation. It happened through careful and courageous management. It is a scandal that having got the nation to that stage, this Administration calmly took the decision to plunge it once again into a budget deficit. That was a reckless decision.

When Fianna Fáil was negotiating with the Labour Party to form an Administration last December — I was a member of the negotiating team — we were discussing a 4 per cent increase in spending for 1995. Obviously the Labour Party got a better offer because it went elsewhere. We were prepared to go to 4 per cent, which was slightly above inflation. The Labour Party went to Fine Gael and Democratic Left and got an agreement on 6 per cent. We could have accepted 6 per cent because it is approximately the growth rate in the economy at present. What is happening now? The rate of expenditure is not at 4 per cent, which we agreed, nor at 6 per cent, which the Government said it wanted to bring in but at 11 per cent, almost three times the level of spending my party was negotiating with the Labour Party last December.

In my speeches on the budget and the Finance Bill, I stated that the borrowing requirement at the end of 1995 would be approximately £1 billion. To put that into perspective, that is the figure we were looking at in 1986. We reduced that figure every year since and now it appears that it will be increased to approximately £1 billion. Why do we need to increase public spending three and a half times the rate of inflation? Is it to keep a left dominated Government in place? That is an expensive Government to keep in office.

We have had cuts in the rate of tax every year since 1987. The standard rate of tax was 35 per cent for 20 or 30 years. It has decreased progressively from 35 per cent to 27 per cent today. I suggest that is where it will stop because the finances are such that the Minister cannot, within the budgetary arithmetic, reduce it further. He has suggested that if he can implement various cuts, he will be able to allow for further reductions in that income tax rate. That will not happen. I know Cabinet politics and the Minister will find that not only will he not get his £77 million, but he will have such stonewalling from his colleagues that he will be lucky to get any reductions and we may end up with the tax rates remaining precisely the same as we approach 1996. That would be a tragedy because for a period of seven to eight years, the tax rate came down every year but that has halted.

The Government's economic strategy seems to be that when growth of 6 per cent is achieved, it should be spent and a few percentage points should be added to it. That is the wrong economic strategy to follow and I said that three times in this House since December. The correct strategy is to run a current budget surplus in times of growth — that is what all democratic countries do — and build up those surpluses so that in times of recession some small deficits can be permitted to inflate the economy. The increase in growth should be used for tax cuts, to bring down the national debt and to build up reserves for the future. It should not be frittered away.

Debate adjourned.