I wish to share my time with Deputies Yates, Naughten, Deenihan and Ring.
Private Members' Business. Inflation Rate: Motion.
Is that agreed? Agreed.
That Dáil Éireann –
–conscious that rising prices have cancelled the benefit of the 5.5% pay increase under the Programme for Prosperity and Fairness, have wiped out the 5.5% increase in social welfare payments announced in the budget and reduced the standard of living of persons on fixed incomes;
–concerned that inflation has particularly hit young families who are entering the housing market and face huge child care costs;
–alarmed by the impact of rising oil prices on the cost base of the economy;
condemns the failure of the Government to anticipate the inflationary pressures or to take any real measures to combat inflation, and calls for the introduction of non-inflationary gain-sharing mechanisms, and a coherent strategy to reduce Ireland's exposure to external shocks whether through foreign exchange markets or through energy dependence.
Ireland's inflation, as measured by the consumer price index, is three times the European average. The ESRI, the European Commission, the European Central Bank and the Irish Central Bank have warned against the dangers this level of inflation poses to our economic prosperity. They warn that a loss of Ireland's competitiveness could turn the economic dream to tears, that the economy will land hard as growth rates fall and that if the Government continues to stand idly by, boom will turn to bust and as the economy slides towards recession thousands of jobs will be lost and living standards will be slashed.
The Government has been warned again and again but it still will not act in any realistic or coherent way and continues to trot out the same tired old excuses. The budget introduced last year was politically inept and fanned rather than reduced the rate of inflation. In reacting to the initial budget fiasco the Government spent an additional £500 million more than it intended on budget day to mend its political hand so that the budget which was already expansionary was pushed for purely party political reasons beyond what was prudent and it is now reaping the whirlwind of these decisions.
I agree not all inflation is caused by domestic factors. Much of Ireland's rising prices are caused by increased oil prices and the weakness of the euro but much of our inflation, particularly service inflation which is running at 7%, is domestically generated. As living standards are reduced by inflation it is no wonder that workers try to maintain their living standards through extra wage demands, which when granted will lead inevitably to a loss of competitiveness.
The Government has been negligent and incompetent in dealing with inflation. In the early months of the year when the CPI began to increase the Government went into denial. There was no problem, the Taoiseach, the Tánaiste and the Minister for Finance informed us. The Minister for Finance urged people to celebrate the country's prosperity, break out the champagne and binge on the consumer boom.
The following month's CPI dampened this party spirit. The Minister for Finance sulked and together with the Taoiseach roundly abused their critics. They were "left wing pinkos" or "creeping Jesuses" to dare to draw the attention of the public to rising inflation.
The CPI continued to rise, however, and before the summer the Government again changed tack. There was now a problem, it said. Price control was introduced on drink after the price of drink had already risen. Sombre speeches were delivered by Ministers and the Tánaiste called for somebody somewhere to make the economy more competitive, forgetting, in an uncharacteristic memory lapse, that she was a Minister with responsibility for ensuring that the economy is competitive. Then everyone went on holidays.
In the early autumn the governor of the European Central Bank again warned of the dangers of inflation and the Government was dragged towards reluctant action. The problem has been handed to the social partners who have been asked to design the next budget in a manner which deals with the problem of inflation. There have been good and bad Governments in this country and there have been good and bad Ministers over the years, but since the State was founded there never has been such a collection of incompetent persons in charge of the economic Departments of State. In the memorable words of a disappointed Eircom shareholder: "These Ministers act like weedkiller, everything they touch withers."
Inflation makes people poorer. This year inflation has cancelled the 5.5% increase in wages under the PPF and the 5% average increase in social welfare payments, which were announced in the budget, and the living standards of persons on fixed incomes are being seriously eroded. In launching a counter attack on inflation, its root causes, symptoms and effects must all be addressed. Political action to deal with the symptoms and effects of inflation must not be confused with an attack on the root causes. The social partners have been given the responsibility by the Government to deal with the effects of inflation. The review which is taking place is in part a response to the demand by workers and social welfare recipients to regain the ground lost through inflation.
The argument between the social partners is not whether this should be done but how it should be done. The package of measures containing pay elements, tax concessions and better social services must be designed to compensate for falling living standards, and we all agree with this, but it must be done in a way as far as possible which does not fuel inflation further. This is not an easy task but a solution within this context is preferable to the widespread industrial unrest and reduction in competitiveness which would result from an extended bout of wages chasing prices in a leapfrogging free for all.
I hope the social partners are successful and whatever abrogation of responsibility there is on the Minister's behalf they have our good wishes if they succeed in designing a budget which helps to control inflation. However, if they are successful they are still dealing with the effects of the inflation and not its root causes. Many economists warn against treating the symptoms of inflation rather than the disease. By this they mean that measures introduced to reduce the CPI should not be attempted and that such measures are like somebody trying to reduce the heat in a room by tampering with the thermometer.
This argument is partly true if we deal in economic terms only, but is not true once it is understood that solutions can only come through the political process. The CPI is the accepted measure of inflation. Workers respond to a rising CPI by pressing their unions to demand extra wages. The demand is not based as much on the rise in the price of goods and services in shops but on the CPI which measures the rise. If the CPI reduced wage demands would be more muted. Consequently, it is worth considering reductions in excise and VAT to bring down the CPI even if the effect on the root causes of inflation are marginal.
When the Government raised the excise duty on tobacco products in the last budget, the CPI rose by 0.8%. That the Government decision was based solely on health grounds and not motivated by a desire to collect extra revenue has been accepted by all of us but was forgotten when wage demands were based on the CPI. The 0.8% increase which has led to some wage demands was artificial because it was introduced for reasons that had little to do with rising prices. Yet, that artificial demand is fuelling real wage increases so it stands to reason that an equally artificial reduction might have the opposite, and a more beneficial, effect.
Excise duty and VAT are applied as a percentage of the price of fuel oils. Each time the price of oil has gone up this year, an additional increase in price was automatically applied for VAT and excise duty. At the time of the last budget I proposed that, as the Government did not need the revenue it proposed to collect from the excise increase on tobacco, the excise on fossil fuels should be reduced by an amount equal to the additional excise receipts from tobacco. There is still very strong merit in the arguments I made on budget day and those I put forward by way of amendments to the Finance Bill.
I also see merit in the reduction of the standard rate of VAT in the budget. I realise the consequences of what I am saying. At 21% Ireland's standard rate of VAT is higher than the European average of 19.5%. As an ancillary issue, the 21% rate of VAT is inhibiting the Government's ambition to take the lead as a European e-commerce centre. A 2% reduction in the standard rate of VAT, if fully passed on, would reduce the CPI by 0.8%.
It should be made quite clear, however, that reductions in excise duties or VAT will have little impact on the root causes of inflation, even though they may reduce the level of compensation demanded by workers who measure their losses by reference to the CPI. It must also be borne in mind that such cuts would provide a fiscal stimulus to the economy, which might fuel inflation rather than reduce it. Such cuts should be made only as part of an agreement with the social partners that cuts in indirect taxation would be treated as an intrinsic part of any overall tax reduction package designed to compensate workers for the losses they have incurred through rising prices.
The root causes of inflation in the indigenous economy must be attacked. I have referred to a manner in which the symptoms of inflation may be addressed through reductions in VAT and excise duty. I see the difficulties, however, and it needs a fine political judgment to decide whether to do so or not. I have referred to the action being taken to deal with the effects of inflation – the primary effect is the reduction in living standards. The current talks at social partnership level are attempting to design a package which will restore those living standards which have been eroded by inflation. However, those discussions between the social partners are not dealing with the problems of inflation, they are dealing with its consequences. We must reflect on how we should deal with the problems of inflation.
Prior to Ireland joining the euro, the exchange rate and interest rates could be modified to control inflation. These instruments of policy are no longer available to us, but the Government must use the policy instruments that are available. A free competitive market is the best antidote to inflation. In a small country like Ireland almost any level of goods and services to satisfy any level of consumer demand is available provided the goods and services can be imported. If all goods and services were importable inflation rates would tend to be the average for the trading area as a whole. There would be balance of payment problems obviously, but not necessarily inflation problems.
Our economy is not like that, however. The Central Bank has pointed out that there is now a mismatch between supply and demand in the labour market, and that this impacts very strongly on the indigenous sector of the economy. Service inflation has topped 7% and house prices continue to rise by huge annual increments. The anecdotal evidence in every town explains the problem. Every service industry has job vacancies and competes for workers by raising wages and the increase is passed on by increasing prices to customers. This is true of the bar, hotel and catering trades, the garage business, hairdressing and dry-cleaning, gardening and landscaping, and of every service connected with the building industry. It is true in respect of doctors' and solicitors' fees and will shortly be manifest in the banking and insurance industries where the leading banks have been forced recently to pay a 30% increase to ensure they would get and retain sufficient staff.
The competition for a decreasing supply of skilled workers is now the main driving force of inflation in the service industries and in failing to deal with this the Government's incompetence is most obvious. Ireland does not have a fully competitive market. The supply of services is littered with licences, cartels, cosy arrangements and professional agreements which increase fees and prices and which work against consumers. The offices of the Director of Consumer Affairs and of the Competition Authority are both under staffed and under funded. The supply of skilled workers is running out and the Government still does nothing to remove the obstacles which prevent a fuller participation in the labour force. With 150,000 persons still on the live register, is there not scope for upskilling many of these to work in the service industries?
In its fourth year in office this Government has yet to develop a coherent child care policy, and is it not obvious that the lack of such a policy keeps many women from fully participating in the labour force? Is it not obvious also that it keeps some women out of the labour market completely, while others can only take up jobs on a part-time basis because there is no adequate child care programme sponsored or encouraged by the Government?
The price of houses is the biggest factor preventing young Irish persons from returning to work in Ireland. It is driving nurses and teachers and junior civil servants out of Dublin and is a primary factor in the shortage of workers for service industries in the capital. After three botched attempts this Government has still failed to intro duce measures which would lead to affordable housing.
The Government has no coherent immigration policy. Last month a publican I know, employed a Russian asylum seeker, who was skilled, competent and anxious to work. The immigration officers had him out in a week. He will now languish on welfare for months while he awaits a decision on his fate from the Department of Justice, Equality and Law Reform. The Minister for Justice, Equality and Law Reform's Mercedes goes very fast, but when it comes to executive action the Minister, Deputy O'Donoghue, drives the slowest coach on the road.
Economies from Great Britain to the United States, from Singapore to Germany, and from Australia to Brazil have in times of boom developed immigration policies to supply workers to their service industries. This Government would run a mile rather than be involved in designing a proper immigration policy for Ireland.
This Government took over an economy in excellent order but it has failed to manage it. The Ministers with primary responsibility for economic management have failed across a range of issues and continue to fail in controlling inflation. The electorate will not forgive them, but it is a great pity that the people must continue to endure their incompetence and damaging inactivity while we await an election.
I will focus on the biggest underlying reason for inflation, and particularly for pay demands and wage inflation, which is the increase in house prices from June 1996 to June this year. During that period prices doubled. That happened at a time when the annual increase in the price of houses has been 20% and the annual increase in pay has been of the order of 5%. That unaffordability gap is what is making a whole new cohort of our labour force disaffected, disillusioned and making them seek radical increases in pay. We are seeing that now with teachers and we will see it across the board in the private sector.
The facts speak for themselves. In Dublin, the average price of a new house is £155,000, while in the rest of the country it is £114,000. Last year, the average industrial wage was £16,000 so banks and buildings societies are saying ‘no' to mortgage requests. We have had three Bacon reports but the solution is blindingly simple. By any factor of economics, an increase in the price is always as a result of demand exceeding supply. The only way to stabilise house prices is to bring the two into balance. The Government is congratulating itself on building 46,000 houses a year when in fact the market requirement between the public and private sectors is between 60,000 and 70,000 houses per year, and a procurement over the relative medium term of an additional 500,000 houses.
When one considers that and asks the building industry what is the impediment, it says land with planning permission and water supply. It is simple. These people make a large amount of money on each house and they say it is not a case of playing with the thermometer or dampening down one element of demand, such as the private rented sector. All that means is that a student or a person on a short-term work contract will rent accommodation and their rents will be higher. Keeping them out of the market will not solve the problems of home buyers.
One must deal with the simple problems. With regard to planning, there are 350 town planning posts in the local authority sector but 100 of those posts are unfilled. This is because people have walked into better jobs in the private sector and people will not take up new jobs because UCD is only producing 25 planners a year. It is simple. There is a need to recruit people from the UK. People wonder why individuals have not come from the UK, but the reason is that they are only offered two year contracts. Who would come back to Ireland and spend £200,000 on a house for a two year contract? These people must be offered permanent and pensionable jobs.
The Minister must do what he did with the IT sector two years ago where there was an exemption from the straitjacket of public sector pay and one had to do what the market said. Overtime must be paid if one wants to keep staff and avoid the need to write out every three months for further particulars, thereby delaying the planning process because there is not enough staff. A planning officer cannot be paid overtime at present, so what is the point of working late or working on a Saturday? Any private sector employer would be radical in terms of making the necessary flexibility adjustments to recruit planners.
When one gets through the local authority process, it starts all over again with An Bord Pleanála. There is a four month legal limit, but in excess of 50% of appeals to the board go beyond the statutory limit because it is short 35 inspectors. It cannot cope systematically with the volume of construction activity. There is a shortage of houses because projects take up to two years to get through the planning process.
The same problem arises with regard to water supply. I have spoken to representatives of the construction industry, Dr. Peter Bacon and others. I asked where are the 16,000 houses that were to be available under the serviced land initiative and I was told that the biggest problem was lack of water. If one speaks to county engineers and asks about water supply, they say that it takes three years to complete the design stage of a scheme and another three years to go through the tendering process. Other countries have integrated the design, tendering and construction phases into one process and cut down the time involved to two and a half years.
These are not silver bullet solutions, but they are firing blanks in the Custom House. They are throwing their hands into the air and asking what they can do. However, there are pragmatic and workable solutions to the water and planning problems. Regarding local authority housing, the NESF report clearly highlights what works in Northern Ireland. I listened recently to Ms Maureen Gaffney, the chairperson of the forum, who said they went to Northern Ireland and saw how the housing executive works and delivers houses for people. However, we wonder how the local authority housing construction programme is so constipated and ineffective although money is available from the Custom House to solve the problem. We are committed to building 10,000 houses per year under the social housing programme between local authorities and others.
The Government took a deliberate political decision that the problems of dropping house prices, negative equity and that there are more house owners than house buyers would be worse than the problem of house price inflation. The market has not been sent the appropriate signal that, irrespective of what it takes, 70,000 houses a year will be built. That in itself would bring down prices. We are committed, following the next general election and in government, to getting the right supply policies that will deliver that quantum of houses and reduce the biggest factor that is driving the engine of inflation.
I compliment my colleague, Deputy Noonan, on tabling this important motion. The current rate of inflation is the highest for 15 years. It is now as big a threat to the economy and country's long-term prosperity as the national debt crisis was in the 1980s. Any further sustained rise in inflation would leave the social consensus in Ireland in tatters. If inflation continues at its current rate, the competitiveness of the economy will be seriously damaged and the indigenous sector will take the brunt of the impact. It would also erode the view of Ireland as an attractive location for foreign direct investment.
Many acres of print have been used to deplore Ireland's high inflation rate. There has been much talk but few solutions. We cannot revalue our currency because we are now part of the euro. Revaluation could have reduced the price of goods and services produced abroad and thereby cut inflation. The only way to cut inflation is to reduce the price of goods and services produced in Ireland. These include houses, personal and catering services and Government services of all types. The only way to cut the price of the goods and services produced in Ireland is to increase their supply.
The Fine Gael Party believes that the Government should set up a supply side task force comprising Government agencies with the mandate to increase the supply of all domestically produced goods and services that impact on the CPI. This task force would identify changes in legislation and public administration. The task force should start with housing, as Deputy Yates said. The shortage of planners in councils is delaying the supply of new houses and prices are being driven up because of scarcity. At present, one third of planning positions in local authorities are vacant.
With regard to services, a shortage of qualified labour is pushing up costs. Immigration is the answer to the labour shortage but immigrants need to be housed. This is why housing is a fundamental part of the war on inflation. There must also be concerted questioning of all licensing arrangements or restrictive practices that limit the supply of goods and services. Some of these arrangements are protected by powerful interests. However, it is possible that these interests might be persuaded by a Government supply side task force to relax restrictions as part of the temporary anti-inflationary drive. The truth is that everybody will lose if Ireland gets caught up in a wage price spiral.
A supply side task force should, as a matter of urgency, examine areas where there are rates of price increase above the norm, giving priority to areas where factors are determined within Ireland and which are under our control such as housing. It should produce concrete proposals for legal and administrative changes to increase supply of these goods or services on an emergency basis. Where legal changes are needed, these could be prioritised and fast-tracked through the Dáil and Seanad.
The task force should be required to produce a monthly report similar to those produced by the National Prices Commission in the 1970s and 1980s. However, unlike the National Prices Commission, the focus of the supply side task force should be on increasing supply rather than authorising price increases. We should not forget that if asset prices continue to rise at three or four times the rate of inflation, investment will be inhibited and our economy will become sluggish and protectionist.
However, the Government has run down the staffing in the Competition Authority, the one body that can tackle some of these issues. This has happened to such an extent that when the Tánaiste and Minister for Enterprise, Trade and Employment wanted to investigate anti-competitive practices, such as in the beef industry, she had to set up another body because the Competition Authority did not have sufficient resources. This is the priority the Government is giving to these issues and trying to tackle the bottlenecks.
The policy instruments available to tackle inflation are budgetary policy and pay policy. However, the Government's approach to these has been singularly inappropriate for an economy which is overheating. Budgetary policy in particular has been the cause of inflation rather than the solution. The last budget was the wrong budget at the wrong time. It led to overheating in the economy, which was already at full speed. The Government must change its mindset in advance of the next budget or it will send inflation through the roof. It must put in place measures which will put the brakes on consumer demand by taking disposable income out of the marketplace.
My colleague, Deputy Noonan, suggested a number of provisions for income tax relief by paying them off in interest bearing bonds. Another proposal that should be considered is the incentivisation of long-term saving schemes and pensions by encouraging individual taxpayers to take up long-term savings plans. This would take money out of circulation, dampen demand and provide future security for individuals, particularly in light of the fact that one in every two people does not have a personal pension policy. One way such a measure could be introduced is by reducing the level of taxation on such schemes or other alternatives which have been put in place elsewhere.
Supply constraints in key infrastructure, such as transport and housing, are adding to the upward pressure on wages as compensation is sought for higher living costs and the supply of immigrant labour willing to take up work in a high cost environment is restrained. This element is fundamental to our long-term economic performance. The national development plan is fundamental to that and it must be delivered on time.
It will be virtually impossible for the Government to meet its own targets and that will have a double impact on inflation. The only way the capacity demands of the economy, such as traffic congestion, public transport, regional development, water and energy demands and the factors surrounding the housing crisis, can be resolved is through the implementation of the NDP. To try to meet these targets within the current mechanisms will cause increased demands in the construction industry and this will lead to wage demands and further pressures on inflation and housing prices. Foreign contractors could be employed to increase the number of construction workers, but that is not being done at present.
It is more than a year since Deputy Noonan and I warned the Minister at Question Time about the impending rise in inflation. I remember the Minister treated us with scorn. He said we were scaremongering and that we were influenced by commentators and experts who did not know about what they were talking. It is now obvious we were not exaggerating.
I am concerned about the Programme for Prosperity and Fairness. Unless inflation is brought under control and the problem is resolved, the future of the PPF will be in doubt. The July figures show price increases of 6.2% over the previous year. Inflation for this year is forecast at 5.25%, which will wipe out the value of the 5.5% increase in the first phase of the PPF.
During 1995 to 1999 inflation was stable, averaging just under 2%. However, following last year's budget, the consumer price index began to climb rapidly. Increased taxation on tobacco caused the initial rise, followed by increases in oil and transport costs and in other goods imported from outside the euro zone. Food prices, alcoholic drinks and some services have also risen by 3.2%. The living standards of workers who received the 5.5% increase in January will stand still during the year but will fall by the end of it.
The Government's 5.25% inflation forecast was based on the assumption that oil prices and interest rates would not rise further and the euro would stabilise. However, oil prices have increased, the euro has weakened and the European Central Bank has increased interest rates. The PPF was negotiated on the basis of the Government's assessment that inflation would not exceed 3% this year. It now appears that figure will be close to 6%, which will result in a 3% drop in incomes. This can only be redressed by higher wages, larger tax cuts than were initially agreed or a combination of both.
A review of the operation of the programme is provided for at the request of any of the social partners and this has been sought by ICTU. The PPF promised increases in net take home pay as a result of wage increases and tax cuts of up to 25% over 33 months. If inflation continues at the present rate, the increase will be only approximately 6%. This is unacceptable when the economy is booming at approximately 10% a year.
First time house buyers are in the worst position as house prices, which are outside the consumer price index, are still rising at approximately 20% per annum. Pensioners and welfare dependants are worst off. They face a severe drop in their purchasing power unless the Minister undoes some of the damage in the December budget. I am also concerned about farm inflation with which I am sure the Minister is familiar. Farmers, particularly dairy and beef farmers, are dependant on oil, the price of which has increased by 30%. This is eroding the recent increases in beef and milk prices. Farmers will face a reduction rather than an increase in incomes at the end of this year.
I compliment Deputy Noonan for tabling this motion tonight because it is time this debate took place. The public has been dissatisfied with the Government for the past two years. Spin doctors spun the story that the economy and everyone was doing well and people were afraid to say they were not doing well. I could speak for two hours about the different interest groups which have done badly since this Government took office.
The rich are getting richer, the middle class is being squeezed and the poor are getting poorer. I will give the Minister a few examples. County councils sent letters to people on social welfare who got a £5 or 5% increase last year to assess if their income had increased. They then took money off them. They have also been affected by the price of food. I listened to previous speakers who said they identified when inflation started to rise. Two years ago I questioned the Central Statistics Office about its statistics on the price of food and the increase in living costs. I raised that in the national newspapers, at county council level and in the Dáil. However, I was dismissed by all the commentators and by the Minister. I was told the figures were not correct.
I am an auctioneer and I see what is happening in my county and in the country. Young couples cannot build a house or buy a site. That is an indictment on the Government. Money has never been more plentiful for water and sewerage schemes. I said two years ago that local authorities should buy green field sites. They should get money from the Department of the Environment and Local Government for water and sewerage services and they should sell the land to builders or build whatever houses are required. However, that cannot be done.
As Deputy Yates said, the planning process is in disarray. There is a shortage of planners in every county. After two months people are getting letters from the planning authorities requesting further information so they can extend the planning period for two more months. The planning officers in County Mayo will not meet the public for the next three weeks because they do not have enough technical staff or registrars to do the paperwork for them. The local authorities are not able to operate the service. People are paying engineers and architects to do the work for them. However, by the time they get planning permission the price of their house has increased by a further 10%, 15% or 20% because builders have become greedy. They are like the oil companies.
I was disappointed last week when the Minister did not take on the oil companies. I am not talking about the external price of oil, which is outside the Minister's control. The Minister should have called in Texaco, Shell and all the other companies which, over the past number of months, have put further pressure on inflation. They increased the price of oil when there was no need to do so. Every village and town is selling oil and gas at the highest possible price because the Minister did not call in the big sharks, who are making plenty of money out of this crisis, and tell them that if they did not deal with it, he would introduce price control. That should have been done because these people do not care about this country. Most of them have investments outside the country but they should have been taken on.
I move amendment No. 1:
To delete all words after "Dáil Éireann" and substitute the following:
–conscious that increases in real living standards have been delivered by this Government, for employees and social welfare recipients, through the Partnership process;
–cognisant of the progress which has been made in increasing the supply of affordable housing and the major initiatives which have been taken to enhance the quality and supply of childcare;
–aware of the fact that taxes on, and as a result retail prices of, petroleum products are among the lowest in the EU and are below those of most of our main trading partners;
supports the proactive approach of this Government in dealing with the pressures which exist in the economy and has confidence that future measures, under consideration in the context of the Programme for Prosperity and Fairness and the next budget, will build upon the major gains of recent years and further improve real living standards.
I welcome the opportunity to debate these issues. This Government has a proud record of economic achievement. Moreover, we have a coherent strategy to address the economic and social problems that we as a nation now face.
As I have stated on a number of occasions, the Government is concerned about price pressures in the economy and the current rate of inflation. Maintaining stability and social partnership in order to sustain economic and social progress are our key challenges. These are key issues for Government to address, but they are issues that concern us all and require a response from all sections of society.
Core elements of the Government's response include fostering competition and tackling supply problems but, most importantly, the Government is working to ensure that the successful social partnership model remains on track. Consensus was crucial in tackling our unemployment and fiscal crises in the past and it is also crucial in tackling our current problems. Inflation cannot be successfully addressed outside the partnership framework and the parameters of the current agreement.
Before I turn to the specifics of the motion before the House, I want to put our current problems in context. These problems cannot be separated from the economic and social progress that we are continuing to make. It may be populist to focus only on the negative and ignore the positive, as the proposers of this motion do, but we should not forget that we are experiencing the fastest and most sustained period of economic growth in our country's history.
When this Government came to office in 1997, we made promises to the people. Our primary aim was and still is to ensure that the fruits of economic prosperity are prudently availed of to foster opportunities for employment and enterprise. I have always believed that success in these areas would provide us with the revenue that we need to fulfil our ambitious targets to establish an inclusive society to provide for the needs of our elderly citizens, people with disabilities, the unemployed, our children and all in our society who are vulnerable.
The third quarter Exchequer figures published by my Department earlier today indicate that the economy is strong and getting stronger in a fundamental way. This is no undeserved and fleeting boom. Instead, the economy and our national finances are undergoing a sustained structural change with the result that we can ensure our own and succeeding generations' prosperity.
A strong economy, sound finances and strong, effective social services go together. This has always been the philosophy of Fianna Fáil, and the correctness of our vision is borne out in the state of the economy today. When we came into office, sustaining economic growth was one of our key objectives. Let us look at the record. The economy grew by 9.3% in 1997, by 7.8% in 1998 and 7.8% in 1999, and growth of 8.3% is projected for this year. Growth has averaged over 8% in the past three years. This is even more remarkable given the performance of our main trading partners. The European Union has experienced growth of just 2.5% per annum during this period. This is one of the longest and most sustained periods of growth experienced by any industrialised economy and we should not lose sight of that.
Moreover, we have a coherent and solid set of policies geared towards maintaining this success. The national development plan, the Programme for Prosperity and Fairness and our tax policies are addressing the problems of success we have in housing, infrastructure and the labour market. Their successful implementation will provide the basis for sustainable growth and social progress.
We will also continue with our sensible budgetary policies. We will continue to run a budget surplus and further reduce the national debt. Since we came into office, we have moved from a deficit of 0.6% of GDP to a projected surplus of 3.7% this year. We have also managed to reduce the national debt from 66% of GDP to a projected 44% while setting aside considerable sums to pay for our future pension liabilities.
I have no doubt that spending these surpluses on larger tax cuts and more expenditure increases would be a popular course of action. Indeed, this course of action is often suggested by the Opposition parties in this House but this Government does not believe in short-termism for popularity's sake. Future generations deserve better and we will not be reckless with the public finances.
It is inconsistent simultaneously to stand up and criticise a lack of spending in particular areas while blaming the Government for the high rate of inflation. Let us have a little honesty. If it is alleged that loose budgetary policy is responsible for our high rate of inflation, I hope the Opposition parties will outline in this debate the taxes they want increased and the public services they want reduced.
The motion before the House is also critical of the Government's social policies. I would like to put the record straight. When we came into office we gave a commitment to reduce unemployment. In 1997, unemployment stood at almost 10%. It now stands at 4.3%. Even more spectacular is the fall in the rate of long-term unemployment. The numbers in long-term unemployment have fallen by almost 70% in the past four years. There are now 27,000 persons classified as long-term unemployed compared to 86,000 when the previous Government left office. More needs to be done, however, and the Government is committed to ensuring that unemployment continues to fall. We believe that employment opportunities should be accessible to all, and we continue to strive for further success in this regard.
Employment grew by nearly 100,000 last year and has grown by over 200,000 since we took office. This is an incredible performance. There can be no doubt that those who now have jobs have benefited from our management of the economy.
Real living standards have also increased across the board. Real manufacturing earnings before tax reductions are up over 7% since 1997. This is an increase of 2% per annum. Taking account of reductions in taxation, real average incomes for a single person are up over 15% since we took office. This is an average increase of almost 5% per annum. The take home pay of a married one income couple with two children is up over 19%, an average increase of nearly 6% per annum.
This Government received a mandate from the electorate to reduce personal taxes and this is what we have done. In budget 1998, tax reductions amounted to £517 million; in budget 1999, they totalled £581 million; and in budget 2000, we managed to reduce taxes by £942 million.
It was a bit more than that.
These significant tax packages have enabled us to meet many of the tax commitments set out in the Government programme. The standard rate of tax has been reduced by four percentage points and the top rate is also down by four percentage points. We have also increased personal allowances and the standard band while introducing tax credits and starting the first phase of individualisation. These policies have removed thousands from the tax net. They have also taken thousands more off the top rate of tax. Our innovative tax policies are rewarding work and effort.
It is clear that living standards have improved significantly. I accept that increases in inflation will erode some of the expected gains this year, but despite what the motion before the House suggests, real earnings will increase this year. Looking ahead I am confident that inflation should begin to fall. This is also the view of the ESRI, the Central Bank and most forecasters. Accordingly, the terms of the Programme for Prosperity and Fairness will support significant growth in real living standards over the programme period.
Those on social welfare have also seen real increases during our term in office. The personal rate of most social welfare payments has increased by £10 per week or 15% since 1997 while the personal rate for social welfare old age pensions has increased by £18 per week over the same period, an increase of 23% in the old age contributory pension or 27% in the old age non-contributory pension. This is well ahead of inflation. I am sure many people were taken with the debate on pensions at the British Labour Party conference last week and as they apply in the United Kingdom under a Labour Government with a majority of approximately 140.
I point out to the Minister that his colleagues in Denmark have just caused the defeat of the euro referendum. If he were to stand over even some of what his Fascist friends did in Europe, we would be very much—
I would like to point out to my friend, Deputy McDowell, what his colleagues, about whom he is so given to speak, have done in the United Kingdom, which is often quoted by his party leader as the greatness that has occurred in that society.
We are finding it hard enough to keep the crowd at home in line, not to mind the crowd abroad.
In addition to the basic rate increases outlined above, I introduced a number of modern initiatives that have had a real and positive impact on the position of welfare dependent households.
I announced in my last budget that I would increase the qualified adult allowance from its then level of roughly 60% of the personal rate to 70% over a three year period. The first instalment of this increase was included in budget 2000 with a minimum increase in the qualified adult allowance of £3.80 per week, an increase of almost 9% for most recipients.
Another significant innovation for social welfare recipients was the introduction of the earlier effective date of payment for social welfare increases and further improvements are envisaged. From 2002 all social welfare recipients can look forward to receiving the increases announced in each budget with effect from January in line with the recently announced decision to align the tax and calendar years.
In addition to all the above, there have been numerous other improvements and initiatives, including reform of the capital assessment procedure for the purpose of the social welfare means test, the extension of the social welfare free schemes to all people over the age of 75 years, the introduction of a respite care grant for carers and many others which are designed to meet the particular needs of many of the most vulnerable groups in society.
These measures will help to reduce the incidence of poverty. The latest figures produced in the context of the national anti-poverty strategy show that the number of people experiencing consistent poverty has fallen substantially from 9% to 15% in 1994 to 6% to 8% by 1998. Given the falls in unemployment since, the incidence of consistent poverty is now undoubtedly lower still. While this reduction is a very welcome development, the Government is committed to making further progress. We have set ourselves ambitious new targets to further reduce consistent poverty to below 5% by 2004. This will require addressing issues across the five key areas of income adequacy, unemployment, educational disadvantage and urban and rural poverty.
I regret that higher than expected inflation this year has reduced the impact of the social welfare increases announced in budget 2000. This has affected those on fixed incomes. However, we are committed to ensuring that there will be real increases in all social welfare rates while making progress towards a rate of £100 per week for all social welfare benefits and ensuring continued substantial improvements in the rate of child benefit. I am confident that when we leave office the record will show that we made enormous progress in reducing poverty and improving the living standards of those on fixed incomes.
With regard to the current inflation situation and the Government's response to it, as the House is aware the latest inflation figures released by the Central Statistics Office show that headline inflation in Ireland remained at 6.2% in August. This is much higher than the Government expected at the time of last year's budget and much higher than anybody else was forecasting at that time. The ESRI, the Central Bank, the European Commission and the OECD all forecast inflation of around 3%, the Government's forecast on budget day.
This is not intended to deflect attention from the perspective outturn for this year: our inflation performance is disappointing and represents a serious challenge. However, it should be noted that many of the factors pushing up our inflation rate were unexpected. As Deputies are aware, these factors include the weakness of the euro, the upward trend in oil prices, increases in mortgage interest rates and higher inflation in the services sector.
The budget increase in excise duty on tobacco products also added to headline inflation. This was introduced as a health promotion measure, which was welcomed by this House at the time in spite of its impact on inflation.
The motion before us expresses alarm at the impact of higher oil prices on the economy. We are all aware of the impact of high international oil prices. Oil prices alone are responsible for 1.2% of our inflation rate. The cost of crude oil has gone from less than $10 per barrel in March 1999 to the current level in excess of $30 dollars per barrel. It was inevitable that this tripling of prices would add to inflation, as it has done across all EU countries. Needless to say, Finance Ministers do not determine the price of oil on international markets. If Deputies Noonan and McDowell wish to spend the next few months touring OPEC capitals pressing the case for lower oil prices, we will provide whatever assistance is required.
Does that include the Minister, Deputy O'Donoghue's car?
It would not be good enough for that journey. However, I must point out that none of the increase in energy prices is due to tax increases. Excise duties on unleaded petrol and diesel remain unchanged in my three budgets to date. As the House is aware, Ireland has some of the lowest fuel prices in Europe.
Falls in the value of the euro and higher ECB interest rates have also added to inflation. The euro is now down over 20% since its launch. These falls have been unexpected and are adding to inflation.
Much of our inflation is outside our control. This is not to be complacent but to state reality. In economic and monetary union we no longer have control over interest and exchange rates. Changing circumstances will impact upon our economy and we have to deal with these as best we can. This is the reality of the new environment in which we find ourselves.
While these external factors are crucial, domestic inflation is also increasing. Services inflation is up almost 7% in the year to August. This reflects, to a large extent, the tightness in the labour market. Alcohol prices are also increasing. These rose by 5%, according to the latest figures. Housing and child care costs are also increasing.
The Government has acknowledged that the inflation challenge is a pressing one at present. We must always avoid any policies that would push up inflation to unsustainable levels. At the same time, we must be mindful of the problems facing people and businesses behind all the macroeconomic statistics. We have to be careful equally not to withdraw from our electoral and partnership commitments on tax and wages due to a misreading of the economic signals.
In tackling inflation, the Government is taking account of the role of every aspect of economic policy, from tax to competition, price rules and the labour market. It is clear that the best defence against inflation is an even more open and flexible economy where artificial barriers are minimised. There will always be challenges in sustaining a strong economy and sound finances. These challenges and difficulties should not blind us to the tremendous opportunity we now have.
This is the context in which I will frame December's budget, the fourth of five of this transforming Government. It is the context in which we are addressing the issues of the day such as inflation, transport, child care, tax policy, health and education services. We will keep to our ambition that 80% of taxpayers should pay tax at the standard rate only. With support from the social partners, we are introducing a single standard rate income tax band for all individual taxpayers. This is the type of transformation in people's financial situation and the tax system that the Government is making on the basis of our strong economy.
In June we announced a package of measures that focused on increasing competition in the domestic economy. These included bringing into force immediately the provisions of the Intoxicating Liquor Act when it was passed by the Dáil in June; the establishment of a Commission on Licensing to consider the issue of further liberalisation of licensing; the imposition of temporary controls on the price of drink to provide breathing space for other measures to take effect – these are having an impact, for the first time in over two years increases in alcohol prices are below the headline rate; and a freeze on increases in charges or levies by public bodies. Ministers have also had detailed consultation about price developments and competition with representative bodies for the main sectors of the economy. The Government is reviewing the outcome of these consultations.
Given the Government's concern about profiteering, the office of the Director of Consumer Affairs has been given additional resources to start a vigorous programme of price monitoring and publicity. This will highlight prices and encourage greater price sensitivity by consumers and stimulate competition.
Regarding the cost of housing, I have stated on a number of occasions that development remains a major economic and social problem. The increases in the cost of housing are unacceptable. As the House is aware, the Government has a number of key objectives in this area. These focus on the need to maximise housing output to meet the continuing strong demand, stop short-term speculation, help first-time buyers enter the market, increase the supply of social and affordable housing and improve the supply of housing related infrastructure.
A new set of measures was announced last June. These included: an exemption on stamp duty for first-time buyers for second-hand houses up to £150,000; a higher stamp duty rate of 9% for all housing transactions for non-owner occupiers; introduction for three years of an anti-speculative tax of 2% per annum on investors purchasing residential properties for non-owner occupation; the use of strategic development zones to ensure the early development of large-scale residential developments; measures to drive key infrastructural projects, together with targeted investment in key water, sewerage and non-national roads infrastructure; measures to increase the capacity of the construction industry, in particular to address shortages of professional and skilled workers; an additional 1,000 local authority housing units per annum from 2000 to 2006; and improvements to the shared ownership and affordable housing schemes.
It is too early to gauge the impact of these measures. However, previous measures introduced to increase housing supply are having an impact. More than 46,000 new houses were completed in 1999 – the highest number in the his tory of the State. House completions to the end of June are 5% higher than for the same period in 1999. This means that more than 130,000 new homes have been completed since this Government took office and this figure will exceed 150,000 by the end of the year more than were completed in the rest of the 1990s.
Child care costs have also increased significantly in recent years and I have introduced measures to improve the supply and affordability of child care places in the budgets of 1999 and 2000. These measures included capital allowances on the construction, refurbishment or extension of premises to be used for child care purposes and the exemption from tax of any benefit-in-kind arising from the provision of free or subsidised child care by employers for their employees. A major package of initiatives to increase the supply of child care places was introduced in the 2000 budget which cost £46 million. We are also committed to the provision of £250 million in the equal opportunities child care programme of the national development plan. Allied to this expenditure, on 27 June 2000 the Government announced the provision of a further £40 million for child care within an anti-inflationary package. Most importantly, however, the Government is making every effort to sustain the partnership approach which kept inflation low. We are considering what further measures to take in the context of the forthcoming budget while consulting closely with the social partners. I am confident that notwithstanding the unwelcome increase in inflation, we can ensure that the PPF will deliver real improvements in living standards while ensuring we maintain our competitiveness.
On gainsharing, the Government strongly supports plans to reward employees in ways which will not damage our competitiveness. As the House is aware the Programme for Prosperity and Fairness supports the idea of gainsharing. The agreement states:
. . . the Government and the social partners acknowledge the role of Employees Share Option Trusts (ESOTs), gainsharing, profit sharing and other financial employee incentives in developing and deepening partnership and in increasing performance and competitiveness. . .
A consultative committee involving ICTU, IBEC and appropriate Government Departments and agencies has been established to prepare proposals for consideration in the context of the budget of 2001 and it has met five times to date.
Gainsharing is one of the areas the committee has been considering. The whole area of employee financial participation is a complex one and I await the conclusions of this committee with interest. The new economic environment places particular demands on pay determination in the public sector. Good progress has been made to date in the implementation of the public service element of the pay agreement. The public service benchmarking body has been established well ahead of the schedule envisaged in the agreement. In addition, the public service monitoring group, which will act as a forum for discussions of overarching public service pay issues under the programme, has also been established and begun meeting. The public service modernisation commitments in the programme are also being progressed.
This Government has a proud record of achievement. We set ourselves ambitious targets and we have delivered. We promised to reduce unemployment. Unemployment has fallen from almost 10% to close to 4%. We promised to deliver real tax reform. In the past three budgets we have introduced the largest tax packages ever. We promised to reduce the national debt. The national debt has fallen from 66% of GDP to 42%. We promised to improve living standards and average household incomes have risen substantially since 1997. We promised to reduce poverty. The numbers in poverty have fallen consistently. In the national development plan we have begun the most ambitious programme of investment in the history of the state.
We also have a coherent strategy for the new challenges we now face. We have introduced a package of measures to tackle inflation. In tandem with the social partners and in the context of the forthcoming budget we are addressing the current rate of inflation and sustaining social partnership. This Government is committed to improving the provision of child care and reducing the pressures in the housing market and we are taking action to relieve those pressures. The package of measures introduced in June will improve the supply of affordable housing, curb speculative demand and help first-time buyers gain a foothold on the property ladder. To sum up, we have increased standards of living, reduced unemployment, reduced taxation and improved the public finances. We deliver what we promise and will continue to do so in the future.
It is a great pleasure to be doing battle once more with the Minister on this familiar territory on the first day back. I missed my fix of prudent finances and social partnership in recent months and I am glad that nothing happened over the summer to change the way we look on these things. I look forward to debating these matters with the Minister over the next few months. I was disappointed the Minister finished earlier, as I always think when the Minister does so there is a chance he may take three or four minutes to depart from his script and say something that will land him in trouble for a few months, but unfortunately he did not take that opportunity this evening.
I will not disappoint the Deputy in the next few months.
I do not doubt it. It might be useful if I started with a few facts. People on fixed incomes are worse off now than they were this time last year and people who rely mostly or totally on the State for their living are worse off than they were this time last year. Workers who have obtained pay increases in line with the PPF or Partnership 2000 are worse off this year before tax changes are taken into consideration. Savings are worth relatively less than they were this time last year. Many sections of our people such as those looking for their first house or paying for child care are facing a crisis in their lifestyle which they find very difficult to deal with.
All of this is happening at a time of unprecedented economic prosperity generally – during an economic boom now in its seventh year and the likes of which has not happened in Europe for 30 or 40 years. In very simple terms, the less well off in our society are even less well off than they used to be at a time when our capacity to do something about that has not ever been greater. Make no mistake, there is no silver lining for these people. The people I am talking about – pensioners, the unemployed and low paid workers – are less well off in absolute terms, but, perhaps even more striking, they are immeasurably less well off in relative terms when their standard of living is set alongside the standard of those who are doing well in a booming economy. These are the victims of inflation – those with little capacity to help themselves to a larger slice of the national cake. They rely on the Minister and his colleagues to look after their interests and he and his colleagues have failed them badly.
The Minister believes in trickle down economics, as he is not slow to tell us. He believes that if you are good to the better off, the effects will trickle down to everyone else. Whenever he has had to choose between the interests of the better off and those of everybody else, he has chosen to go with the better off. I believe, and have said repeatedly in the past, that he has pursued a policy of actively encouraging inequality. The effects of that policy have been greatly exacerbated by the presumably unintended effects of inflation. Inflation has made a bad situation worse. Inflation has magnified inequality and has created greater relative poverty. The effects of inflation are even more socially divisive and unequal than the Minister's policies.
There is an even greater risk, the risk that we could create an inflationary spiral that will, quite simply, bring the whole house down. Much of our inflation has been caused by import costs and domestic demand. We are not yet in a position in most sectors where domestic costs, for example, wages, are pushing up prices in a big way. Once that starts to happen, the game is up. The economy will crash land and double digit wage increases will be eaten away by double digit inflation, our international competitiveness will be undermined and with it our attractiveness as a location for foreign direct investment. I emphasise we are not there yet and, hopefully, we never will be but we must all, not just Government, be aware of that risk and we must all play our part in ensuring that does not happen.
There are a few things which we can usefully do this evening. We can look at where we are, why we are here and where we should go from here. This crisis of inflation should not have happened. Not all of it is the Minister's fault and I for one will not pretend that it is, but some of it is his fault and he cannot escape responsibility for that. The exchange rate and the oil price are outside the control of Government but fiscal policy is not and there is no doubt that fiscal policy has contributed in no small way to the situation in which we find ourselves.
Last year's budget was recklessly expansionary. It was all the worse because it was also unfair in that it put a lot of extra cash into the pockets of the better off. It was inevitable that the budget would impact on inflation. There is little joy in the politics of "I told you so" but it is not unreasonable on an evening such as this to look at what was being said on this side of the House this time last year. During the roughly equivalent debate on a motion also proposed by Deputy Noonan, I said very deliberately there was not unlimited scope for tax reductions. I said later in the year in this House on at least two occasions before the budget that there was not scope for limitless cuts and that the types of cuts had to be aimed at the less well off. I then published on behalf of my party a pre-budget proposal which would have cost the State a lot less than the proposals ultimately implemented by Government. In one sense, we in Labour were alone in the argument we made. Deputy Noonan, it has to be said, advocated a tax policy which I think he costed at £2 billion and which the Department costed at £2.5 billion, albeit over more than one year.
At the core of the package was a proposal which would have effectively reduced the higher rate of tax by what would then have been 11%. There would still have been a higher rate of tax paid by about 5% of the population but the effect would have been to cut the higher rate of tax to all intents and purposes by 11 percentage points.
The Minister will also be aware that I was slower than most to make the usual Opposition noises in relation to inflation as no doubt he would have done in Opposition. I did so simply because I was afraid of crying wolf. However, just a few days after last year's budget, with the 3% prediction, I issued a statement in the media to point out what I believed was a significant emerging danger that the Minister would ignore at his peril. I will not go on but the point is that the impact of the budget was predictable and predicted not just by me – it is not a bolt from the blue.
An interesting question is why the Minister and his officials did not predict the effect of what hap pened. The inflation forecast in last year's Budget Statement was 3%. This compares to just over half of that during 1999. On budget day the Minister conceded that the increase in tobacco duties alone would add almost a full percentage point to the headline CPI figure. He asked us then, and as far as I understand still asks us, to believe that leaving that measure aside, there would be little or no additional impact on inflation from last year's budget. If that is the contention, then this is a proposition of near revolutionary proportions.
Are the Minister for Finance and the Department of Finance seriously telling us that they never thought that the most expansionary budget in recent times would have an effect on inflation? I listened to this Minister when in Opposition attacking a budget introduced by his predecessor as grossly inflationary. This was not just a passing theme in one speech – this was a constant mantra constantly uttered by the Minister when in Opposition. I suggest that he might go back and have a look at some of those speeches because I suspect they would put even his legendary hard neck under a good deal of pressure and this, incidentally, in the face of budgets which introduced tax reductions and spending increases which were extremely modest by the standards of the Minister's efforts in recent years and, most particularly, his efforts last year.
I have also been told by Department of Finance officials – many others in this House have had this experience – that this proposal or that could not be countenanced because of its likely effect on inflation. I do not blame them for that because, in a sense, that is their job but how does this sit with the prediction in last year's budget that the most expansionary budget in recent memory would have no effect whatever on inflation? Is the Minister seriously telling us that he believes that fiscal policy is so essentially unimportant that it will not impact on inflation? Is he telling us now with the benefit of hindsight that last year's budget had no effect on inflation? Is he telling us that he believes that priming the pump, and the pump of the better off in particular, in such a dramatic way would make no difference at a time when retail spending was running at four times the then rate of inflation? Is he telling us now that he believed it was clearly right at that time to cut taxes just as interest rates had been halved and consumer borrowing had gone through the roof? If so, the Minister is almost alone in that belief.
In recent years all of us in this House have become familiar with the so-called small regional economy argument. It is a very seductive argument, not least I suppose for politicians. The argument goes that since we are an open, trade-oriented economy without an independent monetary policy most of our inflation is imported. I accept, as I think Deputy Noonan does, most of the thrust of this argument. I accept that external factors, which for so long acted as a break on inflation, are now having exactly the opposite effect but that does not excuse the Minister for the misuse of the instruments which are available to him, nor does it excuse or explain his apparent belief that last year's budget was broadly neutral when all and sundry, including the Central Bank and the European Commission, clearly believed the opposite. It does not explain why the Minister took nearly six months to acknowledge that his target would not be met and a further three months before the forecast was formally changed. Even now few people believe that the new target of 5% will be met even if the various caveats are taken into account.
The Minister's response in the face of the deepening problem has in itself become part of the problem. At first he refused to acknowledge what everyone else knew was a blinding reality. Despite the ignominious dénouement of his 1999 budget, the Minister not only failed to acknowledge that he might have got it wrong, he invited the country to party and described those who sounded a warning note as left-wing pinkos, which, incidentally, I gather is something the Minister regards as a bad thing, although we would have to disagree on that. He gradually became more defensive in trying to explain away what was happening until the trade union movement and, indeed, his colleagues finally forced him to admit that it had all gone horribly wrong.
The effect of this is, or was, twofold. In the first instance, the Minister recklessly stoked the fire, but more recently he has given the impression that the fire is so hopelessly out of control that there is nothing that can be done about it. Nothing could be further from the truth – there is a great deal which Government can do but there is no quick fix.
Times have never been better for corporate Ireland. Corporate profits are at record levels. Corporation tax is in the course of a dramatic reduction as a result of what is effectively all party agreement and that guarantees low tax on profits into the future. Demand, both domestic and external, has rarely been stronger. I say unreservedly that this is a good thing. We all celebrate the success of Irish business and foreign businesses based here. They are the powerhouse of our economy and we depend on the wealth generated by business to provide the goods and services on which we depend. All the more reason then why we are entitled to take issue when there is clear evidence of profiteering, and there is such evidence. There is evidence that some businesses and professionals are charging more for the simple reason that consumers are willing to pay more. This is clearly happening in the catering and building trades and other services such as hairdressing. In the short-term we must all make it clear we are not prepared to tolerate profiteering of this kind. If that does not work the Government should act to control prices.
Price controls can only be short-term. In the final analysis supply must be increased to meet demand. In many instances this will happen quickly enough. Where the demand for goods and services can be met by imports then clearly there will be little or no problem. However, a real problem arises in cases where it is difficult to get into the domestic market quickly. It goes without saying there is no objective reason to maintain regulatory constraints on supply in sectors where demand is not being met. We must have regard for the interests of those who may have borrowed heavily to get into the existing market. However, the market exists for the benefit of the consumer and suppliers and not for one to the exclusion of the other.
The motion calls for non-inflationary gain-sharing, with which neither I nor my party has a problem. The advantages of this approach are obvious in that it gives workers a stake in their place of work, it allows a mechanism by which companies can control costs in times of difficulty without cutting basic wages and it allows the country a mechanism to maintain competitiveness in the face of an unfavourable exchange rate. We have always supported these measures and will continue to do so. However, I would enter one significant caveat in that gain-sharing or profit-sharing arrangements should be company wide and not targeted or targetable at a small, select number of workers in any company. It is important that they are an established part of the partnership process and not simply an easy way of rewarding particularly favoured workers.
A Cheann Comhairle, I may have been remiss in forgetting to ask permission to share time with Deputies O'Sullivan, Gilmore and Broughan.
Is that agreed? Agreed.
I wish to be frank and open about fuel prices. I acknowledge what the Minister said, that we have low fuel prices by comparison with the rest of Europe. However, there is an issue which has not been mentioned so far in this debate and which few have been happy to mention elsewhere, namely, the use of environmental or carbon taxes as an environmental measure. I am something of a sceptic on these issues. We would need to pitch increases in excise duties or VAT on fuel at quite a high level before they would have any perceptible impact on the use of fuel and, therefore, on the environment. To that extent I remain to be convinced. However, we have to acknowledge this debate and acknowledge, for example, that the Government will, as part of its Kyoto target plan, look to increase taxes on fuel. We also have to acknowledge that some people, such as the Green Party, hold the view that we should increase taxes on fossil fuels as an environmental measure. I have an open mind on this matter but I am somewhat sceptical. We have to be very conscious that if we go down the road of reducing excise duty or VAT on fuel we might as well kiss goodbye to that argument. I am unwilling to do so for the moment.
Perhaps we are in a uniquely beneficial situation in that we can look at the experience of other countries and see whether price increases have the required effect in terms of demand and environmental protection and then make our own judgments. However, if we move decisively in the opposite direction now and subsidise oil prices we would effectively be saying goodbye to that argument and I would be very unwilling to do so, at least at this stage.
We are at a dangerous time in economic terms. Last week's opinion polls testified to the fact that we have a deeply unpopular Government. Fianna Fail's core vote at 34% is at a very low level for a party of its size and tradition. The temptation for the Minister and, I suppose, the Tánaiste is to up the ante on this front and seek to rescue the Government with one probably popular budget, a give-away if one likes. I do not think that will work politically and it would certainly be economically disastrous. The priorities for the upcoming budget must be people on social welfare, pensions and low pay. The ESRI suggested that no tax cuts should be granted but I do not agree. The Government is already damaged in the eyes of the social partners. It has entered into an agreement which must be honoured. On the tax side of that agreement the Government should do as we suggested last year and seek to remove as much of the minimum wage from the tax net as possible.
The Minister is fond of saying he has always believed in something. He is fond of taking credit for being one of the few in Fianna Fáil to resist the temptation of the 1977 tax give-away which eventually brought that Government to power. I am sorry the Minister is not in the House to answer the question but I wonder if he will be as resolute in resisting the temptation when he is the one with the purse strings in his hands.
I thank Deputy McDowell for sharing time. I wish to speak about the facts of life for those for whom inflation is a most serious matter, a matter of whether one can afford to be properly nourished, kept warm for the winter, pay one's rent and keep a roof over one's head. I am referring to those on basic social welfare incomes and on low pay for whom increases in inflation make a real difference as to whether they can make ends meet at the end of the week. I am talking about people living on £11.07 per day which is what those on disability allowance, unemployment assistance and other basic social welfare payments live on. When these people received their increase in May their payments went up to the miserly sum of £77.50 per week or £11.07 per day.
It is no harm to reflect on what it means to live on £11.07 per day. I am sorry the Ministers for Finance and Social, Community and Family Affairs are not in the House because I wonder how much time they spend reflecting on what that is like. I am one of the many people who do a weekly shop in a supermarket and £77.50 does not go very far. That is just on weekly shopping. These people also have to set money aside to pay for fuel, rent, mortgages, electricity and so on. We need to focus on what these people contend with and to understand that, for them, inflation means making choices between nourishing food, fuel to keep warm, paying rent or running into debt with local authorities. The items which have increased in price for such people are bread, milk, meat – bacon went up 10% in the first six months of this year – sausages, fruit and vegetables, breakfast cereals, fuel and light and medicines. All these items make a real impact on the lives of the people living on the lowest incomes and in real poverty.
I do not know whether it has been debated to any great extent but one issue on which we need to reflect is that, until recently, food inflation tended to be lower than national inflation, but this has changed. This change has made a significant difference to the lives of those people to whom I am referring. About 50% of our food and almost all our detergents are imported and are greatly affected by the exchange rate with sterling. These items matter if one is poor or trying to balance these kinds of issues in one's daily life where one cannot afford luxuries. We must address these issues if inequality is not to increase in this hugely rich and successful economy.
Deputy Broughan called for a new social welfare Bill. The Ministers for Finance and Social, Community and Family Affairs should put their minds to such a Bill. Whatever happens in the budget we will not have increases until April in terms of the regular social welfare increases. If this year is anything to go by, child benefit will not increase until September next year and a large number of children are living in poverty.
I wish to address these basic aspects of this debate. I am referring to people whose incomes went up by £4 per week this year and for whom the impact of inflation is real and immediate. This impact has not been properly reflected upon in this House.