The subjects to be discussed in this debate are rather narrow. Although the Bill deals with finance, we are not allowed to deal with taxation, with the Budget, or with the borrowing or raising of money. I may say, in passing, that these various topics have been touched upon in the debate in the other House, and we were told there would be a deficit this year and that, therefore, new taxation would be necessary. I realise that if I were to raise these matters here I would be promptly ruled out of order. Therefore, I propose to confine my remarks to some aspects of the spending rather than the raising of public money. I do not wish to say a great deal, but there are some outstanding features in the Estimates which were published this morning, and of which we were given a preliminary view on the Vote on Account on which this debate is really based.
The outstanding feature of public expenditure in this country is that it has been rising, that it is rising, and that it will continue to rise. The Estimate for the Supply Services, without making any distinction between capital and current services, is substantially greater than last year. There is no question at all that, by the time the Budget is introduced, it will probably have increased more and that certainly, by the time the financial year has run its course, as a result of supplementary estimates, the total expenditure of 1965-66 will be substantially in excess of that estimated for the year or realised in the current financial year. That is unquestionable. It is admitted by the Taoiseach, the Minister for Finance, and by everyone who has dealt with the subject.
I do not want to give the impression of being a person who is always nagging at the Government because of increased expenditure. I accept that increased expenditure in modern times is a necessary part of progress. I think the general progress of the country has been very satisfactory on the whole. In the course of the past year production has risen, the prices of most things have risen, expert opinions we get in various types of publications dealing with these matters—and they are becoming more and more numerous—the prospect for the present year is a bright one unless something should happen in the international world to interfere with our prospects. Therefore, I have no intention of nagging at the Government for increased public expenditure.
Increased public expenditure is not peculiar to Ireland. It is a common feature in many other countries in the world. It is present in all the international statistics and, therefore, a certain amount of increased public expenditure is to be expected here. I think, however, that one can legitimately draw attention to the fact that public expenditure is rising more rapidly than national income. That share of the national income which is taken in one form or another by the public authorities is tending to rise. There has been so much debate about these figures that I do not wish to commit myself to any particular figure, but it seems to be generally agreed that growth in the national income last year was about four per cent. If the picture which I presented of public expenditure prospects for this year is to be realised, public expenditure will increase at a more rapid rate than that.
Therefore, the amount and the percentage of the national income taken by the public authorities will tend to grow. That, I think, is the first thing that stands out from the Estimates and from the discussions that have taken place on this matter in the Dáil and elsewhere. I want to make a point here which I have made time and time again. I am afraid that I am repeating things that I have said before but, perhaps, they need to be repeated. The point is that one must draw a distinction between the individual items on which public money is spent and the total expenditure of the Government. Each individual item can be justified, taken in isolation. If it is taken in isolation it is very difficult to argue that it should be decreased. If you run through the various branches, or some exports have risen, and the population has ceased to fall. Judging by the services, pensions for the old and disabled, allowances for the unemployed, relief of unemployment in one form or another, education at all levels from primary up to university, expenditure to increase agricultural productivity, expenditure to relieve agricultural rates, expenditure to strenghten farmers' incomes to bring them in line with those of other people. Each one of those expenditures can be justified, and, if it were to be debated as these are debated in the Dáil individually, it would be very difficult to argue against any of them.
Then there are other types of public expenditure which are increasing through no desire of the Government. The Government are under pressure like any other employer who has to pay higher costs and higher wages and salaries to an ever growing number of public servants. One could not possibly argue that public servants should not get the same rate of increase as employees in other types of employment.
Taking each individual item, it would be very difficult to argue against the increases that have taken place, but when we take them as a whole the total is rather alarming.
All these various matters which I have mentioned are matters that have been mentioned by the Minister in the Dáil. On reading the Dáil debates, one finds that although the Opposition were objecting to the general total of the Estimates, there were very few concrete suggestions made for reductions in any particular direction; in fact, the general impression one gets on reading the debates is that Members were objecting to increased expenditure and at the same time were all pressing for increased services. I do not wish to do that here and I do not think the Seanad ought to do it. It is contradictory.
The fact of the matter is that a certain amount of increased expenditure is inevitable. It is a sign of the times. Some of it is forced on the Government without any choice of their own.
Having said that, I should like to pass to a more general aspect of the situation, and that is that, if public expenditure increases at a time when private expenditure is also increasing in the country, as it is, the result of those two increases together is shown in a deficit in the balance of payments. A deficit in the balance of payments is an index or a signal that shows that the country as a whole is consuming more than it is producing. We have had, as Senator Dooge has said, deficits in the balance of payments for some years. They have been increasing. They are allowed for in the Second Programme, but they are not allowed for to the extent to which they have been increasing.
I do not wish to go into the question of the balance of payments on this debate because I do not think it is strictly relevant. I may, however, say that public opinion in this country and opinion in Parliament has been fulled, perhaps, to some extent into a certain amount of false security regarding the balance of payments owing to the fact that drastic measures to correct the deficit have not been taken, owing to the fact that external reserves have been increasing and, therefore, our position of international liquidity has not been affected so far by the increases in the balance of payments deficit.
What I wish to do is to relate this subject to the subject of this debate and come back to the point I made a moment ago, that where one finds in a country a persistent and increasing deficit that means that that country, one way or another, is spending more than it is producing, that its consumption is greater than its production, and that it is only a matter of time until that condition has to be corrected in the long run.
We are now dealing with a matter which is very much discussed at the moment in the neighbouring island. It is impossible to pick up any informed newspaper now without reading a discussion of how the British balance of payments is to be taken out of deficit. There is this general agreement, I think, that the only satisfactory method in the long run is to increase exports. That, of course, is equally true here, but it takes time. It may be necessary in the short run, pending the desirable increase in exports, to cut down in some way or another expenditure at home, in other words to operate a slightly or, perhaps, in some cases a severely deflationary policy.
The point I want to make about that is that, if there is to be a reduction in expenditure, it may be partly a reduction in public expenditure and partly a reduction in private expenditure, but that a reduction in public expenditure is very much more under the Government's control. If there is to be a reduction of expenditure in the country the Government have the first responsibility to see that public expenditure is not running to an excessive height, because a reduction in private expenditure can be a very painful process. In this country it would involve setting back the progress of the Second Programme; it would possibly reduce the standard of living of the people; it could easily cause unemployment and possibly emigration. Therefore, anything in the nature of a reduction in private expenditure has got the painful consequences that always flow from deflationary measures.
That is my main ground for criticising in, I hope, a reasonable manner the increasing growth of public expenditure. As I said, the fraction of the national income taken by public expenditure is growing year by year, and, at a time when the country is by the accepted criteria living beyond its means, a time may come when it may be necessary to do something deflationary to prevent the inflation which undoubtedly is being produced by this combination of high public and private expenditure. Since public expenditure is so much more under Government control than private expenditure the Government have a duty to scrutinise all additional expenditure very carefully, and certainly to avoid anything which can be postponed and is not necessary at the moment.
I am trying to be reasonable in this debate, and I admit that a good deal of the growth in public expenditure is imposed on the Government through no fault of their own. The Government, like every other large purchaser in the country of goods and services and like every other large employer, find prices, wages and salaries rising, and, therefore, to some extent the Government are the victims of circumstances and really do not deserve to be criticised.
I think it is only fair to point out that the Government can help in this upward movement of prices. They may be to some extent responsible for rising costs and prices by imposing the sort of taxation that may lead to rises in salaries and wages and in that way putting up prices on the other employers which sooner or later result in putting up prices on the Government and bringing about an increase in public expenditure. I simply want to repeat in this matter what Senator Dooge has said, namely, that a successful policy of progress which avoids inflation does necessitate a stable level of costs and prices. It is one of the great unsolved problems in the world today, really, whether any free democratic country can have progress without inflation. It is a problem which is arising in different forms in every country in the world. Some countries are going ahead, having progressed and increased employment, but sooner or later find themselves getting into inflation. Other countries, in order to avoid the evils of inflation, are pursuing cautious deflationary policies, with the result that their progress is not as fast as they would like it to be. We have a Second Programme for Economic Expansion which cannot successfully be pursued except against a background of reasonably stable prices and costs.
The principal object of Government policy should be to prevent prices and costs from rising insofar as they can do so and certainly to refrain from doing anything that could have the effect of raising the costs or prices themselves. It is only fair to refer to the assistance which the Government are getting from certain voluntary organisations in this matter, some of which themselves do receive a certain amount of State assistance: The Irish National Productivity Committee and the Irish Management Institute are two bodies mentioned by the Minister in the debate in the Dáil on the Vote on Account. They are only two of the many bodies in this country which are working for greater efficiency in industry. In the last few years, there has been quite a remarkable development in this field. A number of new institutes are now working and the joint result of all their activities is greatly to increase the efficiency of Irish industry and agriculture at different points and therefore to keep down costs of production and help to stabilise prices.
This maintenance of comparative stability in costs and prices—I say "comparative" because I think absolute stability perhaps is too much to hope for—is particularly important in this country at the present time. For one thing, we are pursuing a planned Programme extending to 1970. As Senator Dooge has already said, the success of that programme depends on having stable prices and an incomes policy and a manpower policy. That is quite unquestionable. The reason I say it is so important in this country is that our programme depends to a greater extent than that of most countries on increasing the volume of exports. In the last few years, the volume of exports has been greatly increased. The whole export picture in Ireland is quite different from what it used to be, but it is very necessary that nothing should be allowed to happen to impede its progress in the future especially at a time when the outside world is in such a disturbed condition. We have the British surcharge—a sudden difficulty which nobody could possibly have foreseen and which, even at its reduced level, makes the export of manufactures more difficult. Great Britain itself is generally thought to be pursuing a deflationary policy. It is generally thought that the Budget will be deflationary rather than inflationary. That means a reduction in the British demand for imports of all kinds from all over the world and that intensifies competition in the Bri- tish Market and makes it more than ever necessary that countries like ourselves should be able to keep our costs down and compete on equal terms without our competitors.
Since the British surcharge, there has been a very keen search for alternative markets. Irish exports are now being advised by the Government and, it is only fair to say, assisted by the Government to find alternative markets. But penetration into alternative markets depends on being able to sell at competitive prices and competitive prices depend on keeping down rising costs, rising wages, which have undoubtedly been appearing in the last couple of years.
I entirely endorse what Senator Dooge has said about the necessity for an incomes policy and a manpower policy. I think the two are intimately related. An incomes policy is impossible in the absence of a manpower policy because an incomes policy depends to a large extent on the most intelligent employment of labour, placing labour at the point of maximum productivity and the avoidance of redundancy and of unemployment. All that is intimately allied with manpower policy. Therefore, I suggest that the first condition of progress in this country is reasonably stable costs and prices and that that should always be in the mind of the Government when they are considering further expenditures. As I said earlier the general level of costs and prices is to some extent affected—not entirely, of course—by the level of Government expenditure. A rise in Government expenditure which is not compensated by an equivalent reduction in private expenditure can have inflationary effects and this will tend to raise prices in the country. Therefore, I shall end what I have to say on this subject. I hope I have not repeated myself too much, but it is so important that it must be emphasised and that is that the first condition of successful public expenditure is that it should be non-inflationary in the sense that it does not push up the level of costs and prices.
The second condition of successful public expenditure by which a Book of Estimates can be judged, is, to what extent expenditure is productive, using "productive" in a very wide sense. I do not mean that every piece of public expenditure should directly be productive in itself because a great deal of it is in its very essence of a social and re-distributive character. Some of the matters I mentioned already—the relief of poverty, the relief of old age, the relief of unemployment, the education of young children—these are things which re-distribute the national income rather than tend to increase it.
It is very important to remember that the possibilities of social expenditure of this kind, which is universally welcomed by everybody, depend on the volume of production in the country: if the volume of production in the country does not rise, desirable increases in social expenditure are out of the question. The amount of the national cake that can be cut and distributed equally to the different elements of society depends on the size of the cake itself, and the size of the cake in this case depends to a large extent on Government policy.
A great deal of Government expenditure is directly productive. Obviously, it does not require to be shown that expenditure which improves efficiency in agriculture, expenditure that increases the quality of the country's livestock, that improves the efficiency of industry, that improves the efficiency of workers in industry through vocational education are all productive. Expenditure aimed at increasing the tourist industry, one of our most important export trades, is also productive.
Government expenditure which is directly productive is an investment: just as a businessman's investment of his savings in his own business is productive, so is Government expenditure on the development of the nation's resources. Therefore, a great deal of Government expenditure is productive. However, a great deal of Government expenditure, though productive in the long term, imposes a burden on the community from the short term viewpoint. There is a great deal of Government expenditure which takes a long time to fructify, to mature.
The best example of this is expenditure on education, apart from vocational education. Education increases the efficiency of production of the next generation of workers and it may be many years before the fruits are reaped. Meanwhile, expenditure of that kind imposes a burden on the existing generation, a burden which must take the form either of additional taxation or additional debt which, in turn, imposes a burden of taxation in respect of the interest to meet the debt.
What I am saying is all very obvious. Perhaps it is unnecessary to have to say it but I am trying to clarify thought on the subject. A great deal of Government expenditure is productive and requires no justification. Some of the other expenditure is indirectly productive because, possibly in a generation, the national income will increase as a result. Meanwhile, that expenditure has to be paid for in the only way Government expenditure can be paid for—through taxation or borrowing.
I think it is clear beyond argument that the progress of the nation in the long run depends on a great deal of public expenditure of the sort I have described. Especially in respect of education, it is a very good investment even if the present generation may not reap the fruits of it. It is, therefore, illogical for Senators to press for further services of this kind, for further education and other such facilities and to object to the expenditure at the time it is made. These are essential matters and it is inconsistent and shows a wrong point of view to seek the services and quarrel at paying the cost of them.
I should like to return to a point I made already. It is very much easier to suggest reducing expenditure as a whole than to point to any direction in which expenditure should be reduced. It is very easy for Senators to say that too much money is being spent by the Government, but, if they are asked on what particular service they would reduce expenditure, it is really rather difficult for them to mention one. I agree that in other countries it might be easier: in Great Britain at the moment there could be a considerable reduction on defence. In a country like this, however, where expenditure on defence is moderate, I do not think there is very much room for reduction there. Any other reduction immediately meets opposition of all fronts.
What I have been trying to say to the Minister is that, though public expenditure is rising, that though when it is rising more rapidly than national income it can have inflationary consequences, it is easier to complain that it is rising than to suggest particular reductions. The greater part of public expenditure in this country is either directly or indirectly productive and will do the country good in the long run. The real test of any piece of public expenditure is, first of all, whether it is within the means of the nation—can we afford it. It is just like the case of an ordinary individual who has to consider when buying a new car whether it is something he can afford.
Assuming that that is satisfactorily answered, the next question is whether the expenditure is properly directed. By that I mean whether it is productive in the very broadest sense in which I have been using that word. Is it likely to increase the national income, in the short run if possible, but at least in the long run? Is it productive in that sense? Thirdly, is it economically administered, or does it involve a lot of administrative costs that may more than outweigh the benefits of the expenditure? It seems to me that public expenditure aimed at developing the resources of the nation, which is productively directed and economically administered, can be justified.
In other words, what I am trying to say is that public expenditure of the right kind can succeed in producing the wealth which will enable it to be paid for. That is why merely to carp at increases in the Estimate in any year seems to be a rather negative procedure. It is preferable to analyse the consequences of the increased expenditure, to consider its effects on productivity and to ask whether it is economically administered.
As I said before, it is very important to avoid inflation, and public expenditure when it is aimed merely at raising the demand without cutting down demand in any other direction can mean inflation. It is also important that expenditure as far as possible should be directed towards the increase in the national income rather than towards its redistribution. We should increase the size of the cake rather than increase the number of people who are going to get a slice of an old cake of the same size.
It seems to me these are the questions that arise on this debate and as I have delayed the House long enough I propose to finish with one further remark. I wish to agree with Senator Dooge that the new tax-free loan is an admirable idea. Certain people in certain circumstances are more concerned with capital appreciation than current income and a loan of this kind should be cheap to the Government. They avoid paying interest on it and it will be very much appreciated by certain types of investors.
As Senator Dooge pointed out, it seems to indicate that the Minister is not thinking along the lines of capital gains tax. Instead of threatening to take away capital gains from people he is making suggestions for giving capital gains to them. To that extent, the new proposed loan is, from my point of view, wholly admirable.