Agus leis an Taoiseach dar ndóigh. Beidh mé ag deighleáil le sin ar ball.
Mar is gnáthach, ní thig liom deighleáil le gach pointe ach chomh fada agus a árdaíodh pointe a bhaineann le hAirí eile, is féidir liom a rá go ndéanfaimíd cinnte de go gcuirfear na pointí a árdaíodh faoi bhráid na n-Airí sin amach anseo.
This debate has ranged over the spheres of public expenditure and financial policies. It would be appropriate for me in replying to it to describe in some detail the budgetary policy followed during the current year. When the budget for this financial year was being prepared, the economy continued to experience a high rate of increase in prices. The balance of payments position, though somewhat weak, was improving. In addition, for the third year in succession, the economy was experiencing a rate of growth which was well below its long-term capacity, also unemployment was high. Faced with conflicting economic objectives, the Government decided that budgetary policy should be aimed primarily at improving the growth performance of the economy which should be designed so as to contribute to the reduction of pressure on costs and prices.
In order to provide a continuing reflationary stimulus to the economy, the level of current expenditure was, therefore, settled at a figure higher than might otherwise have been considered appropriate. By reference to this level of expenditure and on the basis of existing rates of tax, the opening gap which emerged was £8.6 million. The measures announced in the budget provided, firstly, for further expenditure increases of £12.1 million in total and, secondly, tax reliefs costing £14.1 million in total. These additions brought the deficit to £34.8 million which was to be financed to the extent of £7 million by bringing into the Exchequer an exceptional once-for-all payment representing the accumulated surplus of the Central Bank with the balance being financed from borrowing. It was understood, of course, that, to the extent that increased tax revenue would accrue from the impact of the budget on the economy, the amount to be borrowed would be reduced.
The main increases in expenditure announced in the budget were as follows:
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£million
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Social Welfare payments
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8.3
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Measures to improve farmers' incomes and productivity generally in line with EEC directives
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1.8
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Increases for Public Service pensioners
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1.9
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With regard to the tax reliefs, £11 million related to improvements in the income tax personal allowances and £2.7 million to the restoration of the pre-October, 1970 rate of company tax. Alleviation of income taxation was provided for as the incidence of the tax is relatively heavy in Ireland, since a growing proportion of it is paid by salary and wage earners.
It was estimated at budget time that the budgetary measures, by add-the £35 million to spending power, would have the effect of raising the growth rate by about 1¾ percentage points between mid-1972 and mid-1973. On the capital budget side, a further boost to the economy was provided by a substantial increase in the public capital programme.
In the taxation field, the budget was designed to make a contribution to price stability, in that for the first time since 1959, there were no price increases attributable to taxation changes. This contribution to price stability was designed to be matched by a positive response from employers and employees in the form of a new national pay agreement, one that would be considerably less inflationary than the expiring agreement. In this manner the pressure on costs and prices would, it was expected, be moderated and employment and growth would be promoted.
On the capital budget side, the programme for 1972-73 was expressly designed to give further stimulus to economic activity generally but in particular to activity with significant employment content. The programme was originally set at £251.3 million. In August, 1972, some extra allocations, totalling £4.8 million were approved for building and construction. The building and construction allocations now total £79 million or almost one third of the revised public capital programme. The total public capital programme for 1972-73 now stands at £256 million which is £42 million more than the outturn for 1971-72 and £63 million more than the original 1971-72 programme.
From this general review of budgetary policy for the current financial year, Senators will have an overall view of the strategy being followed to improve the growth performance of the economy, to foster activity with an employment content and help evolve an appropriate pay policy.
At the outset of his contribution, Senator Quinlan said he hoped that the views expressed in this debate would have some influence on the coming budget. I cannot at this stage indicate what influence such remarks might have but I can assure him that his and the other speeches in this debate will be noted carefully in the preparation of the coming budget. He will, of course, appreciate that it would be premature for me at this stage to indicate the general strategy of the coming budget.
In dealing with the economic situation I support the confidence that was expressed by Senator Keery when he spoke. It was not unfair of him to point out that Senator Alexis FitzGerald, who led-off for the Opposition, did not question the basic soundness of our economic situation. In fact, strength and resilience have marked our economic performance in 1972.
In spite of the adverse effects of the northern situation, a poor tourist year and difficulties in our main external market, a growth rate of the order of three per cent was achieved. Exports were buoyant; the balance of payments deficit was markedly reduced; reserves were maintained; industrial activity recovered from the sluggishness which had characterised it in the previous year and new levels of prosperity in agriculture were reached. The indications are that for the most part these favourable developments are continuing.
We have solid grounds, therefore, for looking forward to a good year in 1973. There are, of course, areas of difficulty. Some of them are potentially very dangerous. Senators have referred to these as, indeed, have I and other members of the Government on previous occasions. Inflation is, I suppose, the most serious danger we face. I regard it as such because it can undermine our achievements, sap our economic strength and bring progress to a halt. The Government are alive to these dangers. They have acted and are acting consistently to prevent their being realised.
I may say that the problem of "stagflation," as it is called, is now one with which most people are familiar. It is a phenomenon which has developed in relatively recent times but it has happened in so many places that most of us know about it now. It is a disease from which we have been suffering. We have been having substantial inflation and at the same time having, perhaps, no growth and high unemployment. In these circumstances the classic economic remedies for inflation simply do not work. The cutting back on expenditure and cutting back substantially on the money supply in these circumstances simply makes the position worse. As far as I am concerned I have no intention of approaching our economic problems on that basis, as has been recommended to me by some people.
Senator Alexis FitzGerald said that we do not have any incomes and prices policy. I wonder does such a policy have to come in a neatly wrapped package, clearly labelled "prices and incomes policy" before it is recognised? I do not think Senator Alexis FitzGerald's powers of perception are such that he thinks that. It should be quite clear to him and to other Members of the House that inflation has widespread causes and these have to be attacked if the problem is to be beaten. Concerted, complementary action in areas which are sometimes widely apart is called for to defeat inflation.
This is precisely what the Government have provided. The fact that the steps taken may be in such disparate areas and that they are not drawn together and labelled "prices and incomes policy" does not mean that there is not a prices and incomes policy. The Government implement a most active and comprehensive prices policy. The aim of that policy is to ensure that unjustified increases in prices do not occur. The main instrument is the National Prices Commission to which well-deserved tributes have been paid in the course of this debate.
The commission keep prices under surveillance and advise the Minister for Industry and Commerce on the exercise of price control. Any one even vaguely informed about the activities of the commission is aware that they are a most active body. The increases in prices which they recommend are the minimum necessary to meet unavoidable cost increases. The requirement under which manufacturers, importers and wholesalers have to give one month's notice of intention to increase prices or margins was extended in October last to persons providing services. The average increase in non-food prices has declined substantially. Food prices have, admittedly, increased significantly. These increases are mainly due to external market factors which are largely outside the influence of Government policy or control.
Senators will have noted that in the recent price control measures announced in Britain fresh food is exempt. That is one indication of the extent to which in many countries Governments are not in a position to control the prices of food and fresh food in particular. The aim of the Government's incomes policy is to moderate the growth of incomes through voluntarily negotiated agreements. The second national agreement was concluded after months of detailed negotiation. Despite its somewhat inflationary character the Government accepted it because it is certainly less inflationary than a free-for-all. It offered the hope of a further period of industrial peace and if it is operated responsibly it could lay the groundwork for more favourable developments in future agreements. The Government's immediate concern, therefore, is to ensure that the provisions of the agreement will be respected during the remainder of its currency.
As regards non-wage incomes, these are influenced through the operation of the Government's prices policy and also through their policy on restrictive practices. I do not think any note of easy optimism is proper in considering the progress of our efforts to reduce the rate of price rises. We are dealing with strong forces, deeply rooted and not all within our compass of control. It is right, therefore, to be wary in measuring the degree of success we have had and assessing what the outlook is. Favourable trends are evident among the indicators. The overall rate of price increase is showing signs of a downturn. From 9 per cent in 1971 it fell to 8.6 per cent in 1972 with an even greater slowing down in the final quarter of last year. Senators are also probably aware that were it not for trends in food prices the movements of the consumer price index would have been more encouraging still. The rise in non-food prices has shown a continuous deceleration from 11 per cent in the 12 months ended mid-February, 1971, to 6.7 per cent in the year to mid-November, 1972. The rate of increase in food prices is disturbing. It does involve hardship. I certainly, in common with everybody here, would not wish to see it continue. I recognise that climatic factors and scarcities of some commodities in 1972 have helped to push up food prices. There has also been the increasing world demand for beef. To the extent that these factors are outside our control we have to suffer their effects and in so far as they have helped to raise incomes and standards for the agricultural community they are not to be seen as altogether adverse. Nevertheless, such rapid increases are very disquieting and—if they continue —they will require off-setting action.
Where the factors making for inflation are outside our control, off-setting action must primarily be compensatory. Far more rewarding results can be obtained by resolute action on the factors which can be influenced by us. Our grip on these factors has become stronger. The national pay agreements have given us better control of the development of our wage costs. We can build on this and profit by raising our levels of output of domestic sales and our exports so that unit costs are reduced and competitiveness increased.
There is now a greater public sensitivity to price increases than before. Our apparatus of price control and surveillance is being perfected. We can depend on this apparatus and make more use of it to see that unwarranted jacking-up of prices does not take place. The Government have worked for and promoted these developments and have under-pinned them through its fiscal policy and will continue to do so. It is our aim to create a social climate and a framework of institutions that will enable all sections of our community to work together more effectively in beating the problem of rising prices.
We can rely on the co-operation and goodwill of Senators in that work. I share Senators' concern with the employment situation. Happily, the available information on employment and unemployment indicates that the general position is now improving, if somewhat slowly. In the June quarter of 1972, employment in manufacturing industry, after allowing for seasonal influences, rose slightly. This represented a significant improvement on the trend recorded in the preceding quarters. The improvement in employment is also reflected in the favourable movements in the live register during the last quarter of 1972.
As regards redundancies which are notified to the Department of Labour, there has been some decrease in the number notified in the second half of 1972. Industrial exports has contributed towards improving the domestic situation and have been particularly buoyant during the period from May onwards. It is probable that the improving trends in the employment situation continued after the first half of 1972 and, as independent commentators have pointed out, these trends can be expected to have continued into the present year.
I should like to make it clear that Government efforts to improve the situation, particularly through the public capital programme and the specific picking out of areas in which there was employment content which could be activated quickly for the purpose of expending additional money in the public capital programme, have contributed quite significantly to ensuring that the employment situation last year did not become substantially worse. There is an admittedly slow improvement in that situation.
Additional substantial sums of money have also been made available to the IDA for promotional work. We are dependent to a great extent on the provision of industrial employment in order to overcome the unemployment problem facing us. Very often, when I heard people speak about the unemployment or employment situation during recent times they failed to make reference to what is a very important factor, namely, the situation in the North. This situation has had an adverse effect on our tourist industry and this does not simply mean an adverse effect on receipts of hoteliers, it is felt much further in the economy and is having an effect on a number of industries.
Because of our entry into the EEC, we can offer favourable terms to promoters from abroad to set up industries here and gain access to the EEC market, but those benefits are being, to some extent, counteracted by the effect of the conflict in Northern Ireland. We should, in any discussion about employment, remind ourselves and our people of this factor as, indeed, on any discussion of the situation in the North we ought also remind ourselves of the effect it is having on the employment situation in the Republic.
Senator Brosnahan referred to pension parity. In 1969 the Government accepted the principle of parity of pensions, that is, that pensions should be revised by reference to current pay rates, but it was indicated that, because of the substantial cost involved, the move towards this would have to be spread over a number of years. Progress towards parity was made in 1969, 1970 and in 1971. A major breakthrough was made in the 1972 budget when I announced that parity would be granted to public service pensioners with effect from 1st October, 1972, by bringing their pensions up to levels related to pay as on 1st January, 1972, the date of the most recent general revision of public sector pay. The cost of this concession is quite substantial, amounting in a full year to £5.6 million approximately. As Senator Brosnahan stated, pensioners were very appreciative of this step, but I am aware they expressed anxiety about the maintenance of parity in future. They felt that unless there was some formal commitment now to maintaining parity in future years there was always the danger that their position might deteriorate once again relative to the general body of staff currently retiring.
I am very pleased now to be able to give them an assurance that the Government have decided to maintain pension parity in future years. This will be effective on the basis of revising public service pensions by reference to the rates of pay in force on 1st June each year, the revised rates being paid with effect as from 1st October following. This is a valuable and significant improvement for public service pensioners as indicated, indeed, by the fact that on the basis of existing pay agreements the cost of the increase will be £1.2 million in 1973-74 and £2.7 million in a full year.
During the course of the debate reference was made to value-added tax, the changeover to which took place on 1st November last. It is not possible yet to assess the practical effect of the changeover on tax yields. Payment of tax in respect of November and December transactions was due between the 10th and 19th of this month. As I say, it is not yet possible to make any realistic assessment of its effect. It seems to me—I am saying this hopefully—that the full extent of the effect of VAT will not be shown in the yield from VAT alone but that other aspects of taxation and, in particular, income tax may reflect, from the point of view of the taxpayer in general, some beneficial effects of the application of VAT. I am hopeful that it will do so.
As the House knows, the rates of value-added tax have been chosen to match as far as possible both the yields and the incidence of the turnover and wholesale taxes which it was replacing so as to avoid disruption of trade and disturbance to the level of prices generally. In the case of five-sixths of total goods and services which were liable to tax there was no change at all from the former tax rates and therefore no excuse whatever for traders to change their prices as a consequence of VAT.
The consumer price index which measures prices as they stood on 14th November, 1972, shows a rise over the previous November of 8.2 per cent, of which 1.5 per cent occurred since mid-August 1972. As compared with the corresponding prior year figures of 8.6 per cent and 2.1 per cent respectively the figures show a continuation of the trend towards a somewhat slower rise in overall prices which has been apparent during most of 1972. While those figures give no grounds for complacency in regard to inflationary forces generally, they lend no support to any contention that the introduction of value-added tax caused a substantial rise in prices.
Reference was made during the course of the debate to the Report of the Public Services Organisation Review Group—the Devlin Report No. 1. Legislation to set up a new Department of the Public Services as recommended in that report has been introduced in Dáil Éireann. I hope this House will soon have an opportunity of considering it. In the meantime, the Department of Finance have been restructured to provide for separate management of the functions of organisation and personnel in the public service. An organisation division and a personnel division have been created in place of the existing personnel division. A new section has been set up within the new personnel division to look after recruitment policy generally.
Whether or not any new legislation affecting the Civil Service Commission will be required is not yet clear. On the question of the separation of structures responsible for policy and execution, the Government have decided to proceed with this concept—the Aireacht concept—on a trial basis in the Departments of Health, Industry and Commerce, Transport and Power and Local Government. Officials from the embryo Department of the Public Service, together with senior staff from the relevant Departments I have mentioned, have formed task force teams and are now well advanced with the analysis pertaining to the setting up of these new structures in these Departments.
Senator Alexis FitzGerald referred to the matter of decentralisation. I can assure the House that there has been no change in the Government's decision to transfer the headquarters work of the Department of Education and of the Department of Lands to Castlebar and Athlone. The decision is being implemented in the first instance by transfer to Athlone and Castlebar of selected sections in these Departments. The Office of Public Works are drawing up plans and bills of quantities for the new offices and it is expected that tenders will be sought for both projects before mid-March of this year. The offices should be completed by mid-1975. I am sure the Senator will appreciate that, where the transfer of a Department or sections thereof is concerned, a considerable amount of planning and preliminary work is entailed. But I am glad to tell the House that it is now well under way.
Senator Kennedy referred to the apparently moderate increases in outlay on social welfare. Every budget for the past decade saw consistent improvements in the rates and extensions of the coverage of social welfare payments. This has been reflected in the increasing ratio of social welfare outlay to GNP. In 1968, for instance, the ratio was 5½ per cent; in 1972 the ratio was 7 per cent. In money terms this means that in the current financial year we are spending more than double the amount spent on social welfare four years ago. In 1968-69 social welfare expenditure was just over £77 million. In the current financial year, it will total £158 million.
Apart from the fact that in each of these years very substantial increases were given in all rates of social insurance and social assistance, including a 50 per cent increase in payments for children last year, the scope of the services has been considerably extended both by the introduction of new schemes, such as the retirement and invalidity pension schemes and the old-age care allowances. In addition to that, there has been modification of existing schemes, for instance, by easement of all means tests. This evidences, as Senator Crinion pointed out in his contribution to the debate, a steady and sustained advance in the social welfare scheme.
Senator Alexis FitzGerald also suggested that I should further examine the question of reintroducing the income tax arrangements relating to the making of covenants to charitable organisations which applied here up to 1940. Prior to 1940, the arrangement of entering into a covenant for the making of annual payments to charitable organisations was widely used for income tax purposes. As a consequence, large sums of money were paid each year from the Exchequer by way of repayments of income tax to a wide variety of organisations, many of which were charitable only in the technical sense. In effect the charities got a subsidy from the State, the amount of which was determined, not by the State itself, but by the subscribers to the charities.
Apart from certain exceptions specifically provided in 1957 and 1959, respectively, for the purpose of encouraging research and teaching of the natural sciences, section 3 of the Finance Act, 1940, as amended, now section 439 of the Income Tax Act, 1967, put an end to all such covenating arrangements in so far as tax repayments were concerned. It will be appreciated that, on revenue considerations alone, I could not contemplate introducing amending legislation designed, in effect, to restore the position which obtained before 1940.
References were made to the problem of the rising prices of building land particularly in Dublin. I am sure the House is aware that the general question of possible control of the price of building land is the subject of a special examination by a committee appointed by the Minister for Local Government, under the chairmanship of a High Court judge. That report is expected in the near future. I do not want to say too much in advance of that report because I do not know what is in it, but there are certain considerations that Senators should bear in mind in this serious and vexatious matter. The most important thing to bear in mind is that the application of levies or taxes of any kind to building land would not solve the problem. In fact, it would make it worse because if the cost of building land is increased by way of tax or levy the vendor will increase the price further to enable him to recover this, so that instead of helping the problem that makes it worse. After long consideration of this problem, that is my view. The only effective way of dealing with it presents considerable legal difficulties and, for that reason, we have been unable to deal with the problem up to now and we were obliged to set up this committee. I hope that their report will be able to direct us in a way which will overcome the legal problems involved.
Senator Alexis FitzGerald emphasised the need to ensure that the best managerial talent will be kept in this country. While in this country income tax on earnings of, say, £5,000 to £10,000 represents a relatively heavier burden as compared with the position in a number of other countries such as the United States or Britain, it must be remembered that the yield from direct taxes here represents a much lower proportion of total taxation than in many other countries. This is attributable in no small measure to economic factors such as the comparatively restricted wage and salary sectors and generally lower per capita incomes in this country, and a narrow corporate sector which attracts generous tax incentive reliefs.
In addition, the relatively narrow tax base is further eroded by exemptions and reliefs and the net result is that the rates of income tax have to be pitched at a higher level to produce the necessary yield in revenue. The fact that indirect taxes comprise over 60 per cent of total tax revenue clearly limits the scope for easing the burden of direct taxation by means of a shift to indirect taxation.
Senator Alexis FitzGerald criticised the Government for adopting a regional policy, which was a watered-down version of the Buchanan Report recommendations. When that report was published in May, 1969, the Government having considered it, decided that its growth centre recommendations should be further considered in the context of proposals for regional development generally and to that end the Government called for the establishment, in each region, of a regional development organisation. The reports produced by these organisations on the main factors affecting economic expansion at a regional level were valuable. They were drawn on by the Government in deciding on the regional policies set out in a statement in May, 1972. The procedure which the Government adopted gave an opportunity to canvas opinions throughout the country before decisions on regional policy were taken. I make no apology for what was done in that connection. The implications of the Buchanan Report were profound and the time scale over which their effects would be felt was lengthy. It would have been indefensible had the Government made decisions on the Buchanan proposals without giving the regions an opportunity to express their views. The regional policy adopted by the Government in May, 1972, differed in some respects from the Buchanan proposals. It is more in tune with the preferences expressed by the regional development organisations. It is not, as the Senator seems to think, an industrial development policy alone. The Senator can look at the four page statement in which the Government's regional policy was set out and he will find that the IDA regional industrial plan occupy only one paragraph. The statement set out the regional strategy which the Government envisaged as the one that should be pursued over the next 20 years.
The period 1973-1977 only is covered in the IDA regional plans. They are but an element, though an important one, of this longer-term strategy. To equate the IDA plans with the Government's regional policy demonstrates a failure to study and grasp the implications of that strategy.
While industrial development will have a vital role to play in the implementation of the Government's regional strategy, other programmes such as the provision of infrastructure and industrial training will be important. I have asked departments and semi-State bodies to ensure that their programmes, capital and current, support the Government strategy.
Senator Boland referred to road financing. The whole question of road financing is under review. I would agree with Senator Boland that it is quite clear that the necessary major works cannot be financed under the existing system. For this reason, a full-scale review is under way at present.
I should like to conclude my remarks by referring to a problem which was referred to by most Senators in their contributions and one which is weighing heavily on all of us, namely, the situation in Northern Ireland. I do not intend to made in this regard but I wish to say one or two things about Senator Kelly's contribution. It is a pity that he was being so small-minded about a very serious matter. It seems to me, on a perusal of his speech, that he engaged in a great deal of carping criticism of the Taoiseach which, when not wrongly conceived, is simply hair-splitting.
