The annual Finance Bill is the framework in which we decide each year the size of the national cake, where the ingredients come from and how it will be divided. In doing this we must examine the Bill in the light of the overall economic context. I do not propose to echo the extravagant style of that eloquent profit of doom—Senator McGlinchey— but I think that all of us must realise that the various indications are gloomy. They call for a responsibility both on the side of the Government and among the Members of the Oireachtas to come to grips with the economic situation and to try to put forward proposals and reforms of the taxation code as part of the overall strategy necessary to resolve the problems which will face this country over the next few years.
The Minister, in introducing the Bill pointed to the fact that his budget this year had been based on an expansionary strategy. He then went on to say:
The further disimprovement in the interval in the external situation, the unfavourable developments in the agricultural sector and the reduction in domestic purchasing power attributable to the increases in the price of oil and oil-based products will make the achievement of the target growth rate of 4¾ per cent then set for the economy in this calendar year difficult to attain and will make the somewhat lower growth rate— of the order of 4 per cent— more probable.
In fact, I think that this is an optimistic forecast of our growth rate over the next year but it is somewhat at odds with other assessments. For example, the June commentary of the Economic and Social Research Institute report opens, first of all, on a very gloomy note by saying:
The picture emerging in relation to developments in the economy in 1974 now appear to be quite unfavourable. The year is likely to experience a low rate of growth of real output, a very high balance of payments of deficit and a high rate of price inflation. These have been accompanied by little increase in non-agricultural employment and a rising level of unemployment. It is important that this position be acknowledged so that expectations out of touch with reality are not generated which would considerably worsen the situation.
Then the report goes on to assess the predictable growth rate:
Recent trends in consumer prices indicate that inflation in 1974 will be of the order of 16 per cent. Increases in prices in the beginning of the year were probably largely due to the very rapid rise in import prices. The concentration of wage and salary increases under the National Pay Agreement in the second half of the year suggests that prices will continue to rise substantially throughout the next six months of the year. The one consoling feature of the present inflation is that our price rises are by no means exceptional by international standards so that the loss of external competitiveness is not likely to be great. However, it does have its own internal implications. The need to reduce the present rate of inflation is just as great as ever. Terms of trade movement are also likely to be adverse in 1974. Export prices are forecast to rise by 11¾ per cent with import prices rising by 30 per cent. The relatively small increase in export prices is mainly due to the climbing cattle prices. Thus, though the volume of real output produced in the economy might rise by 2¾ per cent, real living standards seem likely to fall. The trading loss this year will be equivalent to nearly 6 per cent GNP in 1973 so that adjusted GNP in 1974 will probably fall by 3¼ per cent. Probably the most serious developments have been those in relation to external transactions. Exports of goods and services are forecast to grow by 25½ per cent while imports of goods and services should grow by 40 per cent. The results of these developments is that the balance of payments deficit on current account is likely to be of the order of £250 to £300 million.
The major problems facing us now are the staggering rate of inflation and the crisis posed by the sharp rise in oil prices, aggravating the already existing balance of payments deficit calling into question the ability of a democratic country such as ours to respond with sufficient urgency and imagination to such problems.
The first matter which must be resolved is where the responsibility lies for the dramatic rise in inflation. The Government have tended to point too much to external factors and to try to explain the sharp rise in prices here by pointing to world inflation, the energy crisis and the consequent sharp rise in oil prices. It was salutary to see the Central Bank putting the responsibility back on the Government in saying that the inflation is not due entirely to external factors but that we also have sharp domestic inflation caused within our own island by factors which could be under our control. I quote from the Central Bank report at page 7:
It is a fallacy, even for the open Irish economy, that inflation is due more to external than to internal causes and that it is beyond our power to curb or control it. If this were true, and the only armoury a country had against a mainly imported inflation was price control, the situation would be a sorry one. Price control, as is obvious, can prevent only "unjustifiable" price increases: those justified by increased costs of imports or of home products and services it can do nothing about.
The fact is, however, that even during 1973, when basic commodity and energy prices soared spectacularly, and food prices continued to rise, imported inflation accounted directly for no more than half the rise in Irish retail prices. Domestic causes, not beyond the community's capacity to influence, remained important. The most powerful of these, as for many years past, was the much faster rate of increase in money incomes than in national productivity. In its Spring Bulletin the Central Bank analysed this domestic source of inflation, emphasised the need to curb it relative to EEC trends if full employment is to be a realistic national aim, and suggested a broad approach to this difficult problem. The moderation required is ofmonetary rather than real standards, since improvements in living standards are finally determined by the community's productive effort and not by illusory increases in money incomes.
This is the economic context in which we must examine the provisions of this Finance Bill. There are difficult problems to be resolved and the decisions which the Government will have to make will be hard decisions. As we know from recent documentation and reporting, the distribution of wealth in this country is not as fair or as equitable as it should be. We know the horrifying statistic that 25 per cent of the population are below the poverty belt. We know there has been and continues to be a good deal of tax evasion by those in a position to contribute more to the national welfare.
There remains the question of the capacity and determination of the Government to insist upon a more equitable tax system and to have the courage to bring in and enforce the tax provisions which will result in a fairer distribution of wealth and national income. I welcome the provisions of this Bill which rationalise the personal income tax provisions; secondly, I support the introduction of taxation for farmers who are at a level to support such taxation. I will come back to this point later. I should like to reinforce the Minister, to encourage him, in his intention to bring in a wealth tax at a later stage and to ask him not to water down these provisions: not to back down in the face of what is a very interesting collection of forces trying to persuade the Government and the Minister in particular not to bring in the tax proposals which he has promised. It is an interesting indication that there are more financial barons in Ireland than we had anticipated. This should encourage the Minister to go ahead with the necessary, fair and equitable proposals which will introduce a fundamental morality which is a much broader concept than the way in which we usually talk about morality —when we confine it to the narrowness of sexual morality. It will introduce a morality which is based on the dignity of citizens and gives them the prospect of a decent life and a decent old age, and a pension when they become ill or fall on hard times.
There is a real responsibility on the Government to grasp the significance of the economic indicators I have referred to. The Coalition Government have been in office for 18 months. They have got used to being in office and have got over the period of being able to either blame the previous Administration or claim it is too soon to implement their own particular policies. They are now long enough in office to be responsible for the management of the economy and for the running of the country.
Indeed, the Coalition Government are probably at their strongest point at this stage. The Constituencies Bill, which was introduced by the Minister for Local Government to suit the Government in office and not as a result of a report by a boundary commission where the redrawing of constituencies would have been seen to be fairer and more equitable has ensured the likelihood, unless there is a very significant change in the overall political situation, of a return to office of the present Administration for a further term.
Consequently, the Government are in a strong position to implement unpopular economic reforms and to take the economic decisions which must be taken if we are not to see further aggravated the very serious factors undermining the standard of living of our people, particularly the more vulnerable sections of the community. There is a serious responsibility on the Government to decide on their priorities; to act as a coherent and collective authority in coping with them and to have the courage to be honest with the people about the situation facing us. They must be open and positive about the steps necessary to resolve these problems.
I should now like to consider the question of the tax provisions in this Bill affecting farmers, as this has been the subject of much discussion. I believe it is not the particular provisions in the Bill itself—which affects farmers who are in what most people would regard as the wealthy bracket, with farms of £100 valuation or more —that are in dispute. Rather, the outcry is an indication of the unease and lack of confidence in the farming community generally at present. I think the particular provisions of this Bill were conceived and worked out in a different context to that which is facing the farming community at this period. It is particularly unfortunate that at a time of such deep crisis and lack of confidence in the whole sector they find themselves for the first time included in the general tax net.
Undoubtedly, it is fair in an over all context that the more wealthy farmers should be included on the basis of their ability to pay. However, I believe the Government must and ought to show much more positive concern for the general farming community and a much greater flexibility and awareness of the real need for support and backup during this particularly difficult period. Farmers need help in planning to cope with the particular cycles whether it be a beef mountain or whatever, and the individual small farmer who depends on cash flow must be assisted to cope with his particular financial problems at the moment. This type of concern has not been evident at Government level. As a result, I believe the attempt to bring the wealthier farmers within the tax net has evoked very sharp and bitter resentment. This is a focus for a much broader and deeper bitterness resulting from lack of confidence generated by new types of problems for which the farming community have not been prepared or equipped to cope.
Looking at the general situation in relation to agricultural incomes it is relevant to quote from the June commentary of the Economic and Social Research Institute, at page 18:
The prospects for agricultural incomes in 1974 are now considerably less bright than at the time of writing the March commentary. The main causes for these diminished prospects are (i) the continued depressed state of the market for cattle and beef and (ii) the dramatic upsurge in the number of cows being slaughtered which will reduce the level of cattle output in 1974.
... An interesting feature of the current situation in regard to cattle prices is the failure of the EEC intervention system to maintain actual cattle prices at or above the intervention price.
This is an area where there has not been evidence of a responsible Government attitude. To say the least of it, the Government have been either half-hearted or uncertain as to what exactly our approach should be at the European Community level in meetings of the Council of Ministers on questions of agriculture. The impression is given that the Minister for Agriculture and Fisheries is saying things at the meeting of the Council of Ministers intended for domestic consumption back here in Ireland, which he knows will not be acceptable and which he may not even wish to be acceptable. There is a good deal of window-dressing which is not really trying to redress the fundamental problems facing the farming community at the moment. A much more concerted attempt to re-examine the whole intervention price system and if necessary, the whole framework of the common agricultural policy itself would be more productive.
At the time when the Treaty of Accession was being negotiated, this particular matter of intervention prices was not argued or examined very extensively because the problems did not exist at that time. There was no prediction of the particular beef crisis which faces us in 1974. Therefore, these particular problems were not worked out, and there were no detailed provision drawn up as there were in relation to dairy produce. The Government should be examining the extent to which it might be possible to change and improve the intervention system in order for it to be of more real assistance to the farming community during what is regarded as a cyclical period; a period where the farmers are in danger of doing the worst possible thing by disposing of cattle for uneconomic prices because they need to have ready cash available.
There would have been much less resentment of the legitimate attempt to bring wealthier farmers within the tax net if the Government were discharging an overall responsibility in relation to the farming community. If their critical problems were better understood, and if there was better information available to individual farmers to enable them to cope with the immediate problems they would accept the present provisions without protest. There is far too much panic in the farming community that this is a long-term trend rather than a cyclical matter, and they are not being sufficiently helped or advised in coping with it.
I would also like to refer to the position of those receiving social benefits. In his introductory speech, the Minister, with some justification, pointed to the Government record in this area where he said:
In the period since this Government took office Exchequer expenditure on social welfare has all but doubled. Further, the work will continue of extending the scope of the social welfare services and generally improving them by, for example, easing means tests and lowering qualifying ages.
We have at last realised our responsibility towards the more vulnerable sections of the community which is evidenced by our greater awareness of the need for improving our social welfare benefits. Commendable measures have been taken in the last 18 months to introduce the necessary reforms. However, to a very large extent the real significance of these social benefits is being completely eroded, at the moment, by the high cost of energy and by inflation. People who are in receipt of what look like better social benefits find that they cannot meet the quite staggering increases in electricity, gas, and the cost of the basic commodities, and particularly food. Some are worse off than they were a couple of years ago.
This prompts me to develop the idea of the necessity for flexibility by the Government in relation to the problem of higher energy costs and increases in the price of basic commodities such as food. We must be more imaginative in devising ways of preventing these price increases from hitting the weaker sections of the community as substantially as they hit the general community. We must devise ways of ensuring that the real standard of living of the people in receipt of social welfare benefits continues to rise, and that wherever the cost is met it is met by other sectors of the public. This is an important social problem which must be faced with a good deal more imagination and flexibility by the Government.
In emphasing the very serious economic situation facing this country the June Report of the Economic and Social Research Institute concludes in the summary of its provisions:
In the short-term problems of inflation, current account balance of payments deficit, and possible unemployment, are acute. It is thus necessary to convince the public that total real income will be lower than last year. In the medium term things could be very much different. It is unlikely that the developed world will allow a period of prolonged deflation and a reversal of present policies can be expected. The long term outlook for cattle remains favourable despite the apparent difficulties. Industrial and mining potential continues to grow. Above all there is the probability of significant offshore oil and gas. Knowledge, it is precise knowledge that is lacking, that in five to ten years Ireland could perhaps be a net exporter of oil and gas, would reduce the necessity for short-term action to protect the balance of payments and allow a period of very rapid growth in the future.
I think that this is a key passage in the report. At the moment we are in a rather unpredictable period. In the short term all the economic indications are gloomy and the resultant problems are very real. There will be a hard time ahead in an economic sense, and that means a hard time politically. It is not easy for any democratic government to take hard decisions. In appreciating this, I shall repeat the point that if ever the Coalition Government were in a position to give leadership it is now when they are long enough in office to know what government is about and when they have the likelihood of a second term ahead of them so that they ought to face up to their real responsibilities in the matter.
There must be a great deal more study of and information about the longer term potential in this country; and much more evidence of coherent long term planning. We could well be mistaken in taking certain steps now with a short term perspective in an attempt to meet particular political problems, without having a longer term framework. We could even create unnecessary difficulties, or prevent the possibility of reaping the full advantage to be gained if and when the resources of oil, gas and mineral wealth are fully known. We must be prepared to take more initiative ourselves in encouraging the necessary research and exploitation of our natural resources within a time scale which would allow us to plan over the next few years in the knowledge that the particular balance of payments problem will be resolved in time by the use that can be made of our latest natural resources.
Although we are a small country with quite substantial economic problems and with a very harsh inflation rate, we must realise that in a world context we are one of the developed countries in that we are a member of the European Community which is one of the wealthy power blocks in the world. At this time the world itself faces one of the most serious periods of real crisis, in human terms, with the possibility of mass starvation on an enormous scale particularly in the developing countries which have no natural resources— what are now called the fourth world countries to distinguish them from the OPEC and mineral producing countries.
We must not allow our own internal problems to prevent us both from assuming our own share of the moral responsibility for a redistribution of world income and of world capacity. We should speak with a strong and clear voice in encouraging the other members of the European Community, and the countries of the western world in general, to act with much more urgency and endeavour both in the immediate terms called for by the World Bank in its attempt to establish an emergency fund for concessionary grants to these developing countries and also in evolving new structures in international co-operation which will eliminate the totally immoral, unjustifiable and unsupportable situation where you have mass starvation in some countries of the world and over production in others.
Therefore, I conclude by reminding us that this particular Finance Bill is about the distribution of the wealth of the country in a domestic framework. However, it must be examined not only in relation to short-term domestic economic problems, but to our long term potential and also bearing in mind our capacity to meet our international obligations. I would like to see more evidence that the economic situation is first on the order of priorities of the Government at the moment. Coping with inflation should be their real priority, and not discussion on other matters where there is no political will to bring about a solution.
I would like to ask the Minister whether in view of the very serious economic situation he is prepared to set about achieving a consensus—or a social contract—for the introduction of a prices and incomes policy? This is something which he should try to achieve over the next few months as a crucial part of the essential framework within which we can continue to have a reasonable society and continue to have a community which accept without friction the necessary drop in real income and real standards of living over the next few years.