Finance Bill, 1974 ( Certified Money ) Bill ): Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Before the adjournment I adverted to the fact that any individual who was able to pay tax should not be allowed to evade the income tax net because those who evade tax make the burden heavier for people who must pay.

I accept that in certain cases, such as large absentee farmers, the Government would be right in considering whether they should pay income tax. I should like to differentiate between that type of farmer and those in some of the Northern counties, the midlands and the west. The number of larger well-to-do farmers there is very limited. This year in particular is the wrong time for the Minister for Finance to introduce this kind of legislation. We have just entered the EEC. There has been grave disappointment about our position at present. Farmers thought it would be a boom time. We know now that because, I suggest, of mishandling in Brussels, our agricultural prices on the home and export markets have become depressed to such an extent that many farmers are almost bankrupt. This is a time when farmers would expect to receive substantial credit because any profits they make they plough back into farm development.

Agricultural methods have changed more in the last ten years than in the previous 2,000 years. New types of machinery and so on have come on the market. For that reason it is wrong for the Government to tax farmers especially in a year such as 1974. We are told in available statistics that farm incomes have dropped 10 per cent from those of 1973. The number of farmers has increased since 1973. If a farmer employs a man and the latter must pay tax it is only right that the farmer should pay tax also. Very few farmers are at present able to employ farmhands. It has happened in my area that the farmer who employed a man became the employee the following year.

The Minister should have a second look at the matter of tax on valuations. The Griffith Valuation Act was drawn up about 1851. There were many criteria included such as suitability of the land and the easy access to lakes and rivers for the growing of flax. That applied to a large area in Ulster. Much of the land there was valued because it was able to grow flax. Flax growing has now vanished completely, yet those valuations still remain. There is another problem in relation to valuations. No examination was taken of the soil. We know that a large area in the north-west is composed of drumlin soil—soil that is very clammy and damp—on which cattle cannot graze except for a few months of the year. This is a drastic situation and one which would eat into any profits which a farmer might try to eke out of the small farms from which the majority of my constituents come.

We as Members of the Oireachtas should be very concerned about the economic state of the small farmers. They are the hardest working people. They have a seven-day week all year round. People may ask why they remain on the farms. It is their way of life. They wish to remain and they should be encouraged to do as far as possible and I would not agree with any measures which might give the impression that farmers were unwanted members of our community or that they should not make efforts to modernise their farms. This year the legislation only applies to farmers with £100 valuation, also farmers with £50 valuation who are also engaged in other occupations. It is the latter group of farmers about whom I would be most concerned. There had been a policy in the previous Government and the Fianna Fáil Party that where farmers had small or uneconomic holdings they should have other employment so as to augment farm incomes.

Under this Bill, if a man is skilled in any way and takes on extra work he will be caught in the income tax net. This is very discouraging to many of our people in the west and north who emigrated to England in the bad years, accumulated a little wealth and returned home to work in the local factories. This was what we wanted to happen. When such a person returns home he will find that because he works, say, in the local factory and earns a few pounds he will pay tax on it along with paying tax on his farm income. I think that is very unfair. By coming back to his house, that was probably built with State grants, he is occupying a house that would eventually become vacant. There are too many vacant houses at present in the western and northern counties. We want those vacant houses filled with people who will be employed locally in some type of industry and who will live on a little mountain farm or a small farm. I do not think this type of taxation is any improvement at all. It reminds me of the old valuation laws we had in Ireland long ago when, if a man put in an extra window or added an extra chimney to his house, his tax was increased. We should get away from that type of thinking once and for all.

There is another matter that concerns me and that is the markets for our agricultural produce. It is my firm belief and the belief of many people that the record of the Minister for Agriculture and Fisheries abroad—he may be a decent man and I have no reason for saying that he is not—on behalf of the Irish farmer is one that I would not envy. From the very beginning neither he nor the staff he has taken out to Brussels with him have exercised the authority and the dynamic force that they had by virtue of Ireland being one of the nine members of the EEC. I think it was a disastrous policy of a Minister to sit back, while he had a veto, and allow cattle from Russia and other non-member countries to come into the EEC and depress the price of cattle. It is a tragic state of affairs to find that there are small farmers who have no other livelihood losing £20 or £30 per head on cattle that they must sell this year to meet their commitments.

Regarding this taxation gimmick, the idea of expecting a farmer in rural Ireland who has to sink his own pump if he needs water because the water schemes have not been pursued vigorously enough, and who has to instal his own sewerage system and so forth —he may get small grants but they are minimal—to pay rates and at the same time pay income tax is utterly ridiculous. A farmer engages in the hardest occupation in this country. As I said on other occasions in this House, but for the small farmer there would be no need for any rural national schools, school buses, colleges, hospitals or any of those services because we could wipe out whole areas of the country if we pursue legislation such as this which will eventually tend to enforce the Mansholt Plan under another name and drive the small farmer completely out of existence. The Forestry Division would probably then move in on his heels to take over and plant that vast area of the country so that tourists from abroad can come along to admire the beautiful plantations.

There is very little employment content in forestry so far as I know. It would be disastrous if the situation were allowed to develop where we would have huge forests and no population. I should much prefer to see the small farmer and his wife and family living in that area in reasonably comfortable conditions without any great weight or threat of taxation hanging over him. I can assure you that he is paying his share of taxation so far as food prices and household commodities are concerned at present. His back is bent low enough already without trying to grind him completely into the green earth from which he sprang. We should be very slow to decide to saddle the majority of our farmers with any type of taxation such as this. It is a well known fact that when you insert the thin end of the wedge it is very easy for other people to follow on. I should not like a situation such as that to emerge.

I do not want unduly to delay anybody in this House. I know the time is limited and because of that I will cut very short a few of the observations I wish to make. At a time like this one would be expected to take some note of what has been happening so far as the Government are concerned since they came into office. Many of our people believed that a change of Government was a good thing. In some instances they said that a change would be the ideal thing to happen. A new generation has grown up since 1957 when we had the previous Coalition Government. I do not wish to be unfair to any member of the Government or any of the Senators or Deputies who comprise that Government, but I believe and I think the majority of our people believe, that the news media and others put across the new Cabinet as the greatest thing that ever hit western Europe. Individual members of the Government appeared so often on television that you would get them mixed up with the television personalities themselves. Many of them are academics, the people who know it all.

Many people in rural Ireland— without casting any reflection on the Cabinet—are very sceptical of the ability of academics in general to tackle the ordinary down-to-earth problems which an ordinary farmer or individual would encounter. It reminds me of a man who on one occasion asked advice and he was told: "You get the advice of the economist. It will be good sound advice but if you do the very opposite to it you cannot go very far wrong."

It may not be as bad as that so far as the Government are concerned but I believe there is something in that phrase. Individual Ministers have tried to put themselves across on radio and television not collectively as a Government but as individuals, great opportunists, the people who had all the answers. Many of the people are annoyed because of their lack of ability to make decisions. We spent months here on the Constituencies Bill. It had only one aim in mind and it succeeded in depriving us in Ulster of two seats and allowing 19,000 people in Dublin to elect a Member and 21,000 in our area. We have scare headlines in the newspapers regarding housing——

I am afraid one does not see the relationship of this to the Finance Bill.

If you say so, Sir, I do not want to go against your ruling. I thought on the Finance Bill we had an opportunity of saying a few words regarding the performance of the Government seeing that this is an Appropriation Bill.

In regard to general financial policy. The question of the general administration and performance of the Government would appear to be more appropriate on the Appropriation Bill.

I appreciate that. I have not any desire to prolong the proceedings by making a long-winded speech. I will conclude by saying that the 14-point plan that was put across to the people at the last general election was pie in the sky. As I said already with regard to the Minister for Agriculture and Fisheries. I feel he is not measuring up to what we thought he would do in so far as our markets abroad and our entry into the EEC are concerned. I do not know who actually speaks for Foreign Affairs at present because there are so many pronouncements on it that it is difficult for an ordinary individual to decide which of them is representing the country as Minister for Foreign Affairs.

I remember the time when there was tremendous criticism regarding Mr. Aiken, who was our Foreign Affairs representative then, when he advocated in America that Red China should be admitted to the United Nations. He was almost blackmailed out of existence by the Opposition then but at the same time he succeeded. It is so well accepted now that we even have a Russian Embassy in this city. I am glad to see it. Eventually they have come around to the ways of thinking of Fianna Fáil.

I should like to touch briefly on the matters of inflation and prices. I submit that the Government are doing nothing whatever so far as price control is concerned. The real reason is put down to the oil crisis. That has been played out. This oil business is nonsense. To put the people in good humour they say: "Now we have discovered oil in Cork. Mair, a chapaill, agus gheobhair féar—live horse and you will get grass and everything will be all right."

That day-to-day attitude is not the right one for a Government. A Government should be able to make decisions and the present Government do not appear to be able to make important decisions. So far as education is concerned, I know of a few important decisions that had to be made. The Minister for Education divided two schools under different management in the same schoolyard. Decisions such as this should have been faced up to and were not. Government should be in control. It may be difficult for the Coalition Government because they are composed of people with different outlooks and may be poles apart in various matters. It must be difficult for them to muster a united front. There was an example of this recently in the Dáil. The Cabinet did not know nor did the Taoiseach appear to know or indicate to the other members of his Cabinet what was happening. They were all in disarray as far as that simple vote was concerned.

If that happens with regard to other important matters, it would be a disastrous thing for the country. I am not clamouring for the Coalition Government to break up or fall apart but from past experience and from what is happening at present, it looks as if they are on the downhill—the danger signs show this. It would be better if there was stability. The main thing that kept this Government in office is that people in general have said: "At least, we know there is a united Fianna Fáil Opposition ready to take office. As bad as things are, the same thing happened in 1951 and in 1957. We know that Fianna Fáil will eventually return to office and that they will get the ship back on an even keel again".

The Cathaoirleach has said that I should not refer to matters outside financial policy. I will spare the Parliamentary Secretary any reference I was going to make to the River Erne or the River Shannon. However, he will probably get the hint.

Government finances are rolling in because of VAT. In other words, the Coalition Government have taken office at a very opportune time. They received extra money from the EEC as a grant for social services last year, and now they have VAT ticking over. In that way, for the time being at least, they are not very concerned.

Finally, I should like to refer to the many people who are on fixed incomes and on pensions. It is very difficult for them to eke out an existence and to survive at present. We, in Fianna Fáil, have been proud of our efforts so far as social services are concerned and we welcome any advance that will be made by the Coalition Government in that line. We would all bend over backwards to help those who are in need.

I should like to refer also to a matter of great concern, particularly in the north-western area, that is, the matter of insurance. People have to pay very high prices for insurance on heavy motor lorries, and, indeed for private cars. We have no railways in our area. Many hauliers have been faced with staggering insurance increases and this will cause an even higher increase in the cost of provisions. The Government should make a decision on this. They should be firm and ensure that insurance companies will not put the hauliers and others out of business by charging exorbitant premiums. They are the substitutes we have for a railway. Many of our roads are winding, and we do not want this extra burden that could put our industries out of existence altogether. If these lorries are forced off the roads through increased insurance premiums, people are likely to lose employment.

I am as conscious as any other Senator rising to speak of the fact that the Minister only got a rest last night after 48 hours. He came to the Seanad yesterday, after 23 hours continuous discussion in the Dáil on this measure before us. There is hardly any argument that he has not heard before on the items contained in this Bill. I do not claim to be original and for that reason, I shall concentrate on the economic background to the budget, which obviously must have influenced the Minister's and the Government's thinking in framing it and which has dominated this debate from the beginning. The detailed examination of the Bill can remain until the Committee Stage.

I should like to look at the economic background for two reasons. Firstly, because of the extraordinary introduction to the Opposition's case by Senator Lenihan, which I shall deal with later. Secondly, because I want to direct some critical remarks towards the Central Bank and, in particular, to its annual report for 1973-74.

No matter which side of the House we belong to, we must accept—and I am sure the Opposition must accept the point in private, if they will not admit to it in public—that since the Second World War there has not been a more difficult international economic situation. This has been caused by two totally different yet converging tendencies. In the first place there has been inflation caused by world food shortages and an exploding demand for commodities; in the second place by the more recent upheaval in oil and energy prices. It is true that one preceded the other by a period of about two years. There is hardly a commodity or a food in which the world trades for which prices are not now about 200 per cent to 300 per cent higher than they were in the corresponding period last year. These have had their impact on the domestic prices within every single economy throughout the world. AsThe Economist remarked during the past few weeks, inflation within many economies literally depends upon a very ancient aspect in the affairs of man, namely, whether or not there will be a good or a bad harvest this year. One can almost share Mr. Breznev's anxiety that there should be a good Russian harvest. If there is not, that is going to have its impact here in Ireland in terms of imported inflation such is the degree of interdependence of world economy today.

Secondly, there is the question of the sudden and sharp reversal in terms of trade between ourselves and the oil-producing countries and this represents a significant shift in the balance of advantage towards them. It not only reflects a transfer of resources from us to them, but it also means a deterioration in the balance of payments situation of every economy which depends on the importation of oil as a source of energy. In addition to the detrimental effect of the balance of payments it, of course, had its own impact on the inflationary spiral because oil is not only to be regarded as a source of energy. As a source of energy it finds its way into the costs of production of practically every manufacturing industry, whether that industry uses electricity or oil. It is also a raw material in the sense that it is used as the base product for fertilisers which, therefore, affects food prices, and it also affects the plastics industry for which it is a basic raw material.

There is no point in laying at the Government's feet responsibility for a feeling of instability. There is instability everywhere in the world today. The thing to do in this situation is to keep one's head. It is the task of governments, particularly in the western economies, to maintain a sense of proportion, to recognise the problem for what it is, not to panic and to carry their peoples through a very difficult time. We must give an opportunity to the world economy to settle back into a more stable system of trading relations. They are not going to be the same trading relations as existed 18 months ago; they will be different. They will lie more in terms of advantage of the Third and the developing countries.

In some ways that is not a bad thing but we have to pay the price of this change and the price we have to pay is a certain lowering in our own standard of living and the continuation of inflation for some time.

As I have said, we must permit world trading relationships to settle into a new pattern. In my view that will take about four or five years. For that reason I would argue most vehemently against any course of action that would seek to redress, in too short a period, the undoubted shock we have received in terms of trade and the impact that has had on our balance of payments.

I take the point of the Central Bank that it would be imprudent to ignore in the long run this deterioration in the terms of trade, and of its impact upon the balance of payments. But I would equally argue that it would be totally imprudent to try to remedy the situation within 12 months or 18 months. The shock that would be administered to the domestic economy would be too severe and too sudden. It would be fatal if the monetary policy and the budgetary policy, of this country, and of other developed economies, were all employed together at the one time in an attempt to deal with inflation, and, if at the same time, they were also trying to deal with balance of payments deficits by cut backs in public and private expenditures. If that happens then they will most assuredly export to each other, not products or services, but unemployment. The Central Bank makes the point in their report that if one single major economy were to take upon itself the task of countering the inflationary spiral then, perhaps, the smaller dependent secondary economies such as ourselves might have a more rosy economic future. They mentioned the case of the United States as perhaps being the leader. That is a good argument but it should not apply, even by implication, to us.

One is also conscious of the fact that we are part of the European Community and within that Community the major economy, Germany, even though it is governed by a party with which we have fraternal associations, is at the moment pursuing, in my view, the wrong economic policy even internally, and certainly for the rest of Europe. Our degree of interdependence with the EEC means that the rate of economic progress in the UK, France, Italy, and, particularly, in Germany will determine our own rate of economic progress. The Germans have, for the reason of maintaining, as they see it, inflation at an acceptable level which to them is about 7½ per cent, deflated their own economy and this is having a detrimental effect on the rest of us. This fact bears out the warning I have just given against panic deflation of the world's governments.

The current temptation is to resort to demand control as an instrument of monetary policy in the belief that demand control can effect inflation. I do not think that policy is valid at the moment. I do not think there is any economist as I said before, in relation to the budget and other economic matters, who can adequately explain at the moment what is causing inflation. Reference to the current issue of the world's theoretically premier economic journal, would show that there is an exchange of notes in theEconomic Journal between leading economists as to the nature of hyper-inflation and great evidence of confusion amongst them as to what constitutes its basis. For that reason it would be wrong to resort to what were previously prescribed as classical remedies for inflation, in particular, demand control and the use of the budget as a means of regulating aggregate demand.

The Central Bank criticises the budget of last year, and the previous year, for deficit spending and, by implication, they are admonishing a warning by advising the Government against the repetition of such a policy next year in the belief that keeping a budget in surplus or in equilibrium will have a counter inflationary effect.

It is interesting to note that the chief economic adviser to the Treasury in Britain is arguing the opposite before the House of Commons Estimate Committee and saying that in his view they do not know for certain what is happening. He has said that it may be, perhaps, that the Phillips Curve, upon which much economic policy has been based, has not only gone out of operation but has reversed itself into mirror image and that therefore, Government policy, based upon it, may be doing the opposite to what the policy makers intend it to do. That is why there is a danger of using old prescriptions for what is a new problem.

Apart from inflation we have also to deal with the question of the balance of payments because the budget plays an important role in adding to aggregate demand which, in our case, adds to the balance of payments deficit because of our high propensity to import. Hence the Central Bank's aversion to Budget deficits. We have to make the distinction, which is now being made, but which was not made by Senator Lenihan, between the oil deficit and the non-oil deficit. We cannot look at the total deficit in the balance of payments and say that because last year it was £60 million or £70 million for a particular country and because this year it is £200 million therefore that country is going on the financial rocks, if in the meantime, the oil bill for that country has gone up by £120 million or £130 million.

There is no developed economy that has not suffered this particular trend in its balance of payments. What we, and the western economies have to do is to try to recycle the amount of extra money we are now expending on the same volume of oil imports, through deals with the Arabs, if they are willing to play that game and if they are willing to recognise that their own self-interest lies in that direction. It is assuredly not in their self-interest to permit the western economies to come tumbling down because of monetary constraints imposed by their unilateral price increase for oil and energy products.

It was wrong for Senator Lenihan, the Fianna Fáil Party, and the economic commentators who agree with them, to try to develop a sense of panic because of the increase in the balance of payments which is primarily brought about by the increase in the price of energy and which is also brought about by the increase in industrial products which are also consequential upon the increase in energy. If for this year we are to have from £250 million to £300 million deficit we are doing well when one considers that of that deficit the oil deficit could account for approximately £100 million to £150 million.

That money represents a shift in resources to the oil producing nations, particularly the Arabs and it is money out of our pockets. In my view we must do two things to offset this loss of demand. We must not pursue a policy of panic in relation to the balance of payments deficit, and, secondly, we must in the short run insist that that money is replaced in the domestic economy so as to maintain our own living standards. I know that it is impossible in the long run to ignore the fact that this shift in resources has occurred and will persist. But until such time as the public becomes conscious and aware of this particular fact any government and any democracy runs the danger of imposing, too quickly, the effects of this shift in the trade of oil and energy. If we do not ease gradually into this new situation our standard of living will fall too precipitately with serious political side effects. That £100 million to £150 million can only be replaced by external borrowing and it must be replaced otherwise internal aggregate demand will fall and what is of more importance to me, jobs will disappear.

I disagree therefore with the Central Bank in their criticism of the Government's policy on foreign borrowing. What is the alternative to foreign borrowing at the moment except a diminution in demand and an increase in unemployment? An increase in unemployment for whom? For the economists of the Central Bank or for the other exponents of orthodox conservative economic thinking who usually hold secure jobs; or unemployment for people who work in manufacturing and service industries, the working class people? That is for whom the unemployment is prescribed as a remedy when one talks about these logical categories of "inflation", "balance of payments deficits",et cetera.

The prescription is contained in page 9 of the Central Bank Report. It is an interesting one. I quote:

Those interests who, in an unqualified way,

——It is an interesting shaft at one's opponent that he speaks in an unqualified way——

advocate expansion of public expenditure, foreign borrowing and bank credit in the immediate interests of economic growth and employment would do well to keep in mind that an expansionary policy can lead only to disaster if it is pursued to the point of accelerating the relative increase in domestic costs and prices——

The Central Bank have a responsibility to spell out for us what they mean by disaster and to quantify it and to place the parameters upon Government policy in terms of inflation and balance of payments deficit, and to balance that off in an equation with increase in unemployment. The Central Bank stated that inflation can be tackled in a certain way and it is always interesting that inflation is to be tackled in a way which leads to unemployment. But the first priority of economic policy, and the budget and this Bill, which is a means of giving expression to that policy, must be to protect and sustain employment. It is that priority which is expressed in the Government's 14-points, a programme upon which this Government is founded. At the moment the choice is between inflation and employment, and inflation and unemployment.

This is a stark choice. It is madness to think that we, as a small open economy, can control inflation by an incomes policy, demand restriction and unemployment because no matter what we do as an economy we will have imported inflation which will be unacceptable in terms of what went before in terms of price increases.

The Central Bank advert to the fact that 50 per cent of our inflation last year was caused by domestic factors. The bank have traditionally attacked, and, because of what they represent will continue to attack, incomes as a main cause for inflation. We should remember, that we in this House, and in the other House, were brought in by the Minister for Labour to give effect to a Bill with limited income increases in the banking industry last year, and that the Minister has had to refer to the Labour Court an agreement recently made by the banking industry with their own employees as possibly being outside the scope of the national wage agreement. Could I suggest to the Central Bank, as the people who see themselves as controlling the banking industry, that they would put their own house in order before they direct their critical shafts elsewhere?

It is argued by them that external inflation counts for only 50 per cent of total inflation and that we are responsible for 50 per cent of domestic inflation. Yet the Central Bank do make the point, and do not appear to follow it through logically, that there is at the moment in our wage demands an anticipation of inflation that is about to happen. In other words if one begins to import inflation then wage and salary earners anticipate that this will continue to happen and they will add that element into their own wage demands. Therefore, while it eventually works its way into the economy as a domestic element of inflation, it is in the first place triggered off and caused by external inflation. It is madness to think that workers and salary earners are not going to behave in this fashion.

One recipe of the Central Bank for controlling inflation is given on page 10 of their report, and they use a model built by the National Institute of Economic and Social Research in Britain. It runs as follows:

... if import prices were to increase from now on by 10 per cent per annum, and productivity by 4 per cent, but wages and salaries, after the expiry of the current National Pay Agreement, were to rise only at the same rate each quarter as prices had risen in the previous quarter, the rate of price inflation in Ireland could be reduced to less than 7 per cent for 1976.

That is a very attractive formula. I heard it before when Fianna Fáil were in Government and we were in Opposition. What does it mean precisely? It means a standstill in the living standards of wage and salary earners since prices are to pace wage increases. It means that the 4 per cent productivity increase is to be used by other sectors of the economy and there is to be no increase in the real incomes for the working class people.

What about profits, dividends, professional fees and other earnings? There is to be no limitation on them. This, of course, is the old problem of dealing with an incomes policy, which inevitably degenerates into a wage and salaries policy, in other words control of people who can be dealt with because their incomes are known and therefore controllable.

What the Central Bank are saying here is that the benefits of productivity are not to be shared equally throughout the economy and so there will be a shift in the distribution of wealth within the domestic economy to the disadvantage of salary and wage earners. This is not acceptable. I do not believe it would be acceptable to the Labour movement and it is not on politically and it would be an unwise adventure, an unwise excursion for any Government into the realms of statutory incomes policy along the lines therein indicated. We have just seen what has happened in the UK and of the fate of a Government who attempted a statutory policy and the fate of the economy where the attempt was carried out.

Inflation is indeed a major political as well as an economic problem. I take the point of the Central Bank that in certain respects it is a threat even to democracy because it upsets the balance of aspirations and of what is achievable. It sets up social stress and strains. It is a danger and the Government do not need to be reminded of its seriousness. It is fair to state that for example the Government's policy of price control is having an effect, and that since the Government took office, we have reached a position of some improvement in the international league tables.

I am quoting from OECD sources using the OECD Main Economic Indicators for June, 1972, 1973 and 1974 and the Central Statistics Office. By reference to the international rate of price increases we were the fourth highest out of 22 in 1972 and for the last year of Fianna Fáil Government we were the third highest out of 23. For our first full year in office we were eighth out of 23. These are the independent sources given by OECD and the CSO. I admit this is not an acceptable rate compared to what one had before, but at least Government policy is having this discernible effect on the rate of price inflation and is an indication of their determination to ameliorate its worst effects.

In view of what Senator Dolan stated about the use by the Government of the impact of oil upon the economy as a source of inflation and that we were using it as an excuse for inaction, it is instructive to turn to the table on page 18 of the Central Bank report, to which he had the same access as I had. There one can read the analysis of the consumer price index and compare the second quarter of 1973 with the second quarter of 1974. One can take the elements of the consumer price index that are directly referrable to increased energy costs. In the first case fuel and light, and in the second case, transport. Both of those elements accounted for only 8 per cent of the CPI in the second quarter of 1973 but they had gone up to a combined 31 per cent in the second quarter of 1974, an increase of 400 per cent in their contribution to the total price rise. In the same period, food had dropped from 55 per cent of the total price increase down to 22 per cent. This is a startling indication of the impact, quantified here by the Central Bank, which increased energy costs have had upon domestic prices; so startling, in fact, that the Central Bank have referred to it, not only by way of table but also by way of commentary in the section dealing with the national economy, beginning on page 17. The fact is that the increased cost of oil is fuelling inflation at an alarming rate. Public life and public debate on the issue of inflation would be well served if we all used fact rather than fantasy as is the wont of the Fianna Fáil Opposition.

Budgetary policy, in relation to the economy this year, was correct. Growth, which means increased employment, was the correct objective. Growth that can be directly translated into employment must be paramount but we have to take account of the unique world economic situation at the moment. I recognise in the Opposition party men who at least had the honesty to recognise this danger in private, if not the courage to admit to it publicly.

I wish to refer to the OECD Economic Outlook, July, 1974, published on the 24th of this month, which will put the situation into some perspective, particularly in the light of Senator Lenihan's extraordinary contribution, at the beginning of this debate. According to the OECD. I am quoting from tables on pages 9 and 10 of their report, the United States economy is expected in the present year not to show a positive growth rate, not even a modest 1 or 2 per cent, not even a standstill but is expected to decline by a ½ per cent.

The economy which has been the centrepiece, and the cause of much admiration amongst economists and policy makers, that of Japan, having shown a growth rate last year of over 10 per cent, is expected, in the current year, to show a decline of 1½ per cent. More ominously still, the economy upon which so much of our own growth depends, the United Kingdom, shows a forecasted decrease of 2 per cent. The whole of the OECD is expected to grow by no more than 1 per cent. This is a particularly gloomy economic outlook for the western world, the developed economies of the world. If one takes out of that the component of the EEC economies, one finds that for them there is an expected total growth rate of 2½ per cent. That places in proper perspective the expectations for the Irish economy under the budgetary policy of this Government. I am not quoting from the Minister or any domestic source but from the OECD. They give here the expected growth rate of 3½ per cent for the Irish economy—one of the highest in the western world.

It is that forecast for this present year, which I might concede is even a little too high which was ignored by the Opposition——

They had not seen the OECD report at that time.

It was published on the 24th July, 1974. It could not be any more recent than that. The Senator had the same access to it as I had. Of course, the Senator did not want to use it; that is the difference. I am saying that it is an irresponsible attitude, at a time where there are grave world economic trends, to suggest that this economy is going into the sort of self-induced decline as was suggested by Senator Lenihan, at a time when developed economies of the world are showing negative growth rates. The situation is very serious for the world economy but in sustaining our position we are all doing well and better than most. That is the result of Government policy——

(Interruptions.)

I did not interrupt Senators from the Opposition once when they were speaking a load of ráiméis and nonsense. The Opposition should learn to take criticism as well as dish it out. They have a great propensity for dishing it out but little for taking it. Sit there and take it. I sat here and listened to Opposition Senators. I heard Senator Lenihan quoting statistics for his own use and benefit. Fair enough; that is his job.

Give us the facts.

The facts are OECD Economic Outlook, July 1974, for publication in Paris, at one minute past midnight, on 24th July, 1974, forecast for the world economy——

Did they say anything about President Nixon in it or about the Government in England? That is an outlook too, you know. Give us a few facts.

As I have been attempting to say through these interruptions, the world economy is showing a very dangerous downward trend at the moment. OECD countries have a projected 1 per cent growth; the EEC have a projected 2½ per cent growth and our own economy has 3½ per cent. In the circumstances, we must continue to have the maintenance of growth and the sustenance and defence of employment as our primary economic objectives. Therefore we need continued budget deficiting and, if necessary, foreign borrowing.

It was an extraordinary analysis of the economy by Senator Lenihan that in having referred to the Central Bank report he completely misunderstood the nature of the Central Bank's statement on monetary policy, on page 14, and quoted it as a forecast for the balance of payments when, in fact, it was a statement of what the bank saw as the economic objectives of Government policy. He confused the two. Using that statement as part of his prophesy of doom for the economy he laid at the Minister the charge that there was a fall-off in capital inflow, in sharp and distinct contradiction to the massive inflows when he was in office. Yet, on the very page from which he was quoting in the last three lines, there was a contraction of what he was saying:

Capital inflows are expected to strengthen the growth in the resources of the banking system over the coming months——

But of course, the Irish economy is in difficulty because it is a small peripheral open economy. To a very great extent it is dependent on what is happening in the outside world. What is happening in the outside world, at the moment, is unique since the War in terms of its seriousness, which, as I indicated at the beginning, is caused by two different but now converging sets of factors, the incredible rise in commodity and food prices and the deterioration in terms of tradevis-a-vis the western world because of the increased energy costs. It is these facts we must keep in mind when evaluating the performance of our national economy and on the basis of any impartial analysis we are doing well, despite the difficulties.

I welcome the taxation on farmers, contained in this Bill. I have no hesitation in saying it is time farmers of sufficient means were taxed. There is never an opportune time to introduce a new form of taxation. As the Minister said recently, nobody likes paying tax. Of course, farmers' incomes are cyclical, because to a great extent they are dependent upon factors which are not even in the control of man but in the hands of God, such as the weather. To meet their special and unique case I believe that income averaging might be a desirable and effective method of administering tax on their incomes. I would give support to the concept of the rolling average of three, four or five years, as a means of equitably assessing their incomes because otherwise in the year of high profitability their profits would fall into the higher brackets for taxation, and in the year of lower income they would be taxed at the lower rates. This would lead to too much fluctuation in their liquidity situation and impose strains on their working capital.

I also welcome the measures in the Bill to eliminate tax evasion and avoidance. I know this to be one of the hallmarks of the Minister's approach to tax equity and I welcome it very much because it is extraordinary the amount of brains and expertise that is devoted in this country to assisting people who can afford to pay experts to avoid paying tax. One thinks of the hundreds of thousands of ordinary taxpayers who have no means of avoiding the tax burden, pensioners on contributory old age pensions, and so on, who have got to pay their just tax. At the same time, we have people who should know better, who hold responsible positions, behaving in an anti-social way, using people who, very often, have just left the Government service and their experience of the Administration to try to avoid something that is their social obligation.

I make the last point simply because it was raised by Senator Dolan. I want to console him and other Fianna Fáil Senators that they need have no fear about this Government, or about our respective determination to see to it that it will continue. They had better get quite used to the seats opposite because they are going to be in them for quite a long time. We have no plans whatsoever to depart from the 14-point programme upon which we were elected; neither do we have any imagination of repeating previous happenings. I can assure the gentlemen on the opposite benches, who have only now begun to realise where they are, that they had better sit down, and study, and get very accustomed to being over there.

That last statement of Senator Halligan is somewhat surprising because, no more than ourselves, the Government parties themselves do not know what their Taoiseach is going to do. Last week they did not know what he was going to do. This week they do not know what he is going to do and he might do something during the summer recess that they will not know until the thing has been done. In fact, judging by this Bill, one can see from the delay in bringing the Bill that the Minister is obviously very lazy. I do not believe that he is. In fact, I would assume quite the opposite. That being so, there must be other reasons why this Bill was not brought in much sooner.

We all know that many people had to be satisfied before this Bill was brought before either House. There were the soldiers and the sailors, the racehorse owners and the very large farmers, the 2 or 3 per cent of the wealth of this country, who had to be satisfied before this Bill could be introduced in its present form.

I have not got any great knowledge of high finance. I was not either lucky, or unlucky, enough to know a great deal about it, but I know a great deal about the ordinary facts of living and the way of life in this country. For Senator Halligan to stand up and pronounce to this House a forecast of how we will be at the end of this year, or next year, is a very slick way of trying to slip out of a noose that is steadily tightening on the necks of this Government. Indeed, the trap has been sprung and the pressure is on. That is very obvious. During the council elections I read a statement by a former Member of this House who was very able in the use of words. I quote from a great character, a great politician in his own way, the one and only Senator Joe Lenihan. He said—I thought it wisely worded and very appropriate— in 12 months of his being out of politics he had seen a thriving nation growing to poverty; he had seen a situation where a suit of clothes was costing £50 and a suck calf £2. He saw a situation where 8,000 pigs and sows in young were being killed each week in the slaughter houses. Yet, in the supermarkets, prime bacon was being sold at the abnormal price of 52p per lb. That summed up the situation. It still sums it up. We can blame lots of things for it. Senator Halligan tried to blame circumstances outside the control of the Government. He blamed oil and food shortages. It was only in 1973 that the Government allowed a draft statement to be made from the EEC in which it stated to the agricultural community that the price of beef in 1974 would be greater than it was in 1973. It stated that there would be a scarcity of beef. It was not, as we now know, outside our control.

It is quite true to say that the oil situation played a major part. But what have the democracies of Europe done about oil? Can any nation as big as America, or as small as Ireland, claim they are independent when, in fact, tomorrow morning for the ordinary functions of this small nation, or the functions of a nation as great as America, they are dependent on Saudi Arabia, Egypt and all the Arab countries who supply oil? Is this independence in the true sense? Have the European democracies tried to do anything about the oil situation? Is there an alternative? If there is not an alternative, then we have no real independence and, if we really want to be independent in the real sense of that word, we must now try to find an alternative to oil as a source of energy and power so that, in time, we will be totally independent The Government must take action now and an investment must be made immediately to find an alternative to oil. In this year of 1974 it should not be beyond the ability and ingenuity of man to find an alternative.

I do not declare myself out of order in talking about oil because it is the big whip being used by the members of the Government to defend this desperate piece of legislation. First of all, I should like the Minister to answer to this House. He has an obligation to do so. He must tell us precisely and exactly why this Bill has been so long delayed in coming before the House. Who was responsible for the delay? The poor law valuation is to stand. Is that honest? Is it fair? There is nothing more frustrating than the system used in diagnosing poor law valuation. Even in the last two years the poor law valuation on new houses has varied immensely. The poor law valuation on agricultural land is so diverse that it is hard to fathom it. I could give instances of the unfairness of the PLV system which would be as thick as the book the Minister has in front of him. I know a man who has 16 acres of non-arable land and a PLV of £28.72. I know another man who has 188 acres of the finest arable land and he has a PLV of only £11.50. Those are two instances to show the extremes. I know a widow who has a valuation of £22. She has a thriving little business in farmhouse accommodation. The Minister now sees fit to tax it.

We speak of investment in social welfare. The investment over the last 16 months has been contributed solely and entirely by the agricultural community; £30 million pounds saved on agriculture last year has been injected into social welfare. That is a fact. The people who will suffer are those who are trying to rear families on farms of 20 and 25 acres, particularly in my county. They will now, according to this Bill, be eligible for income tax. There are in my county people living on small farms with a PLV of over £20 who could not rear children on those farms. They have to go to work in Galway city to jobs willingly provided by the previous Fianna Fáil Government. Not only will they pay tax but they will lose half as much again on their new assessment because their poor law valuation is over £20. I am stating facts. The Government regret this. In circumstances in which the poor law valuation system was inequitable, they have used it as a means of assessing tax.

The Government will rue the day —maybe not too far hence—when they deprived those men who willingly went out to work and played their part in rearing families. They are being cruelly abused by this Government. Any man working in the city of Galway, with a valuation of over £20 will, when this Bill is passed, have his assessment cut in two. He will be paying an assessment on an assessment as provided for in some sections of the Bill. He will now pay more tax because he was not able to derive a living from his land and had to go out to work.

I cannot see why a man with 1,000 acres in the Curragh, who trains the most highly bred racehorses in Europe, can get away scot free.

He will not.

I am trying to help the Senator.

There is no need to help me. I can read. Those were the people who plagued the Department and the Minister and used every single weapon they could find to fight this Bill so that they would go scot free. They are, in the opinion of the people, getting off scot free. That is the opinion of the people and, if they are wrong, the Minister must tell them so. The Minister must also tell them that the man living on the Curragh will get as fair a crack of the whip under the income tax code as the man, his wife and four children who live near me, the man who works in Galway, with a valuation of £20 and 16 acres of land. This man did not want to stand outside the labour exchange so he went out to work; he will now have to pay income tax while the racehorse owner on the Curragh is allowed, under this Bill, to evade the payment of income tax.

It is sad that now, when tourism is not what it used to be, and the small farmhouse accommodation scheme was beginning to pick up, those who operate the scheme should find themselves assessed for income tax.

They are not. The Senator has not read the Bill.

They are included. I shall put down an amendment on the point if it is not explicit.

Section 16 (3).

Indecisiveness, as displayed by this Government, is rife. Amendments will be put down on matters which are not clear and I hope the Government will entertain them, though they pay little heed to our amendments. We had several controversial Bills passed here without any change because of the voting power of the Government. Unfortunately, for sad reasons, we have been deprived of some of our members and are not as strong as we should be in order to prevail upon the Government to accept our amendments.

What investment have this Government put into agriculture since they took office? There has been no investment in agriculture by this Government. Instead, they have deprived agriculture and given to social welfare every single copper they could find. Now we have reached the stage where they are going to draw more money. From where? The Government have not got the courage to admit that we are now committed Europeans. But how can Europe judge us when we cannot judge ourselves? We must admit we are committed Europeans and, if we are to make progress in Europe, we must be trusted. If we are not trusted, we cannot make progress. It should be made clear by every Minister that we are totally committed to Europe for progress. We have Ministers who seem to hold every portfolio but their own. We even have a Minister who seems to do the job of the Taoiseach, and who speaks for every Department except his own.

An Leas-Chathaoirleach

The Senator's remarks are not relevant to the Bill before the House.

They are relevant from the point of view that, for the betterment of the nation, the Government must say publicly that we are totally committed to Europe, that our destiny lies in Europe and that Europe should have trust in us. Without trust we cannot progress. I doubt if all the members of the Government are unanimous in this.

An Leas-Chathaoirleach

It is not relevant to the Finance Bill.

It is very relevant to the Finance Bill. As I said previously, when you pay £50 for a suit of clothes and £2 for a suck calf it is very relevant then because that is the natural progression——

An Leas-Chathaoirleach

That is not the remark I ruled out of order. Would Senator Killilea proceed now on the Finance Bill?

I will not argue with you, a Leas-Chathaoirleach. I made the point and I made it with fervour because I feel the time is opportune. I ask the Minister to make the point also. We have no longer total dependence on Britain and we should make that known. Because it is not sufficiently publicised our economy is seemingly going astray. I do not think the situation, as I said before, is entirely due to the oil situation. It might be an oily situation, but it is not the oil situation that is solely responsible.

There are other aspects to which I should like to refer but we are limited in time and there are other speakers who wish to contribute to the debate. I hope the Minister, when replying, if I am wrong, will clearly show me, the House and the people that my suggestions are incorrect. That is vitally important, I can assure him, particularly in regard to agriculture. Times were never so bad. That is a fact. If the Minister does not give a satisfactory reply I will have the opportunity of putting down amendments on Committee Stage.

From the beginning of time governments which have levied new taxes have brought upon themselves the displeasure engendered by the distaste for such taxes. Taxation is necessary; it is if you like, a necessary evil. It is designed to protect and aid the elderly, the poor and the lessable members of a community and to uphold community institutions.

I do not think the public ever object to taxation so long as it is seen to be equitable. As unfortunate as the timing of taxation upon certain farmers may be, certain sections, especially those who pay tax under the PAYE system, have felt for many years that they were expected to carry an unjust burden. It is unfortunate that this new taxation coincides with probably the worst year in farming since the Economic War. I do not believe farmers in the category of the well-to-do really object to paying taxation but, unfortunately, things have never been worse, The price of young cattle and calves is extremely low. The cost of feedingstuffs and fertilisers was never so high and, all in all, it has been a very bad year, so bad that I imagine a great many people with a valuation of £100 will not have to pay any tax because they have not made any profit. In fact, some of them have suffered grave losses, especially those who invested last year in young cattle and calves.

I reject the allegation made by some Opposition Members that these adverse circumstances are due to mishandling on the part of the Government. The factors involved are external and people like our Minister for Agriculture and Fisheries, Deputy Clinton, have made a tremendous effort to resolve the difficulties that have arisen. There is grave misrepresentation as to who will pay tax and the Opposition must be held responsible for deliberately trying to mislead the public. They say that this year it is farmers with £100 PLV, next year it will be farmers of £90 PLV and, the year after it will be farmers with a PLV of £80. This is mischevious. It is misleading. It is wrong. There is no indication whatsoever that there will be any future change downwards.

Some farmers feel aggrieved because they will have to continue paying rates on their land in conjunction with the new form of taxation. I would suggest that farmers who are hardworking and progressive might get some relief in terms of their rates on a sliding scale. It seems unfair to tax a progressive farmer and also ask him to pay rates. The Minister might make some concession in this field. I would like to compliment the Minister and the Taoiseach for the prompt manner in which they met the farming representatives earlier this week to discuss the matter with them.

Reference has been made to the outdated rating system where land is concerned. The system has not been changed to any degree since the 1850s when the Griffith Valuation Act was passed. It is peculiar that the Opposition should object to the fact that the system has not been changed because a commission which reported on this seven years ago stated that a revision of land valuation was long overdue, and that it should be carried out immediately. That was seven years ago, under the previous Government. As yet, nothing has been done. I would ask the Minister for Finance, if he could, to set something in motion to have these valuations revised. I believe that it will take 11 years to revise the valuations throughout the whole country. If the job had been started seven years ago we would be finished within another four years. The negligence there does not lie with the present Government; it lies with the previous Government.

The valuations are unfair, especially in maritime countries, because when they were levied credit was given for the fact that farmers could use materials from the seashore such as sand, gravel and seaweed as fertilisers and for other purposes. Those reasons are no longer valid. Along the coast there is, in many cases, a prohibition on the removal of sand and gravel. Therefore, coastal farmers no longer have these benefits. The high valution on this type of land is grossly unjust and needs to be revised. Some land was valued on its merit for the growing of grain. Again, that is outdated and does not have any great significance in this day and age. I would, therefore, ask the Minister to initiate a programme whereby the land valuations would be revised.

Lastly, I should like to advocate a tax to raise money for use in a form which is highly desirable. Items such as drink and cigarettes should be taxed for specific purposes. Even only one penny on certain types of drink, especially spirits, would give a good return. The revenue from that should go specifically towards the erection of recreational centres for the young and perhaps the not-so-young. There is a grave problem at the moment, that is, the problem of heavy drinking among the younger generation. Nobody has really tackled this problem. If there was a specific tax put on items such as this, to finance projects such as that, it would be a very wise long-term move. This would not be just for the good of the younger generation themselves. Drinking must have a detrimental effect in the long term on the performance by people at their work. The problem of alcoholism is great and it surely will affect our economy more and more as it increases, and it is increasing. The amount of money spent on the treatment of these people must be considerable. It is desirable that a certain type of taxation be designated to combat this grave problem.

This Bill is, in many respects, ill-conceived. Certainly in regard to the taxation of agricultural profits, it is very badly timed. The principal criticism that one could make of it is that it is entirely inappropriate and inadequate to meet the needs of our economy at present. It has been pushed through the Dáil in very, very quick time; rushed through for reasons that have never been clearly explained. The result of this has been that only approximately half the amendments put down were reached before the vote was taken. In almost every single case of these amendments the Minister refused to consider them. I think that in every case the amendments were rejected by the Minister. He indulged himself by introducing numerous amendments but did not accept those put before him. If some of these amendments had been accepted, a very poor Bill might have been somewhat improved. We will endeavour to improve it in this way in this House.

Section 9 imposes a limit of £1,000 on life assurance taken out after 3rd April. The actual provision itself is not one with which I am going to quarrel, but I certainly must quarrel with the fact that the date has been fixed at 3rd April. Having regard to the Minister's budget speech, in which he encouraged people to take out life assurance, and now introduces a date three months back, this is really an iniquitous provision. People were encouraged to take out life assurance and people did so, and they now find themselves in difficulties as a result of the Minister putting the date back to 3rd April. It is not unfair or unreasonable to say this is, in effect, a gross breach of faith on the part of the Minister.

Chapter II deals with the tax on farm profits. It would be difficult to envisage a worse time to introduce this tax. I will not argue in regard to the fact that at present agriculture is in a very difficult state. This is quite clear and has been mentioned by many speakers before me. I would like to comment on the assertion that the Minister and the Government are in no way responsible for the extremely difficult position of the agricultural community at present. It is, of course, true that to a very large extent, circumstances outside the control of the Government are responsible for the present position. Nevertheless, there were certain measures which the Government could have taken, or could have attempted to introduce, which would have been of considerable help in the present situation. One of these suggestions which has been mentioned and which was not taken up by the Government was the introduction of the Green £. Under the EEC CAP regulations, agricultural prices are fixed by a unit of account, the unit of account being 2.164 to the £. Because of the depreciation of sterling since the time we entered the European Community, and because it was alleged that in view of this depreciation, Irish agricultural exports would become unduly competitive with agricultural goods in other countries, it was considered unfair not to make some change. As a result of this allegation, monetary compensatory amounts were introduced. This, in effect, meant that there was a tax on the exports of our goods to all EEC countries except the UK, and there was a subsidy on the import of these agricultural goods to these countries. The goods in question included nearly all the agricultural exports of importance to us— cattle, wheat, butter, barley and sugar. At present, the tax amounts to something in the region of 15 per cent of the value of these goods. The monetary compensatory amounts were introduced because it was alleged this was necessary to maintain fair trade. In fact, it has, of course, put Ireland very much at a disadvantage and it means that the value of Irish exports of the goods which I have mentioned is unfair to Ireland because the value of these goods is about six times greater than the value of our imports of these products from other countries. Consequently, our export taxes far exceed our import subsidies. Secondly, it is unfair to us because raw material imports such as fertiliser, fuel and machinery for use in agricultural production are not covered by the CAP and do not receive monetary subsidies.

An Leas-Chathaoirleach

I am sorry to interrupt, but it is just about half a minute to the time at which we agreed to let the Minister in.

I will finish in a moment. While I agree the situation in which we find ourselves is not entirely due to the Government by any means, nevertheless, the introduction of the green pound was one way in which our agricultural community could have been considerably helped, and apparently the Government made no effort whatsoever to introduce this. It would have been worth something like 30 million cattle exports and the Government failed even to do this in the very difficult situation in which we find ourselves.

Senator Eoin Ryan is quite wrong when he says that the Government made no effort whatsoever to get EEC acceptance of the green pound. The Senator knows well that it is not open to any country to take action of their own accord in this field.

I said "made no effort".

The effort has been made by the Minister for Agriculture and Fisheries to whom several tributes were paid from both sides of the House during the course of this debate and, indeed, in the other House. It is unique to have tributes paid to a Minister from people on the other side of the House. They have recognised that in Deputy Mark Clinton, Ireland has a Minister for Agriculture and Fisheries who fights and fights hard consistently in the interests of Irish farmers. The fact that one is a fighter and is an able person does not necessarily mean that there will always be victory. If victory has not yet come his way in regard to that, it is certainly no fault of his.

I also want to say that it is idle to assume that the introduction of the green pound would, of itself, not create problems. It would create problems, including the increase in the cost of living here. We accept that the agricultural community is in considerable difficulty at the present time. On that account we would certainly consider that it would be appropriate that sacrifices should be made by the rest of the community, if necessary, in order to assist the agricultural sector which is suffering very considerable difficulties.

I do not think I will be able to cover all of the points that were raised in this debate but I will do my best. On the general issue of the economy, Senator Lenihan was prepared to challenge me for not giving an adequate picture of the economy at the present time and what the Government propose to do about it. On the last occasion on which I did this in the Seanad Senator Lenihan told me I should not have done it, that I used the occasion for the purpose of giving a picture of the economy when I ought to have confined myself to the Bill. I do not mind doing my best to please Senator Lenihan even if his tastes and demands change from time to time.

It is true that the economic situation at home and abroad has changed considerably since the budget, but it has confirmed the correctness of the decisions which we took on this year's budget. The latest statistics show that at the time of the budget the economy was suffering from a greater depression than was then considered to exist. So the very stimulus which we gave to the economy in the budget of this year has been fully justified. Since then, the statistics not only show that we were correct but we were more correct than either ourselves or any other commentators at the time.

A number of adverse developments have modified our expectations this year. It will be recalled that in the budget I set as a target to increase the growth rate by 1 to 1½ per cent to bring it up to 4¾ per cent. Unfortunately, that target situation has dis-improved. The foreign economies with which we trade have not recovered as fast as we had hoped in the first half of the year, but this gives reason to believe that the trading picture may improve substantially in the second half, because there are now signs of improvements in other countries.

We must also take into account unprecedented rises in world commodity prices and critical oil shortages, which affected production and created uncertainties in supplies. In these countries with which we have trading relationships these caused a considerable shock to business confidence, with the result that they have not advanced as fast as we would have thought they would. The prospects, however, are tempered by the tendency which a number of major countries have recently shown to seek to overcome their difficulties by deflationary action. This deflationary action in other countries has, of course, a damaging effect upon our own export trade. In other words, these other countries are indulging in the very practice which they themselves condemned. Last December, January and February, they condemned the beggar-my-neighbour policies. They condemned them at home in their own countries; they condemned them at international organisations at which many Ministers of the Government, including myself were present, because all intelligent people recognised that if efforts were made to correct the economic difficulties of the western world on beggar-my-neighbour policies the situation would be worsened considerably.

Domestically, also, we had a number of harmful effects such as the nine week Dublin bus strike. This has depressed output and spending. We still have the continuing senseless bombing campaign of the enemies of all the Irish people. This bombing campaign cannot but add to our difficulties because it affects investment, trade and tourism, apart altogether from the disastrous non-economic effects which it is having. These mad bombers are robbers of our people because they are depriving our people of living standards which could be achieved if only the criminal bombing would stop. As the mad bombers have stubbornly refused to avail of the many political opportunities which have been presented over the last five years, including the Sunningdale unique possibilities, they can no longer be regarded, if they ever had the right to be regarded, as persons with any political objectives. It becomes more evident daily that irrespective of the colours they wear or claim to wear, be they green or orange, their true colours are the yellow of despicable cowards. They are no better than the evil Mafia of another European island. Their real objective is to intimidate whole communities in order that they themselves can fill their pockets with money robbed from banks, with personal profits which they take from subscriptions received from people who are naïve enough to believe that they are patriots, or money which they take from people sufficiently fearful to pay them protection money to avoid their premises being blown up or their lives or the lives of their loved ones being forfeited.

I have mentioned before the appalling economic cost of this insanity. If it were involuntary insanity it could be forgiven but it is not; it is an evil and deliberately arranged campaign of violence against the people by people who can only get for themselves personal profit as there is no other objective which the bombing campaign can possibly achieve.

We must accept it while it lasts and we also must accept economic forces over which we have no control. There is no need to be despondent. We hope to achieve this year a growth rate close to 4 per cent which, as Senator Halligan and others pointed out, is quite a remarkable achievement in the European context this year—indeed, in the world context. This rate is the best that will be achieved in any of the member states of the EEC, with the exception of France. It is important to remember again that we would not be achieving this growth if we had not got the economic stimulus of this year's budget coupled with the impetus which was also given to our economy by last year's budget.

Even though the Central Bank and other people, for monetary reasons, may draw attention to the danger of over-stimulation, the fact has to be acknowledged that we would not now be in the position of growth in which we are and would not have achieved the plateau of comparative improvement which we now have, if we did not have this growth over the last two years.

There are a few difficult areas to which I should like to draw attention because they are definite and disturbing. I refer to prices and the balance of payments. The trends in these two areas are, of course, closely related. The higher import prices for oil and other essential commodities have had a substantial impact on the trade balance and on home prices. During the first six months of 1974 the import excess worsened by £138 million or almost 90 per cent. This was as a result primarily of higher oil and other commodity prices and, unfortunately, a disappointingly slow growth in agricultural exports. Even if there were to be no further disimprovement in the trade balance for the remainder of the year, the deficit in the balance of payments on current account could reach £200 million. Because of the time which will elapse before the fall in world commodity prices reaches our shores through import prices, a further unfortunate disimprovement could take place.

Fortunately, our external reserves are high. They are virtually as high as they were this time last year, reflecting international and domestic confidence in our economy, and reflecting also— and it is important to emphasise this because of the great success this country has had in getting loans on an international market which is hard and difficult at present——

This is because we have a very good track record.

The tremendous success we had is without precedent. This year other sovereign countries, including countries which are much more wealthy than ours failed where we have succeeded significantly. We achieved on the world market the best loan which any sovereign State obtained this year. It is clear that the balance of payments problem which had receded from us is menacing us once again but this will be carefully monitored in coming months.

The trend of prices is also worrying. The inevitable delay which I mentioned before the fall in world commodity prices reaches us means that imported inflation will continue to force up domestic prices for some months to come. As a result, we are unlikely to see the annual increase for 1974 showing much, if any, improvement on the rise of 16 per cent which we had to endure between May, 1973 and May, 1974.

Because of the experience of the last 18 months or so there is a danger that we may delude ourselves into believing that all our economic ills and particularly the virus of inflation are of external origin and consequently there is little we can do but wait until the fever abates. We never pretended in Government that they were entirely of external origin; we never failed to recognise that they were partly attributable to domestic forces. But the reality has to be faced —and this is one which, with all due respect, the Central Bank did not give enough attention to in the recent report—that over half of the inflation suffered by this country at present comes from abroad. If we had not imported any inflation last year, the rate of inflation at home would have been 8 per cent, which would have been low by any standards.

Cost inflation has been the bugbear of the Irish economy for a long time past, and before we took up office we had the worst record of all Europe in the inflation stakes. That situation has changed. We are not the worst; we are now half way down the league table in the OECD statistics.

The worst in the EEC.

No, we are not the worst in the EEC, but listening to some Fianna Fáil speakers it would appear they would like us to become the worst because they have been demanding further and further expenditure, and they have also been demanding, as, indeed, we want, higher prices for our agricultural produce, but higher prices for our agricultural produce, because we are an agricultural exporting nation, would mean a higher rate of inflation here.

It was 16.2 per cent in the last 12 months.

The reason for our current inflation is the price of oil. Fianna Fáil policy would be to cut off the supply of oil and reduce inflation as a consequence. Inflation is undesirable and should be avoided, but it is important to remember that there are aspects of inflation which are a reflection of things over which we have no control, and they are also an indication that incomes in Ireland can be rising. Where the agricultural sector of our economy improves their income it has an immediate impact on our rate of inflation. You can look at one side of the argument and consider that all is evil, but it is also important to remember that there are benefits accruing to this country as well.

We must not overlook that excessive increases in income—and that means not merely wages but incomes of all kinds, including dividends, professional earnings, the profits of speculation,et cetera—have an undesirable impact on our economy. Between the years 1970 and 1973 domestic incomes rose by almost 66 per cent, whereas the real growth in GNP was only 15 per cent. The divergence between these figures was mainly responsible for the rise in prices in that period. That was before we had to suffer the disadvantage of imported inflation at the rate at which it is now operating. It is clear that unless we can exercise restraint in our own demands for increased remuneration we can face a vicious circle of unprecedented inflation. We want to avoid this and the Government's energies will be directed towards doing so.

While the ending of the oil supplies shortage was economically beneficial in the short run, it might have been better psychologically for the country if the shortage was still with us. If the people still had to queue in their cars for petrol, if they still had to suffer a little coolness in their homes because of shortage of oil for central heating, if industrialists and all users of oil were rationed, then the country as a whole would be conscious of the fact that the oil crisis is still with us.

The oil crisis has two aspects. One is shortage, that is the smaller aspect; the other one, which is even more dangerous, is the strain it puts on our economy and financial resources because of the high cost of fuel. The growing deficits in our balance of payments attributable in the main to oil and to other essential commodity prices such as fertilisers and timber. It has one positive aspect, that is, that there has been a very substantial increase this year of 40 per cent in the importation of goods for capital investment, showing tremendous and unprecedented confidence in our society and economy.

Unfavourable factors are the downturn in agricultural exports and recession in the economies of our trading partners. These difficulties, combined with inflation, both imported and domestically generated, called for a moderation in the rate of economic expansion. I emphasise it is moderation in the rate of economic expansion and it is not a question, and we must not allow it to become a question, of having a depression. The blunt fact is that it will cost us more in future to stand still, because our first claim upon our recources must be payment of the bills for energy and other essential commodities. We can mark time without risk. If we were to attempt to increase our rate of expansion to a level which would be impossible to maintain in the remainder of 1974 and throughout 1975, we could put at risk the progress already made. We can avoid deflation or a recession in the future if we have sufficient patience and wisdom to be satisfied for a little while with our current standards.

It is not by any means a time for depression, still less for despair certainly not for alarm, but it is a time for realism and certainly a time for cutting the national cloth according to our measure. As Senator Halligan says, there is grave instability everywhere in the world. We cannot expect world trading relationships to operate as they did in the past.

Our approach to current problems and the way in which we overcome present and future difficulties must be influenced not so much by what are regarded as the orthodox policies of the past, many of which are now, in any event, irrelevant. We must face facts and overcome them by using modern techniques. The task of maintaining and improving our international competitiveness at the present time must be a priority. It is something which has to be tackled. It cannot be tackled by the Government alone. If a Government do it without co-operation the end result is far from being what we want, and that is a united and contented community working in co-operation.

To close the gap in our balance of trade and at the same time maintain our living standards, we must expand exports at a faster rate than anything we previously achieved or even contemplated. This makes the poor performance in our agricultural exports all the more frustrating and disappointing. While the prices of industrial raw materials have shot up, so too have our labour costs. Last year, despite the near record growth in productivity, unit wage costs in manufacturing industry rose by 11 per cent. It is pertinent to point out to everybody, including our friends in the Central Bank, who also criticised the rise in our unit wage costs, that they would have risen by much more last year if productivity had not risen by 7 per cent and productivity would not have risen by 7 per cent if this country did not follow the budgetary policies of the National Coalition. It is no harm to emphasise that at this stage when I see there are some wise commentators and hurlers on the ditch suggesting that the Government have no economic policy. It is our economic policies that have been this country's salvation in a very difficult time. If we had not maintained this productivity and growth and achieved what we set out to achieve, then we would have at the present time what apparently the Fianna Fáil Party would have achieved. This would not be their intention but they strongly criticised the budget of 1973 and 1974——

The Minister should not be irresponsible.

They said it was too expansionary and too inflationary. Again, I would point out that while some people selected certain passages from the Report of the Central Bank, they did not refer to that section of the Central Bank Report which pointed out that the budget this year did not add to inflation because it did not increase prices and that that in itself was beneficial.

I have drawn attention on a number of occasions to the basic economic fact that increases in money incomes in excess of the growth of national production are self-defeating. The price increases which are an inevitable consequence always swallow up the illusory income improvements. No system of price control, however stringent, can be devised which will prevent such increases if the money supply is too great. The mere maintenance of living standards for all can be achieved only through economic growth and proper management of the national resources. This will remain a prime objective of the Government.

At the present time the Taoiseach is speaking in another place and is emphasising that the Government regard housing as a top priority. In 1972-73 before we achieved power, the Exchequer housing allocations were £52 million. Last year they were £80 million and the corresponding figures for the current year are £105 million. The Government will continue to ensure that the life-breath of housing—mortgage finance —is made available. This is no easy task at any time, but particularly at a time when we are building more houses than ever before and when the cost of building those houses is about 30 per cent higher than it was a year ago. It is higher for a variety of reasons, including the higher costs of materials and labour. The world scarcity of money which was unprecedented since the 1930's, and the increased demand on that money caused by global inflation and the demand for increased credit to purchase oil and other essential commodities, have made it very difficult to acquire and maintain the necessary flow of mortgage finance. The worldwide un-precedentedly high interest rates, in other words the price of money, adds to this burden. As it is a priority, we will continue to ensure that it gets priority attention.

These difficulties are compounded domestically by the additional money required by traders and importers and by industry in general to purchase essential imports, all of which or most of which are still at prices higher than last year. Extra money is also needed to pay increases in wages following on the national wage agreement and to pay for the essential and publicly demanded expansion in the public capital programme for agriculture, industry, construction of houses, schools, hospitals, roadways, telephones and the whole infrastructure of our State, which must be vastly improved if we are to absorb the improvements in our economy which are so essential.

I think the source of money for housing matters little. Whether building societies, banks, trustee savings banks or commercial banks are the source it does not matter. What is important is that the money is made available. Our building societies have been very successful in the past in supplying part of the money which is required for essential housing purposes and the Government's intention is to maintain building societies as a very significant element in the provision of money for housing. Money supplies increased by 23.3 per cent in the 12 months to May, 1974. In the same period the resources of the Associated Banks rose by 21 per cent. The non-associated banks rose by 44 per cent and the building societies by 19 per cent. How then, did any difficulty arise in respect of the supply of mortgage finance with a rise in 19 per cent in building society funds? It was, of course, primarily because under this Government more houses were being built, which required more money and unfortunately the cost of the houses was also rising.

The good news which I have for the people and for those interested in buying houses and the bad news I have for those whose only objective in life is to obstruct their political opponents is that the Government have succeeded in negotiating with the Associated Banks a further loan of £5 million for the building societies. This money the sniggerers regard as not of any importance but it is, in addition to the £6 million which was obtained last year, a massive injection from the banks into the building societies which would not have been achieved without direct Government intervention and without the subsidy which the Government are providing in the interest rates which would be charged by the banks.

The principal reason why growth in building societies' resources, while significant because it is 19 per cent higher than it was last year, has not kept pace with growth in other deposits, has been that the societies lost the interest rate advantage that they formerly had over the banks, an interest rate advantage which was as much as 3½ to 4 per cent not so long ago. This development has occurred because while the banks have to increase their rates as a consequence of the decline in world rates, the societies did not raise their rates to the same extent—thus the differential in favour of the building societies disappeared. At certain levels the deposit rate offered by other institutions exceeded those offered by the building societies.

The Government fully appreciate that money flows to the most attractive interest rates available. The Government, observing the international money market and recognising that high interest rates are likely to remain with us for a long time—much as we would wish them to go away they will not go away because we are living in a world of inflation at present—pro-pose to enter into immediate discussions with the building societies to consider what steps should be taken to improve on a more permanent basis the flow of money into building societies. If the choice is between high interest rates on one hand and the availability of money for housing on the other I think there is no choice but to ensure the provision of money for housing. The State is already giving considerable subsidies to people who are purchasing houses through building societies. The State would be prepared to continue to play its part while interest rates remain at a very high level. But the facts of life, unpleasant though they may be, will have to be faced by everybody, not merely by Government but by the Opposition.

And not just by £5 million. Something more practical is required.

I would not expect Senator Lenihan to say "Thank you" for £50 million. There were several questions of detail which perhaps could be best taken up on Committee Stage next week. In the time that is left there are a few that I should like to deal with.

Senator Killilea, for instance, suggested that there was something unfair about this year's Finance Bill. He said that a man with 1,000 acres in the Curragh, with a stud farm and training racehorses, would not pay income tax while a married man with four children with a job in Galway and a farm of 16 acres of a valuation of £20 would pay income tax on both his farm and on his wage in a factory. Seeing that he was not aware that farm guesthouses were being specifically exempted from involvement in the tax net I can only assume that he has not read the Bill. I thought first of all that it was a question of it being beyond his understanding but when he cannot even see a simple exclusion at section 16 I am not surprised that he made this other allegation.

Stud farming as such is taxable.

The only item in relation to stud farming which will not be taxable are the fees earned from stallions that are standing in this country. The reason for that is because stallions are owned internationally. In fact, the majority of stallions in this country are owned by foreigners and by syndicates. The tax exemption here ensures that these animals remain in this country and operates to the benefit of the whole horse breeding industry in this country. There was talk about pressures from a small section of the community who wanted a particular advantage for themselves. What struck me was that the plea for the continuing exemption in respect of stallions came from the small people with brood mares and from the large number of employees of the stud farms. This is an industry that can be switched from one end of the world to the other simply by hiring planes and putting the stallions aboard them. That is the only reason why that activity has been exempted. The farming of the 1,000 acres in Kildare that Senator Killilea mentioned will be fully taxable but what will not be taxable at all is the profits on a farm of a £20 rateable valuation.

What we are endeavouring to do in respect of a person who has income outside the farm is to deal with the anomaly, indeed the scandal, that can arise, whereby the wife of a well-to-do farmer can be working at a job outside the farm, and because she is working at that job she is able to set off against her non-farm income all the allowances—the married allowance and the children's allowances— against her salary because the farm income is exempt from farm tax. The end result is that the fortunate lady and her husband pay no tax at all. Working side by side with that lady in the same hospital ward or the same factory bench could be the wife of a labourer. She would earn the same income as the wife of the farmer. The labourer could have an income that would be only a fraction of that of the farmer, yet both the labourer and the labourer's wife would be obliged to pay tax at the full rate. That is an intolerable situation and one that has been the cause of great scandal and great annoyance. That is the situation which we are bringing to an end— not in any harsh way. We are providing a sliding scale so that a person could have a rateable valuation of up to £30 and still have income outside the farm without being seriously caught in any way. Our objective in Government is to achieve a code of taxation which will ensure that people with comparable incomes pay a comparable amount of tax.

While there has been very strong criticism from the Fianna Fáil benches of many provisions in our Finance Bill, no one has said the courage to stand up and say he challenges the principle which we assert. In fact, in disagreeing with our proposals they are in practice challenging the very principle of a fair tax code in which we believe.

Senator Quinlan asked me to give clarifications in respect of sections 16 and 28. Section 16 is designed to prevent a person who has a farm and is also carrying on a trade or profession from escaping tax by attributing to his farm profits, profits which had derived from other occupations. I have quoted in another place a case which illustrates what we are out to combat. A vet claimed he was earning something less than £1,500 from his veterinary practice and yet claimed to be earning £46,000 profit from a comparatively small farm. If that is a typical farm, then I have been extremely foolish in applying a multiplier of only 40 to every £1 of rateable valuation of farm land.

One either tolerates these scandals or one attempts to stop them. I am not surprised at the amount of criticism to which we have been subjected for bringing in anti-avoidance measures of this nature. There is not one of us who if we were enjoying a tax haven of that kind would not wish it to continue and would not be particularly nasty in the epithets we applied to those who tried to correct it. The very vehemence of the Opposition, as Senator Robinson mentioned, is an indication that we are going on the right lines and that we are on the way to economic salvation and fiscal reform. I look forward next week to having a very useful debate and exchange with the Seanad on the individual items in the Finance Bill.

Question put.
The Seanad divided: Tá, 24; Níl, 12.

  • Blennerhassett, John.
  • Burton, Philip.
  • Deasy, Austin.
  • Farrelly, Denis.
  • FitzGerald, Alexis.
  • Fitzgerald, Jack.
  • Halligan, Brendan.
  • Iveagh, The Earl of.
  • Kennedy, Fintan.
  • Kerrigan, Patrick.
  • Kilbride, Thomas.
  • McCartin, John Joseph.
  • Mannion, John M.
  • Markey, Bernard.
  • Moynihan, Michael.
  • Mullen, Michael.
  • O'Brien, Andy.
  • O'Higgins, Michael J.
  • O'Toole, Patrick.
  • Owens, Evelyn.
  • Robinson, Mary.
  • Russell, George Edward.
  • Sanfey, James W.
  • Whyte, Liam.

Níl

  • Brennan, John J.
  • Brosnan, Seán.
  • Cowen, Bernard.
  • Dolan, Séamus.
  • Eachthéirn, Cáit Uí.
  • Hanafin, Des.
  • Keegan, Seán.
  • Lenihan, Brian.
  • McGlinchey, Bernard.
  • Ryan, Eoin.
  • Ryan, William.
  • Yeats, Michael B.
Tellers: Tá, Senators Halligan and Sanfey; Níl, Senators Hanafin and W. Ryan.
Question declared carried.
Committee Stage ordered for Tuesday, 30th July, 1974.
The Seanad adjourned at 5.05 p.m. until 3 p.m. on Tuesday, 30th July, 1974.