I suggest that this is an occasion in which we could have a comprehensive discussion on the whole economic and financial position.
There is one basic line in the script in which the Minister seeks to imply that a year ago the economy was in a thriving condition. We, in the debate this time last year—I am not going to go through the quotations—forecast exactly what has happened over the past 12 months. The Minister was here in a mood of bounce and described the thriving condition of the economy while, at the same time, ignoring the warnings being given by two of the agencies responsible for economic and monetary comment here, the Economic and Social Research Institute and the Central Bank. Both of these institutions this time last year and right through last year, were warning the Minister of the danger signals ahead.
When I, as late as last July, forecast that there would be a figure of £300 million in our balance of payments deficit for 1975, the Minister refused to believe me. I am on record as stating then that we would have a balance of payments deficit of £300 million in 1975. The Minister at that time with all the apparatus of the Department of Finance behind him was forecasting a deficit of £150 million for 1975. The Central Bank report sounded a very cautionary note about the Government's objective of limiting the deficit for 1975 to £150 million. They said that the statement on monetary policy was issued by the Central Bank on 21st June, 1974. In other words, as of that date, it was £150 million. At the same time the Economic and Social Research Institute were forecasting a deficit of £300 million in 1975.
As late as six months ago, the Minister was forecasting a deficit half the amount which has arisen. We on this side with no such apparatus behind us, forecast exactly the amount forecast by the Economic and Social Research Institute, a deficit of £300 million.
Paragraph 57 of the Minister's document, The National Partnership, issued some weeks ago, reads as follows:
Our payments deficit this year will reach the alarming total of £300 million or more.
It has taken the Minister six months to put in writing what we were able to tell him verbally this time last year. I quote again from the document:
This (£300 million) is equivalent to just 10 per cent of our national output, by far the highest of any EEC country.
It goes on to say that because of our external reserve position we are protected to some degree from the serious consequences of such a deficit.
Again, even in this political document and in regard to the external reserve position, the Minister has to admit a basic inflationary fact in this situation. I quote again from page 25 of the document:
More than half the inflow (of foreign capital) is accounted for by borrowing by the Government to finance the public capital programme and by semi-State bodies for development programmes.
We have a total inflationary situation. We are running a deficit of £300 million in regard to our trading position and to our payments position and more than half of that is being made up each year by imported borrowed money to add further to the inflation.
As the Central Bank very rightly said in the opening paragraph of their most recent report: "It is a fallacy even for the open Irish economy that inflation is due more to external than to internal causes and that it is beyond our power to curb or control it." If this were true and the only armour the country had against a mainly-imported inflation was price control the situation would be a sorry one. The whole tenor of the Central Bank Report is to show that it is a fallacy for anybody in charge of the Irish economy to suggest that inflation is caused by external rather than internal causes.
This is fundamental to the whole mess in which the Government have found themselves and it is completely wrong, and the Minister is being untrue to the people in suggesting that the oil and energy crisis, as it is called, is the cause of the present difficulties in which the Government find themselves. It is a contributory cause. The Economic and Social Research Institute and the Central Bank emphasise right through each of these documents that Government policy has been a main contributory factor to the present situation in which there have been international difficulties in regard to oil, energy and commodity prices.
Fundamentally the trouble began with the budget of 1973. The Minister is well aware of the situation. When he went into Government in 1973 the economy was in a thriving state. I quote from the March, 1974, Report of the Economic and Social Research Institute which says:
The upsurge in the pace of economic activity occurred in the second half of 1972 and the first half of 1973. Indicators of economic activity suggest that little or no growth occurred in the second half of the year compared with the first half. The high growth for the year as a whole, then, is due to a combination of the continued upsurge in the first half of 1973 and a carry-over effect which arose from the fact that the level of economic activity at the end of 1972 was well above the average for that year.
That means there was economic development of a substantial nature in 1972 and in the first half of 1973. We saw the signs, and in preparing for the budget in early 1973, we realised that the brake would have to be applied to some degree in regard to inflation. Our intention as a Government if returned in 1973—and the Minister is aware of this from the files in his own Department—was not to bring in the sort of popular catch-them-all type of budget that the present Government introduced after getting into power in 1973. I thought at the time that it was mad politics as well as being mad economics.
Here was a Government elected by the people, given the reins of Government—hopefully at that time, for a full period—and they proceeded to bring in a madly popular budget, obsessed with their own public relations, obsessed with their own image making. I know well, as a person sitting around the Government table in December, January and February of 1973, the type of budget we would have brought in, if returned at that time, would have been a restrained budget, because the economic and financial danger signals were there in February and March of 1973. They were there if the Government paid attention to them. We had done very well in 1972 and were still doing well but if we were planning ahead we would have to apply certain restraints particularly in regard to Government expenditure.
All the signs were there for the incoming Government in memoranda prepared by the officials of the Department of Finance and the Minister is well aware that when he went in as Minister for Finance in March, 1973, that the recommendations were there. The advice given to the Minister was that there were danger signals and that the thing to do was to exercise restraint and control the economy. As I said, it would have been good politics as well as good economics for the Minister and the Government in their first budget within a few weeks of the election to have exercised restraint. They could have made a good deal of political capital if they had approached the situation in another way but instead they set about making themselves popular at the expense of the people, deliberately encouraging inflation.
I charged the Government here at that time with proceeding on that slippery slope to such an extent that they introduced, for the first time, substantial deficit budgeting. Presumably they will resort to it in the next budget.
I can understand the reason now for deficit budgeting because the money is just not there. It is obvious that the Minister will have to resort to deficit budgeting in the coming budget: one does not need to be a prophet to see that. But I charge the Government with overdoing deficit budgeting in their two previous budgets, despite the warnings which we gave them at the time in the Dáil and in the Seanad and which are on record. I shall not bore the House by repeating them but I am on record personally here in the two previous Finance Bill debates that we had and the Appropriation Bills debates as saying that the Government policy of trying to buy votes and buy popularity and build up their image immediately after the election was wrong. Politically, it was the wrong time to do it, because it is the oldest adage in politics that a Government is always strong and tough in its early years and builds up to a climax of achievement in its later years.
These new people who came in decided that they had to maintain the image they had created and the whole exercise proceeded to be one of image-making rather than one of coming clean with the people and telling the truth. The truth was that in March of 1973 we were going well but the situation had to be watched; it was a time for budget restraint, for discipline, and a time for warning the people that inflation could develop, that prices could get out of hand and that restraints would have to be imposed, and that there would have to be discipline in regard to Government spending and private spending generally.
The very reverse happened, with the result that when the oil and international commodity difficulties hit the economy, the economy was totally unprepared for the shock. If there had been a good, sound, budgetary and financial policy emanating from a steady, controlled budget with a limited deficit in March, 1973, and if a similar approach had been adopted in March of this year we would not be in the mess in which we find ourselves now.
The Government are in a cash-flow problem situation. It is as simple as that and the Government by reason of their own squandering, their own excessive public expenditure, their own excessive encouragement of expectations in regard to the private sector right across the whole area of incomes, salaries and profits displayed a classic encouragement of inflation, the type of thing that was done by German Ministers for Finance in the twenties. It was totally irresponsible. It was pandering to the public and it was economically, financially and politically wrong.
It was also morally wrong because it induced an expectation in our people which was totally out of touch with the reality of the economic and financial situation as it existed in March, 1973. As a Government Minister, early in 1973 I saw all the memoranda coming from the Department of Finance and I know what their recommendations were. I also know what we would have done. We would have brought in a controlling budget, a moderate budget, with a limited deficit and with a moderate increase in public expenditure. That was what we had intended doing. I was flabbergasted when I saw the budget of goodies which emerged from the Government within six weeks of their taking office in March, 1973. Knowing the real background to the economic and financial situation, I could not understand how any sane Government could bring in such a budget. Politically speaking, it was crazy as well. The logical course of action would have been for the Government to face up to the existing situation and work towards a constructive improvement in a few years' time.
However we know, the course of action the Government decided upon. The net result of that action is that we are now in a situation where we cannot face up to an international crisis, one which is common to the whole of western Europe. Every other country is facing up to the situation. No other country has our— to quote the Minister's word—"alarming" payments deficit of £300 million. As the Minister stated, it is by far the highest of any other EEC country. I quote these figures as a percentage of national output. The balance of payments deficit amounts to .1 per cent of Belgium's national output; 3.9 per cent of Denmark's national output; 2.7 per cent of France's national output; —2 per cent of Germany's national output and it is +10 per cent of Ireland's national output. We are ahead even of inflationary-mad Italy where there is only a ratio of 7.5 per cent between the balance of payments and national output. The Netherlands, of course, is down, —1.4 and the United Kingdom is half of our percentage, namely, 5.6 per cent. Our balance of payments is twice as high as the United Kingdom and 2.5 per cent higher than Italy, which is practically ruined with inflation.
The Minister in his speech admitted that the only way the situation was being saved was the fact that the Government and semi-State bodies are borrowing externally. The situation is doubly compounded. We are running a balance of payments deficit which is inflationary in itself and, on top of that, we are adding to the inflation by borrowing heavily in money markets in an era of the highest interest rates experienced so far.
We are learning real lessons in relation to inflation. The Government should have the moral courage to face up to the problem. It took a desperate situation to arise before the Government were flushed out and told the people the truth. Up to the last few months the Minister for Finance has been disarming the people in general with optimistic talk and glib comment about the present and future state of the economy. Instead the Minister should have come clean with the people since the time he took his portfolio and saw the facts of economic life contained in the files and memoranda of the Department of Finance.
Another matter I should like to refer to is the report of the Central Bank. One must read the small print of documents published by the Government to see the truth. If one reads the small print of the Central Bank Report or the reports of the Economic and Social Research Institute, since the Government took office, one sees the truth. One does not see the truth in the releases from the Government Information Services. One does not see the truth in Ministers' speeches. Of course the Irish Civil Service is and always has been an honourable one. When one reads their documentation in detail one can see the truth. It is from the politically-inspired hand-outs from the Government Information Services and the handy headlines that one gets the glib untruths. We have had an outrageous situation since March, 1973, but when the documentation published by the Central Bank and the Economic and Social Research Institute and that coming from the Department of Finance are read in detail, they reveal the truth.
One of the fallacies—I am glad it is not contained in the document "A National Partnership"—generally believed by the public and sedulously cultivated by Deputies in the Coalition, particularly in the Labour Party, is the notion that membership of the European Economic Community is also part of our trouble. The two main causes, sedulously propagated by Government spokesmen, of our present economic difficulties are supposed to be (a) the problems of the international energy and commodity crises and (b) membership of the European Economic Community.
It is quite clear, that bad and all as our situation is, if we were not members of the European Economic Community and were not cushioned by that membership we would be in a catastrophic situation at the present time. Our situation is desperate and alarming, but it is not yet catastrophic. That is due to the fact that our membership of the European Economic Community has resulted in a substantial switch of exports to thriving economies on the continent of Europe and away from what is rapidly becoming the sick economy of the United Kingdom on which we were relying. I quote from paragraph 62, page 26 of the Minister's document "A National Partnership":
In 1972 61 per cent of our total exports went to the U.K. and 17 per cent to the rest of the EEC. In 1973 the percentage of total exports going to the EEC, excluding the U.K., increased to 21 per cent. Our exports to the British market only represented 55 per cent of total exports. In value terms, industrial exports to the EEC other than the U.K. increased by more than 50 per cent during 1973, from £64 million to £98 million.
That was the sector which was supposed to be, according to Labour Party spokesmen, the one that would be badly hit by membership of the European Economic Community. It is quite clear that, with an increase of 50 per cent in value terms of industrial exports to the EEC, other than the UK, substantial benefits have arisen to Irish industry by reason of our membership of the enlarged market. If we were dependent on the sick British economy for industrial exports at the present time, things would be very bad. This was what the Labour Party at the time of our entry to EEC advocated us to do: to rely on the British market and have some sort of arrangement with the EEC. We opted for complete membership. The result is a 50 per cent increase in our industrial exports to the EEC. As far as the farming economy is concerned, were it not for the milk prices guaranteed out of EEC funds the situation would be far worse than it is today.
I want to knock the two fallacies on the head once and for all, that the international situation is the cause of our problems and the other cause is membership of the EEC. Membership of the EEC has helped our prospects, improved our industrial exports, cushioned our farming situation. We would be in a much worse position if we were not a member.
As regards the international situation, it is quite clear that it is a contributory factor to our situation. But the Central Bank and the Economic and Social Research Institute have said quite clearly that it is a fallacy to say that, because we are an open trading country depending on international circumstances, we can do nothing about curbing inflation at home. It is quite clear we can, from the figures I mentioned some time ago. Every other country in the EEC is doing something about it. We are in an even worse position than Italy, where inflation is rampant, in regard to our ratio between balance of payments deficit and national output.
Every other country in western Europe is faced with the same international problems. We should look at the comparative position in a situation like this. How better or worse are we handling our economic situation compared with the other countries of western Europe who are facing the very same problem? We are all hit by the oil problems. The other countries are dealing with their problems; we are not. The Government laid down a budgetary policy that has led us into the present situation over the past 20 months. Only when the position becomes desperate do we find the Minister dealing with it. This is why we have had the rush of revenue charges in the past few months—postal charges, the petrol increase and the health charges, which we debated in the House last Wednesday. We have had a rush of these hastily prepared revenue charges imposed in order to improve the cash flow. The budget deficits have gone in inflation. The balance of payments deficits and the external borrowing are purely inflation.
I accuse the Government deliberately of pumping money into the economy way above the real productivity of the country. Money input into the Irish economy has run far ahead of productivity. This situation has arisen by (a) budget deficits, (b) balance of payments deficits, (c) foreign borrowing at high interest rates and (d) total inability on the part of the Government to control expenditure, either current or capital.
The policy since March, 1973, has been "let it rip". Everything has been let rip. Everybody has had a good time in Government, going around telling people everything is lovely. The headline makers and image makers have been at work. The Government Information Services have been increased tenfold in personnel and financial allocation.
It is a classical example of the worst kind of "consmanship." It is wrong not just from the financial, economic or political point of view but also morally wrong, because it has induced a very dangerous state of cynicism in regard to politics and Government. The worst thing for any Government to do is to raise public expectation out of the realm of reality and into the realm of fantasy. When public expectations are raised to a level where they cannot be exceeded, we are in a very dangerous situation. I accuse this Government, consistently since March, 1973, of raising public expectations in that manner. They told the people, in their highly immoral budget of March, 1973, that everything was great—we are in the EEC, there is plenty of money to spread around, not alone butter but jam, honey and so on.
That attitude was totally unrelated to the financial documentation before the Government prior to the election of February of that year. The financial documentation, which we were considering when the general election arose, was financial documentation which would not indicate under any circumstances the nature of the budget that emerged within weeks of the Coalition Government achieving office. Our intention was to bring in a restrained, controlled budget.
The red lights were there, bright and clear. Instead, the Coalition Government went through the lights and let it rip. They should have put the brake on and observed the red light. When it turned green they could have gone ahead. It was clear that we had a marvellous year in 1972 building up to a tremendous first half of 1973. It was clear that the danger signals were there. The red light said stop but the Coalition Government said: "We will break the red lights and take them as green."
The crash has occurred now. They probably broke many more red lights before the crash finally came. I hope at this desperate stage the Government face up to it. I assume there is a residue of morality left in the Government, which will impel them to face up to the reality of the situation and bring in a budget next month that will be consistent with the kind of development that we may see in a year's time if they do the right thing. For Ireland's sake I hope they work on these lines.
I have concentrated mainly on the financial aspect and the psychological attitude of the Government towards their duties in regard to public finance. I should now like to refer to the lack of decision making in practical areas that could give real growth to the economy. I refer here to the approach of the Minister for Industry and Commerce to one industry that at the present time could give an injection to the economy, the mining industry. Senator Fitzgerald is well aware of this industry. I acknowledge his expertise in this area. I am being complimentary to the Senator.
In this particular area the lack of decision making has been very evident. Right across the board the Government have been unwilling to face up to and make decisions. In this area, if decisions were taken 18 months ago, there could be substantial numbers in gainful employment, where productivity would be backed by investment. It would not be inflationary economic activity. Inflationary economic activity is when you import money and spend it on handing out goodies, which the Government have been doing in the past two budgets. You can import finance for productive investment here in order to provide employment. This is the correct kind of foreign investment and foreign borrowing.
For nearly two years the Government have dithered over the whole mining development, both on land and offshore. Instead of encouraging foreign investment in these two areas every step that has been taken and announcement that has been made has led to more and more indecision and more puzzlement as to what the Minister and Government are doing. The net result is that people who would invest in mining development are saying: "Good night, bye-bye". This is the area into which the Government have led the economy by a total lack of decision.
The Minister for Industry and Commerce has been playing politics with a very serious section of the economy. Instead of meeting all the people concerned with investment in mining and coming to quick decisions on the matter, instead of doing that he has dithered and we are still without a decision. We are facing up to a period when we will have 100,000 people unemployed in February and March of next year. In a period of rising unemployment and rampant inflation, here is one area of investment where substantial and well-paid employment can be given immediately, backed by external funds geared to sound economic activity. The increased exports which would result would more than match the inflow of capital for the purpose. This is a sound type of investment from every point of view, from the financial, the national, the economic and the social point of view. All that has happened is that Nero Keating is twiddling his thumbs and fiddling away while the economy burns.
This total lack of indecision applies in regard to the handling of the construction industry. This is an industry which is the barometer of any country's economic state. It is only now that we have reached a desperate stage that we are finally getting some admissions that there is a crisis in the building industry. There has been one for the past nine months. The Minister for Local Government has been telling us that there was no problem in the housing industry when a situation exists where no private houses are being built. There has been a total collapse in the financing of private houses.
We suggested in an amendment put down by Senator Hanafin last July a practical way in which we could get an inflow of funds into the building societies. That was by granting tax relief up to a certain level on investments by people in building societies so as to attract funds from abroad into the societies, thereby setting up a pool of finance to enable private house building to be carried on. The Minister advanced no good reason for not doing that. He said it would divert funds from other sources. I feel very strongly that the house building industry is all important from the social point of view. If there is high employment in house building, then the ancillary industries will benefit as a result. All that is required is a mere subsection in a section of the Finance Bill. I hope it will be included in the next Finance Bill.
Senator Hanafin suggested that complete relief be given to people in respect of an amount of money up to £5,000 or £10,000. Coupled with financial ineptitude and total immoral handling of the public finances of this country, we have a lack of decision-making. I mentioned two areas where this has occurred and where immediate stimulation of the economy could take place—the mining industry and the construction industry. The Government stand completely indicted in regard to those two areas. I hope for the country's sake that the Minister will finally face up to his responsibilities in a few weeks' time and tell the people in straight terms where we stand and adopt the measures needed to stimulate the economy.