I have already expressed my annoyance at words attributed by the Minister to this side of the House. The Minister has not given any reason as to why he was not here today. Perhaps he had a good reason for not being present.
Appropriation Bill, 1974 (Certified Money Bill): Committee and Final Stages.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
I had a long standing obligation with Comhairle na Gaeilge and I have not as yet got the gift of bilocation but I have succeeded in being in three places today almost simultaneously.
That is a witty comment about bilocation. This is the first time the Minister has explained why he was not here. Senators were limited in their speeches and I had many things to say. So had others. Senator Dolan, who has been a Member of this House for a long time, had two or three minutes in which to make his speech. When the Minister was replying he used words that I resented. He answered questions that were never asked by this side of the House. Are we entitled to the attention of the Minister? He made a speech allegedly replying to remarks made here.
I want now to deal specifically with this Kuwait loan. The only loan I am familiar with is the £7½ million that was borrowed, to be redeemed in 1979. There was no objection to borrowing. The objection was to the size of the borrowing. Was that all the Minister could get? It is a reflection on our credit rating which he went to great pains to tell us stands so high. I am afraid people are telling the Minister things they think he would like to hear. Because of the breaking of solemn promises our creditability is now not so high in business circles in the world. I regret to have to say this. I am as concerned about the country as the Minister is. Our relationship with Kuwait is excellent. I am personally aware of the goodwill that exists in Kuwait towards this little country of ours. I have been in Kuwait and was received with nothing but courtesy, kindness and offers of help. That is the attitude there.
The Arabs have been blamed for everything. The Minister from time to time has blamed the Arabs. It is a simple way out. It is easy for the Government to say they are not at fault. They say they would have fulfilled all the promises they made in the last election only for the Arabs.
Who put up the price of oil?
I will give the Senator the figures and he will then know what he is talking about the next time.
The Senator is talking rubbish.
You are talking rubbish.
It would be better if Senators addressed the Chair. In endeavouring to impute base motives to one another they are inadvertently imputing them to the Chair. Senator Hanafin to continue.
For every £1 worth of crude the breakdown is as follows, and these are the Minister's figures: the average consumer country taxation is 55p. It may be even greater in this country. Fifty-five pence out of every £1 is taxation.
It is not.
Is it greater than that? These are the figures the Minister gave us. I do not think we fit into the average bracket here, we are worse than that.
We are under average.
Is it too much for me to ask for those figures now? Perhaps it is not fair to ask the Minister to give figures off the top of his head.
They were given in reply to a Dáil question quite recently.
I am not a Member of the Dáil. I can appreciate that the Minister may not have those figures available. The figures I quoted are not my figures. They are the Kuwait Minister's figures—the man who gave you the £7½ million without an agreed exchange risk clause. He will get £4 million interest on that by 1979 even though the country is in such a bad situation. The oil company refining gets 18p out of every £. The exporting country gets 18p and distribution in the consumer country is 9p. In the average consumer country taxation is 55p. I want to hear what the Minister has to say on that. I am not trying to embarrass the Minister into giving figures off the top of his head.
The Minister will make his own speech.
The Minister said I was in favour of certain agreed taxation, yes, if he meant that I wanted taxation to be removed from deposits in the Building Societies under £5,000. We put down a worthwhile motion and it was made little of in this House by Government spokesmen. They actually said it would benefit the rich man. We amended our original motion to limit the amount of the deposit to £5,000. They again said that this would benefit the rich man. At that stage we were talking about the workers who use building societies to buy a house. We believed we were offering a positive solution to a crisis we could see approaching. It was thrown out of this House. The Minister would not accept it. I felt at the time that the Minister was anxious to accept the motion but that he would not be allowed to by his partners in the Government. We are now facing the prospect of having 100,000 people unemployed. I do not know how many of those people work in the construction industry but I am sure it is over 50 per cent. The Minister was the person to talk first about recession and the gloom that lay ahead.
People have not the spirit or the initiative or the courage to try to remedy the situation. The construction industry could have been saved and that number of people would not be unemployed. The Minister said it would cost £4 million if we lifted the tax. How much is the loss of taxation on wages now costing the Exchequer? Business houses associated with the building industry are closing all over the country. In my own town a business with a tradition going back over 100 years is being threatened with a three-day week. The Minister must accept the blame because he refused to accept our motion, which was a responsible one. We will deal with that motion again. We did not want to score any political points at that time. We wanted to propose something worthwhile for the working people. In that the Government are at fault. It was not the Arabs who refused that motion. They had nothing to do with it. The Minister is now responsible for the fact that these people are unemployed.
It is very difficult to reply to the Minister. He was not here for the debate. He has been ill-advised about what was said or else he came in with a prepared statement to cover everything. The speeches made from this side of the House were very constructive and I must compliment Members on the other side. I thought they were brilliant in trying to explain away the situation. I was very impressed with their courage. But they did not convince anybody. I wanted to deal with broken promises. I wanted to deal with the wealth tax which has frightened money out of the country.
The Senator was right not to deal with wealth tax.
The Minister replied in a fashion which suited himself. Perhaps there is a good reason why he was absent today. We were prepared to wait until next January. He has said he is prepared to have a debate anytime. That is very generous of him. We need only to set the date. I would suggest three days in January. By the end of a three days' debate, I am sure the Minister will know how to handle the economy.
Remarks were made about the construction industry. Senator Hanafin may not understand that, in an inflationery situation—forget about oil prices—many large employers, who have set their sights on building projects within their plants which might give work to people for two to three years, if those projects are not directly related to the production of the commodity they intend to produce, they do not carry them out.
The reason they cut back is that they borrow money and, in an inflationary situation, when you borrow money you borrow it at a higher rate over a shorter period of time. There is evidence of this in newsletters issued by some industries. They have set their own ideas in motion about how to deal with the question of cutting back on spending. They are playing a major role in keeping down employment in the construction industry. The Confederation of Irish Industry regularly tell us that unemployment increases in the winter months. In January, 1972, which was considered a boom time, the unemployment figures were 72,000. I quote from a confederation newsletter:
The rise in raw material prices has had a drastic effect on the cost of Irish industry and one over which we have no control. The Organisation for Economic Co-operation and Development (OECD) has singled out the 93 per cent commodity price rise during the past year as the greatest single component in the industrial world's inflation.
While Fianna Fáil were in Government the IDA grants were £18.7 million and that investment produced 8,700 jobs.
While this section is probably the widest one that occurs in any Bill it is still not wide enough for Second Stage speeches and the Senator should resist the temptation to make such a speech. On Committee Stage individual points are raised and these points are debated and disposed of. It would not be appropriate for a large number of points to be brought before the House at the same time.
I accept the ruling of the Chair. Senator Dolan may have been unfortunate in getting only a little over three minutes but I got no time at all.
One matter I should like to raise is the question of the alleged inability of the Government to cope because of what has been described as the "oil crisis". The Central Bank, the main financial agency of the Government, and the Governor of which is a very respected public servant, emphasise the total fallacy, that by reason of the oil crisis we imported inflation. The Central Bank told us that it is the basic cause of our trouble. It is a cause, a substantial cause but I would rate it, and this has been stated by the Central Bank also, as being 50 per cent of the cause of our trouble. I should like to quote a paragraph from the report of the Central Bank and I ask the Minister if he would agree with the statement spelled out in that paragraph:
It is a fallacy, even for the open Irish economy, that inflation is due more to external than internal causes and that it is beyond our power to curb or control it. If this were true, and the only armoury a country had against a mainly imported inflation was price control, the situation would be a very sorry one. Price control, as is obvious can prevent only "unjustifiable" price increases: those justified by increased cost of imports or of home products and services it can do nothing about.
It is accepted that we must meet serious problems such as the current oil imports situation but when that situation hits an economy that is going helter-skelter on a blatant inflationary course caused by Government budgetary policies of 1973-74, we reach a serious crisis. When I stated earlier that the Government spent lavishly in 1973 I was taken to task by Senator Halligan.
Massively increased expenditure, allied to deficit budgeting and to a non-recognition of the danger signals that were present meant that we proceeded into a paper money situation. The social welfare increases granted sounded well on paper and coming out on the Government Information Services propaganda machine, but in the terms of what they could buy those increases were rapidly eroded by inflation and price increases. That inflation which preceded the oil crisis is basically the cause of our inability to face up to the oil and energy problem as every other Western European country is doing to a far more successful degree. The social welfare increases given were not increases at all and this is what I meant when I referred earlier to "political consmanship".
Of course, social welfare increases are the objective of anybody who thinks seriously about society. We must look after the less well off sections of our society; but when these increases cannot buy what they are meant to buy by reason of inflation caused by budgetary policies this represents the basic dilemma we find ourselves in. It represents an inability to face up to the very serious oil crisis. I am well aware of the recycling of finance which is part of a course every western European country and North American country is engaged in. They are seeking to get this Arab finance because they cannot cope with their surplus problem any more than we can cope with our deficit problem.
In my view the world finance mechanism is on the way to getting round that problem. In this regard Senator Halligan has given us an elementary treatise on what we all know about. Every EEC country is engaged in this but that is not what I am talking about. I am talking about the underlying cause of our present trouble which has been the basically euphoric attitude adopted by the Government immediately on their election. This has resulted in deficit financing, massive deficits on balance of payments and an attitude towards governing the public finance, which in my view, is nothing short of immoral. It is immoral because it raised expectations on the part of the people out of all proportion to the ability to deliver to them in terms of people of all categories having money in their pockets to buy what they wanted.
This has been aggravated by a doctrinare approach on the part of the Government, on the part of certain members of the Government, in particular, which has sought to imply that there are rich people to be milked here, that profits are immoral and in some way there is an answer in a socialist bid. I far prefer the approach of Senator Harte, who told us that it was employment that counted. I would far prefer the sort of practical approach one gets from trade unions, and from Fianna Fáil, that what one wants to achieve is a situation where there are as many people at work as possible. That objective has been cynically disregarded in the construction industry, as Senator Halligan pointed out, by ignoring a very positive remedy which we offered in the last Finance Bill to cycle moneys into the building societies by allowing the first £5,000 invested in such a society free of tax. We also have the Governments inability to create more jobs in the mining industry instead of getting bogged down in legal wrangling.
Although this is sub judice I was glad to hear what Mr. John A. Costelloe in conducting the case said and how he referred to the incompetency of the present Minister for Industry and Commerce.
His predecessor was challenged also.
This sort of dithering and indecision in an area of tremendous potential and productive employment such as the mining industry is nothing short of scandalous. All of that, allied to the massive document we received this morning on the capital gains tax, allied to the balloons that have been floating up and down in regard to the wealth tax, in an era when this country is crying out for investment and needs positive productive investment has led to a situation where money is not as interested as it used to be. What Governments worked for for 50 years in establishing the creditability of Ireland is in jeopardy and the sooner we set about rectifying that situation by making proper budgetary policy, by making sure incentives are offered to ensure investment here instead of offering disincentives, the sooner we go about being pragmatic in regard to sterling and right across the board the better.
There are too many people in the Government with doctrinare attitudes. The whole approach must be, and should be, what is good for Ireland; and what is good for Ireland in the present climate is more investment. We will not get that investment by bringing in deficit budgets, by having deficits to the tune of £300 million in our balance of payments, by floating wealth tax balloons, by bringing out massive capital gains tax legislation documentation or by creating the impression that we are total amateurs. We are talking about taxing something we do not have. What we want is an incentive economy at every level. This is what is missing and has been eroded in 18 months after years of effort by many Governments, and the IDA, to attract investment here.
That has all been eroded in 18 months in certain areas and in particular by the Minister for Industry and Commerce in regard to mining development, by the Minister for Finance in regard to many of his taxation proposals and in general by the Government as a whole by reason of their budgetry policy, and above all else by the inability of the Minister for Local Government to in any way come clean with regard to the construction industry which is basically the whole barometer of economic development and progress.
Could I give a short explanation on a matter raised by Senator Hanafin in connection with the time regarding the debate? In fairness to the Minister and to others who are concerned with that decision, I should give a short explanation, if Senators would bear with me. I want to repeat that the Minister has nothing whatever to do or to say with regard to the agreement to finish the Second Stage discussion, or, rather to allow him to begin his reply at 4.30 p.m. today.
What happened was that Members of Senator Hanafin's group and, I think very rightly, suggested earlier this week that we might adopt the procedure that was adopted in other years, namely, that we would pass the Appropriation Bill without any discussion and have a debate on a motion early in January. Unfortunately, the timing of that this year just would not work out and for two reasons: first, the Minister is in extreme difficulties, under extreme pressure with regard to commitments, and, secondly we were, for the first time, up against a budget date of 15th January. Senator Lenihan, very rightly, when the matter was first discussed pointed out that we could not expect the Minister to come in a week before the budget and consequently if this procedure was to be arranged it would have to be on the 1st or 2nd of January. It was not possible to provide for that. The Minister was prepared to take the Bill the minute it came out of the Dáil and Senators will remember that on Wednesday of this week we made provision in our Order of Business for taking the Appropriation Bill that evening when it left the Dáil, but, unfortunately, the other business was not finished on Wednesday to permit us to do that.
This morning I had a short discussion with the Whip of Senator Hanafin's party. I mentioned that I was not pressing the view but I inquired if it would be possible to arrange for the Minister to get in at a given time. I made the same suggestion to Senator Lenihan and, again, I preface my remarks by saying that I was not pressing the matter because I take the view, and I always have, that this debate in particular is one in which the Opposition party should to some extent control the situation because it is their opportunity to discuss general matters. It was discussed and agreed that it would be good to allow the Minister in at 4.30 and to cut out any lunch break. That was agreed and the Minister had nothing whatever to do with it. I think in fairness to him I should make that quite clear. I think I have reported the position to the House as fully and as honestly as I can.
I am not going to make a speech, you will be glad to hear, but I do have a specific query that I should like the Minister to answer. He has now agreed, both in the Seanad today and in his White Paper called "A National Partnership" that the adverse balance of payments deficit would be in or around £300 million this year. Obviously this is an enormous deficit and I am sure the Minister would agree with me that in the absence of a very large in-flow of capital from abroad we would be facing absolute disaster. Quite clearly, in the absence of such borrowing our reserves would disappear very rapidly and we would be unable to import all the goods that we need to keep our country going. The amount and the nature of this capital inflow are very important and the Minister has said with some pleasure from time to time and has pointed out that the external reserves are now somewhat higher than they were 12 months ago. This, of course, is an illusory figure to a considerable extent because owing to the general effect of inflation and so on they now amount only to enough to cover 3½ months imports, whereas just two years ago, in December, 1972, they were sufficient to cover six months imports. So, in real terms, one could say they are half what they were. Nonetheless, they have held up fairly well in all the circumstances. In his White Paper called "A National Partnership", in page 25 he says:
More than half of the inflow is accounted for by borrowing by the Government and by semi-State bodies.
I would be interested to know what the precise figure is. It seems to me that while more than half does, in fact, include figures such as 90 or 95 per cent, if these are the amounts—I think they are—it would have been more candid to put it that way rather than to say more than half, which could be, after all, 51 per cent.
As I understand it from the Central Bank report of last summer, in the first six months of 1974 the Government and the semi-State bodies borrowed abroad a sum of £150 million. I would be interested to know, first of all, what the total for 1974 for both Government and semi-State bodies is and, the proportion it bears to total capital inflow and how much of it is public borrowing abroad and how much of it is what one would describe as a genuine long-term capital inflow to the IDA and so on. Secondly I would like to know what kind of balance of payments does the Minister envisage allowing to take place next year? Clearly we must reduce it. We cannot do it overnight but we must reduce it over a period in a planned way. I should be interested to know what the Minister's forecast is and what his fears are for the prospects of continuing to borrow these very large sums abroad.
I want to make three observations. First, in relation to the Central Bank's analysis of inflation, I want to say quite categorically I do not accept a word of the analysis. I disagree with it. I think it erroneous and false and absolutely misleading in present economic circumstances. I simply repeat what I had to say this morning about the state of the economic theory in respect of inflation and to advise against the glib theories— I repeat the word "glib" advisedly— which were being put forward by the Central Bank and which were propounded by the Leader of the Opposition here on Committee Stage.
We would be far better off if we were to engage in the sort of theoretical examination of the situation such as was recently conducted by the Statistical and Social Inquiry Society. Three papers on the causes of inflation were presented. They were reported extensively in the business section of one of our national newspapers. Two of the contributors were contemporaries of mine in college and I know them to be economists of great worth. One of them put forward the view that, perhaps, it was impossible to control not only half the inflation domestically as the Central Bank suggested but, perhaps, impossible to control any of it because it was all externally induced, either directly or indirectly. It is a viewpoint. I am not saying I agree with it but I am simply saying that such is the state of flux in this particular area that people are putting forward this point of view.
I refer to the views of the President of the Royal Economic Society, carried in the current issue of the Economic Journal, where the question of external borrowing has again arisen. I want to refer to the business section of The Economist of 7th December, 1974, which is available in the Library, particularly in relation to the impact which the Arabs have had on the world economic situation and not only that—this is the point that Senator Hanafin is raising—but also the very serious political consequences for that unilateral action taken this time last year when we had a 380 per cent increase in the price of oil. I should like to give a very brief quotation from page 85 of that issue. It says:
The money left over to the oil barons of the Organisation of Petroleum Exporting Countries after they have paid for all their imports and for the harbours, oil refineries and other baubles being built in their countries for them by foreigners, is running at about 60 billion dollars a year, that is 7 million dollars an hour or 115,000 dollars a second. The world now has multi-billionaires who every year could buy the entire wealth of the oil-created Rockefeller family 60 times over. They are not spending enough of their money and are thus causing financial havoc... financial havoc on an international scale.
It is within the context of that that we have to evaluate now the first faltering steps by governments in the West to make new financial arrangements with these enormously economically powerful countries. They are not only enormously powerful economically but, as this particular article concentrates on, enormous politically also. As I said earlier today, they are now earning money at a rate where in 15.6 years they will be able to buy out every company on all the world's major stock exchanges. The New York stock exchange could be bought out by 9.2 years at their current rate of earning. All Britain's industrial assets could be purchased within six years at their current rate of earning. A company such as Exon could be purchased with just 74 days of their earnings. In fact, a company the size of BP, which is so evident in North Sea exploration, could be purchased in 15 days and the personal wealth of the family of Rockefellers in six days.
That is the size of the economic giant with which we are now dealing. I repeat the Minister's point that, in extending our financial links with this new economic, financial and political giant contained in the oil producing countries, any effort on our part to recycle these moneys should be greeted with approbation. If there are criticisms of the new arrangements being made, I think it should be borne in mind that we are starting de novo and the issue is one in a very difficult area indeed. One should, if one has a criticism to offer, offer it with circumspection. I say this particularly to Senator Hanafin, whom I know is quite genuinely motivated in seeing to it that this country gets its fair share of this enormous potential wealth.
We must also be extremely careful, while attempting to secure the recycling of this money, that the western world, and ourselves in particular, do not place ourselves "in hock" to the Arabs. That is the political problem with which we are now confronted. The United States Government has had to warn off Arab investment, particularly in certain sensitive areas—in relation to defence for example. The Government of Federal Germany has suffered acute embarrassment by the purchase of a 14 per cent share of Daimler-Benz. All of us must be aware that what we are doing has not only got enormous economic and financial overtones but highly important political ones as well.
The extent of this power is that in 15 years the industrial wealth of the world on the stock exchanges of the world could be purchased by these people. I regret very much that such enormous wealth, which has literally been achieved overnight by a change in the terms of trade, can be almost dismissed by people like Senator Lenihan as not being at the root, the heart and the core of the world's economic problems.
I did not say that.
If that does not constitute——
I want to repudiate a falsehood. I did not say this.
Is the Senator yielding to Senator Lenihan?
I am not. I am sick and tired of yielding to Senator Lenihan on interruptions.
Senator Halligan is treating us as if we were a lot of school children.
Senator Lenihan is merely smarting under the fact that he made a faux pas of the worst order today when he described social advances as goodies—something for which he was chastised continually from this side of the House. He knows that he made that error this morning and he has not got over it yet.
The Senator is a childish sort of man. He gives me a pain.
I can assure the Senator the pain extends across both sides of the House. With respect to mining there has been, both on Second Stage and on Committee Stage, criticism of the Minister for Industry and Commerce. I should like to make one point, particularly for the Members of the Opposition. Whenever I begin to have doubts at the back of my mind —and one must have doubts constantly about what one is doing—about the strategy which my party adopted in respective Governments, I can only say that my resolve to see a continuation of this Government is constantly reinforced when I hear the type of approach which has been advocated, particularly in respect of the mining industry, by the Opposition here today.
We are dealing with a wealth whose value we do not know. It may be far greater than that which has been estimated on the world stock exchanges. It is absolutely essential, not only in relation to mineral resources but also to oil and gas and underwater minerals, that we are as vigilant in securing for ourselves a proper share of that wealth as our friends in the OPEC countries or our friends in Zambia in respect of mineral development and of state control over the resources and relationships with the countries involved.
Since Senator Halligan has for the sixteenth time raised this question of goodies, we should try and make it clear to him what one means by referring to handing out goodies. I cannot speak on the line of semantics which my colleague, Senator Lenihan, might take; I suspect it would be the same as mine. One can talk in terms of goodies when a Government hands out social benefits, as we would all like to do, without asking the people to pay for them in some other way. If the people want to have improved social services and so on, they must expect to pay for them.
I know Senator Halligan will say that this means I am taking an old style conservative approach; that you must balance a budget. I am not saying that. I accept completely that there are economic circumstances in which an unbalanced budget can be proper. What I am saying is that there is nothing more dishonest or dangerous for the future of a country than for a Government to refuse for political purposes to balance their budget. That is the charge the Fianna Fáil Senators are making: that for political purposes the present Coalition Government handed out goodies to people, at the same time cutting taxation, not because they thought this was in the interests of the country.
I hope Senator Halligan is clear on this matter. We do not look upon the handing out of goodies at budget time as wrong. Indeed "handing out" is the wrong term. No politican has the money to hand out. He is asking the people to hand out the money. The present Government have told people that they can have everything they want and that there is no need for increased taxation—that it is possible to get benefits and at the same time have lower taxation. That is quite wrong. Politically speaking, it does not pay. The Government will find in the next few months, because they conveyed this impression, that the disgust of the people will be all the greater when they find they have been codded.
I want to say once again that it appears to the Chair that the purpose of Committee Stage is to enable attention to be focussed on particular points and for progress to be made in consideration of legislation by dwelling on these points. The debate we have had has been a very wide one. That is because of the very wide nature of the general section of the Appropriation Bill, but it also has been a very diffuse one. This is not permissible even on as wide a section as the one we are discussing at the moment. I would ask Senators to endeavour to focuss their contributions more sharply than has been the case in some recent contributions.
I intend being very brief. I want to assure Senator Halligan and the Minister for Finance that the economics of the recycling of finance from the oil producing world to the oil consumption world are so elementary that there is no need to treat Senators to a lecture on the subject. The surplus funds of the oil-producing world must now be transferred to the oil-purchasing world to prevent an impossible situation from arising where the non-oil producing countries would have no purchasing power. I am sure the Minister for Finance will play his part, along with other OECD countries, in ensuring that this is done as expeditiously as possible and with minimum cost to the oil-consuming countries.
Senator Hanafin's point—Deputy Haughey made it also in the other House—was to (a) the inadequacy so far of what we have been able to secure from this resyphoning fund, and (b) the method by which we obtain this money. There should be included a proper protection clause against fluctuating currencies. A protection clause is an elementary part of any deal but I trust that in this instance there will be the greatest possible degree of protection and that the Minister for Finance will succeed in getting more money from this whole recycling of funds.
That aspect is not the point of this debate: it is a matter of general world interest at the moment. The point of this debate refers to the section we are dealing with, section 2 of the Appropriation Bill, 1974. This section is concerned with the appropriations relating to expenditure by the Government. The resyphoning of funds is a world problem. It is hitting every Western European country. Apart from that our main criticism is that there has been a basically immoral public attitude on the part of the Government since March, 1973, by reason of the budgetary attitude adopted. Everybody thought the budgets of 1973 and 1974 were great budgets, but the psychology of those budgets was aimed at building up expectations beyond all hope of achievement in realistic terms. The result is that we are pursuing inflationary policies.
It has been a hard and fast rule over generations that when a Government are successful in an election they embark on a constructive scheme during three or four years to gradually work up to a pinnacle of prosperity. On this occasion the Government, obsessed with popularity brought in popular budgets within weeks of taking office. Not content with that, they brought in another popular budget last year in the middle of the oil crisis. This has been a major contributory factor to our present problems. The author of that view is not me but Dr. T.K. Whitaker, Governor of the Central Bank. It is all in the Central Bank Report.
Whenever we have a Coalition Government in power they are always able to rake up a scapegoat abroad to excuse their failure at home. They either blame the difficulties on the Koreans or on the Egyptians. The Arabs have been a godsend to the Coalition. Oil is a contributing factor to our economic problems but, as Senator Lenihan rightly stated, when the Coalition took office they were power-drunk. They did not have the courage to introduce a budget which would pay for services on a gradual basis. The same happened the following year. Nearly every month the Government are introducing new taxation. They have taken steps in the past three weeks to collect nearly £50 million. I would expect the Minister, seeing that he has collected £27 million from petrol—he has given various reasons for this tax, one being that he did not want people from Northern Ireland buying petrol here although he professes himself to be friendly with the people of the Six Counties—to devise some policy whereby some of that money would be used to produce an alternative energy to oil. There are coalmines, particularly those at Arigna, which could be extended. At Arigna a second coal-burning station could be erected. The Minister could devote specific grants to each county council under a bog development scheme to provide roads and so enable the people to bring out turf. That would save coal imports. These are practical suggestions which the Minister should consider. The people will get tired of hearing about the problem of the Arabs and they will be able to point their finger at the real culprits—the Government.
Is the section agreed to?
There were at least one or two fairly clearcut questions to which I should have liked the Minister to reply.
There were also some Senators who did not want a reply. However I shall deal specifically with Senator Yeats's questions. First, the Seanad will appreciate that the yearly financial accounts have not yet been completed. The anticipated borrowing abroad this year by the State will be £138 million and £40 million in respect of semi-State organisations. Private investment in Ireland in the same year— this is money coming in from outside —is estimated to be £10 million. As the Seanad knows, at the end of the most turbulent year in world markets, particularly in the financial world, our reserves are £50 million higher.
This morning, Senator Lenihan made play of the high proportion of domestic products which is represented by the size of our current deficit. I refer Senators to the fact that the Government have very openly and unusually acknowledged this in the White Paper, A Partnership. I commend Senator Lenihan for having read it. If all his colleagues had read it they might not have made some of the statements they did. It is a very interesting and significant document because the Government spell out in unambiguous language precisely what the factual economic position is. The interesting thing is that there is no fact in that document which has been disputed by anybody yet. As we emphasised, the deficit represents about 10 per cent of our gross national product.
We also point out that it is a smaller percentage of our reserves than the deficit in many other European countries. We are quite high in the reserve league. We have a safe reserve margin. This, coupled with the very significant foreign borrowing, should give us courage and should promote activity in this field. We have no need to be apologetic for borrowing in the present circumstances.
In so far as Ireland is concerned, the balance of payments deficit represents 64.1 per cent of our external reserves. In Denmark, their balance of payments represents 125.3 per cent; France 75.9 per cent; Italy 165.6 per cent; Britain 130.4 per cent of their external reserves. What are external reserves for, except to use them in a time of economic difficulty.
Not if they represent Government borrowing.
In part, Government borrowings. If we did not succeed in making these borrowings, our external reserves would go down. We have not only a right but an obligation in times of difficulty to use external reserves if money is not available from any other source. People must realise that this is not a shocking or reckless thing to do. It is the sane and sensible thing to do. We have rights of drawing from the International Monetary Fund. We have rights of access to other international funds. If circumstances so require we will use those rights, for which we have paid over the years. These rights have been exercised by many other countries including——
Page 24 of the Minister's document is much more pessimistic.
——several countries that have much greater wealth than we have. I am not saying we are going to do these things. If we can borrow as we have so successfully borrowed on the open market, we will continue to do so.
I have decried any efforts made, perhaps in innocence, to question this policy or the mechanism that we used. It is exceptional now—perhaps it does not exist at all—for any guarantee to be built into a foreign loan against exchange risk. Even if a person were to get that guarantee, he would pay very heavily for it—an interest rate of another 4 per cent or 5 per cent——
He would not have to pay £4 million.
——above the rate at which he had borrowed. If one were to borrow today in sterling, one would be paying a rate of about 15 per cent. Long-term money for sovereign Governments is now costing as much as 16 per cent and 17 per cent. Where one gets a loan at a low rate of say, 9 per cent, there is no possibility of getting, from any person with sanity, a guarantee against exchange risk. The loans we have received are in terms and in duration, much better than those made available to several other countries that might be regarded as being in a more favourable situation than ourselves.
The protection is quite normal.
In the money market of the oil producing world this is a tentative approach. It is a new market. It has developed only in the last year. I can tell the House that there is a long, long queue of sovereign countries looking for money from that quarter. Many of them have been refused. We have received in a very short period £22½ million. We have every reason to be grateful to the people who made such a sensible assessment of the Irish economy when they had so many other economies on offer to them. The fact that Ireland received money at the commencement of this new movement in the international monetary field is something of which we should be proud. We should not be denigrating the loan in any way. I would urge on Senator Hanafin to look at The Financial Times, or any other journal, and he will find that what I say is true. Loans of this kind are not made available today by anybody with guarantees against exchange loss. Even if there were or had been at any time such a guarantee, one would have had to pay very heavily for it by paying a much higher interest rate. I do not accept Senator Hanafin's figures at all.
I should like to continue on this limited question. I accept that in present circumstances we must borrow. I am not as pleased as the Minister for Finance seems to be about the number of people lending us money. One thinks of the business man, whose company is in a rather poor situation, boasting when his bank manager lends him so much money that he must be a good risk. The Minister quoted figures from Table 16, page 24, of his White Paper. The figures he quoted were correct but they were not the important ones. The important column in that table is the one to the left of that quoted where it shows that our present external balance is no less than 10 per cent of our total national income. This is an enormous proportion and is a major weight on the national economy.
In terms of national income, our external balance of payments deficit is one-third more than that of Italy, a country generally regarded as being in the last stages of bankruptcy. It is almost double that of England, whose balance of payments problem we all know to be exceptionally severe. We can only look on our balance of payments as a very serious matter. It cannot be glossed over by cheerful remarks about all the nice, kind, people who are lending us money. Those nice people, particularly those kind international organisations, will not continue lending us money unless our Government can make it quite clear that our present balance of payments deficit will not remain as it is. An ordinary bank manager will tell you that you must cut your overdraft. These people will tell us quite clearly—I am sure the Minister will accept this—that we must, over a limited period, year by year, cut our balance of payments considerably. I accept that we cannot eliminate our balance of payments, taking into account the price of oil. They will not continue to lend us money except on the basis that we show a willingness to reduce our balance of payments. I would be interested to know what, in the Minister's view, would be an acceptable level of balance of payments deficit for next year. It is £300 million this year. Has he thought about what would be an acceptable level for next year?
With regard to the figures of public and private imports of capital in the last year: £168 million for public and £100 million for private adds up to £268 million. On a balance of payments deficit of £300 million and a £30 million increase in our external assets there is a gap of £70 million. There must have been an inflow in 1974 of about £330 million. I can accept what the Minister said that the account is not yet in. There seems to be a very large amount of public or private imports of capital that has not yet been listed. Has he given any specific thought to the question of what would be an acceptable balance of payments deficit next year?
I would not at this stage put a specific figure on it. The White Paper spells out in considerable detail what we intend to aim at in 1975 by way of balance of payments. There is a world decline in commodity prices which is exceedingly welcome. We hope for more stability in oil prices. It would appear presumptuous to think that they would fall significantly. We are anticipating a further growth in our industrial exports and a very substantial improvement in our agricultural exports both in value and volume. These things will quite significantly bring down the size of our balance of payments deficit.
The balance of payments deficit this year has risen for a number of reasons, primarily due to the oil crisis and also due to the massive increase in commodity prices for many basic commodities. About £130 million is due to oil, £70 million to £80 million due to the price rises in basic and general commodities. If those two things were eliminated the balance of payments deficit would be quite near to what it was in 1973, which was regarded as a very tolerable level. On the other side of the equation we have the disappointment in agriculture. The anticipated rise in agricultural exports both in value and volume did not emerge in 1974 but will certainly emerge in 1975.
These factors will all point to a significant diminution in the size of the balance of payments throughout 1975. The White Paper records that it is the Government's intention to bring about this reduction over a period of years, probably seven years. In the meantime we will borrow to meet the deficit. This will be the pattern of all properly managed western economies: to borrow so as to prevent disaster which is the only alternative to borrowing in this unique situation.
I do not think the Minister's reply is adequate. He refers to his White Paper. The only reference I can see in the White Paper about next year's balance of payments is in page 28, paragraph 72:
The deficit on current account of the balance of payments is expected to show some improvement on the record deficit of the order of £300 million forecast for 1974.
"Some improvement" is a rather vague term. We also have to consider the document prepared by the secretariat of the National Economic and Social Council, which suggested that we could expect a rise in the balance of payments next year. This was on the basis—quite clearly intenable— that there would be no rise in incomes during the year, that there would be no 16th wage round. Of course, there will be one. They suggest that, if the 16th round were to be, as has been suggested, a basic cost of living allowance plus 5 per cent—it does not seem likely that anything much less than that would be acceptable—they say that the balance of payments would suffer to the extent of a further £95 million.
That is domestic.
Assuming this is correct it makes one wonder whether the Minister is correct in saying that the balance of payments would show some improvement. One certainly hopes it will. The recently issued figures for trade for November suggest that there may be a considerable temporary improvement in the balance of payments because of the appalling fall in imports— apparently a fall of 15 or 20 per cent in volume due to lack of demand. If cuts of this order were to continue we would have a very large unemployment alongside a rapid improvement of a temporary nature in the balance of payments. I am sure that is not the type of improvement the Minister nor we would want to see.
I would have expected to see in the White Paper something much better than merely the suggestion that the balance of payments is expected to show "some improvement". The Government ought to think in terms of —for the same argument—£50 million this year and £50 million next year off the balance of payments. It is an argument which could work both ways. If the heavy falls in imports continued the Government would have to reflate in order to ensure that the balance of payments did not go below that. Some target ought to be set and made known and then Government policy in the budget and other ways adjusted up or down as the need might be, so that we reach that target. It is not enough to say that, with a bit of luck, there will be some improvement and leave it at that. That is not satisfactory. I am sure our foreign lenders will approve of that. The Minister may have serious problems.
I cannot anticipate what my budget may or may not contain. The report which the Senator refers from the Secretariat of NESC emphasised that it was basing its assumptions upon no change in financial and economic policy, just a standstill. That is an unreal assumption, with respect, but they have had to start at some base. A reasonable assumption would be that in this year of great change there will be changes.
One advantage of this debate perhaps has been that we have an unique opportunity three weeks before the budget to suggest to the Minister what he might do.
Question put and agreed to.
Section 3 agreed to.
Schedule agreed to.
Title agreed to.
Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.
Before adjourning I take the opportunity to extend to all Members of the House and to the staff of the Seanad, very best wishes for Christmas and also for a happy New Year and for the Seanad we hope, a fruitful one.
The Seanad adjourned at 6.25 p.m. sine die.